F. R. ACQUISITION CORP.
1992 STOCK OPTION PLAN
F. R. ACQUISITION CORP.
1992 STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
1.01. Affiliate means any "subsidiary corporation" or "parent corporation" as
such terms are defined in Section 424 of the Code.
1.02. Agreement means a written agreement (including any amendment or supplement
thereto) between the Company and a Participant specifying the terms and
conditions of an Option granted to such Participant.
1.03. Board means the Board of Directors of the Company.
1.04. Code means the Internal Revenue Code of 1986, and any amendments thereto.
1.05. Committee means the Management Committee of the Board which shall be
composed of the Class B Directors of the Board at such time as Common Stock is
outstanding. In the event there is no Common Stock outstanding, the Management
Committee shall consist of the Chief Executive Officer of the Company and the
President of Front Royal Insurance Company.
1.06. Common Stock means the Class B common stock of the Company; provided that
in the event the Class B common stock of the Company is converted into Class A
common stock of the Company, the term "Common Stock" shall mean the Class A
common stock of the Company.
1.07. Company means F. R. Acquisition Corp.
1.08. Fair Market Value means, on any given date, the fair market value of a
share of Common Stock as determined by the Committee using any reasonable method
in good faith.
1.09. Option means a stock option that entitles the holder to purchase from the
Company a stated number of shares of Common Stock at the price set forth in an
Agreement.
1.10. Participant means an employee of, or consultant to, the Company or any
Affiliate who satisfies the requirements of Article IV and is selected by the
Committee to receive an Option.
1.11. Plan means the F. R. Acquisition Corp. 1992 Stock Option Plan.
1.12. Ten Percent Shareholder means any individual owning more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of an Affiliate. An individual shall be considered to own any voting stock
owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionally
any voting stock owned (directly or indirectly) by or for a corporation, estate
or trust of which such individual is a shareholder, partner or beneficiary.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining
employees and consultants with
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ability and initiative by enabling employees and consultants to participate in
its future success and to associate their interests with those of the Company
and its shareholders. The Plan is intended to permit the grant of both Options
qualifying under Section 422 of the Code ("incentive stock options") and Options
not so qualifying. No Option that is intended to be an incentive stock option
shall be invalid for failure to qualify as an incentive stock option. The
proceeds received by the Company from the sale of Common Stock pursuant to this
Plan shall be used for general corporate purposes.
ARTICLE III
ADMINISTRATION
3.01. General. Except as provided in this Article III, the Plan shall be
administered by the Committee. The Committee shall have authority to grant
Options upon such terms (not inconsistent with the provisions of this Plan) as
the Committee may consider appropriate. Such terms may include conditions (in
addition to those contained in this Plan) on the exercisability of all or any
part of an Option. Notwithstanding any such conditions, the Committee may, in
its discretion, accelerate the time at which any Option may be exercised. In
addition, the Committee shall have complete authority to interpret all
provisions of this Plan; to prescribe the form of Agreements; to adopt, amend,
and rescind rules and regulations pertaining to the administration of the Plan;
and to make all other determinations necessary or
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advisable for the administration of this Plan. The express grant in the Plan of
any specific power to the Committee shall not be construed as limiting any power
or authority of the Committee. Any decision made, or action taken, by the
Committee or in connection with the administration of this Plan shall be final
and conclusive. No member of the Committee shall be liable for any act done in
good faith with respect to this Plan or any Agreement or Option. All expenses of
administering this Plan shall be borne by the Company.
3.02. Delegation by the Committee. The Committee, in its discretion, may
delegate to one or more officers of the Company, all or part of the Committee's
authority and duties. In the event of such delegation, and as to matters
encompassed by the delegation, references in the Plan to the Committee shall be
interpreted as a reference to the Committee's delegate or delegates. The
Committee may revoke or amend the terms of a delegation at any time but such
action shall not invalidate any prior actions of the Committee's delegate or
delegates that were consistent with the terms of the Plan.
ARTICLE IV
ELIGIBILITY
4.01. General. Any executive officer or key employee of, or consultant to, the
Company or any Affiliate (including any corporation that becomes an Affiliate
after the adoption of this Plan) is eligible to participate in this Plan if the
Committee, in its sole discretion, determines that such person
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has contributed or can be expected to contribute to the profits or growth of the
Company or an Affiliate. Any such employee or consultant may be granted one or
more Options. A member of the Committee or any officer of the Company or an
Affiliate to whom the Committee has delegated its authority under the Plan may
not participate in any decision regarding the grant to him of an Option under
this Plan.
4.02. Grants. The Committee will designate individuals to whom Options are to be
granted and will specify the number of shares of Common Stock subject to each
award or grant; provided, however, the number of shares so specified, as to any
particular Participant, shall be subject to the approval of the Board, which
approval shall not be unreasonably withheld. All Options under this Plan shall
be evidenced by Agreements which shall be subject to applicable provisions of
this Plan and to such other provisions as the Committee may adopt. No
Participant may be granted incentive stock options (under all incentive stock
option plans of the Company and its Affiliates) which are first exercisable in
any calendar year for stock having an aggregate Fair Market Value (determined as
of the date an option is granted) exceeding $100,000. The preceding annual
limitation shall not apply with respect to Options that are not incentive stock
options.
