Exhibit 10.1
EXECUTION COPY
EMPLOYMENT AGREEMENT
     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of
September 30, 2008 (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 desires to
employ the Executive, and the Executive desires to be employed by the Company;
     WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms and conditions of Executive’s employment with the Company;
and
     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, it is agreed as follows:
     1. Employment. Effective as of the Effective Date, the Company hereby
agrees to employ the Executive, and the Executive hereby agrees to be employed
by the Company, upon the terms and conditions set forth herein. The employment
relationship between the Company and the Executive shall be governed by the
general employment policies and practices of the Company, including, without
limitation, those relating to the Company’s Code of Professional Conduct, the
treatment of confidential information and avoidance of conflicts; provided,
however, that when the terms of this Agreement differ from or are in conflict
with the Company’s general employment policies or practices, the terms of this
Agreement shall control. The Executive shall serve as an officer and/or an
employee of any Subsidiary, as may be requested from time to time by the
Reporting Person (as such term is defined in Section 3(a) below), and without
any additional compensation, unless otherwise determined by the Reporting
Person. In addition, the Executive’s service as an officer and/or an employee of
any Subsidiary will be encompassed within any reference made in this Agreement
to employment by the Company.
     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 the third anniversary of the
Effective Date (the “Initial Employment Term”); provided, however, that at the
end of the Initial Employment Term and on each succeeding anniversary of the
Effective Date, the employment of the Executive will be automatically continued
upon the terms and conditions set forth herein for one additional year (each, a
“Renewal Term”), unless either party to this Agreement gives the other party
written notice (in accordance with Section 18) of such party’s intention to
terminate this Agreement, 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.”

 

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     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.
          (b) Cash Incentive Compensation.
     (i) First Year Guaranteed Bonus. With respect to the first twelve (12)
months of the Employment Term, the Executive shall be entitled to a guaranteed
bonus of $500,000 (the “First Year Guaranteed Annual Bonus”). Subject to his
continued employment with the Company through each applicable payment date, the
Executive shall be paid in December 2008 $166,666.67 of such First Year
Guaranteed Annual Bonus (the “First Installment”) and shall be paid

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the remaining $333,333.33 of the First Year Guaranteed Annual Bonus in
September 2009 (the “Second Installment”). The First Year Guaranteed Annual
Bonus shall be delivered to the Executive in shares of Class A-1 Common Stock of
the Company (“Shares”) and cash, less applicable withholding taxes, as follows:
(i) the First Installment after deduction of applicable withholding taxes, shall
be paid to the Company in the amount of $83,333.34 in consideration for Shares
with the balance of the First Installment paid in cash to the Executive, and
(ii) the Second Installment, after deductions of applicable withholding taxes,
shall be paid to the Company in the amount of $166,666.66 in consideration for
Shares with the balance of the Second Installment paid in cash to the Executive.
Shares purchased with the First Installment and Second Installment payments
shall be valued at the Fair Market Value prevailing at the time of purchase as
determined in accordance with Section 8(b) of this Agreement. The Executive may
satisfy his withholding obligations under this Section 4(b)(i) by tendering the
minimum number of Shares to satisfy any withholding obligation. The Executive
acknowledges that any Shares so delivered to the Executive will be subject to
the terms and conditions of the Stockholders Agreement, as modified by Section 8
of this Agreement.
     (ii) 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, however, that with respect to the
Company’s 2009 fiscal year, the Executive’s actual annual bonus earned for such
fiscal year, if any, shall be reduced by the $333,333.33 that constitutes the
Second Installment of the First Year Guaranteed Annual Bonus. In no event shall
the Executive be required to return any portion of the First Year Guaranteed
Annual Bonus if Executive’s 2009 fiscal year actual bonus is calculated to be
less than $333,333.33. 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. 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

