Exhibit 10.1

THIS EMPLOYMENT LETTER AGREEMENT (“Agreement”) is entered into on this 7th day
of September, 2007, by and between (i) KMG AMERICA CORPORATION, a Virginia
corporation (“Employer”) and (ii) KENNETH U. KUK (“Executive”).

RECITALS:

A.        Employer has employed Executive in an executive position and has
determined that Executive holds an important position with Employer. In
anticipation of the merger of Hum VM, Inc. with and into Employer (the
“Merger”), whereby Employer will become a wholly-owned subsidiary of Humana
Inc., Executive is being asked to enter into this agreement.

B.        Management will be essential to maintain the stability of Employer
during the anticipation of the Merger and to promote the successful closing of
the Merger. Employer and Executive understand and agree that as part of and to
induce Humana Inc. and Hum VM, Inc. to enter into an Agreement and Plan of
Merger with Employer providing for the Merger (the “Merger Agreement”), it is
necessary to execute this Agreement and thereby to provide for the eventual
termination of any and all prior agreements and contracts between the parties
and for Executive to release and waive any and all claims, known or unknown,
that may arise from such agreements and contracts or the termination of such
agreements and contracts.

C.        Employer understands that anticipation of the Merger presents
significant concerns for Executive with respect to his financial and job
security. Employer desires to assure itself of Executive’s services during the
period in which it is confronting such a situation, and to provide Executive
certain financial assurances to enable Executive to perform the responsibilities
of his position without undue distraction and to exercise judgment without bias
due to personal circumstances.

D.        Employer further desires to assure itself that in the event the Merger
is consummated, its business is not harmed by Executive’s subsequent competition
with Employer’s business. To achieve these objectives, Employer and Executive
desire to enter into this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, it is agreed by and between Employer and Executive as follows:

1.         EFFECTIVE DATE, EFFECTIVE TIME AND EMPLOYMENT AT-WILL. The date upon
which Humana Inc., Hum VM, Inc. and Employer execute and deliver the Merger
Agreement shall constitute the effective date of this Agreement (“Effective
Date”). The Effective Time, and all other capitalized terms, unless otherwise
defined in this Agreement, shall have the same meaning as ascribed to such terms
in the Merger Agreement. EMPLOYER OFFERS AND EXECUTIVE ACCEPTS AND AGREES TO BE
EMPLOYED ON AN EMPLOYMENT AT-WILL BASIS FOLLOWING THE EFFECTIVE TIME. NOTHING IN
THIS AGREEMENT CONSTITUTES AN EMPLOYMENT CONTRACT BETWEEN EXECUTIVE AND EMPLOYER
THAT GUARANTEES TO EXECUTIVE EMPLOYMENT BEYOND THE EFFECTIVE TIME. Employment
at-will means that Employer and Executive may unilaterally terminate the
employment relationship and this Agreement at will, with or without notice or
Cause or Good Reason. Unless terminated sooner by Employer or Employee, this
Agreement shall expire on the later of the third anniversary of

 

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the Effective Time and December 31, 2010; provided, notwithstanding such
expiration, all compensation earned and payable to Executive pursuant to the
terms of this Agreement shall survive the expiration of this Agreement.

2.         TERMINATION OF AGREEMENT. Notwithstanding the provisions of this
Agreement, this Agreement shall automatically terminate and shall be void ab
initio in the event that the Merger Agreement terminates or the Merger
contemplated by the Merger Agreement is not consummated on or before April 30,
2008 or such later date as may be established as the date of termination of the
Merger Agreement by agreement of Employer, Humana Inc. and HumVM, Inc.

3.         EFFECT ON PRIOR AGREEMENTS. During the period commencing as of the
Effective Date and expiring immediately prior to the Effective Time (“the
Pre-Closing Period”), the terms of that certain Employment Agreement dated
December 21, 2004 by and between Employer and Executive, as amended (the
“Current Employment Agreement”), shall remain in full force and effect.
Notwithstanding the foregoing, Executive hereby waives all rights under, and all
claims for benefits, money or other compensation due Executive under, Sections
8(d), 8(e) and 12 (but only to the extent of any “Gross-Up Payment” under the
terms of Section 12 relates to such claims for benefits, money or other
compensation under Section 8(d) or Section 8(e)) of his Current Employment
Agreement in the event that Executive terminates his employment, or claims that
his employment was constructively terminated without Cause (as such term is
defined in the Current Employment Agreement) by Employer, during the Pre-Closing
Period and the reason or cause of such termination was due to any of the
following: (a) the anticipated consummation of the Merger, (b) anticipated
changes to the Employer or to Executive’s position with Employer and its
affiliates from and after the Effective Time, (c) the anticipated termination of
Executive’s Current Employment Agreement at the Effective Time, or (d)
anticipated changes to the compensation, benefits, and other terms of
Executive’s employment taking effect from and after the Effective Time pursuant
to the terms of this Agreement. From and after the Effective Time, and without
any further consideration or action by Employer or Executive, this Agreement
shall supersede, render void and terminate the Current Employment Agreement and
any other prior agreements Executive may have had with Employer or its
predecessor entities, provided, however, that such termination shall not affect
Executive’s rights to receive compensation and benefits then accrued and unpaid,
nor shall such termination affect Executive’s rights to receive the Merger
Consideration or the rights and benefits to which Executive is entitled under
the terms of the Merger Agreement or this Agreement.

