EXHIBIT 10.73
EMPLOYMENT AGREEMENT
This Agreement dated as of December 31, 1997 is between Maurice A. Costa
(the "Executive") and Foundation Health Systems, Inc., a Delaware corporation
(the "Company").
WHEREAS, the Company desires to continue to employ the Executive as the
President of its businesses and operations related to workers' compensation (the
"Division"), and the Executive desires to continue to be employed as the
President of the Division for the term and upon the conditions hereinafter set
forth:
NOW, THEREFORE, in consideration of the agreements and covenants contained
herein, the Executive and the Company hereby agree as follows:
ARTICLE I
Employment
Section 1.01. POSITION; TERM; RESPONSIBILITIES. The Company shall
continue to employ the Executive as the President of the Division for a term
commencing on the date set forth above (the "Commencement Date") and ending on
December 31, 2000, subject to earlier termination pursuant to Article III hereof
(such term, the "Employment Period"). Subject to the direction of the Chairman
of the Board of Directors and Chief Executive Officer of the Company (the
"Company CEO"), and of the President and Chief Operating Officer of the Company
(the "Company President"), the Executive shall be responsible for the operation
and administration of the Division and the implementation of policies set by the
Company's Board of Directors, the Company CEO and the Company President as such
policies relate to the Division. The Executive also shall perform such other
executive and administrative duties (not inconsistent with the position of
President of the Division) as the Executive may reasonably be expected to be
capable of performing on behalf of the Company, as may from time to time be
authorized or directed by the Company CEO or the Company President.
Section 1.02. DUTIES. During the Employment Period, the Executive shall
perform faithfully the duties assigned to him hereunder to the best of his
abilities and shall devote his full and undivided business time and attention to
the transaction of the Company's business and shall not engage in any other
business activities that could reasonably be construed to interfere with such
duties, except with the approval of the Company CEO or the Company President.
ARTICLE II
Compensation
Section 2.01. BASE SALARY. As compensation for the Executive's services
hereunder, the Company shall pay to the Executive a salary at the rate of
$350,000 per year (the "Base Salary") during the Employment Period, payable in
installments in accordance with the Company's normal compensation payment
schedule for the Company's senior executives.
Section 2.02. SPECIAL AND RETENTION BONUSES. The Company shall pay to the
Executive (i) a special bonus in the amount of $50,000 on the Commencement Date
and (ii) a retention bonus in the amount of $150,000 payable in two installments
of $75,000 each, with the first installment payable on the Commencement Date and
the second installment payable on the first anniversary thereof PROVIDED that
the Executive continues to be employed hereunder on such anniversary by the
Company or one of its affiliates. The Company's agreement to pay to the
Executive such special bonus and retention bonus is in consideration of the
Executive's forfeiture as of the Commencement Date of a portion of the option
granted to him pursuant to the Nonqualified Stock Option Agreement dated
September 4, 1997 under the Foundation Health Systems, Inc. 1997 Stock Option
Plan to purchase 175,000 shares of Class A Common Stock of the Company, par
value $.001 per share ("Common Stock"). The portion of such option forfeited by
the Executive shall be in respect of an aggregate of 60,000 shares of Class A
Common Stock, with the remaining outstanding option being an option to purchase
38,333 shares of Class A Common Stock on each of September 4, 1998 and September
4, 1999 and 38,334 shares of Class A Common Stock on September 4, 2000.
Section 2.03. INCENTIVE COMPENSATION. The Executive shall be eligible to
participate in the Foundation Health Systems, Inc. Executive Incentive Plan for
each fiscal year of the Company within the Employment Period. The Company
President shall recommend to the Compensation and Stock Option Committee of the
Board of Directors that the Executive be eligible to receive each such year an
incentive compensation award ("Incentive Award") on the same terms and
conditions, except as provided herein, as Incentive Awards are awarded to the
Company's Business Unit Executives (the "Unit Executive Incentive Award Group").
Section 2.04. OTHER COMPENSATION. (a) PAID-TIME OFF. The Executive
shall be entitled to 30 "paid-time off days" (as defined by the Company) for
each full calendar year in the Employment Period (and a pro-rata number of
paid-time off days for any partial year in the Employment Period).
(b) CERTAIN EXECUTIVE BENEFITS. During the Employment Period, the
Executive shall continue to participate in the Foundation Health Corporation
Supplemental Executive Retirement Plan ("FHC SERP"), with effective
participation for vesting purposes being August 3, 1993, and shall be eligible
for the Executive Retiree Medical Plan and the Split-Dollar Life Insurance
Program, in each case according to the terms thereof as in effect from
2
time to time. The Executive's benefit under the FHC SERP shall become 100%
vested and nonforfeitable on the last day of the Employment Period if the
Executive's employment with the Company is terminated other than for "Cause" (as
defined in Section 3.01) or, as provided in Section 3.07, if there is a Change
of Control prior to December 31, 2000.
