EMPLOYMENT AGREEMENT TERMINATION AGREEMENT
EMPLOYMENT AGREEMENT TERMINATION AGREEMENT (this "Agreement"), dated as of
May 1, 1997, by and between Xxxxxx X. Xxxxxxx (the "Employee"), Foundation
Health Systems, Inc. (formerly, Health Systems International, Inc.), a Delaware
corporation (the "Company"), and Foundation Health Corporation, a Delaware
corporation ("FHC").
WHEREAS, the Company, the Employee and FHC, which became a wholly-owned
subsidiary of the Company upon consummation of the merger on April 1, 1997
pursuant to the Agreement and Plan of Merger, dated October 1, 1996, by and
among the Company, FH Acquisition Corp. and FHC, have previously entered into
(i) that certain Amended and Restated Employment Agreement, dated as of December
16, 1996 (the "Employment Agreement") and (ii) that certain Consulting
Agreement, dated as of October 1, 1996 (the "Consulting Agreement"), pursuant to
which the Employee is to be retained by the Company as an independent consultant
following termination of the Employment Agreement;
WHEREAS, it is mutually in the best interests of the Employee and the
Company to terminate the Employment Agreement;
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the termination of the employment relationship of
the Employee with the Company and to confirm retention of the services of the
Employee under the Consulting Agreement;
WHEREAS, it is mutually in the best interests of the Employee and the
Company to amend the Consulting Agreement effective immediately upon termination
of the Employment Agreement;
NOW, THEREFORE, in order to effect the foregoing, in consideration of
the premises and the respective covenants and agreements of the parties herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. TERMINATION OF AGREEMENT.
(a) Except as provided in paragraph (b) below, effective as of the
Effective Date (as defined below), the Employment Agreement shall be termi-
nated and, except as provided herein, the Company, FHC and the Employee shall
have no further rights and/or obligations under the Employment Agreement.
(b) Notwithstanding paragraph (a) above and other provisions of this
Agreement, (i) the provisions of Sections 5(d) and (e) and Sections 6 through
11 of the Employment Agreement shall survive the termination of the Employment
Agreement (the "Surviving Provisions") and (ii) Xx. Xxxxxxx will continue to
have the right to exercise his unexpired outstanding stock options until the
date 90 days after the earlier of the expiration or termination of the
Consulting Agreement pursuant to Section 2 of the Consulting Agreement.
(c) The Consulting Agreement shall commence immediately on the date
on which all Settlement Payments (as defined below) have been made pursuant to
Section 2 hereof (the "Effective Date").
(d) The Employee acknowledges and agrees that (i) effective as of the
Effective Date, the Employee will no longer hold the position of Chairman of the
Board, but will continue to serve as a member of the Company's Board of
Directors and (ii) the Employee hereby submits his resignation as a director to
the Company's Board of Directors which resignation will become effective on the
first anniversary of the Effective Date and hereby agrees to submit such further
evidence of said resignation as the Company may reasonably require.
(e) The Employee hereby agrees and authorizes the Company and
Wachovia Bank of North Carolina, N.A. to amend the Benefit Protection Trust
dated as of April 1, 1997 (the "Trust Agreement") in favor of Xx. Xxxxxxx in
order to (i) replace Schedule I to the Trust Agreement with Schedule I attached
hereto and (ii) make such other changes required in order to make payments to
Xx. Xxxxxxx required pursuant to this Agreement.
2. FINAL PAYMENT.
(a) The Employee shall be entitled to receive, in full satisfaction
of the Company's and FHC's obligations set forth in the Employment Agreement
(except for the Surviving Provisions), a cash lump sum in an amount equal to
$11,872,000, subject to applicable withholding requirements (the "Settlement
Payment"). The Employee acknowledges that no further amounts are due under
Section 5(c) of the Employment Agreement.
(b) The Settlement Payment shall be made no later than eight (8) days
following the date of the Employee's execution of this Agreement. The Employee
acknowledges that following his receipt of the Settlement Payment, the
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Company and FHC shall have no further obligations to the Employee with respect
to the benefits described in the Employment Agreement (except for the Surviving
Provisions).
