Change in Control Employment Agreement - HealthAxis Ltd. and Nancy Lockerman Mendoza
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between Healthaxis, Ltd., a Texas limited partnership (the
"Company") and an indirect wholly owned subsidiary of HealthAxis Inc., a
Pennsylvania corporation (the "Parent"), and Nancy Lockerman Mendoza (the
"Executive"), dated as of the 1st day of January, 2002.
The Board of Managers of Healthaxis Managing Partner, LLC, the general
partner of the Company (the "Managers"), has determined that it is in the best
interests of the Company and its partners to assure that the Company will have
the continued dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change in Control (as defined below). The Managers
believe it is imperative to diminish the inevitable distraction of the Executive
by virtue of the personal uncertainties and risks created by a pending or
threatened Change in Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any threatened or
pending Change in Control, and to provide the Executive with compensation and
benefits arrangements upon a Change in Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Managers, at the direction and with the
approval of the Board of Directors of the Parent, have caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the Change
in Control Period (as defined in Section 1(b)) on which a Change
in Control (as defined in Section 1(d)) occurs. Anything in this
Agreement to the contrary notwithstanding, the "Effective Date"
shall mean the date immediately prior to the date of the
Executive's termination of employment, if such termination occurs
either (i) within six (6) months prior to a Change in Control; or
(ii) prior to a Change in Control and reasonably demonstrated by
the Executive to be at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or
otherwise arising in connection with or anticipation of a Change
in Control.
(b) The "Change in Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the
date hereof, provided, however, that commencing on the date one
year after the date hereof, and on each annual anniversary of
such date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Change in Control Period shall be automatically
extended so as to terminate three years from such
<PAGE>
Renewal Date, unless at least 60 days prior to the Renewal Date
the Company shall give notice to the Executive that the Change in
Control Period shall not be so extended.
(c) "Subsidiary" shall mean any corporation or other entity taxable
as a corporation under Section 7701(a)(3) of the Internal Revenue
Code of 1986, as amended (the "Code") that is a member of the
"affiliated group" as defined in Section 1504(a) of the Code of
which the Parent is a common parent corporation; provided,
however, that in each case the subsidiary corporation or other
entity must be consolidated in the Parent's financial statements.
(d) "Change in Control" shall mean (i) a merger or consolidation of
the Parent or the Company with or into another corporation in
which the Parent or the Company shall not be the surviving
corporation (for purposes of this clause (i), a merger or
consolidation in which the Parent or the Company becomes a
subsidiary of another entity shall not be deemed a transaction in
which the Parent or the Company is the surviving corporation);
(ii) a dissolution of the Parent or the Company, provided,
however, that a dissolution of the Company which is a direct
result of the Company's default on the outstanding two percent
(2%) convertible debt held by Brown Simpson Partners I, Ltd. and
other investors shall not be treated as triggering a Change in
Control under this Section 1(d); (iii) a transfer of all or
substantially all of the assets of the Parent or the Company in
one transaction or a series of related transactions to one or
more other persons or entities; (iv) any "person" or "group" (as
those terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended from time to time
(the "1934 Act"), other than Excluded Persons (as defined below),
becomes the "beneficial owner" (as defined in Rule 13d-3 of the
1934 Act), directly or indirectly, of securities of the Parent or
the Company representing 50% or more of the combined voting power
of the Parent's or the Company's then outstanding securities; (v)
after January 1, 2002, UICI and/or any affiliate of UICI
acquires, directly or indirectly, the power to vote over 50% of
the voting securities of the Parent or the Company, provided,
however, that any shares UICI acquires as a direct result of a
forfeiture of the options to acquire shares of the Company's
common stock held in the Founders Plan Voting Trust shall not be
included in any determination as to whether UICI has acquired the
power to vote over 50% of the voting securities of the Parent or
the Company; (vi) after January 1, 2002, individuals who at the
beginning of the period constituted the Board of Directors of the
Parent (the "Board") (together with any new directors whose
election by such Board or whose nomination for election by the
stockholders of the Parent was approved by a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute at least a majority of the Board of Directors then in
office; or (vii) a significant
-2-
<PAGE>
reorganization of the Parent or the Company occurs, such as a
spin-off, sale of assets of a business or other restructuring,
and as a result, the duties and responsibilities of the Executive
are materially reduced. The term "Excluded Persons" means UICI,
any affiliate of UICI, and a trustee or other fiduciary holding
securities under an employee benefit plan of the Parent or the
Company.
For purposes hereof, a person will be deemed to be the beneficial
owner of any voting securities of the Parent which it would be
considered to beneficially own under Securities and Exchange
Commission Rule 13d-3 (or any similar or superseding statute or
rule from time to time in effect).
