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EXHIBIT 99.1
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of June 19, 2000, by and between PACIFICARE HEALTH SYSTEMS, INC., a Delaware
corporation (the "Company"), with its principal place of business located at
0000 Xxxx Xxxxxx Xxxxx, Xxxxx Xxx, Xxxxxxxxxx 00000 and Xxxxxx X. X'Xxxxx
("Executive").
RECITALS
WHEREAS, the Company desires to employ Executive in the capacity of
President and Chief Executive Officer.
WHEREAS, the Company and Executive are entering into this Agreement to
establish new terms and conditions of the employment relationship.
NOW, THEREFORE, in consideration of the following covenants, conditions
and promises contained herein, and other good and valuable consideration, the
Company and Executive hereby agree as follows:
1. EMPLOYMENT
1.1 Executive's General Duties. The Company employs Executive and
Executive serves the Company in the capacity of President and Chief Executive
Officer, having such usual and customary duties and authority as an officer of
similar capacity in a corporation of comparable size, holdings, and business as
that of the Company.
Executive shall do and perform all services, acts, or things necessary
or advisable to manage and conduct the business of the Company and shall preside
over such other areas of corporate activity as specified from time to time by
the Board of Directors of the Company. During the term of this Agreement,
Executive shall perform such additional or different duties, and accept the
election or appointment to such other offices or positions as are mutually
agreed upon by Executive and the Company.
1.2 Devotion of Executive. During the term of this Agreement, Executive
shall devote his entire productive time, ability, and attention to the business
of the Company. Executive shall use Executive's best efforts, skills, and
abilities to promote the general welfare and interests of the Company and to
preserve, maintain, and xxxxxx the Company's business and business relationships
with all persons and entities associated therewith, including, without
limitation, employer groups, medical service providers, shareholders,
affiliates, officers, employees, and banks and other financial institutions. The
Company shall give Executive a reasonable opportunity to perform Executive's
duties and shall neither expect Executive to devote more time, nor assign more
duties or functions to Executive, than are customary and reasonable for a person
in Executive's position.
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2. TERM AND TERMINATION
2.1 Term. The term of Executive's employment under this Agreement shall
commence on the date first written above and shall continue unless terminated as
provided in Section 2.2. However, Executive shall be on an unpaid leave of
absence commencing Saturday, June 24, 2000, and continuing through Sunday, July
16, 2000.
2.2 Termination. This Agreement shall be terminated upon the occurrence
of any one of the following events:
a. The death of the Executive.
b. Executive becomes incapacitated or disabled, which
incapacity or disability prevents Executive from fully performing his
duties to the Company for a period in excess of 90 days and, after such
90-day period, the Company and a physician, duly licensed and qualified
in the specialty of Executive's incapacity, decide in their reasonable
judgments, that such incapacity will be of such continued duration as
to prevent Executive from resuming the rendition of services to the
Company for at least an additional six-month period. For purposes of
this Agreement, Executive shall be deemed permanently disabled, and
this Agreement terminated upon the date Executive receives written
notice from the Company that such determination has been made.
c. Executive habitually neglects his duties to the Company or
engages in gross misconduct during the term of this Agreement;
provided, however, that Executive has been given written notice
specifying in reasonable detail the conduct constituting such neglect
of duties or gross misconduct and has failed to remedy such neglect or
misconduct within a 30-day period following receipt of such written
notification. 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 the
expiration of the 30-day period following receipt of written notice
from the Company.
d. Either party hereto may terminate this Agreement, with or
without cause, upon 45 days prior written notice to the other party.
Except for the circumstances described in Section 2.2(c) above,
Executive's termination shall be effective 45 days after receipt of
such written notice. Notwithstanding anything to the contrary in this
Agreement, receipt of the written notice provided in this Section
2.2(d) shall deemed to have occurred two days from the date of the
notice.
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3. COMPENSATION DURING THE TERM OF THIS AGREEMENT
3.1 Base Salary. As long as Executive satisfactorily performs all of
his obligations under this Agreement, the Company shall pay Executive an annual
base salary, payable in equal installments on the Company's regular payroll
dates. As of this date, Executive's annual base salary has been set at $960,000.
On the Company's normal cycle for compensation review (currently January of each
year), the Company shall review Executive's salary, but shall be under no
obligation to increase Executive's salary. Executive authorizes the Company to
take such deductions and withholdings from his salary as are required by law,
directed by Executive, or as reasonably directed by the Company for its
employees, which deductions shall include, without limitation, withholding for
federal and state income taxes and social security.
