10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTER REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number: 001-14953

HEALTHMARKETS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 75-2044750
(I.R.S. Employer
Identification Number)

9151 Boulevard 26, North Richland Hills, Texas 76180
(Address of principal executive offices, zip code)

(817) 255-5200
(Registrant’s phone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer þ (Do not check if a smaller reporting company) Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     On October 30, 2009 the registrant had 26,772,436 outstanding shares of Class A-1 Common Stock, $.01 Par Value, and 2,570,460 outstanding shares of Class A-2 Common Stock, $.01 Par Value.

HEALTHMARKETS, INC.
and Subsidiaries

Third Quarter 2009 Form 10-Q

TABLE OF CONTENTS

	Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3. Quantitative and Qualitative Disclosures About Market Risk		40
Item 4. Controls and Procedures		40
PART II OTHER INFORMATION
Item 1. Legal Proceedings		41
Item 1A. Risk Factors		41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 3. Defaults Upon Senior Securities		42
Item 4. Submission of Matters to a Vote of Security Holders		42
Item 5. Other Information		43
Item 6. Exhibits		44
SIGNATURES
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-10.9
EX-10.10
EX-10.11
EX-10.12
EX-10.13
EX-31.1
EX-31.2
EX-32

HEALTHMARKETS, INC.
and Subsidiaries

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Condensed Balance Sheets as of September 30, 2009 and December 31, 2008		2
	Consolidated Condensed Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2009 and 2008		3
	Consolidated Condensed Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2009 and 2008		4
	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008		5
	Notes to Consolidated Condensed Financial Statements		6

1

HEALTHMARKETS, INC.
and Subsidiaries

CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share data)

	September 30,			December 31,
	2009			2008
	(Unaudited)
ASSETS
Investments:
Securities available for sale —
Fixed maturities, at fair value (cost: September 30, 2009 — $792,378; December 31, 2008 — $855,137)	$	809,360		$	805,026
Equity securities, at fair value (cost: September 30, 2009 — $214; December 31, 2008 — $178)		246			210
Trading securities, at fair value		13,956			11,937
Short-term and other investments		338,029			210,433
Total investments		1,161,591			1,027,606
Cash and cash equivalents		8,572			100,339
Student loan receivables		71,984			78,837
Restricted cash		7,410			7,881
Investment income due and accrued		12,294			13,304
Reinsurance recoverable — ceded policy liabilities		376,499			384,801
Agent and other receivables		26,409			37,954
Deferred acquisition costs		68,796			72,151
Property and equipment, net		47,129			63,198
Goodwill and other intangible assets		86,356			87,555
Recoverable federal income taxes		1,818			10,177
Other assets		25,990			32,910
	$	1,894,848		$	1,916,713
LIABILITIES AND STOCKHOLDERS’ EQUITY
Policy liabilities:
Future policy and contract benefits	$	468,761		$	486,174
Claims		349,013			415,748
Unearned premiums		51,027			61,491
Other policy liabilities		9,549			9,633
Accounts payable and accrued expenses		48,892			58,571
Other liabilities		84,503			94,346
Deferred federal income taxes		48,216			23,495
Debt		481,070			481,070
Student loan credit facility		78,850			86,050
Net liabilities of discontinued operations		2,007			2,210
		1,621,888			1,718,788
Commitments and Contingencies (Note 8)
Stockholders’ Equity:
Preferred stock, par value $0.01 per share — authorized 10,000,000 shares, none issued		—			—
Common Stock, Class A-1, par value $0.01 per share — authorized 90,000,000 shares, 27,000,062 issued and 26,772,436 outstanding at September 30, 2009; 27,000,062 issued and 26,887,281 outstanding at December 31, 2008. Class A-2, par value $0.01 per share — authorized 20,000,000 shares, 4,026,104 issued and 2,626,801 outstanding at September 30, 2009; 4,026,104 issued and 2,741,240 outstanding at December 31, 2008		310			310
Additional paid-in capital		46,682			54,004
Accumulated other comprehensive income (loss)		4,185			(41,970	)
Retained earnings		257,420			227,686
Treasury stock, at cost (227,626 Class A-1 common shares and 1,399,303 Class A-2 common shares at September 30, 2009; 112,781 Class A-1 common shares and 1,284,864 Class A-2 common shares at December 31, 2008)		(35,637	)		(42,105	)
		272,960			197,925
	$	1,894,848		$	1,916,713

See Notes to Consolidated Condensed Financial Statements.

2

HEALTHMARKETS, INC.
and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
REVENUE
Health premiums	$	239,560	$	315,765		$	753,203		$	959,068
Life premiums and other considerations		487		673			1,829			37,189
		240,047		316,438			755,032			996,257
Investment income		10,873		16,244			32,224			55,607
Other income		15,064		19,710			47,841			62,440
Total other-than-temporary impairment losses		—		(16,785	)		(4,078	)		(22,366	)
Portion of loss recognized in other comprehensive income (before taxes)		—		—			—			—
Net impairment losses recognized in earnings		—		(16,785	)		(4,078	)		(22,366	)
Realized gains, net		795		1,463			2,350			3,805
		266,779		337,070			833,369			1,095,743
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses		126,042		211,500			435,721			661,795
Underwriting, acquisition, and insurance expenses		84,191		113,862			263,467			381,846
Other expenses		21,948		26,498			63,862			87,288
Interest expense		7,559		13,325			25,252			34,920
		239,740		365,185			788,302			1,165,849
Income (loss) from continuing operations before income taxes		27,039		(28,115	)		45,067			(70,106	)
Federal income tax expense (benefit)		9,644		(9,319	)		16,456			(25,721	)
Income (loss) from continuing operations		17,395		(18,796	)		28,611			(44,385	)
Income from discontinued operations, net		55		82			106			149
Net income (loss)	$	17,450	$	(18,714	)	$	28,717		$	(44,236	)
Basic earnings per share:
Income (loss) from continuing operations	$	0.59	$	(0.63	)	$	0.97		$	(1.46	)
Income (loss) from discontinued operations		0.00		0.00			0.00			0.00
Net income (loss) per share, basic	$	0.59	$	(0.63	)	$	0.97		$	(1.46	)
Diluted earnings per share:
Income (loss) from continuing operations	$	0.58	$	(0.63	)	$	0.95		$	(1.46	)
Income (loss) from discontinued operations		0.00		0.00			0.00			0.00
Net income (loss) per share, diluted	$	0.58	$	(0.63	)	$	0.95		$	(1.46	)

See Notes to Consolidated Condensed Financial Statements.

3

HEALTHMARKETS, INC.
and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Net income (loss)	$	17,450		$	(18,714	)	$	28,717		$	(44,236	)
Implementation effect upon adoption of SFAS FSP No. 115-2, which was codified into FASB ASC Topic 320, Investments — Debt and Equity Securities		—			—			1,017			—
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale arising during the period		38,360			(27,956	)		65,131			(45,954	)
Reclassification for investment (gains) losses included in net income (loss)		(809	)		(756	)		2,221			(1,170	)
Other-than-temporary impairment losses recognized in OCI		—			—			(1,565	)		—
Effect on other comprehensive income (loss) from investment securities		37,551			(28,712	)		65,787			(47,124	)
Unrealized gains (losses) on derivatives used in cash flow hedging during the period		(1,137	)		(901	)		(2,036	)		(2,881	)
Reclassification adjustments included in net income (loss)		2,380			1,891			7,260			4,188
Effect on other comprehensive income from hedging activities		1,243			990			5,224			1,307
Other comprehensive income (loss) before tax		38,794			(27,722	)		71,011			(45,817	)
Income tax expense (benefit) related to items of other comprehensive income (loss)		13,579			(9,691	)		24,856			(16,010	)
Other comprehensive income (loss) net of tax		25,215			(18,031	)		46,155			(29,807	)
Comprehensive income (loss)	$	42,665		$	(36,745	)	$	75,889		$	(74,043	)

See Notes to Consolidated Condensed Financial Statements.

4

HEALTHMARKETS, INC.
and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Nine Months Ended
	September 30,
	2009			2008
Operating Activities:
Net income (loss)	$	28,717		$	(44,236	)
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:
Income from discontinued operations		(106	)		(149	)
Realized gains, net		2,217			14,043
Change in deferred income taxes		(681	)		(38,220	)
Depreciation and amortization		22,962			22,275
Amortization of prepaid monitoring fees		9,375			9,375
Equity based compensation expense		5,250			3,477
Other items, net		9,732			575
Changes in assets and liabilities:
Investment income due and accrued		1,010			3,681
Due premiums		1,845			797
Reinsurance recoverable — ceded policy liabilities		8,869			(328,793	)
Agent and other receivables		7,476			45,200
Deferred acquisition costs		3,355			121,975
Prepaid monitoring fees		(12,500	)		(12,500	)
Current income tax recoverable		8,359			10,323
Policy liabilities		(90,286	)		11,412
Other liabilities and accrued expenses		(6,514	)		(31,457	)
Cash used in continuing operations		(920	)		(212,222	)
Cash used in discontinued operations		(97	)		(52	)
Net cash used in operating activities		(1,017	)		(212,274	)
Investing Activities:
Student loan receivables		4,763			5,492
Securities available for sale		59,069			247,395
Short-term and other investments, net		(127,140	)		175
Purchases of property and equipment		(2,170	)		(13,698	)
Proceeds from subsidiaries sold, net of cash disposed of $437		(440	)		—
Net proceeds from sale of businesses and assets		—			4,665
Change in restricted cash		471			767
Decrease (increase) in agent receivables		(276	)		2,923
Cash (used in) provided by continuing operations		(65,723	)		247,719
Cash (used in) provided by discontinued operations		—			—
Net cash (used in) provided by investing activities		(65,723	)		247,719
Financing Activities:
Repayment of student loan credit facility		(7,200	)		(9,400	)
Decrease in investment products		(4,410	)		(1,322	)
Increase in cash overdraft		—			2,931
Proceeds from shares issued to agent plans and other		6,340			9,923
Purchases of treasury stock		(18,279	)		(51,566	)
Excess tax reduction from equity based compensation		(1,478	)		(320	)
Cash used in continuing operations		(25,027	)		(49,754	)
Cash (used in) provided by discontinued operations		—			—
Net cash used in financing activities		(25,027	)		(49,754	)
Net change in cash and cash equivalents		(91,767	)		(14,309	)
Cash and cash equivalents at beginning of period		100,339			14,309
Cash and cash equivalents at end of period in continuing operations	$	8,572		$	—
Supplemental disclosures:
Income taxes paid	$	10,314		$	2,588
Interest paid	$	29,142		$	35,966

See Notes to Consolidated Condensed Financial Statements.

5

HEALTHMARKETS, INC.
and Subsidiaries

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

     The accompanying consolidated condensed financial statements for HealthMarkets, Inc. (the “Company” or “HealthMarkets”) and its subsidiaries have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, such financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the consolidated condensed balance sheets, statements of income (loss), statements of comprehensive income (loss) and statements of cash flows for the periods presented. The accompanying December 31, 2008 consolidated condensed balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP for annual financial statement purposes. Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on management’s knowledge of current events and actions that HealthMarkets may undertake in the future, actual results may differ materially from the estimates. Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2009. Certain amounts in the prior period financial statements have been reclassified to conform to the 2009 financial statement presentation. We have evaluated subsequent events for recognition or disclosure through November 6, 2009, which was the date we filed this Form 10-Q with the Securities and Exchange Commission (the “SEC”). For further information, refer to the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Concentrations

     Through the Self-Employed Agency Division (“SEA”), the Company’s insurance company subsidiaries provide health insurance products in 41 states and the District of Columbia. As is the case with many of HealthMarkets’ competitors in this market, a substantial portion of the Company’s insurance company subsidiaries products are issued to members of various independent membership associations that act as the master policyholder for such products. The three principal membership associations in the self-employed market that make available to their members our health insurance products are the Alliance for Affordable Services (“AAS”), the National Association for the Self-Employed (“NASE”) and Americans for Financial Security (“AFS”). During the nine months ended September 30, 2009, the Company issued approximately 49% of our new policies through AAS, approximately 12% of our new policies through NASE and approximately 22% of our new policies through AFS.

     Additionally, during the nine months ended September 30, 2009, the Company generated approximately 56% of its health premium revenue from the following 10 states:

	Percentage
California		13	%
Texas		8	%
Florida		7	%
Massachusetts		6	%
Illinois		5	%
Washington		4	%
North Carolina		4	%
Maine		3	%
Pennsylvania		3	%
Wisconsin		3	%
		56	%

     As previously reported, on August 26, 2009, The MEGA Life and Health Insurance Company (“MEGA”), Mid-West National Life Insurance Company of Tennessee (“Mid-West’) and The Chesapeake Life Insurance Company (“Chesapeake”) entered into a regulatory settlement agreement with the Massachusetts Division of Insurance to resolve all outstanding matters stemming from a 2006 regulatory settlement agreement and to resolve all issues identified in subsequent reviews and/or re-examinations conducted through February 2009. As previously reported, on August 31, 2009, the Company, MEGA and Mid-West entered into a consent with the Commonwealth of Massachusetts settling the matter entitled Commonwealth of Massachusetts v. The MEGA Life and Health Insurance Company, pending in the Superior Court of Suffolk County, Massachusetts, Case

6

Number 06-4411-F. As a result of these settlements, the Company’s insurance subsidiaries are prohibited from offering any new health benefit plans in Massachusetts on or after October 1, 2009. See Note 8 of Notes to Consolidated Condensed Financial Statements for additional information.

Deferred Acquisition Costs (“DAC”) — 2009 Change in Estimates

     Prior to January 1, 2009, the basis for the amortization period on deferred lead costs and the portion of DAC associated with excess commissions over ultimate paid to agents was the estimated weighted average life of the insurance policy, which approximated 24 months. The monthly amortization factor was calculated to correspond with the historical persistency of policies (i.e. the monthly amortization is variable and is higher in the early months). Beginning January 1, 2009, on newly issued policies, the Company refined its estimated life of the policy to approximate the premium paying period of the policy based on the expected persistency over this period. As such, these costs are now amortized over sixty months, and the monthly amortization factor is calculated to correspond with the expected persistency experience for the newly issued policies. However, the amounts amortized will continue to be substantially higher in the early months of the policy as both are based on the persistency of the Company’s insurance policies. Policies issued before January 1, 2009 will continue to be amortized using the existing assumptions in place at the time of the issuance of the policy.

     Additionally, prior to January 1, 2009, certain other underwriting and policy issuance costs, which the Company determined to be more fixed than variable, were expensed as incurred. Effective January 1, 2009, HealthMarkets determined that, due to changes in both the Company’s products and underwriting procedures performed, certain of these costs have become more variable than fixed in nature. As such, the Company began deferring such costs over the expected premium paying period of the policy, which approximates five years.

     These changes resulted in a decrease in “Underwriting, acquisition and insurance expenses” of $3.0 million and $10.3 million, respectively, for the three and nine months ended September 30, 2009.

Recent Accounting Pronouncements

     In June 2009, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”), which has not yet been codified in the FASB Accounting Standards Codification (“ASC”). SFAS No. 167 modifies financial reporting for variable interest entities (“VIEs”). Under this guidance, companies are required to perform a periodic analysis to determine whether their variable interest must be consolidated by the Company. Additionally, Companies must disclose significant judgments and assumptions made when determining whether it must consolidate a VIE. Any changes in consolidated entities resulting from a Company’s analysis must be applied retrospectively to prior period financial statements. SFAS No. 167 is effective for annual and interim periods beginning after November 15, 2009. The Company has not yet determined the impact that the adoption of this guidance will have on its financial position and results of operations.

     In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of SFAS No. 140 (“SFAS No. 166”), which has not yet been codified in the ASC. SFAS No. 166 provides greater transparency about transfers of financial assets and requires companies to determine whether the transferor or companies included in the transferor’s financial statements have surrendered control over transferred financial assets. SFAS No. 166 modifies the financial-components approach used in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which was codified into FASB ASC Topic 860, Transfers and Servicing, and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized. Additionally, this FSP removes the concept of a qualifying special-purpose entity (“QSPE”) and removes the exception from applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to QSPEs. SFAS No. 166 is effective for annual and interim periods beginning after November 15, 2009. The Company has not yet determined the impact that the adoption of this guidance will have on its financial position and results of operations.

     In September 2009, the FASB issued ASC Updated 2009-12, Fair Value Measurements and Disclosures (Topic 820) — Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent), which provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures — Overall, for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). This Update is effective for annual and interim periods beginning after December 15, 2009. The Company has not yet determined the impact that the adoption of this guidance will have on its financial position and results of operations.

     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162, which was codified into FASB ASC Topic 105, Generally Accepted Accounting Standards. This standard recognizes the ASC as the source of

7

authoritative U.S. GAAP recognized by the FASB. Additionally, rules and interpretive releases of the SEC under authority of federal securities laws will also continue to be sources of authoritative GAAP for SEC registrants. The Company adopted such guidance in September 2009. Beginning in the third quarter of 2009, this guidance impacted the Company’s financial statements and related disclosures as all references to authoritative accounting literature reflect the newly adopted codification.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”), which was codified into FASB ASC Topic 855, Subsequent Events. Under this guidance, an entity is required to disclose the date through which it has evaluated subsequent events and the basis for that date. Additionally, this guidance clarifies the circumstances under which an entity should recognize in the financial statements, the effects of events or transactions occurring after the balance sheet date, and required disclosures for such events and transactions. The Company adopted this guidance in the third quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

     In August 2009, the FASB issued ASC Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820 — Measuring Liabilities at Fair Value), which provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures — Overall, for the fair value measurement of liabilities. This Update provides clarification for measuring fair value in circumstances where a quoted price in an active market for the identical liability is not available. The Company adopted this guidance in the third quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

     In April 2009, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which was codified into FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). This standard provides guidance for estimating fair value when the market activity for the asset or liability has significantly decreased and guidance for identifying transactions that are not orderly. Furthermore, this guidance requires disclosure in interim and annual periods for the inputs and valuation techniques used to measure fair value. Additionally, it requires an entity to disclose a change in valuation technique, and to quantify such effects. The Company adopted this guidance in the second quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

     In February 2008, the FASB issued FSP SFAS No. 157-2, Effective Date of FASB Statement No. 157, which was codified into FASB ASC Topic 820. This guidance delays the effective date of SFAS No. 157, Fair Value Measurements, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). These nonfinancial items would include, for example, reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. The Company adopted this guidance in the first quarter of 2009. Such adoption of these remaining provisions did not have a material impact on the Company’s financial position and results of operations.

     In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1, Disclosures about Fair Value of Financial Instruments, which was codified into FASB ASC Topic 825, Financial Instruments. This guidance requires companies to provide disclosures about fair value of financial instruments in both interim and annual financial statements. Additionally, under this guidance, companies are required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments in both interim and annual financial statements. The Company adopted this guidance in the second quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

     In April 2009, FASB issued FSP SFAS No. 115-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP SFAS No. 115-2”), which was codified into FASB ASC Topic 320, Investments — Debt and Equity Securities (“ASC Topic 320”). This guidance improves the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. Under this guidance, when the fair value is less than the amortized cost basis at the measurement date, a company would be required to assess the impaired security to determine whether the impairment is other-than-temporary. Such assessment may result in the recognition of an other-than-temporary impairment related to a credit loss in the statement of income and the recognition of an other-than-temporary impairment related to a non-credit loss in accumulated other comprehensive income on the balance sheet. To avoid recognizing the entire other-than-temporary impairment in the statement of income, a company would be required to assert (a) it does not have the intent to sell the security and (b) it is more likely than not that it will not have to sell the security before recovery of its cost basis. Additionally, at adoption, a company is permitted to make a one-time cumulative-effect adjustment for securities held at adoption for which an other-than-temporary impairment related to a non-credit loss had been previously recognized. The Company adopted this guidance in the second quarter of 2009. Upon adoption, the Company recognized such tax-effected cumulative effect as an increase to the opening balance of retained earnings for $1.0 million with a

8

corresponding decrease to accumulated other comprehensive income, with no overall change to shareholders’ equity. See Note 4 of Notes to Consolidated Condensed Financial Statements.

     On January 1, 2009, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133, which was codified into FASB ASC Topic 815, Derivative Instruments (“ASC Topic 815”). This standard requires companies with derivative instruments to disclose information that enables financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The Company adopted this guidance in the first quarter of 2009. See Note 6 of Notes to Consolidated Condensed Financial Statements for information on the Company’s derivative instrument, including these additional required disclosures.

     In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS No. 160”), which was codified into FASB ASC Topic 810, Consolidation. The objective of SFAS No. 160 is to improve the relevance, comparability, and transparency of financial information related to minority interest in consolidated financial statements. The Company adopted this guidance in the first quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

2. DISPOSITIONS

Exit from Life Insurance Division Business

     On September 30, 2008 (the “Closing Date”), HealthMarkets, LLC completed the transactions contemplated by the Agreement for Reinsurance and Purchase and Sale of Assets dated June 12, 2008 (the “Master Agreement”). Pursuant to the Master Agreement, Wilton Reassurance Company or its affiliates (“Wilton”) acquired substantially all of the business of the Company’s Life Insurance Division, which operated through MEGA, Mid-West and The Chesapeake Life Insurance Company (“Chesapeake”) (collectively the “Ceding Companies”), and all of the Company’s 79% equity interest in each of U.S. Managers Life Insurance Company, Ltd. and Financial Services Reinsurance, Ltd. As part of the transaction, under the terms of the Coinsurance Agreements (the “Coinsurance Agreements”) entered into with each of the Ceding Companies on the Closing Date, Wilton agreed, effective July 1, 2008 (the “Coinsurance Effective Date”), to reinsure on a 100% coinsurance basis substantially all of the insurance policies associated with the Company’s Life Insurance Division (the “Coinsured Policies”). The reinsurance transaction resulted in a pre-tax loss of $17.6 million for the nine months ended September 30, 2008, of which $13.0 million was recorded as an impairment to the Life Insurance Division’s deferred acquisition costs and $4.6 million was recorded in “Realized gains, net” in the Company’s consolidated condensed statement of income (loss).

     In connection with these transactions, the Company incurred $6.3 million in investment banker fees and legal fees recorded as “Other expenses” on the Company’s consolidated condensed statement of income (loss), of which $5.0 million was incurred during the three months ended September 30, 2008. The Company also incurred $6.4 million of employee and lease termination costs and other costs recorded in “Underwriting, acquisition and insurance expenses,” of which $3.2 million was incurred during the three months ended September 30, 2008 (see Note 11 of Notes to Consolidated Condensed Financial Statements). In addition, the Company incurred interest expense of $3.0 million during the third quarter of 2008 associated with the use of the cash transferred to Wilton during the period from the Coinsurance Effective Date to the Closing Date. Lastly, the Ceding Companies wrote-off deferred acquisition costs of $101.1 million, representing all of the deferred acquisition costs associated with the Coinsured Policies subject to the transaction, which is included in the realized loss on the transaction. This write-off of deferred acquisition costs correspondingly reduced the related deferred tax assets by $36.7 million at September 30, 2008.

Student Loans

     In connection with the execution of the Master Agreement, HealthMarkets, LLC entered into a definitive Stock Purchase Agreement (as amended, the “Stock Purchase Agreement”) pursuant to which Wilton agreed to purchase the Company’s student loan funding vehicles, CFLD-I, Inc. (“CFLD-I”) and UICI Funding Corp. 2 (“UFC2”), and the related student association. Prior to June 30, 2009, the Company had presented the assets and liabilities of CFLD-I and UFC2 as held for sale on its consolidated condensed balance sheet and included the results of operations of CFLD-I and UFC2 in discontinued operations on its consolidated condensed statement of income (loss). As the closing of the Stock Purchase Agreement did not occur, the Company reclassified the assets and liabilities of CFLD-I and UFC2 out of held for sale and reclassified the results of operations from discontinued operations to continuing operations for all periods presented. Such reclassification in the condensed consolidated statement of income (loss) resulted in an increase in “Loss from continuing operations” of $12,000 and $5.3 million for the three and nine months ended September 30, 2008, respectively.

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     In accordance with the terms of the Coinsurance Agreements, Wilton will fund student loans; provided, however, that Wilton will not be required to fund any student loan that would cause the aggregate par value of all such loans funded by Wilton, following the Coinsurance Effective Date, to exceed $10.0 million. As of September 30, 2009, approximately $1.4 million of student loans have been funded under this agreement.

Sale of ZON-Re

     The Company’s Other Insurance Division consisted of ZON-Re USA, LLC (“ZON-Re”), an 82.5%-owned subsidiary, which underwrote, administered and issued accidental death, accidental death and dismemberment (“AD&D”), accident medical, and accident disability insurance products, both on a primary and on a reinsurance basis. The Company distributed these products through professional reinsurance intermediaries and a network of independent commercial insurance agents, brokers and third party administrators.

     On June 5, 2009, HealthMarkets, LLC, entered into an Acquisition Agreement for the sale of its 82.5% membership interest in ZON-Re to Venue Re, LLC (“Venue Re”). The transaction contemplated by the Acquisition Agreement closed effective June 30, 2009. The sale of the Company’s membership interest in ZON-Re resulted in a total pre-tax loss of $489,000 for the nine months ended September 30, 2009. The Company will continue to reflect the existing insurance business in its financial statements to final termination of all liabilities.

Exit from the Medicare Market

     In late 2007, the Company expanded into the Medicare market by offering a new portfolio of Medicare Advantage Private-Fee-for-Service Plans — called HealthMarkets Care Assured Plans^SM — in selected markets in 29 states with calendar year coverage effective for January 1, 2008. In July 2008, the Company determined it would not continue to participate in the Medicare business after the 2008 plan year. In connection with its exit from the Medicare market, the Company incurred employee termination costs of $371,000 and asset impairment charges of $1.1 million associated with technology assets unique to its Medicare business in the third quarter of 2008. Additionally, during the nine months ended September 30, 2008, the Company recognized a $4.9 million expense, recorded in “Underwriting, acquisition and insurance expenses,” associated with a minimum volume guarantee fee related to the Company’s contract with a third party administrator. This minimum volume guarantee fee was based on a minimum number of member months for the three year term of the contract covering calendar years 2008 through 2010. During 2009, the Company continued to fulfill its remaining obligations under the 2008 calendar year Medicare contracts.

3. FAIR VALUE MEASUREMENTS

     In accordance with ASC Topic 820, the Company categorizes its investments and certain other assets and liabilities recorded at fair value into a three-level fair value hierarchy as follows:

• Level 1 — Unadjusted quoted market prices for identical assets or liabilities in active markets which are accessible by the Company.

• Level 2 — Observable prices in active markets for similar assets or liabilities. Prices for identical or similar assets or liabilities in markets that are not active. Directly observable market inputs for substantially the full term of the asset or liability, such as interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, default rates, and credit spreads. Market inputs that are not directly observable but are derived from or corroborated by observable market data.

• Level 3 — Unobservable inputs based on the Company’s own judgment as to assumptions a market participant would use, including inputs derived from extrapolation and interpolation that are not corroborated by observable market data.

     The Company evaluates the various types of securities in its investment portfolio to determine the appropriate level in the fair value hierarchy based upon trading activity and the observability of market inputs. The Company employs control processes to validate the reasonableness of the fair value estimates of its assets and liabilities, including those estimates based on prices and quotes obtained from independent third party sources. The Company’s procedures generally include, but are not limited to, initial and ongoing evaluation of methodologies used by independent third parties and monthly analytical reviews of the prices against current pricing trends and statistics.

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     Where possible, the Company utilizes quoted market prices to measure fair value. For investments that have quoted market prices in active markets, the Company uses the quoted market price as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy. When quoted market prices in active markets are unavailable, the Company determines fair values using various valuation techniques and models based on a range of observable market inputs including pricing models, quoted market price of publicly traded securities with similar duration and yield, time value, yield curve, prepayment speeds, default rates and discounted cash flow. In most cases, these estimates are determined based on independent third party valuation information, and the amounts are disclosed in Level 2 of the fair value hierarchy. Generally, the Company obtains a single price or quote per instrument from independent third parties to assist in establishing the fair value of these investments.

     If quoted market prices and independent third party valuation information are unavailable, the Company produces an estimate of fair value based on internally developed valuation techniques, which, depending on the level of observable market inputs, will render the fair value estimate as Level 2 or Level 3. On occasions when pricing service data is unavailable, the Company may rely on bid/ask spreads from dealers in determining the fair value. When dealer quotations are used to assist in establishing the fair value, the Company generally obtains one quote per instrument. The quotes obtained from dealers or brokers are generally non-binding. When dealer quotations are used, the Company uses the mid-mark as fair value. When broker or dealer quotations are used for valuation or price verification, greater priority is given to executable quotes. As part of the price verification process, valuations based on quotes are corroborated by comparison both to other quotes and to recent trading activity in the same or similar instruments.

     To the extent the Company determines that a price or quote is inconsistent with actual trading activity observed in that investment or similar investments, or if the Company does not think the quote is reflective of the market value for the investment, the Company will internally develop a fair value using this observable market information and disclose the occurrence of this circumstance.

     In accordance with ASC Topic 820, the Company has categorized its available for sale securities into a three level fair value hierarchy based on the priority of inputs to the valuation techniques. The fair values of investments disclosed in Level 1 of the fair value hierarchy include money market funds and certain U.S. government securities, while the investments disclosed in Level 2 include the majority of the Company’s fixed income investments. In cases where there is limited activity or less transparency around inputs to the valuation, the Company classifies the fair value estimates within Level 3 of the fair value hierarchy.

     As of September 30, 2009, all of the Company’s investments classified within Level 2 and Level 3 of the fair value hierarchy are valued based on quotes or prices obtained from independent third parties, except for $106.3 million of “Corporate debt and other” classified as Level 2, $2.2 million of “Collateralized debt obligations” classified as Level 3 and $1.4 million of “Commercial-backed” investments classified as Level 3. The $106.3 million of “Corporate debt and other” investments classified as Level 2 noted above includes $93.9 million of an investment grade corporate bond issued by UnitedHealth Group that was received as consideration for the sale of the Company’s former Student Insurance Division in December 2006.

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Fair Value Hierarchy on a Recurring Basis

     Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.

	Assets at Fair Value as of September 30, 2009
	Level 1		Level 2		Level 3		Total
			(In thousands)
U.S. and U.S. Government agencies	$	5,085	$	43,114	$	—	$	48,199
Corporate debt and other		—		351,705		—		351,705
Collateralized debt obligations		—		—		3,096		3,096
Residential-backed issued by agencies		—		111,585		—		111,585
Commercial-backed issued by agencies		—		8,787		—		8,787
Residential-backed		—		4,189		—		4,189
Commercial-backed		—		75,361		1,388		76,749
Asset-backed		—		20,367		445		20,812
Municipals		—		176,968		7,270		184,238
Corporate equities		33		—		—		33
Trading securities		—		—		13,956		13,956
Put options (1)		—		—		794		794
Short-term and other investments (2)		312,805		6,234		440		319,479
	$	317,923	$	798,310	$	27,389	$	1,143,622

(1)	Included in “Other assets” on the consolidated condensed balance sheet.
(2)	Amount excludes $18.6 million of short-term other investments which are not subject to fair value measurement.

	Liabilities at Fair Value as of September 30, 2009
	Level 1		Level 2		Level 3		Total
			(In thousands)
Interest rate swaps	$	—	$	10,714	$	—	$	10,714
Agent and employee plans		—		—		14,982		14,982
	$	—	$	10,714	$	14,982	$	25,696

     The following is a description of the valuation methodologies used for certain assets and liabilities of the Company measured at fair value on a recurring basis, including the general classification of such assets pursuant to the valuation hierarchy.

Fixed Income Investments

   Available for sale investments

     The Company’s fixed income investments include investments in U.S. treasury securities, U.S. government agencies bonds, corporate bonds, mortgage-backed and asset-backed securities, and municipal auction rate securities and bonds.

     The Company estimates the fair value of its U.S. treasury securities using unadjusted quoted market prices, and accordingly, discloses these investments in Level 1 of the fair value hierarchy. The fair values of the majority of non-U.S. treasury securities held by the Company are determined based on observable market inputs provided by independent third party valuation information. The market inputs utilized in the pricing evaluation include but are not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The Company classifies the fair value estimates based on these observable market inputs within Level 2 of the fair value hierarchy. Investments classified within Level 2 consist of U.S. government agencies bonds, corporate bonds, mortgage-backed and asset-backed securities, and municipal bonds.

     The Company also holds a small number of fixed income investments, including certain mortgage-backed and asset- backed securities, and collateralized debt obligations, for which it estimates the fair value using internal pricing matrices with some unobservable inputs that are significant to the valuation. The Company estimates the fair value of its entire portfolio of municipal auction rate securities based on non-binding quotes received from independent third parties due to limited activity and market data for auction rate securities, resulting from liquidity issues in the global credit and capital markets. Consequently, the lack of transparency in the inputs and the availability of independent third party pricing information for these investments resulted in their fair values being classified within the Level 3 of the hierarchy. As of September 30, 2009, the fair values of certain municipal auction rate securities, collateralized debt obligations and mortgage-backed and asset-backed securities which represent approximately 1.5% of the Company’s total fixed income investments are reflected within the Level 3 of the fair value hierarchy.

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     Beginning in 2008, the Company determined that the non-binding quoted price received from an independent third party broker for a particular collateralized debt obligation investment did not reflect a value based on an active market. During discussions with the independent third party broker, the Company learned that the price quote was established by applying a discount to the most recent price that the broker had offered the investment. However, there were no responding bids to purchase the investment at that price. As this price was not set based on an active market, the Company developed a fair value for this particular collateralized debt obligation. The Company continues to fair value this collateralized debt obligation as such during 2009.

     The Company established a fair value for such collateralized debt obligation based on information about the underlying pool of assets supplied by the investment’s asset manager. The Company developed a discounted cash flow valuation for the investment by applying assumptions for a variety of factors including among other things, default rates, recovery rates and a discount rate. The Company believes the assumptions for these factors were developed in a manner consistent with those that a market participant would use in valuation and were based on the information provided regarding the underlying pool of assets, various current market benchmarks, industry data for similar assets types, and particular market observations about similar assets.

