[LETTERHEAD]
October 10, 1997
Mr. Alex Labak
233 Old Short Hills Road
Short Hills, New Jersey 07078
Dear Alex:
On behalf of Foundation Health Systems, Inc. I would like to confirm the
final terms of our offer of employment for the position of Senior Vice
President and Chief Marketing Officer. This document supersedes all
previously distributed offer letters and addendums.
You will earn a monthly base salary of $29,167. You will also be eligible to
participate in the Executive Incentive Program. Your incentive opportunity is
based upon attainment of corporate and individual goals. Your incentive
target will be 70 percent of your base annualized salary with a maximum
potential of 105 percent of your base annualized salary. For calendar year
1997 your incentive payment will be pro-rated from your hire date. However,
during your first eighteen months of employment, we will guarantee an
incentive payment of 35 percent of your base annualized salary.
In response to the impact of forfeiting the incentive payment earned at your
prior employer, we have committed that within thirty days of your start of
employment, the company will pay to you a $175,000 engagement bonus. This
engagement bonus is subject to normal payroll deductions. If you should
voluntarily leave the employment of Foundation Health Systems within two
years of your start date, for reason other than a substantial reduction in
authority or responsibility, you would be required to repay to the company
1/24 ($7,291) of the engagement bonus for each full month that your
department precedes your two year anniversary date with FHS. Following two
full years of employment there will be no continuing requirement to make
repayment to the company.
Additionally, we will pay to you $42,000 per year to replace aspects of the
expatriate benefit program provided to you by your former employer. This
payment will be grossed up by the company to cover the additional tax
liability that you will incur as a consequence of the payment. Included
within this payment are the costs related to an annual payment into the
Austrian pension program and an educational allowance.
PAGE TWO
As part of our long-term incentive program, we have agreed that you will
participate in our stock option program. You will receive 175,000 options
granted at the stock price at the close of business on your date of
employment or $958,000 and $105,000 options granted at the stock price at the
close of business on your date of employment. The stock options and/or cash
payment will vest and/or be paid equally over a three year period with the
exception that any outstanding portion of the $958,000 payment will be made
in the case of involuntary termination for any reason other than cause.
You will be reimbursed up to $5,000 per year for expenses related to personal
tax/financial planning. We will also fund the normal and reasonable expenses
related to membership in a country club determined to be appropriate by you
and Jay Gellert.
Foundation Health Systems offers an excellent benefits plan to the employees
of our new company. This cafeteria style plan includes medical, vision,
dental, life insurance, long-term and short-term disability protection, an
employee assistant program, participation in our 401(k) Plan, and
participation in our deferred compensation plan. In our 401(k) Plan,
consistent with IRS regulations, the Company will match your contribution at
$.50 for every dollar contributed up to six percent (6%) of your
compensation. We have agreed that you will not be required to make an
employee contribution to the cost of these benefits. Specific details of each
benefit will be explained to you during orientation.
To cover the cost of your business related travel the company will provide a
$1,000 per month automobile allowance. Additionally, we have agreed that you
will annually accrue twenty-five days of personal time off under our PTO
program.
As a key member of our management team, the company will provide relocation
reimbursement according to company policy to cover the reasonable costs
associated with your move. Generally, this reimbursement covers the expenses
associated with the sale of a former residence, if any, and the expenses
related to the purchase of a new residence. In addition, Human Resources will
coordinate arrangements for the physical move of your household goods. Alex,
I am available to discuss this relocation assistance and will make myself
personally available to assist you whenever necessary.
Per corporate policy, should you voluntarily leave the Company prior to the
completion of one years service, you would be obligated to reimburse to the
Company fifty percent of the relocation assistance and engagement incentives
offered to you with the exception of the $175,000 engagement bonus, which is
covered under previously stated terms.
PAGE THREE
Additionally, to assist you in meeting the additional tax liability that may
result from your relocation, Foundation Health Systems will "gross up" those
expenses not allowed by IRS regulations.
Foundation Health Systems will provide you with reasonable protection in the
event of the termination of your employment without cause or a substantial
reduction in authority or responsibility. In the event that your employment
is terminated involuntarily, and without cause, or if you should incur a
substantial reduction in authority or responsibility, you will be provided a
severance package of one year of base salary in effect at that time. In the
event of involuntary termination as a consequence of a change-of-control, or
if you should incur a substantial reduction in authority or responsibility as
a result of a change-of-control, you will be provided a severance package of
eighteen months at your monthly base salary in effect at that time.
Should you leave the company involuntarily and without cause, we have agreed
to cover the expense associated with relocating you and your family to a
geographic location of your choice. Included in this relocation expense
reimbursement is the cost to sell your place of residence and a guarantee of
95 percent of the original purchase price of the property. This assistance
will be offset by any reimbursement that might be provided by a new employer
to cover the same expenses.
We are jointly agreeing, through this letter, that your employment with
Foundation Health Systems is voluntary, on both of our parts, and on an
"employee-at-will" basis. While we both hope that our relationship will be a
continuing one, we also agree that your employment is not for a fixed term,
but is subject to termination by you or by Foundation Health Systems at any
time for reasons which either party believes sufficient in its discretion.
The foregoing constitutes all of our agreements and understandings regarding
your employment. There are no other oral or written agreements regarding your
employment and no one else is authorized to make other arrangements. Nothing
in this offer of employment, or in any oral or written policy of Foundation
Health Systems, may be construed to create an expressed or implied contract
or to impose further contractual obligations in connection with your
employment.
Please acknowledge your acceptance of the terms of this contingent employment
offer by signing and returning to myself or Jay Gellert, the duplicate
confirmation letter at your earliest convenience, but, in any event, prior to
your employment start date to be determined by yourself and Jay.
PAGE FOUR
Alex, we are excited about you joining our management team and are confident
that we can offer the professional challenge and career opportunity you are
seeking. If you have any questions regarding the above information or if I
can assist you in any way, please call me at (916) 631-5316.
Sincerely,
/s/ Dan Smithson
Dan Smithson
Senior Vice President
Corporate Human Resources
Acknowledgement:
/s/ Alex Labak 10/15/97
__________________________________ ____________________________
Signature Date