EXHIBIT 10.18
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of March 30, 1996, by and between Xxxxxx Xxxxxxxxx,
M.D. (the "Executive") and U.S. Healthcare, Inc., a Pennsylvania corporation
("U.S. Healthcare" or the "Company").
WHEREAS, the Board of Directors of the Company (the "Board") and the
Executive each desires that the Executive continue to furnish services to the
Company on the terms and conditions hereinafter set forth; and
WHEREAS, the parties desire to enter into this agreement setting forth the
terms and conditions of the continued employment of the Executive with the
Company;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth below, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions
hereinafter set forth.
2. Term; Parties. (a) Term. The term of this Agreement (as extended from
time to time, the "Term") shall commence on the date (the "Effective Date") of
execution of the Agreement and Plan of Merger (the "Merger Agreement"), dated
March 30, 1996, by and among the Company, Aetna Life and Casualty Company
("Aetna") and Butterfly, Inc. ("Parent"), and shall end on the fifth
anniversary of the consummation of the merger contemplated by the Merger
Agreement (the "Merger Date") or, if such merger is not consummated, the
Effective Date, unless further extended as provided in this Section 2 or sooner
terminated in the event that Executive's employment is terminated pursuant to
Section 6. Commencing on the fifth anniversary of the Merger Date (or, if there
is no Merger Date, on the fifth anniversary of the Effective Date) and on each
such subsequent anniversary, the Term shall automatically be extended for one
additional year unless, not later than 180 days prior to such anniversary, the
Company or the Executive shall have given notice not to extend the Term. The
giving by the Company of a notice not to extend the Term shall not constitute a
termination without Cause or a termination for Good Reason (each as defined in
Section 6).
(b) Parties. On and after the Merger Date, this Agreement shall be assigned
to and assumed by Parent and all references herein to the Company shall mean
Parent. On and after the Merger Date, to the extent that the Executive's
employment is with U.S. Healthcare or Aetna, the obligation of the Company
hereunder shall include the obligation to cause U.S. Healthcare or Aetna to act
in accordance with the terms hereof.
3. Position and Duties. Prior to the Merger Date, the Executive shall
serve as an employee of U.S. Healthcare with the title of Chief Medical Officer
of U.S. Healthcare, shall report directly to the Co-Presidents and shall be
responsible for all medical matters relating to the lines of business and
operations of U.S. Healthcare (including but not limited to all HMO, POS,
indemnity health insurance and other lines of business and operations, the
"Business").
From and after the Merger Date, the Business shall also include all of the
domestic (U.S.) lines of business and operations of Aetna Health Plans
(including but not limited to all Health, Specialty Health and Group Insurance
lines of business and operations), and the Executive shall assume a similar
position and similar responsibilities in matters relating to the Business
except as may otherwise be mutually agreed upon between the Executive and the
Co-Presidents of the Business.
During the Term, the Executive shall report directly and exclusively to
the co-Presidents of the Business. The Executive agrees to devote substantially
all his full working time, attention and energies during normal business hours
to the performance of his duties for the Company, provided that the Executive
may continue to participate and engage in activities not associated with the
Company consistent with the Executive's past practices at U.S. Healthcare.
4. Place of Performance. The principal place of employment and office of
the Executive shall be in Blue Xxxx, Pennsylvania, ox such other location as
may be agreed to in writing by the Executive.
5. Compensation and Related Matters.
(a) Base Salary. As compensation for the performance by the Executive of
his duties hereunder, the Company shall pay the Executive a base salary at an
annual rate that is no less than the Executive's annual salary rate for 1996,
including any deferred compensation and interest
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or earnings on such year's deferred compensation under the Company's current
deferred compensation program (such amount, as from time to time in effect,
hereinafter referred to as "Base Salary"). Base Salary shall be payable in
accordance with U.S. Healthcare's normal payroll practices, shall be reviewed
annually and may be increased upon such review. Base Salary, once increased, may
not be decreased.
(b) Annual Bonus. The Executive shall be entitled to an annual bonus upon
the attainment by the Company, U.S. Healthcare and/or the Business of
reasonable performance goals, established in accordance with the past practice
of U.S. Healthcare. The Executive's target bonus shall be equal to 80% of Base
Salary, with appropriate increases or decreases upon the attainment of
specified levels of Company, U.S. Healthcare and/or Business performance (such
bonus hereinafter referred to as the "Annual Bonus"); provided, however, that
with respect to fiscal year 1997, in no event shall the Annual Bonus be less
than 100% of target. If the Merger Date occurs during the fiscal year
commencing in 1996, the Company shall pay to the Executive for such 1996 fiscal
year 100% of the bonus which he would have received for the entire 1996 fiscal
year as determined by U.S. Healthcare.
