Exhibit 10.7
STATE AUTO FINANCIAL
CORPORATION
2009
EQUITY INCENTIVE COMPENSATION
PLAN
Background
Information
The directors and shareholders of
State Auto Financial Corporation, an Ohio Corporation, (the “
Company ”), previously approved the Amended and
Restated Equity Incentive Compensation Plan (the “ Amended
Plan ”) to provide equity-based awards to key employees
of the Company and its affiliates in order to more closely align
the interests of the recipient key employees with the interests of
the Company’s shareholders. The Amended Plan shall, by its
terms, expire on July 1, 2010. The directors and shareholders
of the Company now desire to approve and adopt the 2009 Equity
Incentive Compensation Plan (the “ Plan ”) to
provide equity-based awards and compensation for future
periods.
Section 1. Purposes of
Plan
The Plan is intended to advance the
interests of the Company and its shareholders by enhancing the
ability of the Company and its affiliates to attract and retain
highly-qualified key employees and by providing additional
incentives and compensation to such employees to achieve the
Company’s long-term business plans and objectives. The Plan
is also intended to encourage and enable key employees to
participate in the Company’s future prosperity and growth by
providing the participants with incentives and compensation based
on the Company’s performance, development and financial
success. The Plan is not intended to be, and shall not be construed
as, a deferred compensation plan.
These purposes will be achieved by
granting to key employees equity-based awards (the “
Awards ”) under the Plan in the form of:
(A) Incentive Stock Options (“ ISOs ”),
which are intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the “ Code
”); (B) stock options which are not intended to qualify
as ISOs (“ NQSOs ”) (ISOs and NQSOs are referred
to together hereinafter as “ Stock Options ”);
(C) common shares of the Company (the “ Shares
”), which will be subject to a vesting schedule based on the
recipient’s continued employment (“ Restricted
Shares ”); (D) Shares which will be subject to a
vesting schedule based on certain performance objectives (“
Performance Shares ”), (E) Performance Units as
described in Section 9, and (F) Other Stock-Based Awards
as described in Section 10. For purposes of this Plan, the
terms “parent” and “subsidiary” mean
“parent corporation” and “subsidiary
corporation” respectively, as those terms are defined in Code
Section 424.
Section 2.
Administration
The Plan shall be administered by a
committee (the “ Committee ”) which shall be the
Compensation Committee of the Company’s Board of Directors
(the “ Board ”). The members of the Committee
shall serve at the pleasure of the Board, which may remove members
from the Committee or appoint new members to the Committee from
time to time and members of the Committee may resign by written
notice to the Chairman of the Board or the Secretary of the
Company. The members of the Committee shall not be eligible to
participate in the Plan while
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serving on the Committee, and each member shall
be a “non-employee director” within the meaning of Rule
16b-3, as amended, under the Securities Exchange Act of 1934 (the
“Exchange Act”). Additionally, each member of the
Committee shall be an “outside director” within the
meaning of Code Section 162(m).
Unless otherwise determined by the
Board, the Committee shall have full and final authority to
administer the Plan in accordance with its terms, including,
without limitation, authority, to the extent not inconsistent with
the specific provisions of the Plan, to: (A) interpret all
provisions of the Plan consistent with law; (B) designate the
key employees to receive Awards under the Plan (such recipients,
“ Participants ”); (C) determine the
frequency of Awards; (D) determine the number and type of
Awards to be granted to each Participant; (E) determine the
terms and conditions, not inconsistent with the terms hereof, of
any Award, including without limitation, time and performance
restrictions; (F) prescribe the form and terms of instruments
evidencing any Awards granted under this Plan; (G) determine
the vesting requirement, if any, for Awards; (H) make special
Award grants when appropriate; (I) adopt, amend and rescind
general and special rules and regulations for the Plan’s
administration including administrative rules, guidelines and
practices governing the Plan as it shall, from time to time, deem
advisable; (J) direct employees of the Company, its parent and
the Company’s and its parent’s subsidiary corporations
and affiliates, and advisors to prepare such materials or perform
such analyses as the Committee deems necessary and appropriate;
(K) interpret the terms and provisions of the Plan and any
Award granted and any agreements relating thereto; (L) make
all other determinations necessary or advisable for the
administration of this Plan; and (M) take any other actions
the Committee considers appropriate in connection with, and
otherwise supervise the administration of, the Plan.
The Committee may designate selected
Committee members or certain employees of the Company to assist the
Committee in the administration of the Plan and may grant authority
to such persons to execute documents on behalf of the
Committee.
