EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is executed and effective as
of this 28TH day of SEPTEMBER , 2000 ("EFFECTIVE DATE") by and between American
Medical Security Group, Inc., a Wisconsin corporation (the "COMPANY") and Samuel
V. Miller, an individual ("EMPLOYEE").
RECITALS
The Company, formerly known as United Wisconsin Services, Inc., a Wisconsin
corporation ("AMSG") and Employee were parties to an employment and
non-competition agreement dated as of October 30, 1995 (the "OLD AGREEMENT").
Since the date of the Old Agreement, AMSG acquired the American Medical
Security Group, Inc., a Delaware corporation by merger (the "AMSG MERGER"), and
transferred a substantial portion of the assets of that Delaware corporation to
American Medical Security Holdings, Inc. ("AMSH").
The Old Agreement was superseded by a subsequent agreement dated as of
April 7, 1998 among AMSG, AMSH, and Employee (the "PRIOR AGREEMENT").
After the date the Prior Agreement was executed, AMSG established a new
subsidiary ("NEWCO") and transferred its managed care business to Newco. AMSG
was renamed "American Medical Security Group, Inc." and Newco was renamed
"United Wisconsin Services, Inc." and the stock of Newco was distributed to
shareholders of AMSG.
Amendment Number One to the Prior Agreement, effective September 25, 1998
("AMENDMENT NUMBER One"), made AMSG a party to the Prior Agreement in connection
with Employee's options to purchase stock of AMSG, and further made Newco a
party to the Agreement in connection with Employee's options to purchase stock
of Newco.
The parties desire to supersede the Prior Agreement and Amendment Number
One as hereinafter set forth.
The Company desires to employ Employee on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
EMPLOYMENT
1.1 TERM OF EMPLOYMENT. The Company agrees to continue to employ
Employee, and Employee accepts employment by the Company, for the period
commencing as of the Effective Date of this Agreement and ending on
December 31, 2003, subject to earlier termination as hereinafter set forth
in Article III (the "EMPLOYMENT TERM"). Commencing January 1, 2004, this
Agreement shall be automatically renewed for successive one-year periods
(collectively, the "RENEWAL TERMS"; individually, a "RENEWAL TERM") unless,
at least thirty (30) calendar days prior to the expiration of the
Employment Term or the then current Renewal Term, either the Company or
Employee provides the other with a written notice of intention not to
renew, in which case this Agreement shall terminate as of the end of the
Employment Term or said Renewal Term, as applicable. If this Agreement is
renewed, the terms of this Agreement during such Renewal Term shall be the
same as the terms in effect immediately prior to such Renewal Term, subject
to any such changes or modifications as mutually may be agreed amongst the
parties as evidenced in a written instrument signed by the parties.
1.2 POSITIONS AND DUTIES. Employee shall be employed by the Company in
the position of Chairman and Chief Executive Officer of the Company and
shall be subject to the authority of, and shall report to, the Board of
Directors of the Company. Employee's duties and responsibilities shall
include all those customarily attendant to the position of Chairman and
Chief Executive Officer. While Employee currently serves as President of
the Company, the Board of Directors reserves the right to remove Employee
as President and elect or appoint another person to the position of
President of the Company who, in such a case, would report to Employee.
1.3 ENTIRE BUSINESS TIME. Employee shall devote Employee's entire
business time, attention and energies exclusively to the business interests
of the Company.
ARTICLE II
COMPENSATION AND OTHER BENEFITS
2.1 BASE SALARY. Effective January 1, 2001, Base Salary shall mean an
annual salary of $700,000 paid by the Company to Employee, prorated for any
portion of a full year that Employee is employed. From the Effective Date
through December 31, 2000, Base Salary shall mean an annual salary of
$500,000 paid by the Company to Employee, prorated for any portion of a
full year that Employee is employed. Base Salary shall be payable in
accordance with the normal payroll practices of the Company.
2.2 PERFORMANCE BONUS.
(a) PERFORMANCE BONUS EFFECTIVE JANUARY 1, 2001. Effective
January 1, 2001, the Company shall pay to Employee an annual
performance bonus ("PERFORMANCE BONUS") ranging from zero (0) to a
target bonus equal to sixty percent (60%) of Employee's Base Salary to
a maximum of one hundred thirty-two percent (132%) of his Base Salary.
Employee's receipt of a Performance Bonus shall be dependent upon the
degree of achievement of target performance goals and his remaining
employed by the Company through the last day of the applicable fiscal
year. Target performance goals shall be determined by the Board of
Directors of the Company or a designated committee thereof and the
amount of any Performance Bonus shall be based sixty percent (60%) on
the Company's performance criteria and forty percent (40%) on
Employee's individual performance criteria. If Employee achieves both
his target Company and individual performance goals as determined by
the Board of Directors of the Company or a designated committee
thereof on an annual basis, his Performance Bonus shall be sixty
percent (60%) of his Base Salary. Minimum, target and maximum
performance goals shall be determined and set by the Board of
Directors of the Company or a designated committee thereof no later
than ninety (90) calendar days after the first day of the applicable
performance year on which the Company budget for such fiscal year has
been delivered to and approved by the Board of Directors of the
Company or a designated committee thereof. Payment of the Performance
Bonus shall be at a time and in a manner in accordance with the
Company's policies then in effect. Notwithstanding any provision in
this Section 2.2(a), if any portion of the Performance Bonus paid in
the ordinary course would not be deductible as a result of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "CODE"),
then such non-deductible portion shall be deferred. Any Performance
Bonus deferred shall be deferred until Employee ceases to be a covered
employee under Section 162(m) of the Code. Any amount deferred shall
be held in a rabbi trust and shall be credited with interest at a rate
equal to the Marshall Money Market Fund of M&I Trust & Investment
Management (the "INTEREST RATE").