(c) The Company acknowledges and agrees that the Board of Directors
of FHC recently approved, and the Compensation and Stock Option Committee of the
Board of Directors of the Company recently ratified, the payment of certain
amounts to Deferred Compensation Plan participants, who vote to approve the
suspension of the Deferred Compensation Plan, upon the receipt of the necessary
approvals to suspend the Deferred Compensation Plan. The Company agrees to use
all reasonable efforts to seek and obtain the necessary approvals to suspend the
Deferred Compensation Plan as soon as practicable after the date hereof. The
Employee hereby agrees to such suspension of the Deferred Compensation Plan and
in consideration thereof, the Company agrees to make a lump sum cash payment to
the Employee, within three (3) business days following the date of receipt by
the Company of the consents of 80% or more of the participants in the Deferred
Compensation Plan to suspend the Deferred Compensation Plan, in the amount of
$982,730.
(d) Simultaneously with the payment of the Settlement Payment, the
Company shall make a lump sum cash payment to the Employee in the amount of
$228,461.53, representing full payment for the Employee's accrued but unpaid
vacation time.
3. AMENDMENT OF THE CONSULTING AGREEMENT
(a) Section 5(a) of the Consulting Agreement is hereby amended to
provide that the Company shall pay the amounts due to the Employee as follows:
(i) $6,000,000 related to the first twelve months of the Consulting Period shall
be paid on the Effective Date in return for Xx. Xxxxxxx'x agreement to provide
substantially full time efforts to help the Company finalize its transition
planning during the short term period immediately following the termination of
the Employment Agreement; (ii) $2,000,000 related to the second twelve months of
the Consulting Period shall be paid in equal monthly installments beginning on
the first anniversary of the Effective Date; and (iii) $1,000,000 related to the
third twelve months of the Consulting Period shall be paid in equal monthly
installments beginning on the second anniversary of the Effective Date,
provided, however, that a pro rata amount paid to Xx. Xxxxxxx pursuant to clause
(i) above shall be paid back to the Company by Xx. Xxxxxxx upon a breach by Xx.
Xxxxxxx of the provisions set forth in Section 6. The "pro rata amount"
referred to in the preceding sentence shall be determined by dividing (A) the
number of months from such "breach" to the end of the first year of the
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Consulting Period by (B) 12. Notwithstanding Xx. Xxxxxxx'x agreement to provide
the services described in clause (a) (i) above, the provisions of Section 3 of
the Consulting Agreement will remain unaffected by the terms of clause (a) (i)
above following such short term period referred to above.
(b) In the event Xx. Xxxxxxx wishes to enter into a business
relationship or otherwise take any action which he believes will not violate the
terms of Section 6 of the Consulting Agreement, Xx. Xxxxxxx may request approval
from the Company's Board of Directors to enter into such relationship or take
such action. If (i) the Company's Board of Directors agrees that Xx. Xxxxxxx'x
business relationship or taking such action would not violate Section 6 of the
Consulting Agreement or (ii) the Company's Board of Directors fails to respond
to Xx. Xxxxxxx'x written request to the Company's Board of Directors within 30
days from the receipt of such written request by the Company's President or
Secretary, then Xx. Xxxxxxx shall be deemed to have complete approval from the
Company to take such actions or maintain such business relationships described
in Xx. Xxxxxxx'x written request to the Company's Board of Directors. In the
event the Company's Board of Directors informs Xx. Xxxxxxx that it believes Xx.
Xxxxxxx'x business relationship or actions described in Xx. Xxxxxxx'x request
would violate Xx. Xxxxxxx'x obligations under Section 6 of the Consulting
Agreement, so long as Xx. Xxxxxxx has not been engaged in such business
relationship or taken such actions for a period of more than 10 days prior to
the date the receipt by the Company's President or Secretary of Xx. Xxxxxxx'x
request for approval, Xx. Xxxxxxx will be deemed to be in compliance with the
terms of Section 6 of the Consulting Agreement, if Xx. Xxxxxxx discontinues such
actions or business relationship within 30 days after Xx. Xxxxxxx has been
informed that the Company's Board of Directors has determined that such action
or business relationship would violate Section 6 of the Consulting Agreement.
