EXHIBIT 10.77
EARLY RETIREMENT AGREEMENT
EARLY RETIREMENT AGREEMENT, dated as of August 6, 1998, by and between
FOUNDATION HEALTH SYSTEMS, INC., a Delaware corporation, formerly known as
Health Systems International, Inc. (the "Company"), and MALIK M. HASAN, M.D.
("Executive").
WHEREAS, Executive has expressed his intention to retire from employment
with the Company and, in connection with his retirement, the Company and
Executive have determined to settle all of their respective rights and
obligations in respect of his Employment Agreement (as defined below) and other
matters pertaining to Executive's services with the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
Executive agree as follows:
1. CONTINUING BOARD MEMBERSHIP. Effective as of the date hereof, the
Executive hereby retires from active employment and hereby resigns (i) as
Chief Executive Officer of the Company, (ii) from employment with the Company
and each of its subsidiaries and affiliates and (iii) from each other officer
or executive position held with the Company and each directorship or officer
or executive position held with each of the Company's subsidiaries or
affiliates. Executive shall remain as Chairman of the Board of Directors of
the Company ("Chairman") until such date after September 30, 1998 and on or
before March 1, 1999 that Executive shall determine, at which time Executive
shall retire from the Board and resign as a member of the Board. Without
limiting the foregoing, during his continued service as Chairman, Executive
shall not engage in any Competitive Activity (as hereinafter defined). For
his service as Chairman, Executive shall receive a fee of $165,000, payable
as soon as practicable (but not more than five business days) after the date
hereof, which shall be in lieu of the annual retainer fee and meeting fees
provided to each of the Company's other non-employee directors. As Chairman,
Executive shall not be entitled to participate in any benefit or incentive
program or to receive any stock option or other equity award generally made
available to non-employees directors.
2. CANCELLATION OF THE EMPLOYMENT AGREEMENT. Executive and the Company
are parties to an Amended and Restated Employment Agreement, dated as of March
10, 1997 (the "Employment Agreement"). The term of the Employment
Agreement (determined without regard to any possible extension thereof) would
have expired January 1, 2001. The Employment Agreement is hereby canceled and
the parties shall have no further obligations to each other thereunder (other
than for the Company's obligations to pay compensation earned prior to the
date hereof). In consideration of the cancellation of the Employment
Agreement, the Company shall pay Executive a single lump sum payment of
$2,000,000 on or as soon as practicable (but in not event more than five
business days) after the date hereof.
3. 1998 BONUS. As soon as practicable, but in no event later than five
business days after the date hereof, the Company shall pay Executive $793,000,
which is an amount equal to the opportunity available to Executive for 1998
under Section 11 of the Employment Agreement, multiplied by a fraction, the
numerator of which is the number of weeks in 1998 during which Executive served
as Chief Executive Officer (31) and the denominator of which is 52.
4. BENEFITS. (a) EMPLOYEE BENEFIT PROGRAMS. Except as otherwise
expressly provided herein, Executive's participation in, and coverage under
any and all Company provided benefit plans, policies and arrangements,
including, without limitation, those available only to Executive or generally
available to its employees or executives, shall cease on the date hereof.
Executive shall be paid for 50 accrued and unused vacation days as soon as
practicable (but not later than five business days) after the date hereof.
The Company shall provide Executive and his eligible dependents with medical
coverage, on the same basis as though Executive had continued in the employ
of the Company, from and after the date hereof and through the date Executive
attains age 65. In addition, after Executive has attained age 65 or following
Executive's death, the Company shall provide Executive's current spouse (but
not her dependents) with continued medical coverage on the same terms and
conditions (except as expressly limited hereby) as such coverage was made
available to Executive until the date she attains age 65; PROVIDED THAT such
spousal coverage shall extend dependent coverage to Executive's currently
eligible dependent child, to the extent that and so long as he is still
eligible for dependent coverage under the Company's generally applicable
policies and practices as in effect from time to time. Where applicable, the
coverage provided pursuant to the two immediately preceding sentences will be
secondary to any other coverage Executive or his spouse may from time to time
have from any other source. If at any time that medical coverage is required
to be provided to Executive or his spouse hereunder, coverage is not
available to a former employee of the Company or his or her spouse or
dependents for any reason under the Company's generally applicable employee
benefit plans, the Company shall provide coverage (as otherwise required
hereunder) which is comparable to that provided at such time to senior
officers of the Company.