Any interpretation or administration
of the Plan by the Committee, and all actions of the Committee,
shall be made in the Committee’s sole discretion and shall be
final, binding and conclusive on the Company, its shareholders, its
parent and subsidiary corporations, and all Participants in the
Plan, their respective legal representatives, successors and
assigns, and upon all persons claiming under it through any of
them.
Service on the Committee shall
constitute service as a member of the Board of Directors of the
Company, so that members of the Committee shall be entitled to
indemnification, reimbursement and other protections as directors
of the Company as set forth in the Company’s Amended and
Restated Articles of Incorporation and Amended and Restated Code of
Regulations, as each may be further amended from time to time, as
set forth in the Indemnity Agreements between the Company and each
of its directors, and additionally as provided, and to the full
extent not prohibited, by law.
Section 3. Eligibility
and Factors to be Considered in Granting Awards
The employees eligible to receive
Awards under the Plan (“ Eligible Employees ”)
shall include only employees of the Company or its parent or the
Company’s or its parent’s subsidiary corporations or
affiliates who: (A) are executive, administrative,
professional or technical personnel who, in the opinion of the
Committee, have responsibilities affecting the
management,
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development or financial success of the Company
or one or more of its subsidiaries or other affiliated entities;
(B) perform services for the benefit of the Company, its
parent or subsidiary corporations; and (C) are otherwise
eligible employees as defined by applicable law. No director of the
Company who is not also an employee of the Company, its parent or
the Company’s or its parent’s subsidiary corporations
or affiliates shall be eligible to participate in the
Plan.
In making any determination as to
the employees to whom Awards shall be granted, the Committee shall
take into account, in each case, the level and responsibility of
the employee’s position, the level of the employee’s
performance, the employee’s level of compensation, the
assessed potential of the employee and such other factors as the
Committee in its sole discretion shall deem relevant to the
accomplishment of the purposes of the Plan.
Section 4. Shares Subject
to Plan
The maximum aggregate number of
common shares, without par value, of the Company (“
Shares ”) which may be issued under the Plan shall be
2,000,000 shares; provided that in no event shall more than 33% of
the Shares authorized for issuance under the Plan be granted in the
form of Awards other than Stock Options. For each calendar year,
the maximum number of Shares which may be granted to Participants
during that year in the form of Awards of Stock Options, Restricted
Shares and Performance Shares shall not exceed 1.5% of the total
number of shares outstanding as of December 31 of the prior
year. For each calendar year, the maximum number of Shares which
may be granted to any individual during that year in the form of
Awards of Stock Options, Restricted Shares and Performance Shares
shall not exceed 250,000 Shares.
The Shares which may be issued under
the Plan may be authorized but unissued Shares or issued Shares
reacquired by the Company and held as treasury Shares. If any
Shares subject to a Stock Option granted under the Plan are
forfeited by the holder thereof, or if any Restricted Shares or
Performance Shares granted under the Plan are forfeited by the
holder thereof, or if any Stock Option or other Award granted under
the Plan terminates without a payment or transfer being made to the
Award recipient in the form of Shares, then such Shares shall again
be available for distribution in connection with future Awards
under the Plan. If any Award granted under the Plan expires or
terminates for any reason without having been fully exercised, the
unpurchased Shares which had been subject to that Award shall again
be available for other Awards to be granted under the Plan. The
aggregate number of Shares shall be subject to adjustment under
Section 11.(A) of the Plan.
Section 5. Grant of
Awards
Any Awards may be granted alone or
in addition to other Awards granted under the Plan. Any Awards
granted under the Plan shall be in such form as the Committee may
from time to time approve, consistent with the Plan, and the
provisions of Awards need not be the same with respect to each
Participant.
Each Award granted under the Plan
shall be authorized by the Committee and shall be evidenced by a
written award agreement (the “ Award Agreement
”), in the form approved by the Committee from time to time,
which shall be dated as of the date approved by the Committee in
connection with the grant, signed by an officer of the Company
authorized by the Committee, and signed by the Participant, and
which shall describe the Award and state that the Award is subject
to all the terms and provisions of the Plan and such other terms
and provisions, not inconsistent with
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the Plan, as the Committee may approve. The date
on which the Committee approves the granting of an Award shall be
deemed to be the date on which the Award is granted for all
purposes, unless the Committee otherwise specifies. The granting of
an Award under the Plan, however, shall be effective only if and
when a written Award Agreement is duly executed and delivered by or
on behalf of the Company and the Participant. Any Award Agreement
which is not duly executed and returned by the Participant within
60 days of the granting of the Award shall be null and
void.
