Exhibit 10.1
EXECUTION
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of
September 24, 2010, by and between HealthMarkets, Inc., a Delaware corporation
(“HealthMarkets” or the “Company”) and Kenneth Fasola (the “Executive”). Certain
capitalized terms used herein are defined in Section 26.
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to be employed by the Company effective as of the Effective Date (as defined
below);
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) consistent with
his positions with the Company, 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. If the
Executive serves as an officer and/or an employee of any Subsidiary, any payment
or provision of benefits to the Executive by such Subsidiary consistent with
this Agreement (except for any right to receive equity in the Company) shall
fulfill the Company’s obligation to make such payment or provide such benefits
pursuant to the terms of this Agreement.
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 September 27, 2010 (such start date, 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 19) of such party’s intention to terminate this Agreement and the
employment of the Executive at least ninety (90) days prior to the end of such
initial or extended term. For purposes of this Agreement, the Initial Employment
Term and any Renewal Term shall collectively be referred to as the “Employment
Term.”

 

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3. Positions and Duties of the Executive.
(a) As of the Effective Date, the Executive shall initially serve as the
President of the Company and as a member of the Board; provided, however, that
the Company acknowledges and agrees that the Executive shall begin to also serve
as the Chief Executive Officer of the Company (the “CEO”) no later than June 1,
2011. During the portion of the Employment Term that the Executive serves solely
as President of the Company, the Executive shall report directly to the CEO and,
during the portion of the Employment Term that the Executive serves as both
President and CEO, the Executive shall report directly to the Board (the
applicable reporting person or entity is hereafter referred to as the “Reporting
Person”). The Executive shall have such duties, responsibilities and authority
commensurate with the Executive’s positions 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 positions with the Company. In
addition, the Executive will be subject to, and will act in substantial
accordance with, all reasonable lawful instructions and directions of the
Reporting Person and all applicable reasonable policies and rules of the Company
as are consistent with the above positions, duties, responsibilities and
authority. 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 best efforts and energies to the business
of the Company, the performance of the Executive’s duties hereunder and such
other related duties and responsibilities as may from time to time be reasonably
prescribed by the Reporting Person in accordance herewith.
(c) During the Employment Term and provided that such activities do not either
(i) contravene the provisions of Section 3(a), 3(b), 12 or 13 hereof or
(ii) materially interfere with the performance of the Executive’s duties
hereunder, the Executive may continue to serve as a member of the governing
board of the governmental, educational, charitable, other community affairs
organizations or any other outside activity explicitly agreed to by the Board
and set forth on Exhibit A attached hereto, engage in charitable activities and
community affairs and manage his personal and family investments. 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. Beginning on the Effective Date, the Company shall pay to the
Executive a base salary of $700,000 per annum (the “Base Salary”) and the
Company shall increase such Base Salary to $750,000 per annum as of the date
that the Executive begins to serve as CEO (but in no event later than June 1,
2011). The Executive’s Base Salary may be increased (but not decreased) from
time to time by the Committee in its sole discretion, payable at the times and
in the manner consistent with the Company’s general policies regarding
compensation of executive employees, but in all events no less frequently than
monthly. Such Base Salary shall be reviewed by the Board or an authorized
committee of the Board at least annually beginning in January, 2012 for purposes
of evaluating an increase in the Executive’s Base Salary. Except as set forth in
Section 4(b) below, for purposes of this Agreement, after any increase, “Base
Salary” shall refer to such increased amount.

