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EXHIBIT 10.04
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as
the 6th day of October 1997, 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 Xxxx Xxxxxx
("Executive"), residing at 000 Xxxxxx Xxxxx, Xxxxxx Xxx Xxx, Xxxxxxxxxx 00000.
RECITALS
WHEREAS, the Company desires to employ Executive in the capacity of Vice
President and Plan President of PacifiCare of California during the period
beginning October 6, 1997 and ending January 1, 1998 (the "Interim Term").
WHEREAS, immediately following the Interim Term, the Company desires to
continue to employ Executive in the capacity of President and Chief Executive
Officer of PacifiCare of California and Regional Vice President of the West.
WHEREAS, the Company and Executive are entering into this Agreement to
establish the terms and conditions of the desired 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 hereby employs Executive and
Executive hereby agrees to serve the Company in the capacity of Vice President
and Plan President of PacifiCare of California during the Initial Term; and
immediately after the Initial Term the Company shall employ and Executive agrees
to serve the Company in the capacity of President and Chief Executive Officer of
PacifiCare of California and Regional Vice President of the West 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.
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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 his 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 his duties and shall neither
expect Executive to devote more time, nor assign more duties or functions to
Executive, than are customary and reasonable for an executive in Executive's
position.
2. TERM AND TERMINATION
2.1 Term. The term of Executive's employment under this Agreement shall
commence on October 6, 1997, and 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 permanent or 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 ninety (90) 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 ninety (90) days after
receipt of such written notice. Any termination of this Agreement in
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accordance with this Section 2.2(d) shall not limit, restrict, or
reduce, in any manner, Executive's rights to the compensations and
benefits available under Sections 3.1(b) and 4 below.
2.3 Effect of Termination. No termination of this Agreement shall affect
or impair any rights or obligations of the parties respecting certain
compensation accruing prior thereto or continuing thereafter in accordance with
the terms set forth in Section 3.2 and Section 4.
3. COMPENSATION
3.1 Compensation During the Term of this Agreement
a. As long as Executive satisfactorily performs all of his
obligations hereunder, 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, which as of the date hereof is $350,000. 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.
b. Executive shall be entitled to participate in the 1996 Stock
Option Plan for Officers and Key Employees of PacifiCare Health Systems,
Inc. (the "1996 Stock Option Plan"), as such plan from time to time may
be amended, modified or replaced, in accordance with the terms and
conditions set forth herein and therein. Pursuant thereto, on October 1,
1997, (the "Grant Date"), the Company granted to Executive non-qualified
options to purchase 15,000 shares of the Company's Class B Common Stock,
par value $0.01 per share (the "Options"). On the first anniversary of
the Grant Date, 25 percent of the Options shall become vested, and an
additional 25 percent of the Options shall become vested on each
succeeding anniversary of the Grant Date until the fourth anniversary of
the Grant Date when all the Options shall become vested. The Options
shall be subject to the 1996 Stock Option Plan and are evidenced by a
stock option agreement between Executive and the Company.
c. 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
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insurance company or modify any insurance policy adopted incident to
such existing benefit plan and program.
d. The Company shall provide Executive with a $750 per month
automobile allowance. The Company shall furnish Executive's automobile
with a cellular car 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 California. Executive shall provide proof of such
coverage to the Company upon the Company's request.
e. The Company shall pay for or reimburse Executive for all other
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.
f. Executive shall be entitled to participate fully in the
Company's Management Incentive Compensation Plan, as amended (the
"MICP"), as may be amended, modified, or replaced, in accordance with
the terms and conditions set forth herein and therein.
g. 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 Vice President
and Plan President of PacifiCare of California during the Initial Term;
and immediately after the Initial Term for all conduct committed in good
faith while acting in the capacity of Regional Vice President of the
West and President and Chief Executive Officer of PacifiCare of
California or in any other capacity to which Executive may be appointed
or elected.
h. In the event Executive is involuntarily terminated, without
cause, except in the case of death or incapacity or disability, the
Company shall provide outplacement services to Executive to assist
Executive in securing a position comparable to the one from which he was
terminated. The Company shall be obligated to provide those outplacement
services as 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.
i. As part of the compensation for services rendered under this
Agreement, Executive shall be entitled to participate in the PacifiCare
Health Systems, Inc. Savings
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and Profit-Sharing Plan, and the trust agreement implemented pursuant
thereto, adopted as of June 1, 1985, as from time to time may be amended
modified, or replaced, in accordance with the terms and conditions set
forth therein.
j. Executive shall be entitled to the benefits provided under the
Company's Statutory Restoration Plan, as such plan from time to time may
be amended, modified or replaced, in accordance with the terms set forth
herein and therein.
