EMPLOYMENT AGREEMENT
AGREEMENT, dated as of March 30, 1996, by and
between Joseph Sebastianelli (the 'Executive') and U.S.
Healthcare, Inc., a Pennsylvania corporation ('U.S.
Healthcare' or the 'Company').
WHEREAS, the Board of Directors of the Company
(the 'Board') and the Executive each desires that the
Executive continue to furnish services to the Company on the
terms and conditions hereinafter set forth; and
WHEREAS, the parties desire to enter into this
agreement setting forth the terms and conditions of the
continued employment of the Executive with the Company;
NOW, THEREFORE, in consideration of the premises
and the mutual agreements set forth below, and intending to
be legally bound hereby, the parties hereto hereby agree as
follows:
1. Employment. The Company hereby agrees to
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employ the Executive, and the Executive hereby accepts such
employment, on the terms and conditions hereinafter set
forth.
2. Term; Parties. (a) Term. The term of this
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Agreement (as extended from time to time, the 'Term') shall
commence on the date (the 'Effective Date') of execution of
the Agreement and Plan of Merger (the 'Merger Agreement'),
dated March 30, 1996, by and among the Company, Aetna Life
and Casualty Company ('Aetna') and Butterfly, Inc.
('Parent'), and shall end on the fifth anniversary of the
consummation of the merger contemplated by the Merger
Agreement (the 'Merger Date') or, if such merger is not
consummated, the Effective Date, unless further extended as
provided in this Section 2 or sooner terminated in the event
that Executive's employment is terminated pursuant to
Section 6. Commencing on the fifth anniversary of the
Merger Date (or, if there is no Merger Date, on the fifth
anniversary of the Effective Date) and on each such
subsequent anniversary, the Term shall automatically be
extended for one additional year unless, not later than 180
days prior to such anniversary, the Company or the Executive
shall have given notice not to extend the Term. The giving
by the Company of a notice not to extend the Term shall not
constitute a termination without Cause or a termination for
Good Reason (each as defined in Section 6).
(b) Parties. On and after the Merger Date, this
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Agreement shall be assigned to and assumed by Parent and all
references herein to the Company shall mean Parent. On and
after the Merger Date, to the extent that the Executive's
employment is with U.S. Healthcare or Aetna, the obligation
of the Company hereunder shall include the obligation to
cause U.S. Healthcare or Aetna to act in accordance with the
terms hereof.
3. Position and Duties. Prior to the Merger
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Date, the Executive shall serve as an employee of U.S.
Healthcare with the title of Co-President and Chief Medical
Administrative Officer of U.S. Healthcare, shall report
directly to the Chief Executive Officer and shall be
responsible, together with Mr. Cardillo (referred to herein,
collectively, as the 'Co-Presidents'), for all of the lines
of business and operations of U.S. Healthcare (including but
not limited to all HMO, POS, indemnity health insurance and
other lines of business and operations, the 'Business').
From and after the Merger Date, the Business shall also
include all of the domestic (U.S.) lines of business and
operations of Aetna Health Plans (including but not limited
to all Health, Specialty Health and Group Insurance lines of
business and operations) and the Executive shall assume the
position of Co-President of the Business. The Executive
shall report directly and exclusively to the Chief Executive
Officer of the Company, and the individuals who serve as the
Chief Financial Officer, Chief Medical Officer, Senior Sales
Officer and Chief Legal Officer of U.S. Healthcare as of the
Effective Date shall report directly and exclusively to the
Co-Presidents. The Co-Presidents shall also select and
appoint those other senior officers who will be reporting
directly to the Co-Presidents and will be responsible for
other areas of responsibility for the Business (including
but not limited to Group Insurance, Information Technology,
Operations, Sales, National Accounts, Behavioral Health,
Dental, Pharmacy, Health Education and Human Resources),
provided, however, that such appointments shall be made only
in consultation with and with the approval of the Chief
Executive Officer of the Company. The Executive shall have
such additional duties and responsibilities with respect to
the Business as may be assigned to him by the Chief
Executive Officer, provided that such duties and
responsibilities are consistent with the Executive's
position as Co-President and Chief Medical Administrative
Officer of U.S. Healthcare. During the Term, the Executive
agrees to devote substantially all his full working time,
attention and energies during normal business hours to the
performance of his duties for the Company, provided that the
Executive may continue to participate and engage in
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activities not associated with the Company consistent with
the Executive's past practices at U.S. Healthcare.
4. Place of Performance. The principal place of
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employment and office of the Executive shall be in Blue
Bell, Pennsylvania, or such other location as may be agreed
to in writing by the Executive.
5. Compensation and Related Matters.
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(a) Base Salary. As compensation for the
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performance by the Executive of his duties hereunder, the
Company shall pay the Executive a base salary at an annual
rate that is no less than the Executive's annual salary rate
for 1996, including any deferred compensation and interest
or earnings on such year's deferred compensation under the
Company's current deferred compensation program (such
amount, as from time to time in effect, hereinafter referred
to as 'Base Salary'). Base Salary shall be payable in
accordance with U.S. Healthcare's normal payroll practices,
shall be reviewed annually and may be increased upon such
review. Base Salary, once increased, may not be decreased.