4.         DUTIES. From and after the Effective Time, Executive shall have the
title and responsibilities of President of Employer, shall report to the Board
of Directors of Employer and to the COO or an appropriate business segment
leader of Humana Inc., and shall have his principal office in Minneapolis,
Minnesota. Executive agrees to devote full attention to the business and affairs
of Employer and to use best efforts to perform faithfully, diligently and
efficiently the duties and responsibilities as the President of Employer and
such other duties and responsibilities reasonably commensurate with Executive’s
skills, ability, and training and that may otherwise be assigned to Executive
from time to time by Employer, consistent with his title.

5.         BASE SALARY AND BENEFITS FROM AND AFTER EFFECTIVE TIME. From and
after the Effective Time:

 

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(a)       Base Salary. Employer shall pay Executive on a salary basis at a rate
equivalent to Three Hundred Thousand Dollars ($300,000) per calendar year (“Base
Salary”), less tax withholdings as designated in the tax forms submitted by
Executive or otherwise required by law. Base Salary shall be paid on a
semi-monthly or biweekly basis. Executive is an exempt status employee pursuant
to federal and state wage and hour laws; accordingly, Executive will not be paid
overtime. Executive’s Base Salary shall be evaluated and subject to annual
increase, but not decrease, consistent with policy of Humana Inc. based on an
annual performance review. Employer and Executive understand and agree that the
description of payment on a calendar year or annual basis does not affect the
employment at-will status provided in Section 1, and therefore, it does not
create a presumption that employment is for any definite period of time. Upon
termination of Executive’s employment, Executive understands and agrees that he
is entitled to Base Salary provided in this paragraph earned up to the date of
termination, with the exception of the terms provided in Section 6.

(b)       Employee Benefit Plans. Executive shall participate, to the extent he
may be eligible, solely in the “employee benefit plans” (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended)
maintained from time to time by Employer for employees of Employer and its
subsidiaries. Executive will be required to pay his portion of premiums or
related payments as designated in such employee benefit plans and/or as
designated by Employer. Executive shall be required to comply with the
conditions attendant to coverage by such plans and shall comply with and be
entitled to benefits only in accordance with the terms and conditions of such
plans as they may be amended from time to time. Nothing herein contained shall
be construed as requiring Employer to establish or continue any particular
employee benefit plan in discharge of its obligations under this Agreement. At
Employer’s sole discretion, Employer may replace such employee benefit plans
with similar employee benefit plans available to Humana Inc. employees under the
same terms and conditions as provided in Humana Inc.’s employee benefits plans
and thereafter Executive shall be covered by Humana Inc.’s employee benefits
plans. Upon termination of Executive’s employment and the termination of this
Agreement, Executive’s active coverage or participation in such employee benefit
plans shall end, unless otherwise provided by the terms of such plans or by law.
Additionally, the determination of the level of benefits to which Executive
shall be entitled under Employer’s policies will be based on Executive’s date of
hire of December 15, 2004.

(c)       Management Incentive Plan. Subject to all terms, conditions,
provisions and obligations of Humana Inc.’s Management Incentive Plan, as
amended from time to time for all similarly situated executives of Humana Inc.
and its subsidiaries (“MIP”), and except as modified by Section 6, Executive
shall participate in the MIP, which shall be paid in cash on an annual basis.
Executive’s targeted incentive amount will be 50% of his Base Salary. MIP is
based upon meeting specific objectives, determined annually. For calendar years
2008 and 2009, and notwithstanding any amendment to the MIP which may be made in
calendar years 2008 and 2009, Executive shall receive guaranteed payouts under
the MIP of at least 75% and 50% of the targeted incentive, respectively. To
receive payment under the MIP, Executive must be a current employee of Employer
at the end of the calendar year for which the MIP is awarded, except as modified
by Section 6. Employer and Executive understand and agree that neither the MIP,
nor the “without Cause,” “Good Reason” or other similar qualifications herein,
nor the description of payment on an annual basis affects the employment at-will
status provided in Section 1, and therefore, does not create a presumption that
employment is for any definite period of time.