(c) Sign-On Bonus. Upon the Merger Date, the Company shall pay the
Executive, in cash, an amount equal to the sum of (i) the Executive's
then-current base salary (including deferred compensation and interest or
earnings on such year's deferred compensation) and (ii) the aggregate value of
the annual bonus paid or awarded (in cash and in shares of U.S. Healthcare
common stock) to the Executive in respect of 1995, or, if the Merger Date is
subsequent to December 31, 1996 and if the aggregate value of the annual bonus
so paid or awarded to the Executive in respect of 1996 is higher, such 1996
annual bonus (the sum of such amounts, hereinafter referred to as the "Sign-on
Bonus").
(d) Stay Bonus. The Executive shall be granted, as of the Merger Date,
that number of restricted shares of common stock of Parent ("Parent Stock")
which, when multiplied by the average closing price per share of Parent Stock
on the ten trading dates immediately following the Merger Date, shall be equal
in amount to the Sign-On Bonus. (the "Restricted Stock Award"). The Restricted
Stock Award shall be granted pursuant to a plan (i) that meets the requirements
of Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) the terms of which are acceptable
to U.S. Healthcare and (iii) the shares of Company stock reserved for issuance
under which shall be registered in a
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timely manner on a Form S-8 (the "Plan"). Notwithstanding any provision of this
Agreement to the contrary, the Restricted stock Award shall become vested (i.e.,
all restrictions with respect thereto shall lapse) on the earliest to occur of
(x) the second anniversary of the Merger Date, (y) a "change in control of
Parent" (as defined in the Plan) following the Merger Date, or (2) upon
termination of the Executive's employment by reason of death or Disability (as
defined in Section 6 hereof), by the Company other than for cause (as defined in
Section 6 hereof) or by the Executive for Good Reason (as defined in Section 6
hereof). If the Executive's employment is terminated by the Executive without
Good Reason or by the Company for Cause prior to the second anniversary of the
Merger Date, the Restricted Stock Award shall be forfeited in full. The
Restricted Stock Award shall be subject to all other terms and conditions of the
Plan, the rules and regulations thereunder, the applicable provisions of this
Agreement and the document evidencing its terms and conditions reasonably
acceptable to Executive. The Restricted Stock Award is in addition to any other
equity award made to the Executive under paragraph (e) of this section 5 and
shall not be offset against or reduce such award or any other award, benefit or
amount due under this Agreement.
(e) Future Equity Grants. In addition to the Restricted Stock Award made
pursuant to subsection (d) of this Section 6, the Executive shall from time to
time be granted stock options and shares of restricted stock or other
equity-based awards (collectively, "Equity Grants") on a basis no less
favorable than such grants are made to similarly situated senior officers of
the Company. Without limiting the generality of the foregoing, if the Merger
Date occurs after Parent has granted awards in respect of calendar year 1997,
the Executive shall be entitled to receive an Equity Grant in respect of 1997.
(f) Expenses. The Company shall reimburse the Executive for all reasonable
business expenses, subject to the applicable policies and procedures of the
Company then in force.
(g) Vacation. The Executive shall be entitled to 20 vacation days and that
number of personal days and holidays as is consistent with U.S. Healthcare's
current practices (including, with respect to up to the greater of 25 days or
the number of days the Executive has accrued at the Effective Date, cash
compensation in lieu thereof upon termination ox expiration of this Agreement)
or, if more favorable to the Executive, in accordance with the policies
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applicable generally to senior executives of the Company or any of its
subsidiaries.
(h) Services Furnished. The Company shall furnish the Executive with
appropriate office space and such other facilities and services as shall be
suitable to the Executive's position and adequate for the performance of his
duties as set forth in section 3 hereof and on a basis at least as favorable as
in effect immediately prior to the Merger Date, such office space and other
facilities and services to be furnished at the location set forth in Section 4
hereof.
(i) Other Benefits. The Company shall provide to the Executive such
employee benefit plans and arrangements as are generally available to senior
officers of the Company and its subsidiaries, including but not limited to
retirement benefits, group life insurance, medical and dental insurance, and
accident and disability insurance, which shall be provided on a basis reasonably
comparable in the aggregate to those provided to him immediately prior to the
Merger Date or, if more favorable to the Executive in the aggregate, to those
provided to other senior officers of the Company and its subsidiaries.