(b) PERFORMANCE BONUS PRIOR TO JANUARY 1, 2001. For the fiscal
year ending December 31, 2000, the Company shall pay to Employee a
Performance Bonus of not less than $500,000 or such greater amount as
shall be determined by the Company under then existing performance
bonus policies in an amount not more than $1,000,000. If any portion
of the Performance Bonus paid in the ordinary course would not be
deductible as a result of Section 162(m) of the Code, then such
non-deductible portion shall be deferred. Any Performance Bonus
deferred shall be deferred until Employee ceases to be a covered
employee under Section 162(m) of the Code. Any Performance Bonus
deferred by the Company for Employee prior to the Effective Date shall
continue to earn interest at the rate of 60% of the prime rate as
reported in the WALL STREET JOURNAL through December 31, 2000 and
shall, effective January 1, 2001, be credited with interest at the
Interest Rate.
2.3 CONTINUED DEFERRAL OF TRANSACTION BONUS. In connection with the
AMSG Merger Employee earned a bonus of $1.0 million (the "TRANSACTION
BONUS") which has been deferred and credited with interest. The Transaction
Bonus shall continue to be deferred and shall continue to be held in a
rabbi trust. From the Effective Date through December 31, 2000, the
Transaction Bonus held in the rabbi trust shall continue to be credited
with interest at the rate of sixty percent (60%) of the prime rate as
reported in the WALL STREET JOURNAL. Effective January 1, 2001, the
Transaction Bonus which continues to be held in the rabbi trust shall be
credited with interest at the Interest Rate.
2.4 STOCK OPTIONS AND DEFERRED STOCK. Employee has been granted
options to purchase common stock of the Company ("COMPANY COMMON STOCK") as
set forth below. Additionally, Employee has been granted shares of deferred
stock as set forth below. Such options and deferred stock shall continue in
full force and effect in accordance with their terms and related
agreements. Any prior grants of options in common stock of Newco (the "UWS
COMMON STOCK") shall not be modified in any manner by this Agreement and,
further, shall be continued to be governed in accordance with the terms of
the UWS Common Stock option plans or arrangements, and related agreements
currently in effect.
(a) Effective September 28, 1998, the grant of an option on
December 6, 1995 to Employee to purchase 198,019 shares of Company
Common Stock was amended to adjust the grant price per share to
$15.76.
(b) Effective September 28, 1998, the grant of an option on
December 3, 1996 to Employee was amended to adjust the number of
shares of Company Common Stock Employee may purchase to 427,205 shares
and further to adjust the grant price per share to $11.71. No such
option shall be exercised to the extent that the gain realized by
Employee would be nondeductible pursuant to Section 162(m) of the Code
unless (i) exercise of the option occurs after a Change of Control as
defined in Section 4.2 or (ii) the option would expire if not
exercised. In consideration of Employee's agreement to the restriction
set forth in the preceding sentence, such option shall not be
forfeited in the event of a termination of employment for "Cause" as
defined in Section 2(f) of the United Wisconsin Services, Inc. Equity
Incentive Plan amended as of August 15, 1996, unless the termination
of employment is also for "Cause" as defined in Section 3.1(b) or
Section 4.7(a) of this Agreement, as applicable.
(c) Effective September 28, 1998, the grant of an option on
December 17, 1996 to Employee was amended to adjust the number of
shares of Company Common Stock Employee may purchase to 245,838 shares
and further to adjust the grant price per share to $16.27.
(d) On September 28, 1998, Employee was granted an option to
purchase 100,000 shares of Company Common Stock at a grant price of
$10.25 per share.
(e) On November 17, 1998, Employee was granted an option to
purchase 101,113 shares of Company Common Stock at a grant price of
$12.25 per share.
(f) On November 17, 1999, Employee was granted an option to
purchase 148,000 shares of Company Common Stock at a grant price of
$5.8125 per share.
(g) Effective November 17, 1998, the Company granted to Employee
deferred stock in the amount of 73,506 shares of Company Common Stock.
Employee shall participate in future grants of options, deferred stock, and
other equity incentive awards as determined by the Board of Directors of
the Company or its delegate.
2.5 BENEFIT PLANS. Employee will be eligible to participate in each of
the Company's retirement, benefit and health plans that are generally
applicable to comparable executive employees of the Company, in accordance
with the terms and conditions thereof. The Company agrees to waive any
waiting periods applicable to any health, disability or insurance plans, to
the extent it may legally do so.
2.6 EXPENSES. The Company shall reimburse Employee for all reasonable
expenses incurred in the course of the performance of Employee's duties and
responsibilities with the Company pursuant to this Agreement and consistent
with the Company's policies with respect to travel, entertainment and
miscellaneous expenses, and the requirements with respect to the reporting
of such expenses. Such reimbursement also shall include expenses incurred
with having Employee's spouse travel with Employee and attend appropriate
business-related functions and meetings up to four times per calendar year
and reasonable attorneys' fees incurred in connection with negotiation and
execution of this Agreement.
2.7 ANNUAL PHYSICAL EXAMINATION. Employee shall be reimbursed for the
cost of an annual physical examination.
2.8 AUTOMOBILE ALLOWANCE. Employee shall be provided with an
automobile and insurance and shall be reimbursed for normal and ordinary
costs and expenses in maintaining such automobile in connection with the
performance of his duties.
2.9 VACATION. Employee shall be entitled to a maximum of four weeks of
vacation in any calendar year in accordance with the Company's vacation
policies. Holidays and attendance at seminars and professional meetings
shall not be applied against vacation time.
2.10 CLUB MEMBERSHIPS. Employee shall be reimbursed for initiation
fees and reasonable dues and assessments in connection with membership in a
business club and/or a country club chosen by Employee.
2.11 TAX MATTERS. Employee acknowledges and agrees that reimbursement
of some or all of the expenses referred to in this Article II may be
considered or treated as income to Employee, and Employee shall be
responsible for any applicable taxes thereon.
