Exhibit 10.2

 

EXECUTION VERSION

 

Employment Agreement

 

This Employment Agreement (“Agreement”), dated as of January 7, 2016 (“Execution
Date”) is made by and between K12 Inc., a Delaware corporation (together with
any successor thereto, the “Company”), and Stuart Udell (“Executive”)
(collectively referred to herein as the “Parties”).

 

RECITALS

 

A.                                    It is the desire of the Company to assure
itself of the services of Executive by entering into this Agreement.

 

B.                                    Executive and the Company mutually desire
that Executive provide services to the Company on the terms herein provided.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the Parties hereto agree as follows:

 

1.                                      Employment.

 

(a)                                 General.  The Company shall employ Executive
for the period and in the position set forth in this Section 1, and subject to
the other terms and conditions herein provided.

 

(b)                                 Employment Term; Effectiveness.  The term of
employment under this Agreement (“Term”) shall be for the period beginning on
the Effective Date and ending on the third anniversary of the Effective Date,
subject to earlier termination as provided in Section 3.  The “Effective Date”
will be a date that is mutually agreed between the Company and the Executive but
will not be later than February 15, 2016.  The Executive agrees that he will
notify his prior employer of his intent to commence employment with the Company
at least 20 days before the Effective Date.  The Term shall automatically renew
for additional twelve (12) month periods unless no later than sixty (60) days
prior to the end of the applicable Term either party gives written notice of
non-renewal (“Notice of Non-Renewal”) to the other, in which case Executive’s
employment shall terminate at the end of the then-applicable Term, subject to
earlier termination as provided in Section 3.

 

(c)                                  Position and Duties.  Executive shall serve
as Chief Executive Officer of the Company with such responsibilities, duties and
authority normally associated with such positions, and such other duties,
consistent with the position of Chief Executive Officer, as may from time to
time be assigned to Executive by the Board of Directors of the Company
(“Board”).  Executive shall also be appointed to the Board until the first
Annual Shareholders Meeting following the Effective Date, and thereafter be
subject to the nomination and election process applicable to all members of the
Board.  Executive shall devote substantially all of Executive’s working time and
efforts to the business and affairs of the Company (which shall include service
to its affiliates) and shall not engage in outside business activities
(including serving on outside boards or committees) without the consent of the
Board, provided that Executive shall be permitted to (i) manage Executive’s
personal, financial and legal affairs, (ii) participate in trade associations,
(iii) serve on the board of directors of not-for-profit or tax-exempt charitable
organizations, in each case, subject to compliance with this Agreement and
provided that such activities do not materially interfere with the Executive’s
duties and responsibilities hereunder.  Executive agrees to observe and comply
in all material respects with the rules and policies of the Company and its
affiliates as adopted by the Company or its affiliates from time to time and
applicable to the Company’s executive

 

--------------------------------------------------------------------------------

 

officers and directors generally, in each case as amended from time to time, as
set forth in writing, and as delivered or made available to Executive (each, a
“Policy”).

 

(d)  Indemnification. During and after the term of this Agreement, the Company
shall provide Executive with both Side A and Side B directors’ and officers’
insurance, and shall indemnify Executive and his legal representatives to the
fullest extent permitted by the laws of the State of Delaware and the By-Laws of
the Company as in effect on the date hereof, against all damages, costs,
expenses and other liabilities reasonably incurred or sustained by Executive or
his legal representatives in connection with any suit, action or proceeding to
which Executive or his legal representatives may be made a party by reason of
Executive being or having been a director or officer of the Company or any of
its affiliates, or having served in any other capacity or taken any other action
purportedly on behalf of or at the request of the Company or any of its
affiliates.  During and after the term of this Agreement and without the need
for further approval by the Board, the Company will promptly advance or pay any
and all amounts for costs or expenses (including but not limited to legal fees
and expenses reasonably incurred by counsel of Executive’s choice retained by
Executive) for which Executive may claim the is obligated to indemnify him. 
Executive undertakes to repay such amounts if it is ultimately determined that
he is not entitled to be indemnified by the Company as provided in this
Section 1(d).

 

2.                                      Compensation and Related Matters. 
During the Term, Executive will be entitled to the following:

 

(a)                                 Annual Base Salary.  Executive shall receive
a base salary at a rate of $650,000 per annum, which shall be paid in accordance
with the customary payroll practices of the Company and shall be pro-rated for
partial years of employment.  Such Annual Base Salary shall be reviewed during
the Term and may be adjusted from time to time (but not reduced, except as
contemplated by Section 11(e)(iv)) by the Board (such annual base salary, as it
may be so adjusted, the “Annual Base Salary”).

 

(b)                                 Bonus.

 

(i)                                     Annual Bonus.  During the Term,
Executive shall be eligible to participate in the Company’s annual incentive
program.  Executive’s annual incentive compensation under such incentive program
( “Annual Bonus”) shall be targeted at 150% of his Annual Base Salary (“Target
Annual Bonus”), with the expectation that the bonus will scale upward and
downward based on actual performance, as determined by the Board in the exercise
of its discretion.  The Executive’s maximum Annual Bonus opportunity will be
300% of the Executive’s base salary.  The payment of any Annual Bonus pursuant
to the incentive program shall be subject to Executive’s continued employment
with the Company through the date of payment, except as otherwise provided in
Section 4(b) and (c). Any Annual Bonus for fiscal year 2016 shall be pro-rated
based on the number of days Executive is employed by the Company during such
fiscal year.  Each annual bonus due and payable hereunder shall be paid within
such time so as to allow such bonus to qualify as a “short-term deferral” within
the meaning of Treasury Regulation Section 1.409A-1(b)(4).

 

(ii)                                  Signing Bonus.  Executive shall receive a
one-time special signing bonus in an amount equal to $400,000, payable in cash
in two installments, less all applicable withholdings (the “Signing Bonus”).The
first payment of $200,000 shall be made no later than thirty (30) days after the
Effective Date, and the second payment of $200,000 shall be made no later than
one-hundred eighty (180) days after the Effective Date, with such second payment
being reduced (but not below zero) by an amount up to 20% of certain costs
incurred by the Company in connection with the Executive becoming employed with
the Company (excluding for the avoidance of doubt costs associated with the
negotiation and execution of this Agreement).  If Executive’s

 

2

--------------------------------------------------------------------------------

 

employment with the Company terminates due to Executive’s resignation without
Good Reason or by the Company for Cause, in either case, prior to the one year
anniversary of the Effective Date, Executive will repay the Signing Bonus to the
Company in full.

 

(c)                                  Equity Compensation.

 

(i)                                     Initial Sign-on Awards.

 

(A)                               Time- Based RSA Award. As soon as reasonably
practicable following the Effective Date, the Company shall grant to Executive
an initial time-based restricted stock award ( “Initial Time RSA”) under the
Company’s stockholder approved 2007 Equity Incentive Plan (such plan or any
applicable successor plan, the “Plan”).  The number of shares subject to the
Initial Time RSA will be determined by dividing $1,500,000 by the Fair Market
Value on the Effective Date, with any partial shares that result being rounded
down to the nearest whole share. The Initial Time RSA shall vest as to 25% of
the restricted shares on the one-year anniversary of the Effective Date, and as
to the remaining 75% of the restricted shares in eight (8) substantially equal
quarterly installments thereafter.

 

(B)                               Performance Share Unit Award.  As soon as
reasonably practicable following the Effective Date, the Company shall grant to
Executive an initial award of performance share units (“Initial PSUs”).  The
target number of shares for the Initial PSUs will be determined by dividing
$1,500,000 by the Fair Market Value on the Effective Date.  The Initial PSUs
shall be subject to such terms and conditions, including the attainment of
performance goals, as apply to the performance share units granted to other
senior executives of the Company under the Long Term Incentive Plan approved by
the Board in September of 2015, including an opportunity to earn performance
share units at a maximum level of 150% of the target grant.

 

(C)                               Stock Price RSA Opportunity.   In addition to
the Initial Time RSA and the Initial PSUs, each as described above, and the
Ongoing Equity Awards, as described below, for a period of three years following
the Effective Date, the Executive shall have an opportunity to earn additional
awards of restricted stock to be granted under the Plan based on the Company’s
Average Stock Price (as defined below) achieving the levels as set forth in this
Section 2(c)(i)(C), provided in each case that Executive is employed by the
Company as of the date such Average Stock Price is achieved:

 

(1)                                 For purposes of this Section 2(c)(i)(C),
“Average Stock Price” means the average closing price of the Company’s common
stock determined over any period of 30 consecutive days;

 

(2)                                 As of the first date upon which the Average
Stock Price equals or exceeds $13.00, the Executive shall receive a restricted
stock award of a number of shares having a Fair Market Value at the time of
grant of $1,000,000 (76,923 shares);

 

(3)                                 As of the first date upon which the Average
Stock Price equals or exceeds $16.00, the Executive shall receive a restricted
stock

 

3

--------------------------------------------------------------------------------

 

award of a number of shares having a Fair Market Value at the time of grant of
$1,500,000 (93,750 shares); and

 

(4)                                     As of the first date upon which the
Average Stock Price equals or exceeds $19.00, the Executive shall receive a
restricted stock award of a number of shares having a Fair Market Value at the
time of grant of $3,000,000 (157,895 shares).