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ARTICLE V
STOCK SUBJECT TO PLAN
5.01. Source of Shares. Upon the exercise of any Option the Company may deliver
to the Participant (or the Participant's broker if the Participant so directs),
authorized but unissued Common Stock.
5.02. Maximum Number of Shares. The maximum aggregate number of shares of Common
Stock that may be issued pursuant to the exercise of Options under this Plan is
250,000, subject to increases and adjustments as provided in this Article V and
Article IX.
5.03. Forfeitures, etc. If an Option is terminated, in whole or in part, for any
reason other than its exercise, the number of shares or Common Stock allocated
to the Option or portion thereof may be reallocated to other Options.
ARTICLE VI
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an Option
shall be determined by the Committee on the date of grant. The price per share
for Common Stock purchased on the exercise of any Option that is an incentive
stock option shall not be less than the Fair Market Value on the date the Option
is granted; provided, however, that the price per share shall not be less than
110% of the Fair Market Value in the case of an incentive stock option that is
granted to a Ten Percent Shareholder.
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ARTICLE VII
EXERCISE OF OPTIONS
7.01. Maximum Option Period. The maximum period in which an Option may be
exercised shall be determined by the Committee on the date of grant. No Option
that is an incentive stock option shall be exercisable after the expiration of
10 years from the date the Option was granted or 5 years in the case of an
incentive stock option that is granted to a Ten Percent Shareholder. The terms
of any Option may provide that it is exercisable for a period less than such
maximum period.
7.02. Conditions on Exercise.
(a) No Option shall become exercisable unless the Notes, together with all
accrued and unpaid interest, have been paid in full on or before December 31,
1996.
(b) If the Notes, together with all accrued and unpaid interest, are repaid
prior to January 1, 1997, an Option shall become exercisable based on the date
of repayment of the Notes and the Cumulative Net Income of the Company, as
described in the following schedule:
(1) (2) (3) (4)
Date First % of Shares Repayment Date Cumulative
Exercisable Exercisable On or Before Net Income
----------- ----------- ------------ ----------
January 1, 1993 20% December 31, 1992 ($293,597)
as of 12/31/92
January 1, 1994 40% December 31, 1993 $1,164,794
as of 12/31/93
January 1, 1995 60% December 31, 1994 $3,698,758
as of 12/31/94
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January 1, 1996 80% December 31, 1995 $7,713,845
as of 12/31/95
January 1, 1997 100% December 31, 1996 $13,820,456
as of 12/31/96
For each Percentage Point by which the Cumulative Net Income is less than the
amount set forth above in Column 4, the percentage in Column 2 shall be reduced
as follows:
Repayment Date
On or Before CNI As of % Reduction
------------ --------- -----------
December 31, 1992 December 31, 1992 .4%
December 31, 1993 December 31, 1993 .8%
December 31, 1994 December 31, 1994 1.2%
December 31, 1995 December 31, 1995 1.6%
December 31, 1996 December 31, 1996 2.0%
Notwithstanding the above, an Option that becomes exercisable by virtue of
satisfying the conditions of this Section 7.02(b) and is held by a Participant
whose employment terminated prior to the Option becoming exercisable for any
reason, other than for Cause, shall be exercisable only with respect to the
percentage of shares that would have been exercisable on the date of his
termination of employment if the Notes have been repaid on or prior to that
date.
(c) For purposes of this Section 7.02, the following definitions apply:
(1) Cause means termination of employment for (i) failure for any
reason to comply with any directive (determined to be in the best interest
of the Company and its Shareholders) issued to the employee by the Board,
(ii) conviction of a felony
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or a crime involving moral turpitude (meaning a crime that includes the
commission of an act of gross depravity, dishonesty, or bad morals), (iii)
commission of an act of dishonesty, fraud or embezzlement against the
Company or (iv) willful violation of the provisions of any employment
agreement between the Company and the employee or gross neglect of duties
by the employee.
(2) Cumulative Net Income, as of any date, means the sum of the Net
Income of the Company for each Fiscal Year beginning in 1992 and continuing
through the end of the Fiscal Year immediately preceding the date of
determination.
(3) Fiscal Year means the twelve-month period on which the Company's
books and records are kept. The Company's fiscal year is the calendar year.
(4) Net Income for any Fiscal Year means the net income of the
Company, as determined in accordance with generally accepted accounting
principles, consistently applied, and set forth on the Company's audited
financial statements.
(5) Notes means the 9% Senior Subordinated Notes due December 31, 1996
which have been executed and delivered by the Company.
(6) Percentage Point means 1% (rounded to the nearest whole
percentage) of the Cumulative Net
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Income for any Fiscal Year specified in Column 4 of the schedule.
7.03. Nontransferability. Any Option granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. In
the event of any such transfer, the Option must be transferred to the person or
persons or entity or entities specified in such will or by such laws. During the
lifetime of the Participant to whom the Option is granted, the Option may be
exercised only by the Participant. No right or interest of a Participant in any
Option shall be subject to any lien, obligation, or liability nor shall it
create any liability on such Participant.
