Early Retirement Agreement

EXHIBIT 10.77


EARLY RETIREMENT AGREEMENT


EARLY RETIREMENT AGREEMENT, dated as of August 6, 1998, by and between FOUNDATION HEALTH SYSTEMS, INC., a Delaware corporation, formerly known as Health Systems International, Inc. (the "Company"), and MALIK M. HASAN, M.D. ("Executive").


WHEREAS, Executive has expressed his intention to retire from employment with the Company and, in connection with his retirement, the Company and Executive have determined to settle all of their respective rights and obligations in respect of his Employment Agreement (as defined below) and other matters pertaining to Executive's services with the Company;


NOW, THEREFORE, in consideration of their mutual promises, the Company and Executive agree as follows:


1. CONTINUING BOARD MEMBERSHIP. Effective as of the date hereof, the Executive hereby retires from active employment and hereby resigns (i) as Chief Executive Officer of the Company, (ii) from employment with the Company and each of its subsidiaries and affiliates and (iii) from each other officer or executive position held with the Company and each directorship or officer or executive position held with each of the Company's subsidiaries or affiliates. Executive shall remain as Chairman of the Board of Directors of the Company ("Chairman") until such date after September 30, 1998 and on or before March 1, 1999 that Executive shall determine, at which time Executive shall retire from the Board and resign as a member of the Board. Without limiting the foregoing, during his continued service as Chairman, Executive shall not engage in any Competitive Activity (as hereinafter defined). For his service as Chairman, Executive shall receive a fee of $165,000, payable as soon as practicable (but not more than five business days) after the date hereof, which shall be in lieu of the annual retainer fee and meeting fees provided to each of the Company's other non-employee directors. As Chairman, Executive shall not be entitled to participate in any benefit or incentive program or to receive any stock option or other equity award generally made available to non-employees directors.


2. CANCELLATION OF THE EMPLOYMENT AGREEMENT. Executive and the Company are parties to an Amended and Restated Employment Agreement, dated as of March 10, 1997 (the "Employment Agreement"). The term of the Employment


Agreement (determined without regard to any possible extension thereof) would have expired January 1, 2001. The Employment Agreement is hereby canceled and the parties shall have no further obligations to each other thereunder (other than for the Company's obligations to pay compensation earned prior to the date hereof). In consideration of the cancellation of the Employment Agreement, the Company shall pay Executive a single lump sum payment of $2,000,000 on or as soon as practicable (but in not event more than five business days) after the date hereof.


3. 1998 BONUS. As soon as practicable, but in no event later than five business days after the date hereof, the Company shall pay Executive $793,000, which is an amount equal to the opportunity available to Executive for 1998 under Section 11 of the Employment Agreement, multiplied by a fraction, the numerator of which is the number of weeks in 1998 during which Executive served as Chief Executive Officer (31) and the denominator of which is 52.


4. BENEFITS. (a) EMPLOYEE BENEFIT PROGRAMS. Except as otherwise expressly provided herein, Executive's participation in, and coverage under any and all Company provided benefit plans, policies and arrangements, including, without limitation, those available only to Executive or generally available to its employees or executives, shall cease on the date hereof. Executive shall be paid for 50 accrued and unused vacation days as soon as practicable (but not later than five business days) after the date hereof. The Company shall provide Executive and his eligible dependents with medical coverage, on the same basis as though Executive had continued in the employ of the Company, from and after the date hereof and through the date Executive attains age 65. In addition, after Executive has attained age 65 or following Executive's death, the Company shall provide Executive's current spouse (but not her dependents) with continued medical coverage on the same terms and conditions (except as expressly limited hereby) as such coverage was made available to Executive until the date she attains age 65; PROVIDED THAT such spousal coverage shall extend dependent coverage to Executive's currently eligible dependent child, to the extent that and so long as he is still eligible for dependent coverage under the Company's generally applicable policies and practices as in effect from time to time. Where applicable, the coverage provided pursuant to the two immediately preceding sentences will be secondary to any other coverage Executive or his spouse may from time to time have from any other source. If at any time that medical coverage is required to be provided to Executive or his spouse hereunder, coverage is not available to a former employee of the Company or his or her spouse or dependents for any reason under the Company's generally applicable employee benefit plans, the Company shall provide coverage (as otherwise required hereunder) which is comparable to that provided at such time to senior officers of the Company.


(b) EQUIPMENT. Executive shall be entitled to retain the business equipment currently made available for his use that is listed on Schedule 1 hereto. In addition, upon written notice to the Company delivered within 30 days of the date hereof, Executive shall have the right to purchase from the Company any of the furniture in any of his offices, and either of the automobiles (but not the limousines) currently made available for his use, in each case, at a purchase price equal to the depreciated cost at which each such item is carried on the Company's books. To the extent that any such purchase results in income to Executive under applicable income tax laws, such income shall be treated as subject to all generally applicable rules regarding wage withholding and reporting.


(c) DEFERRED COMPENSATION AGREEMENT. The Company has established a grantor trust to which it has made contributions under and pursuant to the terms of the Deferred Compensation Agreement between the Company and Executive, dated as of March 3, 1996. The assets held in such trust shall be distributed to Executive in accordance with the provisions of such Deferred Compensation Agreement (including, without limitation, Section 6(a) thereof) in full and complete settlement of all of Executive's rights under such agreement, PROVIDED THAT Executive is hereby deemed to elect a distribution in kind under Section 2 thereof and that such distribution shall occur on January 2, 1999.


5. SUPPORTING EMPLOYEES. Until October 15, 1998, the Company shall continue to make available, at its expense, all employees currently comprising Executive's staff at each of its locations and at Executive's residences, and to pay all costs associated with such support staff. During such sixty day period, the Company shall also pay all reasonable expenses related to the business equipment provided in support of Executive on the same basis as it paid such expenses immediately prior to the date hereof. After the ...