Exhibit 10.11
[***] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
EMPLOYMENT AGREEMENT
     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of
September 8, 2009 (the “Effective Date”), by and between HealthMarkets, Inc., a
Delaware corporation (together with its successors and assigns, “HealthMarkets”
or the “Company”) and Steven P. Erwin (the “Executive”). Certain capitalized
terms used herein are defined in Section 24.
     WHEREAS, the Company and the Executive are party to an Employment Agreement
dated as of September 30, 2008 (the “Prior Agreement”);
     WHEREAS, the Company and the Executive wish to modify the terms of the
Executive’s employment; and
     WHEREAS, the Company desires to memorialize the terms of the Executive’s
employment effective as of the Effective Date under this Agreement;
     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, it is agreed as follows:
     1. Employment. Effective as of the Effective Date, the Company hereby
agrees to continue to employ the Executive, and the Executive hereby agrees to
continue to be employed by the Company, upon the terms and conditions set forth
herein. The employment relationship between the Company and the Executive shall
be governed by the general employment policies and practices of the Company,
including, without limitation, those relating to the Company’s Code of
Professional Conduct, the treatment of confidential information and avoidance of
conflicts; provided, however, that when the terms of this Agreement differ from
or are in conflict with the Company’s general employment policies or practices,
the terms of this Agreement shall control. The Executive shall serve as an
officer and/or an employee of any Subsidiary, as may be requested from time to
time by the Reporting Person (as such term is defined in Section 3(a) below),
and without any additional compensation, unless otherwise determined by the
Reporting Person. In addition, the Executive’s service as an officer and/or an
employee of any Subsidiary will be encompassed within any reference made in this
Agreement to employment by the Company.
     2. Term. Subject to earlier termination of the Executive’s employment as
provided under Section 9, the Executive’s employment shall be for an initial
term commencing on the Effective Date and ending on December 31, 2010 (the
“Initial Employment Term”); provided, however, that at the end of the Initial
Employment Term and on each succeeding anniversary thereof, the employment of
the Executive will be automatically continued upon the terms and conditions set
forth herein for one additional year (each, a “Renewal Term”), unless either
party

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to this Agreement gives the other party written notice (in accordance with
Section 18) of such party’s intention to terminate this Agreement, subject to
Section 22 hereof, and the employment of the Executive at least ninety (90) days
prior to the end of such initial or extended term (in which event the
Executive’s employment shall be deemed to have terminated at the end of the
Employment Term). For purposes of this Agreement, the Initial Employment Term
and any Renewal Term shall collectively be referred to as the “Employment Term.”
     3. Position and Duties of the Executive.
          (a) During the Employment Term, the Executive shall serve in the
position set forth on Exhibit A and shall report directly to the position set
forth on Exhibit A attached hereto (the “Reporting Person”). The Executive shall
have such duties, responsibilities and authority commensurate with the
Executive’s position and such related duties and responsibilities, as from time
to time may be assigned to the Executive by the Reporting Person, consistent
with the Executive’s position in the Company. During the Employment Term, the
Executive shall perform his duties in the Dallas/Ft. Worth area, Texas.
          (b) During the Employment Term, the Executive shall, except as may
from time to time be otherwise agreed in writing by the Company and during
vacations (as set forth in Section 7 hereof) and authorized leave, devote
substantially all of his normal business working time and his reasonable best
efforts and energies to the business of the Company and the performance of the
Executive’s duties hereunder.
          (c) During the Employment Term and provided that such activities do
not either (i) contravene this Agreement (including, without limitation, the
provisions of Section 3(a), 3(b), 12 or 13 of this Agreement) or (ii) materially
interfere with the performance of the Executive’s duties hereunder, the
Executive may (a) engage in charitable activities and community affairs,
(b) serve on the boards of, or advisory committees to, trade associations or
charitable organizations, (c) manage his personal and family investments and
affairs, and (d) serve on boards or advisory committees of (1) public or private
companies set forth on Exhibit A attached hereto, (2) professional associations
approved by the Board or (3) as otherwise may be approved by the Board. The
Executive may retain all fees and other compensation from any such service, and
the Company shall not reduce his compensation by the amount of such fees.
     4. Compensation.
          (a) Base Salary. During the Employment Term, the Company shall pay to
the Executive a base salary of not less than the amount set forth on Exhibit A
attached hereto per annum (the “Base Salary”). The Executive’s Base Salary may
be increased (but not decreased) from time to time by the Committee in its sole
discretion, and shall be payable in cash at the times and in the manner
consistent with the Company’s general policies regarding compensation of
executive employees. Such Base Salary shall be reviewed by the Board or an
authorized committee of the Board at least annually for purposes of evaluating
an increase in the Executive’s Base Salary. For purposes of this Agreement,
after any such increase, “Base Salary” shall refer to such increased amount.

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          (b) Cash Incentive Compensation.
     (i) With respect to the Company’s 2009 fiscal year and each fiscal year of
the Company thereafter, all or part of which occurs during the Employment Term,
the Executive will be eligible to participate in the Company’s annual management
incentive program or arrangement approved by the Board (or any authorized
committee thereof) or any successor program or plan thereto or thereunder on
terms and conditions no less favorable to the Executive than those available to
similarly situated executives of the Company, with a target bonus opportunity of
the percentage of the Base Salary set forth on Exhibit A attached hereto (the
“Target Bonus Percentage”) and a maximum bonus opportunity of not less than the
percentage of the Base Salary set forth on Exhibit A attached hereto (the
“Annual Bonus Percentage”); provided, that in no event shall the Executive’s
annual bonus for 2009 be less than $787,500; provided further, that the
Executive shall remain entitled to the $333,333.33 that constitutes the Second
Installment, which shall now be payable in cash to the Executive on
September 18, 2009, and this Second Installment, to the extent paid to the
Executive (but not the First Installment (as defined in the Prior Agreement))
shall be deducted from the 2009 annual bonus to be paid to the Executive. The
Board (or any authorized committee thereof) shall have the authority to
establish performance metrics and such other terms and conditions of the annual
management incentive program pursuant to which such bonuses may be earned,
provided that any such performance targets for a fiscal year shall be no less
favorable to the Executive than the annual performance targets established for
such fiscal year for other senior executives of the Company (other than
(i) annual performance targets established for the Chief Executive Officer of
the Company and (ii) any performance targets established in connection with an
executive’s commencement of employment with, or promotion within, the Company)
generally and, in the case of the performance metrics for fiscal year 2009,
shall be the metrics attached hereto as Schedule 1. Such annual bonuses shall be
paid to the Executive 100% in cash no later than the date such bonuses are
generally paid to other senior executives of the Company, but in all events by
March 15 of the year following the fiscal year for which such annual bonus was
earned (unless the Executive has elected to defer receipt of any such bonuses).
     (ii) Transaction Bonus. In addition to the amounts described in
Section 4(b)(i) and 4(b)(iii), the Executive shall be paid a cash transaction
bonus of $1,000,000 as follows (the “Transaction Bonus”): (i) 50 percent of the
Transaction Bonus shall be paid to the Executive within five days following the
date on which an [***] occurs and the Company or one of its Affiliates executes
a National Carrier Marketing Distribution Agreement, (ii) 25 percent of the
Transaction Bonus shall be paid to the Executive within five days following the
date on which the [***] is achieved and (iii) 25 percent of the Transaction
Bonus shall be paid to the Executive within five days following the date on
which the National Carrier MDA Goal is achieved, subject, in each case, except
as otherwise provided in Section 10 hereof, to the Executive’s continued

