Document:

Exhibit 10.1

Exhibit 10.1

EXECUTION

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of September 24,
2010, by and between HealthMarkets, Inc., a Delaware corporation (“HealthMarkets” or the “Company”)
and Kenneth Fasola (the “Executive”). Certain capitalized terms used herein are defined in Section
26.

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) consistent with his positions with
the Company, 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 consistent with this Agreement (except for any
right to receive equity in the Company) 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 September
27, 2010 (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 19) 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. Positions and Duties of the Executive.

(a) As of the Effective Date, the Executive shall initially serve as the President of the
Company and as a member of the Board; provided, however, that the Company
acknowledges and agrees that the Executive shall begin to also serve as the Chief Executive Officer
of the Company (the “CEO”) no later than June 1, 2011. During the portion of the Employment Term
that the Executive serves solely as President of the Company, the Executive shall report directly
to the CEO and, during the portion of the Employment Term that the Executive serves as both
President and CEO, the Executive shall report directly to the Board (the applicable reporting
person or entity is hereafter referred to as the “Reporting Person”). The Executive shall have
such duties, responsibilities and authority commensurate with the Executive’s positions and such
related duties and responsibilities, as from time to time may be assigned to the Executive by the
Reporting Person consistent with the Executive’s positions with the Company. In addition, the
Executive will be subject to, and will act in substantial accordance with, all reasonable lawful
instructions and directions of the Reporting Person and all applicable reasonable policies and
rules of the Company as are consistent with the above positions, 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 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 Reporting Person in accordance herewith.

(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, other community affairs
organizations or any other outside activity explicitly agreed to by the Board and set forth on
Exhibit A attached hereto, engage in charitable activities and community affairs and manage his
personal and family investments. 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. Beginning on the Effective Date, the Company shall pay to the
Executive a base salary of $700,000 per annum (the “Base Salary”) and the Company shall increase
such Base Salary to $750,000 per annum as of the date that the Executive begins to serve as CEO
(but in no event later than June 1, 2011). 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, but in all events no less frequently than monthly. Such Base Salary shall be reviewed
by the Board or an authorized committee of the Board at least annually beginning in January, 2012
for purposes of evaluating an increase in the Executive’s
Base Salary. Except as set forth in Section 4(b) below, for purposes of this Agreement, after
any increase, “Base Salary” shall refer to such increased amount.

 

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(b) Incentive Compensation. With respect to the Company’s 2010 fiscal year and each
fiscal year of the Company thereafter, all or part of which occurs during the Employment Term, the
Executive will be entitled 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 not
less than the 100% of the Executive’s Base Salary (the “Target Bonus Percentage”) and a maximum
bonus opportunity of not less than 200% of the Executive’s Base Salary (the “Maximum Bonus
Percentage”) (with payment at no less than the Target Bonus Percentage if the applicable
performance targets are met for the applicable fiscal year); provided, however,
that with respect to the Company’s 2010 fiscal year, the Executive’s actual annual bonus paid for
such fiscal year will be guaranteed and will be equal to (x)(i) the Target Bonus Percentage times
(ii) the Executive’s Base Salary, times (y) a fraction, the numerator of which is the number of
days in the Company’s 2010 fiscal year from and after September 27, 2010, and the denominator of
which is 365. For the avoidance of doubt, this guaranteed amount for fiscal year 2010 (assuming a
start date of September 27, 2010) will be $184,110; provided, further, that with
respect to the annual bonus payable to the Executive for the Company’s 2011 fiscal year, the actual
annual bonus payable to the Executive for the Company’s 2011 fiscal year shall be based on the sum
of (I) the bonus attributable to the portion of the fiscal year for which the Executive is not
serving as CEO determined by multiplying (A)(i) the Target Bonus Percentage times (ii) $700,000, by
(B) a fraction, the numerator of which is the number of days in the Company’s 2011 fiscal year that
the Executive does not serve as CEO, and the denominator of which is 365 and (II) the bonus
attributable to the portion of the fiscal year for which the Executive is the CEO determined by
multiplying (A)(i) the applicable bonus percentage (determined in the ordinary course, as set forth
in this Section 4(b), by the Board or an authorized committee) times (ii) $750,000 by (B) a
fraction, the numerator of which is the number of days in the Company’s 2011 fiscal year that the
Executive is the CEO, 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.
Except as set forth below, 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). Notwithstanding the
foregoing, until such time as the Executive has completed making the Subsequent Investment, fifty
(50) percent of any (i) annual bonus payable to the Executive, including, without limitation, the
annual bonus payable for the Company’s 2010 fiscal year, and (ii) additional incentive cash awards
granted by the Board, in each case after applicable withholdings in accordance with Section 17 of
this Agreement, shall be awarded as shares of A-1 common stock of the Company (“Shares”) (to be
granted at the same time as the cash portion of the annual bonus or additional incentive cash award
is paid to the Executive based on the then Fair Market Value of a Share) in accordance with Section
8 of this Agreement. Shares awarded as part of the annual bonuses, or as part of any additional
cash incentive awards granted by the Board, shall count for purposes of
the Executive’s Subsequent Investment and such Shares shall be fully vested and
non-forfeitable (other than as permitted in Section 8 and Section 9(d) of this Agreement) as of the
grant date.

 

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(c) Equity Compensation.

(i) General. During the Employment Term, the Executive will be entitled
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 for similarly situated executives and as may be
determined by the Board.

