Ex. 10.24
SEVERANCE PAYMENT AGREEMENT
This Severance Payment Agreement (this "Agreement") is entered into as of
April 6, 1998, between Foundation Health Systems, Inc., a Delaware corporation
(the "Company"), on the one hand, and Xxxxxxx X. Xxxxx ("Employee"), on the
other hand.
WHEREAS, the Company currently employs Employee as its President of FHS
Workers' Compensation Division; and
WHEREAS, the Company and the Employee desire to enter into this Agreement
to provide for the continued employment of the Employee by the Company upon the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Company and Employee hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement (the "Covered Period")
shall commence on the date hereof (the "Effective Date") and continue throughout
Employee's term of employment with the Company. Any payments to be made
pursuant to Section 3 hereof shall only be made if Employee is terminated by the
Company without Cause or terminated by Employee with Good Reason as provided in
said Section 3.
2. DUTIES OF EMPLOYEE. Employee shall serve as President of FHS Workers'
Compensation Division of the Company. During the term of employment, except as
otherwise provided herein, Employee shall devote his/her entire business time,
attention and effort to the business of the Company and shall use his/her
reasonable best efforts to promote the interests of the Company.
3. TERMINATION OF EMPLOYMENT.
3.1 TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may
terminate Employee's employment without Cause (as defined below) at any time.
In the event that the Company does so terminate Employee's employment without
Cause at any time within two (2) years after a Change of Control (as defined
below) of the Company Employee shall nevertheless be entitled, as a severance
allowance, to (i) continuation of all medical, health, disability, life and
accident insurance maintained for Employee's benefit immediately prior to the
date of Employee's termination (collectively, "Benefits") for a period of three
(3) years from the date of termination and (ii) a lump sum cash payment equal to
three (3) times the base salary ("Base Salary") of the Employee in effect
immediately prior to the date of Employee's termination. In the event that the
Company does so terminate Employee's employment without Cause at any time that
is not within two (2) years after a Change of Control of the Company, Employee
shall nevertheless be entitled, as a severance allowance, to (i) continuation of
all Benefits for a period of one (1) year from the date of termination and (ii)
a lump sum cash payment equal to one (1) times the Base Salary of the Employee
in effect immediately prior to the date of Employee's termination.
3.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Employee's employment for Cause at any time without notice. In the event of
such termination, Employee shall not be eligible to receive any payments set
forth in this Section 3. For purposes of this Agreement, Cause shall include,
without limitation, (a) an act of dishonesty causing harm to the Company, (b)
the knowing disclosure of confidential information relating to the Company's
business, (c) habitual drunkenness or narcotic drug addiction, (d) conviction of
a felony or a misdemeanor involving moral turpitude, (e) willful refusal to
perform or gross neglect of the duties assigned to Employee, (f) the willful
breach of any law that, directly or indirectly, affects the Company, (g) a
material breach by the Employee following a Change of Control of those duties
and responsibilities of the Employee that do not differ in any material respect
from the duties and responsibilities of the Employee during the 90-day period
immediately prior to such Change of Control (other than as a result of
incapacity due to physical or mental illness) which is demonstrably willful and
deliberate on the Employee's part, which is committed in bad faith or without
reasonable belief that such breach is in the best interests of the Company and
which is not remedied in a reasonable period of time after receipt of written
notice form the Company specifying such breach, or (h) breach of the provisions
of Section 9 of this Agreement.
3.3 VOLUNTARY TERMINATION BY EMPLOYEE WITHOUT GOOD REASON.
Notwithstanding anything to the contrary in this Agreement, whether express or
implied, Employee may at any time terminate his/her employment for any reason by
giving the Company fourteen (14) days prior written notice of the effective date
of termination. In the event that Employee's employment with the Company is
voluntarily terminated by Employee without Good Reason (as defined below),
Employee shall not be eligible to receive any payments set forth in this
Section 3.