 

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(b) Incentive Compensation. 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 will be entitled 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 not less than the 100% of the Executive’s Base
Salary (the “Target Bonus Percentage”) and a maximum bonus opportunity of not
less than 200% of the Executive’s Base Salary (the “Maximum Bonus Percentage”)
(with payment at no less than the Target Bonus Percentage if the applicable
performance targets are met for the applicable fiscal year); provided, however,
that with respect to the Company’s 2010 fiscal year, the Executive’s actual
annual bonus paid for such fiscal year will be guaranteed and will be equal to
(x)(i) the Target Bonus Percentage times (ii) the Executive’s Base Salary, times
(y) a fraction, the numerator of which is the number of days in the Company’s
2010 fiscal year from and after September 27, 2010, and the denominator of which
is 365. For the avoidance of doubt, this guaranteed amount for fiscal year 2010
(assuming a start date of September 27, 2010) will be $184,110; provided,
further, that with respect to the annual bonus payable to the Executive for the
Company’s 2011 fiscal year, the actual annual bonus payable to the Executive for
the Company’s 2011 fiscal year shall be based on the sum of (I) the bonus
attributable to the portion of the fiscal year for which the Executive is not
serving as CEO determined by multiplying (A)(i) the Target Bonus Percentage
times (ii) $700,000, by (B) a fraction, the numerator of which is the number of
days in the Company’s 2011 fiscal year that the Executive does not serve as CEO,
and the denominator of which is 365 and (II) the bonus attributable to the
portion of the fiscal year for which the Executive is the CEO determined by
multiplying (A)(i) the applicable bonus percentage (determined in the ordinary
course, as set forth in this Section 4(b), by the Board or an authorized
committee) times (ii) $750,000 by (B) a fraction, the numerator of which is the
number of days in the Company’s 2011 fiscal year that the Executive is the CEO,
and the denominator of which is 365. 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. Except as set forth below, such annual
bonuses shall be paid to the Executive 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 for which such annual
bonus was earned (unless the Executive has elected to defer receipt of any such
bonuses). Notwithstanding the foregoing, until such time as the Executive has
completed making the Subsequent Investment, fifty (50) percent of any (i) annual
bonus payable to the Executive, including, without limitation, the annual bonus
payable for the Company’s 2010 fiscal year, and (ii) additional incentive cash
awards granted by the Board, in each case after applicable withholdings in
accordance with Section 17 of this Agreement, shall be awarded as shares of A-1
common stock of the Company (“Shares”) (to be granted at the same time as the
cash portion of the annual bonus or additional incentive cash award is paid to
the Executive based on the then Fair Market Value of a Share) in accordance with
Section 8 of this Agreement. Shares awarded as part of the annual bonuses, or as
part of any additional cash incentive awards granted by the Board, shall count
for purposes of the Executive’s Subsequent Investment and such Shares shall be
fully vested and non-forfeitable (other than as permitted in Section 8 and
Section 9(d) of this Agreement) as of the grant date.

 

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(c) Equity Compensation.
(i) General. During the Employment Term, the Executive will be entitled 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, in each
case, as may be in effect from time to time for similarly situated executives
and as may be determined by the Board.
(ii) Initial Grants. As soon as practicable (but in no event later than
September 30, 2010) after the Effective Date, the Committee will award the
Executive 375,000 Option Rights and 200,000 Restricted Shares (together, the
“Initial Grants”), which Initial Grants will be subject to the provisions set
forth in the Executive’s Non-Qualified Stock Option Agreement and Restricted
Share Agreement to be entered into in the form of Exhibit B and Exhibit C
attached hereto, respectively; provided, that in the event that the Executive
fails to make the Initial Investment in the Company in accordance with Section 8
of this Agreement, the Initial Grants shall immediately be void ab initio and of
no further force and effect. 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”). 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) Sign-On Bonus. The Company shall pay the Executive a sign-on bonus in the
amount of $1,000,000 as soon as practicable following the Effective Date, but no
later than October 31, 2010 (the “Sign-On Bonus”). The Company shall pay
$750,000 of the Sign-On Bonus to the Executive in cash (the “Cash Sign-On
Bonus”) and the remaining $250,000, after applicable withholdings in accordance
with Section 17 of this Agreement, shall be awarded in Shares based on the
purchase price per Share at the Fair Market Value of a Share on the Effective
Date pursuant to the terms of a Subscription Agreement between the Company and
the Executive substantially in the form attached hereto as Exhibit D, and,
except as explicitly set forth herein, the Executive acknowledges that such

