Document:

exv10w2

 

Exhibit 10.2

November 6, 2007

CONFIDENTIAL

Hythiam, Inc.

11150 Santa Monica Boulevard

Suite 1500

Los Angeles CA 90025

Attn: Terren S. Peizer, Chairman & CEO

Dear Terren:

     This letter (the “Agreement”) constitutes the agreement between Rodman & Renshaw, LLC
(“R&R” or the “Placement Agent”) and Hythiam, Inc. (the “Company”), that
R&R shall serve as a placement agent for the Company, on a “reasonable best efforts” basis, in
connection with the proposed placement (the “Placement”) of registered securities (the
“Securities”) of the Company, including shares (the “Shares”) of the Company’s
common stock, par value $0.0001 per share (the “Common Stock”) and warrants to purchase
shares of Common Stock. The terms of such Placement and the Securities shall be mutually agreed
upon by the Company and the purchasers (each, a “Purchaser” and collectively, the
“Purchasers”) and nothing herein constitutes that R&R would have the power or authority to
bind the Company or any Purchaser or an obligation for the Company to issue any Securities or
complete the Placement. This Agreement and the documents executed and delivered by the Company and
the Purchasers in connection with the Placement shall be collectively referred to herein as the
“Transaction Documents.” The date of the closing of the Placement shall be referred to
herein as the “Closing Date.” The Company expressly acknowledges and agrees that R&R’s
obligations hereunder are on a reasonable best efforts basis only and that the execution of this
Agreement does not constitute a commitment by R&R to purchase the Securities and does not ensure
the successful placement of the Securities or any portion thereof or the success of R&R with
respect to securing any other financing on behalf of the Company.

SECTION 1. Compensation and other Fees.

	 	a)	 	As compensation for the services provided by R&R hereunder, the Company agrees
to pay to R&R:

	 	(A)	 	a cash fee payable immediately upon the closing of the Placement of
$1,295,000.00, and
	 
	 	(B)	 	if there is any financing of equity or debt or other capital raising
activity of the Company (a “Financing”) within 18 months after the
expiration or termination of this Agreement with any investors that were introduced
to the Company by R&R pursuant to this Agreement, a cash fee payable immediately
upon the closing of any portion of any Financing and equal to 7% of the aggregate
gross proceeds raised in such Financing from such investors.

	 	b)	 	The Company also agrees to reimburse R&R’s reasonable and customary expenses,
including legal fees (with supporting invoices/receipts) up to a maximum of $35,000.
Such reimbursement shall be payable immediately upon (but only in the event of) the
closing of the Placement.

1270 Avenue of the Americas, 16th Floor, New York, NY 10020 o Tel:: 212 356 0500 Fax: 212 581 5690

www.rodmanandrenshaw.com o Member: FINRA, SIPC

 

 

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November 6, 2007

Page 2

SECTION 2. REGISTRATION STATEMENT.

The Company represents and warrants to, and agrees with, the Placement Agent that:

     (A) The Company has filed with the Securities and Exchange Commission (the
“Commission”) a registration statement on Form S-3 (Registration File No. 333-145906) under
the Securities Act of 1933, as amended (the “Securities Act”), which became effective on
October 5, 2007, for the registration under the Securities Act of the Shares. At the time of such
filing, the Company met the requirements of Form S-3 under the Securities Act. Such registration
statement meets the requirements set forth in Rule 415(a)(1)(x) under the Securities Act and
complies with said Rule. The Company will file with the Commission pursuant to Rule 424(b) under
the Securities Act, and the rules and regulations (the “Rules and Regulations”) of the
Commission promulgated thereunder, a supplement to the form of prospectus included in such
registration statement relating to the placement of the Shares and the plan of distribution thereof
and has advised the Placement Agent of all further information (financial and other) with respect
to the Company required to be set forth therein. Such registration statement, including the
exhibits thereto, as amended at the date of this Agreement, is hereinafter called the
“Registration Statement”; such prospectus in the form in which it appears in the
Registration Statement is hereinafter called the “Base Prospectus”; and the supplemented
form of prospectus, in the form in which it will be filed with the Commission pursuant to Rule
424(b) (including the Base Prospectus as so supplemented) is hereinafter called the “Prospectus
Supplement.” Any reference in this Agreement to the Registration Statement, the Base Prospectus
or the Prospectus Supplement shall be deemed to refer to and include the documents incorporated by
reference therein (the “Incorporated Documents”) pursuant to Item 12 of Form S-3 which were
filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on or
before the date of this Agreement, or the issue date of the Base Prospectus or the Prospectus
Supplement, as the case may be; and any reference in this Agreement to the terms “amend,”
“amendment” or “supplement” with respect to the Registration Statement, the Base Prospectus or the
Prospectus Supplement shall be deemed to refer to and include the filing of any document under the
Exchange Act after the date of this Agreement, or the issue date of the Base Prospectus or the
Prospectus Supplement, as the case may be, deemed to be incorporated therein by reference. All
references in this Agreement to financial statements and schedules and other information which is
“contained,” “included,” “described,” “referenced,” “set forth” or “stated” in the Registration
Statement, the Base Prospectus or the Prospectus Supplement (and all other references of like
import) shall be deemed to mean and include all such financial statements and schedules and other
information which is or is deemed to be incorporated by reference in the Registration Statement,
the Base Prospectus or the Prospectus Supplement, as the case may be. No stop order suspending the
effectiveness of the Registration Statement or the use of the Base Prospectus or the Prospectus
Supplement has been issued, and no proceeding for any such purpose is pending or has been initiated
or, to the Company’s knowledge, is threatened by the Commission. For purposes of this Agreement,
“free writing prospectus” has the meaning set forth in Rule 405 under the Securities Act
and the “Time of Sale Prospectus” means the preliminary prospectus, if any, together with
the free writing prospectuses, if any, used in connection with the Placement, including any
documents incorporated by reference therein.

     (B) The Registration Statement (and any further documents to be filed with the Commission)
contains all exhibits and schedules as required by the Securities Act. Each of the Registration
Statement and any post-effective amendment thereto, at the time it became effective, complied in
all material respects with the Securities Act and the Exchange Act and the applicable Rules and
Regulations and did not and, as amended or supplemented, if applicable, will not, contain any
untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. The Base Prospectus, the Time of Sale
Prospectus, if any, and the Prospectus Supplement, each as of its respective date, comply in all
material respects with the Securities Act and the Exchange Act and the applicable Rules and
Regulations. Each of the Base Prospectus, the Time of Sale Prospectus, if any, and the Prospectus
Supplement, as amended or supplemented, did not and will not contain as of the date thereof any
untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements
therein, in light of the circumstances under which they were made, not misleading. The
Incorporated Documents, when they were filed with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the applicable Rules and Regulations, and none
of such documents,

 

 

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when they were filed with the Commission, contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the statements therein (with
respect to Incorporated Documents incorporated by reference in the Base Prospectus or Prospectus
Supplement), in light of the circumstances under which they were made not misleading; and any
further documents so filed and incorporated by reference in the Base Prospectus, the Time of Sale
Prospectus, if any, or Prospectus Supplement, when such documents are filed with the Commission,
will conform in all material respects to the requirements of the Exchange Act and the applicable
Rules and Regulations, as applicable, and will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. No post-effective amendment to the
Registration Statement reflecting any facts or events arising after the date thereof which
represent, individually or in the aggregate, a fundamental change in the information set forth
therein is required to be filed with the Commission. There are no documents required to be filed
with the Commission in connection with the transaction contemplated hereby that (x) have not been
filed as required pursuant to the Securities Act or (y) will not be filed within the requisite time
period. There are no contracts or other documents required to be described in the Base Prospectus,
the Time of Sale Prospectus, if any, or Prospectus Supplement, or to be filed as exhibits or
schedules to the Registration Statement, which have not been described or filed as required.

     (C) The Company is eligible to use free writing prospectuses in connection with the Placement
pursuant to Rules 164 and 433 under the Securities Act. Any free writing prospectus that the
Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be,
filed with the Commission in accordance with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder. Each free writing prospectus that
the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or
that was prepared by or behalf of or used by the Company complies or will comply in all material
respects with the requirements of the Securities Act and the applicable rules and regulations of
the Commission thereunder. The Company will not, without the prior consent of the Placement Agent,
prepare, use or refer to, any free writing prospectus.

     (D) The Company has delivered, or will as promptly as practicable deliver, to the Placement
Agent complete conformed copies of the Registration Statement and of each consent and certificate
of experts, as applicable, filed as a part thereof, and conformed copies of the Registration
Statement (without exhibits), the Base Prospectus, the Time of Sale Prospectus, if any, and the
Prospectus Supplement, as amended or supplemented, in such quantities and at such places as the
Placement Agent reasonably requests. Neither the Company nor any of its directors and officers has
distributed and none of them will distribute, prior to the Closing Date, any offering material in
connection with the offering and sale of the Shares other than the Base Prospectus, the Time of
Sale Prospectus, if any, the Prospectus Supplement, the Registration Statement, copies of the
documents incorporated by reference therein and any other materials permitted by the Securities
Act.