3.4 VOLUNTARY TERMINATION BY EMPLOYEE WITH GOOD REASON.
Notwithstanding the preceding Section 3.3, in the event that Employee's
employment with the Company is voluntarily terminated by Employee with Good
Reason within two (2) years after a Change of Control of the Company, Employee
shall nevertheless be entitled, as a severance allowance, to (i) continuation of
his/her Benefits for a period of three (3) years from the date of termination
and (ii) a lump sum cash payment equal to three (3) times Base Salary of the
Employee in effect immediately prior to the date of Employee's termination;
provided that, in the event the Company requests, in writing, prior to such
voluntary termination that Employee continue in the employ of the Company for a
period of time up to 90 days following such Change of Control, then Employee
shall forfeit such severance allowance if he/she voluntarily leaves the employ
of the Company prior to the expiration of such period of time. For purposes of
this Agreement, Good Reason shall mean any of the following which occurs
subsequent to the Effective Date:
(i) a demotion or a substantial reduction in the scope of Employee's
position, duties, responsibilities or status with the Company or any new
parent company of the Company, or any removal of Employee from or any
failure to reelect Employee to any of the positions (or functional
equivalent of such positions) referred to in the introductory
2
paragraphs hereof, except in connection with the termination of his/her
employment for Disability (as defined below), normal retirement or Cause or
by Employee voluntarily other than for Good Reason;
(ii) a reduction by the Company in Employee's Base Salary or a
material reduction in the benefits or perquisites available to Employee as
in effect immediately prior to any such reduction;
(iii) a relocation of Employee to a work location more than fifty
(50) miles from Employee's work location immediately prior to such proposed
relocation; provided that such proposed relocation results in a materially
greater commute for Employee based on Employee's residence immediately
prior to such relocation; or
(iv) the failure of the Company to obtain the assumption agreement
from any successor as contemplated in Section 12.5 of this Agreement.
For purposes of this Agreement, Change of Control shall mean any of the
following which occurs subsequent to the Effective Date:
(a) Any person (as such term is defined under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")),
corporation or other entity (other than the Company or any employee benefit
plan sponsored by the Company or any of its subsidiaries) is or becomes the
beneficial owner (as such term is defined in Rule 13d-3 under the Exchange
Act) of securities of the Company representing twenty percent (20%) or more
of the combined voting power of the outstanding securities of the Company
which ordinarily (and apart from rights accruing under special
circumstances) have the right to vote in the election of directors
(calculated as provided in paragraph (d) of such Rule 13d-3 in the case of
rights to acquire the Company's securities) (the "Securities");
(b) As a result of a tender offer, merger, sale of assets or other
major transaction, the persons who are directors of the Company immediately
prior to such transaction cease to constitute a majority of the Board of
Directors of the Company (or any successor corporations) immediately after
such transaction;
(c) The Company is merged or consolidated with any other person,
firm, corporation or other entity and, as a result, the shareholders of the
Company, as determined immediately before such transaction, own less than
eighty percent (80%) of the outstanding Securities of the surviving or
resulting entity immediately after such transaction;
(d) A tender offer or exchange offer is made and consummated for the
ownership of twenty percent (20%) or more of the outstanding Securities of
the Company;
3
(e) The Company transfers substantially all its assets to another
person, firm, corporation or other entity that is not a wholly-owned
subsidiary of the Company; or
(f) The Company enters into a management agreement with another
person, firm, corporation or other entity that is not a wholly-owned
subsidiary of the Company and such management agreement extends hiring and
firing authority over Employee to an individual or organization other than
the Company.
4. PAYMENTS UPON TERMINATION OF EMPLOYMENT. In the event that the
Employee's employment is terminated for any reason, then the Company shall pay
to the Employee (or his/her beneficiaries or estate) in addition to any payments
that may be due under Section 3 above or Section 5 below, within 30 days
following the date of termination, a cash amount equal to the sum of the
Employee's annual Base Salary from the Company through the date of termination,
any compensation previously deferred by the Employee (together with any interest
and earnings thereon), any vacation pay accrued prior to the termination date,
any reimbursable expenses incurred by the Employee prior to the termination date
and any other compensatory plan, arrangement or program payment to which
Employee may be entitled, in each case to the extent not theretofore paid.
5. TERMINATION OF EMPLOYEE DUE TO DEATH OR DISABILITY. In the event that
Employee's employment is terminated at any time during the Covered Period due to
death or Disability, Employee (or his beneficiaries or estate) shall
nevertheless be entitled, as a severance allowance, to (i) continuation of all
Benefits for a period of one (1) year from the date of termination and (ii) a
lump sum cash payment equal to one (1) times the Base Salary of the Employee in
effect immediately prior to the date of Employee's termination. For purposes of
this Agreement, a termination for "Disability" shall mean a termination of
Employee's employment due to the Employee's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Employee's incapacity due to physical or mental illness.
