NON-QUALIFIED STOCK OPTION AGREEMENT Pursuant to the 21ST CENTURY INSURANCE GROUP
EXHIBIT
99.1
Pursuant
to the
2004
STOCK OPTION PLAN
This
Non-Qualified Stock Option Agreement (“Option Agreement”) is made and entered
into as of the Date of Grant shown on the attached Notice of Grant of Stock
Options and Option Agreement (The “Notice of Grant”) by and between 21st Century
Insurance Group, a Delaware corporation (the “Company”), and the person named on
the Notice of Grant (the "Optionee").
WHEREAS,
Optionee is an employee of the Company and/or one or more of its “subsidiary
corporations,” as such term is defined in Section 424(f), of the Internal
Revenue Code (the “Code”); and
WHEREAS,
pursuant to the Company’s 2004 Stock Option Plan (the “2004 Plan”), the
committee of the Board of Directors of the Company administering the 2004 Plan
(the “Committee”) has approved the grant to Optionee of an option to purchase
shares of the Common Stock of the Company (the “Common Shares”), on the terms
and conditions set forth herein.
NOW,
THEREFORE,
in
consideration of the foregoing recitals and the covenants set forth herein,
the
parties hereby agree as follows:
1. Grant
of Option; Certain Terms and Conditions.
The
Company hereby grants to Optionee, and Optionee hereby accepts, as of the Date
of Grant, an option (the “Option”) to purchase the number of Common Shares
indicated on the Notice of Grant (the “Option Shares”) at the Exercise Price per
share indicated on the Notice of Grant. The Option shall expire at 5:00 p.m.,
prevailing Pacific Time, on the Expiration Date indicated on the Notice of
Grant
and shall be subject to all of the terms and conditions set forth in the 2004
Plan and this Option Agreement.
2. Non-Qualified
Stock Option; Internal Revenue Code Requirements.
The
Option is not intended to qualify as an incentive stock option under Section
422
of the Code.
3. Acceleration
and Termination of Option.
(a) Termination
of Employment.
(i) Retirement.
In the
event that Optionee shall cease to be an employee of the Company or any
“subsidiary corporation” (as defined above) (such event shall be referred to
herein as “Termination of Employment”) by reason of retirement in accordance
with the Company’s then-current retirement practices, then the Option shall
fully vest with respect to all Option Shares upon the date of such Termination
of Employment and shall terminate no later than the Expiration
Date.
(ii) Death
or Permanent Disability.
If the
Termination of Employment occurs by reason of the death or Permanent Disability
(as hereinafter defined) of Optionee, then the Option shall fully vest with
respect to all Option Shares upon the date of such Termination of Employment,
shall be exercisable by Optionee or, in the event of death, the person or
persons to whom Optionee’s rights under the Option shall have passed by will or
by the applicable laws of descent or distribution, and shall terminate on the
first anniversary of the date of such Termination of Employment. “Permanent
Disability” shall mean the inability to engage in any substantial gainful
activity 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 twelve (12) months. The
Optionee shall not be deemed to have a Permanent Disability until proof of
the
existence thereof shall have been furnished to the Committee in such form and
manner, and at such times, as the Committee may require. Any determination
by
the Committee that Optionee does or does not have a Permanent Disability shall
be final and binding upon the Company and Optionee.
(iii) Termination
Without Cause or for Good Reason.
If the
Termination of Employment occurs by reason of the Company’s Termination of
Employment without Cause (as defined in Optionee’s Retention Agreement, as in
effect when this Option was granted) or by Optionee for Good Reason (as defined
in Optionee’s Retention Agreement, as in effect when this Option was granted),
then (A) the Option shall fully vest with respect to all Option Shares upon
the
date of such Termination of Employment, and (B) the Option shall terminate
on
the earlier of (1) the fifth anniversary of the Termination of Employment,
or
(2) the Expiration Date. In the event of a Good Reason resignation by Optionee,
the foregoing clause (B) shall apply only if it would not subject the Option
to
Internal Revenue Code (“Code”) Section 409A, as determined by the Company’s
counsel. If the Company’s counsel concludes that the extended exercise period
would subject the Option to Code Section 409A, the Option shall terminate on
the
earlier of the Expiration Date or the three-month anniversary of the date of
such Termination of Employment, and the Company shall pay Optionee $0.50 per
Option Share multiplied by x, where x is the number of years or partial years
between Termination of Employment and the Expiration Date, minus five. Payment
of this amount shall be delayed and paid within fifteen days following the
seven-month anniversary of the date of Termination of Employment, unless the
Company’s counsel determines that this payment delay is not required to comply
with Code Section 409A. In no event shall this payment be made earlier than
January 1, 2007.
