SENIOR EXECUTIVE EMPLOYMENT AGREEMENT

 

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                                                                   EXHIBIT 10.10

 

 

                      SENIOR EXECUTIVE EMPLOYMENT AGREEMENT

 

 

         This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into

as of October 3, 2002, by and between PACIFICARE HEALTH SYSTEMS, INC., a

Delaware corporation (the "Company"), with its principal place of business

located at 5995 Plaza Drive, Cypress, California 90630 and A. PETER REYNOLDS

("Executive"), residing at 1934 Pt. Locksleigh Place, Newport Beach, CA 92660.

 

                                    RECITALS

 

         WHEREAS, the Company desires to employ Executive in the capacity of

Senior Vice President, Corporate Controller.

 

         WHEREAS, the Company and Executive are entering into this Agreement to

establish the terms and conditions of the employment relationship.

 

         NOW, THEREFORE, in consideration of the following covenants, conditions

and promises contained herein, and other good and valuable consideration, the

Company and Executive hereby agree as follows:

 

1.       EMPLOYMENT

 

         1.1 Executive's General Duties. The Company employs Executive and

Executive serves the Company in the capacity of Senior Vice President, Corporate

Controller, having such usual and customary duties and authority as an officer

of similar capacity in a corporation of comparable size, holdings, and business

as that of the Company.

 

         Executive shall do and perform all services, acts, or things necessary

or advisable to manage and conduct the business of the Company and shall preside

over such other areas of corporate activity as specified from time to time by

the Board of Directors of the Company. During the term of this Agreement,

Executive shall perform such additional or different duties, and accept the

election or appointment to such other offices or positions as may be assigned.

 

         1.2 Devotion of Executive. During the term of this Agreement, Executive

shall devote his entire productive time, ability, and attention to the business

of the Company. Executive shall use Executive's best efforts, skills, and

abilities to promote the general welfare and interests of the Company and to

preserve, maintain, and foster the Company's business and business relationships

with all persons and entities associated therewith, including, without

limitation, employer groups, medical service providers, shareholders,

affiliates, officers, employees, and banks and other financial institutions. The

Company shall give Executive a reasonable opportunity to perform Executive's

duties and shall neither expect Executive to

 

 

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devote more time, nor assign more duties or functions to Executive, than are

customary and reasonable for a person in Executive's position.

 

2.       TERM AND TERMINATION

 

         2.1 Term. The initial term of Executive's employment under this

Agreement shall be 24 months, commencing on the effective date of this

Agreement. The Company may extend this Agreement for successive one-year terms

by giving Executive written notice at least 60 days prior to the expiration of

the term. Notwithstanding the foregoing, if a Change-of-Control occurs, as

defined in Section 5.1(c) of this Agreement, then the term of the Agreement

shall be extended for a period of 24 months from the effective date of the

Change-of-Control. Except as provided by Section 2.2(f), if the Company offers

Executive a new employment agreement at the term of this Agreement, but

Executive does not accept the new employment agreement, then Executive's

continued employment with the Company will be without the benefit of a written

employment agreement, in which case Executive's entitlement to severance

benefits on termination shall be governed by then-existing Company policies and

practices.

 

         2.2 Termination. This Agreement, and Executive's employment with the

Company, shall be terminated upon the occurrence of any one of the following

events:

 

                  a.       The death of the Executive.

 

                  b.       Executive becomes incapacitated or disabled, which

         incapacity or disability prevents Executive from fully performing his

         duties to the Company for a period in excess of 90 days and, after such

         90-day period, the Company and a physician, duly licensed and qualified

         in the specialty of Executive's incapacity, decide in their reasonable

         judgments, that such incapacity will be of such continued duration as

         to prevent Executive from resuming the rendition of services to the

         Company for at least an additional six-month period. For purposes of

         this Agreement, Executive shall be deemed permanently disabled, and

         this Agreement terminated upon the date Executive receives written

         notice from the Company that such determination has been made.

 

                  c.       Executive habitually neglects his duties to the

         Company or engages in gross misconduct during the term of this

         Agreement. For the purposes of this Agreement, "gross misconduct" shall

         mean Executive's misappropriation of funds; securities fraud; insider

         trading; unauthorized possession of corporate property; the sale,

         distribution, possession or use of a controlled substance; conviction

         of any criminal offense (whether or not such criminal offense is

         committed in connection with Executive's duties hereunder or in the

         course of his employment with the Company) or engaging in unlawful

         activity which places the Company at financial risk or which could

         reasonably be expected to embarrass the Company or cause damage to the

         Company's reputation. In such event, Executive's termination shall be

         effective immediately upon receipt of written notice from the Company.