ARTICLE III
TERMINATION
3.1 RIGHT TO TERMINATE; AUTOMATIC TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON ABSENT A CHANGE
OF CONTROL. Subject to Section 3.2, the Company may terminate
Employee's employment, and all of the Company's obligations under this
Agreement at any time and for any reason, provided that in no event
shall a termination for Cause under Section 3.1(b) be regarded as a
termination under this Section 3.1(a), and further provided that in no
event shall a termination for death or Disability under Section 3.1(c)
be regarded as a termination under this Section 3.1(a). Except as
otherwise provided in this Section 3.1(a) in the case of a termination
for "Good Reason" as defined in this Section 3.1(a), in no event shall
a termination by Employee be regarded as a termination under this
Section 3.1(a). For purposes of this Agreement absent a Change of
Control as provided in Article IV below, Good Reason shall mean
Employee's resignation from the Company's employment on account of any
material breach of this Agreement by the Company, including:
(i) the failure of the Board of Directors of the Company to
reelect or reappoint Employee to the positions with the Company
specified in the first sentence of Section 1.2 hereof, and
Employee then elects to leave the Company's employment within six
(6) months after such failure to so reelect or reappoint
Employee;
(ii) a material modification by the Board of Directors of
the Company of the duties, functions and responsibilities of
Employee without his consent, except as specifically permitted
under Section 1.2 hereof;
(iii) the failure of the Company to permit Employee to
exercise such responsibilities as are consistent with his
position and of such a nature as are usually associated with such
offices of a corporation engaged in substantially the same
business as the Company, except as specifically permitted under
Section 1.2 hereof;
(iv) the Company causes Employee to relocate his employment
more than fifty (50) miles from Green Bay, Wisconsin, without the
consent of Employee;
(v) the Company's failure to make a payment when due to
Employee; or
(vi) the Company's reduction of Employee's Base Salary below
Employee's Base Salary under Section 2.1 hereof, or the Company's
reduction of the amount of Performance Bonus payable with respect
to minimum, target, or maximum (as applicable) achievement of
performance goals;
PROVIDED however, that no act or omission described in clauses (i),
(ii), (iii), (iv), (v), or (vi) of this Section 3.1(a) shall
constitute Good Reason unless Employee gives the Company written
notice of such act or omission as soon as practicable after Employee
first learns of such act or omission and the Company fails to cure
such act or omission within thirty (30) calendar days after receipt of
such notice.
(b) TERMINATION FOR CAUSE. Subject to Section 3.2, the Company
may terminate Employee's employment at any time for "CAUSE." For all
purposes of this Agreement, except for Article IV, "Cause" shall mean
any one or more of the following:
(i) Gross negligence in the performance of duties,
(ii) Willful misconduct in the performance of duties,
(iii) Violation of law in the performance of duties where
Employee is aware that he is violating the law at the time of
said conduct and such violation of law jeopardizes the operations
of the Company,
(iv) Dishonesty, fraud, deliberate misrepresentation to the
officers or members of the Board of Directors of the Company,
(v) Conviction of a felony which substantially impairs
Employee's ability to perform his duties or which by law
disqualifies him from continued service with the Company,
(vi) Insubordination with respect to the Board of Directors
of the Company, or
(vii) Obtaining personal profit from any transaction in
which the Company has an interest and which constitutes a
corporate opportunity of the Company or is adverse to the
interests of the Company, unless such transaction was approved in
advance of such transaction, in writing, by the Board of
Directors of the Company.
Prior to any termination for Cause, Employee shall be provided with
reasonable advance notice of the specific grounds for termination, and
Employee shall be provided an opportunity to address the Board of
Directors of the Company or a designated committee thereof, on the
merits of termination. The termination of Employee for Cause shall be
based upon a good faith determination of the Board of Directors of the
Company or a designated committee thereof, and such good faith
determination shall be conclusive and binding on both the Company and
Employee.
(c) TERMINATION BY DEATH OR DISABILITY. Subject to Section 3.2,
Employee's employment and the obligations of the Company under this
Agreement shall terminate automatically, effective immediately and
without any notice being necessary, upon Employee's death or a
determination of Disability of Employee. For purposes of this
Agreement, "DISABILITY" means the inability of Employee, due to a
physical or mental impairment, for ninety (90) calendar days (whether
or not consecutive) during any period of three hundred sixty (360)
calendar days to perform the duties and functions contemplated by this
Agreement. "DISABILITY" does not include any conditions, physical or
mental, where Employee is able to perform the essential functions of
the job with or without reasonable accommodation as provided in the
Americans With Disabilities Act, 42 U.S.C.ss. 12101 ET SEQ. A
determination of Disability shall be made by the Board of Directors of
the Company or a designated committee thereof, in consultation with a
physician satisfactory to the Board of Directors of the Company or a
designated committee thereof, and Employee shall cooperate with the
efforts to make such determination. Any such determination shall be
conclusive and binding on the parties subject to Employee's rights
under law or the arbitration provision of Section 6.7 of this
Agreement. Any determination of Disability under this Section 3.1(c)
is not intended to alter any benefits any party may be entitled to
receive under any long-term disability insurance policy carried by the
Company or Employee with respect to Employee, which benefits shall be
governed solely by the terms of any such insurance policy.
3.2 RIGHTS UPON TERMINATION.
(a) SECTION 3.1(A) TERMINATION DURING EMPLOYMENT TERM OR RENEWAL
TERM. If Employee's employment is terminated by the Company pursuant
to Section 3.1(a) hereof during the Employment Term or a Renewal Term,
Employee resigns for Good Reason under Section 3.1(a), or if the
Company does not renew the Agreement in accordance with Section 1.1
hereof, Employee shall have no further rights against the Company
hereunder, except for the right after Employee's date of termination
to receive the following severance payments and benefits:
(i) three (3) times Base Salary, payable in equal monthly
installments over a period of thirty-six (36) months;
(ii) three (3) times the average of the Performance Bonus
earned for the two (2) most recent fiscal years preceding the
fiscal year in which the date of termination occurs, payable in
equal monthly installments over a period of thirty-six (36)
months;
(iii) payment of any accrued but unpaid vacation time;
(iv) the rights if any in respect of stock options and
deferred stock pursuant to Section 2.4 hereof to which Employee
is entitled under the terms of such plans and related agreements;
(v) reimbursement of expenses to which Employee is entitled
under Section 2.6 hereof; and
(vi) continuation of medical and dental coverages in place
at the time of Employee's date of termination for a period of
three (3) years commencing immediately after Employee's date of
termination, in accordance with the Company's welfare plans in
effect at the time, only to the extent and for such period of
time that any such coverage is not available under the welfare
plans of any subsequent employer of Employee. During such three
(3) year period commencing immediately after Employee's date of
termination, to the extent that the Company shall not be able to
provide any such medical or dental coverage to Employee under its
welfare plans and further, to the extent that any such medical or
dental coverage is not available to Employee under the welfare
plans of any subsequent employer of Employee, the Company shall
reimburse Employee for the cost of any such medical or dental
coverage last available to Employee under the Company's welfare
plans; provided, however, that any such reimbursement in the
aggregate shall not exceed 150% of the Company's cost of such
coverage.