 

Executive shall also earn an as award described in clauses (2), (3) or (4) if
Executive’s employment is terminated by the Company without Cause, or by
Executive for Good Reason, and the applicable Average Stock Price threshold is
achieved within 30 days after the date of such termination. For the avoidance of
doubt, the award opportunities in clauses (2), (3) and (4) above are cumulative
such that the Executive shall have a total opportunity to earn up to $5,500,000
(328,568 shares) in restricted stock value (as of the applicable grant dates)
pursuant to this Section 2(c)(i)(C).  The Average Stock Price thresholds stated
above will be automatically adjusted to account for any stock dividend, stock
split or other similar non-reciprocal transaction. With respect to any award of
restricted stock granted under this Section 2(c)(i)(C) (each and any such award
a “Stock Price RSA Grant”), 50% of the shares subject to such grant shall be
immediately vested on the date the applicable Stock Price threshold is achieved
and the remaining 50% of the total number of restricted shares in such Stock
Price RSA Grant shall vest ratably in semi-annual intervals until the three year
anniversary of the Effective Date, such that all restricted shares that are
earned under this Section 2(c)(i)(C) and granted as part of a Stock Price RSA
Grant shall be 100% vested as of the three year anniversary of the Effective
Date.  For the avoidance of doubt, if an applicable Stock Price threshold is not
achieved prior to the three year anniversary of the Effective Date, no Stock
Price RSA Grant will be made in respect of such Stock Price threshold.  In the
event of a Change in Control prior to the three year anniversary of the
Effective Date, if a Stock Price RSA Grant for a particular Stock Price
threshold has not yet been made, the shares of restricted stock for such Stock
Price threshold will be considered earned and will be granted immediately prior
to the occurrence of the Change in Control if the stock price paid or implied in
such transaction equals or exceeds the corresponding dollar threshold.  Any such
shares that are granted immediately prior to a Change in Control will be 100%
vested upon grant.  No further Stock Price RSA Grant will be made under this
Section 2(c)(i)(C) following the date of such Change in Control.

 

(ii)                                  Ongoing Equity Incentive Awards.   During
the Term, Executive shall also be eligible to participate in and will receive
additional awards under the Company’s equity incentive award plans and programs
as in effect from time to time at a level and on terms commensurate with his
position as Chief Executive Officer of the Company (“Ongoing Equity Awards”). 
Ongoing Equity Awards are currently granted on an annual basis at or near the
beginning of each fiscal year of the Company, in each case as determined by the
Board or the Compensation Committee of the Board, and are expected to be granted
in the form of performance-based restricted stock, restricted stock units or
similar awards, in each case as determined by the Board or the Compensation
Committee of the Board in their discretion from time to time.  Executive’s
initial annual target award level is $2,000,000.  For the avoidance of doubt,
all equity compensation awards are subject to approval by the Board on an annual
basis or otherwise at the time of grant.

 

4

--------------------------------------------------------------------------------

 

(iii)                               Separate Award Agreements.  Each of the
Initial Time RSA, Initial PSUs, the Stock Price RSA Grants, if any, and the
Ongoing Equity Awards shall be granted subject to the terms and conditions of
the Plan and individual award agreements to be entered into between the Company
and the Executive, provided that in the event of any conflict between the terms
of such award agreements and this Agreement, this Agreement shall control.

 

(d)                                 Benefits.  Executive shall be eligible to
participate in employee benefit plans, programs and arrangements of the Company
(including medical, dental and defined contribution retirement plans),
consistent with the terms thereof and as such plans, programs and arrangements
may be amended from time to time.  To the extent the Board adopts any severance
plan or program of the Company that is greater in value for the Executive than
provided in Section 4 of this Agreement, Executive shall be eligible to
participate in that plan or program in lieu of the benefits provided under
Section 4.

 

(e)                                  Vacation.  Executive shall be entitled to
paid personal leave in accordance with the Company’s Policies with a minimum of
four (4) weeks of paid vacation.  Any vacation shall be taken at the reasonable
and mutual convenience of the Company and Executive.

 

(f)                                   Business Expenses.  The Company shall
reimburse Executive for all reasonable travel and other business expenses
incurred by Executive in the performance of Executive’s duties to the Company in
accordance with the Company’s expense reimbursement Policy.  In addition, the
Company will reimburse Executive for reasonable legal fees incurred by him in
connection with the negotiation and execution of this Agreement in an amount not
to exceed $15,000.  Such legal fee reimbursement will be made as soon as
practicable after the Effective Date and in no event later than December 31,
2016.

 

(g)                                  Relocation.

 

(i)                                     Temporary Commuting Allowance. Beginning
on the Effective Date and ending on the six month anniversary of the Effective
Date, the Company shall pay to Executive $ 8,333   per month, less applicable
withholdings to help offset Executive’s temporary commuting expenses.

 

(ii)                                  Relocation Expenses.  The Company shall
reimburse Executive up to a maximum amount of $40,000 for reasonable, documented
moving expenses incurred during calendar year 2016 as a result of Executive
establishing a residence in the northern Virginia area, which relocation expense
reimbursement shall be paid (subject to all tax withholdings which the Company
reasonably determines are required) as soon as reasonably practicable following
Executive’s submission of documentation of such expenses reasonably requested by
the Company, but no later than December 31, 2017 (“Relocation Expenses”). If
Executive’s employment with the Company terminates due to Executive’s
resignation without Good Reason or by the Company for Cause, in either case,
prior to the one year anniversary of the Effective Date, Executive shall repay
the Relocation Expenses to the Company in full.

 

(h)           S-8 Registration; 409A.  The Company covenants and acknowledges,
as applicable, that: (i) to the extent permitted by law and for so long as the
Company is subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, all shares of Company common stock issued to Executive in
respect of awards granted hereunder shall be registered under the Securities Act
of 1933, as amended, on an effective Form S-8 registration statement; and
(ii) it intends that all compensation paid or payable to Executive shall comply
with, or be exempt from, the provisions of Section 409A of the Internal Revenue
Code and related rulings and regulations (“Section 409A”), it being understood
that nothing in this Agreement is intended to provide Executive with any
gross-up or indemnification in respect of any taxes or penalties imposed as a
result of Section 409A.

 

5

--------------------------------------------------------------------------------

 

(j)          Key Person Insurance.  At any time during the Term, the Company
shall have the right to insure the life of Executive for the Company’s sole
benefit.   The Company shall have the right to determine the amount of insurance
and the type of policy.  Executive shall reasonably cooperate with the Company
in obtaining such insurance by submitting to physical examinations, by supplying
all information reasonably required by any insurance carrier, and by executing
all necessary documents reasonably required by any insurance carrier, provided
that any information provided to an insurance company or broker shall not be
provided to the Company without the prior written authorization of Executive. 
Executive shall incur no financial obligation by executing any required
document, and shall have no interest in any such policy.

 

3.                                      Termination.

 

Executive’s employment hereunder may be terminated by the Company or Executive,
as applicable, without any breach of this Agreement under the following
circumstances:

 

(a)                                 Circumstances.

 

(i)                                     Death.  Executive’s employment hereunder
shall terminate upon Executive’s death.

 

(ii)                                  Disability.  If Executive has incurred a
Disability, as defined in Section 11 (d) below, the Company may terminate
Executive’s employment.

 

(iii)                               Termination for Cause.  The Company may
terminate Executive’s employment for Cause, as defined in Section 11 (a) below.

 

(iv)                              Termination without Cause.  The Company may
terminate Executive’s employment without Cause, which shall include termination
of Executive by reason of the Company giving Notice of Non-Renewal pursuant to
Section 1(b).

 

(v)                                 Resignation from the Company for Good
Reason.  Executive may resign Executive’s employment with the Company for Good
Reason, as defined in Section 11(e) below.

 

(vi)                              Resignation from the Company Without Good
Reason.  Executive may resign Executive’s employment with the Company for any
reason other than Good Reason or for no reason, which shall include a
termination of Executive by reason of Executive giving Notice of Non-Renewal
pursuant to Section 1(b).

