Document:

exv10w1

Exhibit 10.1

EXECUTION
COPY

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of October 15, 2008,
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 desires to employ the Executive, and the Executive desires to be employed
by the Company effective as of the Effective Date (as defined below);

     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 October 13,
2008 (such start date, the “Effective Date”) and ending on the third anniversary of the Effective
Date (the “Initial Employment Term”); provided, however, that at the end of the
Initial Employment Term and on each succeeding anniversary of the Effective Date, the employment of
the Executive will be automatically continued upon the terms and conditions set forth herein for
one additional year (each, a “Renewal Term”), unless either party to this Agreement gives the other
party written notice (in accordance with Section 18) of such party’s intention to terminate this
Agreement 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. 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.

          (b) Cash Incentive Compensation. With respect to the Company’s 2008 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

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“Maximum Bonus Percentage”); provided, however, that with respect to the
Company’s 2008 fiscal year, the Executive’s actual annual bonus earned for such fiscal year, if
any, will be equal to the (x) the annual bonus which otherwise would have been earned by Executive
for the Company’s 2008 fiscal year absent pro-ration, times (y) a fraction, the numerator of which
is the number of days in the Company’s 2008 fiscal year from and after October 1, 2008, and the
denominator of which is 365. 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. 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).

          (c) Equity Compensation. During the Employment Term, the Executive will be eligible
to participate in the Company’s MOP and any other incentive, equity-based and deferred compensation
plans and programs or arrangements as may be determined by the Board or any successor programs or
plans thereto or thereunder, in each case, as may be in effect from time to time and as may be
determined by the Board. The Committee will, as soon as practicable after the Effective Date,
award 150,000 Option Rights (the “Initial Grant”), which Initial Grant will be awarded in four (4)
tranches and will vest and otherwise be subject to the provisions set forth in the Executive’s
Non-Qualified Stock Option Agreement to be entered into in the form of Exhibit A attached hereto;
provided, that in the event that (i) to the extent such amendment is necessary to
effectuate the grant hereunder, the Company’s stockholders shall fail to approve an amendment to
the MOP as set forth in Exhibit A prior to the earlier of a Change of Control or June 30, 2009,
which the Blackstone Investor Group (as defined in the Stockholders Agreement) (“Blackstone”)
represents it has sufficient votes to approve as of the Effective Date and which Blackstone shall
vote for (the “Amendment”) or (ii) the Executive fails to make the Investment in the Company in
accordance with Section 8 of this Agreement, the Initial Grant shall immediately be void ab initio
and of no further force and effect. To the extent such amendment is necessary to effectuate the
grant hereunder, failure to obtain stockholder approval for the Amendment by the earlier of a
Change of Control or June 30, 2009 shall be a breach of this Section 4(c) and Exhibit C, entitling
the Executive to terminate his employment for Good Reason. In all events, any equity award (or
portion thereof) granted to the Executive that vests solely upon the Executive’s fulfillment of
time and/or service requirements shall vest in full upon a “Change of Control” (as such term is
defined in the MOP in effect as of the Effective Date, plus any amendments to such definition after
the Effective Date which would result in a transaction not covered by the Change of Control
definition in effect as of the Effective Date constituting a “Change of Control”). 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.

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          (d) LTIP Awards.

     (i) Initial LTIP Award. As soon as practicable after the Effective Date,
but in all events within 30 days following such date, the Company shall grant the
Executive an LTIP award in the form of a restricted stock grant consisting of a
number of shares of A-1 common stock (together with any other equity received as
proceeds thereon, “Shares”) of the Company with a grant date value of $150,000 (with
the number of Shares determined based on the Fair Market Value (as defined in the
Stockholders Agreement) of a Share on the date of grant) (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 the Effective Date,
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) Annual LTIP Awards. In addition to any other compensation granted
or paid hereunder, 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 shall be entitled to receive a long-term incentive award, with a
target value of no less than $100,000 (the “Annual LTIP Award”) (and which shall be
granted at no less than target if the applicable performance targets have been met).
Subject to the Executive’s achievement of certain performance goals to be established
by the Board (or any authorized committee thereof), the Annual LTIP Award shall be
granted to the Executive within the first 75 days of the year immediately following
the end of the applicable fiscal year to which such performance goals relate (the
“Performance Year”). Except as may otherwise be provided in Section 10 of this
Agreement, (i) any such granted Annual LTIP Award shall vest in three equal
installments, on each of the first three anniversaries of the Effective Date
occurring after the conclusion of the applicable Performance Year for which it was
granted, subject to the Executive’s continued employment with the Company through
each applicable vesting date and (ii) any vested portion of such Annual LTIP Award
shall be delivered to the Executive, 100% in cash, on the third anniversary of the
Effective Date occurring after the conclusion of the applicable Performance Year for
which it was granted. It is intent of the parties that there shall be no transfer of
property (within the meaning of Section 83 of the Code) with respect to the Annual
LTIP Award prior to the payment date as described in this Section 4. The Board (or
any authorized committee thereof) shall have the authority to establish performance
metrics pursuant to which such Annual LTIP Awards may be earned.