 

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Shares will be subject to the terms and conditions of the Stockholders Agreement
(the “Share Sign-On Bonus”). Once the number of Shares to be allocated has been
determined, the Company will issue the Executive a share certificate evidencing
the number of Shares allocated. For the avoidance of doubt, the Share Sign-On
Bonus shall not be counted towards the Investment requirements set forth in
Section 8 hereof. In the event that the Executive’s employment with the Company
is terminated by the Company for Cause or by the Executive without “Good Reason”
(other than upon death or Disability) (i) prior to the two-year anniversary of
the Effective Date, in each case prior to a Change of Control, notwithstanding
the Stockholders Agreement, the Company shall have the right to acquire the
Shares granted pursuant to the Share Sign-On Bonus from the Executive at no cost
to the Company and (ii) within 18 months of the Effective Date, in each case
prior to a Change of Control, the Executive will be required to repay to the
Company, within 15 days of such termination, an amount equal to the product of
(i) the excess of (A) the Cash Sign-On Bonus over (B) the applicable taxes
withheld on such Cash Sign-On Bonus and (ii) a fraction, the numerator of which
is the number of months from the date of termination through the date that is
18 months following the Effective Date and the denominator of which is 18.
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 and programs, and to receive perquisites, provided from time to
time to similarly situated executives of the Company and its Subsidiaries
generally.
(b) Relocation Allowance. In connection with the Executive’s commencement of
employment with the Company, the Company will provide the Executive with
standard executive relocation benefits pursuant to the HealthMarkets Executive
Vice President Relocation Program and up to 6 months of temporary living
expenses in the Dallas/Ft. Worth area, Texas (with such temporary living
expenses deemed to be provided under the relocation program for the purposes of
any tax gross-up).
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 and negotiation of this Agreement and any other
related documentation, subject to a cap of $7,000.
7. Vacation. The Executive shall be entitled to four (4) weeks 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. 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.

 

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8. Investment; Stockholders Agreement.
(a) As soon as practicable following, but in no event more than 30 days after,
the Effective Date, the Executive will invest cash in the amount of $375,000 in
Shares, at a purchase price per Share at the then Fair Market Value of a Share
(such investment, the “Initial Investment”) and the Executive shall also be
required to make a subsequent investment during the Employment Term in the
amount of $375,000 in Shares at a purchase price per Share at the then Fair
Market Value of a Share (the “Subsequent Investment, and together with the
Initial Investment, the “Investment”), in each case pursuant to the terms of a
Subscription Agreement between the Company and the Executive substantially in
the form of Exhibit D attached hereto, and the Executive acknowledges that,
except as otherwise provided herein, such Shares will be subject to the terms
and conditions of the Stockholders Agreement. With respect to the Initial
Investment, the Executive shall make payment for the Shares purchased pursuant
to this Section 8 by check or wire transfer as directed by the Company and, upon
receipt of the foregoing payment, the Company will issue the Executive a share
certificate evidencing the number of Shares purchased. With respect to the
Subsequent Investment, until such time as the Executive has made the full
Subsequent Investment, fifty (50) percent of the value of the annual bonus
payable to the Executive pursuant to Section 4(b) of this Agreement, after
applicable withholdings in accordance with Section 17 of this Agreement, will be
awarded in Shares based on the purchase price per Share at the then Fair Market
Value of a Share and, once the number of Shares to be allocated has been
determined, the Company will issue the Executive a share certificate evidencing
the number of Shares allocated. The Executive shall also have the right, but not
the obligation, to make additional cash investments of up to $2.25 million in
Shares (the “Additional Investments”), at a purchase price per Share at the then
Fair Market Value of a Share, pursuant to the terms of a Subscription Agreement
between the Company and the Executive, and the Executive acknowledges that,
except as otherwise provided herein, such Shares will be subject to the terms
and conditions of the Stockholders Agreement; provided; however, that the
Executive shall require the approval of the Board prior to making an Additional
Investment if the Fair Market Value of a Share on the date of such Additional
Investment is less than the Fair Market Value of a Share on the Effective Date.
In no event shall the Share Sign-On Bonus set forth in Section 4(d) hereof be
included when determining whether the Executive has met the Investment
requirements set forth above.
(b) Put Rights. Notwithstanding anything to the contrary in the Stockholders
Agreement, upon termination of the Executive’s employment with the Company or
any of its Subsidiaries (other than a termination by the Company for Cause or a
resignation by the Executive without Good Reason other than death or Disability)
prior to an IPO or Change of Control, the Executive shall have the right, solely
with respect to Shares acquired as part of the Investment (including Shares
granted to the Executive as part of the annual bonus under Section 4(b) and any
additional Shares purchased under Section 8), to sell such Shares to the Company
based on the Fair Market Value (as defined below in Section 26) of such equity
at any time during the six-month period following the six-month anniversary of
his termination date.
(c) Effect on Stockholders Agreement. This Section 8, Section 9(d) and the
definition of Fair Market Value in Sections 9(d) and 26 shall be deemed an
amendment to the Stockholders Agreement. By executing this Agreement, the
Executive agrees to be bound by the terms of the Stockholders Agreement and
accepts the rights and obligations set forth therein, and each of Blackstone and
the Company agree that this Section 8, Section 9(d) and the definition of Fair
Market Value in Sections 9(d) and 26 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 provision of
this Section 8, Section 9(d) and the definition of Fair Market Value shall
remain in effect with respect to the Executive’s equity interests in the
Company.

