FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
EXHIBIT
10.2
This AGREEMENT (this “Agreement”) is made as of , 2006 by and between HealthMarkets,
Inc. (formerly UICI), a Delaware corporation (the “Company”), and [ ] (“Optionee”). As
a condition precedent to the Company’s grant of the Options (as defined in Section 2 of this
Agreement) to Optionee, Optionee is executing and delivering a counterpart of the Stockholders
Agreement and thereby agrees to be bound by the Stockholders’ Agreement as a “Management
Stockholder” thereunder.
(a) “Call Right” has the meaning specified in Section 8 of this Agreement.
(b) “Company” has the meaning specified in the introductory paragraph of this
Agreement.
(c) “Compensation Committee” means the Executive Compensation Committee of the
Board.
(d) “Disability” shall mean the Optionee’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 Optionee shall not have returned to
the full-time performance of the Optionee’s duties; provided, however, that if the Optionee shall
not agree with a determination to terminate his employment because of Disability, the question of
the Optionee’s Disability shall be subject to the certification of a qualified medical doctor
selected by the Company or its insurers and acceptable to the Optionee or, in the event of the
Optionee’s incapacity to accept a doctor, the Optionee’s legal representative.
(e) “Effective Time” has the meaning specified in Section 9 hereof.
(f) “Fair Market Value” shall have the meaning specified in the Stockholders
Agreement.
(g) “Options” has the meaning specified in Section 2 of this Agreement.
(h) “Optionee” has the meaning specified in the introductory paragraph of this
Agreement.
(i) “Option Price” has the meaning specified in Section 2 of this Agreement.
(j) “Option Shares” has the meaning specified in Section 2 of this Agreement.
(k) “Performance-Based Tranche” has the meaning specified in Section 2 of this
Agreement.
(l) “Plan” has the meaning specified in Section 1 of this Agreement.
(m) “Employment Agreement” means the separate agreement, dated as of April ___, 2006,
between the Company and Optionee.
(n) “Termination for Cause” means the termination by the Company or any Subsidiary
of Optionee’s employment with the Company or any Subsidiary as a result of (i) the commission by
Optionee of an act of gross negligence, willful misconduct, fraud, embezzlement, misappropriation
or breach of fiduciary duty against the Company or any of its affiliates or Subsidiaries, or the
conviction of Optionee by a court of competent jurisdiction of, or a plea of guilty or nolo
contendere to, any felony or any crime involving moral turpitude or any crime which reasonably
could affect the reputation of the Company or the Optionee’s ability to perform the duties required
under his employment agreement, if any, with the Company or any Subsidiary, (ii) the commission by
Optionee of a material breach of any of the covenants in his employment agreement, if any, with the
Company or any Subsidiary or the Stockholders Agreement, which breach has not been remedied within
30 days of the delivery to the Optionee by the Board of written notice of the facts constituting
the breach, and which breach if not cured, would have a material adverse effect on the Company, or
(iii) the habitual and willful neglect by Optionee of his obligations under his employment
agreement, if any, with the Company or any Subsidiary or the Optionee’s duties as an employee of
the Company or any Subsidiary.
(o) “Termination for Good Reason” means the termination by the Optionee of
Optionee’s employment with the Company or any Subsidiary with written notice to the Company within
90 days following the occurrence, without Optionee’s consent, of any of the following events (after
failure of the Company or any Subsidiary to cure in thirty (30) days): (i) the reduction of
Optionee’s position from that of a senior executive level position with the Company or any
Subsidiary, (ii) a decrease in Optionee’s base salary or target annual bonus, other than in the
case of a decrease for a majority of similarly situated executives of the Company or any
Subsidiary, (iii) a reduction in Optionee’s participation in the Company’s or any Subsidiary’s
benefit plans and policies to a level materially less favorable to Optionee, unless such reduction
applies to a majority of the senior level executives of the Company or any Subsidiary, or (iv) the
announcement of the relocation of Optionee’s primary place of employment to a location 50 or more
miles from the current headquarters.
(p) “Termination Without Cause” means the termination by the Company or any
Subsidiary of Optionee’s employment with the Company or any Subsidiary for any reason other than a
Termination for Cause (other than by reason of Optionee’s death or Disability) and shall include
the Company’s or the Subsidiary’s election not to extend any employment agreement between Optionee
and the Company or any Subsidiary at the end of any employment period.
