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Exhibit 10.12
EXECUTIVE RISK INC.
NONEMPLOYEE DIRECTORS
STOCK OPTION PLAN
ARTICLE I
PURPOSE
1.1 The Executive Risk Inc. Nonemployee Directors Stock Option
Plan is intended to advance the interests of Executive Risk Inc. and its
stockholders by attracting, retaining and motivating the performance of
nonemployee directors of Executive Risk Inc., and to encourage and enable such
directors to acquire and retain a proprietary interest in Executive Risk Inc. by
ownership of its stock.
ARTICLE II
DEFINITIONS
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as
amended.
2.3 "Committee" means the Committee on Directors and
Compensation of the Board.
2.4 "Common Stock" means the Company's Common Stock, par value
$.01 per share.
2.5 "Company" means Executive Risk Inc.
2.6 "Date of Grant" means the date on which an Option is
granted.
2.7 " Fair Market Value" means the closing price of the Common
Stock on the New York Stock Exchange (or any other stock exchange on which the
Common Stock is listed) on the date as of which Fair Market Value is to be
determined or, in the absence of any reported sales of Common Stock on such
date, on the first preceding date on which any such sale shall have been
reported. If the Common Stock is not listed on any stock exchange on the date as
of which Fair Market Value is to be determined, the Board shall determine in
good faith the fair market value in whatever manner it considers appropriate.
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2.8 "Fee Option" means a stock option granted in lieu of
certain directors fees under Article V of the Plan.
2.9 "Fees" means the compensation earned by a Nonemployee
Director for services rendered by him as a Nonemployee Director as an annual
retainer fee or as fees for participating in meetings of the Board or of any
standing or special committee of the Board.
2.10 "Outside Consultant" means a nationally recognized public
accounting or consulting firm or similar entity that is independent of the
Company and its affiliates which is appointed by the Board to perform certain
calculations and make other determinations in accordance with the terms of the
Plan.
2.11 "Nonemployee Director" means any current or former member
of the Board who is not an officer or employee of the Company.
2.12 "Option" means a Fee Option or a Performance Option
granted under the Plan.
2.13 "Option Price" means the price at which each share of
Common Stock subject to an Option may be purchased.
2.14 "Optionee" means a person to whom an Option has been
granted, which Option has not expired under the Plan.
2.15 "Performance Option" means a stock option granted under
Article VI of the Plan based on the financial performance of the Company.
2.16 "Permanent and Total Disability" means the inability of
an Optionee to perform his duties as a member of the Board by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.
2.17 "Plan" means this Executive Risk Inc. Nonemployee
Directors Stock Option Plan.
2.18 "Return on Equity" means, with respect to any company for
which Return on Equity is calculated, the income of the company (calculated in
accordance with generally accepted accounting principles) for a fiscal year of
such company, divided by the average equity of such company's shareholders for
such fiscal year (as reported in such company's audited financial statements).
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2.19 "Stock Option Agreement" means an agreement between the
Company and an Optionee under which the Optionee may purchase Common Stock under
the Plan.
ARTICLE III
ADMINISTRATION
Subject to the express provisions of the Plan, the Committee
shall have discretionary authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to it, to determine the details and
provisions of each Stock Option Agreement, and to make all determinations
necessary or advisable in the administration of the Plan. All such actions and
determinations by the Committee shall be conclusively binding for all purposes
and upon all persons. Notwithstanding the foregoing or anything elsewhere in the
Plan, the Committee shall have no discretionary authority with respect to the
determination of the number of shares of Common Stock, the Option Price or the
Date of Grant of any Option granted under the Plan. The Committee shall not be
liable for any action or determination made in good faith with respect to the
Plan, any Option or any Stock Option Agreement entered into hereunder.
ARTICLE IV
SHARES OF STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to adjustment pursuant to the
provisions of this Article IV, the maximum number of shares of Common Stock
which may be issued and sold hereunder shall be 500,000 shares. Shares of Common
Stock issued and sold under the Plan may be either authorized but unissued
shares or shares held in the Company's treasury. Shares of Common Stock covered
by an Option that shall have been exercised shall not again be available for an
Option grant. If an Option shall terminate for any reason without being wholly
exercised, the number of shares to which such Option termination relates shall
again be available for grant hereunder.
