Exhibit 10.1
2005 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
OF
AMERICAN PHYSICIANS SERVICE GROUP, INC.
A Texas Corporation
I. Purpose of Plan
The purpose of this 2005 Incentive and Non-Qualified Stock Option Plan
(this "Plan") is to strengthen American Physicians Service Group, Inc. a Texas
corporation (the "Corporation"), and its subsidiaries, by providing stock
options as a means to attract, retain and motivate corporate personnel.
II. Administration
This Plan shall be administered by an administrative body (the
"Committee") designated by the Board of Directors of the Corporation (the
"Board"). The Board may designate itself as the Committee or appoint two or more
"Non-Employee Directors" to a committee which shall serve as the Committee. For
purposes of this Plan, "Non-Employee Director" will mean a director who meets
the definition of "non-employee director" under Rule 16b-3 under the Securities
Exchange Act of 1934 (as amended, the "1934 Act"), and who qualifies as an
"outside director" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), and to the extent applicable, meets the
requirements for an independent director, pursuant to the rules of any
securities exchange on which the stock is listed, or if the stock is not listed,
the rules of the National Association of Securities Dealers, Inc. ("NASD"), if
applicable. The Committee shall have the sole authority to select the persons
entitled to receive Options (as defined below) from among those eligible
hereunder (the "Optionees") and to establish the number of shares that may be
issued under each Option to such persons; provided, however, that,
notwithstanding any provision in this Plan to the contrary, the maximum number
of shares of common stock, $.10 par value per share of the Corporation (the
"Common Stock"), that may be subject to Options granted under the Plan to an
individual Optionee during any calendar year may not exceed 150,000 (subject to
adjustment in the same manner as provided in Article VIII hereof to prevent
dilution.) The limitation set forth in the preceding sentence shall be applied
in a manner which will permit compensation generated under the Plan to
constitute "performance-based" compensation for purposes of Section 162(m) of
the Code, including, without limitation, counting against such maximum number of
shares, to the extent required under Section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options that are
canceled or repriced.
All determinations, interpretations and constructions made by the
Committee in good faith will not be subject to review by any person and will be
final, binding and conclusive on all persons. Members of the Committee and any
officer or employee of the Corporation acting at the direction of, or on behalf
of, the Committee will not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and will, to the extent
permitted by law, be fully indemnified by the Corporation with respect to any
such action or determination.
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III. Grant of Options
The Corporation is authorized to grant incentive stock options
("Incentive Stock Options") as defined in section 422 of the Code and options
that are not intended to be Incentive Stock Options (hereafter "Non-Qualified
Stock Options" and, together with Incentive Stock Options, the "Options"). Any
Option granted under this Plan shall be granted within 10 years from the date
this Plan is adopted, or the date this Plan is approved by the shareholders
pursuant to Article X, whichever is earlier. No Option granted under this Plan
shall be exercisable by its terms after the expiration of 10 years from the
grant of the Option. Options may be granted only to individuals (a) who are
employees (including officers and directors who are also employees) of the
Corporation or any parent or subsidiary corporation (as defined in section 424
of the Code) of the Corporation, (b) who are non-employee directors of the
Corporation at the time the Option is granted and who may be granted Options
hereunder in compliance with Rule 16b-3, or (c) consultants and advisors of the
Corporation or any parent or subsidiary corporation of the Corporation who
render bona fide services to the Corporation or any parent or subsidiary
corporation of the Corporation; provided that such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction. Options may be granted to the same individual on more than one
occasion.
Incentive Stock Options may not be granted to persons who own stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Corporation, or of its parent or subsidiary, if any,
within the meaning of section 422(b)(6) of the Code, unless (i) at the time such
Option is granted the option exercise price is at least 110% of the fair market
value of the Common Stock subject to such Option and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of the
grant.
To the extent that the aggregate fair market value of Common Stock (as
determined in good faith by the Committee at the time the Incentive Stock Option
is granted), with respect to which Incentive Stock Options are exercisable for
the first time by an individual during any calendar year (under all incentive
stock option plans of the Corporation and any parent or subsidiary corporation)
exceeds $100,000, such excess Incentive Stock Options shall be treated as
Non-Qualified Stock Options. The Committee shall determine, in accordance with
applicable provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of an Optionee's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the Optionee of such determination as soon as practicable after such
determination.