3.2 Benefits. Executive shall be entitled to fully participate in all
of the employee benefit plans and programs available to other high-level
executives of the Company, including, without limitation, health, dental, and
life insurance benefits for Executive and Executive's dependents, pension and
profit sharing programs, and vacation and sick leave benefits. However, the
terms of this Agreement shall not restrict the Company's right to change, amend,
modify, or terminate any existing benefit plan or program, or to change any
insurance company or modify any insurance policy adopted incident to such
existing benefit plan and program.
3.3 Automobile Allowance. The Company shall provide Executive with a
$850.00 (eight hundred and fifty dollars) per month automobile allowance. The
Company shall furnish Executive with a cellular telephone. Executive shall
provide and maintain automobile insurance for Executive's car including
collision, comprehensive liability, personal and property damage, and uninsured
and underinsured motorist coverage in amounts customarily obtained to cover such
contingencies in the State of California. Executive shall provide proof of such
coverage to the Company upon the Company's request.
3.4 Reimbursement of Expenses. The Company shall pay for or reimburse
Executive for all reasonable travel, entertainment, and other business expenses
incurred or paid for by Executive in connection with the performance of his
services under this Agreement. The Company shall not be obligated to make any
such reimbursement unless Executive presents corresponding expense statements or
vouchers and such other supporting information as the Company may from time to
time reasonably request. The Company reserves the right to place subsequent
limitations or restrictions on business expenses to be incurred or reimbursed.
3.5 Annual Incentive Plan. Executive shall be entitled to participate
fully in the Company's 1996 Management Incentive Compensation Plan, as amended
(the "MICP"), and as may be further amended, modified, or replaced, from time to
time, in accordance with the terms and conditions set forth herein and therein.
3.6 Stock Option Plans. Executive shall be entitled to participate in
the applicable Stock Option Plans for Officers and Key Employees of PacifiCare
Health Systems, Inc., as
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amended, and as may be further amended modified or replaced, from time to time,
in accordance with the terms and conditions set forth herein and therein.
3.7 Insurance. During the term of this Agreement, the Company shall
insure Executive under its general liability insurance for all conduct committed
in good faith while acting in the capacity of President and Chief Executive
Officer of the Company or in any other capacity to which Executive may be
appointed or elected.
3.8 Savings and Profit Sharing Plan. As part of the compensation for
services rendered under this Agreement, Executive shall be entitled to
participate in the Amended and Restated PacifiCare Health Systems, Inc. Savings
and Profit-Sharing Plan, and the trust agreement implemented pursuant thereto,
adopted as of July 1999, as amended, and as may be further amended, modified, or
replaced, from time to time in accordance with the terms and conditions set
forth therein.
3.9 Non-Qualified Deferred Compensation Plans. Executive shall be
entitled to participate in any non-qualified deferred compensation plan
established by the Company, including, without limitation, the Company's
Statutory Restoration Plan, Deferred Compensation Plan, and such other plans as
may be applicable, as such plans may be amended, modified or replaced, from time
to time, in accordance with the terms set forth herein and therein.
4. COMPENSATION FOLLOWING TERMINATION
4.1 Death. In the event that this Agreement is terminated by reason of
Executive's death, Executive's estate or legal representative shall be entitled
to receive the following:
a. Payment of benefits under the life insurance policy
purchased by the Company on Executive's behalf, if any;
b. Payments of benefits under the MICP set forth in Section
3.5 in accordance with the terms of the MICP plan document;
c. Payment of any other bonus amounts or benefits to which
Executive may be entitled under any of the Company's benefit plans; and
d. Executive's legal representative shall be permitted to
exercise any vested and unexercised options granted under the 1996
Stock Option Plan and any other existing stock option plans of the
Company (collectively, the "Stock Option Plans") in accordance with
their terms for a period of one year following Executive's death.
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4.2 Disability. In the event that Executive is terminated because of
incapacity or disability, the Company shall provide Executive with the
following:
a. Payment of benefits under the disability insurance policy
maintained by the Company on Executive's behalf, if any;
b. Payment of benefits under the MICP set forth in Section 3.5
in accordance with the terms of the MICP plan document;
c. The right to exercise any vested and unexercised options
under the Stock Option Plans in accordance with the terms stated
therein;
d. Payment of the automobile allowance as provided under
Section 3.3 for a period of 18 months following the effective date of
such termination; and
e. Payment of any other bonus amounts or benefits to which
Executive may be entitled under any of the Company's benefit plans.
4.3 Neglect, Misconduct or Voluntary Termination. In the event this
Agreement is terminated because of Executive's habitual neglect or gross
misconduct pursuant to Section 2.2(c) or because of Executive's voluntary
termination, the Company shall be relieved from any and all further or future
obligations to compensate Executive; provided, however, that Executive shall be
able to exercise any vested and unexercised awards under the Stock Option Plans
in accordance with the terms set forth therein.