If Employee is terminated in accordance with Section 3.1(a) and
thereafter within six (6) months there occurs a Control Change Date as
defined in Section 4.3, and if Employee would have had a Qualifying
Separation as defined in Section 4.7, then any payments and benefits
under this Section 3.2(a) shall cease immediately, and payments and
benefits under Section 4.5 shall commence; provided that the payments
and benefits under Section 4.5 shall be reduced by any and all
payments and benefits received by Employee under this Section 3.2(a).
(b) SECTIONS 3.1(B) AND 3.1(C) TERMINATIONS. If Employee's
employment is terminated pursuant to Sections 3.1(b) or 3.1(c) hereof,
or if Employee resigns from employment with the Company (other than as
provided in Section 3.1(a) hereof) notwithstanding the terms of this
Agreement, Employee or Employee's estate shall have no further rights
against the Company hereunder, except for the right to receive:
(i) any unpaid Base Salary with respect to the period prior
to the effective date of termination;
(ii) payment of any accrued but unpaid vacation time;
(iii) the rights if any in respect of stock options and
deferred stock pursuant to Section 2.4 hereof to which Employee
is entitled under the terms of such plans and related agreements;
(iv) any death or disability insurance payable as
contemplated in Section 2.5 hereof; and
(v) reimbursement of expenses to which Employee is entitled
under Section 2.6 hereof.
Notwithstanding any other provision in this Agreement to the contrary,
if Employee is terminated or terminates employment under Section
3.1(b) or Section 3.1(c) of this Agreement, even if thereafter within
six (6) months there occurs a Control Change Date as defined in
Section 4.3, Employee shall not be entitled to any payments or
benefits in lieu of or in addition to the payments and benefits
provided in this Section 3.2(b).
ARTICLE IV
CHANGE OF CONTROL
4.1 In lieu of the payments and benefits that may be available to
Employee under the American Medical Security Group, Inc. Change of
Control Severance Benefit Plan effective September 25, 1998, or any
successor or similar plan or program of the Company, any and all of
which Employee hereby agrees shall be cancelled and shall not be
payable with respect to Employee, the payments and benefits of this
Article IV subject to the restrictions and conditions described herein
shall be available to Employee. This Article IV shall be effective as
of the Effective Date of this Agreement.
4.2 A "CHANGE OF CONTROL" shall be deemed to have occurred if,
after the Effective Date of this Agreement:
(a) a majority of Directors of the Company ceases to continue to
serve as Directors of the Company and/or the Chief Executive Officer
of the Company ceases to serve as the Chief Executive Officer of the
Company as the direct or indirect result of, or in connection with the
occurrence of:
(i) any person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becoming,
directly or indirectly, the beneficial owner of securities of the
Company, or any other subsidiary, representing forty percent
(40%) or more of the combined voting power of the then
outstanding securities of the Company that may be cast for the
election of Directors of the Company (other than as a result of
an issuance of securities initiated by the Company or open market
purchases approved by the Board of Directors of the Company as
long as the majority of the Directors at the time of such
approval are also Directors at the time the purchases are made);
PROVIDED however that as of the Effective Date of this Agreement,
this Section 4.2(a)(i) shall not apply to Blue Cross Blue Shield
United of Wisconsin ("BCBSUW") which prior to the Effective Date
became the beneficial owner of more than forty percent (40%) of
the combined voting power of the outstanding securities of the
Company; FURTHER PROVIDED that the immediately preceding proviso
shall cease to apply and shall no longer have any force or effect
under this Agreement if and when BCBSUW acquires additional
Company securities as of and following the Effective Date without
approval of at least 2/3 of the individuals who constitute the
Board of Directors of the Company as of the Effective Date;
(ii) a cash tender or exchange offer;
(iii) a merger or other business combination;
(iv) a sale of all or substantially all of the assets of the
Company;
(v) a contested election of directors; or
(vi) any combination of the aforementioned events; or
(b) consummation of a plan of liquidation or dissolution of the
Company.
4.3 "CONTROL CHANGE DATE" means the date on which an event
described in Section 4.2(a) or Section 4.2(b) occurs. If a Change of
Control occurs on account of a series of events, the Control Change
Date shall be the date of occurrence of the last of such events,
required for such series of events to constitute a Change of Control.
4.4 "CONTROL CHANGE EMPLOYMENT PERIOD." If the Effective Date of
this Agreement is the Control Change Date or if Employee remains
employed by the Company on the Control Change Date, the Company shall
continue to employ Employee and Employee may continue as an employee
of the Company from the Control Change Date until the two (2) year
anniversary of the Control Change Date ("CONTROL CHANGE EMPLOYMENT
PERIOD"), or such later date as provided under Section 1.1 of this
Agreement.