(ii) Initial Grants. As soon as practicable (but in no event later than
September 30, 2010) after the Effective Date, the Committee will award the Executive
375,000 Option Rights and 200,000 Restricted Shares (together, the “Initial Grants”),
which Initial Grants will be subject to the provisions set forth in the Executive’s
Non-Qualified Stock Option Agreement and Restricted Share Agreement to be entered
into in the form of Exhibit B and Exhibit C attached hereto, respectively;
provided, that in the event that the Executive fails to make the Initial
Investment in the Company in accordance with Section 8 of this Agreement, the Initial
Grants shall immediately be void ab initio and of no further force and effect. 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.

(d) Sign-On Bonus. The Company shall pay the Executive a sign-on bonus in the amount
of $1,000,000 as soon as practicable following the Effective Date, but no later than October 31,
2010 (the “Sign-On Bonus”). The Company shall pay $750,000 of the Sign-On Bonus to the Executive
in cash (the “Cash Sign-On Bonus”) and the remaining $250,000, after applicable withholdings in
accordance with Section 17 of this Agreement, shall be awarded in Shares based on the purchase
price per Share at the Fair Market Value of a Share on the Effective Date pursuant to the terms of
a Subscription Agreement between the Company and the Executive substantially in the form attached
hereto as Exhibit D, and, except as explicitly set forth herein, the Executive acknowledges that
such

 

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 Shares will be subject to the terms and conditions of the Stockholders Agreement (the “Share Sign-On Bonus”). Once the number of
Shares to be allocated has been determined, the Company will issue the Executive a share
certificate evidencing the number of Shares allocated. For the avoidance of doubt, the Share
Sign-On Bonus shall not be counted towards the Investment requirements set forth in Section 8
hereof. 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” (other than upon death or Disability) (i) prior
to the two-year anniversary of the Effective Date, in each case prior to a Change of Control,
notwithstanding the Stockholders Agreement, the Company shall have the right to acquire the Shares
granted pursuant to the Share Sign-On Bonus from the Executive at no cost to the Company and (ii)
within 18 months 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 Cash Sign-On Bonus over (B) the applicable taxes withheld
on such Cash Sign-On 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.

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 Vice President Relocation Program and
up to 6 months of temporary living expenses in the Dallas/Ft. Worth area, Texas (with such
temporary living expenses deemed to be provided under the relocation program for the purposes of
any tax gross-up).

6. Expenses. During the Employment Term, the Company shall pay or reimburse the
Executive for reasonable and necessary expenses incurred by the Executive in connection with the
Executive’s performance of the Executive’s duties on behalf of the Company and its Subsidiaries in
accordance with the expense policy of the Company applicable to similarly situated executives of
the Company and its Subsidiaries generally. The Company shall pay the Executive’s legal counsel
directly for the reasonable fees and expenses incurred by the Executive in connection with the
review and negotiation of this Agreement and any other related documentation, subject to a cap of
$7,000.

7. Vacation. The Executive shall be entitled to four (4) weeks of vacation per year
in accordance with the Company’s policies, whether written or unwritten, regarding vacation for
similarly situated executives of the Company and its Subsidiaries generally. Subject to the
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; Stockholders Agreement.

(a) As soon as practicable following, but in no event more than 30 days after, the Effective
Date, the Executive will invest cash in the amount of $375,000 in Shares, at a purchase price per
Share at the then Fair Market Value of a Share (such investment, the “Initial Investment”) and the
Executive shall also be required to make a subsequent investment during the Employment Term in the
amount of $375,000 in Shares at a purchase price per Share at the then Fair Market Value of a Share
(the “Subsequent Investment, and together with the Initial Investment, the “Investment”), in each
case pursuant to the terms of a Subscription Agreement between the Company and the Executive
substantially in the form of Exhibit D attached hereto, and the Executive acknowledges that, except
as otherwise provided herein, such Shares will be subject to the terms and conditions of the
Stockholders Agreement. With respect to the Initial Investment, 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. With respect to the Subsequent Investment,
until such time as the Executive has made the full Subsequent Investment, fifty (50) percent of the
value of the annual bonus payable to the Executive pursuant to Section 4(b) of this Agreement,
after applicable withholdings in accordance with Section 17 of this Agreement, will be awarded in
Shares based on the purchase price per Share at the then Fair Market Value of a Share and, once the
number of Shares to be allocated has been determined, the Company will issue the Executive a share
certificate evidencing the number of Shares allocated. The Executive shall also have the right,
but not the obligation, to make additional cash investments of up to $2.25 million in Shares (the
“Additional Investments”), at a purchase price per Share at the then Fair Market Value of a Share,
pursuant to the terms of a Subscription Agreement between the Company and the Executive, and the
Executive acknowledges that, except as otherwise provided herein, such Shares will be subject to
the terms and conditions of the Stockholders Agreement; provided; however, that the
Executive shall require the approval of the Board prior to making an Additional Investment if the
Fair Market Value of a Share on the date of such Additional Investment is less than the Fair Market
Value of a Share on the Effective Date. In no event shall the Share Sign-On Bonus set forth in
Section 4(d) hereof be included when determining whether the Executive has met the Investment
requirements set forth above.

(b) Put Rights. Notwithstanding anything to the contrary in the Stockholders
Agreement, upon termination of the Executive’s employment with the Company or any of its
Subsidiaries (other than a termination by the Company for Cause or a resignation by the Executive
without Good Reason other than death or Disability) prior to an IPO or Change of Control, the
Executive shall have the right, solely with respect to Shares acquired as part of the Investment
(including Shares granted to the Executive as part of the annual bonus under Section 4(b) and any
additional Shares purchased under Section 8), to sell such Shares to the Company based on the Fair
Market Value (as defined below in Section 26) of such equity at any time during the six-month
period following the six-month anniversary of his termination date.