 

(b)                                 Notice of Termination.  Any termination of
Executive’s employment by the Company or by Executive under this Section 3
(other than termination pursuant to paragraph (a)(i)) herein or by reason of
either party giving Notice of Non-Renewal pursuant to Section 1(b)) shall be
communicated by a written notice to the other party hereto (i) indicating the
specific termination provision in this Agreement relied upon, (ii) setting forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive’s employment under the provision so indicated, if
applicable, and (iii) specifying a Date of Termination which, if submitted by
Executive in a resignation without Good Reason, shall be at least thirty (30)
days following the date of such notice (a “Notice of Termination”); provided,
however, that in the event that Executive delivers a Notice of Termination to
the Company, the Company may, in its sole discretion, change the Date of
Termination to any date that occurs following the date of Company’s receipt of
such Notice of Termination and is prior to the date specified in such Notice of
Termination.  A Notice of Termination submitted by the Company may provide for a
Date of Termination on the date Executive receives the Notice of Termination, or
any date thereafter elected by the Company

 

6

--------------------------------------------------------------------------------

 

in its sole discretion.  The failure by the Company or Executive to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Cause or Good Reason shall not waive any right of such Party
hereunder or preclude such Party from asserting such fact or circumstance in
enforcing such Party’s rights hereunder.

 

(c)                                  Company Obligations upon Termination.  Upon
termination of Executive’s employment pursuant to any of the circumstances
listed in Section 3, Executive (or Executive’s estate) shall be entitled to
receive the sum of:  (i) the portion of Executive’s Annual Base Salary earned
through the Date of Termination, but not yet paid to Executive; (ii) any
vacation time that has been accrued but unused in accordance with Company’s
Policies, (iii) any expenses owed to Executive pursuant to Section 2(f); and
(iv) any amount accrued and arising from Executive’s participation in, or
benefits accrued under any employee benefit plans, programs or arrangements,
which amounts shall be payable in accordance with the terms and conditions of
such employee benefit plans, programs or arrangements (collectively, the
“Company Arrangements”).  Except as otherwise expressly required by law (e.g.,
COBRA) or as specifically provided herein, all of Executive’s rights to salary,
severance, benefits, bonuses and other compensatory amounts hereunder (if any)
shall cease upon the termination of Executive’s employment hereunder.  In the
event that Executive’s employment is terminated by the Company for any reason,
Executive’s sole and exclusive remedy shall be to receive the payments and
benefits described in this Section 3(c) or Section 4, as applicable.

 

(d)                                 Deemed Resignation.  Upon termination of
Executive’s employment for any reason, Executive shall be deemed to have
resigned from all offices and directorships, if any, then held with the Company
or any of its affiliates.

 

4.                                      Severance Payments.

 

(a)                                 Termination for Cause, or Termination Upon
Death, Disability or Resignation from the Company Without Good Reason.  If
Executive’s employment shall terminate as a result of Executive’s death pursuant
to Section 3(a)(i) or Disability pursuant to Section 3(a)(ii), pursuant to
Section 3(a)(iii) for Cause, or pursuant to Section 3(a)(vi) for Executive’s
resignation from the Company without Good Reason, then Executive shall not be
entitled to any severance payments or benefits, except as provided in
Section 3(c), provided, however, that in the event of Executive’s death or
Disability, Executive’s equity incentive awards may vest or remain eligible to
vest to the extent set forth in an applicable award agreement covering such
award.

 

(b)                                 Termination without Cause, or Resignation
from the Company for Good Reason.  If Executive’s employment terminates without
Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to
Executive’s resignation for Good Reason (in either case, a “Qualifying
Termination”) that does not occur within twenty-four months following a Change
in Control, then, subject to Executive signing on or before the 45th day
following Executive’s Separation from Service (as defined below), and not
revoking, a release of claims substantially in the form attached as Exhibit A to
this Agreement (“Release”), and Executive’s continued compliance with Sections 6
and 7, Executive shall receive, in addition to payments and benefits set forth
in Section 3(c), the following:

 

(i)                                     an amount in cash equal to three
(3) times the Annual Base Salary, payable in a single lump sum on the First
Payment Date (as defined below), except as otherwise provided in Section 12(l);

 

(ii)                                  a pro-rated portion (based on the number
of days Executive was employed by the Company during the fiscal year in which
the Date of Termination occurs) of the Annual Bonus that Executive would have
earned had Executive remained employed through the end of the fiscal

 

7

--------------------------------------------------------------------------------

 

year in which the Date of Termination occurs, as determined by the Board based
upon the Company’s actual performance for such year and paid at the same time
annual bonuses are generally paid to the Company’s senior executives;

 

(iii)                               to the extent unpaid as of the Date of
Termination, an amount of cash equal to any Annual Bonus earned by Executive for
the Company’s fiscal year prior to the fiscal year in which the Date of
Termination occurs, as determined by the Board based upon the Company’s actual
performance for such year and paid in the fiscal year in which the Date of
Termination occurs when bonuses for such prior fiscal year are generally to the
Company’s senior executives; and

 

(iv)                              any of Executive’s unvested equity or
equity-based awards granted under any equity compensation plans of the Company
(for the avoidance of doubt, including the Initial Time RSA, including any Stock
Price RSA Grant under Section 2(c)(i)(C) for which the applicable Average Stock
Price threshold has been attained prior to, or is attained within 30 days
following, the Date of Termination) and that would have vested within the next
twelve (12) months after the Date of Termination, shall immediately become 100%
vested, provided that, unless a provision more favorable to Executive is
included in an applicable award agreement, any such awards that are subject to
performance-based vesting conditions shall only be payable subject to the
attainment of the performance measures for the applicable performance period as
provided under the terms of the applicable award agreement

 

(v)                                 if Executive elects to receive continued
medical, dental or vision coverage under one or more of the Company’s group
healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended (“COBRA”), the Company shall directly pay, or reimburse
Executive for, an amount equal to the COBRA premium paid by the Company for
active employees for Executive and Executive’s covered dependents under such
plans during the period commencing on Executive’s Separation from Service and
ending upon the earliest of (X) the expiration of the 18 month period following
Executive’s Date of Termination, (Y) the date that Executive and/or Executive’s
covered dependents become no longer eligible for COBRA or (Z) the date Executive
becomes eligible to receive healthcare coverage from a subsequent employer (and
Executive agrees to promptly notify the Company of such eligibility).
Notwithstanding the foregoing, if the Company determines in its sole discretion
that it cannot provide the foregoing benefit without potentially violating
applicable law (including, without limitation, Section 2716 of the Public Health
Service Act) or incurring an excise tax, the Company shall in lieu thereof
provide to Executive a taxable monthly payment in an amount equal to the monthly
COBRA premium that Executive would be required to pay to continue Executive’s
and Executive’s covered dependents’ group health coverage in effect on the Date
of Termination (which amount shall be based on the premium for the first month
of COBRA coverage), which payments shall be made regardless of whether Executive
elects COBRA continuation coverage and shall commence in the month following the
month in which the Date of Termination occurs and shall end on the earlier of
(X) the expiration of the 18 month period following Executive’s Date of
Termination, (Y) the date that Executive and/or Executive’s covered dependents
become no longer eligible for COBRA or (Z) the date Executive becomes eligible
to receive healthcare coverage from a subsequent employer (and Executive agrees
to promptly notify the Company of such eligibility).