 

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(d)       Special Incentive Compensation. Executive shall participate in an
additional performance-based cash incentive plan for three years: 2008, 2009,
and 2010, more fully described in this Section 5(d) and subject however to the
terms of Section 6 (such compensation being sometimes hereinafter referred to as
“SIC” and such plan or program as the “SIC Program”). Executive is eligible to
earn cash of $149,000 annually upon Employer achieving in calendar year 2008,
2009 and 2010 the Earnings Before Income Tax, Depreciation, and Amortization
(“EBITDA”) Targets set forth in Sections 3.2(c), 3.2(g) and 3.2(k),
respectively, of Executive’s Restricted Stock Agreement (defined in Section 5(e)
below). For calendar years 2008 and 2009, Executive shall receive guaranteed
payouts of SIC, regardless of meeting the EBITDA Targets for such calendar years
described above, of at least 75% and 50% of $149,000, respectively. Payouts of
SIC in calendar years 2008 and 2009 shall be made on a quarterly basis, in
advance, equal to 25% of the guaranteed payout for that calendar year. For
calendar year 2010, payouts of $37,250 shall be made on a quarterly basis, in
advance. For calendar years 2008, 2009 and 2010, a final payment of SIC shall be
made following the close of that calendar year to reflect any additional payment
due under this SIC Program once the EBITDA has been determined for that calendar
year. In the event Executive fails to meet the EBITDA target for calendar year
2010, any quarterly payout made during that calendar year shall be subject to
set-off against any other payment due Executive. Employer and Executive
understand and agree that neither the award of SIC, nor the description of
payment on a quarterly basis, nor the “without Cause,” “Good Reason” or other
similar qualifications herein, affect the employment at-will status provided in
Section 1, and therefore, does not create a presumption that employment is for
any definite period of time.

(e)       Equity Compensation. Subject to all terms, conditions and provisions
and obligations of, and only upon execution of, the Humana Inc. Restricted Stock
Agreement And Agreement Not to Compete or Solicit Under the 2003 Stock Incentive
Plan, attached hereto as Exhibit “A” (the “Restricted Stock Agreement”), issued
pursuant to the Humana Inc. Amended and Restated 2003 Stock Incentive Plan (for
purposes of this subsection “Plan”), Executive shall receive a grant of
performance-based restricted shares of Humana Inc. common stock trading on the
New York Stock Exchange (“Restricted Shares”) totaling $1,000,000 (the
“Restricted Shares Compensation”). Further, subject to all terms, conditions and
provisions and obligations of, and only upon execution of, the Humana Inc. Stock
Option Agreement, attached hereto as Exhibit “B” (the “Option Agreement”),
issued pursuant to the Plan, Executive shall receive a grant of
performance-based options to acquire shares of Humana Inc. common stock trading
on the New York Stock Exchange (“Option Shares”), which options shall have an
aggregate value of $1,000,000 using a Black-Scholes option-pricing model as of
the date of grant (the “Option Compensation,” which together with the Restricted
Shares Compensation is sometimes hereinafter collectively referred to as the
“Equity Compensation”). Except as otherwise set forth in the Restricted Stock
Agreement, restrictions on the Restricted Shares will lapse solely at the end of
a three-year performance period if pre-determined levels of performance are
achieved. Similarly, except as otherwise set forth in the Option Agreement, the
Option will vest at the end of a three-year performance period if pre-determined
levels of performance are achieved. Performance metrics are defined in each of
the Restricted Stock Agreement and the Option Agreement. The specific number of
Restricted Shares and Option Shares awarded or granted to Executive under the
Restricted Stock Agreement and the Option Agreement, respectively, and the
exercise price for the Option Agreement, shall be determined on the Closing
Date, based on the average of the high and low prices of Humana, Inc. common
stock on the New York Stock Exchange on that day

 

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and the individual target award level. The terms of the Restricted Stock
Agreement and the Option Agreement, respectively, shall govern and control any
conflict between the terms of this Agreement and the terms of the Restricted
Stock Agreement and the Option Agreement, respectively.

(f)        Other Bonuses. Subject to the terms set forth in this Section 5(f),
Executive or his heirs shall receive a cash bonus payment of $500,000 paid on
the Closing Date of the Merger. In addition, subject to the terms in this
Section 5(f), Executive or his heirs shall receive a cash bonus payment of
$1,500,000 paid on the third anniversary of the Effective Time (or the first
business day immediately following such anniversary if the date of such
anniversary is a banking holiday in Louisville, Kentucky), plus interest accrued
on the Other Bonus from the Effective Time until the cash bonus amount is paid
in full at a rate of 4.31% per annum compounded annually, and which accrued
interest shall be paid at such time as the cash bonus is paid in full
(collectively, the “Other Bonus”). Except as provided in Section 6, Executive
shall receive the Other Bonus at the time provided in the immediately preceding
sentence. Employer and Executive understand and agree that neither the award of
these Bonuses, nor the description of payment on a future date, nor the “without
Cause,” “Good Reason” or other similar qualifications set forth in this
Agreement, affect the employment at-will status provided in Section 1, and
therefore, does not create a presumption that employment is for any definite
period of time.

