EMPLOYMENT AGREEMENT
This Employment Agreement between Mid Atlantic Medical Services, Inc.
(Company), a corporation organized and existing under the laws of the State of
Delaware and having its principal office and place of business in the City of
Rockville, Maryland, as the employer, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (Executive), as the
employee.
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive as its chairman,
president, and chief executive officer and whereas the Executive desires to be
employed in such capacity.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the Company and the Executive agree as follows:
1. Term of Employment
The Company shall employ the Executive to perform the services
described below, for the period beginning January 1, 1999 and ending December
31, 2001. At the conclusion of the term of this Agreement, the Executive will be
paid any accrued bonus.
2. Duties
The Executive will serve as chairman, president, and chief
executive officer of the Company (subject to the provisions of the Company
by-laws). Executive also agrees to serve, for any period for which he is
elected, as director, or an officer of the Company, any affiliated or subsidiary
companies and Executive shall not be entitled to any additional compensation for
such service. All services shall be performed in consultation with and under the
supervision of the Board of Directors of the Company. Executive shall (a) keep
the Board of Directors of the Company fully informed of the Company operations,
and (b) promptly submit to such Board of Directors any reasonable written
reports it may require. Executive shall have those duties and responsibilities
customarily associated with the positions of chairman, president, and chief
executive officer of comparable companies, and such other responsibilities as
may be assigned to Executive by the Board of Directors from time to time.
Executive shall resign from all offices and directorship of the Company and of
its subsidiaries upon the termination of this contract.
3. Compensation
3.1 Base Salary. As compensation in full for all services to be
rendered by Executive under this Agreement, the Company shall pay to Executive
an annual base salary of $1,350,000.00 in approximately equal installments on
the regular pay dates of the Company. The base salary will not be adjusted
during the term of the Agreement.
3.2 Incentive Compensation. In addition to the base salary described in
subsection 3.1,Executive shall be entitled to participate in the Company
Management Bonus Program as in effect from time to time, and any subsequent
incentive program adopted by the Company Board for the Company Senior Staff. The
extent of Executive participation in the Management Bonus Program shall be
calculated in a similar manner to the bonus paid to other senior staff, but that
the minimum bonus amount will equal 25 percent of that year's base salary and
the maximum amount will equal 50 percent of base salary.
3.3 Participation in Benefit Plans. During the term of this Agreement,
Executive shall be entitled to receive such fringe benefits as shall be made
generally available to employees of the Company or to executive officers of the
Company.
3.4 Tax Indemnity Payments. Any Income Tax Indemnity Payment
required to be paid pursuant to this Agreement shall be determined by assuming
that the tax due upon any amount is computed by applying to such
amount the highest marginal federal, state, and local income tax rates then in
effect for an individual with the Executive filing status, as if such amount
were Executive=s only item of taxable income and Executive was entitled to claim
no credits with respect thereto, but such Tax Indemnity Payment shall be the net
of the maximum reduction in federal income taxes that could be obtained by
Executive from reduction of the state and local income taxes applicable with
respect to such amount. Upon request, the Executive shall provide to the Company
one copy of all individual federal, state, and local income tax returns filed
for the year preceding that for which the Income Tax Indemnity Payment is due.
Any Income Tax Indemnity Payment made pursuant to subsection 3.8 hereof shall be
paid on or before the April 15 following the year to which such Payment related.
3.5 Life Insurance. In addition to any life insurance which may be
included as a fringe benefit made generally available to employees of the
Company, the Company agrees to obtain, pay all premiums for, and maintain during
the term of this Agreement, a whole life insurance policy on the life of and
payable to a beneficiary named by the Executive in the amount of $200,000.00,
provided, however, that the Company shall have no obligation to provide such
insurance if the Executive is not insurable at ordinary market rates and without
material cost or other adjustments.