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for which such annual bonus was earned (unless the Executive has elected to
defer receipt of any such bonuses).
          (c) Equity Compensation. During the Employment Term, the Executive
will be eligible to participate in the Company’s MOP and any other incentive,
equity-based and deferred compensation plans and programs or arrangements as may
be determined by the Board or any successor programs or plans thereto or
thereunder (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 the Chief Executive
Officer of the Company or an executive’s commencement of employment with, or
promotion within, the Company) generally. Subject to the Executive’s making the
Investment in the Company contemplated by Section 8 of this Agreement, the
Committee will, as soon as practicable after the Executive makes such Investment
(but in no event later than five business days thereafter), award 175,000 Option
Rights (the “Initial Grant”), which Initial Grant will be awarded in two
(2) tranches, will vest and otherwise be subject to the provisions set forth in
the Executive’s Non-Qualified Stock Option Agreement to be entered into in the
form of Exhibit C attached hereto; provided, that the Company’s stockholders
shall approve an amendment to the MOP as set forth in Exhibit C prior to the
earlier of a Change of Control (as defined in the MOP) or January 1, 2009, which
the Blackstone Investor Group (as defined in the Stockholders Agreement)
(“Blackstone”) represents it has sufficient votes to approve as of the Effective
Date and which Blackstone shall vote for (the “Amendment”). In the event the
Amendment is not approved by June 30, 2009, the Initial Grant shall be void ab
initio and of no further force and effect. Failure to obtain stockholder
approval for the Amendment by the earlier of a Change of Control or January 1,
2009 shall be a breach of this Section 4(c) and Exhibit C, entitling the
Executive to terminate his employment for Good Reason. In all events, any equity
award (or portion thereof) granted to the Executive that vests solely upon the
Executive’s fulfillment of time and/or service requirements shall vest in full
upon a “Change of Control” (as such term is defined in the MOP in effect as of
the Effective Date, plus any amendments to such definition after the Effective
Date which would result in a transaction not covered by the Change of Control
definition in effect as of the Effective Date constituting a “Change of
Control”). Except as otherwise set forth in Section 8 hereof, Shares acquired on
exercise of any stock option will be subject to the terms and conditions of the
Stockholders’ Agreement. The Company and the Executive acknowledge that they
will agree to provide the Company with the right to require the Executive and
other executives of the Company to waive any registration rights with regard to
such shares upon an IPO, in which case the Company will implement an IPO bonus
plan in cash, stock or additional options to compensate for the Executive’s and
the other executives’ loss of liquidity; provided that if the Executive’s
employment is terminated without Cause or for Good Reason, then the Executive
shall fully vest upon the date of termination in any grant made under such IPO
bonus plan.
         (d) LTIP Awards.
     (i) Initial LTIP Award. As soon as practicable after the Effective Date,
but in all events within 30 days following such date, the Company shall grant
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

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installments, on each of the first three anniversaries of the Effective Date, 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 to be established by the
Board (or any 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 the third anniversary of the
Effective Date.
     (ii) Annual LTIP Awards. In addition to any other compensation granted or
paid hereunder, with respect to the Company’s 2010 fiscal year and each fiscal
year of the Company thereafter, all or part of which occurs during the
Employment Term, the Executive shall be entitled to receive a long-term
incentive award, with a target value of no less than $100,000 (the “Annual LTIP
Award”) (and which shall be granted at no less than target if the applicable
performance targets have been met). Subject to the Executive’s achievement of
certain performance goals to be established by the Board (or any authorized
committee thereof), the Annual LTIP Award shall be granted to the Executive
within the first 75 days of the year immediately following the end of the
applicable fiscal year to which such performance goals relate (the “Performance
Year”). Except as may otherwise be provided in Section 10 of this Agreement,
(i) any such granted Annual LTIP Award shall vest in three equal installments,
on each of the first three anniversaries of the Effective Date occurring after
the conclusion of the applicable Performance Year for which it was granted,
subject to the Executive’s continued employment with the Company through each
applicable vesting date and (ii) any vested portion of such Annual LTIP Award
shall be delivered to the Executive, 100% in cash, on the third anniversary of
the Effective Date occurring after the conclusion of the applicable Performance
Year for which it was granted. It is intent of the parties that there shall be
no transfer of property (within the meaning of Section 83 of the Code) with
respect to the Annual LTIP Award prior to the payment date as described in this
Section 4. The Board (or any authorized committee thereof) shall have the
authority to establish performance metrics pursuant to which such Annual LTIP
Awards may be earned, provided that any such performance targets shall be no
less favorable to the Executive than the performance targets established for the
applicable performance period 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.
     (iii) Change of Control. In all events, all outstanding Annual LTIP Awards
shall vest in full upon a Change of Control and if such Change of Control
constitutes a “change in control event” within the meaning of Section 409A of
the Code, shall be paid to the Executive upon such Change of Control.
     (iv) Termination of Employment. Except as may otherwise be provided in
Section 10 of this Agreement, any unvested LTIP award shall be forfeited upon
termination of the Executive’s employment. Any portion of the Initial LTIP Award
or the Annual LTIP Award that has become vested shall be non-forfeitable.

