**Exhibit 10.18**

 

**EMPLOYMENT AGREEMENT**

 

EMPLOYMENTAGREEMENT, dated as of March 9, 2004 (this “Agreement”), by and among UniversalAmerican Financial Corp. (“Universal”), Heritage Health Systems, Inc. (the“Company”) and Theodore Carpenter, Jr. (“Executive”).

 

WHEREAS,Universal, the Company and Executive wish to enter into an agreement relatingto the employment of Executive by the Company;

 

NOW,THEREFORE, in consideration of the premises and mutual covenants herein and forother good and valuable consideration, the parties agree as follows:

 

1.                                       Termof Employment. Subject to the provisions of Section 8 of thisAgreement, Executive shall be employed by the Company for a period commencing(the “Commencement Date”) on the closing of the transaction (the “Transaction”)contemplated by the Agreement and Plan of Merger, dated as of the date hereof(the “Merger Agreement”), among Universal, HHS Acquisition Corp., the Companyand Carlyle Venture Partners, L.P., as the stockholders representative, andending on first  anniversary of theCommencement Date (such period, as extended pursuant to the immediatelyfollowing proviso, if applicable, the “Employment Term”), on the terms andsubject to the conditions set forth in this Agreement; provided, however,the Employment Term shall automatically be renewed for successive one yearperiods unless the Company gives Executive ninety (90) days prior notice of itsintent not to renew this Agreement. Notwithstanding anything to the contraryherein, this Agreement shall automatically terminate concurrently with anytermination of the Merger Agreement.

 

2.                                       Position.

 

a.                                       Duringthe Employment Term, Executive shall serve as the Company’s Executive VicePresident and Chief Operating Officer and President and Chief Executive Officerof SelectCare of Texas, LLC or (subject to Section 8(a)(i)) such othertitle or position as may be determined by the Board (as defined below).

 

b.                                      Youwill be based initially at the Company’s offices at Nashville, Tennessee (andtravel between Nashville, Tennessee and Houston, Texas as necessary). Executiveagrees that he will relocate to the Company’s offices in Houston, Texas at suchtime as reasonably agreed upon by the Company and Executive. Executive shall beentitled to the standard relocation benefits as are customarily accorded tosimilarly situated employees of Universal in accordance with Universal’spolicies regarding payment of relocation benefits then in effect. During theEmployment Term, Executive will devote his full business time to the performanceof his duties hereunder and will not engage in any other business, professionor occupation for compensation or otherwise which would conflict with therendition of such services either directly or indirectly, without the priorwritten consent of the Board of Directors of Universal (the “Board”). Nothingcontained herein shall preclude Executive from (i) serving on corporate,civic and charitable boards or committees and (ii) managing his personalinvestments; provided that none of the activities set forth in clauses (i) and(ii) interfere in any

 

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material respect with theperformance of Executive’s employment hereunder or conflict in any materialrespect with the business of the Company.

 

3.                                       BaseSalary. During the Employment Term, the Company shall pay Executive a basesalary (the “Base Salary”) at the annual rate of $290,850, payable in regularinstallments in accordance with the Company’s usual payment practices. Executiveshall be entitled to such annual increases in his Base Salary, if any, as may bedetermined in the sole discretion of the compensation committee of the Board.

 

4.                                       Bonus.

 

a.                                       Forthe fiscal year ended 2004, Executive shall be eligible to earn an annual bonus(as may be changed in accordance with the immediately following sentence, the“Bonus”) equal to 33% of the Base Salary if the Company’s 2004 net income,before interest expense, income taxes, depreciation and amortization (each asdetermined in accordance with generally accounting principles in the UnitedStates, in each case consistently applied) is equal to or greater than $14.7million. For any period following December 31, 2004 during which thisAgreement is in full force and effect, the Board shall establish a targetannual bonus based on the achievement of goals established by the Board; provided,however, that if such goals are not established such amount shall bedetermined by reference to the existing Universal executive bonus plan.