 

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9. Termination.
(a) Termination of Employment by the Company. The Executive’s employment
hereunder may be terminated by the Company (or by the Board in the case of a
termination with Cause) 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 19. 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 and any unvested
Restricted Shares shall be immediately forfeited as of the date of termination.
For all terminations (other than for Cause as set forth in the preceding
sentence with respect to certain equity awards), the Executive shall be entitled
to any amounts or benefits 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 expense, 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 the Initial Grants. In
addition, upon any termination, the Executive shall remain entitled to the
payments and benefits under Sections 11, 17 and 21 of this Agreement.
(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 19. Upon the Executive’s
termination without Good Reason, (i) any unvested portions of the Initial Grants
will be immediately forfeited and (ii) subject to Section 15 of this Agreement,
all of the Executive’s vested Option Rights and Restricted Shares, if any, shall
be delivered, paid or remain exercisable in accordance with their terms.
(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) Call Right. Upon termination of the Executive’s employment with the Company
or any of its Subsidiaries for any reason prior to an IPO, the Company will have
the right to purchase (the “Call Right”) any of the Executive’s Shares in
accordance with the terms and conditions of the Stockholders Agreement and
Section 4(d) above and the definition of Fair Market Value in Section 26
(provided that in the case of a termination for Cause, except with respect to
the Share Sign-On Bonus, the Call Right will be the lower of the original cost
of such Shares (which shall, for the avoidance of doubt, be the exercise price
of any stock option and for any Initial Grants, the Fair Market Value on the
applicable vesting date) or Fair Market Value as of the date the Company
exercises such Call Right).

 

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(e) 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.
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 Exhibits B and 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, substantially
in the form attached hereto as Exhibit E, (ii) the terms of Section 15 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(i),
during the Payment Period (except if the Executive terminates his employment for
Good Reason pursuant to Section 26(v)(vii), in which case he is not subject to
compliance with Section 13(a)), then in such case the Company shall be obligated
to pay to the Executive such payments and make available to the Executive such
benefits as are set forth in this Section 10 during the Payment Period.
(a) Cash Severance. The Executive will be entitled to receive an amount equal to
the sum of: (i) one (1) times the Executive’s Base Salary and (ii) one (1) times
an amount equal to the product of (A) the Executive’s Base Salary and (B) the
Executive’s Target Bonus Percentage (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 on the 65th day following
the date of termination.