(q) “Time-Based Tranche” has the meaning specified in Section 2 of this Agreement.
(r) “Tranche C Option Shares” has the meaning specified in Section 2 of this
Agreement.
(s) “Voluntary Termination” means Optionee’s termination of Optionee’s employment
with the Company or any Subsidiary for any reason, other than a Termination for Good Reason.
(a) one-third of the Option Shares (___shares) may be purchased pursuant to the
Options at a price (the “Option Price”) of $37.00 per share (the “Time-Based Tranche”);
(b) one-third of the Option Shares (___shares) may be purchased pursuant to the
Options at an Option Price of $37.00 per share (the “Performance-Based Tranche”); and
(c) one-third of the Option Shares (___shares) (the “Tranche C Option Shares”) may
be purchased pursuant to this Option at an Option Price of (i) $37.00 per share, if Optionee
exercises the option to purchase any Tranche C Option Shares prior to the second anniversary
of the Effective Time; (ii) $40.70 per share, if Optionee exercises the option to purchase
any Tranche C Option Shares on or after the second anniversary of the Effective Time but
prior to the third anniversary of the Effective Time; (iii) $44.77 per share, if Optionee
exercises the option to purchase any Tranche C Option Shares on or after the third
anniversary of the Effective Time but prior to the fourth anniversary of the Effective Time;
(iv) $49.25 per share, if Optionee exercises the option to purchase any Tranche C Option
Shares on or after the fourth anniversary of the Effective Time but prior to the fifth
anniversary of the Effective Time; and (v) $54.17 per share, if Optionee exercises the
option to purchase any Tranche C Option Shares on or after the fifth anniversary of the
Effective Time.
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. In the event that shareholder approval of the Plan is not obtained, this Option
shall be void ab initio and of no force and effect.
(a) The Options shall become exercisable with respect to 20% of the Time-Based
Tranche (___shares) on each of the first five anniversaries of the Effective Time if Optionee
remains in the continuous employ of the Company or any Subsidiary as of each such date.
(b) The Optionee may earn the right to exercise the option to purchase (i) 25% of
the Performance-Based Tranche (___shares) on the first anniversary of the Effective Time, (ii)
25% of the Performance-Based Tranche (___shares) on the second anniversary of the Effective Time,
(iii) 17% of the Performance-Based Tranche (___shares) on the third anniversary of the Effective
Time, (iv) 17% of the Performance-Based Tranche (___shares) on the fourth anniversary of the
Effective Time and (v) the remaining 16% of the Performance-Based Tranche (___shares) on the
fifth anniversary of the Effective Time, provided, however, that (A) as of each such date Optionee
shall have remained in the continuous employ of the Company or any Subsidiary and (B) the Company
shall have achieved certain specified performance targets (including, without limitation, EBIT, net
income and revenue growth) set by the Compensation Committee after consultation in good faith with
the Chief Executive Officer of the
Company for such year. Any shares included in the Performance-Based Tranche as to which
Optionee does not earn the right to exercise the related Option Shares shall thereupon expire and
terminate.
(c) The Options shall become exercisable with respect to (i) 25% of the Tranche C
Option Shares (___shares) on the first anniversary of the Effective Time, (ii) 25% of the Tranche
C Option Shares (___shares) on the second anniversary of the Effective Time, (iii) 17% of the
Tranche C Option Shares (___shares) on the third anniversary of the Effective Time, (iv) 17% of
the Tranche C Option Shares (___shares) on the fourth anniversary of the Effective Time and (v)
the remaining 16% of the Tranche C Option Shares (___shares) on the fifth anniversary of the
Effective Time, provided however, that as of each such date Optionee remains in the continuous
employ of the Company or any Subsidiary.