(g)       Vacation, Holidays and Leave Days. Executive shall earn 20 vacation
days per annum on a pro rata basis, and other holiday and leave days, consistent
with Employer’s policies for employees of Employer and its subsidiaries.
Employer may replace its existing vacation, holidays and other leave days
policies with Humana Inc.’s vacation, holidays and other leave days policies;
provided, however, that Executive will continue to accrue 20 days of vacation
per annum on a pro rata basis under Humana Inc.’s vacation, holidays and other
leave days policies.

(h)       No Other Compensation. Executive understands and agrees that, except
as expressly provided in this Agreement, he is not entitled to and Employer is
under no obligation to provide him any other compensation, payment, bonus,
equity, property, or money pursuant to his employment.

 

6.

COMPENSATION UPON TERMINATION. From and after the Effective Time:

6.1       Termination Without Cause, Upon Death or Disability, or for Good
Reason. Employer and Executive understand and agree that if this Agreement and
Executive’s employment are terminated by Employer without Cause, or on account
of the death or Disability of Executive, or by Executive for Good Reason, then
Executive or his heirs shall receive the following:

(a)       any earned and unpaid Base Salary of Executive through the date of
such termination and all bonuses earned and relating to any prior year and not
yet paid;

(b)       with respect to the MIP, a pro rata portion (determined on a per diem,
with the numerator being the number of days lapsed during such year prior to
Executive’s termination of employment and the denominator being 365) of the
minimum guaranteed payout under the MIP for the calendar year of such
termination;

 

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(c)       with respect to the SIC, Executive shall retain all quarterly
installments made to Executive prior to such termination and shall receive an
additional amount, if any, equal to the difference of (a) a pro rata portion
(determined on a per diem, with the numerator being the number of days lapsed
during such year prior to Executive’s termination of employment and the
denominator being 365) of the full annual amount that Executive could have
earned in the year of such termination less (b) all quarterly installments of
SIC made to Executive in the year of such termination;

(d)       the full amount of the Other Bonus;

(e)       if such termination occurs within twenty-four (24) months after the
Effective Time, Employer will continue to pay Executive’s Base Salary, in
semi-monthly or biweekly installments consistent with prior practice (net of
applicable withholdings), for a period of six (6) months following such
termination; and

(f)       all other compensation and benefits payable upon such termination
under other plans and programs of Employer or as required by law, in accordance
with the terms of such plans and programs or applicable law.

Payments to Executive under subsections (b), (c), (d) and (e) of this Section
6.1 shall be conditioned upon the prior execution and delivery to Employer of a
customary release and waiver of claims from Executive (or Executive’s duly
appointed legal representative in the case of death or Disability). (A form of
customary release, which is subject to change, but substantially reflects the
form Executive would be required to execute and deliver, is attached hereto as
Exhibit “C”). Further, payments to Executive under subsection (a), (b), (c) and
(d) of this Section 6.1 (provided Executive or his heirs execute and deliver the
release attached as Exhibit B), shall be made to Executive or his heirs within
30 days after his employment terminates, in a lump sum net of applicable
withholdings. Except as provided in this Agreement, no further compensation,
benefits or obligations shall be due to the Executive upon such termination
under the terms of this Agreement.

6.2       Termination for Cause or other than for Death, Disability or Good
Reason. Employer and Executive understand and agree that if this Agreement and
Executive’s employment are terminated by Employer for Cause, or by Executive
other than on account of his death or Disability, or by Executive without Good
Reason, then the following shall apply:

(a)       Executive or his heirs shall receive his earned and unpaid Base Salary
through the date of such termination and all bonuses earned and relating to any
prior year and not yet paid;

(b)       No MIP or Other Bonus shall be due Executive;

(c)       With respect to the SIC, Executive or his heirs shall retain all
quarterly installments made to Executive prior to the date of such termination,
and no further payments of SIC shall be due or owing to Executive; and

(d)       Executive may receive all other compensation and benefits payable upon
such termination under other plans and programs of Employer or as required by
law, but only if and to the extent expressly permitted by the terms of such
plans and programs or required by applicable law.

 

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Except as provided this Agreement, no further compensation, benefits or
obligations shall be due to the Executive upon such termination under the terms
of this Agreement.