Trading securities

     The Company’s fixed income trading securities consist of auction rate securities, for which the fair value is determined based on unobservable inputs. Accordingly, the fair value of this asset is reflected within Level 3 of the fair value hierarchy.

Equities

     The Company maintains one investment in equity securities for which the Company uses a quoted market price based on observable market transactions. The Company includes the fair value estimate for this stock in Level 1 of the hierarchy. The remaining amount in equity securities represents one security accounted for using the equity method of accounting and, therefore, does not require fair value disclosure under the provisions of ASC Topic 820.

Short-term and other investments

     The Company’s short-term and other investments primarily consist of highly liquid money market funds, which are reflected within Level 1 and Level 2 of the fair value hierarchy. Additionally, the fair value of one of the Company’s investment assets included in short-term and other investments is determined based on unobservable inputs. Accordingly, the fair value of this asset is reflected within Level 3 of the fair value hierarchy.

Put Options

     The put options that the Company owns are directly related to agreements the Company entered into with UBS during 2008 to facilitate the repurchase of certain auction rate municipal securities. The options are carried at fair value which is related to the fair value of the auction rate securities (see Trading securities above) and are recorded in “Other assets” on the consolidated condensed balance sheets. The Company accounts for such put options in accordance with ASC Topic 320, which provides a fair value option election that permits an entity to elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities on an instrument by instrument basis. Changes in fair value of assets and liabilities, for which the election is made, will be recognized in earnings as they occur.

Derivatives

     The Company’s derivative instruments are valued utilizing valuation models that primarily use market observable inputs and are traded in the markets where quoted market prices are not readily available, and accordingly, these instruments are reflected within the Level 2 of the fair value hierarchy.

Agent and Employee Stock Plans

     The Company accounts for its agent and employee stock plan liabilities based on the Company’s share price at the end of each reporting period. The Company’s share price at the end of each reporting period is based on the prevailing fair value as determined by the Company’s Board of Directors. The Company largely uses unobservable inputs in deriving the fair value of its share price and the value is, therefore, reflected in Level 3 of the hierarchy.

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Changes in Level 3 Assets and Liabilities

     The tables below summarize the change in balance sheet carrying values associated with Level 3 financial instruments and agent and employee stock plans for the three and nine months ended September 30, 2009.

Changes in Level 3 Assets and Liabilities Measured at Fair Value For the Three Months Ended September 30, 2009
						Purchases,
						Sales,
			Unrealized			Payments					Transfer
	Beginning		Gains or			and			Realized		in/(out) of		Ending
	Balance		(Losses)			Issuances, Net			Losses(1)		Level 3, Net		Balance
	In Thousands
Assets
Collateralized debt obligations	$	2,563	$	533		$	—		$	—	$	—	$	3,096
Commercial-backed		1,424		52			(88	)		—		—		1,388
Asset-backed		360		85			—			—		—		445
Municipals		7,301		(31	)		—			—		—		7,270
Trading securities		14,259		(53	)		(250	)		—		—		13,956
Put options		741		53			—			—		—		794
Other invested assets		141		365			(66	)		—		—		440
	$	26,789	$	1,004		$	(404	)	$	—	$	—	$	27,389
Liabilities
Agent and employee stock plans	$	13,184	$	—		$	1,798		$	—	$	—	$	14,982

Changes in Level 3 Assets and Liabilities Measured at Fair Value For the Nine Months Ended September 30, 2009
						Purchases,
						Sales,
			Unrealized			Payments						Transfer
	Beginning		Gains or			and			Realized			in/(out) of		Ending
	Balance		(Losses)			Issuances, Net			Losses(1)			Level 3, Net		Balance
	In Thousands
Assets
Collateralized debt obligations	$	2,585	$	1,906		$	—		$	(1,395	)	$	—	$	3,096
Commercial-backed		1,494		149			(255	)		—			—		1,388
Asset-backed		252		193			—			—			—		445
Municipals		6,539		731			—			—			—		7,270
Trading securities		11,937		2,369			(350	)		—			—		13,956
Put options		3,163		(2,369	)		—			—			—		794
Other invested assets		476		258			(294	)		—			—		440
	$	26,446	$	3,237		$	(899	)	$	(1,395	)	$	—	$	27,389
Liabilities
Agent and employee stock plans	$	18,158	$	—		$	(3,176	)	$	—		$	—	$	14,982

(1) Realized losses for the period are included in “Realized gains, net” on the Company’s consolidated condensed statement of income (loss).

Investments not reported at fair value

     Other investments primarily consists of investments in equity investees, which are accounted for under the equity method of accounting on the Company’s consolidated condensed balance sheet at cost.

4. INVESTMENTS

     The Company’s investments consist of the following at September 30, 2009 and December 31, 2008:

	September 30,		December 31,
	2009		2008
	(In thousands)
Securities available for sale
Fixed maturities	$	809,360	$	805,026
Equity securities		246		210
Trading securities		13,956		11,937
Short-term and other investments		338,029		210,433
Total investments	$	1,161,591	$	1,027,606

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     Available for sale fixed maturities are reported at fair value which was derived as follows:

	September 30, 2009
			Gross		Gross			Non-credit Loss
	Amortized		Unrealized		Unrealized			Recognized
	Cost		Gains		Losses			in OCI		Fair Value
	(In thousands)
U.S. and U.S. Government agencies	$	46,717	$	1,482	$	—		$	—	$	48,199
Collateralized debt obligations		2,352		929		(185	)		—		3,096
Residential-backed issued by agencies		107,388		4,347		(150	)		—		111,585
Commercial-backed issued by agencies		8,366		421		—			—		8,787
Residential-backed		4,288		6		(105	)		—		4,189
Commercial-backed		75,984		1,177		(412	)		—		76,749
Asset-backed		21,474		316		(978	)		—		20,812
Corporate bonds and municipals		519,709		19,163		(8,352	)		—		530,520
Other		6,100		—		(677	)		—		5,423
Total fixed maturities	$	792,378	$	27,841	$	(10,859	)	$	—	$	809,360

	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(In thousands)
U.S. and U.S. Government agencies	$	36,014	$	1,794	$	—		$	37,808
Collateralized debt obligations		3,700		—		(1,115	)		2,585
Residential-backed issued by agencies		72,468		1,910		(6	)		74,372
Commercial-backed issued by agencies		37,406		781		(53	)		38,134
Residential-backed		6,340		—		(878	)		5,462
Commercial-backed		76,959		—		(8,427	)		68,532
Asset-backed		25,011		70		(6,148	)		18,933
Corporate bonds and municipals		590,996		4,229		(41,985	)		553,240
Other		6,243		—		(283	)		5,960
Total fixed maturities	$	855,137	$	8,784	$	(58,895	)	$	805,026

     The amortized cost and fair value of available for sale fixed maturities at September 30, 2009, by contractual maturity, are set forth in the table below. Fixed maturities subject to early or unscheduled prepayments have been included based upon their contractual maturity dates. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2009
	Amortized
	Cost		Fair Value
	(In thousands)
Maturity:
One year or less	$	18,787	$	18,989
Over 1 year through 5 years		179,801		184,639
Over 5 years through 10 years		258,195		262,277
Over 10 years		118,095		121,333
		574,878		587,238
Mortgage and asset-backed securities		217,500		222,122
Total fixed maturities	$	792,378	$	809,360

     See Note 3 of Notes to Consolidated Condensed Financial Statements for additional disclosures on fair value measurements.

     A summary of net investment income sources is set forth below:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009			2008
	(In thousands)
Fixed maturities	$	9,290	$	13,361	$	28,980		$	42,524
Equity securities		19		—		36			(9	)
Short-term and other investments		273		942		(937	)		6,335
Agent receivables		613		731		1,959			2,382
Student loan interest income		1,149		1,656		3,625			5,817
		11,344		16,690		33,663			57,049
Less investment expenses		471		446		1,439			1,442
	$	10,873	$	16,244	$	32,224		$	55,607

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Realized Gains and Losses

     Realized gains and losses on sales of investments are recognized in net income (loss) on the specific identification basis and include write downs on those investments deemed to have other than temporary declines in fair values. Gains and losses on trading securities are reported in “Realized gains, net” on the consolidated condensed statements of income (loss).

     Fixed maturities

     Proceeds from the sale and call of investments in fixed maturities were $38.2 million and $52.6 million for the three and nine months ended September 30, 2009, respectively, and $99.8 million and $224.2 million for the three and nine months ended September 30, 2008, respectively. Gross gains of $809,000 and $1.9 million were realized on the sale and call of fixed maturity investments for the three and nine months ended September 30, 2009, respectively. Gross gains of $961,000 and $1.9 million and gross losses of $206,000 and $766,000 were realized on the sale and call of fixed maturity investments for the three and nine months ended September 30, 2008, respectively.

     Equity securities

     The Company realized no gains or losses on equity securities during the three and nine months ended September 30, 2009 and 2008.

     Trading securities and Put options

     The Company accounts for certain municipal auction rate securities as trading securities. In 2008, the Company entered into an agreement with UBS to facilitate the repurchase of certain auction rate municipal securities. At such time, the Company received put options. Any gain or loss recognized on the trading securities is offset by the same gain or loss on the put options.

Unrealized Gains (Losses)

     Unrealized investment gains and losses on available for sale securities, net of applicable deferred income tax, are reported in “Accumulated other comprehensive income (loss)” as a separate component of stockholders’ equity and accordingly have no effect on net income (loss).

     Set forth below is a summary of gross unrealized losses in its fixed maturities as of September 30, 2009 and December 31, 2008:

	September 30, 2009
	Unrealized Loss				Unrealized Loss
	Less Than 12 Months				12 Months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Collateralized debt obligations	$	921	$	185	$	—	$	—	$	921	$	185
Residential-backed issued by agencies		23,099		150		—		—		23,099		150
Residential-backed		—		—		3,740		105		3,740		105
Commercial-backed		—		—		19,199		412		19,199		412
Asset-backed		—		—		16,945		978		16,945		978
Corporate bonds and municipals		300		—		187,951		8,352		188,251		8,352
Other		—		—		5,423		677		5,423		677
Total	$	24,320	$	335	$	233,258	$	10,524	$	257,578	$	10,859

	December 31, 2008
	Unrealized Loss				Unrealized Loss
	Less Than 12 Months				12 Months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Collateralized debt obligations	$	—	$	—	$	2,310	$	1,115	$	2,310	$	1,115
Residential-backed issued by agencies		49		—		2,361		59		2,410		59
Residential-backed		—		—		5,461		878		5,461		878
Commercial-backed		28,432		2,960		40,100		5,467		68,532		8,427
Asset-backed		—		—		13,072		6,148		13,072		6,148
Corporate bonds and municipals		117,143		6,877		289,731		35,108		406,874		41,985
Other		—		—		5,960		283		5,960		283
Total	$	145,624	$	9,837	$	358,995	$	49,058	$	504,619	$	58,895

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     Of the $335,000 in unrealized losses that had existed for less than twelve months at September 30, 2009, one “Collateralized debt obligation” had an unrealized loss in excess of 10% of the security’s cost. The amount of unrealized loss with respect to this security is $114,000 at September 30, 2009.

     Of the $10.5 million in unrealized losses that have existed for twelve months or longer at September 30, 2009, eleven securities had unrealized losses in excess of 10% of the security’s cost, of which five were classified as “Asset-backed securities,” one was classified as “Other” and five were classified as “Corporate bonds and municipals” in the table above. The amount of unrealized loss with respect to those securities was $5.8 million at September 30, 2009, of which $581,000 relates to “Asset-backed” securities, $676,000 relates to “Other” and $4.6 million relates to “Corporate bonds and municipals.”

     As a Company that holds investments in the financial services industry, HealthMarkets has been affected by conditions in U.S. financial markets and economic conditions throughout the world. The financial environment in the U.S. was volatile during 2008; however, the Company has seen improved market conditions during 2009, which are reflected in the decrease in unrealized losses, as well as a decrease in the number of securities with unrealized losses. The Company continually monitors investments with unrealized losses that have existed for twelve months or longer and considers such factors as the current financial condition of the issuer, the performance of underlying collateral and effective yields. Additionally, HealthMarkets’ considers whether it has the intent to sell the security and whether it is more likely than not that the Company will be required to sell the debt security before the fair value reverts to our cost basis, which may be at maturity of the security. Based on such review, the Company believes that, as of September 30, 2009, the unrealized loss in these investments is temporary.

     It is at least reasonably probable the Company’s assessment of whether the unrealized losses are other than temporary may change over time, given, among other things, the dynamic nature of markets or changes in the Company’s assessment of its ability or intent to hold impaired investment securities, which could result in the Company recognizing other-than-temporary impairment charges or realized losses on the sale of such investments in the future.

     Equity securities

     Gross unrealized investment gains (losses) on equity securities were $4,000 and $1,000 for the three and nine months ended September 30, 2009, respectively, and $4,000 and $(3,000) for the three and nine months ended September 30, 2008, respectively.

     Other-than-temporary impairments

     Investments are reviewed at least quarterly, using both quantitative and qualitative factors, to determine if they have experienced an impairment of value that is considered other-than-temporary. In its review, management considers the following indicators of impairment: fair value significantly below cost; decline in fair value attributable to specific adverse conditions affecting a particular investment; decline in fair value attributable to specific conditions, such as conditions in an industry or in a geographic area; decline in fair value for an extended period of time; downgrades by rating agencies from investment grade to non-investment grade; financial condition deterioration of the issuer and situations where dividends have been reduced or eliminated or scheduled interest payments have not been made. Additionally, the Company assesses whether the amortized cost basis will be recovered by comparing the present value of cash flows expected to be collected with the amortized cost basis of the investment. When the determination is made that an other-than-temporary impairment (“OTTI”) exists but the Company does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before the recovery of its remaining amortized cost basis, the Company will determine the amount of the impairment related to a credit loss and the amount related to other factors. OTTI losses attributed to a credit loss are recorded in “Net impairment losses recognized in earnings” on the statement of income (loss). OTTI losses attributed to other factors are reported in “Accumulated other comprehensive income (loss)” as a separate component of stockholders’ equity and accordingly have no effect on net income (loss).

     The Company recognized no OTTI losses during the three months ended September 30, 2009 and $4.1 million during the nine months ended September 30, 2009. These impairments, which the Company deemed to be other-than-temporary reductions, were attributable to credit losses and, as such, these impairments were recorded in the consolidated condensed statement of income (loss). The Company recognized realized losses from OTTIs of $16.8 million and $22.4 million for the three and nine months ended September 30, 2008, respectively. These OTTIs, which the Company deemed were other-than-temporary reductions, were due to a decline in the fair values of the investments below the Company’s cost basis resulting partially from liquidity issues experienced in the global credit and capital markets. The significant OTTI charges recognized during the three months ended September 30, 2008 resulted from certain corporate debt and collateralized debt obligation securities.

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     Upon adoption of FSP SFAS No. 115-2, which was codified into ASC Topic 320, the Company recorded a cumulative-effect adjustment for debt securities held at adoption for which an OTTI had been previously recognized. The Company recognized such tax-effected cumulative effect of initially applying this guidance as an adjustment to “Retained earnings” for $1.0 million, net of tax, with a corresponding adjustment to “Accumulated other comprehensive income.”

Reductions for

Credit losses on

Additions for OTTI

increases in cash

debt securities for

Cumulative OTTI credit

Additions to OTTI

securities where

flows expected to

which a portion of

losses recognized for

securities where no

credit losses have

Reductions for

be collected that

an OTTI was

securities still

credit losses were

been recognized

securities sold

are recognized over

recognized

held at

recognized prior to

prior to

during the period

the remaining life

in OCI at

April 1, 2009

April 1, 2009

April 1, 2009

(realized)

of the security

September 30, 2009

(In thousands)

$28,012

$

2,683

$

—

$

(4,203

)

$

(307

)

$

26,185

5. DEBT

     On April 5, 2006, HealthMarkets, LLC entered into a credit agreement, providing for a $500.0 million term loan facility and a $75.0 million revolving credit facility, which includes a $35.0 million letter of credit sub-facility. The full amount of the term loan was drawn at closing. At September 30, 2009, the Company had an aggregate of $362.5 million of indebtedness outstanding under the term loan facility, which indebtedness bore interest at the London inter-bank offered rate (“LIBOR”) plus a borrowing margin of 1.00%. The Company has not drawn on the $75.0 million revolving credit facility.

     In addition, on April 5, 2006, HealthMarkets Capital Trust I and HealthMarkets Capital Trust II (two newly formed Delaware statutory business trusts, collectively the “Trusts”) issued $100.0 million of floating rate trust preferred securities (the “Trust Securities”) and $3.1 million of floating rate common securities. The Trusts invested the proceeds from the sale of the Trust Securities, together with the proceeds from the issuance to HealthMarkets, LLC by the Trusts of the common securities, in $100.0 million principal amount of HealthMarkets, LLC’s Floating Rate Junior Subordinated Notes due June 15, 2036 (the “Notes”), of which $50.0 million principal amount accrue interest at a floating rate equal to three-month LIBOR plus 3.05% and $50.0 million principal amount accrue interest at a fixed rate of 8.367%.

     On April 29, 2004, UICI Capital Trust I (a Delaware statutory business trust, the “2004 Trust”) completed the private placement of $15.0 million aggregate issuance amount of floating rate trust preferred securities with an aggregate liquidation value of $15.0 million (the “2004 Trust Preferred Securities”). The 2004 Trust invested the $15.0 million proceeds from the sale of the 2004 Trust Preferred Securities, together with the proceeds from the issuance to the Company by the 2004 Trust of its floating rate common securities in the amount of $470,000 (the “Common Securities” and, collectively with the 2004 Trust Preferred Securities, the “2004 Trust Securities”), in an equivalent face amount of the Company’s Floating Rate Junior Subordinated Notes due 2034 (the “2004 Notes”). The 2004 Notes will mature on April 29, 2034. The 2004 Notes accrue interest at a floating rate equal to three-month LIBOR plus 3.50%, payable quarterly.

     The following table sets forth detail of the Company’s debt and interest expense:

			Interest Expense
	Principal Amount at		Three Months Ended				Nine Months Ended
	September 30,		September 30,				September 30,
	2009		2009		2008		2009		2008
	(In thousands)
2006 credit agreement:
Term loan	$	362,500	$	3,737	$	5,203	$	12,757	$	15,796
$75 Million revolver (non-use fee)		—		92		33		235		105
Trust preferred securities:
UICI Capital Trust I		15,470		165		247		544		788
HealthMarkets Capital Trust I		51,550		478		768		1,668		2,534
HealthMarkets Capital Trust II		51,550		1,102		1,102		3,271		3,283
Other:
Other interest		—		790		4,115		2,357		6,211
Amortization of financing fees		—		1,195		1,139		3,554		3,361
Total	$	481,070	$	7,559	$	12,607	$	24,386	$	32,078
Student Loan Credit Facility		78,850		—		718		866		2,842
Total	$	559,920	$	7,559	$	13,325	$	25,252	$	34,920

     The fair value of the Company’s long-term debt was $422.3 million and $317.4 million at September 30, 2009 and December 31, 2008, respectively. The fair value of such long-term debt is estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

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Student Loan Credit Facility

     At September 30, 2009 and December 31, 2008, the Company had an aggregate of $78.9 million and $86.1 million, respectively, of indebtedness outstanding under a secured student loan credit facility (the “Student Loan Credit Facility”), which indebtedness is represented by Student Loan Asset-Backed Notes issued by a bankruptcy-remote special purpose entity (the “SPE Notes”). At September 30, 2009 and December 31, 2008, indebtedness outstanding under the Student Loan Credit Facility was secured by alternative (i.e., non-federally guaranteed) student loans and accrued interest in the carrying amount of $73.6 million and $80.5 million, respectively, and by a pledge of cash, cash equivalents and other qualified investments of $5.4 million and $5.9 million, respectively.

     The SPE Notes represent obligations solely of the SPE, and not of the Company or any other subsidiary of the Company. For financial reporting and accounting purposes, the Student Loan Credit Facility has been classified as a financing as opposed to a sale. Accordingly, in connection with the financing, the Company recorded no gain on sale of the assets transferred to the SPE.

     The SPE Notes were issued by the SPE in three tranches ($50.0 million of Series 2001A-1 Notes (the “Series 2001A -1 Notes”) and $50.0 million of Series 2001A-2 Notes (the “Series 2001A-2 Notes”) issued on April 27, 2001, and $50.0 million of Series 2002A Notes (the “Series 2002A Notes”) issued on April 10, 2002). The interest rate on each series of SPE Notes resets monthly in a Dutch auction process. The Series 2001A-1 Notes and Series 2001A-2 Notes have a final stated maturity of July 1, 2036; the Series 2002A Notes have a final stated maturity of July 1, 2037. Beginning July 1, 2005, the SPE Notes were also subject to mandatory redemption in whole or in part on each interest payment date from any monies received as a recovery of the principal amount of any student loan securing payment of the SPE Notes, including scheduled, delinquent and advance payments, payouts or prepayments. During the three and nine months ended September 30, 2009, the Company made principal payments of approximately $2.2 million and $7.2 million, respectively, and during the three and nine months ended September 30, 2008, the Company made principal payments of approximately $2.3 million and $9.4 million, respectively, on the SPE notes.

6. DERIVATIVES

     HealthMarkets uses derivative instruments, specifically interest rate swaps, as part of its risk management activities to protect against the risk of changes in prevailing interest rates adversely affecting future cash flows associated with certain debt. The Company accounts for such interest rate swaps in accordance with ASC Topic 815. These swap agreements are designed as hedging instruments and the Company formally documents qualifying hedged transactions and hedging instruments, and assesses, both at inception of the contract and on an ongoing basis, whether the hedging instruments are effective in offsetting changes in cash flows of the hedged transaction. The Company uses regression analysis to assess the hedge effectiveness in achieving the offsetting cash flows attributable to the risk being hedged. In addition, the Company utilizes the hypothetical derivative methodology for the measurement of ineffectiveness. Derivative gains and losses not effective in hedging the expected cash flows will be recognized immediately in earnings. The fair values of the interest rate swaps are contained in Note 3 of Notes to Consolidated Condensed Financial Statements. In assessing the fair value, the Company takes into consideration the current interest rates and the current creditworthiness of the counterparties, as well as the current creditworthiness of the Company, as applicable.

     At September 30, 2009, the Company owned two interest rate swap agreements with an aggregate notional amount of $200 million. The terms of the swaps are 4 and 5 years beginning on April 11, 2006. Additionally, the Company owned a 3 year swap, which matured on April 11, 2009.

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     The Company employs control procedures to validate the reasonableness of valuation estimates obtained from a third party. The table below represents the fair values of the Company’s derivative assets and liabilities as of September 30, 2009 and December 31, 2008:

	Asset Derivatives					Liability Derivatives
		September 30,		December 31,			September 30,		December 31,
		2009		2008			2009		2008
	(In thousands)
	Balance Sheet					Balance Sheet
	Location	Fair Value		Fair Value		Location	Fair Value		Fair Value
Derivatives designated as hedging instruments under ASC Topic 815
Interest rate swaps		$	—	$	—	Other liabilities	$	10,714	$	13,538
Total derivatives		$	—	$	—		$	10,714	$	13,538

     The table below represents the effect of derivative instruments in hedging relationships under ASC Topic 815 on the Company’s consolidated condensed statements of income (loss) for the three and nine months ended September 30, 2009 and 2008:

	Derivative Instruments in Hedging Relationships for the Three Months Ended September 30, 2009
							Location of Gain
							(Loss) from	Amount of Interest Expense				Location of (Gain)
							Accumulated	(Income) Reclassified from				Loss Recognized in	Amount of (Gain) Loss
	Amount of Gain (Loss)						OCI into Income	Accumulated OCI into Income				Income on	Recognized in Income on
	Recognized in OCI on						(Effective	(Expense)				Derivative	Derivative
	Derivative (Effective Portion)						Portion)	(Effective Portion)				(Ineffective Portion)	(Ineffective Portion)
	2009			2008				2009		2008			2009		2008
	(In thousands)
							Interest					Investment
Interest rate swaps	$	(1,137	)	$	(901	)	expense	$	2,255	$	1,699	income	$	125	$	192

	Derivative Instruments in Hedging Relationships for the Nine Months Ended September 30, 2009
							Location of Gain
							(Loss) from	Amount of Interest Expense				Location of (Gain)
							Accumulated	(Income) Reclassified from				Loss Recognized in	Amount of (Gain) Loss
	Amount of Gain (Loss)						OCI into Income	Accumulated OCI into Income				Income on	Recognized in Income on
	Recognized in OCI on						(Effective	(Expense)				Derivative	Derivative
	Derivative (Effective Portion)						Portion)	(Effective Portion)				(Ineffective Portion)	(Ineffective Portion)
	2009			2008				2009		2008			2009		2008
	(In thousands)
							Interest					Investment
Interest rate swaps	$	(2,036	)	$	(2,881	)	expense	$	6,741	$	3,620	income	$	519	$	568

     HealthMarkets does not expect the ineffectiveness related to its hedging activity to be material to the Company’s financial results in the future. There were no components of the derivative instruments that were excluded from the assessment of hedge effectiveness.

     At September 30, 2009, accumulated other comprehensive income (loss) included a deferred after-tax net loss of $6.0 million related to the interest rate swaps of which $646,000 ($420,000 net of tax) is the remaining amount of loss associated with the previous terminated hedging relationship. This amount is expected to be reclassified into earnings in conjunction with the interest payments on the variable rate debt through April 2011, of which $448,000 is expected to be reclassified into earnings within the next twelve months.

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7. NET INCOME (LOSS) PER SHARE

     The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009		2008
	(In thousands, except per share amounts)
Income (loss) from continuing operations	$	17,395	$	(18,796	)	$	28,611	$	(44,385	)
Income (loss) from discontinued operations		55		82			106		149
Net income (loss) available to common shareholders	$	17,450	$	(18,714	)	$	28,717	$	(44,236	)
Weighted average shares outstanding, basic		29,424		29,913			29,582		30,363
Dilutive effect of stock options and other shares		648		—			601		—
Weighted average shares outstanding, dilutive		30,072		29,913			30,183		30,363
Basic earnings (losses) per share:
From continuing operations	$	0.59	$	(0.63	)	$	0.97	$	(1.46	)
From discontinued operations		0.00		0.00			0.00		0.00
Net income (loss) per share, basic	$	0.59	$	(0.63	)	$	0.97	$	(1.46	)
Diluted earnings (losses) per share:
From continuing operations	$	0.58	$	(0.63	)	$	0.95	$	(1.46	)
From discontinued operations		0.00		0.00			0.00		0.00
Net income (loss) per share, basic	$	0.58	$	(0.63	)	$	0.95	$	(1.46	)

     During the three and nine months ended September 30, 2008, 887,856 and 751,147, respectively, of common stock equivalents were anti-dilutive. Consequently the effect of their conversion into shares of common stock has been excluded from the calculation of diluted net income per share.

8. COMMITMENTS AND CONTINGENCIES

Leases

     For the three and nine months ended September 30, 2009, the Company recorded impairment expenses of approximately $2.9 million and $4.5 million, respectively, which are included in “Underwriting, acquisition and insurance expenses” on the consolidated condensed statements of income (loss). Such expenses relate to three leased facilities which the Company no longer utilizes. These costs represent impairments of leasehold improvements, as well as provisions for future remaining lease obligations. In accordance with ASC Topic 420, Exit or Disposal Cost Obligations, the provisions recorded for lease obligations on the cease-use dates were determined based on the fair value of the liability for costs that will continue to be incurred over the remaining terms of the leases without economic benefit to the Company.

     With respect to the facilities discussed above, at September 30, 2009 the Company had a liability of $2.6 million, which is included in “Other liabilities” on the consolidated condensed balance sheet. Payments toward the liability will continue through February 2013, which is the remaining term of the leases. Such liability is based on the future commitment, net of expected sublease income.

Litigation Matters

     The Company is a party to various material legal proceedings, which are described in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2008 under the caption “Item 3. Legal Proceedings.” Except as discussed below, during the three month period covered by this Quarterly Report on Form 10-Q, the Company has not been named in any new material legal proceeding, and there have been no material developments in the previously reported legal proceedings.

Litigation Matters

     Insurance Claims Litigation

     As previously disclosed, MEGA was named as a defendant in an action filed on April 8, 2003 (Lucinda Myers v. MEGA et al.) pending in the District Court of Potter County, Texas, Case No. 90826-E. Plaintiff alleged several causes of action, including breach of contract, breach of the duty of good faith and fair dealing, negligence, unfair claims settlement practices, violation of the Texas Deceptive Trade Practices-Consumer Protection Act, mental anguish, and felony destruction of records and securing execution by deception. Plaintiff sought monetary damages in an unspecified amount and declaratory relief. MEGA asserted a counterclaim alleging, among other things, a cause of action against the plaintiff

21

for rescission of the health insurance contract due to material misrepresentations in the application for insurance. On September 29, 2009, this matter was dismissed with prejudice following a settlement of this matter on terms that did not have a material adverse effect upon the Company’s consolidated financial condition or results of operations.

     Credit Insurance Litigation

     As previously disclosed, Mid-West was named as a defendant in a putative class action filed on November 7, 2008 (Cynthia Hrnyak, on behalf of herself and all others similarly situated v. Mid-West National Life Insurance Company of Tennessee) pending in the United States District Court for the Northern District of Ohio, Case No. 1:08CV2642. Plaintiff alleged several causes of action, including breach of contract, unjust enrichment, violation of the Ohio Revised Code Annotated Section 3918.08 and bad faith, arising from the alleged failure to refund unearned premium on credit insurance policies issued by Mid-West in connection with automobile loans upon early termination of coverage. Plaintiff seeks an order certifying the suit as a nationwide class action, compensatory and punitive damages and injunctive relief. The parties have agreed on the terms of a proposed settlement. On June 24, 2009, the Court signed a preliminary order approving such terms; however, any final settlement of this matter is subject to a fairness hearing scheduled for November 23, 2009. The Company believes that any final settlement of this matter will be on terms that do not have a material adverse effect on the Company’s consolidated financial condition or results of operations.

     Fair Labor Standards Act Agent Litigation

     As previously disclosed, HealthMarkets is a party to three separate collective actions filed under the Federal Fair Labor Standards Act (“FLSA”) (Sherrie Blair et al., v. Cornerstone America et al., filed on May 26, 2005 in the United States District Court for the Northern District of Texas, Fort Worth Division, Civil Action No. 4:04-CV-333-Y; Norm Campbell et al., v. Cornerstone America et al., filed on May 26, 2005 in the United States District Court for the Northern District of Texas, Fort Worth Division, Civil Action No. 4:05-CV-334-Y; and Joseph Hopkins et al., v. Cornerstone America et al., filed on May 26, 2005 in the United States District Court for the Northern District of Texas, Fort Worth Division, Civil Action No. 4:05-CV-332-Y). On December 9, 2005, the Court consolidated all of the actions and made the Hopkins suit the lead case. In each of the cases, plaintiffs, for themselves and on behalf of others similarly situated, seek to recover unpaid overtime wages alleged to be due under section 16(b) of the FLSA. The complaints allege that the named plaintiffs (consisting of former district sales leaders and regional sales leaders in the Cornerstone America independent agent hierarchy) were employees within the meaning of the FLSA and are therefore entitled, among other relief, to recover unpaid overtime wages under the terms of the FLSA. The parties filed motions for summary judgment on August 1, 2006. On March 30, 2007, the Court denied HealthMarkets and Mid-West’s motion and granted the plaintiffs’ motion. In October 2008, the United States Fifth Circuit Court of Appeals affirmed the trial court’s ruling in favor of plaintiffs on the issue of their status as employees under the FLSA and remanded the case to the trial court for further proceedings. On March 23, 2009, the United States Supreme Court denied HealthMarkets’ and Mid-West’s petition for writ of certiorari. A court-approved notice to prospective participants in the collective action was mailed in April 2008, providing prospective participants with the ability to file “opt-in” elections. Discovery in this matter is ongoing. This matter has been scheduled for trial on March 15, 2010. The Company is in the process of evaluating the impact that these matters may have on its relationships with agents. At present, it is unclear what effect these matters may have on the Company’s consolidated financial condition or results of operations.

     Commonwealth of Massachusetts Litigation

     As previously disclosed, on October 23, 2006, MEGA was named as a defendant in an action filed by the Massachusetts Attorney General on behalf of the Commonwealth of Massachusetts (Commonwealth of Massachusetts v. The MEGA Life and Health Insurance Company), pending in the Superior Court of Suffolk County, Massachusetts, Case Number 06-4411-F. Plaintiff alleged that MEGA engaged in unfair and deceptive practices by issuing policies that contained exclusions of, or otherwise failed to cover, certain benefits mandated under Massachusetts law. In addition, plaintiff alleged that MEGA violated Massachusetts laws that (i) require health insurance policies to provide coverage for outpatient contraceptive services to the extent the policies provide coverage for other outpatient services and (ii) limit exclusions of coverage for pre-existing conditions. On August 22, 2007, the Attorney General filed an amended complaint which added HealthMarkets, Inc. and Mid-West (together with MEGA, the “Defendants”) to this action and broadened plaintiff’s original allegations. The amended complaint included allegations that the Defendants engaged in unfair and deceptive trade practices and illegal association membership practices, imposed illegal waiting periods and restrictions on coverage of pre-existing conditions and failed to comply with Massachusetts law regarding mandatory benefits.