3.6 Stock Options.
Should the Executive continue to perform at current levels, and should
the Company and its subsidiaries continue to develop their financial strength,
it would be the present intention of the Company to grant, through action by the
Company=s Stock Option Committee, with an exercise price equal to the fair
market value on the date of grant, to the Executive options to acquire 200,000
shares of Company stock as a one time signing bonus. It is anticipated that
50,000 options would be granted from the 1995 Non-Qualified Stock Option Plan,
upon Board approval, which is anticipated to occur at the November 1997 Meeting,
and that 150,000 shares would be granted from the 1998 Non-Qualified Stock
Option Plan in April 1998. Notwithstanding the above, it is anticipated that the
Stock Option Committee would grant an additional 200,000 shares in April 1998 as
the Executive annual stock option grant.
Assuming continued performance, Executive will be granted an additional
200,000 shares with an exercise price equal to the fair market value on the date
of grant each April that contract continues prior to its termination or
expiration. Such grants will start in April, 1999.
All option grants issued pursuant to this Agreement will vest on grant.
In all other respects option grants will be similar to those available to other
employees of the Company.
3.7 Expenses. During the term of this Agreement, the Company shall
reimburse Executive for all reasonable items of travel and related lodging,
entertainment, business promotion, community activities, and miscellaneous
expenses incurred that are related to the Company or any subsidiary company
business and executive employment by the Company or any subsidiary company, with
reimbursement to be made to the Executive upon submission to the Company of a
signed statement itemizing the expenses so incurred in accordance with policies
adopted by the Company for reimbursement of their executives.
3.8 Business Automobile. The Company shall provide through purchase or
lease for Executive use an automobile appropriate for Executive position in the
Company. Upon the presentation of receipts or other documentation, the Company
shall on a regular basis reimburse the Executive for normal up-keep, insurance,
fuel, and related expenses associated with the use of such automobile for the
business purposes of the Company or any subsidiary company. To the extent that
the Company expenditures for such automobile are determined by the Company to
result in taxable income to Executive, the Company will also pay to Executive,
as an Income Tax Indemnity Payment, to be computed and paid as described in
subsection 3.4 hereof, an amount of cash equal to the sum of all federal, state,
and local income taxes upon (a) such taxable income, and (b) such Income Tax
Indemnity Payment. The Executive may elect to receive a new automobile on an
annual basis.
3.9 Retirement. The Executive shall be entitled to supplemental
retirement benefit which will provide an annual benefit of $450,000.00 per year
for 15 years. However, the Company shall not be obligated to pay any
supplemental retirement benefit under this subsection 3.9 if the Executive is
terminated for cause by the Company.
Payment, if any, of the supplemental retirement benefit will
be made in the form of an annuity for a fixed term of years payable to the
Executive, or his estate, heirs, or assignees as determined by the Executive.
Should Executive die prior to retirement, but during the term of this Agreement,
payments will be made as designated by the Executive, or in the absence of any
such designation, to the Executive=s estate. The parties may enter in to a
separate agreement to make more particular the terms and conditions of this
supplemental retirement benefit including but not limited to the use of a Rabbi
Trust. If a Rabbi Trust is to be used, the Executive must elect its use no later
than January 1, 1999.
3.10 Health Insurance. Either the Executive or the spouse of the
Executive at the time of retirement or death of the Executive will be eligible
for health coverage from the company or its successor during the term of their
respective lives. Such health coverage to be paid for by Executive or the spouse
of the Executive.
3.11 Split Dollar. Executive, at Executive=s option, has a one time
election to reduce the supplemental retirement payment provided under Section
3.9. Such election must be made by January 1, 1999. If Executive makes such an
election prior to January 1, 1999, Company shall fund an amount equal to the
actual equivalent of the retirement benefit in the form of premium advances on a
split dollar life policy on the life of the Executive, or on the joint lives of
the Executive and his spouse. Under the terms of the split dollar coverage,
Company will be repaid, either by loan on the policy or from policy proceeds,
for all premiums advanced by the Company.
4. Acceptance.
The Executive accepts the aforementioned employment at the
compensation and upon the terms specified herein. During the term of this
Agreement, the Executive agrees to serve the Company and its subsidiaries
faithfully and to the best of his ability and to devote his full time,
attention, and efforts to the business of the Company and its subsidiaries and
shall not during the term of this Agreement engage in any other business
activity that would interfere with his employment or be in any manner
competitive with the Company or any of its subsidiaries.
