EXHIBIT 10.7
Term Sheet for New Employment
Agreements for Certain Executives of Maverick

     
Parties:
  Maverick (the “Company”) and the executive set forth on Exhibit A (the
“Executive”).
 
   
Employment Period:
  Three years commencing at the Effective Time (as defined in the Agreement and
Plan of Merger among certain entities formed by The Blackstone Group, DLJ
Merchant Banking Partners IV, L.P. and Goldman, Sachs & Co. and the Company (the
“Merger Agreement”)) (the “Employment Period”), subject to year-to-year
evergreen extension upon expiration of the Employment Period, unless the Company
or the Executive provides written notice of intent to terminate the Executive’s
employment at least 90 days prior to the expiration of the Employment Period.
 
   
Position, Duties and Reporting Responsibilities:
  As set forth on Exhibit A with duties commensurate with such position.
Reporting to the position set forth on Exhibit A.
 
   
Base Salary:
  During the Employment Period, the Executive will be paid an annual base salary
in the amount paid as of the date hereof (which will not be less than the
Executive’s base salary immediately prior to the Merger), subject to review at
least annually and may be increased (but not decreased) by the Company Board or
an authorized committee (together, the “Board”).
 
   
Annual Bonus:
  Target and Maximum bonus percentage in an amount set forth on Exhibit A.
 
   
New Equity Awards:
  As set forth on Exhibit B.
 
   
Employee Benefits and Perquisites:
  During the Employment Period, the Executive will be eligible to participate in
employee benefit plans, and to receive perquisites, provided from time to time
to similarly situated executives of the Company and its subsidiaries generally.
 
   
Existing Equity Awards/Holdings and Transaction Bonus:
  Rollover will be determined as provided for on Exhibit A, which sets forth the
number and kind of shares and equity awards to be purchased/rolled-over (or the
amount of dollars to be reinvested) at the Effective Time. Any options which
remain outstanding and are rolled over will be rolled over tax-free into options
to purchase common shares of the new entity on a basis that preserves the option
spread (based on the Merger consideration). To accomplish this, it is intended
that (to the extent possible) the strike price will be decreased and will be
done so as to comply with Section 409A and not otherwise create current
taxation.
 
   
 
  ESOP shares will be converted to cash which will remain in the plan or be paid
out, as applicable.
 
   
 
  Equity-linked shares (including share credits) will be converted into cash and
remain in the plan or be paid out, as applicable, in accordance with their
vesting schedules (after taking into account any accelerated vesting in the UGA
Employee Long Term Bonus Program).

 

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  All equity rolled over or cash invested by the Executive in connection with
the merger transaction will be fully vested at time of rollover/investment and
will be subject to the terms and conditions of the applicable Shareholders
Agreement.
 
   
Termination of Employment:
  Upon termination without Cause or resignation for Good Reason, subject to the
Executive’s execution and non-revocation of a release in substantially the form
currently used by the Company (which is attached as Exhibit C hereto and will be
modified to include all shareholders after Closing (as defined in the Merger
Agreement), and to include provisions regarding non-disparagement and
cooperation with legal claims)) and compliance with the Executive’s covenants,
the Executive will receive, in 24 equal monthly installments, an amount equal to
the sum of (i) two years’ base salary and (ii) two times the Executive’s target
bonus for the year of termination.
 
   
 
  If the Executive’s employment is terminated without Cause or for Good Reason
after the last day of the first quarter of any fiscal year, the Executive will
be entitled to a pro-rata bonus, based upon the Executive’s target bonus and the
number of days the Executive was employed in the applicable fiscal year, divided
by 365.
 
   
 
  The Executive will be entitled to continuation of welfare benefits for the
number of years equal to the severance payment multiple.
 
   
 
  The foregoing will be reformed to the extent necessary to comply with
Section 409A of the Code.
 
   
 
  The Executive will return all Company property effective upon termination of
the Executive’s employment and will resign from all positions with the Company,
its subsidiaries or affiliates.
 
   
Executive’s Covenants:
  During the Executive’s employment and for the number of years equal to the
severance payment multiple, two years, following a termination of the
Executive’s employment for any reason (including a termination for “Cause” or a
voluntary resignation without “Good Reason”), the Executive agrees not to
compete with the Company, its subsidiaries or affiliates (subject to customary
exceptions) and not to solicit or hire the employees or independent contractors
of the Company, its subsidiaries and affiliates (including any person who was an
employee or independent contractor during the six months prior to termination of
the Executive’s employment).
 