(c) OTHER BENEFITS. During the Employment Period, the Executive shall be
entitled to participate in all employee benefit plans, including group health,
life and disability plans, and to receive all other fringe benefits as are from
time to time generally made available to senior executives of the Company, and
nothing in this Agreement is intended to duplicate benefits under such plans or
such fringe benefits.
Section 2.05. EXPENSE REIMBURSEMENTS. The Company shall reimburse the
Executive for all proper expenses incurred by him in the performance of his
duties and responsibilities hereunder in accordance with the policies and
procedures of the Company.
ARTICLE III
Termination of Employment; Change of Control
Section 3.01. Termination for Cause. If the Executive's employment is
terminated by the Company for "Cause", then this Agreement shall terminate and
no payments shall be made to the Executive hereunder after such employment
termination, except that the Executive shall be entitled to receive any unpaid
Base Salary accrued in respect of services performed through the date of the
Executive's termination of employment and reimbursements for expenses as
described in Section 2.05 incurred through such date. Any payments or
distributions under any employee benefit plan described in Section 2.04(b) or
(c) shall be paid or distributed in accordance with such plan.
For purposes of this Agreement, "Cause" means any act of dishonesty or
insubordination, incompetence, habitual drunkenness, narcotic drug addition, or
other material misconduct of any kind, significant activities harmful to the
reputation of the Company, refusal to perform, or substantial disregard of, the
duties described in Article I, significant violation of any statutory or common
law duty of loyalty to the Company, the Executive's material breach of any
provision of this Agreement, moral turpitude, or the commission of a felony.
Section 3.02. DEATH. In the event of the death of the Executive during
the Employment Period, (i) any accrued and unpaid compensation under Sections
2.01, 2.02 and 2.03 and any unreimbursed expenses under Section 2.05 shall be
paid to such person or persons or the executors, administrators or other legal
representatives of such person or persons (and in such order of priority) as the
Executive may have designated in a written instrument filed with the Company's
Human Resources Officer (all such persons, executors, administrators and other
legal representatives being hereinafter, collectively, "Designated
3
Successors") and (ii) any payments or distributions under any employee benefit
plan described in Section 2.04(b) or (c) shall be paid or distributed in
accordance with such plan.
Section 3.03. DISABILITY. In the event that the Executive becomes
unable to perform his duties hereunder by reason of disability, upon
submission of documentation evidencing the Executive's disability, the
Executive shall be entitled to receive any unpaid compensation pursuant to
Sections 2.01, 2.02, and 2.03 accrued through the date of such event and
reimbursement for expenses as described in Section 2.05 incurred through such
date, and the Executive shall be entitled to the benefits under the
disability plans of the Company then in effect. Any payments or distributions
under any employee benefit plan described in Section 2.04(b) or (c) shall be
paid or distributed in accordance with such plan.
Section 3.04. RESIGNATION. Notwithstanding the provisions of Section
1.01, the Executive shall be entitled during the Employment Period to terminate
his employment hereunder voluntarily upon written notice to the Company. In the
event that the Executive voluntarily terminates his employment pursuant to this
Section 3.04, the Employment Period shall terminate effective upon such
termination and the Executive shall be entitled to receive any unpaid
compensation pursuant to Section 2.01 accrued through the date of such
termination and reimbursement for expenses described in Section 2.05 incurred
through such date. Any payments or distributions under any employee benefit
plan described in Section 2.04(b) or (c) shall be paid or distributed in
accordance with such plan.
Section 3.05. OTHER TERMINATION. The Company may, pursuant to this
Section 3.05, terminate the Executive's employment hereunder for any reason
other than the reasons set forth in Section 3.01, 3.02, 3.03 or 3.04 upon
written notice to the Executive. In addition, the Executive may, pursuant to
this Section 3.05, terminate his employment hereunder upon written notice to the
Company if the Company unilaterally materially reduces the position of the
Executive described in Section 1.01. In the event that prior to a Change in
Control (as defined in Section 3.07(d)) the Company shall exercise its right to
terminate the Executive's employment pursuant to this Section 3.05 or in the
event that prior to such a Change in Control the Executive shall exercise his
right to terminate his employment pursuant to this Section 3.05, the Employment
Period shall terminate effective on the date set forth in written notice thereof
and the Executive shall be entitled to receive (a) Base Salary ratably through
December 31, 2000, (b) the second installment of the retention bonus described
in Section 2.02 if not yet then paid, (c) reimbursement of expenses incurred
through such date pursuant to Section 2.05, and (d) any payments or
distributions pursuant to the terms of the employee benefit plans then in
effect.