  [***] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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employment through the applicable payment date. The Company acknowledges that
the objectives to be accomplished by an [***] and National Carrier Marketing
Distribution Agreement might be accomplished through a variety of transaction
structures based on tax, accounting or other considerations (an “Alternate
Structure”). To the extent a Board-approved transaction accomplishes such
objectives pursuant to an Alternate Structure then the Board may determine that
the full amount of the Transaction Bonus or any portion thereof shall be
payable, with such payment to be made within five days following the date of
such Board determination. Notwithstanding any of the foregoing, in the event
that the applicable goal relating to the payment of the applicable portion of
the Transaction Bonus set forth above is not achieved, the Board of Directors
shall have the authority to award all, none, or a portion of the portion of the
Transaction Bonus tied to achievement of such goal at its sole discretion.
(iii) Retention Payment. In addition to the amounts described in
Sections 4(b)(i) and 4(b)(ii), the Executive shall be granted the right to
receive a retention bonus of $1,000,000 in cash (the “Retention Payment”) which
bonus shall vest on the earlier of (a) a Change of Control or (b) December 31,
2010, subject, except as otherwise provided in Section 10 hereof, to the
Executive’s continued employment through such vesting date which Retention
Payment shall be paid to the Executive on the earlier of (a) a Change of Control
which constitutes a “change in control event” within the meaning of Section 409A
of the Code or (b) December 31, 2010.
          (c) No Equity Compensation; Forfeiture of Initial Grant. During the
Employment Term, the Executive will be eligible to participate in the Company’s
incentive and deferred compensation plans and programs or arrangements as may be
determined by the Board or any successor programs or plans thereto or thereunder
(collectively, the “Incentive Programs”), in each case, as may be in effect from
time to time and as may be determined by the Board, on a basis no less favorable
to the Executive than to other senior executives who participate in such
Incentive Programs (other than with respect to (i) the Chief Executive Officer
of the Company, (ii) an executive’s commencement of employment with, or
promotion within, the Company or (iii) with respect to any equity compensation
awards) generally. The Executive acknowledges and agrees that, during the
Employment Term, (i) he shall not be considered for the grant of any equity
compensation awards or equity awards, (ii) the grant of such awards to other
senior executives of the Company will not be taken into account for purposes of
the Company’s commitment to the Executive in the preceding sentence in this
Section 4(c) and (iii) neither the Company’s failure to grant any such awards to
the Executive or grant of such awards to other senior executives of the Company
shall be considered an event constituting “Good Reason.” In connection with the
Executive’s entry into the Prior Agreement, the Executive and the Company
entered into that certain Stock Option Agreement, dated as of September 30, 2008
(the “Prior Stock Option Agreement”), pursuant to which the Company granted the
Executive 175,000 Option Rights (the “Initial Grant”). By execution of this
Agreement, the Executive hereby acknowledges and agrees that effective as of the
Effective Date, the Prior Stock Option

  [***] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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Agreement and the Option Rights granted to the Executive pursuant to the Initial
Grant thereunder, whether vested or unvested, shall be cancelled and void and
the Prior Stock Option Agreement shall be of no further force or effect.
          (d) LTIP Awards.
     (i) Initial LTIP Award. The Company has granted the Executive a cash-based
LTIP award with a target value of $133,000 (the “Initial LTIP Award”). Except as
may otherwise be provided in Section 10 of this Agreement, the Initial LTIP
Award shall vest at the earlier of (x) a Change of Control or (y) in three equal
annual installments, on each of the first three anniversaries of September 30,
2008, in both cases subject to the Executive’s continued employment with the
Company through the applicable vesting date and, with respect to (y), subject to
the Executive’s achievement of certain performance goals already established by
the Board (or an authorized committee thereof). Any vested portion of such
Initial LTIP Award shall be delivered to the Executive, 100% in cash, on the
earlier of immediately prior to a Change of Control or upon September 30, 2011.
     (ii) Termination of Employment. Except as may otherwise be provided in
Section 10 of this Agreement, any unvested portion of the Initial LTIP Award
shall be forfeited upon termination of the Executive’s employment. Any portion
of the Initial LTIP Award that has become vested shall be non-forfeitable.
     5. Employee Benefits.
          (a) General. In addition to the compensation described in Section 4,
during the Employment Term, the Executive shall be eligible to participate in
the employee benefit plans, programs and arrangements (including any equity
plans and programs), and to receive perquisites, provided from time to time to
similarly situated executives of the Company and its Subsidiaries generally on a
basis no less favorable to the Executive than to other senior executives of the
Company or its Subsidiaries (other than the Chief Executive Officer of the
Company) who participate in such plans, programs, arrangements or benefits (not
taking into account, for purposes of the foregoing, any sign on or initial
awards made to other executives or any benefits or perquisites provided to
executives in connection with commencement of their employment with, or
promotion within, the Company) generally.
          (c) Automobile Allowance. During the Employment Term, the Executive
will be entitled to an automobile allowance of $600.00 per month.
     6. Expenses. During the Employment Term, the Company shall pay or reimburse
the Executive for reasonable and necessary expenses incurred by the Executive in
connection with the Executive’s performance of the Executive’s duties on behalf
of the Company and its Subsidiaries in accordance with the expense policy of the
Company applicable to similarly situated executives of the Company and its
Subsidiaries generally. The Company shall pay the Executive’s legal counsel
directly for the reasonable fees and expenses incurred by the Executive in
connection with the review, negotiation and drafting of the Agreement and any
other related documentation, subject to a cap of $6,000.

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     7. Vacation. The Executive shall be entitled to a number of days of
vacation per year in accordance with the Company’s policies, whether written or
unwritten, regarding vacation for similarly situated executives of the Company
and its Subsidiaries generally; provided that in all events he shall be entitled
to no less than 4 weeks of vacation per calendar year, pro-rated for any partial
year. Subject to the Company’s policies, the duration of such vacations and the
time or times when they shall be taken will be determined by the Executive in
consultation with the Company.
     8. Investment.
          (a) In connection with the Executive’s commencement of employment
under the Prior Agreement, the Executive invested cash in the amount of $250,000
in Shares, at a purchase price of $24.00 per Share (such investment, the
“Investment”) and purchased Shares as part of the First Year Guaranteed Annual
Bonus (collectively equal to 13,981 Shares), pursuant to the terms of a
Subscription Agreement between the Company and the Executive, and the Executive
acknowledges that such Shares are subject to the terms and conditions of the
Stockholders Agreement.
          (b) Call Rights. Notwithstanding anything to the contrary in the
Stockholders Agreement or any other agreement, upon a termination of the
Executive’s employment with the Company or any of its Subsidiaries for any
reason prior to an IPO or a Change of Control, the Company will have the right
to purchase (a “Call Right”) any Shares held by the Executive (whether pursuant
to the Investment, the First Year Guaranteed Annual Bonus or otherwise) at Fair
Market Value as of the date the Company exercises its Call Right (except in the
event of a termination by the Company for Cause, in which case the Call Right
will be at the lower of the original cost of such Shares or Fair Market Value as
of the date the Company exercises such Call Right). The Call Right may be
exercised at any time following the later of six months following (1) the
Executive’s receipt of any Shares, and (2) the termination of the Executive’s
employment. “Fair Market Value” shall be determined from time to time (but no
less frequently than quarterly) by the Board in good faith and shall in any
event be determined consistently with how “fair market value” is determined with
respect to shares of Company stock held by existing shareholders, including
members of the Board, and how the exercise price for the Initial Grant was
determined (it being understood that no discount shall be taken due to lack of
marketability). In determining Fair Market Value, the Board will consider (among
other factors it deems appropriate) the valuation prepared by Blackstone in the
ordinary course of business for reporting to its advisory board and investors,
which Blackstone will provide to the Board. Notwithstanding the foregoing, in
the event that either (i) within six months following a termination of the
Executive’s employment by the Company without Cause or by the Executive for Good
Reason or upon his death or Disability an IPO or Change of Control occurs or
(ii) the Executive’s employment is terminated by the Company without Cause or by
the Executive for Good Reason or upon his death or Disability after a definitive
agreement is entered into which will result in a Change of Control (provided
that such agreement actually results in a Change of Control), for purposes of
the Call Right, Fair Market Value shall equal the consideration paid per Share
pursuant to such transaction.