 

b.                                      Subjectto Section 4(a) above, as soon as practicable after the end of thefiscal year (but in no event later than 45 days after the end of the fiscalyear), the Bonus shall be paid (i) seventy percent (70%) in cash and (ii) thirty(30%) in shares of the common stock, par value $1.00 per share, of Universalissued by Universal (“Shares”) based on the Market Value (as defined below) ofthe Shares on the date of issuance. For purposes of this paragraph, “MarketValue” means the 20-day average of the closing price of the Shares on Nasdaqor, if the Shares are not then-traded on Nasdaq, on such other national stockexchange on which the Shares are principally traded.

 

5.                                       EquityArrangements. Executive shall be entitled to an initial grant on theCommencement Date of stock options to purchase 60,000 Shares (the “Options”)under Universal’s 1998 Incentive Compensation Plan (the “1998 Plan”). Optionsrepresenting the right to purchase such 60,000 Shares shall vest ratably over afour year period, subject to Executive’s continued employment with the Company,with 1/5 of such Shares initially granted vesting on the date of grant and eachof the first, second, third and fourth anniversaries of the date of grant; provided,however, that the Options shall vest immediately upon a “change incontrol” (as defined in the 1998 Plan). Except as otherwise provided in thisAgreement, all unvested Options shall immediately terminate and expire uponExecutive’s termination of employment.

 

6.                                       EmployeeBenefits. During the Employment Term, Executive shall be provided, inaccordance with the terms of Universal’s employee benefit plans as in effectfrom time to time, health insurance and short term and long term disabilityinsurance, retirement

 

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benefits, vacation andfringe benefits (collectively “Employee Benefits”) on the same basis as thosebenefits are generally made available to other senior executives of Universal.

 

7.                                       BusinessExpenses. During the Employment Term, reasonable business expenses incurredby Executive in the performance of his duties hereunder shall be reimbursed bythe Company in accordance with Company policies.

 

8.                                       Termination.Notwithstanding any other provision of this Agreement:

 

a.                                       Bythe Company For Cause or By Executive Resignation Without Good Reason.

 

(i) The Employment Term and Executive’s employment hereunder may be terminatedby the Company for Cause (as defined below) or by Executive’s resignationwithout Good Reason. For purposes of this Agreement, “Good Reason” shall mean(w) the Company’s requiring Executive to be based at any office or locationother than in the greater metropolitan area of Houston, Texas or Nashville,Tennessee; (x) a materialdiminution in Executive’s responsibilities, authority or scope of duties iseffected by the Board (without regard to whether or not any change is made toExecutive’s title); (y) any reduction in Executive’s Base Salary; or (z)failure of any successor to all or substantially all of the business of theCompany to assume this Agreement.

 

(ii) For purposes of this Agreement, “Cause” shall mean (a) Executive hasengaged in gross negligence, gross incompetence or willful misconduct in theperformance of, or Executive’s willful refusal without proper reason toperform, the duties and services required of Executive by the Board; (b) anywillful act or omission of Executive which is demonstrably and materiallyinjurious to the Company or any of its subsidiaries or affiliates; (c) Executive’sconviction or plea of nolo contendere to a felony or other crime of moralturpitude; or (d) Executive’s material breach of any provision of thisAgreement which is not cured or capable of being cured within 30 days followingthe Company’s written notice of such breach to Executive; provided, however,that a breach of Section 9 hereof shall not be subject to such 30-day cureperiod.

 

(iii) If Executive’s employment is terminated by the Company for Cause, or ifExecutive resigns without Good Reason, Executive shall be entitled to receive (A) anyaccrued but unpaid Base Salary through the date of termination and (B) suchEmployee Benefits, if any, as to which Executive may be entitled under theemployee benefit plans of the Company. Following such termination of Executive’semployment by the Company for Cause or resignation by Executive without GoodReason, except as set forth in this Section 8(a), Executive shall have nofurther rights to any compensation or any other benefits under this Agreement.

 

b.                                      Disabilityor Death.

 

(i) The Employment Term and Executive’s employment hereunder shall terminate (A) uponhis death or (B) if Executive becomes physically or mentally incapacitatedfor a period of ninety (90) consecutive days or for an aggregate of six (6) monthsin any twelve

 

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(12) consecutive monthperiod during which he is unable to perform his duties, with or withoutreasonable accommodation, (such incapacity is hereinafter referred to as “Disability”).Any question as to the existence of the Disability of Executive as to whichExecutive and the Company cannot agree shall be determined in writing by aqualified independent physician mutually acceptable to Executive and theCompany. If Executive and the Company cannot agree as to a qualifiedindependent physician, each shall appoint such a physician and those two physiciansshall select a third who shall make such determination in writing.

