1
Exhibit 10.14
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the ____ day of
_________, 199___, by and between Xxxxxxx X. Xxxxx ("Executive") and Coventry
Health Care, Inc. ("Employer"), a Delaware corporation with its principal place
of business at 0000 Xxxxxxxxx Xx., Xxxxxxxx, Xxxxxxxx 00000.
W I T N E S S E T H:
WHEREAS, Executive desires to enter into an employment relationship
with Employer and Employer desires to employ Executive; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. On the Date of Employment (as defined in Section 3
below), Executive shall be engaged by Employer as its Executive Vice President
and Chief Operating Officer. Executive hereby agrees to such employment on and
after the Date of Employment under the terms and conditions hereinafter set
forth.
2. DUTIES. As Executive Vice President and Chief Operating Officer,
Executive shall report to the President and Chief Executive Officer and shall be
responsible for the overall direction, administration and leadership of
Employer, including, but not limited to, the establishment and implementation of
policies and directives, formulation of long range plans, goals and objectives,
effective management of employees, oversight of plan operations, and such other
powers and duties normally associated with such position or as may be delegated
or assigned to Executive by Employer's President and Chief Executive Officer or
Board of Directors. During the term of this Agreement, Executive shall also
serve without additional compensation in such other offices of the Employer or
its subsidiaries or affiliates to which he may be elected or appointed by the
Board of Directors of Employer or its subsidiaries or affiliates, respectively.
3. DATE OF EMPLOYMENT. Executive's employment shall commence on the
date of closing of the Merger and the Capital Contribution as those terms are
defined in that certain Capital Contribution and Merger Agreement, as amended,
effective as of November 3, 1997, by and among Employer, Coventry Corporation,
Coventry Health Care, Inc., (a Maryland corporation), Principal Health,
Principal Holding Company and Principal Mutual Life Insurance Company, (the
"Date of Employment").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of one year beginning
on the Date of Employment. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of Four Hundred Fifty Thousand
Dollars ($450,000), annually, to be reviewed on an annual basis based upon the
performance of Executive. The Base Salary shall be paid to Executive in equal
semi-monthly payments in accordance with Employer's
1
2
normal payroll policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
EMPLOYER STOCK OPTIONS: Employer shall assume that certain
Non-Qualified Stock Option Agreement (the "Stock Option Agreement") between
Executive and Principal Health Care, Inc., an Iowa corporation ("Principal
Health"), as of the Closing of the Merger and the Capital Contribution as those
terms are defined in that certain Capital Contribution and Merger Agreement, as
amended, entered into as of December ___, 1997, by and among Employer, Coventry
Corporation, Coventry Health Care, Inc., (a Maryland corporation), Principal
Health, Principal Holding Company and Principal Mutual Life Insurance Company,
which grants to Executive a nonqualified stock option to purchase 400,000 shares
of Common Stock of Principal Health Care, Inc., at an exercise price of $14.50
per share, vesting at a rate of one-third of the shares per year over a
three-year vesting period commencing March 31, 1999, or in the event of a change
in control (as defined in Principal Health's 1997 Non-Qualified Stock Option
Plan).
BONUS COMPENSATION: Executive shall be eligible for an annual bonus
("Bonus") potential of 100% of Base Compensation, which shall be determined as
follows: (i) up to 50% shall be based upon achievement of budget and other
operational performance factors, and (ii) all or any part of the remaining 50%
shall be granted in the sole discretion of the Compensation and Benefits
Committee (the "Committee") of the Board of Directors of Employer. Executive's
bonus and performance factors shall be determined on an annual basis by the
Committee, with Executive's initial Bonus amount and terms to be determined
within the first 60 days of employment based upon mutually agreeable criteria.
DISCRETIONARY EXPENSE ALLOWANCE: Executive shall be entitled to a
discretionary expense allowance of $1,200.00 per month.
OTHER BENEFITS: Executive will be eligible for participation in any
employee benefit programs available to officers of Employer from time to time as
provided in Section 15 below.
7. EXPENSES. Executive shall be reimbursed for ordinary and necessary
business expenses incurred by Executive on behalf of Employer and its
subsidiaries or affiliates upon presentation of vouchers in accordance with the
usual and customary procedure of Employer in relation to such expense items,
except that Employer may elect, at its option, to pay such expense items
directly rather than reimburse Executive therefor.
8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 14(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated (i) by Employer for any
reason other than Good Cause (as defined in
2
3
Section 25 below) or other than under the terms of Section 11 below, or (ii) by
Executive for Good Reason (as defined in Section 25 below), unless the terms of
Section 11 below apply, the following provisions will apply:
(a) Employer shall during the Severance Period (as
defined in Section 25 below), continue to pay
Executive an amount equal to:
(i) Executive's Base Salary at the time of
termination of employment; and
(ii) That portion of Executive's Bonus based on
achievement of budget and other operational
performance factors, if the criteria is met.
Such amount will be paid during the Severance Period
in monthly or other installments, similar to those
being received by Executive at the date of
termination of employment, and will commence as soon
as practicable following the date of termination of
employment.