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     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.
          (b) Relocation Allowance. In connection with the Executive’s
commencement of employment with the Company, in lieu of any relocation benefits
that would otherwise be provided to the Executive under any relocation policy of
the Company, the Company will pay the Executive a relocation sign-on amount of
$75,000, which is to be paid in cash as soon as practicable following the
Effective Date and up to six months of temporary living expenses in the
Dallas/Ft. Worth area, Texas, in each case, less applicable tax withholding.
          (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 $17,500.
     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) By no later than September 30, 2008, the Executive will invest
cash in the amount of $250,000 in Shares, at a purchase price of $24.00 per
Share (such investment, the “Investment”), pursuant to the terms of a
Subscription Agreement between the Company and the Executive, and the Executive
acknowledges that such Shares will be subject to the terms and conditions of the
Stockholders Agreement. The Executive shall make payment for the Shares

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purchased pursuant to this Section 8 by check or wire transfer and, upon receipt
of the foregoing payment, the Company will issue the Executive a share
certificate evidencing the number of Shares purchased.
          (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, upon the exercise of
any stock option 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 (which shall, for the avoidance of doubt, be the exercise
price of any stock option) 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, including pursuant to the exercise of stock options, including the
Initial Grant, or otherwise pursuant to the grant of compensatory awards, 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.
          (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.

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          (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. If the Company
terminates the Executive’s employment with Cause, all of the Executive’s Option
Rights, whether or not vested, will be immediately forfeited. Stock options, if
any, held by the Executive following termination of the Executive’s employment
with the Company or any of its Subsidiaries, shall remain exercisable in
accordance with their terms.
          (b) Voluntary Termination by the Executive. The Executive may
voluntarily terminate the Executive’s employment with or without Good Reason at
any time by notice to the Company as provided in Section 18. Upon the
Executive’s termination without Good Reason (other than upon death or
Disability), (i) any unvested portions of the Initial Grant will be immediately
forfeited and (ii) all of the Executive’s vested stock options, if any, shall
remain exercisable in accordance with their terms, but in all events for at
least 90 days following the date of termination (but no later than the original
term of such stock options).
          (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 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.

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     10. Termination Payments and Benefits. If, during the Employment Term, the
Executive’s employment hereunder is terminated by the Company without Cause
(which shall, for all purposes of this Agreement, including Exhibit C, and any
other related definitive document, include a termination of the Executive’s
employment upon conclusion of the Employment Term after the Company’s giving the
Executive a notice of non-renewal of the Employment Term), 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(h), 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(g).
          (a) Salary Continuation. The Executive will be entitled to receive an
amount equal to the sum of: (i) one (1) times the Executive’s Base Salary in
effect at the time of termination of employment and (ii) one (1) times an amount
equal to the product of (A) the Executive’s Base Salary in effect at the time of
termination of employment and (B) the Executive’s Target Bonus Percentage for
the year of the Executive’s termination of employment, or if the Target Bonus
Percentage has not been set for such year as of the date of termination of
employment, the Target Bonus Percentage for the immediately preceding year (the
sum of (i) and (ii), the “Termination Payments”), such amount to be payable in
equal installments payable over the Payment Period. Termination Payments shall
be paid to the Executive in accordance with the Company’s payroll schedule as in
effect on the Effective Date for the duration of the Payment Period. In the
event that the Executive dies while any Termination Payments are still payable
to the Executive hereunder, unless otherwise provided herein, all such unpaid
amounts shall be paid, not later than the tenth (10th) business day following
the Executive’s death, to the Executive’s beneficiary as named on the
Executive’s 401(k) Plan beneficiary forms, or, if no such beneficiary is so
named, then to the Executive’s estate, in the form of a lump sum cash payment
equal to the remaining Termination Payments. Notwithstanding the foregoing, if
such termination occurs upon or within the two-year period after a Change of
Control (provided that such Change of Control constitutes a “change in control
event” within the meaning of Section 409A of the Code), subject to clauses (i),
(ii) and (iii) of the lead-in paragraph of this Section 10, the Termination
Payments will be paid to the Executive in a lump-sum within 30 days following
the date of termination.
          (b) 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