(b) Annual Bonus. The Executive shall be
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entitled to an annual bonus upon the attainment by the
Company, U.S. Healthcare and/or the Business of reasonable
performance goals, established in accordance with the past
practice of U.S. Healthcare. The Executive's target bonus
shall be equal to 80% of Base Salary, with appropriate
increases or decreases upon the attainment of specified
levels of Company, U.S. Healthcare and/or Business
performance (such bonus hereinafter referred to as the
'Annual Bonus'); provided, however, that with respect to
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fiscal year 1997, in no event shall the Annual Bonus be less
than 100% of target. If the Merger Date occurs during the
fiscal year commencing in 1996, the Company shall pay to the
Executive for such 1996 fiscal year 100% of the bonus which
he would have received for the entire 1996 fiscal year as
determined by U.S. Healthcare.
(c) Sign-On Bonus. Upon the Merger Date, the
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Company shall pay the Executive, in cash, an amount equal to
the sum of (i) the Executive's then-current base salary
(including deferred compensation and interest or earnings on
such year's deferred compensation) and (ii) the aggregate
value of the annual bonus paid or awarded (in cash and in
shares of U.S. Healthcare common stock) to the Executive in
respect of 1995, or, if the Merger Date is subsequent to
December 31, 1996 and if the aggregate value of the annual
bonus so paid or awarded to the Executive in respect of 1996
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is higher, such 1996 annual bonus (the sum of such amounts
hereinafter referred to as the 'Sign-On Bonus').
(d) Stay Bonus. The Executive shall be granted,
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as of the Merger Date, that number of restricted shares of
common stock of Parent ('Parent Stock') which, when
multiplied by the average closing price per share of Parent
Stock on the ten trading dates immediately following the
Merger Date, shall be equal in amount to the Sign-On Bonus
(the 'Restricted Stock Award'). The Restricted Stock Award
shall be granted pursuant to a plan (i) that meets the
requirements of Rule 16b-3 promulgated under Section 16 of
the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), (ii) the terms of which are acceptable to
U.S. Healthcare and (iii) the shares of Company Stock
reserved for issuance under which shall be registered in a
timely manner on a Form S-8 (the 'Plan'). Notwithstanding
any provision of this Agreement to the contrary, the
Restricted Stock Award shall become vested (i.e., all
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restrictions with respect thereto shall lapse) on the
earliest to occur of (x) the second anniversary of the
Merger Date, (y) a 'change in control of Parent' (as defined
in the Plan) following the Merger Date, or (z) upon
termination of the Executive's employment by reason of death
or Disability (as defined in Section 6 hereof), by the
Company other than for Cause (as defined in Section 6
hereof) or by the Executive for Good Reason (as defined in
Section 6 hereof). If the Executive's employment is
terminated by the Executive without Good Reason or by the
Company for Cause prior to the second anniversary of the
Merger Date, the Restricted Stock Award shall be forfeited
in full. The Restricted Stock Award shall be subject to all
other terms and conditions of the Plan, the rules and
regulations thereunder, the applicable provisions of this
Agreement and the document evidencing its terms and
conditions reasonably acceptable to Executive. The
Restricted Stock Award is in addition to any other equity
award made to the Executive under paragraph (e) of this
Section 5 and shall not be offset against or reduce such
award or any other award, benefit or amount due under this
Agreement.
(e) Future Equity Grants. In addition to the
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Restricted Stock Award made pursuant to subsection (d) of
this Section 6, the Executive shall from time to time be
granted stock options and shares of restricted stock or
other equity-based awards (collectively, 'Equity Grants') on
a basis no less favorable than such grants are made to
similarly situated senior officers of the Company. Without
limiting the generality of the foregoing, if the Merger Date
occurs after Parent has granted awards in respect of
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calendar year 1997, the Executive shall be entitled to
receive an Equity Grant in respect of 1997.
(f) Expenses. The Company shall reimburse the
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Executive for all reasonable business expenses, subject to
the applicable policies and procedures of the Company then
in force.
(g) Vacation. The Executive shall be entitled to
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20 vacation days and that number of personal days and
holidays as is consistent with U.S. Healthcare's current
practices (including, with respect to up to the greater of
25 days or the number of days the Executive has accrued at
the Effective Date, cash compensation in lieu thereof upon
termination or expiration of this Agreement) or, if more
favorable to the Executive, in accordance with the policies
applicable generally to senior executives of the Company or
any of its subsidiaries.
(h) Services Furnished. The Company shall
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furnish the Executive with appropriate office space and such
other facilities and services as shall be suitable to the
Executive's position and adequate for the performance of his
duties as set forth in Section 3 hereof and on a basis at
least as favorable as in effect immediately prior to the
Merger Date, such office space and other facilities and
services to be furnished at the location set forth in
Section 4 hereof.