Section 6. Stock
Options
The Committee may, in its sole
discretion and subject to the provisions of the Plan, grant to
Eligible Employees and Participants at such times as it deems
appropriate, Stock Options to purchase Shares. Stock Options
granted under this Plan may be: (i) Options which are intended
to qualify as ISOs under Code Section 422; and/or
(ii) Stock Options which are not intended to qualify under
Code Section 422. Stock Options may be allotted to Eligible
Employees or Participants in such amounts, subject to the
limitations specified in this Section and Sections 3 and 4 of the
Plan, as the Committee, in its sole discretion, may from time to
time determine.
Stock Options granted hereunder
shall be evidenced by a Stock Option Award Agreement executed as
set forth in Section 5 above, containing such terms and
provisions not inconsistent with the terms of the Plan as are
recommended and approved from time to time by the Committee. Each
Stock Option Award Agreement shall be consistent with the Plan,
including, without limitation, the following provisions:
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(A)
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Exercise
Price . The exercise
price per Share at which each Stock Option granted under the Plan
may be exercised shall not be less than the Fair Market Value per
Share at the time such Stock Option is granted. In the case of an
Eligible Employee or Participant who owns Shares representing more
than 10% of the total combined voting power of all classes of the
Company’s stock, or the stock of any subsidiary, at the time
an ISO is granted, the exercise price of the ISO shall not be less
than 110% of the Fair Market Value of the Shares at the time the
ISO is granted.
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For the purposes of the Plan “
Fair Market Value ” means, as of any given transaction
date, the following: (1) if the Company’s Shares are
listed on a national securities exchange at the time of the
transaction, then the Fair Market Value of each Share shall be no
less than the average of the highest and lowest selling price on
such exchange on the transaction date, or if there were no sales on
said date, then on the next prior business day on which there were
sales; (2) if the Company’s Shares are traded other than
on a national securities exchange on the transaction date, then the
Fair Market Value of each Share shall be not less than the last
sale price as reported on the Nasdaq Stock Market as of the close
of the regular trading day or the mean between the bid and asked
price as reported on the National Association of Securities Dealers
as the case may be, on the transaction date, or if there is no sale
price or bid and asked price on said date, then on the next prior
business date on which there was a sale price or bid or asked
price. Notwithstanding the foregoing, Fair Market Value may be
determined at the time of such transaction and according to the
standard market processes or the procedures of the Plan’s
third party administrator, as applicable.
If the Company’s Shares are
not traded on any security exchange or reported on the Nasdaq Stock
Market or by the National Association of Securities Dealers, then
the Committee shall exercise its best judgment to make a good faith
determination of the
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fair market value per Share. Such
determination shall include a valuation of the Company’s
present and future earnings capacity for the purpose of determining
the fair market value of a Share of the Company’s Shares as
of a specified date. The value determined shall be defined as the
fair market value of a Share of stock for a specified period of
time as defined by the Committee.
The Committee retains the right to
determine the price per Share at which each NQSO granted under the
Plan may be exercised, provided that no NQSO shall be granted at
less than Fair Market Value.
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(B)
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Option
Period and Vesting .
Stock Options granted under the Plan are exercisable at such time
or times as may be determined by the Committee (the “
Vesting Date ”). A Stock Option shall be exercisable
only with respect to the Shares which have become vested pursuant
to the terms of that Stock Option. Each Stock Option shall become
vested with respect to Shares subject to that Stock Option on such
date or dates and on the basis of such other criteria, including,
without limitation, the performance of the Company, as the
Committee may determine, in its discretion, and as shall be
specified in the applicable Stock Option Award Agreement. The
Committee shall have the authority, in its discretion, to
accelerate the time at which a Stock Option shall be exercisable
whenever it may determine that such action is appropriate by reason
of changes in applicable tax or other law or other changes in
circumstances occurring after the grant of such Stock
Option.
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A Stock Option granted under the
Plan shall terminate, and the right of the Participant (or the
Participant’s estate, personal representative, or
beneficiary) to purchase Shares upon exercise of the Stock Option
shall expire, after the date determined by the Committee at the
time the Stock Option is granted (the “ Expiration
Date ”). No Stock Option, however, may have a life of
more than 10 years after the date the Stock Option is granted. In
the case of a Participant who owns stock representing more than 10%
of the total combined voting power of all classes of the
Company’s stock, or the stock of any subsidiary at the time
an ISO is granted, the ISO may not have a life of more than five
years after the date on which it is granted. The date on which the
Committee approves the granting of a Stock Option shall be deemed
the date on which the Stock Option is granted, unless the Committee
specifically designates a different date on which the Stock Option
shall be deemed to have been granted, subject to Section 6.(A)
of the Plan.
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(C)
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Exercise of
Stock Options .