(j) Restrictions on Sale of Securities; Payment of Taxes. From the date
hereof, to the earlier of the Merger Date or the date on which the transaction
contemplated by the Merger Agreement is abandoned, the Executive agrees that he
will not sell or otherwise dispose of any shares of the common stock of U.S.
Healthcare ("U.S. Healthcare Stock"), including shares subject to option,
except for the partial, cash-out of such shares and options in connection with
the transaction contemplated by the Merger Agreement. During the one-year
period following the Merger Date, the Executive agrees that, so long as he
remains employed by the Company or any of its subsidiaries, he will not sell or
otherwise dispose of any shares or option shares of Parent Stock. Nothing
herein shall prohibit the Executive from transferring any shares of U.S.
Healthcare Stock or Parent Stock to a "Permitted Transferee," as defined in
Article 5A.III of the U.S. Healthcare Articles of Incorporation. In
consideration of the Executive's agreement under this Section 5, the Company
shall promptly reimburse the Executive for any and all income, wage and
employment taxes (and any and all income and employment taxes on the
reimbursement amount), payable by the Executive as the result of the
acceleration of the vesting of restricted shares of U.S. Healthcare Stock on
the Effective Date or as the result of the partial cash-out of shares of U.S.
Healthcare Stock still subject to option on the Merger Date.
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In no event shall Executive be reimbursed for any income, wage or employment
taxes that result from the exercise of any options.
6. Termination. The Executive's employment hereunder may be terminated as
follows:
(a) Death. The Executive's employment shall terminate upon his death, and
the date of his death shall be the Date of Termination.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness (as determined by a medical doctor mutually agreed
to by the Executive or his legal representative and the Company), the Executive
shall have been absent from his duties hereunder on a full-time basis for the
entire period of six consecutive months and, within thirty (30) days after
written Notice of Termination (as defined in subsection (f) of this Section 6)
is given, shall not have returned to the performance of his duties hereunder on
a full-time basis ("Disability"), the Company may terminate the Executive's
employment hereunder. In this event, the Date of Termination shall be thirty
(30) days after Notice of Termination is given (provided that the Executive
shall not have returned to the performance of his duties on a fulltime basis
during such thirty (30) day period).
(c) Cause. The Company may terminate the Executive's employment in the
event there occurs one or more of the following events that has not been cured
(if curable) within thirty (30) days after written notice thereof has been
given by the Company to the Executive ("Cause"); provided that the Company
shall have delivered a written notice to the Executive within 120 days of its
having actual knowledge of the occurrence of any of such events stating that
the Company intends to terminate the Executive's employment for Cause and
specifying the factual basis for such termination:
(i) the willful failure by the Executive to perform substantially the
Executive's duties as an employee of the Company (other than due to
physical or mental illness or after the delivery of a Notice of
Termination for Good Reason by the Executive pursuant to subsection (f) of
this Section 6);
(ii) the Executive's engaging in misconduct that is materially
injurious to the Company or any subsidiary or any affiliate of the
Company;
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(iii) the Executive's having been convicted of, or entered a plea of
nolo contendere to, a crime that constitutes a felony;
(iv) the material breach by the Executive of any written covenant or
agreement not to compete with the Company or any subsidiary or any
affiliate; or
(v) the breach by the Executive of his duty of loyalty to the Company
which shall include, without limitation (A) the disclosure by the
Executive of any confidential information pertaining to the Company or any
subsidiary or any affiliate of the Company, other than (x) in the ordinary
course of the performance of his duties on behalf of the Company or (y)
pursuant to a judicial or administrative subpoena from a court or
governmental authority with jurisdiction over the matter in question, (B)
the harmful interference by the Executive in the business or operations of
the Company or any subsidiary or any affiliate of the Company, (C) any
attempt by the Executive to induce any employee, insurance agent,
insurance broker or broker-dealer of the Company or any subsidiary or any
affiliate to be employed or perform services elsewhere, other than actions
taken by the Executive that are intended to benefit the Company or any
subsidiary or affiliate and do not benefit the Executive financially other
than as an employee or stockholder of the Company, (D) any attempt by the
Executive to solicit the trade of any customer or supplier, or
prospective customer or supplier, of the Company on behalf of any person
other than the Company or a subsidiary thereof, other than actions taken
by the Executive that are intended to benefit the Company or any
subsidiary or affiliate and do not benefit the Executive financially other
than as an employee or stockholder of the Company, provided, however, that
this provision shall only apply to any product or service which is in
competition with a product or service of the Company or any subsidiary or
affiliate thereof or (E) following the Merger Date, any breach or
violation of the Company's Code of Conduct, as amended from time to time
sufficient to warrant a for Cause termination consistent with the
Company's past practice, consistently applied.