(i) Other Benefits. The Company shall provide to
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the Executive such employee benefit plans and arrangements
as are generally available to senior officers of the Company
and its subsidiaries, including but not limited to
retirement benefits, group life insurance, medical and
dental insurance, and accident and disability insurance,
which shall be provided on a basis reasonably comparable in
the aggregate to those provided to him immediately prior to
the Merger Date or, if more favorable to the Executive in
the aggregate, to those provided to other senior officers of
the Company and its subsidiaries.
(j) Restrictions on Sale of Securities; Payment
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of Taxes. From the date hereof to the earlier of the Merger
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Date or the date on which the transaction contemplated by
the Merger Agreement is abandoned, the Executive agrees that
he will not sell or otherwise dispose of any shares of the
common stock of U.S. Healthcare ('U.S. Healthcare Stock'),
including shares subject to option, except for the partial
cash-out of such shares and options in connection with the
transaction contemplated by the Merger Agreement. During
the one-year period following the Merger Date, the Executive
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agrees that, so long as he remains employed by the Company
or any of its subsidiaries, he will not sell or otherwise
dispose of any shares or option shares of Parent Stock.
Nothing herein shall prohibit the Executive from
transferring any shares of U.S. Healthcare Stock or Parent
Stock to a 'Permitted Transferee,' as defined in Article
5A.III of the U.S. Healthcare Articles of Incorporation. In
consideration of the Executive's agreement under this
Section 5, the Company shall promptly reimburse the
Executive for any and all income, wage and employment taxes
(and any and all income and employment taxes on the
reimbursement amount), payable by the Executive as the
result of the acceleration of the vesting of restricted
shares of U.S. Healthcare Stock on the Effective Date or as
the result of the partial cash-out of shares of U.S.
Healthcare Stock still subject to option on the Merger Date.
In no event shall Executive be reimbursed for any income,
wage or employment taxes that result from the exercise of
any options.
6. Termination. The Executive's employment
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hereunder may be terminated as follows:
(a) Death. The Executive's employment shall
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terminate upon his death, and the date of his death shall be
the Date of Termination.
(b) Disability. If, as a result of the
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Executive's incapacity due to physical or mental illness (as
determined by a medical doctor mutually agreed to by the
Executive or his legal representative and the Company), the
Executive shall have been absent from his duties hereunder
on a full-time basis for the entire period of six
consecutive months and, within thirty (30) days after
written Notice of Termination (as defined in subsection (f)
of this Section 6) is given, shall not have returned to the
performance of his duties hereunder on a full-time basis
('Disability'), the Company may terminate the Executive's
employment hereunder. In this event, the Date of
Termination shall be thirty (30) days after Notice of
Termination is given (provided that the Executive shall not
have returned to the performance of his duties on a full-
time basis during such thirty (30) day period).
(c) Cause. The Company may terminate the
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Executive's employment in the event there occurs one or more
of the following events that has not been cured (if curable)
within thirty (30) days after written notice thereof has
been given by the Company to the Executive ('Cause');
provided that the Company shall have delivered a written
notice to the Executive within 120 days of its having actual
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knowledge of the occurrence of any of such events stating
that the Company intends to terminate the Executive's
employment for Cause and specifying the factual basis for
such termination:
(i) the willful failure by the Executive to
perform substantially the Executive's duties as an
employee of the Company (other than due to physical or
mental illness or after the delivery of a Notice of
Termination for Good Reason by the Executive pursuant
to subsection (f) of this Section 6);
(ii) the Executive's engaging in misconduct
that is materially injurious to the Company or any
subsidiary or any affiliate of the Company;
(iii) the Executive's having been convicted
of, or entered a plea of nolo contendere to, a crime
____ __________
that constitutes a felony;
(iv) the material breach by the Executive of
any written covenant or agreement not to compete with
the Company or any subsidiary or any affiliate; or
(v) the breach by the Executive of his duty
of loyalty to the Company which shall include, without
limitation (A) the disclosure by the Executive of any
confidential information pertaining to the Company or
any subsidiary or any affiliate of the Company, other
than (x) in the ordinary course of the performance of
his duties on behalf of the Company or (y) pursuant to
a judicial or administrative subpoena from a court or
governmental authority with jurisdiction over the
matter in question, (B) the harmful interference by the
Executive in the business or operations of the Company
or any subsidiary or any affiliate of the Company, (C)
any attempt by the Executive to induce any employee,
insurance agent, insurance broker or broker-dealer of
the Company or any subsidiary or any affiliate to be
employed or perform services elsewhere, other than
actions taken by the Executive that are intended to
benefit the Company or any subsidiary or affiliate and
do not benefit the Executive financially other than as
an employee or stockholder of the Company, (D) any
attempt by the Executive to solicit the trade of any
customer or supplier, or prospective customer or
supplier, of the Company on behalf of any person other
than the Company or a subsidiary thereof, other than
actions taken by the Executive that are intended to
benefit the Company or any subsidiary or affiliate and
do not benefit the Executive financially other than as
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an employee or stockholder of the Company, provided,
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however, that this provision shall only apply to any
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product or service which is in competition with a
product or service of the Company or any subsidiary or
affiliate thereof or (E) following the Merger Date, any
breach or violation of the Company's Code of Conduct,
as amended from time to time sufficient to warrant a
for Cause termination consistent with the Company's
past practice, consistently applied.
