Exhibit 10.2
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
     This AGREEMENT (this “Agreement”) is made as of October 15, 2008 by and
between HealthMarkets, Inc. (formerly UICI), 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 the Chief
Administrative Officer 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 Optionee, effective on the Effective
Time (as defined in Section 9 of this Agreement), 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 Plan. As
used in this Agreement:
          (a) “Board” means the Board of Directors of the Company.
          (b) “Call Right” has the meaning specified in Section 8 of this
Agreement.
          (c) “Cause” has the meaning specified in the Employment Agreement.
          (d) “Change of Control” has the meaning specified in the Employment
Agreement.
          (e) “Company” has the meaning specified in the introductory paragraph
of this Agreement.
          (f) “Compensation Committee” means the Executive Compensation
Committee of the Board.
          (g) “Disability” has the meaning specified in the Employment
Agreement.
          (h) “Distributed Securities” means any Shares that have been
distributed to investors in investment funds managed by the Sponsors or any of
their affiliates.
          (i) “Effective Date” has the meaning specified in the Employment
Agreement.
          (j) “Employment Agreement” has the meaning specified in the first
Whereas clause of this Agreement.
          (k) “Fair Market Value” shall have the meaning specified in, and shall
be construed and determined in accordance with the procedures set forth in, the
Stockholders Agreement.

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          (l) “Good Reason” has the meaning specified in the Employment
Agreement.
          (m) “Immigration Termination” has the meaning specified in the
Employment Agreement.
          (n) “Internal Rate of Return” means the pretax compounded annual
internal rate of return realized by the Sponsors, based on the aggregate amount
invested by the Sponsors in respect of all Sponsor Investments and the aggregate
amount of actual cash received by, and Distributed Securities distributed to,
the Sponsors in respect of all Sponsor Investments and including, as a return on
each Sponsor Investment, any cash dividends, cash distributions, cash sales or
cash interest made by the Company or any Subsidiary in respect of such Sponsor
Investment, in each case, following the Effective Date, assuming all Sponsor
Investments were purchased by one Person and were held continuously by such
Person, and excluding any other amounts payable that are not directly
attributable to a Sponsor Investment (including, without limitation, any
management, transaction, monitoring or similar fees). The Internal Rate of
Return shall be determined assuming that (i) any Sponsor Investments made before
the Effective Date were made by the Sponsors on the Effective Date and (ii) the
value of such Sponsor Investments shall be equal to the product of (x) the
number of Shares in the Company and its affiliated entities held by the Sponsors
on the Effective Date and (y) the Fair Market Value of each such Shares on the
Effective Date (which, for the avoidance of doubt, shall be equal to the Option
Price). For purposes of determining Internal Rate of Return in respect of
Distributed Securities, the fair market value of those securities on the date on
which the Distributed Securities are distributed shall be used for purposes of
calculating the annual internal rate of return, and such date shall be deemed
the date on which the return on the Sponsor Investment was received by the
Sponsors.
          (o) “Options” has the meaning specified in Section 2 of this
Agreement.
          (p) “Optionee” has the meaning specified in the introductory paragraph
of this Agreement.
          (q) “Option Price” has the meaning specified in Section 2 of this
Agreement.
          (r) “Performance-Based Options” has the meaning specified in Section 2
of this Agreement.
          (s) “Performance-Based Tranche A Options” has the meaning specified in
Section 2 of this Agreement.
          (t) “Performance-Based Tranche B Options” has the meaning specified in
Section 2 of this Agreement.
          (u) “Permissible Immigration Termination” has the meaning specified in
the Employment Agreement.
          (v) “Plan” has the meaning specified in the second Whereas clause of
this Agreement.
          (w) “Shares” has the meaning specified in the second Whereas clause of
this Agreement.