2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
3. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the
most significant of those held, exercised and assigned at
any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be
performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this
Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, and (B) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance
with this Agreement.
-3-
<PAGE>
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"),
which shall be paid at a monthly rate, at least equal to
twelve times the highest monthly base salary paid or
payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall
be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective
Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any
other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased.
As used in this Agreement, the term "affiliated companies"
shall include the Parent, the Subsidiaries, and any other
company controlled by, controlling or under common control
with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending
during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the Executive's highest
comparable bonus under any predecessor or successor plan,
for the last three full fiscal years prior to the Effective
Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year).
Each such Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless
the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated companies
for the Executive under such plans, practices, policies and
programs as in effect at any time during the 120-day period
-4-
<PAGE>
immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of
the Company and its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated
companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but
in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and
its affiliated companies.
(v) EXPENSES. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for
the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to
the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 11(b) of this
Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt
of such notice by the Executive (the "Disability Effective
Date"), provided that, within 30 days after such receipt, the
Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability"
shall have the meaning set forth in the long-term
-5-
<PAGE>
disability plan providing benefits to disabled executives of the
Company and its affiliated companies at the Disability Effective
Date or, if more favorable to the Executive, as in effect during
the 120-day period immediately preceding the Effective Date. If
there is no long term disability plan in effect for executives at
the Effective Date, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the
Company or one of its affiliates to the extent, degree and
level of performance as provided in Section 3(a)(ii) (other
than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or
Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission
was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief
Executive Officer or a senior officer of the Company or based
upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding
-6-
<PAGE>
that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the assignment of the Executive to a position in which the
Executive's authority, duties or responsibilities are
materially diminished from the authority, duties or
responsibilities as contemplated by Section 3(a) of this
Agreement, or any other action by the Company or its
affiliated companies which results in a material diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company or its affiliated companies to
comply with any of the provisions of Section 3(b) of this
Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section
3(a)(i)(B) hereof or the Company's requiring the Executive
to travel on Company business to a substantially greater
extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
For purposes of this Section 4(c), any good faith determination
of Good Reason made by the Executive shall be conclusive.
Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day
period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good
Reason for all purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by
Notice of
-7-
<PAGE>
Termination to the other party hereto given in accordance with
Section 11(b) of this Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
30 days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the
Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's
rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or
by the Executive for Good Reason, the date of receipt of the
Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by
the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's
employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON, OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If,
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate
of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the Annual
Bonus which would have been paid for the year in which
the Executive's Date of Termination occurs, and (y) a
fraction, the numerator of which is the number of days
in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and
(3) any compensation previously deferred
-8-
<PAGE>
by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be
hereinafter referred to as the "Accrued Obligations");
and
B. the amount equal to the sum of (x) the Executive's
Annual Base Salary and (y) the Executive's Target
Bonus. For purposes of the preceding sentence, the
Executive's Target Bonus shall be an amount equal to
the average of the annual bonuses received by the
Executive pursuant to the Company's Management
Incentive Plan (or any similar future bonus program)
for the preceding three years, provided, however, that
(a) any Target Bonus paid during 2002 shall be equal to
$65,450, (b) any Target Bonus paid during 2003 shall be
equal to the average of $65,450 and the 2002 actual
bonus amount and (c) any Target Bonus paid during 2004
shall be equal to the average of $65,450, the 2002
actual bonus amount and the 2003 actual bonus amount.
(ii) all stock options or restricted stock awarded to the
Executive by either the Parent or a successor by merger,
consolidation or otherwise, including, but not limited to,
all awards under the HealthAxis Inc. 2000 Stock Option Plan,
the Healthaxis.com, Inc. 1998 Amended and Restated Stock
Plan, and the Insurdata Incorporated 1999 Stock Option Plan,
shall become 100% vested and, the stock options shall be
exercisable for a period equal to thirty-six (36) months
after the Executive's Date of Termination; provided,
however, that if the Executive terminates her employment for
"Good Reason" and the basis for such "Good Reason" is
voluntary resignation during the 30 day period immediately
following the first anniversary of a Change in Control (as
provided in the final paragraph of Section 4(c)), then (a)
the vesting provisions of the Executive's restricted stock
(if any) and stock options shall remain unchanged, and (b)
the Executive's stock options shall be exercisable during
the exercise period provided in her stock option award
agreement and/or under the applicable option plan's terms;
(iii) for twelve (12) months after the Executive's Date of
Termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section
3(b)(iv) of this Agreement if the Executive's employment
-9-
<PAGE>
had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however,
that if the Executive becomes re-employed with another
employer and is eligible to receive equivalent medical or
other welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan
during such applicable period of eligibility.