4.2 Antidilution. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger or
consolidation, or the sale, conveyance, lease or other transfer by the Company
of all or substantially all of its property, or any other change in the
corporate structure or shares of the Company, pursuant to any of which events
the then outstanding shares of Common Stock are split up or combined, or are
changed into, become exchangeable at the holder's election for, or entitle the
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holder thereof to, other shares of stock, or in the case of any other
transaction described in Section 424(a) of the Code, the Board may
proportionately change the number and kind of shares (including by substitution
of shares of another corporation) subject to the Options and/or the Option Price
of such shares in the manner that it shall deem to be equitable and appropriate.
ARTICLE V
FEE OPTIONS
5.1 Grant of Fee Option. Subject to Section 8.4 hereof, as of
each Date of Grant (determined under Section 5.2), each Nonemployee Director
shall receive a grant of a Fee Option at an Option Price (determined under
Section 5.3) to purchase a number of shares of Common Stock (determined under
Section 5.4) in lieu of a portion of his Fees (determined under Section 5.5)
which he earned during the calendar quarter ending immediately prior to such
Date of Grant.
5.2 Fee Option Date of Grant. The Date of Grant of a Fee
Option shall be the first business day of the calendar quarter immediately
following the calendar quarter during which Fees are earned for a Nonemployee
Director.
5.3 Fee Option Price. The Option Price of each share of Common
Stock subject to a Fee Option shall be 30% of Fair Market Value on the
applicable Date of Grant.
5.4 Number of Fee Option Shares. The number of shares of
Common Stock subject to any Fee Option shall equal "A" divided by "B", rounded
to the nearest whole share, where:
"A" equals the dollar amount of the Nonemployee Director's Fees
which were earned during the calendar quarter ending
immediately prior to the Date of Grant, times the Conversion
Percentage applicable to such Nonemployee Director (determined
in accordance with Section 5.5 below); and
"B" equals the excess of Fair Market Value of the Common Stock on
the applicable Date of Grant over the Option Price with
respect to a Fee Option (determined under Section 5.3).
5.5 Conversion Percentage. The Conversion Percentage
applicable to a Nonemployee Director is the percentage of Fees earned by such
Nonemployee Director, in lieu of which he shall receive Fee Options, determined
in accordance with the following table based on such Nonemployee
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Director's age at the beginning of the calendar year during which such Fees are
earned.
Age at Beginning of Calendar Year Conversion Percentage
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under age 50 75 %
age 50 but under age 60 50 %
over age 60 25 %
ARTICLE VI
PERFORMANCE OPTIONS
6.1 Grant of Performance Option. As of each Date of Grant
(determined under Section 6.2), each Nonemployee Director who was a member of
the Board during the last fiscal year of the Company ending prior to the Date of
Grant shall receive a grant of a Performance Option at an Option Price
(determined under Section 6.3) to purchase a number of shares of Common Stock
(determined under Section 6.4).
6.2 Performance Option Date of Grant. The Date of Grant of
each Performance Option for each year shall be the earlier of the date on which
the annual meeting of the stockholders of the Company is held for such year or
May 15 of such year.
6.3 Performance Option Price. The price of each share of
Common Stock subject to a Performance Option shall be Fair Market Value on the
Date of Grant.
6.4 Number of Performance Option Shares. The number of shares
of Common Stock subject to any Performance Option shall equal (i) the Dollar
Amount determined in accordance with the following table on the basis of the
average Return on Equity of the Company for the three most recently ended fiscal
years prior to the applicable Date of Grant, as compared with the average of the
Returns on Equity for each of the respective members of the "Peer Group"
(defined in Section 6.5 below) for the three most recently ended fiscal years of
each such company, divided by (ii) the "Performance Option Value" (defined
below) on the last business day before the applicable Date of Grant, rounded to
the nearest whole share.