SECTION 3. REPRESENTATIONS AND WARRANTIES. Except as set forth under the
corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part
hereof, the Company hereby makes the representations and warranties set forth below to the
Placement Agent.

     (A) Organization and Qualification. The Company is an entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the jurisdiction of
its incorporation , with the requisite power and authority to own and use its properties and assets
and to carry on its business as currently conducted.

     (B) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each of the Transaction
Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution and delivery
of each of the Transaction

 

 

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Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, its board of directors or its stockholders in
connection therewith other than in connection with the “Required Approvals” (as defined in
subsection 3(D) below). Each Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of
creditors’ rights generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.

     (C) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Securities and the consummation by the
Company of the other transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or assets of the Company or
any Subsidiary, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and regulations), or by which
any property or asset of the Company or a Subsidiary is bound or affected; except in the case of
each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a
Material Adverse Effect.

     (D) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental authority or other
“Person” (defined as an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind, including, without
limitation, any Trading Market) in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than such filings as are required to be made under
applicable Federal and state securities laws (collectively, the “Required Approvals”).

     (E) Approvals. The issuance and listing on the NASDAQ Global Market of the Shares
requires no further approvals, including but not limited to, the approval of shareholders.

     (F) FINRA Affiliations. There are no affiliations with any Financial Industry
Regulatory Authority (FINRA) member firm among the Company’s officers, directors or, to the
knowledge of the Company, any five percent (5%) or greater stockholder of the Company, except as
set forth in the Base Prospectus.

     (G) Incorporation by Reference. Each of the representations and warranties (together
with any related disclosure schedules thereto) made in that certain Securities Purchase Agreement
dated as of November 6, 2007, between the Company, and each purchaser identified on the signature
pages thereto to the purchasers thereunder is hereby incorporated herein by reference (as though
fully restated herein) and is hereby made to, and in favor of, R&R.

SECTION 4. INDEMNIFICATION. The Company agrees to the indemnification and other
agreements set forth in the Indemnification Provisions (the “Indemnification”) attached
hereto as Addendum A, the

 

 

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provisions of which are incorporated herein by reference and shall survive the termination or
expiration of this Agreement.

SECTION 5. ENGAGEMENT TERM. R&R’s engagement hereunder will be for the period of
50 days. The engagement may be terminated by either the Company or R&R at any time upon 10 days’
written notice. Notwithstanding anything to the contrary contained herein, the provisions
concerning confidentiality, indemnification, contribution and the Company’s obligations to pay fees
and reimburse expenses contained herein and the Company’s obligations contained in the
Indemnification Provisions will survive any expiration or termination of this Agreement. R&R
agrees not to use any confidential information concerning the Company provided to them by the
Company for any purposes other than those contemplated under this Agreement.

SECTION 6. R&R INFORMATION. The Company agrees that any information or advice
rendered by R&R in connection with this engagement is for the confidential use of the Company only
in their evaluation of the Placement and, except as otherwise required by law, the Company will not
disclose or otherwise refer to the advice or information in any manner without R&R’s prior written
consent.

SECTION 7. NO FIDUCIARY RELATIONSHIP. This Agreement does not create, and shall
not be construed as creating rights enforceable by any person or entity not a party hereto, except
those entitled hereto by virtue of the Indemnification Provisions hereof. The Company acknowledges
and agrees that R&R is not and shall not be construed as a fiduciary of the Company and shall have
no duties or liabilities to the equity holders or the creditors of the Company or any other person
by virtue of this Agreement or the retention of R&R hereunder, all of which are hereby expressly
waived.

SECTION 8. CLOSING. The obligations of the Placement Agent and the Purchasers,
and the closing of the sale of the Securities hereunder are subject to the accuracy, when made and
on the Closing Date, of the representations and warranties on the part of the Company and its
Subsidiaries contained herein, to the accuracy of the statements of the Company and its
Subsidiaries made in any certificates pursuant to the provisions hereof, to the performance by the
Company and its Subsidiaries of their obligations hereunder, and to each of the following
additional terms and conditions:

     (A) No stop order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been initiated or threatened by the
Commission, and any request for additional information on the part of the Commission (to be
included in the Registration Statement, the Base Prospectus or the Prospectus Supplement or
otherwise) shall have been complied with to the reasonable satisfaction of the Placement Agent.
Any filings required to be made by the Company in shall have been timely filed with the Commission.

     (B) The Placement Agent shall not have discovered and disclosed to the Company on or prior to
the Closing Date that the Registration Statement, the Base Prospectus or the Prospectus Supplement
or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion
of counsel for the Placement Agent, is material or omits to state any fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary to make the
statements therein not misleading.

     (C) All corporate proceedings and other legal matters incident to the authorization, form,
execution, delivery and validity of each of this Agreement, the Securities, the Registration
Statement, the Base Prospectus and the Prospectus Supplement and all other legal matters relating
to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all
material respects to counsel for the Placement Agent, and the Company shall have furnished to such
counsel all documents and information that they may reasonably request to enable them to pass upon
such matters.

 

 

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     (D) The Placement Agent shall have received from outside counsel to the Company such counsel’s
written opinion, addressed to the Placement Agent and the Purchasers dated as of the Closing
Date, in form and substance reasonably satisfactory to the Placement Agent, which opinion
shall include a “10b-5” representation from such counsel.

     (E) Neither the Company nor any of its Subsidiaries shall have sustained since the date of the
latest audited financial statements included or incorporated by reference in the Base Prospectus,
any loss or interference with its business from fire, explosion, flood, terrorist act or other
calamity, whether or not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth in or contemplated by the Base Prospectus and
(ii) since such date there shall not have been any change in the capital stock or long-term debt of
the Company or any of its Subsidiaries or any change, or any development involving a prospective
change, in or affecting the business, general affairs, management, financial position,
stockholders’ equity, results of operations or prospects of the Company and its Subsidiaries,
otherwise than as set forth in or contemplated by the Base Prospectus, the Time of Sale Prospectus,
if any, and the Prospectus Supplement, the effect of which, in any such case described in clause
(i) or (ii), is, in the judgment of the Placement Agent, so material and adverse as to make it
impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms
and in the manner contemplated by the Base Prospectus, the Time of Sale Prospectus, if any, and the
Prospectus Supplement.

     (F) The Common Stock is registered under the Exchange Act and, as of the Closing Date, the
Shares shall be listed and admitted and authorized for trading on the NASDAQ Global Market, and
satisfactory evidence of such actions shall have been provided to the Placement Agent. The Company
shall have taken no action designed to, or likely to have the effect of terminating the
registration of the Common Stock under the Exchange Act or delisting or suspending from trading the
Common Stock from NASDAQ Global Market, nor has the Company received any information suggesting
that the Commission or NASDAQ Global Market is contemplating terminating such registration or
listing.

     (G) Subsequent to the execution and delivery of this Agreement, there shall not have occurred
any of the following: (i) trading in securities generally on the New York Stock Exchange, the
NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the American
Stock Exchange or in the over-the-counter market, or trading in any securities of the Company on
any exchange or in the over-the-counter market, shall have been suspended or minimum or maximum
prices or maximum ranges for prices shall have been established on any such exchange or such market
by the Commission, by such exchange or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared by federal or state
authorities or a material disruption has occurred in commercial banking or securities settlement or
clearance services in the United States, (iii) the United States shall have become engaged in
hostilities in which it is not currently engaged, the subject of an act of terrorism, there shall
have been an escalation in hostilities involving the United States, or there shall have been a
declaration of a national emergency or war by the United States, or (iv) there shall have occurred
any other calamity or crisis or any change in general economic, political or financial conditions
in the United States or elsewhere, if the effect of any such event in clause (iii) or (iv) makes
it, in the sole judgment of the Placement Agent, impracticable or inadvisable to proceed with the
sale or delivery of the Securities on the terms and in the manner contemplated by the Base
Prospectus and the Prospectus Supplement.

     (H) No action shall have been taken and no statute, rule, regulation or order shall have been
enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date,
prevent the issuance or sale of the Securities or materially and adversely affect or potentially
and adversely affect the business or operations of the Company; and no injunction, restraining
order or order of any other nature by any federal or state court of competent jurisdiction shall
have been issued as of the Closing Date which would prevent the issuance or sale of the Securities
or materially and adversely affect or potentially and adversely affect the business or operations
of the Company.

 

 

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     (I) The Company shall have prepared and filed with the Commission a Current Report on Form 8-K
with respect to the Placement, including as an exhibit thereto this Agreement.

     (J) The Company shall have entered into subscription agreements with each of the Purchasers
and such agreements shall be in full force and effect and shall contain representations and
warranties of the Company as agreed between the Company and the Purchasers.

     (K) The FINRA shall have raised no objection to the fairness and reasonableness of the terms
and arrangements of this Agreement. In addition, the Company shall, if requested by the Placement
Agent, make or authorize Placement Agent’s counsel to make on the Company’s behalf, an Issuer
Filing with the Financial Industry Regulatory Authority, Inc. Corporate Financing Department
pursuant to NASD Rule 2710 with respect to the Registration Statement and pay all filing fees
required in connection therewith.