     (iii) Change of Control. In all events, all outstanding Annual LTIP
Awards shall vest in full upon a Change of Control and if such Change of Control
constitutes a “change in control event” within the meaning of Section 409A of the
Code, shall be paid to the Executive upon such Change of Control.

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     (iv) Termination of Employment. Except as may otherwise be provided in
Section 10 of this Agreement, any unvested LTIP award shall be forfeited upon
termination of the Executive’s employment. Any portion of the Initial LTIP Award or
the Annual LTIP Award that has become vested shall be non-forfeitable.

          (e) Sign-On Bonus. The Company shall pay the Executive a sign-on bonus in the amount
of $350,000 in January, 2009 (subject to the Executive’s continued employment through such date)
(the “Sign-On Bonus”). In the event that the Effective Date is after October 13, 2008, the
Executive shall in no event be entitled to the Sign-On Bonus, but the Company may, in its sole
discretion, pay the Executive a sign-on bonus in an amount of up to $350,000 in January, 2009 (any
such bonus, the “Discretionary 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 the 18-month anniversary of the Effective Date, 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 or the Discretionary Sign-On Bonus,
as applicable, over (B) the applicable taxes withheld on such Bonus and (ii) a fraction, the
numerator of which is the number of months from the date of termination through the date that is 18
months following the Effective Date 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 or the
Discretionary Sign-On Bonus upon a termination of his employment without “Good Reason” where the
PIT Conditions have been satisfied as of the date of such termination without “Good Reason.”

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

          (b) Relocation Allowance. In connection with the Executive’s commencement of
employment with the Company, the Company will provide the Executive with standard executive
relocation benefits pursuant to the HealthMarkets Executive Relocation Program and up to 30 days of
temporary living expenses in the Dallas/Ft. Worth area, Texas.

     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.

     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
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.

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     8. Investment. As soon as practicable following the Effective Date, but in no event
later than January 2009, the Executive will invest cash in the amount of $100,000 in Shares, at a
purchase price per Share at the then Fair Market Value of a Share (such investment, the
“Investment”), pursuant to the terms of a Subscription Agreement between the Company and the
Executive, and the Executive acknowledges that such Shares will be subject to the terms and
conditions of the Stockholders Agreement. The Executive shall make payment for the Shares
purchased pursuant to this Section 8 by check or wire transfer as directed by the Company and, upon
receipt of the foregoing payment, the Company will issue the Executive a share certificate
evidencing the number of Shares purchased.

     9. Termination.

          (a) Termination of Employment by the Company. The Executive’s employment hereunder
may be terminated by the Company or any of its Subsidiaries that employ the Executive for any
reason or no reason (including with or without Cause or notification by the Company at any time
during the Employment Term pursuant to Section 2 that the Company intends to terminate the
Agreement and the Executive’s employment, rather than allow the Agreement to renew automatically)
by written notice as provided in Section 18. If the Company terminates the Executive’s employment
with Cause, all of the Executive’s Option Rights, whether or not vested, will be immediately
forfeited. Stock options, if any, held by the Executive following termination of the Executive’s
employment with the Company or any of its Subsidiaries, shall remain exercisable in accordance with
their terms.

          (b) Voluntary Termination by the Executive. The Executive may voluntarily terminate
the Executive’s employment with or without Good Reason at any time by notice to the Company as
provided in Section 18. Except as provided in the last sentence of this Section 9(b), any
Immigration Termination shall be treated for all purposes hereunder as a resignation by the
Executive without Good Reason. Upon the Executive’s termination without Good Reason, (i) any
unvested portions of the Initial Grant will be immediately forfeited, (ii) all of the Executive’s
vested stock options, if any, shall remain exercisable in accordance with their terms, (iii) in the
event such termination is in connection with the Executive’s commencement of employment with
Blackstone or one of its portfolio companies, the Initial LTIP Award and any unvested Annual LTIP
Awards shall vest on the date of termination but shall be paid at such time as such LTIP Awards
would otherwise have been paid had the Executive remained employed with the Company (provided that
where the PIT Conditions have been satisfied as of the date of termination and the Executive has
not yet accepted an offer to commence employment with Blackstone or one of its portfolio companies,
any such LTIP Awards shall be treated in accordance with the parenthetical in Section 10(c) of this
Agreement) and (iv) in the event (x) such termination of employment occurs after the last day of
the first quarter of an applicable Company fiscal year and (y) the PIT Conditions have been
satisfied as of the date of termination, the Executive will be entitled to receive the Pro-Rata
Bonus.