6. WITHHOLDING TAXES. The Company shall withhold from all payments due to
the Employee (or his/her beneficiaries or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company may reasonably
determine should be withheld therefrom.
7. TAX CONSEQUENCES. The Company shall have no obligation to any person
entitled to the benefits of this Agreement with respect to any tax obligation
any such person may incur as a result of or attributed to this Agreement or
arising from any payments made or to be made hereunder. Nothing contained
herein shall be construed as a warranty or representation of any kind by the
Company to Employee with respect to the tax consequences of him or her with
respect to this Agreement.
8. LIMITATION ON PAYMENTS BY THE COMPANY. Solely for the purposes of the
computation of payments to be made pursuant to this Agreement and
notwithstanding any other provisions hereof, payments to the Employee under this
Agreement (other than the payments required to be made pursuant to Section 4
hereof) shall be reduced (but not below zero) so that the present value, as
determined in accordance with Section 280G(d)(4) of the Internal Revenue Code of
1986, as amended (the "Code"), of such payments plus any other payments that
must be taken
4
into account for purposes of any computation relating to the Employee under
Section 280G(b)(2)(a)(ii) of the Code, shall not, in the aggregate, exceed 2.99
times the Employee's "base amount," as such term is defined in Section
280G(b)(3) of the Code. Notwithstanding any other provision hereof, no
reduction in payments under the limitation contained in the immediately
preceding sentence shall be applied to payments hereunder which do not
constitute "excess parachute payments" within the meaning of the Code. Any
payments in excess of the limitation of this Section 8 or otherwise determined
to be "excess parachute payments" made to the Employee hereunder shall be deemed
to be overpayments which shall constitute an amount owing from the Employee to
the Company with interest from the date of receipt by the Employee to the date
of repayment (or offset) at the applicable federal rate under Section 1274(d) of
the Code, compounded semi-annually, which shall be payable to the Company upon
demand; PROVIDED, HOWEVER, that no repayment shall be required under this
sentence if in the written opinion of tax counsel satisfactory to the Employee
and delivered to the Employee and the Company such repayment does not allow such
overpayment to be excluded for federal income and excise tax purposes from the
Employee's income for the year of receipt or afford the Employee a compensating
federal income tax deduction for the year of repayment.
9. CONFIDENTIALITY. Employee acknowledges and agrees that, during the
period of his/her employment by the Company, he/she has and will continue to
have access to and become acquainted with various trade secrets, including, but
not limited to, various procedures, practices, information regarding the
organization and operation of the Company, confidential customer information,
marketing methods, compilations of information and records that are owned by the
Company and that are regularly used in the operation of its business. The
parties stipulate that such items of information are important, material and
confidential trade secrets and affect the successful conduct of the Company's
business and its goodwill, and that any breach of this Section 9 shall be a
material breach of this Agreement. All documents, memoranda, reports, files,
correspondence, lists and other written and graphic records affecting or
relating to the Company's business that Employee may prepare, use, observe,
possess or control shall be and remain the Company's sole property. Employee
shall not disclose any of these trade secrets, directly or indirectly, or use
them in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment by the Company or
as otherwise authorized in writing by the Company. In the event of the
termination of Employee's employment with the Company, Employee shall deliver
promptly to the Company all written or graphic records containing such trade
secrets or confidential information of the Company.
10. ENFORCEMENT. The parties hereto agree that the Company would be
damaged irreparably in the event any provision of Section 9 of this Agreement
were not performed in accordance with its terms or were otherwise breached and
that money damages would be inadequate remedy for any such nonperformance or
breach. Therefore, the Company or its successors or assigns shall be entitled,
in addition to other rights and remedies existing in their favor, to an
injunction or injunctions to prevent any breach or threatened breach of any of
such provisions and to enforce such provisions specifically (without posting a
bond or other security).
11. SURVIVAL. Sections 9 and 10 of this Agreement and any rights and
remedies arising out of this Agreement shall survive and continue in full force
and effect in accordance with the
5
respective terms thereof, notwithstanding any termination of this Agreement or
the Employee's employment.