 

(ii) Upon termination of Executive’s employment hereunder for death or Disability,Executive or his estate (as the case may be) shall be entitled to receive(x) any accrued but unpaid Base Salary through the end of the month in whichsuch termination occurs and (y) such Employee Benefits, if any, as to which he may beentitled under employee benefits plans of the Company. Following suchtermination of Executive’s employment due to death or Disability, except as setforth in this Section 8(b), Executive shall have no further rights to anycompensation or any other benefits under this Agreement.

 

c.                                       Bythe Company Without Cause or Resignation by Executive for Good Reason

 

(i) The Employment Term and Executive’s employment hereunder may be terminatedby the Company without Cause or by Executive’s resignation for Good Reason.

 

(ii) IfExecutive’s employment is terminated by the Company without Cause (other thanby reason of death or Disability) or if Executive resigns for Good Reason,Executive shall be entitled to receive (u) any accrued but unpaid Base Salarythrough the date of termination, (v) within thirty (30) business daysafter such termination, unpaid Bonus for the fiscal year prior to termination,(w) within thirty (30) business days after such termination, a lump sum paymentequal to 200% of Executive’s Base Salary, (x) continued coverage under theCompany’s medical benefit plans available to senior executives for a period oftwelve (12) months or comparable coverage for such period, (y) coverage underthe Consolidated OmnibusReconciliation Act of 1985, as amended (COBRA) for a period of twelve(12) months from the date of termination, which coverage shall be paid by theCompany less an amount equal to Executive’s share of the premium in effectprior to termination, and (z) such Employee Benefits, if any, as to whichExecutive may be entitled under the employee benefit plans of the Company.

 

d.                                      Noticeof Termination. Any purported termination of employment by the Company orby Executive (other than due to Executive’s death) shall be communicated bywritten Notice of Termination to the other party hereto in accordance with Section 12(g) hereof.For purposes of this Agreement, a “Notice of Termination” shall mean a noticewhich shall indicate the specific termination provision in this Agreementrelied upon and shall set forth in reasonable detail the facts andcircumstances claimed to provide a basis for termination of employment underthe provision so indicated.

 

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9.                                       Non-Competitionand Non-Solicitation. (a) Executive acknowledges and recognizes thehighly competitive nature of the businesses of Universal and its subsidiariesand accordingly agrees as follows:

 

(1)                                  During the EmploymentTerm and for a period of twenty-four (24) months following Executive’stermination of employment (the “Restricted Period”), Executive will not,directly or indirectly, (i) engage in any business that is in Competitionwith the business of the Company or its subsidiaries (including, withoutlimitation, businesses which the Company or its subsidiaries have specificplans to conduct in the future and as to which Executive is aware of suchplanning), (ii) render any services, as an employee or otherwise, to anybusiness in Competition with the business of the Company or its subsidiaries, (iii) acquirea financial interest in any person or entity engaged in any business that is inCompetition with the business of the Company or its subsidiaries, as anindividual, partner, shareholder, officer, director, principal, agent, trusteeor consultant, (iv) interfere with business relationships (whether formedbefore or after the date of this Agreement) between the Company or any of itsaffiliates and their customers (including, without limitation, any member ofthe Company or its subsidiaries) and suppliers, or (v) solicit, raid,entice or induce any person or entity that currently or at any time during theEmployment Term is a customer (including, without limitation, any member of theCompany or its subsidiaries) or supplier (or actively pursued as a potentialcustomer or supplier), of Universal or its affiliates, to become a customer orsupplier of any person or entity (other than Universal or its affiliates) forproducts or services the same as, or in Competition with, those products andservices as from time to time shall be provided by the Company or itsaffiliates. For purposes of this Section 9, a business shall be deemed tobe in “Competition” with the business of the Company or its subsidiaries ifsuch business substantially involves (i) the provision of any services orproducts provided by the Company or its subsidiaries as a material part ofthe business of the Company or any of its subsidiaries or (ii) thepurchase or sale of any property (other than securities purchased forinvestment) purchased or sold by the Company or any of its subsidiaries as amaterial part of the business of the Company or any of its subsidiaries. Forthe avoidance of doubt, Executive shall not be prohibited from rendering anyservices to any company (even if such company is engaged in a business which isin Competition with the business of the Company or any of its subsidiaries) ifsuch services relate to a business of the company that is not in Competitionwith the business of the Company or any of its subsidiaries. For purposes ofthis Agreement, (x) a “subsidiary” of the Company means any person or entity that,directly or indirectly, through one or more intermediaries, is controlled bythe Company, including, without limitation, SelectCare of Texas, LLC, GoldenTriangle Physician Alliance and Heritage Physician Networks and (y) the term “members”shall mean those employees or members and their dependents who have elected toreceive health care services from participating providers that have contractedwith the Company or any of its subsidiaries.