          (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.

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          (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 Exhibit C, and any other related definitive document, include
a termination of the Executive’s employment upon conclusion of the Employment Term after the
Company’s giving the Executive a notice of non-renewal of the Employment Term), by reason of the
Executive’s death or Disability, the Executive terminates his employment for Good Reason or the
Executive’s employment is terminated due to a Permissible Immigration Termination, 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 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(g), 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; provided that, if the
termination is a Permissible Immigration Termination, such payments and benefits shall be solely
those identified in sections 10(a), 10(b), 10(c) and 10(e) of this Section 10.

          (a) Salary Continuation. The Executive will be entitled to receive an amount equal to
the sum of: (i) one (1) times the Executive’s Base Salary in effect at the time of termination of
employment and (ii) one (1) times an amount equal to the product of (A) the Executive’s Base Salary
in effect at the time of termination of employment and (B) the Executive’s Target Bonus Percentage
for the year of the Executive’s termination of employment, or if the Target Bonus Percentage has
not been set for such year as of the date of termination of employment, the Target Bonus Percentage
for the immediately preceding year (the sum of (i) and (ii), the “Termination Payments”), such
amount to be payable in equal installments payable over the Payment Period. Termination Payments
shall be paid to the Executive in accordance with the Company’s payroll schedule as in effect on
the Effective Date for the duration of the Payment Period. In the event that the Executive dies
while any Termination Payments are still payable to the Executive hereunder, unless otherwise
provided herein, all such unpaid amounts shall be paid, not later than the tenth (10th)
business day following the Executive’s death, to the

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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. To the extent then unvested and unpaid, the Executive’s
Initial LTIP Award shall vest on the date of termination (and, in the event of a termination where
the PIT Conditions have been satisfied as of the date of termination, shall (i) remain outstanding
and eligible to vest during the Comparable Non-U.S. Employment Offer Period, (ii) if a Permissible
Immigration Termination occurs, vest on the Permissible Immigration Termination Date, if any and
(iii) if a Permissible Immigration Termination does not occur and the Executive has not accepted an
offer to commence employment with Blackstone or one of its portfolio companies, shall be forfeited)
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.

          (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 grant of Option Rights in
accordance with their terms, which 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 to be paid within the first six months following such date
(the “Initial Payment Period”) exceed the amount referenced in Treas. Regs. Section
1.409A-1(b)(9)(iii)(A) (the “Limit”) and do not otherwise qualify under the short-term deferral
exemption, then (i) any portion of the Termination Payments that is payable during the Initial
Payment Period that does not exceed the Limit or can paid within the short-term deferral exemption
shall be paid at the times set forth in Section 10(a), (ii) any portion of the Termination Payments
that exceeds the Limit and cannot be paid within the short-term deferral exemption (and would have
been payable during the Initial Payment Period but for the Limit) shall be paid, with Interest, on
the first business day of the first calendar month that begins after the six-month anniversary of
Executive’s “separation from service” (within the meaning of Section 409A of the Code) and (iii)
any portion of the Termination Payments that is payable after the Initial Payment Period shall be
paid at the times set forth in Section 10(a), respectively. For purposes of this paragraph,
“Interest” shall mean interest at the applicable federal rate provided for in Section 7872(f)(2)(A)
of the Code, from the date on which payment would otherwise have been made but for any required
delay through the date of payment. Notwithstanding the foregoing, in the event that the Executive
dies while any Termination Payments are still payable to the Executive hereunder, unless otherwise
provided herein, all such unpaid amounts shall be paid, not later than the tenth (10th) business
day following the Executive’s death, to the Executive’s 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)
below, no Termination Payments 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 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

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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 Annual 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 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

10

 

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

11

 

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.

12

 

          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 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

13

 

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); 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.

          (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

 

     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, 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.

     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.

15

 

     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 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.

16

 

     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
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) “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.

17

 

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

          (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 9(d).

          (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);

     (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.

          (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) “Comparable Non-U.S. Employment” means employment in an executive-level position located
outside of the United States, reasonably taking into account the Executive’s reasonable,
broad-based geographic preferences and attempting to provide the Executive with levels of
responsibility and compensation that are reasonably similar to those

18

 

provided to the Executive by the Company or generally provided to similarly situated
executives in the applicable geographic region.

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

          (q) “Effective Date” has the meaning specified in Section 2.

