EMPLOYMENT AGREEMENT
This Agreement is made effective this 19th day of May, 1998 (the
"Effective Date") by and between Arnold H. Kaplan ("Executive") and United
HealthCare Services, Inc. ("UHS") (when used in this Agreement, UHS includes
any affiliated entity of UHS) for the purpose of setting forth certain terms
and conditions of Executive's employment by UHS and to protect UHS's
knowledge, expertise, customer relationships and the confidential information
UHS has developed about its customers, products, operations and services. As
of the Effective Date, this Agreement supersedes any prior employment-related
agreement or agreements between Executive and UHS or any subsidiary or
affiliate of UHS.
1. EMPLOYMENT AND DUTIES.
A. EMPLOYMENT. UHS hereby directly or through its subsidiaries employs
Executive. Executive accepts such employment on the terms and conditions
set forth in this Agreement and, except as specifically superseded by
this Agreement, subject to all of UHS's policies and procedures in
regard to its employees.
B. DUTIES. Executive shall perform such duties as are commonly
associated with his positions as the Chief Financial Officer of United
HealthCare Corporation ("UHC") or such other senior executive level
responsibilities as are reasonably assigned to Executive by his
supervisor from time-to-time. As Chief Financial Officer, Executive will
report directly to UHC's Senior Executive Vice President, such
executive's successor, or another member of UHC's Office of the
Chairman, excluding, however, any Chief Administrative Officer that may
from time to time be appointed by UHC and serve as a member of the
Office of the Chairman. Executive agrees to devote substantially all of
his business time and energy to the performance of his duties in a
diligent and proper manner. UHS acknowledges that Executive shall
maintain his permanent residence in Emmaus, Pennsylvania.
2. COMPENSATION.
A. BASE SALARY. Executive shall initially be paid a base annual salary
in the amount of $375,000 payable bi-weekly, less all applicable
withholdings and deductions. Executive shall receive a periodic
performance review from his supervisor and consideration for an increase
of such base salary.
B. BONUS AND STOCK PLANS. Executive shall be eligible to participate in
UHS's incentive compensation plans and its stock option and grant plans,
in accordance with the terms and conditions of those plans and
applicable laws and regulations. Without limiting the generality of the
foregoing, as long as Executive remains employed by UHS:
1. Executive will be entitled to participate in the UHC Management
Incentive Program. Executive's minimum initial participation will be 75%
of Executive's base annual salary. For 1998, Executive's payment, before
applicable withholding and deductions, shall not be less than $141,000.
For 1999, Executive's payment, before applicable withholding and
deductions, shall not be less than the sum of $141,000 and half of the
product of the "factor" applied to Executive's functional unit and
Executive's then participation factor.
2. Executive will be entitled to participate in the UHC Long Term
Incentive Plan. Executive's participation shall include UHS' start up
cycle and first cycle on a time-calculated pro rata basis beginning
on the Effective Date.
3. Executive will be entitled to participate in the UHC Stock Option
Plan from and after the Effective Date without any proration or other
limitation based on length of tenure. While not contractually binding,
UHC has advised Executive that currently executive comparable to
Executive annually receive options to purchase
approximately 25,000 shares of UHC Common Stock. Pursuant to the UHC
Stock Option Plan, Executive will receive an initial option grant to
purchase 75,000 shares of UHC Common Stock at an exercise price of
$52.25, which option grant will vest equally over a four-year period on
the anniversary of Executive's employment. Options granted to Executive,
including the initial option grant described above, will fully vest upon
Executive's retirement or any other termination of this Agreement, other
than a termination for Cause as herein defined. Options granted to
Executive, once vested, shall remain exercisable for the remaining term
of the option, subject to any forfeiture or "clawback" provisions in any
option. Any stock options granted to Executive will provide that upon a
UHC change of control all options granted to Executive shall be deemed
fully vested.
C. INITIAL BONUS. As an additional incentive payment, UHS agrees to pay
Executive a one-time payment of $50,000, less all applicable withholding
and deductions provided that Executive commences employment no later
than July 1, 1998. This payment will be made approximately one month
following the date on which Executive commences active employment
hereunder.
D. MOVING ALLOWANCE. UHS will provide Executive with relocation benefits
equal to $75,000 in accordance with UHS policies previously provided to
Executive. In addition, for a period of six months following July 1,
1998, UHS will reimburse Executive for reasonable transition expenses
that Executive incurs. UHS will reimburse Executive the cost of any
federal and state income taxes payable with respect to the payments made
under this paragraph.