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          (c) Tag-Along and Drag-Along Rights. Shares owned by the Executive
shall be subject to the applicable tag-along and drag-along provisions of the
Stockholders Agreement, provided that the applicable thresholds shall be reduced
from 50% to 25%.
          (d) Put Right. Notwithstanding anything to the contrary in the
Stockholders Agreement, if, prior to an IPO or a Change of Control, the
Executive’s employment with the Company or any of its Subsidiaries terminates
(other than a termination by the Company for Cause or a resignation by the
Executive without Good Reason), the Executive shall have the right, exercisable
at any time during the six-month period following the six-month anniversary of
his termination of employment, to sell to the Company Shares acquired by the
Executive pursuant to the Investment and any Shares delivered as part of the
First Year Guaranteed Annual Bonus at the Fair Market Value of such Shares at
the time of such sale.
          (e) Effect on Stockholders Agreement. This Section 8 shall be deemed
an amendment to the Stockholders Agreement for all purposes under the
Stockholders Agreement. By executing this Agreement, the Executive agrees to be
bound by the terms of the Stockholders Agreement and the accepts the rights and
obligations set forth therein, and each of Blackstone and the Company agree that
this Section 8 is effective as a joinder to the Stockholders Agreement for all
purposes thereunder (including with respect to Section 2.03 therein). In
addition, if the Executive is forced to withdraw from the Stockholders Agreement
on or following a Change of Control, the provisions of this Section 8 shall
remain in effect with respect to the Executive’s equity interests in the
Company.
     9. Termination.
          (a) Termination of Employment by the Company. The Executive’s
employment hereunder may be terminated by the Company or any of its Subsidiaries
that employ the Executive for any reason or no reason (including with or without
Cause or notification by the Company at any time during the Employment Term
pursuant to Section 2 that the Company intends to terminate the Agreement and
the Executive’s employment, rather than allow the Agreement to renew
automatically) by written notice as provided in Section 18.
          (b) Voluntary Termination by the Executive. The Executive may
voluntarily terminate the Executive’s employment with or without Good Reason at
any time by notice to the Company as provided in Section 18.
          (c) Benefits Period. Subject to Section 10 and any benefit
continuation requirements of applicable laws, in the event the Executive’s
employment hereunder is terminated for any reason whatsoever, the compensation
and benefits obligations of the Company under Sections 4 and 5 shall cease as of
the effective date of such termination, except for any compensation and benefits
earned but unpaid through such date.
          (d) Resignation from All Positions. Notwithstanding any other
provision of this Agreement to the contrary, upon the termination of the
Executive’s employment for any reason, unless otherwise requested by the Board,
the Executive shall immediately resign from all positions that he holds with the
Company, its Subsidiaries and any of their affiliates (and with any other
entities with respect to which the Company has requested the Executive to
perform

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services), as applicable, including, without limitation, the Board and all
boards of directors of any affiliates. The Executive hereby agrees to execute
any and all documentation to effectuate such resignations upon request by the
Company, but he shall be treated for all purposes as having so resigned upon
termination of his employment, regardless of when or whether he executes any
such documentation.
     10. Termination Payments and Benefits. If, during the Employment Term, the
Executive’s employment hereunder is terminated by the Company without Cause, by
reason of the Executive’s death or Disability, or the Executive terminates his
employment for Good Reason, subject to (i) the Executive’s execution and
non-revocation of a release of claims against the Company within 60 days
following the date of the Executive’s termination of employment, in the form
attached hereto as Exhibit B, (ii) the terms of Section 14 and (iii) the
Executive’s continued compliance with the covenants of Sections 12 and 13
(collectively, the “Restrictive Covenants”) as set forth in Section 10(f), the
Company shall pay to the Executive such payments and make available to the
Executive such benefits as are set forth in this Section 10. In addition, upon
any termination of employment, the Executive shall be entitled to the payments
and benefits and entitlements as are described in Section 10(e).
          (a) Bonus Entitlement. Solely if the Executive’s termination of
employment occurs after the last day of the first quarter of an applicable
Company fiscal year, the Executive will be entitled to receive an amount equal
to the product of (i) the bonus that would have been paid to the Executive had
the Executive remained employed through the date on which bonuses are paid to
senior executives of the Company generally based upon the achievement of the
applicable performance goals (and determined based on the exercise of negative
discretion no less favorable to the Executive than that exercised with respect
to active senior executives of the Company generally and, if the payment is not
subject to Section 162(m) as of the date of termination, as if the Executive had
achieved any subjective performance targets at 100%) and (ii) a fraction, the
numerator of which is the number of days which have elapsed from the first day
of the fiscal year in which the date of termination occurs through the date of
termination and the denominator of which is 365 (such amount, if any, the
“Pro-Rata Bonus”), which Pro-Rata Bonus shall be paid within the first 75 days
of the year immediately following the end of the year to which such Pro-Rata
Bonus relates (unless the Executive has deferred receipt of the applicable
bonus); provided that in the case of a Pro-Rata Bonus for fiscal year 2009, the
Executive shall be paid the Second Installment in all events in cash on
September 18, 2009, to the extent unpaid as of the Executive’s termination date,
with any additional payment due hereunder being made within the first 75 days of
fiscal year 2010.
          (b) Transaction Bonus and Retention Payment. To the extent then
unpaid, the Executive shall remain entitled to the Transaction Bonus as if he
had remained employed with the Company indefinitely, with such Transaction Bonus
payable at such time(s) as set forth in Section 4(b)(ii) hereof and the
Retention Payment shall vest on the date of termination and be paid within
30 days following the date of termination.
          (c) Any payments under this Section 10 to the Executive shall not be
taken into account for purposes of any retirement plan (including any
supplemental retirement plan or arrangement) or other benefit plan sponsored by
the Company, except as otherwise expressly required by such plans or applicable
law.

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          (d) Section 409A of the Code; Specified Employee. Notwithstanding the
preceding provisions of this Section 10, in the event that the Executive is a
“specified employee” (within the meaning of Section 409A of the Code) on the
date of termination of Executive’s employment with the Company and any payment
which constitutes a “deferral of compensation” within the meaning of
Section 409A of the Code to be paid within the first six months following such
date (the “Initial Payment Period”) exceeds the amount referenced in Treas.
Regs. Section 1.409A-1(b)(9)(iii)(A) (the “Limit”) and does not otherwise
qualify under the short-term deferral exemption, then (i) any portion of such
payment that is payable during the Initial Payment Period that does not exceed
the Limit or can be paid within the short-term deferral exemption shall be paid
at the times set forth in Section 10(a), (ii) any portion of such payment that
exceeds the Limit and cannot be paid within the short-term deferral exemption
(and would have been payable during the Initial Payment Period but for the
Limit) shall be paid, with Interest, on the first business day of the first
calendar month that begins after the six-month anniversary of Executive’s
“separation from service” (within the meaning of Section 409A of the Code) and
(iii) any portion of such payment that is payable after the Initial Payment
Period shall be paid at the times set forth in Section 10(a), respectively. For
purposes of this paragraph, “Interest” shall mean interest at the applicable
federal rate provided for in Section 7872(f)(2)(A) of the Code, from the date on
which payment would otherwise have been made but for any required delay through
the date of payment.
          (e) Other/Vested Benefits. In the case of any termination, the
Executive (or his estate) shall be entitled to (i) any additional payments,
benefits or entitlements to which he is entitled in accordance with the
applicable terms of any applicable plan, policy, program, arrangement or other
agreement of the Company or any Subsidiary or affiliate or, if applicable,
pursuant to Section 8, Section 11 and Section 20 hereof, (ii) payment of any
amounts which are vested or have been earned or are due and remain unpaid,
including, without limitation, base salary through the date of termination, any
unreimbursed business expenses, the vested portion of the First Year Guaranteed
Annual Bonus, any bonus payment for any performance period which has ended prior
to the date of termination for which the Executive has not been paid and any
vested portion of the Initial LTIP Award (payable at such times as such Initial
LTIP Award would otherwise have been paid had he remained employed by the
Company) and any vested Retention Payment, and (iii) any rights the Executive
has a shareholder in the Company or pursuant to this Agreement with respect to
the Investment, the shares payable in connection with the First Year Guaranteed
Annual Bonus and any other equity held by the Executive. In addition, for any
termination of the Executive’s employment on or after the date the Retention
Bonus has vested (other than in the event of a termination of the Executive’s
employment by the Company for Cause), the Executive shall be entitled to (x) a
Pro-Rata Bonus for the fiscal year in which his termination date occurs and (y)
to the extent unpaid as of his termination date, a bonus for the fiscal year
immediately preceding the fiscal year in which the termination date occurs
determined based on the bonus that would have been paid to the Executive had he
remained employed through the date on which such bonuses are paid to senior
executives of the Company generally. Finally, for the avoidance of doubt, this
Section 10(e) shall survive any expiration of the Employment Term and shall
apply with respect to any termination of the Executive’s employment after the
expiration of the Employment Term.
          (f) Return of Payments/Clawback. Not in any way in limitation of any
right or remedy otherwise available to the Company, if the Executive does not
comply with any of the Restrictive Covenants (subject to the Company providing
the Executive with written notice of any