   
 
  To “compete” shall mean to engage in any activity that can be reasonably
expected to result in a competitive harm to the Company, its subsidiaries or
affiliates.
 
   
 
  While employed and thereafter, the Executive will not disclose or otherwise
use any confidential information or trade secrets of the Company, its
subsidiaries and affiliates.
 
   
Definition of Cause:
  “Cause” means any of the following (i) Executive commits an act of gross
negligence, willful misconduct, fraud, embezzlement, misappropriation or breach

 

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  of fiduciary duty against the Company or any of its affiliates or
subsidiaries, or shall be convicted by a court of competent jurisdiction of, or
shall plead guilty or nolo contendere to, any felony or any crime involving
moral turpitude or any crime which reasonably could affect the reputation of the
Company or the Executive’s ability to perform the duties required under the
Employment Agreement; (ii) Executive commits a material breach of any of the
covenants in the Employment Agreement or the Shareholder’s Agreement, which
breach has not been remedied within 30 days of the delivery to Executive by the
Board of Directors of written notice of the facts constituting the breach, and
which breach if not cured would have a material adverse effect on the Company;
or (iii) Executive habitually and willfully neglects his obligations under the
Employment Agreement or the Executive’s duties as an employee of the Company.
 
   
Definition of Good Reason:
  A termination will be for “Good Reason” if Executive terminates employment
within 90 days following the occurrence, without Executive’s written consent, of
any of the following events: (i) the reduction of the Executive’s position from
that of a senior executive level position with the Company; (ii) a decrease in
Executive’s base salary or target bonus, other than in the case of a decrease
for a majority of similarly situated executives; (iii) a reduction in
Executive’s participation in the Company’s benefit plans and policies to a level
materially less favorable to Executive unless such reduction applies to a
majority of senior level executives; or (iv) the announcement of the relocation
of the Executive’s primary place of employment to a location 50 or more miles
from the current headquarters).
 
   
280G Gross Up
  The Executive will be entitled to a full 280G gross up on all payments and
benefits (whether or not payable or due under the Employment Agreement) other
than with respect to excise tax relating to the transactions contemplated by the
Merger Agreement; provided that the Company shall be entitled to reduce payments
to the Executive by not more than 10% if doing so would allow for the avoidance
of the imposition of excise taxes.
 
   
Prior Agreement (if any):
  Supersedes existing agreement effective upon Effective Time.
 
   
Governing Law:
  Delaware

 

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The foregoing represents a legally binding commitment of the parties hereto. The
parties agree to negotiate in good faith final documentation to reflect the
above as soon as reasonably practicable after the date hereof; provided,
however, that if an employment agreement is not entered into between the parties
this term sheet shall continue in full force and effect; and provided further
that if the Merger Agreement is terminated this term sheet shall be void ab
initio and shall have no further force or effect.
Prior to the Effective Time, the Company and the Executive will not amend or
modify this Term Sheet, or enter into an employment agreement which amends or
modifies the terms and conditions of this Term Sheet, or waive any rights of any
party hereunder, without the prior consent of SibCo I (as defined in the Merger
Agreement). SibCo I is intended to be, and shall be, a third-party beneficiary
of this provision, with full rights of enforcement.
Dated September 14, 2005
UICI

         
By:
  /s/ Glenn W. Reed    
 
       
 
  Name: Glenn W. Reed, Executive Vice President    
 
       
By:
  /s/ William J. Gedwed    
 
       
 
  Name: William J. Gedwed    

 

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Exhibit A
Certain Terms and Conditions of Employment

     
Name:
   William J. Gedwed
 
   
Position:
  UICI Chairman, President and CEO
 
   
Reporting Duties, Responsibilities and Authority:
  Reports to Board of Directors
 
   
Annual Base Salary:
   $600,000
 
   
Target Bonus:
  100% of Annual Base Salary
 
   
Maximum Bonus:
  200% of Annual Base Salary
 
   
Rollover/Investment:
  100% of current UICI equity interests

 

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Exhibit B
Management Option Plan/Grant Term Sheet

     
General:
  The Company to establish option plan effective as of the Effective Time of the
merger pursuant to which        % of the Company’s total common shares will be
reserved for issuance as awards and 70% of awards reserved for issuance will be
granted to Company executives as of the Effective Time (“Initial Grant”).
 
