EMPLOYMENT AGREEMENT
Exhibit 10.1
EXECUTION COPY
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of
September 30, 2008 (the “Effective Date”), by and between HealthMarkets, Inc., a Delaware
corporation (together with its successors and assigns, “HealthMarkets” or the “Company”) and Xxxxxx
X. Xxxxx (the “Executive”). Certain capitalized terms used herein are defined in Section 24.
WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed by
the Company;
WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms and
conditions of Executive’s employment with the Company; and
NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, it
is agreed as follows:
1. Employment. Effective as of the Effective Date, the Company hereby agrees to
employ the Executive, and the Executive hereby agrees to be employed by the Company, upon the terms
and conditions set forth herein. The employment relationship between the Company and the Executive
shall be governed by the general employment policies and practices of the Company, including,
without limitation, those relating to the Company’s Code of Professional Conduct, the treatment of
confidential information and avoidance of conflicts; provided, however, that when
the terms of this Agreement differ from or are in conflict with the Company’s general employment
policies or practices, the terms of this Agreement shall control. The Executive shall serve as an
officer and/or an employee of any Subsidiary, as may be requested from time to time by the
Reporting Person (as such term is defined in Section 3(a) below), and without any additional
compensation, unless otherwise determined by the Reporting Person. In addition, the Executive’s
service as an officer and/or an employee of any Subsidiary will be encompassed within any reference
made in this Agreement to employment by the Company.
2. Term. Subject to earlier termination of the Executive’s employment as provided
under Section 9, the Executive’s employment shall be for an initial term commencing on the
Effective Date and ending on the third anniversary of the Effective Date (the “Initial Employment
Term”); provided, however, that at the end of the Initial Employment Term and on
each succeeding anniversary of the Effective Date, the employment of the Executive will be
automatically continued upon the terms and conditions set forth herein for one additional year
(each, a “Renewal Term”), unless either party to this Agreement gives the other party written
notice (in accordance with Section 18) of such party’s intention to terminate this Agreement,
subject to Section 22 hereof, and the employment of the Executive at least ninety (90) days prior
to the end of such initial or extended term (in which event the Executive’s employment shall be
deemed to have terminated at the end of the Employment Term). For purposes of this Agreement, the
Initial Employment Term and any Renewal Term shall collectively be referred to as the “Employment
Term.”
3. Position and Duties of the Executive.
(a) During the Employment Term, the Executive shall serve in the position set forth on Exhibit
A and shall report directly to the position set forth on Exhibit A attached hereto (the “Reporting
Person”). The Executive shall have such duties, responsibilities and authority commensurate with
the Executive’s position and such related duties and responsibilities, as from time to time may be
assigned to the Executive by the Reporting Person, consistent with the
Executive’s position in the Company. During the Employment Term, the Executive shall perform
his duties in the Dallas/Ft. Worth area, Texas.
(b) During the Employment Term, the Executive shall, except as may from time to time be
otherwise agreed in writing by the Company and during vacations (as set forth in Section 7 hereof)
and authorized leave, devote substantially all of his normal business working time and his
reasonable best efforts and energies to the business of the Company and the performance of the
Executive’s duties hereunder.
(c) During the Employment Term and provided that such activities do not either (i) contravene
this Agreement (including, without limitation, the provisions of Section 3(a), 3(b), 12 or 13 of
this Agreement) or (ii) materially interfere with the performance of the Executive’s duties
hereunder, the Executive may (a) engage in charitable activities and community affairs, (b) serve
on the boards of, or advisory committees to, trade associations or charitable organizations, (c)
manage his personal and family investments and affairs, and (d) serve on boards or advisory
committees of (1) public or private companies set forth on Exhibit A attached hereto, (2)
professional associations approved by the Board or (3) as otherwise may be approved by the Board.
The Executive may retain all fees and other compensation from any such service, and the Company
shall not reduce his compensation by the amount of such fees.
4. Compensation.
(a) Base Salary. During the Employment Term, the Company shall pay to the Executive a
base salary of not less than the amount set forth on Exhibit A attached hereto per annum (the “Base
Salary”). The Executive’s Base Salary may be increased (but not decreased) from time to time by
the Committee in its sole discretion, and shall be payable in cash at the times and in the manner
consistent with the Company’s general policies regarding compensation of executive employees. Such
Base Salary shall be reviewed by the Board or an authorized committee of the Board at least
annually for purposes of evaluating an increase in the Executive’s Base Salary. For purposes of
this Agreement, after any such increase, “Base Salary” shall refer to such increased amount.
(b) Cash Incentive Compensation.
(i) First Year Guaranteed Bonus. With respect to the first twelve (12)
months of the Employment Term, the Executive shall be entitled to a guaranteed bonus
of $500,000 (the “First Year Guaranteed Annual Bonus”). Subject to his continued
employment with the Company through each applicable payment date, the Executive
shall be paid in December 2008 $166,666.67 of such First Year Guaranteed Annual
Bonus (the “First Installment”) and shall be paid
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the remaining $333,333.33 of the
First Year Guaranteed Annual Bonus in September 2009 (the “Second Installment”).
The First Year Guaranteed Annual Bonus shall be delivered to the Executive in shares
of Class A-1 Common Stock of the Company (“Shares”) and cash, less applicable
withholding taxes, as follows: (i) the First Installment after deduction of
applicable withholding taxes, shall be paid to the Company in the amount of
$83,333.34 in consideration for Shares with the balance of the First Installment
paid in cash to the Executive, and (ii) the Second
Installment, after deductions of applicable withholding taxes, shall be paid to
the Company in the amount of $166,666.66 in consideration for Shares with the
balance of the Second Installment paid in cash to the Executive. Shares purchased
with the First Installment and Second Installment payments shall be valued at the
Fair Market Value prevailing at the time of purchase as determined in accordance
with Section 8(b) of this Agreement. The Executive may satisfy his withholding
obligations under this Section 4(b)(i) by tendering the minimum number of Shares to
satisfy any withholding obligation. The Executive acknowledges that any Shares so
delivered to the Executive will be subject to the terms and conditions of the
Stockholders Agreement, as modified by Section 8 of this Agreement.
(ii) With respect to the Company’s 2009 fiscal year and each fiscal year of the
Company thereafter, all or part of which occurs during the Employment Term, the
Executive will be eligible to participate in the Company’s annual management
incentive program or arrangement approved by the Board (or any authorized committee
thereof) or any successor program or plan thereto or thereunder on terms and
conditions no less favorable to the Executive than those available to similarly
situated executives of the Company, with a target bonus opportunity of the
percentage of the Base Salary set forth on Exhibit A attached hereto (the “Target
Bonus Percentage”) and a maximum bonus opportunity of not less than the percentage
of the Base Salary set forth on Exhibit A attached hereto (the “Annual Bonus
Percentage”); provided, however, that with respect to the Company’s
2009 fiscal year, the Executive’s actual annual bonus earned for such fiscal year,
if any, shall be reduced by the $333,333.33 that constitutes the Second Installment
of the First Year Guaranteed Annual Bonus. In no event shall the Executive be
required to return any portion of the First Year Guaranteed Annual Bonus if
Executive’s 2009 fiscal year actual bonus is calculated to be less than $333,333.33.
The Board (or any authorized committee thereof) shall have the authority to
establish performance metrics and such other terms and conditions of the annual
management incentive program pursuant to which such bonuses may be earned, provided
that any such performance targets for a fiscal year shall be no less favorable to
the Executive than the annual performance targets established for such fiscal year
for other senior executives of the Company (other than (i) annual performance
targets established for the Chief Executive Officer of the Company and (ii) any
performance targets established in connection with an executive’s commencement of
employment with, or promotion within, the Company) generally. Such annual bonuses
shall be paid to the Executive 100% in cash no later than the date such bonuses are
generally paid to other senior executives of the Company, but in all events by March
15 of the year following the fiscal year
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for which such annual bonus was earned
(unless the Executive has elected to defer receipt of any such bonuses).