4.4 Discharge. In the event that the Company terminates Executive under
circumstances other than a Change-of-Control (as defined herein) and for any
reason other than Executive's incapacity or disability or neglect/misconduct as
described in Sections 2.2(b) and 2.2(c), respectively, or voluntary termination
then Executive shall be entitled to the following compensation:
a. An amount equal to three times Executive's then current
annual salary under Section 3.1;
b. An amount equal to three times Executive's average MICP
bonus. If Executive has been employed by the Company for more than one,
but less than two years, then the MICP bonus severance payment shall
equal the average of the Executive's MICP award for the prior year and
the target for Executive for the current year If Executive has been
employed by the Company for less than one year, Executive will receive
a bonus severance payment equal to Executive's MICP target for the
current year, pro-rated for the period of time Executive has been
employed by the Company;
c. 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;
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d. Continuation of Executive's and his dependents' medical,
dental and vision benefits for a period of 36 months following the
effective date of such termination;
e. An amount equal to 36 months of Executive's automobile
allowance;
f. Any other bonus amounts or benefits to which the Executive
may be entitled under any of the Company's benefit plans;
g. The Company shall provide to Executive outplacement
services to Executive to assist Executive in securing a position
comparable to the one from which Executive was terminated. The Company
shall be obligated to provide those outplacement services which are
customarily provided by companies of similar size and holdings as those
of the Company to executives with comparable responsibility and
longevity as Executive and for reasonable cost as approved by the
Company. The Company's provision of such outplacement services shall
not limit, restrict, or reduce, in any manner, any and all other
compensation to which Executive is entitled hereunder;
h. Executive shall receive, or have paid, the amounts of
severance compensation provided in clauses (a), (b), (d) and (e) above
in EQUAL installments over a period of 36 months. Payments will be made
either in biweekly installments on the Company's regular paydays or as
currently being paid to Executive;
i. Notwithstanding the foregoing, in the event Executive
engages in employment, whether as an employee, consultant or contractor
with a competitor of the Company during the 36 month period in which
Executive's salary continues pursuant to this Section 4.4, the
severance compensation available to Executive under this Section 4.4
shall be reduced by the amount of any and all gross earnings Executive
earns while engaged in employment with any such competitor or
competitors. For the purposes of this Section 4.4, a "competitor of the
Company" shall include, without limitation, managed care organizations,
including a health maintenance organization, competitive medical plan,
preferred provider organization, provider sponsored organization
("PSO"), or health or life insurance company which owns a managed care
organization, plan or program. Executive agrees to provide immediate
notice to Company upon receipt of any gross earnings received by
Executive from a competitor of Company. Quarterly, Executive shall
provide the Company a certificate certifying as to his employment
status and if employed, the name and business of his current employer;
j. If Executive is rehired by Company, payments of severance
compensation provided for in this Section 4.4 shall cease; and
k. If Executive dies while receiving the salary continuation
benefit as provided in this Section 4.4, Executive's estate will
receive a lump sum payment of the remaining salary continuation
benefit.
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5. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT AS A RESULT OF A
CHANGE OF CONTROL
5.1 Termination of Employment or Resignation for Good Cause
a. Executive's Rights. In the event that, during the term of
this Agreement, the Company undergoes a Change of Control, (as that
term is defined below) and if within 24 months after the consummation
of such change either (1) Executive is involuntarily terminated, except
as provided in Section 5.1(b), or (2) Executive voluntarily terminates
his employment for "good cause" as defined in Section 5.1(d), then
Executive shall be entitled to the following compensation:
1. A lump sum payment consisting of: (i) an amount
equal to three times Executive's then annual salary; (ii) an
amount equal to three times Executive's average MICP bonus
award for the last two years; (iii) a prorated bonus based on
target opportunity for the year in which the Change-of-Control
occurs; (iv) an amount equal to the equivalent of the cost of
36 months of COBRA benefits; and (v) an amount equal to 36
months of Executive's automobile allowance. If Executive has
been employed for more than one, but less than two years, then
the amount attributable to the MICP bonus portion set forth in
clause (ii) above shall equal the average of Executive's MICP
bonus for the prior year and the target for Executive for the
current year. If Executive has been employed for less than one
year, Executive shall receive an amount equal to two times
target bonus for the current year.