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          (x) “Sponsor Investment” means direct or indirect equity investments
in the Company made by the Sponsors, but excluding any purchases or repurchases
of equity interests on any securities exchange or any national market system
after an Initial Public Offering. The term “Sponsor Investment” excludes any
investment originally made by the Sponsors in a Person other than the Company or
a Subsidiary.
          (y) “Sponsors” means Blackstone Management Associates IV L.L.C., DLJ
Merchant Banking Partners IV, L.P. and GS Maverick Co. and their respective
affiliates.
          (z) “Time-Based Options” has the meaning specified in Section 2 of
this Agreement.
          (aa) “Time-Based Tranche A Options” has the meaning specified in
Section 2 of this Agreement.
          (bb) “Time-Based Tranche B Options” has the meaning specified in
Section 2 of this 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 150,000 Shares (the “Options”). The Options may be exercised
from time to time in accordance with the terms of this Agreement. Subject to
adjustment as hereinafter provided,
     (a) 62,500 of the Shares subject to the Option (the “Time-Based Tranche A
Options”) may be purchased pursuant to the Options at a price (the “Option
Price”) equal to the Fair Market Value of a Share on the Effective Time (the
“Initial Option Price”);
     (b) 12,500 of the Shares subject to the Option (the “Time-Based Tranche B
Options” and, together with the Time-Based Tranche A Options, the “Time-Based
Options”) may be purchased pursuant to the Option at an Option Price of (i) the
Initial Option Price per Share, if Optionee exercises the Option to purchase any
Time-Based Tranche B Options prior to the first anniversary of the Effective
Date; (ii) 110% of the Initial Option Price per Share, if Optionee exercises the
Option to purchase any Time-Based Tranche B Options on or after the first
anniversary of the Effective Date but prior to the second anniversary of the
Effective Date; (iii) 121% of the Initial Option Price per Share, if Optionee
exercises the Option to purchase any Time-Based Tranche B Options on or after
the second anniversary of the Effective Date but prior to the third anniversary
of the Effective Date; (iv) 133.1% of the Initial Option Price per Share, if
Optionee exercises the Option to purchase any Time-Based Tranche B Options on or
after the third anniversary of the Effective Date but prior to the fourth
anniversary of the Effective Date; (v) 146.41% of the Initial Option Price per
Share, if Optionee exercises the Option to purchase any Time-Based Tranche B
Options on or after the fourth anniversary of the Effective Date but prior to
the fifth anniversary of the Effective Date; and (vi) 161.051% of the Initial
Option Price per Share, if Optionee exercises the Option to purchase any
Time-Based Tranche B Options on or after the fifth anniversary of the Effective
Date;*
 

*   Schedule I to this Option Agreement sets forth an illustrative example of
the accretion of the Initial Option Price, assuming an Initial Option Price of
$24.00 per Share.