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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).
          (c) Equity Compensation. To the extent not previously vested,
cancelled or expired, the Executive will vest in the Executive’s Initial Grant
and any other grant of Option Rights in accordance with their terms, which will
remain exercisable in accordance with their terms.
          (d) Welfare Benefits. During the Payment Period, the Company shall
maintain in full force and effect for the continued benefit of the Executive and
his eligible dependents all health care benefit plans, except disability
coverage, in which the Executive was entitled to participate immediately prior
to the Executive’s termination or shall arrange to make available to the
Executive health care benefits (except disability coverage) substantially
similar to those which the Executive would otherwise have been entitled to
receive if his employment had not been terminated (the “Welfare Benefits”). The
Welfare Benefits shall be provided to the Executive on the same terms and
conditions under which the Executive was entitled to participate immediately
prior to his termination of employment, including any applicable employee
contributions.
          (e) Any payments under this Section 10 to the Executive shall not be
taken into account for purposes of any retirement plan (including any
supplemental retirement plan or arrangement) or other benefit plan sponsored by
the Company, except as otherwise expressly required by such plans or applicable
law.
          (f) 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 the
Termination Payments to be paid within the first six months following such date
(the “Initial Payment Period”) exceed the amount referenced in Treas. Regs.
Section 1.409A-1(b)(9)(iii)(A) (the “Limit”) and do not otherwise qualify under
the short-term deferral exemption, then (i) any portion of the Termination
Payments that is payable during the Initial Payment Period that does not exceed
the Limit or can paid within the short-term deferral exemption shall be paid at
the times set forth in Section 10(a), (ii) any portion of the Termination
Payments 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 the Termination Payments 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.
Notwithstanding the foregoing, in the event that the Executive dies while any
Termination Payments are still payable to the Executive hereunder, unless
otherwise provided herein, all such unpaid amounts shall be paid, not later than
the tenth (10th) business day following the Executive’s death, to the
Executive’s

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beneficiary as named on the Executive’s 401(k) Plan beneficiary forms, or, if no
such beneficiary is so named, then to the Executive’s estate, in the form of a
lump sum cash payment equal to the remaining Termination Payments.
          (g) 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 any outstanding LTIP award (payable at such times as such LTIP
award would otherwise have been paid had he remained employed by the Company),
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.
          (h) 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 such non-compliance), (i) the
Termination Payments, the Pro-Rata Bonus, the Welfare Benefits 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 Termination Payments or amounts in
respect of any Pro-Rata Bonus, LTIP Award or Option Rights 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.
          (i) 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 with respect to the Welfare Benefits
or as provided for in Section 10(h) 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

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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 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:

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     (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 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

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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.
         “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

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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, the
“Performance-Based Options” (as defined on Exhibit C hereto) any annual bonus or
Annual 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 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

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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 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.

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          (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, including each installment of the Termination
Payment, 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 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

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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 term sheet discussed by the parties prior to
the Effective Date. 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 Exhibits A or C, 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 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

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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 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.