(c) Equity Compensation. During the Employment Term, the Executive will be eligible
to participate in the Company’s MOP and any other incentive, equity-based and deferred compensation
plans and programs or arrangements as may be determined by the Board or any successor programs or
plans thereto or thereunder (collectively, the “Incentive Programs”), in
each case, as may be in effect from time to time and as may be determined by the Board, on a
basis no less favorable to the Executive than to other senior executives who participate in such
Incentive Programs (other than with respect to the Chief Executive Officer of the Company or an
executive’s commencement of employment with, or promotion within, the Company) generally. Subject
to the Executive’s making the Investment in the Company contemplated by Section 8 of this
Agreement, the Committee will, as soon as practicable after the Executive makes such Investment
(but in no event later than five business days thereafter), award 175,000 Option Rights (the
“Initial Grant”), which Initial Grant will be awarded in two (2) tranches, will vest and otherwise
be subject to the provisions set forth in the Executive’s Non-Qualified Stock Option Agreement to
be entered into in the form of Exhibit C attached hereto; provided, that the Company’s stockholders
shall approve an amendment to the MOP as set forth in Exhibit C prior to the earlier of a Change of
Control (as defined in the MOP) or January 1, 2009, which the Blackstone Investor Group (as defined
in the Stockholders Agreement) (“Blackstone”) represents it has sufficient votes to approve as of
the Effective Date and which Blackstone shall vote for (the “Amendment”). In the event the
Amendment is not approved by June 30, 2009, the Initial Grant shall be void ab initio and of no
further force and effect. Failure to obtain stockholder approval for the Amendment by the earlier
of a Change of Control or January 1, 2009 shall be a breach of this Section 4(c) and Exhibit C,
entitling the Executive to terminate his employment for Good Reason. In all events, any equity
award (or portion thereof) granted to the Executive that vests solely upon the Executive’s
fulfillment of time and/or service requirements shall vest in full upon a “Change of Control” (as
such term is defined in the MOP in effect as of the Effective Date, plus any amendments to such
definition after the Effective Date which would result in a transaction not covered by the Change
of Control definition in effect as of the Effective Date constituting a “Change of Control”).
Except as otherwise set forth in Section 8 hereof, Shares acquired on exercise of any stock option
will be subject to the terms and conditions of the Stockholders’ Agreement. The Company and the
Executive acknowledge that they will agree to provide the Company with the right to require the
Executive and other executives of the Company to waive any registration rights with regard to such
shares upon an IPO, in which case the Company will implement an IPO bonus plan in cash, stock or
additional options to compensate for the Executive’s and the other executives’ loss of liquidity;
provided that if the Executive’s employment is terminated without Cause or for Good Reason, then
the Executive shall fully vest upon the date of termination in any grant made under such IPO bonus
plan.
(d) LTIP Awards.
(i) Initial LTIP Award. As soon as practicable after the Effective Date, but in
all events within 30 days following such date, the Company shall grant the Executive a
cash-based LTIP award with a target value of $133,000 (the “Initial LTIP Award”). Except as
may otherwise be provided in Section 10 of this Agreement, the Initial LTIP Award shall vest
at the earlier of (x) a Change of Control or (y) in three equal annual
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installments, on each
of the first three anniversaries of the Effective Date, in both cases subject to the
Executive’s continued employment with the Company through the applicable vesting date and,
with respect to (y), subject to the Executive’s achievement of certain performance goals to
be established by the Board (or any authorized committee thereof). Any vested portion of
such Initial LTIP Award shall be delivered to the Executive, 100% in cash, on the earlier of
immediately prior to a Change of Control or upon the third anniversary of the Effective
Date.
(ii) Annual LTIP Awards. In addition to any other compensation granted or paid
hereunder, with respect to the Company’s 2010 fiscal year and each fiscal year of the
Company thereafter, all or part of which occurs during the Employment Term, the Executive
shall be entitled to receive a long-term incentive award, with a target value of no less
than $100,000 (the “Annual LTIP Award”) (and which shall be granted at no less than target
if the applicable performance targets have been met). Subject to the Executive’s achievement
of certain performance goals to be established by the Board (or any authorized committee
thereof), the Annual LTIP Award shall be granted to the Executive within the first 75 days
of the year immediately following the end of the applicable fiscal year to which such
performance goals relate (the “Performance Year”). Except as may otherwise be provided in
Section 10 of this Agreement, (i) any such granted Annual LTIP Award shall vest in three
equal installments, on each of the first three anniversaries of the Effective Date occurring
after the conclusion of the applicable Performance Year for which it was granted, subject to
the Executive’s continued employment with the Company through each applicable vesting date
and (ii) any vested portion of such Annual LTIP Award shall be delivered to the Executive,
100% in cash, on the third anniversary of the Effective Date occurring after the conclusion
of the applicable Performance Year for which it was granted. It is intent of the parties
that there shall be no transfer of property (within the meaning of Section 83 of the Code)
with respect to the Annual LTIP Award prior to the payment date as described in this Section
4. The Board (or any authorized committee thereof) shall have the authority to establish
performance metrics pursuant to which such Annual LTIP Awards may be earned, provided that
any such performance targets shall be no less favorable to the Executive than the
performance targets established for the applicable performance period for other senior
executives of the Company (other than (i) annual performance targets established for the
Chief Executive Officer of the Company and (ii) any performance targets established in
connection with an executive’s commencement of employment with, or promotion within, the
Company) generally.
(iii) Change of Control. In all events, all outstanding Annual LTIP Awards
shall vest in full upon a Change of Control and if such Change of Control constitutes a
“change in control event” within the meaning of Section 409A of the Code, shall be paid to
the Executive upon such Change of Control.
(iv) Termination of Employment. Except as may otherwise be provided in Section
10 of this Agreement, any unvested LTIP award shall be forfeited upon termination of the
Executive’s employment. Any portion of the Initial LTIP Award or the Annual LTIP Award that
has become vested shall be non-forfeitable.
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5. Employee Benefits.
(a) General. In addition to the compensation described in Section 4, during the
Employment Term, the Executive shall be eligible to participate in the employee benefit plans,
programs and arrangements (including any equity plans and programs), and to receive perquisites,
provided from time to time to similarly situated executives of the Company and its Subsidiaries
generally on a basis no less favorable to the Executive than to other senior executives of the
Company or its Subsidiaries (other than the Chief Executive Officer of the Company) who
participate in such plans, programs, arrangements or benefits (not taking into account, for
purposes of the foregoing, any sign on or initial awards made to other executives or any benefits
or perquisites provided to executives in connection with commencement of their employment with, or
promotion within, the Company) generally.
(b) Relocation Allowance. In connection with the Executive’s commencement of
employment with the Company, in lieu of any relocation benefits that would otherwise be provided to
the Executive under any relocation policy of the Company, the Company will pay the Executive a
relocation sign-on amount of $75,000, which is to be paid in cash as soon as practicable following
the Effective Date and up to six months of temporary living expenses in the Dallas/Ft. Worth area,
Texas, in each case, less applicable tax withholding.
(c) Automobile Allowance. During the Employment Term, the Executive will be entitled
to an automobile allowance of $600.00 per month.
6. Expenses. During the Employment Term, the Company shall pay or reimburse the
Executive for reasonable and necessary expenses incurred by the Executive in connection with the
Executive’s performance of the Executive’s duties on behalf of the Company and its Subsidiaries in
accordance with the expense policy of the Company applicable to similarly situated executives of
the Company and its Subsidiaries generally. The Company shall pay the Executive’s legal counsel
directly for the reasonable fees and expenses incurred by the Executive in connection with the
review, negotiation and drafting of the Agreement and any other related documentation, subject to a
cap of $17,500.
7. Vacation. The Executive shall be entitled to a number of days of vacation per year
in accordance with the Company’s policies, whether written or unwritten, regarding vacation for
similarly situated executives of the Company and its Subsidiaries generally; provided that in all
events he shall be entitled to no less than 4 weeks of vacation per calendar year, pro-rated for
any partial year. Subject to the Company’s policies, the duration of such vacations and the time
or times when they shall be taken will be determined by the Executive in consultation with the
Company.
8. Investment.
(a) By no later than September 30, 2008, the Executive will invest cash in the amount of
$250,000 in Shares, at a purchase price of $24.00 per Share (such investment, the “Investment”),
pursuant to the terms of a Subscription Agreement between the Company and the Executive, and the
Executive acknowledges that such Shares will be subject to the terms and conditions of the
Stockholders Agreement. The Executive shall make payment for the Shares
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purchased pursuant to this
Section 8 by check or wire transfer and, upon receipt of the foregoing payment, the Company will
issue the Executive a share certificate evidencing the number of Shares purchased.