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Company Percentile Within Peer Group
Based on Return on Equity Dollar Amount
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75th percentile or above $ 18,000
50th through 74th percentile $ 12,000
25th through 49th percentile $ 6,000
below 25th percentile $ 0
For purposes of this Section 6.4, "Performance Option Value" means the present
value on the Date of Grant of a Performance Option to purchase a share of Common
Stock, determined by an Outside Consultant in accordance with the generally
accepted principles of the "Black-Scholes" option pricing model adopted for use
in valuing employee stock options.
Notwithstanding the foregoing, in the case of a Nonemployee
Director who was not a member of the Board for the entire fiscal year preceding
such Date of Grant, the number of shares of Common Stock subject to his or her
Performance Option for such period shall be the product of (i) the number of
such shares that would otherwise have been granted to such Nonemployee Director
had he or she been a member of the Board for such entire period and (ii) a
ratio, the numerator of which is the number of full months of his or her
membership on the Board during such fiscal year and the denominator of which is
twelve.
6.5 Peer Group. The Peer Group shall consist of a group of
publicly traded reinsurance companies selected by the Outside Consultant (which
selection shall be made prior to the granting of Performance Options under the
Plan) as an appropriate comparison group for evaluating the Return on Equity of
the Company, taking into account the following factors: stockholders equity, net
income and net written premiums. In the event that any company in the Peer Group
at any time ceases to be a publicly traded reinsurance company or otherwise
fails to meet the Peer Group standard referred to above, such company shall be
promptly deleted from the Peer Group. The Outside Consultant, in its discretion,
may also delete any other company from the Peer Group, either permanently or
with respect to a limited number of the Company's fiscal years, if, because of
any change in the nature of such company's business or its structure or the
occurrence of any merger, consolidation, reorganization, recapitalization,
tender or exchange offer or other corporate transaction affecting such company,
the Outside Consultant believes such company no longer is a suitable referent
for evaluating the Return on Equity of the Company. In the event of any such
deletion, the Outside Consultant may, in its discretion, replace any such
deleted company with one or more additional publicly traded reinsurance
companies that meet the foregoing Peer Group standard and that the Outside
Consultant deems to be appropriate referents for such evaluation, but any
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such replacement company shall only be included in the Peer Group with respect
to fiscal years of the Company beginning after the date that such replacement
company is so designated.
ARTICLE VII
VESTING AND TERMS OF OPTIONS
7.1 Vesting; Term of Option. Each Fee Option and Performance
Option shall vest and become exercisable immediately on the Date of Grant of
such Option. Notwithstanding the foregoing or anything elsewhere in the Plan to
the contrary, an unexercised Option shall expire ten years from the Date of
Grant.
7.2 Stock Option Agreement. The Company and the Optionee shall
execute a Stock Option Agreement which shall set forth such terms and conditions
of the Option as may be determined by the Committee to be consistent with the
Plan, and which may include additional provisions and restrictions that are not
inconsistent with the Plan.
7.3 Option Exercise. A vested Option may be exercised in whole
or in part at any time, with respect to whole shares only, within the period
permitted for the exercise thereof, and shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of shares
delivered to the Company at its principal office, and payment in full to the
Company at said office of the amount of the Option Price for the number of
shares of the Common Stock with respect to which the Option is then being
exercised. Payment of the Option Price shall be made in cash.
7.4 Transferability of Options. All Options shall be
nontransferable except (i) upon the Optionee's death, by the Optionee's will or
the laws of descent and distribution or (ii) on a case-by-case basis as may be
approved by the Committee in its discretion, in accordance with the terms
provided below. Each Stock Option Agreement shall provide that the Optionee may,
during his lifetime and subject to the prior approval of the Committee at the
time of proposed transfer, transfer all or part of the Option to a Permitted
Transferee (as defined below), provided that such transfer is made by the
Optionee for estate or tax planning purposes or for donative purposes and no
consideration (other than nominal consideration) is received by the Optionee
therefor. The transfer of an Option shall be subject to such other terms and
conditions as the Committee may in its discretion impose from time to time,
including a condition that the portion of the Option to be transferred be vested
and exercisable by the Optionee at the time of transfer. Subsequent transfers of
an Option transferred under this section 7.4. shall be prohibited
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other than by will or the laws of descent and distribution upon the death of the
transferee.