Contract will not be effective until approved by Board of
Directors which is expected to occur in November 1997. Notwithstanding the
above, the parties acknowledge that the contract will be submitted to
shareholders vote at the April 1998 Shareholders Meeting. Such approval is
expected to occur at the 1998 Annual Shareholders meeting. In the event that the
shareholders do not approve the contract, the parties agree to renegotiate this
Agreement with the intention of reaching and receiving shareholder approval..
5. Vacation and Sick Leave.
The Executive shall be entitled to four weeks paid annual
vacation and paid sick leave in accordance with the policies of the Company.
Vacation days shall be taken at such time or times as the Company and Executive
may agree.
The Company shall provide paid sick leave in accordance with
existing benefit policies; however, in the event of the Executive physical,
mental, or emotional disability or incapacity, the Company shall provide to the
Executive any financial remuneration difference between that amount allowed
under existing benefit policy and the base salary in effect at the time of
Executive disability or incapacity for a period of up to 90 days. Thereafter,
for an additional period of up to 90 days, the Company shall provide to the
Executive any financial remuneration difference between that amount allowed
under then existing benefit policy and 60 percent of the Executive base salary
in effect at the time of such disability. However, such salary benefits shall be
cumulative and may be used only for a maximum of 180 days as herein provided.
Thereafter, the Executive shall be entitled to receive such
benefits as shall be made generally available to any employee of the Company or
executive employee of Company.
6. Death or Incapacity.
In the event of the death of the Executive during the term
hereof, this Agreement shall terminate and the Company shall not be subject to
any further obligation to such deceased Executive hereunder, or his estate
except for any accrued unpaid salary, reimbursements, and other compensation,
including without limitation any vested benefits under the Company employee
benefit programs and any incentive payment which may be due pursuant to
subsections 3.2 and 3.9 hereof.
If, on account of physical, mental, or emotional disability or
incapacity, the Executive shall fail or be unable to substantially perform the
duties contemplated by this Agreement for a total of 90 days or more within any
12 consecutive calendar months, the Company may, upon 30 days written notice to
the Executive, reassign the Executive in accordance with Section 10.
7. Covenant Not to Compete.
In carrying out his duties under this Agreement, the Executive
may have access to confidential information and trade secrets related to
business activities of the Company and its subsidiaries including, without
limitation, financial projections and models, cost and sales data, marketing
plans and programs, and methods of operation. In order to protect the
confidentiality of information acquired by the Executive heretofore or in the
future in the course of his employment, the Executive hereby agrees that, during
the term of this Agreement and for a period of one year after any termination
hereof, he will not, in any area of service by the Company or in any area in
which the Executive knows the Company, or any direct or indirect subsidiary or
affiliate (including but not limited to the Company, or any subsidiary or
affiliate thereof) intends to extend its service, unless acting as an officer or
employee of the Company, or with the prior written consent of the Board of
Directors or the Company, directly or indirectly manage, operate, control, or
own a 5 percent or more interest in or serve as an officer, director, employee,
or partner of, any managed health care business entity that directly or
indirectly competes with the Company as it then conducts its business. The term
Amanaged health care business entity@ refers to any business entity which,
directly or indirectly, provides or arranges for the provision of comprehensive
medical care, including physician and hospital care, to participants or
enrollees for a fixed, prepaid premium or fee which is not adjusted in
accordance with the amount of care actually provided. This covenant by Executive
shall be construed as an agreement independent of any other provision of this
Agreement; and the existence of any claim or cause of action of the Executive
against the Company or any of its subsidiaries whether or not predicated on this
Agreement, shall not constitute a defense to the enforceability by the Company
or any of its subsidiaries of this Section 7. Any violation of this Section
would constitute a basis for termination with cause by the Company.
