Document:

exv10w5

 

Exhibit 10.5

August 18, 2006                     

HealthMarkets, LLC

c/o HealthMarkets, Inc.

9151 Grapevine Highway

North Richland Hills, Texas 76180

Attn: William J. Gedwed

         President and Chief Executive Officer

Dear Mr. Gedwed:

Reference is made to the Placement Agreement, dated as of August 9, 2006 (the “Placement
Agreement”), between and among Grapevine Finance LLC (the “Issuer”), HealthMarkets LLC
(“HealthMarkets”) and The Blackstone Group L.P. (“Blackstone”), pursuant to which Blackstone agreed
to act as Placement Agent in connection with the offering and sale by the Issuer of the Issuer’s
6.7120% Notes due July 15, 2021 in the aggregate principal amount of $72,350,000 (the “Notes”).
This letter confirms the understanding and agreement (“Agreement”) between Blackstone and
HealthMarkets, Inc. (the “Company”) regarding the compensation to be paid to Blackstone by
HealthMarkets in connection with the transactions contemplated by the Placement Agreement.

Upon the later of (a) consummation of the sale of the Notes or (b) approval of this Agreement and
the transactions contemplated hereby by a majority of directors of the Company not affiliated with
Blackstone, the Company agrees to pay Blackstone a placement fee in the amount of 2.1% of the
aggregate principal amount of the Notes.

In addition to any fees that may be payable to Blackstone under this Agreement, the Company agrees
to reimburse Blackstone, upon request made from time to time, for Blackstone’s reasonable
out-of-pocket expenses incurred in connection with the services rendered by Blackstone under the
Placement Agreement (including, without limitation, travel and lodging, data, word processing,
graphics and communication charges, research costs, courier services and fees, expenses and
disbursements of any legal counsel retained by Blackstone).

Except as required by applicable law, any advice to be provided by Blackstone under the terms of
the Agreement shall not be disclosed publicly or made available to third parties without the prior
written consent of Blackstone. In addition, Blackstone may not be otherwise publicly referred to
without its prior written consent. All services, advice, information and reports provided by
Blackstone to the Company in connection with the services to be provided under the terms of the
Placement Agreement shall be for the sole benefit of the Company and the Issuer and shall not be
relied upon by any other person.

 

 

In the event that Blackstone is requested or authorized by you or required by government
regulation, subpoena or other legal process to produce documents, or to make its current or former
personnel available as witnesses at deposition or trial, arising as a result of or in connection
with Blackstone’s engagement for the Company, the Company will, so long as Blackstone is not a
party to the proceeding in which the information is sought, pay Blackstone the reasonable fees and
expenses of its counsel incurred in responding to such a request. Nothing in this paragraph shall
affect in any way the Company’s obligations pursuant to the separate indemnification agreement
attached hereto.

The Company acknowledges and agrees that Blackstone has been retained to act solely as placement
agent. In such capacity, Blackstone shall act as an independent contractor, and any duties of
Blackstone arising out of its engagement pursuant to the Placement Agreement and this Agreement
shall be owed solely to the Company. Because Blackstone will be acting on the Company’s behalf in
this capacity, it is customary for us to receive indemnification, and a copy of an Indemnification
Agreement, dated as of July 20, 2006, between Blackstone and the Company is attached to this
Agreement as Annex A.

The Company does not appear on the Specially Designated Nationals and Blocked Persons List of the
Office of Foreign Assets Control of the United States Department of the Treasury, nor is it a
prohibited party according to other U.S. government regulatory or enforcement agencies.

The Company acknowledges that Blackstone may, at its option and expense, place an announcement in
such newspapers and periodicals as it may choose, stating that Blackstone has acted as placement
agent in connection with the offering and sale of the Notes.