(iv) Other
Termination.
If the
Termination of Employment occurs for any reason other than those enumerated
in
(i) through (iii) of this Section 3(a), then (A) the portion of the Option
that
has not vested on or prior to the date of such Termination of Employment shall
terminate on such date and (B) the remaining vested portion of the Option shall
terminate on the earlier of
the
Expiration Date or the three (3) month anniversary of the date of such
Termination of Employment.
(b) Death
Following Termination of Employment.
Notwithstanding anything to the contrary in this Option Agreement, if Optionee
shall die at any time after the Termination of Employment and prior to the
Expiration Date, then, unless the Termination of Employment had occurred for
cause, the remaining vested but unexercised portion of the Option shall
terminate on the earlier of the Expiration Date or the first anniversary of
the
date of such death.
(c) Acceleration
of Option.
The
Option shall become fully exercisable immediately prior to a Change in Control.
A Change in Control shall be deemed to take place upon the occurrence of any
of
the following:
(i) Any
merger or consolidation of the Company with or into any other person, as the
result of which the holders of the Company’s Common Shares immediately prior to
the transaction shall, on the basis of such holdings prior to such transaction,
hold less than 50% of the total outstanding voting stock of the surviving
corporation immediately upon completion of the transaction.
(ii) Any
sale
or exchange of all or substantially all of the property and assets of the
Company.
(iii)
Any
change in a majority of the Board of Directors of the Company occurring within
a
period of two years or less, such that a majority of the Board of Directors
is
comprised of individuals who are not “Continuing Directors”. For purposes of the
foregoing, a “ Continuing Director” shall be a director (A) who was in office at
the commencement of such period of two years or (B) was elected subsequent
to
the commencement of such period with the approval of not less than a majority
of
those directors referred to in clause (A) who are then in office. Any director
meeting the qualifications of clause (B) of the previous sentence shall, with
respect to further determinations after the date of such director’s election, be
deemed a director meeting the qualifications of clause (A) of the previous
sentence.
(iv) Any
“person” (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)) becoming the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a
majority of the Company’s outstanding Common Stock.
(v) the
liquidation or dissolution of the Company.
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(vi)
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any
other transaction or reorganization similar to the foregoing which
in the
opinion of the Committee constitutes a “change of control” of the nature
described in subparagraphs (i) through (v)
hereof.
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The
parties agree this Section 3(c) hereof does not apply to any action taken by
American International Group, Inc. and/or its subsidiaries ("AIG") to become
the
sole shareholder or shareholders of the Company; provided, however, that in
the
event of an offer by AIG to acquire all outstanding shares of the Company that
it does not yet own (an “AIG Offer”), any Option subject to this Agreement which
would vest within one year from the date of an AIG Offer shall immediately
vest
in favor of Employee. Any remaining Option(s) granted to the Employee shall
be
terminated as of the date of the AIG Offer.
4. Adjustments.
In the
event that the Common Shares are increased, decreased or exchanged for or
converted into cash, property or a different number or kind of securities,
or if
cash, property or securities are distributed in respect of such outstanding
Common Shares, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, partial or
complete liquidation, stock split, reverse stock split or the like, or if
substantially all of the property and assets of the Company are sold, then,
unless the terms of such transaction shall provide otherwise, the Option then
outstanding shall thereafter be exercisable (on substantially the same terms
and
subject to substantially the same conditions as were applicable under such
Option) for the number of shares or other securities or cash or other property
as the holder of such Option would have been entitled to receive pursuant to
such transaction had such holder exercised such Option in full immediately
prior
to such transaction. The Committee shall make appropriate and proportionate
adjustments in the number and type of shares or other securities or cash or
other property that may be acquired upon the exercise in full of the Option;
provided, however, that any such adjustments in the Option shall be made without
changing the aggregate Exercise Price of the then unexercised portion of the
Option; provided further that no adjustment shall be made to the number of
Common Shares that may be acquired to the extent such adjustment would result
in
the Option being treated as other than an Incentive Stock Option.