Notwithstanding the foregoing, (x) the failure of the
Executive, the Company, U.S. Healthcare or the Business to
achieve any particular level of performance shall not, in
and of itself, constitute Cause hereunder, (y) neither a
breach of the Executive's duty of loyalty to the Company as
described in subclause (A) nor a breach of the Company's
Code of Conduct as described in subclause (E) shall
constitute Cause hereunder unless such breach has had or
could reasonably be expected to have a significant adverse
effect on the business or reputation of the Company and (z)
the occurrence of any of the events described above, if done
inadvertently or of de minimis effect, shall not constitute
'Cause'.
(d) Good Reason. The Executive may terminate his
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employment in the event there occurs one or more of the
following events, without the written consent of the
Executive, that has not been cured (if curable) within
thirty (30) days after written notice thereof has been given
by the Executive to the Company ('Good Reason'); provided
that the Executive shall have delivered a written notice to
the Chief Executive Officer of the Company within 120 days
of his having actual knowledge of the occurrence of the
event or events constituting Good Reason stating that he
intends to terminate his employment for Good Reason and
specifying the factual basis for such termination:
(i) a reduction in the Executive's annual
Base Salary or incentive compensation opportunity as
provided under Sections 5(a) and (b);
(ii) a reduction in the Executive's
positions, an adverse change in the Executive's
reporting relationship or a material reduction in the
Executive's duties and responsibilities, in each case
from those described in Section 3 hereof;
(iii) the relocation of the Executive's
principal place of employment to a location more than
20 miles from the location at which he performed his
principal duties on the date immediately prior to such
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relocation, or requiring the Executive to perform the
principal portion of his duties in the greater
Hartford, Connecticut area;
(iv) a breach of the obligation to provide
the Executive with the benefits required to be provided
in accordance with Section 5(i);
(v) a failure by the Company to pay any
amounts due and owing to the Executive within 10 days
following written notice from the Executive of such
failure to pay;
(vi) any other material breach of the
Company's obligations to the Executive hereunder that
materially affects the compensation or benefits payable
to Executive or materially impairs the Executive's
ability to perform the duties and responsibilities of
his position;
(vii) the failure of the Company to obtain
the assumption and agreement in writing of its
obligation to perform this Agreement in accordance with
Section 12(a) hereof (A) by Parent on the Merger Date
and (B) following the Merger Date, by any successor to
Parent on the effective date of such succession; or
(viii) a breach of Section 7.11(c) of the
Merger Agreement.
The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act
or failure to act constituting Good Reason hereunder. In
the event of a termination for Good Reason, the Date of
Termination shall be the date specified in the Notice of
Termination, which shall be no more than thirty (30) days
after the Notice of Termination.
(e) Other Terminations. If the Executive's
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employment is terminated hereunder for any reason other than
as set forth in subsections (a) through (d) of this Section
6, the date on which a Notice of Termination is given or any
later date (within 30 days) set forth in such Notice of
Termination shall be the Date of Termination.
(f) Notice of Termination. Any purported
_____________________
termination of the Executive's employment (other than
termination pursuant to subsection (a) of this Section 6)
shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 13 hereof.
For purposes of this Agreement, a 'Notice of Termination'
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shall mean a notice that shall indicate the specific
termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
In addition, prior to the second anniversary of the Merger
Date, a Notice of Termination is required to include a copy
of a resolution duly adopted by the affirmative vote of not
less than two-thirds of the entire membership of the Board,
(which two-thirds must include Leonard Abramson or a U.S.
Healthcare designee) at a meeting of such Board which was
called and held for the purpose of considering such
termination.
(g) Dispute Concerning Termination. If within
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fifteen (15) days after any Notice of Termination (other
than with respect to a termination of the Executive's
employment by the Company without Cause) is given, or, if
later, prior to the Date of Termination (as determined
without regard to this Section 6(g)), the party receiving
such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of
Termination shall be extended until the earlier of (i) the
date on which the Term ends or (ii) the date on which the
dispute is finally resolved, either by mutual written
agreement of the parties or by binding arbitration;
provided, however, that the Date of Termination shall be
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extended by a notice of dispute given by the Executive only
if such notice is given in good faith and the Executive
pursues the resolution of such dispute with reasonable diligence.
(h) Compensation During Dispute. If the Date of
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Termination is extended in accordance with subsection (g) of
this Section 6, the Company shall continue to pay the
Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not
limited to, Base Salary and Annual Bonus) and continue the
Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating
when the notice giving rise to the dispute was given, until
the Date of Termination, as determined in accordance with
subsection (g) of this Section 6. Amounts paid under this
Section 6(h) shall not be offset against or reduce any other
amounts due under Section 7 of this Agreement.
7. Compensation During Disability or Upon
_______________________________________
Termination.