 

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(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 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”) (provided that if such termination occurs in 2010, the
Pro-Rata Bonus shall equal $184,110), which Pro-Rata Bonus shall be paid within
the first seventy-five (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, the portion of any
outstanding equity that vests solely based on the Executive’s fulfillment of
time and/or service conditions that would have vested if the Executive had
remained employed through the first anniversary of the date of termination shall
vest on the date of termination and, all vested options shall remain exercisable
until the earlier of the expiration of the original term or the first
anniversary of the date of termination; provided that if the Executive’s
employment is terminated without Cause or for Good Reason (i) after a definitive
agreement is entered into which will result in a Change of Control (provided
such agreement results in a Change of Control) or (ii) within six months prior
to a Change of Control, any such equity shall be treated as if it had fully
vested as of the date of the Change of Control.
(d) Welfare Benefits. During the 12-month period following the date of
termination of employment, 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
and his eligible dependents were entitled to participate immediately prior to
the Executive’s termination or shall arrange to make available to the Executive
and such dependents health care benefits (except disability coverage)
substantially similar to those which the Executive and such dependents 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) Relocation. If the Executive’s employment is terminated without Cause or for
Good Reason during the 18-month period following the Effective Date, the
Executive will be entitled to relocation back to Minneapolis, Minnesota on the
same terms as he was relocated to Dallas.

 

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(f) 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.
(g) 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 be 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 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.
(h) 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(i) below, no Termination Payments shall be reduced
whether or not the Executive obtains other employment.
(i) 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 and the Welfare Benefits (but for the avoidance of doubt
excluding any equity awards) 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 an amount equal to any Termination Payments
or amounts in respect of the Pro-Rata Bonus 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. Notwithstanding anything to the contrary in this Agreement or
otherwise, there shall be no offset or clawback with respect to the Initial
Grants for breach of any restrictive covenants.

 

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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 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) any cash payments under
Section 9(a)), (iv) any non-cash amounts under Section 9(a), (v) Section 10(d)
and (vi) Section 10(c). 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.

 

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(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:
(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 sue 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 sue 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.

 

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(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 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).

 

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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.
(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
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 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 (after providing to the Company 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 shall
not 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.

 

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(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 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.
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) except in the event that the Executive terminates his employment for Good
Reason pursuant to Section 26(v)(vii), engage in any business that directly
competes with the business in which the Company or any of the Company’s
Subsidiaries or affiliates (collectively, the “Company Group”) is engaged (or
had taken substantial steps to engage in) at the time of the breach or the date
of termination of employment, whichever is earlier (provided that the Executive
shall be permitted to provide services (i) to 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 business 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 in accordance with this clause (a) or (ii) to a
private equity firm that holds investments in entities engaged in such
competitive activities if the Executive is not involved, directly or indirectly,
in (1) the management, operations or supervision of such investments or
(2) advising any such firm with respect to such investments); 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.

 

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(d) Upon a Change of Control, the definition of Company Group and their
respective employees and independent contractors for the purpose of this
Section 13 shall refer only to the Company, its Subsidiaries and its affiliates
(and the business in which they were engaged) as of immediately prior to such
Change of Control.
(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 this Section 13, there shall be no other
restrictions on the Executive’s rights to compete, solicit or hire following the
Executive’s termination of employment other than those under applicable law.
14. Representations and Warranties. The Executive hereby represents and warrants
to the Company that the Executive is not party to, or otherwise subject to, any
covenant not to compete with any person or entity other than as explicitly
disclosed to the Company prior to the Effective Date. The Company hereby
represents and warrants to the Executive that there are enough shares to fulfill
the Company’s obligations with respect to the Initial Grants and that all
corporate action necessary to enable the Company to enter into this Agreement
has been taken.
15. 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.