IV. Stock Subject to Plan
The aggregate number of shares of Common Stock that may be issued
pursuant to Options granted under this Plan shall not exceed 350,000 shares of
Common Stock (subject to adjustment as provided in Article VIII). Such shares
may consist of authorized but unissued shares of Common Stock or previously
issued shares of Common stock reacquired by the Corporation. Any of such shares
which remain unissued and which are not subject to outstanding Options at the
termination of this Plan shall cease to be subject to this Plan, but, until
termination of this Plan, the Corporation shall at all times make available a
sufficient number of shares to meet the requirements of this Plan. Should any
Option hereunder expire or terminate prior to its exercise in full, the shares
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of Common Stock theretofore subject to such Option may again be subject to an
Option granted under this Plan to the extent permitted under Rule 16b-3. The
aggregate number of shares which may be issued under this Plan shall be subject
to adjustment as provided in Article VIII hereof. Exercise of an Option in any
manner pursuant to the terms of this Plan and the related Option Agreement shall
result in a decrease in the number of shares of Common Stock which may
thereafter be available, for purposes of the Plan, by the number of shares as to
which the Option is exercised. Separate stock certificates shall be issued by
the Corporation for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise of
any Non-Qualified Stock Options.
V. Option Agreements
Each Option shall be evidenced by a written agreement between the
Corporation and the Optionee ("Option Agreement") which shall contain such terms
and conditions as the Committee deems necessary, including, without limitation,
terms and conditions relating to the termination of Options. The terms and
conditions of the respective Option Agreements need not be identical.
VI. Option Price; Payment of Option Price
The purchase price for a share of Common Stock subject to an Incentive
Stock Option granted pursuant to this Plan shall not be less than the fair
market value of the Common Stock subject to such Incentive Stock Option on the
date such Option is granted. The purchase price for a share of the Common Stock
subject to a Non-Qualifying Stock Option granted pursuant to this Plan shall be
not less than 100% of the fair market value of the Common Stock subject to such
Non-Qualifying Stock Option on the date such Option is granted.
For all purposes under the Plan, the fair market value of a share of
Common Stock on a particular date shall be equal to the closing price per share
of the Common Stock (i) reported by the National Market System of NASDAQ on that
date or (ii) if the Common Stock is listed on a national stock exchange,
reported on the stock exchange composite tape on that date. If the Common Stock
is traded over the counter at the time a determination of its fair market value
is required to be made hereunder, its fair market value shall be deemed to be
equal to the average between the reported high and low or closing bid and ask
prices of the Common Stock on the most recent date on which the Common Stock was
publicly traded. In the event the Common Stock is not publicly traded at the
time a determination of its value is required to be made hereunder, the
determination of its fair market value shall be made in good faith by the
Committee in such manner as it deems appropriate.
Notwithstanding the foregoing, an Incentive Stock Option or a
Non-Qualifying Stock Option may be granted with an exercise price less than 100%
of fair market value if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
The exercise price of an Option shall be paid in one of the following
forms (or any combination thereof): (a) cash or (b) the transfer to the Company
of already-owned shares of Common Stock; provided, however that the Committee
may determine that the exercise price be paid only in cash. In addition, Options
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may be exercised through such "cashless exercise" procedures that are, from time
to time, deemed acceptable by the Committee and not in violation of applicable
law. Any shares of Common Stock transferred to the Company as payment of the
exercise price (including shares of Common Stock underlying the Option to be
exercised and being used to pay the exercise price therefor pursuant to a
cashless exercise) shall be valued at their fair market value on the trading day
preceding the date of exercise of such Option.
VII. Options Nontransferable
Incentive Stock Options and all rights granted thereunder shall not be
transferable other than by will or the laws of descent and distribution.
Non-Qualified Stock Options and all rights granted thereunder shall not be
transferable other than by will or the laws of descent and distribution, or upon
the express prior written consent of the Committee in each instance so long as
such transfer is to a "family member" as defined under General Instruction
A(1)(a)(5) to the Registration Statement on Form S-8. All Incentive Stock
Options shall be exercisable during the Optionee's lifetime, only by the
Optionee or the Optionee's guardian or legal representative.
VIII. Recapitalization or Reorganization
In the event of a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, an appropriate and
proportionate adjustment shall be made to the maximum number of shares of Common
Stock available for issuance pursuant to Options granted pursuant to this Plan,
as set forth in Article IV hereof, and the maximum number of shares of Common
Stock subject to Options granted to a person during any calendar year, as set
forth in Article II hereof. A corresponding change shall be made to the number
and kind of shares, and the exercise price per share, of unexercised Options.