2. All unvested stock options shall immediately vest
upon the occurrence of a change of Control. In addition,
Executive shall have the right to exercise any and all
unexercised stock options granted under the Stock Option Plans
in accordance with their terms, as if all such unexercised
stock options were fully vested, within one year of the
effective date of such termination;
3. The Company shall provide to Executive the
outplacement services described in Section 4.4(g); and
4. Any other bonus amounts or benefits to which
Executive may be entitled under any of the Company's benefit
plans.
x. Xxxxx Up for Excise Tax Liability. If it shall be
determined that any payment or benefit received by Executive under this
Agreement as a result of a Change in Control of the Company or any
affiliate thereof (all such payments and benefits a "Payment"), would
be subject to the excise tax imposed by Section 4999 of the Internal
revenue Code of 1986, as amended (the "Code") (the "Excise Tax"), then
the Company shall pay to Executive an additional payment (a "Gross-Up
Payment") in an amount necessary to reimburse Executive, on an
after-tax basis, for the Excise Tax. All
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determinations required to be made under this Section 5.1(b), including
whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment shall be made by a nationally recognized accounting firm
acceptable to the Company (the "Accounting Firm") which shall provide
detailed supporting calculations to both the Company and Executive
within 15 business days of the request for such determination. Such
request may be made by either party. The Company shall pay the fees and
expenses of the Accounting Firm in connection with any determinations
hereunder.
c. Limitation of Benefits. In the event that Executive is
terminated within 24 months after a Change of Control of the Company,
and such termination results from either Executive's death, incapacity
or disability or habitual neglect or gross misconduct, then,
notwithstanding anything in this Section 5 to the contrary, Executive
shall receive only that compensation, if any, to which he is entitled
to under Sections 4.1, 4.2 and 4.3, respectively.
d. Change of Control. As used in this Section 5, the term
"Change of Control" means and refers to:
1. any merger, consolidation, sale of the Company,
sale of stock or securities of the Company, and/or other
transaction whereby 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
power of the Company's then outstanding securities;
2. any transaction in which the Company sells or
otherwise disposes of substantially all of its material
assets;
3. a dissolution or liquidation of the Company;
4. the Company becomes a non-publicly held company;
or
5. any change in the composition of the Company's
Board of Directors during an 18-month period such that the
individuals who at the beginning of such 18-month period were
directors of the Company shall cease for any reason (other
than death, disability or retirement) to constitute a majority
of the Board of Directors of the Company.
d. Good Cause. As used in this Agreement "good cause" for
Executive to terminate his employment shall be deemed to exist if
Executive voluntarily terminates employment within 24 months of a
Change of Control for any of the following reasons:
1. Without Executive's express prior written consent,
Executive is assigned duties materially inconsistent with
Executive's position, duties,
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responsibilities, or status with the Company which
substantially varies from that which existed immediately prior
to such change of ownership or control;
2. Without Executive's express prior written consent,
Executive experiences a change in his reporting level, titles,
or business location (or more than 50 miles from his current
business location or residence whichever is closer to the new
business location) which substantially varies from that which
existed immediately prior to the Change of Control; except
that if Executive is not located at the Company's corporate
headquarters in California, a relocation to the Company's
corporate headquarters in California shall not be deemed a
substantial variation, unless Executive's reporting level or
title is also substantially varied.
3. Without Executive's express prior written consent,
Executive is removed from any position held immediately prior
to the change of ownership or control, or if Executive fails
to obtain reelection to any position held immediately prior to
the change of ownership or control, which removal or failure
to reelect is not directly related to Executive's incapacity
or disability, habitual neglect, gross misconduct or death;
4. Without Executive's express prior written consent,
Executive experiences a reduction in salary of more than 10
percent below that which existed immediately prior to the
change of ownership or control.
5. Without Executive's express prior written consent,
Executive experiences an elimination or reduction of any
employee benefit, business expense reimbursement or allotment,
incentive bonus program, or any other manner or form of
compensation available to Executive immediately prior to the
Change of Control and such change is not otherwise applied to
others in the Company with Executive's position or title;
6. The Company fails to obtain from any successor,
before the succession takes place, a written commitment
obligating the successor to perform this Agreement in
accordance with all of its terms and conditions; or
7. The Company or any successor thereto purports to
terminate Executive pursuant to Section 4.4 without first
giving Executive prior written notice thereof that specifies
the facts and circumstances, in reasonable detail, serving as
the basis for Executive's termination.
5.2 Resignation for Other Than Good Cause After a Change of Control. In
the event that the Company undergoes a Change-of-Control and Executive remains
with the Company for 12 months following the effective date of the
Change-of-Control, Executive will be given a 30-day "window period" in which to
elect to voluntarily terminate Executive's employment for reasons other than
good cause. Should Executive choose to terminate Executive's employment
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within the 30-day "window period," then Executive shall be entitled to the
following compensation:
a. One-half the lump sum payment referred to in Section
5.1(a)(1).
b. The right to exercise all vested and unexercised stock
options granted under the Stock Option Plans in accordance with their
terms within one year of the effective date of such termination.
c. Outplacement services as defined in Section 4.4(g).
6. NOTICES
All notices or other communications required or permitted to be made
hereunder shall be given in writing and sent by either personal delivery,
overnight delivery, or United States registered or certified mail, return
receipt requested, all of which shall be properly addressed with postal or
delivery charges prepaid, to the parties at their respective addresses set forth
below, or to such other addresses as either party may designate to the other in
accordance with this Section 5:
If to the Company: PacifiCare Health Systems, Inc.
0000 Xxxx Xxxxxx Xxxxx
Xxxxx Xxx, Xxxxxxxxxx 00000
Attn: Chairman of the Board of Directors
If to Executive: Xxxxxx X. X'Xxxxx
Mailing Address: X.X. Xxx 0000
Xxxxx Xxxxx Xx, Xxxxxxxxxx 00000
All notices sent by personal delivery shall be deemed given when actually
received. All notices sent by overnight delivery shall be deemed received on the
next business day. All other notices sent via United States mail shall be deemed
received no later than two business days after mailing. Any notice given by any
method not expressly authorized herein, shall nevertheless be effective if
actually received, and shall be deemed given upon actual receipt.
7. GENERAL PROVISIONS
7.1 Severance Agreement. Any payments of compensation made pursuant to
Sections 4 and 5, except for the cash compensation related to the Premium Priced
Options set forth in
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Section 3.10, are contingent on Executive executing the Company's standard
severance agreement, including a general release of the Company, its owners,
partners, stockholders, directors, officers, employees, independent contractors,
agents, attorneys, representatives, predecessors, successors and assigns,
parents, subsidiaries, affiliated entities and related entities.
7.2 Assignability. This Agreement shall inure to the benefit of, and
shall be binding upon the heirs, executors, administrators, successors, and
legal representatives of Executive and shall inure to the benefit of, and be
binding upon the Company and its successors and assigns. Executive shall not
assign, delegate, subdelegate, transfer, pledge, encumber, hypothecate, or
otherwise dispose of this Agreement, or any rights, obligations, or duties
hereunder, and any such attempted delegation or disposition shall be null and
void and without any force or effect; provided, however, that nothing contained
herein shall prevent Executive from designating beneficiaries for insurance,
death or retirement benefits.
7.3 Entire Agreement. This Agreement is a fully integrated document and
contains any and all promises, covenants, and agreements between the parties
hereto with respect to Executive's employment. This Agreement supersedes any and
all other, prior or contemporaneous, discussions, negotiations, representations,
warranties, covenants, conditions, and agreements, whether written or oral,
between the parties hereto. Except as expressed herein, the parties have not
exchanged any other representations, warranties, inducements, promises, or
agreements respecting Executive's employment with the Company.
7.4 Severability. In the event any one or more of the provisions of
this Agreement shall be rendered by a court of competent jurisdiction to be
invalid, illegal, or unenforceable, in any respect, such invalidity, illegality,
or unenforceability shall not affect or impair the remainder of this Agreement
which shall remain in full force and effect and enforced accordingly, unless a
party demonstrates by a preponderance of the evidence that the invalidated
provision was an essential economic term of this Agreement.
7.5 Amendment. This Agreement shall not be changed, amended, or
modified, nor shall any performance or condition hereunder be waived, in whole
or in part, except by written instrument signed by the party against whom
enforcement or waiver is sought. The waiver of any breach of any term or
condition of this Agreement shall not be deemed to constitute the waiver of any
other or subsequent breach of the same or any other term or condition of this
Agreement.
7.6 Governing Law. This Agreement shall be governed by, enforced under,
and construed in accordance with the laws of the State of California.
7.7 Registration of Shares, etc. Any shares issuable upon exercise of
the Options have been duly authorized and will be validly issued, and will be
listed on the New York Stock Exchange or qualified for trading on Nasdaq, as
applicable. Promptly following the execution of this Agreement the Company will
file a Registration Statement on Form S-8 for the registration of the shares
issuable upon exercise of the Options granted to Executive.
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7.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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/ XXXXX XXXX
-----------------------------------------
By: Xxxxx Xxxx
Title: Chairman of the Board of Directors
/s/ XXXXXX X. X'XXXXX
Executive: -----------------------------------------
Xxxxxx X. X'Xxxxx
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