     On August 31, 2009, the Defendants and the Commonwealth of Massachusetts agreed to settle this matter by executing a Final Judgment by Consent (the “Consent”), which the Court approved on September 3, 2009. By entering into the Consent, the Defendants do not admit to any violation of law or liability. The settlement terms include a collective total

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payment of $15.0 million, subject to certain credits for payments made under the August 26, 2009 Regulatory Settlement Agreement with the Massachusetts Division of Insurance (the “Settlement Agreement”) described below in “Regulatory Matters.” Each Defendant will pay $5.0 million, comprised of (i) $1.0 million to be paid as civil penalties (the “Penalties Payment”); (ii) $250,000 to be paid as attorneys’ fees and costs; and (iii) $3.75 million to be paid for consumer compensatory damages and other consumer relief (the “Consumer Relief Payments”). The Consent acknowledges the obligations of MEGA and Mid-West under the Settlement Agreement to pay $2.0 million, together with an as-yet undetermined sum pursuant to a claims reassessment process. The Consent provides credits as follows: (i) the $2.0 million payment under the Settlement Agreement will be credited towards the $2.0 million in Penalties Payments that MEGA and Mid-West would otherwise be required to collectively pay and (ii) based on amounts to be paid by MEGA and Mid-West under the Settlement Agreement for claims reassessment, the Attorney General will provide a preliminary credit of $400,000 toward the Consumer Relief Payments due collectively from MEGA and Mid-West. If the total amount of such claims reassessment payments is less than $400,000, MEGA and Mid-West must pay the difference. If the total amount of such claims reassessment payments is more than $400,000, the Attorney General must pay the amount which exceeds $400,000 up to a maximum payment of $600,000. Defendants will provide the Attorney General with information regarding actions taken, since February 1, 2007, to remediate claims associated with certain mandated benefits and policy exclusion limits. In addition to the payments described above, if the total amount of payments to remediate such claims since February 1, 2007 is less than $2.2 million, the Defendants must pay the difference.

     The Consent also imposes upon the Defendants certain non-monetary obligation. Effective October 1, 2009, for a period of five years from the date of written notice to customers (which notice must be given on or before June 30, 2011), the Consent prohibits MEGA and Mid-West, or any insurance subsidiary of the Company, from writing or issuing Health Plans (as defined under applicable Massachusetts law) in Massachusetts. The Consent also requires the Defendants to provide customers with written notice regarding restrictions on renewals on or before June 30, 2011; requires disclosure to customers regarding medical loss ratio of the MEGA and Mid-West Health Plans for the calendar years 2008, 2009 and 2010 and whether the products qualify as Creditable Coverage (as defined under applicable Massachusetts law); and imposes a number of injunctive terms, copies of which must be served on persons who have served as insurance producers of Defendants since January 1, 2009. To the extent that the Defendants sell health benefit plans of a third party carrier, the Consent further requires the Defendants to implement revised agent training materials and agent oversight processes and provide reporting to the Commonwealth of Massachusetts regarding compliance with performance standards under the previously reported May 2008 regulatory settlement agreement resolving matters arising from the multi-state market conduct examination of MEGA, Mid-West and Chesapeake (the “Insurance Companies”).

     General Litigation Matters

     The Company and its subsidiaries are parties to various other pending and threatened legal proceedings, claims, demands, disputes and other matters arising in the ordinary course of business, including some asserting significant liabilities arising from claims, demands, disputes and other matters with respect to insurance policies, relationships with agents, relationships with former or current employees and other matters. From time to time, some such matters, where appropriate, may be the subject of internal investigation by management, the Board of Directors, or a committee of the Board of Directors.

     Given the expense and inherent risks and uncertainties of litigation, we regularly evaluate litigation matters pending against us, including those described in Note 16 of Notes to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, to determine if settlement of such matters would be in the best interests of the Company and its stockholders. The costs associated with any such settlement could be substantial and, in certain cases, could result in an earnings charge in any particular quarter in which we enter into a settlement agreement. Although we have recorded litigation reserves which represent our best estimate on probable losses, both known and incurred but not reported, our recorded reserves might prove to be inadequate to cover an adverse result or settlement for extraordinary matters. Therefore, costs associated with the various litigation matters to which we are subject and any earnings charge recorded in connection with a settlement agreement could have a material adverse effect on our consolidated results of operations in a period, depending on the results of our operations for the particular period.

Regulatory Matters

Massachusetts Division of Insurance

     As previously disclosed, in December 2006, the Insurance Companies entered into a regulatory settlement agreement with the Massachusetts Division of Insurance (the “Division”) following two prior limited scope market conduct examinations, the first pertaining to operations, complaint handling, marketing and sales, certificate holder services, underwriting and rating, and the second pertaining to claims handling practices in small group health insurance. The

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Division has monitored the Insurance Companies’ activities and implementation of the regulatory settlement agreement requirements and, in January 2009, commenced a re-examination of certain key provisions of the regulatory settlement agreement.

     On August 26, 2009, the Insurance Companies and the Division entered into the Settlement Agreement to resolve all outstanding matters stemming from the 2006 regulatory settlement agreement and to resolve all issues identified in subsequent reviews and/or re-examinations conducted through February 2009. By entering into the Settlement Agreement, the Insurance Companies do not admit, deny or concede any actual or potential fault, wrongdoing, liability or violation of law in connection with any facts or claims that have been or could have been alleged against them.

     The settlement terms include payment of a $2.0 million fee; discontinuance of voluntary sales of health benefit plans to eligible individuals and small businesses in the Massachusetts market; and agreement not to offer any new health benefit plans in Massachusetts on or after October 1, 2009, for a period of three years. The Insurance Companies may continue to offer ancillary vision, dental and related specialty plans that are not considered “health benefit plans” under Massachusetts law, and may continue to renew all existing health benefit plans and to honor all existing contracts pursuant to applicable statutory and regulatory requirements. The terms of the Settlement Agreement also require referral of all producer disciplinary actions to the Division’s Special Investigations Unit for a two year period; a targeted customer outreach notifying certain insureds of their right to participate in a claims reassessment process; monthly reporting to the Division regarding the claims reassessment process and Special Investigation Unit referrals; and continued compliance with the requirements of the December 2006 regulatory settlement agreement as such requirements pertain to the business that the Insurance Companies continue to issue and/or renew after the Settlement Agreement is executed. The reasonable costs of the Division in monitoring compliance with the Settlement Agreement will be paid by the Insurance Companies. The Division may impose an additional penalty of up to $3.0 million if the Insurance Companies fail to comply with the requirements of the Settlement Agreement.

     General Regulatory Matters

     The Company’s insurance subsidiaries are subject to various other pending market conduct or other regulatory examinations, inquiries or proceedings arising in the ordinary course of business. As previously disclosed, these matters include the multi-state market conduct examination of the Insurance Companies for the examination period January 1, 2000 through December 31, 2005. Reference is made to the discussion of these and other matters contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 under the caption “Item 3 — Legal Proceedings” and in Note 16 of Notes to Consolidated Financial Statements included in such report. State insurance regulatory agencies have authority to levy significant fines and penalties and require remedial action resulting from findings made during the course of such matters. Market conduct or other regulatory examinations, inquiries or proceedings could result in, among other things, changes in business practices that require the Company to incur substantial costs. Such results, individually or in combination, could injure our reputation, cause negative publicity, adversely affect our debt and financial strength ratings, place us at a competitive disadvantage in marketing or administering our products or impair our ability to sell insurance policies or retain customers, thereby adversely affecting our business, and potentially materially adversely affecting the results of operations in a period, depending on the results of operations for the particular period. Determination by regulatory authorities that we have engaged in improper conduct could also adversely affect our defense of various lawsuits.

9. SEGMENT INFORMATION

     The Company operates three business segments, the Insurance segment, Corporate and Disposed Operations. The Insurance segment includes the Company’s SEA Division, Medicare and Other Insurance. Corporate includes investment income not allocated to the Insurance segment, realized gains or losses, interest expense on corporate debt, the Company’s Student Loans business, general expenses relating to corporate operations, variable non-cash stock-based compensation and operations that do not constitute reportable operating segments. Disposed Operations includes the former Life Insurance Division, former Star HRG Division and former Student Insurance Division.

     Allocations of investment income and certain general expenses are based on a number of assumptions and estimates, and the business segments reported operating results would change if different allocation methods were applied. Certain assets are not individually identifiable by segment and, accordingly, have been allocated by formulas. Segment revenues include premiums and other policy charges and considerations, net investment income, fees and other income. Management does not allocate income taxes to segments. Transactions between reportable segments are accounted for under respective agreements, which provide for such transactions generally at cost.

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     Revenue from continuing operations, income (loss) from continuing operations before income taxes, and assets by operating segment are set forth in the tables below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(In thousands)
Revenue from continuing operations:
Insurance:
Self-Employed Agency Division	$	259,231		$	310,944		$	815,819		$	949,368
Medicare Division		1,253			26,519			1,254			72,537
Other Insurance Division		1,396			6,576			7,350			22,487
Total Insurance		261,880			344,039			824,423			1,044,392
Corporate		5,001			(6,985	)		8,997			3,859
Intersegment Eliminations		(122	)		(38	)		(122	)		(129	)
Total revenue excluding disposed operations		266,759			337,016			833,298			1,048,122
Disposed Operations		20			54			71			47,621
Total revenue from continuing operations	$	266,779		$	337,070		$	833,369		$	1,095,743

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(In thousands)
Income (loss) from continuing operations before federal income taxes:
Insurance:
Self-Employed Agency Division	$	40,774		$	16,374		$	105,224		$	47,119
Medicare Division		2,584			(3,077	)		(7,743	)		(15,381	)
Other Insurance Division		739			(1,348	)		3,153			2,893
Total Insurance		44,097			11,949			100,634			34,631
Corporate		(16,866	)		(36,556	)		(53,285	)		(81,701	)
Total operating income (loss) excluding disposed operations		27,231			(24,607	)		47,349			(47,070	)
Disposed Operations		(192	)		(3,508	)		(2,282	)		(23,036	)
Total income (loss) from continuing operations before taxes	$	27,039		$	(28,115	)	$	45,067		$	(70,106	)

     Assets by operating segment at September 30, 2009 and December 31, 2008 are set forth in the table below:

	September 30,		December 31,
	2009		2008
	(In thousands)
Assets:
Insurance:
Self-Employed Agency Division	$	732,517	$	822,966
Medicare Division		8,438		18,328
Other Insurance Division		1,326		20,985
Total Insurance		742,281		862,279
Corporate		762,555		667,617
Total assets excluding assets of Disposed Operations and assets held for sale		1,504,836		1,529,896
Disposed Operations		390,012		386,817
Total assets	$	1,894,848	$	1,916,713

     The assets of Disposed Operations primarily represent reinsurance recoverable associated with the Coinsurance Agreements entered into with Wilton. See Note 2 of Notes to Consolidated Condensed Financial Statements.

10. AGENT AND EMPLOYEE STOCK PLANS

Agent Stock Accumulation Plans

     The Company sponsors a series of stock accumulation plans (the “Agent Plans”) established for the benefit of the independent contractor insurance agents and independent contractor sales representatives associated with the Company. With respect to references to our sales agents as independent contractors, see discussion of Joseph Hopkins et al., v. Cornerstone America et al., Fair Labor Standards Act Agent Litigation, in Note 8 of Notes to Consolidated Condensed Financial Statements included herein and/or in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2008 under the caption “Item 3. Legal Proceedings.”

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     The Company estimates its current liability for unvested matching credits based on (i) the number of unvested credits, (ii) the prevailing “fair market value” (as determined by the Company’s Board of Directors since the acquisition of the Company by affiliates of a group of private equity investors) of the Class A-2 common stock ($19.95 at September 30, 2009 and $19.00 at December 31, 2008) and (iii) an estimate of the percentage of the vesting period that has elapsed. At September 30, 2009, the Company recorded a liability for 1,006,184 unvested matching credits payable under the Agent Plans of $12.8 million. At December 31, 2008, the Company recorded a liability for 1,166,663 unvested matching credits payable under the Agent Plans of $16.2 million, of which 362,711 vested in January 2009. Upon vesting, the Company decreased additional paid-in capital by $5.8 million, decreased treasury shares by $12.7 million and decreased other liabilities by $6.9 million. The liability is recorded in “Other liabilities” on the consolidated condensed balance sheets.

     The Company accounts for the Company-match feature of its Agent Plans by recognizing compensation expense over the vesting period in an amount equal to the fair market value of vested shares at the date of their vesting and distribution to the participants. Additionally, changes in the liability from one period to the next are accounted for as either an increase in, or a decrease to, compensation expense. The following table sets forth the total compensation expense, recorded in “Underwriting, acquisition and insurance expenses,” and tax benefit associated with the Company’s Agent Plans for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
	(In thousands)
SEA and Medicare Division stock-based compensation expense	$	989	$	1,230		$	3,977		$	3,833
Corporate variable non-cash stock-based compensation (benefit) expense		440		(607	)		(386	)		(3,825	)
Total Agent Plan compensation (benefit) expense		1,429		623			3,591			8
Related Tax Benefit		500		218			1,257			3
Net expense included in financial results	$	929	$	405		$	2,334		$	5

     Employee Plans

     As previously reported, on September 8, 2009, the Company entered into new employment agreements with certain executive officers of the Company. In connection with their entry into these new employment agreements, the executives agreed to forfeit 1,315,000 stock options previously granted to them and the Company granted 810,640 new stock options and 836,502 new restricted share awards. These equity awards transactions will generally be void if the Company does not obtain shareholder approval of the required amendments to the Amended and Restated 2006 Management Option Plan by the earlier of a change of control of the Company or December 31, 2009.

11. TRANSACTIONS WITH RELATED PARTIES

     As of September 30, 2009, affiliates of The Blackstone Group, Goldman Sachs Capital Partners and DLJ Merchant Banking Partners (the “Private Equity Investors”) held 56.0%, 23.0%, and 11.5%, respectively, of the Company’s outstanding equity securities. Certain members of the Board of Directors of the Company are affiliated with the Private Equity Investors.

     Each of the Private Equity Investors provides to the Company ongoing monitoring, advisory and consulting services, for which the Company pays each of The Blackstone Group, Goldman Sachs Capital Partners and DLJ Merchant Banking Partners an annual monitoring fee in an amount equal to $7.7 million, $3.2 million and $1.6 million, respectively. Aggregate annual monitoring fees in the amount of $12.5 million for 2009 were paid in full to the Private Equity Investors in January 2009. The Company has expensed $9.4 million through September 30, 2009.

     On April 20, 2007, the Company’s Board of Directors approved a $10.0 million investment by Mid-West in Goldman Sachs Real Estate Partners, L.P., a commercial real estate fund managed by an affiliate of Goldman Sachs Capital Partners. The Company has committed such investment to be funded over a series of capital calls. During the first quarter of 2009, the amount of the Company’s original commitment was reduced by $2.0 million, to $8.0 million. During the nine months ended September 30, 2009, the Company funded a $600,000 capital call to such investment. As of September 30, 2009, the Company has made contributions totaling $3.9 million, and has a remaining commitment to Goldman Sachs Real Estate Partners, L.P. of $4.1 million.

     On April 20, 2007, the Company’s Board of Directors approved a $10.0 million investment by MEGA in Blackstone Strategic Alliance Fund L.P., a hedge fund of funds managed by an affiliate of The Blackstone Group. The Company has committed such investment to be funded over a series of capital calls. During the nine months ended September 30, 2009, the Company received $771,000 in capital distributions from Blackstone Strategic Alliance Fund L.P. During the nine

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months ended September 30, 2009, the Company funded a $1.4 million capital call to such investment. As of September 30, 2009, the Company has made contributions totaling $5.8 million, and has a remaining commitment to Blackstone Strategic Alliance Fund L.P. of $4.2 million.

     Pursuant to the terms of an engagement letter dated June 2, 2009, Blackstone Advisory Services L.P. agreed to provide certain financial advisory services to the Company in connection with opportunities presented by the launch of its Insphere Insurance Solutions business. The Company has agreed to pay Blackstone Advisory Services a fee in the amount of $2.0 million contingent upon the completion of transaction(s) related to such opportunities.

     In connection with the completion of the transactions contemplated by the Agreement for Reinsurance and Purchase and Sale of Assets dated June 12, 2008 pursuant to which Wilton Reassurance Company or its affiliates acquired substantially all of the business of the Company’s Life Insurance Division, the Company recognized transaction fees payable to affiliates of The Blackstone Group, Goldman Sachs Capital Partners and DLJ Merchant Banking Partners of $1.2 million, $479,000 and $240,000, respectively, which fees were paid in full on October 27, 2008. See Note 2 of Notes to Consolidated Condensed Financial Statements for additional information regarding the sale of the Company’s former Life Insurance Division.

     From time to time, the Company may obtain goods or services from parties in which the Private Equity Investors hold an equity interest. For example, in 2009 and 2008, the Company held several events at a hotel in which an affiliate of The Blackstone Group holds an equity interest. During the three and nine months ended September 30, 2009, in connection with these events, the Company paid the hotel approximately $1.2 million and $3.8 million, respectively and during both the three and nine months ended September 30, 2008, the Company paid the hotel approximately $0 and $1.6 million, respectively. Employees of the Company traveling on business may also, from time to time, receive goods or services from entities in which the Private Equity Investors hold an equity interest. The Company believes that the terms of all such transactions are and have been on terms no less favorable to the Company than could have been obtained in arms’ length transactions with unrelated third parties.

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements Regarding Forward-Looking Statements

     In this report, unless the context otherwise requires, the terms “Company,” “HealthMarkets,” “we,” “us,” or “our” refer to HealthMarkets, Inc. and its subsidiaries. This report and other documents or oral presentations prepared or delivered by and on behalf of the Company contain or may contain “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements based upon management’s expectations at the time such statements are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on the forward-looking statements. All statements, other than statements of historical information provided or incorporated by reference herein, may be deemed to be forward-looking statements. Without limiting the foregoing, when used in written documents or oral presentations, the terms “anticipate,” “believe,” “estimate,” “expect,” “may,” “objective,” “plan,” “possible,” “potential,” “project,” “will” and similar expressions are intended to identify forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could impact the Company’s business and financial prospects include, but are not limited to, those discussed under the caption “Item 1 Business,” “Item 1A. Risk Factors” and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those discussed from time to time in the Company’s various filings with the Securities and Exchange Commission or in other publicly disseminated written documents.

Introduction

     The Company operates three business segments, the Insurance segment, Corporate and Disposed Operations. The Insurance segment includes the Company’s Self-Employed Agency Division (“SEA”), the Medicare Division and the Other Insurance Division. Corporate includes investment income not allocated to the Insurance segment, realized gains or losses, interest expense on corporate debt, the Company’s Student Loans business, general expenses relating to corporate operations, variable non-cash stock-based compensation and operations that do not constitute reportable operating segments. Disposed Operations includes the former Life Insurance Division, former Star HRG Division and former Student Insurance Division.

     Through our SEA Division, we offer a broad range of health insurance products for individuals, families, the self-employed and small businesses. Our plans are designed to accommodate individual needs and include basic hospital-medical expense plans, plans with preferred provider organization features, catastrophic hospital expense plans, as well as other supplemental types of coverage.

     We market these products to the self-employed and individual markets through independent agents contracted with our insurance subsidiaries. The Company has approximately 1,000 independent writing agents per week in the field selling health insurance in 41 states and the District of Columbia.

     In late 2007, the Company expanded into the Medicare market by offering a new portfolio of Medicare Advantage Private-Fee-for-Service Plans – called HealthMarkets Care Assured Plans^SM – in selected markets in 29 states with calendar year coverage effective for January 1, 2008. In July 2008, the Company determined it would not continue to participate in the Medicare business after the 2008 plan year. In connection with its exit from the Medicare market, the Company incurred employee termination costs of $371,000 and asset impairment charges of $1.1 million associated with technology assets unique to its Medicare business in the third quarter of 2008. Additionally, during the nine months ended September 30, 2008, the Company recognized a $4.9 million expense, recorded in “Underwriting, acquisition and insurance expenses,” associated with a minimum volume guarantee fee related to the Company’s contract with a third party administrator. This minimum volume guarantee fee was based on a minimum number of member months for the three year term of the contract covering calendar years 2008 through 2010. During 2009, the Company continued to fulfill its remaining obligations under the 2008 calendar year Medicare contracts.

Sale of ZON-Re

     The Company’s Other Insurance Division consisted of ZON-Re USA, LLC (“ZON-Re”), an 82.5%-owned subsidiary, which underwrote, administered and issued accidental death, accidental death and dismemberment (“AD&D”), accident medical, and accident disability insurance products, both on a primary and on a reinsurance basis. The Company

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distributed these products through professional reinsurance intermediaries and a network of independent commercial insurance agents, brokers and third party administrators.

     On June 5, 2009, HealthMarkets, LLC, entered into an Acquisition Agreement for the sale of its 82.5% membership interest in ZON-Re to Venue Re, LLC (“Venue Re”). The transaction contemplated by the Acquisition Agreement closed effective June 30, 2009. The sale of the Company’s membership interest in ZON-Re resulted in a total pre-tax loss of $489,000 for the nine months ended September 30, 2009. The Company will continue to reflect the existing insurance business in its financial statements to final termination of substantially all liabilities.

Insphere Insurance Solutions

     During the second quarter of 2009, the Company formed Insphere Insurance Solutions, Inc. (“Insphere”), a Delaware corporation and a wholly-owned subsidiary of HealthMarkets, LLC. Insphere is an authorized insurance agency in 50 states and the District of Columbia. Insphere will serve as an insurance agency specializing in small business and middle-income market life, health, long-term care and retirement insurance, and will distribute products underwritten by the Company’s insurance subsidiaries, as well as non-affiliated insurance companies.

     Insphere has completed marketing agreements with a number of life, health, long-term care and retirement insurance carriers. Those carriers include, but are not limited to, ING, Minnesota Life Insurance Company, John Hancock and United Healthcare’s Golden Rule Insurance Company. Specifically, effective July 2009, Insphere completed a marketing agreement with ING, a leading global banking and insurance company, to distribute ING’s term life and universal life insurance products. Insphere began marketing ING insurance policies in October. In September 2009, Insphere completed a marketing agreement with Minnesota Life Insurance Company, to sell selected life insurance products, and with John Hancock, to sell selected long-term care insurance products. In October 2009, Insphere began marketing health insurance plans for United Healthcare’s Golden Rule Insurance Company. These plans will first be offered through Insphere in Alabama, Arizona, Delaware, Florida, Illinois, Maryland, North Carolina, Tennessee, Virginia, Wisconsin and Washington, D.C., after which time we expect that sales will be expanded into the other markets in which United Healthcare’s personal health plans are currently available.

Exit from Life Insurance Division Business

     On September 30, 2008 (the “Closing Date”), HealthMarkets, LLC completed the transactions contemplated by the Agreement for Reinsurance and Purchase and Sale of Assets dated June 12, 2008 (the “Master Agreement”). Pursuant to the Master Agreement, Wilton Reassurance Company or its affiliates (“Wilton”) acquired substantially all of the business of the Company’s Life Insurance Division, which operated through The MEGA Life and Health Insurance Company (“MEGA”), Mid-West National Life Insurance Company of Tennessee (“Mid-West”) and The Chesapeake Life Insurance Company (“Chesapeake”) (collectively the “Ceding Companies”), and all of the Company’s 79% equity interest in each of U.S. Managers Life Insurance Company, Ltd. and Financial Services Reinsurance, Ltd. As part of the transaction, under the terms of the Coinsurance Agreements (the “Coinsurance Agreements”) entered into with each of the Ceding Companies on the Closing Date, Wilton agreed, effective July 1, 2008 (the “Coinsurance Effective Date”), to reinsure on a 100% coinsurance basis substantially all of the insurance policies associated with the Company’s Life Insurance Division (the “Coinsured Policies”). The reinsurance transaction resulted in a pre-tax loss of $17.6 million for the nine months ended September 30, 2008, of which $13.0 million was recorded as an impairment to the Life Insurance Division’s deferred acquisition costs and $4.6 million was recorded in “Realized gains, net” in the Company’s consolidated condensed statement of income (loss).

     In connection with these transactions, the Company incurred $6.3 million in investment banker fees and legal fees recorded as “Other expenses” on the Company’s consolidated condensed statement of income (loss), of which $5.0 million was incurred during the three months ended September 30, 2008. The Company also incurred $6.4 million of employee and lease termination costs and other costs recorded in “Underwriting, acquisition and insurance expenses,” of which $3.2 million was incurred during the three months ended September 30, 2008 (see Note 11 of Notes to Consolidated Condensed Financial Statements). In addition, the Company incurred interest expense of $3.0 million during the third quarter of 2008 associated with the use of the cash transferred to Wilton during the period from the Coinsurance Effective Date to the Closing Date. Lastly, the Ceding Companies wrote-off deferred acquisition costs of $101.1 million, representing all of the deferred acquisition costs associated with the Coinsured Policies subject to the transaction, which is included in the realized loss on the transaction. This write-off of deferred acquisition costs correspondingly reduced the related deferred tax assets by $36.7 million at September 30, 2008.

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Student Loans

     In connection with the execution of the Master Agreement, HealthMarkets, LLC entered into a definitive Stock Purchase Agreement (as amended, the “Stock Purchase Agreement”) pursuant to which Wilton agreed to purchase the Company’s student loan funding vehicles, CFLD-I, Inc. (“CFLD-I”) and UICI Funding Corp. 2 (“UFC2”), and the related student association. Prior to June 30, 2009, the Company had presented the assets and liabilities of CFLD-I and UFC2 as held for sale on its consolidated condensed balance sheet and included the results of operations of CFLD-I and UFC2 in discontinued operations on its consolidated condensed statement of income (loss). As the closing of the Stock Purchase Agreement did not occur, the Company reclassified the assets and liabilities of CFLD-I and UFC2 out of held for sale and reclassified the results of operations from discontinued operations to continuing operations for all periods presented. Such reclassification in the condensed consolidated statement of income (loss) resulted in an increase in “Loss from continuing operations” of $12,000 and $5.3 million for the three and nine months ended September 30, 2008, respectively.

     In accordance with the terms of the Coinsured Agreements, Wilton will fund student loans; provided, however, that Wilton will not be required to fund any student loan that would cause the aggregate par value of all such loans funded by Wilton, following the Coinsurance Effective Date, to exceed $10.0 million. As of September 30, 2009, approximately $1.4 million of student loans have been funded under this agreement.

Results of Operations

     The table below sets forth certain summary information about the Company’s operating results for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
			(In thousands)
REVENUE
Health premiums	$	239,560	$	315,765		$	753,203		$	959,068
Life premiums and other considerations		487		673			1,829			37,189
		240,047		316,438			755,032			996,257
Investment income		10,873		16,244			32,224			55,607
Other income		15,064		19,710			47,841			62,440
Other-than-temporary impairment losses		—		(16,785	)		(4,078	)		(22,366	)
Realized gains, net		795		1,463			2,350			3,805
		266,779		337,070			833,369			1,095,743
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses		126,042		211,500			435,721			661,795
Underwriting, acquisition, and insurance expenses		84,191		113,862			263,467			381,846
Other expenses		21,948		26,498			63,862			87,288
Interest expense		7,559		13,325			25,252			34,920
		239,740		365,185			788,302			1,165,849
Income (loss) from continuing operations before income taxes		27,039		(28,115	)		45,067			(70,106	)
Federal income taxes		9,644		(9,319	)		16,456			(25,721	)
Income (loss) from continuing operations		17,395		(18,796	)		28,611			(44,385	)
Income (loss) from discontinued operations, net		55		82			106			149
Net income (loss)	$	17,450	$	(18,714	)	$	28,717		$	(44,236	)

Business Segments

     The Company operates three business segments, the Insurance segment, Corporate and Disposed Operations. The Insurance segment includes the Company’s SEA Division, Medicare and Other Insurance. Corporate includes investment income not allocated to the Insurance segment, realized gains or losses, interest expense on corporate debt, the Company’s Student Loans business, general expenses relating to corporate operations, variable non-cash stock-based compensation and operations that do not constitute reportable operating segments. Disposed Operations includes the former Life Insurance Division, former Star HRG Division and former Student Insurance Division.

     Allocations of investment income and certain general expenses are based on a number of assumptions and estimates, and the business segments reported operating results would change if different allocation methods were applied. Certain assets are not individually identifiable by segment and, accordingly, have been allocated by formulas. Segment revenues include premiums and other policy charges and considerations, net investment income, fees and other income. Management does not allocate income taxes to segments. Transactions between reportable segments are accounted for under respective agreements, which provide for such transactions generally at cost.

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     Revenue and income (loss) from continuing operations before federal income taxes (“Operating income”) for each of the Company’s business segments and divisions were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
				(In thousands)
Revenue from continuing operations:
Insurance:
Self-Employed Agency Division	$	259,231		$	310,944		$	815,819		$	949,368
Medicare Division		1,253			26,519			1,254			72,537
Other Insurance Division		1,396			6,576			7,350			22,487
Total Insurance		261,880			344,039			824,423			1,044,392
Corporate		5,001			(6,985	)		8,997			3,859
Intersegment Eliminations		(122	)		(38	)		(122	)		(129	)
Total revenue excluding disposed operations		266,759			337,016			833,298			1,048,122
Disposed Operations		20			54			71			47,621
Total revenue from continuing operations	$	266,779		$	337,070		$	833,369		$	1,095,743

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
				(In thousands)
Income (loss) from continuing operations before federal income taxes:
Insurance:
Self-Employed Agency Division	$	40,774		$	16,374		$	105,224		$	47,119
Medicare Division		2,584			(3,077	)		(7,743	)		(15,381	)
Other Insurance Division		739			(1,348	)		3,153			2,893
Total Insurance		44,097			11,949			100,634			34,631
Corporate		(16,866	)		(36,556	)		(53,285	)		(81,701	)
Total operating income (loss) excluding disposed operations		27,231			(24,607	)		47,349			(47,070	)
Disposed Operations		(192	)		(3,508	)		(2,282	)		(23,036	)
Total income (loss) from continuing operations before taxes	$	27,039		$	(28,115	)	$	45,067		$	(70,106	)

Insurance

     Set forth below is certain summary financial and operating data for the Company’s Insurance segment for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(Dollars in thousands)
Revenue
Earned premium revenue	$	240,046		$	316,370		$	755,031		$	960,011
Investment income		6,247			8,064			20,035			21,102
Other income		15,587			19,605			49,357			63,279
Total revenue		261,880			344,039			824,423			1,044,392
Expenses
Benefit expenses		125,963			211,391			433,929			629,797
Underwriting and policy acquisition expenses		83,618			111,144			263,293			347,238
Other expenses		8,202			9,555			26,567			32,726
Total expenses		217,783			332,090			723,789			1,009,761
Operating income	$	44,097		$	11,949		$	100,634		$	34,631
Other operating data:
Loss ratio		52.5	%		66.8	%		57.5	%		65.6	%
Expense ratio		34.8	%		35.1	%		34.9	%		36.2	%
Combined ratio		87.3	%		101.9	%		92.4	%		101.8	%

     The Insurance segment includes the Company’s SEA Division, the Medicare Division and Other Insurance Division. Management reviews results of operations for the Insurance segment by reviewing each of the above mentioned divisions.

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Self- Employed Agency Division

     Set forth below is certain summary financial and operating data for the Company’s SEA Division for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
				(Dollars in thousands)
Revenue
Earned premium revenue	$	237,937		$	283,746		$	748,468		$	866,810
Investment income		6,311			7,485			20,510			21,827
Other income		14,983			19,713			46,841			60,731
Total revenue		259,231			310,944			815,819			949,368
Benefits and Expenses
Benefit expenses		127,545			182,890			425,330			555,376
Underwriting and policy acquisition expenses		82,710			102,125			258,698			314,146
Other expenses		8,202			9,555			26,567			32,727
Total expenses		218,457			294,570			710,595			902,249
Operating income	$	40,774		$	16,374		$	105,224		$	47,119
Other operating data:
Loss ratio		53.6	%		64.5	%		56.8	%		64.1	%
Expense ratio		34.8	%		36.0	%		34.6	%		36.2	%
Combined ratio		88.4	%		100.5	%		91.4	%		100.3	%
Average number of writing agents in period		963			1,232			1,059			1,319
Submitted annualized volume	$	75,633		$	110,883		$	277,864		$	353,884

Loss Ratio. The loss ratio is defined as benefits expense as a percentage of earned premium revenue.

Expense Ratio. The expense ratio is defined as underwriting, acquisition and insurance expenses as a percentage of earned premium revenue.

Submitted Annualized Volume. Submitted annualized premium volume in any period is the aggregate annualized premium amount associated with health insurance applications submitted by the Company’s agents in such period for underwriting by the Company’s insurance subsidiaries.

   Three Months Ended September 30, 2009 versus September 30, 2008

     The SEA Division reported earned premium revenue of $237.9 million in the three months ended September 30, 2009 as compared with $283.7 million for 2008, a decrease of $45.8 million or 16%. The decrease is primarily due to a decline in submitted annualized premium volume. Submitted annualized premium volume reported for the three months ended September 30, 2009 was $75.6 million compared to $110.9 million for 2008, a decrease of $35.3 million, which is attributable to the decrease in number of writing agents compared to the three months ended September 30, 2008 and the delay in the rollout of the new products.

     The SEA Division reported operating income for the three months ended September 30, 2009 of $40.8 million compared to operating income of $16.4 million in the corresponding period of 2008. Operating income in the SEA Division as a percentage of earned premium revenue (i.e., operating margin) for the three months ended September 30, 2009 was 17.1% compared to the operating margin of 5.8% in the corresponding 2008 period. The increase in operating margin during the current year period is generally attributable to a decrease in loss ratio which reflects better claims experience on both our new products, as well as our legacy products.

     Underwriting, acquisition and insurance expenses decreased by $19.4 million, or 19% to $82.7 million during 2009 from $102.1 million in the corresponding period of 2008. This decrease reflects the variable nature of commission expenses and premium taxes included in these amounts which generally vary in proportion to earned premium revenue, as well as the Company’s determination to defer certain underwriting and policy issuance costs in 2009. Additionally, the Company initiated certain cost reduction programs beginning in the fourth quarter of 2008. These reductions are partially offset by costs incurred with the formation of Insphere Insurance Solutions.

     Other income and other expenses both decreased in the current period compared to the prior year period. Other income largely consists of fee and other income received for sales of association memberships by our dedicated agency sales force for which other expenses are incurred for bonuses and other compensation provided to the agents. Sales of association memberships by our dedicated agency sales force tend to move in tandem with sales of health insurance policies; consequently, this decrease in other income and other expense is consistent with the decline in earned premium.

   Nine Months Ended September 30, 2009 versus September 30, 2008

     The SEA Division reported earned premium revenue of $748.5 million in the nine months ended September 30, 2009 as compared with $866.8 million for 2008, a decrease of $118.3 million or 14%, which is primarily due to the

32

reduction in submitted annualized premium volume. In the nine months ended September 30, 2009, total SEA Division submitted annualized premium volume decreased to $277.9 million from $353.9 million in the corresponding 2008 period, which was primarily attributable to a decrease in the number of writing agents from an average of 1,319 during the nine months ended September 30, 2008 to an average of 1,059 during the same period in 2009.