(iv) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services for a period of
twelve (12) months, the provider of which shall be selected
by the Executive in her sole discretion; and
(v) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and
benefits shall be hereinafter referred to as the "Other
Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination.
(c) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized
in this Section 5(c) shall include, and the Executive shall be
entitled after the Disability Effective Date to receive,
disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families
in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the
-10-
<PAGE>
Executive and/or the Executive's family, as in effect at any time
thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) CAUSE, OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive (x)
her Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive,
and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason,
this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 11(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company or any of its
affiliated companies may have against the Executive or others. In no event shall
the Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, except to the extent provided in Section
5(a)(ii) hereof, such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or any of its affiliated companies, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
-11-
<PAGE>
8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined
that any payment or distribution by the Company 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, but determined without regard to any additional
payments required under this Section 8) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment")
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, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and
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 Payments.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving
at such determination, shall be made by Ernst & Young or such
other certified public accounting firm as may be designated by
the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from
the Executive that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive
shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-Up Payment, as determined pursuant to this
Section 8, shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 8(c)
and the Executive
-12-
<PAGE>
thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten (10) business days after the Executive is informed in
writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation of the foregoing provisions of this Section 8(c), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole 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
-13-
<PAGE>
appellate courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay such
claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 8(c), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 8(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company
pursuant to Section 8(c), a determination is made that the
Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
9. NON-COMPETE, CONFIDENTIAL INFORMATION AND RELEASE.
(a) COVENANT NOT TO COMPETE.
(i) Compliance with the provisions of this Section 9 are an
express condition of the Executive's right to receive
payments, vesting, and benefits hereunder. The Executive
acknowledges and recognizes the confidential information and
records provided by the Company, the Parent, and its
subsidiaries, affiliates, successors, and assigns
(collectively, the "Employer"), the benefits provided
hereunder, and the professional training and experience she
will receive from and the contacts she will be provided by
the Employer, as well as the highly competitive nature of
the Employer's business, and in consideration of all of the
above, agrees that during the period beginning on the
effective date of the Executive's termination of employment
with the Employer (the "Date of Termination") and
-14-
<PAGE>
ending twelve (12) months thereafter (the "Covered Time"),
the Executive will not compete with the business of the
Employer. For purposes hereof, "competition" shall mean any
engaging, directly or indirectly, in the "Covered Business"
(as hereinafter defined) in any state of the United States
of America or any nation in which the Employer is conducting
business as of the Date of Termination (the "Covered Area").
For purposes of this Agreement, "Covered Business" shall
mean providing any services similar in scope or nature to
the services provided by the Executive immediately prior to
her Date of Termination. For purposes of this Section 9, the
phrase "engaging, directly or indirectly" shall mean
engaging directly or having an interest, directly or
indirectly, as owner, partner, shareholder, agent,
representative, employee, officer, director, independent
contractor, capital investor, lender, renderer of
consultation services or advice or otherwise (other than as
the holder of less than 2% of the outstanding stock of a
publicly-traded corporation), either alone or in association
with others, in the operation of any aspect of any type of
business or enterprise engaged in any aspect of the Covered
Business.
(ii) The Executive agrees that during the term of this Agreement
(including any extensions thereof) and for the twenty-four
(24) months thereafter, she shall not (i) directly or
indirectly solicit or attempt to solicit any of the
employees, agents, consultants, or representatives of the
Employer or affiliates of the Employer to leave any of such
entities; or (ii) directly or indirectly solicit or attempt
to solicit any of the employees, agents, consultants or
representatives of the Employer or affiliates of the
Employer to become employees, agents, representatives or
consultants of any other person or entity.
(iii) The Executive understands that the provisions of Sections
9(a)(i) and (ii) may limit her ability to earn a livelihood
in a business similar to the business of the Employer but
nevertheless agrees and hereby acknowledges that the
restrictions and limitations thereof are reasonable in
scope, area, and duration, are reasonably necessary to
protect the goodwill and business interests of the Employer,
and that the consideration provided under this Agreement is
sufficient to justify the restrictions contained in such
provisions. Accordingly, in consideration thereof and in
light of the Executive's education, skills and abilities,
the Executive agrees that she will not assert that, and it
should not be considered that, such provisions are either
unreasonable in scope, area, or duration, or will prevent
her from earning a living, or otherwise are void, voidable,
or unenforceable or should be voided or held unenforceable.
-15-
<PAGE>
(b) ENFORCEMENT.
(i) The parties hereto agree and acknowledge that the covenants
and agreements contained herein are reasonable in scope,
area, and duration and necessary to protect the reasonable
competitive business interests of the Employer, including,
without limitation, the value of the proprietary information
and goodwill of the Employer.
