exv10w2



 





Exhibit 10.2




FORM OF NONQUALIFIED STOCK OPTION AGREEMENT




     This AGREEMENT (this “Agreement”) is made as of August 2, 2007 by and between HealthMarkets,
Inc., a Delaware corporation (the “Company”), and Philip Rydzewski (“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.



     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) “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) “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 of him, if any, with the Company or any Subsidiary, (ii) the commission by Optionee
of a material breach of any of the covenants required of his position, 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 job duties, if any, with the
Company or any Subsidiary or the Optionee’s duties as an employee of the Company or any Subsidiary.




          (n) “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.



          (o) “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).



          (p) “Time-Based Tranche” has the meaning specified in Section 2 of this Agreement.



          (q) “Tranche C Option Shares” has the meaning specified in Section 2 of this
Agreement.



          (r) “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.



     2. Grant of Stock Option. Subject to and upon the terms, conditions, and restrictions
set forth in this Agreement and in the Plan and the Company’s obtaining shareholder approval of the
Plan, the Company hereby grants to Optionee options (the “Options”) to purchase 12,500 shares of
the Company’s Class A-1 Common Stock (the “Option Shares”). The Options may be exercised from time
to time in accordance with the terms of this Agreement. Subject to adjustment as hereinafter
provided,




     (a) one-third of the Option Shares (4,167 shares) may be purchased pursuant to the
Options at a price (the “Option Price”) of $40.97 per share (the “Time-Based Tranche”);



 









 






     (b) one-third of the Option Shares( 4,167 shares) may be purchased pursuant to the
Options at an Option Price of $40.97 per share (the “Performance-Based Tranche”); and




     (c) one-third of the Option Shares (4,166 shares) (the “Tranche C Option Shares”) may
be purchased pursuant to this Option at an Option Price of (i) $40.97 per share, if Optionee
exercises the option to purchase any Tranche C Option Shares prior to the second anniversary
of the Effective Time; (ii) $45.07 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) $49.58 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) $54.54 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) $59.99 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.




     3. Term of Options. The term of the Options shall commence at the Effective Time and,
unless earlier terminated in accordance with Section 7 hereof, shall expire ten (10) years from the
Effective Time.



     4. Right to Exercise. Unless terminated as hereinafter provided, the Options shall
become exercisable only as follows:



          (a) The Options shall become exercisable with respect to 20% of the Time-Based
Tranche(4,167 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 (1,041 shares) on the first anniversary of the Effective Time, (ii)
25% of the Performance-Based Tranche (1,042 shares) on the second anniversary of the Effective
Time, (iii) 17% of the Performance-Based Tranche (708 shares) on the third anniversary of the
Effective Time, (iv) 17% of the Performance-Based Tranche (709 shares) on the fourth anniversary of
the Effective Time and (v) the remaining 16% of the Performance-Based Tranche (667 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 (1,041 shares) on the first anniversary of the Effective Time, (ii) 25% of the
Tranche C Option Shares (1,042 shares) on the second anniversary of the Effective Time, (iii) 17%
of the Tranche C Option Shares (708 shares) on the third anniversary of the Effective Time, (iv)
17% of the Tranche C Option Shares (708 shares) on the fourth anniversary of the Effective Time and
(v) the remaining 16% of the Tranche C Option Shares (667 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.



     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.



     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 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.




     7. Termination of Agreement. The Agreement and the Options granted hereby shall
terminate automatically and without further notice on the earliest of the following dates:



          (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.




     8. Call Right. Upon termination of Optionee’s employment for any reason prior to an
IPO, the Company will have the right to purchase (the “Call Right”) any Option Shares that Optionee
received pursuant to the terms and conditions set forth in Article VI Call Rights of the
Stockholders Agreement.



     9. Effective Time. The Options granted hereby shall be and become effective (the
“Effective Time”) upon the last to occur of each of the following:



          (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.



     10. Initial Public Offering. Option Shares acquired on exercise of any Option will be
subject to the terms and conditions of the Stockholders’ Agreement. The Company and Optionee
acknowledge that they will agree to provide the Company with the right to require Optionee and
other executives of the Company or any Subsidiary to waive any registration rights with regard to
such Option 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.



     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 the 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 Option 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 Option 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. The Board may make or provide for such substitution or adjustments
in the number of Option Shares covered by the Options, in the Option Price applicable to such
Options, the Maximum Price (as defined in Section 24), and in the kind of shares covered thereby
and/or such other equitable substitution or adjustments as the Board may determine to prevent
dilution or enlargement of Optionee’s rights that otherwise would result from (a) any stock
dividend, extraordinary or special cash-dividend, stock split, combination of shares,
recapitalization, or other change in the capital structure of the Company, (b) any merger,
consolidation, spin-off, split-off, spin-out, split-up, reclassification, reorganization, partial
or complete liquidation, or other distribution of assets or issuance of rights or warrants to
purchase securities, or (c) any other corporate transaction or event having an effect similar to
any of the foregoing. Such substitutions and adjustments may include, without limitation,
canceling any and all Options in exchange for cash payments equal to the excess, if any, of the
value of the consideration paid to a shareholder of an Option 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. In the event of any inconsistent provisions between this Agreement and the Plan, the Plan
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 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. As of the Effective Time, this Agreement supersedes any and all
prior and/or contemporaneous agreements, either oral or in writing, between the parties hereto, or
between either or both of the parties hereto and the Company, with respect to the subject matter
hereof. 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.



     22. Notices. For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or permitted to be given
hereunder will be in writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business
days after having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three business days after having been sent by a nationally
recognized overnight courier service such as Federal Express, UPS, or Purolator, addressed to the
Company (to the attention of the Secretary of the Company) at its principal executive offices and
to Optionee at his principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.



     23. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
agreement



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



	 	 	 	 	 	 	 
	 	 	HealthMarkets, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Philip Rydzewski	 	 
	 	 	Name: