CEO Employment Agreement - George Paz, April 11 2005

EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the " Agreement" ), dated April 11, 2005, and effective as of April 1, 2005 (the " Effective Date" ), is made and entered into by and between Express Scripts, Inc., a Delaware corporation (the " Company" ), and George Paz (" Executive" ). WHEREAS, Executive has been employed by the Company pursuant to the terms of that certain Executive Employment Agreement dated as of April 15, 2004, (the " Prior Agreement" ); and WHEREAS, the Company and Executive mutually desire to terminate the Employment Period under the Prior Agreement, as defined therein, and to replace the Prior Agreement with this Agreement to provide for the continued employment of Executive on the terms and conditions set forth herein, all effective as of the Effective Date; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I DEFINITIONS
As used herein, the following terms shall have the following meanings: 1.1 " Annual Base Salary" means the base salary set forth in Section 3.1 hereof.
1.2 " Annual Bonus" means Executive' s annual bonus granted pursuant to the Annual Bonus Plan, as described in Section 3.2 hereof.
1.3 " Annual Bonus Plan" means the annual bonus program established for senior executives by the Board of Directors of the Company (the " Board" ) or by the Committee, as adopted or amended from time to time.
1.4 " Bonus Potential" means the maximum bonus amount Executive could receive pursuant to Section 3.2 hereof for achieving 100% of " base" or " targeted" performance goals established by the Board or Committee under the Annual Bonus Plan with respect to the applicable fiscal year; provided , however , in no event shall Executive' s Bonus Potential for the year in which the Bonus Potential is being determined (a) be less than 100% of Executive' s Annual Base Salary as in effect on January 1 of such year or (b) take into account, or include in any way, any increase in Executive' s bonus amount due to the Company exceeding its " base" or " target" goals for such year (e.g., if Executive' s " base" or " target" Bonus Potential is stated at $50,000, but Executive is eligible to receive more than $50,000 if certain targets are exceeded then Executive' s Bonus Potential for purposes of this definition is $50,000).
1.5 " Cause" means: (a) any act or acts by Executive, whether or not in connection with his employment by the Company, constituting, or Executive' s conviction or plea of guilty or nolo contendere (no contest) to, (i) a felony under applicable law or (ii) a misdemeanor involving moral turpitude; (b) any act or acts of gross dishonesty or gross misconduct in the performance of Executive' s duties hereunder; (c) any willful malfeasance or willful misconduct by Executive in connection with Executive' s duties hereunder or any act or omission which is injurious to the financial condition or business reputation of the Company or its affiliates; or (d) any breach by Executive of the provisions of Sections 5.1 through 5.3 of this Agreement, or of the terms and provisions of the Nondisclosure and Noncompetition Agreement (as defined in Section 1.26 hereof). Notwithstanding the foregoing, the event(s) described in clause (c) of this Section 1.5 shall not be deemed to constitute " Cause" if such event is (i) solely as the result of bad judgment or negligence on the part of Executive not rising to the level of gross negligence; or (ii) primarily because of an act or omission believed by Executive in good faith to have been in, or not opposed to, the interests of the Company and its affiliates.
1.6 " Change in Control" means a Change in Control as that term is defined in the Incentive Plan (as defined in Section 1.24 hereof).
1.7 " Change in Control Date" means the Change in Control Date as that term is defined in the Incentive Plan.
1.8 " Change in Control Period" means the ninety (90) day period commencing on the Change in Control Date.
1.9 " Change in Control Price" means the value, expressed in dollars, as of the date of receipt of the per share consideration received by the Company' s stockholders whose stock is acquired in a transaction constituting a Change in Control.
1.10 " Code" means the Internal Revenue Code of 1986, as amended.
1.11 " Committee" means the Compensation and Development Committee of the Board.
1.12 " Covered Payments" means the amounts described in Section 6.12(a) hereof.
1.13 " Deferred Bonus" means the bonus described in Section 3.6 hereof; provided, however, for purposes of determining the total amount of the Deferred Bonus payable upon distribution from the Deferred Compensation Plan, the amount in Section 3.6 hereof will be adjusted to take into account any interest, earnings or other gains accrued thereon and any losses resulting from investment of the Deferred Bonus in the investment selections under the Deferred Compensation Plan.
1.14 " Deferred Compensation Plan" means the Express Scripts, Inc. Executive Deferred Compensation Plan, as amended from time to time, or any successor plan.
1.15 " Disability" has the meaning ascribed to such term in the Incentive Plan.
1.16 " Early Retirement" means the voluntary termination of employment by Executive prior to Executive' s eligibility for Retirement but after attaining age 55, and having a combination of full years of age plus full or partial years during which services have been rendered by Executive to the Company for which Compensation is payable, totaling at least 65 (e.g. Executive aged 57 with seven years and three months service to the Company would be eligible for Retirement; Executive aged 57 with six years and eight months service to the Company would not be eligible for Retirement); provided, however, that eligibility for Early Retirement may not occur during a Control Period.
1.17 " EBITDA" means earnings before interest, taxes, depreciation and amortization.
1.18 " Effective Date" means the date specified in the recitals to this Agreement.
1.19 " Employment Period" means the Initial Employment Period (as defined in Section 1.25 hereof) plus any additional Renewal Periods (as defined in Section 1.32 hereof).
1.20 " EPS" means the earnings per share of the Company.
1.21 " Excise Tax" means the excise tax imposed by Section 4999 of the Code or any similar state or local tax that may be imposed.
1.22 " General Release" means the General Release and Acknowledgment attached hereto as Exhibit A .
1.23 " Good Reason" means the occurrence of any one or more of the following: (a) Any material breach by the Company of any of the provisions of this Agreement or any material failure by the Company to carry out any of its obligations hereunder; (b) The Company' s requiring Executive to be based at any office or location more than 50 miles from 13900 Riverport Drive, Maryland Heights, Missouri (the " Current Headquarters" ), except for travel reasonably required in the performance of Executive' s responsibilities to the extent substantially consistent with Executive' s business travel obligations; (c) Any substantial and sustained diminution in Executive' s authority or responsibilities from those described in Section 2.3 hereof or any other action by the Company which results in a material and adverse change in Executive' s position, offices, titles or responsibilities; provided, however, notwithstanding the foregoing, in the event a Change in Control shall occur which results in the Company becoming a subsidiary of another pharmacy benefit management company (" PBM" ), or which is in the form of a merger in which the surviving corporation or entity is a PBM (x) so long as Executive is offered the position of chief executive officer of the parent PBM (or surviving corporation or entity) with duties and responsibilities which are not inconsistent in any material adverse respect with his duties and responsibilities immediately prior to such Change in Control, and such position is based at an office or location not more than 50 miles from the Current Headquarters, such change in position shall not constitute Good Reason, but (y) if Executive is not offered the position of chief executive officer of the parent PBM or surviving corporation or entity as described in (x), a substantial and sustained diminution in Executive' s authority or responsibility shall be deemed to have occurred; and (d) The failure by the Company to continue to provide Executive with substantially similar perquisites or benefits Executive enjoyed in the aggregate under the Company's benefit programs (other than long-term incentive compensation programs), such as any of the Company's pension, savings, vacation, life insurance, medical, health and accident, or disability plans in which he or she was participating at the time of any such discontinuation (or, alternatively, if such plans are amended, modified or discontinued, substantially similar equivalent benefits thereto in the aggregate), or the taking of any action by the Company which would directly or indirectly cause such benefits to be no longer substantially equivalent in the aggregate to the benefits in effect immediately prior to taking such action; provided , that any amendment, modification or discontinuation of any plans or benefits referred to in this subsection (d) hereof that generally affect substantially all other domestic salaried employees of the Company who were eligible to participate, and participated, in the affected Company benefit program(s) shall not be deemed to constitute Good Reason; and (e) The failure by the Company to include Executive in any slate of nominees for election to serve as a member of the Board of Directors, or the failure of the shareholders of the Company to elect and continue to elect Executive to serve on the Board of Directors.
; provided that the events described in Section 1.23 (a), (b), (c) or (d) above shall only constitute Good Reason if the Company fails to cure such event within 30 days after receipt from Executive of written notice of the event which constitutes Good Reason; and provided further that, " Good Reason" shall cease to exist for an event on the 180th day following the later of its occurrence or Executive' s knowledge thereof, unless Executive has given the Company written notice thereof prior to such date.
Notwithstanding anything to the contrary set forth in this Section 1.23, the Company' s appointment of a new President to succeed Executive with Executive' s consent (which consent shall not be unreasonably withheld) shall not constitute Good Reason.
1.24 " Incentive Plan" means the Express Scripts, Inc. 2000 Long-Term Incentive Plan, as amended from time to time.
1.25 " Initial Employment Period" has the meaning set forth in Section 2.2 hereof.
1.26 " Nondisclosure and Noncompetition Agreement" means the Form of Nondisclosure and Noncompetition Agreement entered into by and between Executive and the Company dated as of January 29, 1998.
1.27 " Option" means the options to purchase the number of shares of the Company' s common stock as set forth in Section 3.4 hereof.
1.28 " Payment Cap" means the maximum amount described in Section 6.12(b) hereof.
1.29 " Post-Termination Payments" shall mean the Severance Benefit and any other payments which the Company may be obligated to make to the Executive pursuant to the terms of this Agreement, with the specific exception of any payments made from funds in the Deferred Compensation Plan, which funds shall be handled in the manner set forth in such plan.
1.30 " Prior Equity Grants" means those Options granted under Section 3.4 of the Prior Agreement, and those shares of Restricted Stock granted under Section 3.5 of the Prior Agreement.
1.31 " Pro Rata Deferred Bonus" means a pro rata payment of the Deferred Bonus equal to the product of (i) the Deferred Bonus multiplied by (ii) a fraction, the numerator of which is the number of days which have elapsed in the Initial Employment Period through the Termination Date and the denominator of which is the total number of days in the Initial Employment Period. Notwithstanding the foregoing, in the event the termination of Executive' s employment results from Executive' s death, the Pro Rata Deferred Bonus shall be 100% of the Deferred Bonus.
1.32 " Renewal Period" has the meaning set forth in Section 2.2 hereof.
1.33 " Retirement" means the voluntary termination of employment by Executive on or after attaining age 59 1/2 which does not occur during a Change in Control Period.
1.34 " Severance Benefit" means a severance payment in an amount equal to: (a) eighteen (18) months of Executive' s Annual Base Salary as in effect immediately prior to the Termination Date if the Termination Date occurs during a Renewal Period, plus (b) an amount equal to the product of (i) Executive' s Bonus Potential for the year in which the Termination Date occurs (the " Termination Year" ), multiplied by (ii) the average percentage of the Bonus Potential earned by the Executive for the three (3) full years immediately preceding the Termination Year, (or such shorter period if Executive was employed by the Company for less than three (3) full years and received, or was eligible to receive, a bonus during such period), which product shall be prorated for the portion of the Termination Year in which Executive was employed by the Company.
1.35 " Tax Reimbursement Payment" means the payment described in Section 6.12(c) hereof.
1.36 " Termination Date" means the effective date of termination of Executive' s employment as determined in accordance with Section 4.7 hereof.
ARTICLE II TERM/POSITION
2.1 Employment; Effectiveness of Agreement . Effective as of the Effective Date, the Company hereby employs Executive, and Executive hereby accepts such employment, according to the terms and conditions set forth in this Agreement.
2.2 Term . Subject to the provisions of Sections 4.1 through 4.7 of this Agreement, the term of Executive' s employment hereunder shall commence on the Effective Date and continue through March 31, 2008 (the " Initial Employment Period" ). This Agreement may be extended by the Company and Executive beyond the Initial Employment Period (any such additional period, a " Renewal Period" ) upon the mutual written agreement of the Company and Executive. The Initial Employment Period and any Renewal Periods, if any, shall constitute the " Employment Period" for purposes of this Agreement. If there are no Renewal Periods, then the Employment Period shall have the same meaning as Initial Employment Period. Except as set forth in Section 6.1 hereof, upon termination of Executive' s employment with the Company in accordance with the terms hereof or upon termination of the Initial Employment Period or the Employment Period without extension thereof, this Agreement shall terminate and no longer be of any force or effect.
2.3 Position and Duties . Executive shall hold the positions of President and Chief Executive Officer and shall report to, and at all times be subject to the lawful direction of, the Board of Directors of the Company. Additionally, Executive shall serve as a member of the executive staff and participate in the strategic decision-making of the Company from time to time. If requested, Executive shall also serve as a member of the Board without additional compensation. During the Employment Period, Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business affairs of the Company. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. Nothing herein shall preclude Executive from, subject to the prior written consent of the Board, (a) serving on any corporate or governmental board of directors (b) serving on the board of, or working for, any charitable, not-for-profit or community organization, (c) pursuing his personal, financial and legal affairs, or (d) pursuing any other activity; provided that Executive shall not engage in any other business, profession, occupation or other activity, for compensation or otherwise, which would violate the provisions of Section 5.1 or would, in each case, and in the aggregate, otherwise conflict or interfere with the performance of Executive' s duties and responsibilities hereunder, either directly or indirectly, without the prior written consent of the Board.
2.4 Prior Agreement . On the Effective Date, this Agreement shall supersede the Prior Agreement except to the extent described in Section 3.5 hereof.
2.5 New President . The appointment of a different person to the office of President of the Company during the term of this Agreement shall not constitute " Good Reason" for Executive' s termination of employment hereunder, provided such person reports to and is subject to the direction of Executive in Executive' s capacity as Chief Executive Officer. ARTICLE III COMPENSATION AND BENEFITS
3.1 Annual Base Salary . During the Employment Period, the Company shall pay Executive a base salary (the " Annual Base Salary" ) at the annual rate of Six Hundred Fifty Thousand Dollars ($650,000), which shall be payable in regular installments in accordance with the Company' s usual payroll practices and shall be subject to deductions for customary withholdings, including, without limitation, federal, state and local withholding taxes, social security taxes, Medicare taxes and state disability insurance. Executive shall be eligible for such merit-based increases in Executive' s Annual Base Salary, if any, as may be determined from time to time in the sole discretion of the Board; provided that any such increase shall not serve to limit or reduce any other obligation to Executive under this Agreement. The term " Annual Base Salary" as used in this Agreement shall refer to the Annual Base Salary as in effect from time to time during the Employment Period. Executive' s Annual Base Salary shall not be reduced after any such increase without Executive' s express written consent.
3.2 Annual Incentive Compensation . Executive shall be eligible to participate in the Company' s Annual Bonus Plan established for senior executives by the Board or the Committee. The size of Executive' s bonus opportunity, which shall be no less than the Bonus Potential, and the terms of Executive' s participation in the Annual Bonus Plan, shall be determined based on the terms and conditions of the Annual Bonus Plan, subject to adjustment as described therein. Executive' s Annual Bonus shall be based upon performance of Executive, Executive' s department, and/or the Company in relation to the financial and non-financial objectives to be established by the Board or by the Committee, at the sole discretion of either, as applicable, pursuant to the terms of the Annual Bonus Plan. Executive' s Annual Bonus shall be subject to deductions for customary withholdings, including, without limitation, federal, state and local withholding taxes, social security taxes, Medicare taxes and state disability insurance. Subject to the achievement or failure to achieve the relevant financial and non-financial objectives under the Annual Bonus Plan, Executive may receive, for any given year, from 0% to 200% of his Bonus Potential (or such higher percentage as may be achievable pursuant to the terms of the Annual Bonus Plan), as further set forth in the Annual Bonus Plan.