(d) Notwithstanding the foregoing, (i) the Options granted hereby shall become
immediately exercisable with respect to all of the Option 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 and (ii) if the Optionee’s employment with the
Company or any Subsidiary terminates for any reason other than a Termination for Cause or a
Voluntary Termination, then (A) the Options shall be exercisable with respect to a number of Option
Shares equal to the sum of (x) the total number of Option Shares that became exercisable pursuant
to Sections 4(a), 4(b) and 4(c) hereof as of the date of Optionee’s termination of employment and
(y) the number of Option Shares that would have become exercisable under the provisions of Sections
4(a), 4(b) and 4(c) hereof if the Optionee had remained in the employ of the Company or any
Subsidiary until the first anniversary of the date of Optionee’s termination of employment with the
Company or any Subsidiary; provided, however, that the number of Option Shares that would have
become exercisable under the provisions of Section 4(b) if the Optionee had remained in the employ
of the Company or any Subsidiary until the first anniversary of the date of Optionee’s termination
of employment with the Company or any Subsidiary will not become exercisable under clause (y) above
if it is apparent, in the reasonable judgment of the Company, that the Company will miss the
performance targets for the fiscal year in which the termination of employment occurs; and (B) and
all other Options shall terminate.
(e) Optionee shall be entitled to the privileges of ownership with respect to Option
Shares purchased and delivered to Optionee upon the exercise of all or part of the Options.
(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 Option Shares for which the Options are
being exercised and the intended manner of payment. The date of such notice shall be the exercise
date. Except as otherwise provided in Section 24, payment equal to the aggregate Option Price of
the Option 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) solely following an IPO or shares of the Company’s
Class A-1 Common Stock otherwise being traded on an established securities market, through the
surrender to the Company of shares of Class A-1 Common
Stock owned by Optionee for at least six months as valued at their Fair Market Value on the
date of exercise or (iii) through such other form of consideration as is deemed acceptable by the
Board.
(b) As soon as practicable upon the Company’s receipt of Optionee’s notice of
exercise and payment, the Company shall direct the due issuance of the Option 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 of Class A-1 Common Stock and in
connection therewith shall execute any documents which the Board shall in its sole discretion deem
necessary or advisable.
(a) following Optionee’s termination due to Optionee’s death, Disability,
Termination for Good Reason or Termination Without Cause by the Company, the earlier of (i) one (1)
year following the Optionee’s date of termination or (ii) the remaining term of the Option;
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 the Stockholders
Agreement and (ii) comply with all regulations and the requirements of any regulatory authority
having control of, or supervision over, the issuance of the shares of Class A-1 Common Stock and in
connection therewith shall execute any documents which the Board shall in its sole discretion deem
necessary or advisable;
(b) after Optionee’s Voluntary Termination the earlier of (i) ninety (90) calendar
days following the Optionee’s date of termination or (ii) the remaining term of the Options;
(c) The date of Optionee’s Termination for Cause; or
(d) Ten (10) years from the Effective Time.
In the event that Optionee’s employment is terminated in the circumstances described in Section
7(c) hereof, this Agreement shall terminate at the time of such termination notwithstanding any
other provision of this Agreement and the Options will cease to be exercisable to the extent
exercisable as of such termination and will not be or become exercisable after such termination.
Optionee shall be deemed to be an employee of the Company or any Subsidiary if on a leave of
absence approved by the Board.
(a) An executed counterpart of this Agreement shall be delivered to the Company by
the Optionee; and
(b) The Plan shall have been approved by the Board of Directors 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.
terms and conditions as the Option granted hereunder (with the term and vesting provisions of
such option commencing as of the date of grant of this Option) except with an exercise price per
share (other than shares issuable upon exercise of options corresponding to the Options granted
pursuant to Sections 2(c)(ii), (iii), (iv) and (v), which shall have an exercise price per share
equal to the exercise prices set forth in Sections 2(c)(ii), (iii), (iv) and (v) hereof) equal to
the then-current Fair Market Value of a share of Class A-1 Common Stock on the date of grant of
such option (a “Tandem Option”), (a) the maximum amount per Option Share that may be derived upon
the exercise of the Option granted hereunder or upon the cancellation of the Option pursuant to
Section 14 of this Agreement shall be equal to the exercise price per share of Class A-1 Common
Stock subject to the Tandem Option (the “Maximum Price”), provided that if the Fair Market Value
(and therefore the exercise price per share of the Tandem Option) is equal to $37 on the date of
grant of the Tandem Option, this Option shall be cancelled without the payment of any consideration
therefor and (b) any exercise of the Option shall be on a “net-share” basis. Any exercise of the
Tandem Option shall be deemed to be an exercise of the corresponding number and type of Option
Shares granted hereunder and any exercise of the Option granted hereunder shall be deemed to be an
exercise of the corresponding number and type of shares subject to the Tandem Option.
| HealthMarkets, Inc. | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| OPTIONEE | ||||
| Name: | ||||