For purposes hereof, a "Permitted Transferee" shall be any
member of the Optionee's immediate family or a charitable institution (each as
defined below), or a trust for the exclusive benefit of such immediate family
members or charitable institution, or to a partnership, corporation or limited
liability company the equity interests of which are owned exclusively by the
Optionee and/or one or more members of his immediate family. For purposes of the
preceding definition, (i) the "immediate family" of the Optionee shall mean and
include the Optionee's spouse, any descendant of the Optionee or his spouse
(including descendants by adoption), and any descendant of either parent of the
Optionee (including descendants by adoption), and (ii) a "charitable
institution" shall mean and include any organization described in each of
sections 170(b)(1)(A), 170(c), 2055(a) and 2522(a) of the Code, as well as any
charitable remainder trust created under section 664 of the Code, the income
beneficiary of which is a member of the Optionee's immediate family or a trust
or other entity described above in this Section 7.4.
ARTICLE VIII
TERMINATION OF SERVICE
8.1 Death. If an Optionee shall die at any time after the Date
of Grant and while he is a member of the Board, the executor or administrator of
the estate of the decedent, or the person or persons to whom an Option shall
have been validly transferred in accordance with Section 7.4 hereof pursuant to
will or the laws of descent and distribution, shall have the right, during the
period ending three years after the date of the Optionee's death (subject to
Section 7.1 hereof concerning the maximum term of an Option), to exercise the
Optionee's Option to the extent that it shall not have been previously
exercised.
8.2 Disability. If an Optionee's service as a member of the
Board shall be terminated as a result of his Permanent and Total Disability at
any time after the Date of Grant of an Option, the Optionee (or in the case of
an Optionee who is legally incapacitated, his guardian or legal representative)
shall have the right, during a period ending three years after the date of his
termination as a member of the Board (subject to Section 7.1 hereof concerning
the maximum term of an Option), to exercise such Option to the extent that it
shall not have been previously exercised.
8.3 Other Termination of Service. If an Optionee's service as
a member of the Board shall be terminated for any reason other than death,
Permanent and Total Disability or
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removal for cause, the Optionee shall have the right, during the period ending
three years after such termination (subject to Section 7.1 hereof concerning the
maximum term of an Option), to exercise such Option to the extent that it shall
not have been previously exercised.
8.4 Termination of Plan Participation. Notwithstanding
anything elsewhere in the Plan to the contrary, a Nonemployee Director's
eligibility for grants of Fee Options under the Plan shall cease as of the date
on which his services as a member of the Board terminate. The Fee for any
Nonemployee Director whose Board membership terminates at any time after such
Fee is earned by such Nonemployee Director, but before the Date of Grant
relating to such Fee Option, shall be paid in cash.
8.5 Removal for Cause. If an Optionee shall be removed from
the Board for cause, the Optionee's right to exercise any unexercised portion of
his Option shall immediately terminate and all rights thereunder shall cease. An
Optionee shall be considered to have been removed for "cause" for purposes of
this Section 8.5 when he shall have been removed from the Board by the
stockholders of the Company for cause in accordance with applicable state law
and the Certificate of Incorporation and By-Laws of the Company.
ARTICLE IX
STOCK CERTIFICATES
9.1 Issuance of Certificates. Subject to Section 9.2 hereof,
the Company shall issue a stock certificate in the name of the Optionee (or
other person exercising the Option in accordance with the provisions of the
Plan) for the shares of Common Stock purchased by exercise of an Option as soon
as practicable after due exercise and payment of the aggregate Option Price for
such shares.