 

(c)                                  Change in Control Severance Payments. If
Executive has a Qualifying Termination that occurs within twenty-four months
following a Change in Control, then, subject to Executive signing on or before
the 45th day following Executive’s Separation from Service and not revoking a
Release, and Executive’s continued compliance with Sections 6 and 7, then
Executive shall receive the following:

 

8

--------------------------------------------------------------------------------

 

(i)                                     the payments and benefits set forth in
Section 3(c);

 

(ii)                                  an amount in cash equal to three (3) times
the Annual Base Salary, payable in a single lump sum on the First Payment Date
(as defined below), except as otherwise provided in Section 12(l);

 

(iii)                               a pro-rated portion (based on the number of
days Executive was employed by the Company during the fiscal year in which the
Date of Termination occurs) of the Annual Bonus that Executive would have earned
had Executive remained employed through the end of the fiscal year in which the
Date of Termination occurs, as determined by the Board based upon the Company’s
actual performance for such year and paid at the same time annual bonuses are
generally paid to the Company’s senior executives;

 

(iv)                              to the extent unpaid as of the Date of
Termination, an amount of cash equal to any Annual Bonus earned by Executive for
the Company’s fiscal year prior to the fiscal year in which the Date of
Termination occurs, as determined by the Board based upon the Company’s actual
performance for such year and paid in the fiscal year in which the Date of
Termination occurs when bonuses for such prior fiscal year are generally to the
Company’s senior executives;

 

(v)                                 all of Executive’s unvested equity or
equity-based awards granted under any equity compensation plans of the Company
shall immediately become 100% vested, provided that (i) any such awards that are
subject to performance-based vesting conditions shall remain subject to the
attainment of the applicable performance metrics to the same extent as such
performance metrics continue to apply following the Change in Control for the
Company’s other executive officers, and (ii) the Stock Price RSA Grants which
have not theretofore been earned shall be granted and become vested only if the
Change in Control conditions specified in Section2(c)(i)(C) are satisfied; and

 

(vi)                              if Executive elects to receive continued
medical, dental or vision coverage under one or more of the Company’s group
healthcare plans pursuant to COBRA, the Company shall directly pay, or reimburse
Executive for, an amount equal to the COBRA premium paid by the Company for
active employees for Executive and Executive’s covered dependents under such
plans during the period commencing on Executive’s Separation from Service and
ending upon the earliest of (X) the expiration of the 18 month period following
Executive’s Date of Termination, (Y) the date that Executive and/or Executive’s
covered dependents become no longer eligible for COBRA or (Z) the date Executive
becomes eligible to receive healthcare coverage from a subsequent employer (and
Executive agrees to promptly notify the Company of such eligibility).
Notwithstanding the foregoing, if the Company determines in its sole discretion
that it cannot provide the foregoing benefit without potentially violating
applicable law (including, without limitation, Section 2716 of the Public Health
Service Act) or incurring an excise tax, the Company shall in lieu thereof
provide to Executive a taxable monthly payment in an amount equal to the monthly
COBRA premium that Executive would be required to pay to continue Executive’s
and Executive’s covered dependents’ group health coverage in effect on the Date
of Termination (which amount shall be based on the premium for the first month
of COBRA coverage), which payments shall be made regardless of whether Executive
elects COBRA continuation coverage and shall commence in the month following the
month in which the Date of Termination occurs and shall end on the earlier of
(X) the expiration of the 18 month period following Executive’s Date of
Termination, (Y) the date that Executive and/or Executive’s covered dependents
become no longer eligible for COBRA or (Z) the date Executive becomes

 

9

--------------------------------------------------------------------------------

 

eligible to receive healthcare coverage from a subsequent employer (and
Executive agrees to promptly notify the Company of such eligibility).

 

(d)                                 Survival.  Notwithstanding anything to the
contrary in this Agreement, the provisions of Sections 5 through 10 and
Section 12 will survive the termination of Executive’s employment and the
expiration or termination of the Term.

 

5.              Parachute Payments.

 

(a)                                 It is the objective of this Agreement to
maximize Executive’s Net After-Tax Benefit (as defined herein) if payments or
benefits provided under this Agreement are subject to excise tax under
Section 4999 of the Internal Revenue Code of 1986, as amended, and the
regulations and guidance promulgated thereunder (the “Code”).  Notwithstanding
any other provisions of this Agreement, in the event that any payment or benefit
by the Company or otherwise to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (all such payments and benefits, including the payments under
Sections 4(b) and 4(c) hereof, being hereinafter referred to as the “Total
Payments”), would be subject (in whole or in part) to the excise tax imposed by
Section 4999 of the Code (the “Excise Tax”), then the Total Payments shall be
reduced to the extent necessary so that no portion of the Total Payments shall
be subject to the Excise Tax, but only if (i) the net amount of such Total
Payments, as so reduced (and after subtracting the net amount of federal, state
and local income and employment taxes on such reduced Total Payments and after
taking into account the phase out of itemized deductions and personal exemptions
attributable to such reduced Total Payments), is greater than or equal to
(ii) the net amount of such Total Payments without such reduction (but after
subtracting the net amount of federal, state and local income and employment
taxes on such Total Payments and the amount of Excise Tax to which Executive
would be subject in respect of such unreduced Total Payments and after taking
into account the phase out of itemized deductions and personal exemptions
attributable to such unreduced Total Payments).

 

(b)                                 The Total Payments shall be reduced by the
Company in the following order:  (i) reduction of any cash severance payments
otherwise payable to Executive that are exempt from Section 409A, (ii) reduction
of any other cash payments or benefits otherwise payable to Executive that are
exempt from Section 409A, but excluding any payments attributable to the
acceleration of vesting or payments with respect to any equity award with
respect to the Company’s common stock that is exempt from Section 409A,
(iii) reduction of any other payments or benefits otherwise payable to Executive
on a pro-rata basis or such other manner that complies with Section 409A, but
excluding any payments attributable to the acceleration of vesting and payments
with respect to any equity award with respect to the Company’s common stock that
are exempt from Section 409A, and (iv) reduction of any payments attributable to
the acceleration of vesting or payments with respect to any other equity award
with respect to the Company’s common stock that are exempt from Section 409A.

 

(c)                                  All determinations regarding the
application of this Section 5 shall be made by an accounting firm with
experience in performing calculations regarding the applicability of
Section 280G of the Code and the Excise Tax selected by the Company and
acceptable to Executive (“Independent Advisors”), a copy of which report and all
worksheets and background materials relating thereto shall be provided to
Executive.  For purposes of determining whether and the extent to which the
Total Payments will be subject to the Excise Tax, (i) no portion of the Total
Payments the receipt or enjoyment of which Executive shall have waived at such
time and in such manner as not to constitute a “payment” within the meaning of
Section 280G(b) of the Code shall be taken into account; (ii) no portion of the
Total Payments shall be taken into account which, in the opinion of the
Independent Advisors, does not constitute a “parachute payment” within the
meaning of Section 280G(b)(2) of the Code (including by reason of
Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no
portion of such Total Payments

 

10

--------------------------------------------------------------------------------

 

shall be taken into account which, in the opinion of Independent Advisors,
constitutes reasonable compensation for services actually rendered, within the
meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as
defined in Section 280G(b)(3) of the Code) allocable to such reasonable
compensation; and (iii) the value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Independent Advisors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.  The costs of obtaining such determination and
all related fees and expenses (including related fees and expenses incurred in
any later audit) shall be borne solely by the Company.

 

6.                                      Non-Solicitation and Unfair Competition.
Executive acknowledges that during the Term, the Company will provide Executive
with access to Confidential Information (as defined below). Ancillary to the
rights provided to Executive as set forth in this Agreement, Executive’s
continued employment with the Company during the Term (subject to earlier
termination as provided herein) and the Company’s provision of Confidential
Information, and Executive’s agreements regarding the use of same, in order to
protect the value of any Confidential Information, the Company and Executive
agree to the following provisions against unfair competition, which Executive
acknowledges represent a fair balance of the Company’s rights to protect its
business and Executive’s right to pursue employment:

 

(a)                                 Executive shall not, at any time during the
Restriction Period (as defined below), directly or indirectly engage in, have
any equity interest in, or manage, provide services to or operate any person,
firm, corporation, partnership or business (whether as director, officer,
employee, agent, representative, partner, security holder, consultant or
otherwise) that engages in any business which directly competes with any portion
of the Business (as defined below) of the Company in the United States or any
other country in which the Company is actively engaged (or has taken substantial
and material steps to become engaged) in the Business.  Nothing herein shall
prohibit Executive from being a passive owner of less than 5% of the outstanding
equity interest of any entity, so long as Executive has no active participation
in the business of such entity.

 

(b)                                 Executive shall not, at any time during the
Restriction Period, directly or indirectly, (i) solicit, divert or take away any
customers or clients, or any acquisition or other Business opportunity that the
Company is pursuing or with respect to which the Company has expended non-de
minimis efforts to identify or pursue, (ii) contact or solicit, for the purpose
of hiring, or hire any employee of the Company or any person employed by the
Company at any time during the 12-month period immediately preceding the Date of
Termination, (iii) induce or otherwise encourage any employee of the Company to
leave the employment of the Company, or (iv) induce any distributor,
representative or agent of the Company to terminate or adversely modify its
relationship with the Company.

 

(c)                                  In the event the terms of this Section 6
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any other respect,
it will be interpreted to extend only over the maximum period of time for which
it may be enforceable, over the maximum geographical area as to which it may be
enforceable, or to the maximum extent in all other respects as to which it may
be enforceable, all as determined by such court in such action.