 

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(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 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.
16. Effectiveness. As of the date of this Agreement, this Agreement shall be
binding on the parties hereto and supersedes any and all prior and/or
contemporaneous agreements, either oral or in writing, between the parties
hereto with respect to the subject matter hereof. 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.
17. 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. In addition, in the event that the Shares are not listed
for trading on an established securities exchange on the date that an applicable
portion of any Restricted Share grant vests and is settled, then (i) the Company
shall, at the request of the Executive, deduct or withhold Shares having a Fair
Market Value equal to the minimum amount required to be withheld to satisfy any
federal, state, local and foreign taxes of any kind (including, but not limited
to, the Executive’s FICA and SDI obligations) which the Company, in its sole
discretion, deems necessary to comply with the Code and/or any other applicable
law, rule or regulation with respect to such portion of the Restricted Share
grant and remit the cash value of such Shares to the appropriate tax authorities
and (ii) notwithstanding anything to the contrary in the Stockholders Agreement,
the Executive shall be permitted to sell such number of Shares to the Company
having a Fair Market Value (determined at the time of sale) equal to the
additional taxes due from the Executive on the vesting or delivery, as
applicable, of such Shares (after taking into account the withholding in clause
(i)).

 

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18. 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 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 whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor shall
thereafter be deemed the “Company” for the purposes of this Agreement except as
otherwise provided in Section 13(d)), 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 18(a) and 18(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 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 18(c), the Company shall have no
liability to pay any amount so attempted to be assigned, transferred or
delegated. In the event of the Executive’s death while any payment, benefit or
entitlement is due to the Executive under this Agreement, such payment, benefit
or entitlement shall be paid or provided to the Executive’s designated
beneficiary (or if the Executive has not designated a beneficiary, to his
estate).
19. 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.
20. 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.

 

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21. Indemnification. The Company will indemnify the Executive (and his legal
representative 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 by-laws, 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 (including but not
limited to any judgment entered by a court of law) 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, 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 21 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. As soon as practicable following the Effective Date, the Company agrees
to enter into with the Executive the standard indemnification agreement for
members of the Board, if any.
22. 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.
23. Survival of Provisions. Notwithstanding any other provision of this
Agreement, the parties’ respective rights and obligations under Sections 8, 10,
11, 12, 13, 15, 16, 17, 21, 23, 24 and 26 and Exhibits B, C, and D will survive
any termination or expiration of this Agreement or the termination of the
Executive’s employment for any reason whatsoever.
24. Arbitration of Disputes.
(a) Except as provided in Section 13 of this Agreement, any and all
controversies, disputes or claims arising between the parties to this Agreement,
including any purported controversies, disputes or claims not arising under
contract, that have not been resolved within 20 days after notice is given in
writing of the controversy, dispute or claim may be submitted for arbitration,
at the election of either party, in accordance with the rules of the American
Arbitration Association in effect as of the date hereof. Arbitration shall take
place at an appointed time and place in Dallas, Texas. Each party hereto shall
select one arbitrator, and the two so designated shall select a third
arbitrator. If either party shall fail to designate an arbitrator within 15
calendar days after arbitration is requested, or if the two arbitrators shall
fail to select a third arbitrator within 30 calendar days after arbitration is
requested, then such arbitrator shall be selected by the American Arbitration
Association, or any successor thereto, upon application of either party. The
arbitration shall be instead of any civil litigation; this means that the
Executive and the Company are each waiving any rights to a jury trial.