6.3       Certain Definitions.

(a)       For purposes of this Agreement, “Disability” shall mean that Executive
(i) is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment affecting Executive which
can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, or (ii) is, by reason of any medically
determinable physical or mental impairment affecting Executive which can be
expected to result in death or can be expected to last for a continuous period
of not less than 12 months, receiving income replacement benefits for a period
of not less than 3 months under an accident and health plan of Employer covering
its employees.

(b)       For purposes of this Agreement, “Cause” shall mean that Executive: (i)
has committed fraud or misappropriated, stolen or embezzled funds or property
from Employer or an affiliate of Employer or secured or attempted to secure
personally any profit in connection with any transaction entered into on behalf
of Employer or any affiliate of Employer; (ii) has been convicted of a felony or
failed to contest prosecution for a felony; or (iii) has willfully engaged in
misconduct or dishonesty which is determined by the Board of Directors of
Employer to be directly and materially harmful to the business or reputation of
Employer or any of its affiliates.

(c)       For purposes of this Agreement, “Good Reason” shall mean (i) a failure
by the Employer to comply in all material respects with any material provision
of this Agreement (other than the Employer’s payment obligations referred in
clause (v) below) which has not been cured within thirty (30) days after notice
of such noncompliance has been given by the Executive to the Employer, (ii) a
substantial diminution in the nature or status of the Executive’s
responsibilities without the consent of the Executive, (iii) without the consent
of the Executive, a material reduction in employee benefits other than a
reduction generally applicable to similarly situated executives of Employer,
(iv) without the consent of the Executive, relocation of the Executive’s
principal workplace outside a fifty (50) mile radius of Minneapolis/St. Paul,
Minnesota, or (v) any failure by the Employer to pay the Executive base salary
within ten (10) days after notice of such non-payment has been given by the
Executive to Employer, or to pay the Executive any earned bonus which has been
determined and to which he is entitled under any bonus plan or under the terms
of this Agreement within thirty (30) days after notice of such non-payment has
been given by the Executive to Employer.

 

7.

ADDITIONAL PAYMENTS BY THE EMPLOYER. From and after the Effective Time:

(a)       If it is determined (as hereinafter provided) that any payment or
distribution by the Employer to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement including, without limitation, any option, share
appreciation right or similar right or the lapse or termination of any
restriction on, or the vesting, or exercisability of any of the foregoing (a
“Payment”), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) or to any similar tax imposed by state
or local law, or any interest or penalties with respect to such excise tax (such
tax or taxes, together with any such interest and

 

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penalties, are hereafter collectively referred to as the “Excise Tax”), then
Executive will be entitled to receive an additional payment or payments (a
“Gross-Up Payment”) in an amount such that, after payment by Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Payments.

(b)       All determinations required to be made under this Section 7, including
whether an Excise Tax is payable by Executive and the amount of such Excise Tax
and whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, will be made by Humana Inc.’s then current outside auditors; provided
that if the firm is unwilling or unable to provide such services, another
accounting firm may be selected by the Employer (such accounting firm the
“Accounting Firm”). The Employer will direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the Employer and
Executive within 30 business days after the date of the change in control or the
date of Executive’s termination of employment, if applicable, and any other such
time or times as may be requested by Executive. If the Accounting Firm
determines that any Excise Tax is payable by Executive, the Employer will pay
the required Gross-Up Payment to Executive no later than five calendar days
prior to the due date for Executive’s income tax return on which the Excise Tax
is included. If the Accounting Firm determines that no Excise Tax is payable by
Executive, it will, at the same time as it makes such determination, furnish
Executive with an opinion that he has substantial authority not to report any
Excise Tax on his federal, state and local income or other tax return. Any
determination by the Accounting Firm as to the amount of the Gross-Up Payment
will be binding upon the Employer and Executive. As a result of the uncertainty
in the application of Section 4999 of the Code (or any successor provision
thereto) and the possibility of similar uncertainty regarding applicable state
or local tax law at the time of any determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Employer should have been made (an “Underpayment”), consistent with the
calculations required to be made hereunder. In the event that the Employer
exhausts or fails to pursue its remedies pursuant to Section 7(f) hereof and
Executive hereafter is required to make a payment of any Excise Tax, Executive
shall so notify the Employer, which will direct the Accounting Firm to determine
the amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Employer and Executive as
promptly as possible. Any such Underpayment will be promptly paid by the
Employer to, or for the benefit of, Executive within ten (10) business days
after receipt of such determination and calculations.

(c)       The Employer and Executive will each provide the Accounting Firm
access to and copies of any books, records and documents in the possession of
the Employer or Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determination contemplated by Section
7(b) hereof.