(c) Effect on Stockholders Agreement. This Section 8, Section 9(d) and the definition
of Fair Market Value in Sections 9(d) and 26 shall be deemed an amendment to the Stockholders
Agreement. By executing this Agreement, the Executive agrees to be bound by the terms of the
Stockholders Agreement and accepts the rights and obligations set forth therein, and each of
Blackstone and the Company agree that this Section 8, Section 9(d) and the definition of Fair
Market Value in Sections 9(d) and 26 is effective as a joinder to the Stockholders
Agreement for all purposes thereunder (including with respect to Section 2.03 therein). In
addition, if the Executive is forced to withdraw from the Stockholders Agreement on or following a
Change of Control, the provision of this Section 8, Section 9(d) and the definition of Fair Market
Value shall remain in effect with respect to the Executive’s equity interests in the Company.

 

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9. Termination.

(a) Termination of Employment by the Company. The Executive’s employment hereunder
may be terminated by the Company (or by the Board in the case of a termination with Cause) for any
reason or no reason (including with or without Cause or notification by the Company at any time
during the Employment Term pursuant to Section 2 that the Company intends to terminate the
Agreement and the Executive’s employment, rather than allow the Agreement to renew automatically)
by written notice as provided in Section 19. If the Company terminates the Executive’s employment
with Cause, all of the Executive’s Option Rights, whether or not vested, will be immediately
forfeited and any unvested Restricted Shares shall be immediately forfeited as of the date of
termination. For all terminations (other than for Cause as set forth in the preceding sentence
with respect to certain equity awards), the Executive shall be entitled to any amounts or benefits
which are vested or have been earned or are due and remain unpaid, including, without limitation,
base salary through the date of termination, any unreimbursed business expense, any bonus payment
for any performance period which has ended prior to the date of termination for which the Executive
has not been paid and any vested portion of the Initial Grants. In addition, upon any termination,
the Executive shall remain entitled to the payments and benefits under Sections 11, 17 and 21 of
this Agreement.

(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 19. Upon the Executive’s termination without Good Reason, (i) any unvested
portions of the Initial Grants will be immediately forfeited and (ii) subject to Section 15 of this
Agreement, all of the Executive’s vested Option Rights and Restricted Shares, if any, shall be
delivered, paid or remain exercisable in accordance with their terms.

(c) Benefits Period. Subject to Section 10 and any benefit continuation requirements
of applicable laws, in the event the Executive’s employment hereunder is terminated for any reason
whatsoever, the compensation and benefits obligations of the Company under Sections 4 and 5 shall
cease as of the effective date of such termination, except for any compensation and benefits earned
but unpaid through such date.

(d) Call Right. Upon termination of the Executive’s employment with the Company or
any of its Subsidiaries for any reason prior to an IPO, the Company will have the right to purchase
(the “Call Right”) any of the Executive’s Shares in accordance with the terms and conditions of the
Stockholders Agreement and Section 4(d) above and the definition of Fair Market Value in Section 26
(provided that in the case of a termination for Cause, except with respect to the Share Sign-On
Bonus, the Call Right will be the lower of the original cost of such Shares (which shall, for the
avoidance of doubt, be the exercise price of any stock option and for any Initial Grants, the Fair
Market Value on the applicable vesting date) or Fair Market Value as of the date the Company
exercises such Call Right).

 

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(e) Resignation from All Positions. Notwithstanding any other provision of this
Agreement to the contrary, upon the termination of the Executive’s employment for any reason,
unless otherwise requested by the Board, the Executive shall immediately resign from all positions
that he holds with the Company, its Subsidiaries and any of their affiliates (and with any other
entities with respect to which the Company has requested the Executive to perform services), as
applicable, including, without limitation, the Board and all boards of directors of any affiliates.
The Executive hereby agrees to execute any and all documentation to effectuate such resignations
upon request by the Company, but he shall be treated for all purposes as having so resigned upon
termination of his employment, regardless of when or whether he executes any such documentation.

10. Termination Payments and Benefits. If, during the Employment Term, the
Executive’s employment hereunder is terminated by the Company without Cause (which shall, for all
purposes of this Agreement, including Exhibits B and C, and any other related definitive document,
include a termination of the Executive’s employment upon conclusion of the Employment Term after
the Company’s giving the Executive a notice of non-renewal of the Employment Term), by reason of
the Executive’s death or Disability or the Executive terminates his employment for Good Reason,
subject to (i) the Executive’s execution and non-revocation of a release of claims against the
Company within 60 days following the date of the Executive’s termination of employment,
substantially in the form attached hereto as Exhibit E, (ii) the terms of Section 15 and (iii) the
Executive’s continued compliance with the covenants of Sections 12 and 13 (collectively, the
“Restrictive Covenants”) as set forth in Section 10(i), during the Payment Period (except if the
Executive terminates his employment for Good Reason pursuant to Section 26(v)(vii), in which case
he is not subject to compliance with Section 13(a)), then in such case the Company shall be
obligated to pay to the Executive such payments and make available to the Executive such benefits
as are set forth in this Section 10 during the Payment Period.