E. EMPLOYEE BENEFITS. The Executive shall be eligible to participate in
UHS's other employee benefit plan, including without limitation, any
life, health, dental, short-term and long-term disability insurance
coverages and any retirement plans, in accordance with the terms and
conditions of those plans and applicable laws and regulations. Without
limiting the generality of the foregoing. Executive will be entitled to
receive a monthly benefit payment of $1,200, a one-time payment of $750
for business related expenses, and annual financial planning benefits up
to $6,000, all in accordance with the terms and conditions of such plans
and programs.
F. VACATION; ILLNESS. Executive shall be entitled to paid vacation and
sick leave each year in accordance with UHS's then-current policies.
3. TERM AND TERMINATION.
A. TERM. The term of this Agreement shall begin on the Effective Date
and shall continue unless and until terminated as set forth in Section 3B.
B. TERMINATION OF AGREEMENT AND/OR EMPLOYMENT.
1. This Agreement may be terminated at any time by the mutual written
agreement of the parties.
2. UHS may terminate Executive's employment or terminate this Agreement
by giving written notice of termination which is received by Executive
at least 30 days before the effective date of termination of employment
or of this Agreement, as the case may be.
3. Executive may terminate his employment by giving written notice of
termination of employment which is received by UHS at least 30 days
before the effective date of termination of employment.
4. This Agreement shall automatically terminate on the effective date
of the termination of Executive's employment or on the date of
Executive's death, retirement or permanent and total
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disability which renders Executive incapable of performing Executive's
duties. UHS has the sole discretion to determine whether Executive is
permanently or totally disabled with the meaning of this Section 3B4.
C. SEVERANCE EVENTS AND COMPENSATION. In the event (i) Executive's
employment with UHS is terminated by UHS pursuant to Section 3B2 and without
Cause or (ii) a Change in Employment occurs which Executive elects to treat
as a termination of Executive's employment under Section 3B2 ((i) and (ii)
are collectively referred to as the "Severance Events"), then:
1. For the "Severance Period," as hereinafter defined, Executive shall
receive biweekly payments equal to the greater of (a)(i) the quotient of
$1,000,000 and 36 if the Severance Event occurs within 24 months of the
Effective Date or (ii) the quotient of $700,000 and 24 if the Severance
Event occurs more than 24 months after the Effective Date but within 36
months of the Effective Date and (b) and amount equal to 1/26 of (i)
Executive's annualized base salary at the effective date of termination,
plus (ii) one-half of the total of any bonus or incentive compensation
(but not including any special or one-time bonus or incentive
compensation payments) paid or payable to Executive for the two most
recent calendar years or other periods generally used by UHS to determine
such bonus or incentive compensation, or if Executive has been eligible
for such bonus or incentive compensation payments for less than two such
periods, the last such payment paid or payable to Executive (the amounts
paid pursuant to (a) or (b) are referred to as the "Severance
Compensation"). The Severance Compensation shall be reduced by any
compensation which Executive receives or reasonably could have received in
each biweekly period as a result of employment or work as an independent
contractor elsewhere. Executive shall promptly disclose to UHS any such
compensation. For purposes of this Agreement, the "Severance Period"
shall equal: 13 months if a Severance Event occurs within 24 months of
the Effective Date; 12 months if a Severance Event occurs more than 24
but within 36 months of the Effective Date; and such period of time as
is consistent with UHS' then prevailing severance policies for executive
officers comparable to the Executive if a Severance Event occurs more
than 36 months after the Effective Date. Any payments hereunder will be
reduced by all applicable withholdings or deductions required by law or
Executive's elections under any employee benefit plans which Executive
continues to participate in under Section 3C2. If a Severance Event occurs
more than 36 months after the Effective Date in connection with a change
of control of UHC Executive shall receive Severance Compensation equal to
the greater of $700,000 or such amount as is payable in accordance with
UHC's prevailing policies.
2. As of the effective date of termination of employment, Executive
shall cease to be eligible for all benefit plans maintained by UHS,
except as required by federal or state continuation of coverage laws. If
Executive elects continuation of coverage under one or more benefit plans
subject to such continuation requirements, UHS shall, for the Severance
Period, pay on behalf of Executive an amount equal to UHS's employer
contribution for similarly situated active employees' coverages under
such benefit plans. During the Severance Period Executive's share of
coverage costs for such benefit plans shall be deducted automatically
through after-tax payroll deduction from the Severance Compensation.
3. During the Severance Period UHS shall pay to an outplacement firm
selected by UHS an amount deemed reasonable by UHS for outplacement and
job search services for Executive.
4. Executive shall be paid a portion of the Management Incentive Program
payments for the year in which termination of this Agreement occurs and
shall also be entitled to a position of the payments under the Long-Term
Incentive Plan. Payments shall be prorated based on the time at which
this Agreement terminates and shall be paid promptly following their
determination in accordance with the plan.