     The SEA Division reported operating income for the nine months ended September 30, 2009 of $105.2 million compared to operating income of $47.1 million in the corresponding period of 2008. Operating income in the SEA Division as a percentage of earned premium revenue (i.e., operating margin) for the nine months ended September 30, 2009 was 14.1% compared to the operating margin of 5.4% in the corresponding 2008 period. The increase in operating margin during the current year period is generally attributable to a loss ratio reflecting better claims experience on both our new products, as well as our legacy products.

     Underwriting, acquisition and insurance expenses decreased by $55.4 million, or 18% to $258.7 million during 2009 from $314.1 million in the corresponding period of 2008. This decrease reflects the variable nature of commission expenses and premium taxes included in these amounts which generally vary in proportion to earned premium revenue and, in addition, the deferral of certain underwriting and policy issuance costs in 2009. Furthermore, the Company initiated certain cost reduction programs beginning in the fourth quarter of 2008, which is being reflected as a decrease in the expense ratio. These reductions are partially offset by costs incurred with the formation of Insphere Insurance Solutions.

     Other income and other expenses both decreased in the current period compared to the prior year period. Other income largely consists of fee and other income received for sales of association memberships by our dedicated agency sales force for which other expenses are incurred for bonuses and other compensation provided to the agents. Sales of association memberships by our dedicated agency sales force tend to move in tandem with sales of health insurance policies; consequently, this decrease in other income and other expense is consistent with the decline in earned premium.

Medicare Division

     Set forth below is certain summary financial and operating data for the Company’s Medicare Division for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2009			2008			2009			2008
				(Dollars in thousands)
Revenue
Earned premium revenue	$	1,161		$	26,388		$	1,123		$	72,247
Investment income and other income		92			131			131			290
Total revenue		1,253			26,519			1,254			72,537
Benefits and Expenses
Benefit expenses		(1,366	)		22,460			8,935			62,590
Underwriting and policy acquisition expenses		35			7,136			62			25,328
Total expenses		(1,331	)		29,596			8,997			87,918
Operating income (loss)	$	2,584		$	(3,077	)	$	(7,743	)	$	(15,381	)
Other operating data:
Loss ratio	NM				85.1	%	NM				86.6	%
Expense ratio	NM				27.0	%	NM				35.1	%
Combined ratio	NM				112.1	%	NM				121.7	%

Loss ratio. The loss ratio represents total benefit expenses as a percentage of earned premium revenue.

Expense ratio. The expense ratio represents underwriting, acquisition and insurance expenses as a percentage of earned premium revenue.

NM. Not meaningful

     In 2007, we initiated efforts to expand into the Medicare market. In the fourth quarter of 2007, we began offering a new portfolio of Medicare Advantage PFFS — called HMCA Plans — in selected markets in 29 states with calendar year coverage effective for January 1, 2008. In July 2008, the Company decided that it would not participate in the Medicare Advantage marketplace after the 2008 plan year. As such, the results of operations for the three and nine months ended September 30, 2009 are not comparable to the results of operations for the three and nine months ended September 30, 2008. During 2009, the Company continued to fulfill its remaining obligations under the 2008 calendar year Medicare contracts.

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   Three and Nine Months Ended September 30, 2009

     During early 2009, the Company experienced a higher than expected claim volume, as well as the submission of several large claims. As a result, the Company amended the completion factors used to calculate its reserves, and increased the overall projected lifetime loss ratio. During the third quarter of 2009, the Company began experiencing better than expected claim volume and, as such, continued to refine the completion factors used to calculate its reserves. Such refinements resulted in a positive claim experience for the three months ended September 30, 2009. As a result of its continued refinements of the completion factors throughout 2009, the Company increased the overall projected lifetime loss ratio from 83.3% as of December 31, 2008 to 91.5% as of September 30, 2009. This resulted in an expense of $8.9 million for the nine months ended September 30, 2009. At September 30, 2009, the Company has a remaining claims reserve of approximately $6.7 million.

   Three and Nine Months Ended September 30, 2008

     The Medicare Division had $26.4 million and $72.2 million in earned premium for the three and nine months ended September 30, 2008, respectively. Benefit expenses for the nine months ended September 30, 2008 of $62.6 million resulted in a loss ratio of 86.6%, which was consistent with the Company’s expectations after adjusting for the actual member risk scores as provided by CMS.

     Underwriting, acquisition and insurance expenses were $25.3 million for the nine months ended September 30, 2008, which included $371,000 of employee termination costs, $1.1 million of asset impairment charges associated with technology assets unique to the Medicare business and a $4.9 million expense associated with a minimum volume guarantee fee related to the Company’s contract with a third party administrator. This minimum volume guarantee fee was based on a minimum number of member months for the three year term of the contract covering calendar years 2008 through 2010.

Other Insurance Division

     Set forth below is certain summary financial and operating data for the Company’s Other Insurance Division for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
				(Dollars in thousands)
Revenue
Earned premium revenue	$	948		$	6,236		$	5,440		$	20,954
Investment income		463			448			1,376			1,338
Other income		(15	)		(108	)		534			195
Total revenue		1,396			6,576			7,350			22,487
Benefits and Expenses
Benefit expenses		(216	)		6,041			(336	)		11,831
Underwriting, acquisition and insurance expenses		873			1,883			4,533			7,763
Total expenses		657			7,924			4,197			19,594
Operating income (loss)	$	739		$	(1,348	)	$	3,153		$	2,893
Other operating data:
Loss ratio	NM				96.9	%	NM				56.5	%
Expense ratio		92.1	%		30.2	%		83.3	%		37.0	%
Combined ratio		69.3	%		127.1	%		77.2	%		93.5	%

Loss Ratio. The loss ratio is defined as benefits expense as a percentage of earned premium revenue.

Expense Ratio. The expense ratio is defined as underwriting, acquisition and insurance expenses as a percentage of earned premium revenue.

NM. Not material

     The Company’s Other Insurance Division consisted of ZON-Re, an 82.5%-owned subsidiary, which underwrote, administered and issued accidental death, AD&D, accident medical, and accident disability insurance products, both on a primary and on a reinsurance basis. The Company distributed these products through professional reinsurance intermediaries and a network of independent commercial insurance agents, brokers and third party administrators. On June 5, 2009, HealthMarkets, LLC, entered into an Acquisition Agreement for the sale of its 82.5% membership interest in ZON-Re to Venue Re. The transaction contemplated by the Acquisition Agreement closed effective June 30, 2009. The Company will continue to reflect the existing insurance business in its financial statements to final termination of all liabilities.

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   Three and Nine Months Ended September 30, 2009 versus September 30, 2008

     For the three months ended September 30, 2009, operating income was $739,000 on revenue of $1.4 million, compared to a $1.3 million loss on $6.6 million of revenue for the corresponding period in 2008. For the nine months ended September 30, 2009, operating income was $3.2 on revenue of $7.4 million, compared to $2.9 million of operating income on $22.5 million of revenue for the corresponding period in 2008. The overall decrease in operating income from the prior year is due to the Company’s exit from this line of business during the second quarter of 2009.

     For the three months and nine months ended September 30, 2009, the Company recognized positive experience related to benefits expense as a result of favorable claims experience on the policies maturing during the period, for which the Company has not renewed. Benefit expenses for the three months and nine months ended September 30, 2008 include a large catastrophic claim on reinsured excess loss business in the amount of $1.9 million and a $900,000 loss on quota share disability business. When considering the results for the nine months ended September 30, 2008, the adverse third quarter results were partially mitigated by favorable claim experience during the second quarter of 2008. Underwriting, acquisition and insurance expenses were $873,000 and $4.5 million during the three and nine months ended September 30, 2009, respectively, compared to $1.9 million and $7.8 million in the corresponding period in 2008. The decrease in expenses during 2009 reflects the Company’s exit from this line of business during the second quarter of 2009.

Corporate

     Corporate includes investment income not otherwise allocated to the Insurance segment, realized gains and losses on sale of investments, interest expense on corporate debt, variable stock-based compensation, the student loan business and general expenses relating to corporate operations.

     Set forth below is a summary of the components of operating income (loss) at the Company’s Corporate segment for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
				(In thousands)
Investment income on equity	$	2,847		$	6,519		$	6,581		$	16,183
Net investment impairment losses recognized in earnings		—			(16,785	)		(4,078	)		(22,366	)
Realized gains, net		795			1,463			2,350			3,680
Interest expense on corporate debt		(7,559	)		(12,607	)		(24,386	)		(32,078	)
Student loan operations		(279	)		(19	)		(258	)		(8,156	)
Variable stock-based compensation (expense) benefit		(440	)		607			386			3,825
General corporate expenses and other		(12,230	)		(15,734	)		(33,880	)		(42,789	)
Operating expense	$	(16,866	)	$	(36,556	)	$	(53,285	)	$	(81,701	)

     The Corporate segment reported an operating loss for the three months ended September 30, 2009 of $16.9 million compared to $36.6 million, in the corresponding 2008 period for an overall decrease in operating expenses of $19.7 million. The decrease in operating expenses is primarily due to the following items:

• Investment income on equity decreased by $3.7 million primarily due to a decrease in the amount of invested assets in 2009 compared to 2008. This decrease was partially offset by an increase in investment income earned on the Company’s equity method investments of $1.0 million.

• Interest expense on corporate debt decreased by $5.0 million due to lower interest rates in the third quarter of 2009 compared to the third quarter of 2008. Additionally, the 2008 balance includes $3.0 million of interest expense associated with the use of cash transferred to Wilton during the period from the Coinsurance Effective Date (July 1, 2008) and the Closing Date (September 30, 2008).

• Net investment impairment losses recognized in earnings decreased $16.8 million as the Company did not incur any impairment losses on other-than-temporary impairments in the third quarter of 2009.

• General corporate expenses and other decreased by $4.0 million from prior year, which is primarily attributable to a $3.9 million of broker and transaction fees related to the Life Insurance Division transaction in 2008.

35

   Nine Months Ended September 30, 2009 versus September 30, 2008

     The Corporate segment reported an operating loss for the nine months ended September 30, 2009 of $53.3 million compared to $81.7 million, in the corresponding 2008 period for an overall decrease in operating expenses of $28.4 million. The decrease in operating expenses is primarily due to the following items:

• Investment income on equity decreased by $9.6 million due to a reduction in the amount of assets available for investment in 2009 compared to 2008, as well as a $3.5 million decrease in investment income during the current year on the Company’s equity method investments.

• Interest expense on corporate debt decreased due to a lower interest rate environment in 2009 compared to 2008. Additionally, the 2008 balance includes $3.0 million of interest expense associated with the use of cash transferred to Wilton during the period from the Coinsurance Effective Date (July 1, 2008) and the Closing Date (September 30, 2008).

• Net investment impairment losses recognized in earnings decreased $18.3 million as the Company recognized impairment losses on other-than-temporary impairments of $4.1 million in 2009 on 3 securities compared to $22.4 million on 8 securities during 2008.

• General corporate expenses and other decreased by $9.4 million from prior year, which is primarily attributable to broker, consulting, legal and transaction fees related to the Life Insurance Division transaction in 2008.

Disposed Operations

     Our Disposed Operations segment includes the former Life Insurance Division, former Star HRG Division and former Student Insurance Division.

     On September 30, 2008, the Company exited the Life Insurance Division business through a reinsurance transaction effective July 1, 2008. See Note 2 of Notes to Consolidated Condensed Financial Statements. On July 11, 2006 and December 1, 2006, the Company completed the sales of the assets formerly comprising its Star HRG and Student Insurance Divisions, respectively.

     The table below sets forth income (loss) from continuing operations for our Disposed Operations three and nine months ended September 30, 2009 and 2008:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(In thousands)
Income (loss) from Disposed Operations before federal income taxes:
Life Insurance Division	$	(191	)	$	(3,258	)	$	(2,458	)	$	(23,238	)
Student Insurance Division		(1	)		(250	)		41			84
Star HRG Insurance Division		—			—			135			118
Total Disposed Operations	$	(192	)	$	(3,508	)	$	(2,282	)	$	(23,036	)

     The Company’s Life Insurance Division reported an operating loss for the three and nine months ended September 30, 2009 of $191,000 and $2.5 million, respectively, compared to an operating loss for the three and nine months ended September 30, 2008 of $3.3 million and $23.2 million, respectively. The operating loss for the nine months ended September 30, 2008 includes a $13.0 million impairment charge related to the decision to exit this business. In addition, expenses of $3.2 million and $6.4 million were incurred during the three and nine months ended September 30, 2008, respectively, related to employee severance and facility lease termination costs.

Liquidity and Capital Resources

Consolidated Operations

     Historically, the Company’s primary sources of cash on a consolidated basis have been premium revenue from policies issued, investment income, and fees and other income. The primary uses of cash have been payments for benefits, claims and commissions under those policies, servicing of the Company’s debt obligations and operating expenses.

36

     The Company has entered into several financing agreements designed to strengthen both its capital base and liquidity, the most significant of which are described below. The following table also sets forth additional information with respect to the Company’s debt:

			Interest Rate at		September 30,		December 31,
	Maturity Date		September 30, 2009		2009		2008
					(In thousands)
2006 credit agreement:
Term loan	2012		1.510	%(a)	$	362,500	$	362,500
$75 million revolver						—		—
Trust preferred securities:
UICI Capital Trust I	2034		3.940	%(a)		15,470		15,470
HealthMarkets Capital Trust I	2036		3.349	%(a)		51,550		51,550
HealthMarkets Capital Trust II	2036		8.367	%(a)		51,550		51,550
Total					$	481,070	$	481,070
Student Loan Credit Facility		(b)	0	%(c)		78,850		86,050
Total					$	559,920	$	567,120

(a)	See Note 5 of Notes to Consolidated Condensed Financial Statements.
(b)	The Series 2001A-1 Notes and Series 2001A-2 Notes have a final stated maturity of July 1, 2036; the Series 2002A Notes have a final stated maturity of July 1, 2037. See Note 5 of Notes to Consolidated Condensed Financial Statements.
(c)	The interest rate on each series of notes resets monthly in a Dutch auction process. See Note 5 of Notes to Consolidated Condensed Financial Statements for additional information on the Student Loan Credit Facility.

     In April 2006, the Company borrowed $500.0 million under a term loan credit facility and issued $100.0 million of Floating Rate Junior Subordinated Notes during 2006 (see Note 5 of Notes to Consolidated Condensed Financial Statements).

     We regularly monitor our liquidity position, including cash levels, credit line, principal investment commitments, interest and principal payments on debt, capital expenditures and matters relating to liquidity and to compliance with regulatory requirements. We maintain a line of credit in excess of anticipated liquidity requirements. As of September 30, 2009, HealthMarkets had a $75.0 million unused line of credit, of which $60.9 million was available to the Company. The unavailable balance of $14.1 million relates to letters of credit outstanding with the Company’s insurance operations.

Holding Company

     HealthMarkets, Inc. is a holding company, the principal asset of which is its investment in its wholly owned subsidiary, HealthMarkets, LLC (collectively referred to as the “holding company”). The holding company’s ability to fund its cash requirements is largely dependent upon its ability to access cash, by means of dividends or other means, from HealthMarkets, LLC. HealthMarkets, LLC’s principal assets are its investments in its separate operating subsidiaries, including its regulated insurance subsidiaries.

     Domestic insurance companies require prior approval by insurance regulatory authorities for the payment of dividends that exceed certain limitations based on statutory surplus and net income. During 2009, the Company’s domestic insurance companies are eligible to pay, without prior approval of the regulatory authorities, aggregate dividends in the ordinary course of business to HealthMarkets, LLC of approximately $69.9 million, of which $14.8 million is available currently with the remainder available by December 31, 2009. However, as it has done in the past, the Company will continue to assess the results of operations of the regulated domestic insurance companies to determine the prudent dividend capability of the subsidiaries, consistent with HealthMarkets’ practice of maintaining risk-based capital ratios at each of the Company’s domestic insurance subsidiaries in excess of minimum requirements.

Contractual Obligations and Off Balance Sheet Arrangements

     A summary of HealthMarkets’ contractual obligations is included in the 2008 Form 10-K. There have been no material changes in the Company’s contractual obligations or off balance sheet commitments since December 31, 2008.

Critical Accounting Policies and Estimates

     The Company’s discussion and analysis of its financial condition and results of operations are based on its consolidated condensed financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these consolidated condensed financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to the valuation of assets and liabilities requiring fair value estimates, including investments and allowance for bad

37

debts, the amount of health and life insurance claims and liabilities, the realization of deferred acquisition costs, the carrying value of goodwill and intangible assets, the amortization period of intangible assets, stock-based compensation plan forfeitures, the realization of deferred taxes, reserves for contingencies, including reserves for losses in connection with unresolved legal matters and other matters that affect the reported amounts and disclosure of contingencies in the financial statements. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Reference is made to the discussion of these critical accounting policies and estimates contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates.”

Deferred Acquisition Costs (“DAC”) — 2009 Change in Estimates

     Prior to January 1, 2009, the basis for the amortization period on deferred lead costs and the portion of DAC associated with excess commissions over ultimate paid to agents was the estimated weighted average life of the insurance policy, which approximated 24 months. The monthly amortization factor was calculated to correspond with the historical persistency of policies (i.e. the monthly amortization is variable and is higher in the early months). Beginning January 1, 2009, on newly issued policies, the Company refined its estimated life of the policy to approximate the premium paying period of the policy based on the expected persistency over this period. As such, these costs are now amortized over sixty months, and the monthly amortization factor is calculated to correspond with the expected persistency experience for the newly issued policies. However, the amounts amortized will continue to be substantially higher in the early months of the policy as both are based on the persistency of the Company’s insurance policies. Policies issued before January 1, 2009 will continue to be amortized using the existing assumptions in place at the time of the issuance of the policy.

     Additionally, prior to January 1, 2009, certain other underwriting and policy issuance costs, which the Company determined to be more fixed than variable, were expensed as incurred. Effective January 1, 2009, HealthMarkets determined that, due to changes in both the Company’s products and underwriting procedures performed, certain of these costs have become more variable than fixed in nature. As such, the Company began deferring such costs over the expected premium paying period of the policy, which approximates five years.

     These changes resulted in a decrease in “Underwriting, acquisition and insurance expenses” of $3.0 million and $10.3 million, respectively, for the three and nine months ended September 30, 2009.

Recent Accounting Pronouncements

     In June 2009, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”), which has not yet been codified in the FASB Accounting Standards Codification (“ASC”). SFAS No. 167 modifies financial reporting for variable interest entities (“VIEs”). Under this guidance, companies are required to perform a periodic analysis to determine whether their variable interest must be consolidated by the Company. Additionally, Companies must disclose significant judgments and assumptions made when determining whether it must consolidate a VIE. Any changes in consolidated entities resulting from a Company’s analysis must be applied retrospectively to prior period financial statements. SFAS No. 167 is effective for annual and interim periods beginning after November 15, 2009. The Company has not yet determined the impact that the adoption of this guidance will have on its financial position and results of operations.

     In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of SFAS No. 140 (“SFAS No. 166”), which has not yet been codified in the ASC. SFAS No. 166 provides greater transparency about transfers of financial assets and requires companies to determine whether the transferor or companies included in the transferor’s financial statements have surrendered control over transferred financial assets. SFAS No. 166 modifies the financial-components approach used in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which was codified into FASB ASC Topic 860, Transfers and Servicing, and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized. Additionally, this FSP removes the concept of a qualifying special-purpose entity (“QSPE”) and removes the exception from applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to QSPEs. SFAS No. 166 is effective for annual and interim periods beginning after November 15, 2009. The Company has not yet determined the impact that the adoption of this guidance will have on its financial position and results of operations.

     In September 2009, the FASB issued ASC Updated 2009-12, Fair Value Measurements and Disclosures (Topic 820) — Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent), which provides

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amendments to Subtopic 820-10, Fair Value Measurements and Disclosures — Overall, for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). This Update is effective for annual and interim periods beginning after December 15, 2009. The Company has not yet determined the impact that the adoption of this guidance will have on its financial position and results of operations.

     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162, which was codified into FASB ASC Topic 105, Generally Accepted Accounting Standards. This standard recognizes the ASC as the source of authoritative U.S. GAAP recognized by the FASB. Additionally, rules and interpretive releases of the SEC under authority of federal securities laws will also continue to be sources of authoritative GAAP for SEC registrants. The Company adopted such guidance in September 2009. Beginning in the third quarter of 2009, this guidance impacted the Company’s financial statements and related disclosures as all references to authoritative accounting literature reflect the newly adopted codification.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”), which was codified into FASB ASC Topic 855, Subsequent Events. Under this guidance, an entity is required to disclose the date through which it has evaluated subsequent events and the basis for that date. Additionally, this guidance clarifies the circumstances under which an entity should recognize in the financial statements, the effects of events or transactions occurring after the balance sheet date, and required disclosures for such events and transactions. The Company adopted this guidance in the third quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

     In August 2009, the FASB issued ASC Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820 — Measuring Liabilities at Fair Value), which provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures — Overall, for the fair value measurement of liabilities. This Update provides clarification for measuring fair value in circumstances where a quoted price in an active market for the identical liability is not available. The Company adopted this guidance in the third quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

     In April 2009, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which was codified into FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). This standard provides guidance for estimating fair value when the market activity for the asset or liability has significantly decreased and guidance for identifying transactions that are not orderly. Furthermore, this guidance requires disclosure in interim and annual periods for the inputs and valuation techniques used to measure fair value. Additionally, it requires an entity to disclose a change in valuation technique, and to quantify such effects. The Company adopted this guidance in the second quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

     In February 2008, the FASB issued FSP SFAS No. 157-2, Effective Date of FASB Statement No. 157, which was codified into FASB ASC Topic 820. This guidance delays the effective date of SFAS No. 157, Fair Value Measurements, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). These nonfinancial items would include, for example, reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. The Company adopted this guidance in the first quarter of 2009. Such adoption of these remaining provisions did not have a material impact on the Company’s financial position and results of operations.

     In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1, Disclosures about Fair Value of Financial Instruments, which was codified into FASB ASC Topic 825, Financial Instruments. This guidance requires companies to provide disclosures about fair value of financial instruments in both interim and annual financial statements. Additionally, under this guidance, companies are required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments in both interim and annual financial statements. The Company adopted this guidance in the second quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

     In April 2009, FASB issued FSP SFAS No. 115-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP SFAS No. 115-2”), which was codified into FASB ASC Topic 320, Investments — Debt and Equity Securities (“ASC Topic 320”). This guidance improves the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. Under this guidance, when the fair value is less than the amortized cost basis at the measurement date, a company would be required to assess the impaired security to determine whether the impairment is other-than-temporary. Such assessment may result in the recognition of an other-than-temporary

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impairment related to a credit loss in the statement of income and the recognition of an other-than-temporary impairment related to a non-credit loss in accumulated other comprehensive income on the balance sheet. To avoid recognizing the entire other-than-temporary impairment in the statement of income, a company would be required to assert (a) it does not have the intent to sell the security and (b) it is more likely than not that it will not have to sell the security before recovery of its cost basis. Additionally, at adoption, a company is permitted to make a one-time cumulative-effect adjustment for securities held at adoption for which an other-than-temporary impairment related to a non-credit loss had been previously recognized. The Company adopted this guidance in the second quarter of 2009. Upon adoption, the Company recognized such tax-effected cumulative effect as an increase to the opening balance of retained earnings for $1.0 million with a corresponding decrease to accumulated other comprehensive income, with no overall change to shareholders’ equity. See Note 4 of Notes to Consolidated Condensed Financial Statements.

     On January 1, 2009, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133, which was codified into FASB ASC Topic 815, Derivative Instruments (“ASC Topic 815”). This standard requires companies with derivative instruments to disclose information that enables financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The Company adopted this guidance in the first quarter of 2009. See Note 6 of Notes to Consolidated Condensed Financial Statements for information on the Company’s derivative instrument, including these additional required disclosures.

     In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS No. 160”), which was codified into FASB ASC Topic 810, Consolidation. The objective of SFAS No. 160 is to improve the relevance, comparability, and transparency of financial information related to minority interest in consolidated financial statements. The Company adopted this guidance in the first quarter of 2009. Such adoption did not have a material impact on the Company’s financial position and results of operations.

Regulatory and Legislative Matters

     The business of insurance is primarily regulated by the states and is also affected by a range of legislative developments at the state and federal levels. Recently adopted legislation and regulations may have a significant impact on the Company’s business and future results of operations. Reference is made to the discussion under the caption ’Business — Regulatory and Legislative Matters” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company has not experienced significant changes related to its market risk exposures during the quarter ended September 30, 2009. Reference is made to the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 in Item 7A — Quantitative and Qualitative Disclosures about Market Risk.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

     The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the principal executive officer and principal financial officer, allowing timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

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Change in Internal Control over Financial Reporting

     There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The Company is a party to various material legal proceedings, which are described in Note 8 of Notes to Consolidated Condensed Financial Statements included herein and/or in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2008 under the caption “Item 3. Legal Proceedings.” The Company and its subsidiaries are parties to various other pending legal proceedings arising in the ordinary course of business, including some asserting significant damages arising from claims under insurance policies, disputes with agents and other matters. Based in part upon the opinion of counsel as to the ultimate disposition of such lawsuits and claims, management believes that the liability, if any, resulting from the disposition of such proceedings will not be material to the Company’s consolidated financial condition or results of operations. Except as discussed in Note 8 of the Notes to Consolidated Condensed Financial Statements included herein, during the three month period covered by this Quarterly Report on Form 10-Q, the Company has not been named in any new material legal proceeding, and there have been no material developments in the previously reported legal proceedings.

ITEM 1A. RISK FACTORS

     Reference is made to the risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 in Part I, Item 1A. — Risk Factors, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks the Company faces. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect our business, financial condition and/or operating results. The following risk factors were identified by the Company during the second quarter ended June 30, 2009 and the third quarter ended September 30, 2009 and supplement those risk factors discussed in Part I, Item 1A. — Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008:

The Success of our new Insphere Insurance Solutions Business is Uncertain.

     As discussed in Part I, Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company formed Insphere Insurance Solutions, Inc. (“Insphere”) in the second quarter of 2009 to serve as an insurance agency specializing in small business and middle-income market life, health, long-term care and retirement insurance. The success of this new line of business depends on a number of factors, including, but not limited to, Insphere’s maintenance of applicable licenses, Insphere’s ability to enter into and maintain satisfactory relationships with insurance carriers and agents and the implementation of various information technology and administrative systems, platforms and processes necessary to successfully run the new business. Like any new business, the progress and success of Insphere entails substantial uncertainty. If the Company’s attempt to develop the Insphere business does not progress as planned, the Company may be materially and adversely affected by, among other things, capital, investments and operating expenses that have not led to the anticipated results.

The Company’s insurance subsidiaries may lose business to competitors whose products are sold by Insphere and its agents

     Insphere and its agents distribute insurance products underwritten by the Company’s insurance subsidiaries, as well as third-party insurance products underwritten by other carriers. These third-party products may be more competitive and attractive to customers than our own insurance products and may, over time, replace some or all of the sales of insurance products underwritten by our insurance subsidiaries. If third party products replace the products underwritten by our insurance subsidiaries, the Company may not be able to maintain its current market share and, as a result, may see further declines in its premium revenue and underwriting profits from insurance product sales. These earnings may not be replaced by commission revenue generated from the distribution of third-party insurance products by Insphere, particularly in the early stages of Insphere’s operations.

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Changes in government regulation could increase the costs of compliance or cause us to discontinue marketing our products in certain states.

     As discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 in Item 1A — Risk Factors, we conduct business in a heavily regulated industry. See Item 1. Business — “Regulatory and Legislative Matters” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for additional information. Changes in the level of government regulation or in the laws and regulations themselves could increase the costs of compliance and result in significant changes to our operations, including potentially causing us to discontinue marketing our products in certain states. Such changes could have a material adverse effect on our financial condition and results of operations.

     Reducing the number of uninsured by increasing affordability and expanding access to health insurance, including proposals intended to expand eligibility for public programs and compel individuals and employers to purchase health insurance coverage, has been a major initiative of the new Presidential administration and members of Congress during 2009. There have been discussions about health care reforms at both state and national levels. The administration and members of Congress have proposed substantive changes to the U.S. health care system, with the intention to pass health care reform during the current year. The proposals vary, but include having the federal or state governments assume a larger role in the health care system as a competitor with private health insurers, imposing significant new taxes on health insurers, requiring individual insurance requirements, expanding eligibility under existing Federal Employees Health Benefit Plan programs, enacting minimum medical benefit ratios for health plans, requiring mandatory issuance of insurance coverage and enacting requirements that would limit the ability of health plans and insurers to vary premiums based on assessments of underlying risk. Any health care reforms enacted may be phased in over a number of years, but, if enacted, could affect the way we conduct our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     The following table sets forth the Company’s purchases of HealthMarkets, Inc. Class A-1 common stock during each of the months in the three months ended September 30, 2009:

	Total Number of				Total Number of Shares		Maximum Number of Shares
	Shares		Average Price Paid		Purchased as Part of Publicly		That May Yet Be Purchased
Period	Purchased(1)		per Share ($)		Announced Plans or Programs		Under The Plan or Program
7/1/09 to 7/31/09		—		—		—		—
8/1/09 to 8/30/09		4,638		19.37		—		—
9/1/09 to 9/31/09		—		—		—		—
Totals		4,638		19.37		—		—

(1) The number of shares purchased other than through a publicly announced plan or program includes 4,638 shares purchased from former or current executives of the Company.

     The following table sets forth the Company’s purchases of HealthMarkets, Inc. Class A-2 common stock during each of the months in the three months ended September 30, 2009:

					Total Number of Shares		Maximum Number of Shares
	Total Number of		Average Price Paid		Purchased as Part of Publicly		That May Yet Be Purchased
Period	Shares Purchased(1)		per Share ($)		or Announced Plans Programs		Under The Plan or Program
7/1/09 to 7/31/09		31,575		19.27		—		—
8/1/09 to 8/30/09		89,253		19.37		—		—
9/1/09 to 9/31/09		75,459		19.37		—		—
Totals		196,287		19.35		—		—

(1) The number of shares purchased other than through a publicly announced plan or program includes 196,287 shares purchased from former or current participants of the stock accumulation plan established for the benefit of the Company’s insurance agents.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

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ITEM 5. OTHER INFORMATION

     On December 18, 2006, Jack Heller, a Senior Vice President of the Company, entered into a definitive employment agreement with the Company. The agreement had an initial term of three years. In connection with the renewal of Mr. Heller’s employment agreement, on September 10, 2009, the Company and Mr. Heller agreed to amend the terms of Mr. Heller’s employment agreement. The amendment had the effect of reducing the period of Mr. Heller’s severance from two years to one year, with a corresponding reduction in the period of Mr. Heller’s post-termination non-competition and non-solicitation covenants. As a result, in the event of a qualifying termination of his employment, Mr. Heller would be entitled to receive severance equal to one times his base salary plus target bonus payable in monthly installments, continuation of certain welfare benefits for a period of one year, as well as a pro-rata bonus, based on his target bonus, if such termination occurs after the last day of the first quarter of the applicable fiscal year. The terms of Mr. Heller’s employment agreement remained the same in all other respects. The description of the amendment to Mr. Heller’s employment agreement with the Company is qualified in its entirety by reference to the text of the agreement, as amended, which is filed as Exhibit 10.13 to this Form 10-Q and incorporated herein by reference.

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ITEM 6. EXHIBITS

(a) Exhibits.

Exhibit No.	Description
10.1	Settlement Agreement, dated as of August 26, 2009, by and between The MEGA Life and Health Insurance Company, Mid-West National Life Insurance Company of Tennessee and The Chesapeake Life Insurance Company and the Commissioner of the Massachusetts Division of Insurance, filed as exhibit 10.1 to the Current Report on Form 8-K dated August 26, 2009, File No. 001-14953, and incorporated by reference herein.
10.2	Final Judgment by Consent, dated August 31, 2009, in the matter Commonwealth of Massachusetts v. The MEGA Life and Health Insurance Company et al., filed as exhibit 10.2 to the Current Report on Form 8-K dated August 26, 2009, File No. 001-14953, and incorporated by reference herein.
10.3*	Employment Agreement, dated September 8, 2009, between the Company and Phillip Hildebrand.
10.4	Nonqualified Stock Option Agreement, dated September 8, 2009, between the Company and Phillip Hildebrand.
10.5	Restricted Share Agreement, dated September 8, 2009, between the Company and Phillip Hildebrand.
10.6	Special Restricted Share Agreement, dated September 8, 2009, between the Company and Phillip Hildebrand.
10.7	Subscription Agreement, dated June 30, 2008, between the Company and Phillip Hildebrand.
10.8*	Employment Agreement, dated September 8, 2009, between the Company and Anurag Chandra.
10.9	Nonqualified Stock Option Agreement, dated September 8, 2009, between the Company and Anurag Chandra.
10.10	Restricted Share Agreement, dated September 8, 2009, between the Company and Anurag Chandra.
10.11*	Employment Agreement, dated September 8, 2009, between the Company and Steven P. Irwin.
10.12*	Employment Agreement, dated September 8, 2009, between the Company and B. Curtis Westen.
10.13	Employment Agreement, dated December 18, 2006, between the Company and Jack V. Heller and amendment thereto dated September 10, 2009.
31.1	Rule 13a-14(a)/15d-14(a) Certification, executed by Phillip J. Hildebrand, President and Chief Executive Officer of HealthMarkets, Inc.
31.2	Rule 13a-14(a)/15d-14(a) Certification, executed by Steven P. Erwin, Executive Vice President and Chief Financial Officer of HealthMarkets, Inc.
32	Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350), executed by Phillip J. Hildebrand, President and Chief Executive Officer of HealthMarkets, Inc. and Steven P. Erwin, Executive Vice President and Chief Financial Officer of HealthMarkets, Inc.