(b) Call Rights. Notwithstanding anything to the contrary in the Stockholders
Agreement or any other agreement, upon a termination of the Executive’s employment with the Company
or any of its Subsidiaries for any reason prior to an IPO or a Change of Control, the Company will
have the right to purchase (a “Call Right”) any Shares held by the Executive (whether pursuant to
the Investment, the First Year Guaranteed Annual Bonus, upon the exercise
of any stock option or otherwise) at Fair Market Value as of the date the Company exercises
its Call Right (except in the event of a termination by the Company for Cause, in which case the
Call Right will be at the lower of the original cost of such Shares (which shall, for the avoidance
of doubt, be the exercise price of any stock option) or Fair Market Value as of the date the
Company exercises such Call Right). The Call Right may be exercised at any time following the
later of six months following (1) the Executive’s receipt of any Shares, including pursuant to the
exercise of stock options, including the Initial Grant, or otherwise pursuant to the grant of
compensatory awards, and (2) the termination of the Executive’s employment. “Fair Market Value”
shall be determined from time to time (but no less frequently than quarterly) by the Board in good
faith and shall in any event be determined consistently with how “fair market value” is determined
with respect to shares of Company stock held by existing shareholders, including members of the
Board, and how the exercise price for the Initial Grant was determined (it being understood that no
discount shall be taken due to lack of marketability). In determining Fair Market Value, the Board
will consider (among other factors it deems appropriate) the valuation prepared by Blackstone in
the ordinary course of business for reporting to its advisory board and investors, which Blackstone
will provide to the Board. Notwithstanding the foregoing, in the event that either (i) within six
months following a termination of the Executive’s employment by the Company without Cause or by the
Executive for Good Reason or upon his death or Disability an IPO or Change of Control occurs or
(ii) the Executive’s employment is terminated by the Company without Cause or by the Executive for
Good Reason or upon his death or Disability after a definitive agreement is entered into which will
result in a Change of Control (provided that such agreement actually results in a Change of
Control), for purposes of the Call Right, Fair Market Value shall equal the consideration paid per
Share pursuant to such transaction.
(c) Tag-Along and Drag-Along Rights. Shares owned by the Executive shall be subject
to the applicable tag-along and drag-along provisions of the Stockholders Agreement, provided that
the applicable thresholds shall be reduced from 50% to 25%.
(d) Put Right. Notwithstanding anything to the contrary in the Stockholders
Agreement, if, prior to an IPO or a Change of Control, the Executive’s employment with the Company
or any of its Subsidiaries terminates (other than a termination by the Company for Cause or a
resignation by the Executive without Good Reason), the Executive shall have the right, exercisable
at any time during the six-month period following the six-month anniversary of his termination of
employment, to sell to the Company Shares acquired by the Executive pursuant to the Investment and
any Shares delivered as part of the First Year Guaranteed Annual Bonus at the Fair Market Value of
such Shares at the time of such sale.
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(e) Effect on Stockholders Agreement. This Section 8 shall be deemed an amendment to
the Stockholders Agreement for all purposes under the Stockholders Agreement. By executing this
Agreement, the Executive agrees to be bound by the terms of the Stockholders Agreement and the
accepts the rights and obligations set forth therein, and each of Blackstone and the Company agree
that this Section 8 is effective as a joinder to the Stockholders Agreement for all purposes
thereunder (including with respect to Section 2.03 therein). In addition, if the Executive is
forced to withdraw from the Stockholders Agreement on or following a Change of Control, the
provisions of this Section 8 shall remain in effect with respect to the Executive’s equity
interests in the Company.
9. Termination.
(a) Termination of Employment by the Company. The Executive’s employment hereunder
may be terminated by the Company or any of its Subsidiaries that employ the Executive for any
reason or no reason (including with or without Cause or notification by the Company at any time
during the Employment Term pursuant to Section 2 that the Company intends to terminate the
Agreement and the Executive’s employment, rather than allow the Agreement to renew automatically)
by written notice as provided in Section 18. If the Company terminates the Executive’s employment
with Cause, all of the Executive’s Option Rights, whether or not vested, will be immediately
forfeited. Stock options, if any, held by the Executive following termination of the Executive’s
employment with the Company or any of its Subsidiaries, shall remain exercisable in accordance with
their terms.
(b) Voluntary Termination by the Executive. The Executive may voluntarily terminate
the Executive’s employment with or without Good Reason at any time by notice to the Company as
provided in Section 18. Upon the Executive’s termination without Good Reason (other than upon
death or Disability), (i) any unvested portions of the Initial Grant will be immediately forfeited
and (ii) all of the Executive’s vested stock options, if any, shall remain exercisable in
accordance with their terms, but in all events for at least 90 days following the date of
termination (but no later than the original term of such stock options).
(c) Benefits Period. Subject to Section 10 and any benefit continuation requirements
of applicable laws, in the event the Executive’s employment hereunder is terminated for any reason
whatsoever, the compensation and benefits obligations of the Company under Sections 4 and 5 shall
cease as of the effective date of such termination, except for any compensation and benefits earned
but unpaid through such date.
(d) Resignation from All Positions. Notwithstanding any other provision of this
Agreement to the contrary, upon the termination of the Executive’s employment for any reason,
unless otherwise requested by the Board, the Executive shall immediately resign from all positions
that he holds with the Company, its Subsidiaries and any of their affiliates (and with any other
entities with respect to which the Company has requested the Executive to perform services), as
applicable, including, without limitation, the Board and all boards of directors of any affiliates.
The Executive hereby agrees to execute any and all documentation to effectuate such resignations
upon request by the Company, but he shall be treated for all purposes as having so resigned upon
termination of his employment, regardless of when or whether he executes any such documentation.
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10. Termination Payments and Benefits. If, during the Employment Term, the
Executive’s employment hereunder is terminated by the Company without Cause (which shall, for all
purposes of this Agreement, including Exhibit C, and any other related definitive document, include
a termination of the Executive’s employment upon conclusion of the Employment Term after the
Company’s giving the Executive a notice of non-renewal of the Employment Term), by reason of the
Executive’s death or Disability, or the Executive terminates his employment for Good Reason,
subject to (i) the Executive’s execution and non-revocation of a release of claims against the
Company within 60 days following the date of the Executive’s termination of employment, in the form
attached hereto as Exhibit B, (ii) the terms of Section 14
and (iii) the Executive’s continued compliance with the covenants of Sections 12 and 13
(collectively, the “Restrictive Covenants”) as set forth in Section 10(h), the Company shall pay to
the Executive such payments and make available to the Executive such benefits as are set forth in
this Section 10. In addition, upon any termination of employment, the Executive shall be entitled
to the payments and benefits and entitlements as are described in Section 10(g).
(a) Salary Continuation. The Executive will be entitled to receive an amount equal to
the sum of: (i) one (1) times the Executive’s Base Salary in effect at the time of termination of
employment and (ii) one (1) times an amount equal to the product of (A) the Executive’s Base Salary
in effect at the time of termination of employment and (B) the Executive’s Target Bonus Percentage
for the year of the Executive’s termination of employment, or if the Target Bonus Percentage has
not been set for such year as of the date of termination of employment, the Target Bonus Percentage
for the immediately preceding year (the sum of (i) and (ii), the “Termination Payments”), such
amount to be payable in equal installments payable over the Payment Period. Termination Payments
shall be paid to the Executive in accordance with the Company’s payroll schedule as in effect on
the Effective Date for the duration of the Payment Period. In the event that the Executive dies
while any Termination Payments are still payable to the Executive hereunder, unless otherwise
provided herein, all such unpaid amounts shall be paid, not later than the tenth (10th)
business day following the Executive’s death, to the Executive’s beneficiary as named on the
Executive’s 401(k) Plan beneficiary forms, or, if no such beneficiary is so named, then to the
Executive’s estate, in the form of a lump sum cash payment equal to the remaining Termination
Payments. Notwithstanding the foregoing, if such termination occurs upon or within the two-year
period after a Change of Control (provided that such Change of Control constitutes a “change in
control event” within the meaning of Section 409A of the Code), subject to clauses (i), (ii) and
(iii) of the lead-in paragraph of this Section 10, the Termination Payments will be paid to the
Executive in a lump-sum within 30 days following the date of termination.