3.2 Compensation Following Termination
a. 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:
1. Payment of benefits under the life insurance policy
purchased by the Company on Executive's behalf, if any;
2. Payments of benefits under the Long-Term Performance
Incentive Plan ("LTPIP"), if performance cycles remain
outstanding, and the MICP set forth in Section 3.1(f), which
will be deemed to have accrued as of the date of Executive's
death; and
3. Executive's legal representative shall be permitted
to exercise any vested and unexercised options under the 1996
Stock Option Plan set forth in Section 3.1(b) and shall be
permitted to exercise any other vested and unexercised options
granted under any other stock option plans of the Company
("Prior Stock Option Plans") in accordance with their terms for
a period of one year following Executive's death. The 1996 Stock
Option Plan and the Prior Stock Option Plans shall together be
referred to herein as the "Stock Option Plans."
b. In the event that Executive is terminated because of an
incapacity or disability, the Company shall provide Executive with the
following:
1. Payment of benefits under the disability insurance
policy maintained by the Company on Executive's behalf, if any;
2. Payment of benefits under the LTPIP, if performance
cycles remain outstanding, and the MICP set forth in Section
3.1(f), which will be deemed to have accrued as of the effective
date of such termination;
3. The right to exercise any vested and unexercised
options under the Stock Option Plans in accordance with the
terms stated therein; and
4. Payment of the automobile allowance as provided under
Section 3.1(d) for a period of 24 months following the effective
date of such termination.
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c. 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.
d. In the event that the Company terminates Executive, for any
reason other than Executive's incapacity or disability or misconduct as
described in Sections 2.2(b) and 2.2(c), respectively, Executive shall
be entitled to the following severance compensation, on the condition
that Executive executes a severance agreement including a general
release of the Company, including its owners, partners, stockholders,
directors, officers, employees, independent contractors, agents,
attorneys, representatives, predecessors, successors and assigns,
parents, subsidiaries, affiliated entities and related entities:
1. Executive's then current annual salary under Section
3.1(a) for a period of 24 months following the effective date of
such termination;
2. Payment of benefits under the LTPIP, if performance
cycles remain outstanding, and the MICP set forth in Section
3.1(f), which will be deemed to have accrued as of the effective
date of such termination;
3. The right to exercise any vested and unexercised
options under the Stock Option Plans in accordance with their
terms within one year of the effective date of such termination;
4. Notwithstanding the foregoing, in the event Executive
engages in employment with a competitor of the Company during
the 24 month period in which Executive's salary continues
pursuant to Section 3.2(d)(1), the severance compensation
available to Executive under this Section 3.2(d) 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 3.2(d)(4), a
"competitor of the Company" shall include, without limitation, a
health maintenance organization, competitive medical plan, or
preferred provider organization, or health or life insurance
company which owns a managed care 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;
5. Payment of the automobile allowance as provided in
Section 3.1(d) for a period of 24 months following the effective
date of such termination; and
6. The Company shall provide to Executive the
outplacement services described in Section 3.1(h).
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e. Notwithstanding anything which may be expressed in, or
inferred from the provisions of this Section 3.2 or Section 4.1, this
Agreement should not be construed to limit, restrict, or deny Executive
any benefits to which he otherwise may be entitled under the LTPIP, the
MICP, the Stock Option Plans, the Company's pension plan or otherwise
which arise from circumstances not addressed in this Agreement.