Notwithstanding anything to the contrary provided elsewhere herein, none of the provisions of this
Agreement shall in any way limit the activities of Blackstone Group Holdings L.L.C. and its
affiliates in their businesses distinct from the corporate advisory business of The Blackstone
Group L.P., provided that the confidential information obtained by Blackstone pursuant to this
Agreement is not made available to representatives of Blackstone Group Holdings L.L.C. and its
affiliates who are not involved in the corporate advisory business of The Blackstone Group L.P.

Blackstone acknowledges and agrees that the terms of this Agreement (including the form of
indemnification agreement attached hereto as Annex A) and the transactions contemplated hereby
constitute a transaction between the Company and a “related party,” and, as such, is subject to the
prior approval and consent of a majority of the directors of the Company who are not affiliated
with Blackstone.

This Agreement (including the attached indemnification agreement) embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof. If any provision of this Agreement is determined to be
invalid or unenforceable in any respect, such determination will not affect or impair such
provision or the remaining provisions of this Agreement in any other respect, which will remain in
full force and effect. No waiver, amendment or other modification of this Agreement shall be
effective unless in writing and signed by each party to be bound thereby. This Agreement shall be
governed by, and construed in accordance with, the laws of the state of New York applicable to
contracts executed in and to be performed in that state.

 

 

The Company hereby agrees that any action or proceeding based hereon or arising out of Blackstone’s
engagement under the Placement Agreement shall be brought and maintained by the Company exclusively
in the courts of the State of New York located in the City and County of New York or in the United
States District Court for the Southern District of New York. The Company irrevocably submits to
the jurisdiction of the courts of the State of New York located in the City and County of New York
and the United States District Court for the Southern District of New York and appellate courts
from any thereof for the purpose of any action or proceeding based hereon or arising out of
Blackstone’s engagement hereunder and irrevocably agrees to be bound by any judgment rendered
thereby in connection with such action or proceedings. The Company hereby irrevocably waives, to
the fullest extent permitted by law, any objection it may have or hereafter may have to the laying
of venue of any such action or proceeding brought in any such court referred to above and any claim
that such action or proceeding has been brought in an inconvenient forum and agrees not to plead or
claim the same. 

The provisions hereof shall inure to the benefit of and be binding upon the successors and assigns
of the Company, Blackstone and any person entitled to be indemnified under the indemnification
agreement attached hereto as Annex A.

Any rights to trial by jury with respect to any claim or proceeding related to, or arising out of,
this Agreement, engagement or any transaction or conduct in connection herewith, is waived.

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to
Blackstone the duplicate copy of this Agreement and the indemnification agreement attached hereto
as Annex A.

	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	THE BLACKSTONE GROUP L.P.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Martin Alderson-Smith
	 

	 	 	 	 
	 

	 	 	 	Martin Alderson-Smith
	 

	 	 	 	Senior Managing Director

Accepted and Agreed

to as of the date first

written above:

HealthMarkets, Inc.

	 	 	 	 	 
	By:
	 	/s/ William J. Gedwed	 	 
	 

	 	 	 	 
	 

	 	William J. Gedwed	 	 
	 

	 	President and Chief Executive Officer	 	 

 

 

Annex A

July 20, 2006                    

The Blackstone Group L.P.

345 Park Avenue

New York, NY 10154

Ladies and Gentlemen:

This letter will confirm our understanding with respect to certain matters in connection with your
agreement to provide advice and assistance to HealthMarkets, Inc. and its affiliates (“we” or the
“Company”) in connection with the structuring and facilitation of a private placement of debt
securities to be issued by The MEGA Life and Health Insurance Company or a special purpose entity
to-be-formed by the Company (the “Private Placement Transaction”). This letter shall be effective
as of April 5, 2006, for all purposes, notwithstanding the subsequent execution of the Engagement
Letter on August 18, 2006.