IX. Change in Control and Other Corporate Transactions
In the event of a Change in Control, dissolution or liquidation of the
Corporation, or any corporate separation or division, including, but not limited
to, a split-up, a split-off or a spin-off, or a sale of substantially all of the
assets of the Corporation (collectively, a "Corporate Transaction"), then the
Corporation, to the extent permitted by applicable law, but otherwise in the
sole discretion of the Committee, may provide for: (i) the continuation of
outstanding Options by the Corporation (if the Corporation is the surviving
entity); (ii) the assumption of the Plan and such outstanding Options by the
surviving entity or its parent; (iii) the substitution by the surviving entity
or its parent of Options with substantially the same terms (including Options to
acquire the same consideration paid to the shareholders in the transaction
described in this Article IX) for such outstanding Options and, if appropriate,
subject to the equitable adjustment provisions of Article VIII hereof; (iv) the
cancellation of such outstanding Options in consideration for a payment equal in
value to the difference between the fair market value and the exercise price for
all shares of Common Stock subject to exercise (i.e., to the extent vested)
under any outstanding Option; or (v) the cancellation of such outstanding
Options without payment of any consideration. Any such payment may be paid in
cash or such other consideration payable to the holders of outstanding shares of
Common Stock of the Corporation in connection with such Corporate Transaction.
If vested Options would be canceled without consideration, the Option holder
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shall have the right, exercisable during the later of the ten-day period ending
on the fifth day prior to such Corporate Transaction or ten days after the
Committee provides the grant holder a notice of cancellation, to exercise such
Options in whole or in part without regard to any installment exercise
provisions in the Option Agreement. In addition, the Committee, in its
discretion, may provide for acceleration of unvested Options in connection with
any of the alternatives described above.
A "Change in Control" shall mean the occurrence of any of the
following:
(a) The "acquisition" by any "Person" (as the term person is used for purposes
of Section 13(d) or 14(d) of the 1934 Act) of "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of any securities of the
Corporation which generally entitles the holder thereof to vote for the election
of directors of the Corporation (the "Voting Securities") which, when added to
the Voting Securities then "Beneficially Owned" by such Person, would result in
such Person either "Beneficially Owning" fifty percent (50%) or more of the
combined voting power of the Corporation's then outstanding Voting Securities or
having the ability to elect fifty percent (50%) or more of the Corporation's
directors; or
(b) The consummation of a merger, consolidation or reorganization involving the
Corporation (a "Business Combination"), unless the stockholders of the
Corporation, immediately before the Business Combination, own, directly or
indirectly immediately following the Business Combination, at least fifty
percent (50%) of the combined voting power of the outstanding voting securities
of the corporation resulting from the Business Combination in substantially the
same proportion as their ownership of the Voting Securities immediately before
the Business Combination; or
(c) The consummation of a merger or consolidation involving the Corporation
where the Corporation is not the surviving entity; or (d) Any change in the
identity of directors constituting a majority of the Board within a twenty-four
month period unless the change was approved by a majority of the Incumbent
Directors, where "Incumbent Director" means a member of the Board at the
beginning of the period in question, including any director who was not a member
of the Board at the beginning of such period but was elected or nominated to the
Board by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors.
X. Effective Date of Plan
This Plan shall be effective on approval by the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation present or represented and entitled to vote thereon at a duly held
shareholder meeting or by unanimous written consent of the shareholders of the
Corporation in the manner required by Rule 16b-3.
XI. Amendment or Termination of Plan
The Board in its discretion may terminate this Plan at any time with
respect to any shares of Common Stock for which Options have not theretofore
been granted. The Board shall have the right to alter or amend this Plan or any
part hereof from time to time; provided, that no change in any Option heretofore
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granted may be made which would impair the rights of the Optionee without the
consent of such Optionee; and provided, further, that (i) the Board may not make
any alteration or amendment which would decrease any authority granted to the
Committee hereunder in contravention of Rule 16b-3 and (ii) the Board may not
make any alteration or amendment which would materially increase the benefits
accruing to participants under the Plan, increase the aggregate number of shares
which may be issued pursuant to the provisions of the Plan, change the class of
individuals eligible to receive Options under the Plan or extend the term of the
Plan, without the approval of the shareholders of the Corporation.
XII. Compliance with Section 16
With respect to persons subject to Section 16 of the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee.
XIII. Exchange Provisions; Governing Law
The Committee may at any time offer to exchange or buy out any
previously granted Option for a payment in cash, Common Stock or another Option,
based on the terms and conditions the Committee determines and communicates to
the Option holder at the time the offer is made.
This Plan shall be governed by the laws of the State of Texas.
[Signature Page Follows]
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AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ W. H. Hayes
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W.H. Hayes
Senior Vice President and Secretary
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