EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into by and between
WELLPOINT HEALTH NETWORKS INC. ("the Company") and XXXXXXX X. XXXXXXXXX
("Executive") effective ______________________, 1997 (the "Effective Date").
RECITALS:
A. Executive is currently the Chairman of the Board of Directors and Chief
Executive Officer of the Company and had previously served in such capacity
for both the Company and the Company's principal subsidiary, WellPoint
Health Networks Inc. ("Old WellPoint"), before the merger (the "Merger") of
Old WellPoint into the Company, then named Blue Cross of California ("BCC")
and the change of the Company's name to WellPoint Health Networks, Inc.
B. Prior to the Merger, Executive had been party to an employment agreement
with BCC (the "BCC Employment Agreement"), a portion of the cost which was
reimbursed by Old WellPoint based upon the estimated time dedicated by
Executive to the affairs of Old WellPoint, and an employment agreement with
Old WellPoint that was to take effect upon Executive's termination of
employment with the Company.
C. The Company and Executive desire to clarify the terms of Executive's
employment with the Company following the Merger.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. EMPLOYMENT. The Company agrees to continue to employ Executive and
Executive agrees to continue in the employ of the Company on the terms and
conditions hereinafter set forth.
2. POSITION. Executive will serve as the Chairman of the Board and Chief
Executive Officer of WellPoint Health Networks Inc.
3. DUTIES. Executive will have all rights, powers and duties now vested
in, and consistent with, the office of the Chairman of the Board and Chief
Executive Officer of the Company under the current Bylaws of the Company, and
shall report directly to the Board. (A description of the general duties and
responsibilities of the Company's Chairman and Chief Executive Officer is set
forth as Attachment No. 1.)
1
Executive is required to devote his substantial productive time and effort
full-time and exclusively for the benefit of the Company and will not engage in
any other employment (including consulting services) without the express written
approval of the Board. This shall not, however, preclude Executive from the
pursuit of limited teaching, speaking, writing or service on advisory panels, or
the acceptance of honoraria or reimbursement for travel and incidental expenses
associated with such activities. Service on the board of directors of any
for-profit entity may be undertaken only with the approval of the Board. If
Executive will be out of the country, he will inform the Board and will identify
an Acting Chief Executive Officer to serve during his absence.
4. TERM
The initial term of this Agreement shall commence on the Effective Date.
The initial term of this Agreement shall terminate sixty (60) months following
the Effective Date ("Initial Termination Date"). On each anniversary of the
Effective Date (the "Anniversary Dates"), the term of this Agreement shall be
automatically extended by an additional twelve months if Executive is employed
by the Company on the last day of the calendar month immediately preceding the
applicable Anniversary Date (the "Renewal Date"), unless the Board of Directors
of WellPoint ("Board"), by written notice delivered to Executive on or before
the applicable Renewal Date, elects to cease such automatic extension, in which
case this Agreement will remain in force for the forty-eight months remaining in
the term of this Agreement on the date such notice is received by Executive.
Any failure to extend the term of this Contract shall not itself be considered a
termination or Constructive Termination of Executive's employment.
5. COMPENSATION
a. BASE SALARY AND INCENTIVE COMPENSATION. The Company agrees to
pay Executive as follows:
(i) From the Effective Date through February 28, 1997, a base annual
salary ("Base Salary") at the rate of $850,000 per year.
(ii) Thereafter, the Board or the Compensation Committee thereof shall
determine the Base Salary of Executive. However, the Base Salary
of Executive will not decrease from any previous level, except
that Executive's Base Salary may be reduced as part of, and
consistent with, any across-the-board reduction in the salaries
of senior officers of the Company.