3.3 Participation in Benefit and Incentive Plans . During the Employment Period, Executive shall be entitled to participate in the Company' s employee benefit plans (other than bonus and incentive plans) as in effect from time to time, on the same basis as those benefits are generally made available to similarly situated senior executives of the Company. The payments provided in Article III hereof are in addition to benefits which Executive is entitled to receive pursuant to the terms of any pension plan or group hospitalization, health, dental care, disability insurance, death benefit, travel and/or accident insurance, or executive compensation plan or arrangement, including, without limitation, the Incentive Plan and the Deferred Compensation Plan. 3.4 Stock Options . On the Effective Date, Executive will receive a non-qualified option to purchase Forty Thousand (40,000) shares of the Company' s common stock (the " Option" ), subject to approval by the Committee and to the terms and conditions of this Agreement, the applicable option agreement or notice and the Incentive Plan. The Option shall vest ratably as follows: 1/3 on March 31, 2006, 1/3 on March 31, 2007 and 1/3 on March 31, 2008, provided Executive is still employed by the Company on such dates and subject to such other vesting terms as may be provided in the Incentive Plan and the applicable option agreement or notice. The Option shall expire seven (7) years from the date of grant, subject to earlier expiration following Executive' s termination of employment as may be provided in the Incentive Plan and the applicable option agreement or notice.
3.5 Prior Equity Grants . Notwithstanding anything to the contrary set forth herein, neither the effectiveness of this Agreement nor the termination of the Prior Agreement shall have any effect on the Prior Equity Grants. All terms and provisions of the Prior Agreement, which impact the Prior Equity Grants with respect to vesting, termination or otherwise (including the terms of Article IV of the Prior Agreement), shall remain in effect to the extent of their impact on the Prior Equity Grants only , and such provisions are incorporated herein by reference. Specifically, with respect to the Restricted Stock portion of the Prior Equity Grants, the reference in Section 3.5 (b)(i) of the Prior Agreement to the " end of the Initial Employment Period" shall continue to refer to the end of the " Initial Employment Period" under the Prior Agreement (ending December 31, 2006).
3.6 Deferred Bonus . (a) In addition to any other bonus or deferred compensation benefit described in Article III hereof, or to which Executive is otherwise entitled pursuant to another plan or arrangement with the Company, the Company agrees to credit two hundred thousand dollars ($200,000) (the " Deferred Bonus" ) to Executive' s Retirement Account as deferred compensation under the Deferred Compensation Plan, subject to the terms and conditions hereof. The Deferred Bonus shall be credited as soon as practicable following the Effective Date. (b) Notwithstanding anything to the contrary in the Deferred Compensation Plan, in the event Executive' s employment with the Company is terminated prior to expiration of the Initial Employment Period, Executive shall forfeit all of the Deferred Bonus, without payment of consideration by the Company, except as otherwise provided in Sections 3.6 (d) or (e) hereof. In the event a distribution is otherwise made from Executive' s Retirement Account pursuant to the rules set forth in the Deferred Compensation Plan prior to expiration of the Initial Employment Period, no portion of the Retirement Account traceable to the Deferred Bonus shall be eligible for distribution from the Retirement Account at such time, except as otherwise provided in Section 3.6(e). (c) Subject to Section 3.6(f) hereof, provided Executive remains in the employ of the Company until expiration of the Initial Employment Period, Executive shall be entitled to receive a distribution of the Deferred Bonus after expiration of the Employment Period at the time and in the manner provided under the Deferred Compensation Plan. (d) If, prior to March 3 ...