(ii) The Executive agrees that the covenants and undertakings
contained in Section 9 of this Agreement relate to matters
which are of a special, unique and extraordinary character
and that the Employer cannot be reasonably or adequately
compensated in damages in an action at law in the event the
Executive breaches any of these covenants or undertakings.
Therefore, the Executive agrees that the Employer shall be
entitled, as a matter of course, without the need to prove
irreparable injury, to an injunction, restraining order or
other equitable relief from any court of competent
jurisdiction, restraining any violation or threatened
violation of any of such terms by the Executive and such
other persons as the court shall order. The Executive agrees
to pay costs and legal fees incurred by the Employer in
obtaining such injunction.
(iii) Rights and remedies provided for in this Section 9(b) are
cumulative and shall be in addition to rights and remedies
otherwise available to the parties under any other agreement
or applicable law.
(iv) In the event that any provision of this Agreement shall to
any extent be held invalid, unreasonable or unenforceable in
any circumstances, the parties hereto agree that the
remainder of this Agreement and the application of such
provision of this Agreement to other circumstances shall be
valid and enforceable to the fullest extent permitted by
law. If any provision of this Agreement, or any part
thereof, is held to be unenforceable because of the scope or
duration of or the area covered by such provision, the
parties hereto agree that the court or arbitrator making
such determination shall reduce the scope, duration and/or
area of such provision (and shall substitute appropriate
provisions for any such unenforceable provisions) in order
to make such provision enforceable to the fullest extent
permitted by law, and/or shall delete specific words and
phrases, and such modified provision shall then be
enforceable and shall be enforced. The parties hereto
recognize that if, in any judicial proceeding, a court shall
refuse to enforce any of the separate covenants contained in
this Agreement, then that unenforceable covenant contained
in this Agreement shall be deemed eliminated from these
provisions to the extent necessary to permit the remaining
separate covenants to be enforced. In the event that any
court or arbitrator determines that the time period or the
area, or both, are
-16-
<PAGE>
unreasonable and that any of the covenants is to that extent
unenforceable, the parties hereto agree that such covenants
will remain in full force and effect, first, for the
greatest time period, and second, in the greatest
geographical area that would not render them unenforceable.
(v) In the event of the Executive's breach of this Section 9, in
addition to all other rights the Employer may have hereunder
or in law or in equity, all payments and benefits hereunder
shall cease; all options, stock, and other securities
granted by the Employer, including stock obtained through
prior exercise of options, shall be immediately forfeited
(whether or not vested), and the original purchase price, if
any, shall be returned to the Executive; and all profits
received through exercise of options or sale of stock, and
all previous payments and benefits made or provided
hereunder shall be promptly returned and repaid to the
Company.
(c) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this
Section 9(c) constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(d) RELEASE. The Executive's execution of a complete and general
release of any and all of her potential claims (other than for
vested benefits described in this Agreement or any other vested
benefits with the Company and/or its affiliates) against the
Company, any of its affiliated companies, and their respective
successors and any officers, employees, agents, directors,
attorneys, insurers, underwriters, and assigns of the Company,
its affiliates and/or successors, is an express condition of the
Executive's right to receive payments, vesting, and benefits
hereunder. The Executive shall be required to execute a Waiver
and Release Agreement which documents the release required under
this Section 9(d), the form of which shall be provided to the
Executive by Company.
-17-
<PAGE>
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company
and/or the Parent to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
11. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without reference to
principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
IF TO THE EXECUTIVE:
--------------------
NANCY LOCKERMAN MENDOZA
P.O. Box 1128
White Stone, VA 22578
IF TO THE COMPANY:
------------------
HEALTHAXIS, LTD.
5215 N. O'Connor Blvd., Suite 800
Irving, Texas 75039
Attention: President
-18-
<PAGE>
WITH COPY TO:
------------
Healthaxis, Ltd.
5215 N. O'Connor Blvd., Suite 800
Irving, Texas 75039
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section
4(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver
of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by
the Company is "at will" and, subject to Section 1(a) hereof,
prior to the Effective Date, the Executive's employment and/or
this Agreement may be terminated by either the Executive or the
Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement.
From and after the Effective Date, this Agreement shall supersede
any other agreement between the parties with respect to the
subject matter hereof
-19-
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Managers, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
EXECUTIVE:
/s/ Nancy Lockerman Mendoza
--------------------------------------
Nancy Lockerman Mendoza
HEALTHAXIS, LTD.
By its General Partner,
HEALTHAXIS MANAGING PARTNER, LLC
By:
---------------------------------
Its:
--------------------------------
The Board of Directors of HEALTHAXIS, INC. (the Parent) has authorized the
undersigned officer to execute the foregoing Change in Control Employment
Agreement in order to indicate its approval of such Agreement.
HEALTHAXIS, INC.
By:
---------------------------------
-20-