 

(d)                                 As used in this Section 6, (i) the term
“Company” shall include the Company and its direct and indirect subsidiaries;
(ii) the term “Business” shall mean the business of the Company, as such
business may be expanded or altered by the Company during the Term (including
any new lines of business as to which substantial and material steps have been
taken by the Company to develop or implement); and (iii) the term “Restriction
Period” shall mean the period beginning on the Effective Date and ending on the
date 12-months following the Date of Termination.

 

11

--------------------------------------------------------------------------------

 

(e)                                  Executive represents that Executive’s
employment by the Company does not and will not breach any agreement with any
former employer, including any non-compete agreement or any agreement to keep in
confidence or refrain from using information acquired by Executive prior to
Executive’s employment by the Company.  During Executive’s employment by the
Company, Executive agrees that Executive will not violate any non-solicitation
agreements that Executive entered into with any former employer or improperly
make use of, or disclose, any information or trade secrets of any former
employer or other third party, nor will Executive bring onto the premises of the
Company or its affiliates or use any unpublished documents or any property
belonging to any former employer or other third party, in violation of any
lawful agreements with that former employer or third party.

 

(f)                                   Each Party (which, in the case of the
Company, shall mean its officers and the members of the Board) agrees, during
the Term and following the Date of Termination, to refrain from Disparaging (as
defined below) the other Party and its affiliates, including, in the case of the
Company, any of its services, technologies or practices, or any of its
directors, officers, agents, representatives or stockholders, either orally or
in writing.  Nothing in this paragraph shall preclude any Party from making
truthful statements that are reasonably necessary to comply with applicable law,
regulation or legal process, or to defend or enforce a Party’s rights under this
Agreement.  For purposes of this Agreement, “Disparaging” means remarks,
comments or statements, whether written or oral, that impugn the character,
integrity, reputation or abilities of the Person being disparaged.

 

7.              Nondisclosure of Proprietary Information.

 

(a)                                 Except in connection with the faithful
performance of Executive’s duties hereunder or pursuant to Section 7(c) and (e),
Executive shall, in perpetuity, maintain in confidence and shall not directly,
indirectly or otherwise, use, disseminate, disclose or publish, or use for
Executive’s benefit or the benefit of any person, firm, corporation or other
entity (other than the Company) any confidential or proprietary information or
trade secrets of or relating to the Company (including, without limitation,
business plans, business strategies and methods, acquisition targets,
intellectual property in the form of patents, trademarks and copyrights and
applications therefor, ideas, inventions, works, discoveries, improvements,
information, documents, formulae, practices, processes, methods, developments,
source code, modifications, technology, techniques, data, programs, other
know-how or materials, owned, developed or possessed by the Company, whether in
tangible or intangible form, information with respect to the Company’s
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers, marketing
methods, costs, prices, contractual relationships, regulatory status, litigation
or investigations, prospects and compensation paid to employees or other terms
of employment) (collectively, the “Confidential Information”), or deliver to any
person, firm, corporation or other entity any document, record, notebook,
computer program or similar repository of or containing any such Confidential
Information.  The Parties hereby stipulate and agree that, as between them, any
item of Confidential Information is important, material and confidential and
affects the successful conduct of the businesses of the Company (and any
successor or assignee of the Company).  Notwithstanding the foregoing,
Confidential Information shall not include (i) any information legally acquired
by or otherwise becoming known to Executive from or through any party other that
the Company or its affiliates, or (ii) information that has been published in a
form generally available to the public or is publicly available or has become
public knowledge prior to the date Executive proposes to disclose or use such
information, provided, that such publishing or public availability or knowledge
of the Confidential Information shall not have resulted from Executive directly
or indirectly breaching Executive’s obligations under this Section 7(a) or any
other similar provision by which Executive is bound, or from any third-party
breaching a provision similar to that found under this Section 7(a).  For the
purposes of the previous sentence, Confidential Information will not be deemed
to have been published or otherwise disclosed merely because individual portions
of the information have been separately

 

12

--------------------------------------------------------------------------------

 

published, but only if material features comprising such information have been
published or become publicly available.

 

(b)                                 Upon termination of Executive’s employment
with the Company for any reason, Executive will promptly deliver to the Company
all correspondence, drawings, manuals, letters, notes, notebooks, reports,
programs, plans, proposals, financial documents, or any other documents or
property concerning the Company’s customers, business plans, marketing
strategies, products, property or processes.

 

(c)                                  Executive may respond to a lawful and valid
subpoena or other legal process but shall give the Company the earliest possible
notice thereof, shall, as much in advance of the return date as possible, make
available to the Company and its counsel the documents and other information
sought and shall assist such counsel at Company’s expense in resisting or
otherwise responding to such process, in each case to the extent permitted by
applicable laws or rules.

 

(d)                                 As used in this Section 7 and Section 8, the
term “Company” shall include the Company and its direct and indirect parents and
subsidiaries.

 

(e)                                  Nothing in this Agreement shall prohibit
Executive from (i) disclosing information and documents when required by law,
subpoena or court order (subject to the requirements of Section 7(c) above),
(ii) disclosing information and documents to Executive’s attorney, financial or
tax adviser for the purpose of securing legal, financial or tax advice,
(iii) disclosing Executive’s post-employment restrictions in this Agreement in
confidence to any potential new employer, or (iv) retaining, at any time,
Executive’s personal correspondence, Executive’s personal contacts and documents
related to Executive’s own personal benefits, entitlements and obligations.

 

8.                                      Inventions.

 

All rights to discoveries, inventions, improvements and innovations (including
all data and records pertaining thereto) related to the business of the Company,
whether or not patentable, copyrightable, registrable as a trademark, or reduced
to writing, that Executive may discover, invent or originate during the Term,
either alone or with others and whether or not during working hours or by the
use of the facilities of the Company (“Inventions”), shall be the exclusive
property of the Company.  Executive shall promptly disclose all Inventions to
the Company, shall execute at the request of the Company any assignments or
other documents the Company may deem reasonably necessary to protect or perfect
its rights therein, and shall assist the Company, upon reasonable request and at
the Company’s expense, in obtaining, defending and enforcing the Company’s
rights therein. Executive hereby appoints the Company as Executive’s
attorney-in-fact to execute on Executive’s behalf any assignments or other
documents reasonably deemed necessary by the Company to protect or perfect its
rights to any Inventions.

 

9.                                      Injunctive Relief.

 

It is recognized and acknowledged by Executive that a breach of the covenants
contained in Sections 6, 7 and 8 will cause irreparable damage to Company and
its goodwill, the exact amount of which will be difficult or impossible to
ascertain, and that the remedies at law for any such breach will be inadequate. 
Accordingly, Executive agrees that in the event of a breach of any of the
covenants contained in Sections 6, 7 and 8, in addition to any other remedy
which may be available at law or in equity, the Company will be entitled to
specific performance and injunctive relief without the requirement to post bond.

 

13

--------------------------------------------------------------------------------

 

10.                               Assignment and Successors.

 

The Company may assign its rights and obligations under this Agreement to any of
its affiliates or to any successor to all or substantially all of the business
or the assets of the Company (by merger or otherwise), and may assign or
encumber this Agreement and its rights hereunder as security for indebtedness of
the Company and its affiliates.  This Agreement shall be binding upon and inure
to the benefit of the Company, Executive and their respective successors,
assigns, personnel and legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees, as applicable.  None of Executive’s rights
or obligations may be assigned or transferred by Executive, other than
Executive’s rights to payments hereunder, which may be transferred only by will
or operation of law.  Notwithstanding the foregoing, Executive shall be
entitled, to the extent permitted under applicable law and applicable Company
Arrangements, to select and change a beneficiary or beneficiaries to receive
compensation hereunder following Executive’s death by giving written notice
thereof to the Company.

 

11.                               Certain Definitions.

 

(a)                                 Cause.  The Company shall have “Cause” to
terminate Executive’s employment hereunder if the Board determines, in good
faith, that any of the following have occurred:

 

(i)                                     Executive’s willful failure to perform
Executive’s material responsibilities under this Agreement or failure to comply
with, in any material respect, any Policy of the Company, in each case that
causes material and demonstrable harm to the Company;

 

(ii)                                  Executive’s willful failure to comply with
any lawful and reasonable written directive of the Board consistent with the
terms of this Agreement (other than as a result of Executive’s Disability);

 

(iii)                               Executive’s breach, in any material respect,
of this Agreement that causes material and demonstrable harm to the Company (it
being understood that any material breach of Section 6(a) of this Agreement
shall be deemed to cause material and demonstrable harm to the Company without
any requirement of the Company to show or prove actual harm);

 

(iv)                              Executive’s conviction or plea of no contest
(or of nolo contendere), for any felony or for any crime involving moral
turpitude;

 

(v)                                 Executive’s unlawful use (including being
under the influence) or possession of illegal drugs on the Company’s (or any of
its affiliate’s) premises or while performing Executive’s duties and
responsibilities under this Agreement;

 

(vi)                              Executive’s commission of an act of fraud,
embezzlement or misappropriation against the Company or any of its affiliates;

 

Provided, that no action or inaction on Executive’s part described in (a)(i),
(ii) or (iii) of this Section 11(a) shall constitute “Cause” unless
(i) Executive has received written notice from the Board stating that “Cause”
for termination exists and specifying, in reasonable detail, the action or
inaction alleged to constitute “Cause”, (ii) Executive has been given an
opportunity to be heard before the Board, with counsel of his choosing, and at
least thirty (30) days to cure such action and inaction (to the extent such
action or inaction is susceptible of cure), and (iii) the Board, having given
Executive such written notice, opportunity to be heard and to cure, reasonably
concludes that “Cause” for termination continues to exist and has not been so
cured, or is not susceptible to cure.