 

(2)                                  Notwithstandinganything to the contrary in this Agreement, Executive may, directly or indirectly,own securities of any person engaged in the business of Universal or itsaffiliates which are publicly traded on a national or regional stock exchangeor on the over-the-counter market if Executive (i) is not a controllingperson of, or a member of a

 

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group which controls,such person and (ii) does not, directly or indirectly, own three percent(3%) or more of any class of securities of such person.

 

(3)                                  During the RestrictedPeriod, Executive will not, directly or indirectly, solicit or encourage anyemployee of Universal or its subsidiaries (including, without limitation, anyproviders of the Company or its affiliates) to leave the employment ofUniversal or its subsidiaries. During the Restricted Period, Executive willnot, directly or indirectly hire any employee of Universal or its subsidiariesor former employee of Universal or its subsidiaries within six (6) monthsfollowing such former employee’s termination of employment from Universal orsuch subsidiary.

 

(b)                                 It is expresslyunderstood and agreed that although Executive and the Company consider therestrictions contained in this Section 9 to be reasonable, if a finaljudicial determination is made by a court of competent jurisdiction that thetime or territory or any other restriction contained in this Agreement is anunenforceable restriction against Executive, the provisions of this Agreementshall not be rendered void but shall be deemed amended to apply as to suchmaximum time and territory and to such maximum extent as such court may judiciallydetermine or indicate to be enforceable. Alternatively, if any court ofcompetent jurisdiction finds that any restriction contained in this Agreementis unenforceable, and such restriction cannot be amended so as to make itenforceable, such finding shall not affect the enforceability of any of theother restrictions contained herein.

 

10.                                 Confidentiality.Executive will not at any time (whether during or after his employment with theCompany), unless required by a court or administrative agency, disclose or usefor his own benefit or purposes or the benefit or purposes of any other person,firm, partnership, joint venture, association, corporation or other businessorganization, entity or enterprise other than Universal and any of itssubsidiaries or affiliates, any trade secrets, information, data, or otherconfidential information relating to customers, members development programs,costs, marketing, trading, investment, sales activities, promotion, credit andfinancial data, manufacturing processes, financing methods, plans, or thebusiness and affairs of Universal generally, or of any subsidiary or affiliateof Universal, provided that the foregoing shall not apply to informationwhich is not unique to Universal or which is generally known to the industry orthe public other than as a result of Executive’s breach of this covenant.

 

11.                                 ExciseTax. (a)  In the event it shall be determined that any payment,benefit or distribution, or any acceleration of vesting (or combinationthereof) by the Company or one or more trusts established by the Company orUniversal for the benefit of its employees, to or for the benefit of Executive(whether paid or payable or distributed or distributable pursuant to the termsof this Agreement, or under the terms of any other plan, program agreement orarrangement) (a “Payment”) would be subject to the excise tax imposed by Section 4999of the Code (which relates to payments that are contingent on a change inownership or effective control of, or the ownership of a substantial portion ofthe assets of, a corporation) the amounts payable under this Agreement shall bereduced (but not below zero) if and to the extent that such reduction wouldresult in Executive retaining a larger amount on an after-tax basis (takinginto

 

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account all federal,state and local income taxes and the imposition of the excise tax imposed by Section 4999of the Code) than if Executive had received all of the Payments.

