EX. 10.17
March 12, 1999
Karen Coughlin
100 E. Huron Street
Apt. 3505
Chicago, Illinois 60611
Re: Terms of Employment
Dear Karen:
On behalf of Foundation Health Systems, Inc. (hereinafter the "Company"), I
would like to confirm our offer to you for the exempt position of President
and Chief Executive Officer for the Northeast Division. In this position you
will report directly to the President and Chief Executive Officer of the
Company. You will earn a monthly salary of $29,166.67 commencing as of
November 2, 1998, although your formal "start date" for employment purposes
will be as of October 23, 1998 (the date you commenced providing services to
the Company). As is our current practice, you will be paid on a bi-weekly
basis with 26 pay periods per year. Performance of each of the Company's
Associates is generally reviewed on an annual basis, and any adjustment to
salary is ordinarily made upon the completion of such performance review.
Any adjustment to your compensation must be made with the approval of the
Compensation and Stock Option Committee of the Company's Board of Directors
(the "Committee"). You will be provided a $1,000 per month automobile
allowance, subject to normal payroll deductions, and subject to any changes
that may be made from time to time to the overall automobile allowance
program.
Upon your employment, FHS will provide to you a one-time $100,000 loan (with
interest accrued at the Prime Rate) payable by you upon demand in the event
of voluntary termination of your employment or should the Company terminate
you for "Cause." The principal and any accrued interest will be forgiven,
one-half on each of the first and second anniversaries of your date of hire.
Additionally, the loan plus accrued interest will be forgiven in total prior
to the second anniversary if you depart from the Company involuntarily
without Cause, due to "Good Reason" following a Change of Control, or due to
death or disability. Good Reason, Change of Control and Cause are defined
below in this letter agreement. The Company agrees that it will consider
your reasonable requests, if any, to restructure the timing, nature and/or
characterization of such loan as may be suggested by your tax/financial
advisors, provided that such restructuring would
Karen Coughlin
March 12, 1999
Page 2
not disadvantage the Company and would not result in a modification of your
obligation to repay such amount in the instances set forth above.
In addition, beginning January 1, 1999 you will be eligible to participate in
the Company's Executive Incentive Plan as it may be modified from time to
time by the Committee. Under the Plan, bonus payments are dependent upon
Company and individual performance measures. You will be eligible to
participate in the Plan in 1999 with a target bonus opportunity of 70 percent
of your base salary. The maximum bonus payable to you under provisions of the
Plan is 105 percent of base salary. Any bonus payout for 1999 will be paid
in 2000 following outside audit of the Company's performance and
determination of your success in accomplishing individual performance
objectives. To be eligible for any bonus payment, you must be actively
employed and on the Company payroll at the time the bonus is paid. Bonus
calculations are based on the annual base salary in effect on December 31st
of the respective Plan year. It is understood that the Committee and the
Company will award bonus amounts, if any, as it deems appropriate consistent
with the guidelines of the Plan. You acknowledge that in the event you are
one of the top five highest paid executive officers of the Company for any
year subsequent to 1999 under applicable federal securities laws, your bonus
for that year, if any, will be subject to the Company's Performance Based
162(m) Plan (the "162(m) Plan") in lieu of the Executive Incentive Plan. It
is agreed that you shall not participate in the 162(m) Plan for the 1999 plan
year notwithstanding the terms of such plan. Furthermore, the President and
Chief Executive Officer of the Company will discuss with the Committee the
performance targets contained in the Company's 162(m) Plan in the context of
the Company's financial performance at an upcoming Committee meeting.
Incentive compensation payments are subject to normal payroll deductions.
As part of our long-term incentive program, you will be eligible to
participate in the Company's stock option program. The Committee has
approved a stock option grant to you effective as of October 23, 1998, the
date you commenced employment with the Company (the "Grant Date"), to
purchase an aggregate of 400,000 shares of the Company's Class A Common Stock
with an exercise price equal to $10.84. The option will vest at the rate of
44,000 options, 88,000 options, 133,000 options, 88,000 options and 47,000
options on each of the first through fifth anniversaries of the Grant Date,
respectively. As discussed, the Committee is willing to consider a
performance-based acceleration with respect to the fourth and fifth year
option vesting. A stock option agreement formalizing this grant will be
provided to you under separate cover containing the standard terms and
conditions currently used by the Company. Any future recommendation for
additional options made by the Company's management will
Karen Coughlin
March 12, 1999
Page 3
be made consistent with your performance and generally comparable to peer
managers of the Company at the time option recommendations are presented to
the Committee. It is further agreed that this initial grant to you will be
considered a three-year "mega-grant" and you will therefore not be eligible
to receive additional option grants for a period of three years. At all
times, all stock option grants remain within the sole discretion of the
Committee.
In lieu of relocation benefits (other than the transport of household goods
already arranged for by the Company), the Company will provide to you an
apartment in New York City (subject to reasonable approval by the Company's
President and Chief Executive Officer) and travel to and from Chicago for you
or your significant other or one of your family members on a weekly basis for
the duration of your employment with the Company.