* The Company has requested confidential treatment of the redacted portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and has separately filed a complete copy of this exhibit with the Securities and Exchange Commission.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HEALTHMARKETS, INC (Registrant)
Date: November 6, 2009	/s/ Phillip J. Hildebrand
	Phillip J. Hildebrand
	President and Chief Executive Officer
Date: November 6, 2009	/s/ Steven P. Erwin
	Steven P. Erwin
	Executive Vice President and Chief Financial Officer

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EX-10.3

Exhibit 10.3

[***] = 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, the “Company”) and Phillip Hildebrand (the “Executive”).

     WHEREAS, the Company and the Executive are party to an Employment Agreement dated as of June 5, 2008 (the “Prior Agreement”);

     WHEREAS, the Company and the Executive wish to modify the terms of the Executive’s employment;

     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 of any Subsidiary, as may be requested from time to time by the Board and without any additional compensation, unless otherwise determined by the Board. In addition, the Executive’s service in such officer position with 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 June 4, 2011 (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 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 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 as the Chief Executive Officer of the Company and a member of the Board, reporting directly to the Board. The Executive shall have such duties, responsibilities and authority commensurate with the Executive’s positions in a company the size and nature of the Company and such related duties and responsibilities, as from time to time may be assigned to the Executive by the Board, consistent with his 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. Nothing herein shall preclude the Executive from (i) serving on the boards of directors of two Blackstone-controlled entities or any other board of directors if such service on such other boards is approved by the Board (which approval shall not be unreasonably withheld), (ii) serving on the boards of, or advisory committees to, trade associations and/or charitable organizations, (iii) engaging in charitable activities and community affairs, or (iv) managing his personal and family investments and affairs, provided that the activities in clauses (i) through (iv) do not materially interfere with the effective discharge of the Executive’s duties and responsibilities under this Agreement.

     4. Compensation.

          (a) Base Salary. During the Employment Term, the Company shall pay to the Executive an annual base salary of $1,200,000 (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 consistent with the Company’s general policies regarding compensation of executive employees, but in all events no less frequently than monthly. 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 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) With respect to the Company’s 2009 fiscal year and each fiscal year of the Company thereafter, all or part of which is contained in the Employment Term, the Executive shall 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

     (ii) thereunder on terms and conditions no less favorable to the Executive than those available to similarly situated executives of the Company, with a guaranteed target bonus opportunity for 2009 of $2,400,000 and a target bonus opportunity thereafter of $1,600,000 (as applicable, the “Target Bonus Amount”) and a maximum bonus opportunity for 2009 of $4,000,000 and a maximum bonus opportunity thereafter of $3,200,000 (with payment at no less than the Target Bonus Amount if the applicable performance targets are met for the fiscal year); provided, that in no event shall the Executive’s annual bonus for 2009 be less than the Executive’s guaranteed Target Bonus Amount for 2009 of $2,400,000 and in all events the Executive’s annual bonus payable for 2009 will be reduced by the amount of First Year Guaranteed Annual Bonus (as defined in the Prior Agreement) paid to the Executive in June 2009. The Board (or any authorized committee thereof) shall have the authority to establish performance metrics of the annual management incentive program pursuant to which such bonuses may be earned, provided that the Board (or such authorized committee) shall establish such targets with respect to the Executive in consultation with him, which shall be no less favorable to the Executive than the annual performance targets established for the applicable performance period for other senior executives of 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).

     (iii) 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 $3,000,000 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 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

[***] = 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.

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.

     (iv) 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) Equity Compensation.

     (i) General. During the Employment Term, the Executive shall be entitled to participate in the Company’s MOP and Bonus Programs and any other incentive, equity-based and deferred compensation plans and programs or arrangements 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.

     (ii) Initial Grants. As soon as practicable (but in no event later than five business days) after the Effective Date, the Committee will award 506,650 Option Rights and 506,650 Restricted Shares (together, the “Initial Grant”), which Initial Grant will be subject to the provisions set forth in the Executive’s Non-Qualified Stock Option Agreement and Restricted Share Agreement to be entered into in the form of Exhibit A and Exhibit B, respectively; provided, that, in the event that the Company’s stockholders shall fail to approve the amendment to the MOP as set forth in Exhibit A (“Amendment”) or fail to adopt a plan authorizing the issuance of restricted shares as set forth in Exhibit B (“Restricted Share Plan”) prior to the earlier of a Change of Control or the Amendment Approval Date, 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 Initial Grant relating to the amendment or plan which was not approved or adopted shall be void ab initio and of no further force and effect. Failure to obtain such stockholder approval for either the Amendment or adoption the Restricted Share Plan by the earlier of a Change of Control or the Amendment Approval Date shall be a breach of this Section 4(c) and Exhibits A and B, entitling the Executive to terminate his employment for Good Reason.

     (iii) Special Stock Grant. As soon as practicable (but in no event later than five business days) after the Effective Date, the Committee will award the Executive 25,862 Restricted Shares (together, the “Special Restricted Shares”),

which will be subject to the provisions set forth in the Executive’s Special Restricted Stock Agreement to be entered into in the form of Exhibit C; provided, that, in the event that the Company’s stockholders shall fail to adopt the Restricted Share Plan as set forth in Exhibit C prior to the earlier of a Change of Control or the Amendment Approval Date, which Blackstone represents it has sufficient votes to approve as of the Effective Date and which Blackstone shall vote for, the Special Restricted Shares shall be void ab initio and of no further force and effect; provided that the tax gross-up provision in Section 13 of Exhibit C shall survive and continue to apply to the extent the Executive owes any Taxes (as defined in such Section 13) with respect to such grant. Failure to adopt the Restricted Share Plan by the earlier of a Change of Control or the Amendment Approval Date shall be a breach of this Section 4(c) and Exhibit C, entitling the Executive to terminate his employment for Good Reason.

     (iv) Terms of Equity Awards. 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 June 4, 2008, plus any amendments to such definition after June 4, 2008 which would result in a transaction not covered by the Change of Control definition in effect as of June 4, 2008 constituting a “Change of Control”); provided, however, that in no event shall consummation of the transactions contemplated by an [***] or a National Carrier Marketing Distribution Agreement constitute a Change of Control for any purpose of this Agreement so long as the Permitted Holders (as defined in the MOP) beneficially own, directly or indirectly, 50% or more of the then-outstanding combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company and/or its successor)). 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. The Company has granted the Executive an LTIP award in the form of a restricted stock grant consisting of 34,483 shares of A-1 common stock (together with any other equity received as proceeds thereon, “Shares”) of the Company (the “Initial LTIP Award”) and the Executive shall be entitled to dividends on the Initial LTIP Award from June 4, 2008, which dividends shall vest and be paid at such time as the Shares underlying the Initial

[***] = 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.

LTIP Award vest and the certificates are delivered as provided below. 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 June 4, 2008, in both cases subject to the Executive’s continued employment with the Company through each applicable vesting date; provided that certificates for any vested portion of the Initial LTIP Award shall be delivered to the Executive on the earlier of immediately prior to the Change of Control or upon the third anniversary of the Effective Date. It is the intent of the parties that the vesting of the Shares described in this paragraph shall constitute a transfer of property within the meaning of Section 83 of the Code.

     (ii) Cash LTIP Award. In addition to any other compensation granted or paid hereunder, with respect to the Company’s 2009 fiscal year, the Executive shall be entitled to receive a long-term incentive award, with a target value of no less than $1,200,000 (the “2009 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 already established by the Committee in consultation with the Executive, the 2009 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 2009 LTIP Award shall vest in three equal annual installments, on each of June 4, 2010, June 4, 2011 and June 4, 2012, subject to the Executive’s continued employment with the Company through each applicable vesting date and (ii) any vested portion of such 2009 LTIP Award shall be delivered to the Executive, 100% in cash, on June 4, 2012. 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 2009 LTIP Award prior to the payment date described in this Section 4.

     (iii) Change of Control. In all events, the 2009 LTIP Award 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 2009 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 executive of the Company or its Subsidiaries who participates 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) generally.

          (b) Club Membership. The Company has purchased a corporate membership in a club designated by the Executive, which shall be owned by the Company, and the Executive shall be permitted full use of such membership during the Employment Term; provided that in no event shall the cost of such membership to the Company exceed $175,000 for the purchase amount/initiation fee and $15,000 for the annual dues during the Employment Term for such club (as such amount may be increased from time to time in the ordinary course by such club). Upon cancellation of such membership, the Company shall be entitled to any reimbursements or refunds of any such purchase amount/initiation fee or any such annual dues as provided by such club, which the Executive represented as of June 4, 2008, with respect to the purchase amount/initiation fee, equaled 80 percent of the purchase amount/initiation fee.

          (c) Car Allowance. During the Employment Term, the Company shall pay the Executive a monthly car allowance in the amount of $1,000.

     6. Expenses. The Company shall pay or reimburse the Executive for reasonable 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 this Agreement and any other related documentation, subject to a cap of $25,000.

     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 vacation per calendar year, pro-rated for any partial year. 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; Stockholders Agreement.

          (a) In connection with the Executive’s commencement of employment under the Prior Agreement, the Executive invested cash in the amount of $2,000,000 in Shares, at a purchase price of $34.80 per share (such investment, the “Investment”), pursuant to the terms of a subscription agreement between the Company and the Executive attached hereto as Exhibit D, and Executive acknowledges that, except as otherwise provided in this Section 8, such Shares are subject to the terms and conditions of the Stockholders Agreement.

          (b) Put Rights. Notwithstanding anything to the contrary in the Stockholders Agreement, for the Investment and any shares granted to the Executive as part of the Initial LTIP

Award and the Special Restricted Shares, upon termination of the Executive’s employment with the Company or any of its Subsidiaries (other than a termination by the Company for Cause or a resignation by the Executive without Good Reason other than upon death or Disability) prior to an IPO or a Change of Control, the Executive shall have the right to sell such shares to the Company based on the Fair Market Value (as defined below) of such equity at any time during the six-month period following the six-month anniversary of his termination of employment (provided that if the Executive’s employment is terminated prior to the delivery of the shares for the Initial LTIP Award under Section 4(d)(i), this right to sell shall apply whether or not the shares have been delivered).

          (c) 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 Initial LTIP Award, 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 and for any Initial LTIP Award shall be the Fair Market Value on the applicable vesting date) 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.

          (d) 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%.

          (e) Offset. Notwithstanding anything in this Agreement or the Stockholders Agreement to the contrary, if the Executive (or his estate) has received a Transaction Bonus or a Retention Payment then the Executive agrees that immediately upon receipt by the Executive (or

the Executive’s estate) of any cash or liquid securities from the disposition of the Executive’s Shares (other than, (i) a disposition solely to pay taxes while the Shares are not publicly traded or (ii) a disposition of the shares purchased by the Executive pursuant to the Investment or any of the shares respecting the Initial LTIP Award or the Special Restricted Shares), whether by reason of exercise by the Executive of the Executive’s Put Right, the exercise by the Company of the Company’s Call Right, a Change of Control, an IPO or otherwise, the Executive (or the Executive’s estate) shall pay to the Company or the Company’s stockholders, as directed by the Board of Directors, the after-tax value of the cash or liquid securities so received by the Executive (or his estate); provided that this payment obligation shall not exceed 50 percent of the after-tax value of any Transaction Bonus and/or Retention Payment previously paid to the Executive (or his estate).

          (f) 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 by the Board in the case of a termination with Cause) 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 Board terminates the Executive’s employment with Cause, all of the Executive’s Option Rights, whether or not vested, will be immediately forfeited as of the date of termination and any unvested Restricted Shares shall be immediately forfeited as of the date of termination.

          (b) Termination of Employment by the Executive. The Executive may 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 Option Rights, if any, shall remain exercisable in accordance with their terms, but in all events for at least 90 days following the date of termination.

          (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.

     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 Exhibits A, B and 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 E, (ii) the terms of Section 14 and (iii) the Executive’s continued compliance with the covenants of in Sections 12 and 13 (collectively, the “Restrictive Covenants”) as set forth in Section 10(j), the Company shall pay to the Executive such payments and make available to the Executive such benefits and entitlements as are described in this Section 10. In addition, upon any termination of employment, the Executive shall be entitled to the payments, benefits and entitlements as are described in Section 10(i).

          (a) Cash Severance. Except in the event of a termination due to death or Disability, the Executive will be entitled to receive an amount equal to the sum of: (i) one (1) times the Executive’s Base Salary and (ii) one (1) times the Executive’s Target Bonus Amount for the year of the Executive’s termination of employment (the sum of (i) and (ii), the “Termination Payments”), such amount to be payable in equal installments over the one-year period following the Executive’s termination of employment (the “Payment Period”) in accordance with the Company’s regular payroll schedule as of the date hereof, but in all events no less frequently than monthly with all payments paid to the Executive by the first anniversary of the termination date (except in the event where payments need to be delayed in order to comply with Section 409A of the Code). Notwithstanding the foregoing, if such termination occurs upon or during the two years 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 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) Initial LTIP Award and Transaction Bonus and Retention Payment. To the extent then unvested and unpaid, the Executive’s Initial LTIP Award shall vest on the date of termination but shall be paid at such time as such LTIP Award would otherwise have been paid to the Executive had the Executive remained employed with the Company. In addition, 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.

          (d) Equity Compensation. To the extent not previously vested, the portion of any outstanding equity, other than the Initial LTIP Award and the Special Restricted Shares, that vests solely based on the Executive’s fulfillment of time and/or service conditions that would have vested if the Executive had remained employed through the first anniversary of the date of termination shall vest on the date of termination and, all vested options shall remain exercisable until the earlier of the expiration of the original term or the first anniversary of the date of termination; provided that if the Executive’s employment is terminated without Cause or for Good Reason (i) after a definitive agreement is entered into which will result in a Change of Control (provided such agreement results in a Change of Control) or (ii) within six months prior to a Change of Control, any such equity shall be treated as if it had fully vested as of the date of the Change of Control. In addition, the Special Restricted Shares shall fully vest as of the date of termination.

          (e) 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 and life insurance benefit plans in which the Executive was entitled to participate immediately prior to the Executive’s termination or shall arrange to make available to the Executive benefits 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.

          (f) Relocation. If the Executive’s employment is terminated without Cause or for Good Reason on or prior to June 4, 2011, the Executive will be entitled to relocation, at his choice, to either Arizona or Utah on the same terms as he was relocated to Dallas.

          (g) 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 or any other 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”) 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 or such other 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 the Termination Payments or such other 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 the Termination Payments or such other 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. 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 beneficiary as named on the Executive’s ESOP 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.

          (h) 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.

          (i) 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, any bonus payment for any performance period which has ended prior to the date of termination for which the Executive has not been paid, any vested portion of the Initial LTIP Award, any vested portion of the Special Restricted Shares or any vested portion of the 2009 LTIP Award (with the 2009 LTIP Award payable at such times as such 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 Initial LTIP Award, the Special Restricted Shares and any other equity held by the Executive.

          (j) 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 and the Welfare Benefits (but for the avoidance of doubt excluding any LTIP Award or equity awards except in connection with a termination for Cause as provided in this Agreement and Exhibit A) 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 the Pro-Rata Bonus 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. Notwithstanding anything to the contrary in this Agreement or otherwise, there shall be no forfeiture, offset or clawback with respect to the Initial LTIP Award, the 2009 LTIP Award, the Initial Grant or any other equity awards for breach of any restrictive covenant except in connection with a termination for Cause as provided in this Agreement and Exhibit A.

          (k) 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 Sections 8(e) and 10(j) 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 and acceptable to the Executive (which approval shall not be unreasonably withheld by the Executive) (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:

     (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 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 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 within the relevant trade or industry or the Executive is required by lawful service of process, subpoena, court order, law or the rules of 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 performance-based compensation, including, without limitation, any annual bonus or the 2009 LTIP Award (provided such disclosure is only to the extent reasonable 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 given 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 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 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 otherwise permitted in Section 12(a)).

     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 (the “Restricted Period”), including termination for Cause or the Executive’s voluntary resignation without Good Reason, the Executive shall 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 at the time of breach or the date of termination (or had taken substantial steps to so engage in), whichever is earlier.

          (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 the Company Group and their respective employees and independent contractors for the purpose 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 and 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 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 Exhibits A, B 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 applicable law or government regulation or ruling. In addition, in the event that the Shares are not listed for trading on an established securities exchange on the date that an applicable portion of the Initial LTIP Award or any restricted share grant vests, then (i) the Company shall, at the request of the Executive, deduct or withhold Shares having a Fair Market Value equal to the minimum amount required to be withheld to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Executive’s FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to comply with the Code and/or any other applicable law, rule or regulation with respect to such portion of the Initial LTIP Award or restricted share grant and remit the cash value of such Shares to the appropriate tax authorities and (ii) notwithstanding anything to the contrary in the Stockholders Agreement, the Executive shall be permitted to sell such number of Shares to the Company having a fair market value (determined at the time of sale) equal to the additional taxes due from the Executive on the vesting or delivery, as applicable, of such Shares (after taking into account the withholding in clause (i)).

     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 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 whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the “Company” for the purposes of this Agreement except as otherwise provided in Section 13(d)), 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. In the event of the Executive’s death while any payment, benefit or entitlement is due to the Executive under this Agreement, such payment, benefit or entitlement shall be paid or provided to the Executive’s designated beneficiary (or if the Executive has not designated a beneficiary, to his estate).

     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/or 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 or affiliate 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 4(c)(iv) (but only with respect to the last sentence of such clause), 8, 10, 11, 12, 13, 14, 15, 16, 20, 22, 23 and 25 and Exhibits A, B, C and D will survive any termination or expiration of this Agreement or the termination of the Executive’s employment for any reason whatsoever.

     23. Arbitration of Disputes.

          (a) Except as provided in Section 13 of this Agreement, any and all controversies, disputes or claims arising between the parties to this Agreement, including any purported controversies, disputes or claims not arising under contract, that have not been resolved within twenty (20) days after notice is given in writing of the controversy, dispute or claim may be submitted for arbitration, at the election of either party, in accordance with the rules of the American Arbitration Association in effect as of the date hereof. Arbitration shall take place at an appointed time and place in Dallas, Texas. Each party hereto shall select one arbitrator, and the two so designated shall select a third arbitrator. If either party shall fail to designate an arbitrator within fifteen (15) calendar days after arbitration is requested, or if the two arbitrators shall fail to select a third arbitrator within thirty (30) calendar days after arbitration is requested, then such arbitrator shall be selected by the American Arbitration Association, or any successor thereto, upon application of either party. The arbitration shall be instead of any civil litigation; this means that the Executive and the Company are each waiving any rights to a jury trial.

          (b) Except as provided in Section 13 of this Agreement, arbitration under this provision shall be the sole and exclusive forum and remedy for resolution of controversies, disputes and claims of any kind or nature, whether or not presently known or anticipated, including any purported controversies, disputes or claims not arising under contract, between the parties to this Agreement, and no recourse shall be had to any other judicial or other forum for any such resolution. The award of the arbitrators may grant any relief that a court of general jurisdiction has authority to grant, including, without limitation, an award of damages and/or injunctive relief. All costs and expenses of arbitration shall be borne by the Company. Any award of the majority of arbitrators shall be binding and not subject to judicial appeal or review of the award, including without limitation any proceedings under sections 9 and 10 of the Federal Arbitration Act, 9 U.S.C. § 1 et seq., or any comparable provision for review of an arbitral award under any comparable statute or law of any jurisdiction, all rights to which are hereby expressly waived by the parties. The Executive and the Company knowingly and voluntarily agree to this arbitration provision. Subject to the preceding sentence, the United States District Court for the District of Texas and the courts of the State of Texas shall have sole and exclusive jurisdiction solely for the purpose of entering judgment upon any award by the majority of arbitrators.

          (c) Nothing herein shall bar the right of either party to this Agreement to seek and obtain injunctive relief from a court of competent jurisdiction in accordance with Section 13 above.

     24. 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 specifically referencing such provision being so modified, waived or discharged (provided that in the case of any waiver or discharge such waiver or discharge shall only need to be in a writing signed by the party against whom the waiver or discharge is being enforced). 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. For the avoidance of doubt, any reference to an “affiliate” of the Company or any Subsidiary shall not include any investor in the Company or any entity in which such investor owns or holds an equity position (other than the Company or any Subsidiary of the Company).

     25. Defined Terms.

          (a) “2009 LTIP Award” has the meaning specified in Section 4(d)(ii).

          (b) “Accounting Firm” has the meaning specified in Section 11(b).

          (c) “Agreement” has the meaning specified in the introductory paragraph herein.

          (d) “Amendment Approval Date” means December 31, 2009; provided, however, if the Company’s provision of documentation that is required to be provided to the Company’s stockholders in connection with the approval of the Amendment or the Restricted Share Plan is delayed beyond the time-frame previously communicated to the Company as a result of management’s inability to finalize such documentation due to time constraints, the “Amendment Approval Date” shall be the later of (i) December 31, 2009 and (ii) 60 days following the date on which such documentation is provided to the Company’s stockholders.

          (e) “Base Salary” has the meaning specified in Section 4(a).

          (f) “Board” means the Board of Directors of the Company.

          (g) “Bonus Programs” means the Company’s “BOB II” Big Opportunity Bash Bonus Program, adopted August 15, 2002; the Company’s Special Total Ownership Plan 2004, effective February 20, 2004; the HMI Employee Bonus Program, effective October 8, 2004; the Company’s Special Total Ownership Plan, effective March 3, 2006; and the UGA Employee Long Term Bonus Program effective June 25, 2004 or any successor plans or programs.

          (h) “Call Right” has the meaning specified in Section 8(c).

          (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;

     (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) “Code” means the Internal Revenue Code of 1986, as amended.

          (k) “Change of Control” has the meaning specified in Section 4(c).

          (l) “Committee” means the Executive Compensation Committee of the Board or any successor thereto.

          (m) “Company” has the meaning specified in the introductory paragraph of this Agreement.

          (n) “Company Affiliates” has the meaning specified in paragraph 1 of Exhibit E attached hereto.

          (o) “Company Group” has the meaning specified in Section 13(a) and Section 13(d).

          (p) “Confidential Information” has the meaning specified in Section 12(a).

          (q) “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.

          (r) “Effective Date” has the meaning specified in the introductory paragraph of this Agreement.

          (s) “Employment Term” has the meaning specified in Section 2.

          (t) “ESOP” means the Company’s Amended and Restated Employee Stock Ownership Plan.

          (u) “Excise Tax” has the meaning specified in Section 11(f).

          (v) “Executive” has the meaning specified in the introductory paragraph of this Agreement.

          (w) “Fair Market Value” has the meaning specified in Section 8(c).

          (x) “Good Reason” means the occurrence, without the Executive’s written 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 Executive’s Base Salary or Target Bonus Amount, which for this purpose shall mean one or more reductions that, individually or in the aggregate, exceed 5% of the Executive’s Target Bonus

[***] = 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.

Amount or highest Base Salary (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 Executive’s participation in the Company’s benefit plans and policies to a level materially less favorable to Executive unless such reduction applies to a majority of senior level executives;

     (iv) the relocation of the Executive’s primary place of employment to a location 50 or more miles from the current headquarters;

     (v) any change in reporting structure so that the Executive reports to someone other than the Board (or, following a Change of Control or reorganization, the board of directors of any successor entity or the ultimate parent entity);

     (vi) failure to appoint or elect (or reelect) the Executive as a member of the Board and as Chief Executive Officer of the Company or removal of the Executive from any such position;

     (vii) following a Change of Control, failure of the Executive to be a member of the board of directors and chief executive officer of the successor entity (including the ultimate parent of such entity);

     (viii) failure of the Company’s stockholders to approve the Amendment or adopt the Restricted Share Plan by the Amendment Approval Date; or

     (ix) 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 provide a notice of his intent to resign for Good Reason if he provides such notice within 120 days following the date he first learns of the event(s) giving rise to Good Reason and shall only be entitled to resign for “Good Reason” thereafter if the Company fails to cure such events within 30 days following such notice and if he terminates his employment within two years following the event(s) on which the Good Reason termination is based.

          (y) “Gross-Up Payment” has the meaning specified in Section 11(a).

          (z) [***]

          (aa) [***]

          (bb) [***]

[***] = 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.

          (cc) “Incentive Programs” has the meaning specified in Section 4(c).

          (dd) “Initial Employment Term” has the meaning specified in Section 2.

          (ee) “Initial Grant” has the meaning set forth in Section 4(c).

          (ff) “Initial LTIP Award” has the meaning set forth in Section 4(d)(i).

          (gg) “Initial Payment Period” has the meaning specified in Section 10(g).

          (hh) “Interest” has the meaning set forth in Section 10(g).

          (ii) “Investment” has the meaning set forth in Section 8(a).

          (jj) “IPO” has the meaning specified in the Stockholders Agreement.

          (kk) “Limit” has the meaning set forth in Section 10(g).

          (ll) “MOP” means the Company’s 2006 Management Option Plan as in effect as of the Effective Date and as may be amended from time to time.

          (mm) “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.

          (nn) “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

          (oo) “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).

          (pp) “Option Rights” has the meaning specified in the MOP.

          (qq) “Parachute Value” has the meaning specified in Section 11(f).

          (rr) “Payment” has the meaning specified in Section 11(f).

          (ss) “Payment Period” has the meaning specified in Section 10(a).

          (tt) “Pro-Rata Bonus” has the meaning specified in Section 10(b).

          (uu) “Regional Payor” means an organization that underwrites and issues health insurance on a regional basis.

          (vv) “Release” has the meaning specified in the introductory paragraph of Exhibit E attached hereto.

          (ww) “Renewal Term” has the meaning specified in Section 2.

          (xx) “Restricted Period” has the meaning specified in Section 13.

          (yy) “Restrictive Covenants” has the meaning specified in Section 10.

          (zz) “Restricted Shares” shall mean a grant of restricted stock consisting of shares of A-1 common stock of the Company.

          (aaa) “Revocation Date” has the meaning specified in paragraph 3 of Exhibit E attached hereto.

          (bbb) “Safe Harbor Amount” has the meaning set forth in Section 11(f).

          (ccc) “Shares” has the meaning set forth in Section 4(d)(i).

          (ddd) “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 executed in connection with the Merger, as may be amended from time to time.

          (eee) “Subsidiary” or “Subsidiaries” 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%) or more for purposes of Sections 1 and 25(h)(iv) of this Agreement.

          (fff) “Successor” has the meaning specified in Section 17(a).

          (ggg) “Target Bonus Amount” has the meaning specified in Section 4(b)(i).

          (hhh) “Termination Payments” has the meaning specified in Section 10(a).

          (iii) “Underpayment” has the meaning specified in Section 11(b).

          (jjj) “Welfare Benefits” has the meaning specified in Section 10(e).

     26. Counterparts. This Agreement may be executed in one or more counterparts, including by facsimile signature, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement.

     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.

Phillip Hildebrand
HealthMarkets, Inc.
By:
	Peggy Simpson
	Corporate Secretary

Solely with respect to Sections 4(c), 8 and 16 of this Agreement and Exhibit A
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

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.

Exhibit A

Form of Option Agreement

Exhibit B

Form of Restricted Share Agreement

Exhibit C

Form of Special Restricted Share Agreement

Exhibit D

Form of Subscription Agreement

Exhibit E

Form of Release

          In consideration of the payments and promises contained in your Employment Agreement with HealthMarkets, Inc. (the “Company”) dated as of September ___, 2009 (the “Employment Agreement”), 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 Company 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 “Company 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 Company 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, [state-specific employee-employer laws] and any claim under any other statutes of the State of ___, 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 Company Affiliates relating to any claims, liabilities, obligations, promises, sums of money, agreements, controversies, damages, actions, lawsuits, rights, demands, 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; (ii) any other vested rights as of the date of termination you may have under any plan or program in which you have participated in your capacity as an employee and/or director of the Company or any other Company 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 Exhibits A, B, C or D, including but not limited to your right to bring a claim for breach of this Release or the Employment Agreement, including Exhibits A, B, C or D; (v) any rights you may have under that Section 8 (Investment; Stockholders Agreement), 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 Company’s Amended and Restated Bylaws and/or the Company’s 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 expiration of said seven-day period, 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 Company and its subsidiaries and affiliates and their respective predecessors and successors, 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

B-4

agree (the Company’s agreement not to be unreasonably withheld) separate representation is warranted by the circumstances.

     5. agree not to, either in writing or by any other medium, make any disparaging or derogatory statement about the Company and its affiliates and subsidiaries and their respective predecessors and successors 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 and the foregoing shall not prohibit you from making any truthful statements that are necessary to defend yourself in an arbitration or judicial proceeding.

B-5

EX-10.4

Exhibit 10.4

EXECUTION VERSION

FORM OF NONQUALIFIED STOCK OPTION AGREEMENT

     This AGREEMENT (this “Agreement”) is made as of September 8, 2009 (the “Effective Date”) by and between HealthMarkets, Inc., a Delaware corporation (together with its successors and assigns, the “Company”), and Phillip Hildebrand (“Optionee”).

     WHEREAS, on the Effective Date the Company and Optionee entered into an employment agreement with respect to Optionee’s employment as an executive of the Company and certain related terms (the “Employment Agreement”);

     WHEREAS, the Company and the Optionee are party to a Nonqualified Stock Option Agreement as of June 5, 2008 (the “Prior Stock Option Agreement”);

     WHEREAS, the Company and the Optionee wish to cancel the Prior Stock Option Agreement in its entirety with this Agreement;

     WHEREAS, the Company, acting through the Compensation Committee with the consent of the Board has agreed to grant to Optionee, effective on the Effective Time, Options (as defined in Section 2 of this Agreement) under the Company’s 2006 Management Option Plan (the “Plan”) to purchase a number of shares of the Company’s Class A-1 Common Stock (the “Shares”) on the terms and subject to the conditions set forth in this Agreement and the Plan;

     WHEREAS, future securities in the Company (including those being acquired pursuant to this Agreement) owned by Optionee shall be subject to the terms of the Stockholders Agreement (as amended with respect to Optionee pursuant to the Employment Agreement).

     NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:

     1. Certain Definitions. Capitalized terms used, but not otherwise defined, in this Agreement will have the meanings given to such terms in the Company’s 2006 Management Option Plan (the “Plan”). As used in this Agreement:

          (a) “Board” means the Board of Directors of the Company.

          (b) “Cause” has the meaning specified in the Employment Agreement.

          (c) “Change of Control” has the meaning specified in the Employment Agreement.

          (d) “Compensation Committee” means the Executive Compensation Committee of the Board.

          (e) “Disability” has the meaning specified in the Employment Agreement.

          (f) “Fair Market Value” shall have the meaning specified in, and shall be construed and determined in accordance with the procedures set forth in, the Employment Agreement.

          (g) “Good Reason” has the meaning specified in the Employment Agreement.

     2. Grant of Stock Option/Exercise Price. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement, including, without limitation, Section 9 and the Plan, the Company hereby grants to Optionee options to purchase 506,650 Shares (the “Options”) as of the date hereof. The Shares subject to the Option may be purchased pursuant to the Options at a price (the “Option Price”) equal to $19.37 per Share. The Options are intended to be nonqualified stock options and shall not be treated as an “incentive stock option” within the meaning of that term under Section 422 of the Code, or any successor provision thereto.

     3. Term of Options. The term of the Options shall commence at the Effective Date and, unless earlier terminated in accordance with the terms of this Agreement, shall expire ten (10) years from the Effective Date.

     4. Right to Exercise. Unless terminated as hereinafter provided and except as otherwise provided in Section 7, the Options shall become exercisable (i.e., vested) in quarterly installments determined based on 30% of the Options vesting by the first anniversary of June 4, 2009 (such that 7.5% of the Option shall vest quarterly up through such first anniversary), an additional 20% vesting by each of the second, third and fourth anniversaries of June 4, 2009 (such that 5% of the Option shall vest quarterly after such first anniversary) and the remaining 10% vesting by the fifth anniversary of June 4, 2009 (such that 2.5% of the Option shall vest quarterly after such fourth anniversary), in each case, subject to Optionee’s remaining in the continuous employ of the Company or any Subsidiary through the applicable vesting date; provided, that to the extent the Effective Time occurs after any such quarterly vesting date or the vesting required upon a termination of employment in Sections 7(b) or 7(c), the portion of the Options that would have vested on such date shall not vest on such date, but shall instead vest on the Effective Time; provided further, that such Options shall become fully exercisable upon a Change of Control.

     5. Option Nontransferable. Optionee may not transfer or assign all or any part of the Options other than by will or by the laws of descent and distribution. The Options may be exercised, during the lifetime of Optionee, only by Optionee, or in the event of Optionee’s legal incapacity, by Optionee’s guardian or legal representative acting on behalf of Optionee in a fiduciary capacity under state law and court supervision. Optionee shall be entitled to the privileges of ownership with respect to Shares purchased and delivered to Optionee upon the exercise of all or part of the Options.

     6. Notice of Exercise; Payment.

          (a) To the extent then exercisable, the Option may be exercised in whole or in part by written notice to the Company stating the number of Shares for which the Options are being exercised and the intended manner of payment. The date of such notice shall be the exercise date. Payment equal to the aggregate Option Price of the Shares being purchased pursuant to an exercise of the Options must be tendered in full with the notice of exercise to the Company in one or a combination of the following methods as specified by Optionee in the notice of exercise: (i) cash in the form of currency or check or by wire transfer as directed by the Company, (ii) through the surrender to the Company of Shares as valued at their Fair Market Value on the date of exercise (including by having the Company withhold Shares upon exercise of the Option) or (iii) through such other form of consideration as is deemed acceptable by the Board. In this regard, while the Shares are not publicly traded, upon the Optionee’s request (or that of any Person authorized to exercise to the Option as set forth herein or in the Plan), the Board shall communicate to the Optionee (or such other Person) the Fair Market Value of the Shares as of the date of such request in a timely manner to enable the Optionee (or such other Person) to exercise his vested Options.

          (b) As soon as practicable upon the Company’s receipt of Optionee’s payment and notice of exercise, the Company shall direct the due issuance of the Shares so purchased.

          (c) As a further condition precedent to the exercise of the Options in whole or in part, Optionee shall comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.