4.5 SEVERANCE RIGHTS IN THE EVENT OF A TERMINATION BECAUSE OF A
QUALIFYING SEPARATION. If his employment with the Company terminates
because of a Qualifying Separation as defined in Section 4.7, (i)
during the six (6) month period immediately prior to the Control
Change Date, or (ii) during the Control Change Employment Period,
Employee shall receive from the Company the following payments and
benefits (reduced by any payments or benefits received under Section
3.2(a) with respect to the same termination of employment) as soon as
administratively feasible after a Qualifying Separation (or later
Control Change Date causing a prior termination under Section 3.2(a)
to become a Qualifying Separation) subject to Sections 4.7(a) and 4.8
of this Agreement (as applicable):
(a) a single lump sum payment equal to three (3) times
average Base Salary earned during the two (2) most recent fiscal
years preceding the fiscal year in which the Qualifying
Separation occurs;
(b) a single lump sum payment equal to three (3) times
average Performance Bonus earned for the two (2) most recent
fiscal years preceding the fiscal year in which the Qualifying
Separation occurs;
(c) payment of any accrued but unpaid vacation time;
(d) the rights if any in respect of stock options and
deferred stock pursuant to Section 2.4 hereof to which Employee
is entitled under the terms of such plans and related agreements;
(e) reimbursement of expenses to which Employee is entitled
under Section 2.6 hereof;
(f) continuation of medical, dental, long-term disability,
and life insurance coverages in place at the time of the
Qualifying Separation for a period of three (3) years commencing
immediately after Employee's Qualifying Separation, in accordance
with the Company's welfare plans in effect at the time, only to
the extent and for such period of time that any such coverage is
not available under the welfare plans of any subsequent employer
of Employee. During such three (3) year period commencing
immediately after Employee's date of termination, to the extent
that the Company shall not be able to provide any such medical,
dental, long-term disability or life insurance coverage to
Employee under its welfare plans and further, to the extent that
any such medical, dental, long-term disability or life insurance
coverage is not available to Employee under the welfare plans of
any subsequent employer of Employee, the Company shall reimburse
Employee for the cost of any such medical, dental, long-term
disability or life insurance coverage last available to Employee
under the Company's welfare plans; provided, however, that any
such reimbursement in the aggregate shall not exceed 150% of the
Company's cost of such coverage; and
(g) if the excise tax imposed on "excess parachute payments"
under Code Section 4999, as defined in Code Section 280G, is
incurred on account of (A) any amount paid or payable to or for
the benefit of Employee pursuant to this Article IV, (B) legal
fees and expenses under Section 6.7 of this Agreement, or (C) any
other amount paid or payable by the Company (the sum of all such
amounts described in this Section 4.5(g) (A), (B), and (C) called
the "CHANGE OF CONTROL BENEFITS"), the Company shall indemnify
Employee and hold him harmless against all claims, losses,
damages, penalties, expenses, and excise taxes. To effect this
indemnification, the Company shall pay Employee the Additional
Amount within fifteen (15) business days after Employee provides
a copy of his tax return in accordance with subsection (1) below.
For purposes of this Article IV, the "ADDITIONAL AMOUNT" shall
mean the amount necessary to indemnify and hold Employee harmless
from (i) the excise tax imposed on Employee under Section 4999 of
the Code with respect to the Change of Control Benefits and (ii)
the amount required to satisfy (x) the additional excise tax
under Section 4999 of the Code and (y) the federal, state and
local income taxes for which Employee is liable with respect to
the Additional Amount (the sum of items (i) and (ii) of this
Section 4.5(g) being hereunder referred to as the "ADDITIONAL TAX
LIABILITY").
(1) For purposes of determining the amount and timing
of the payments of the Additional Amount, the Company and
Employee shall, as soon as practicable after the event or
series of events has occurred giving rise to the imposition
of the excise tax, seek the advice of independent tax
counsel and shall cooperate in establishing at least
tentatively the amount of Employee's excise tax liability
for purposes of paying estimated tax. Employee shall
thereafter furnish to the Company a copy of each tax return
which reflects a liability for an excise tax payment under
Section 4999 of the Code with respect to the Change of
Control Benefits at least twenty (20) business days before
the date on which such return is required to be filed with
the Internal Revenue Service. Except as provided under
subsection (2) below of this Section 4.5(g), the liability
reflected on such return shall be dispositive for purposes
of calculating the Additional Amount unless, within fifteen
(15) business days after such notice is given, the Company
furnishes to Employee an opinion from the Company's
independent auditors or a tax advisor selected by the
Company's independent auditors indicating that a different
Additional Amount is payable or to the effect that the
matter is not free from doubt under applicable laws and
regulations and Employee may, in such auditor's or advisor's
opinion, take a different position without risk of penalty,
which shall be set forth in the opinion with respect to the
payment in question. Such opinion shall be addressed to
Employee and shall state that Employee is entitled to rely
thereon. If the Company furnishes such opinion to Employee,
the position reflected in such letter shall be dispositive
for purposes of calculating the Additional Amount, except as
provided under this subsection (1) of this Section 4.5(g).
(2) If Employee's Additional Tax Liability is
subsequently determined to be less than the amount of the
Additional Amount paid to Employee, Employee shall repay to
the Company that portion of the Additional Amount payment
attributable to such reduction (plus interest on the amount
of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code). If Employee's Additional Tax
Liability is subsequently determined to be more than the
amount of the Additional Amount paid to Employee, the
Company shall make an additional payment in respect of such
excess, as well as the amount of any penalty or interest
assessed with respect thereto at the time that the amount of
such excess, penalty or interest is finally determined.
Notwithstanding any other provision of this Section 4.5(g) to the
contrary, if the aggregate "AFTER-TAX AMOUNT" (as defined below)
of the Change of Control Benefits and Additional Amount that
would be payable to Employee does not equal to or exceed 110% of
the "AFTER-TAX FLOOR AMOUNT" (as defined below), then no
Additional Amount shall be payable to Employee and the aggregate
amount of Change of Control Benefits payable to Employee shall be
reduced (but not below the "FLOOR AMOUNT" as defined below) to
the largest amount that would both (i) not cause any Additional
Tax Liability to be payable by Employee and (ii) not cause any
Change of Control Benefits to become nondeductible by the Company
by reason of Section 280G of the Code (or any successor
provision). For purposes of the preceding sentence, Employee
shall be deemed to be subject to the highest marginal rate of
federal, state, and local taxes, excluding Social Security,
Medicare, and alternative minimum taxes or similar tax
consequences.
"AFTER-TAX AMOUNT" means the portion of a specified amount that
would remain after payment of all federal, state, and local taxes
(excluding Social Security, Medicare, and alternative minimum
taxes or similar tax consequences), and Additional Tax Liability
paid or payable by Employee in respect of such specified amount.