In consideration of your agreement to act on our behalf in connection with such matters, we agree
to indemnify and hold harmless you and your affiliates and your and their respective partners (both
general and limited), members, officers, directors, employees and agents and each other person, if
any, controlling you or any of your affiliates (you and each such other person being an
“Indemnified Party”) from and against any losses, claims, damages, expenses and liabilities
whatsoever, whether they be joint or several, related to, arising out of or in connection with the
Private Placement Transaction and will reimburse each Indemnified Party for all expenses (including
fees, expenses and disbursements of counsel) as they are incurred in connection with investigating,
preparing, pursuing, defending or assisting in the defense of any action, claim, suit,
investigation or proceeding related to, arising out of or in connection with the Private Placement
Transaction or this agreement, whether or not pending or threatened, whether or not any Indemnified
Party is a party, whether or not resulting in any liability and whether or not such action, claim,
suit, investigation or proceeding is initiated or brought by us. We will not, however, be liable
under the foregoing indemnification provision for any losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined by a court of competent
jurisdiction to have primarily resulted from the gross negligence or willful misconduct of
Blackstone. We also agree that no Indemnified Party shall have any liability (whether direct or
indirect, in contract or tort or otherwise) to us or our owners, parents, affiliates, security
holders or creditors for or in connection with the Private Placement Transaction except for any
such liability for losses, claims, damages or liabilities incurred by us that are finally
judicially determined by a court of competent jurisdiction to have primarily resulted from the
gross negligence or willful misconduct of Blackstone.

If the indemnification provided for in the preceding paragraph is for any reason (other than the
gross negligence or willful misconduct of Blackstone as provided above) unavailable to an
Indemnified Party in respect of any losses, claims, damages or liabilities referred to herein,
then, in lieu of indemnifying such Indemnified Party hereunder, we shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (and expenses relating thereto) in such proportion as is appropriate to reflect not
only the relative benefits received (or anticipated to be received) by you, on the one hand, and
us, on the other

 

 

hand, from the Private Placement Transaction but also the relative fault of each of you and us, as
well as any other relevant equitable considerations; provided, however, to the extent permitted by
applicable law, in no event shall your aggregate contribution to the amount paid or payable exceed
the aggregate amount of fees actually received by you in connection with the Private Placement
Transaction. For the purposes of this agreement, the relative benefits to us and to you shall be
deemed to be in the same proportion as (a) the total amount received by us in connection with the
Private Placement Transaction bears to (b) the fees paid or to be paid to Blackstone by us in
connection with the Private Placement Transaction (excluding any amounts paid as reimbursement of
expenses).

Neither party to this agreement will, without the prior written consent of the other party (which
consent will not be unreasonably withheld), settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (a “Judgment”), whether or not we or any Indemnified Party
are an actual or potential party to such claim, action, suit or proceeding. In the event that we
seek to settle or compromise or consent to the entry of any Judgment, we agree that such
settlement, compromise or consent (i) shall include an unconditional release of Blackstone and each
other Indemnified Party hereunder from all liability arising out of such claim, action, suit or
proceeding, (ii) shall not include a statement as to, or an admission of, fault, culpability or a
failure to act by or on behalf of Blackstone or each other Indemnified Party, and (iii) shall not
impose any continuing obligations or restrictions on Blackstone or each other Indemnified Party.

Promptly after receipt by an Indemnified Party of notice of any complaint or the commencement of
any action or proceeding with respect to which indemnification is being sought hereunder, such
person will notify us in writing of such complaint or of the commencement of such action or
proceeding, but failure to so notify us will not relieve us from any liability which we may have
hereunder or otherwise, except to the extent that such failure materially prejudices our rights.
If we so elect or are requested by such Indemnified Party, we will assume the defense of such
action or proceeding, including the employment of counsel reasonably satisfactory to Blackstone and
the payment of the fees and disbursements of such counsel.

In the event, however, such Indemnified Party reasonably determines in its judgment that having
common counsel would present such counsel with a conflict of interest or if we fail to assume the
defense of the action or proceeding in a timely manner, then such Indemnified Party may employ
separate counsel reasonably satisfactory to us to represent or defend it in any such action or
proceeding and we will pay the fees and disbursements of such counsel; provided, however, that we
will not be required to pay the fees and disbursements of more than one separate counsel for all
Indemnified Parties in any jurisdiction in any single action or proceeding. In any action or
proceeding the defense of which we assume, the Indemnified Party will have the right to participate
in such litigation and to retain its own counsel at such Indemnified Party’s own expense.

