Change in Control Employment Agreement - HealthAxis Ltd. and John D. Smith
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 John D. Smith (the "Executive"),
dated as of the 1st day of April, 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 January 1, 2005,
provided, however, that commencing on January 1, 2003, and on
January 1 of each year thereafter (each such date shall be
hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change in Control Period shall
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be automatically extended so as to terminate three years from
such 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 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
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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.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base
Salary"), which shall be
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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 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.
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(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"
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shall have the meaning set forth in the long-term 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 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.
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(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 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
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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 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
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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) one and
one-half (1 1/2) times 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 $70,000, (b) any Target
Bonus paid during 2003 shall be equal to the
average of $70,000 and the 2002 actual bonus
amount and (c) any Target Bonus paid during 2004
shall be equal to the average of $70,000, 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 his 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 his 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 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
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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 his 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 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.
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(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) his 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.
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
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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 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
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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 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
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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
he will receive from and the contacts he 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 ending eighteen (18)
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
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mean providing any services similar in scope or nature
to the services provided by the Executive immediately
prior to his 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, he 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 his 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 he will not assert
that, and it should not be considered that, such
provisions are either unreasonable in scope, area, or
duration, or will prevent him from earning a living, or
otherwise are void, voidable, or unenforceable or should
be voided or held unenforceable.
(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
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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 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
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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 his 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.
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.
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(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:
JOHN D. SMITH
11 Twilight Circle
Collegeville, PA 19426
IF TO THE COMPANY:
HEALTHAXIS, LTD.
5215 N. O'Connor Blvd., Suite 800
Irving, Texas 75039
Attention: President
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.
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<PAGE>
(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.
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/ JOHN D. SMITH
-----------------------------------
John D. Smith
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HEALTHAXIS, LTD.
By its General Partner,
HEALTHAXIS MANAGING PARTNER, LLC
By: /s/ JAMES W. MCLANE
------------------------------
James W. McLane
Its: President & Manager
The Compensation & Nominating Committee of 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: /s/ BRENT WEBB
------------------------------
Brent Webb
Its: Secretary
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