(b) During the Severance Period Executive and his spouse
and family will continue to be covered by all Welfare
Plans (as defined in Section 25 below), maintained by
Employer in which he or his spouse or family were
participating immediately prior to the date of his
termination as if he continued to be an employee of
Employer; provided that, if participation in any one
or more of such Welfare Plans is not possible under
the terms thereof, Employer will provide
substantially identical benefits to the extent
possible. If, however, Executive obtains employment
with another employer during the Severance Period,
such coverage shall be provided until the earlier of:
(i) the end of the Severance Period or (ii) the date
on which the Executive and his spouse and family can
be covered under the plans of a new employer without
being excluded from full coverage because of any
actual pre-existing condition.
(c) Executive shall not be entitled to payments during
the Severance Period attributable to compensation for
vacation periods he would have earned had his
employment continued during the Severance Period or
to unused vacation periods accrued as of the date of
termination of employment.
(d) During the Severance Period Executive shall not be
entitled to reimbursement for fringe benefits such as
car allowance, dues and expenses related to club
memberships, and expenses for professional services.
Compensation under Section 9(a) and (b) hereof is contingent upon
Executive's compliance with Section 14 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive for other than Good Reason or pursuant to Section 11,
below, the Employer shall pay the Executive only his Base Salary due through the
date on which his employment is terminated at the rate in effect at the time of
notice of termination. The Employer shall then have no further obligation to
Executive under this Agreement; provided, however, Employer shall have the
option of paying Executive in accordance with the provisions of Section 9,
above, if Employer desires to continue to enforce
3
4
Executive's continuing obligations under Sections 14(b), (c) and (d) below.
11. OTHER TERMINATION. If Executive voluntarily terminates his
employment hereunder or is involuntarily terminated for other than Good Cause at
any time within two years of the date of this Agreement, Employer shall pay
Executive Two Million Five Hundred Thousand Dollars ($2,500,000), to be payable
either in a lump sum or in installments, as Employer and Executive mutually
determine (the "Global Severance Payment"). If the position of President and
Chief Executive Officer of Employer is vacated at any time within the two-year
period, Executive shall be considered for the position upon submission of a
written request to the Board of Directors of Employer. If after due
consideration by the Board of Directors, Executive is not offered the position
and, as a result, Executive tenders his resignation within thirty (30) days
thereafter, Executive shall be entitled to receive the Global Severance Payment.
If Executive terminates his employment or is involuntarily terminated for other
than Good Cause under this Section 11, the payment Executive receives under this
Section 11 shall be paid in lieu of any other payments or benefits Executive
would have otherwise been entitled to receive hereunder; provided, however, the
terms and provisions of Section 14 hereof shall continue to be applicable during
the Severance Period. Executive shall, however, be entitled to receive such
stock options of Employer's Common Stock that are vested at the date of
termination of Executive.
12. SETOFF.
(a) With respect to Section 9, payments or benefits
payable to or with respect to Executive or his spouse
pursuant to this Agreement shall be reduced by the
amount of any claim of Employer against Executive or
his spouse or any debt or obligation of Executive or
his spouse owing to Employer.
(b) With respect to Section 9, payments or benefits
payable to or with respect to Executive pursuant to
this Agreement shall be reduced by any amount
Executive may earn or receive from employment with
another employer or from any other source, except as
expressly provided in Section 9(b).
13. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall,
during the remainder of the Severance Period, be paid
to his surviving spouse. On the death of the survivor
of Executive and his spouse, no further benefits will
be paid under the Agreement.
(b) The spouse and family of Executive shall, during the
remainder of the Severance Period, be covered under
all Welfare Plans made available by Employer to
Executive or his spouse immediately prior to the date
of his death to the extent possible.
Any benefits payable under this Section 13 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
14. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to
disclose, either during the time he is employed by
the Employer or following termination of his
employment hereunder, to any person (other than a
person to whom
4
5
disclosure is necessary in connection with the
performance of his duties as an employee of Employer
or to any person specifically authorized by the Board
of Directors of Employer) any material confidential
information concerning the Employer or any of its
Affiliates, including, but not limited to, strategic
plans, customer lists, contract terms, financial
costs, pricing terms, sales data or business
opportunities whether for existing, new or developing
businesses.
(b) Non-Competition. During the term of employment
provided hereunder and during the Severance Period,
if longer, Executive will not directly or indirectly
own, manage, operate, control or participate in the
ownership, management, operation or control of, or be
connected as an officer, employee, partner, director
or otherwise with, or any have financial interest in,
or aid or assist anyone else in the conduct of, any
business which is in competition with any business
conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any
Affiliate of Employer is conducting business on the
date of termination or expiration of this Agreement,
provided that ownership of 5% or less of the voting
stock of any public corporation shall not constitute
a violation hereof.