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(a) Disability Period. During any period that
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the Executive fails to perform his duties hereunder as a
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result of incapacity due to physical or mental illness
('Disability Period'), the Executive shall continue to (i)
receive his full Base Salary, (ii) remain eligible to
receive an Annual Bonus under Section 5(b) hereof, and (iii)
participate in the programs described in Section 5(i) hereof
(except to the extent such participation is not permitted
under the terms of such programs). Such payments made to
the Executive during the Disability Period shall be reduced
by the sum of the amounts, if any, payable to the Executive
at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security
disability insurance program, and which amounts were not
previously applied to reduce any such payment.
(b) Death. If the Executive's employment
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hereunder is terminated as a result of death, then:
(i) the Company shall pay the Executive's
estate or designated beneficiary, as soon as
practicable after the Date of Termination, (A) any
amounts earned, accrued or owing the Executive
hereunder for services prior to the Date of Termination
(including accrued deferred compensation and unused
vacation and personal time) and (B) for a period of one
year following the Date of Termination, such Base
Salary and Annual Bonus as the Executive would have
received during such period had he remained in the
employ of the Company;
(ii) the vesting and exercisability of all
then outstanding equity-based awards shall be governed,
as applicable, in accordance with Section 5(d) of this
Agreement or the terms of the U.S. Healthcare or Aetna,
as the case may be, document under which they were
initially granted (except that the vesting of awards
granted under the U.S. Healthcare incentive plans prior
to the Effective Date shall be governed by Section 1.7
of the Merger Agreement); and
(iii) the Company shall have no additional
obligations to the Executive under this Agreement
except to the extent otherwise provided in the
applicable plans and programs of the Company.
(c) Disability. If the Executive's employment
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hereunder is terminated as a result of Disability, then:
(i) the Company shall pay the Executive, as
soon as practicable after the Date of Termination, (A)
any amounts earned, accrued or owing the Executive
hereunder for services prior to the Date of Termination
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(including accrued deferred compensation and unused
vacation and personal time) and (B) for a period of one
year following the Date of Termination, such Base
Salary and Annual Bonus as the Executive would have
received during such period had he remained in the
employ of the Company, offset by any amounts received
by the Executive pursuant to subsection (ii) of this
Section 7(c);
(ii) the Executive shall receive, until the
date the Executive reaches age 65 or, if earlier, until
his death, the salary-related disability benefits
provided in accordance with, and subject to the
conditions of, the long-term disability program then in
effect for senior executives of the Company;
(iii) the vesting and exercisability of all
then outstanding equity-based awards shall be governed,
as applicable, in accordance with Section 5(d) of this
Agreement or the terms of the U.S. Healthcare or Aetna,
as the case may be, document under which they were
initially granted (except that the vesting of awards
granted under the U.S. Healthcare incentive plans prior
to the Effective Date shall be governed by Section 1.7
of the Merger Agreement); and
(iv) the Company shall have no additional
obligations to the Executive under this Agreement
except to the extent otherwise provided in the
applicable plans and programs of the Company.
(d) Termination by Company for Cause or By
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Executive other than for Good Reason. If the Executive's
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employment hereunder is terminated by the Company for Cause or by
the Executive (other than for Good Reason), then:
(i) the Company shall pay the Executive, as
soon as practicable after the Date of Termination, any
amounts earned, accrued or owing the Executive
hereunder for services prior to the Date of Termination
(including accrued deferred compensation and unused
vacation and personal time);
(ii) the vesting and exercisability of all
then outstanding equity-based awards shall be governed,
as applicable, in accordance with Section 5(d) of this
Agreement or the terms of the U.S. Healthcare or Aetna,
as the case may be, document under which they were
initially granted (except that the vesting of awards
granted under the U.S. Healthcare incentive plans prior
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to the Effective Date shall be governed by Section 1.7
of the Merger Agreement); and
(iii) the Company shall have no additional
obligations to the Executive under this Agreement
except to the extent otherwise provided in the
applicable plans and programs of the Company.