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such non-compliance), (i) the Pro-Rata Bonus and any payments in respect of any
LTIP Award then or thereafter due from the Company to the Executive shall be
terminated immediately, (ii) the Company’s obligation to pay or provide and the
Executive’s right to receive such payments or benefits shall terminate and be of
no further force or effect and (iii) the Executive shall be required to pay back
to the Company any amounts in respect of any Pro-Rata Bonus or Initial LTIP
Award previously paid to him, in each case without limiting or affecting the
Executive’s obligations under the Restrictive Covenants or the Company’s other
rights and remedies available at law or equity.
          (g) No Obligation to Mitigate. The Executive is under no obligation to
mitigate damages or the amount of any payment provided for hereunder by seeking
other employment or otherwise and, except as provided for in Section 10(f)
above, such amounts shall not be reduced whether or not the Executive obtains
other employment.
     11. 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
would be subject to the Excise Tax, then the Executive shall be entitled to
receive an additional payment (the “Gross-Up Payment”) in an amount such that,
after payment by the Executive of all taxes (and any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
and employment taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, but excluding any
income taxes and penalties imposed pursuant to Section 409A of the Code, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 11(a), if it shall be determined that the Executive is entitled to the
Gross-Up Payment, but that the Parachute Value of all Payments does not exceed
110% of the Safe Harbor Amount, then no Gross-Up Payment shall be made to the
Executive and the amounts payable under this Agreement shall be reduced so that
the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor
Amount. The reduction of the amounts payable hereunder, if applicable, shall be
made by reducing the payments and benefits under the following sections in the
following order: (i) Section 10(a), (ii) Section 10(b), (iii) Section 10(c),
(iv) any cash payments under Section 10(i), (v) any non-cash amounts under
Section 10(i) and (vi) Section 10(d). For purposes of reducing the Payments to
the Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amount payable under this
Agreement would not result in a reduction of the Parachute Value of all Payments
to the Safe Harbor Amount, no amounts payable under the Agreement shall be
reduced pursuant to this Section 11(a). The Company’s obligation to make
Gross-Up Payments under this Section 11 shall not be conditioned upon the
Executive’s termination of employment.
          (b) Subject to the provisions of Section 11(c), all determinations
required to be made under this Section 11, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment and the assumptions to
be utilized in arriving at such determination, shall be made by a nationally
recognized certified public accounting firm as may be designated by the Company
(the “Accounting Firm”). The Accounting Firm 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

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requested by the Company. All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive (absent manifest error). 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 that will not have been made by the Company should have been
made (the “Underpayment”), consistent with the calculations required to be made
hereunder. In the event the Company exhausts its remedies pursuant to Section
11(c) (or decides not to contest a claim) 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
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable, but no later than 10 business days after the Executive is informed
in writing of such claim. The Executive 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 the Executive 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 the Company 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) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 11(c),
the Company shall control all proceedings taken in connection with such contest,
and, at its sole discretion, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the applicable taxing
authority in respect of such claim and may, at its sole discretion, either pay
the tax claimed to the appropriate taxing authority on behalf of the Executive
and direct the Executive to sue for a refund or contest the claim in any
permissible

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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 pays such claim and directs the Executive to sue for a
refund, the Company shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties) imposed with respect to such payment or with respect to any imputed
income in connection with such payment; and provided, further, 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 the 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 a Gross-Up Payment or
payment by the Company of an amount on the Executive’s behalf pursuant to
Section 11(c), the Executive becomes entitled to receive any refund with respect
to the Excise Tax to which such Gross-Up Payment relates or with respect to such
claim, the Executive shall (subject to the Company’s complying with the
requirements of Section 11(c), if applicable) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after payment by the Company of an amount on the
Executive’s behalf pursuant to Section 11(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 the amount of such payment shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
          (e) Any Gross-Up Payment, as determined pursuant to this Section 11,
shall be paid by the Company to the Executive within five (5) days of the
receipt of the Accounting Firm’s determination; provided, however, that the
Gross-Up Payment shall in all events be paid no later than the end of the
Executive’s taxable year next following the Executive’s taxable year in which
the Excise Tax (and any income or other related taxes or interest or penalties
thereon) on a Payment are remitted to the Internal Revenue Service or any other
applicable taxing authority; or, in the case of amounts relating to a claim
described in Section 11(c) that does not result in the remittance of any
federal, state, local and foreign income, excise, social security and other
taxes, the calendar year in which the claim is finally settled or otherwise
resolved. Notwithstanding any other provision of this Section 11, the Company
may, in its sole discretion, withhold and pay over to the Internal Revenue
Service or any other applicable taxing authority, for the benefit of the
Executive, all or any portion of any Gross-Up Payment, and the Executive hereby
consents to such withholding.
          (f) Definitions. The following terms shall have the following meanings
for purposes of this Section 11.
               “Excise Tax” shall mean the excise tax imposed by Section 4999 of
the Code or other similar tax (other than Section 409A of the Code) which may
hereafter be imposed, together with any interest or penalties imposed with
respect to such excise tax.

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          “Parachute Value” of a Payment shall mean the present value as of the
date of the change of control for purposes of Section 280G of the Code of the
portion of such Payment that constitutes a “parachute payment” under
Section 280G(b)(2), as determined by the Accounting Firm for purposes of
determining whether and to what extent the Excise Tax will apply to such
Payment.
          A “Payment” shall mean any payment, benefit, entitlement or
distribution in the nature of compensation (within the meaning of
Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether
paid or payable pursuant to this Agreement or otherwise (including, without
limitation, any payment, benefit, entitlement or distribution paid or provided
by the person or entity effecting the change in control).
          The “Safe Harbor Amount” means 2.99 times the Executive’s “base
amount,” within the meaning of Section 280G(b)(3) of the Code.
     12. Confidentiality; Return of Property.
          (a) The Executive acknowledges that in the course of his employment by
the Company, he will or may have access to and become informed of confidential
or proprietary information of the Company and its Subsidiaries (“Confidential
Information”), which is a competitive asset, including, without limitation,
(i) the terms of any agreement between the Company and any employee, customer or
supplier, (ii) pricing strategy, (iii) merchandising and marketing methods,
(iv) product development ideas and strategies, (v) personnel training and
development programs, (vi) financial results, (vii) strategic plans and
demographic analyses, (viii) proprietary computer and systems software, and
(ix) any non-public information concerning the Company, its employees, suppliers
or customers. The Executive agrees that he will keep all Confidential
Information in strict confidence during the term of his employment by the
Company and thereafter, and will never directly or indirectly make known,
divulge, reveal, furnish, make available, or use any Confidential Information
(except in the course of his regular authorized duties on behalf of the
Company). The Executive agrees that the obligations of confidentiality under
this Section 12 shall survive termination of the Executive’s employment with the
Company regardless of any actual or alleged breach by the Company of this
Agreement, until and unless (x) any such Confidential Information shall have
become, through no fault of the Executive, generally known to the public or the
Executive is required by lawful service of process, subpoena, court order, law
or the rules or regulations of any regulatory body to which he is subject to
make disclosure or, (y) the Executive brings a claim or action to enforce any of
his rights with respect to any compensation, including, without limitation, any
annual bonus or the Initial LTIP Award (provided such disclosure is only to the
extent reasonably necessary with respect to enforcement of such right and the
Executive takes appropriate steps to have such Confidential Information entered
into any proceeding under seal), provided that in the case of clause (y), the
Executive has provided to the Company, unless prohibited by law or regulation, a
copy of the documents seeking disclosure of such information and giving the
Company prompt notice upon receipt of such documents and prior to their
disclosure. All records, files, memoranda, reports, customer lists, drawings,
plans, documents and the like relating to the Company’s business that the
Executive uses, prepares or comes into contact with during the course of the
Executive’s employment shall remain the sole property of the Company and/or its
affiliates, as applicable, and shall be turned over to the Company upon
termination of the Executive’s employment, except to the extent the