     7. Termination of Employment.

          (a) General. Except as provided immediately below, if Optionee’s employment terminates for any reason, the Options, to the extent not then vested (i.e., exercisable), will be immediately forfeited and all vested Options will remain exercisable for the shorter of (1) 90 days following the date of termination and (2) the remainder of their original scheduled term; provided that if such termination is prior to the Effective Time, the Options that would have vested as of the date of termination if vesting was based solely on the passage of time shall vest as of the Effective Time and Optionee shall have 90 days following the Effective Time to exercise such vested Options. For the avoidance of doubt, any reference to any Option being or becoming vested shall also mean it has become or will become “exercisable”.

          (b) Without Cause; for Good Reason. If Optionee’s employment is terminated by the Company without Cause (which shall for purposes of this Agreement include a termination of the Optionee’s employment upon conclusion of the Employment Term (as defined in the Employment Agreement) after the Company’s giving the Optionee a notice of non-renewal of the Employment Term) or by Optionee for Good Reason, to the extent not previously cancelled or expired, as of the date of termination Optionee’s unvested Options that would have vested if Optionee had remained employed through the first anniversary of the date of termination will vest and all vested Options will remain exercisable for the shorter of (1) one year following the date of termination and (2) the remainder of their original scheduled term. Notwithstanding the foregoing, if Optionee’s employment is terminated without Cause or for Good Reason (i) after a definitive agreement is entered into which will result in a Change of Control (provided such agreement results in a Change of Control) or (ii) within six months prior to a Change of Control, the Options shall be treated as if they had fully vested as of the date of the Change of Control.

          (c) Death; Disability. If Optionee’s employment is terminated by reason of Optionee’s death or Disability, to the extent not previously cancelled or expired, as of the date of termination Optionee’s unvested Options that would have vested if Optionee had remained employed through the first anniversary of the date of termination will vest and all vested Options will remain exercisable for the shorter of (1) one year following the date of termination and (2) the remainder of their original scheduled term; provided, however, that it shall be a condition to the exercise of the Options in the event of Optionee’s death that the Person exercising the Options shall (i) have agreed in a form satisfactory to the Company to be bound by the provisions of this Agreement and, if there has been no Change of Control or an IPO, the Stockholders Agreement (as modified by Section 8 of the Employment Agreement) and (ii) comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.

          (d) Cause. Notwithstanding the foregoing or any provision of this Agreement or the Employment Agreement to the contrary, if Optionee’s employment is terminated by the Company for Cause, all options, whether or not vested, will be immediately forfeited as of the date of termination.

     8. Call Right. Upon termination of Optionee’s employment for any reason prior to an IPO or a Change of Control, the Company will have the right to purchase (the “Call Right”) any Shares that

Optionee received pursuant to the terms and conditions set forth in Section 8(c) of the Employment Agreement.

     9. Effective Time. The Options granted hereby shall be and become effective (the “Effective Time”) upon the the delivery of an executed counterpart of this Agreement to the Company by Optionee. Notwithstanding the foregoing, the Options granted hereby shall be subject to the approval of the stockholders of the Company of an amendment to the Plan increasing the authorized Share number thereunder (and thereby permitting the grant of the Options thereunder) and the maximum number of Options that may be granted to any individual under the Plan. For the avoidance of doubt, in the event that such stockholder approval is not obtained by the earlier of (x) the Amendment Approval Date or (y) a Change of Control, this Agreement and the grant of Options hereunder (and the cancelling of the Prior Stock Option Agreement) shall be null and void ab initio and be of no further force or effect.

     10. Initial Public Offering. Shares acquired on exercise of any Option will be subject to the terms and conditions of the Stockholders’ Agreement, as amended by Section 8 of the Employment Agreement. The Company and Optionee acknowledge that they will agree to provide the Company with the right to require Optionee and other executives of the Company or any Subsidiary 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 Optionee’s and the other executives’ loss of liquidity; provided that if the Optionee’s employment is terminated without Cause or for Good Reason, then the Optionee shall fully vest upon the date of termination in any grant made under such IPO bonus plan.

     11. No Employment Contract. Nothing contained in this Agreement shall (a) confer upon Optionee any right to be employed by or remain employed by the Company or any Subsidiary, or (b) limit or affect in any manner the right of the Company or any Subsidiary to terminate the employment or adjust the compensation of Optionee.

     12. Taxes and Withholding. The Company or any Subsidiary may withhold, or require Optionee to remit to the Company or any Subsidiary, an amount sufficient to satisfy federal, state, local or foreign taxes (including Optionee’s FICA obligation) in connection with any payment made or benefit realized by Optionee or other person under this Agreement or otherwise, and the amounts available to the Company or any Subsidiary for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that Optionee or such other person make arrangements satisfactory to the Company or any Subsidiary for payment of the balance of such taxes required to be withheld. The Company or any Subsidiary may elect to have such withholding obligation satisfied by having Optionee surrender to the Company or any Subsidiary a portion of the Shares that is issued or transferred to Optionee upon the exercise of an Option (but only to the extent of the minimum withholding required by law), and the Shares so surrendered by Optionee shall be credited against any such withholding obligation at the Fair Market Value of such shares on the date of such surrender.

     13. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, that notwithstanding any other provision of this Agreement, the Options shall not be exercisable if the exercise thereof would result in a violation of any such law.

     14. Adjustments. In the event of any stock split, reverse stock split, share dividend, merger, consolidation or other event after the Effective Date that makes an equitable adjustment appropriate, the Board shall make such substitution or adjustment (including cash payments) in the number of Shares covered by the Options, in the Option Price applicable to such Options, and in the kind of shares covered thereby and/or such other equitable substitution or adjustments as it determines in good faith to be

equitable. In addition to, and notwithstanding the foregoing, the Option Price shall be adjusted downward (to the extent practicable without causing adverse tax consequences to Optionee) for any dividends paid to the Sponsors after the Effective Date. In connection with a Change of Control, such substitutions and adjustments may include, without limitation, canceling any and all Options in exchange for cash payments equal to the excess, if any, of the value of the consideration paid to a shareholder of a Share over the Option Price per Share subject to such Option in connection with such an adjustment event.

     15. Relation to Other Benefits. Any economic or other benefit to Optionee under this Agreement shall not be taken into account in determining any benefits to which Optionee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or any Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any Subsidiary.

     16. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of Optionee under this Agreement or the Employment Agreement without Optionee’s written consent.

     17. Severability. If one or more of the provisions of this Agreement is invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

     18. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan; provided, however, that in the event of any inconsistent provisions between this Agreement and the Plan, this Agreement shall govern. The Board acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine (in good faith) any questions which arise in connection with the Option or its exercise.

     19. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee, and the successors and assigns of the Company.

     20. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflict of laws thereof and all parties, including their successors and assigns, consent to the jurisdiction of the state and federal courts of Delaware.

     21. Prior Agreement; Employment Agreement. As of the date that the Optionee countersigns this Agreement, this Agreement will supersede 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 (other than the Employment Agreement and its Exhibits). 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 or in Sections 4(c) and 10(j) of the Employment Agreement, and that no prior and/or contemporaneous agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement (or Sections 4(c) and 10(j) of the Employment Agreement) shall be valid or binding on either party. Sections 23 and 24 of the Employment Agreement shall be incorporated in full herein, provided that any reference to “the Executive” shall be deemed to be a reference to the Optionee and any reference to “this Agreement” shall be a reference to this Agreement. Without limiting the generality of the foregoing, by

execution of this Agreement, the Optionee hereby agrees that effective immediately, the Prior Stock Option Agreement and the options granted thereunder, whether vested or unvested, shall be cancelled and void and the Prior Stock Option Agreement shall be of no further force or effect unless this Agreement becomes null and void in accordance with the last sentence of Section 9 above.

     22. 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 business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three 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 Optionee 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.

     23. 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.

     24. Offset. Notwithstanding anything in this Agreement or the Stockholders Agreement to the contrary, if the Optionee (or his estate) has received a Transaction Bonus or a Retention Payment (as each is defined in the Employment Agreement) then the Optionee agrees that Section 8(e) of the Employment Agreement shall apply to this Agreement.

          IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and Optionee has executed this Agreement, as of the day and year first above written.

HealthMarkets, Inc.

By:

Name:

Title:

OPTIONEE

Name: Phillip Hildebrand

EX-10.5

Exhibit 10.5

EXECUTION VERSION

FORM OF

RESTRICTED SHARE AGREEMENT

     This AGREEMENT, is made as of September 8, 2009 (the “Effective Date”), by and between HealthMarkets, Inc., a Delaware corporation (together with its successors and assigns, the “Company”), and Phillip Hildebrand (the “Executive”);

     WHEREAS, on the Effective Date the Company and the Executive entered into an employment agreement with respect to the Executive’s employment as an executive of the Company and certain related terms (the “Employment Agreement”);

     WHEREAS, the Company, acting through the Compensation Committee with the consent of the Board has agreed to grant to the Executive, effective on the Effective Time, restricted shares of the Company’s Class A-1 Common Stock (the “Restricted Shares”) on the terms and subject to the conditions set forth in this Agreement;

     WHEREAS, the Restricted Shares shall be subject to the terms of the Stockholders Agreement (as amended with respect to the Executive pursuant to the Employment Agreement).

     NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:

     1. Capitalized Terms. Capitalized terms not defined herein shall have the definitions ascribed to such terms in the Employment Agreement.

     2. Grant. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement, including, without limitation, Section 9, the Company hereby grants to the Executive 506,650 Restricted Shares as of the date hereof pursuant to Section 4(c)(ii) of the Employment Agreement.

     3. Issuance of Stock. The Restricted Shares shall be subject to the restrictions described herein. The Restricted Shares shall bear appropriate legends with respect to the restrictions described herein.

     4. Vesting. Subject to the Executive’s remaining in the continuous employ of the Company or any Subsidiary through the applicable vesting date, except as otherwise provided in Section 6 hereof, and the Company’s achievement of an “Adjusted EBITDA” (as determined in accordance with Schedule 1 to the Employment Agreement) of at least $10 million for at least one fiscal quarter occurring during the time period from the date of this Agreement through the first anniversary of the date hereof, the Restricted Shares shall vest in quarterly installments determined based on 30% of the Restricted Shares vesting by the first anniversary of June 4, 2009 (such that 7.5% of the Restricted Shares shall vest quarterly up through such first anniversary), an additional 20% vesting by each of the second, third and fourth anniversaries of June 4, 2009 (such that 5% of the Restricted Shares shall vest quarterly after such first anniversary) and the remaining 10% vesting by the fifth anniversary of June 4, 2009 (such that 2.5% of the Restricted Shares shall vest quarterly after such fourth anniversary); provided, that to the extent the Effective Time occurs or the performance hurdle is satisfied after any such Restricted Shares would have otherwise vested (if the passage of time was the only vesting requirement), the portion of the Restricted Shares that would have vested on such date shall not vest on such date, but shall instead vest on the Effective Time or the date of satisfaction of the performance hurdle, as applicable (including, in the case of achievement of the performance hurdle, if the Executive’s employment is terminated under the

circumstances set forth in Sections 6(b) and 6(c) below prior to the satisfaction of the performance hurdle); provided further, that the Restricted Shares shall immediately vest in full upon a Change of Control (whether or not the performance hurdle is satisfied as of the time of the Change of Control).

     5. Restrictions. No portion of the Restricted Shares or rights granted hereunder may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of by the Executive until such portion of the Restricted Shares becomes vested, and any purported sale, transfer, assignment, pledge, encumbrance or disposition shall be void and unenforceable against the Company. The period of time between the Effective Date and the date all Restricted Shares become vested is referred to herein as the “Restriction Period.”

     6. Termination of Employment.

     (a) General. Except as provided immediately below, if the Executive’s employment terminates for any reason, the Restricted Shares, to the extent not then vested will be immediately forfeited; provided that if the Effective Time or the performance hurdle is satisfied after the date the Executive’s employment terminates, the Executive shall be deemed to have vested in the number of Restricted Shares that would have vested if he remained employed through such date.

     (b) Without Cause; for Good Reason. If the Executive’s employment is terminated by the Company without Cause (which shall for purposes of this Agreement include a termination of the Executive’s employment upon conclusion of the Employment Term (as defined in the Employment Agreement) after the Company’s giving the Executive a notice of non-renewal of the Employment Term) or by the Executive for Good Reason, as of the date of termination, the Restricted Shares that would have vested if the Executive had remained employed through the first anniversary of the date of termination will vest. Notwithstanding the foregoing, if the Executive’s employment is terminated without Cause or for Good Reason (i) after a definitive agreement is entered into which will result in a Change of Control (provided such agreement results in a Change of Control) or (ii) within six months prior to a Change of Control, the Restricted Shares shall be treated as if they had fully vested as of the date of the Change of Control (whether or not the performance hurdle is satisfied as of the date of the Change of Control).

     (c) Death; Disability. If the Executive’s employment is terminated by reason of the Executive’s death or Disability, as of the date of termination, the Restricted Shares that would have vested if the Executive had remained employed through the first anniversary of the date of termination will vest; provided, however, that it shall be a condition to the vesting of the Restricted Shares in the event of the Executive’s death that the Person receiving the Shares shall (i) have agreed in a form satisfactory to the Company to be bound by the provisions of this Agreement and, if there has been no Change of Control or an IPO, the Stockholders Agreement (as modified by Section 8 of the Employment Agreement) and (ii) comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.

     (d) Cause. Notwithstanding the foregoing or any provision of this Agreement or the Employment Agreement to the contrary, if the Executive’s employment is terminated by the Company for Cause, all unvested Restricted Shares will be immediately forfeited as of the date of termination; provided that if the Effective Time or the performance hurdle is satisfied after the date the Executive’s employment terminates, the Executive shall be deemed to have vested in the number of Restricted Shares that would have vested if he remained employed through such date.

     7. Call Right. Upon termination of the Executive’s employment for any reason prior to an IPO or a Change of Control, the Company will have the right to purchase (the “Call Right”)

any Shares that the Executive received pursuant to the terms and conditions set forth in Section 8(c) of the Employment Agreement.

     8. Initial Public Offering. The Restricted Shares shall be subject to the terms and conditions of the Stockholders’ Agreement, as amended by Section 8 of the Employment 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 or any Subsidiary 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.

     9. Effective Time. The Restricted Shares granted hereby shall be and become effective upon the later of (i) the delivery of an executed counterpart of this Agreement to the Company by the Executive and (ii) the approval of the stockholders of the Company of a plan permitting the issuance of Restricted Shares (the “Plan”) (such later date, the “Effective Time”). For the avoidance of doubt, in the event that such stockholder approval is not obtained by the earlier of (x) the Amendment Approval Date or (y) a Change of Control, this Agreement and the grant of Restricted Shares hereunder shall be null and void ab initio and be of no further force or effect. The Company also represents to the Executive that no provision of the Plan that is inconsistent with this Agreement or the Employment Agreement will adversely affect the Restricted Shares.

     10. Executive Shareholder Rights. Prior to the date on which the Restricted Shares vest, except as otherwise set forth herein, the Executive shall have all rights of a shareholder with respect to the Restricted Shares. Notwithstanding the foregoing, cash dividends, if any, paid with respect to any Restricted Shares which have not vested at the time of the dividend payment shall be paid to and held in the custody of the Company, and shall be subject to the same restrictions that apply to the corresponding Restricted Shares, and shall be released from the custody of the Company at such time as the restrictions on the underlying Shares to which the dividends relate have lapsed. At such time as any Restricted Share vests, any such custodial dividends held by the Company (including any interest thereon payable in accordance with this Section 10) with respect to such vested share shall be paid to the Executive.

     11. No Employment Contract. Nothing contained in this Agreement shall (a) confer upon the Executive any right to be employed by or remain employed by the Company or any Subsidiary, or (b) limit or affect in any manner the right of the Company or any Subsidiary to terminate the employment or adjust the compensation of the Executive.

     12. Taxes and Withholding. The Company or any Subsidiary may withhold, or require the Executive to remit to the Company or any Subsidiary, an amount sufficient to satisfy federal, state, local or foreign taxes (including the Executive’s FICA obligation) in connection with any payment made or benefit realized by the Executive or other person under this Agreement or otherwise, and the amounts available to the Company or any Subsidiary for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that the Executive or such other person make arrangements satisfactory to the Company or any Subsidiary for payment of the balance of such taxes required to be withheld. The Executive may elect to have such withholding obligation satisfied by surrendering to the Company a portion of the Shares that is issued or transferred to the Executive upon the vesting of the Restricted Shares (but only to the extent of the minimum withholding required by law), and the Shares so surrendered by the Executive shall be credited against any such withholding obligation at the Fair Market Value of such Shares on the date of such surrender (and the amount equal to the Fair Market Value of such shares shall be remitted to the appropriate tax authorities).

The Executive shall also have the put right set forth in subclause (ii) of the last sentence of Section 16 of the Employment Agreement.

     13. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, that notwithstanding any other provision of this Agreement, the Restricted Shares shall not vest if the vesting thereof would result in a violation of any such law.

     14. Adjustments. In the event of any stock split, reverse stock split, share dividend, merger, consolidation or other event after the Effective Date that makes an equitable adjustment appropriate, the Board shall make such substitution or adjustment (including cash payments) in the number and kind of Restricted Shares covered thereby and/or such other equitable substitution or adjustments as it determines in good faith to be equitable. In connection with a Change of Control, such substitutions and adjustments may include, without limitation, canceling any and all Restricted Shares in exchange for cash payments equal to the Fair Market Value of the Restricted Shares in connection with such an adjustment event.

     15. Relation to Other Benefits. Any economic or other benefit to the Executive under this Agreement shall not be taken into account in determining any benefits to which the Executive may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or any Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any Subsidiary.

     16. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Executive under this Agreement or the Employment Agreement without the Executive’s written consent.

     17. Severability. If one or more of the provisions of this Agreement is invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

     18. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan; provided, however, that in the event of any inconsistent provisions between this Agreement and the Plan, this Agreement shall govern. In addition, in the event of any inconsistent provisions between the Plan and the Employment Agreement, the Employment Agreement shall govern. The Board acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine (in good faith) any questions which arise in connection with the Restricted Shares.

     19. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Executive, and the successors and assigns of the Company.

     20. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflict of laws thereof and all parties, including their successors and assigns, consent to the jurisdiction of the state and federal courts of Delaware.

     21. Prior Agreement; Employment Agreement. As of the date that the Executive countersigns this Agreement, this Agreement will supersede 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 (other than the Employment Agreement and its Exhibits). 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 or in Sections 4(c) and 10(j) of the Employment Agreement, and that no prior and/or contemporaneous agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement (or Sections 4(c) and 10(j) of the Employment Agreement) shall be valid or binding on either party. Sections 23 and 24 of the Employment Agreement shall be incorporated in full herein, provided that any reference to “this Agreement” shall be a reference to this Agreement.

     22. 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 business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three 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.

     23. 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.

     24. Offset. Notwithstanding anything in this Agreement or the Stockholders Agreement to the contrary, if the Executive (or his estate) has received a Transaction Bonus or a Retention Payment (as each is defined in the Employment Agreement) then the Executive agrees that Section 8(e) of the Employment Agreement shall apply to this Agreement.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and the Executive has executed this Agreement, as of the day and year first above written.

HealthMarkets, Inc.
 

By:  

Name:

Title: 

EXECUTIVE
Name: Phillip Hildebrand
 

EX-10.6

Exhibit 10.6

EXECUTION VERSION

EXHIBIT C

FORM OF
SPECIAL RESTRICTED SHARE AGREEMENT

     This AGREEMENT, is made as of September 8, 2009 (the “Effective Date”), by and between HealthMarkets, Inc., a Delaware corporation (together with its successors and assigns, the “Company”), and Phillip Hildebrand (the “Executive”);

     WHEREAS, on the Effective Date the Company and the Executive entered into an employment agreement with respect to the Executive’s employment as an executive of the Company and certain related terms (the “Employment Agreement”);

     WHEREAS, the Company, acting through the Compensation Committee with the consent of the Board has agreed to grant to the Executive, effective on the Effective Time, restricted shares of the Company’s Class A-1 Common Stock (the “Restricted Shares”) on the terms and subject to the conditions set forth in this Agreement;

     WHEREAS, the Restricted Shares shall be subject to the terms of the Stockholders Agreement (as amended with respect to the Executive pursuant to the Employment Agreement).

     NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:

     1. Capitalized Terms. Capitalized terms not defined herein shall have the definitions ascribed to such terms in the Employment Agreement.

     2. Grant. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement, including, without limitation, Section 10, the Company hereby grants to the Executive 25,862 Restricted Shares as of the date hereof pursuant to Section 4(c)(iii) of the Employment Agreement.

     3. Issuance of Stock. The Restricted Shares shall be subject to the restrictions described herein. The Restricted Shares shall bear appropriate legends with respect to the restrictions described herein.

     4. Vesting. Subject to the Executive’s remaining in the continuous employ of the Company or any Subsidiary through the applicable vesting date, except as otherwise provided in Section 6 hereof, and the Company’s achievement of an “Adjusted EBITDA” (as determined in accordance with Schedule 1 to the Employment Agreement) of at least $10 million for at least one fiscal quarter occurring during the time period from the date of this Agreement through the first anniversary of the date hereof, the Restricted Shares shall vest as to one-third of the Restricted Shares on the Effective Time, in quarterly installments determined based on an additional one-third of the Restricted Shares vesting by June 4, 2010 and the remaining one-third of the Restricted Shares vesting by June 4, 2011 (such that one-twelfth of the Restricted Shares shall vest quarterly up through such dates); provided, that to the extent the Effective Time occurs or the performance hurdle is satisfied after any such Restricted Shares would have otherwise vested (if the passage of time was the only vesting requirement), the portion of the Restricted Shares that would have vested on such date shall not vest on such date, but shall instead vest on the Effective Time or the date of satisfaction of the performance hurdle, as applicable (including, in the case of achievement of the performance hurdle, if the Executive’s employment is terminated under the circumstances set forth in Sections 6(b) and 6(c) prior to the satisfaction of the performance hurdle); provided further, that the

Restricted Shares shall immediately vest in full upon a Change of Control (whether or not the performance hurdle is satisfied as of the time of the Change of Control).

     5. Restrictions. No portion of the Restricted Shares or rights granted hereunder may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of by the Executive until such portion of the Restricted Shares becomes vested, and any purported sale, transfer, assignment, pledge, encumbrance or disposition shall be void and unenforceable against the Company. The period of time between the Effective Date and the date all Restricted Shares become vested is referred to herein as the “Restriction Period.”

     6. Termination of Employment.

     (a) General. Except as provided immediately below, if the Executive’s employment terminates for any reason, the Restricted Shares, to the extent not then vested will be immediately forfeited; provided that if the Effective Time or the performance hurdle is satisfied after the date the Executive’s employment terminates, the Executive shall be deemed to have vested in the number of Restricted Shares that would have vested if he remained employed through such date.

     (b) Without Cause; for Good Reason. If the Executive’s employment is terminated by the Company without Cause (which shall for purposes of this Agreement include a termination of the Executive’s employment upon conclusion of the Employment Term (as defined in the Employment Agreement) after the Company’s giving the Executive a notice of non-renewal of the Employment Term) or by the Executive for Good Reason, any theretofore unvested Restricted Shares shall vest in full.

     (c) Death; Disability. If the Executive’s employment is terminated by reason of the Executive’s death or Disability, any theretofore unvested Restricted Shares shall vest in full; provided, however, that it shall be a condition to the vesting of the Restricted Shares in the event of the Executive’s death that the Person receiving the Shares shall (i) have agreed in a form satisfactory to the Company to be bound by the provisions of this Agreement and, if there has been no Change of Control or an IPO, the Stockholders Agreement (as modified by Section 8 of the Employment Agreement) and (ii) comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.

     (d) Cause. Notwithstanding the foregoing or any provision of this Agreement or the Employment Agreement to the contrary, if the Executive’s employment is terminated by the Company for Cause, all unvested Restricted Shares will be immediately forfeited as of the date of termination; provided that if the Effective Time or the performance hurdle is satisfied after the date the Executive’s employment terminates, the Executive shall be deemed to have vested in the number of Restricted Shares that would have vested if he remained employed through such date.

     7. Call Right. Upon termination of the Executive’s employment for any reason prior to an IPO or a Change of Control, the Company will have the right to purchase (the “Call Right”) any Shares that the Executive received pursuant to the terms and conditions set forth in Section 8(c) of the Employment Agreement.

     8. Put Right. Upon termination of the Executive’s employment with the Company or any of its Subsidiaries (other than a termination by the Company for Cause or a resignation by the Executive without Good Reason other than upon death or Disability) prior to an IPO or a Change of Control, the Executive shall have the right to sell any Shares that the Executive received pursuant to the terms and conditions set forth in Section 8(b) of the Employment Agreement.

     9. Initial Public Offering. The Restricted Shares shall be subject to the terms and conditions of the Stockholders’ Agreement, as amended by Section 8 of the Employment 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 or any Subsidiary 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.

     10. Effective Time. The Restricted Shares granted hereby shall be and become effective upon the later of (i) the delivery of an executed counterpart of this Agreement to the Company by the Executive and (ii) the approval of the stockholders of the Company of a plan permitting the issuance of Restricted Shares (the “Plan”) (such later date, the “Effective Time”). For the avoidance of doubt, in the event that such stockholder approval is not obtained by the earlier of (x) the Amendment Approval Date or (y) a Change of Control, this Agreement and the grant of Restricted Shares hereunder shall be null and void ab initio and be of no further force or effect except for Section 13 of this Agreement which shall continue to have full force and effect. The Company also represents to the Executive that no provision of the Plan that is inconsistent with this Agreement or the Employment Agreement will adversely affect the Restricted Shares.

     11. Executive Shareholder Rights. Prior to the date on which the Restricted Shares vest, except as otherwise set forth herein, the Executive shall have all rights of a shareholder with respect to the Restricted Shares. Notwithstanding the foregoing, cash dividends, if any, paid with respect to any Restricted Shares which have not vested at the time of the dividend payment shall be paid to and held in the custody of the Company, and shall be subject to the same restrictions that apply to the corresponding Restricted Shares, and shall be released from the custody of the Company at such time as the restrictions on the underlying Shares to which the dividends relate have lapsed. At such time as any Restricted Share vests, any such custodial dividends held by the Company (including any interest thereon payable in accordance with this Section 11) with respect to such vested share shall be paid to the Executive.

     12. No Employment Contract. Nothing contained in this Agreement shall (a) confer upon the Executive any right to be employed by or remain employed by the Company or any Subsidiary, or (b) limit or affect in any manner the right of the Company or any Subsidiary to terminate the employment or adjust the compensation of the Executive.

     13. Taxes. The Company shall make the Executive whole for any federal, state, local or foreign taxes (including the Executive’s FICA obligation) (collectively, the “Taxes”) incurred by the Executive in connection with the vesting of the Restricted Shares granted to the Executive hereunder and the payment to the Executive of this gross-up payment, with any such payment being remitted by the Company to the appropriate tax authorities (or paid to the Executive, if applicable) no later than the date the Company or the Executive is required to remit the applicable Taxes but in all events consistent with the time period required by Treasury Regulation 1.409A-3(i)(1)(v). For the avoidance of doubt, the Company shall deliver to the Executive Shares equal to the number of vested Restricted Shares and shall not withhold any Shares to pay taxes.

     14. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, that notwithstanding any other provision of this Agreement, the Restricted Shares shall not vest if the vesting thereof would result in a violation of any such law.

     15. Adjustments. In the event of any stock split, reverse stock split, share dividend, merger, consolidation or other event after the Effective Date that makes an equitable adjustment appropriate, the Board shall make such substitution or adjustment (including cash payments) in the number and kind of Restricted Shares covered thereby and/or such other equitable substitution or adjustments as it determines in good faith to be equitable. In connection with a Change of Control, such substitutions and adjustments may include, without limitation, canceling any and all Restricted Shares in exchange for cash payments equal to the Fair Market Value of the Restricted Shares in connection with such an adjustment event.

     16. Relation to Other Benefits. Any economic or other benefit to the Executive under this Agreement shall not be taken into account in determining any benefits to which the Executive may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or any Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any Subsidiary.

     17. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Executive under this Agreement or the Employment Agreement without the Executive’s written consent.

     18. Severability. If one or more of the provisions of this Agreement is invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

     19. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan; provided, however, that in the event of any inconsistent provisions between this Agreement and the Plan, this Agreement shall govern. In addition, in the event of any inconsistent provisions between the Plan and the Employment Agreement, the Employment Agreement shall govern. The Board acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine (in good faith) any questions which arise in connection with the Restricted Shares.

     20. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Executive, and the successors and assigns of the Company.

     21. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflict of laws thereof and all parties, including their successors and assigns, consent to the jurisdiction of the state and federal courts of Delaware.

     22. Prior Agreement; Employment Agreement. As of the date that the Executive countersigns this Agreement, this Agreement will supersede 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 (other than the Employment Agreement and its Exhibits). 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 or in Sections 4(c) and 10(j) of the Employment Agreement, and that no prior and/or contemporaneous agreement,

statement or promise pertaining to the subject matter hereof that is not contained in this Agreement (or Sections 4(c) and 10(j) of the Employment Agreement) shall be valid or binding on either party. Sections 23 and 24 of the Employment Agreement shall be incorporated in full herein, provided that any reference to “this Agreement” shall be a reference to this Agreement.

     23. 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 business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three 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.

     24. 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.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and the Executive has executed this Agreement, as of the day and year first above written.

HealthMarkets, Inc.

By:

Name:

Title:

EXECUTIVE

Name: Phillip Hildebrand

EX-10.7

Exhibit 10.7

HEALTHMARKETS, INC.

Subscription Agreement

HealthMarkets, Inc.
9151 Boulevard 26
North Richland Hills, Texas 76180

Ladies and Gentlemen:

     1. Subscription for Class A-1 Common Stock. The undersigned subscriber (the “Subscriber”) hereby irrevocably tenders this Subscription Agreement (this “Agreement”) to HealthMarkets, Inc., a Delaware corporation (the “Company”), subscribes for and offers to purchase 57,472 shares of Class A-1 Common Stock, par value $0.01 per share, of the Company and agrees to pay therefor, and in full payment thereof, $34.80 per share, in cash, in the aggregate amount of $ 2,000,025.60 (the “Subscription Price”). In accordance with the terms of this Agreement, the Subscriber shall make payment of the Subscription Price by check or wire transfer as directed by the Company. Simultaneously with the foregoing, the Company will instruct Mellon Investor Services to credit a book entry account in the Subscriber’s name to evidence the number of shares of Class A-1 Common Stock purchased by the Subscriber.

     2. Subscriber Representations and Warranties. The Subscriber hereby represents, warrants acknowledges and agrees as follows:

     (a) Authorization. The Subscriber has full power and authority to execute, deliver and perform this Agreement and to acquire the Class A-1 Common Stock. This Agreement constitutes a valid and binding obligation of the Subscriber, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general application affecting enforcement of creditors’ rights generally.

     (b) Purchase for Own Account. The Class A-1 Common Stock will be acquired for investment only and solely for the Subscriber’s own account, and not as a nominee or agent for any other person, and not with a view to the public resale or distribution thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and the Subscriber has no present intention of selling, granting any participation in, or otherwise distributing the same.

     (c) Disclosure of Information. The Subscriber has had the opportunity to review all documents and information which the Subscriber has requested concerning its investment and the Company. The Subscriber has had the opportunity to ask questions of and receive answers regarding the Company’s business, management and financial affairs and the terms and conditions of the Class A-1 Common Stock.

     (d) Investment Experience; Ability to Bear Economic Risk. The Subscriber (i) understands that the purchase of the Class A-1 Common Stock involves substantial risk, (ii) has adequate means of providing for his/her current needs and possible

contingencies, (iii) has no need for liquidity in his/her investment in the Company, and (iv) can bear the economic risk of losing his/her entire investment in the Company. The Subscriber has a preexisting personal or business relationship with the Company and/or certain of its officers, directors or controlling persons of a nature and duration that enables the Subscriber to be aware of the character, business acumen and financial circumstances of the Company and such persons.

     (e) Independent Investment Decision. The Subscriber acknowledges that he/she has, independently and without reliance upon the Company or any other person, and based on such information as the Subscriber has deemed appropriate, made his/her own investment analysis and decision to enter into this Agreement. No representations or warranties, oral or otherwise, have been made to the Subscriber or any party acting on the Subscriber’s behalf other than those contained in this Agreement.

     (f) Restricted Securities. The Subscriber understands that the Class A-1 Common Stock will not be registered under the Securities Act and that, as such, the Class A-1 Common Stock may be resold without registration under the Securities Act, or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

     (g) United States Person. The Subscriber is a “United States Person” within the meaning of Section 7701(a)(30) of the Internal Revenue Code.

     3. Company Representations and Warranties. The Company hereby represents, warrants acknowledges and agrees as follows:

     (a) Authorization of Class A-1 Common Stock. The shares of Class A-1 Common Stock issued in connection with this Agreement are duly authorized and, when issued and delivered in accordance with the terms hereof, will be validly issued, fully paid and nonassessable, free and clear of any lien, security interest or other charge or encumbrance of any kind (collectively, “Liens”) or pre-emptive right.

     (b) Authorization; No Conflicts. The Company is a Delaware corporation and has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement and to issue and deliver to the Subscriber the shares of Class A-1 Common Stock. This Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general application affecting enforcement of creditors’ rights generally. The execution and delivery of this Agreement and the issuance of the shares of Class A-1 Common Stock will not (i) require any consent or approval of, or filing with, any governmental body, agency or official or of any other third party, (ii) violate, conflict with or cause a breach or a default under the Company’s certificate of incorporation or by-laws or any agreement to which the Company is a party, and (iii) violate any judgment, injunction, order, decree, statute, rule or regulation applicable to the Company.

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     (c) Stockholders Agreement. Reference is hereby made to (i) that certain Stockholders Agreement (the “Stockholders Agreement”), dated as of April 5, 2006, by and among the Company and the Stockholders (as defined therein), and that certain Employment Agreement (the “Employment Agreement”), dated as of the date hereof, by and among the Company, the Subscriber and Blackstone Management Associates IV L.L.C. The Company hereby acknowledges that, pursuant to the Employment Agreement, the Subscriber has agreed to become a party to the Stockholders Agreement (as amended by the Employment Agreement) and that the Employment Agreement shall act as a joinder for all purposes under the Stockholders Agreement.