(e) Termination by Company without Cause or by
___________________________________________
the Executive with Good Reason. If the Executive's
______________________________
employment hereunder is terminated by the Company (other
than for Cause or Disability) or by the Executive for Good
Reason, then:
(i) the Company shall pay the Executive, as
soon as practicable after the Date of Termination, any
amounts earned, accrued or owing the Executive
hereunder for services prior to the Date of Termination
(including accrued deferred compensation and unused
vacation and personal time);
(ii) notwithstanding any provision of any
annual bonus plan to the contrary, the Company shall
pay to the Executive, as soon as practicable after the
Date of Termination, a lump sum amount, in cash, equal
to the sum of (A) any annual bonus which has been
allocated or awarded to the Executive for a completed
fiscal year preceding the Date of Termination under any
such plan and which, as of the Date of Termination, is
contingent only upon the continued employment of the
Executive to a subsequent date, and (B) a pro rata
portion to the Date of Termination of the aggregate
value of all contingent annual bonus awards to the
Executive for all then uncompleted fiscal years (other
than the fiscal year commencing in 1996) under any such
plan, calculated as to each such award by multiplying
the award that the Executive would have earned for the
entire performance award period, assuming the
achievement, at the target level, of the individual and
corporate performance goals established with respect to
such award, by the fraction (the 'Fraction') obtained
by dividing the number of full months and any
fractional portion of a month during such performance
award period through the Date of Termination by the
total number of months contained in such performance
award period; provided, however, that, in the event
________ _______
that the Executive's actual award (the 'Actual Award')
would have exceeded the target award had he remained in
the employ of the Company until the end of any such
performance award period, then the Company shall pay
the Executive, as soon as practicable following the end
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of such period, an amount equal to the product of the
Fraction and the excess of the Actual Award over the
target award; and
(iii) the Company shall pay to the Executive a
severance payment in cash, 50% of which is payable in a
lump sum on the Date of Termination and, subject to the
Executive's continued compliance with the applicable
provisions of Section 10 hereof (provided that the
Executive be given an opportunity to cure (if curable)
any breach of such Section 10 in accordance with
Section 10(d) hereof), the remaining 50% of which is
payable in a lump sum on the first anniversary of the
Date of Termination, equal to three times the sum of
(A) the higher of the Executive's Base Salary as in
effect immediately prior to the occurrence of the event
or circumstance upon which the Notice of Termination is
based and the Executive's annual base salary (including
amounts deferred and any interest accrued thereon) in
effect immediately prior to the Merger Date, and (B)
the then current target annual bonus;
(iv) (A) the exercisability of all then
outstanding equity-based awards granted under the U.S.
Healthcare incentive plans prior to the Merger Date
shall be governed in accordance with the terms of such
U.S. Healthcare incentive plans, (B) the vesting of
restricted stock awards granted pursuant to Section
5(d) shall be governed in accordance with the terms of
such Section and (C) all then outstanding equity-based
awards granted under the Parent incentive plans shall
continue to vest over the one year period following the
Date of Termination and be exercisable through the 90
day period following such one year period;
(v) for the thirty-six (36) month period
immediately following the Date of Termination, the
Company shall arrange to provide the Executive with
life, disability, accident and health insurance
benefits ('Insurance Benefits') and with pension plan
benefits substantially similar, and on substantially
similar terms, to those which the Executive is
receiving immediately prior to the Notice of
Termination or the economic equivalent thereof, which
provision of Insurance Benefits shall satisfy all of
the conditions necessary to avoid the imposition of any
tax under section 4980B of the Code. Insurance
Benefits otherwise receivable by the Executive pursuant
to this Section 7(e)(v) shall be reduced to the extent
comparable benefits are actually received by, or made
available to, the Executive without cost during the
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thirty-six (36) month period following the Executive's
termination of employment (and any such benefits
actually received by or made available to the Executive
shall be reported to the Company by the Executive);
(vi) if the Executive would have become
entitled to benefits under the Company's postretirement
health care or life insurance plans, as in effect
immediately prior to the Effective Date (or, if there
is a Merger Date, immediately prior to the Merger Date)
or the Date of Termination (whichever is more favorable
to the Executive), had the Executive's employment
terminated on the date which is thirty-six (36) months
after the Date of Termination, the Company shall
provide such postretirement health care or life
insurance benefits to the Executive and the Executive's
dependents commencing on the later of (A) the date on
which such coverage would have first become available
(disregarding for these purposes the thirty-six (36)
month period referred to above) and (B) the date on
which benefits described in subsection (v) of this
Section 7(e) shall terminate; and
(vii) the Company shall have no additional
obligations to the Executive under this Agreement
except to the extent otherwise provided in the
applicable plans and programs of the Company.
8. Gross-Up for Excise Tax. (a) Whether or not
_______________________
the Executive becomes entitled to any payments under Section
7 hereof, if any payments or benefits received or to be
received by the Executive (whether pursuant to Section 5
hereof or any other provision of this Agreement or any other
plan, arrangement or agreement with the Company or, with
respect to his employment by the Company, with any other
person (such payments or benefits, excluding the Gross-Up
Payment described herein, being hereinafter referred to as
the 'Total Payments') will be subject to any excise tax
imposed under section 4999 of the Internal Revenue Code of
1986, as amended (the 'Excise Tax'), the Company shall pay
to the Executive an additional amount (the 'Gross-Up
Payment') such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total
Payments and any federal, state and local income and
employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments.
(b) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) all of the Total Payments
shall be treated as 'parachute payments' (within the meaning
15
of section 280G(b)(2) of the Code) unless, in the opinion of
Tax Counsel, a reasonable basis exists for determining that
such payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of
section 280G(b)(4)(A) of the Code, (ii) all 'excess
parachute payments' within the meaning of section 280G(b)(1)
of the Code shall be treated as subject to the Excise Tax
unless, in the opinion of Tax Counsel, a reasonable basis
exists for determining that such excess parachute payments
(in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section
280G(b)(4)(B) of the Code) in excess of the 'base amount'
(within the meaning of section 280G(b)(3) of the Code)
allocable to such reasonable compensation, or are otherwise
not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be
determined by the Auditor in accordance with the principles
of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the
Executive's residence on the Date of Termination (or if
there is no Date of Termination, then the date on which the
Gross-Up Payment is calculated for purposes of this Section
8), net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and
local taxes.