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Executive is permitted to retain such information or property as set forth in
Section 12(b). The Executive’s obligations under this Section 12 are in addition
to, and not in limitation of or preemption of, all other obligations of
confidentiality which the Executive may have to the Company under general legal
or equitable principles.
          (b) Except in the ordinary course of the Company’s business, the
Executive has not made, nor shall at any time following the date of this
Agreement, make or cause to be made, any copies, pictures, duplicates,
facsimiles or other reproductions or recordings or any abstracts or summaries
including or reflecting Confidential Information. All such documents and other
property furnished to the Executive by the Company or any of its Subsidiaries or
affiliates or otherwise acquired or developed by the Company or any of its
Subsidiaries or affiliates shall at all times be the property of the Company.
Upon termination of the Executive’s employment with the Company, the Executive
will return to the Company any such documents or other property of the Company
or any of its Subsidiaries or affiliates which are in the possession, custody or
control of the Executive. Notwithstanding the foregoing, the Executive shall be
permitted to retain his personal papers (provided that such papers do not
contain any Confidential Information related to the Company), any information
relating to his compensation, other entitlements or obligations, any information
he reasonably believes is necessary for tax purposes and his personal rolodex.
          (c) Without the prior written consent of the Company (which may be
withheld for any reason or no reason), except in the ordinary course of the
Company’s business, the Executive shall not at any time following the date of
this Agreement use for the benefit or purposes of the Executive or for the
benefit or purposes of any other person, firm, partnership, association, trust,
venture, corporation or business organization, entity or enterprise or disclose
in any manner to any person, firm, partnership, association, trust, venture,
corporation or business organization, entity or enterprise any Confidential
Information (except as permitted in Section 12).
     13. Covenant Not to Compete; Covenant Not to Solicit. For a period
commencing on the Effective Date and for a period ending one (1) year after the
termination of the Executive’s employment with the Company for any reason or no
reason, including termination for Cause or the Executive’s voluntary resignation
without Good Reason, the Executive acknowledges and agrees that he will not,
directly or indirectly, individually or on behalf of any other person or entity:
          (a) engage in any business which directly competes with the business
in which the Company or any of the Company’s Subsidiaries or affiliates
(collectively, the “Company Group”) were engaged (or had taken substantial steps
to engage in); or
          (b) solicit for hire, hire or employ (whether as an officer, director
or insurance agent) any person who is an employee or independent contractor of
any member of the Company Group or has been an employee or independent
contractor of any member of the Company Group at any time during the six-month
period prior to the Executive’s termination of employment or solicit, aid or
induce any such person to leave his or her employment with any member of the
Company Group to accept employment with any other person or entity.
          (c) Executive’s ownership of less than one percent (1%) of any class
of stock in a publicly-traded corporation shall not be deemed a breach of this
Section 13 and

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notwithstanding the foregoing, it shall not be a violation of this Section 13
for the Executive (i) to join a division, business line, subsidiary or affiliate
of a commercial enterprise with multiple divisions or business lines if such
division, business line, subsidiary or affiliate is not competitive with the
businesses of the Company Group, provided that the Executive performs services
solely for such non-competitive division, business line, subsidiary or
affiliate, and performs no functions on behalf of (and has no involvement with
or direct or indirect responsibilities with respect to) businesses competitive
with the businesses of the Company Group, with competitiveness determined for
these purposes as set forth in Section 13(a) or (ii) to provide services to a
private equity firm or hedge fund, in either case, that holds investments in a
business which directly competes with the business in which the Company Group is
engaged so long as the Executive has no involvement with or direct or indirect
responsibilities with respect to (A) the management, operations or supervision
of such investments or (B) advising such firm with respect to such investments.
In addition, it shall not be a violation of this Section 13 for the Executive to
remain as a board member of the entities for which he was serving as a board
member on the date of his termination of employment, provided such membership is
consistent with Section 3(b) hereof.
          (d) Upon a Change of Control, the definition of Company Group and
their respective employees and independent contractors for the purposes of this
Section 13 shall refer only to the Company, its Subsidiaries and its affiliates
(and the businesses in which they were engaged) as of immediately prior to such
Change of Control.
          (e) The Executive acknowledges and agrees that a violation of the
foregoing provisions of Section 12 or Section 13 would result in material
detriment to the Company, would cause irreparable harm to the Company, and that
the Company’s remedy at law for any such violation would be inadequate. In
recognition of the foregoing, the Executive agrees that, in addition to any
other relief afforded by law or this Agreement, including damages sustained by a
breach of this Agreement and without the necessity or proof of actual damages,
the Company shall have the right to enforce this Agreement by specific remedies,
which shall include, among other things, temporary and permanent injunctions, it
being the understanding of the undersigned parties hereto that damages and
injunctions all shall be proper modes of relief and are not to be considered as
alternative remedies.
          (f) Except as otherwise set forth in Section 12 and this Section 13,
there shall be no other restrictions on the Executive’s rights to compete,
solicit or hire or use or disclose confidential information following the
Executive’s termination of employment other than those under applicable law.
     14. Compliance with Section 409A of the Code.
     (a) The Agreement is intended to comply with the requirements of
Section 409A of the Code or an exemption. Notwithstanding anything in the
Agreement to the contrary, distributions upon termination of employment may only
be made upon a “separation from service” as determined under Section 409A. Each
payment under this Agreement shall be treated as a separate payment for purposes
of Section 409A. In no event may the Executive, directly or indirectly,
designate the calendar year of any payment to be made under this Agreement. In
the event the parties determine that the terms of this Agreement do not comply
with Section 409A, they will negotiate reasonably and in good faith to amend the
terms of this Agreement such that it