"AFTER-TAX FLOOR AMOUNT" means the After-Tax Amount of the Floor
Amount.
"FLOOR AMOUNT" means the greatest pre-tax amount of Change of
Control Benefits that could be paid to Employee without causing
Employee to become liable for any Additional Tax Liability in
connection therewith.
4.6 TAXES. To the extent required by applicable law, the Company
shall deduct and withhold all necessary Social Security taxes and all
necessary federal and state withholding taxes and any other similar
sums required by law to be withheld from any payments made pursuant to
the terms of this Article IV.
4.7 "QUALIFYING SEPARATION" means:
(a) Employee's employment is terminated by the Company
within six (6) months prior to a Change of Control or during the
Control Change Employment Period except for Cause as defined in
this Section 4.7(a), or death or Disability as defined in Section
3.1(c). Solely for purposes of this Article IV, Cause shall mean:
(i) the willful and continued failure by Employee to
substantially perform his duties as established by the Board
of Directors of the Company;
(ii) material breach by Employee of his fiduciary
duties of loyalty or care to the Company;
(iii) a conviction of a felony which, in the reasonable
judgment of the Board of Directors of the Company, is likely
to have a material adverse effect on the business reputation
of Employee or the Company, or which substantially impairs
Employees abilities to perform his duties for the Company;
(iv) the use of alcohol or non-prescription drugs in
such a manner as to interfere substantially with Employee's
duties with respect to the Company; or
(v) the willful, flagrant, deliberate and repeated
infractions of material published policies and regulations
of the Company of which Employee has actual knowledge.
Only if it desires to discharge Employee for Cause under
subsection (v) (the "CAUSE EXCEPTION") of this Section 4.7(a),
the Board of Directors of the Company shall give notice to
Employee as provided in Section 4.8 and Employee shall have
thirty (30) calendar days after notice has been given to him in
which to cure the reason for the Company's Board's exercise of
the Cause Exception. If the reason for the exercise of the Cause
Exception is timely cured by Employee (as determined by a
majority of the members of the Board of Directors of the Company,
following a hearing), the notice shall become null and void; or
(b) Employee voluntarily terminates employment for "GOOD REASON."
Solely for purposes of this Article IV, Good Reason shall mean
Employee's resignation from the Company's employment within six (6)
months prior to a Change of Control or during the Control Change
Employment Period on account of:
(i) the failure of the Board of Directors of the Company to
reelect or reappoint Employee to the positions with the Company
specified in the first sentence of Section 1.2 hereof, and
Employee then elects to leave the Company's employment within six
(6) months after such failure to so reelect or reappoint
Employee;
(ii) a material modification by the Board of Directors of
the Company of the duties, functions and responsibilities of
Employee without his consent, except as specifically permitted
under Section 1.2 hereof;
(iii) the failure of the Company to permit Employee to
exercise such responsibilities as are consistent with his
position and of such a nature as are usually associated with such
offices of a corporation engaged in substantially the same
business as the Company, except as specifically permitted under
Section 1.2 hereof;
(iv) the Company causes Employee to relocate his employment
more than fifty (50) miles from Green Bay, Wisconsin, without the
consent of Employee;
(v) the Company's failure to make a payment when due to
Employee; or
(vi) the Company's reduction of Employee's Base Salary below
Employee's Base Salary under Section 2.1 hereof, or the Company's
reduction of the amount of Performance Bonus payable with respect
to minimum, target, or maximum (as applicable) achievement of
performance goals.
4.8 "NOTICE OF TERMINATION" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Employee's employment under the provision so
indicated and (iii) if the termination date specifies the effective date of
termination, which date may be the date of receipt of such notice.
Qualifying Separation for Cause under Section 4.7(a) shall be communicated
by Notice of Termination from the Board of Directors of the Company to
Employee. Qualifying Separation for Good Reason under Section 4.7(b) shall
be communicated by Notice of Termination from Employee to the Board of
Directors of the Company.
ARTICLE V
RESTRICTIVE COVENANTS
5.1 CONFIDENTIAL INFORMATION; INTELLECTUAL PROPERTY.
(a) CONFIDENTIAL INFORMATION. Employee acknowledges that Employee
will be required to use his personal intellectual skills on behalf of
the Company and that it is reasonable and fair that the fruits of such
skills should inure to the sole benefit of the Company. Employee
further acknowledges that Employee may already have and will acquire
information of a confidential nature relating to the operation,
finances, business relationships and trade secrets of the Company.
During Employee's employment with the Company, Employee will not use
(except for use in the course of Employee's regular authorized duties
on behalf of the Company), publish, disclose or authorize anyone else
to use, publish or disclose without the prior written consent of the
Company, any confidential information pertaining to the Company,
including, without limitation, any information relating to existing or
potential business, customers, trade or industrial practices, plans,
costs, processes, or technical or engineering data. Following
termination of Employee's employment hereof for any reason or no
reason under any circumstances or conditions, Employee shall be
prohibited from ever using, publishing, disclosing or authorizing
anyone else to use, publish or disclose, any confidential information
which constitutes a trade secret under applicable law. Employee's
obligations under this Section 5.1(a) apply to, and are intended to
prevent, the direct or indirect disclosure of confidential information
to others. Employee shall not remove or retain any figures,
calculations, formulae, letters, papers, software, abstracts,
summaries, drawings, blueprints, diskettes or any other material, or
copies thereof, which contain or embody any confidential information
or trade secrets of the Company, except for use in the course of
Employee's regular authorized duties on behalf of the Company. The
foregoing notwithstanding, Employee has no obligation to refrain from
using, publishing or disclosing any such confidential information
which is or hereafter shall become available to the public otherwise
than by use, publication or disclosure by Employee. This prohibition
also does not prohibit Employee's use of general skills and know-how
acquired during and prior to employment, as long as such use does not
involve the use, publication or disclosure of the Company's
confidential information or trade secrets.