(c) In the event that the Excise Tax is finally
determined to be less than the amount taken into account
hereunder in calculating the Gross-Up Payment, the Executive
shall repay to the Company, at the time that the amount of
such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local
income and employment taxes imposed on the Gross-Up Payment
being repaid by the Executive to the extent that such
repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction)
plus interest on the amount of such repayment at 120% of the
rate provided in section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount
taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any
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interest, penalties or additions payable by the Executive
with respect to such excess) at the time that the amount of
such excess is finally determined. The Executive and the
Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
9. Mitigation. The Executive shall not be
__________
required to mitigate amounts payable pursuant to Section 7
hereof by seeking other employment or otherwise, nor, except
as provided in Section 7(e)(v), shall there be any offset
against such payments on account of (a) any remuneration
attributable to any subsequent employment that he may obtain
or (b) any claims the Company may have against the
Executive.
10. Noncompetition and Confidentiality.
__________________________________
(a) Noncompetition. Prior to, and for a period
______________
of one year following, termination of the Executive's
employment during the Term other than by the Company without
Cause or by the Executive for Good Reason, the Executive
shall not become associated, whether as a principal,
partner, employee, consultant or shareholder (other than as
a holder of not in excess of 1% of the outstanding voting
shares of any publicly traded company), with any entity that
is actively engaged in any geographic area in any business
which is in substantial and direct competition with the
Business; provided, however, nothing in this Section 10(a)
shall preclude the Executive from performing services solely
and exclusively for a division or subsidiary of such an
entity that is engaged in a noncompetitive business.
(b) Nondisclosure, Nonsolicitation and
__________________________________
Cooperation.
___________
(i) the Executive shall not (except to the
extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate
government agency) disclose to any third person,
whether during or subsequent to the Executive's
employment with the Company, any trade secrets;
customer lists; product development and related
information; marketing plans and related information;
sales plans and related information; operating policies
and manuals; business plans; financial records; or
other financial, commercial, business or technical
information related to the Company or any subsidiary or
affiliate thereof unless such information has been
previously disclosed to the public by the Company or
17
has become public knowledge other than by a breach of
this Agreement; provided, however, that this limitation
________ _______
shall not apply to any such disclosure made while the
Executive is employed by the Company, or any subsidiary
or affiliate thereof in the ordinary course of the
performance of the Executive's duties;
(ii) prior to, and for two years following,
termination of the Executive's employment during the
Term, the Executive shall not attempt to induce any
employee or Insurance Agent (as defined below) employed
by or performing services for the Business to be
employed or perform services elsewhere, provided that
this covenant shall not preclude the Executive from
taking any actions during the Term that (x) are
intended to benefit the Company or any subsidiary or
affiliate and (y) do not benefit the Executive
financially other than as an employee or stockholder of
the Company;
(iii) prior to, and for two years following,
termination of the Executive's employment during the
Term, the Executive shall not attempt to induce any
insurance agent or agency, insurance broker, broker-
dealer or supplier of the Business to cease providing
services to the Business, provided that this covenant
shall not preclude the Executive from taking any
actions during the Term that (x) are intended to
benefit the Company or any subsidiary or affiliate and
(y) do not benefit the Executive financially other than
as an employee or stockholder of the Company; and
(iv) prior to, and for two years following,
termination of the Executive's employment during the
Term, the Executive shall not attempt to solicit, on
behalf of any person or entity other than the Business,
the trade of any individual or entity which, at the
time of the solicitation, is a customer of the
Business, or which the Business is undertaking
reasonable steps to procure as a customer at the time
of or immediately preceding termination of the Term;
provided, however, that this limitation shall only
________ _______
apply to (x) any product or service which is in
competition with a product or service of the Business
and (y) with respect to any customer with whom the
Executive has or had (by virtue of the Executive's
position or otherwise) a personal relationship.
Solely for purposes of subsection (b)(ii) of this Section
10, the term 'Insurance Agent' shall mean those insurance
agents or agencies representing the Company or any
18
subsidiary or affiliate thereof, that are exclusive or
career agents or agencies of the Company or any subsidiary
or affiliate thereof, or any insurance agents or agencies
which derive 50% or more of their business revenue from the
Company or any subsidiary or affiliate thereof (calculated
on an aggregate basis for the 12-month period prior to the
date of determination or such other similar period for which
such information is more readily available).
(c) Company Property. Promptly following the
________________
Executive's termination of the Executive's employment, the
Executive shall return to the Company all property of the
Company, and all copies thereof in the Executive's
possession or under his control.