Notwithstanding the foregoing, (x) the failure of the Executive, the Company,
U.S. Healthcare or the Business to achieve any particular level of performance
shall not, in and of itself, constitute Cause hereunder, (y) neither a breach
of the Executive's duty of loyalty to the Company as described in subclause (A)
nor a breach of the Company's
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Code of Conduct as described in subclause (E) shall constitute Cause hereunder
unless such breach has had or could reasonably be expected to have a significant
adverse effect on the business or reputation of the Company and (z) the
occurrence of any of the events described above, if done inadvertently or of de
minimis effect, shall not constitute "Cause".
(d) Good Reason. The Executive may terminate his employment in the event
there occurs one or more of the following events, without the written consent
of the Executive, that has not been cured (if curable) within thirty (30) days
after written notice thereof has been given by the Executive to the Company
("Good Reason"); provided that the Executive shall have delivered a written
notice to the Chief Executive Officer of the Company within 120 days of his
having actual knowledge of the occurrence of the event or events constituting
Good Reason stating that he intends to terminate his employment for Good Reason
and specifying the factual basis for. such termination:
(i) a reduction in the Executives annual Base Salary or incentive
compensation opportunity as provided under Sections 5(a) and (b);
(ii) a reduction in the Executive's positions, an adverse change in
the Executive's reporting relationship or a material reduction in the
Executive's duties and responsibilities, in each case from those described
in section 3 hereof;
(iii) the relocation of the Executive s principal place of employment
to a location more than 20 miles from the location at which he performed
his principal duties on the date immediately prior to such relocation, or
requiring the Executive to perform the principal portion of his duties in
the greater Hartford, Connecticut area;
(iv) a breach of the obligation to provide the Executive with the
benefits required to be provided in accordance with section 5(i);
(v) a failure by the Company to pay any amounts due and owing to the
Executive within 10 days following written notice from the Executive of
such failure to pay;
(vi) any other material breach of the Company's obligations to the
Executive hereunder that materially affects the compensation or benefits
payable
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to Executive or materially impairs the Executive's ability to perform the
duties and responsibilities of his position;
(vii) the failure of the Company to obtain the assumption and
agreement in writing of its obligation to perform this Agreement in
accordance with Section 12 (a) hereof (A) by Parent on the Merger Date and
(H) following the Merger Date, by any successor to Parent on the effective
date of such succession; or
(viii) a breach of section 7.11(c) of the Merger Agreement.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder. In the event of a termination for Good Reason, the Date of
Termination shall be the date specified in the Notice of Termination, which
shall be no more than thirty (30) days after the Notice of Termination.
(e) Other Terminations. If the Executive's employment is terminated
hereunder for any reason other than as set forth in subsections (a) through (d)
of this section the date on which a Notice of Termination is given or any later
date (within 30 days) set forth in such Notice of Termination shall be the Date
of Termination.
(f) Notice of Termination. Any purported termination of the Executive's
employment (other than termination pursuant to subsection (a) of this Section 6)
shall be communicated by written Notice of Termination to the other party hereto
in accordance with Section 13 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice that shall indicate the specific termination
provision in this Agreement relied upon and shall set 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. In addition, prior to
the second anniversary of the Merger Date, a Notice of Termination is required
to be signed by the Co-Presidents.
(g) Dispute Concerning Termination. If within fifteen (15) days after any
Notice of Termination (other than with respect to a termination of the
Executive's employment by the Company without Cause) is given, or, if later,
prior to the Date of Termination (as determined without regard to this Section
6(g)), the party receiving such Notice of Termination notifies the other party
that a
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dispute exists concerning the termination, the Date of Termination shall
be extended until the earlier of (i) the date on which the Term ends or (ii)
the date on which the dispute is finally resolved, either by mutual written
agreement of the parties or by binding arbitration; provided, however, that the
Date of Termination shall be extended by a notice of dispute given by the
Executive only if such notice is given in good faith and the Executive pursues
the resolution of such dispute with reasonable diligence.
(h) Compensation During Dispute. If the Date of Termination is extended in
accordance with subsection (g) of this Section 6, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, Base Salary and Annual
Bonus) and continue the Executive as a participant in all compensation, benefit
and insurance plans in which the Executive was participating when the notice
giving rise to the dispute was given, until the Date of Termination, as
determined in accordance with subsection (g) of this Section 6. Amounts paid
under this section 6(h) shall not be offset against or reduce any other amounts
due under Section 7 of this Agreement.