(b) AGREEMENT TO TRANSFER. Employee shall without further payment
assign, transfer and set over, and does hereby assign, transfer and
set over, to the Company all of Employee's right, title and interest
in and to all trade secrets, secret processes, inventions,
improvements, patents, patent applications, trademarks, trademark
applications, copyrights and any and all intellectual property rights
which Employee may, either solely or jointly with others, conceive or
develop, make or suggest at any time during his employment by the
Company and which relate to the existing or potential products,
processes, work, research or other activities of the Company.
5.2 NON-SOLICITATION OF CUSTOMERS WITHIN A CERTAIN REGION FOR ONE
YEAR. Employee covenants and agrees that he shall not at any time during
his employment by the Company, and for a period of one (1) year following
termination of his employment, directly or indirectly solicit any business
regarding services of the kind that the Company either offered or was
planning to offer and of which Employee was aware at or before the date of
Employee's termination, from any person or entity that (i) has, on the date
of termination, its principal place of business in the Restricted Area as
defined in Section 5.9 below, (ii) was a customer or prospective customer
of the Company's on the date of termination, and (iii) was a customer or
prospective customer with which Employee had personal contact or knowledge
of such a customer or prospective customer through confidential
information, in regard to such services within two (2) years prior to said
termination.
5.3 NON-SOLICITATION OF CUSTOMERS OUTSIDE A CERTAIN REGION FOR ONE
YEAR. Employee covenants and agrees that he shall not at any time during
his employment by the Company, and for a period of one (1) year following
termination of his employment, directly or indirectly solicit any business
regarding services of the kind that the Company either offered or was
planning to offer and of which Employee was aware at or before the date of
Employee's termination, from any person or entity that (i) has, on the date
of termination, its principal place of business in OTHER THAN the
Restricted Area but conducts business in the Restricted Area, (ii) was a
customer or prospective customer of the Company's on the date of
termination, and (iii) was a customer or prospective customer with which
Employee had personal contact or knowledge of such a customer or
prospective customer through confidential information, in regard to such
services within two (2) years prior to said termination.
5.4 NON-SOLICITATION OF EMPLOYEES. Employee covenants and agrees that
he shall not at any time during his employment by the Company, and for a
period of one (1) year following termination of his employment, directly or
indirectly employ or seek to employ (other than for employment with the
Company or its subsidiaries) any person employed at that time by the
Company or otherwise encourage any such person to leave such employment.
5.5 NON-SOLICITATION OF VENDORS AND OTHERS. Employee covenants and
agrees that he shall not at any time during his employment by the Company,
and for a period of one (1) year following termination of his employment,
solicit any vendors, suppliers, or service providers of the Company on
behalf of or for the benefit of a Competitor.
5.6 SERVICES FOR COMPETITOR. Employee covenants and agrees that he
shall not at any time during his employment by the Company, and for a
period of one (1) year following termination of his employment, become
employed by, enter into a consulting arrangement with or otherwise agree to
perform personal services for any Competitor (as defined in Section 5.8
below).
5.7 OWNERSHIP INTEREST IN COMPETITOR. Employee covenants and agrees
that he shall not at any time during his employment by the Company, and for
a period of one (1) year following termination of his employment, acquire
an ownership interest in a Competitor, unless such an ownership interest
(1) is in a company whose stock is publicly traded on a national exchange,
and (2) is a de minimis investment of less than 1% of the outstanding
securities of such a company; provided however, that nothing herein shall
prohibit Employee's ownership of securities in United Wisconsin Services,
Inc. acquired prior to the Effective Date, and nothing herein shall
prohibit Employee from exercising options granted to him prior to the
Effective Date to acquire stock in United Wisconsin Services, Inc.
5.8 COMPETITOR. For purposes of this Agreement, "COMPETITOR" shall
mean any provider of individual and small employer group health care
benefits and insurance products within the Restricted Area as defined in
Section 5.9 below.
5.9 RESTRICTED AREA. For purposes of this Agreement, "RESTRICTED AREA"
shall mean anywhere in the United States where the Company sells individual
and small employer group health care benefits and insurance products.
5.10 NOTIFICATION OF EXISTENCE OF AGREEMENT. Employee agrees that in
the event that Employee is offered employment with another employer at any
time during the existence of this Agreement, or such other period in which
post-termination obligations of this Agreement apply, the business of which
is in any manner competitive with the Company's business, Employee shall
immediately advise such employer of the existence of this Agreement and
shall immediately provide such employer with a copy of this Agreement.
5.11 RETURN OF DOCUMENTS. Immediately upon termination of employment
with the Company, Employee shall return to the Company, and so certify in
writing to the Company, all of the Company's papers, documents and items,
including information stored for use in or with computers and software
applicable to the Company's business (and all copies thereof), which are in
Employee's possession or under Employee's control, regardless whether such
papers, documents or items contain confidential information or trade
secrets.
5.12 NO CONFLICTS. To the extent that they exist, Employee will not
disclose to the Company any of Employee's previous employer's confidential
information or trade secrets. Further, Employee represents and warrants
that Employee has not previously assumed any obligations inconsistent with
those of this Agreement and that employment by the Company does not
conflict with any prior obligations to third parties.
5.13 AGREEMENT ON FAIRNESS. Employee acknowledges that: (i) this
Agreement has been specifically bargained between the parties and reviewed
by Employee, (ii) Employee has had an opportunity to obtain legal counsel
to review this Agreement, and (iii) Employee voluntarily enters into this
Agreement.
5.14 EQUITABLE RELIEF. Employee acknowledges that any breach of this
Agreement will cause substantial and irreparable harm to the Company for
which money damages would be an inadequate remedy. Accordingly, the Company
shall in any such event be entitled to obtain injunctive and other forms of
equitable relief to prevent such breach in addition to any other rights or
remedies available at law, in equity or by statute.
