FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
Exhibit 10.4
EXECUTION
VERSION
This AGREEMENT (this “Agreement”) is made as of September 8, 2009 (the “Effective Date”) by
and between HealthMarkets, Inc., a Delaware corporation (together with its successors and assigns,
the “Company”), and Xxxxxxx Xxxxxxxxxx (“Optionee”).
WHEREAS, on the Effective Date the Company and Optionee entered into an employment agreement
with respect to Optionee’s employment as an executive of the Company and certain related terms (the
“Employment Agreement”);
WHEREAS, the Company and the Optionee are party to a Nonqualified Stock Option Agreement as of
June 5, 2008 (the “Prior Stock Option Agreement”);
WHEREAS, the Company and the Optionee wish to cancel the Prior Stock Option Agreement in its
entirety with this Agreement;
WHEREAS, the Company, acting through the Compensation Committee with the consent of the Board
has agreed to grant to Optionee, effective on the Effective Time, Options (as defined in Section 2
of this Agreement) under the Company’s 2006 Management Option Plan (the “Plan”) to purchase a
number of shares of the Company’s Class A-1 Common Stock (the “Shares”) on the terms and subject to
the conditions set forth in this Agreement and the Plan;
WHEREAS, future securities in the Company (including those being acquired pursuant to this
Agreement) owned by Optionee shall be subject to the terms of the Stockholders Agreement (as
amended with respect to Optionee pursuant to the Employment Agreement).
NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in
this Agreement, the parties hereto hereby agree as follows:
1. Certain Definitions. Capitalized terms used, but not otherwise defined, in this
Agreement will have the meanings given to such terms in the Company’s 2006 Management Option Plan
(the “Plan”). As used in this Agreement:
(a) “Board” means the Board of Directors of the Company.
(b) “Cause” has the meaning specified in the Employment Agreement.
(c) “Change of Control” has the meaning specified in the Employment Agreement.
(d) “Compensation Committee” means the Executive Compensation Committee of the Board.
(e) “Disability” has the meaning specified in the Employment Agreement.
(f) “Fair Market Value” shall have the meaning specified in, and shall be construed and
determined in accordance with the procedures set forth in, the Employment Agreement.
(g) “Good Reason” has the meaning specified in the Employment Agreement.
2. Grant of Stock Option/Exercise Price. Subject to and upon the terms, conditions,
and restrictions set forth in this Agreement, including, without limitation, Section 9 and the
Plan, the Company hereby grants to Optionee options to purchase 506,650 Shares (the “Options”) as
of the date hereof. The Shares subject to the Option may be purchased pursuant to the Options at a
price (the “Option Price”) equal to $19.37 per Share. The Options are intended to be nonqualified
stock options and shall not be treated as an “incentive stock option” within the meaning of that
term under Section 422 of the Code, or any successor provision thereto.
3. Term of Options. The term of the Options shall commence at the Effective Date and,
unless earlier terminated in accordance with the terms of this Agreement, shall expire ten (10)
years from the Effective Date.
4. Right to Exercise. Unless terminated as hereinafter provided and except as
otherwise provided in Section 7, the Options shall become exercisable (i.e., vested) in quarterly
installments determined based on 30% of the Options vesting by the first anniversary of June 4,
2009 (such that 7.5% of the Option shall vest quarterly up through such first anniversary), an
additional 20% vesting by each of the second, third and fourth anniversaries of June 4, 2009 (such
that 5% of the Option shall vest quarterly after such first anniversary) and the remaining 10%
vesting by the fifth anniversary of June 4, 2009 (such that 2.5% of the Option shall vest quarterly
after such fourth anniversary), in each case, subject to Optionee’s remaining in the continuous
employ of the Company or any Subsidiary through the applicable vesting date; provided, that to the
extent the Effective Time occurs after any such quarterly vesting date or the vesting required upon
a termination of employment in Sections 7(b) or 7(c), the portion of the Options that would have
vested on such date shall not vest on such date, but shall instead vest on the Effective Time;
provided further, that such Options shall become fully exercisable upon a Change of
Control.