2
The Board or the Compensation Committee thereof will review annually
the performance of Executive and a written copy thereof will be forwarded to
Executive. Executive's performance will be evaluated based upon mutually
approved written criteria to be developed jointly by the Board and\or
Compensation Committee and Executive. In connection with that review, the Board
or Compensation Committee shall also review and consider appropriate adjustments
to Executive's Base Salary and other compensation and may retain a qualified
compensation consultant. Unless Executive expressly agrees otherwise, he shall
be eligible to participate in the Company's current long- and short-term
incentive programs (including the Company's stock option plan) and any other
incentive programs hereafter established for senior officers of the Company
(subject to such modifications to such programs as the Compensation Committee
shall determine to be necessary and appropriate to preserve deductibility of
bonus amounts) at participation levels determined each calendar year in
connection with Executive's annual performance review.
b. MEDICAL AND DENTAL COVERAGE. The Company shall provide full
medical and dental coverage for Executive and his family based on the programs
in effect from time to time for senior officers of the Company. The Company
shall pay all premiums for such coverage for the term of this Agreement and any
extensions. This coverage shall also be provided following termination of
Executive's employment, in certain circumstances, in accordance with the
provisions of Sections 7 and 8, which provisions shall not bar the Executive or
his dependents, after the periods of time set forth therein, from receiving such
benefits as are allowable under Section 4980B of the Internal Revenue Code of
1986 as amended or any successor section ("COBRA"). Executive shall remain
eligible for retiree health benefits under the terms of the Company's retiree
health program as it exists on the Effective Date, whether or not such program
is thereafter otherwise terminated or modified with respect to other employees.
c. LIFE INSURANCE. The Company will provide to Executive for the
term of this Agreement and any extensions life insurance in an amount totalling
three times Executive's then current Base Salary;
d. LONG-TERM DISABILITY. The Company shall provide to Executive for
the term of this Agreement and any extensions long-term disability benefits
which will maintain Executive's after-tax income at a level equal to his then
current Base Salary during any period, up to twenty-four (24) months, of
disability that prevents Executive from performing his duties as Chairman and
Chief Executive Officer. If, after twenty-four (24) months of receiving
disability benefits under this subsection 5.d., Executive is unable to perform
in the same or any comparable job
3
and has applied for Social Security disability benefits, Executive will continue
to be considered disabled and will continue to receive the disability benefits
described in the first sentence of this subsection until he reaches age 55. If
Executive's disability continues until age 55, Executive will retire as an
employee of the Company upon reaching age 55, will become entitled to receive
retirement benefits under this Agreement and any other of the Company's
retirement programs in which Executive is a participant, and upon receipt of
those retirement benefits shall cease to receive disability benefits under this
subsection 5.d.;
e. RETIREMENT AND DEFERRED COMPENSATION PROGRAMS. Executive shall
be entitled to participate in any existing retirement or deferred compensation
programs or other existing employee benefit programs (other than severance pay
programs) of the Company on the Effective Date and shall also be entitled to
participate in any such programs established in the future. The Company hereby
assumes all employer obligations, including funding obligations, under the
Special Executive Retirement Plan (formerly known as the Excess Benefit Plan for
Xxxxxxx X. Xxxxxxxxx), as amended effective January 1, 1993 (the "SERP") and as
hereafter amended;
f. AUTOMOBILE AND CLUB MEMBERSHIPS. During the term of this
Agreement and any extensions thereof, the Company will provide Executive with
one automobile, including operating expenses and insurance, and will pay for up
to three memberships in luncheon, professional or athletic clubs of Executive's
choice;
g. FINANCIAL COUNSELING. The Company shall provide financial, legal
and/or tax counseling services to Executive or, at his request, reimburse him
for such services provided by the provider of his choice, at a cost not to
exceed $10,000 in each calendar year of this Agreement. This shall be in
addition to the financial and/or tax counseling, if any, available to Executive
under a standard program maintained by the Company for senior officers of the
Company; and
h. VACATION. Executive will be entitled to paid vacation of four
weeks per calendar year and any other holiday, sick leave and time off benefits
per existing Company policy, with payment for unused vacation to be made
consistent with Company policy for other employees.
i. DEFERRED STOCK COMPENSATION. Nothing herein shall effect
Executive's right to receive shares of the Company's common stock payable under
stock units credited to a deferred stock account on his behalf pursuant to a
separate agreement or agreements with the Company.
