EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), originally entered into by and
between WELLPOINT HEALTH NETWORKS INC. ("the Company") and XXXXXXX X.
XXXXXXXXX ("Executive") effective January 22, 1997 (the "Effective Date"),
and subsequently amended on three separate occasions, is hereby amended and
restated in its entirety effective February 10, 1999.
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 Blue Cross of California ("BCC"), which was
previously the principal stockholder of the Company's
predecessor-in-interest ("Old WellPoint").
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 BCC.
C. The Company and Executive entered into this Agreement as of the Effective
Date to clarify the terms of Executive's employment with the Company,
amended it on three separate occasions and wish to further amend the
Agreement effective February 10, 1999.
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.)
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.
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
-2-
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
totaling three times Executive's then current Base Salary; which obligation
may be satisfied in whole or in part by life insurance coverage provided
through one or more individual policies of insurance or through Company-paid
coverage under the Company's life insurance programs for employees or
executives generally.
d. LONG-TERM DISABILITY. The Company shall provide to Executive
for the term of this Agreement and any extensions long-term disability
benefits at an annual level equal to Executive's then current Base Salary,
which obligation may be satisfied in whole or in part by payment of salary
continuation, disability insurance coverage under one or more individual
disability insurance policies the premiums of which are paid by the Company,
through Company-paid coverage under the Company's disability insurance
programs for employees or executives generally and/or, if necessary
self-insurance. Such benefits shall begin upon disability (that prevents
Executive from performing his duties as Chairman and Chief Executive Officer)
and shall continue until at least age 65 (or if earlier, the date that such
disability ceases). However, if Executive begins to receive retirement
benefits under the Special Executive Retirement Plan (formerly known as the
Excess Benefit Plan for Xxxxxxx X. Xxxxxxxxx), as amended and restated
effective February 10, 1999 and as hereafter amended (the "SERP"), the
Company's obligation to provide disability benefits shall be reduced by the
amount of such retirement benefits. If any long-term disability policy
through which the Company satisfies its obligations hereunder does not
provide for such a reduction, then to the extent necessary to prevent the
payment of disability payments in excess of Company's obligation hereunder,
any benefits that continue to be paid from such policy after retirement
benefits begin under the SERP shall be in satisfaction on a dollar-for-dollar
basis of the Company's obligation to provide retirement benefits under the
SERP.
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, including the Company's Change of Control Severance
Plan) of the Company on the Effective Date and shall also be entitled to
participate in any such programs established in the future. For this purpose
any split-
-3-
dollar life insurance arrangement maintained for Executive shall not be
deemed to be a severance benefit. The Company shall continue to perform its
obligations, including funding obligations, under the SERP (as defined in (d)
above)."
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.
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. Simultaneous with execution of
the February 10, 1999 restatement of this Agreement, the Company shall issue
to Executive those sixty-four thousand one hundred eighty-seven (64,187)
shares of the Company's common stock previously credited to a deferred stock
account on his behalf and otherwise payable upon Executive's termination of
employment. Issuance of these shares shall be in full satisfaction of the
Company's obligations with respect to such shares. To assist Executive in
the payment of taxes resulting from such issuance, the Company shall make an
extension of credit to Executive under the terms of the promissory note
attached to here as Attachment No. 2.
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.
-4-
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 (i) the full compensation which
Executive would have received hereunder up to the date of such termination,
(ii) a prorata portion of any bonus that he would otherwise have received for
the year of termination; (iii) 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); and (iv) 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 (i) the full compensation which
Executive would have received hereunder up to the date of such termination; a
prorata portion of the bonus that he would have otherwise received for the
year of termination; (ii) 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 (vi) 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 such other benefits as are determined
in accordance with the Company's employee benefit plans. For purposes of
this Agreement, "cause" means:
-5-
(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.
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 to (i) 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; (ii) the full compensation
which Executive would have received hereunder up to the date of such
termination; (iii) a prorata portion of any bonus that he would otherwise
have received for the year of termination; (iv) 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); (v) the immediate exercisability of any options granted to
Executive on or after January 22, 1997; and (vii) 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 (i) 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 (ii) 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:
-6-
(i) A material reduction in the duties, responsibilities, status,
reporting responsibilities, title, or offices that Executive
had with the Company immediately before the reduction.
(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.
h. ADDITIONAL BENEFITS UPON TERMINATION OF AGREEMENT. If
Executive's employment with the Company terminates for reason other than
cause (as defined above), he shall be entitled to the following additional
benefits, if and to the extent that such benefits would not otherwise be
provided under Sections 7.b. through 7.g. above: (i) transfer to Executive
of full title and ownership of the automobile then provided to him pursuant
to section 5.f., (ii) the financial counseling benefits referred to in
section 5.g. for the five calendar years following the year of termination
(which shall include the services referred to in the first sentence thereof
along with such financial and/or tax counseling then provided generally to
senior officers of the Company), (iii) office space and clerical support for
a period of sixty (60) months following such termination and (iv) such other
retirement benefits as are determined in accordance with the Company's
employee benefit plans.
-7-
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-in-Control' as defined in the
WellPoint Health Networks Inc. Officer Change-in-Control Plan effective as of
February 12, 1998 or any subsequently adopted similar 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 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 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 a 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 or any successor provisions,
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.
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.
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.
-8-
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
/s/ Xxxxxxx X. Xxxxxxxxx
------------------------------ By /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------
Chair, Compensation Committee
Attachments
-9-