(b) EQUIPMENT. Executive shall be entitled to retain the business
equipment currently made available for his use that is listed on Schedule 1
hereto. In addition, upon written notice to the Company delivered within 30 days
of the date hereof, Executive shall have the right to purchase from the Company
any of the furniture in any of his offices, and either of the automobiles (but
not the limousines) currently made available for his use, in each case, at a
purchase price equal to the depreciated cost at which each such item is carried
on the Company's books. To the extent that any such purchase results in income
to Executive under applicable income tax laws, such income shall be treated as
subject to all generally applicable rules regarding wage withholding and
reporting.
(c) DEFERRED COMPENSATION AGREEMENT. The Company has established a
grantor trust to which it has made contributions under and pursuant to the
terms of the Deferred Compensation Agreement between the Company and
Executive, dated as of March 3, 1996. The assets held in such trust shall be
distributed to Executive in accordance with the provisions of such Deferred
Compensation Agreement (including, without limitation, Section 6(a) thereof)
in full and complete settlement of all of Executive's rights under such
agreement, PROVIDED THAT Executive is hereby deemed to elect a distribution
in kind under Section 2 thereof and that such distribution shall occur on
January 2, 1999.
5. SUPPORTING EMPLOYEES. Until October 15, 1998, the Company shall
continue to make available, at its expense, all employees currently comprising
Executive's staff at each of its locations and at Executive's residences, and to
pay all costs associated with such support staff. During such sixty day period,
the Company shall also pay all reasonable expenses related to the business
equipment provided in support of Executive on the same basis as it paid such
expenses immediately prior to the date hereof. After the expiration of such
sixty day period, the Company shall not be responsible for providing such
personnel to Executive nor for the expenses associated with such support or any
business equipment, except that the Company shall be responsible for any
expenses related to terminating any such employee's employment (should it decide
to do so) or for terminating any contract regarding such services to which it is
a party. Notwithstanding the foregoing, the Company shall make available to
Executive a secretary at its office in Pueblo, Colorado until the earlier of
April 15, 1999 or the date, if any, on which Executive engages in Competitive
Activity (as hereinafter defined).
6. EXPENSES. All expenses previously incurred by Executive prior to June
1, 1998 have been paid or reimbursed, or shall not be paid or reimbursed.
Executive shall have no responsibility for or liability to the Company for
expenses
incurred on or before that date that have been paid or reimbursed by the
Company. Any reasonable business expenses incurred on or after June 1, 1998
shall be paid or reimbursed in accordance with the Company's generally
applicable policies, subject to appropriate documentation and review. Any such
expenses shall be submitted directly to the Company's Chief Executive Officer
within five business days of the date hereof, or with respect to expenses
incurred in the performance of his duties as Chairman, as soon as practicable
(but in no event later than 30 days) after the incurrence thereof.
7. STOCK OPTIONS. In recognition of his retirement from the Company
and subject to the provisions of this section 7, all stock options currently
held by Executive which are not currently exercisable shall be and become
exercisable at the same time at, and to the same extent as, which they would
have become exercisable by Executive had he continued in the Company's
employ; PROVIDED THAT any such options that have not become exercisable in
accordance with the foregoing shall be forfeited and expire automatically on
any date on which Executive undertakes employment with or provides other paid
services (including as a medical manager or director, consultant, partner, or
independent contractor) to, or becomes an investor in, any health maintenance
organization, health care management company, physician group, insurance
company or similar entity that provides managed health care or related
services similar to those provided by the Company or any subsidiary in any
geographical area in which the Company or any such subsidiary is currently
providing such services ("Competitive Activity") or engages in a material
breach of either of the covenants contained in section 9 and section 10
hereof. (Notwithstanding the foregoing, Competitive Activity shall not
include (x) any investment by Executive of less than 5% in the outstanding
voting securities of any public company; (y) services performed by Executive
as a physician and not as an administrator, medical manager, medical director
or executive or (z) services for any business or entity that has as its
principal activity the direct provision of medical services to patients and
which has no more than 20 affiliated physicians.) Each currently exercisable
option and each option that shall hereafter become exercisable in accordance
with the preceding provisions of this section 7 shall be exercisable by
Executive (or, in the event of his death, his beneficiary) until May 31,
2001. Any stock options that have not been exercised prior to May 31, 2001
shall lapse and be canceled automatically without any further action.