(d) Intention of the Parties. If any provision
________________________
of Section 10 is determined by an arbitrator (or a court of
competent jurisdiction asked to enforce the decision of the
arbitrator) 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 provision should be
enforceable to the maximum extent possible under applicable
law and that such arbitrator (or court) shall reform such
provision to make it enforceable in accordance with the
intent of the parties. Executive acknowledges that a
material part of the inducement for the Company to provide
the salary and benefits evidenced hereby is Executive's
covenants set forth in Section 10(a), (b) and (c) and that
the covenants and obligations of Executive with respect to
nondisclosure and nonsolicitation relate to special, unique
and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the
Company irreparable injury for which adequate remedies are
not available at law. Therefore, Executive agrees that, if
Executive shall materially breach any of those covenants
following termination of employment and such breach is not
cured (if curable) within ten (10) days following receipt of
written notification thereof that specifies the manner in
which the Company believes the Executive has breached such
covenants, the Company shall have no further obligation to
pay Executive any benefits otherwise payable under Sections
7(e)(iii), (v) and (vi) and the Company shall be entitled to
an injunction, restraining order or such other equitable
relief (without the requirement to post a bond) restraining
Executive from committing any violation of the covenants and
obligations contained in Section 10(a), (b) and (c). The
remedies in the preceding sentence are cumulative and are in
addition to any other rights and remedies the Company may
have at law or in equity as an arbitrator (or court) shall
reasonably determine.
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(e) Waiver. Without limiting the generality of
______
the foregoing, upon request of the Executive prior to
engaging in any conduct otherwise prohibited by this Section
10, the Company may, in its sole discretion, waive in
writing, on such terms and conditions as it may deem
appropriate, any violation of this Section 10 which would
otherwise occur due to such conduct.
11. Indemnification; Attorneys' Fees. The
________________________________
Company shall indemnify the Executive to the full extent
authorized by law and the Charter and By-Laws of the
Company, as applicable, for all expenses, costs, liabilities
and legal fees which the Executive may incur in the
discharge or course of his duties hereunder. The Executive
shall be insured under the Company's Directors' and
Officers' Liability Insurance Policy as in effect from time
to time. The Executive shall be deemed a third party
beneficiary with respect to Section 7.6 of the Merger
Agreement and, as such, shall have the right to enforce such
provisions as if he were party to the Merger Agreement. In
connection with any dispute or proceeding arising under this
Agreement where the Executive is ultimately the
substantially prevailing party, the Company shall promptly
reimburse Executive for all costs, including without
limitation the reasonable attorneys' fees of any attorney of
the Executive's choosing, incurred by the Executive in any
such dispute or proceeding arising under this Agreement.
Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation
of this Section 11.
12. Successors; Binding Agreement.
_____________________________
(a) Company's Successors. The Company shall
____________________
require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such
succession had taken place. As used in this Agreement,
'Company' shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in
this Section 12 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law.
This Agreement shall not otherwise be assignable by the
Company.
(b) Executive's Successors. This Agreement shall
______________________
not be assignable by the Executive. This Agreement and all
20
rights of the Executive hereunder shall inure to the benefit
of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. Upon the
Executive's death, all amounts to which he is entitled
hereunder, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee or, if there
be no such designee, to the Executive's estate.
13. Notices. For the purpose of this Agreement,
_______
notices and all other communications provided for in the
Agreement shall be in writing and shall be deemed to have
been duly given when delivered or received by facsimile or
three (3) days after mailing by United States certified
mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the
Executive's signature on the final page hereof and, if to
the Company, to the attention of the General Counsel except
where this Agreement provides otherwise. Notice of change
of address or addressee shall be effective only upon actual
receipt.
14. Disputes. This Agreement shall be construed
________
in accordance with and governed by the law of the
Commonwealth of Pennsylvania (without regard to principles
of conflict of laws). All claims and controversies related
to or stemming from this Agreement or the Executive's
employment with the Company, except actions for equitable
relief pending an arbitration award, shall be submitted to
binding arbitration in Blue Bell, Pennsylvania by a panel of
three neutral arbitrators under the Commercial Arbitration
Rules of the American Arbitration Association. Judgment
upon an award of the arbitrators may be entered and enforced
in any court having jurisdiction.
15. Miscellaneous. No provision of this
_____________
Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing
and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party
hereto of, or of any lack of compliance with, any condition
or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Subject to the
provisions of Section 5(j) and 8 hereof, payments provided
for hereunder shall be paid net of any applicable
21
withholding required under federal, state or local law and
any additional withholding to which the Executive has
agreed. The obligations of the Company and the Executive
under this Agreement which by their nature may require
either partial or total performance after the expiration of
the Term shall survive such expiration. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
16. Counterparts. This Agreement may be executed
____________
in one or more counterparts, each of which shall be deemed
to be an original but all of which together will constitute
one and the same instrument.
17. Entire Agreement. This Agreement between the
________________
Company and the Executive sets forth the entire agreement of
the parties hereto in respect of the subject matter
contained herein and supersedes, as of the Effective Date,
all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral
or written, by the parties hereto in respect of the subject
matter contained herein; and any prior agreement of the
parties hereto in respect of the subject matter contained
herein shall be terminated and canceled as of the Effective
Date.
22
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on March 30, 1996 to be effective as of the
Effective Date.
U.S. Healthcare
By:_____________________
Name:
Title:
__________________________
Joseph Sebastianelli
__________________________
__________________________
__________________________
Address of Executive
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Employment Agreement - U.S. Healthcare Inc. and Joseph Sebastianelli
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