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complies (in a manner that attempts to minimize the economic impact of such
amendment on the Executive and the Company) within the time period permitted by
the applicable Department of Treasury Regulations.
     (b) All reimbursements and in-kind benefits provided under this Agreement
shall be made or provided in accordance with the requirements of Section 409A of
the Code. In order to comply with Section 409A of the Code, in no event shall
the payments by the Company under Sections 5(b) or 6 be made later than the end
of the calendar year next following the calendar year in which such fees and
expenses were incurred, provided, that the Executive shall have submitted an
invoice for such fees and expenses at least 10 days before the end of the
calendar year next following the calendar year in which such fees and expenses
were incurred. The amount of any such fees and expenses that the Company is
obligated to pay in any given calendar year shall not affect the fees and
expenses that the Company is obligated to pay in any other calendar year, and
the Executive’s right to have the Company pay such fees and expenses may not be
liquidated or exchanged for any other benefit.
     (c) The Company and the Executive shall take all steps necessary (including
with regard to any post-termination services the Executive provides) to ensure
that any termination of employment described in this Agreement constitutes a
“separation from service” within the meaning of Section 409A of the Code, and
notwithstanding anything contained in this Agreement to the contrary, the date
on which such “separation from service” takes place shall be the date of the
termination of the Executive’s employment.
     15. Prior Agreement. As of the Effective Date, this Agreement, including
its Exhibits, supersedes any and all prior and/or contemporaneous agreements,
either oral or in writing, between the parties hereto, or between either or both
of the parties hereto and the Company, with respect to the subject matter hereof
including, without limitation, the Prior Agreement and any term sheets relating
thereto. Each party to this Agreement acknowledges that no representations,
inducements, promises, or other agreements, orally or otherwise, have been made
by any party, or anyone acting on behalf of any party, pertaining to the subject
matter hereof, which are not embodied herein, and that no prior and/or
contemporaneous agreement, statement or promise pertaining to the subject matter
hereof that is not contained in this Agreement shall be valid or binding on
either party. In the event of any conflict between any provision of this
Agreement, including Exhibit A, and any other provision of any plan, policy,
program, arrangement or other agreement of the Company or any Subsidiary or any
affiliate of the Company, this Agreement (or such Exhibit) shall control.
     16. Withholding of Taxes. The Company may withhold from any amounts payable
or transfer made under any compensation or other amount owing to the Executive
under this Agreement all applicable federal, state, city or other withholding
taxes as the Company is required to withhold pursuant to any law or government
regulation or ruling.
     17. Successors and Binding Agreement.
          (a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business or assets of the Company or of any
Subsidiary or any division or business unit thereof for

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which the Executive performs services, by agreement in form and substance
satisfactory to the Executive (and any such successor, the “Successor”),
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent the Company would be required to perform if no such
succession had taken place. This Agreement will be binding upon and inure to the
benefit of the Company and any successor to the Company, including without
limitation any persons acquiring directly or indirectly all or substantially all
of the business or assets of the Company or of any Subsidiary or any division or
business unit thereof for which the Executive performs services whether by
purchase, merger, consolidation, reorganization or otherwise (and such successor
shall thereafter be deemed the “Company” for the purposes of this Agreement),
but will not otherwise be assignable, transferable or delegable by the Company.
          (b) This Agreement will inure to the benefit of and be enforceable by
the Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
          (c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 17(a) and 17(b). Without limiting the generality or effect
of the foregoing, the Executive’s right to receive payments hereunder will not
be assignable, transferable or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by the Executive’s
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 17(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
     18. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof confirmed), or five (5) business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three (3) business days after having been sent by
a nationally recognized overnight courier service such as Federal Express, UPS,
or Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive offices and to the Executive at his
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
     19. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
     20. Indemnification. The Company will indemnify the Executive (and his
legal representative, heirs or other successors) to the fullest extent permitted
(including a payment of expenses in advance of final disposition of a
proceeding) by the Company’s certificate of incorporation, or if greater, by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, against all costs, charges and expenses
whatsoever incurred or

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sustained by him or his legal representatives, heirs or other successors
(including but not limited to any judgment entered by a court of law or any
costs, including reasonable attorneys’ fees the Executive incurs to enforce the
terms of this Section 20) at the time such costs, charges and expenses are
incurred or sustained, in connection with any action, suit or proceeding to
which the Executive (or his legal representatives or other successors) may be
made a party by reason of his having accepted employment with the Company or by
reason of his being or having been a director, officer or employee of the
Company, or any Subsidiary of the Company, or his serving or having served any
other enterprise as a director, officer or employee at the request of the
Company (including any acts or omissions which are alleged to have occurred in
such service), and to the extent the Company maintains such an insurance policy
or policies, the Executive shall be covered by such policy or policies, in
accordance with its or their terms to the maximum extent of the coverage
available for any Company officer or director. The Executive’s rights under this
Section 20 shall continue without time limit for so long as he may be subject to
any such liability, whether or not the Employment Term may have ended.
     21. Validity. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to any other person or circumstances will not be affected, and the
provision so held to be invalid or unenforceable will be reformed to the extent
(and only to the extent) necessary to make it enforceable or valid.
     22. Survival of Provisions. Notwithstanding any other provision of this
Agreement, the parties’ respective rights and obligations under Sections 8, 10,
11, 12, 13, 14, 15, 16, 17, 20, 22 and 23 (and the terms defined therein) will
survive any termination or expiration of this Agreement or the termination of
the Executive’s employment for any reason whatsoever.
     23. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. Unless otherwise noted, references to
“Sections” are to sections of this Agreement. The captions used in this
Agreement are designed for convenient reference only and are not to be used for
the purpose of interpreting any provision of this Agreement.
     24. Defined Terms.
          (a) “401(k) Plan” means the HealthMarkets 401(k) and Savings Plan.
          (b) “Accounting Firm” has the meaning specified in Section 11(b).
          (c) “Agreement” has the meaning specified in the introductory
paragraph herein.
          (d) “Annual Bonus Percentage” has the meaning specified in
Section 4(b)(i).
          (e) “Base Salary” has the meaning specified in Section 4(a).

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          (f) “Board” means the Board of Directors of the Company.
          (g) “Call Right” has the meaning specified in Section 8.
          (h) “Cause” means the occurrence of any of the following:
     (i) the Executive engages in fraudulent activity, embezzlement or
misappropriation relating to the business of the Company or any of its
affiliates or Subsidiaries;
     (ii) the Executive is convicted by a court of competent jurisdiction of, or
pleads guilty or nolo contendere to, any felony (other than a traffic violation)
or any crime involving moral turpitude;
     (iii) the Executive commits a breach of the Restrictive Covenants, which
breach has not been remedied within 30 days of the delivery to Executive by the
Board of written notice of the facts constituting the breach, and which breach
if not cured would have a material adverse effect on the Company;
     (iv) the Executive’s willful and continued failure after written notice
from the Board to perform his material duties for the Company or its
Subsidiaries (other than on account of approved leave of absence and/or
Disability); or
     (v) the Executive engages in (x) gross neglect or (y) willful misconduct,
in both cases relating to the Executive’s performance of his duties for the
Company.
The cessation of the Executive’s employment shall not be deemed to be for Cause
pursuant to clauses (i), (iii), (iv) or (v) hereof unless and until the Board
has provided the Executive with written notice of the acts or omissions giving
rise to Cause and an opportunity to be heard before the full Board (represented
by counsel), and after such hearing there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of no less
than 51% of the entire membership of the Board (excluding the Executive) at a
meeting of the Board called and held for such purpose, finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct described in
clauses (i), (iii), (iv) or (v) above.
               (i) “Change of Control” has the meaning specified in Section 4(
c).
               (j) “Code” means the Internal Revenue Code of 1986, as amended.
               (k) “Committee” means the Executive Compensation Committee of the
Board.
               (l) “Company” has the meaning specified in the introductory
paragraph of this Agreement.
               (m) “Company Group” has the meaning specified in Section 13(a).