     (L) Prior to the Closing Date, the Company shall have furnished to the Placement Agent such
further information, certificates and documents as the Placement Agent may reasonably request.

     All opinions, letters, evidence and certificates mentioned above or elsewhere in this
Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form
and substance reasonably satisfactory to counsel for the Placement Agent.

SECTION 9. Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements made and to be
performed entirely in such State. This Agreement may not be assigned by either party without the
prior written consent of the other party. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and permitted assigns. Any right to
trial by jury with respect to any dispute arising under this Agreement or any transaction or
conduct in connection herewith is waived. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action or proceeding by
delivering a copy thereof via overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions of a Transaction
Document, then the prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.

SECTION 10. Entire Agreement/Misc. This Agreement (including the attached
Indemnification Provisions) 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 such provision in any other respect or any other
provision of this Agreement, which will remain in full force and effect. This Agreement may not be
amended or otherwise modified or waived except by an instrument in writing signed by both R&R and
the Company. The representations, warranties, agreements and covenants contained herein shall
survive the closing of the Placement and delivery and/or exercise of the Securities, as applicable.
This Agreement may be executed in two or more counterparts, all of which when taken together shall
be considered one and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that both parties need
not sign the same counterpart. In the event that any signature is delivered by facsimile
transmission or a .pdf format file, such electronic signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or .pdf signature page were an original thereof.

 

 

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SECTION 11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified on the signature pages attached hereto
prior to 6:30 p.m. (New York City time) on a business day, (b) the next business day after the date
of transmission, if such notice or communication
is delivered via facsimile at the facsimile number on the signature pages attached hereto on a day
that is not a business day or later than 6:30 p.m. (New York City time) on any business day, (c)
the business day following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as set forth on the signature
pages hereto.

[Remainder of page intentionally left blank. Signature page follows]

 

 

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Please confirm that the foregoing correctly sets forth our agreement by signing and returning to
R&R the enclosed copy of this Agreement.

	 	 	 	 	 
	 	Very truly yours,

RODMAN & RENSHAW, LLC

 	 
	 	By:  	/s/ John Borer
 	 
	 	 	Name:  	John Borer 	 
	 	 	Title:  	Senior Managing Director 	 
	 
	 	Address for notice:

1270 Avenue of the Americas, 16th Floor

New York, NY 10020

 	 
	 	 	 
	 	 	 
	 	 	 
	 

Accepted and Agreed to as of

the date first written above:

HYTHIAM, INC.

	 	 	 	 	 
	By:

	 	/s/ Chuck Timpe
	 	 
	 

	 	 	 	 
	 

	 	Name: Chuck Timpe

Title: Chief Financial Officer	 	 

	 	 	 
	Address for notice:

	 	With a copy (which will not constitute notice) to:
	11150 Santa Monica Boulevard

	 	Dreier Stein & Kahan LLP
	Suite 1500

	 	1620 26th Street, North Tower, 6th Floor
	Los Angeles, CA 90025

	 	Santa Monica, CA 90404
	Attn: Terren S. Peizer, Chairman & CEO

	 	Attn: John C. Kirkland, Esq.

 

 

Hythiam, Inc.

Indemnification Provisions

November 6, 2007

ADDENDUM A

INDEMNIFICATION PROVISIONS

     In connection with the engagement of Rodman & Renshaw, LLC (“R&R”) by Hythiam, Inc.
(the “Company”) pursuant to a letter agreement dated November 6, 2007, between the Company
and R&R, as it may be amended from time to time in writing (the “Agreement”), the Company
hereby agrees as follows:

	1.	 	To the extent permitted by law, the Company will indemnify R&R and its affiliates,
stockholders, directors, officers, employees and controlling persons (within the meaning of
Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange
Act of 1934) against all losses, claims, damages, expenses and liabilities, as the same are
incurred (including the reasonable fees and expenses of counsel), relating to or arising out
of its activities hereunder or pursuant to the Agreement, except to the extent that any
losses, claims, damages, expenses or liabilities (or actions in respect thereof) are found in
a final judgment (not subject to appeal) by a court of law to have resulted primarily and
directly from R&R’s willful misconduct or gross negligence in performing the services
described herein.

	2.	 	Promptly after receipt by R&R of notice of any claim or the commencement of any action or
proceeding with respect to which R&R is entitled to indemnity hereunder, R&R will promptly
notify the Company in writing of such claim or of the commencement of such action or
proceeding, and the Company will assume the defense of such action or proceeding and will
employ counsel reasonably satisfactory to R&R (Dreier Stein & Kahan LLP being deemed
satisfactory) and will pay the fees and expenses of such counsel. Notwithstanding the
preceding sentence, R&R will be entitled to employ counsel reasonably satisfactory to Company
(Feldman Weinstein LLP being deemed satisfactory) separate from counsel for the Company and
from any other party in such action if counsel for R&R reasonably determines that it would be
inappropriate under the applicable rules of professional responsibility for the same counsel
to represent both the Company and R&R. In such event, the reasonable fees and disbursements
of no more than one such separate counsel will be paid by the Company. The Company will have
the exclusive right to settle the claim or proceeding provided that the Company will not
settle any such claim, action or proceeding without the prior written consent of R&R, which
will not be unreasonably withheld.

	3.	 	The Company agrees to notify R&R promptly of the assertion against it or any other person of
any claim or the commencement of any action or proceeding relating to a transaction
contemplated by the Agreement.

	4.	 	If for any reason the foregoing indemnity is unavailable to R&R or insufficient to hold R&R
harmless, then the Company shall contribute to the amount paid or payable by R&R as a result
of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect
not only the relative benefits received by the Company on the one hand and R&R on the other,
but also the relative fault of the Company on the one hand and R&R on the other that resulted
in such losses, claims, damages or liabilities, as well as any relevant equitable
considerations. The amounts paid or payable by a party in respect of losses, claims, damages
and liabilities referred to above shall be deemed to include any legal or other fees and
expenses incurred in defending any litigation, proceeding or other action or claim.
Notwithstanding the provisions hereof, R&R’s share of the liability hereunder shall not be in
excess of the amount of fees actually received, or to be received, by R&R under the Agreement
(excluding any amounts received as reimbursement of expenses incurred by R&R).

1270 Avenue of the Americas, 16th Floor, New York, NY 10020 o Tel:: 212 356 0500 Fax: 212 581 5690

www.rodmanandrenshaw.com o Member: FINRA, SIPC

 

 

Hythiam, Inc.

November 6, 2007

Indemnification Provisions

	5.	 	These Indemnification Provisions shall remain in full force and effect whether or not the
transaction contemplated by the Agreement is completed and shall survive the termination of
the Agreement, and shall be in addition to any liability that the Company might otherwise have
to any indemnified party under the Agreement or otherwise.

	 	 	 	 	 
	 	RODMAN & RENSHAW, LLC

 	 
	 	By:  	/s/ John Borer
 	 
	 	 	Name:  	John Borer 	 
	 	 	Title:  	Senior Managing Director 	 
	 

Accepted and Agreed to as of

the date first written above:

HYTHIAM, INC.

	 	 	 	 	 
	By:

	 	/s/ Chuck Timpe
	 	 
	 

	 	 	 	 
	 

	 	Name: Chuck Timpe

Title: Chief Financial Officerexv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of October 29, 2007
(the “Effective Date”), by and between HealthMarkets, Inc., a Delaware corporation (“HealthMarkets”
or the “Company”) and David W. Fields (the “Executive”). Certain capitalized terms used herein are
defined in Section 24.

     WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed
by the Company;

     WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms and
conditions of Executive’s employment with the Company; and

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

     1. Employment. Effective as of the Effective Date, the Company hereby agrees to
employ the Executive, and the Executive hereby agrees to be employed by the Company, upon the terms
and conditions set forth herein. The employment relationship between the Company and the Executive
shall be governed by the general employment policies and practices of the Company, including
without limitation those relating to the Company’s Code of Professional Conduct, the treatment of
confidential information and avoidance of conflicts; provided, however, that when
the terms of this Agreement differ from or are in conflict with the Company’s general employment
policies or practices, the terms of this Agreement shall control. The Executive shall serve as an
officer and/or an employee of any Subsidiary, as may be requested from time to time by the
Reporting Person (as such term is defined in Section 3(a) below) and without any additional
compensation, unless otherwise determined by the Reporting Person. In addition, the Executive’s
service as an officer and/or an employee of any Subsidiary will be encompassed within any reference
made in this Agreement to employment by the Company. If the Executive serves as an officer and/or
an employee of any Subsidiary, any payment or provision of benefits to the Executive by such
Subsidiary shall fulfill the Company’s obligation to make such payment or provide such benefits
pursuant to the terms of this Agreement.