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

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

          (t) “First Installment” has the meaning specified in Section 4(b)(i).

          (u) “First Year Guaranteed Annual Bonus” has the meaning specified in Section 4(b)(i).

          (v) “Good Reason” means the occurrence, without the Executive’s consent, of any the following
events:

     (i) a material diminution in the Executive’s authorities, titles, reporting
responsibilities or offices (excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith which is promptly remedied after notice
by the Executive to the Company);

     (ii) a material decrease in the Executive’s Base Salary 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;

19

 

     (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 by the earlier of a
Change of Control or June 30, 2009 to the extent such Amendment is necessary to
effectuate the Initial Grant.

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.

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

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

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

          (z) “Immigration Approval” has the meaning specified in Section 26.

          (aa) “Immigration Termination” means a termination of the Executive’s employment, by the
Executive or the Company, as a result of the failure to obtain or renew Immigration Approval,
except to the extent otherwise provided in a Permissible Immigration Termination and under the
circumstances described, and to the extent otherwise provided, in clause (vi) of the definition of
Cause.

          (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(e).

          (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(e).

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

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

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

          (ll) “Payment Period” means the one-year period commencing on (A) the Executive’s date of
termination of employment with the Company in the event of a termination that is not a Permissible
Immigration Termination, (B) in the event of a termination of employment (x) that is not a
termination without Cause or a termination for Good Reason and (y) where the PIT Conditions have
been satisfied, the later of (1) the date that the Executive notifies the Company that the
Immigration Approval has not been renewed or (2) the date that the Executive is required to
relocate outside the United States as a result of the fact that the Immigration Approval has not
been renewed or (C) notwithstanding clauses (A) and (B) above, 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; provided, however, solely if the Payment Period resulted from the occurrence of the
events described in the clause (B) of this definition, the Payment Period shall end on the earlier
of (x) the one-year anniversary of the date of termination and (y) the date that Blackstone
satisfies its obligations under clause (C) of the definition of Permissible Immigration
Termination).

          (mm) “Performance Year” has the meaning specified in Section 4(d)(ii).

          (nn) “Permissible Immigration Termination” means a termination of the Executive’s employment
as a result of failure to obtain or renew the necessary Immigration Approval, to the extent
applicable, at any time after October 1, 2009, where (A) the Executive has taken in good faith all
reasonable actions to ensure obtainment or renewal of the Immigration Approval, (B) as a result of
such failure, the Executive is required to relocate outside of the United States (the conditions in
clauses (A) and (B), the “PIT Conditions”) and (C) Blackstone or one of its portfolio companies has
failed to offer or caused to be offered to the Executive Comparable Non-U.S. Employment by the date
that is 90 days following the later of (1) the date that the Executive notifies the Company that
such Immigration Approval has not been renewed or (2) the date that the Executive is required to
relocate outside the United States as a result of the fact that the Immigration Approval has not
been renewed (such 90-day period, the “Comparable Non-U.S. Employment Offer Period”).

          (oo) “Permissible Immigration Termination Date” means the end of the Comparable Non-U.S.
Employment Offer Period.

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

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

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

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

21

 

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

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

          (vv) “Second Installment” has the meaning specified in Section 4(b)(i).

          (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.

     26. Executive’s Representation. The Executive hereby represents and warrants that he
has received all necessary consents and approvals from the Department of Homeland Security and all
other governmental agencies, commissions and authorities to execute and deliver this Agreement and
perform all services for the Company and its affiliates that may be required hereunder (the
“Immigration Approval”) through October 1, 2009.

22

 

     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 Section 4(c) 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
	 	 

23

 

EXECUTION COPY

Exhibit A

Position: Executive Vice President, Chief Administrative Officer

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: 100%

Maximum Bonus Percentage: 200%

 

 

EXECUTION COPY

Exhibit B

Form of Release

     In consideration of the payments and promises contained in your Employment Agreement with
HealthMarkets, Inc. (the “Company”) dated October 7, 2008, and in full compromise and settlement of
any of your potential claims and causes of action relating to or arising out of your employment
relationship with the Company or the termination of that relationship, and any and all other claims
or causes of action that you have or may have against the HealthMarkets Affiliates (as defined
below) up to the date of execution of this release (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 that 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 (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.

B-2exv10w2

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.

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 1

 

 

          (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.

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 2

 

 

          (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.

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 3

 

 

     (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

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 4

 

 

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.

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 5

 

 

          (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

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 6

 

 

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.

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 7

 

 

     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

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 8

 

 

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

			
	 	 	 
	ANURAG CHANDRA — NONQUALIFIED STOCK OPTION AGREEMENT
	 	PAGE 9

 

 

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

 

 

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

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