In addition to the foregoing, and subject to your continued employment with
the Company, you will be eligible to participate in Company-offered benefits
if you meet certain criteria. These benefits include group medical, dental,
vision, life insurance, short-term and long-term disability insurance, 401(k)
plan, Company-recognized holidays, tuition reimbursement and participation in
our deferred compensation program. In our 401(k) Plan, the Company currently
matches your contribution at $.50 for every dollar contributed up to six
percent (6%) of your compensation (subject to certain limitations). The
Company's Paid Time Off ("PTO") benefit is provided to you for illness,
vacation and personal time off. Under the PTO program you accrue PTO at a
rate of 23 days per year between your date of hire and 120 months of service,
and 25 days per year thereafter. In case of a conflict between this summary
and the official documents, the official documents will always govern. In
addition, the Company reserves the right to change, amend or terminate the
benefits plans at any time, with or without notice.
You will also be eligible to participate in the Company's existing
Supplemental Executive Retirement Plan ("SERP") or a successor plan. Under
provisions of the SERP you can vest and accrue a retirement benefit of up to
50 percent of your base salary plus incentive compensation. This benefit is
integrated (offset) with other retirement benefits provided by the Company
and with 50 percent of your social security benefits.
To assist you in tax preparation and financial planning activities, the
Company will also provide you up to $5,000 in annual reimbursement for
expenses related to that activity.
Karen Coughlin
March 12, 1999
Page 4
The Company will provide you with protection in the event of the termination
of your employment without Cause (absent a Change of Control). Under the
terms of this agreement "Cause" is defined as clear and willful failure to
perform your duties not resulting from complete or partial incapacity due to
physical or mental illness or impairment that continues after reasonable
written notice and an opportunity to correct such failure; gross misconduct
or fraud; or conviction of, or a plea of "guilty" or "no contest" to, a
felony. In the event that your employment is terminated involuntarily
without Cause, and you sign the Company's standard Separation Agreement and
Release of Claims document, you will be provided a severance package which
will include a lump-sum severance payment totaling twenty-four (24) months of
base salary in effect at the date of your termination, together with all
other severance benefits payable under the Company's "Separation Agreement
and Release of Claims". Should you elect to continue your medical benefits,
the Company will pay the premium to provide you and your dependents medical
and dental coverage under COBRA, or if not available under COBRA, some other
plan substantially similar to that which the Company provided you as an
active employee, for a period of twenty-four months after termination of
employment in the event the severance payment set forth in this paragraph
becomes payable.
If within the first two years following a Change of Control, your employment
is involuntarily terminated by the Company without Cause as defined above, or
should you voluntarily terminate your employment for "Good Reason", then
within thirty (30) days of your termination from the Company, you will be
provided a change of control severance package which will include a lump-sum
severance payment totaling thirty-six (36) months of base salary in effect at
the date of your termination provided you sign the Company's standard
Separation Agreement and Release of Claims. During the thirty-six (36) month
period from and after the date of your termination of employment, should you
elect to continue your medical benefits, the Company will also provide you
and your covered dependents medical and dental coverage by paying the COBRA
premium, if eligible under COBRA, or the premium to provide coverage
substantially similar to that which the Company provided you as an active
employee provided you sign the Company's standard Separation Agreement and
Release of Claims.
For the purposes of this agreement, Change of Control shall mean any of the
following which occurs subsequent to the date of this offer:
a) Any person (as such term is defined under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")),
Karen Coughlin
March 12, 1999
Page 5
corporation or other entity (other than the Company or any employee benefit
plan sponsored by the Company or any of its subsidiaries) is or becomes the
beneficial owner (as such term is defined in Rule 13d-3 under the Exchange
Act) of securities of the Company representing twenty percent (20%) or more
of the combined voting power of the outstanding securities of the Company
which ordinarily (and apart from rights accruing under special
circumstances) have the right to vote in the election of directors
(calculated as provided in paragraph (d) of such Rule 13d-3 in the case of
rights to acquire the Company's securities ) (the "Securities");
b) As a result of a tender offer, merger, sale of assets or other
major transaction, the persons who are directors of the Company immediately
prior to such transaction cease to constitute a majority of the Board of
Directors of the Company (or any successor corporations) immediately after
such transaction;
c) The Company is merged or consolidated with any other person, firm,
corporation or other entity and, as a result, the shareholders of the
Company, as determined immediately before such transaction, own less than
eighty percent (80%) of the outstanding Securities of the surviving or
resulting entity immediately after such transaction;
d) A tender offer or exchange offer is made and consummated for the
ownership of twenty percent (20%) or more of the outstanding Securities of
the Company;
e) The Company transfers sustantially all its assets to another
person, firm, corporation or other entity that is not a wholly-owned
subsidiary of the Company; or
f) The Company enters into a management agreement with another
person, firm, corporation or other entity that is not a wholly-owned
subsidiary of the Company and such management agreement extends hiring and
firing authority over Employee to an individual or organization other than
the Company.