The foregoing reimbursement, indemnity and contribution obligations of ours under this agreement
shall be in addition to any rights that an Indemnified Party may have at common law or otherwise,
and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of ours and such Indemnified Party.

 

 

This agreement shall be governed by, and construed in accordance with, the laws of the state of New
York applicable to contracts executed in and to be performed in that state.

Kindly acknowledge your agreement to the foregoing by signing and returning to the undersigned the
enclosed copy of this letter.

	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	HealthMarkets, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Glenn W. Reed	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Glenn W. Reed	 	 
	 

	 	 	 	Executive Vice President	 	 

Accepted and Agreed to as of the date first written above:

THE BLACKSTONE GROUP L.P.

	 	 	 	 	 
	By:
	 	/s/ Martin Alderson-Smith	 	 
	 

	 	 	 	 
	 

	 	Martin Alderson-Smith	 	 
	 

	 	Senior Managing Directorexv10w1

 

EXHIBIT 10.1

	 	 	 
	 

	 	U. S. Department of Justice
	
	 	 
	 

	 	United States Attorney
	 

	 	Central District of
California
	 
	Andrew Stolper

	 	United States Courthouse
	Assistant United States Attorney

	 	411 W. Fourth Street
	(714) 338-3536

	 	Santa Ana, California 92701
	andrew.stolper@usdoj.gov
	 	 

July 18,
2006

Dan Marmalefsky, Esq. 

Morrison & Foerster LLP 

555 West Fifth Street, Suite 3500

Los Angeles, California, 90013-1024

Richard E. Drooyan, Esq. 

Munger, Tolles & Olson LLP 

355 South Grand Avenue, 35th Floor 

Los Angeles, California, 90071-1560

			
	          Re:	 	Endocare, Inc.

Dear Mr. Marmalefsky and Mr. Drooyan:

     This letter sets forth the agreement between the United States Attorney’s Office
for the Central District of California (the “USAO”), and Endocare, Inc. (“Endocare”).

	 	 	 	Introduction
	 
	 	1.	 	The USAO, in conjunction with the FBI and United States Postal
Inspection Service
is conducting a criminal investigation (the “Investigation”) into matters
relating to
Endocare’s 2001 and 2002 disclosures to investors, including its financial
statements,
press releases, and investor conference calls (“Investigated Disclosures”).
During the
course of the Investigation, the USAO notified Endocare of its belief that
one or more
Endocare employees or former employees violated federal criminal law in
connection
with the Investigated Disclosures during the course of their employment
beginning in
late 2001 and continuing through 2003 (the “relevant time period”).
	 
	 	2.	 	Endocare acknowledges that the USAO has developed evidence that
one or more
Endocare employees or former employees violated federal criminal law in
connection
with the Investigated Disclosures during the relevant time period. Endocare
accepts
responsibility for the conduct of these employees during the relevant time
period.

 

 

	 	 	 	Endocare does not endorse, ratify or condone criminal conduct and, as set forth
below, has taken steps to prevent such conduct from occurring in the future.
	 
	 	 	 	Agreement
	 
	 	3.	 	Based upon Endocare’s acceptance of responsibility in the preceding paragraph and
paragraph 7 below, its adoption of the remedial measures set forth in paragraphs 8-10
below, its commitment to implement and audit such remedial measures and its
commitment to continue to cooperate with the USAO in its investigation and potential
prosecutions of Endocare employees or former employees as set forth in paragraphs
4-6 below, the USAO agrees that it will not prosecute Endocare for any crimes
committed by its employees during the relevant time period relating to the
Investigated Disclosures. This non-prosecution Agreement shall become final and
irrevocable on January 1, 2007. Endocare understands and agrees that if it violates
this Agreement the USAO will no longer be bound by this Agreement and it will be
free to prosecute Endocare for any crimes committed by its employees relating to the
Investigated Disclosures. This Agreement does not provide any protection to any
individual or any entity other than Endocare, and, in particular, this Agreement does
not limit in any way the USAO’s ability to prosecute any individual or entity other
than Endocare for any crime.
	 