(c) Non-Solicitation. During the term of employment
provided for hereunder and during the Severance
Period, Executive will not (i) directly or indirectly
solicit business which could reasonably be expected
to conflict with the interest of Employer or any
Affiliate of Employer from any entity, organization
or person which has contracted with the Employer or
any Affiliate of Employer, which has been doing
business with the Employer or any Affiliate of
Employer, from which the Employer or any Affiliate of
Employer was soliciting business at the time of the
termination of employment or from which Executive
knew or had reason to know that Employer or any
Affiliate of Employer was going to solicit business
at the time of termination of employment, or (ii)
employ, solicit for employment, or advise or
recommend to any other persons that they employ or
solicit for employment, any employee of the Employer
or any Affiliate of Employer.
(d) Consultation. Executive shall, at the Employer's
written request, during the Severance Period,
cooperate with the Employer in concluding any matters
in which Executive was involved during the term of
his employment and will make himself available for
consultation with the Employer on other matters
otherwise of interest to the Employer. The Employer
agrees that such requests shall be reasonable in
number and will consider Executive's time required
for other employment and/or employment search.
(e) Enforcement. Executive and the Employer acknowledge
and agree that any of the covenants contained in this
Section 14 may be specifically enforced through
injunctive relief but such right to injunctive relief
shall not preclude the Employer from other remedies
which may be available to it.
(f) Continuing Obligation. Notwithstanding any
provision to the contrary or otherwise contained in
this Agreement, the agreement and covenants contained
in this Section 14 shall not terminate upon
Executive's termination of his employment with the
Employer or upon the termination of this Agreement
under any other provision of this Agreement;
provided, however,
5
6
in the event of Executive's voluntary termination
(except for Good Reason or pursuant to the terms of
Section 11, hereof), the obligations under Sections
14(b), (c) and (d) shall terminate upon Executive's
termination of employment unless Employer elects to
pay Executive the termination benefits set forth in
Section 9, above.
15. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
16. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans. Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
17. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
18. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
19. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
20. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
21. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
22. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and, with the exception of the terms and conditions set forth in
Exhibit B to that certain Employment Agreement between Executive and Principal
Health Care, Inc. dated as of October 1, 1997, supersedes all other prior
agreements, employment contracts and understandings, both written and oral,
express or implied with respect to the subject matter of this Agreement and may
not be changed orally but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
6
7
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Maryland, without giving effect to the principles of conflicts of law
thereof.
24. HEADINGS. The sections, subjects and headings of this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule
144(a)(1) promulgated under the Securities Act of
1933, as amended.
(b) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive is indicted or convicted of a felony;
(ii) Executive is involved in the commission of theft
or embezzlement of Employer's property or
similar acts involving moral turpitude; or
(iii) Executive willfully fails to substantially
perform his material duties under this Agreement
(excluding nonperformance resulting from
Executive's disability), which willful failure is
not cured within (30) days after written notice
from the President of the Company specifying the
act of willful nonperformance or within such
longer period (but no longer than ninety (90)
days in any event) as is reasonably required to
cure such willful nonperformance.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner he reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe his conduct was unlawful in
connection with any action taken by Executive in connection
with his duties, it shall not constitute Good Cause.
Notwithstanding anything herein to the contrary, in the event
Employer shall terminate the employment of Executive for Good
Cause hereunder, Employer shall give at least 30 days prior
written notice to Executive specifying in detail the reason or
reasons for Executive's termination.
(c) "Good Reason" shall exist if there is a significant
change in the nature or the scope of Executive's
position and authority as a result of a change in
control of Employer, which shall include the
following occurrences:
(i) the acquisition of at least a majority of
the outstanding shares of Common Stock (or
securities convertible into Common Stock) of
Employer by any person, entity or group (as
used in Section 13(d)(3)
7
8
and Rule 13d-5(b)(1) under the Exchange
Act);
(ii) the merger or consolidation of Employer with
or into another corporation or other entity,
or any share exchange or similar transaction
involving Employer and another corporation
or other entity, if as a result of such
merger, consolidation, share exchange or
other transaction, the persons who owned at
least a majority of the Common Stock of
Employer prior to the consummation of such
transaction do not own at least a majority
of the Common Stock of the surviving entity
after the consummation of such transaction;
(iii) the sale of all, or substantially all, of
the assets of Employer; or
(iv) any change in the composition of the Board
of Directors of Employer, such that persons
who at the beginning of any period of up to
two years constituted at least a majority of
the Board of Directors of Employer, or
persons whose nomination was approved by
such majority, cease to constitute at least
a majority of the Board of Directors of
Employer at the end of such period.
(d) "Severance Period" shall mean the period beginning on
the date the Executive's employment with Employer
terminates without Good Cause under circumstances
described in Section 9 plus 12 months thereafter.
(e) "Welfare Plans" shall mean any health and dental
plan, disability plan, survivor income plan and life
insurance plan or arrangement currently or hereafter
made available by Employer in which Executive is
eligible to participate.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event that Section 14(b) is determined by a court of
competent jurisdiction to be invalid due to overbreadth, such Section 14(b)
shall be constructed as narrowly as necessary to be enforceable.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
-------------------------------------
Xxxxxxx X. Xxxxx
COVENTRY HEALTH CARE, INC.
By:
-------------------------------------
Xxxxx X. Xxxx
President and Chief Executive Officer
8