9.2 Conditions. The Company shall not be required to issue or
deliver any certificate for shares of Common Stock purchased upon the exercise
of any Option granted hereunder or any portion thereof prior to fulfillment of
all of the following conditions:
(a) The completion of any registration or other qualification
of such shares, under any federal or state law or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body, that the Board shall in its sole discretion deem necessary or
advisable;
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(b) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Board shall in its sole discretion
determine to be necessary or advisable;
(c) The lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for reasons
of administrative convenience;
(d) Satisfaction by the Optionee of any applicable withholding
taxes or other withholding liabilities; and
(e) If required by the Board, in its sole discretion, the
receipt by the Company from an Optionee of (i) a representation in writing that
the shares of Common Stock received upon exercise of an Option are being
acquired for investment and not with a view to distribution and (ii) such other
representations and warranties as are deemed necessary by counsel to the
Company.
9.3 Legends. The Company reserves the right to legend any
certificate for shares of Common Stock, conditioning sales of such shares upon
compliance with applicable federal and state securities laws and regulations.
ARTICLE X
TERMINATION AND AMENDMENT
10.1 Termination. The Plan shall terminate on March 22, 2004.
The Board may, in its sole discretion and at any earlier date, terminate the
Plan. Notwithstanding the foregoing, no termination of the Plan shall in any
manner affect any Option theretofore granted without the consent of the Optionee
or the permitted transferee of the Option.
10.2 Amendment. The Board may at any time and from time to
time and in any respect, amend or modify the Plan; provided, however, that (i)
the Board may not act more than once every six months to amend the provisions of
the Plan relating to the determination of the number of shares of Common Stock,
the Option Price or the Date of Grant of any Option under the Plan; and (ii) the
approval of the Company's stockholders will be required for any amendment that
(a) changes the class of persons eligible for the grant of Options; or (b)
increases (other than as described in Section 4.2) the maximum number of shares
of Common Stock subject to Options granted under the Plan, as specified in
Section 4.1 hereof. Any such approval shall be by the affirmative votes of the
stockholders of the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with applicable state law and the Certificate of
Incorporation and
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By-Laws of the Company. The Committee may at any time and from time to time
amend or modify the Plan to the extent that any such amendment or modification
is not of a nature described in the proviso contained in the first sentence
hereof. Notwithstanding the foregoing, no amendment or modification of the Plan
shall in any manner affect any Option theretofore granted without the consent of
the Optionee or the permitted transferee of the Option.
ARTICLE XI
MISCELLANEOUS
11.1 Service on Board. Nothing in the Plan, in the grant of
any Option or in any Stock Option Agreement shall confer upon any Nonemployee
Director the right to continue service as a member of the Board.
11.2 Rights as Shareholder. An Optionee or the permitted
transferee of an Option shall have no rights as a shareholder with respect to
any shares subject to such Option prior to the purchase of such shares by
exercise of such Option as provided herein. Nothing contained herein or in the
Stock Option Agreement relating to any Option shall create an obligation on the
part of the Company to repurchase any shares of Common Stock purchased
hereunder.
11.3 Plan Binding on Successors. The Plan shall be binding
upon the Company, its successors and assigns, and the Optionee, his executor,
administrator and permitted transferees.
11.4 Construction and Interpretation. Whenever used herein,
nouns in the singular shall include the plural, and the masculine pronoun shall
include the feminine gender. Headings of Articles and Sections hereof are
inserted for convenience and reference and constitute no part of the Plan.
11.5 Severability. If any provision of the Plan or any Stock
Option Agreement shall be determined to be illegal or unenforceable by any court
of law in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
11.6 Governing Law. The validity and construction of this Plan
and of the Stock Option Agreements shall be governed by the laws of the State of
Delaware.
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The Executive Risk Inc. Nonemployee Directors Stock Option
Plan was duly adopted and approved by the Board of Directors of Executive Risk
Inc. on the 30th day of December, 1993, and the two amendments and restatements
thereof were duly adopted and approved by the Board of Directors of Executive
Risk Inc. on the 1st day of August, 1995 and as of the 15th day of August 1996,
respectively.
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Secretary of Executive Risk Inc.
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