(b) Bonus Entitlement. Solely if the Executive’s termination of employment occurs
after the last day of the first quarter of an applicable Company fiscal year, the Executive will be
entitled to receive an amount equal to the product of (i) the bonus that would have been paid to
the Executive had the Executive remained employed through the date on which bonuses are paid to
senior executives of the Company generally based upon the achievement of the applicable performance
goals (and determined based on the exercise of negative discretion no less favorable to the
Executive than that exercised with respect to active senior executives of the Company generally
and, if the payment is not subject to Section 162(m) as of the date of termination, as if the
Executive had achieved any subjective performance targets at 100%) and (ii) a fraction, the
numerator of which is the number of days which have elapsed from the first
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day of the fiscal year
in which the date of termination occurs through the date of termination and the denominator of
which is 365 (such amount, if any, the “Pro-Rata Bonus”), which Pro-Rata Bonus shall be paid within
the first 75 days of the year immediately following the end of the year to which such Pro-Rata
Bonus relates (unless the Executive has deferred receipt of the applicable bonus).
(c) Equity Compensation. To the extent not previously vested, cancelled or expired,
the Executive will vest in the Executive’s Initial Grant and any other grant of Option
Rights in accordance with their terms, which will remain exercisable in accordance with their
terms.
(d) Welfare Benefits. During the Payment Period, the Company shall maintain in full
force and effect for the continued benefit of the Executive and his eligible dependents all health
care benefit plans, except disability coverage, in which the Executive was entitled to participate
immediately prior to the Executive’s termination or shall arrange to make available to the
Executive health care benefits (except disability coverage) substantially similar to those which
the Executive would otherwise have been entitled to receive if his employment had not been
terminated (the “Welfare Benefits”). The Welfare Benefits shall be provided to the Executive on
the same terms and conditions under which the Executive was entitled to participate immediately
prior to his termination of employment, including any applicable employee contributions.
(e) Any payments under this Section 10 to the Executive shall not be taken into account for
purposes of any retirement plan (including any supplemental retirement plan or arrangement) or
other benefit plan sponsored by the Company, except as otherwise expressly required by such plans
or applicable law.
(f) Section 409A of the Code; Specified Employee. Notwithstanding the preceding
provisions of this Section 10, in the event that the Executive is a “specified employee” (within
the meaning of Section 409A of the Code) on the date of termination of Executive’s employment with
the Company and the Termination Payments to be paid within the first six months following such date
(the “Initial Payment Period”) exceed the amount referenced in Treas. Regs. Section
1.409A-1(b)(9)(iii)(A) (the “Limit”) and do not otherwise qualify under the short-term deferral
exemption, then (i) any portion of the Termination Payments that is payable during the Initial
Payment Period that does not exceed the Limit or can paid within the short-term deferral exemption
shall be paid at the times set forth in Section 10(a), (ii) any portion of the Termination Payments
that exceeds the Limit and cannot be paid within the short-term deferral exemption (and would have
been payable during the Initial Payment Period but for the Limit) shall be paid, with Interest, on
the first business day of the first calendar month that begins after the six-month anniversary of
Executive’s “separation from service” (within the meaning of Section 409A of the Code) and (iii)
any portion of the Termination Payments that is payable after the Initial Payment Period shall be
paid at the times set forth in Section 10(a), respectively. For purposes of this paragraph,
“Interest” shall mean interest at the applicable federal rate provided for in Section 7872(f)(2)(A)
of the Code, from the date on which payment would otherwise have been made but for any required
delay through the date of payment. Notwithstanding the foregoing, in the event that the Executive
dies while any Termination Payments are still payable to the Executive hereunder, unless otherwise
provided herein, all such unpaid amounts shall be paid, not later than the tenth (10th) business
day following the Executive’s death, to the Executive’s
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beneficiary as named on the Executive’s
401(k) Plan beneficiary forms, or, if no such beneficiary is so named, then to the Executive’s
estate, in the form of a lump sum cash payment equal to the remaining Termination Payments.
(g) Other/Vested Benefits. In the case of any termination, the Executive (or his
estate) shall be entitled to (i) any additional payments, benefits or entitlements to which he is
entitled in accordance with the applicable terms of any applicable plan, policy, program,
arrangement or other agreement of the Company or any Subsidiary or affiliate or, if applicable,
pursuant to Section 8, Section 11 and Section 20 hereof, (ii) payment of any amounts which are
vested or have been earned or are due and remain unpaid, including, without limitation, base salary
through the date of termination, any unreimbursed business expenses, the vested portion of the
First Year Guaranteed Annual Bonus, any bonus payment for any performance period which has ended
prior to the date of termination for which the Executive has not been paid and any vested portion
of any outstanding LTIP award (payable at such times as such LTIP award would otherwise have been
paid had he remained employed by the Company), and (iii) any rights the Executive has a shareholder
in the Company or pursuant to this Agreement with respect to the Investment, the shares payable in
connection with the First Year Guaranteed Annual Bonus and any other equity held by the Executive.
(h) Return of Payments/Clawback. Not in any way in limitation of any right or remedy
otherwise available to the Company, if the Executive does not comply with any of the Restrictive
Covenants (subject to the Company providing the Executive with written notice of any such
non-compliance), (i) the Termination Payments, the Pro-Rata Bonus, the Welfare Benefits and any
payments in respect of any LTIP Award then or thereafter due from the Company to the Executive
shall be terminated immediately, (ii) the Company’s obligation to pay or provide and the
Executive’s right to receive such payments or benefits shall terminate and be of no further force
or effect and (iii) the Executive shall be required to pay back to the Company any Termination
Payments or amounts in respect of any Pro-Rata Bonus, LTIP Award or Option Rights previously paid
to him, in each case without limiting or affecting the Executive’s obligations under the
Restrictive Covenants or the Company’s other rights and remedies available at law or equity.
(i) No Obligation to Mitigate. The Executive is under no obligation to mitigate
damages or the amount of any payment provided for hereunder by seeking other employment or
otherwise and, except with respect to the Welfare Benefits or as provided for in Section 10(h)
above, such amounts shall not be reduced whether or not the Executive obtains other employment.
11. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any Payment would be subject to the Excise Tax, then the
Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount
such that, after payment by the Executive of all taxes (and any interest or penalties imposed with
respect to such taxes), including, without limitation, any income and employment taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, but excluding any income taxes and penalties imposed
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pursuant to Section 409A of the Code,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of this Section 11(a), if it shall be
determined that the Executive is entitled to the Gross-Up Payment, but that the Parachute Value of
all Payments does not exceed 110% of the Safe Harbor Amount, then no Gross-Up Payment shall be made
to the Executive and the amounts payable under this Agreement shall be reduced so that the
Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount. The reduction of
the amounts payable hereunder, if applicable, shall be made by reducing the payments and benefits
under the following sections in the following order:
(i) Section 10(a), (ii) Section 10(b), (iii) Section 10(c), (iv) any cash payments under
Section 10(i), (v) any non-cash amounts under Section 10(i) and (vi) Section 10(d). For purposes
of reducing the Payments to the Safe Harbor Amount, only amounts payable under this Agreement (and
no other Payments) shall be reduced. If the reduction of the amount payable under this Agreement
would not result in a reduction of the Parachute Value of all Payments to the Safe Harbor Amount,
no amounts payable under the Agreement shall be reduced pursuant to this Section 11(a). The
Company’s obligation to make Gross-Up Payments under this Section 11 shall not be conditioned upon
the Executive’s termination of employment.