 

(b)                                 All determinationsrequired to be made under this Section 11 shall be made by a nationallyrecognized certified public accounting firm as shall be mutually agreed to byExecutive and the Company (the “Accounting Firm”) which shall provide detailedsupporting calculations both to the Company and Executive within fifteen (15)business days after the receipt of notice from Executive or the Company thatthere has been a Payment, or such earlier time as is requested by either party.All fees and expenses of the Accounting Firm shall be borne solely by theCompany.

 

12.                                 Miscellaneous.

 

a.                                       GoverningLaw. This Agreement shall be governed by and construed in accordance withthe laws of the State of New York, without regard to conflicts of lawsprinciples thereof.

 

b.                                      EntireAgreement/Amendments. This Agreement contains the entire understanding ofthe parties with respect to the employment of Executive by Universal and theCompany. There are no restrictions, agreements, promises, warranties, covenantsor undertakings between the parties with respect to the subject matter hereinother than those expressly set forth herein. This Agreement may not bealtered, modified, or amended except by written instrument signed by theparties hereto.

 

c.                                       NoWaiver. The failure of a party to insist upon strict adherence to any termof this Agreement on any occasion shall not be considered a waiver of suchparty’s rights or deprive such party of the right thereafter to insist uponstrict adherence to that term or any other term of this Agreement.

 

d.                                      Severability.In the event that any one or more of the provisions of this Agreement shall beor become invalid, illegal or unenforceable in any respect, the validity,legality and enforceability of the remaining provisions of this Agreement shallnot be affected thereby.

 

e.                                       Assignment.This Agreement shall not be assignable by Executive. This Agreement may beassigned by the Company to a company which is a successor in interest tosubstantially all of the business operations of the Company. Such assignmentshall become effective when the Company notifies Executive of such assignmentor at such later date as may be specified in such notice. Upon suchassignment, the rights and obligations of the Company hereunder shall becomethe rights and obligations of such successor company, provided that anyassignee expressly assumes the obligations, rights and privileges of thisAgreement.

 

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f.                                         Successors;Binding Agreement. This Agreement shall inure to the benefit of and bebinding upon personal or legal representatives, executors, administrators,successors, heirs, distributes, devises and legatees.

 

g.                                      Notice.For the purpose of this Agreement, notices and all other communicationsprovided for in the Agreement shall be in writing and shall be deemed to havebeen duly given when delivered or mailed by United States registered mail,return receipt requested, postage prepaid, addressed to the respectiveaddresses set forth on the execution page of this Agreement or such otheraddress as either party may have furnished to the other in writing inaccordance herewith, except that notice of change of address shall be effectiveonly upon receipt.

 

h.                                      WithholdingTaxes. The Company may withhold from any amounts payable under thisAgreement such Federal, state and local taxes as may be required to bewithheld pursuant to any applicable law or regulation.

 

i.                                          Headings.The insertion of headings in this Agreement are for convenience of referenceonly and shall not affect or be utilized in construing or interpreting thisAgreement.

 

j.                                          Counterparts.This Agreement may be signed in counterparts, each of which shall be anoriginal, with the same effect as if the signatures thereto and hereto wereupon the same instrument.

 

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INWITNESS WHEREOF, the parties hereto have duly executed this Agreement as of theday and year first above written.

 

 
|   | /s/ Theodore  Carpenter, Jr.       |                        |
|--------|-----------------------------------------|-----------------------------|
|   | **Theodore  Carpenter, Jr.**       |
|   |                                    |
|   |                                    |
|   | Address                                 |
|   |                                    |
|   |                                    |
|   | **HERITAGE  HEALTH SYSTEMS, INC.** |
|   |                                    |
|   |                                    |
|   | By:                                     | /s/ Rock A.  Morphis        |   |
|   |                                    | Title:  President |
|   |                                    | Address                     |
|   |                                    |
|   |                                    |
|   | **UNIVERSAL  AMERICAN FINANCIAL CORP.** |
|   |                                    |
|   |                                    |
|   | By:                                     | /s/ Richard A.  Barasch     |   |
|   |                                    | Title:                      |
|   |                                    | Address                     |
|        |                                         |                             |  |  |

 

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