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               (n) “Confidential Information” has the meaning specified in
Section 12(a).
               (o) “Disability” shall mean the Executive’s incapacity due to
physical or mental illness to substantially perform his duties on a full-time
basis for at least 26 consecutive weeks or an aggregate period in excess of
26 weeks in any one fiscal year, and within 30 days after a notice of
termination is thereafter given by the Company, the Executive shall not have
returned to the full-time performance of the Executive’s duties; provided,
however, if the Executive shall not agree with a determination to terminate his
employment because of Disability, the question of the Executive’s Disability
shall be subject to the certification of a qualified medical doctor selected by
the Company or its insurers and acceptable to the Executive or, in the event of
the Executive’s incapacity to accept a doctor, the Executive’s legal
representative.
               (p) “Effective Date” has the meaning specified in the
introductory paragraph of this Agreement.
               (q) “Employment Term” has the meaning specified in Section 2.
               (r) “Executive” has the meaning specified in the introductory
paragraph of this Agreement.
               (s) “Fair Market Value” has the meaning specified in
Section 8(b).
               (t) “First Year Guaranteed Annual Bonus” has the meaning
specified in the Prior Agreement.
               (u) “Good Reason” means the occurrence, without the Executive’s
consent, of any the following events:
     (i) a material diminution in the Executive’s authorities, titles, reporting
responsibilities or offices (excluding for this purpose (x) an isolated,
insubstantial and inadvertent action not taken in bad faith which is promptly
remedied after notice by the Executive to the Company or (y) any diminution in
the Executive’s authorities, titles, reporting responsibilities or offices
resulting from consummation of a transaction or transactions contemplated by an
[***] or National Carrier Marketing Distribution Agreement; provided that in all
events the Executive shall retain the right to resign for Good Reason in
connection with such transactions as provided in clauses (iv), (v), (vi) or
(vii) of this Good Reason definition);
     (ii) a material decrease in the Executive’s Base Salary or Target Bonus
Percentage, which for this purpose shall mean one or more reductions that,
individually or in the aggregate, exceed 5% of the Executive’s highest Base
Salary or, Target Bonus Percentage (excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith which is promptly
remedied after notice by the Executive to the Company);

  [***] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

- 20 -

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     (iii) a material reduction in the Executive’s participation in the
Company’s benefit plans and policies to a level materially less favorable to the
Executive unless such reduction applies to a majority of the senior level
executives of the Company (it being understood that in no event shall the
Company’s failure to grant equity or equity-based compensation awards or awards
in lieu thereof to the Executive or the Company’s grant of such awards to other
senior executives of the Company constitute a basis for the Executive to resign
for Good Reason); or
     (iv) the relocation of the Executive’s primary place of employment to a
location 50 or more miles from the Company’s then-current headquarters.
     (v) any change in reporting structure so that the Executive reports to
someone other than the Chief Executive Officer of the Company or the Board (or
the Chief Executive Officer or board of directors of any Successor);
     (vi) failure to appoint or elect or removal of Executive from the offices
of Executive Vice President and Chief Financial Officer;
     (vii) following a Change of Control, failure of the Executive to be the
Chief Financial Officer of the successor entity (including the ultimate parent
of such entity); or
     (viii) any failure of the Company to obtain within 30 days following a
transaction the assumption in writing by any successor to all or substantially
all of the business or assets of the Company to perform this Agreement, except
where such assumption occurs by operation of law.
Notwithstanding the foregoing, the Executive shall only be entitled to resign
for Good Reason if (1) the Executive first provides a notice of his intent to
resign within 120 days following the date he first learns of the event(s) giving
rise to Good Reason (2) the Company fails to cure such events or circumstances
within 30 days following the Company’s receipt of such notice and (3) the
Executive terminates his employment within two years following the occurrence of
the event(s) on which the Good Reason termination is based.
(v) “Gross-Up Payment” has the meaning specified in Section 11(a).
(w) “HealthMarkets” has the meaning specified in the introductory paragraph of
this Agreement.
(x) “HealthMarkets Affiliates” has the meaning specified in paragraph 1 of
Exhibit B attached hereto.
(y) [***]
(z) [***]

  [***] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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          (aa) [***]
          (bb) “Initial Employment Term” has the meaning specified in Section 2.
          (cc) “Initial Grant” has the meaning specified in Section 4(c).
          (dd) “Initial LTIP Award” has the meaning specified in
Section 4(d)(i).
          (ee) “Initial Payment Period” has the meaning specified in
Section 10(d).
          (ff) “Investment” has the meaning set forth in Section 8.
          (gg) “IPO” has the meaning specified in the Stockholders Agreement.
          (hh) “Limit” has the meaning specified in Section 10(d).
          (ii) “MOP” means the Company’s 2006 Management Option Plan, as may be
amended from time to time.
          (jj) “National Carrier Marketing Distribution Agreement” means a
Board-approved agreement entered into by August 1, 2010 between the Company
Group (or a member thereof) and a National Payor pursuant to which insurance
sales agents contracted with the Company Group are authorized by a National
Payor to sell individual health insurance products issued by the National Payor.
          (kk) “National Carrier MDA Goal” means commencement of sales through
the Company Group’s contracted sales agent force of a National Payor’s health
insurance products pursuant to a National Carrier Marketing Distribution
Agreement
          (ll) “National Payor” means Aetna, Inc., CIGNA Corporation, Assurant
Health Insurance, Coventry Healthcare Inc., Humana Inc. or UnitedHealth Group,
Inc. (and their affiliates or subsidiaries and their respective successors and
assigns).
          (mm) “Option Rights” has the meaning specified in the MOP.
          (nn) “Pro-Rata Bonus” has the meaning specified in Section 10(b).
          (oo) “Regional Payor” means an organization that underwrites and
issues health insurance on a regional basis.
          (pp) “Release” has the meaning specified in the introductory paragraph
of Exhibit B attached hereto.
          (qq) “Renewal Term” has the meaning specified in Section 2.
          (rr) “Reporting Person” has the meaning specified in Section 3(a).

  [***] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

- 22 -

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          (ss) “Restrictive Covenants” has the meaning specified in Section 10.
          (tt) “Revocation Date” has the meaning specified in paragraph 3 of
Exhibit B attached hereto.
          (uu) “Second Installment” means that portion of the First-Year
Guaranteed Annual Bonus equal to $333,333.33, that the Company was required to
pay to the Executive on September 1, 2009 pursuant to Section 4(b)(i) of the
Prior Agreement and is now required to pay to the Executive on September 18,
2009 pursuant to Section 4(b)(i) of this Agreement.
          (vv) “Shares” means shares of Class A-1 Common Stock of the Company.
          (ww) “Stockholders Agreement” means the Stockholders Agreement by and
among investment funds affiliated with The Blackstone Group, L.P., Goldman Sachs
& Co. and DLJ Merchant Banking Partners IV, L.P., the Company, the Executive,
and other signatories thereto, dated April 5, 2006, as may be amended from time
to time.
          (xx) “Subsidiary” shall mean any entity, corporation, partnership
(general or limited), limited liability company, firm, business organization,
enterprise, association or joint venture in which the Company directly or
indirectly controls ten percent (10%) or more of the voting interest; provided
that such controlling interest shall be fifty percent (50%) for purposes of
Sections 24(i)(i) and 24(i)(iv) of this Agreement.
          (yy) “Successor” has the meaning specified in Section 17(a).
          (zz) “Target Bonus Percentage” has the meaning specified in
Section 4(b)(ii).
          (aaa) “Underpayment” has the meaning specified in Section 11(a) .
     25. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.

- 23 -

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

                    Steven P. Erwin
 
            HealthMarkets, Inc.
 
       
 
  By:    
 
       
 
      Phillip J. Hildebrand
 
      Chief Executive Officer

     
Solely with respect to Section
   
8 of this Agreement
   
Accepted and Agreed to as of the day and
   
year first written above on behalf of the Blackstone
   
by Blackstone Management Associates IV L.L.C.
   