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The payments and benefits to Executive under this Section 3C shall be the
sole liability of UHS to Executive in the event of a Severance Event and
shall replace and be in lieu of any payments or benefits which otherwise
might be owned by UHS under any other severance plan or program and such
payments and benefits may be conditioned by UHS upon receipt of a release of
claims from Executive.
D. DEFINITION AND PROCEDURE.
1. For purposes of this Agreement, "Cause" shall mean (a) the refusal
of Executive to follow the reasonable directions of UHS's Board of
Directors or Executive's supervisor or to perform any duties reasonably
required on material matters by UHS, (b) material violations of UHS's
Code of Conduct or (c) the commission of any criminal act or act of
fraud or dishonesty by Executive in connection with Executive's
employment by UHS. Prior to the termination of Executive's employment
under subsection (a) of this Cause definition. UHS shall provide
Executive with a 30 day notice specifying the basis for Cause. If the
Cause described in the notice is cured to UHS's reasonable satisfaction
prior to the end of the 30 day notice period, Executive's employment
shall not be terminated on that basis.
2. For purposes of this Agreement a "Change in Employment" shall be
deemed to have occurred (a) if (i) Executive's duties are materially
adversely changed without Executive's prior consent or (ii) Executive's
salary or benefits are reduced other than as a general reduction of
salaries and benefits by UHS or (iii) without terminating Executive's
employment this Agreement is terminated by UHS pursuant to Section 3B2,
and (b) if in each case under subsections (a) (i), (ii), and (iii), in
the period beginning 60 days before the time the Change in Employment
occurs, Cause does not exist or if Cause does exist UHS has not given
Executive written notice that Cause exists. Executive may elect to treat
a Change in Employment as a termination of employment by UHS. To do so
Executive shall send written notice of such election to UHS within 60
days after the date Executive receives notice from UHS or otherwise is
definitely informed of the events constituting the Change in
Employment. No change in Employment shall be deemed to have occurred if
Executive fails to send the notice of election within the 60 day period.
Executive's failure to treat a particular Change in Employment as a
termination of employment shall not preclude Executive from treating a
subsequent Change in Employment as a termination of employment. The
effective date of a Change in Employment termination shall be the date
30 days after UHS receives the written notice of election.
4. PROPERTY RIGHTS, CONFIDENTIALITY, NON-SOLICIT AND NON-COMPETE PROVISIONS.
A. UHS's PROPERTY.
1. Executive shall promptly disclose to UHS in writing all inventions,
discoveries and works of authorship, whether or not patentable or
copyrightable, which are conceived, made, discovered, written or created
by Executive alone or jointly with another person, group or entity,
whether during the normal hours of employment at UHS or on Executive's
own time, during the term of this Agreement. Executive assigns all
rights to all such inventions and works of authorship to UHS. Executive
shall give UHS any assistance it reasonably requires in order for UHS to
perfect, protect, and use its rights to inventions and works of
authorship.
This provision shall not apply to an invention for which no equipment,
supplies, facility or trade secret information of UHS was used and which
was developed entirely on the Executive's own time and which (1) does
not relate to the business of UHS or to UHS's anticipated research or
development, or (2) does not result from any work performed by the
Executive for UHS.
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2. Executive shall not remove any records, documents, or any other
tangible items (excluding Executive's personal property) from the
premises of UHS in either original or duplicate form, except as is
needed in the ordinary course of conducting business for UHS.
3. Executive shall immediately deliver to UHS, upon termination of
employment with UHS, or at any other time upon UHS's request, any
property, records, documents, and other tangible items (excluding
Executive's personal property) in Executive's possession or control,
including data incorporated in word processing, computer and other
data storage media, and all copies of such records, documents and
information, including all Confidential Information, as defined below.
B. CONFIDENTIAL INFORMATION. During the course of his employment
Executive will develop, become aware of an accumulate expertise,
knowledge and information regarding UHS's organization, strategies,
business and operations and UHS's past, current or potential customers
and suppliers. UHS considers such expertise, knowledge and information to
be valuable, confidential and proprietary and it shall be considered
Confidential information for purposes of this Agreement. During this
Agreement and at all times thereafter Executive shall not use such
Confidential Information or disclose it to other persons or entities
except as is necessary for the performance of Executive's duties for UHS
or as has been expressly permitted in writing by UHS.