5. Option Nontransferable. Optionee may not transfer or assign all or any part of the
Options other than by will or by the laws of descent and distribution. The Options may be
exercised, during the lifetime of Optionee, only by Optionee, or in the event of Optionee’s legal
incapacity, by Optionee’s guardian or legal representative acting on behalf of Optionee in a
fiduciary capacity under state law and court supervision. Optionee shall be entitled to the
privileges of ownership with respect to Shares purchased and delivered to Optionee upon the
exercise of all or part of the Options.
6. Notice of Exercise; Payment.
(a) To the extent then exercisable, the Option may be exercised in whole or in part by written
notice to the Company stating the number of Shares for which the Options are being exercised and
the intended manner of payment. The date of such notice shall be the exercise date. Payment equal
to the aggregate Option Price of the Shares being purchased pursuant to an exercise of the Options
must be tendered in full with the notice of exercise to the Company in one or a combination of the
following methods as specified by Optionee in the notice of exercise: (i) cash in the form of
currency or check or by wire transfer as directed by the Company, (ii) through the surrender to the
Company of Shares as valued at their Fair Market Value on the date of exercise (including by having
the Company withhold Shares upon exercise of the Option) or (iii) through such other form of
consideration as is deemed acceptable by the Board. In this regard, while the Shares are not
publicly traded, upon the Optionee’s request (or that of any Person authorized to exercise to the
Option as set forth herein or in the Plan), the Board shall communicate to the Optionee (or such
other Person) the Fair Market Value of the Shares as of the date of such request in a timely manner
to enable the Optionee (or such other Person) to exercise his vested Options.
(b) As soon as practicable upon the Company’s receipt of Optionee’s payment and notice of
exercise, the Company shall direct the due issuance of the Shares so purchased.
(c) As a further condition precedent to the exercise of the Options in whole or in part,
Optionee shall comply with all regulations and the requirements of any regulatory authority having
control of, or supervision over, the issuance of the Shares and in connection therewith shall
execute any documents which the Board shall in its sole discretion deem necessary or advisable.
7. Termination of Employment.
(a) General. Except as provided immediately below, if Optionee’s employment
terminates for any reason, the Options, to the extent not then vested (i.e., exercisable), will be
immediately forfeited and all vested Options will remain exercisable for the shorter of (1) 90 days
following the date of termination and (2) the remainder of their original scheduled term; provided
that if such termination is prior to the Effective Time, the Options that would have vested as of
the date of termination if vesting was based solely on the passage of time shall vest as of the
Effective Time and Optionee shall have 90 days following the Effective Time to exercise such vested
Options. For the avoidance of doubt, any reference to any Option being or becoming vested shall
also mean it has become or will become “exercisable”.
(b) Without Cause; for Good Reason. If Optionee’s employment is terminated by the
Company without Cause (which shall for purposes of this Agreement include a termination of the
Optionee’s employment upon conclusion of the Employment Term (as defined in the Employment
Agreement) after the Company’s giving the Optionee a notice of non-renewal of the Employment Term)
or by Optionee for Good Reason, to the extent not previously cancelled or expired, as of the date
of termination Optionee’s unvested Options that would have vested if Optionee had remained employed
through the first anniversary of the date of termination will vest and all vested Options will
remain exercisable for the shorter of (1) one year following the date of termination and (2) the
remainder of their original scheduled term. Notwithstanding the foregoing, if Optionee’s employment
is terminated without Cause or for Good Reason (i) after a definitive agreement is entered into
which will result in a Change of Control (provided such agreement results in a Change of Control)
or (ii) within six months prior to a Change of Control, the Options shall be treated as if they had
fully vested as of the date of the Change of Control.
(c) Death; Disability. If Optionee’s employment is terminated by reason of Optionee’s
death or Disability, to the extent not previously cancelled or expired, as of the date of
termination Optionee’s unvested Options that would have vested if Optionee had remained employed
through the first anniversary of the date of termination will vest and all vested Options will
remain exercisable for the shorter of (1) one year following the date of termination and (2) the
remainder of their original scheduled term; provided, however, that it shall be a condition to the
exercise of the Options in the event of Optionee’s death that the Person exercising the Options
shall (i) have agreed in a form satisfactory to the Company to be bound by the provisions of this
Agreement and, if there has been no Change of Control or an IPO, the Stockholders Agreement (as
modified by Section 8 of the Employment Agreement) and (ii) comply with all regulations and the
requirements of any regulatory authority having control of, or supervision over, the issuance of
the Shares and in connection therewith shall execute any documents which the Board shall in its
sole discretion deem necessary or advisable.