     2. Term. Subject to earlier termination of the Executive’s employment as provided
under Section 9, the Executive’s employment shall be for an initial term commencing on the
Effective Date (the “Commencement Date”) and ending on the third anniversary of the Effective Date
(the “Initial Employment Term”); provided, however, that at the end of the Initial
Employment Term and on each succeeding anniversary of the Commencement Date, the employment of the
Executive will be automatically continued upon the terms and conditions set forth herein for one
additional year (each, a “Renewal Term”), unless either party to this Agreement gives the other
party written notice (in accordance with Section 18) of such party’s intention to terminate this
Agreement and the employment of the Executive at least ninety (90) days prior to the end of such
initial or extended term. For purposes of this Agreement, the Initial

 

 

Employment Term and any Renewal Term shall collectively be referred to as the “Employment
Term.”

     3. Position and Duties of the Executive.

          (a) The Executive shall serve in the position set forth on Exhibit A and shall report directly
to the position set forth on Exhibit A attached hereto (the “Reporting Person”). The Executive
shall have such duties, responsibilities and authority commensurate with the Executive’s position
and such related duties and responsibilities, as from time to time may be assigned to the Executive
by the Reporting Person. In addition, the Executive will be subject to, and will act in
substantial accordance with, all reasonable lawful instructions and directions of the Board and all
applicable reasonable policies and rules thereof as are consistent with the above position, duties,
responsibilities and authority.

          (b) During the Employment Term, the Executive shall, except as may from time to time be
otherwise agreed in writing by the Company and during vacations (as set forth in Section 7 hereof)
and authorized leave, devote substantially all of his normal business working time and his best
efforts, full attention and energies to the business of the Company, the performance of the
Executive’s duties hereunder and such other related duties and responsibilities as may from time to
time be reasonably prescribed by the Board or any committee thereof, the Reporting Person or any
committee or person delegated by the Reporting Person, in each case, within the framework of the
Company’s policies and objectives.

          (c) During the Employment Term and provided that such activities do not either (i) contravene
the provisions of Section 3(a), 3(b), 12 or 13 hereof or (ii) materially interfere with the
performance of the Executive’s duties hereunder, the Executive may continue to serve as a member of
the governing board of the governmental, educational, charitable or other community affairs
organizations set forth on Exhibit A attached hereto. The Executive may retain all fees and other
compensation from any such service, and the Company shall not reduce his compensation by the amount
of such fees.

     4. Compensation.

          (a) Base Salary. During the Employment Term, the Company shall pay to the Executive a
base salary of not less than the amount set forth on Exhibit A attached hereto per annum (the “Base
Salary”). The Executive’s Base Salary may be increased (but not decreased) from time to time by
the Committee in its sole discretion, payable at the times and in the manner consistent with the
Company’s general policies regarding compensation of executive employees. Such Base Salary shall
be reviewed by the Board or an authorized committee of the Board at least annually for purposes of
evaluating an increase in the Executive’s Base Salary.

          (b) Cash Incentive Compensation.

               (i) With respect to the Company’s fiscal year ending 2007, the Executive will
be eligible to receive an annual performance bonus in the amount which represents a
pro-rata portion of the Executive’s Base Salary, set forth on Exhibit A attached
hereto, for each full calendar day the Executive is employed by the Company during
the 2007 fiscal year divided by 365. Subject to the

2

 

Executive’s continued employment with the Company on the date of payment, the
Executive will be paid the annual performance bonus pursuant to this Section 4(b)(i)
on or about February 1, 2008.

               (ii) With respect to each fiscal year of the Company commencing with the
Company’s 2008 fiscal year, all or part of which is contained in the Employment
Term, the Executive will be eligible to participate in the Company’s annual
management incentive program or arrangement approved by the Board (or any authorized
committee thereof) or any successor program or plan thereto or thereunder on terms
and conditions no less favorable to the Executive than those available to similarly
situated executives of the Company, a target bonus opportunity of not less than the
percentage of the Base Salary set forth on Exhibit A attached hereto (the “Target
Bonus Percentage”), and a maximum bonus opportunity of not less than the percentage
of the Base Salary set forth on Exhibit A attached hereto (the “Annual Bonus
Percentage”). The Board (or any authorized committee thereof) shall have the
authority to establish performance metrics and such other terms and conditions of
the annual management incentive program pursuant to which such bonuses may be
earned.

          (c) Equity Compensation. The Executive will be eligible to participate in the
Company’s MOP and any other incentive, equity-based and deferred compensation plans and programs or
arrangements as may be determined by the Board or any successor programs or plans thereto or
thereunder. The Committee will, effective as of the Commencement Date, award 165,000 Option Rights
(the “Initial Grant”), which Initial Grant will be awarded in three (3) tranches, will vest and
otherwise be subject to the provisions set forth in the Executive’s Non-Qualified Stock Option
Agreement to be entered into pursuant to the MOP.

               (i) Shares of the Company’s Class A-1 common stock acquired on exercise of any
Stock Option will be subject to the terms and conditions of the Stockholders’
Agreement. The Company and the Executive acknowledge that they will agree to
provide the Company with the right to require the Executive and other executives of
the Company to waive any registration rights with regard to such shares upon an IPO,
in which case the Company will implement an IPO bonus plan in cash, stock or
additional options to compensate for the Executive’s and the other executives’ loss
of liquidity.

     5. Employee Benefits. In addition to the compensation described in Section 4, the
Executive shall be eligible to participate in the employee benefit plans and programs, and to
receive perquisites, provided from time to time to similarly situated executives of the Company and
its Subsidiaries generally.

     6. Expenses.

          (a) During the Employment Term, the Company shall pay or reimburse the Executive for
reasonable and necessary expenses incurred by the Executive in connection with the Executive’s
performance of the Executive’s duties on behalf of the Company and its

3

 

Subsidiaries in accordance with the expense policy of the Company applicable to similarly
situated executives of the Company and its Subsidiaries generally.

          (b) During the Employment Term, the Company shall reimburse the Executive for certain
reasonable and documented expenses including the reasonable living expenses in Texas, including
weekly air fare from Chicago to DFW, from the Effective Date through relocation of family to Texas,
which is expected to occur no later than July 1, 2008 or at such other date agreed to by the
parties to this Agreement. In addition the Company shall reimburse the Executive for the
reasonable and customary closing costs associated with selling the Illinois home and purchasing a
residence in Texas and for the movement of household goods and belongings in accordance with the
Company’s executive relocation policy. In addition, the Company shall make an additional payment
(the “Additional Payment”) to the Executive in an amount equal to the total of all income taxes
imposed on the Executive as a result of (i) the Company’s provision of any reimbursement described
in this Section 6(b) and (ii) the Additional Payment. The Additional Payment will be an amount
such that, after payment by the Executive of all taxes, including any income tax imposed upon the
Additional Payment, the Executive retains an amount of the Additional Payment equal to the income
taxes imposed upon the payments described in this Section 6(b).

     7. Vacation. The Executive shall be entitled to a number of days of vacation per year
in accordance with the Company’s policies, whether written or unwritten, regarding vacation for
similarly situated executives of the Company and its Subsidiaries generally. Subject to the
Company’s policies, the duration of such vacations and the time or times when they shall be taken
will be determined by the Executive in consultation with the Company.

     8. Investment.

          (a) At the Effective Date, the Executive will be given the right (the “Investment Right”) to
invest cash in shares of Class A-1 Common Stock of the Company, in the amount set forth on Exhibit
A attached hereto, at the then current purchase price as of the date of this investment, pursuant
to the terms of a Subscription Agreement between the Company and the Executive, and the Executive
acknowledges that such shares of Class A-1 Common Stock will be subject to the terms and conditions
of the Stockholders Agreement. The right pursuant to this Section 8(a) must be exercised within
thirty (30) days of the Effective Date. The Executive shall make payment of the shares purchased
pursuant to this Section 8(a) by check or wire transfer as directed by the Company. Upon receipt
of the foregoing payment, the Company will issue the Executive a share certificate evidencing the
number of shares of Class A-1 Common Stock purchased.

     9. Termination.

          (a) Termination of Employment by the Company. The Executive’s employment hereunder
may be terminated by the Company or any of its Subsidiaries that employ the Executive for any
reason or no reason (including with or without Cause or notification by the Company at any time
during the Employment Term pursuant to Section 2 that the Company intends to terminate the
Agreement and the Executive’s employment, rather than allow the Agreement to renew automatically)
by written notice as provided in Section 18. If the Company

4

 

terminates the Executive’s employment with Cause, all of the Executive’s Option Rights,
whether or not vested, will be immediately forfeited. Stock Options, if any, held by the Executive
following termination of the Executive’s employment with the Company or any of its Subsidiaries,
shall remain exercisable in accordance with their terms.

          (b) Voluntary Termination by the Executive. The Executive may voluntarily terminate
the Executive’s employment with or without Good Reason at any time by notice to the Company as
provided in Section 18. Upon the Executive’s termination without Good Reason, (i) any unvested
portions of the Initial Grant will be immediately forfeited and (ii) all of the Executive’s vested
Stock Options, if any, shall remain exercisable in accordance with their terms.