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     (c) 62,500 of the Shares subject to the Option (the “Performance-Based
Tranche A Options”) may be purchased pursuant to the Options at the Initial
Option Price per Share; and
     (d) 12,500 of the Shares subject to the Option (the “Performance-Based
Tranche B Options” and, together with the Performance-Based Tranche A Options,
the “Performance-Based Options”) may be purchased pursuant to the Options at an
Option Price of (i) the Initial Option Price per Share, if Optionee exercises
the Option to purchase any Performance-Based Tranche B Options prior to the
first anniversary of the Effective Date; (ii) 110% of the Initial Option Price
per Share, if Optionee exercises the Option to purchase any Performance-Based
Tranche B Options on or after the first anniversary of the Effective Date but
prior to the second anniversary of the Effective Date; (iii) 121% of the Initial
Option Price per Share, if Optionee exercises the Option to purchase any
Performance-Based Tranche B Options on or after the second anniversary of the
Effective Date but prior to the third anniversary of the Effective Date;
(iv) 133.1% of the Initial Option Price per Share, if Optionee exercises the
Option to purchase any Performance-Based Tranche B Options on or after the third
anniversary of the Effective Date but prior to the fourth anniversary of the
Effective Date; (v) 146.41% of the Initial Option Price per Share, if Optionee
exercises the Option to purchase any Performance-Based Tranche B Options on or
after the fourth anniversary of the Effective Date but prior to the fifth
anniversary of the Effective Date; and (vi) 161.051% of the Initial Option Price
per Share, if Optionee exercises the Option to purchase any Performance-Based
Tranche B Options on or after the fifth anniversary of the Effective Date.
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 subject
to the occurrence of the Effective Time and except as otherwise provided in
Section 7, the Options shall become exercisable only as follows:
          (a) The Time-Based Options shall become exercisable (i.e. vested) with
respect to 20% of the Time-Based Options (15,000 Shares) on the first
anniversary of the Effective Date and the remainder of the Time-Based Options
(60,000 Shares) shall vest in equal quarterly installments thereafter until the
fifth anniversary of the Effective Date, in each case, subject to Optionee’s
remaining in the continuous employ of the Company or any Subsidiary through the
applicable vesting date (such vesting schedule, the “Time-Vesting Schedule”);
provided that the Time-Based Options shall become fully exercisable upon a
Change of Control.
          (b) The Performance-Based Options shall become exercisable upon actual
realization by the Sponsors (based on cash proceeds received) of a 1.6x or
greater cash-on-cash return on the value of their equity investment in the
Company and its subsidiaries as of the Effective Date (including, for this
purpose, cash dividends and distributions after the Effective Date); provided
that, if the Performance-Based Options have not become exercisable in accordance
with the preceding provision as of the fourth anniversary of the Effective Date,
then on or after the fourth anniversary of the Effective Date, the
Performance-Based Options shall only become exercisable if the Sponsors also
attain a 15% or greater Internal Rate of Return from and after the Effective
Date (collectively, the “Performance Targets”), in each case, subject to
Optionee’s remaining in the continuous employ of the Company or any Subsidiary

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as of any such date. The achievement of the Performance Targets shall be
determined in the good faith opinion of the Board using the Company’s stock
price valuation as of the Effective Date. The Board shall, if requested by
Optionee, send documentation to Optionee setting out in reasonable detail the
basis for the relevant calculations. For the avoidance of doubt, the Performance
Targets shall not be deemed to be “Management Objectives” as defined in the
Plan.
          (c) Following a transaction or series of transactions involving the
Company pursuant to which the Sponsors receive solely cash (and not marketable
securities) with respect of all of the Shares held by the Sponsors, any
Performance-Based Options that have not vested and become exercisable shall
immediately terminate and be cancelled. Optionee shall have the opportunity to
earn the Performance-Based Options prior to such time unless such
Performance-Based Options are otherwise cancelled, terminated or expire in
accordance with their terms. For the avoidance of doubt, the Performance-Based
Options, if not exercisable, shall not be cancelled in connection with a Change
of Control in which the Sponsors receive marketable securities if the
Performance Targets would have been satisfied if the value of such securities
had been included as “cash.” In this event, the Performance-Based Options shall
remain in effect on and following such Change of Control until the earlier of
(i) the remaining term of the Performance-Based Options and (ii) the first
anniversary of the date of termination of Optionee’s employment, and, to the
extent not already vested, shall become exercisable if, during such period, upon
conversion of such marketable securities into cash (or other distribution or
disposition) by the Sponsors, the Performance Targets are satisfied (provided,
that for the avoidance of doubt if the Change of Control occurs before the
fourth anniversary of the Effective Date, the 15% or greater Internal Rate of
Return shall not be deemed a Performance Target for vesting purposes on or
following the Change of Control, including for purposes of Section 7(b) and
7(c)). In the case of the Performance-Based Options, the Sponsors agree to
provide Optionee (as well as to the Company if the Sponsors are no longer in
control of the successor entity) with notice that the Performance Targets have
been satisfied within 30 days following such event.
     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.