(d) Cause. Notwithstanding the foregoing or any provision of this Agreement or the
Employment Agreement to the contrary, if Optionee’s employment is terminated by the Company for
Cause, all options, whether or not vested, will be immediately forfeited as of the date of
termination.
8. Call Right. Upon termination of Optionee’s employment for any reason prior to an
IPO or a Change of Control, the Company will have the right to purchase (the “Call Right”) any
Shares that
Optionee received pursuant to the terms and conditions set forth in Section 8(c) of the
Employment Agreement.
9. Effective Time. The Options granted hereby shall be and become effective (the
“Effective Time”) upon the the delivery of an executed counterpart of this Agreement to the Company
by Optionee. Notwithstanding the foregoing, the Options granted hereby shall be subject to the
approval of the stockholders of the Company of an amendment to the Plan increasing the authorized
Share number thereunder (and thereby permitting the grant of the Options thereunder) and the
maximum number of Options that may be granted to any individual under the Plan. For the avoidance
of doubt, in the event that such stockholder approval is not obtained by the earlier of (x) the
Amendment Approval Date or (y) a Change of Control, this Agreement and the grant of Options
hereunder (and the cancelling of the Prior Stock Option Agreement) shall be null and void ab initio
and be of no further force or effect.
10. Initial Public Offering. Shares acquired on exercise of any Option will be
subject to the terms and conditions of the Stockholders’ Agreement, as amended by Section 8 of the
Employment Agreement. The Company and Optionee acknowledge that they will agree to provide the
Company with the right to require Optionee and other executives of the Company or any Subsidiary to
waive any registration rights with regard to such Shares upon an IPO, in which case the Company
will implement an IPO bonus plan in cash, stock or additional options to compensate for Optionee’s
and the other executives’ loss of liquidity; provided that if the Optionee’s employment is
terminated without Cause or for Good Reason, then the Optionee shall fully vest upon the date of
termination in any grant made under such IPO bonus plan.
11. No Employment Contract. Nothing contained in this Agreement shall (a) confer upon
Optionee any right to be employed by or remain employed by the Company or any Subsidiary, or (b)
limit or affect in any manner the right of the Company or any Subsidiary to terminate the
employment or adjust the compensation of Optionee.
12. Taxes and Withholding. The Company or any Subsidiary may withhold, or require
Optionee to remit to the Company or any Subsidiary, an amount sufficient to satisfy federal, state,
local or foreign taxes (including Optionee’s FICA obligation) in connection with any payment made
or benefit realized by Optionee or other person under this Agreement or otherwise, and the amounts
available to the Company or any Subsidiary for such withholding are insufficient, it shall be a
condition to the receipt of such payment or the realization of such benefit that Optionee or such
other person make arrangements satisfactory to the Company or any Subsidiary for payment of the
balance of such taxes required to be withheld. The Company or any Subsidiary may elect to have
such withholding obligation satisfied by having Optionee surrender to the Company or any Subsidiary
a portion of the Shares that is issued or transferred to Optionee upon the exercise of an Option
(but only to the extent of the minimum withholding required by law), and the Shares so surrendered
by Optionee shall be credited against any such withholding obligation at the Fair Market Value of
such shares on the date of such surrender.
13. Compliance with Law. The Company shall make reasonable efforts to comply with all
applicable federal and state securities laws; provided, however, that notwithstanding any other
provision of this Agreement, the Options shall not be exercisable if the exercise thereof would
result in a violation of any such law.