     4. Notices. All notices delivered hereunder shall be in writing and shall be deemed to have been given when hand delivered, when received if sent by facsimile or by same day or overnight recognized commercial courier service or three days after mailed by registered or certified mail, addressed to the address set forth on the signature page for the party to which notice is given, or to such changed address(es) as such party may have fixed by notice, provided however, that any notice of change of address shall be effective only upon receipt.

     5. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflict of laws of that State.

     6. Further Assurances. The Subscriber will provide the Company with such documents supporting the representations of the Subscriber in this Agreement as the Company may reasonably request.

     7. Amendment. Neither this Agreement nor any provisions hereof shall be modified, discharged or terminated except by an instrument in writing signed by the Company and the Subscriber.

     8. Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.

     9. Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

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     10. Entire Agreement. This Agreement and the other agreements or documents referred to herein (including, without limitation, Section 8 of the Employment Agreement) contain the entire agreement of the parties, and there are no representations, warranties, covenants or other agreements except as stated or referred to herein and in such other agreements or documents.

     11. Expenses. Except as set forth in the Employment Agreement, each party hereto shall pay its own costs and expenses in connection with the transactions contemplated hereby.

[Signatures Appear on the Next Page]

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     The Subscriber has executed or caused this Agreement to be duly executed this 30^th day of June, 2008.

     Number of Shares Subscribed For: 57,472

     Amount Tendered Herewith [x Price Per Share of $ $34.80] $2,000,025.60

Subscriber:

Name: PHILLIP J. HILDEBRAND

Address:

10248 E. Mountain Spring Rd. #1222

Scottsdale, AZ 85255

Accepted on this 30^th day of June, 2008.

HealthMarkets, Inc.
By:
	Name:
	Title:

Wire Transfer Instructions:

JPMorgan Chase
ABA# 021000021
Account Name: HealthMarkets, Inc
Account#: 713444768
Address: NRH, TX

EX-10.8

Exhibit 10.8

[***] = 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 (“HealthMarkets” or the “Company”) and Anurag Chandra (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 October 7, 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. If the Executive serves as an officer and/or an employee of any Subsidiary, any payment or provision of benefits to the Executive by such Subsidiary shall fulfill the Company’s obligation to make such payment or provide such benefits pursuant to the terms of this Agreement.

     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 October 13, 2011 (the “Initial Employment Term”); provided, however, that at the end of the Initial Employment Term and on each succeeding anniversary

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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 to this Agreement gives the other party written notice (in accordance with Section 18) of such party’s intention to terminate this Agreement and the employment of the Executive at least ninety (90) days prior to the end of such initial or extended 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. In addition, the Executive will be subject to, and will act in substantial accordance with, all reasonable lawful instructions and directions of the Board and all applicable reasonable policies and rules thereof as are consistent with the above position, duties, responsibilities and authority. 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 best efforts, full attention and energies to the business of the Company, the performance of the Executive’s duties hereunder and such other related duties and responsibilities as may from time to time be reasonably prescribed by the Board or any committee thereof, the Reporting Person or any committee or person delegated by the Reporting Person, in each case, within the framework of the Company’s policies and objectives.

          (c) During the Employment Term and provided that such activities do not either (i) contravene the provisions of Section 3(a), 3(b), 12 or 13 hereof or (ii) materially interfere with the performance of the Executive’s duties hereunder, the Executive may continue to serve as a member of the governing board of the governmental, educational, charitable or other community affairs organizations set forth on Exhibit A attached hereto. 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, payable 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 beginning in January, 2010 for purposes of evaluating an increase in the Executive’s Base Salary.

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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 “Maximum 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 shall in no event be less than $750,000. 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 which, 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 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 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

[***] = 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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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) Equity Compensation.

     (i) General. 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, in each case, as may be in effect from time to time and as may be determined by the Board.

     (ii) Initial Grants. As soon as practicable (but in no event later than five business days) after the Effective Date, the Committee will award 303,990 Option Rights and 303,990 Restricted Shares (together, the “Initial Grant”), which Initial Grant will be subject to the provisions set forth in the Executive’s Non-Qualified Stock Option Agreement and Restricted Share Agreement to be entered into in the form of Exhibit B and Exhibit C, respectively; provided, that, in the event that the Company’s stockholders shall fail to approve the amendment to the MOP as set forth in Exhibit B (“Amendment”) or fail to adopt a plan authorizing the issuance of restricted shares as set forth in Exhibit C (“Restricted Share Plan”) prior to the earlier of a Change of Control or the Amendment Approval Date, 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 Initial Grant relating to the amendment or plan which was not approved or adopted shall be void ab initio and of no further force and effect. Failure to obtain such stockholder approval for either the Amendment or adoption the Restricted Share Plan by the earlier of a Change of Control or the Amendment Approval Date shall be a breach of this Section 4(c) and Exhibits B and C, entitling the Executive to terminate his employment for Good Reason.

     (iii) Terms of Equity Awards. 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 October 13, 2008, plus

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any amendments to such definition after October 13, 2008 which would result in a transaction not covered by the Change of Control definition in effect as of October 13, 2008 constituting a “Change of Control”); provided, however, that in no event shall consummation of the transactions contemplated by an [***] or a National Carrier Marketing Distribution Agreement constitute a Change of Control for any purpose of this Agreement so long as the Permitted Holders (as defined in the MOP) beneficially own, directly or indirectly, 50% or more of the then-outstanding combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company and/or its successor)). 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. The Company has granted the Executive an LTIP award in the form of a restricted stock grant consisting of 6,418 shares of A-1 common stock (together with any other equity received as proceeds thereon, “Shares”) of the Company (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 October 13, 2008, in both cases subject to the Executive’s continued employment with the Company through the applicable vesting date. It is the intent of the parties that the vesting of the Shares described in this paragraph shall constitute a transfer of property within the meaning of Section 83 of the Code.

     (ii) Cash LTIP Award. In addition to any other compensation granted or paid hereunder, with respect to the Company’s 2009 fiscal year, the Executive shall be entitled to receive a long-term incentive award, with a target value of no less than $100,000 (the “2009 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 already established by the Board (or any authorized committee thereof), the 2009 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 2009 LTIP Award shall vest in three equal

[***] = 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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installments, on each of October 13, 2010, October 13, 2011 and October 13, 2012, subject to the Executive’s continued employment with the Company through each applicable vesting date and (ii) any vested portion of such 2009 LTIP Award shall be delivered to the Executive, 100% in cash, on October 13, 2012. 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 2009 LTIP Award prior to the payment date as described in this Section 4.

     (iii) Change of Control. In all events, the 2009 LTIP Award 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 2009 LTIP Award that has become vested shall be non-forfeitable.

          (e) Sign-On Bonus. The Company has paid the Executive a sign-on bonus in the amount of $350,000 in January, 2009 (the “Sign-On Bonus”). In the event that the Executive’s employment with the Company is terminated by the Company for Cause or by the Executive without “Good Reason” prior to April 13, 2010, in each case prior to a Change of Control, the Executive will be required to repay to the Company, within 15 days of such termination, an amount equal to the product of (i) the excess of (A) the Sign-On Bonus, over (B) the applicable taxes withheld on such Sign-On Bonus and (ii) a fraction, the numerator of which is the number of months from the date of termination through the April 13, 2010 and the denominator of which is 18. Notwithstanding the foregoing, the Executive will not be required to repay any portion of the Sign-On Bonus upon a No-Fault Resignation (as defined in Section 9(a) hereof).

     5. Employee Benefits. 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 and programs, and to receive perquisites, provided from time to time to similarly situated executives of the Company and its Subsidiaries generally.

     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 and negotiation of this Agreement and any other related documentation, subject to a cap of $6,000.

     7. Vacation. The Executive shall be entitled to four (4) weeks 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. Subject to the

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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; Stockholders Agreement. In connection with the Executive’s commencement of employment under the Prior Agreement, the Executive invested cash in the amount of $100,000 in Shares, at a purchase price of $19.00 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 are subject to the terms and conditions of the Stockholders Agreement.

     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 and any unvested Restricted Shares shall be immediately forfeited as of the date of termination. For all terminations (other than for Cause as set forth in the preceding sentence with respect to certain equity awards), the Executive shall be entitled to any amounts or benefits 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 expense, 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 the vested portion of the Initial LTIP Award, any vested portion of the 2009 LTIP Award (payable on the date set forth in Section 4(d)(ii)), any vested portion of the Initial Grants and any vested portion of the Retention Payment. In addition, upon any termination, the Executive shall remain entitled to the payments and benefits under Sections 11, 16 and 20 of this Agreement. In addition, in the event that the Executive leaves the United States for personal or business reasons with the good-faith intention to return, but due to no fault of his own, he is prohibited from returning to the employ of the Company in the United States (a “No-Fault Resignation”), the Executive shall without regard to whether such No-Fault Resignation occurs after the last day of the first quarter of an applicable Company fiscal year, be entitled to a Pro-Rata Bonus (as defined in Section 10(b) below). In addition, upon any No-Fault Resignation, the Board of Directors shall have the authority to, in consultation with the Chief Executive Officer of the Company, award the Executive all, none, or a portion of the portion of the Transaction Bonus and/or the Retention Payment at its sole discretion.

          (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, (i) any unvested portions of the Initial Grant will be immediately forfeited, and (ii) all of the Executive’s vested awards, if any, shall be delivered, paid or remain exercisable in accordance with their terms.

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          (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) Call Right. Upon termination of the Executive’s employment with the Company or any of its Subsidiaries for any reason prior to an IPO, the Company will have the right to purchase (the “Call Right”) any of the Executive’s Shares in accordance with the terms and conditions of the Stockholders Agreement.

          (e) 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.

     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 Exhibits B and 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, 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, substantially in the form attached hereto as Exhibit D, (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(i), during the Payment Period, then in such case the Company shall be obligated to pay to the Executive such payments and make available to the Executive such benefits as are set forth in this Section 10 during the Payment Period.

          (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 and (ii) one (1) times an amount equal to the product of (A) the Executive’s Base Salary 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

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the Executive hereunder, unless otherwise provided herein, all such unpaid amounts shall be paid, not later than the tenth (10^th) 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 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) Initial LTIP Award, Transaction Bonus and Retention Payment. To the extent then unvested and unpaid, the Executive’s Initial LTIP Award shall vest on the date of termination but shall be paid at such time as such Initial LTIP Award would otherwise have been paid had the Executive remained employed with the Company. In addition, 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.

          (d) Equity Compensation. To the extent not previously vested, cancelled or expired, the Executive will vest in the Executive’s Initial Grant and any other grants of equity awards in accordance with their terms, which, as applicable, will remain exercisable in accordance with their terms.

          (e) Welfare Benefits. During the Payment Period, the Company shall maintain in full force and effect for the continued benefit of the Executive 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

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“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.

          (f) 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.

          (g) 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 or any other 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”) 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 or such other 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 the Termination Payments or such other 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 the Termination Payments or such other 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. 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 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.

          (h) 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(i) of this Agreement, no such amounts shall be reduced whether or not the Executive obtains other employment.

          (i) 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 and the Welfare Benefits (but for the avoidance of doubt excluding any LTIP Award or equity awards) then or

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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 an amount equal to any Termination Payments or amounts in respect of the Pro-Rata Bonus 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. Except as otherwise provided herein, there shall be no offset or clawback with respect to the Initial LTIP Award, the 2009 LTIP Award, the Initial Grant or any other equity awards for breach of any restrictive covenants.

     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 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

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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 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,

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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.

          “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

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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.

          (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 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 (after providing to the Company 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. 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

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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.

          (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.

          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 that directly competes with the business in which the Company or any of the Company’s Subsidiaries or affiliates (collectively, the “Company Group”) is engaged (or had taken substantial steps to engage in), whichever is earlier (provided that the Executive shall be permitted to provide services to a private equity firm that holds investments in entities engaged in such competitive activities if the Executive is not involved, directly or indirectly, in (1) the management, operations or supervision of such investments or (2) advising any such firm with respect to such investments; provided, further that, to the extent that Blackstone, Goldman Sachs & Co. (“Goldman”) and DLJ Merchant Banking Partners (“DLJ” and together with Blackstone and Goldman, the “Sponsors”) collectively own equity securities of the Company representing more than 50% of the voting power of the “Outstanding Company Voting Securities” (as defined in the MOP), the Executive shall, upon the approval by such Sponsors who, individually or with any other Sponsor who so approves, collectively, own equity securities of the Company representing more than 50% of the voting power of the Outstanding Company Voting Securities, be permitted to provide services to a Blackstone, Goldman or DLJ portfolio company that is engaged in such competitive activities); 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.

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          (d) 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.

     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 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; Effectiveness. As of the Effective Date, this Agreement supersedes any and all prior and/or contemporaneous agreements, either oral or in writing,

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between the parties hereto with respect to the subject matter hereof including, without limitation, the Prior Agreement. 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.

     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. In addition, in the event that the Shares are not listed for trading on an established securities exchange on the date that an applicable portion of the Initial LTIP Award or any restricted share grant vests, then (i) the Company shall, at the request of the Executive, deduct or withhold Shares having a Fair Market Value equal to the minimum amount required to be withheld to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Executive’s FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to comply with the Code and/or any other applicable law, rule or regulation with respect to such portion of the Initial LTIP Award or restricted share grant and remit the cash value of such Shares to the appropriate tax authorities and (ii) notwithstanding anything to the contrary in the Stockholders Agreement, the Executive shall be permitted to sell such number of Shares to the Company having a fair market value (determined at the time of sale) equal to the additional taxes due from the Executive on the vesting or delivery, as applicable, of such Shares (after taking into account the withholding in clause (i)).

     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 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 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

17

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. In the event of the Executive’s death while any payment, benefit or entitlement is due to the Executive under this Agreement, such payment, benefit or entitlement shall be paid or provided to the Executive’s designated beneficiary (or if the Executive has not designated a beneficiary, to his estate).

     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 or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) 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 (including but not limited to any judgment entered by a court of law) 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, 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

18

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 10, 11, 12, 13, 14, 15, 16, 20 and 22 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) “2009 LTIP Award” has the meaning specified in Section 4(d)(ii).

          (b) “401(k) Plan” means the HealthMarkets 401(k) and Savings Plan.

          (c) “Accounting Firm” has the meaning specified in Section 11(b).

          (d) “Agreement” has the meaning specified in the introductory paragraph herein.

          (e) “Amendment Approval Date” means December 31, 2009; provided, however, if the Company’s provision of documentation that is required to be provided to the Company’s stockholders in connection with the approval of the Amendment or the Restricted Share Plan is delayed beyond the time-frame previously communicated to the Company as a result of management’s inability to finalize such documentation due to time constraints, the “Amendment Approval Date” shall be the later of (i) December 31, 2009 and (ii) 60 days following the date on which such documentation is provided to the Company’s stockholders.

          (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 9(d).

          (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;

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     (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);

     (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; or

     (vi) the Executive’s breach of Section 26 of this Agreement.

          (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).

          (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.

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          (r) “Executive” has the meaning specified in the introductory paragraph of this Agreement.

          (s) “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 clause (iv) of this Good Reason definition);

     (ii) a material decrease in the Executive’s Base Salary or Target Bonus Percentage, other than in the case of a decrease for a majority of similarly situated executives of the Company;

     (iii) a 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;

     (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; or

     (v) failure to obtain stockholder approval for the Amendment or the Restricted Share Plan by the Amendment Approval Date.

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 90 days following the date he first learns of the event(s) or circumstances 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 one year following the occurrence of the event or circumstance on which the Good Reason termination is based.

          (t) “Gross-Up Payment” has the meaning specified in Section 11(a).

          (u) “HealthMarkets” has the meaning specified in the introductory paragraph of this Agreement.

          (v) “HealthMarkets Affiliates” has the meaning specified in paragraph 1 of Exhibit D attached hereto.

[***] = 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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          (w) [***]

          (x) [***]

          (y) [***]

          (z) “Initial Employment Term” has the meaning specified in Section 2.

          (aa) “Initial Grant” has the meaning specified in Section 4(c).

          (bb) “Initial LTIP Award” has the meaning specified in Section 4(d)(i).

          (cc) “Initial Payment Period” has the meaning specified in Section 10(g).

          (dd) “Investment” has the meaning set forth in Section 8.

          (ee) “IPO” has the meaning specified in the Stockholders Agreement.

          (ff) “Limit” has the meaning specified in Section 10(g).

          (gg) “Maximum Bonus Percentage” has the meaning specified in Section 4(b)(ii).

          (hh) “MOP” means the Company’s 2006 Management Option Plan, as may be amended from time to time.

          (ii) “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.

          (jj) “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

          (kk) “National Payor” means Aetna, Inc., Assurant, CIGNA Corporation, Coventry Healthcare Inc., Humana Inc. or UnitedHealth Group, Inc. (and their affiliates or subsidiaries and their respective successors and assigns).

          (ll) “Option Rights” has the meaning specified in the MOP.

          (mm) “Payment Period” means the one-year period commencing on the later of (A) the Executive’s date of termination of employment with the Company or (B) 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.

[***] = 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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          (nn) “Performance Year” has the meaning specified in Section 4(d)(ii).

          (oo) “Pro-Rata Bonus” has the meaning specified in Section 10(b).

          (pp) “Regional Payor” means an organization that underwrites and issues health insurance on a regional basis.

          (qq) “Release” has the meaning specified in the introductory paragraph of Exhibit D attached hereto.

          (rr) “Renewal Term” has the meaning specified in Section 2.

          (ss) “Reporting Person” has the meaning specified in Section 3(a).

          (tt) “Restrictive Covenants” has the meaning specified in Section 10.

          (uu) “Restricted Shares” shall mean a grant of restricted stock consisting of shares of A-1 common stock of the Company.

          (vv) “Revocation Date” has the meaning specified in paragraph 3 of Exhibit D attached hereto.

          (ww) “Shares” has the meaning specified in Section 4(d)(i).

          (xx) “Sign-On Bonus” has the meaning specified in Section 4(e).

          (yy) “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.

          (zz) “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.

          (aaa) “Successor” has the meaning specified in Section 17(a).

          (bbb) “Target Bonus Percentage” has the meaning specified in Section 4(b)(ii).

          (ccc) “Termination Payments” has the meaning specified in Section 10(a).

          (ddd) “Underpayment” has the meaning specified in Section 11(a) .

          (eee) “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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     26. Executive’s Representation. The Executive hereby represents and warrants that, as of the date hereof, he has obtained U.S. immigration approval of his I-797 petition that permits his employment in the United States through October 1, 2012.

     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.

Anurag Chandra
HealthMarkets, Inc.
By:	Phillip J. Hildebrand
	Chief Executive Officer

Solely with respect to Sections 4(c) and 16 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

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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.

Exhibit A

Position: Executive Vice President, Chief Administrative Officer

Reporting Person: HealthMarkets Chief Executive Officer

Outside Activities:

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

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

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Exhibit B

Form of Option Agreement

Exhibit C

Form of Restricted Share Agreement

Exhibit D

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 (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, 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 shall be deemed to affect, impair or diminish in any respect (i) any vested rights as of the date of termination or entitlement you may have under the 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 under this Release; including but not limited to your right to bring a claim for breach of this Release; (v) any rights you may have under Section 9 (Termination), Section 10 (Termination Payments and Benefits), Section 11 (Certain Additional Payments by the Company), Section 16 (Withholding of Taxes), Section (20 (Indemnification) of the Employment Agreement; (vi) any rights to indemnification that you have or may have under the terms of the HealthMarkets Amended and Restated Bylaws or coverage under any applicable directors’ and officers’ liability insurance policies; or (vii) 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, 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; and

     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.

D-3

EX-10.9

Exhibit 10.9

EXECUTION VERSION

FORM OF NONQUALIFIED STOCK OPTION AGREEMENT

     This AGREEMENT (this “Agreement”) is made as of September 8, 2009 (the “Effective Date”) by and between HealthMarkets, Inc., a Delaware corporation (together with its successors and assigns, the “Company”), and Anurag Chandra (“Optionee”).

     WHEREAS, on the Effective Date the Company and Optionee entered into an employment agreement with respect to Optionee’s employment as an executive of the Company and certain related terms (the “Employment Agreement”);

     WHEREAS, the Company and the Optionee are party to a Nonqualified Stock Option Agreement as of October 15, 2008 (the “Prior Stock Option Agreement”);

     WHEREAS, the Company and the Optionee wish to cancel the Prior Stock Option Agreement in its entirety with this Agreement;

     WHEREAS, the Company, acting through the Compensation Committee with the consent of the Board has agreed to grant to Optionee, effective on the Effective Time, Options (as defined in Section 2 of this Agreement) under the Company’s 2006 Management Option Plan (the “Plan”) to purchase a number of shares of the Company’s Class A-1 Common Stock (the “Shares”) on the terms and subject to the conditions set forth in this Agreement and the Plan;

     WHEREAS, future securities in the Company (including those being acquired pursuant to this Agreement) owned by Optionee shall be subject to the terms of the Stockholders Agreement.

     NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:

     1. Certain Definitions. Capitalized terms used, but not otherwise defined, in this Agreement will have the meanings given to such terms in the Company’s 2006 Management Option Plan (the “Plan”). As used in this Agreement:

          (a) “Board” means the Board of Directors of the Company.

          (b) “Cause” has the meaning specified in the Employment Agreement.

          (c) “Change of Control” has the meaning specified in the Employment Agreement.

          (d) “Compensation Committee” means the Executive Compensation Committee of the Board.

          (e) “Disability” has the meaning specified in the Employment Agreement.

          (f) “Fair Market Value” shall have the meaning specified in, and shall be construed and determined in accordance with the procedures set forth in, the Employment Agreement.

          (g) “Good Reason” has the meaning specified in the Employment Agreement.

     2. Grant of Stock Option/Exercise Price. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement, including, without limitation, Section 9 and the Plan, the

Company hereby grants to Optionee options to purchase 303,990 Shares (the “Options”) as of the date hereof. The Shares subject to the Option may be purchased pursuant to the Options at a price (the “Option Price”) equal to $19.37 per Share. The Options are intended to be nonqualified stock options and shall not be treated as an “incentive stock option” within the meaning of that term under Section 422 of the Code, or any successor provision thereto.

     3. Term of Options. The term of the Options shall commence at the Effective Date and, unless earlier terminated in accordance with the terms of this Agreement, shall expire ten (10) years from the Effective Date.

     4. Right to Exercise. Unless terminated as hereinafter provided and except as otherwise provided in Section 7, the Options shall become exercisable (i.e., vested) in quarterly installments determined based on 30% of the Options vesting by the first anniversary of June 4, 2009 (such that 7.5% of the Option shall vest quarterly up through such first anniversary), an additional 20% vesting by each of the second, third and fourth anniversaries of June 4, 2009 (such that 5% of the Option shall vest quarterly after such first anniversary) and the remaining 10% vesting by the fifth anniversary of June 4, 2009 (such that 2.5% of the Option shall vest quarterly after such fourth anniversary), in each case, subject to Optionee’s remaining in the continuous employ of the Company or any Subsidiary through the applicable vesting date; provided, that to the extent the Effective Time occurs after any such quarterly vesting date or the vesting required upon a termination of employment in Sections 7(b) or 7(c), the portion of the Options that would have vested on such date shall not vest on such date, but shall instead vest on the Effective Time; provided further, that such Options shall become fully exercisable upon a Change of Control.

     5. Option Nontransferable. Optionee may not transfer or assign all or any part of the Options other than by will or by the laws of descent and distribution. The Options may be exercised, during the lifetime of Optionee, only by Optionee, or in the event of Optionee’s legal incapacity, by Optionee’s guardian or legal representative acting on behalf of Optionee in a fiduciary capacity under state law and court supervision. Optionee shall be entitled to the privileges of ownership with respect to Shares purchased and delivered to Optionee upon the exercise of all or part of the Options.

     6. Notice of Exercise; Payment.

          (a) To the extent then exercisable, the Option may be exercised in whole or in part by written notice to the Company stating the number of Shares for which the Options are being exercised and the intended manner of payment. The date of such notice shall be the exercise date. Payment equal to the aggregate Option Price of the Shares being purchased pursuant to an exercise of the Options must be tendered in full with the notice of exercise to the Company in one or a combination of the following methods as specified by Optionee in the notice of exercise: (i) cash in the form of currency or check or by wire transfer as directed by the Company, (ii) through the surrender to the Company of Shares as valued at their Fair Market Value on the date of exercise (including by having the Company withhold Shares upon exercise of the Option) or (iii) through such other form of consideration as is deemed acceptable by the Board. In this regard, while the Shares are not publicly traded, upon the Optionee’s request (or that of any Person authorized to exercise to the Option as set forth herein or in the Plan), the Board shall communicate to the Optionee (or such other Person) the Fair Market Value of the Shares as of the date of such request in a timely manner to enable the Optionee (or such other Person) to exercise his vested Options.

          (b) As soon as practicable upon the Company’s receipt of Optionee’s payment and notice of exercise, the Company shall direct the due issuance of the Shares so purchased.

          (c) As a further condition precedent to the exercise of the Options in whole or in part, Optionee shall comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.

     7. Termination of Employment.

          (a) General. Except as provided immediately below, if Optionee’s employment terminates for any reason, the Options, to the extent not then vested (i.e., exercisable), will be immediately forfeited and all vested Options will remain exercisable for the shorter of (1) 90 days following the date of termination and (2) the remainder of their original scheduled term; provided that if such termination is prior to the Effective Time, the Options that would have vested as of the date of termination if vesting was based solely on the passage of time shall vest as of the Effective Time and Optionee shall have 90 days following the Effective Time to exercise such vested Options. For the avoidance of doubt, any reference to any Option being or becoming vested shall also mean it has become or will become “exercisable”.

          (b) Without Cause; for Good Reason. If Optionee’s employment is terminated by the Company without Cause (which shall for purposes of this Agreement include a termination of the Optionee’s employment upon conclusion of the Employment Term (as defined in the Employment Agreement) after the Company’s giving the Optionee a notice of non-renewal of the Employment Term) or by Optionee for Good Reason, to the extent not previously cancelled or expired, as of the date of termination Optionee’s unvested Options that would have vested if Optionee had remained employed through the first anniversary of the date of termination will vest and all vested Options will remain exercisable for the shorter of (1) one year following the date of termination and (2) the remainder of their original scheduled term. Notwithstanding the foregoing, if Optionee’s employment is terminated without Cause or for Good Reason (i) after a definitive agreement is entered into which will result in a Change of Control (provided such agreement results in a Change of Control) or (ii) within six months prior to a Change of Control, the Options shall be treated as if they had fully vested as of the date of the Change of Control.

          (c) Death; Disability. If Optionee’s employment is terminated by reason of Optionee’s death or Disability, to the extent not previously cancelled or expired, as of the date of termination Optionee’s unvested Options that would have vested if Optionee had remained employed through the first anniversary of the date of termination will vest and all vested Options will remain exercisable for the shorter of (1) one year following the date of termination and (2) the remainder of their original scheduled term; provided, however, that it shall be a condition to the exercise of the Options in the event of Optionee’s death that the Person exercising the Options shall (i) have agreed in a form satisfactory to the Company to be bound by the provisions of this Agreement and, if there has been no Change of Control or an IPO, the Stockholders Agreement and (ii) comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.

          (d) Cause. Notwithstanding the foregoing or any provision of this Agreement or the Employment Agreement to the contrary, if Optionee’s employment is terminated by the Company for Cause, all options, whether or not vested, will be immediately forfeited as of the date of termination.

     8. Call Right. The Company will have the right to purchase (the “Call Right”) any Shares that Optionee received pursuant to the terms and conditions of the Stockholders Agreement.

     9. Effective Time. The Options granted hereby shall be and become effective (the “Effective Time”) upon the the delivery of an executed counterpart of this Agreement to the Company by Optionee. Notwithstanding the foregoing, the Options granted hereby shall be subject to the approval of the stockholders of the Company of an amendment to the Plan increasing the authorized Share number thereunder (and thereby permitting the grant of the Options thereunder) and the maximum number of Options that may be granted to any individual under the Plan. For the avoidance of doubt, in the event that such stockholder approval is not obtained by the earlier of (x) the Amendment Approval Date or (y) a Change of Control, this Agreement and the grant of Options hereunder (and the cancelling of the Prior Stock Option Agreement) shall be null and void ab initio and be of no further force or effect.

     10. Initial Public Offering. Shares acquired on exercise of any Option will be subject to the terms and conditions of the Stockholders’ Agreement. The Company and Optionee acknowledge that they will agree to provide the Company with the right to require Optionee and other executives of the Company or any Subsidiary 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 Optionee’s and the other executives’ loss of liquidity; provided that if the Optionee’s employment is terminated without Cause or for Good Reason, then the Optionee shall fully vest upon the date of termination in any grant made under such IPO bonus plan.

     11. No Employment Contract. Nothing contained in this Agreement shall (a) confer upon Optionee any right to be employed by or remain employed by the Company or any Subsidiary, or (b) limit or affect in any manner the right of the Company or any Subsidiary to terminate the employment or adjust the compensation of Optionee.

     12. Taxes and Withholding. The Company or any Subsidiary may withhold, or require Optionee to remit to the Company or any Subsidiary, an amount sufficient to satisfy federal, state, local or foreign taxes (including Optionee’s FICA obligation) in connection with any payment made or benefit realized by Optionee or other person under this Agreement or otherwise, and the amounts available to the Company or any Subsidiary for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that Optionee or such other person make arrangements satisfactory to the Company or any Subsidiary for payment of the balance of such taxes required to be withheld. The Company or any Subsidiary may elect to have such withholding obligation satisfied by having Optionee surrender to the Company or any Subsidiary a portion of the Shares that is issued or transferred to Optionee upon the exercise of an Option (but only to the extent of the minimum withholding required by law), and the Shares so surrendered by Optionee shall be credited against any such withholding obligation at the Fair Market Value of such shares on the date of such surrender.

     13. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, that notwithstanding any other provision of this Agreement, the Options shall not be exercisable if the exercise thereof would result in a violation of any such law.

     14. Adjustments. In the event of any stock split, reverse stock split, share dividend, merger, consolidation or other event after the Effective Date that makes an equitable adjustment appropriate, the Board shall make such substitution or adjustment (including cash payments) in the number of Shares covered by the Options, in the Option Price applicable to such Options, and in the kind of shares covered thereby and/or such other equitable substitution or adjustments as it determines in good faith to be equitable. In addition to, and notwithstanding the foregoing, the Option Price shall be adjusted downward (to the extent practicable without causing adverse tax consequences to Optionee) for any dividends paid to the Sponsors after the Effective Date. In connection with a Change of Control, such substitutions and adjustments may include, without limitation, canceling any and all Options in exchange for cash

payments equal to the excess, if any, of the value of the consideration paid to a shareholder of a Share over the Option Price per Share subject to such Option in connection with such an adjustment event.

     15. Relation to Other Benefits. Any economic or other benefit to Optionee under this Agreement shall not be taken into account in determining any benefits to which Optionee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or any Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any Subsidiary.

     16. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of Optionee under this Agreement without Optionee’s written consent.

     17. Severability. If one or more of the provisions of this Agreement is invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

     18. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan; provided, however, that in the event of any inconsistent provisions between this Agreement and the Plan, this Agreement shall govern. The Board acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine (in good faith) any questions which arise in connection with the Option or its exercise.

     19. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee, and the successors and assigns of the Company.

     20. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflict of laws thereof and all parties, including their successors and assigns, consent to the jurisdiction of the state and federal courts of Delaware.

     21. Prior Agreement; Employment Agreement. As of the date that the Optionee countersigns this Agreement, this Agreement will supersede 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 (other than the Employment Agreement and its Exhibits). 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 or in Sections 4(c) and 10(i) of the Employment Agreement, and that no prior and/or contemporaneous agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement (or Sections 4(c) and 10(i) of the Employment Agreement) shall be valid or binding on either party. Sections 23 and 24 of the Employment Agreement shall be incorporated in full herein, provided that any reference to “the Executive” shall be deemed to be a reference to the Optionee and any reference to “this Agreement” shall be a reference to this Agreement. Without limiting the generality of the foregoing, by execution of this Agreement, the Optionee hereby agrees that effective immediately, the Prior Stock Option Agreement and the options granted thereunder, whether vested or unvested, shall be cancelled and void and the Prior Stock Option Agreement shall be of no further force or effect unless this Agreement becomes null and void in accordance with the last sentence of Section 9 above.

     22. 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 business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three 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 Optionee 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.

     23. 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.

          IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and Optionee has executed this Agreement, as of the day and year first above written.

HealthMarkets, Inc.
By:
Name:
Title:
OPTIONEE
Name:	Anurag Chandra

EX-10.10

Exhibit 10.10

EXECUTION VERSION

FORM OF
RESTRICTED SHARE AGREEMENT

     This AGREEMENT, is made as of September 8, 2009 (the “Effective Date”), by and between HealthMarkets, Inc., a Delaware corporation (together with its successors and assigns, the “Company”), and Anurag Chandra (the “Executive”);

     WHEREAS, on the Effective Date the Company and the Executive entered into an employment agreement with respect to the Executive’s employment as an executive of the Company and certain related terms (the “Employment Agreement”);

     WHEREAS, the Company, acting through the Compensation Committee with the consent of the Board has agreed to grant to the Executive, effective on the Effective Time, restricted shares of the Company’s Class A-1 Common Stock (the “Restricted Shares”) on the terms and subject to the conditions set forth in this Agreement;

     WHEREAS, the Restricted Shares shall be subject to the terms of the Stockholders Agreement.

     NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:

     1. Capitalized Terms. Capitalized terms not defined herein shall have the definitions ascribed to such terms in the Employment Agreement.

     2. Grant. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement, including, without limitation, Section 9, the Company hereby grants to the Executive 303,990 Restricted Shares as of the date hereof pursuant to Section 4(c)(ii) of the Employment Agreement.

     3. Issuance of Stock. The Restricted Shares shall be subject to the restrictions described herein. The Restricted Shares shall bear appropriate legends with respect to the restrictions described herein.