 

14

--------------------------------------------------------------------------------

 

(b)                                 Change in Control. “Change in Control” means
and includes each of the following:

 

(i)                                     A transaction or series of transactions
(other than an offering of the Company’s common stock to the general public
through a registration statement filed with the Securities and Exchange
Commission) whereby any “person” or related “group” of “persons” (as such terms
are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)) (other than the Company, any of its
subsidiaries, an employee benefit plan maintained by the Company or any of its
subsidiaries or a “person” that, prior to such transaction, directly or
indirectly controls, is controlled by, or is under common control with, the
Company) directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the Company
possessing more than 50% of the total combined voting power of the Company’s
securities outstanding immediately after such acquisition; or

 

(ii)                                  During any period of two consecutive
years, individuals who, at the beginning of such period, constitute the Board
together with any new director(s) (other than a director designated by a person
who shall have entered into an agreement with the Company to effect a
transaction described in Section 11(b)(i) or Section 11(b)(iii)) whose election
by the Board or nomination for election by the Company’s stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the two year period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or

 

(iii)                               The consummation by the Company (whether
directly involving the Company or indirectly involving the Company through one
or more intermediaries) of (x) a merger, consolidation, reorganization, or
business combination or (y) a sale or other disposition of all or substantially
all of the Company’s assets in any single transaction or series of related
transactions or (z) the acquisition of assets or stock of another entity, in
each case other than a transaction:

 

(A)                               Which results in the Company’s voting
securities outstanding immediately before the transaction continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the Company or the person that, as a result of the transaction,
controls, directly or indirectly, the Company or owns, directly or indirectly,
all or substantially all of the Company’s assets or otherwise succeeds to the
business of the Company (the Company or such person, the “Successor Entity”))
directly or indirectly, at least a majority of the combined voting power of the
Successor Entity’s outstanding voting securities immediately after the
transaction, and

 

(B)                               After which no person or group beneficially
owns voting securities representing 50% or more of the combined voting power of
the Successor Entity; provided, however, that no person or group shall be
treated for purposes of this Section 11(b)(iii)(B) as beneficially owning 50% or
more of combined voting power of the Successor Entity solely as a result of the
voting power held in the Company prior to the consummation of the transaction.

 

(c)                                  Date of Termination.  “Date of Termination”
shall mean (i) if Executive’s employment is terminated by Executive’s death, the
date of Executive’s death; (ii) if Executive’s employment is terminated pursuant
to Section 3(a)(ii) — (vi) either the date indicated in the Notice of
Termination or the date specified by the Company pursuant to Section 3(b),
whichever is earlier.

 

15

--------------------------------------------------------------------------------

 

(d)                                 Disability.  “Disability” shall mean, at any
time the Company or any of its affiliates sponsors a long-term disability plan
for the Company’s employees,  “disability” as defined in such long-term
disability plan for the purpose of determining a participant’s eligibility for
benefits, provided, however, if the long-term disability plan contains multiple
definitions of disability, “Disability” shall refer to that definition of
disability which, if Executive qualified for such disability benefits, would
provide coverage for the longest period of time. The determination of whether
Executive has a Disability shall be made by the person or persons required to
make disability determinations under the long-term disability plan.  At any time
the Company does not sponsor a long-term disability plan for its employees,
Disability shall mean Executive’s inability to perform, with or without
reasonable accommodation, the essential functions of Executive’s position
hereunder for a total of three months during any six-month period as a result of
incapacity due to mental or physical illness as determined by a physician
selected by the Company or its insurers and acceptable to Executive or
Executive’s legal representative, with such agreement as to acceptability not to
be unreasonably withheld or delayed.  Any refusal by Executive to submit to a
medical examination for the purpose of determining Disability shall be deemed to
constitute conclusive evidence of Executive’s Disability.

 

(e)                                  Good Reason. “Good Reason” shall mean:

 

(i)                                     a material breach by the Company of the
terms of this Agreement, or any other equity or compensation written agreement
between the Company and Executive, including, but not limited to, the failure of
the Company to make any material payment or provide any material benefit
specified under this Agreement;

 

(ii)                                  any material diminution in Executive’s
authority, duties or responsibilities as Chief Executive Officer, except in
connection with a corporate transaction (including a merger, consolidation,
joint venture, acquisition or sale of assets or other similar transaction) where
the Executive continues to serve as chief executive officer of (i) the Company
or (ii) the ultimate parent company of the Company’s successor (whether public
or private), reporting to the board of directors of such ultimate parent
company;

 

(iii)                               the failure of the Company to continue
Executive in the position of Chief Executive Officer and member of the Board (it
being understood that a failure of the Company’s stockholders to re-elect the
Executive to the Board will not, in and of itself, constitute Good Reason
hereunder);

 

(iv)                              any material reduction in Executive’s Annual
Base Salary (excluding a proportional reduction as part of a generalized
reduction in the base salaries of senior management of the Company not to exceed
five-percent (5%) of Annual Base Salary then in effect); or

 

(v)                                 the relocation of the site of Executive’s
principal place of employment by a distance in excess of fifty (50) miles;

 

provided, however, that Executive may not resign his employment for Good Reason
unless: (x) Executive provided the Company with at least thirty (30) days prior
written notice of his intent to resign for Good Reason (which notice must be
provided within ninety (90) days following the date on which Executive has
knowledge of the occurrence of the event(s) purported to constitute Good
Reason); and (y) the Company has not remedied the alleged violation(s) within
the thirty (30) day period.

 

16

--------------------------------------------------------------------------------

 

(f)                                   Person.  “Person” shall mean any
individual, firm, corporation, partnership, limited liability company,
incorporated or unincorporated association, joint venture, joint stock company,
trust, governmental authority or other entity of any kind.

 

12.                               Miscellaneous Provisions.

 

(a)                                 Governing Law.  This Agreement shall be
governed, construed, interpreted and enforced in accordance with its express
terms, and otherwise in accordance with the substantive laws of the Commonwealth
of Virginia without reference to the principles of conflicts of law of the
Commonwealth of Virginia or any other jurisdiction, and where applicable, the
laws of the United States.

 

(b)                                 Validity.  The invalidity or
unenforceability of any provision or provisions of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.

 

(c)                                  Notices.  Any notice, request, claim,
demand, document and other communication hereunder to any Party shall be
effective upon receipt (or refusal of receipt) and shall be in writing and
delivered personally or sent by facsimile or certified or registered mail,
postage prepaid, as follows:

 

(i)                                     If to the Company, the General Counsel
at its headquarters,

 

(ii)                                  If to Executive, at the last address that
the Company has in its personnel records for Executive, or

 

(iii)                               At any other address as any Party shall have
specified by notice in writing to the other Party.

 

(d)                                 Counterparts.  This Agreement may be
executed in several counterparts, each of which shall be deemed to be an
original, but all of which together will constitute one and the same Agreement. 
Signatures delivered by facsimile shall be deemed effective for all purposes.

 

(e)                                  Entire Agreement.  The terms of this
Agreement are intended by the Parties to be the final expression of their
agreement with respect to the subject matter hereof and supersede all prior
understandings and agreements, whether written or oral.  The Parties further
intend that this Agreement shall constitute the complete and exclusive statement
of their terms and that no extrinsic evidence whatsoever may be introduced in
any judicial, administrative, or other legal proceeding to vary the terms of
this Agreement.

 

(f)                                   Amendments; Waivers.  This Agreement may
not be modified, amended, or terminated except by an instrument in writing,
signed by Executive and a duly authorized officer of Company.  By an instrument
in writing similarly executed, Executive or a duly authorized officer of the
Company may waive compliance by the other Party with any specifically identified
provision of this Agreement that such other Party was or is obligated to comply
with or perform; provided, however, that such waiver shall not operate as a
waiver of, or estoppel with respect to, any other or subsequent failure.  No
failure to exercise and no delay in exercising any right, remedy, or power
hereunder preclude any other or further exercise of any other right, remedy, or
power provided herein or by law or in equity.