(a) Cash Severance. The Executive will be entitled to receive an amount equal to the
sum of: (i) one (1) times the Executive’s Base Salary and (ii) one (1) times an amount equal to the
product of (A) the Executive’s Base Salary and (B) the Executive’s Target Bonus Percentage (the sum
of (i) and (ii), the “Termination Payments”), such amount to be payable in equal installments
payable over the Payment Period. Termination Payments shall be paid to the Executive in accordance
with the Company’s payroll schedule as in effect on the Effective Date for the duration of the
Payment Period. In the event that the Executive dies while any Termination Payments are still
payable to the Executive hereunder, unless otherwise provided herein, all such unpaid amounts shall
be paid, not later than the tenth (10th) business day following the Executive’s death,
to the Executive’s beneficiary as named on the Executive’s 401(k) Plan beneficiary forms, or, if no
such beneficiary is so named, then to the Executive’s estate, in the form of a lump sum cash
payment equal to the remaining Termination Payments. Notwithstanding the foregoing, if such
termination occurs upon or within the two-year period after a Change of Control (provided
that such Change of Control constitutes a “change in control event” within the meaning of Section
409A of the Code), subject to clauses (i), (ii) and (iii) of the lead-in paragraph of this Section
10, the Termination Payments will be paid to the Executive in a lump-sum on the 65th day
following the date of termination.

 

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(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”) (provided that if such termination
occurs in 2010, the Pro-Rata Bonus shall equal $184,110), which Pro-Rata Bonus shall be paid within
the first seventy-five (75) days of the year immediately following the end of the year to which
such Pro-Rata Bonus relates (unless the Executive has deferred receipt of the applicable bonus).

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

(d) Welfare Benefits. During the 12-month period following the date of termination of
employment, the Company shall maintain in full force and effect for the continued benefit of the
Executive and his eligible dependents all health care benefit plans, except disability coverage, in
which the Executive and his eligible dependents were entitled to participate immediately prior to
the Executive’s termination or shall arrange to make available to the Executive and such dependents
health care benefits (except disability coverage) substantially similar to those which the
Executive and such dependents would otherwise have been entitled to receive if his employment had
not been terminated (the “Welfare Benefits”). The Welfare Benefits shall be provided to the
Executive on the same terms and conditions under which the Executive was entitled to participate
immediately prior to his termination of employment, including any applicable employee
contributions.

(e) Relocation. If the Executive’s employment is terminated without Cause or for Good
Reason during the 18-month period following the Effective Date, the Executive will be entitled to
relocation back to Minneapolis, Minnesota on the same terms as he was relocated to Dallas.

 

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(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 be paid within the short-term deferral
exemption shall be paid at the times set forth in Section 10(a), (ii) any portion of the
Termination Payments 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 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 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. Notwithstanding
anything to the contrary in this Agreement or
otherwise, there shall be no offset or clawback with respect to the Initial Grants for breach
of any restrictive covenants.

 

10

 

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)
any cash payments under Section 9(a)), (iv) any non-cash amounts under Section 9(a), (v) Section
10(d) and (vi) Section 10(c). For purposes of reducing the Payments to the Safe Harbor Amount,
only amounts payable under this Agreement (and no other Payments) shall be reduced. If the
reduction of the amount payable under this Agreement would not result in a reduction of the
Parachute Value of all Payments to the Safe Harbor Amount, no amounts payable under the Agreement
shall be reduced pursuant to this Section 11(a). The Company’s obligation to make Gross-Up
Payments under this Section 11 shall not be conditioned upon the Executive’s termination of
employment.

(b) Subject to the provisions of Section 11(c), all determinations required to be made under
this Section 11, including whether and when a Gross-Up Payment is required, the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized certified public accounting firm as may be designated by the
Company (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment or such earlier time as is requested by the
Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any
determination by the Accounting Firm shall be binding upon the Company and the Executive (absent
manifest error). As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the Company should have been made (the
“Underpayment”), consistent with the calculations required to be made hereunder. In the event the
Company exhausts its remedies pursuant to Section 11(c) (or decides not to contest a claim) and the
Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.

 

11

 

(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable, but no later than 10 business days after
the Executive is informed in writing of such claim. The Executive shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the date on which the
Executive gives such notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that the Company desires to contest such claim, the
Executive shall:

(i) give the Company any information reasonably requested by the Company
relating to such claim,

(ii) take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest
such claim, and

(iv) permit the Company to participate in any proceedings relating to such
claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection with such contest,
and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of this Section
11(c), the Company shall control all proceedings taken in connection with such contest, and, at its
sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the applicable taxing authority in respect of such claim and may, at its sole
discretion, either pay the tax claimed to the appropriate taxing authority on behalf of the
Executive and direct the Executive to sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that, if the Company pays such
claim and directs the Executive to sue for a refund, the Company shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties) imposed with respect to such payment or with respect to any imputed income in connection
with such payment; and provided, further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company’s control of the contest shall be limited to issues with respect to which
the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or
contest, as
the case may be, any other issue raised by the Internal Revenue Service or any other taxing
authority.

 

12

 

(d) If, after the receipt by the Executive of a Gross-Up Payment or payment by the Company of
an amount on the Executive’s behalf pursuant to Section 11(c), the Executive becomes entitled to
receive any refund with respect to the Excise Tax to which such Gross-Up Payment relates or with
respect to such claim, the Executive shall (subject to the Company’s complying with the
requirements of Section 11(c), if applicable) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable thereto). If, after
payment by the Company of an amount on the Executive’s behalf pursuant to Section 11(c), a
determination is made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination, then the amount of such
payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

(e) Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by the
Company to the Executive within five (5) days of the receipt of the Accounting Firm’s
determination; provided, however, that the Gross-Up Payment shall in all events be
paid no later than the end of the Executive’s taxable year next following the Executive’s taxable
year in which the Excise Tax (and any income or other related taxes or interest or penalties
thereon) on a Payment are remitted to the Internal Revenue Service or any other applicable taxing
authority; or, in the case of amounts relating to a claim described in Section 11(c) that does not
result in the remittance of any federal, state, local and foreign income, excise, social security
and other taxes, the calendar year in which the claim is finally settled or otherwise resolved.
Notwithstanding any other provision of this Section 11, the Company may, in its sole discretion,
withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for
the benefit of the Executive, all or any portion of any Gross-Up Payment, and the Executive hereby
consents to such withholding.