          (c) Benefits Period. Subject to Section 10 and any benefit continuation requirements
of applicable laws, in the event the Executive’s employment hereunder is terminated for any reason
whatsoever, the compensation and benefits obligations of the Company under Sections 4 and 5 shall
cease as of the effective date of such termination, except for any compensation and benefits earned
but unpaid through such date.

          (d) Call Right. Upon termination of the Executive’s employment with the Company or
any of its Subsidiaries for any reason prior to an IPO, the Company will have the right to purchase
(the “Call Right”) any of the Executive’s shares of HealthMarkets’ Class A-1 common stock in
accordance with the terms and conditions of the Stockholders Agreement.

          (e) Resignation from All Positions. Notwithstanding any other provision of this
Agreement to the contrary, upon the termination of the Executive’s employment for any reason,
unless otherwise requested by the Board, the Executive shall immediately resign from all positions
that he holds with the Company, its Subsidiaries and any of their affiliates (and with any other
entities with respect to which the Company has requested the Executive to perform services), as
applicable, including, without limitation, the Board and all boards of directors of any affiliates.
The Executive hereby agrees to execute any and all documentation to effectuate such resignations
upon request by the Company, but he shall be treated for all purposes as having so resigned upon
termination of his employment, regardless of when or whether he executes any such documentation.

     10. Termination Payments and Benefits. If, during the Employment Term, the
Executive’s employment hereunder is terminated by the Company without Cause (and other than by
reason of the Executive’s death or Disability), or the Executive terminates his employment for Good
Reason, subject to (i) the Executive execution and non-revocation of a release of claims against
the Company, substantially in the form attached hereto as Exhibit B, (ii) the terms of Section 14
and (iii) the Executive’s continued compliance with the covenants of Sections 12 and 13, during the
Payment Period, then in such case the Company shall be obligated to pay to the Executive such
payments and make available to the Executive such benefits as are set forth in this Section 10
during the Payment Period.

          (a) Salary Continuation. The Executive will be entitled to receive an amount equal to
the sum of: (i) two (2) times the Executive’s Base Salary in effect at the time of termination of
employment and (ii) two (2) times an amount equal to the product of (A) the

5

 

Executive’s Base Salary in effect at the time of termination of employment and (B) the
Executive’s Target Bonus Percentage for the year of the Executive’s termination of employment, or
if the Target Bonus Percentage has not been set for such year as of the date of termination of
employment, the Target Bonus Percentage for the immediately preceding year (the sum of (i) and
(ii), the “Termination Payments”), such amount to be payable in equal installments payable over the
Payment Period. Termination Payments shall be paid to the Executive in accordance with the
Company’s regular payroll schedule for the duration of the Payment Period. In the event that the
Executive dies while any Termination Payments are still payable to the Executive hereunder, unless
otherwise provided herein, all such unpaid amounts shall be paid, not later than the tenth
(10th) business day following the Executive’s death, to the Executive’s beneficiary as
named on the Executive’s 401(k) Plan beneficiary forms, or, if no such beneficiary is so named,
then to the Executive’s estate, in the form of a lump sum cash payment equal to the remaining
Termination Payments.

          (b) Bonus Entitlement. To the extent the Executive’s termination of employment occurs
after the last day of the first quarter of an applicable Company fiscal year, the Executive will be
entitled to receive a pro rata portion of the Executive’s Target Bonus Percentage (based on the
number of days the Executive was employed with the Company during such fiscal year of termination
divided by 365), which amount shall be payable over the Payment Period; provided,
however, that, if the Target Bonus Percentage has not been set for the year in which the
date of termination occurs, the Executive’s Target Bonus Percentage for purpose of this Section
10(b) shall be the Executive’s Target Bonus Percentage for the year immediately preceding the year
in which the Executive’s employment is terminated hereunder.

          (c) Equity Compensation. To the extent not previously vested, cancelled or expired,
the Executive will vest in the Executive’s Initial Grant and any other grant of Option Rights in
accordance with their terms, which will remain exercisable in accordance with their terms.

          (d) Welfare Benefits. During the Payment Period, the Company shall maintain in full
force and effect for the continued benefit of the Executive all employee welfare benefit plans in
which the Executive was entitled to participate immediately prior to the Executive’s termination or
shall arrange to make available to the Executive benefits substantially similar to those which the
Executive would otherwise have been entitled to receive if his employment had not been terminated.
Such welfare benefits shall be provided to the Executive on the same terms and conditions under
which the Executive was entitled to participate immediately prior to his termination of employment,
including any applicable employee contributions.

          (e) Any payments under this Section 10 to the Executive shall not be taken into account for
purposes of any retirement plan (including any supplemental retirement plan or arrangement) or
other benefit plan sponsored by the Company, except as otherwise expressly required by such plans
or applicable law.

          (f) No Obligation to Mitigate. The Executive is under no obligation to mitigate
damages or the amount of any payment provided for hereunder by seeking other employment or
otherwise.

6

 

     11. Certain Additional Payments by the Company. Anything in this Agreement to the
contrary notwithstanding, in the event that it is determined (as hereafter provided) that any
payment (other than the Gross-Up Payments provided for in this Section 11 and Exhibit C attached
hereto) or distribution by the Company, its Subsidiaries or any of its affiliates to or for the
benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including any stock option, performance share, performance unit, stock
appreciation right or similar right, or the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being
considered “contingent on a change in ownership or control” of the Company, within the meaning of
Section 280G of the Code (or any successor provision thereto) or to any similar tax imposed by
state or local law, or any interest or penalties with respect to such tax (such tax or taxes,
together with any such interest and penalties, being hereafter collectively referred to as the
“Excise Tax”), then the Executive will be entitled to receive an additional payment or payments
(collectively, a “Gross-Up Payment”) (subject to Paragraph 7 of Exhibit C attached hereto. The
Gross-Up Payment will be in an amount such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up
Payment, the Executive will be considered to pay (1) federal income taxes at the highest rate in
effect in the year in which the Gross-Up Payment will be made and (2) state and local income taxes
at the highest rate in effect in the state or locality in which the Gross-Up Payment would be
subject to state or local tax, net of the maximum reduction in federal income tax that could be
obtained from deduction of such state and local taxes. The obligations set forth in this Section
11 will be subject to the procedural provisions described in Exhibit C attached hereto.

     12. Confidentiality.

          (a) The Executive acknowledges that in the course of his employment by the Company, he will or
may have access to and become informed of confidential or proprietary information of the Company
and its Subsidiaries (“Confidential Information”), which is a competitive asset, including, without
limitation, (i) the terms of any agreement between the Company and any employee, customer or
supplier, (ii) pricing strategy, (iii) merchandising and marketing methods, (iv) product
development ideas and strategies, (v) personnel training and development programs, (vi) financial
results, (vii) strategic plans and demographic analyses, (viii) proprietary computer and systems
software, and (ix) any non-public information concerning the Company, its employees, suppliers or
customers. The Executive agrees that he will keep all Confidential Information in strict
confidence during the term of his employment by the Company and thereafter, and will never directly
or indirectly make known, divulge, reveal, furnish, make available, or use any Confidential
Information (except in the course of his regular authorized duties on behalf of the Company). The
Executive agrees that the obligations of confidentiality under this Section 12 shall survive
termination of the Executive’s employment with the Company regardless of any actual or alleged
breach by the Company of this Agreement, until and unless any such Confidential Information shall
have become, through no fault of the Executive, generally known to the public or the Executive is
required by lawful service of

7

 

process, subpoena, court order, law or the rules or regulations of any regulatory body to
which he is subject to make disclosure (after providing to the Company a copy of the documents
seeking disclosure of such information and giving the Company prompt notice upon receipt of such
documents and prior to their disclosure). All records, files, memoranda, reports, customer lists,
drawings, plans, documents and the like relating to the Company’s business that the Executive uses,
prepares or comes into contact with during the course of the Executive’s employment shall remain
the sole property of the Company and/or its affiliates, as applicable, and shall be turned over to
the Company upon termination of the Executive’s employment. The Executive’s obligations under
this Section 12 are in addition to, and not in limitation of or preemption of, all other
obligations of confidentiality which the Executive may have to the Company under general legal or
equitable principles.

          (b) Except in the ordinary course of the Company’s business, the Executive has not made, nor
shall at any time following the date of this Agreement, make or cause to be made, any copies,
pictures, duplicates, facsimiles or other reproductions or recordings or any abstracts or summaries
including or reflecting Confidential Information. All such documents and other property furnished
to the Executive by the Company or any of its Subsidiaries or affiliates or otherwise acquired or
developed by the Company or any of its Subsidiaries or affiliates shall at all times be the
property of the Company. Upon termination of the Executive’s employment with the Company, the
Executive will return to the Company any such documents or other property of the Company or any of
its Subsidiaries or affiliates which are in the possession, custody or control of the Executive.