7. Compensation During Disability or Upon Termination.
(a) Disability Period. During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or
mental illness ("Disability Period"), the Executive shall continue to (i)
receive his full Base salary, (ii) remain eligible to receive an Annual Bonus
under Section 5(b) hereof, and (iii) participate in the programs described in
Section 5(i) hereof (except to the extent such participation is not permitted
under the terms of such programs). Such payments made to the Executive during
the Disability Period shall be reduced by the sum of the amounts, if any,
payable to the Executive at or prior to the time of any such payment under
disability benefit plans of the Company or under the Social Security disability
insurance program, and which amounts were not previously applied to reduce any
such payment.
(b) Death. If the Executive's employment hereunder is terminated as a
result of death, then:
(i) the Company shall pay the Executive's estate or designated
beneficiary, as soon as practicable after the Date of Termination, (A) any
amounts earned, accrued or owing the Executive
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hereunder for services prior to the Date of Termination (including accrued
deferred compensation and unused vacation and personal time) and (B) for a
period of one year following the Date of Termination, such Base Salary and
Annual Bonus as the Executive would have received during such period had he
remained in the employ of the Company;
(ii) the vesting and exercisability of all then outstanding equity-
based awards shall be governed, as applicable, in accordance with Section
5(d) of this Agreement or the terms of the U.S. Healthcare or Aetna, as
the case may be, document under which they were initially granted (except
that the vesting of awards granted under the U.S. Healthcare incentive
plans prior to the Effective Date shall be governed by section 1.7 of the
Merger Agreement); and
(iii) the Company shall have no additional obligations to the
Executive under this Agreement except to the extent otherwise provided in
the applicable plans and programs of the Company.
(c) Disability. If the Executives employment hereunder is terminated as a
result of Disability, then:
(i) the Company shall pay the Executive, as soon as practicable after
the Date of Termination, (A) any amounts earned, accrued or owing the
Executive hereunder for services prior to the Date of Termination
(including accrued deferred compensation and unused vacation and personal
time) and (B) for a period of one year following the Date of Termination,
such Base Salary and Annual Bonus as the Executive would have received
during such period had he remained in the employ of the Company, offset by
any amounts received by the Executive pursuant to subsection (ii) of this
Section 7(c);
(ii) the Executive shall receive, until the date the Executive
reaches age 65 or, if earlier, until his death, the salary-related
disability benefits provided in accordance with, and subject to the
conditions of, the long-term disability program then in effect for senior
executives of the Company;
(iii) the vesting and exercisability of all then outstanding equity-
based awards shall be governed, as applicable, in accordance with Section
5(d) of this Agreement or the terms of the U.S. Healthcare or Aetna, as
the case may be, document under which they were
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initially granted (except that the vesting of awards granted under the U.S.
Healthcare incentive plans prior to the Effective Date shall be governed by
section 1.7 of the Merger Agreement); and
(iv) the Company shall have no additional obligations to the
Executive under this Agreement except to the extent otherwise provided in
the applicable plans and programs of the Company.
(d) Termination by Company for Cause or By Executive other than for Good
Reason. If the Executive's employment hereunder is terminated by the Company
for cause or by the Executive (other than for Good Reason), then:
(i) the Company shall pay the Executive, as soon as practicable after
the Date of Termination, any amounts earned, accrued or owing the
Executive hereunder for services prior to the Date of Termination
(including accrued deferred compensation and unused vacation and personal
time);
(ii) the vesting and exercisability of all then outstanding equity-
based awards shall be governed, as applicable, in accordance with Section
5(d) of this Agreement or the terms of the U.S. Healthcare or Aetna, as
the case may be, document under which they were initially granted (except
that the vesting of awards granted under the U.S. Healthcare incentive
plans prior to the Effective Date shall be governed by section 1.7 of the
Merger Agreement); and
(iii) the Company shall have no additional obligations to the
Executive under this Agreement except to the extent otherwise provided in
the applicable plans and programs of the Company.