8. RETIREMENT BENEFITS. (a) CURRENT SERP. The Company shall, solely for
purposes of the Company's current Supplemental Executive Retirement Plan
("SERP"), credit Executive with years of service for the period of his service
with Pueblo Physicians, Inc., a predecessor of predecessors of the Company,
which shall have the effect of providing Executive with 15 years of service for
purposes of such SERP. In addition, the Supplemental Benefit payable to
Executive under the SERP shall in all
events be determined assuming that Executive had attained age 62 prior to the
date on which his benefits commence thereunder. The Supplemental Benefit
payable to Executive, taking into account the preceding provisions of this
section 8, shall be calculated in accordance with the terms of the SERP,
except that in no event shall the bonus referred to in section 3 hereof be
taken into account in determining the amount of Executive's benefits under
the SERP. The Company shall provide Executive with a calculation of the
monthly benefit payable under the SERP, taking into account all applicable
offsets thereto, within ten business days of the date hereof. Except as
otherwise expressly provided above, payment of any benefit under the SERP
shall be made in accordance with its terms, and Executive shall have all
rights of a participant under the SERP, including all elections as to the
form of benefit. Executive shall have 30 days after the execution hereof to
make any and all elections with respect to the form of payment under the
SERP. Payment of benefits under the SERP shall commence as soon as
practicable (but not later than ten business days) after receipt of
Executive's election as to the form of annuity payment.
(b) PRIOR RETIREMENT ACCOUNT. Prior to the adoption of the SERP, the
Company (or one of its predecessors) maintained another nonqualified
retirement benefit plan, which is an offset to the Supplemental Benefit
provided under the SERP. The amount currently credited to Executive's benefit
under such account shall be paid in accordance with the terms of such benefit
plan and shall be calculated and quantified by the Company and identified to
Executive within ten business days hereof. The balance in such account shall
be distributed, at the election of Executive, by a single lump sum cash
payment of the value of such account or by a distribution of the life
insurance policies on Executive's life which the Company holds to assist it
in meeting its obligations to Executive, as soon as practicable, but in no
event later than 30 days following the execution hereof, in full and complete
satisfaction of the Executive's rights thereunder. If Executive shall not
have delivered written notice of the form of distribution within 20 days of
the date hereof, Executive shall have been deemed to have elected to receive
a distribution in kind. In the event that Executive receives a distribution
in kind, the Company shall have no duty or obligation to make any premium
payments on or in respect of such policies after the date of such
distribution.
9. NON-SOLICITATION. Until May 31, 2001, Executive will not solicit or
otherwise induce any executive of the Company or its subsidiaries to leave the
employ of the Company or such subsidiaries or to become associated, whether as
an executive, officer, partner, director, consultant or otherwise, with any
business organization.
10. NON-DISCLOSURE. Without the prior written consent of the Company,
except to the extent required by an order of a court having competent juris-
diction or under subpoena from an appropriate government agency or as may be
necessary in the conduct of his duties as Chairman, Executive shall not disclose
or use in any way for his personal benefit or for the benefit of any third
party, any trade secrets, customer lists, provider lists, product development
and related information, marketing plans and related information, sales plans
and related information, management organization and related information,
operating policies and manuals, business plans and related information,
financial records and related information or other financial, commercial,
business or technical information related to the Company or any of its
subsidiaries to any third person unless such information has been previously
disclosed to the public by the Company or has become public knowledge other than
by a breach of this Agreement.
11. INTENTION OF THE PARTIES. If any provision of Sections 7, 9 or 10 is
determined by a court of competent jurisdiction not to be enforceable in the
manner set forth in this Agreement, the Company and Executive agree that it is
the intention of the parties that such provisions should be enforceable to the
maximum extent possible under applicable law and that such court shall reform
such provision to make it enforceable in accordance with the intent of the
parties. Executive agrees that, if Executive shall breach any of the covenants
contained in Section 9 or 10, in addition to the remedy described in section 7
hereof, the Company shall be entitled to such injunctive relief as a court or
arbitrator shall reasonably determine unless such breach is an inadvertent
breach that does not result in any significant harm to the Company.