Section 3.06. NONCOMPETITION -- NONRISK INSURANCE OPERATIONS. If prior to
December 31, 2000 Executive's employment with the Company terminates for reasons
set forth in Section 3.01, 3.03, 3.04 or 3.05, then the Executive shall refrain
for a period of twelve months beginning on the date of such termination of
employment from:
4
(i) engaging in any activities whether as employer, proprietor,
partner, stockholder (other than the holder of less than 2% of the stock of
a corporation the securities of which are traded on a national securities
exchange or in the over-the-counter market), director, officer, employee or
otherwise, in competition with (1) the non-risk insurance operations of the
Division and other businesses conducted at the date hereof by the Company
or any of its subsidiaries or affiliates over which the Executive shall
have exercised, directly or indirectly, any supervisory, management, fiscal
or operating control during the Employment Period (the "Managed
Businesses"), or (2) any business in which the Managed Businesses are
substantially engaged at any time during the Employment Period, other than
the business of the Division related to the risk insurance operations;
(ii) soliciting, in competition with the Managed Businesses, of any
person who is a customer of the nonrisk insurance businesses conducted by
the Managed Businesses at the date hereof or of any business in which the
Managed Businesses are substantially engaged at any time during the
Employment Period, other than the risk insurance operations of the
Division; and
(iii) inducing or attempting to persuade any employee of the Managed
Businesses to terminate his or her employment relationship in order to
enter into competitive employment.
The provisions contained in paragraphs (i) and (ii) of this Section shall
apply within all territories in which any of the Managed Businesses is
actively engaged in the conduct of business during the Employment Period,
including, without limitation, the territories in which customers are then
being solicited.
Section 3.07. CHANGE OF CONTROL. (a) TERMINATION OF EMPLOYMENT. If a
Change of Control (as defined in subsection (d) hereof) occurs prior to December
31, 2000 and if the Executive's employment with the Company terminates and the
Executive does not become an employee, on substantially the same terms and
conditions as the Employee was employed immediately prior to the Change of
Control, or the entity that either directly or indirectly owns or operates the
risk insurance operations of the Division after the Change of Control (the
"Buyer"), then (i) for the greater of (A) the EXCESS of 36 months (including
partial months) OVER the number of months (including partial months) during
which the Executive performed services hereunder and (B) 18 months (x) the
Company shall make all payments to the Executive described in Sections 2.01 and
2.02, and (y) the Employee shall be eligible for benefits under the Executive
Retiree Medical Plan, the Split-Dollar Life Insurance Program and the employee
benefit plans described in Section 2.04(a) and (c), PROVIDED that the terms of
such plans and program so provide on the date of the Executive's termination of
employment, and (ii) the Executive's benefit under the FHC SERP shall become
100% vested and nonforfeitable on the date of the Executive's termination of
employment. The Company shall
5
reimburse the Executive for expenses (as described in Section 2.05) incurred
through the date on which such Change of Control occurs.
(b) NO TERMINATION OF EMPLOYMENT. If prior to December 31, 2000 a Change
of Control occurs and immediately thereafter either the Executive remains in
employment with the Company or the Executive becomes an employee of the Buyer,
on substantially the same terms and conditions as his employment with the
Company immediately before the Change of Control, then the Executive's benefit
under the FHC SERP shall become 100% vested and nonforfeitable on the date of
the Executive's termination of employment.
(c) NONCOMPETITION -- RISK INSURANCE OPERATIONS. If prior to December 31,
2000 a Change of Control occurs and the Executive's employment with the Company
terminates and the Executive does not become an employee of the Buyer in
connection with the Change of Control, on substantially the same terms and
conditions as the Employee was employed immediately prior to the Change of
Control, then the Company immediately after the Change of Control shall have the
right, but not the obligation, to pay upon the direction of the Buyer an amount
equal to $525,000 to the Executive in consideration of the Executive's agreement
(i) to release the Company, by executing a written release on a form provided by
the Company, from all then present and future claims against the Company, and
(ii) for a period of twelve months beginning on the date of a Change of Control
to provide services to the Buyer that are either similar to the type of services
the Executive performed for the Company prior to the Change of Control or that
require the Executive's business knowledge or expertise and to refrain from:
(i) engaging in any activities whether as employer, proprietor,
partner, stockholder (other than the holder of less than 2% of the stock of
a corporation the securities of which are traded on a national securities
exchange or in the over-the-counter market), director, officer, employee or
otherwise, in competition with the Buyer's business related to risk
insurance operations of the Division ("Buyer's Business");
(ii) soliciting, in competition with the Buyer's Business any person
who is a customer of the risk insurance operations of the Division at the
date hereof or on the date of the Change of Control; and
(iii) inducing or attempting to persuade any employee of the Managed
Businesses to terminate his or her employment relationship in order to
enter into competitive employment with the Buyer's Business.
The provisions contained in paragraphs (i) and (ii) of this Section shall apply
within all territories in which any of the Managed Businesses is actively
engaged in the conduct of
6
business during the Employment Period, including, without limitation, the
territories in which customers are then being solicited.