(d)       The federal, state and local income or other tax returns filed by
Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
Executive. To the extent the Excise Tax has not been previously withheld from
amounts paid to the Executive, Executive will make proper payments of the amount
of any Excise Tax, and at the request of the Employer, provide to the Employer
true and correct copies (with any amendments) of his

 

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federal income tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents reasonably requested by
the Employer, evidencing such payment. If prior to the filing of Executive’s
federal income tax return, or corresponding state or local tax return, if
relevant, the Accounting Firm determines that the amount of the Gross-Up
Payments should be reduced, Executive will within ten (10) business days pay to
the Employer the amount of such reduction.

(e)       The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Sections
7(b) and 7(d) hereof will be borne by the Employer. If such fees and expenses
are initially advanced by Executive, the Employer will reimburse Executive the
full amount of such fees and expenses within five business days after receipt
from Executive of a statement therefore and reasonable evidence of his payment
thereof.

(f)        Executive will notify the Employer in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Employer of a Gross-Up Payment. Such notification will be given as promptly as
practicable but no later than ten (10) business days after Executive actually
receives notice of such claim and Executive will further apprise the Employer of
the nature of such claim and the date on which such claim is requested to be
paid (in each case, to the extent known by Executive). Executive will not pay
such claim prior to the earlier of (x) the expiration of the 30-business-day
period following the date on which he gives notice to the Employer and (y) the
date that any payment of amount with respect to such claim is due. If the
Employer notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive will:

(i)        Provide the Employer with any written records or documents in his
possession relating to such claim reasonably requested by the Employer;

(ii)       Take such action in connection with contesting such claim as the
Employer reasonably requests in writing from time to time, including without
limitation accepting legal representation with respect to such claim by an
attorney competent in respect of the subject matter and reasonably selected by
the Employer;

(iii)      Cooperate with the Employer in good faith in order effectively to
contest such claim; and

(iv)      Permit the Employer to participate in any proceedings relating to such
claim; provided, however, that the Employer will bear and pay directly all costs
and expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless Executive, on an after-tax basis,
for and against any Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such representation and payment of
costs and expenses. Without limiting the foregoing provisions of this Section
7(f), the Employer will control all proceedings taken in connection with the
contest of any claim contemplated by this Section 7(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided
that Executive may participate therein at his own cost and expense) and may, at
its option, either direct Executive to pay the tax claimed and sue for a

 

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refund or contest the claim in any permissible manner, and 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
Employer will determine; provided, however, that if the Employer directs
Executive to pay the tax claimed and sue for a refund, the Employer will advance
the amount of such payment to Executive on an interest-free basis and will
indemnify and hold Executive harmless, on an after-tax basis, from any Excise
Tax or income tax, including interest or penalties with respect thereto, imposed
with respect to such advance; and provided further, however, that any extension
of the statute of limitations relating to payment of taxes for the taxable year
of Executive with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Employer’s control of
any such contested claim will be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive will be entitled to
settle or contest, as the case may be, any other issues raised by the Internal
Revenue Service or any other taxing authority.

(g)       If, after the receipt by Executive of an amount advanced by the
Employer pursuant to Section 7(f) hereof, Executive receives any refund with
respect to such claim, Executive will (subject to the Employer’s complying with
the requirements of Section 7(f) hereof) promptly pay to the Employer the amount
of such refund (together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by Executive of any amount
advanced by the Employer pursuant to Section 7(f) hereof, a determination is
made that Executive will not be entitled to any refund with respect to such
claim and the Employer does not notify Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 business days after
such determination, then such advance will be forgiven and will not be required
to be repaid and the amount of such advance will offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid pursuant to this Section 7.
If, after the receipt by Executive of a Gross-Up Payment but before the payment
by Executive of the Excise Tax, it is determined by the Accounting Firm that the
Excise Tax payable by Executive is less than the amount originally computed by
the Accounting Firm and consequently that the amount of the Gross-Up Payment is
larger than that required by this Section 7, Executive shall promptly refund to
the Employer the amount by which the Gross-Up Payment initially made to
Executive exceeds the Gross-Up Payment required under this Section 7.