	 	4.	 	Endocare agrees that it shall truthfully disclose to the USAO all information with
respect to the activities of Endocare, its officers and employees concerning all matters
about which the USAO shall inquire, and shall fully cooperate with the USAO. This
obligation of truthful disclosure includes an obligation upon Endocare to provide to
the USAO, on request, any document, record or other tangible evidence about which
the USAO shall inquire of Endocare. This obligation of truthful disclosure includes
an obligation to provide to the USAO access to Endocare’s facilities, documents and
employees. This paragraph does not apply to any information protected by the
attorney-client privilege that was created or occurred after
January 1, 2003.
	 
	 	5.	 	Endocare agrees that upon request of the USAO, with respect to any issue relevant to
its Investigation of Endocare, Endocare shall designate knowledgeable employees,
agents or attorneys to provide information and/or materials on Endocare’s behalf to
the USAO. Endocare agrees that it must at all times give to the USAO complete,
truthful and accurate information.
	 
	 	6.	 	With respect to any information, testimony, document, record or other tangible
evidence relating to Endocare provided to the USAO or a grand jury, Endocare
consents to any and all disclosures to Governmental entities of such materials as the
USAO, in its sole discretion, deems appropriate. With respect to any such materials
that constitute “matters occurring before the grand jury” within the meaning of
Rule 6(e) of the Federal Rules of Criminal Procedure, Endocare further consents to
a) any order sought by the USAO permitting such disclosure and b) the USAO’s exparte or in camera application for such orders.

 

 

	 	7.	 	Endocare agrees that it will not, through its attorneys, board of directors, agents,
officers or employees make any statement in any SEC filing or press release that
contradicts Endocare’s acceptance of responsibility as set forth in paragraph 2 above.
Any such contradictory statement by Endocare, its attorneys, board of directors,
agents, officers or employees shall constitute a breach of this Agreement, and
Endocare thereafter would be subject to prosecution as set forth in paragraph 3 of this
Agreement — provided, however, that upon the USAO’s notifying Endocare of such
a contradictory statement, Endocare may avoid a breach of this Agreement by
publicly repudiating such statement within 72 hours after notification by the USAO.
This paragraph is not intended to apply, and does not apply, to any statement made by
any person who has been charged by the USAO with a crime relating to the
Investigated Disclosures.
	 
	 	8.	 	The USAO acknowledges that Endocare previously has provided the USAO with
information substantiating the extensive remedial actions it has taken to insure the
integrity of its financial reporting, including separation of the functions of Chief
Operating Officer and Chief Financial Officer so that it now has a dedicated full-time
CFO; appointment of an experienced financial expert as Chair of its Audit
Committee; adoption of a Financial Code of Ethics; implementation of new policies
for recognition and recording of revenues and expenses; implementation of new
policies and procedures for financial reporting and disclosure; and development of an
educational program designed to train employees at all levels on financial reporting
matters.
	 
	 	9.	 	Endocare agrees that as of the date of execution of this agreement that it is, and
thereafter shall remain, in compliance with all SEC rules and regulations.
	 
	 	10.	 	The USAO acknowledges that in anticipation of this non-prosecution agreement,
Endocare changed its officer and director indemnification policies such that Endocare
has the discretion to not advance funds to directors and executive officers for legal
fees and expenses incurred in the defense of any federal criminal indictment pending
against them and that this policy was adopted subject to then existing contractual
obligations Endocare had with its executive officers and directors. Endocare agrees
to maintain its policy of discretionary, rather than compulsory, advancement of legal
fees in the event of federal criminal indictment of its officers and/or directors.
	 