(d) DEFINITION OF CHANGE OF CONTROL. A "Change of Control" shall mean (i)
the consummation of any consolidation or merger of the Company, as a result of
which the risk insurance operations of the Division is no longer owned by the
Company or an affiliate thereof, (ii) any sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the risk insurance operations of the
Division to a person unrelated to the Company, or (iii) the adoption of any plan
or proposal for the liquidation or dissolution of the risk insurance operations
of the Division.
ARTICLE IV
Confidential Information
The Executive shall not, at any time during the Employment Period or
thereafter, make use of any bidding information (or computer programs thereof)
of any of the Managed Companies, nor divulge any trade secrets or other
confidential information of any of the Managed Companies, except to the extent
that such information becomes a matter of public record, is published in a
newspaper, magazine or other periodical available to the general public or as
the Company CEO or the Company President may so authorize in writing. When the
Executive shall cease to be employed by the Company, the Executive shall
surrender to the Company all records and other documents obtained by him or
entrusted to him during the course of his employment hereunder (together with
all copies thereof) which pertain specifically to any of the businesses of the
Managed Companies; PROVIDED, HOWEVER, that the Executive may retain copies of
such documents as necessary for the Executive's personal records for federal and
state income tax purposes.
ARTICLE V
Miscellaneous
Section 5.01. REMEDIES. Without limiting the right of the Company to
pursue all other legal and equitable remedies available for violation by the
Executive of the provisions contained in Section 3.06, Section 3.07(c) and
Article IV, it is expressly agreed by the Executive and the Company that such
other remedies cannot fully compensate the Company for any such violation and
that the Company shall be entitled to injunctive relief to prevent any such
violation or any continuing violation thereof. Each party intends and agrees
that if in any action before any court or agency legally empowered to enforce
the provisions of Section 3.06, Section 3.07(c) or Article IV any term,
restriction, covenant or promise contained therein is found to be unreasonable
and accordingly unenforceable, then such term, restriction, covenant or promise
shall be deemed modified to the extent necessary to make it enforceable by such
court or agency. The provisions of Section 3.06, Section 3.07(c) and Article IV
shall survive the conclusion of the Executive's Employment by the Company.
7
Section 5.02. TAX WITHHOLDING/RIGHTS OF OFFSET. The Company shall have
the right to deduct and withhold from all payments made pursuant to the terms of
this Agreement all federal, state and local taxes as may be required by law.
The Company also shall have the right to set off against the amount of any such
payment the amount of any debt, judgment, claim, expense or other obligation
owed at such time by the Executive to the Company or any of its affiliates.
Section 5.03. MODIFICATION AND WAIVER. This Agreement may not be modified
or amended except by an instrument in writing signed by the parties. No term or
condition of this Agreement will be deemed to have been waived except by written
instrument of the party charged with such waiver. Each such waiver shall
operate only as to the specific term or condition waived.
Section 5.04. SEVERABILITY. If for any reason any provision of this
Agreement is held invalid, such invalidity will not affect any other provision
hereof, which shall remain in full force and effect.
Section 5.05. EFFECT OF PRIOR AGREEMENTS. This Agreement contains the
entire understanding between the Company and the Executive relating to the
subject matter hereof and supersedes any prior agreement, communication or
understanding between the Company and the Executive relating to such subject
matter.
Section 5.06. NOTICES. Any notice or request required or permitted to be
given hereunder shall be sufficient if in writing and delivered personally or
sent by registered or certified mail, return receipt requested, as follows: if
to the Executive, to his address as set forth in the records of the Company, and
if to the Company, to its address hereinabove set forth, or to any other address
designated by either party by notice similarly given. Such notice shall be
deemed to have been given upon the personal delivery or such mailing thereof, as
the case may be.
Section 5.07. ASSIGNMENT AND SUCCESSION. The rights and obligations of
the Company under this Agreement shall inure to the benefit of and be binding
upon its successors and assigns, and the Executive's rights and obligations
hereunder shall inure to the benefit of and be binding upon his Designated
Successors.
Section 5.08. HEADINGS. The Article, Section paragraph and subparagraph
headings are for convenience of reference only and shall not define or limit the
provisions hereof.
Section 5.09. APPLICABLE LAW. This Agreement shall at all times be
governed by and construed, interpreted and enforced in accordance with the
internal laws, (as opposed to conflict of laws provisions) of the State of
California.
8
IT WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officer and the Executive has signed this Agreement as of
the day and year first above written.
FOUNDATION HEALTH SYSTEMS, INC.
By: /s/ Jay M. Gellert
---------------------------------
Jay M. Gellert
President and Chief Operating Officer
/s/ Maurice A. Costa
----------------------------------
Maurice A. Costa
9