(b) Subject to the provisions of Section 11(c), all determinations required to be made under
this Section 11, including whether and when a Gross-Up Payment is required, the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized certified public accounting firm as may be designated by the
Company (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment or such earlier time as is requested by the
Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any
determination by the Accounting Firm shall be binding upon the Company and the Executive (absent
manifest error). As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the Company should have been made (the
“Underpayment”), consistent with the calculations required to be made hereunder. In the event the
Company exhausts its remedies pursuant to Section 11(c) (or decides not to contest a claim) and the
Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable, but no later than 10 business days after
the Executive is informed in writing of such claim. The Executive shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the date on which the
Executive gives such notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that the Company desires to contest such claim, the
Executive shall:
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(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest
such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection with such contest,
and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of this Section
11(c), the Company shall control all proceedings taken in connection with such contest, and, at its
sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the applicable taxing authority in respect of such claim and may, at its sole
discretion, either pay the tax claimed to the appropriate taxing authority on behalf of the
Executive and direct the Executive to xxx for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that, if the Company pays such
claim and directs the Executive to xxx for a refund, the Company shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties) imposed with respect to such payment or with respect to any imputed income in connection
with such payment; and provided, further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company’s control of the contest shall be limited to issues with respect to which
the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of a Gross-Up Payment or payment by the Company of
an amount on the Executive’s behalf pursuant to Section 11(c), the Executive becomes entitled to
receive any refund with respect to the Excise Tax to which such Gross-Up Payment relates or with
respect to such claim, the Executive shall (subject to the Company’s complying with the
requirements of Section 11(c), if applicable) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable thereto). If, after
payment by the Company of an amount on the Executive’s behalf pursuant to Section 11(c), a
determination is made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
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contest such denial
of refund prior to the expiration of 30 days after such determination, then the amount of such
payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
(e) Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by the
Company to the Executive within five (5) days of the receipt of the Accounting Firm’s
determination; provided, however, that the Gross-Up Payment shall in all events be
paid no later than the end of the Executive’s taxable year next following the Executive’s taxable
year in which the Excise Tax (and any income or other related taxes or interest or penalties
thereon) on a Payment are remitted to the Internal Revenue Service or any other applicable taxing
authority; or, in the case of amounts relating to a claim described in Section 11(c) that does not
result in the remittance of any federal, state, local and foreign income, excise, social security
and other taxes,
the calendar year in which the claim is finally settled or otherwise resolved.
Notwithstanding any other provision of this Section 11, the Company may, in its sole discretion,
withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for
the benefit of the Executive, all or any portion of any Gross-Up Payment, and the Executive hereby
consents to such withholding.
(f) Definitions. The following terms shall have the following meanings for purposes
of this Section 11.
“Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code or other similar
tax (other than Section 409A of the Code) which may hereafter be imposed, together with any
interest or penalties imposed with respect to such excise tax.
“Parachute Value” of a Payment shall mean the present value as of the date of the change of
control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a
“parachute payment” under Section 280G(b)(2), as determined by the Accounting Firm for purposes of
determining whether and to what extent the Excise Tax will apply to such Payment.
A “Payment” shall mean any payment, benefit, entitlement or distribution in the nature of
compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the
Executive, whether paid or payable pursuant to this Agreement or otherwise (including, without
limitation, any payment, benefit, entitlement or distribution paid or provided by the person or
entity effecting the change in control).
The “Safe Harbor Amount” means 2.99 times the Executive’s “base amount,” within the meaning of
Section 280G(b)(3) of the Code.
12. Confidentiality; Return of Property.
(a) The Executive acknowledges that in the course of his employment by the Company, he will or
may have access to and become informed of confidential or proprietary information of the Company
and its Subsidiaries (“Confidential Information”), which is a competitive asset, including, without
limitation, (i) the terms of any agreement between the Company and any employee, customer or
supplier, (ii) pricing strategy, (iii) merchandising and marketing methods, (iv) product
development ideas and strategies, (v) personnel training and
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development programs, (vi) financial
results, (vii) strategic plans and demographic analyses, (viii) proprietary computer and systems
software, and (ix) any non-public information concerning the Company, its employees, suppliers or
customers. The Executive agrees that he will keep all Confidential Information in strict
confidence during the term of his employment by the Company and thereafter, and will never directly
or indirectly make known, divulge, reveal, furnish, make available, or use any Confidential
Information (except in the course of his regular authorized duties on behalf of the Company). The
Executive agrees that the obligations of confidentiality under this Section 12 shall survive
termination of the Executive’s employment with the Company regardless of any actual or alleged
breach by the Company of this Agreement, until and unless (x) any such Confidential Information
shall have become, through no fault of the Executive, generally known to the public or the
Executive is required by lawful service of process, subpoena, court
order, law or the rules or regulations of any regulatory body to which he is subject to make
disclosure or, (y) the Executive brings a claim or action to enforce any of his rights with
respect to any compensation, including, without limitation, the “Performance-Based Options” (as
defined on Exhibit C hereto) any annual bonus or Annual LTIP Award (provided such disclosure is
only to the extent reasonably necessary with respect to enforcement of such right and the Executive
takes appropriate steps to have such Confidential Information entered into any proceeding under
seal), provided that in the case of clause (y), the Executive has provided to the Company, unless
prohibited by law or regulation, a copy of the documents seeking disclosure of such information and
giving the Company prompt notice upon receipt of such documents and prior to their disclosure. All
records, files, memoranda, reports, customer lists, drawings, plans, documents and the like
relating to the Company’s business that the Executive uses, prepares or comes into contact with
during the course of the Executive’s employment shall remain the sole property of the Company
and/or its affiliates, as applicable, and shall be turned over to the Company upon termination of
the Executive’s employment, except to the extent the Executive is permitted to retain such
information or property as set forth in Section 12(b). The Executive’s obligations under this
Section 12 are in addition to, and not in limitation of or preemption of, all other obligations of
confidentiality which the Executive may have to the Company under general legal or equitable
principles.
(b) Except in the ordinary course of the Company’s business, the Executive has not made, nor
shall at any time following the date of this Agreement, make or cause to be made, any copies,
pictures, duplicates, facsimiles or other reproductions or recordings or any abstracts or summaries
including or reflecting Confidential Information. All such documents and other property furnished
to the Executive by the Company or any of its Subsidiaries or affiliates or otherwise acquired or
developed by the Company or any of its Subsidiaries or affiliates shall at all times be the
property of the Company. Upon termination of the Executive’s employment with the Company, the
Executive will return to the Company any such documents or other property of the Company or any of
its Subsidiaries or affiliates which are in the possession, custody or control of the Executive.
Notwithstanding the foregoing, the Executive shall be permitted to retain his personal papers
(provided that such papers do not contain any Confidential Information related to the Company), any
information relating to his compensation, other entitlements or obligations, any information he
reasonably believes is necessary for tax purposes and his personal rolodex.
(c) Without the prior written consent of the Company (which may be withheld for any reason or
no reason), except in the ordinary course of the Company’s business, the Executive shall not at any
time following the date of this Agreement use for the benefit or
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purposes of the Executive or for
the benefit or purposes of any other person, firm, partnership, association, trust, venture,
corporation or business organization, entity or enterprise or disclose in any manner to any person,
firm, partnership, association, trust, venture, corporation or business organization, entity or
enterprise any Confidential Information (except as permitted in Section 12).
13. Covenant Not to Compete; Covenant Not to Solicit. For a period commencing on the
Effective Date and for a period ending one (1) year after the termination of the Executive’s
employment with the Company for any reason or no reason, including termination for Cause or the
Executive’s voluntary resignation without Good Reason, the Executive acknowledges and agrees that
he will not, directly or indirectly, individually or on behalf of any other person or entity:
(a) engage in any business which directly competes with the business in which the Company or
any of the Company’s Subsidiaries or affiliates (collectively, the “Company Group”) were engaged
(or had taken substantial steps to engage in); or
(b) solicit for hire, hire or employ (whether as an officer, director or insurance agent) any
person who is an employee or independent contractor of any member of the Company Group or has been
an employee or independent contractor of any member of the Company Group at any time during the
six-month period prior to the Executive’s termination of employment or solicit, aid or induce any
such person to leave his or her employment with any member of the Company Group to accept
employment with any other person or entity.
(c) Executive’s ownership of less than one percent (1%) of any class of stock in a
publicly-traded corporation shall not be deemed a breach of this Section 13 and notwithstanding the
foregoing, it shall not be a violation of this Section 13 for the Executive (i) to join a division,
business line, subsidiary or affiliate of a commercial enterprise with multiple divisions or
business lines if such division, business line, subsidiary or affiliate is not competitive with the
businesses of the Company Group, provided that the Executive performs services solely for such
non-competitive division, business line, subsidiary or affiliate, and performs no functions on
behalf of (and has no involvement with or direct or indirect responsibilities with respect to)
businesses competitive with the businesses of the Company Group, with competitiveness determined
for these purposes as set forth in Section 13(a) or (ii) to provide services to a private equity
firm or hedge fund, in either case, that holds investments in a business which directly competes
with the business in which the Company Group is engaged so long as the Executive has no involvement
with or direct or indirect responsibilities with respect to (A) the management, operations or
supervision of such investments or (B) advising such firm with respect to such investments. In
addition, it shall not be a violation of this Section 13 for the Executive to remain as a board
member of the entities for which he was serving as a board member on the date of his termination of
employment, provided such membership is consistent with Section 3(b) hereof.