(f) Definitions. The following terms shall have the following meanings for purposes
of this Section 11.

“Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code or other similar
tax (other than Section 409A of the Code) which may hereafter be imposed, together with any
interest or penalties imposed with respect to such excise tax.

“Parachute Value” of a Payment shall mean the present value as of the date of the change of
control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a
“parachute payment” under Section 280G(b)(2), as determined by the Accounting Firm for purposes of
determining whether and to what extent the Excise Tax will apply to such Payment.

A “Payment” shall mean any payment, benefit, entitlement or distribution in the nature of
compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the
Executive, whether paid or payable pursuant to this Agreement or otherwise
(including, without limitation, any payment, benefit, entitlement or distribution paid or
provided by the person or entity effecting the change in control).

 

13

 

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, except to the
extent the Executive is permitted to retain such information or property as set forth in Section
12(b). The Executive’s obligations under this Section 12 are in addition to, and not in limitation
of or preemption of, all other obligations of confidentiality which the Executive may have to the
Company under general legal or equitable principles.

(b) Except in the ordinary course of the Company’s business, the Executive shall not at any
time following the date of this Agreement, make or cause to be made, any copies, pictures,
duplicates, facsimiles or other reproductions or recordings or any abstracts or summaries including
or reflecting Confidential Information. All such documents and other property furnished to the
Executive by the Company or any of its Subsidiaries or affiliates or otherwise acquired or
developed by the Company or any of its Subsidiaries or affiliates shall at all times be the
property of the Company. Upon termination of the Executive’s employment with the Company, the
Executive will return to the Company any such documents or other property of the Company or any of
its Subsidiaries or affiliates which are in the possession,
custody or control of the Executive. Notwithstanding the foregoing, the Executive shall be
permitted to retain his personal papers (provided that such papers do not contain any
Confidential Information related to the Company), any information relating to his compensation,
other entitlements or obligations, any information he reasonably believes is necessary for tax
purposes and his personal rolodex.

 

14

 

(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) except in the event that the Executive terminates his employment for Good Reason pursuant
to Section 26(v)(vii), 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) at the time of the breach or the date of
termination of employment, whichever is earlier (provided that the Executive shall be
permitted to provide services (i) to a division, business line, subsidiary or affiliate of a
commercial enterprise with multiple divisions or business lines if such division, business line,
subsidiary or affiliate is not competitive with the business of the Company Group, provided that
the Executive performs services solely for such non-competitive division, business line, subsidiary
or affiliate, and performs no functions on behalf of (and has no involvement with or direct or
indirect responsibilities with respect to) businesses competitive with the businesses of the
Company Group, with competitiveness determined in accordance with this clause (a) or (ii) 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.

 

15

 

(d) Upon a Change of Control, the definition of Company Group and their respective employees
and independent contractors for the purpose of this Section 13 shall refer only to the Company, its
Subsidiaries and its affiliates (and the business in which they were engaged) as of immediately
prior to such Change of Control.

(e) The Executive acknowledges and agrees that a violation of the foregoing provisions of
Section 12 or Section 13 would result in material detriment to the Company, would cause irreparable
harm to the Company, and that the Company’s remedy at law for any such violation would be
inadequate. In recognition of the foregoing, the Executive agrees that, in addition to any other
relief afforded by law or this Agreement, including damages sustained by a breach of this Agreement
and without the necessity or proof of actual damages, the Company shall have the right to enforce
this Agreement by specific remedies, which shall include, among other things, temporary and
permanent injunctions, it being the understanding of the undersigned parties hereto that damages
and injunctions all shall be proper modes of relief and are not to be considered as alternative
remedies.

(f) Except as otherwise set forth in this Section 13, there shall be no other restrictions on
the Executive’s rights to compete, solicit or hire following the Executive’s termination of
employment other than those under applicable law.

14. Representations and Warranties. The Executive hereby represents and warrants to
the Company that the Executive is not party to, or otherwise subject to, any covenant not to
compete with any person or entity other than as explicitly disclosed to the Company prior to the
Effective Date. The Company hereby represents and warrants to the Executive that there are enough
shares to fulfill the Company’s obligations with respect to the Initial Grants and that all
corporate action necessary to enable the Company to enter into this Agreement has been taken.

15. 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.

 

16

 

(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.

16. Effectiveness. As of the date of this Agreement, this Agreement shall be binding
on the parties hereto and 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.

17. Withholding of Taxes. The Company may withhold from any amounts payable or
transfer made under any compensation or other amount owing to the Executive under this Agreement
all applicable federal, state, city or other withholding taxes as the Company is required to
withhold pursuant to any law or government regulation or ruling. In addition, in the event that
the Shares are not listed for trading on an established securities exchange on the date that an
applicable portion of any Restricted Share grant vests and is settled, then (i) the Company shall,
at the request of the Executive, deduct or withhold Shares having a Fair Market Value equal to the
minimum amount required to be withheld to satisfy any federal, state, local and foreign taxes of
any kind (including, but not limited to, the Executive’s FICA and SDI obligations) which the
Company, in its sole discretion, deems necessary to comply with the Code and/or any other
applicable law, rule or regulation with respect to such portion of the Restricted Share grant and
remit the cash value of such Shares to the appropriate tax authorities and (ii) notwithstanding
anything to the contrary in the Stockholders Agreement, the Executive shall be permitted to sell
such number of Shares to the Company having a Fair Market Value (determined at the time of sale)
equal to the additional taxes due from the Executive on the vesting or delivery, as applicable, of
such Shares (after taking into account the withholding in clause (i)).