4
6. EXPENSES AND INDEMNIFICATION
a. EXPENSES. Executive is authorized to incur and shall be
reimbursed in full for all reasonable expenses incurred in promoting and
conducting business of the Company, including expenses for entertainment,
travel, business and professional association dues, and similar items.
b. INDEMNIFICATION. The Company will indemnify Executive against
liability claims in accordance with the terms of the Company's standard
Indemnification Agreement made available to its directors and certain of its
officers.
7. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM.
This Agreement shall terminate prior to the expiration of its term only
upon the occurrence of any one of the following events:
a. MUTUAL AGREEMENT. This Agreement may be terminated by mutual
agreement between the Board and Executive upon such terms as the Board and
Executive shall agree.
b. DEATH. This Agreement shall terminate upon the death of
Executive. In such case, Executive's estate or, as appropriate, his designated
beneficiary shall be entitled to the full compensation which Executive would
have received hereunder up to the date of such termination, a prorata portion of
any bonus that he would otherwise have received for the year of termination;
continuation of the Company-provided medical and dental coverage described in
section 5.b. for forty-eight (48) months following termination (or, if longer,
to Executive's spouse until such time as she remarries, and to Executive's
children until their twenty-third birthday or, if enrolled in a junior college,
college or university, until their twenty-sixth birthday); any shares of the
Company's common stock payable under stock units credited to a deferred stock
account on his behalf pursuant to a separate agreement and distributed per the
terms of such agreement and Executive's beneficiary designation; and such other
benefits as are determined in accordance with the Company's employee benefit
plans.
c. DISABILITY. If Executive has become so physically or mentally
disabled as to be incapable of satisfactorily performing the duties of the
office of the Chairman of the Board and Chief Executive Officer for a period of
one hundred eighty (180) consecutive days, either Executive or the Company may,
by written notice to the other, elect to terminate this Agreement. In such
case, Executive shall be entitled to the full compensation which Executive would
have received hereunder up to the date of such termination; a prorata portion of
the bonus that
5
he would have otherwise received for the year of termination; any shares of the
Company's common stock payable under stock units credited to a deferred stock
account on his behalf pursuant to a separate agreement; continuation of the
Company-provided medical and dental coverage and group life insurance described
in sections 5.b. and 5.c. for forty-eight (48) months following termination (or,
if longer, in the case of medical and dental coverage, for the remaining term of
this Agreement); and such other benefits as are determined in accordance with
the Company's employee benefit plans. The determination of whether or not
Executive is disabled shall be made by an independent physician selected by
mutual consent of the Chairman of the Compensation Committee of the Board and
Executive or, if appropriate, Executive's representative.
d. TERMINATION FOR CAUSE. The Company may terminate this Agreement
for cause (as defined below). In such event, Executive shall be entitled to
compensation paid and salary and bonus (including any prorata bonus earned for
the year of termination) earned through the date of termination; continuation of
the Company-provided medical and dental benefits described in section 5.b. for
120 days from the date of termination; but no further compensation hereunder,
except any shares of the Company's common stock payable under stock units
credited to a deferred stock account on his behalf pursuant to a separate
agreement; and such other benefits as are determined in accordance with the
Company's employee benefit plans. For purposes of this Agreement, "cause"
means:
(i) any act of fraud, embezzlement or theft of property of the
Company by Executive, including any conviction which adversely
affects the bonding or liability insurability of Executive or
the Company; or
(ii) conviction of Executive of a felony; or
(iii) an intentional act or omission by Executive, other than one
performed in good faith, that is determined by a ruling of a
regulatory body with jurisdiction in the matter to violate the
law.
No termination for cause shall occur under this subsection 7.d. unless Executive
first shall have received written notice from the Board specifying the acts or
omissions alleged to constitute such event of termination, and Executive fails
to correct the event specified (in the case of an event specified in subsection
7.d.(i) or (ii)) or such conduct continues after Executive shall have had
reasonable opportunity to correct the events specified.