(d) Upon a Change of Control, the definition of Company Group and their respective employees
and independent contractors for the purposes of this Section 13 shall refer only to the Company,
its Subsidiaries and its affiliates (and the businesses in which they were engaged) as of
immediately prior to such Change of Control.
-16-
(e) The Executive acknowledges and agrees that a violation of the foregoing provisions of
Section 12 or Section 13 would result in material detriment to the Company, would cause irreparable
harm to the Company, and that the Company’s remedy at law for any such violation would be
inadequate. In recognition of the foregoing, the Executive agrees that, in addition to any other
relief afforded by law or this Agreement, including damages sustained by a breach of this Agreement
and without the necessity or proof of actual damages, the Company shall
have the right to enforce this Agreement by specific remedies, which shall include, among
other things, temporary and permanent injunctions, it being the understanding of the undersigned
parties hereto that damages and injunctions all shall be proper modes of relief and are not to be
considered as alternative remedies.
(f) Except as otherwise set forth in Section 12 and this Section 13, there shall be no other
restrictions on the Executive’s rights to compete, solicit or hire or use or disclose confidential
information following the Executive’s termination of employment other than those under applicable
law.
14. Compliance with Section 409A of the Code.
(a) The Agreement is intended to comply with the requirements of Section 409A of the Code or
an exemption. Notwithstanding anything in the Agreement to the contrary, distributions upon
termination of employment may only be made upon a “separation from service” as determined under
Section 409A. Each payment under this Agreement, including each installment of the Termination
Payment, shall be treated as a separate payment for purposes of Section 409A. In no event may the
Executive, directly or indirectly, designate the calendar year of any payment to be made under this
Agreement. In the event the parties determine that the terms of this Agreement do not comply with
Section 409A, they will negotiate reasonably and in good faith to amend the terms of this Agreement
such that it complies (in a manner that attempts to minimize the economic impact of such amendment
on the Executive and the Company) within the time period permitted by the applicable Department of
Treasury Regulations.
(b) All reimbursements and in-kind benefits provided under this Agreement shall be made or
provided in accordance with the requirements of Section 409A of the Code. In order to comply with
Section 409A of the Code, in no event shall the payments by the Company under Sections 5(b) or 6 be
made later than the end of the calendar year next following the calendar year in which such fees
and expenses were incurred, provided, that the Executive shall have submitted an invoice for such
fees and expenses at least 10 days before the end of the calendar year next following the calendar
year in which such fees and expenses were incurred. The amount of any such fees and expenses that
the Company is obligated to pay in any given calendar year shall not affect the fees and expenses
that the Company is obligated to pay in any other calendar year, and the Executive’s right to have
the Company pay such fees and expenses may not be liquidated or exchanged for any other benefit.
(c) The Company and the Executive shall take all steps necessary (including with regard to any
post-termination services the Executive provides) to ensure that any termination of employment
described in this Agreement constitutes a “separation from service” within the meaning of Section
409A of the Code, and notwithstanding anything contained in this Agreement
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to the contrary, the
date on which such “separation from service” takes place shall be the date of the termination of
the Executive’s employment.
15. Prior Agreement. As of the Effective Date, this Agreement, including its
Exhibits, supersedes any and all prior and/or contemporaneous agreements, either oral or in
writing, between the parties hereto, or between either or both of the parties hereto and the
Company, with respect to the subject matter hereof including, without limitation, the term sheet
discussed by the parties prior to the Effective Date. Each party to this Agreement
acknowledges that no representations, inducements, promises, or other agreements, orally or
otherwise, have been made by any party, or anyone acting on behalf of any party, pertaining to the
subject matter hereof, which are not embodied herein, and that no prior and/or contemporaneous
agreement, statement or promise pertaining to the subject matter hereof that is not contained in
this Agreement shall be valid or binding on either party. In the event of any conflict between any
provision of this Agreement, including Exhibits A or C, and any other provision of any plan,
policy, program, arrangement or other agreement of the Company or any Subsidiary or any affiliate
of the Company, this Agreement (or such Exhibit) shall control.
16. Withholding of Taxes. The Company may withhold from any amounts payable or
transfer made under any compensation or other amount owing to the Executive under this Agreement
all applicable federal, state, city or other withholding taxes as the Company is required to
withhold pursuant to any law or government regulation or ruling.
17. Successors and Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the business or assets
of the Company or of any Subsidiary or any division or business unit thereof for which the
Executive performs services, by agreement in form and substance satisfactory to the Executive (and
any such successor, the “Successor”), expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Company would be required to perform if no such
succession had taken place. This Agreement will be binding upon and inure to the benefit of the
Company and any successor to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or assets of the Company or of any
Subsidiary or any division or business unit thereof for which the Executive performs services
whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall
thereafter be deemed the “Company” for the purposes of this Agreement), but will not otherwise be
assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by the Executive’s personal
or legal representatives, executors, administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties hereto shall, without the
consent of the other, assign, transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 17(a) and 17(b). Without limiting the
generality or effect of the foregoing, the Executive’s right to receive payments hereunder will not
be assignable, transferable or delegable, whether by pledge, creation of a security interest, or
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otherwise, other than by a transfer by the Executive’s will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary to this Section
17(c), the Company shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
18. Notices. For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or permitted to be given
hereunder will be in writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five (5)
business days after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three (3) business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or Purolator,
addressed to the Company (to the attention of the Secretary of the Company) at its principal
executive offices and to the Executive at his principal residence, or to such other address as any
party may have furnished to the other in writing and in accordance herewith, except that notices of
changes of address shall be effective only upon receipt.
19. Governing Law. The validity, interpretation, construction and performance of this
Agreement will be governed by and construed in accordance with the substantive laws of the State of
Delaware, without giving effect to the principles of conflict of laws of such State.
20. Indemnification. The Company will indemnify the Executive (and his legal
representative, heirs or other successors) to the fullest extent permitted (including a payment of
expenses in advance of final disposition of a proceeding) by the Company’s certificate of
incorporation, or if greater, by applicable law, and the Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally for the benefit of
its directors and officers, against all costs, charges and expenses whatsoever incurred or
sustained by him or his legal representatives, heirs or other successors (including but not limited
to any judgment entered by a court of law or any costs, including reasonable attorneys’ fees the
Executive incurs to enforce the terms of this Section 20) at the time such costs, charges and
expenses are incurred or sustained, in connection with any action, suit or proceeding to which the
Executive (or his legal representatives or other successors) may be made a party by reason of his
having accepted employment with the Company or by reason of his being or having been a director,
officer or employee of the Company, or any Subsidiary of the Company, or his serving or having
served any other enterprise as a director, officer or employee at the request of the Company
(including any acts or omissions which are alleged to have occurred in such service), and to the
extent the Company maintains such an insurance policy or policies, the Executive shall be covered
by such policy or policies, in accordance with its or their terms to the maximum extent of the
coverage available for any Company officer or director. The Executive’s rights under this Section
20 shall continue without time limit for so long as he may be subject to any such liability,
whether or not the Employment Term may have ended.
21. Validity. If any provision of this Agreement or the application of any provision
hereof to any person or circumstances is held invalid or unenforceable, the remainder of this
Agreement and the application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid or unenforceable will be reformed to the extent
(and only to the extent) necessary to make it enforceable or valid.
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22. Survival of Provisions. Notwithstanding any other provision of this Agreement,
the parties’ respective rights and obligations under Sections 8, 10, 11, 12, 13, 14, 15, 16, 17,
20, 22 and 23 (and the terms defined therein) will survive any termination or expiration of this
Agreement or the termination of the Executive’s employment for any reason whatsoever.
23. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing signed by the
Executive and the Company. No waiver by either party hereto at any time of any breach by the other
party hereto or compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. Unless otherwise noted, references to “Sections” are to
sections of this Agreement. The captions used in this Agreement are designed for convenient
reference only and are not to be used for the purpose of interpreting any provision of this
Agreement.
24. Defined Terms.
(a) “401(k) Plan” means the HealthMarkets 401(k) and Savings Plan.