8.         NON-COMPETITION OBLIGATION. In consideration of Executive’s
continuing employment opportunity with Employer after the Effective Time and the
MIP, SIC, Equity Compensation and Other Bonus to be provided by Employer
hereunder, Executive hereby covenants and agrees that for a period commencing on
the Effective Time and ending six (6) months after the effective date of
Executive’s termination of employment with Employer (the “Restricted Period”),
Executive directly or indirectly, personally, or as an employee, officer,
director, partner, member, owner, shareholder, investor or principal of, or
consultant or independent contractor with, another person, shall not: engage or
participate in, provide services for or on behalf of, or otherwise be connected
with, any entity which is engaged in a Competitive Business (defined below) in
the Restricted Territory (defined below); provided, however, that Executive’s
passive ownership of less than five percent (5%) of the securities of a publicly
traded company shall not be treated as an action in violation of the
restrictions set forth herein above. This restriction includes engaging in any
preparatory activities respecting the commencement of any Competitive Business,
including the discussion, either publicly or privately of Employer’s
development, invention, or creation of, product or service concepts, product or
service designs, underwriting techniques, policy and application forms,
marketing

 

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intelligence, inventions, technology, or other related information. Executive
further acknowledges and agrees that this restriction precludes Executive at any
time during the Restricted Period from making any statement or from doing any
act intended to cause any existing or potential customers or clients of Employer
or its subsidiaries to make use of the services or purchase the products of any
person engaged in a Competitive Business. During the Restricted Period,
Executive must obtain the advance written approval of Employer prior to engaging
in employment or other compensatory services (including services as an agent or
independent contractor) for any Competitive Business. For purposes of this
Agreement, “Competitive Business” shall mean any business or commercial activity
in which Employer or any of its subsidiaries is or has been engaged at any time
within the 12-month period prior to the Effective Time, including, without
limitation, sales, marketing, distribution, administration and third party
administration of supplemental life, disability, and health policies and other
supplemental insurance policies. For purposes of this Agreement, “Restricted
Territory” shall mean the geographical markets in which the Employer has been
engaged in business or commercial activities in the 12-month period preceding
termination of employment.

9.         NON-SOLICITATION OBLIGATION. In consideration of Executive’s
continuing employment opportunity with Employer after the Effective Time and the
MIP, SIC, Equity Compensation and Other Bonuses to be provided by Employer
hereunder, Executive hereby covenants and agrees that during the Restricted
Period, Executive covenants and agrees that he will not directly or indirectly
induce or solicit, or attempt to induce or solicit any employee of Employer to
discontinue working for Employer or any affiliate thereof, whether for the
purpose of working for any competitor of Employer or any affiliate thereof or
otherwise.

10.       CONFIDENTIALITY. Executive shall hold in a fiduciary capacity for the
benefit of Employer all proprietary, trade secret, or confidential information,
knowledge, or data relating to Employer or any of its affiliated companies, and
their respective businesses, (i) obtained by Executive during employment by
Employer or any of its affiliated companies and (ii) not otherwise public
knowledge (other than by reason of an unauthorized act by Executive). After
termination of Executive’s employment with Employer, Executive shall not,
without the prior written consent of Employer, unless compelled pursuant to an
order of a court or other body having jurisdiction over such matter, communicate
or divulge any such information, knowledge, or data to anyone other than
Employer and those designated by it.

11.       REASONABLENESS OF SCOPE AND DURATION. Executive represents that his
experience, capabilities and circumstances are such that the provisions
contained in Sections 8, 9 and 10 will not prevent him from earning a
livelihood. Executive hereby acknowledges that the limitations as to time,
character or nature and geographic scope placed on his subsequent employment by
Sections 8, 9 and 10 of this Agreement are reasonable and fair. If the
territorial scope or time limitation of in Sections 8, 9 and 10 are deemed
unreasonable by a court of competent jurisdiction, they shall be reduced to the
extent necessary to be deemed reasonable and, as so reduced, shall be enforced.
It is understood that the covenants made by Executive in Sections 8, 9, 10, 11
and 12 shall survive the expiration or termination of this Agreement, if it
expires or terminates after the Effective Time.

12.       REMEDIES AND ENFORCEABILITY.

(a)       Executive understands and agrees that Employer may not be adequately
compensated by damages for a breach by Executive of any of the covenants and

 

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agreements contained herein, and that Employer shall, in addition to all other
remedies, be entitled to injunctive relief and specific performance. Executive
hereby affirmatively waives the requirement that Employer post any bond,
demonstrate the likelihood of irreparable damage to Employer or demonstrate that
any actual damages will be suffered by Employer or any other entity seeking
enforcement hereof as a result of Executive’s breach of any provision of this
Agreement. Nothing herein contained will be construed as prohibiting Employer
from pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of money damages, and if Employer prevails, it
shall also be entitled to the payment of any and all reasonable fees,
disbursements, and other charges of the attorneys and collection agents, court
costs, and all other costs of enforcement.

(b)       In the event that the Executive institutes any proceeding to enforce
his rights under, or to recover damages for breach of this Agreement, the
Executive, if he is the prevailing party, shall be entitled to recover from
Employer any and all reasonable fees, disbursements, and other charges of the
attorneys and collection agents, court costs, and all other costs of enforcement
incurred by him.