 

17

 

18. Successors and Binding Agreement.

(a) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the business or assets
of the Company by agreement in form and substance satisfactory to the Executive (and any such
successor, the “Successor”), expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor
shall thereafter be deemed the “Company” for the purposes of this Agreement except as otherwise
provided in Section 13(d)), but will not otherwise be assignable, transferable or delegable by the
Company.

(b) This Agreement will inure to the benefit of and be enforceable by the Executive’s personal
or legal representatives, executors, administrators, successors, heirs, distributees and legatees.

(c) This Agreement is personal in nature and neither of the parties hereto shall, without the
consent of the other, assign, transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 18(a) and 18(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
18(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).

19. 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.

20. 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.

 

18

 

21. 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 the Company’s certificate of
incorporation or by-laws, or if greater, by applicable law, and the Executive shall be entitled to
the protection of any insurance policies the Company may elect to maintain generally for the
benefit of its directors and officers, against all costs, charges and expenses whatsoever incurred
or sustained by him or his legal representatives (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
21 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. As soon as practicable following the Effective
Date, the Company agrees to enter into with the Executive the standard indemnification agreement
for members of the Board, if any.

22. 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.

23. Survival of Provisions. Notwithstanding any other provision of this Agreement,
the parties’ respective rights and obligations under Sections 8, 10, 11, 12, 13, 15, 16, 17, 21,
23, 24 and 26 and Exhibits B, C, and D will survive any termination or expiration of this Agreement
or the termination of the Executive’s employment for any reason whatsoever.

24. Arbitration of Disputes.

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

 

19

 

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

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

25. 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. For the avoidance of doubt, any reference to an “affiliate” of the Company or any
Subsidiary shall not include any investor in the Company or any entity in which such investor owns
or holds an equity position (other than the Company or any Subsidiary of the Company).

26. 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) “Additional Investment” has the meaning set forth in Section 8.

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

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

 

20

 

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

(i) the Executive engages in fraudulent activity, embezzlement or
misappropriation relating to the business of the Company or any of its affiliates or
Subsidiaries;

(ii) the Executive is convicted by a court of competent jurisdiction of, or
pleads guilty or nolo contendere to, any felony (other than a traffic violation) or
any crime involving moral turpitude;

(iii) the Executive commits a breach of the Restrictive Covenants, which breach
has not been remedied within 30 days of the delivery to Executive by the Board of
written notice of the facts constituting the breach, and which breach if not cured
would have a material adverse effect on the Company;

(iv) the Executive’s willful and continued failure after written notice from
the Board to perform his material duties for the Company or its Subsidiaries (other
than on account of approved leave of absence and/or Disability); or

(v) the Executive engages in (x) gross neglect or (y) willful misconduct, in
both cases relating to the Executive’s performance of his duties for the Company.

The cessation of the Executive’s employment shall not be deemed to be for Cause pursuant
to clauses (i), (iii), (iv) or (v) hereof unless and until the Board has provided the
Executive with written notice of the acts or omissions giving rise to Cause and an
opportunity to be heard before the full Board (represented by counsel), and after such
hearing there shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of no less than 51% of the entire membership of the Board (excluding
the Executive) at a meeting of the Board called and held for such purpose, finding that, in
the good faith opinion of the Board, the Executive is guilty of conduct described in clauses
(i), (iii), (iv) or (v).

(j) “CEO” has the meaning specified in Section 3(a).

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

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

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

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

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

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

 

21

 

(q) “Disability” shall mean the Executive’s incapacity due to physical or mental illness to
substantially perform his duties on a full-time basis for at least 26 consecutive weeks or an
aggregate period in excess of 26 weeks in any one fiscal year, and within 30 days after a notice of
termination is thereafter given by the Company, the Executive shall not have returned to the
full-time performance of the Executive’s duties; provided, however, if the
Executive shall not agree with a determination to terminate his employment because of Disability,
the question of the Executive’s Disability shall be subject to the certification of a qualified
medical doctor selected by the Company or its insurers and acceptable to the Executive or, in the
event of the Executive’s incapacity to accept a doctor, the Executive’s legal representative.

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

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

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

(u) “Fair Market Value” shall mean the value determined from time to time (but no less
frequently than quarterly) by the Board in good faith and shall in any event be determined
consistently with how “fair market value” is determined with respect to Shares of the Company held
by existing shareholders, including members of the Board, and how the exercise price for the
Initial Grant was determined (it being understood that no discount shall be taken due to lack of
marketability). In determining Fair Market Value, the Board will consider (among other factors it
deems appropriate) the valuation prepared by Blackstone in the ordinary course of business for
reporting to its advisory board and investors, which Blackstone will provide to the Board.
Notwithstanding the foregoing, in the event that either (i) within six months following a
termination of the Executive’s employment by the Company without Cause or by the Executive for Good
Reason or upon his death or Disability an IPO or Change of Control occurs or (ii) the Executive’s
employment is terminated by the Company without Cause or by the Executive for Good Reason or upon
death or Disability after a definitive agreement is entered into which will result in a Change of
Control (provided that such agreement actually results in a Change of Control), for purposes of the
Call Right in Section 9(d) of this Agreement, Fair Market Value shall equal the consideration paid
per Share pursuant to such transaction.