5.
Exercise.
(a) In
general.
The
Option shall be exercisable during Optionee’s lifetime only by Optionee or by
his or her guardian or legal representative, and after Optionee’s death only by
the person or entity entitled to do so under Optionee’s last will and testament
or applicable intestate law. The Option may only be exercised by the delivery
to
the Company of a written notice of such exercise pursuant to the notice
procedures set forth in Section 7 hereof, which notice shall specify the number
of Option Shares to be purchased, which for any single exercise may not be
fewer
than 100 Option Shares or, if smaller, the number of Option Shares then vested
and exercisable, (the “Purchased Shares”) and the aggregate Exercise Price for
such shares (the “Exercise Price”), together with payment in full of such
aggregate Exercise Price and any Withholding Liability (as hereinafter defined)
in cash.
(b) Limitation
on Exercise.
Notwithstanding any other provision of this Option Agreement, Optionee shall
not
be entitled to benefit from the Option granted hereunder and shall not be
entitled to exercise any rights with respect to this Option if such grant or
exercise would violate any provision of the charter of the Company. Pursuant
to
the 2004 Plan, the grant or exercise of an Option in violation of this Section
5(b) shall be void ab
initio
and
shall not be effective to convey any rights to Optionee. As a condition to
exercise of this Option, Optionee will be required to certify to the Company
that the acquisition of Common Shares pursuant to the exercise of this Option
will not result in a violation of any provision of the charter of the Company.
If this Option (or any portion thereof) is not exercisable by virtue of this
Section 5(b), then such exercise shall be deferred until the earlier of such
time, if any, that Optionee becomes entitled to exercise this Option or the
Expiration Date. This Section 5(b) shall not result in an extension of the
Expiration Date.
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(c)
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Payment.
Notwithstanding any provision of this Option Agreement to the
contrary:
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(i)
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payment
of the aggregate Exercise Price for such shares and the Optionee's
tax
withholding obligation, if any, with respect to such shares shall
be due
the date the shares of Common Shares underlying the Option are delivered;
and
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(ii)
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in
no event shall the Company issue or deliver the Option Shares before
the
Company receives payment for the Option Shares pursuant to this Section
5.
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6.
Payment
of Withholding Taxes. If
the
Company becomes obligated to withhold an amount on account of any federal,
state, or local income tax imposed as a result of the exercise of an option
granted under this Plan (such amount will be referred to herein as the
"Withholding Liability"), the Optionee shall pay the Withholding Liability
to
the Company in full in cash on the date the shares of Common Shares underlying
the Option are delivered, and the Company shall delay issuing the Common Shares
pursuant to such exercise until it receives the Withholding Liability from
the
Optionee.
7.
Notices.
Any
notice given to the Company shall be addressed to the Company at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Corporate
Secretary, or at such other address as the Company may hereafter designate
in
writing to Optionee. Any notice given to Optionee shall be sent to the address
set forth below Optionee’s signature hereto, or at such other address as
Optionee may hereafter designate in writing to the Company. Any such notice
shall be deemed duly given when made by hand delivery, sent by overnight
courier, sent by prepaid certified or registered mail, or transmitted by
facsimile.
8.
Stock
Exchange Requirements; Applicable Laws.
Notwithstanding anything to the contrary in this Option Agreement, no shares
of
stock purchased upon exercise of the Option, and no certificate representing
all
or any part of such shares, shall be issued or delivered if (a) such shares
have
not been admitted to listing upon official notice of issuance of each stock
exchange upon which shares of that class are then listed or (b) in the opinion
of counsel to the Company, such issuance or delivery would cause the Company
to
be in violation of or to incur liability under any federal, state or other
securities law, or any requirement of any stock exchange listing agreement
to
which the Company is a party, or any other requirement of law or of any
administrative or regulatory body having jurisdiction over the
Company.