12. RELEASES. (a) EXECUTIVE RELEASE. In consideration of a payment of
$1,750,000, to be made in a single lump sum, on the eighth business day
following execution thereof (but if, and only if, the release referred to below
has not been revoked in accordance with its terms), Executive shall execute the
release in favor of the Company attached hereto as Exhibit A. Such release shall
pertain to any and all claims that Executive may now have or may hereafter have
against the Company or any of its predecessors, subsidiaries or affiliates
arising out of or in connection with Executive's employment with, or service as
an officer or a director of, the Company or any of its subsidiaries, other than
any claim for the benefits to be provided to Executive under this Agreement or
under any of the Company's applicable employee benefit plans (other than any
severance plan or policy or any other benefit plan or program specifically
referred to in this Agreement and for which payment is made in accordance with
the terms hereof, which payment is stated to be in satisfaction of Executive's
rights thereunder). If such release is revoked by Executive as permitted
thereunder, this section 12 and the provisions of section 7 shall be rendered
void and without effect, and (x) the Company shall have no obligation to make
the payment provided for in this section 12, (y) all of Executive's
unexercisable options shall be forfeited and (z) Executive's currently
exercisable stock options shall only be exercisable for 90 days after the date
hereof. Except as provided in the immediately preceding sentence and the
provisions of section 12(b), all other provisions of this Agreement shall remain
in full force and effect.
(b) COMPANY'S RELEASE. In consideration of Executive's release,
Executive's covenants hereunder and the other benefits conveyed to the Company
hereby, the Company shall execute the release in favor of Executive attached
hereto as Exhibit B. Such release shall pertain to any and all claims that the
Company may now have or may hereafter have against Executive arising out of or
in connection with Executive's employment with, or service as an officer or a
director of, the Company and any of its subsidiaries other than any claim under
this Agreement, any claim arising out of or related to any intentional
misconduct or fraud perpetrated against the Company or any of its affiliates or
customers or any claim relating to the reimbursement of premiums paid in respect
of the split-dollar life insurance policy on Executive's life. Notwithstanding
anything contained herein to the contrary, if Executive revokes the release
described in section 12(a), the Company's release under this Section 12(b) shall
be rendered void and without effect.
13. INDEMNITY. The Company shall indemnify Executive in accordance with
the terms and conditions of the Indemnification Agreement by and between the
Company and Executive dated as of August 10, 1996, which is incorporated herein
and expressly made a part hereof. The Company shall also use its reasonable
commercial best efforts to cause Executive to be treated as an additional named
insured on any liability and errors and omissions policies that it has in effect
from time to time and which extend coverage generally to the Company's senior
officers or directors for a period extending until the earlier to occur of one
year from the date of Executive's death and twenty-two (22) years from the date
hereof.
14. WITHHOLDING. All cash payments to be made under this Agreement
shall be made net of all applicable income and employment taxes required to
be withheld from such payments. To the extent any compensation is payable to
Executive in accordance with this Agreement other than as a payment in cash,
Executive shall be required to pay the Company an amount equal to all
applicable income and employment taxes required to be withheld with respect
thereto.
15. MISCELLANEOUS. This Agreement may be amended only by a written
instrument signed by the Company and Executive. Except with respect to any other
agreement between the Company and Executive that is specifically referenced
herein and intended to continue beyond the execution of this Agreement, this
Agreement shall constitute the entire agreement between the Company and
Executive with respect to
the subject matter hereof. The obligations of the Company to Executive and
the covenants of Executive in favor of the Company shall survive the
termination of Executive's continued services as a member of the Board of
Directors. This Agreement shall be governed by the laws of the State of
Delaware, other than the provisions thereof relating to conflict of laws.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, heirs (in the case of Executive) and
assigns. This Agreement may be executed in counterparts, each of which shall
be deemed an original but all of which together shall constitute one and the
same instrument. Any notices to be given and any payments to be made
hereunder shall be delivered in hand or sent by registered mail, return
receipt requested, to the respective party at (i) the Company's
California headquarters, if notice shall be to the Company, or (ii) the address
of Executive's permanent residence as listed on the Company's records from time
to time or to such other address as either such party shall direct in accordance
with the requirements of this Section 15.
IN WITNESS WHEREOF, the parties have executed this Early Retirement
Agreement effective as of the day first written above.
FOUNDATION HEALTH SYSTEMS, INC.
By: /s/ Jay M. Gellert
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Title: President and Chief Operating Officer
MALIK M. HASAN, M.D.
/s/ Malik M. Hasan
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