 

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(b) Except as provided in Section 13 of this Agreement, arbitration under this
provision shall be the sole and exclusive forum and remedy for resolution of
controversies, disputes and claims of any kind or nature, whether or not
presently known or anticipated, including any purported controversies, disputes
or claims not arising under contract, between the parties to this Agreement, and
no recourse shall be had to any other judicial or other forum for any such
resolution. The award of the arbitrators may grant any relief that a court of
general jurisdiction has authority to grant, including, without limitation, an
award of damages and/or injunctive relief. All costs and expenses of arbitration
shall be borne by the Company. Any award of the majority of arbitrators shall be
binding and not subject to judicial appeal or review of the award, including
without limitation any proceedings under sections 9 and 10 of the Federal
Arbitration Act, 9 U.S.C. § 1 et seq., or any comparable provision for review of
an arbitral award under any comparable statute or law of any jurisdiction, all
rights to which are hereby expressly waived by the parties. The Executive and
the Company knowingly and voluntarily agree to this arbitration provision.
Subject to the preceding sentence, the United States District Court for the
District of Texas and the courts of the State of Texas shall have sole and
exclusive jurisdiction solely for the purpose of entering judgment upon any
award by the majority of arbitrators.
(c) Nothing herein shall bar the right of either party to this Agreement to seek
and obtain injunctive relief from a court of competent jurisdiction in
accordance with Section 13 above.
25. 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. For the avoidance of doubt, any
reference to an “affiliate” of the Company or any Subsidiary shall not include
any investor in the Company or any entity in which such investor owns or holds
an equity position (other than the Company or any Subsidiary of the Company).
26. 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) “Additional Investment” has the meaning set forth in Section 8.
(d) “Agreement” has the meaning specified in the introductory paragraph herein.
(e) “Base Salary” has the meaning specified in Section 4(a).
(f) “Board” means the Board of Directors of the Company.
(g) “Call Right” has the meaning specified in Section 9(d).
(h) “Cash Sign-On Bonus” has the meaning specified in Section 4(d).

 

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(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;
(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 conduct described in
clauses (i), (iii), (iv) or (v).
(j) “CEO” has the meaning specified in Section 3(a).
(k) “Change of Control” has the meaning specified in Section 4(c)(ii).
(l) “Code” means the Internal Revenue Code of 1986, as amended.
(m) “Committee” means the Executive Compensation Committee of the Board.
(n) “Company” has the meaning specified in the introductory paragraph of this
Agreement.
(o) “Company Group” has the meaning specified in Section 13(a).
(p) “Confidential Information” has the meaning specified in Section 12(a).

 

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(q) “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.
(r) “Effective Date” has the meaning specified in Section 2.
(s) “Employment Term” has the meaning specified in Section 2.
(t) “Executive” has the meaning specified in the introductory paragraph of this
Agreement.
(u) “Fair Market Value” shall mean the value 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 the Company 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 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 in Section 9(d) of this Agreement, Fair Market Value shall equal
the consideration paid per Share pursuant to such transaction.
(v) “Good Reason” means the occurrence, without the Executive’s written 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 or Target Bonus
Percentage, which for this purpose shall mean one or more reductions that,
individually or in the aggregate, exceed 5% of the Executive’s Target Bonus
Percentage or highest Base Salary (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);

 

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(iii) a 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;
(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 Reporting Person;
(vi) failure to appoint or elect (or reelect) the Executive as a member of the
Board or removal from such position;
(vii) failure to appoint the Executive CEO by no later than June 1, 2011 or
removal of the Executive as President prior to his appointment as CEO;
(viii) after appointment of the Executive as CEO, removal as CEO; or
(ix) 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 90 days following the date he first learns of the event(s) or
circumstances 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 one year following
the occurrence of the event or circumstance on which the Good Reason termination
is based.
(w) “Gross-Up Payment” has the meaning specified in Section 11(a).
(x) “HealthMarkets” has the meaning specified in the introductory paragraph of
this Agreement.
(y) “HealthMarkets Affiliates” has the meaning specified in paragraph 1 of
Exhibit E attached hereto.
(z) “Initial Employment Term” has the meaning specified in Section 2.