          (c) Without the prior written consent of the Company (which may be withheld for any reason or
no reason), except in the ordinary course of the Company’s business, the Executive shall not at any
time following the date of this Agreement use for the benefit or purposes of the Executive or for
the benefit or purposes of any other person, firm, partnership, association, trust, venture,
corporation or business organization, entity or enterprise or disclose in any manner to any person,
firm, partnership, association, trust, venture, corporation or business organization, entity or
enterprise any Confidential Information.

     13. Covenant Not to Compete; Covenant Not to Solicit. For a period commencing on the
Commencement Date and for a period ending two (2) years after the termination of the Executive’s
employment with the Company for any reason (the “Restricted Period”), including termination for
Cause or the Executive’s voluntary resignation without Good Reason, the Executive acknowledges and
agrees that he will not, directly or indirectly, individually or on behalf of any other person or
entity:

          (a) engage in any activity that can be reasonably expected to result in a competitive harm to
the Company or any of the Company’s Subsidiaries or affiliates (collectively, the “Company Group”)
in any region of the United States in which the business of the Company Group is being conducted;
or

          (b) solicit for hire, hire or employ (whether as an officer, director or insurance agent) any
person who is an employee or independent contractor of any member of the Company Group or has been
an employee or independent contractor of any member of the Company Group at any time during the
six-month period prior to the Executive’s termination of

8

 

employment or solicit, aid or induce any such person to leave his or her employment with any
member of the Company Group to accept employment with any other person or entity.

          (c) Executive’s ownership of less than one percent (1%) of any class of stock in a
publicly-traded corporation shall not be deemed a breach of this Section 13.

          (d) The Executive acknowledges and agrees that a violation of the foregoing provisions of
Section 12 or Section 13 would result in material detriment to the Company would cause irreparable
harm to the Company, and that the Company’s remedy at law for any such violation would be
inadequate. In recognition of the foregoing, the Executive agrees that, in addition to any other
relief afforded by law or this Agreement, including damages sustained by a breach of this Agreement
and without the necessity or proof of actual damages, the Company shall have the right to enforce
this Agreement by specific remedies, which shall include, among other things, temporary and
permanent injunctions, it being the understanding of the undersigned parties hereto that damages
and injunctions all shall be proper modes of relief and are not to be considered as alternative
remedies.

     14. Compliance with Section 409A of the Code. This Agreement is intended to comply
and shall be administered in a manner that is intended to comply with Section 409A of the Code and
shall be construed and interpreted in accordance with such intent. To the extent that a payment
and/or benefit owed or due to the Executive under this Agreement is subject to Section 409A of the
Code, it shall be paid in a manner that complies with Section 409A of the Code, including proposed,
temporary or final regulations or any other guidance issued by the Secretary of the Treasury and
the Internal Revenue Service with respect thereto (the “409A Guidance”). Any provision of this
Agreement that would cause a payment and/or benefit to fail to satisfy Section 409A of the Code
shall have no force and effect until amended to comply with Code Section 409A (which amendment
shall be effected an may be retroactive to the extent permitted by the 409A Guidance).

     15. Prior Agreement. As of the Effective Date, this Agreement supersedes any and all
prior and/or contemporaneous agreements, either oral or in writing, between the parties hereto with
respect to the subject matter hereof. Each party to this Agreement acknowledges that no
representations, inducements, promises, or other agreements, orally or otherwise, have been made by
any party, or anyone acting on behalf of any party, pertaining to the subject matter hereof, which
are not embodied herein, and that no prior and/or contemporaneous agreement, statement or promise
pertaining to the subject matter hereof that is not contained in this Agreement shall be valid or
binding on either party.

     16. Withholding of Taxes. The Company may withhold from any amounts payable or
transfer made under any compensation or other amount owing to the Executive under this Agreement
all applicable federal, state, city or other withholding taxes as the Company is required to
withhold pursuant to any law or government regulation or ruling.

     17. Successors and Binding Agreement.

          (a) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the

9

 

business or assets of the Company or of any Subsidiary or any division or business unit
thereof for which the Executive performs services, by agreement in form and substance satisfactory
to the Executive (and any such successor, the “Successor”), expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the Company would be required to
perform if no such succession had taken place. Notwithstanding anything in this Agreement to the
contrary, the Executive acknowledges and agrees that to the extent the Executive is offered and
accepts comparable employment with such Successor, the Executive will not be entitled to receive
any severance/termination compensation payments and benefits, as provided pursuant to the terms and
conditions of Section 10 or otherwise under this Agreement, from the Company in connection with
such acquisition/transaction with the Successor. To the extent the Executive is offered but does
not accept an offer of comparable employment from such Successor on terms and conditions set forth
in this Agreement, any non-acceptance of employment will be treated as a voluntary termination of
employment without Good Reason by the Executive in accordance with the provisions of this
Agreement. This Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons acquiring directly or indirectly
all or substantially all of the business or assets of the Company or of any Subsidiary or any
division or business unit thereof for which the Executive performs services whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed
the “Company” for the purposes of this Agreement), but will not otherwise be assignable,
transferable or delegable by the Company.

          (b) This Agreement will inure to the benefit of and be enforceable by the Executive’s personal
or legal representatives, executors, administrators, successors, heirs, distributees and legatees.

          (c) This Agreement is personal in nature and neither of the parties hereto shall, without the
consent of the other, assign, transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 17(a) and 17(b). Without limiting the
generality or effect of the foregoing, the Executive’s right to receive payments hereunder will not
be assignable, transferable or delegable, whether by pledge, creation of a security interest, or
otherwise, other than by a transfer by the Executive’s will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary to this Section
17(c), the Company shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.

     18. Notices. For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or permitted to be given
hereunder will be in writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five (5)
business days after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three (3) business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or Purolator,
addressed to the Company (to the attention of the Secretary of the Company) at its principal
executive offices and to the Executive at his principal residence, or to such other address as any
party may have furnished to the other in writing and in accordance herewith, except that notices of
changes of address shall be effective only upon receipt.

10

 

     19. Governing Law. The validity, interpretation, construction and performance of this
Agreement will be governed by and construed in accordance with the substantive laws of the State of
Delaware, without giving effect to the principles of conflict of laws of such State.

     20. Indemnification. The Company will indemnify the Executive (and his legal
representative or other successors) to the fullest extent permitted (including a payment of
expenses in advance of final disposition of a proceeding) by applicable law, and the Executive
shall be entitled to the protection of any insurance policies the Company may elect to maintain
generally for the benefit of its directors and officers, against all costs, charges and expenses
whatsoever incurred or sustained by him or his legal representatives (including but not limited to
any judgment entered by a court of law) at the time such costs, charges and expenses are incurred
or sustained, in connection with any action, suit or proceeding to which the Executive (or his
legal representatives or other successors) may be made a party by reason of his having accepted
employment with the Company or by reason of his being or having been a director, officer or
employee of the Company, or any Subsidiary of the Company, or his serving or having served any
other enterprise as a director, officer or employee at the request of the Company, and to the
extent the Company maintains such an insurance policy or policies, the Executive shall be covered
by such policy or policies, in accordance with its or their terms to the maximum extent of the
coverage available for any Company officer or director. The Executive’s rights under this Section
20 shall continue without time limit for so long as he may be subject to any such liability,
whether or not the Employment Term may have ended.

     21. Validity. If any provision of this Agreement or the application of any provision
hereof to any person or circumstances is held invalid or unenforceable, the remainder of this
Agreement and the application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid or unenforceable will be reformed to the extent
(and only to the extent) necessary to make it enforceable or valid.

     22. Survival of Provisions. Notwithstanding any other provision of this Agreement, the
parties’ respective rights and obligations under Sections 10, 11, 12, 13, 14, 15, 16, 20 and 22
will survive any termination or expiration of this Agreement or the termination of the Executive’s
employment for any reason whatsoever.

     23. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing signed by the
Executive and the Company. No waiver by either party hereto at any time of any breach by the other
party hereto or compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. Unless otherwise noted, references to “Sections” are to
sections of this Agreement. The captions used in this Agreement are designed for convenient
reference only and are not to be used for the purpose of interpreting any provision of this
Agreement.

     24. Defined Terms.

          (a) “401(k) Plan” means the HealthMarkets 401(k) and Savings Plan.

11

 

          (b) “409A Guidance” has the meaning specified in Section 14.

          (c) “Agreement” has the meaning specified in the introductory paragraph herein.

          (d) “Annual Bonus Percentage” has the meaning specified in Section 4(b).

          (e) “Base Salary” has the meaning specified in Section 4(a).

          (f) “Board” means the Board of Directors of the Company.

          (g) “Call Right” has the meaning specified in Section 9(d).