 

(g)                                  No Inconsistent Actions.  The Parties
hereto shall not voluntarily undertake or fail to undertake any action or course
of action inconsistent with the provisions or essential intent of this
Agreement.  Furthermore, it is the intent of the Parties hereto to act in a fair
and reasonable manner with respect to the interpretation and application of the
provisions of this Agreement.

 

17

--------------------------------------------------------------------------------

 

(h)                                 Construction.  This Agreement shall be
deemed drafted equally by both the Parties. Its language shall be construed as a
whole and according to its fair meaning.  Any presumption or principle that the
language is to be construed against any Party shall not apply.  The headings in
this Agreement are only for convenience and are not intended to affect
construction or interpretation.  Any references to paragraphs, subparagraphs,
sections or subsections are to those parts of this Agreement, unless the context
clearly indicates to the contrary.  Also, unless the context clearly indicates
to the contrary, (a) the plural includes the singular and the singular includes
the plural; (b) “and” and “or” are each used both conjunctively and
disjunctively; (c) “any,” “all,” “each,” or “every” means “any and all,” and
“each and every”; (d) “includes” and “including” are each “without limitation”;
(e) “herein,” “hereof,” “hereunder” and other similar compounds of the word
“here” refer to the entire Agreement and not to any particular paragraph,
subparagraph, section or subsection; and (f) all pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the entities or persons referred to may require.

 

(i)                                     Mediation; Arbitration.  In case any
controversy, claim or dispute (each, a “Dispute”) arises out of or relating to
this Agreement that the parties cannot resolve through negotiation, the parties
first agree to try in good faith to settle the Dispute by mediation administered
by the American Arbitration Association (the “AAA”) under its Commercial
Mediation Procedures. If the Dispute is not settled by mediation within 30 days
after submission to mediation, then the Dispute shall be settled solely and
exclusively by a binding arbitration process administered by the AAA in
Washington, D.C.  Such arbitration shall be conducted in accordance with the
AAA’s then-existing Commercial Arbitration Rules.  Each Party shall bear its own
attorney’s fees and expenses and one-half of the fees and expenses of the
arbitration; provided, that the arbitrator shall have the authority to apportion
the costs of arbitration and to render an award including reasonable attorneys’
fees, as and to the extent the arbitrator deems appropriate under the
circumstances. The arbitrator’s decisions and awards will be rendered in a
reasoned written opinion, and the Parties agree to abide by all such decisions
and awards.  Such decisions and awards rendered by the arbitrator shall be final
and conclusive and may be entered in any court having jurisdiction.  All such
controversies, claims or disputes shall be settled in this manner in lieu of any
action at law or equity; provided, however, that nothing in this subsection
shall be construed as precluding the bringing an action for injunctive relief or
specific performance as provided in this Agreement.  Notwithstanding the
foregoing, Executive and the Company each have the right to resolve any issue or
dispute over intellectual property rights by Court action instead of
arbitration.

 

(j)                                    Enforcement.  If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term of this Agreement, such provision shall be
fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a portion of
this Agreement; and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall be added
automatically as part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.

 

(k)                                 Withholding.  The Company shall be entitled
to withhold from any amounts payable under this Agreement any federal, state,
local or foreign withholding or other taxes or charges which the Company is
required to withhold. The Company shall be entitled to rely on an opinion of
counsel if any questions as to the amount or requirement of withholding shall
arise.

 

18

--------------------------------------------------------------------------------

 

(l)                                     Section 409A.

 

(i)                                     General.  The intent of the Parties is
that the payments and benefits under this Agreement comply with or be exempt
from Section 409A and, accordingly, to the maximum extent permitted, this
Agreement shall be interpreted to be in compliance therewith.

 

(ii)                                  Separation from Service.  Notwithstanding
anything in this Agreement to the contrary, any compensation or benefits payable
under this Agreement that is considered nonqualified deferred compensation under
Section 409A and is designated under this Agreement as payable upon Executive’s
termination of employment shall be payable only upon Executive’s “separation
from service” with the Company within the meaning of Section 409A (a “Separation
from Service”) and, except as provided below, any such compensation or benefits
described in Section 4(b) or Section 4(c) shall not be paid, or, in the case of
installments, shall not commence payment, until the fifty-third (53rd) day
following Executive’s Separation from Service (the “First Payment Date”).  Any
installment payments that would have been made to Executive during the
fifty-three (53) day period immediately following Executive’s Separation from
Service but for the preceding sentence shall be paid to Executive on the First
Payment Date and the remaining payments shall be made as provided in this
Agreement.

 

(iii)                               Specified Employee.  Notwithstanding
anything in this Agreement to the contrary, if Executive is deemed by the
Company at the time of Executive’s Separation from Service to be a “specified
employee” for purposes of Section 409A, to the extent delayed commencement of
any portion of the benefits to which Executive is entitled under this Agreement
is required in order to avoid a prohibited distribution under Section 409A, such
portion of Executive’s benefits shall not be provided to Executive prior to the
earlier of (i) the expiration of the six-month period measured from the date of
Executive’s Separation from Service with the Company or (ii) the date of
Executive’s death.  Upon the first business day following the expiration of the
applicable Section 409A period, all payments deferred pursuant to the preceding
sentence shall be paid in a lump sum to Executive (or Executive’s estate or
beneficiaries), and any remaining payments due to Executive under this Agreement
shall be paid as otherwise provided herein.

 

(iv)                              Expense Reimbursements.  To the extent that
any reimbursements under this Agreement are subject to Section 409A, any such
reimbursements payable to Executive shall be paid to Executive no later than
December 31 of the year following the year in which the expense was incurred;
provided, that Executive submits Executive’s reimbursement request promptly
following the date the expense is incurred, the amount of expenses reimbursed in
one year shall not affect the amount eligible for reimbursement in any
subsequent year, other than medical expenses referred to in Section 105(b) of
the Code, and Executive’s right to reimbursement under this Agreement will not
be subject to liquidation or exchange for another benefit.

 

(v)                                 Installments.  Executive’s right to receive
any installment payments under this Agreement, including without limitation any
continuation salary payments that are payable on Company payroll dates, shall be
treated as a right to receive a series of separate payments and, accordingly,
each such installment payment shall at all times be considered a separate and
distinct payment as permitted under Section 409A.  Except as otherwise permitted
under Section 409A, no payment hereunder shall be accelerated or deferred unless
such acceleration or deferral would not result in additional tax or interest
pursuant to Section 409A.

 

19

--------------------------------------------------------------------------------

 

13.                               Executive Acknowledgement.

 

Executive acknowledges that Executive has read and understands this Agreement,
is fully aware of its legal effect, has not acted in reliance upon any
representations or promises made by the Company other than those contained in
writing herein, and has entered into this Agreement freely based on Executive’s
own judgment.  Executive also acknowledges and agrees that any compensation
payable under this Agreement or otherwise shall be subject to the terms of any
applicable compensation clawback policy adopted by the Company to comply with
any provisions of applicable law or any securities exchange listing standards.

 

[Signature Page Follows]

 

20

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and
year first above written.

 

 

COMPANY

 

 

 

 

 

By:

Nathaniel A. Davis

 

 

Name: Nathaniel A. Davis

 

 

Title: Chairman and Chief Executive Officer

 

 

 

 

 

EXECUTIVE

 

 

 

By:

/s/ Stuart Udell

 

 

Stuart Udell

 

[Signature Page to Employment Agreement]

 

--------------------------------------------------------------------------------

 

EXHIBIT A

 

Separation Agreement and Release

 

This Separation Agreement and Release (“Agreement”) is made by and between
Stuart Udell (“Executive”) and K12 Inc. (the “Company”) (collectively, referred
to as the “Parties” or individually referred to as a “Party”).  Capitalized
terms used but not defined in this Agreement shall have the meanings set forth
in the Employment Agreement (as defined below).

 

WHEREAS, the Parties have previously entered into that certain Employment
Agreement, dated as of              , 20   (the “Employment Agreement”); and

 

WHEREAS, in connection with Executive’s termination of employment with the
Company or a subsidiary or affiliate of the Company effective         , 20  ,
the Parties wish to resolve any and all disputes, claims, complaints,
grievances, charges, actions, petitions, and demands that Executive may have
against the Company and any of the Releasees as defined below, including, but
not limited to, any and all claims arising out of or in any way related to
Executive’s employment with or separation from the Company or its subsidiaries
or affiliates but, for the avoidance of doubt, nothing herein will be deemed to
release any rights or remedies in connection with (i) Executive’s ownership of
vested equity securities of the Company or any of its affiliates,
(ii) Executive’s rights under any directors & officers liability insurance
policies then in effect, or to indemnification (including advancement of
expenses) by the Company or any of its affiliates pursuant to contract or
applicable law (collectively, the “Retained Claims”).