(e) Termination by Company without Cause or by the Executive with Good
Reason. If the Executive's employment hereunder is terminated by the Company
(other than for Cause or Disability) or by the Executive for Good Reason, then:
(i) the Company shall pay the Executive, as soon as practicable after
the Date of Termination, any amounts earned, accrued or owing the
Executive hereunder for services prior to the Date of Termination
(including accrued deferred compensation and unused vacation and personal
time);
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(ii) notwithstanding any provision of any annual bonus plan to the
contrary, the Company shall pay to the Executive, as soon as practicable
after the Date of Termination, a lump sum amount, in cash, equal to the
sum of (A) any annual bonus which has been allocated or awarded to the
Executive for a completed fiscal year preceding the Date of Termination
under any such plan and which, as of the Date of Termination, is
contingent only upon the continued employment of the Executive to a
subsequent date, and (B) a pro rata portion to the Date of Termination of
the aggregate value of all contingent annual bonus awards to the Executive
for all then uncompleted fiscal years (other than the fiscal year
commencing in 1995) under any such plan, calculated as to each such award
by multiplying the award that the Executive would have earned for the
entire performance award period, assuming the achievement, at the target
level, of the individual and corporate performance goals established with
respect to such award, by the fraction (the "Fraction") obtained by
dividing the number of full months and any fractional portion of a month
during such performance award period through the Date of Termination by
the total number of months contained in such performance award period;
provided, however, that, in the event that the Executive's actual award
(the "Actual Award") would have exceeded the target award had he remained
in the employ of the Company until the end of any such performance award
period, then the Company shall pay the Executive, as soon as practicable
following the end of such period, an amount equal to the product of the
Fraction and the excess of the Actual Award over the target award; and
(iii) the Company shall pay to the Executive a severance payment in
cash, 50% of which is payable in a lump sum on the Date of Termination
and, subject to the Executive's continued compliance with the applicable
provisions of Section to hereof (provided that the Executive be given an
opportunity to cure (if curable) any breach of such Section 10 in
accordance with Section 10(d) hereof), the remaining 50% of which is
payable in a lump sum on the first anniversary of the Date of Termination,
equal to three times the sum of (A) the higher of the Executive's Base
Salary as in effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based and the
Executive's annual base salary (including amounts deferred and any
interest accrued thereon) in effect immediately prior to the Merger Date,
and (B) the then current target annual bonus;
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(iv) (A) the exercisability of all then outstanding equity-based
awards granted under the U.S. Healthcare incentive plans prior to the
Merger Date shall be governed in accordance with the terms of such U.S.
Healthcare incentive plans, (B) the vesting of restricted stock awards
granted pursuant to Section 5(d) shall be governed in accordance with the
terms of such Section and (C) all then outstanding equity-based awards
granted under the Parent incentive plans shall continue to vest over the
one year period following the Date of Termination and be exercisable
through the 90 day period following such one year period;
(v) for the thirty-six (36) month period immediately following the
Date of Termination, the Company shall arrange to provide the Executive
with life, disability, accident and health insurance benefits ("Insurance
Benefits") and with pension plan benefits substantially similar, and on
substantially similar terms, to those which the Executive is receiving
immediately prior to the Notice of Termination or the economic equivalent
thereof, which provision of insurance Benefits shall satisfy all of the
conditions necessary to avoid the imposition of any tax under section
4980B of the Code. Insurance Benefits otherwise receivable by the
Executive pursuant to this Section 7(e)(v) shall be reduced to the extent
comparable benefits are actually received by, or made available to, the
Executive without cost during the thirty-six (36) month period following
the Executive's termination of employment (and any such benefits actually
received by or made available to the Executive shall be reported to the
Company by the Executive);
(vi) if the Executive would have become entitled to benefits under
the Company's postretirement health care or life insurance plans, as in
effect immediately prior to the Effective Date (or, if there is a Merger
Date, immediately prior to the Merger Date) or the Date of Termination
(whichever is more favorable to the Executive), had the Executive's
employment terminated on the date which is thirty-six (36) months after
the Date of Termination, the Company shall provide such postretirement
health care or life insurance benefits to the Executive and the
Executive's dependents commencing on the later of (A) the date on which
such coverage would have first become available (disregarding for these
purposes the thirty-six (36) month period referred to above) and (B) the
date on which benefits described in subsection (v) of this Section 7(e)
shall terminate; and
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(vii) the Company shall have no additional obligations to the
Executive under this Agreement except to the extent otherwise provided in
the applicable plans and programs of the Company.
8. Gross-Up for Excise Tax. (a) Whether or not the Executive becomes
entitled to any payments under Section 7 hereof, if any payments or benefits
received or to be received by the Executive (whether pursuant to Section 5
hereof or any other provision of this Agreement or any other plan, arrangement
or agreement with the Company or, with respect to his employment by the
Company, with any other person (such payments or benefits, excluding the
Gross-Up Payment described herein, being hereinafter referred to as the "Total
Payments") will be subject to any excise tax imposed under section 4999 of the
Internal Revenue Code of 1986, as amended (the "Excise Tax"), the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction of any Excise Tax on
the Total Payments and any federal, state and local income and employment taxes
and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments.