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          (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 (including any Immigration Termination),
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. 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 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
Optionee for Good Reason, to the extent not previously cancelled or expired,
(A) as of the date of termination Optionee’s unvested Time-Based 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 and (B) the
Performance-Based Options will continue to remain outstanding and be eligible to
vest until the shorter of (x) the first anniversary of the date of termination
and (y) the remainder of their original scheduled term (and if the Performance
Targets are achieved during such time period shall vest in accordance therewith;
provided that if a Change of Control occurs during such time period and the
Sponsors receive marketable securities in connection with such Change of
Control, the Performance-Based Options shall remain outstanding until the
earlier of (i) the remaining term of the Performance-Based Options and (ii) the
first anniversary of the date of termination of Optionee’s employment, and, to
the extent not already vested, shall vest, if during such period, such
marketable securities are converted to cash or otherwise distributed or disposed
of by the Sponsors if the applicable performance targets would be met upon such
conversion, distribution or transfer) and all then-vested Performance-Based
Options will remain exercisable for the shorter of (1) one year following the
applicable date of vesting 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 Time-Based Options shall be treated as if they had fully vested as of the
date of the Change of Control and the Performance-Based Options shall be treated
as if they had been fully vested as of the date of the Change of Control to the
extent the Performance Targets have been satisfied as of such date (and shall be
forfeited to the extent the Performance Targets have not been satisfied as of
such date unless the Sponsors receive marketable securities in connection with
such Change of Control, in which event the Performance-Based Options shall
remain outstanding until the earlier of (i) the remaining term of the
Performance-Based Options and (ii) the first anniversary of the date of
termination of Optionee’s employment, and, to the extent not already vested,
shall vest, if during such period, such marketable securities are converted to
cash or otherwise distributed or disposed of by Sponsors if the applicable
performance targets are met upon such conversion, distribution or transfer). In
the case of the Performance-Based Options, the Sponsors agree to

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provide Optionee (as well as to the Company if the Sponsors are no longer in
control of the successor entity) with notice that the Performance Targets have
been satisfied within 30 days following such event.
          (c) Permissible Immigration Termination. If Optionee’s employment is
terminated as a result of a Permissible Immigration Termination, (A) all vested
Time-Based 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 and (B) any unvested Performance-Based Options will continue to
remain outstanding and be eligible to vest until the shorter of (x) the first
anniversary of the date of termination and (y) the remainder of their original
scheduled term (and if the Performance Targets are achieved during such time
period shall vest in accordance therewith; provided that if a Change of Control
occurs during such time period and the Sponsors receive marketable securities in
connection with such Change of Control, the Performance-Based Options shall
remain outstanding until the earlier of (i) the remaining term of the
Performance-Based Options and (ii) the first anniversary of the date of
termination of Optionee’s employment, and, to the extent not already vested,
shall vest, if during such period, such marketable securities are converted to
cash or otherwise distributed or disposed of by the Sponsors if the applicable
performance targets would be met upon such conversion, distribution or transfer)
and all then-vested Performance-Based Options will remain exercisable for the
shorter of (1) one year following the applicable date of vesting and (2) the
remainder of their original scheduled term.
          (d) Death; Disability. If Optionee’s employment is terminated by
reason of Optionee’s death or Disability, to the extent not previously cancelled
or expired, (A) as of the date of termination Optionee’s unvested Time-Based
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 and (B) the
Performance-Based Options will continue to remain outstanding and be eligible to
vest until the shorter of (x) the first anniversary of the date of termination
and (y) the remainder of their original scheduled term (and if the Performance
Targets are achieved during such time period shall vest in accordance therewith;
provided that if a Change of Control occurs during such time period and the
Sponsors receive marketable securities in connection with such Change of
Control, the Performance-Based Options shall remain outstanding until the
earlier of (i) the remaining term of the Performance-Based Options and (ii) the
first anniversary of the date of termination of Optionee’s employment, and, to
the extent not already vested, shall vest, if during such period, such
marketable securities are converted to cash or otherwise distributed or disposed
of by the Sponsors if the applicable performance targets are met upon such
conversion, distribution or transfer) and all then-vested Performance-Based
Options will remain exercisable for the shorter of (1) one year following the
applicable date of vesting 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. In the case of the Performance-Based Options, the Sponsors agree to
provide Optionee or the Person exercising the Options in accordance with this
clause (d) (as well as to the Company if the Sponsors are no longer in control
of the successor entity) with notice that the Performance Targets have been
satisfied within 30 days following such event.
          (e) 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.