13.       GOVERNING LAW. This Agreement shall be governed by, and shall be
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia, without giving effect to any conflict of law rule or principle of such
state or any other jurisdiction.

14.       TIME PERIODS. All time periods referenced in this Agreement shall be
computed by excluding from such computation any time during which Executive is
in violation of any provision of this Agreement and any time during which there
is pending in any court of competent jurisdiction any action (including any
appeal from any final judgment) brought by any person, whether or not a party to
this Agreement, in which action Employer seeks to enforce the agreements and
covenants in Sections 8, 9, and 10 of this Agreement or in which any individual
or entity contests the validity of such agreements and covenants or their
enforceability or seeks to avoid their performance or enforcement.

15.       ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. There
are no promises, representations, inducements, or statements between the parties
other than those that are expressly contained herein.

16.       AMENDMENT. This Agreement may only be amended by an agreement in
writing signed by the party against whom enforcement is sought.

17.       BINDING EFFECT. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties, their personal representatives, heirs, devisees,
successors and assigns. The duties and covenants of Executive under this
Agreement, being personal, may not be delegated.

18.       HEADINGS; SECTION REFERENCES; CONSTRUCTION. Section headings or
captions contained in this Agreement are inserted only as a matter of
convenience and reference and in no way define, limit, extend or describe the
scope of this Agreement, or the intent of any provision hereof. All references
herein to Sections shall refer to Sections of this Agreement unless the context
clearly otherwise requires. Unless the context clearly states otherwise, the use
of the singular or plural in this Agreement shall include the other and the use
of any gender shall include all others. The parties have participated jointly in
the negotiation and drafting of this

 

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Agreement. If any ambiguity or question of intent or interpretation arises, no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.

19.       POLICIES, REGULATIONS AND GUIDELINES FOR EMPLOYEES. Employer may, from
time to time, issue policies, rules, regulations, guidelines, procedures or
other informational material, whether in the form of handbooks, memoranda or
otherwise, relating to Employer’s employees. Executive acknowledges and agrees
that such material are general guidelines for Executive’s information and shall
not be construed to alter, modify or amend this Agreement for any purpose
whatsoever.

20.       SEVERABILITY OF PROVISIONS. If a court holds any provision of this
Agreement or its application to any person or circumstance invalid, illegal or
unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those to which it was held to
be invalid, illegal or unenforceable, shall not be affected, and shall be valid,
legal and enforceable to the fullest extent permitted by law, but only if and to
the extent such enforcement would not materially and adversely frustrate the
parties’ essential objectives as expressed in this Agreement. Furthermore, in
lieu of any such invalid or unenforceable term or provision, the parties intend
that the court or arbitrator add to this Agreement a provision as similar in
terms to such invalid or unenforceable provision as may be valid and
enforceable, so as to effect the original intent of the parties to the greatest
extent possible.

21.       RELEASE. Subject to the condition that the Effective Time occur, and
taking effect automatically from and after the Effective Time without further
act or deed of Executive or Employer, Executive hereby waives and releases any
and all claims and causes of action against Employer, known or unknown, in any
way related directly or indirectly to Executive’s status as an employee, officer
or director of Employer, on or prior to the date hereof, together with any and
all claims related to the anticipated termination of the Current Employment
Agreement or other agreements, contracts, plans or promises with Employer upon
consummation of the Merger; provided, however, that nothing herein shall
constitute a waiver or release by Executive of any compensation or benefits
accrued and unpaid under the terms of the Current Employment Agreement or such
other agreements, contracts, plans or promises, or any claims or rights of
Executive under the terms of this Agreement or the terms of the Merger
Agreement. Employer and Executive understand and acknowledge that under the
terms of the Merger Agreement the stock options granted to Executive in prior
agreements will be cancelled upon the Effective Time. Executive understands and
acknowledges that, pursuant to the terms of the Merger Agreement, the stock
options granted in prior agreements are without value. In consideration of
Executive’s continuing employment opportunity with Employer after the Effective
Time and the MIP, SIC, the Equity Compensation and Other Bonus to be provided by
Employer hereunder, Executive further agrees at the Effective Time to sign a
second release of claims, which substitutes the Effective Time for the date of
this Agreement, but which is otherwise substantially similar in form and
substances to the above release in this Section 21.

[Signature Page Follows]

 

 

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IN WITNESS WHEREOF, as their free and voluntary act, the parties have executed
this letter Agreement as of the date indicated.

 

KMG AMERICA CORPORATION

 

/s/   Kenneth U. Kuk

 

 

 

KENNETH U. KUK

 

BY:   

/s/   James E. Nelson

 

September 7, 2007

 

Date

ITS:   

SVP, General Counsel & Secretary

 

 

   

September 7, 2007

Date

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