 

NOW, THEREFORE, in consideration of the Severance Payments described in
Section 4 of the Employment Agreement, which, pursuant to the Employment
Agreement, are conditioned on Executive’s execution and non-revocation of this
Agreement, and in consideration of the mutual promises made herein, the Company
and Executive hereby agree as follows:

 

1.             Severance Payments; Salary and Benefits.  The Company agrees to
provide Executive with the severance payments and benefits described in
[Section 4(b)/4(c)] of the Employment Agreement, payable at the times set forth
in, and subject to the terms and conditions of, the Employment Agreement. In
addition, to the extent not already paid, and subject to the terms and
conditions of the Employment Agreement, the Company shall pay or provide to
Executive all other payments or benefits described in Section 3(c) of the
Employment Agreement, subject to and in accordance with the terms thereof.

 

2.             Release of Claims.  Executive agrees that, other than with
respect to the Retained Claims, the foregoing consideration represents
settlement in full of all outstanding obligations owed to Executive by the
Company, any of its direct or indirect subsidiaries and affiliates, and any of
their current and former officers, directors, equity holders, managers,
employees, agents, investors, attorneys, shareholders, administrators,
affiliates, benefit plans, plan administrators, insurers, trustees, divisions,
and subsidiaries and predecessor and successor corporations and assigns
(collectively, the “Releasees”).  Executive, on his own behalf and on behalf of
any of Executive’s affiliated companies or entities and any of their respective
heirs, family members, executors, agents, and assigns, other than with respect
to the Retained Claims, hereby and forever releases the Releasees from, and
agrees not to sue concerning, or in any manner to institute, prosecute, or
pursue, any claim, complaint, charge, duty, obligation, or cause of action
relating to any matters of any kind, whether presently known or unknown,
suspected or unsuspected, that Executive may possess against any of the
Releasees arising from any omissions, acts, facts, or damages that have occurred
up until and including the Effective Date of this Agreement (as defined in
Section 7 below), including, without limitation:

 

--------------------------------------------------------------------------------

 

(a)           any and all claims relating to or arising from Executive’s
employment or service relationship with the Company or any of its direct or
indirect subsidiaries or affiliates and the termination of that relationship;

 

(b)           any and all claims relating to, or arising from, Executive’s right
to purchase, or actual purchase of any shares of stock or other equity interests
of the Company or any of its affiliates, including, without limitation, any
claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty
under applicable state corporate law, and securities fraud under any state or
federal law;

 

(c)           any and all claims for wrongful discharge of employment;
termination in violation of public policy; discrimination; harassment;
retaliation; breach of contract, both express and implied; breach of covenant of
good faith and fair dealing, both express and implied; promissory estoppel;
negligent or intentional infliction of emotional distress; fraud; negligent or
intentional misrepresentation; negligent or intentional interference with
contract or prospective economic advantage; unfair business practices;
defamation; libel; slander; negligence; personal injury; assault; battery;
invasion of privacy; false imprisonment; conversion; and disability benefits;

 

(d)           any and all claims for violation of any federal, state, or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the
Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit
Reporting Act; the Age Discrimination in Employment Act of 1967; the Older
Workers Benefit Protection Act; the Employee Retirement Income Security Act of
1974; the Worker Adjustment and Retraining Notification Act; the Family and
Medical Leave Act; and the Sarbanes-Oxley Act of 2002;

 

(e)           any and all claims for violation of the federal or any state
constitution;

 

(f)            any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination;

 

(g)           any claim for any loss, cost, damage, or expense arising out of
any dispute over the non-withholding or other tax treatment of any of the
proceeds received by Executive as a result of this Agreement; and

 

(h)           any and all claims for attorneys’ fees and costs.

 

Executive agrees that the release set forth in this section shall be and remain
in effect in all respects as a complete general release as to the matters
released.  This release does not release claims that cannot be released as a
matter of law, including, but not limited to, Executive’s right to file a charge
with or participate in a charge by the Equal Employment Opportunity Commission,
or any other local, state, or federal administrative body or government agency
that is authorized to enforce or administer laws related to employment, against
the Company (with the understanding that Executive’s release of claims herein
bars Executive from recovering such monetary relief from the Company or any
Releasee), claims for unemployment compensation or any state disability
insurance benefits pursuant to the terms of applicable state law, claims to
continued participation in certain of the Company’s group benefit plans pursuant
to the terms and conditions of COBRA, claims to any benefit entitlements vested
as the date of separation of Executive’s employment, pursuant to written terms
of any employee benefit plan of the Company or its affiliates and Executive’s
right under applicable law and any Retained Claims.    This release further does
not release claims for breach of Section 3(c), Section 4(b) or Section 4(c) of
the Employment Agreement.

 

3.             Acknowledgment of Waiver of Claims under ADEA.  Executive
understands and acknowledges that Executive is waiving and releasing any rights
Executive may have under the Age

 

--------------------------------------------------------------------------------

 

Discrimination in Employment Act of 1967 (“ADEA”), and that this waiver and
release is knowing and voluntary.  Executive understands and agrees that this
waiver and release does not apply to any rights or claims that may arise under
the ADEA after the Effective Date of this Agreement.  Executive understands and
acknowledges that the consideration given for this waiver and release is in
addition to anything of value to which Executive was already entitled. 
Executive further understands and acknowledges that Executive has been advised
by this writing that:  (a) Executive should consult with an attorney prior to
executing this Agreement; (b) Executive has 21 days within which to consider
this Agreement; (c) Executive has 7 days following Executive’s execution of this
Agreement to revoke this Agreement pursuant to written notice to the General
Counsel of the Company; (d) this Agreement shall not be effective until after
the revocation period has expired; and (e) nothing in this Agreement prevents or
precludes Executive from challenging or seeking a determination in good faith of
the validity of this waiver under the ADEA, nor does it impose any condition
precedent, penalties, or costs for doing so, unless specifically authorized by
federal law.  In the event Executive signs this Agreement and returns it to the
Company in less than the 21 day period identified above, Executive hereby
acknowledges that Executive has freely and voluntarily chosen to waive the time
period allotted for considering this Agreement.

 

4.             Severability.  In the event that any provision or any portion of
any provision hereof or any surviving agreement made a part hereof becomes or is
declared by a court of competent jurisdiction or arbitrator to be illegal,
unenforceable, or void, this Agreement shall continue in full force and effect
without said provision or portion of provision.

 

5.             No Oral Modification.  This Agreement may only be amended in a
writing signed by Executive and a duly authorized officer of the Company.

 

6.             Governing Law; Dispute Resolution.  This Agreement shall be
subject to the provisions of Sections 12(a), 12(c) and 12(i) of the Employment
Agreement.

 

7.             Effective Date.  If Executive has attained or is over the age of
40 as of the date of Executive’s termination of employment, then each Party has
seven days after that Party signs this Agreement to revoke it and this Agreement
will become effective on the eighth day after Executive signed this Agreement,
so long as it has been signed by the Parties and has not been revoked by either
Party before that date (the “Effective Date”).  If Executive has not attained
the age of 40 as of the date of Executive’s termination of employment, then the
“Effective Date” shall be the date on which Executive signs this Agreement.

 

8.             Voluntary Execution of Agreement.  Executive understands and
agrees that Executive executed this Agreement voluntarily, without any duress or
undue influence on the part or behalf of the Company or any third party, with
the full intent of releasing all of Executive’s claims against the Company and
any of the other Releasees.  Executive acknowledges that:  (a) Executive has
read this Agreement; (b) Executive has not relied upon any representations or
statements made by the Company that are not specifically set forth in this
Agreement; (c) Executive has been represented in the preparation, negotiation,
and execution of this Agreement by legal counsel of his own choice or has
elected not to retain legal counsel; (d) Executive understands the terms and
consequences of this Agreement and of the releases it contains; and
(e) Executive is fully aware of the legal and binding effect of this Agreement.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective
dates set forth below.

 

 

 

EXECUTIVE  

 

 

 

Dated:

 

 

 

 

 

 

Stuart Udell

 

 

 

 

 

 

 

 

COMPANY

 

 

 

 

 

 

Dated:

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

--------------------------------------------------------------------------------