(b) “Accounting Firm” has the meaning specified in Section 11(b).
(c) “Agreement” has the meaning specified in the introductory paragraph herein.
(d) “Annual Bonus Percentage” has the meaning specified in Section 4(b)(ii).
(e) “Annual LTIP Award” has the meaning specified in Section 4(d)(ii).
(f) “Base Salary” has the meaning specified in Section 4(a).
(g) “Board” means the Board of Directors of the Company.
(h) “Call Right” has the meaning specified in Section 8.
(i) “Cause” means the occurrence of any of the following:
(i) the Executive engages in fraudulent activity, embezzlement or
misappropriation relating to the business of the Company or any of its affiliates or
Subsidiaries;
(ii) the Executive is convicted by a court of competent jurisdiction of, or
pleads guilty or nolo contendere to, any felony (other than a traffic violation) or
any crime involving moral turpitude;
(iii) the Executive commits a breach of the Restrictive Covenants, which breach
has not been remedied within 30 days of the delivery to Executive by the Board of
written notice of the facts constituting the breach, and which breach if not cured
would have a material adverse effect on the Company;
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(iv) the Executive’s willful and continued failure after written notice from
the Board to perform his material duties for the Company or its Subsidiaries (other
than on account of approved leave of absence and/or Disability); or
(v) the Executive engages in (x) gross neglect or (y) willful misconduct, in
both cases relating to the Executive’s performance of his duties for the Company.
The cessation of the Executive’s employment shall not be deemed to be for Cause
pursuant to clauses (i), (iii), (iv) or (v) hereof unless and until the Board has
provided the Executive with written notice of the acts or omissions giving rise to
Cause and an opportunity to be heard before the full Board (represented by counsel),
and after such hearing there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of no less than 51% of the entire
membership of the Board (excluding the Executive) at a meeting of the Board called
and held for such purpose, finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in clauses (i), (iii), (iv) or (v)
above
(j) “Change of Control” has the meaning specified in Section 4( c).
(k) “Code” means the Internal Revenue Code of 1986, as amended.
(l) “Committee” means the Executive Compensation Committee of the Board.
(m) “Company” has the meaning specified in the introductory paragraph of this Agreement.
(n) “Company Group” has the meaning specified in Section 13(a).
(o) “Confidential Information” has the meaning specified in Section 12(a).
(p) “Disability” shall mean the Executive’s incapacity due to physical or mental illness to
substantially perform his duties on a full-time basis for at least 26 consecutive weeks or an
aggregate period in excess of 26 weeks in any one fiscal year, and within 30 days after a notice of
termination is thereafter given by the Company, the Executive shall not have returned to the
full-time performance of the Executive’s duties; provided, however, if the
Executive shall not agree with a determination to terminate his employment because of Disability,
the question of the Executive’s Disability shall be subject to the certification of a qualified
medical doctor selected by the Company or its insurers and acceptable to the Executive or, in the
event of the Executive’s incapacity to accept a doctor, the Executive’s legal representative.
(q) “Effective Date” has the meaning specified in the introductory paragraph of this
Agreement.
(r) “Employment Term” has the meaning specified in Section 2.
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(s) “Executive” has the meaning specified in the introductory paragraph of this Agreement.
(t) “Fair Market Value” has the meaning specified in Section 8(b).
(u) “First Installment” has the meaning specified in Section 4(b)(i).
(v) “First Year Guaranteed Annual Bonus” has the meaning specified in Section 4(b)(i).
(w) “Good Reason” means the occurrence, without the Executive’s consent, of any the following
events:
(i) a material diminution in the Executive’s authorities, titles, reporting
responsibilities or offices (excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith which is promptly remedied after notice
by the Executive to the Company);
(ii) a material decrease in the Executive’s Base Salary, Target Bonus
Percentage or Annual LTIP Award opportunity, which for this purpose shall mean one or
more reductions that, individually or in the aggregate, exceed 5% of the Executive’s
highest Base Salary, Target Bonus Amount or Annual LTIP Award opportunity (excluding
for this purpose an isolated, insubstantial and inadvertent action not taken in bad
faith which is promptly remedied after notice by the Executive to the Company);
(iii) a material reduction in the Executive’s participation in the Company’s
benefit plans and policies to a level materially less favorable to the Executive
unless such reduction applies to a majority of the senior level executives of the
Company; or
(iv) the relocation of the Executive’s primary place of employment to a location
50 or more miles from the Company’s then-current headquarters.
(v) any change in reporting structure so that the Executive reports to someone
other than the Chief Executive Officer of the Company or the Board (or the Chief
Executive Officer or board of directors of any Successor);
(vi) failure to appoint or elect or removal of Executive from the offices of
Executive Vice President and Chief Financial Officer;
(vi) following a Change of Control, failure of the Executive to be the Chief
Financial Officer of the successor entity (including the ultimate parent of such
entity);
(vii) failure of the Company’s stockholders to approve the Amendment in the time
period set forth in Section 4(c) (except in circumstances where the Executive has
failed to make the Investment as required by Section 8 hereof); or
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(viii) any failure of the Company to obtain within 30 days following a
transaction the assumption in writing by any successor to all or substantially all of
the business or assets of the Company to perform this Agreement, except where such
assumption occurs by operation of law.
Notwithstanding the foregoing, the Executive shall only be entitled to resign for
Good Reason if (1) the Executive first provides a notice of his intent to resign
within 120 days following the date he first learns of the event(s) giving rise to
Good Reason (2) the Company fails to cure such events or circumstances within 30
days following the Company’s receipt of such notice and (3) the Executive terminates
his employment within two years following the occurrence of the event(s) on which the
Good Reason termination is based.
(x) “Gross-Up Payment” has the meaning specified in Section 11(a).
(y) “HealthMarkets” has the meaning specified in the introductory paragraph of this Agreement.
(z) “HealthMarkets Affiliates” has the meaning specified in paragraph 1 of Exhibit B attached
hereto.
(aa) “Initial Employment Term” has the meaning specified in Section 2.
(bb) “Initial Grant” has the meaning specified in Section 4(c).
(cc) “Initial LTIP Award” has the meaning specified in Section 4(d)(i).
(dd) “Initial Payment Period” has the meaning specified in Section 10(e).
(ee) “Investment” has the meaning set forth in Section 8.
(ff) “IPO” has the meaning specified in the Stockholders Agreement.
(gg) “Limit” has the meaning specified in Section 10(e).
(hh) “MOP” means the Company’s 2006 Management Option Plan, as may be amended from time to
time.
(ii) “Option Rights” has the meaning specified in the MOP.
(jj) “Payment Period” means the one-year period following the later of (i) the Executive’s
date of termination of employment with the Company or (ii) the first business day after the date
that is six (6) months following the date of the Executive’s separation from service with the
Company to the extent required in order to avoid the imposition of taxes or penalties under Code
Section 409A.
(kk) “Performance Year” has the meaning specified in Section 4(d)(ii).
(ll) “Pro-Rata Bonus” has the meaning specified in Section 10(b).
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(mm) “Release” has the meaning specified in the introductory paragraph of Exhibit B attached
hereto.
(nn) “Renewal Term” has the meaning specified in Section 2.
(oo) “Reporting Person” has the meaning specified in Section 3(a).
(pp) “Restrictive Covenants” has the meaning specified in Section 10.
(qq) “Revocation Date” has the meaning specified in paragraph 3 of Exhibit B attached hereto.
(rr) “Second Installment” has the meaning specified in Section 4(b)(i).
(ss) “Shares” has the meaning specified in Section 4(b)(i).
(tt) “Stockholders Agreement” means the Stockholders Agreement by and among investment funds
affiliated with The Blackstone Group, L.P., Xxxxxxx Xxxxx & Co. and DLJ Merchant Banking Partners
IV, L.P., the Company, the Executive, and other signatories thereto, dated April 5, 2006, as may be
amended from time to time.
(uu) “Subsidiary” shall mean any entity, corporation, partnership (general or limited),
limited liability company, firm, business organization, enterprise, association or joint venture in
which the Company directly or indirectly controls ten percent (10%) or more of the voting interest;
provided that such controlling interest shall be fifty percent (50%) for purposes of Sections
24(i)(i) and 24(i)(iv) of this Agreement.
(vv) “Successor” has the meaning specified in Section 17(a).