   
Number of Shares Subject to Initial Grant:
  [TBD].
 
   
Per Share Exercise Price of Initial Grant:
   $___.
 
   
Option Term of Initial Grant:
  10 years
 
   
Vesting Schedule of Initial Grant:
  Subject to executive’s continued employment with the Company through each
applicable vesting date:
 
   
 
  Time-Based Tranche: One-third of options in Initial Grant will vest 20% on
each anniversary of the Effective Time beginning with the first anniversary of
such grant, based on continued employment. The exercise price of these options
will be the deal price.
 
   
 
  Performance-Based Tranche: One-third of options in Initial Grant will vest 25%
on each of the first and second anniversaries of the Effective Time, 17% on the
third and fourth anniversaries of the Effective Time and 16% on the fifth
anniversary of the Effective Time based upon continued employment and
achievement of performance targets (EBIT, net income, revenue growth, etc.) set
by the Compensation Committee (in some cases individually) after consultation in
good faith with the CEO for such year. Failure to achieve goal in any year will
result in forfeiture of options subject to the Initial Grant that would have
vested in such year. The exercise price of these options will be the deal price.
 
   
 
  Tranche C: One-third of options in Initial Grant will vest 25% on each of the
first and second anniversaries of the Effective Time, 17% on the third and
fourth anniversaries of the Effective Time and 16% on the fifth anniversary of
the Effective Time based upon continued employment. The initial exercise price
of these options will be the deal price and will accrete at the rate of 10% per
year from the Effective Time.
 
   
Termination of Employment:
  Except as provided below, if the Executive’s employment terminates for any
reason, the option, to the extent not then vested, will be immediately forfeited
and all vested options will remain exercisable for the shorter of (1) 90 days
following the date of termination and (2) the remainder of their original
scheduled term.
 
   
 
  If the Executive’s employment is terminated by the Company without Cause or by
the Executive for Good Reason (in each case, as defined in the Employment
Agreement)

 

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  or by reason of the Executive’s death or Disability (as defined in the
Employment Agreement), to the extent not previously cancelled or expired, the
next tranche of the Executive’s unvested Time-Based, Performance-Based (provided
that it is not apparent, in the reasonable judgment of the Company, that the
Company will miss the applicable performance targets) and Tranche C options will
vest and all vested options will remain exercisable for the shorter of (1) one
year following the date of termination and (2) the remainder of their original
scheduled term.
 
   
 
  If the Executive’s employment is terminated by the Company for Cause, all
options, whether or not vested, will be immediately forfeited.
 
   
 
  Upon a termination of employment for any reason prior to an Initial Public
Offering, the Company will have the right to purchase (a “Call Right”) any
shares received pursuant to the exercise of the option at Fair Market Value
(except in the event of a termination for Cause, in which case the Call Right
will be at the lower of the exercise price or Fair Market Value). The Call Right
may be exercised at any time following the later of six months following (1) the
Executive’s receipt of shares pursuant to the exercise of the option and (2) the
Executive’s termination of employment.
 
   
 
  “Fair Market Value” shall be determined from time to time (but no less
frequently than quarterly) by the Board in good faith. 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 within 6 months of a
termination of employment (except in the case of a termination for Cause) an
Initial Public Offering or Change of Control occurs, for purposes of the Call
Right, Fair Market Value shall equal the consideration paid per share pursuant
to such transaction.
 
   
 
  Please note that other shares (other than existing management shares rolled
over) will be subject to a similar call right upon termination (including any
applicable delay so that such shares shall have been held by the Executive for
at least six months), at Fair Market Value or, in the case of a termination for
“Cause” at the lower of cost or Fair Market Value.
 
   
Change of Control:
  Upon a Change of Control all options will vest in full.
 