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

(i) a material diminution in the Executive’s authorities, titles, reporting
responsibilities or offices (excluding for this purpose 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, which for this purpose shall mean one or more reductions that,
individually or in the aggregate, exceed 5% of the Executive’s Target Bonus
Percentage or highest Base Salary (excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith which is promptly
remedied after notice by the Executive to the Company);

 

22

 

(iii) a reduction in the Executive’s participation in the Company’s benefit
plans and policies to a level materially less favorable to the Executive unless such
reduction applies to a majority of the senior level executives of the Company;

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

(v) any change in reporting structure so that the Executive reports to someone
other than the Reporting Person;

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

(vii) failure to appoint the Executive CEO by no later than June 1, 2011 or
removal of the Executive as President prior to his appointment as CEO;

(viii) after appointment of the Executive as CEO, removal as CEO; or

(ix) any failure of the Company to obtain within 30 days following a transaction
the assumption in writing by any successor to all or substantially all of the
business or assets of the Company to perform this Agreement, except where such
assumption occurs by operation of law.

Notwithstanding the foregoing, the Executive shall only be entitled to 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 E attached
hereto.

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

 

23

 

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

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

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

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

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

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

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

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

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

(jj) “Payment Period” means the one-year period commencing on the 65th day
following the Executive’s separation from service (as determined in accordance with Section 409A of
the Code) with the Company, with the first payment being made on such 65th day.

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

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

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

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

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

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

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

(rr) “Shares” has the meaning specified in Section 4(b).

(ss) “Share Sign-On Bonus” has the meaning specified in Section 4(d).

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

(uu) “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.

 

24

 

(vv) “Subsequent Investment” has the meaning specified in Section 8.

(ww) “Subsidiary” shall mean any entity, corporation, partnership (general or limited),
limited liability company, firm, business organization, enterprise, association or joint venture in
which the Company directly or indirectly controls ten percent (10%) or more of the voting interest;
provided that, for the purposes of Sections 1, 13, and 26(i)(iv) of this Agreement, a
Subsidiary shall mean any entity, corporation, partnership (general or limited), limited liability
company, firm, business organization, enterprise, association or joint venture (i) in which the
Company directly or indirectly controls forty percent (40%) or more of the voting interest or (ii)
in which, the value of the Company’s ownership interest, as determined in the reasonable good faith
estimation of the Board, represents more than 10% of the total value of the Company.

(xx) “Successor” has the meaning specified in Section 18(a).

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

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

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

(bbb) “Welfare Benefits” has the meaning specified in Section 10(c).

27. 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.

 

25

 

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.

	 	 	 	 	 
	 
	 	 	 
	 	Kenneth Fasola

HealthMarkets, Inc.

 	 
	 	By:  	 	 
	 	 	Phillip J. Hildebrand 	 
	 	 	Chief Executive Officer 	 

Solely with respect to Sections 4(d), 8, 9(d) and 17 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
	 	 

 

26

 

Exhibit A

Outside Activities:

Member of the Board of Directors of Connextions, Inc.

Member of the Board of Schreyer Honors College, Penn State University

 

 

 

Exhibit B

Form of Option Agreement

 

 

 

Exhibit C

Form of Restricted Share Agreement

 

 

 

Exhibit D

Form of Subscription Agreement

 

 

 

Exhibit E

Form of Release

In consideration of the payments and promises contained in your Employment Agreement with
HealthMarkets, Inc. (the “Company”) dated September 24, 2010, and in full compromise and settlement
of any of your potential claims and causes of action relating to or arising out of your employment
relationship with the Company or the termination of that relationship, and any and all other claims
or causes of action that you have or may have against the HealthMarkets Affiliates (as defined
below) up to the date of execution of this release (the “Release”), you hereby:

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

 

 

 

2. agree that you will not commence, maintain, initiate, or prosecute, or cause, encourage,
assist, volunteer, advise or cooperate with any other person to commence, maintain, initiate or
prosecute, any action, lawsuit, proceeding, investigation, or claim before any court, legislative
body or committee, or administrative agency (whether state, federal or otherwise) against the
HealthMarkets Affiliates relating to any claims, liabilities, obligations, promises, sums of money,
agreements, controversies, damages, actions, lawsuits, rights, demands, sanctions, costs (including
attorneys’ fees), losses, debts and expenses described in the foregoing
Paragraph 1; provided, however, that, notwithstanding anything to the contrary
in the foregoing, nothing hereunder shall be deemed to affect, impair or diminish in any respect
(i) any vested rights as of the date of termination or entitlement you may have under the 401(k)
Plan; (ii) any other vested rights as of the date of termination you may have under any employee
plan or program in which you have participated in your capacity as an employee of the Company or
any other HealthMarkets Affiliate; (iii) your right to seek to collect unemployment benefits that
you may be entitled to as a result of your employment with the Company or your right to seek
benefits under workers’ compensation insurance, if applicable; (iv) your rights under this Release;
including but not limited to your right to bring a claim for breach of this Release; (v) any rights
you may have under Section 9 (Termination), Section 10 (Termination Payments), Section 11 (Certain
Additional Payments by the Company), Section 17 (Withholding of Taxes) and Section 21
(Indemnification) of the Employment Agreement; (vi) any rights to indemnification that you have or
may have under the terms of the HealthMarkets Amended and Restated Bylaws or coverage under any
applicable directors’ and officers’ liability insurance policies; or (vii) your right to bring a
claim under the Age Discrimination in Employment Act to challenge the validity of this Release, to
file a charge under the civil rights statutes, or to otherwise participate in an investigation or
proceeding conducted by the Equal Employment Opportunity Commission or other investigative agency;