(b) For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
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, a
reasonable basis exists for determining that 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, a reasonable basis exists
for determining that 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"
(within the meaning of 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
15
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 8), net of
the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(c) 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 the Company, at the time that the amount of such
reduction in 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
to the extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus interest on the
amount of such repayment at 120% of 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), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined. The Executive and the Company 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 Total Payments.
9. Mitigation. The Executive shall not be required to mitigate amounts
payable pursuant to Section 7 hereof by seeking other employment or otherwise,
nor, except as provided in Section 7(e)(v), shall there be any offset against
such payments on account of (a) any remuneration attributable to any subsequent
employment that he may obtain or (b) any claims the Company may have against
the Executive.
10. Noncompetition and Confidentiality.
(a) Noncompetition. Prior to, and for a period of one year following,
termination of the Executive's employment during the Term other than by the
Company without Cause or by the Executive for Good Reason, the Executive
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shall not become associated, whether as a principal, partner, employee,
consultant or shareholder (other than as a holder of not in excess of 1% of the
outstanding voting shares of any publicly traded Company), with any entity that
is actively engaged in any geographic area in any business which is in
substantial and direct competition with the Business; provided, however, nothing
in this section 10(a) shall preclude the Executive from performing services
solely and exclusively for a division or subsidiary of such an entity that is
engaged in a noncompetitive business.
(b) Nondisclosure, Nonsolicitation and Cooperation.
(i) the Executive shall not (except to the extent required by an
order of a court having competent jurisdiction or under subpoena from an
appropriate government agency) disclose to any third person, whether
during or subsequent to the Executive's employment with the Company,
any trade secrets; customer lists; product development and related
information; marketing plans and related information; sales plans and
related information; operating policies and manuals; business plans;
financial records; or other financial, commercial, business or technical
information related to the Company or any subsidiary or affiliate thereof
unless such information has been previously disclosed to the public by the
Company or has become public knowledge other than by a breach of this
Agreement; provided, however, that this limitation shall not apply to any
such disclosure made while the Executive is employed by the Company, or
any subsidiary or affiliate thereof in the ordinary course of the
performance of the Executive's duties;
(ii) prior to, and for two years following, termination of the
Executive's employment during the Term, the Executive shall not attempt to
induce any employee or Insurance Agent (as defined below) employed by or
performing services for the Business to be employed or perform services
elsewhere, provided that this covenant shall not preclude the Executive
from taking any actions during the Term that (x) are intended to benefit
the Company or any subsidiary or affiliate and (y) do not benefit the
Executive financially other than as an employee or stockholder of the
Company;
(iii) prior to, and for two years following, termination of the
Executive's employment during the Term, the Executive shall not attempt to
induce any
17
insurance agent or agency, insurance broker, broker-dealer or supplier of
the Business to cease providing services to the Business, provided that
this covenant shall not preclude the Executive from taking any actions
during the Term that (x) are intended to benefit the Company or any
subsidiary or affiliate and (y) do not benefit the Executive financially
other than as an employee or stockholder of the Company; and
(iv) prior to, and for two years following, termination of the
Executive's employment during the Term, the Executive shall not attempt to
solicit, on behalf of any person or entity other than the Business, the
trade of any individual or entity which, at the time of the solicitation,
is a customer of the Business, or which the Business is undertaking
reasonable steps to procure as a customer at the time of or immediately
preceding termination of the Term; provided, however, that this limitation
shall only apply to (x) any product or service which is in competition
with a product or service of the Business and (y) with respect to any
customer with whom the Executive has or had (by virtue of the Executive's
position or otherwise) a personal relationship.
Solely for purposes of subsection (b)(ii) of this Section 10, the term
"Insurance Agent" shall mean those insurance agents or agencies representing
the Company ox any subsidiary or affiliate thereof, that are exclusive or
career agents or agencies of the Company or any subsidiary or affiliate
thereof, or any insurance agents or agencies which derive 50% or more of their
business revenue from the Company or any subsidiary or affiliate thereof
(calculated on an aggregate basis for the 12-month period prior to the date of
determination or such other similar period for which such information is more
readily available).
(c) Company Property. Promptly following the Executive's termination of
the Executive's employment, the Executive shall return to the Company all
property of the Company, and all copies thereof in the Executive's possession
or under his control.