ARTICLE VI
GENERAL PROVISIONS
6.1 NOTICES. Any and all notices, consents, documents or
communications provided for in this Agreement shall be given in writing and
shall be personally delivered, mailed by registered or certified mail
(return receipt requested) or sent by courier, confirmed by receipt, and
addressed as follows (or to such other address as the addressed party may
have substituted by notice pursuant to this Section 6.1):
(a) If to the Company:
American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, WI 54313 or
P.O. Box 19032
Green Bay, Wisconsin 54307-9032
Attn.: General Counsel
(b) If to Employee:
Samuel V. Miller
3100 AMS Boulevard
Green Bay, Wisconsin 54313 or
P.O. Box 19032
Green Bay, Wisconsin 54307-9032
With a copy to:
David S. Foster
Thelen Reid & Priest LLP
101 Second Street
Suite 1800
San Francisco, California 94105-3601
Such notice, consent, document or communication shall be deemed given upon
personal delivery or receipt at the address of the party stated above or at
any other address specified by such party to the other party in writing,
except that if delivery is refused or cannot be made for any reason, then
such notice shall be deemed given on the third day after it is sent.
6.2 ENTIRE AGREEMENT. This Agreement contains the entire understanding
and the full and complete agreement of the parties and supersedes and
replaces the Prior Agreement and Amendment Number One, and the American
Medical Security Group, Inc. Change of Control Severance Benefit Plan
effective September 25, 1998, and any other prior understandings and
agreements among the parties, with respect to the subject matter hereof.
6.3 AMENDMENT; HEADINGS; SECTION REFERENCES. This Agreement may be
altered, amended or modified only in a writing, signed by the parties
hereto. Headings included in this Agreement are for convenience only and
are not intended to limit or expand the rights of the parties hereto.
References to Sections herein shall mean sections of the text of this
Agreement, unless otherwise indicated.
6.4 ASSIGNABILITY. This Agreement and the rights and duties set forth
herein may not be assigned by Employee, but may be assigned by the Company,
in whole or in part to any entity controlled by the Company. This Agreement
shall be binding on and inure to the benefit of each party and such party's
respective heirs, legal representatives, successors and assigns.
6.5 SEVERABILITY. If any court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then such
invalidity or unenforceability shall have no effect on the other provisions
hereof, which shall remain valid, binding and enforceable and in full force
and effect. If any court of competent jurisdiction determines that any
provision of this Agreement is invalid or unenforceable, then such invalid
or unenforceable provision shall be construed in a manner so as to give the
maximum valid and enforceable effect to the intent of the parties expressed
therein.
6.6 MITIGATION. Employee shall not be required to mitigate damages or
the amount of any payment provided for in Sections 3.2(a) or 4.5 of this
Agreement by seeking or accepting other employment or otherwise, and
compensation earned from such employment or otherwise shall not reduce the
amounts otherwise payable under Sections 3.2(a) or 4.5; provided, however,
that the Company's obligations under Sections 3.2(a)(vi) or 4.5(f) hereof
shall cease with respect to each applicable type of insurance coverage as
of the date on which Employee obtains other coverage substantially
equivalent to coverage in place at the time of his date of termination or
Qualifying Separation, as applicable.
6.7 ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or the breach hereof, shall be settled by a single
arbitrator in arbitration conducted in Green Bay, Wisconsin, in accordance
with the Employment Dispute Resolution Rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.
The parties shall select an arbitrator, but if they are unable to
agree on one, the parties shall jointly request the American Arbitration
Association to designate five (5) arbitrator names. The parties, beginning
with Employee, shall alternately strike names until one is left.
The arbitrator's decision shall be final and binding. Each party shall
be entitled to discovery exclusively by the following means: (i) requests
for admission, (ii) request for production of documents, and (iii)
depositions of no more than four (4) individuals, provided that either
party may apply to the arbitrator upon a showing of good cause that more or
less discovery is warranted. All discovery shall be completed, and the
arbitration hearing shall commence, within sixty (60) calendar days, after
the appointment of the arbitrator. Unless the arbitrator finds that
exceptional circumstances justify the delay, the hearing will be completed,
and an award will be rendered within sixty (60) calendar days of the
commencement of the hearing.
The arbitrator shall have the authority to settle such controversy or
claims by finding that a party should be enjoined from certain actions or
be compelled to undertake certain actions, and in such event such court may
enter an order enjoining and/or compelling such actions as found by the
arbitrator. However, notwithstanding the foregoing, the parties expressly
agree that a court of competent jurisdiction may enter a temporary
restraining order or an order enjoining a breach of this Agreement pending
a final award or further order by the arbitrator. Such remedy, however,
shall be cumulative and nonexclusive, and shall be in addition to any other
remedy to which the parties may be entitled.
The Company shall pay the arbitrator's fees and expenses without
regard to which party prevails in the dispute. The arbitrator may award
reasonable attorneys' fees and costs to the prevailing party, but the
arbitrator shall consider financial ability to pay such fees and costs and
undue hardship on the party ordered to pay said fees and costs.
Solely for purposes of protecting or enforcing his rights under
Article IV of this Agreement, to the extent Employee incurs legal fees, the
Company shall reimburse Employee for such reasonable legal fees and for any
other reasonable expenses related thereto. Such reimbursement shall be made
within thirty (30) calendar days following final resolution of the dispute
or occurrence giving rise to such legal fees and related expenses.
Notwithstanding any provision in this Agreement to the contrary,
pending arbitration of any dispute between the parties, the Company may
seek injunctive relief or other appropriate equitable relief in a court of
competent jurisdiction for any alleged breach of the restrictive covenants
of Article V of this Agreement.
6.8 WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any party.
6.9 GOVERNING LAW. This Agreement shall be governed by the internal
laws of the State of Wisconsin, without regard to its choice of law
principles.
6.10 CONSTRUCTION. The Company and Employee have each been represented
by legal counsel with respect to this Agreement. The parties acknowledge
that each party and such party's counsel have reviewed and revised, or have
had an opportunity to review and revise, this Agreement. Therefore, any
rule of construction to the effect that any ambiguities or inconsistencies
in the Agreement are to be resolved against the drafting party shall not be
applied in the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date written above.
AMERICAN MEDICAL SECURITY GROUP, INC.
By: /S/ TIMOTHY J. MOORE
/S/ SAMUEL V. MILLER
Samuel V. Miller