(ww) “Target Bonus Percentage” has the meaning specified in Section 4(b)(ii).
(xx) “Termination Payments” has the meaning specified in Section 10(a).
(yy) “Underpayment” has the meaning specified in Section 11(a) .
(zz) “Welfare Benefits” has the meaning specified in Section 10(c).
25. 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
agreement.
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IN WITNESS WHEREOF, with the Company signatory listed below having been duly authorized by the
Company to enter into this Agreement by the Company, the parties hereto have executed this
Agreement as of the day and year first written.
| Xxxxxx X. Xxxxx | ||||||
| HealthMarkets, Inc. | ||||||
| By: | ||||||
| Chief Executive Officer | ||||||
Solely with respect to Section 4(c) and Section
8 of this Agreement and Exhibit C
Accepted and Agreed to as of the day and
year first written above on behalf of the Blackstone
by Blackstone Management Associates IV L.L.C.
8 of this Agreement and Exhibit C
Accepted and Agreed to as of the day and
year first written above on behalf of the Blackstone
by Blackstone Management Associates IV L.L.C.
Title: Senior Managing Director |
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Exhibit A
Position: Executive Vice President, Chief Financial Officer
Reporting Person: HealthMarkets Chief Executive Officer
Outside Activities: Member of the Board of Directors of Infometrix
| Base Salary: | $500,000, or such higher amount resulting from one or more subsequent increases in Base Salary by the Committee pursuant to Section 4(a). |
Target Bonus Percentage: 100%
Annual Bonus Opportunity: 200%
Exhibit B
Form of Release
In consideration of the payments and promises contained in your Employment Agreement with
HealthMarkets, Inc. (the “Company”) dated September 30, 2008, and in full compromise and settlement
of any of your potential claims and causes of action relating to or arising out of your employment
relationship with the Company or the termination of that relationship, and any and all other claims
or causes of action that you have or may have against the HealthMarkets Affiliates (as defined
below) up to the date of execution of this release, except to the extent such claims or causes of
action are not released by you in Paragraph 2 hereof (the “Release”), you hereby:
1. knowingly and voluntarily agree to irrevocably and unconditionally waive and release the
Company and any other entity controlled by, controlling or under common control with the Company,
and their respective predecessors and successors and their respective directors, officers,
employees, representatives, attorneys, including all persons acting by, through, under or in
concert with any of them (collectively, the “HealthMarkets Affiliates”), from any and all charges,
complaints, claims, liabilities, obligations, promises, sums of money, agreements, controversies,
damages, actions, lawsuits, rights, demands, sanctions, costs (including attorneys’ fees), losses,
debts and expenses of any nature whatsoever, existing on, or at any time prior to, the date hereof
in law, in equity or otherwise, which you, your successors, heirs or assigns had or have upon or by
reason of any fact, matter, cause, or thing whatsoever, and specifically including any matter that
may be based on the sole or contributory negligence (whether active, passive or gross) of any
HealthMarkets Affiliate. This release includes, but is not limited to, a release of all claims or
causes of action arising out of or relating to your employer-employee relationship with the Company
or the termination of that relationship, and any other claim, including, without limitation,
alleged breach of express or implied written or oral contract, alleged breach of employee handbook,
alleged wrongful discharge, and tort claims, or claims or causes of action arising under any
federal, state, or local law, including, but not limited to, the Age Discrimination in Employment
Act, 29 U.S.C. § 621, et seq., the Reconstruction Era Civil Rights Act of 1866 and 1871, 42 U.S.C.
§§ 1981 and 1983, the Civil Rights Act of 1964, Title VII, 42 U.S.C. §§ 2000(e) et seq., The Civil
Rights Act of 1991, 42 U.S.C. § 1981(a) et seq., the Equal Pay Act of 1963, 29 U.S.C. § 206(d) et
seq., the Americans with Disabilities Act of 1990, 42 U.S.C. §§ 12101 et seq. the Rehabilitation
Act of 1973, 29 U.S.C. § 701 et seq., the Worker Adjustment and Retraining Notification Act, 29
U.S.C. §§ 2101-2109, the Xxxxxxxx-Xxxxx Act of 2002, as amended, and any claim under any other
statutes of the State of Texas, or other jurisdictions, and the facts, circumstances, allegations,
and controversies relating or giving rise thereto that have accrued to the date of execution of
this Release;
2. agree that you will not commence, maintain, initiate, or prosecute, or cause, encourage,
assist, volunteer, advise or cooperate with any other person to commence, maintain, initiate or
prosecute, any action, lawsuit, proceeding, investigation, or claim before any court, legislative
body or committee, or administrative agency (whether state, federal or otherwise) against the
HealthMarkets Affiliates relating to any claims, liabilities, obligations, promises, sums of money,
agreements, controversies, damages, actions, lawsuits, rights, demands,
sanctions, costs (including attorneys’ fees), losses, debts and expenses described in the
foregoing Paragraph 1; provided, however, that, notwithstanding anything to the
contrary in the foregoing, nothing hereunder (including Paragraph 1 hereof) shall be deemed to
affect, impair or diminish in any respect (or deemed to be a release by you of any claims or an
agreement not to xxx or bring an action with respect to) (i) any vested rights as of the date of
termination or entitlement you may have under the ESOP or 401(k) Plan; (ii) any other vested rights
as of the date of termination you may have under any employee plan or program in which you have
participated in your capacity as an employee of the Company or any other HealthMarkets Affiliate;
(iii) your right to seek to collect unemployment benefits that you may be entitled to as a result
of your employment with the Company or your right to seek benefits under workers’ compensation
insurance, if applicable; (iv) your rights to enforce this Release and/or the Employment Agreement,
including Exhibit A, including but not limited to your right to bring a claim for breach of this
Release or the Employment Agreement, including Exhibit A; (v) any rights you may have under that
Section 8 (Investment), Section 11 (Certain Additional Payments by the Company) or Section 20
(Indemnification) of the Employment Agreement; (vi) any rights to indemnification and/or
advancement of expenses that you have or may have under the terms of the HealthMarkets Amended and
Restated Bylaws and/or Certificate of Incorporation or any rights you have pursuant to any
applicable directors’ and officers’ liability insurance policies; (vii) your rights as a
shareholder of the Company; or (viii) your right to bring a claim under the Age Discrimination in
Employment Act to challenge the validity of this Release, to file a charge under the civil rights
statutes, or to otherwise participate in an investigation or proceeding conducted by the Equal
Employment Opportunity Commission or other investigative agency;
3. acknowledge that: (i) this entire Release is written in a manner calculated to be
understood by you; (ii) you have been advised to consult with an attorney before executing this
Release; (iii) you were given a period of at least twenty-one days within which to consider this
Release; and (iv) to the extent you execute this Release before the expiration of the
twenty-one-day period, you do so knowingly and voluntarily and only after consulting your attorney.
You shall have the right to cancel and revoke this Release during a period of seven days following
the date on which you execute it, and this Release shall not become effective, and no money will be
paid to you in respect of severance, until the day after the expiration of such seven-day period
(the “Revocation Date”). In order to revoke this Release, you shall deliver to the Company, prior
to the Revocation Date, a written notice of revocation. Upon such revocation, this Release shall
be null and void and of no further force or effect;
4. agree to make yourself reasonably available to the Company following the date of your
termination to assist the HealthMarkets Affiliates, as may be requested by the Company at mutually
convenient times and places taking into account your other business and personal commitments, with
respect to the business of the Company and pending and future litigations, arbitrations,
governmental investigations or other dispute resolutions relating to or in connection with the
Company with respect to matters of which you have relevant knowledge. Notwithstanding the
foregoing, you shall not be required to cooperate if such cooperation is adverse to your legal
interests. In addition, the Company agrees to pay promptly any reasonable expenses incurred by you
in connection with such cooperation, including, without limitation, business class airfare,
reasonable meals, reasonable hotels and reasonable legal fees to the extent the Company and you
agree (the Company’s agreement not to be unreasonably withheld) separate representation is
warranted by the circumstances; and
B-2
5. agree not to, either in writing or by any other medium, make any disparaging or derogatory
statement about the HealthMarkets Affiliates or any of their respective officers, directors,
employees, affiliates, Subsidiaries, successors, assigns or businesses, as the case may be;
provided, however, that you may make such statements as are necessary to comply with law.
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