          (h) “Cause” means the occurrence of any of the following:

          (i) the Executive commits an act of gross negligence, willful misconduct, fraud,
embezzlement, misappropriation or breach of fiduciary duty against the Company or any
of its affiliates or Subsidiaries, or shall be convicted by a court of competent
jurisdiction of, or shall plead guilty or nolo contendere to, any felony or any crime
involving moral turpitude or any crime which reasonably could affect the reputation of
the Company or the Executive’s ability to perform the duties required under this
Agreement;

          (ii) the Executive commits a material breach of any of the covenants in this
Agreement or the Stockholders Agreement, which breach has not been remedied within 30
days of the delivery to the Executive by the Board of written notice of the facts
constituting the breach, and which breach if not cured, would have a material adverse
effect on the Company; or

          (iii) the Executive habitually and willfully neglects his obligations under this
Agreement or the Executive’s duties as an employee of the Company.

          (i) “Code” means the Internal Revenue Code of 1986, as amended.

          (j) “Commencement Date” has the meaning specified in Section 2.

          (k) “Committee” means the Executive Compensation Committee of the Board.

          (l) “Company” has the meaning specified in the introductory paragraph of this Agreement.

          (m) “Company Group” has the meaning specified in Section 13(a).

          (n) “Confidential Information” has the meaning specified in Section 12.

          (o) “Disability” shall mean the Executive’s incapacity due to physical or mental illness to
substantially perform his duties on a full-time basis for at least 26 consecutive weeks or an
aggregate period in excess of 26 weeks in any one fiscal year, and within 30 days

12

 

after a notice of termination is thereafter given by the Company, the Executive shall not have returned to the
full-time performance of the Executive’s duties; provided, however, if the
Executive shall not agree with a determination to terminate his employment because of Disability,
the question of the Executive’s Disability shall be subject to the certification of a qualified
medical doctor selected by the Company or its insurers and acceptable to the Executive or, in the
event of the Executive’s incapacity to accept a doctor, the Executive’s legal representative.

          (p) “Effective Date” has the meaning specified in the introductory paragraph of this
Agreement.

          (q) “Employment Term” has the meaning specified in Section 2.

          (r) “Excise Tax” has the meaning specified in Section 11.

          (s) “Executive” has the meaning specified in the introductory paragraph of this Agreement.

          (t) “Good Reason” means termination of employment by the Executive with written notice to the
Company within 90 days following the occurrence, without the Executive’s consent, of any the
following events (after failure of the Company to cure in thirty (30) days):

          (i) the reduction of the Executive’s position from that of Chief Operations
Officer with the Company;

          (ii) a decrease in the Executive’s Base Salary or Target Bonus Percentage, other
than in the case of a decrease for a majority of similarly situated executives of the
Company;

          (iii) a reduction in the Executive’s participation in the Company’s benefit plans
and policies to a level materially less favorable to the Executive unless such
reduction applies to a majority of the senior level executives of the Company; or

          (iv) the announcement of the relocation of the Executive’s primary place of
employment to a location 50 or more miles from the current headquarters.

          (u) “Gross-Up Payment” has the meaning specified in Section 11.

          (v) “HealthMarkets Affiliates” has the meaning specified in paragraph 1 of Exhibit B attached
hereto.

          (w) “Initial Employment Term” has the meaning specified in Section 2.

          (x) “Initial Grant” has the meaning specified in Section 4(c).

          (y) “Investment Right” has the meaning specified in Section 8(a).

13

 

          (z) “IPO” has the meaning specified in the Stockholders Agreement.

          (aa) “ISO” has the meaning specified in Section 11.

          (bb) “MOP” means the Company’s 2006 Management Option Plan, as may be amended from time to
time.

          (cc)
“National Firm” has the meaning specified in paragraph 1 of Exhibit C attached hereto.

          (dd) “Option Rights” has the meaning specified in the MOP.

          (ee) “Payment” has the meaning specified in Section 11.

          (ff) “Payment Period” means the two-year period following the later of (i) the Executive’s
date of termination of employment with the Company or (ii) the first business day after the date
that is six (6) months following the date of the Executive’s separation from service with the
Company to the extent required in order to avoid the imposition of taxes or penalties under Code
Section 409A.

          (gg) “Release” has the meaning specified in the introductory paragraph of Exhibit B attached
hereto.

          (hh) “Renewal Term” has the meaning specified in Section 2.

          (ii) “Reporting Person” has the meaning specified in Section 3(a).

          (jj) “Restricted Period” has the meaning specified in Section 13.

          (kk) “Revocation Date” has the meaning specified in paragraph 3 of Exhibit B attached hereto.

          (ll) “Stockholders Agreement” means the Stockholders Agreement by and among investment funds
affiliated with The Blackstone Group, L.P., Goldman Sachs & Co. and DLJ Merchant Banking Partners
IV, L.P., the Company, the Executive, and other signatories thereto, dated April 5, 2006, as may be
amended from time to time.

          (mm) “Stock Option” means an Option Right.

          (nn) “Subsidiary” shall mean any entity, corporation, partnership (general or limited),
limited liability company, firm, business organization, enterprise, association or joint venture in
which the Company directly or indirectly controls ten percent (10%) or more of the voting interest.

          (oo) “Successor” has the meaning specified in Section 17(a).

          (pp) “Target Bonus Percentage” has the meaning specified in Section 4(b).

          (qq) “Termination Payments” has the meaning specified in Section 9(a).

14

 

          (rr) “Underpayment” has the meaning specified in paragraph 1 of Exhibit C attached hereto.

     25. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
agreement.

15

 

     IN WITNESS WHEREOF, with the Company signatory listed below having been duly authorized by the
Company to enter into this Agreement by the Company, the parties hereto have executed this
Agreement as of the day and year first written.

	 	 	 	 	 
	 	 	 
	 	 	David W. Fields
	 
	 	 	 	 
	 	 	HealthMarkets, Inc.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	William J. Gedwed
	 

	 	 	 	President and Chief Executive Officer

16

 

Exhibit A

Position: HealthMarkets Executive Vice President and Chief Operating Officer

Reporting Person: HealthMarkets President and Chief Executive Officer

Outside Activities:                     

Base Salary: $495,000

Target Bonus Percentage: 100%

Annual Bonus Percentage: 200%

Investment: 25,000 shares of Class A-1 Common Stock

 

 

Exhibit B

Form of Release

          In consideration of the payments and promises contained in your Employment Agreement with the
Company dated October 29, 2007, and in full compromise and settlement of any of your potential
claims and causes of action relating to or arising out of your employment relationship with the
Company or the termination of that relationship, and any and all other claims or causes of action
that you have or may have against the HealthMarkets Affiliates (as defined below) up to the date of
execution of this release (the “Release”), you hereby:

     1. knowingly and voluntarily agree to irrevocably and unconditionally waive and release the
Company and any other entity controlled by, controlling or under common control with the Company,
and their respective predecessors and successors and their respective directors, officers,
employees, representatives, attorneys, including all persons acting by, through, under or in
concert with any of them (collectively, the “HealthMarkets Affiliates”), from any and all charges,
complaints, claims, liabilities, obligations, promises, sums of money, agreements, controversies,
damages, actions, lawsuits, rights, demands, sanctions, costs (including attorneys’ fees), losses,
debts and expenses of any nature whatsoever, existing on, or at any time prior to, the date hereof
in law, in equity or otherwise, which you, your successors, heirs or assigns had or have upon or by
reason of any fact, matter, cause, or thing whatsoever, and specifically including any matter that
may be based on the sole or contributory negligence (whether active, passive or gross) of any
HealthMarkets Affiliate. This release includes, but is not limited to, a release of all claims or
causes of action arising out of or relating to your employer-employee relationship with the Company
or the termination of that relationship, and any other claim, including, without limitation,
alleged breach of express or implied written or oral contract, alleged breach of employee handbook,
alleged wrongful discharge, and tort claims, or claims or causes of action arising under any
federal, state, or local law, including, but not limited to, the Age Discrimination in Employment
Act, 29 U.S.C. § 621, et seq., the Reconstruction Era Civil Rights Act of 1866 and 1871, 42 U.S.C.
§§ 1981 and 1983, the Civil Rights Act of 1964, Title VII, 42 U.S.C. §§ 2000(e) et seq., The Civil
Rights Act of 1991, 42 U.S.C. § 1981(a) et seq., the Equal Pay Act of 1963, 29 U.S.C. § 206(d) et
seq., the Americans with Disabilities Act of 1990, 42 U.S.C. §§ 12101 et seq. the Rehabilitation
Act of 1973, 29 U.S.C. § 701 et seq., the Worker Adjustment and Retraining Notification Act, 29
U.S.C. §§ 2101-2109, the Sarbanes-Oxley Act of 2002, as amended, and any claim under any other
statutes of the State of Texas, or other jurisdictions, and the facts, circumstances, allegations,
and controversies relating or giving rise thereto that have accrued to the date of execution of
this Release;

     2. agree that you will not commence, maintain, initiate, or prosecute, or cause, encourage,
assist, volunteer, advise or cooperate with any other person to commence, maintain, initiate or
prosecute, any action, lawsuit, proceeding, investigation, or claim before any court, legislative
body or committee, or administrative agency (whether state, federal or otherwise) against the
HealthMarkets Affiliates relating to any claims, liabilities, obligations, promises, sums of money,
agreements, controversies, damages, actions, lawsuits, rights, demands, sanctions, costs (including
attorneys’ fees), losses, debts and expenses described in the foregoing Paragraph 1;
provided, however, that, notwithstanding anything to the contrary in the foregoing,