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     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)(ii).
          (e) “Annual LTIP Award” has the meaning specified in Section 4(d)(ii).
          (f) “Base Salary” has the meaning specified in Section 4(a).
          (g) “Board” means the Board of Directors of the Company.
          (h) “Call Right” has the meaning specified in Section 8.
          (i) “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;

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     (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
       (j) “Change of Control” has the meaning specified in Section 4( c).
       (k) “Code” means the Internal Revenue Code of 1986, as amended.
       (l) “Committee” means the Executive Compensation Committee of the Board.
       (m) “Company” has the meaning specified in the introductory paragraph of
this Agreement.
       (n) “Company Group” has the meaning specified in Section 13(a).
       (o) “Confidential Information” has the meaning specified in
Section 12(a).
       (p) “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.
       (q) “Effective Date” has the meaning specified in the introductory
paragraph of this Agreement.
       (r) “Employment Term” has the meaning specified in Section 2.

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          (s) “Executive” has the meaning specified in the introductory
paragraph of this Agreement.
          (t) “Fair Market Value” has the meaning specified in Section 8(b).
          (u) “First Installment” has the meaning specified in Section 4(b)(i).
          (v) “First Year Guaranteed Annual Bonus” has the meaning specified in
Section 4(b)(i).
          (w) “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 an isolated,
insubstantial and inadvertent action not taken in bad faith which is promptly
remedied after notice by the Executive to the Company);
     (ii) a material decrease in the Executive’s Base Salary, Target Bonus
Percentage or Annual LTIP Award opportunity, 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, Target Bonus Amount or Annual LTIP Award
opportunity (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);
     (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; 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;
     (vi) 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);
     (vii) failure of the Company’s stockholders to approve the Amendment in the
time period set forth in Section 4(c) (except in circumstances where the
Executive has failed to make the Investment as required by Section 8 hereof); or

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     (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.
          (x) “Gross-Up Payment” has the meaning specified in Section 11(a).
          (y) “HealthMarkets” has the meaning specified in the introductory
paragraph of this Agreement.
          (z) “HealthMarkets Affiliates” has the meaning specified in paragraph
1 of Exhibit B attached hereto.
          (aa) “Initial Employment Term” has the meaning specified in Section 2.
          (bb) “Initial Grant” has the meaning specified in Section 4(c).
          (cc) “Initial LTIP Award” has the meaning specified in
Section 4(d)(i).
          (dd) “Initial Payment Period” has the meaning specified in
Section 10(e).
          (ee) “Investment” has the meaning set forth in Section 8.
          (ff) “IPO” has the meaning specified in the Stockholders Agreement.
          (gg) “Limit” has the meaning specified in Section 10(e).
          (hh) “MOP” means the Company’s 2006 Management Option Plan, as may be
amended from time to time.
          (ii) “Option Rights” has the meaning specified in the MOP.
          (jj) “Payment Period” means the one-year period following the later of
(i) the Executive’s date of termination of employment with the Company or
(ii) the first business day after the date that is six (6) months following the
date of the Executive’s separation from service with the Company to the extent
required in order to avoid the imposition of taxes or penalties under Code
Section 409A.
          (kk) “Performance Year” has the meaning specified in Section 4(d)(ii).
          (ll) “Pro-Rata Bonus” has the meaning specified in Section 10(b).

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          (mm) “Release” has the meaning specified in the introductory paragraph
of Exhibit B attached hereto.
          (nn) “Renewal Term” has the meaning specified in Section 2.
          (oo) “Reporting Person” has the meaning specified in Section 3(a).
          (pp) “Restrictive Covenants” has the meaning specified in Section 10.
          (qq) “Revocation Date” has the meaning specified in paragraph 3 of
Exhibit B attached hereto.
          (rr) “Second Installment” has the meaning specified in
Section 4(b)(i).
          (ss) “Shares” has the meaning specified in Section 4(b)(i).
          (tt) “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.
          (uu) “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.
          (vv) “Successor” has the meaning specified in Section 17(a).
          (ww) “Target Bonus Percentage” has the meaning specified in
Section 4(b)(ii).
          (xx) “Termination Payments” has the meaning specified in
Section 10(a).
          (yy) “Underpayment” has the meaning specified in Section 11(a) .
          (zz) “Welfare Benefits” has the meaning specified in Section 10(c).
     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.

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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 4(c) and Section
8 of this Agreement and Exhibit C
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
   

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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:   $500,000, 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: 100%
Annual Bonus Opportunity: 200%

 

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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
September 30, 2008, 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

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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-3