For the purposes of this agreement, "Good reason" is defined as any one of the
following:
a) A demotion or substantial reduction in the scope of your position,
duties, responsibilities or status with the Company or any new parent
company of the Company, or any removal of you from or any failure to
Karen Coughlin
March 12, 1999
Page 6
reelect you to any of the positions (or functional equivalent of such
positions) held by you immediately prior to a Change of Control, except in
connection with the termination of your employment for disability, normal
retirement or Cause or by you voluntarily other than for Good Reason;
b) A reduction by the Company in your annual base salary or a
material reduction in the benefits or perquisites available to you as in
effect immediately prior to any such reduction;
c) A relocation of you to a work location more than fifty (50) miles
from your work location immediately prior to such proposed relocation;
provided that such proposed relocation results in a materially greater
commute for you based on your residence immediately prior to such
relocation;
d) The consummation by the Company of any transaction resulting in
Greg Wolf (currently with Humana) being in a supervisory or management
position over you, or the hire or retention of Greg Wolf by the Company
resulting in the foregoing, or the consummation by the Company of any
transaction with Humana if following such transaction Greg Wolf remains
with the combined entity; or
e) The failure of the Company to obtain an assumption agreement,
encompassing this agreement, from any successor resulting from a Change of
Control.
You agree, through the signing of this letter agreement, that your employment
with the Company is at the mutual consent of you and the Company and is an
"at-will" employment relationship. Nothing in this letter is intended to
guarantee your continued employment with the Company or employment for any
specific length of time. While the Company hopes that your employment
relationship will be mutually beneficial and rewarding, both you and the
Company retain the right to terminate the employment relationship at will, at
any time, with or without cause. The at-will nature of your employment with
the Company cannot be modified or superseded except by a written agreement,
signed by you and the President and Chief Executive Officer of the Company,
that clearly and expressly specifies the intent to modify the at-will
relationship. In accepting employment with the Company, you acknowledge that
no Company representative has made any oral or written promise or
representation contrary to this paragraph. Furthermore, you acknowledge that
this paragraph represents the only agreement between you and the Company
concerning the duration of your employment and the at-will nature of the
employment relationship.
Karen Coughlin
March 12, 1999
Page 7
During your employment with the Company, you will have access to and become
acquainted with certain proprietary and confidential information and practices
("Confidential Information"). Confidential Information includes all information
that is not generally known to the Company's competitors and the public, and
that has or could have commercial value to the Company's business. It includes,
but is not limited to, customer information, customer lists, and pricing
methodology.
In accepting this new position with the Company, you acknowledge and agree that
all documents, memoranda, reports, files, correspondence, lists and other
written, electronic and graphic records affecting or relating to the Company's
business that you may prepare, use, observe possess or control (including, but
not limited to, any materials containing Confidential Information) shall be and
remain the Company's sole property, and you agree not to make use of or disclose
to any third party any such material, confidential or otherwise, except for the
benefit of the Company and in the course of your employment with the Company.
If your employment is terminated (voluntary or otherwise), you agree to deliver
to the Company within five business days of termination all written and/or
graphic records affecting or relating to the Company's business, including but
not limited to material containing Confidential Information.
You have agreed and certify that you have no other agreement, relationship, or
commitment to any other person or entity that conflicts with your obligations to
the Company under this offer letter. If you are unable to so certify, all such
agreement(s) must be identified here:
- ------------------------------------------------------------------
(None other than previously disclosed to the Company)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
You agree not to use or disclose any confidential information or trade secrets
of others, including all prior employers, in your work at the Company. Should a
situation arise in which you believe that your job duties may lead to the use or
disclosure of confidential information or trade secrets of another, you agree to
notify the Company's Corporate Human Resources Department of the situation
immediately.
Karen Coughlin
March 12, 1999
Page 8
Finally, this letter sets forth all the terms of this offer of employment. It
supercedes all previous and contemporaneous oral and written communications and
representations. To confirm your acceptance of these terms, please sign, date
and return a copy of this letter to the Senior Vice President, General Counsel
and Secretary, Foundation Health Systems, Inc., 21650 Oxnard Street, Woodland
Hills, CA 91367.
Karen, we are pleased to offer you this professional opportunity and are excited
about the contributions that you can make to the Company as part of our
management team. Should you have any questions please feel free to contact me
at (818) 676-6703.
Sincerely,
/s/ Jay M. Gellert
- -------------------------------------
Jay M. Gellert
President and Chief Executive Officer
I HEREBY ACCEPT AND AGREE TO THE TERMS OF THIS OFFER OF EMPLOYMENT AS OUTLINED
ABOVE.
Karen A. Coughlin 3-19-99
- -------------------------------------- --------------------------------------
SIGNATURE DATE