 

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(aa) “Initial Grants” has the meaning specified in Section 4(c)(ii).
(bb) “Initial Investment” has the meaning set forth in Section 8.
(cc) “Initial Payment Period” has the meaning specified in Section 10(e).
(dd) “Investment” has the meaning set forth in Section 8.
(ee) “IPO” has the meaning specified in the Stockholders Agreement.
(ff) “Limit” has the meaning specified in Section 10(e).
(gg) “Maximum Bonus Percentage” has the meaning specified in Section 4(b).
(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 commencing on the 65th day
following the Executive’s separation from service (as determined in accordance
with Section 409A of the Code) with the Company, with the first payment being
made on such 65th day.
(kk) “Pro-Rata Bonus” has the meaning specified in Section 10(b).
(ll) “Release” has the meaning specified in the introductory paragraph of
Exhibit E attached hereto.
(mm) “Renewal Term” has the meaning specified in Section 2.
(nn) “Reporting Person” has the meaning specified in Section 3(a).
(oo) “Restricted Shares” shall mean a grant of restricted stock consisting of
shares of A-1 common stock of the Company.
(pp) “Restrictive Covenants” has the meaning specified in Section 10.
(qq) “Revocation Date” has the meaning specified in paragraph 3 of Exhibit D
attached hereto.
(rr) “Shares” has the meaning specified in Section 4(b).
(ss) “Share Sign-On Bonus” has the meaning specified in Section 4(d).
(tt) “Sign-On Bonus” has the meaning specified in Section 4(d).
(uu) “Stockholders Agreement” means the Stockholders Agreement by and among
investment funds affiliated with The Blackstone Group, L.P., Goldman Sachs & 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.

 

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(vv) “Subsequent Investment” has the meaning specified in Section 8.
(ww) “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, for
the purposes of Sections 1, 13, and 26(i)(iv) of this Agreement, a Subsidiary
shall mean any entity, corporation, partnership (general or limited), limited
liability company, firm, business organization, enterprise, association or joint
venture (i) in which the Company directly or indirectly controls forty percent
(40%) or more of the voting interest or (ii) in which, the value of the
Company’s ownership interest, as determined in the reasonable good faith
estimation of the Board, represents more than 10% of the total value of the
Company.
(xx) “Successor” has the meaning specified in Section 18(a).
(yy) “Target Bonus Percentage” has the meaning specified in Section 4(b).
(zz) “Termination Payments” has the meaning specified in Section 10(a).
(aaa) “Underpayment” has the meaning specified in Section 11(a) .
(bbb) “Welfare Benefits” has the meaning specified in Section 10(c).
27. 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.

                    Kenneth Fasola

HealthMarkets, Inc.
      By:           Phillip J. Hildebrand        Chief Executive Officer   

Solely with respect to Sections 4(d), 8, 9(d) and 17 of this Agreement
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.

       
 
Name: Chinh E. Chu
   
Title: Senior Managing Director
   

 

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Exhibit A
Outside Activities:
Member of the Board of Directors of Connextions, Inc.
Member of the Board of Schreyer Honors College, Penn State University

 

 

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Exhibit B
Form of Option Agreement

 

 

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Exhibit C
Form of Restricted Share Agreement

 

 

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Exhibit D
Form of Subscription Agreement

 

 

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Exhibit E
Form of Release
In consideration of the payments and promises contained in your Employment
Agreement with HealthMarkets, Inc. (the “Company”) dated September 24, 2010, 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 (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 Sarbanes-Oxley 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;

 

 

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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
shall be deemed to affect, impair or diminish in any respect (i) any vested
rights as of the date of termination or entitlement you may have under the
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 under this Release; including but not limited to your right to bring a
claim for breach of this Release; (v) any rights you may have under Section 9
(Termination), Section 10 (Termination Payments), Section 11 (Certain Additional
Payments by the Company), Section 17 (Withholding of Taxes) and Section 21
(Indemnification) of the Employment Agreement; (vi) any rights to
indemnification that you have or may have under the terms of the HealthMarkets
Amended and Restated Bylaws or coverage under any applicable directors’ and
officers’ liability insurance policies; or (vii) 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, 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; and
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.

 

E-2