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(1)
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By an
Eligible Employee or Participant During Continuous
Employment . Subject to
Section 6.(E) below, during the lifetime of an Eligible
Employee or Participant to whom a Stock Option is granted, the
Stock Option may be exercised only by the Eligible Employee or
Participant.
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An Eligible Employee or Participant
who has been continuously employed by the Company, its parent or
the Company’s or its parent’s subsidiaries and
affiliates since the date of the Stock Option grant is eligible to
exercise all Stock Options granted beginning on the Vesting Date,
or on the date on which the Stock Option is granted, whichever is
later, and continuing up to and including the Expiration Date. The
Committee will decide in each case to what extent leaves of absence
for government or military service, illness, temporary disability
or other reasons shall not for this purpose be deemed interruptions
of continuous employment.
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(2)
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By a Former
Employee . If a
Participant’s employment by the Company and its subsidiaries
terminates for any reason other than death, disability or
retirement (as each is defined below), then: (a) to the extent
any Stock Option held by such Participant is not vested as of the
date of such termination, such Stock Option shall automatically
terminate on such date; and (b) to the extent any Stock Option
held by such Participant is vested as of the date of such
termination, such Stock Option may thereafter be exercised for a
period of 90 days (or, with respect to NQSOs, such longer period as
the Committee may specify at or after grant) from the date of such
termination or until the expiration of the stated term of such
Stock Option, whichever period is shorter; provided that, upon the
termination of the Participant’s employment by the Company or
its subsidiaries for illegal conduct, any and all unexercised Stock
Options granted to such Participant shall immediately lapse and be
of no further force or effect.
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(3)
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In Case of
Retirement . If a
Participant who was granted a Stock Option terminates employment
due to retirement, as such term is defined in the State Auto
Insurance Companies Employee Retirement Plan, the Stock Options
shall immediately vest and must be exercised as follows:
(a) ISOs must be exercised within 90 days of such termination
(but no later than the Expiration Date) and (b) NQSOs must be
exercised on or before the Expiration Date. If the Participant
should become permanently and totally disabled, as defined in Code
Section 22(e)(3) or die within the aforementioned 90-day
period following termination due to retirement, the provisions
contained in Section 6.(C), paragraphs 4 and 5 hereof
respectively, shall apply. Notwithstanding Section 6.(B), all
Stock Options previously granted to the Participant may be
immediately exercised by a Participant whose employment terminates
due to retirement prior to the Vesting Date.
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(4)
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In Case of
Permanent and Total Disability . If a Participant who was granted a Stock
Option terminates employment with the Company and its subsidiaries
because of permanent and total disability, as defined in Code
Section 22(e)(3), such Stock Option must be exercised as
follows: (a) ISOs must be exercised within one year of such
termination (but no later than the Expiration Date), and
(b) NQSOs must be exercised on or before the Expiration Date.
If the Participant should die within the aforementioned one-year
period following termination due to such permanent and total
disability, the provisions contained in Section 6.(C),
paragraph 5 hereof, shall apply. Notwithstanding
Section 6.(B), all Stock Options previously granted to the
Participant may be immediately exercised by the Participant who
becomes permanently and totally disabled, as defined in Code
Section 22(e)(3), prior to the Vesting Date.
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(5)
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In Case of
Death . If a Participant
who was granted a Stock Option dies, such Stock Options must be
exercised as follows: (a) ISOs must be exercised within one
year of such death (but no later than the Expiration Date), and
(b) NQSOs must be exercised on or before the Expiration Date,
provided that if such Participant dies with less than 90 days
remaining prior to the Expiration Date, the estate or successor(s)
in interest of such Participant shall have a period of 180 days
from the date of death of such Participant to exercise such Stock
Option, regardless of the Expiration Date.
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(6)
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Sequential
Exercise Requirement .
ISOs and NQSOs may be exercised in any order the Participant may
deem appropriate.
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(7)
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Termination
of Stock Options . A
Stock Option granted under this Plan shall be considered terminated
in whole or in part, to the extent that, in accordance with the
provisions of this Plan, it can no longer be exercised for Shares
originally subject to the Stock Option. Except as otherwise
permitted by the Committee in its sole discretion, no Stock Option
held by a transferee of a Participant pursuant to
Section 6.(E)(3), below, shall remain exercisable for any
period of time longer than would otherwise be permitted under
Sections 6.(C)(2),(3),(4) and (5) without specification of
other periods by the Committee as provided therein.
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(D)
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Method of
Exercise . Any Stock
Option granted hereunder shall be exercisable at such times and
under such conditions as shall be permissible under terms of the
Plan and of the Stock Option Award Agreement between the Company
and the Participant.