(c) Section 4 of the Consulting Agreement is hereby amended by adding
the following to the end thereof:
"The Company acknowledges and agrees that during the Consulting
Period, Xx. Xxxxxxx shall continue to use his existing furniture and
equipment, and that the Company shall pay for or provide full office
support, including phone, fax, photocopy, utilities, parking and all
other expenses reasonably necessary for Xx. Xxxxxxx to conduct his
business affairs hereunder. The Company shall also, at its sole
cost and expense, make Xx. Xxxxxxx'x current secretary available to
provide full-time secretarial support at his office and shall be
responsible for all salary and benefits payable to such individual,
which salary and benefit shall be no
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less favorable than other comparably situated full-time regular
employees of the Company. The Company agrees that Xx. Xxxxxxx may
maintain, for a period of up to 90 days following the Effective Date,
his office and related office support at its current location until
such time as he has established another office consistent with
Section 4 of the Consulting Agreement."
(d) Section 5(c) of the Consulting Agreement is hereby amended by
adding the following to the end thereof:
"The Company acknowledges and agrees that for each year during the
Consulting Period (1997, 1998, 1999), Xx. Xxxxxxx shall be entitled to
a new car and other automobile benefits as provided to Xx. Xxxxxxx by
FHC immediately prior to the Merger Date (as defined in the Employment
Agreement). By way of clarification and not limitation, during the
Consulting Period, the Company shall pay for or reimburse Xx. Xxxxxxx
for all of his automobile expenses, including but not limited to gas,
tax, insurance, license, registration and other fees, and shall
indemnify Xx. Xxxxxxx for any tax liability he incurs as a result of
such payments or reimbursement, it being the intent of the Company to
eliminate any tax liability to Xx. Xxxxxxx resulting from expenses
paid or reimbursed under this Section 5(c), consistent with FHC's
automobile benefits provided to Xx. Xxxxxxx prior to the Merger Date."
4. RELEASES.
(a) As a material inducement to enter into this Agreement, the
Employee hereby knowingly and voluntarily, fully and finally releases, acquits
and forever discharges the Company and FHC, affiliates thereof, and their past
and present officers, directors, shareholders, partners, trustees,
beneficiaries, managers, employees, attorneys, agents, successors or assigns
(the "Company Released Parties"), from any and all claims, charges, complaints,
liens, demands, causes of action, obligations, damages and liabilities, KNOWN OR
UNKNOWN, SUSPECTED OR UNSUSPECTED, that he had, now has, or may hereafter claim
to have against the Company Released Parties arising out of or relating in any
way to the Employee's employment relationship with the Company or the
termination thereof, or the termination of the Employment Agreement (including
without limitation the Age Discrimination Act). Notwithstanding the generality
of the foregoing, nothing contained herein shall release the Company of FHC or
in any way impair the Employee's rights to insurance coverage or reimbursement
or indemnification from the Company or FHC arising from or relating in any way
to the Employee's service as an employee, officer or director as provided by law
or
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under the Company's or FHC's bylaws, or under any applicable indemnification
agreement or insurance policy to which the Company or FHC is a party, including,
but not limited to, the Employee's rights to reimbursement, coverage or
indemnification in connection with any current or future litigation matter
arising from or relating in any way to the Employee's services as an employee,
officer or director of FHC or the Company (including, but not limited to, XXXXX
X. XXXXXXX/FOUNDATION HEALTH SYSTEMS, INC., Matter No. 97A501687 filed in the
Superior Court of Sacramento County, California); nor shall the foregoing
release the Company or FHC from any claim relating to the breach by the Company
or FHC of its obligations set forth herein, or set forth in provisions of the
Employment Agreement preserved by paragraph 1(b) hereof.