 
   
 
Name: Chinh E. Chu
   
Title: Senior Managing Director
   

- 24 -

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Schedule 1
Performance Metrics for 2009 Bonus

                              Senior Executive - Metrics ($ in thousands)  
Target (1)   Stretch   Weight
Adjusted EBITDA
  $ 122,789     $ 130,073       40% (3)
Health and Ancillary AV Submitted
  $ 465,280     $ 511,807       20% (2)
MSE Deliverables
    14       14       20% (4)
Form Insphere
    (5 )     (5 )     20 %

 

Notes:   (1)   Minimum established at 150%; scalable to stretch targets.   (2)  
Includes third party A/V (e.g., life, health, associations, etc.), and to be
adjusted to reflect exit from Massachusetts and other affected states.   (3)  
Adjusted EBITDA to be determined consistent with past practices and to be based
on being fully accrued for Senior Executive amounts. Adjusted EBITDA excludes
all transaction amounts            and awards, special Board directed programs
and actions, Insphere formation and transformation expenses and related balance
sheet adjustments. To be adjusted to reflect exit from Massachusetts and other
affected states. Board has discretion over quality of earnings (e.g., Board may
not give full credit to the DAC benefit).   (4)   Attainment of audit reports
from Schact Group and Internal Audit that conclude the Company is in substantial
compliance with all MSE on or before 12/31/09.   (5)   Formation of Insphere
Insurance Solutions, Inc. and completion of the following implementation
activities:

  –   Identification of organizational structure and key continuing executives;
    –   Substantial completion of agency licensing requirements;     –  
Substantial completion of agency force contracting with Insphere;     –  
Substantial development of technology platform; and     –   Execution and
initial implementation of a marketing agreement with one major life insurer.

 

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Exhibit A
Position: Executive Vice President, Chief Financial Officer
Reporting Person: HealthMarkets Chief Executive Officer
Outside Activities: Member of the Board of Directors of Infometrix

Base Salary:   $525,000, or such higher amount resulting from one or more
subsequent increases in Base Salary by the Committee pursuant to Section 4(a).

Target Bonus Percentage: 150% for the Company’s 2009 fiscal year and 100%
thereafter

Maximum Annual Bonus Opportunity: 250% for the Company’s 2009 fiscal year and
200% thereafter

- 26 -

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Exhibit B
Form of Release
     In consideration of the payments and promises contained in your Employment
Agreement with HealthMarkets, Inc. (the “Company”) dated as of September 8,
2009, and in full compromise and settlement of any of your potential claims and
causes of action relating to or arising out of your employment relationship with
the Company or the termination of that relationship, and any and all other
claims or causes of action that you have or may have against the HealthMarkets
Affiliates (as defined below) up to the date of execution of this release,
except to the extent such claims or causes of action are not released by you in
Paragraph 2 hereof (the “Release”), you hereby:
     1. knowingly and voluntarily agree to irrevocably and unconditionally waive
and release the Company and any other entity controlled by, controlling or under
common control with the Company, and their respective predecessors and
successors and their respective directors, officers, employees, representatives,
attorneys, including all persons acting by, through, under or in concert with
any of them (collectively, the “HealthMarkets Affiliates”), from any and all
charges, complaints, claims, liabilities, obligations, promises, sums of money,
agreements, controversies, damages, actions, lawsuits, rights, demands,
sanctions, costs (including attorneys’ fees), losses, debts and expenses of any
nature whatsoever, existing on, or at any time prior to, the date hereof in law,
in equity or otherwise, which you, your successors, heirs or assigns had or have
upon or by reason of any fact, matter, cause, or thing whatsoever, and
specifically including any matter that may be based on the sole or contributory
negligence (whether active, passive or gross) of any HealthMarkets Affiliate.
This release includes, but is not limited to, a release of all claims or causes
of action arising out of or relating to your employer-employee relationship with
the Company or the termination of that relationship, and any other claim,
including, without limitation, alleged breach of express or implied written or
oral contract, alleged breach of employee handbook, alleged wrongful discharge,
and tort claims, or claims or causes of action arising under any federal, state,
or local law, including, but not limited to, the Age Discrimination in
Employment Act, 29 U.S.C. § 621, et seq., the Reconstruction Era Civil Rights
Act of 1866 and 1871, 42 U.S.C. §§ 1981 and 1983, the Civil Rights Act of 1964,
Title VII, 42 U.S.C. §§ 2000(e) et seq., The Civil Rights Act of 1991, 42 U.S.C.
§ 1981(a) et seq., the Equal Pay Act of 1963, 29 U.S.C. § 206(d) et seq., the
Americans with Disabilities Act of 1990, 42 U.S.C. §§ 12101 et seq. the
Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. §§ 2101-2109, the Sarbanes-Oxley Act of
2002, as amended, and any claim under any other statutes of the State of Texas,
or other jurisdictions, and the facts, circumstances, allegations, and
controversies relating or giving rise thereto that have accrued to the date of
execution of this Release;
     2. agree that you will not commence, maintain, initiate, or prosecute, or
cause, encourage, assist, volunteer, advise or cooperate with any other person
to commence, maintain, initiate or prosecute, any action, lawsuit, proceeding,
investigation, or claim before any court, legislative body or committee, or
administrative agency (whether state, federal or otherwise) against the
HealthMarkets Affiliates relating to any claims, liabilities, obligations,
promises, sums of money, agreements, controversies, damages, actions, lawsuits,
rights, demands,

 

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sanctions, costs (including attorneys’ fees), losses, debts and expenses
described in the foregoing Paragraph 1; provided, however, that, notwithstanding
anything to the contrary in the foregoing, nothing hereunder (including
Paragraph 1 hereof) shall be deemed to affect, impair or diminish in any respect
(or deemed to be a release by you of any claims or an agreement not to sue or
bring an action with respect to) (i) any vested rights as of the date of
termination or entitlement you may have under the ESOP or 401(k) Plan; (ii) any
other vested rights as of the date of termination you may have under any
employee plan or program in which you have participated in your capacity as an
employee of the Company or any other HealthMarkets Affiliate; (iii) your right
to seek to collect unemployment benefits that you may be entitled to as a result
of your employment with the Company or your right to seek benefits under
workers’ compensation insurance, if applicable; (iv) your rights to enforce this
Release and/or the Employment Agreement, including Exhibit A, including but not
limited to your right to bring a claim for breach of this Release or the
Employment Agreement, including Exhibit A; (v) any rights you may have under
that Section 8 (Investment), Section 11 (Certain Additional Payments by the
Company) or Section 20 (Indemnification) of the Employment Agreement; (vi) any
rights to indemnification and/or advancement of expenses that you have or may
have under the terms of the HealthMarkets Amended and Restated Bylaws and/or
Certificate of Incorporation or any rights you have pursuant to any applicable
directors’ and officers’ liability insurance policies; (vii) your rights as a
shareholder of the Company; or (viii) your right to bring a claim under the Age
Discrimination in Employment Act to challenge the validity of this Release, to
file a charge under the civil rights statutes, or to otherwise participate in an
investigation or proceeding conducted by the Equal Employment Opportunity
Commission or other investigative agency;
     3. acknowledge that: (i) this entire Release is written in a manner
calculated to be understood by you; (ii) you have been advised to consult with
an attorney before executing this Release; (iii) you were given a period of at
least twenty-one days within which to consider this Release; and (iv) to the
extent you execute this Release before the expiration of the twenty-one-day
period, you do so knowingly and voluntarily and only after consulting your
attorney. You shall have the right to cancel and revoke this Release during a
period of seven days following the date on which you execute it, and this
Release shall not become effective, and no money will be paid to you in respect
of severance, until the day after the expiration of such seven-day period (the
“Revocation Date”). In order to revoke this Release, you shall deliver to the
Company, prior to the Revocation Date, a written notice of revocation. Upon such
revocation, this Release shall be null and void and of no further force or
effect;
     4. agree to make yourself reasonably available to the Company following the
date of your termination to assist the HealthMarkets Affiliates, as may be
requested by the Company at mutually convenient times and places taking into
account your other business and personal commitments, with respect to the
business of the Company and pending and future litigations, arbitrations,
governmental investigations or other dispute resolutions relating to or in
connection with the Company with respect to matters of which you have relevant
knowledge. Notwithstanding the foregoing, you shall not be required to cooperate
if such cooperation is adverse to your legal interests. In addition, the Company
agrees to pay promptly any reasonable expenses incurred by you in connection
with such cooperation, including, without limitation, business class airfare,
reasonable meals, reasonable hotels and reasonable legal fees to the extent the
Company and you agree (the Company’s agreement not to be unreasonably withheld)
separate representation is warranted by the circumstances; and

B-28

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

B-29