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Each Stock Option granted under this
Plan shall be deemed exercised, in whole or in part, when the
Participant shall indicate the decision to do so by written notice
delivered in person or by facsimile or electronic transmission or
by certified mail to the Secretary of the Company. The notice shall
state the election to exercise the Stock Option, the number of
Shares with respect to which it is being exercised, the person in
whose name the stock certificate or certificates is to be
registered and the address and Social Security Number of such
recipient. The notice shall be signed by the person or persons
entitled to exercise the Stock Option and, if the Stock Option is
being exercised by any person or persons other than the
Participant, be accompanied by proof, satisfactory to legal counsel
of the Company, of the right of such person to exercise the Stock
Option. The Participant shall at the same time tender to the
Company payment in full, in cash or by certified bank
cashier’s or teller’s check, for the Shares for which
the Stock Option is exercised and shall comply with such other
reasonable requirements as the Committee may establish, pursuant to
Section 11.(D) of the Plan. These provisions shall not
preclude exercise of, or payment for a Stock Option by any other
proper legal method specifically approved by the Committee,
including, but not limited to, the constructive delivery or actual
delivery of eligible, unrestricted Shares with a Fair Market Value
equal to the total option price at the time of exercise in
accordance with rules and procedures prescribed or approved by the
Committee.
Except as otherwise set forth in any
agreement between the Participant and the Company with respect to
the Stock Option, as approved by the Committee, no person, estate
or other entity shall have any of the rights of the shareholder
with reference to Shares subject to a Stock Option until a
certificate for the Shares has been issued by the
Company.
A Stock Option granted under this
Plan may be exercised for any lesser number of Shares than the full
amount for which it could be exercised. Such a partial exercise of
a Stock Option shall not affect the right to exercise the Stock
Option from time to time in accordance with this Plan for the
remaining Shares subject to the Stock Option. The Stock Option may
be exercised only with respect to full Shares and no fractional
Shares of common stock shall be issued upon exercise of the
Option.
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(E)
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Non-Transferability . Except as provided in this paragraph, no Stock
Option granted to an Eligible Employee or Participant under the
Plan shall be transferable other than by will or the laws of
descent and distribution and shall be exercisable during the
Participant’s lifetime only by such Participant, or the
Participant’s legal representative. Any attempted transfer
(other than as provided in this paragraph) shall be null and void.
Without limiting the generality of the foregoing, (1) ISOs may
be transferred only upon the Participant’s death and only by
will or the laws of descent and distribution and, in the case of
such a transfer, shall be exercisable only by the transferee or
such transferee’s legal representative, (2) NQSOs may be
transferred by will or the laws of descent and distribution and, in
the case of such a transfer, shall be exercisable only by the
transferee or such transferee’s legal representative, and
(3) the Committee may, in its sole discretion and in the
manner established by the Committee, provide for the irrevocable
transfer, without payment of consideration, of any NQSO by a
Participant to such Participant’s parent(s), spouse,
children, grandchildren, nieces, or nephews or to the trustee of a
trust for the principal benefit of one or more such persons or to a
partnership whose only partners are one or more such persons, and,
in the case of such transfer, such NQSO shall be exercisable only
by the transferee or such transferee’s legal representative.
In addition, NQSOs and, if permitted by applicable law, ISOs may be
transferred pursuant to a Qualified Domestic Relations Order, as
defined in Code Section 414(p), to a Participant’s
former spouse. Any such Stock Option which is transferred shall
continue to be subject to all provisions and conditions of the Plan
and the Stock Option Award Agreement applicable to the Stock Option
prior to its transfer, including without limitation, vesting
requirements, restrictions on transferability and limitations on
exercise following termination of employment or death or
disability, provided that the person receiving the transfer shall
have the same right to exercise as the Participant who transferred
the Option, notwithstanding Section 11.(D) to the contrary.
Notwithstanding the foregoing, the Committee shall only have
authority to grant Stock Options which may be transferred pursuant
to this Section if it is reasonably satisfied that such grant will
not cause other Stock Options under the Plan to lose the exemption
provided by Rule 16b-3 promulgated under the Exchange Act as
amended from time to time.
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(F)
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No Stock Option
Repricing Without Shareholder Approval. The exercise price per
Share of any Stock Option granted under the Plan shall not be
changed or modified after the time such Stock Option is granted
unless such change or modification is made with the prior approval
of the Company’s shareholders.
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Section 7. Restricted
Shares
Restricted Shares awarded under the
Plan shall be subject to the following terms and conditions and
such additional terms and conditions not inconsistent with the
terms of the Plan as the Committee deems appropriate. Each
Restricted Share gra