4. TERMINATION AS A RESULT OF A CHANGE OF CONTROL OR
FOR GOOD CAUSE
4.1 Executive's Rights. In the event that, during the term of this
Agreement, the Company undergoes a "change of ownership or control," as that
term is defined in Section 4.3, and if within 24 months after the consummation
of such change either (1) Executive is involuntarily terminated, except as
provided in Section 4.2, or (2) Executive voluntarily terminates his employment
for "good cause" as defined in Section 4.4, then Executive shall be entitled to
the following compensation:
a. Executive's then current annual salary under Section 3.1(a)
for a period of 24 months following the effective date of such
termination;
b. Payment of health insurance premiums under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, for Executive and
Executive's dependents for a period of 24 months following the effective
date of such termination;
c. Annual payment of benefits under the LTPIP for each
performance period of the LTPIP which is still outstanding for a period
of 24 months following the effective date of such termination;
d. Annual payment of benefits under the MICP set forth in Section
3.1(f), for a period of 24 months following the effective date of such
termination;
e. The right to exercise any and all granted and unexercised
stock options, under the Stock Option Plans in accordance with their
terms (whether or not such options are actually vested), as if all such
unexercised stock options were fully vested, within one year of the
effective date of such termination;
f. Payment of the automobile allowance as provided under Section
3.1(d) for a period of 24 months following the effective date of such
termination; and
g. The Company shall provide to Executive the outplacement
services described in Section 3.1(h).
4.2 Limitation of Benefits. In the event that Executive is terminated
within 12 months after a change of ownership or control of the Company, and such
termination results from either Executive's incapacity or disability or habitual
neglect or gross misconduct, then, notwithstanding
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anything in this Section 4 to the contrary, Executive shall receive only that
compensation, if any, to which he is entitled to under Sections 3.2(b) and
3.2(c), respectively.
In no event shall the aggregate amount of all compensation which
Executive may receive pursuant to the provisions of this Section 4, including
without limitation, any salary, bonuses, stock options, employee benefits and
all other cash and in-kind compensation, exceed an amount (the "Maximum
Compensation Amount") which would give rise to an "excess parachute payment" as
determined by Section 280G of the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder. In the event that this Section 4 would
entitle Executive to sums in excess of the Maximum Compensation Amount, the
Company shall use its sound discretion, in good faith, to furnish Executive with
a post-termination compensation package which is substantially equal to the
Maximum Compensation Amount.
4.3 Change of Control. As used in this Section 4, the term "change of
ownership or control" means and refers to:
a. 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 and the ownership interest of the voting
common stock owned by UniHealth America is less than or equal to the
ownership interest of the voting common stock of such individual, entity
or group;
b. any transaction in which the Company sells substantially all
of its material assets;
c. a dissolution or liquidation of the Company; or
d. the Company becomes a non-publicly held company.
4.4 Good Cause. As used in this Section 4, "good cause" for Executive to
terminate his employment shall be deemed to exist if Executive voluntarily
terminates his employment for any of the following reasons:
a. Without Executive's express prior written consent, Executive:
(i) is assigned duties materially inconsistent with
Executive's position, duties, responsibilities, or status with
the Company which substantially varies from that which existed
immediately prior to such change of ownership or control;
(ii) experiences a change in his reporting level, titles,
or business location (to a point more than 50 miles outside of
Orange County, California) which substantially varies from that
which existed immediately prior to the change of ownership or
control; or
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(iii) with respect to any position held immediately prior
to the change of ownership or control, is removed or fails to
obtain reelection, which removal or failure to reelect is not
directly related to Executive's incapacity or disability,
habitual neglect, gross misconduct or death;
b. Without Executive's express prior written consent, Executive's
salary is reduced below that which existed immediately prior to the
change of ownership or control and such change is not otherwise applied
to others in the Company with at least Executive's position or title;
c. Without Executive's express prior written consent, 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 ownership or control is
reduced or eliminated and such change is not otherwise applied to others
in the Company with at least Executive's position or title;
d. 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
e. The Company or any successor thereto purports to terminate
Executive without first giving Executive prior written notice thereof
that specifies: (i) the exact provision of Section 2.2 relied upon; and
(ii) the facts and circumstances, in reasonable detail, serving as the
basis for Executive's termination.
5. 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
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If to Executive: Xxxx Xxxxxx
000 Xxxxxx Xxxxx
Xxxxxx Xxx Xxx, Xxxxxxxxxx 00000
All notices sent by personal delivery shall be deemed given when actually
received. All notices sent by overnight delivery shall be deemed given on the
next business day. All other notices sent via United States mail shall be deemed
given 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.
6. GENERAL PROVISIONS
6.1 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.
6.2 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.
6.3 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.
6.4 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.
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6.5 Governing Law. This Agreement shall be governed by, enforced under,
and construed in accordance with the laws of the State of California.
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
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By: Xxxx X. Xxxxx
Title: President and
Chief Executive Officer
Executive: /s/ Xxxx Xxxxxx
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Xxxx Xxxxxx
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