In consideration of the Executive=s covenant under this
Section 7.1 not to compete for a period of one year after termination of this
Agreement, as set forth above, the Company shall retain the Executive as a
Consultant for a period beginning at the conclusion of the term of this
Agreement and not to exceed one year. The Executive shall be paid an amount
equal to the Executive pre-termination base salary in consideration of this
covenant. The Company shall enforce this Section 7.1 through all available legal
means.
8. Termination.
Either of the employers or the Executive may terminate this
Agreement in the event of a material breach thereof by the Executive or either
of the employers, respectively, and the Executive may also be terminated for
cause by either employer; provided, however, that termination of this Agreement
by the Company for either material breach or cause shall not affect any
obligation arising under this Agreement. Termination by any party shall be by
notice in writing specifying such material breach or cause and shall be
effective on the date of such notice, without prejudice to the rights of the
party to whom such notice is given to contest such termination by appropriate
judicial means.
For purposes of termination of this Agreement by the Company,
the following events shall be considered cause under the preceding subsection
8.1 for which Executive may be terminated:
(a) failure or refusal by Executive to perform his duties in
accordance with this Agreement, including without limitation the
duty to keep the Board of Directors of the Company adequately
informed and to submit to it such written reports as it may
reasonably require;
(b) any material act of self-dealing between the Executive and the
Company=s business that is not disclosed in full to, and approved
by, the Board of Directors of the Company;
(c) misrepresentation of the performance and affairs of the Company
and other matters affecting the Company;
(d) deliberate falsification by the Executive of any records or
reports; (e) fraud on the part of the Executive;
(f) theft, embezzlement, or misappropriation by the Executive of any
funds of the Company, or conviction of the Executive for any
felony;
(g) execution by the Executive or any document transferring or
creating any material lien or encumbrance on any property of the
Company without authorization of its Board of Directors.
(h) such other act as should cause material harm to the business or
property of the Company unless action was taken in good faith such
as with a reasonable belief that such act was in the best interest
of the Company.
All references to the Company in this Section 8 shall be deemed to include any
parent, subsidiaries, and affiliates of the Company.
At the meeting of the Board of Directors of the Company,
occurring during the fourth quarter of each year at what has been referred to as
the Planning Session the Board shall, in the absence of the Executive, discuss
the Executive performance, and take an affirmative vote to retain the Executive.
Should the Executive fail to receive the affirmative vote of more than half of
the Directors present and voting, the Executive duties under this Agreement
shall terminate, and the Executive shall be entitled to compensation in an
amount equal to that determined under Section 10 of this Agreement, however the
Executive stock option vesting will not accelerate as described in Section 10.3
in such a situation.
Executive should have the right to terminate the contract by
providing to the Board of Directors notice of such termination 6 months in
advance of such termination or such other period of time as may be agreed to by
the parties. Termination pursuant to this Section 8.4 is not considered a change
in contract and no payments will be made under Section 10 after such notice is
provided by Executive.
9. Reassignment.
The Company may with cause reassign the Executive from the
position of chairman, president, and chief executive officer to another position
in the Company. Upon reassignment, Executive shall be entitled to continue to
receive his salary and any current bonus accrued, but no incentive compensation
unless such position to which Executive is assigned is otherwise covered by the
Company Management Bonus Program or any subsequent incentive program adopted by
the Company. Should such reassignment be unacceptable to the Executive,
Executive may elect to treat such reassignment as a change in control under the
provision of Section 10.
10. Change in Control.
For purposes of this Agreement, a Achange in control@ shall be
deemed to have occurred if, at any time (a) substantially all the assets of the
Company have been sold or transferred by sale, merger, or otherwise, or if any
person (as such term is used in Sections 13(d) or 14(d) of the Exchange Act) is
or becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 50 percent or more of the combines voting power of the then
issued and outstanding securities of the Company; and (b) the Executive is
reassigned pursuant to subsection 9.1 within six months of such sale, merger, or
other event; provided, however, that no Achange in control
shall be deemed to have occurred unless such reassignment is coupled with a
significant diminution of the duties, compensation and/or privileges previously
attaching to the Executive position as president, chairman, and chief executive
officer of the Company. No change in control shall be deemed to have occurred if
the reassignment under subsection 9.1 is on a temporary basis and is
attributable to the Executive illness or other physical, mental, or emotional
disability or incapacity.