     4. Vesting. Subject to the Executive’s remaining in the continuous employ of the Company or any Subsidiary through the applicable vesting date, except as otherwise provided in Section 6 hereof, and the Company’s achievement of an “Adjusted EBITDA” (as determined in accordance with Schedule 1 to the Employment Agreement) of at least $10 million for at least one fiscal quarter occurring during the time period from the date of this Agreement through the first anniversary of the date hereof, the Restricted Shares shall vest in quarterly installments determined based on 30% of the Restricted Shares vesting by the first anniversary of June 4, 2009 (such that 7.5% of the Restricted Shares shall vest quarterly up through such first anniversary), an additional 20% vesting by each of the second, third and fourth anniversaries of June 4, 2009 (such that 5% of the Restricted Shares shall vest quarterly after such first anniversary) and the remaining 10% vesting by the fifth anniversary of June 4, 2009 (such that 2.5% of the Restricted Shares shall vest quarterly after such fourth anniversary); provided, that to the extent the Effective Time occurs or the performance hurdle is satisfied after any such Restricted Shares would have otherwise vested (if the passage of time was the only vesting requirement), the portion of the Restricted Shares that would have vested on such date shall not vest on such date, but shall instead vest on the Effective Time or the date of satisfaction of the performance hurdle, as applicable (including, in the case of achievement of the performance hurdle, if the Executive’s employment is terminated under the

circumstances set forth in Sections 6(b) and 6(c) below prior to the satisfaction of the performance hurdle); provided further, that the Restricted Shares shall immediately vest in full upon a Change of Control (whether or not the performance hurdle is satisfied as of the time of the Change of Control).

     5. Restrictions. No portion of the Restricted Shares or rights granted hereunder may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of by the Executive until such portion of the Restricted Shares becomes vested, and any purported sale, transfer, assignment, pledge, encumbrance or disposition shall be void and unenforceable against the Company. The period of time between the Effective Date and the date all Restricted Shares become vested is referred to herein as the “Restriction Period.”

     6. Termination of Employment.

     (a) General. Except as provided immediately below, if the Executive’s employment terminates for any reason, the Restricted Shares, to the extent not then vested will be immediately forfeited; provided that if the Effective Time or the performance hurdle is satisfied after the date the Executive’s employment terminates, the Executive shall be deemed to have vested in the number of Restricted Shares that would have vested if he remained employed through such date.

     (b) Without Cause; for Good Reason. If the Executive’s employment is terminated by the Company without Cause (which shall for purposes of this Agreement include a termination of the Executive’s employment upon conclusion of the Employment Term (as defined in the Employment Agreement) after the Company’s giving the Executive a notice of non-renewal of the Employment Term) or by the Executive for Good Reason, as of the date of termination, the Restricted Shares that would have vested if the Executive had remained employed through the first anniversary of the date of termination will vest. Notwithstanding the foregoing, if the Executive’s employment is terminated without Cause or for Good Reason (i) after a definitive agreement is entered into which will result in a Change of Control (provided such agreement results in a Change of Control) or (ii) within six months prior to a Change of Control, the Restricted Shares shall be treated as if they had fully vested as of the date of the Change of Control (whether or not the performance hurdle is satisfied as of the date of the Change of Control).

     (c) Death; Disability. If the Executive’s employment is terminated by reason of the Executive’s death or Disability, as of the date of termination, the Restricted Shares that would have vested if the Executive had remained employed through the first anniversary of the date of termination will vest; provided, however, that it shall be a condition to the vesting of the Restricted Shares in the event of the Executive’s death that the Person receiving the Shares shall (i) have agreed in a form satisfactory to the Company to be bound by the provisions of this Agreement and, if there has been no Change of Control or an IPO, the Stockholders Agreement and (ii) comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.

     (d) Cause. Notwithstanding the foregoing or any provision of this Agreement or the Employment Agreement to the contrary, if the Executive’s employment is terminated by the Company for Cause, all unvested Restricted Shares will be immediately forfeited as of the date of termination; provided that if the Effective Time or the performance hurdle is satisfied after the date the Executive’s employment terminates, the Executive shall be deemed to have vested in the number of Restricted Shares that would have vested if he remained employed through such date.

     7. Call Right. The Company will have the right to purchase (the “Call Right”) any Shares that Optionee received pursuant to the terms and conditions of the Stockholders Agreement.

     8. Initial Public Offering. The Restricted Shares shall be subject to the terms and conditions of the Stockholders’ Agreement, as amended by Section 8 of the Employment 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 or any Subsidiary 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.

     9. Effective Time. The Restricted Shares granted hereby shall be and become effective upon the later of (i) the delivery of an executed counterpart of this Agreement to the Company by the Executive and (ii) the approval of the stockholders of the Company of a plan permitting the issuance of Restricted Shares (the “Plan”) (such later date, the “Effective Time”). For the avoidance of doubt, in the event that such stockholder approval is not obtained by the earlier of (x) the Amendment Approval Date or (y) a Change of Control, this Agreement and the grant of Restricted Shares hereunder shall be null and void ab initio and be of no further force or effect. The Company also represents to the Executive that no provision of the Plan that is inconsistent with this Agreement or the Employment Agreement will adversely affect the Restricted Shares.

     10. Executive Shareholder Rights. Prior to the date on which the Restricted Shares vest, except as otherwise set forth herein, the Executive shall have all rights of a shareholder with respect to the Restricted Shares. Notwithstanding the foregoing, cash dividends, if any, paid with respect to any Restricted Shares which have not vested at the time of the dividend payment shall be paid to and held in the custody of the Company, and shall be subject to the same restrictions that apply to the corresponding Restricted Shares, and shall be released from the custody of the Company at such time as the restrictions on the underlying Shares to which the dividends relate have lapsed. At such time as any Restricted Share vests, any such custodial dividends held by the Company (including any interest thereon payable in accordance with this Section 10) with respect to such vested share shall be paid to the Executive.

     11. No Employment Contract. Nothing contained in this Agreement shall (a) confer upon the Executive any right to be employed by or remain employed by the Company or any Subsidiary, or (b) limit or affect in any manner the right of the Company or any Subsidiary to terminate the employment or adjust the compensation of the Executive.

     12. Taxes and Withholding. The Company or any Subsidiary may withhold, or require the Executive to remit to the Company or any Subsidiary, an amount sufficient to satisfy federal, state, local or foreign taxes (including the Executive’s FICA obligation) in connection with any payment made or benefit realized by the Executive or other person under this Agreement or otherwise, and the amounts available to the Company or any Subsidiary for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that the Executive or such other person make arrangements satisfactory to the Company or any Subsidiary for payment of the balance of such taxes required to be withheld. The Executive may elect to have such withholding obligation satisfied by surrendering to the Company a portion of the Shares that is issued or transferred to the Executive upon the vesting of the Restricted Shares (but only to the extent of the minimum withholding required by law), and the Shares so surrendered by the Executive shall be credited against any such withholding obligation at the Fair Market Value of such Shares on the date of such surrender (and the amount equal to the Fair Market Value of such shares shall be remitted to the appropriate tax authorities). The Executive shall also have the put right set forth in subclause (ii) of the last sentence of Section 16 of the Employment Agreement.

     13. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, that notwithstanding any other provision of this Agreement, the Restricted Shares shall not vest if the vesting thereof would result in a violation of any such law.

     14. Adjustments. In the event of any stock split, reverse stock split, share dividend, merger, consolidation or other event after the Effective Date that makes an equitable adjustment appropriate, the Board shall make such substitution or adjustment (including cash payments) in the number and kind of Restricted Shares covered thereby and/or such other equitable substitution or adjustments as it determines in good faith to be equitable. In connection with a Change of Control, such substitutions and adjustments may include, without limitation, canceling any and all Restricted Shares in exchange for cash payments equal to the Fair Market Value of the Restricted Shares in connection with such an adjustment event.

     15. Relation to Other Benefits. Any economic or other benefit to the Executive under this Agreement shall not be taken into account in determining any benefits to which the Executive may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or any Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any Subsidiary.

     16. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Executive under this Agreement or the Employment Agreement without the Executive’s written consent.

     17. Severability. If one or more of the provisions of this Agreement is invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

     18. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan; provided, however, that in the event of any inconsistent provisions between this Agreement and the Plan, this Agreement shall govern. In addition, in the event of any inconsistent provisions between the Plan and the Employment Agreement, the Employment Agreement shall govern. The Board acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine (in good faith) any questions which arise in connection with the Restricted Shares.

     19. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Executive, and the successors and assigns of the Company.

     20. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflict of laws thereof and all parties, including their successors and assigns, consent to the jurisdiction of the state and federal courts of Delaware.

     21. Prior Agreement; Employment Agreement. As of the date that the Executive countersigns this Agreement, this Agreement will supersede 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 (other than the Employment Agreement and its Exhibits). 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 or in Sections 4(c) and 10(i) of the Employment Agreement, and that no prior and/or contemporaneous agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement (or Sections 4(c) and 10(i) of the Employment Agreement) shall be valid or binding on either party. Sections 23 and 24 of the Employment Agreement shall be incorporated in full herein, provided that any reference to “this Agreement” shall be a reference to this Agreement.

     22. 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 business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three 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.

     23. 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.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and the Executive has executed this Agreement, as of the day and year first above written.

HealthMarkets, Inc.

By:

Name:

Title:

EXECUTIVE

Name: Anurag Chandra

EX-10.11

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.

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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.

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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.

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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

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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.

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

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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,

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.

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EX-10.12

Exhibit 10.12

[***] = 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 B. Curtis Westen (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 January, 2009 (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

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, provided that the Executive may perform his duties from his home office on a limited basis subject to business requirements and to keeping the Reporting Person fully informed of his whereabouts.

          (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, however, that with respect to the Company’s 2009 fiscal year, the Executive will be entitled to a guaranteed annual bonus of no less than $712,500. 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 employment through the applicable payment date. The Company acknowledges that the objectives to be accomplished by an [***] and National Carrier Marketing

[***] = 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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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.” The Prior Agreement contemplated that the Executive and the Company would enter into that certain Stock Option Agreement (the “Prior Stock Option Agreement”), pursuant to which the Company would grant 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 Agreement was not entered into and the Option Rights were not granted to the Executive pursuant to the Initial Grant thereunder, and the Prior Stock Option Agreement is of no force or effect.

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          (d) LTIP Awards.

     (i) Initial LTIP Award. The Company has granted the Executive a cash-based LTIP award with a target value of $100,000 (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 January 26, 2009, 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 January 26, 2012.

     (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. 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.

     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 will continue its current practice of (i) providing Executive a corporate apartment and automobile, (ii) reimbursing Executive for travel expenses related to his weekly travel to and from his family, and (iii) reimbursing Executive for travel costs for family visits to Texas in lieu of Executive’s travel home from time to time, all with full tax gross up. The Company’s expenditures for the items in (i), (ii) and (iii) in the preceding sentence shall be consistent with past practices and are subject to approval of the Company’s Chief Executive Officer.

     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

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vacations and the time or times when they shall be taken will be determined by the Executive in consultation with the Company.

     8. Investment. In connection with the Executive’s commencement of employment under the Prior Agreement, the Executive made a commitment to invest cash in the amount of $100,000 in shares of Class A-1 Common Stock of the Company (“Shares”), at a purchase price per Share equal to the Fair Market Value of a Share on January 26, 2009 (as determined in accordance with the procedures set forth in Section 8(b) therein) (such investment, the “Investment”). The Company acknowledges and agrees that the Executive is not required to make such Investment and the Executive’s failure to make such Investment shall in no event be deemed a breach of this Agreement.

     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 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,

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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).

          (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.

          (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

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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 11 and Section 20 hereof, and (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, 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. 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 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.

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          (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(g), (v) any non-cash amounts under Section 10(g) 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

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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 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

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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.

          “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.

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     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 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

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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 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.

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          (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 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 Section 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.

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     (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 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.

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          (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 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.

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     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).

          (e) “Base Salary” has the meaning specified in Section 4(a).

          (f) “Board” means the Board of Directors of the Company.

          (g) “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

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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.

          (h) “Change of Control” has the meaning specified in Section 4( c).

          (i) “Code” means the Internal Revenue Code of 1986, as amended.

          (j) “Committee” means the Executive Compensation Committee of the Board.

          (k) “Company” has the meaning specified in the introductory paragraph of this Agreement.

          (l) “Company Group” has the meaning specified in Section 13(a).

          (m) “Confidential Information” has the meaning specified in Section 12(a).

          (n) “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.

          (o) “Effective Date” has the meaning specified in the introductory paragraph of this Agreement.

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          (p) “Employment Term” has the meaning specified in Section 2.

          (q) “Executive” has the meaning specified in the introductory paragraph of this Agreement.

          (r) “Good Reason” means the occurrence, without the Executive’s consent, of any of 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) (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);

     (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;

     (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 General Counsel;

[***] = 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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     (vii) following a Change of Control, failure of the Executive to be the General Counsel 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.

          (s) “Gross-Up Payment” has the meaning specified in Section 11(a).

          (t) “HealthMarkets” has the meaning specified in the introductory paragraph of this Agreement.

          (u) “HealthMarkets Affiliates” has the meaning specified in paragraph 1 of Exhibit B attached hereto.

          (v) [***]

          (w) [***]

          (x) [***] “Initial Employment Term” has the meaning specified in Section 2.

          (y) “Initial Grant” has the meaning specified in Section 4(c).

          (z) “Initial LTIP Award” has the meaning specified in Section 4(d)(i).

          (aa) “Initial Payment Period” has the meaning specified in Section 10(d).

          (bb) “Limit” has the meaning specified in Section 10(d).

          (cc) “MOP” means the Company’s 2006 Management Option Plan, as may be amended from time to time.

          (dd) “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

[***] = 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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Company Group are authorized by a National Payor to sell individual health insurance products issued by the National Payor.

          (ee) “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

          (ff) “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).

          (gg) “Option Rights” has the meaning specified in the MOP.

          (hh) “Pro-Rata Bonus” has the meaning specified in Section 10(b).

          (ii) “Regional Payor” means an organization that underwrites and issues health insurance on a regional basis.

          (jj) “Release” has the meaning specified in the introductory paragraph of Exhibit B attached hereto.

          (kk) “Renewal Term” has the meaning specified in Section 2.

          (ll) “Reporting Person” has the meaning specified in Section 3(a).

          (mm) “Restrictive Covenants” has the meaning specified in Section 10.

          (nn) “Revocation Date” has the meaning specified in paragraph 3 of Exhibit B attached hereto.

          (oo) “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.

          (pp) “Successor” has the meaning specified in Section 17(a).

          (qq) “Target Bonus Percentage” has the meaning specified in Section 4(b). (rr) “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.

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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.

B. Curtis Westen HealthMarkets, Inc.
By:
	Phillip J. Hildebrand
	Chief Executive Officer

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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, General Counsel

Reporting Person: HealthMarkets Chief Executive Officer

Outside Activities: [       ]

Base Salary: $475,000, 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

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

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,

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.

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EX-10.13

Exhibit 10.13

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of December 18, 2006 (the “Effective Date”), by and between HealthMarkets, Inc., a Delaware corporation (“HealthMarkets” or the “Company”) and Jack Heller (the “Executive”). Certain capitalized terms used herein are defined in Section 23.

     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. If the Executive serves as an officer and/or an employee of any Subsidiary, any payment or provision of benefits to the Executive by such Subsidiary shall fulfill the Company’s obligation to make such payment or provide such benefits pursuant to the terms of this Agreement.

     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 (the “Commencement 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 Commencement 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 and the employment of the Executive at least ninety (90) days prior to the end of such initial or extended 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) 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. In addition, the Executive will be subject to, and will act in substantial accordance with, all reasonable lawful instructions and directions of the Board and all applicable reasonable policies and rules thereof as are consistent with the above position, duties, responsibilities and authority.

          (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 best efforts, full attention and energies to the business of the Company, the performance of the Executive’s duties hereunder and such other related duties and responsibilities as may from time to time be reasonably prescribed by the Board or any committee thereof, the Reporting Person or any committee or person delegated by the Reporting Person, in each case, within the framework of the Company’s policies and objectives.

          (c) During the Employment Term and provided that such activities do not either (i) contravene the provisions of Section 3(a), 3(b), 12 or 13 hereof or (ii) materially interfere with the performance of the Executive’s duties hereunder, the Executive may continue to serve as a member of the governing board of the governmental, educational, charitable or other community affairs organizations set forth on Exhibit A attached hereto. 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, payable 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.

          (b) Cash Incentive Compensation.

     (i) With respect to the Company’s 2007 fiscal year, the Executive will be eligible to receive a minimum annual bonus in the amount of fifty percent as set forth on Exhibit A attached hereto; subject to the Executive’s continued employment with the Company until the last calendar day of the fiscal year ending 2007. The Board (or any authorized committee thereof) shall have the authority to

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establish performance metrics and such other terms and conditions of the annual management incentive program pursuant to which an amount higher than such minimum annual bonus may be earned.

     (ii) With respect to each fiscal year of the Company commencing with the Company’s 2008 fiscal year, all or part of which is contained in 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 minimum bonus opportunity of the percentage of Base Salary set forth on Exhibit A attached hereto (the “Minimum Bonus Percentage”), 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”). 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.

          (c) Equity Compensation. 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. The Committee will, effective as of the Commencement Date with the Boards approval, award 50,000 Option Rights (the “Initial Grant”), which Initial Grant will be awarded in three (3) 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 pursuant to the MOP.

     (i) Shares of the Company’s Class A-1 common stock 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.

     5. Employee Benefits. In addition to the compensation described in Section 4, the Executive shall be eligible to participate in the employee benefit plans and programs, and to receive perquisites, provided from time to time to similarly situated executives of the Company and its Subsidiaries generally.

     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

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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.

     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. 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. 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 17. 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 17. Upon the Executive’s termination without Good Reason, (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.

          (c) Benefits Period. Subject to Section 9 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) Call Right. Upon termination of the Executive’s employment with the Company or any of its Subsidiaries for any reason prior to an IPO, the Company will have the right to purchase (the “Call Right”) any of the Executive’s shares of HealthMarkets’ Class A-1 common stock in accordance with the terms and conditions of the Stockholders Agreement.

          (e) 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

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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.

     9. Termination Payments and Benefits. If, during the Employment Term, the Executive’s employment hereunder is terminated by the Company without Cause (and other than by reason of the Executive’s death or Disability), or the Executive terminates his employment for Good Reason, subject to (i) the Executive execution and non-revocation of a release of claims against the Company, substantially 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 11 and 12, during the Payment Period, then in such case the Company shall be obligated to pay to the Executive such payments and make available to the Executive such benefits as are set forth in this Section 9 during the Payment Period.

          (a) Salary Continuation. The Executive will be entitled to receive an amount equal to the sum of: (i) two (2) times the Executive’s Base Salary in effect at the time of termination of employment and (ii) two (2) 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 regular payroll schedule 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 (10^th) 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.

          (b) Bonus Entitlement. To the extent 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 a pro rata portion of the Executive’s Target Bonus Percentage (based on the number of days the Executive was employed with the Company during such fiscal year of termination divided by 365), which amount shall be payable over the Payment Period; provided, however, that, if the Target Bonus Percentage has not been set for the year in which the date of termination occurs, the Executive’s Target Bonus Percentage for purpose of this Section 10(b) shall be the Executive’s Target Bonus Percentage for the year immediately preceding the year in which the Executive’s employment is terminated hereunder.

          (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.

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          (d) Welfare Benefits. During the Payment Period, the Company shall maintain in full force and effect for the continued benefit of the Executive all employee welfare benefit plans in which the Executive was entitled to participate immediately prior to the Executive’s termination or shall arrange to make available to the Executive benefits substantially similar to those which the Executive would otherwise have been entitled to receive if his employment had not been terminated. Such 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 9 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) 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.

     10. Certain Additional Payments by the Company. Anything in this Agreement to the contrary notwithstanding, in the event that it is determined (as hereafter provided) that any payment (other than the Gross-Up Payments provided for in this Section 10 and Exhibit C attached hereto) or distribution by the Company, its Subsidiaries or any of its affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered “contingent on a change in ownership or control” of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the Executive will be entitled to receive an additional payment or payments (collectively, a “Gross-Up Payment”) (subject to Paragraph 7 of Exhibit C attached hereto). The Gross-Up Payment will be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (1) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (2) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes. The obligations set forth in this Section 10 will be subject to the procedural provisions described in Exhibit C attached hereto.

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     11. Confidentiality.

          (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 11 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 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 (after providing to the Company 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. The Executive’s obligations under this Section 11 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.

          (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

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any manner to any person, firm, partnership, association, trust, venture, corporation or business organization, entity or enterprise any Confidential Information.

     12. Covenant Not to Compete; Covenant Not to Solicit. For a period commencing on the Commencement Date and for a period ending two (2) years after the termination of the Executive’s employment with the Company for any reason (the “Restricted Period”), 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 activity that can be reasonably expected to result in a competitive harm to the Company or any of the Company’s Subsidiaries or affiliates (collectively, the “Company Group”) in any region of the United States in which the business of the Company Group is being conducted; 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 12.

          (d) The Executive acknowledges and agrees that a violation of the foregoing provisions of Section 11 or Section 12 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.

     13. Compliance with Section 409A of the Code. This Agreement is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent that a payment and/or benefit owed or due to the Executive under this Agreement is subject to Section 409A of the Code, it shall be paid in a manner that complies with Section 409A of the Code, including proposed, temporary or final regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto (the “409A Guidance”). Any provision of this Agreement that would cause a payment and/or benefit to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Code Section 409A (which amendment shall be effected and may be retroactive to the extent permitted by the 409A Guidance).

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     14. Prior Agreement. As of the Effective Date, this Agreement supersedes any and all prior and/or contemporaneous agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof. 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.

     15. 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.

     16. 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. Notwithstanding anything in this Agreement to the contrary, the Executive acknowledges and agrees that to the extent the Executive is offered and accepts comparable employment with such Successor, the Executive will not be entitled to receive any severance/termination compensation payments and benefits, as provided pursuant to the terms and conditions of Section 9 or otherwise under this Agreement, from the Company in connection with such acquisition/transaction with the Successor. To the extent the Executive is offered but does not accept an offer of comparable employment from such Successor on terms and conditions set forth in this Agreement, any non-acceptance of employment will be treated as a voluntary termination of employment without Good Reason by the Executive in accordance with the provisions of this Agreement. 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 16(a) and 16(b). Without

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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 16(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated.

     17. 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.

     18. 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.

     19. Indemnification. The Company will indemnify the Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) 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 (including but not limited to any judgment entered by a court of law) 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, 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.

     20. 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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     21. Survival of Provisions. Notwithstanding any other provision of this Agreement, the parties’ respective rights and obligations under Sections 9, 10, 11, 12, 13, 14, 15, 19 and 21 will survive any termination or expiration of this Agreement or the termination of the Executive’s employment for any reason whatsoever.

     22. 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.

     23. Defined Terms.

          (a) “401(k) Plan” means the HealthMarkets 401(k) and Savings Plan.

          (b) “409A Guidance” has the meaning specified in Section 13.

          (c) “Agreement” has the meaning specified in the introductory paragraph herein.

          (d) “Annual Bonus Percentage” has the meaning specified in Section 4(b).

          (e) “Base Salary” has the meaning specified in Section 4(a).

          (f) “Board” means the Board of Directors of the Company.

          (g) “Call Right” has the meaning specified in Section 8(d).

          (h) “Cause” means the occurrence of any of the following:

     (i) the Executive commits an act of gross negligence, willful misconduct, fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company or any of its affiliates or Subsidiaries, or shall be convicted by a court of competent jurisdiction of, or shall plead guilty or nolo contendere to, any felony or any crime involving moral turpitude or any crime which reasonably could affect the reputation of the Company or the Executive’s ability to perform the duties required under this Agreement;

     (ii) the Executive commits a material breach of any of the covenants in this Agreement or the Stockholders Agreement, which breach has not been remedied within 30 days of the delivery to the 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; or

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     (iii) the Executive habitually and willfully neglects his obligations under this Agreement or the Executive’s duties as an employee of the Company.

          (i) “Code” means the Internal Revenue Code of 1986, as amended.

          (j) “Commencement Date” has the meaning specified in Section 2.

          (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 12(a).

          (n) “Confidential Information” has the meaning specified in Section 11.

          (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) “Excise Tax” has the meaning specified in Section 10.

          (s) “Executive” has the meaning specified in the introductory paragraph of this Agreement.

          (t) “Good Reason” means termination of employment by the Executive with written notice to the Company within 90 days following the occurrence, without the Executive’s consent, of any the following events (after failure of the Company to cure in thirty (30) days):

     (i) the reduction of the Executive’s position or responsibilities from that of Executive Vice President Sales with the Company;

     (ii) a decrease in the Executive’s Base Salary or Target Bonus Percentage, other than in the case of a decrease for a majority of similarly situated executives of the Company;

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     (iii) a 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 announcement of the relocation of the Executive’s primary place of employment to a location 50 or more miles from the current headquarters.

          (u) “Gross-Up Payment” has the meaning specified in Section 10.

          (v) “HealthMarkets Affiliates” has the meaning specified in paragraph 1 of Exhibit B attached hereto.

          (w) “Initial Employment Term” has the meaning specified in Section 2.

          (x) “Initial Grant” has the meaning specified in Section 4(c).

          (y) “IPO” has the meaning specified in the Stockholders Agreement.

          (z) “ISO” has the meaning specified in Section 10.

          (aa) “Minimum Bonus Percentage” has the meaning specified in Section 4(b).

          (bb) “MOP” means the Company’s 2006 Management Option Plan, as may be amended from time to time.

          (cc) “National Firm” has the meaning specified in paragraph 1 of Exhibit C attached hereto.

          (dd) “Option Rights” has the meaning specified in the MOP.

          (ee) “Payment” has the meaning specified in Section 10.

          (ff) “Payment Period” means the two-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.

          (gg) “Release” has the meaning specified in the introductory paragraph of Exhibit B attached hereto.

          (hh) “Renewal Term” has the meaning specified in Section 2.

          (ii) “Reporting Person” has the meaning specified in Section 3(a).

          (jj) “Restricted Period” has the meaning specified in Section 12.

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          (kk) “Revocation Date” has the meaning specified in paragraph 3 of Exhibit B attached hereto.

          (ll) “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.

          (mm) “Stock Option” means an Option Right.

          (nn) “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.

          (oo) “Successor” has the meaning specified in Section 16(a).

          (pp) “Target Bonus Percentage” has the meaning specified in Section 4(b).

          (qq) “Termination Payments” has the meaning specified in Section 8(a).

          (rr) “Underpayment” has the meaning specified in paragraph 1 of Exhibit C attached hereto.

     24. 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.

Jack Heller HealthMarkets, Inc.
By:
	Troy McQuagge
	President, AMG

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Exhibit A

Position: Executive Vice President, Sales

Reporting Person: President, AMG

Outside Activities:

Base Salary: $300,000, or such higher amount resulting from one or more subsequent increases in Base Salary by the Committee pursuant to Section 4(a).

Minimum Bonus Percentage: 50%

Target Bonus Percentage: 75%

Annual Bonus Percentage: 100%

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Exhibit B

Form of Release

          In consideration of the payments and promises contained in your Employment Agreement with the Company dated December 18, 2006, 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 (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, 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,

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nothing hereunder shall be deemed to affect, impair or diminish in any respect (i) any vested rights as of the date of termination or entitlement you may have under the ESOP; (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 under this Release; including but not limited to your right to bring a claim for breach of this Release; (v) any rights you may have under that Section 20 (Indemnification) of the Employment Agreement and certain Indemnification Agreement, dated as of September 26, 2006 between you and the Company (which Indemnification Agreement the Company, by its signature hereto, confirms shall remain in full force and effect in accordance with the terms thereof); (vi) any rights to indemnification that you have or may have under the terms of the HealthMarkets Amended and Restated Bylaws; or (vii) 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 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 expiration of said seven-day period, 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, 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; and

     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.

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Exhibit C

EXCISE TAX GROSS-UP PROCEDURAL PROVISIONS

     1. Subject to the provisions of Paragraph 5, all determinations required to be made under Section 11 of the Agreement and this Exhibit C, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, will be made by a nationally recognized accounting firm selected by the Company (the “National Firm”). The Company will direct the National Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the date of termination of the Executive’s employment, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the National Firm determines that any Excise Tax is payable by the Executive, the Company will pay the required Gross-Up Payment to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the National Firm determines that no Excise Tax is payable by the Executive with respect to any material benefit or amount (or portion thereof), it will, at the same time as it makes such determination, furnish the Company and the Executive with an opinion that the Executive has substantial authority not to report any Excise Tax on Executive’s federal, state or local income or other tax return with respect to such benefit or amount. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the National Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Paragraph 5 and the Executive thereafter is required to make a payment of any Excise Tax, the Executive will direct the National Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment will be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations.

     2. The Company and the Executive will each provide the National Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the National Firm, and otherwise cooperate with the National Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Paragraph 1. Any determination by the National Firm as to the amount of the Gross-Up Payment will be binding upon the Company and the Executive.

     3. The federal, state and local income or other tax returns filed by the Executive will be prepared and filed on a consistent basis with the determination of the National Firm with respect to the Excise Tax payable by the Executive. The Executive will report and make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of the Executive’s federal income tax

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return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive’s federal income tax return, or corresponding state or local tax return, if relevant, the National Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive will within five (5) business days pay to the Company the amount of such reduction.

     4. The fees and expenses of the National Firm for its services in connection with the determinations and calculations contemplated by Paragraph 1 will be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company will reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of Executive’s payment thereof.

     5. The Executive will notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification will be given as promptly as practicable but no later than ten (10) business days after the Executive actually receives notice of such claim and the Executive will further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive will not pay such claim prior to the expiration of the 30-calendar-day period following the date on which Executive gives such notice to the Company or, if earlier, the date that any payment of amount with respect to such claim is due. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive will:

          (a) provide the Company with any written records or documents in Executive’s possession relating to such claim reasonably requested by the Company;

          (b) take such action in connection with contesting such claim as the Company reasonably requests in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company;

          (c) cooperate with the Company in good faith in order effectively to contest such claim; and

          (d) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company will bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and will indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income or other tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Paragraph 5, the Company will control all proceedings taken in connection with the contest of any claim contemplated by this Paragraph 5 and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in

20

respect of such claim (provided, however, that the Executive may participate therein at Executive’s own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company determines; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company will advance the amount of such payment to the Executive on an interest-free basis and will indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of any such contested claim will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and the Executive will 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.

     6. If, after the receipt by the Executive of an amount advanced by the Company pursuant to Paragraph 5, the Executive receives any refund with respect to such claim, the Executive will (subject to the Company’s complying with the requirements of Paragraph 5) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount paid by the Company pursuant to Paragraph 5, a determination is made that the Executive is not 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 or refund prior to the expiration of thirty (30) calendar days after such determination, then such payment will be forgiven and will not be required to be repaid and the amount of any such payment will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to Section 11 and this Exhibit C.

     7. Notwithstanding any provision of this Agreement to the contrary, but giving effect to any redetermination of the amount of Gross-Up payments otherwise required by this Exhibit C, if (A) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive, (B) the aggregate “present value” of the “parachute payments” to be paid or provided to the Executive under this Agreement or otherwise does not exceed 1.10 multiplied by three times the Executive’s “base amount,” then the payments and benefits to be paid or provided under this Agreement will be reduced (or repaid to the Company, if previously paid or provided) to the minimum extent necessary so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes an “excess parachute payment.” For purposes of this Paragraph 7, the terms “excess parachute payment,” “present value,” “parachute payment,” and “base amount” will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in or repayment of such payments or benefits to be provided under this Agreement is required pursuant to this Paragraph 7 will be made at the expense of the Company by the National Firm. Appropriate adjustments will be made to amounts previously paid to the Executive, or to amounts not paid pursuant to this Paragraph 7, as the case may be, to reflect properly a subsequent determination that the Executive owes more or less Excise Tax than the amount previously determined to be due. In the event that any payment

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or benefit intended to be provided under this Agreement or otherwise is required to be reduced or repaid pursuant to this Paragraph 7, the Executive will be entitled to designate the payments and/or benefits to be so reduced or repaid in order to give effect to this Paragraph 7. The Company will provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within ten (10) business days prior to the Termination Date or other due date, the Company may effect such reduction or repayment in any manner it deems appropriate.

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Phillip J. Hildebrand
Chief Executive Officer
P.Hildebrand@healthmarkets.com P 817-255-6800
F 817-255-6882

September 10, 2009

Hand Delivery

Mr. Jack V. Heller
Senior Vice President, HealthMarkets

Re: Amendment to Employment Agreement

Dear Jack:

     This is to confirm that your Employment Agreement dated as of December 18, 2006 is hereby amended as follows:

1.	Section 9. (a) is deleted and replaced with the following:
	9. (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 the 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 regular payroll schedule 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.
2.	Section 12, first paragraph, second line, is amended to read: “the Commencement Date and for a period ending one (1) year after the termination of the” ...
3.	Section 23. (ff) is deleted and replaced with the following:
	Section 23. (ff) “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 401A.
4.	Exhibit A is deleted and replaced with the attached Exhibit A.

HealthMarkets, Inc. • 9151 Boulevard 26 • North Richland Hills, TX 76180 • P 817-255-5200 • www.HealthMarkets.com

Jack V. Heller
Page 2
September 10, 2009

Please indicate your agreement to this Amendment by signing this letter in the space provided below and retuning to me no later than Wednesday, September 16, 2009.

Sincerely,

Phil Hildebrand

Acknowledged and Agreed To:

Jack V. Heller (Date)

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Phillip J. Hildebrand, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of HealthMarkets, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 6, 2009	/s/ PHILLIP J. HILDEBRAND
	Phillip J. Hildebrand
	President and Chief Executive Officer, HealthMarkets, Inc.

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven P. Erwin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of HealthMarkets, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 6, 2009	/s/ STEVEN P. ERWIN
	Steven P. Erwin
	Executive Vice President and Chief Financial Officer, HealthMarkets, Inc.

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of HealthMarkets, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

November 6, 2009	/s/ PHILLIP J. HILDEBRAND
	Phillip J. Hildebrand
	President and Chief Executive Officer
November 6, 2009	/s/ STEVEN P. ERWIN
	Steven P. Erwin
	Executive Vice President and Chief Financial Officer

     The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.