12. MISCELLANEOUS.
12.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes any and all other agreements,
whether oral or written, between the parties hereto with respect to the subject
matter hereof except that existing written severance arrangements or policies
applicable to Employee shall continue in full force and effect for the term
thereof to the extent, but only to the extent, such written arrangements or
policies afford Employee a greater severance payment benefit than that provided
for herein. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or written, have been made by any
party or anyone acting on behalf of any party that are not embodied herein, and
that no other agreement, statement or promise not contained in this Agreement
shall be valid or binding.
12.2 RIGHT TO TERMINATE EMPLOYMENT. It is hereby agreed that the
relationship between the Company and Employee is merely an "at-will" employment
relationship and that nothing in this Agreement shall confer upon Employee the
right to continue in the employment of the Company or affect any right which the
Company has to terminate the employment of Employee.
12.3 AMENDMENTS. This Agreement may not be amended or terminated
other than by a written instrument signed by the party against whom enforcement
of such amendment or termination is sought. No amendments to this Agreement or
interpretations hereof or any waivers or modifications of any of the provisions
hereof may be made on behalf of the Company without the approval of the Board of
Directors or the Compensation and Stock Option Committee of the Company.
12.4 WAIVER. No waiver of any default under this Agreement shall
constitute or operate as waiver of any subsequent default, and no delay, failure
or omission in exercising or enforcing any right, privilege or option hereunder
shall constitute a waiver, abandonment or relinquishment thereof. No waiver of
any provision hereof by either party hereto shall be deemed to have been made
unless or until such waiver shall have been reduced to writing and signed by the
party making such waiver. Failure by either party to enforce any of the terms,
covenants or conditions of this Agreement for any length of time or from time to
time shall not be deemed to waive or decrease the rights of such party to insist
thereafter upon strict performance by the other party.
12.5 SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such
6
merger, consolidation or transfer of assets, the provisions of this Agreement
shall be binding upon the surviving or resulting corporation or the person or
entity to which such assets are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
12.5, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Employee (or his beneficiary or estate), all
of the obligations of the Company hereunder. Failure of the Company to obtain
such assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall entitle the
Employee to compensation and other benefits from the Company in the same amount
and on the same terms as the Employee would be entitled hereunder if the
Employee's employment were terminated following a Change of Control other than
by the Company for Cause. For purposes of implementing the foregoing, the date
on which any such merger, consolidation or transfer becomes effective shall be
deemed the date of termination.
(c) This Agreement shall inure to the benefit of and be enforceable
by the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee shall
die while any amounts would be payable to the Employee hereunder had the
Employee continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Employee to receive such amounts or, if no
person is so appointed, to the Employee's estate.
12.6 NOTICES.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed (i) if to the Employee, to the most recent address set forth in the
Company's personnel files of the Employee, and if to the Company, to Foundation
Health Systems, Inc., 00000 Xxxxxx Xxxxxx, Xxxxxxxx Xxxxx, XX 00000, attention:
General Counsel, or (ii) to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
(b) A written notice of the Employee's date of termination by the
Company or the Employee, as the case may be, to the other, shall (i) indicate
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated and (iii) specify the termination date (which date
shall be not less than 15 days after the giving of such notice). The failure by
the Employee or the Company to set forth in such notice any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Employee or the Company hereunder or preclude the Employee or the Company
from asserting such fact or circumstance in enforcing the Employee's or the
Company's rights hereunder.
7
12.7 FULL SETTLEMENT.
(a) The Company's obligation to make any payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Employee or others. In no
event shall the Employee be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Employee under any of
the provisions of this Agreement, and such amounts shall not be reduced whether
or not the Employee obtains other employment.
(b) The Company's obligation to make any payment provided for in this
Agreement shall be expressly subject to Employee entering into a full release of
all claims against the Company substantially in the form of the Waiver and
Release of Claims attached as EXHIBIT A hereto. Employee hereby expressly
agrees to execute such a Waiver and Release of Claims upon his or her
termination of employment.
12.8 EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
12.9 GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which other provisions shall remain in
full force and effect.
12.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
FOUNDATION HEALTH SYSTEMS, INC.
By: /s/ B. Xxxxxx Xxxxxx
--------------------------------------------------
Name: B. Xxxxxx Xxxxxx, Esq.
Title: Senior Vice President, General Counsel
and Secretary
Xxxxxxx Xxxxx
-----------------------------------------------------
Employee: Xxxxxxx X. Xxxxx
8