 

 

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                  d.       Company may terminate this Agreement, with or without

         cause, upon written notice to Executive. Except for the circumstances

         described in Subsections (a), (b), (e) and (f) of this Section 2.2,

         Executive's termination shall be effective upon receipt of such written

         notice. Executive may terminate this Agreement upon 30 days written

         notice to Company.

 

                  e.       Upon the expiration of the term of this Agreement,

         the Company neither extends the Agreement pursuant to Section 2.1 nor

         offers Executive a new employment agreement.

 

                  f.       Executive voluntarily terminates his employment, upon

         written notice to the Company, to be effective at the end of the term

         of this Agreement, after the Company offers Executive a new employment

         agreement that either establishes duties materially inconsistent with

         those described in Section 1.1 or reduces Executive's salary by more

         than 10 percent below the salary in effect at the end of the term of

         this Agreement.

 

3.       COMPENSATION DURING THE TERM OF THIS AGREEMENT

 

         3.1 Base Salary. As long as Executive satisfactorily performs all of

his obligations under this Agreement, the Company shall pay Executive an annual

base salary, payable in equal installments on the Company's regular payroll

dates. As of this date, Executive's annual base salary has been set at $250,000.

On an annual basis, the Company shall review Executive's salary, but shall be

under no obligation to increase Executive's salary. Executive authorizes the

Company to take such deductions and withholdings from his salary as are required

by law, directed by Executive, or as reasonably directed by the Company for its

employees, which deductions shall include, without limitation, withholding for

federal and state income taxes and social security.

 

         3.2 Benefits. Executive shall be entitled to fully participate in all

of the employee benefit plans and programs available to other high-level

executives of the Company, including, without limitation, health, dental, and

life insurance benefits for Executive and Executive's dependents, pension and

profit sharing programs, and vacation and sick leave benefits, the Amended and

Restated PacifiCare Health Systems, Inc. Savings and profit-sharing Plan, and

the trust agreement implemented pursuant thereto, adopted as of July 1999, the

Company's Statutory Restoration Plan and the Company's Deferred Compensation

Plan. However, the terms of this Agreement shall not restrict the Company's

right to change, amend, modify, or terminate any existing benefit plan or

program, or to change any insurance company or modify any insurance policy

adopted incident to such existing benefit plan and program.

 

         3.3 Automobile Allowance. The Company shall provide Executive with a

$750 (seven hundred fifty dollar) per month automobile allowance. The Company

shall furnish

 

 

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Executive with a cellular telephone. Executive shall provide and maintain

automobile insurance for Executive's car including collision, comprehensive

liability, personal and property damage, and uninsured and underinsured motorist

coverage in amounts customarily obtained to cover such contingencies in the

State of California. Executive shall provide proof of such coverage to the

Company upon the Company's request.

 

         3.4 Reimbursement of Expenses. The Company shall pay for or reimburse

Executive for all reasonable travel, entertainment, and other business expenses

incurred or paid for by Executive in connection with the performance of his

services under this Agreement. The Company shall not be obligated to make any

such reimbursement unless Executive presents corresponding expense statements or

vouchers and such other supporting information as the Company may from time to

time reasonably request. The Company reserves the right to place subsequent

limitations or restrictions on business expenses to be incurred or reimbursed.

 

         3.5 Annual Incentive Plan. Executive shall be entitled to participate

fully in the Company's 1996 Management Incentive Compensation Plan, as amended

(the "MICP"), and as may be further amended, modified, or replaced, from time to

time, in accordance with the terms and conditions set forth herein and therein.

 

         3.6 Stock Option Plans. Executive shall be entitled to participate in

the applicable Stock Option Plans for Officers and Key Employees of PacifiCare

Health Systems, Inc., as amended, and as may be further amended modified or

replaced, from time to time, in accordance with the terms and conditions set

forth herein and therein.

 

         3.7 Insurance. During the term of this Agreement, the Company shall

insure Executive under its general liability insurance for all conduct committed

in good faith while acting in the capacity of Senior Vice President, Corporate

Controller of the Company or in any other capacity to which Executive may be

appointed or elected.

 

         3.9 Promotional Grant of Stock Options. Company will recommend to its

Compensation Committee a promotional stock option grant of 17,000 shares.

Issuance of the options is subject to approval of the Compensation Committee.

The grant date and exercise price will be determined as of the closing price of

shares of PacifiCare stock on the effective date of the Executive's promotion.