In the event of a change in control as defined in subsection
10.1 Executive shall be entitled to a lump sum payment which shall be equal to
two times the Executive base salary for the year in which such change in control
occurs. Upon payment of the lump sum provided under this subsection 10.2, the
obligations of the Company to employ Executive under this Agreement shall cease.
However, if the event which triggers the application of this provision occurs in
calendar year 2001, the Executive shall receive, under this Section 10.2 no more
than the number of months remaining under the terms of the Agreement multiplied
by an amount equal to two months base salary. Notwithstanding the above, the
Company shall continue to be responsible for the payment of life insurance under
Section 3.5 and payment of the Company retirement obligations under Section 3.9.
In the event of a change in control as defined in subsection
10.1, all stock options to which Executive is entitled shall immediately vest
and become exercisable. Such acceleration of the vesting of stock options shall
be in addition to, and shall have no effect on, any payments pursuant to
subsection.
The value of all payments, benefits, and other consideration
received pursuant to subsections 10.2 and 10.3 and contingent upon a change in
control, and any additional payments in the nature of compensation described by
Section 280G(b)(2) of the Internal Revenue Code, shall not exceed an amount
which is equal to three times the average taxable compensation from the Company
for the base period as that term is defined in Section 280G(d)(2) of the
Internal Revenue Code. The parties agree to review the impact of the termination
of this Agreement pursuant to Section 10, and to negotiate modifications, if
mutually acceptable in situations where the results to the Executive and to the
Company are not compatible.
11. Notices.
All notices pursuant to this Agreement shall be in writing and
shall be effective when delivered to the recipient or sent to the recipient by
certified mail, return receipt requested, addressed as follows:
(a) If to the Company, to:
Mid Atlantic Medical Services, Inc.
▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ATTN: Secretary
(b) If to the Executive, address to:
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
or to such other persons or addresses as may be specified in writing by the
appropriate party.
12. Interpretation.
This Agreement shall be interpreted, performed, and enforced
in accordance with the laws (other than those relating to conflicts of law) of
the State of Delaware.
Should the parties be unable to agree upon the interpretation
of the Agreement, the matter will be referred to arbitration, under the rules of
the American Arbitration Association.
13. Successors and Assigns.
This Agreement shall be binding upon the parties hereto, their
respective heirs, legal representatives, successors, and assigns, but this
Agreement may not be assigned by any party without the express written consent
of the other party hereto, and any assignment without such consent shall be void
and of no effect.
14. Entire Understanding: Amendments and Waiver.
This Agreement constitutes the entire understanding between
the parties concerning the subject matter hereof. No party shall be bound in any
manner related to employment by any warranties, representations, or guarantees,
except as specifically set forth in this Agreement.
No provision of this Agreement may be amended, waived,
discharged, or terminated except by an instrument in writing and executed by
each party. Any waiver of enforcement of any provision of this Agreement shall
not operate or be construed as a continuing waiver or a waiver of any other
provisions unless expressly stated in such instrument.
15. Impact of Previous Contract.
This Agreement shall become operational on January 1, 1999.
However, each party waives all rights and responsibilities under this Employment
Agreement, and this Employment Agreement will be without force and effect if the
Employment Agreement executed by the parties on December 18, 1990 is terminated
for any reason prior to December 31, 1998.
Salary to be paid to the Executive for the calendar year 1998
will be set at $1,350,000.00.
The vote of confidence which would occur in January 1998
under the terms of the 1990 agreement will occur at the November 1997 Board
Meeting.
Signed and delivered this 21st day of November, 1997, in
Rockville, Maryland, by Mid Atlantic Medical Services, Inc., and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
_______________________________________For: Mid Atlantic Medical Services, Inc.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
BY: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
_____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Executive Vice-President
and General Counsel