(b) As a material inducement to enter into this Agreement, each of
the Company and FHC, on its behalf and that of its affiliates and their officers
and directors, agents employees, successors and assigns (in their capacity as
officers or directors of the Company or FHC) likewise hereby knowingly and
voluntarily, fully and finally releases, acquits, and forever discharges the
Employee and his agents, employees, successors, heirs, beneficiaries or assigns
(the "Employee Released Parties") from any and all claims, charges, complaints,
liens, demands, causes of action, obligations, damages and liabilities, KNOWN OR
UNKNOWN, SUSPECTED OR UNSUSPECTED, that it had, now has, or may hereafter claim
to have against the Employee Released Parties arising out of or relating in any
way to the Employee's relationship with the Company or FHC as an employee,
whether or not previously asserted before any state or federal court or before
any state, federal or regulatory agency or governmental entity. Notwithstanding
the generality of the foregoing, nothing contained herein shall release the
Employee from any claim relating to the breach by the Employee of any
confidentiality agreements with the Company or FHC or any of its affiliates or
the obligations set forth herein, or set forth in provisions of the Employment
Agreement preserved by paragraph 1(b) hereof.
(c) Each of the Company, FHC and the Employee acknowledges that such
party has been advised by legal counsel regarding, is familiar with and
expressly waives all rights afforded by Section 1542 of the Civil Code of the
State of California ("Section 1542"), or any statute of similar effect in any
other jurisdiction in which any action might be brought, with respect to the
claims described in paragraphs (a) and (b) of this Section 4. Section 1542
states as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
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RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Thus, notwithstanding the provisions of Section 1542, and for the purpose of
implementing a full and complete release, each of the Company, FHC and the
Employee understands and agrees that this Agreement is intended to include all
claims, if any, described in paragraphs (a) (in the case of the Employee) and
(b) (in the case of the Company and FHC) above, which either party may have and
which neither party now knows or suspects to exist in such party's favor against
the Company Released Parties (in the case of the Employee) or Employee Released
Parties (in the case of the Company and FHC) and that this Agreement
extinguishes those claims.
5. The Employee acknowledges that the Company has advised him to consult
with an attorney of his choosing prior to signing this Agreement and that he has
twenty-one (21) days during which to consider the provisions of this Agreement,
although he may sign and return it sooner. The Employee further acknowledges
that he has been advised by the Company that he has the right to revoke this
Agreement for a period of seven (7) days after signing it and that this
Agreement shall not become effective or enforceable until such seven (7)-day
revocation period has expired. The Employee acknowledges and agrees that, if he
wishes to revoke this Agreement, he must do so in writing, signed by the
Employee and received by the Company at its headquarters no later than 5:00 p.m.
Pacific Standard Time on the seventh (7th) day after Employee has signed the
Agreement. The Employee acknowledges and agrees that, in the event that he
revokes this Agreement, he shall have no right to receive any payment hereunder.
The Employee further acknowledges and agrees that he would not receive the
enhanced payments set forth in paragraphs 3(a) and 3(b) hereof of this Agreement
except for his signing of this Agreement and his fulfillment of his promises set
forth in this Agreement. Employee understands and agrees that the Company is
under no obligation to offer such payment and that he is under no obligation to
consent to the release set forth in paragraph 4(a) of this Agreement. Employee
represents that he has read this Agreement and understands its terms and that he
enters into this Agreement freely, voluntarily, and without coercion.
6. NONDISPARAGEMENT. Neither the Company or FHC on the one had, nor the
Employee on the other hand, will make any derogatory or negative statements
about the other party that may adversely affect the current or potential
business relationships of either. The Company agrees that no announcement of
Xx. Xxxxxxx'x resignation hereunder shall be made until after the Effective Date
and that Xx. Xxxxxxx will have the right to reasonably approve the content of
such announcement.
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7. SUCCESSORS: BINDING AGREEMENT. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in this Section 6 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law. This Agreement and all rights
of the Employee hereunder 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.
8. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto which are related to the
subject matter of the Employment Agreement or the termination thereof.
9. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. HEADINGS. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
11. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without regard to principles of conflicts of laws.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
FOUNDATION HEALTH SYSTEMS, INC.
By: /s/ Xxx X. Xxxxxxx
------------------------------
Name: Xxx X. Xxxxxxx
Title: Executive Vice President and
Chief Operating Officer
FOUNDATION HEALTH CORPORATION
By: /s/ Xxx X. Xxxxxxx
------------------------------
Name: Xxx X. Xxxxxxx
Title: Director
/s/ Xxxxxx X. Xxxxxxx
-----------------------------------
XXXXXX X. XXXXXXX
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