   
 
  A “Change of Control” will mean: (i) The acquisition by any individual entity
or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
(a “Person”), other than The Blackstone Group, DLJ Merchant Banking Partners IV,
L.P. and Goldman, Sachs & Co. and their respective affiliates (the “Permitted
Holders”), directly or indirectly, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of equity securities of the
Company representing more than 50% of the voting power of the then-outstanding
equity securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that
for purposes of this subsection (i), the following acquisitions will not
constitute a Change of Control: (1) any acquisition by the Company, (2) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or
(3) any acquisition by any Person pursuant to a transaction which com-

 

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  plies with clauses (A) and (B) of subsection (ii) below; or
 
   
 
  (ii) The consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company or
the purchase of assets or stock of another entity (a “Business Combination”), in
each case, unless immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
then-outstanding combined voting power of the then-outstanding securities
entitled to vote generally in the election of directors of the entity resulting
from such Business Combination (including an entity which as a result of such
transaction owns the Company or all or substantially all of the Company’s assets
either directly or through one or more subsidiaries) in substantially the same
proportion as their ownership immediately prior to such Business Combination of
the Outstanding Company Voting Securities, and (B) no Person (excluding the
Permitted Holders) beneficially owns, directly or indirectly, more than a
majority of the combined voting power of the then-outstanding voting securities
of such entity except to the extent that such ownership of the Company existed
prior to the Business Combination.
 
   
 
  Notwithstanding paragraphs (i) and (ii) above, in no event will a Change of
Control be deemed to occur if the Permitted Holders maintain a direct or
indirect Controlling Interest in the Company or in an entity that maintains a
direct or indirect Controlling Interest in the Company. A “Controlling Interest”
in an entity will mean (x) beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the equity
securities representing more than 50% of the voting power of the outstanding
equity securities of the entity.
 
   
Adjustment:
  In the event of any change in the outstanding shares after the Effective Time,
the Board may make such substitution or adjustment (including cash payments) as
it determines in good faith to be equitable.
 
   
Withholding:
  The Company may withhold from any payment due to or transfer made under any
compensation or other amount owing to the executive the amount of any applicable
withholding taxes in respect of the option, including by having shares received
upon exercise of the option withheld by the Company with a fair market value
equal to the amount of the tax liability.
 
   
Other:
  Shares acquired on exercise will be subject to generally applicable
Shareholders Agreement only until there is a Change of Control or Initial Public
Offering pursuant to which the Company shares become publicly traded. The
Company has the option of requiring management to waive their registration
rights with regard to such shares upon an Initial Public Offering, in which case
the Company will implement an IPO Bonus Plan in cash, stock or additional
options to compensate for management’s loss of liquidity.

 

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Exhibit C
Form of UICI Employee Release
     1. In consideration of the payments and promises contained in this
Agreement, 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 UICI or the termination of that relationship, and any and all other claims
or causes of action that you have or may have against the UICI Affiliates (as
defined below) up to the date of execution of this Agreement, you hereby:
     1.1. Knowingly and voluntarily agree to irrevocably and unconditionally
waive and release UICI and any other entity controlled by, controlling or under
common control with the UICI, and their predecessors and successors and
directors, officers, employees, representatives, attorneys, including all
persons acting by, through, under or in concert with any of them (collectively,
the “UICI 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 UICI 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 UICI 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 Sarbanes-Oxley Act of 2002, as amended, [state-specific
employee-employer laws] and any claim under any other statutes of the State of
___, 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 Agreement; and
     1.2. 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 UICI
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 subparagraph 1.1; provided, however, that,
notwithstanding anything to the contrary in the foregoing, nothing hereunder
shall be deemed to affect, impair or diminish in any respect (i) any vested
rights as of the Termination Date or entitlement you may have under the UICI
Employee Savings and Stock Ownership Plan; (ii) any other vested rights as of
the Termination Date 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 UICI 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 un-

 

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der workers’ compensation insurance, if applicable; (iv) your rights under this
Agreement; including but not limited to your right to bring a claim for breach
of this Agreement; (v) [any rights you may have under that certain
Indemnification Agreement, dated as of ___, ___ between you and UICI (which
Indemnification Agreement UICI, by its signature hereto, confirms shall remain
in full force and effect in accordance with the terms thereof)]; (vi) any rights
to indemnification that you have or may have under the terms of the UICI Amended
and Restated Bylaws; or (vii) your right to bring a claim under the Age
Discrimination in Employment Act to challenge the validity of this Agreement, 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.