Document:

Exhibit
10.5

 

 

NONQUALIFIED
STOCK OPTION AGREEMENT

FIRST ACCEPTANCE CORPORATION 2002 LONG TERM INCENTIVE PLAN

 

 

1.                                       Grant
of Option.  Pursuant to the First
Acceptance Corporation 2002 Long Term Incentive Plan (the “Plan”) for employees, consultants and outside
directors of First Acceptance Corporation, a Delaware corporation (the “Company”), the
Company hereby grants to

 

Stephen J.
Harrison (the “Participant”),

 

an option to purchase shares of Common Stock, par value $.01 per share
(“Common Stock”), of
the Company as follows:

 

On the date hereof, the Company grants to the
Participant an option (the “Option” or “Stock Option”) to purchase 100,000 full shares (“Optioned Shares”) of
Common Stock at an Option Price equal to Six  and
64/100 Dollars ($6.64) per share (subject to adjustment as provided in the
Plan).  The Date of Grant of this Stock
Option is April 30, 2004.

 

The “Option Period”
shall commence on the Date of Grant and shall expire on the date immediately
preceding the tenth (10th) anniversary of the Date of Grant.  The Stock Option is a Nonqualified Stock
Option.

 

2.                                       Capitalized
Terms.  The capitalized terms used
herein that are defined in the Plan shall have the same meanings assigned to
them in the Plan as in effect on the date hereof; any amendments to the Plan
shall not affect this Stock Option unless agreed to in writing by the
Participant.  If there is a conflict
between any of the terms and provisions of this Stock Option and the Plan, the
terms and provisions of this Stock Option shall govern.

 

3.                                       Vesting;
Time of Exercise.

 

(a)                                  Except
as specifically provided in this Agreement and Section 15.6 of the Plan, the
Optioned Shares shall vest, and the Stock Option shall become exercisable, as
follows:

 

i.                                          twenty
percent (20%) of the total Optioned Shares shall vest, and that portion of the
Stock Option shall become exercisable, on the first anniversary of the Date of
Grant, provided the Participant is employed by (or, if the Participant is a
consultant or an Outside Director, is providing services to) the Company or a
Subsidiary from the Date of Grant to that date.

 

ii.                                       One
and two-thirds percent (1 2/3%) of the total Optioned Shares shall vest, and
that portion of the Stock Option shall become exercisable, on the last day of
each month subsequent to the first anniversary of the Date of Grant, through
and including April 30, 2009, provided the Participant is employed by the
Company or a Subsidiary from the Date of Grant to each such date.

 

 

iii.                                    All of the Optioned Shares not previously
vested shall immediately become fully vested, and this Stock Option shall
become fully exercisable, if not previously exercisable, upon the effective
date of the earliest to occur of the following: (i) a Change of Control, (ii)
the Participant’s Termination of Service by the Participant for Good Reason,
(iii) the Participant’s Termination of Service by the Company without Cause, or
(iv) the Participant’s Termination of Service due to the Participant’s
permanent disability or death in accordance with the terms of the Employment
Agreement.  For purposes of this Stock
Option, “Good Reason,” and “Cause” shall be given the same meanings assigned
to such terms in the Employment Agreement, dated as of April 30, 2004, by and
between the Company and the Participant (the “Employment
Agreement”).

 

4.                                       Term;
Forfeiture.  Except as otherwise
provided in this Agreement, the portion of this Option that is not exercisable,
or does not become exercisable, on the date of the Participant’s Termination of
Service, will, together with the related unvested Optioned Shares, expire,
terminate, and be forfeited on that date. 
The exercisable portion of the Stock Option that relates to Optioned
Shares that are or become vested on the date of the Participant’s Termination
of Service, will terminate and be forfeited at the first of the following to
occur:

 

(a)                                  5
p.m. on the date the Option Period terminates;

 

(b)                                 5
p.m. on the date that is twelve (12) months following the Participant’s
Termination of Service by the Company for Cause; or

 

(c)                                  5
p.m. on the date that is
twenty-four (24) months following the date of the Participant’s Termination of
Service for any reason other than by the Company for Cause, including a
Termination of Service due to the Participant’s death or disability,
Termination of the Service by the Participant with or without Good Reason, and
Termination of Service by the Company without Cause.

 

5.                                       Who
May Exercise.  Subject to the terms
and conditions set forth in Sections 3 and 4 above, during the
lifetime of the Participant, the Stock Option may be exercised only by the
Participant, or by the Participant’s guardian or personal or legal
representative, or by any transferee as permitted under Section 8
herein.  If the Participant’s
Termination of Service is due to his death prior to the date specified in Section
4(a) hereof, or the Participant dies prior to the termination dates
specified in Sections 4(a) – (c) hereof, and the Participant has not
exercised the Stock Option as to the maximum number of vested Optioned Shares
as set forth in Section 3 hereof as of the date of death, the
following persons may exercise the exercisable portion of the Stock Option on
behalf of the Participant at any time prior to the earliest of the dates
specified in Section 4 hereof: 
the personal representative of his estate, or the person who acquired
the right to exercise the Stock Option by bequest or inheritance or by reason
of the death of the Participant or a transferee as permitted in Section 8
herein; provided that the Stock Option shall remain subject to the other terms
of this Agreement,  Section 15.6 of the
Plan and applicable laws, rules, and regulations.