	 	11.	 	Endocare agrees that should the USAO, in its sole discretion, determine that Endocare
has deliberately given false, incomplete, or misleading information under this
Agreement; or has hereafter committed any crime, or has otherwise knowingly,
intentionally and materially violated any provision of this Agreement, Endocare shall,
in the USAO’s sole discretion, thereafter be subject to prosecution for any federal
criminal violation of which the USAO has knowledge, including any federal criminal
violation relating to the Investigated Disclosures. Endocare agrees that any such
prosecutions may be premised on information provided by Endocare, including
information provided prior to this Agreement. Moreover, Endocare agrees that any
such prosecutions that are not time-barred by the applicable statute of limitations on
the date of this Agreement may be commenced against Endocare in accordance with

 

 

	 	 	 	this Agreement, notwithstanding the expiration of the statute of limitations between the
effective date of this Agreement and January 1, 2007. By this Agreement, Endocare expressly
intends to and does waive any rights in this respect.
	 
	 	12.	 	Endocare further agrees that in the event that the USAO, in its sole discretion,
determines that Endocare has violated any provision of this Agreement: a) all
statements made by or on behalf of Endocare to the USAO, or any testimony given by
Endocare before a grand jury, the SEC, or elsewhere, whether prior or subsequent to
this Agreement, or any leads derived from such statements or testimony, shall be
admissible in evidence in any and all criminal proceedings brought by the USAO
against Endocare and b) Endocare shall not assert any claims under the United States
Constitution, Rule 11(e)(6) of the Federal Rules of Criminal Procedure, Rule 410 of
the Federal Rules of Evidence, or any other federal rule, that statements made by or
on behalf of Endocare prior to or subsequent to this Agreement, or any leads
therefrom, should be suppressed.
	 
	 	13.	 	Endocare agrees that the decision whether conduct or statements of any individual
will be imputed to Endocare for the purpose of determining whether Endocare has
violated any provision of this Agreement shall be in the sole
discretion of the USAO.
	 
	 	14.	 	The USAO and Endocare agree that this Agreement is binding only on USAO and
Endocare.
	 
	 	15.	 	The USAO and Endocare agree that Endocare’s obligations under this Agreement,
with the exception of those contained in paragraph 4 above, shall expire on January 1,
2007. The USAO and Endocare agree that Endocare’s obligations contained in
paragraph 4 above shall continue until such time as the USAO informs Endocare that
its Investigation and/or related prosecutions are complete. Should Endocare fail to
comply with its obligations under paragraph 4 after January 1, 2007, after notice of
noncompliance from the USAO, Endocare shall be liable for all expenses, including
attorneys’ fees, incurred by the USAO to enforce compliance with paragraph 4, as
well as liquidated damages of $2,500 per day.
	 
	 	16.	 	The USAO and Endocare agree that this Agreement constitutes the full and complete
agreement between them and may not be modified except in a writing signed by all
the parties.

	 	 	 	 	 
	 	Very truly yours, 

Debra Wong Yang 

United States Attorney 

 	 
	 	by  	           /s/ Andrew Stolper
 	 
	 	 	Andrew Stolper      	 
	 	 	Assistant United States Attorney 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	ENDOCARE, INC.	 	 
	 
	 	 	 	 
	By

	 	/s/ Craig Davenport	 	 
	 

	 	 	 	 
	 

	 	Craig Davenport	 	 
	 

	 	Chairman of the Board of Directors and	 	 
	 

	 	Chief Executive Officer	 	 
	 
	 	 	 	 
	 

	 	/s/ Dan Marmalefsky, Esq.	 	 
	 

	 	 

Dan Marmalefsky, Esq.
	 	 
	 

	 	Counsel to Endocare, Inc.	 	 
	 
	 	 	 	 
	 

	 	/s/ Richard E. Drooyan, Esq.	 	 
	 

	 	 

Richard E. Drooyan, Esq.
	 	 
	 

	 	Counsel to the Audit Committee of	 	 
	 

	 	Endocare’s Board of Directors

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