(d) Intention of the Parties. If any provision of Section 10 is determined
by an arbitrator (or a court of competent jurisdiction asked to enforce the
decision of the arbitrator) not to be enforceable in the manner set forth in
this Agreement, the Company and Executive agree that it is the intention of the
parties that such provision should be enforceable to the maximum extent
possible under applicable law and that such arbitrator (or court) shall reform
such
18
provision to make it enforceable in accordance with the intent of the
parties. Executive acknowledges that a material part of the inducement for the
Company to provide the salary and benefits evidenced hereby is Executive's
covenants set forth in Section 10(a), (b) and (c) and that the covenants and
obligations of Executive with respect to nondisclosure and nonsolicitation
relate to special, unique and extraordinary matters and that a violation of any
of the terms of such covenants and obligations will cause the Company
irreparable injury for which adequate remedies are not available at law.
Therefore, Executive agrees that, if Executive shall materially breach any of
those covenants following termination of employment and such breach is not
cured (if curable) within ten (l0) days following receipt of written
notification thereof that specifies the manner in which the Company believes
the Executive has breached such covenants, the Company shall have no further
obligation to pay Executive any benefits otherwise payable under Sections
7(e)(iii), (v) and (vi) and the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post a bond) restraining Executive from committing any violation of the
covenants and obligations contained in Section 10(a), (b) and (c). The remedies
in the preceding sentence are cumulative and are in addition to any other
rights and remedies the Company may have at law or in equity as an arbitrator
(or court) shall reasonably determine.
(e) Waiver. Without limiting the generality of the foregoing, upon request
of the Executive prior to engaging in any conduct otherwise prohibited by
this Section 10, the Company may, in its sole discretion, waive in writing, on
such terms and conditions as it may deem appropriate, any violation of this
Section 10 which would otherwise occur due to such conduct.
11. Indemnification; Attorneys' Fees. The Company shall indemnify the
Executive to the full extent authorized by law and the Charter and By-Laws of
the Company, as applicable, for all expenses, costs, liabilities and legal fees
which the Executive may incur in the discharge or course of his duties
hereunder. The Executive shall be insured under the Company's Directors' and
Officers' Liability Insurance Policy as in effect from time to time. The
Executive shall be deemed a third party beneficiary with respect to section 7.6
of the Merger Agreement and, as such, shall have the right to enforce such
provisions as if he were party to the Merger Agreement. In connection with any
dispute or proceeding arising under this Agreement where the Executive is
ultimately the substantially prevailing party, the Company shall promptly
19
reimburse Executive for all costs, including without limitation the reasonable
attorneys' fees of any attorney of the Executive's choosing, incurred by the
Executive in any such dispute or proceeding arising under this Agreement. Any
termination of the Executive's employment or of this Agreement shall have no
effect on the continuing operation of this section 11.
12. Successors; Binding Agreement.
(a) Company's Successors. The Company 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 of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 12 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. This Agreement shall not otherwise be
assignable by the Company.
(b) Executive's Successors. This Agreement shall not be assignable by the
Executive. This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. Upon the Executive's death, all amounts to which he is
entitled hereunder, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
13. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or received by facsimile or three
(3) days after mailing by United States certified mail, return receipt
requested, postage prepaid, addressed, if to the Executive, to the address
inserted below the Executive's signature on the final page hereof and, if to
the Company, to the attention of the General Counsel except where this
Agreement provides otherwise. Notice of change of address or addressee shall be
effective only upon actual receipt.
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14. Disputes. This Agreement shall be construed in accordance with and
governed by the law of the Commonwealth of Pennsylvania (without regard to
principles of conflict of laws). All claims and controversies related to or
stemming from this Agreement or the Executive's employment with the Company,
except actions for equitable relief pending an arbitration award, shall be
submitted to binding arbitration in Blue Xxxx, Pennsylvania by a panel of three
neutral arbitrators under the Commercial Arbitration Rules of the American
Arbitration Association. Judgment upon an award of the arbitrators may be
entered and enforced in any court having jurisdiction.
15. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Subject to the provisions of Section 5(j) and 8
hereof, payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed. The obligations of the Company
and the Executive under this Agreement which by their nature may require either
partial or total performance after the expiration of the Term shall survive
such expiration. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Entire Agreement. This Agreement between the Company and the Executive
sets forth the entire agreement of the parties hereto in respect of the subject
matter contained herein and supersedes, as of the Effective Date, all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by the parties hereto in respect of the
subject
21
matter contained herein; and any prior agreement of the parties hereto
in respect of the subject matter contained herein shall be terminated and
canceled as of the Effective Date.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
March 30, 1996 to be effective as of the Effective Date.
U.S. Healthcare
By: /s/ Xxxxx X. Xxxxx
---------------------
Name: Xxxxx X. Xxxxx
Title: Sr. V.P.
/s/ Xxxxxx X. Xxxxxxxxx
---------------------------
Name of Executive
000 Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Address of Executive
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