6
e. INVOLUNTARY TERMINATION WITHOUT CAUSE. The Company may, after
giving ninety (90) days' notice in writing to Executive terminate this Agreement
without cause. In the event of such a termination, Executive shall be entitled
an immediate lump sum cash severance payment equal to 2.99 times Executive's
then current annual Base Salary plus 2.99 times Executive's then current annual
target incentive compensation; the full compensation which Executive would have
received hereunder up to the date of such termination; a prorata portion of any
bonus that he would otherwise have received for the year of termination; a
continuation for forty eight (48) months of the benefits provided under
subsections 5.b. through 5.g. (relating to medical and dental benefits, life
insurance, long-term disability benefits, retirement and deferred compensation
benefits, financial counseling, automobile and club memberships) and subsection
6.b. (relating to indemnification); any shares of the Company's common stock
payable under stock units credited to a deferred stock account on his behalf
pursuant to a separate agreement; the immediate exercisability of any options
granted to Executive on or after January 22, 1997; and such other benefits as
are determined in accordance with the Company's benefit plans.
f. VOLUNTARY TERMINATION. Upon ninety (90) days' written notice to
the Company, Executive may terminate this Agreement for any reason. In such
event, Executive's Base Salary will continue for a period of three (3) months
following the date of Executive's notice. Executive shall also be entitled to
any shares of the Company's common stock payable under stock units credited to a
deferred stock account on his behalf pursuant to a separate agreement;
continuation of the Company-provided health and dental coverage, life insurance
and disability benefits described in sections 5.b., 5.c. and 5.d. for a period
of six (6) months following the date of Executive's notice; and such other
benefits as are determined in accordance with the Company's employee benefit
plans. Subsection 7.g., rather than this subsection 7.f., shall govern a
termination without cause if it constitutes a Constructive Termination described
therein.
g. CONSTRUCTIVE TERMINATION. If there is a Constructive Termination
of Executive's employment, Executive shall be entitled to the severance pay and
other benefits described in section 7.e. as if this Agreement had been
terminated by reason of involuntary termination without cause. For purposes of
this Agreement, "Constructive Termination" means one or more of the following:
(i) A material reduction in the duties, responsibilities, status,
reporting responsibilities, title, or offices that Executive had
with the Company immediately before the reduction.
7
(ii) Reduction by more than 10% of the total annual cash compensation
(including base salary and target bonuses) that Executive was
eligible to receive from the Company and its affiliates
immediately before the reduction, except a reduction that both
(A) is part of, and consistent with, an across-the-board
reduction in the salaries of senior officers of the Company and
(B) is not implemented on or after, or in contemplation of, a
Change of Control (as defined in section 8.a. hereof).
(iii) A change in Executive's principal place of employment with the
Company such that Executive's one-way commute will be increased
by more than thirty-five (35) miles.
(iv) The failure of any successor to the Company by merger,
consolidation or acquisition of all or substantially all of the
business of the Company to assume the Company's obligations under
this Contract.
(v) A material breach by the Company of its obligations under this
Contract.
However, a Constructive Termination shall not be deemed to have occurred unless
(i) within sixty (60) days of the occurrence that Executive deems to be a
Constructive Termination, Executive shall have notified the Company in writing
that he has experienced a Constructive Termination, which notice shall describe
the event that he believes constitutes a Constructive Termination, (ii) the
Company has not, within fifteen (15) days of receipt of such notice, corrected
the circumstance that would otherwise result in a Constructive Termination and
(iii) Executive terminates his employment within one hundred twenty (120) days
thereafter.
8. EFFECT OF CHANGE OF CONTROL AND EXCESS PARACHUTE PAYMENTS
a. EFFECT OF CHANGE OF CONTROL. In the event of a change of control
of the Company, including a "Change of Control" as defined in the WellPoint
Health Networks Officer Change of Control Plan in force on the Effective Date of
this Agreement (the "Change in Control Plan"), Executive shall not lose any of
the rights, privileges or guarantees provided to Executive by this Agreement.