9.
Nontransferability.
Neither
the Option nor any interest therein may be sold, assigned, conveyed, gifted,
pledged, hypothecated or otherwise transferred in any manner other than by
will
or the laws of descent and distribution.
10. 2004
Plan.
THE
OPTION IS GRANTED PURSUANT TO THE 2004 PLAN, AS IN EFFECT ON THE DATE OF GRANT,
AND IS SUBJECT TO ALL THE TERMS AND CONDITIONS OF THE 2004 PLAN, AS THE SAME
MAY
BE AMENDED FROM TIME TO TIME; PROVIDED, HOWEVER, THAT NO SUCH AMENDMENT SHALL
DEPRIVE OPTIONEE, WITHOUT HIS OR HER CONSENT, OF THE OPTION OR OF ANY OF
OPTIONEE’S RIGHTS UNDER THIS OPTION AGREEMENT. THE INTERPRETATION AND
CONSTRUCTION BY THE COMMITTEE OF THE 2004 PLAN, THIS OPTION AGREEMENT, THE
OPTION AND SUCH RULES AND REGULATIONS AS MAY BE ADOPTED BY THE COMMITTEE FOR
THE
PURPOSE OF ADMINISTERING THE 2004 PLAN SHALL BE FINAL AND BINDING UPON OPTIONEE.
UNTIL THE OPTION SHALL EXPIRE, TERMINATE OR BE EXERCISED IN FULL, THE COMPANY
SHALL, UPON WRITTEN REQUEST, SEND A COPY OF THE 2004 PLAN, IN ITS THEN CURRENT
FORM, TO OPTIONEE OR ANY OTHER PERSON OR ENTITY THEN ENTITLED TO EXERCISE THE
OPTION.
11. Fractional
Shares.
The
Company shall not be required to issue a fraction of a Common Share in
connection with the exercise of the Option. In any case where the Optionee
would
be entitled to receive a fraction of a Common Share upon the exercise of the
Option, the Company shall instead, upon the exercise of the Option, issue the
largest whole number of Common Shares purchasable upon exercise of the Option,
and pay to the Optionee in cash the Fair Market Value (as determined by the
Committee) of such fraction of a Common Share at the time of exercise of the
Option.
12. Stockholder
Rights.
No
person or entity shall be entitled to vote, receive dividends or be deemed
for
any purpose the holder of any Option Shares until the Option shall have been
duly exercised to purchase such Option Shares in accordance with the provisions
of this Option Agreement.
13. Employment
Rights.
No
provision of this Option Agreement or of the Option granted hereunder shall
(a)
confer upon Optionee any right to continue in the employ of the Company or
any
of its subsidiaries, (b) affect the right of the Company and each of its
subsidiaries to terminate the employment of Optionee, with or without cause,
or
(c) confer upon Optionee any right to participate in any employee welfare or
benefit plan or other program of the Company or any of its subsidiaries other
than the 2004 Plan.
14. Governing
Law.
This
Option Agreement and the Option granted hereunder shall be governed by and
construed and enforced in accordance with the laws of the State of
California.
15. Entire
Agreement.
This
Option Agreement (including the Notice of Grant, into which it is incorporated
by reference) constitutes the entire agreement of the parties with respect
to
the matters covered herein and supersedes all prior written or oral agreements
or understandings of the parties with respect to the matters covered herein.
Optionee acknowledges that he or she has no right to receive any additional
options unless and until such time, if any, that the Committee, in its sole
discretion, may approve the grant thereof, and that the Company has not made
any
representation to the Optionee regarding future or additional option grants,
or
any other option related matters. The grant of any options must be in
writing.
16. Tax
Consequences.
The tax
consequences of the Option granted under this Option Agreement are complicated.
THE OPTIONEE IS ADVISED TO CONSULT THE OPTIONEE'S PERSONAL TAX ADVISOR WITH
REGARD TO ALL CONSEQUENCES ARISING FROM THE OPTION GRANTED UNDER THIS OPTION
AGREEMENT AND THE EXERCISE THEREOF.