 

4.       COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT PURSUANT TO SECTION

2.2

 

         4.1 Death. In the event that this Agreement is terminated by reason of

Executive's death, Executive's estate or legal representative shall be entitled

to receive the following:

 

                  a.       Payment of benefits under the life insurance policy

         purchased by the Company on Executive's behalf, if any;

 

 

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                  b.       Payments of benefits under the MICP set forth in

         Section 3.5 in accordance with the terms of the MICP plan document;

 

                  c.       Executive's legal representative shall be permitted

         to exercise any vested and unexercised options granted under the 1996

         Stock Option Plan and any other existing stock option plans of the

         Company (collectively, the "Stock Option Plans") in accordance with

         their terms for a period of one year following Executive's death.

 

         4.2 Disability. In the event that Executive is terminated because of

incapacity or disability, the Company shall provide Executive with the

following:

 

                  a.       Payment of benefits under the disability insurance

         policy maintained by the Company on Executive's behalf, if any;

 

                  b.       Payment of benefits under the MICP set forth in

         Section 3.5 in accordance with the terms of the MICP plan document;

 

                  c.       The right to exercise any vested and unexercised

         options under the Stock Option Plans in accordance with the terms

         stated therein;

 

                  d.       Payment of the automobile allowance as provided under

         Section 3.3 for a period of 18 months following the effective date of

         such termination.

 

         4.3 Neglect, Misconduct or Voluntary Termination. In the event this

Agreement is terminated because of Executive's habitual neglect or gross

misconduct pursuant to Section 2.2(c) or because of Executive's voluntary

termination (except for resignation pursuant to Section 2.2(f)), the Company

shall be relieved from any and all further or future obligations to compensate

Executive; provided, however, that Executive shall be able to exercise any

vested and unexercised awards under the Stock Option Plans in accordance with

the terms set forth therein.

 

         4.4 Discharge by Company Pursuant to Section 2.2(d) or 2.2(e). In the

event that the Company terminates Executive pursuant to Section 2.2(d) or 2.2(e)

under circumstances other than a Change-of-Control (as defined herein) and for

any reason other than Executive's incapacity or disability or neglect/misconduct

as described in Sections 2.2(b) and 2.2(c), respectively, then Executive shall

be entitled to the following compensation:

 

                  a.       An amount equal to one and one half times Executive's

         then current annual salary under Section 3.1;

 

                  b.       An amount equal to one and one half times the average

         of the last two MICP bonuses paid to Executive. If Executive has been

         employed by the Company for more than one, but less than two years,

         then the MICP bonus severance payment shall equal one and one half

         times the average of the MICP bonus paid to Executive for the

 

 

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         prior year and the target for Executive for the current year. If

         Executive has been employed by the Company for less than one year,

         Executive will not receive any bonus severance payment. For purposes of

         this Section 4.4(b), the word "paid" shall include $0.00 for any year

         in which Executive was eligible for, but was not paid, an MICP bonus;

 

                  c.       The right to exercise any vested and unexercised

         options under the Stock Option Plans in accordance with their terms

         within one year of the effective date of such termination;

 

                  d.       Continuation of Executive's and his dependents'

         medical, dental and vision benefits, on the same terms as other

         executives who remain employed with the Company, for a period of 18

         months following the effective date of such termination;

 

                  e.       An amount equal to 18 months of Executive's

         automobile allowance;

 

                  f.       The Company shall provide to Executive outplacement

         services to assist Executive in securing a position comparable to the

         one from which Executive was terminated. The Company shall be obligated

         to provide those outplacement services which are customarily provided

         by companies of similar size and holdings as those of the Company to

         executives with comparable responsibility and longevity as Executive

         and for reasonable cost as approved by the Company. The Company's

         provision of such outplacement services shall not limit, restrict, or

         reduce, in any manner, any and all other compensation to which

         Executive is entitled hereunder;

 

                  g.       Executive shall receive, or have paid, the amounts of

         severance compensation provided in clauses (a), (b) and (e) above in

         equal installments over a period of 18 months. Payments will be made

         either in biweekly installments on the Company's regular paydays or as

         currently being paid to Executive;

 

                  h.       Notwithstanding the foregoing, in the event Executive

         engages in employment, whether as an employee, consultant or contractor

         with a competitor of the Company during the 18 month period in which

         Executive's salary continues pursuant to this Section 4.4, the

         severance compensation available to Executive under this Section 4.4

         shall be reduced by the amount of any and all gross earnings Executive

         earns while engaged in employment with any such competitor or

         competitors. For the purposes of this Section 4.4, a "competitor of the

         Company" shall include, without limitation, managed care organizations,

         including a health maintenance organization, competitive medical plan,

         preferred provider organization, provider sponsored organization

         ("PSO"), or health or life insurance company which owns a managed care

         organization, plan or program. Executive agrees to provide immediate

         notice to Company upon receipt of any gross earnings received by