3. acknowledge that: (i) this entire Release is written in a manner calculated to be
understood by you; (ii) you have been advised to consult with an attorney before executing this
Release; (iii) you were given a period of at least twenty-one days within which to consider this
Release; and (iv) to the extent you execute this Release before the expiration of the
twenty-one-day period, you do so knowingly and voluntarily and only after consulting your attorney.
You shall have the right to cancel and revoke this Release during a period of seven days following
the date on which you execute it, and this Release shall not become effective, and no money will be
paid to you in respect of severance, until the day after the expiration of such seven-day period
(the “Revocation Date”). In order to revoke this Release, you shall deliver to the Company, prior
to the Revocation Date, a written notice of revocation. Upon such revocation, this Release shall
be null and void and of no further force or effect;

4. agree to make yourself reasonably available to the Company following the date of your
termination to assist the HealthMarkets Affiliates, as may be requested by the Company at mutually
convenient times and places, with respect to the business of the Company and pending and future
litigations, arbitrations, governmental investigations or other dispute resolutions relating to or
in connection with the Company; and

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

 

E-2Exhibit 10.2

Exhibit 10.2

EXECUTION 

NONQUALIFIED STOCK OPTION AGREEMENT

This AGREEMENT (this “Agreement”) is made as of September 27, 2010 (the “Effective Date”) by
and between HealthMarkets, Inc., a Delaware corporation (together with its successors and assigns,
the “Company”), and Kenneth Fasola (“Optionee”).

WHEREAS, on the Effective Date the Company and Optionee entered into an employment agreement
with respect to Optionee’s employment as an executive of the Company and certain related terms,
dated as of September 24, 2010 (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 Date, Options (as defined in Section 2
of this Agreement) under the Company’s 2006 Management Option Plan (the “Plan”) to purchase a
number of shares of the Company’s Class A-1 Common Stock (the “Shares”) on the terms and subject to
the conditions set forth in this Agreement and the Plan;

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

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

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

	 	(a)	 	“Board” means the Board of Directors of the Company.
	 
	 	(b)	 	“Cause” has the meaning specified in the Employment Agreement.
	 
	 	(c)	 	“Change of Control” has the meaning specified in the Employment Agreement.
	 
	 	(d)	 	“Compensation Committee” means the Executive Compensation Committee of the Board.
	 
	 	(e)	 	“Disability” has the meaning specified in the Employment Agreement.
	 
	 	(f)	 	“Fair Market Value” shall have the meaning specified in, and shall be construed and
determined in accordance with the procedures set forth in, the Employment Agreement.
	 
	 	(g)	 	“Good Reason” has the meaning specified in the Employment Agreement.

2. Grant of Stock Option/Exercise Price. Subject to and upon the terms, conditions,
and restrictions set forth in this Agreement, including, without limitation, Section 9 and the
Plan, the Company hereby grants to Optionee options to purchase 375,000 Shares (the “Options”) as
of the date hereof. The Shares subject to the Option may be purchased pursuant to the Options at a
price (the “Option Price”) equal to $7.34 per Share. The Options are intended to be nonqualified
stock options and shall not be treated as an “incentive stock option” within the meaning of that
term under Section 422 of the Code, or any successor provision thereto.

 

 

 

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

4. Right to Exercise. Unless terminated as hereinafter provided and except as
otherwise provided in Section 7, the Options shall vest and become exercisable in twenty (20) equal
quarterly installments with the first installment vesting on the last day of the third calendar
month following the Effective Date (December 31, 2010), subject to Optionee remaining in the
continuous employ of the Company or any Subsidiary through the applicable vesting date.
Notwithstanding the foregoing, the Options granted hereby shall become immediately exercisable with
respect to all of the Shares upon the occurrence of a Change of Control if Optionee remains in the
continuous employ of the Company or any Subsidiary until the date of the consummation of such
Change of Control.

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

6. Notice of Exercise; Payment.

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

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

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

7. Termination of Employment.

(a) General. Except as provided immediately below, if Optionee’s employment
terminates for any reason, the Options, to the extent not then vested (i.e., exercisable), will be
immediately forfeited and all vested Options will remain exercisable for the shorter of (1) 90 days
following the date of termination and (2) the remainder of their original scheduled term. For the
avoidance of doubt, any reference to any Option being or becoming vested shall also mean it
has become or will become “exercisable”.

 

 

 

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

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

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

8. Call Right. Upon termination of Optionee’s employment for any reason prior to an
IPO or a Change of Control, the Company will have the right to purchase (the “Call Right”) any
Shares that Optionee received pursuant to the terms and conditions of the Stockholders Agreement,
as amended by the Employment Agreement.

9. Effective Time. The Options granted hereby shall be and become effective upon the
delivery of an executed counterpart of this Agreement to the Company by Optionee.

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

 

 

 

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

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

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

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

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

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

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

 

 

 

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

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

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

21. Prior Agreement; Employment Agreement. As of the date that the Optionee
countersigns this Agreement, this Agreement will supersede any and all prior and/or contemporaneous
agreements, either oral or in writing, between the parties hereto, or between either or both of the
parties hereto and the Company, with respect to the subject matter hereof (other than the
Employment Agreement and its Exhibits). Each party to this Agreement acknowledges that no
representations, inducements, promises, or other agreements, orally or otherwise, have been made by
any party, or anyone acting on behalf of any party, pertaining to the subject matter hereof, which
are not embodied herein or in Sections 4(c) and 10(i) of the Employment Agreement, and that no
prior and/or contemporaneous agreement, statement or promise pertaining to the subject matter
hereof that is not contained in this Agreement (or Sections 4(c) and 10(i) of the Employment
Agreement) shall be valid or binding on either party. Sections 24 and 25 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.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

EXECUTION

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

	 	 	 	 	 
	 	HealthMarkets, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	
 	 
	 	OPTIONEE 	 
	 	Name:  Kenneth Fasola

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