7.04. Employee Status. For purposes of determining the applicability of Section
422 of the Code (relating to incentive stock options), or in the event that the
terms of any Option provide that it may be exercised only during employment or
within a specified period of time after termination of employment, the Committee
may decide to what extent leaves of absence for governmental or military
service, illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment.
ARTICLE VIII
METHOD OF EXERCISE
8.01. Exercise. Subject to the provisions of Articles VII and X, an Option may
be exercised in whole at any time or in part from time to time at such times and
in compliance with
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such requirements as the Committee shall determine. An Option granted under this
Plan may be exercised with respect to any number of whole shares less than the
full number of whole shares for which the Option could be exercised. A partial
exercise of an Option shall not affect the right to exercise the Option from
time to time in accordance with this Plan and the applicable Agreement with
respect to remaining shares subject to the Option.
8.02. Payment. Unless otherwise provided by the Agreement, payment of the Option
price shall be made in cash or a cash equivalent acceptable to the Committee.
ARTICLE IX
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares as to which Options may be granted under this
Plan shall be proportionately adjusted, and the terms of outstanding Options
shall be adjusted, as the Committee shall determine to be equitably required in
the event that (a) the Company (i) effects one or more stock dividends, stock
split-ups, subdivisions or consolidations of shares or (ii) engages in a
transaction to which Section 424 of the Code applies or (b) there occurs any
other event which, in the judgment of the Committee necessitates such action.
Any determination made under this Article IX by the Committee shall be final and
conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of
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any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, outstanding Options.
ARTICLE X
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Option shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with applicable federal and state
laws and regulations (including, without limitation, withholding tax
requirements) and the rules of all domestic stock exchanges on which the
Company's shares may be listed. The Company shall have the right to rely on an
opinion of its counsel as to such compliance. Any share certificate issued to
evidence Common Stock for which an Option is exercised may bear such legends and
statements as the Committee may deem advisable to assure compliance with federal
and state laws and regulations. No Option shall be exercisable, no Common Stock
shall be issued, no certificate for shares shall be delivered, and no payment
shall be made under this Plan until the Company has obtained such consent or
approval as the Committee may
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deem advisable from regulatory bodies having jurisdiction over such matters.
ARTICLE XI
GENERAL PROVISIONS
11.01. Effect on Employment. Neither the adoption of this Plan, its operation,
nor any documents describing or referring to this Plan (or any part thereof)
shall confer upon any employee or consultant any right to continue in the employ
of, or under contract with, the Company or any Affiliate or in any way affect
any right and power of the Company or an Affiliate to terminate the employment
of any employee or consultant at any time with or without assigning a reason
therefor.
11.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
11.03. Rules of Construction. Headings are given to the articles and sections of
this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to
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refer to any amendment to or successor of such provision of law.
ARTICLE XII
AMENDMENT
The Committee may amend or terminate the Plan from time to time; provided,
however, that no amendment may become effective without the approval of a
majority of the holders of the issued and outstanding shares of Class A common
stock of the Company if (i) the amendment increases the aggregate number of
shares of Common Stock that may be issued under the Plan or (i) the amendment
changes the class of individuals eligible to become Participants. No amendment
shall, without a Participant's consent, adversely affect any rights of such
Participant under any Option outstanding at the time such amendment is made.
ARTICLE XIII
DURATION OF PLAN
No Option may be granted under this Plan more than ten years after the
earlier of the date that the Plan is adopted by the Committee or the date that
the Plan is approved by shareholders as provided in Article XIV. Options granted
before that date shall remain valid in accordance with their terms.
ARTICLE XIV
EFFECTIVE DATE OF PLAN
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Options may be granted under this Plan upon its adoption by the Committee,
provided that no Option will be effective unless this Plan is approved by
shareholders holding a majority of the Company's outstanding voting stock,
voting either in person or by proxy at a duly held shareholders' meeting within
twelve months of such adoption.
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FRONT ROYAL, INC.
Resolutions to be Adopted by the
Board of Directors
with respect to the 1992 Stock Option Plan
December 1, 1995
RESOLVED, that Section 1.05 of the 1992 Stock Option Plan (the "Plan") shall be
amended and restated to provide as follows:
1.05. Committee means the Compensation Committee of the Board.
RESOLVED, that Section 7.02 of the Plan, other than paragraph (c)(1) thereof,
shall be deleted in its entirety; and
RESOLVED, that, the Board of Directors hereby waives the Conditions on Exercise
set forth on Exhibit A to each written agreement specifying the terms and
conditions of options granted pursuant to the Plan entered into between the
Company and an optionee pursuant to the Plan prior to the date hereof for which
options have not been forfeited prior to the date hereof; and
RESOLVED, that the Board of Directors hereby confirms that the members of the
Compensation Committee of the Board of Directors are ▇. ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
Messrs. ▇▇▇▇▇▇ and ▇▇▇▇▇ abstained from voting with respect to the amendment of
the terms of the Conditions on Exercise attached as Exhibit A to the option
agreements.