C. NON-SOLICITATION. During (i) the term of this Agreement, (ii) any
period for which Executive is receiving payments under Section 3C of
this Agreement, (iii) any period following the termination or expiration
of this Agreement during which Executive remains employed by UHS and
(iv) for a period of one year after the last day of the latest of any
period described in (i), (ii) or (iii), Executive shall not (y) directly
or indirectly attempt to hire away any then-current employee of UHS or a
subsidiary of UHS or to persuade any such employee to leave employment
with UHS, or (z) directly or indirectly solicit, divert, or take away,
or attempt to solicit, divert, or take away, the business of any person,
partnership, company or corporation with whom UHS (including any
subsidiary or affiliated company in which UHS has a more than 20% equity
interest) has established or is actively seeking to establish a business
or customer relationship.
D. NON-COMPETITION. During (i) the term of this Agreement, (ii) any
period for which Executive is receiving payments under Section 3C of
this Agreement, and (iii) any period following the termination or
expiration of this Agreement during which Executive remains employed by
UHS, Executive shall not, without UHS's prior written consent, engage or
participate, either individually or as an employee, consultant or
principal, partner, agent, trustee, officer or director of a
corporation, partnership or other business entity, in any business in
which UHS (including any subsidiary or affiliated company in which UHS
has a more than 20% equity interest) is engaged. In the event that
Executive elects to terminate Executive's employment pursuant to Section
3B3, UHS may elect to have the provisions of this Section 4D be in
effect for up to 18 months following the effective date of such
resignation if, during the period up to 18 months specified by UHS, UHS
pays Executive biweekly payments equal to 1/26 of the Severance
Compensation. UHS must send written notice of such election within 10
days after it receives written notice of the termination of employment.
Executive shall use reasonable efforts to find appropriate employment or
work as an independent contractor not inconsistent with this Section 4D
and a biweekly payment shall be reduced by any compensation which
Executive receives or reasonably could have received in that biweekly
period as a result of employment or work as an independent contractor
elsewhere. Executive shall promptly disclose to UHS any such
compensation.
5. MISCELLANEOUS.
A. ASSIGNMENT. This Agreement shall be binding upon and shall inure to
the benefit of the parties and their successors and assigns, but may not
be assigned by either party without the prior written consent of the
other party, except that UHS in its sole discretion may assign this
Agreement to an entity controlled by UHS at the time of the assignment.
If UHS subsequently loses or gives up control of the entity to which this
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Agreement is assigned, such entity shall become UHS for all purposes
under this Agreement, beginning on the date on which UHS loses or gives
up control of the entity. Any successor to UHS shall be deemed to be UHS
for all purposes of this Agreement.
B. NOTICES. All notices under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered by hand or mailed
by registered or certified mail, return receipt requested, postage
prepaid, to the party to receive the same at the address set forth below
or at such other address as may have been furnished by proper notice.
UHS: 300 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Attn: General Counsel
Executive: Arnold H. Kaplan
500 Orchid Circle
Emmaus, PA 18049-1634
C. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with respect to its subject matter and may be amended or
modified only by a subsequent written amendment executed by the parties.
This Agreement replaces and supersedes any and all prior employment or
employment related agreements and understandings, including any letters
or memos which may have been construed as agreements, between the
Executive and UHS or any of its subsidiaries and affiliated companies.
D. CHOICE OF LAW. This Agreement shall be construed and interpreted
under the applicable laws and decisions of the State of Minnesota.
E. WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy under this Agreement shall
operate as a waiver, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise of any right or
remedy.
F. ADEQUACY OF CONSIDERATION. Executive acknowledges and agrees that
he/she has received adequate consideration from UHS to enter into this
Agreement.
G. DISPUTE RESOLUTION AND REMEDIES. Any dispute arising between the
parties relating to this Agreement and future agreements or to
Executive's employment by UHS shall be resolved by binding arbitration
pursuant to the Rules of the American Arbitration Association. In no
event may the arbitration be initiated more than one year after the date
one party first gave written notice of the dispute to the other party.
The arbitrators shall not ignore or vary the terms of this Agreement and
shall be bound by and apply controlling law, but may not in any case
award any punitive or exemplary damages. The parties acknowledge that
Executive's failure to comply with the Confidential Information,
Non-Solicitation and Non-Competition provisions of this Agreement will
cause immediate and irreparable injury to UHS and that therefore the
arbitrators, or a court of competent jurisdiction if an arbitration
panel cannot be immediately convened, with be empowered to provide
injunctive relief, including temporary or preliminary relief, to
restrain any such failure to comply.
H. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer or be
deemed or construed to confer any rights or benefits upon any person
other than the parties.
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THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY
THE PARTIES.
UNITED HEALTHCARE SERVICES, INC.
By /s/ Stephen J. Hemsley /s/ Arnold H. Kaplan
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Stephen J. Hemsley Arnold H. Kaplan
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