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     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 later of (x) the Effective Date and (y) delivery
of an executed counterpart of this Agreement to the Company by Optionee.
Notwithstanding the foregoing, in the event that the Options granted hereby are
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 and such
stockholder approval is not obtained by June 30, 2009, this Agreement and the
grant of Options hereunder 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 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.
     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

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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 an Share over
the Option Price per Share subject to such Option in connection with such an
adjustment event (a “Cash Payment”); provided that in connection with a Change
of Control in which the Sponsors receive marketable securities if the
Performance Targets would have been satisfied if the value of such securities
had been included as “cash”, unless Optionee is paid a Cash Payment, if any,
with respect to such Performance-Based Options in connection with such Change of
Control, such Performance-Based Options shall not be cancelled and shall remain
outstanding until the earlier of (i) the remaining term of the Performance-Based
Options and (ii) the first anniversary of the date of termination of Optionee’s
employment.
     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 Effective Time, this
Agreement 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 (other
than the Employment 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 or in
Section 4(c) 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 Section 4(c) of the
Employment Agreement) shall be valid or binding on

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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.
     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:  Vicki A. Cansler     Title:  Senior Vice President    
              OPTIONEE      Name: Anurag Chandra     

In each case, solely with respect to the last
sentences of Sections 4(c), 7(b) and 7(c)
of this Agreement:

         
Accepted and Agreed to as of the day and year first written above by Blackstone
Management Associates IV L.L.C.
      Accepted and Agreed to as of the day and year first written above by GS
Maverick Co.
 
       
 
       
Name: Chinh E. Chu
      Name: Adrian M. Jones
Title: Senior Managing Director
      Title: Managing Director
 
       
Accepted and Agreed to as of the day and year first written above by DLJ
Merchant Banking Partners IV, L.P.
       
 
       
 
Name: Kamil Salame
       
Title: Managing Director
       

      ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT   PAGE 10

 

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SCHEDULE I*
ILLUSTRATIVE EXAMPLE OF ACCRETION IN INITIAL OPTION PRICE FOR TIME-
BASED TRANCHE B OPTIONS AND PERFORMANCE-BASED TRANCHE B OPTIONS

      Time of Exercise of Vested Options   Applicable Option Price per Share
Prior to October 13, 2009 (i.e., the first anniversary of the Effective Date).
  $24.00 per Share (the “Assumed Initial Option Price”).
 
   
On or after October 13, 2009 (i.e., the first anniversary of the Effective Date)
but prior to October 13, 2010 (i.e., the second anniversary of the Effective
Date).
  $26.40 per Share (i.e., 110% of the Assumed Initial Option Price).
 
   
On or after October 13, 2010 (i.e., the second anniversary of the Effective
Date) but prior to October 13, 2011 (i.e., the third anniversary of the
Effective Date).
  $29.04 per Share (i.e., 121% of the Assumed Initial Option Price).
 
   
On or after October 13, 2011 (i.e., the third anniversary of the Effective Date)
but prior to October 13, 2012 (i.e., the fourth anniversary of the Effective
Date).
  $31.94 per Share (i.e., 133.1% of the Assumed Initial Option Price).
 
   
On or after October 13, 2012 (i.e., the fourth anniversary of the Effective
Date) but prior to October 13, 2013 (i.e., the fifth anniversary of the
Effective Date).
  $35.14 per Share (i.e., 146.41% of the Assumed Initial Option Price)
 
   
On or after October 13, 2013 (i.e., the fifth anniversary of the Effective
Date).
  $38.65 per Share (i.e., 161.051% of the Assumed Initial Option Price).

 

*   This Schedule I assumes an Initial Option Price of $24.00 per Share.

      ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT   PAGE 11