14. Adjustments. In the event of any stock split, reverse stock split, share
dividend, merger, consolidation or other event after the Effective Date that makes an equitable
adjustment appropriate, the Board shall make such substitution or adjustment (including cash
payments) in the number of Shares covered by the Options, in the Option Price applicable to such
Options, and in the kind of shares covered thereby and/or such other equitable substitution or
adjustments as it determines in good faith to be
equitable. In addition to, and notwithstanding the foregoing, the Option Price shall be
adjusted downward (to the extent practicable without causing adverse tax consequences to Optionee)
for any dividends paid to the Sponsors after the Effective Date. In connection with a Change of
Control, such substitutions and adjustments may include, without limitation, canceling any and all
Options in exchange for cash payments equal to the excess, if any, of the value of the
consideration paid to a shareholder of a Share over the Option Price per Share subject to such
Option in connection with such an adjustment event.
15. Relation to Other Benefits. Any economic or other benefit to Optionee under this
Agreement shall not be taken into account in determining any benefits to which Optionee may be
entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or any Subsidiary and shall not affect the amount of any life insurance coverage
available to any beneficiary under any life insurance plan covering employees of the Company or any
Subsidiary.
16. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this
Agreement to the extent that the amendment is applicable hereto; provided, however, that no
amendment shall adversely affect the rights of Optionee under this Agreement or the Employment
Agreement without Optionee’s written consent.
17. Severability. If one or more of the provisions of this Agreement is invalidated
for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed
to be separable from the other provisions hereof, and the remaining provisions hereof shall
continue to be valid and fully enforceable.
18. Relation to Plan. This Agreement is subject to the terms and conditions of the
Plan; provided, however, that in the event of any inconsistent provisions between this Agreement
and the Plan, this Agreement shall govern. The Board acting pursuant to the Plan, as constituted
from time to time, shall, except as expressly provided otherwise herein, have the right to
determine (in good faith) any questions which arise in connection with the Option or its exercise.
19. Successors and Assigns. The provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and
assigns of Optionee, and the successors and assigns of the Company.
20. Governing Law. The interpretation, performance, and enforcement of this Agreement
shall be governed by the laws of the State of Delaware, without giving effect to the principles of
conflict of laws thereof and all parties, including their successors and assigns, consent to the
jurisdiction of the state and federal courts of Delaware.
21. Prior Agreement; Employment Agreement. As of the date that the Optionee
countersigns this Agreement, this Agreement will supersede any and all prior and/or contemporaneous
agreements, either oral or in writing, between the parties hereto, or between either or both of the
parties hereto and the Company, with respect to the subject matter hereof (other than the
Employment Agreement and its Exhibits). Each party to this Agreement acknowledges that no
representations, inducements, promises, or other agreements, orally or otherwise, have been made by
any party, or anyone acting on behalf of any party, pertaining to the subject matter hereof, which
are not embodied herein or in Sections 4(c) and 10(j) of the Employment Agreement, and that no
prior and/or contemporaneous agreement, statement or promise pertaining to the subject matter
hereof that is not contained in this Agreement (or Sections 4(c) and 10(j) of the Employment
Agreement) shall be valid or binding on either party. Sections 23 and 24 of the Employment
Agreement shall be incorporated in full herein, provided that any reference to “the Executive”
shall be deemed to be a reference to the Optionee and any reference to “this Agreement” shall be a
reference to this Agreement. Without limiting the generality of the foregoing, by
execution of this Agreement, the Optionee hereby agrees that effective immediately, the Prior
Stock Option Agreement and the options granted thereunder, whether vested or unvested, shall be
cancelled and void and the Prior Stock Option Agreement shall be of no further force or effect
unless this Agreement becomes null and void in accordance with the last sentence of Section 9
above.
22. Notices. For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or permitted to be given
hereunder will be in writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business
days after having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three business days after having been sent by a nationally
recognized overnight courier service such as Federal Express, UPS, or Purolator, addressed to the
Company (to the attention of the Secretary of the Company) at its principal executive offices and
to Optionee at his principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
23. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
agreement.
24. Offset. Notwithstanding anything in this Agreement or the Stockholders Agreement
to the contrary, if the Optionee (or his estate) has received a Transaction Bonus or a Retention
Payment (as each is defined in the Employment Agreement) then the Optionee agrees that Section 8(e)
of the Employment Agreement shall apply to this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its
duly authorized officer and Optionee has executed this Agreement, as of the day and year first
above written.
| HealthMarkets, Inc. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTIONEE | ||||||
| Name: Xxxxxxx Xxxxxxxxxx | ||||||