The Company, or any successor to the Company following such change of control,
shall be obligated to provide all rights and benefits applicable to Executive
under any plan or program of the Company, and shall, as a condition to the
8
consummation of such change of control, agree to continue and assume all
obligations to provide all such rights and benefits.
b. EFFECT OF EXCESS PARACHUTE PAYMENTS. If Executive's employment
terminates before January 1, 1998 and any compensation under this Agreement,
alone or together with other compensation payable to Executive, would, in the
determination of counsel or other advisor mutually acceptable to the Company and
Executive, constitute an excess parachute payment within the meaning of Section
280G of the Internal Revenue Code of 1986 (the "Code") or any successor section,
subjecting Executive to an excise tax under Section 4999 of the Code or any
successor provision, the Company shall pay Executive an additional amount in
cash which, when added to such compensation, provides Executive with the same
net after-tax compensation (considering Executive's federal and state income tax
brackets and the excise tax on such compensation and such additional payment)
that Executive would realize from such compensation (without such additional
payment) if no excise tax applied. However, if it is determined by counsel (or
other tax advisor for Executive) that Executive's net, after-tax compensation,
considering Executive's federal and state income tax brackets and the excise tax
on excess parachute payments, would be greater if the compensation payable
hereunder were limited so that there were no excess parachute payment, then the
compensation payable hereunder shall be limited, in the manner determined by
such counsel or advisor, to maximize Executive's net after-tax income.
If Executive's employment terminates after December 31, 1997 and it is
determined by counsel (or other tax advisor for Executive) that any compensation
payable hereunder, alone or when aggregated with other compensation payable to
Executive, would constitute an "excess parachute payment" within the meaning of
Section 280G of the Code that would subject Executive to an excise tax under
Section 4999 of the Code and the net after-tax amount that Executive would
realize from such compensation, considering Executive's federal and state income
tax brackets and the excise tax, would be greater if the compensation payable
hereunder were limited , then the compensation payable hereunder shall be
limited, in the manner determined by such counsel or advisor, to maximize
Executive's net after-tax income.
9. ARBITRATION
Any disputes arising out of our in connection with this Agreement or
employment of Executive by the Company which are not resolved between the
Company and Executive shall be submitted to arbitration in accordance with the
rules of Commercial Arbitration of the American Arbitration Association.
9
Any such arbitration shall take place in the city of which Executive
resides at the time of the arbitration. The arbitrator shall be a person
experienced in employment and compensation of corporate business executives who
is mutually acceptable to the Company and Executive. If an arbitrator cannot be
agreed upon within 15 days after a dispute is submitted to arbitration, the
parties shall each select one representative who is not and has never been
associated with the Company and who is not related to Executive, and these two
representatives shall choose a neutral arbitrator with the qualifications
described above. If the representatives cannot reach agreement, one arbitrator
with the qualifications described above shall be selected by the nearest
regional office of the American Arbitration Association.
All actions and proceedings under this section shall be kept confidential
and neither party shall divulge any part thereof to third parties without the
prior written consent of the other party.
10. ENTIRE AGREEMENT
This Agreement, including all attachments and documents incorporated by
reference herein, constitutes the entire understanding between the parties with
respect to Executive's employment with the Company, superseding all prior
agreements, written or oral, concerning said employment and no representations
or statements not incorporated or referred to in this Agreement shall be binding
on either party. This Agreement may not be amended except in writing by the
parties hereto.
11. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of, and be binding upon, the
successors and assigns of the Company.
12. CONSTRUCTION OF AGREEMENT. This Agreement is made and entered into in
the State of California and shall be construed under the laws of California,
without regard to its conflict of laws rules.
Executive Company
By
------------------------- -------------------------
Xxxxx X. Xxxxx
Chair, Compensation
Committee
------------------------- ----------------------------
Date Date
10
Attachments
11