 

 

nothing hereunder shall be deemed to affect, impair or diminish in any respect (i) any vested
rights as of the date of termination or entitlement you may have under the ESOP; (ii) any other
vested rights as of the date of termination you may have under any employee plan or program in
which you have participated in your capacity as an employee of the Company or any other
HealthMarkets Affiliate; (iii) your right to seek to collect unemployment benefits that you may be
entitled to as a result of your employment with the Company or your right to seek benefits under
workers’ compensation insurance, if applicable; (iv) your rights under this Release; including but
not limited to your right to bring a claim for breach of this Release; (v) any rights you may have
under that Section 20 (Indemnification) of the Employment Agreement and certain Indemnification
Agreement, dated as of ___, 2007 between you and the Company (which Indemnification Agreement the
Company, by its signature hereto, confirms shall remain in full force and effect in accordance with
the terms thereof); (vi) any rights to indemnification that you have or may have under the terms of
the HealthMarkets Amended and Restated Bylaws; or (vii) your right to bring a claim under the Age
Discrimination in Employment Act to challenge the validity of this Release, to file a charge under
the civil rights statutes, or to otherwise participate in an investigation or proceeding conducted
by the Equal Employment Opportunity Commission or other investigative agency;

     3. acknowledge that: (i) this entire Release is written in a manner calculated to be
understood by you; (ii) you have been advised to consult with an attorney before executing this
Release; (iii) you were given a period of twenty-one days within which to consider this Release;
and (iv) to the extent you execute this Release before the expiration of the twenty-one-day period,
you do so knowingly and voluntarily and only after consulting your attorney. You shall have the
right to cancel and revoke this Release during a period of seven days following the date on which
you execute it, and this Release shall not become effective, and no money will be paid to you in
respect of severance, until the day after the expiration of such seven-day period (the “Revocation
Date”). In order to revoke this Release, you shall deliver to the Company, prior to the expiration
of said seven-day period, a written notice of revocation. Upon such revocation, this Release shall
be null and void and of no further force or effect;

     4. agree to make yourself reasonably available to the Company following the date of your
termination to assist the HealthMarkets Affiliates, as may be requested by the Company at mutually
convenient times and places, with respect to the business of the Company and pending and future
litigations, arbitrations, governmental investigations or other dispute resolutions relating to or
in connection with the Company; and

     5. agree not to, either in writing or by any other medium, make any disparaging or derogatory
statement about the HealthMarkets Affiliates or any of their respective officers, directors,
employees, affiliates, Subsidiaries, successors, assigns or businesses, as the case may be;
provided, however, that you may make such statements as are necessary to comply with law.

 

 

Exhibit C

EXCISE TAX GROSS-UP PROCEDURAL PROVISIONS

     1. Subject to the provisions of Paragraph 5, all determinations required to be made under
Section 11 of the Agreement and this Exhibit C, including whether an Excise Tax is payable by the
Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid
by the Company to the Executive and the amount of such Gross-Up Payment, if any, will be made by a
nationally recognized accounting firm selected by the Company (the “National Firm”). The Company
will direct the National Firm to submit its determination and detailed supporting calculations to
both the Company and the Executive within thirty (30) calendar days after the date of termination
of the Executive’s employment, if applicable, and any such other time or times as may be requested
by the Company or the Executive. If the National Firm determines that any Excise Tax is payable by
the Executive, the Company will pay the required Gross-Up Payment to the Executive within five (5)
business days after receipt of such determination and calculations with respect to any Payment to
the Executive. If the National Firm determines that no Excise Tax is payable by the Executive with
respect to any material benefit or amount (or portion thereof), it will, at the same time as it
makes such determination, furnish the Company and the Executive with an opinion that the Executive
has substantial authority not to report any Excise Tax on Executive’s federal, state or local
income or other tax return with respect to such benefit or amount. As a result of the uncertainty
in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of any determination by the National Firm hereunder,
it is possible that Gross-Up Payments that will not have been made by the Company should have been
made (an “Underpayment”), consistent with the calculations required to be made hereunder. In the
event that the Company exhausts or fails to pursue its remedies pursuant to Paragraph 5 and the
Executive thereafter is required to make a payment of any Excise Tax, the Executive will direct the
National Firm to determine the amount of the Underpayment that has occurred and to submit its
determination and detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment will be promptly paid by the Company to, or for the
benefit of, the Executive within five (5) business days after receipt of such determination and
calculations.

     2. The Company and the Executive will each provide the National Firm access to and copies of
any books, records and documents in the possession of the Company or the Executive, as the case may
be, reasonably requested by the National Firm, and otherwise cooperate with the National Firm in
connection with the preparation and issuance of the determinations and calculations contemplated by
Paragraph 1. Any determination by the National Firm as to the amount of the Gross-Up Payment will
be binding upon the Company and the Executive.

     3. The federal, state and local income or other tax returns filed by the Executive will be
prepared and filed on a consistent basis with the determination of the National Firm with respect
to the Excise Tax payable by the Executive. The Executive will report and make proper payment of
the amount of any Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of the Executive’s federal income tax

 

 

return as filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such other documents
reasonably requested by the Company, evidencing such payment. If prior to the filing of the
Executive’s federal income tax return, or corresponding state or local tax return, if relevant, the
National Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive
will within five (5) business days pay to the Company the amount of such reduction.

     4. The fees and expenses of the National Firm for its services in connection with the
determinations and calculations contemplated by Paragraph 1 will be borne by the Company. If such
fees and expenses are initially paid by the Executive, the Company will reimburse the Executive the
full amount of such fees and expenses within five (5) business days after receipt from the
Executive of a statement therefor and reasonable evidence of Executive’s payment thereof.

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

          (a) provide the Company with any written records or documents in Executive’s possession
relating to such claim reasonably requested by the Company;

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

          (c) cooperate with the Company in good faith in order effectively to contest such claim; and

          (d) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such contest and will
indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or
income or other tax, including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limiting the foregoing provisions
of this Paragraph 5, the Company will control all proceedings taken in connection with the contest
of any claim contemplated by this Paragraph 5 and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and conferences with the taxing authority in

C-2

 

respect of such claim (provided, however, that the Executive may participate
therein at Executive’s own cost and expense) and may, at its option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the Company determines;
provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a
refund, the Company will advance the amount of such payment to the Executive on an interest-free
basis and will indemnify and hold the Executive harmless, on an after-tax basis, from any Excise
Tax or income or other tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and provided further, however, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the Executive with
respect to which the contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of any such contested claim will be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder, and the Executive will be
entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

          6. If, after the receipt by the Executive of an amount advanced by the Company pursuant to
Paragraph 5, the Executive receives any refund with respect to such claim, the Executive will
(subject to the Company’s complying with the requirements of Paragraph 5) promptly pay to the
Company the amount of such refund (together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by the Executive of an amount paid by the Company
pursuant to Paragraph 5, a determination is made that the Executive is not entitled to any refund
with respect to such claim and the Company does not notify the Executive in writing of its intent
to contest such denial or refund prior to the expiration of thirty (30) calendar days after such
determination, then such payment will be forgiven and will not be required to be repaid and the
amount of any such payment will offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to Section 11 and this Exhibit C.

          7. Notwithstanding any provision of this Agreement to the contrary, but giving effect to any
redetermination of the amount of Gross-Up payments otherwise required by this Exhibit C, if (A) but
for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive, (B)
the aggregate “present value” of the “parachute payments” to be paid or provided to the Executive
under this Agreement or otherwise does not exceed 1.10 multiplied by three times the Executive’s
“base amount,” then the payments and benefits to be paid or provided under this Agreement will be
reduced (or repaid to the Company, if previously paid or provided) to the minimum extent necessary
so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes
an “excess parachute payment.” For purposes of this Paragraph 7, the terms “excess parachute
payment,” “present value,” “parachute payment,” and “base amount” will have the meanings assigned
to them by Section 280G of the Code. The determination of whether any reduction in or repayment of
such payments or benefits to be provided under this Agreement is required pursuant to this
Paragraph 7 will be made at the expense of the Company by the National Firm. Appropriate
adjustments will be made to amounts previously paid to the Executive, or to amounts not paid
pursuant to this Paragraph 7, as the case may be, to reflect properly a subsequent determination
that the Executive owes more or less Excise Tax than the amount previously determined to be due.
In the event that any payment

C-3

 

or benefit intended to be provided under this Agreement or otherwise is required to be reduced
or repaid pursuant to this Paragraph 7, the Executive will be entitled to designate the payments
and/or benefits to be so reduced or repaid in order to give effect to this Paragraph 7. The
Company will provide the Executive with all information reasonably requested by the Executive to
permit the Executive to make such designation. In the event that the Executive fails to make such
designation within ten (10) business days prior to the Termination Date or other due date, the
Company may effect such reduction or repayment in any manner it deems appropriate.

C-4

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