 

6.                                       No
Fractional Shares.  The Stock Option
may be exercised only with respect to full shares, and no fractional share of
stock shall be issued.

 

 

7.                                       Manner
of Exercise.  Subject to such
administrative regulations as the Committee may from time to time adopt, the
Stock Option may be exercised by the delivery of written notice to the
Committee setting forth the number of shares of Common Stock with respect to
which the Stock Option is to be exercised, the date of exercise thereof (the “Exercise Date”) which
shall be the day upon which such notice is given in accordance herewith.  On the Exercise Date, the Participant shall
deliver to the Company consideration with a value equal to the total Option
Price of the shares to be purchased, payable as follows:  (a) cash, check, bank draft, or money order
payable to the order of the Company, (b) Common Stock owned by the Participant
on the Exercise Date, valued at its Fair Market Value on the Exercise Date, and
which the Participant has not acquired from the Company within six (6) months
prior to the Exercise Date, (c) if the Optioned Shares are other than
Nonpublicly Traded, by delivery (including by FAX) to the Company or its
designated agent of an executed irrevocable option exercise form together with
irrevocable instructions from the Participant to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the shares of Common Stock purchased
upon exercise of the Stock Option or to pledge such shares as collateral for a
loan and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price, and/or (d) in any other form of valid
consideration that is acceptable to the Committee in its sole discretion.

 

Upon payment of all amounts due from the Participant,
the Company shall cause certificates for the Optioned Shares then being
purchased to be delivered to the Participant (or the person exercising the
Participant’s Stock Option in the event of his death) at its principal business
office as soon as practicable (but in no case more than three (3) days) after
the Exercise Date in order to permit timely sales under applicable exchange
rules or to permit timely participation in any liquidity event.  The obligation of the Company to deliver
shares of Common Stock shall, however, be subject to the condition that if at
any time the Company shall determine in its discretion that the listing,
registration, or qualification of the Stock Option or the Optioned Shares upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary as a condition of,
or in connection with, the Stock Option or the issuance or purchase of shares
of Common Stock thereunder, then the Stock Option may not be exercised in whole
or in part unless such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
reasonably acceptable to the Committee.

 

8.                                       Transfer
and Assignment.  Except as otherwise
provided in this Section 8, this Stock Option may not be assigned,
transferred, pledged, hypothecated, or otherwise conveyed or encumbered by the
Participant, except by will or by the laws of descent and distribution.  Notwithstanding the foregoing, this Stock
Option may be transferred, assigned or otherwise conveyed to (i) any of the
Participant’s Immediate Family Members, (ii) a trust or trusts for the exclusive
benefit of such Immediate Family Members, (iii) a partnership in which the only
partners are (1) such Immediate Family Members and/or (2) entities, a majority
of the beneficial ownership of which is owned by Immediate Family Members, (iv)
an entity exempt from federal income tax pursuant to Section 501(c)(3) of the
Code, or (v) a split interest trust or pooled income fund described in Section
2522(c)(2) of the Code; provided, that (x) there shall be no consideration for
any such transfer, (y) subsequent transfers may not be made hereunder except
those by will or the laws of decent and distribution, and (z) a Termination of
Service of Participant shall continue to have

 

 

the effects in Sections 3 and 4 as if Participant had not
transferred, assigned or otherwise conveyed this Stock Option.

 

9.                                       Rights
as Stockholder.  The Participant
will have no rights as a stockholder with respect to any shares covered by the
Stock Option until the issuance of a certificate or certificates to the
Participant for the Optioned Shares, subject to the Company’s obligation to
issue such certificate(s) as soon as practicable in accordance with Section
7 above.  The Optioned Shares shall
be subject to the terms and conditions of this Agreement regarding such
Optioned Shares.  Except as otherwise
provided in Section 10 hereof, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.

 

10.                                 Adjustment
of Number of Optioned Shares and Related Matters.  The number of shares of Common Stock covered by the Stock Option,
and the Option Prices thereof, shall be subject to adjustment in accordance
with Articles 11 - 13 of the Plan.

 

11.                                 Nonqualified
Stock Option.  The Stock Option
shall not be treated as an Incentive Stock Option.

 

12.                                 Voting.  The Participant, as record holder of some or
all of the Optioned Shares following exercise of this Stock Option, has the
exclusive right to vote, or consent with respect to, such Optioned Shares until
such time as the Optioned Shares are transferred in accordance with this
Agreement; provided, however, that this Section shall not create
any voting right where the holders of such Optioned Shares otherwise have no
such right.

 

13.                                 Community
Property.  Each spouse individually
is bound by, and such spouse’s interest, if any, in any Optioned Shares is
subject to, the terms of this Agreement. 
Nothing in this Agreement shall create a community property interest
where none otherwise exists.

 

14.                                 Dispute
Resolution.  Any dispute,
controversy or claim arising out of or in relation to or in connection with
this Agreement, including without limitation any dispute as to the
construction, validity, interpretation, enforceability or breach of this
Agreement, shall be exclusively and finally settled by arbitration, and any
party may submit such dispute, controversy or claim, including a claim for
indemnification under this Section 14, to arbitration.

 

(a)                                  Arbitrators.  The arbitration shall be heard and
determined by one arbitrator, who shall be impartial and who shall be selected
by mutual agreement of the parties; provided, 
however, that if the dispute involves more than $2,000,000, then the
arbitration shall be heard and determined by three (3) arbitrators.  If three (3) arbitrators are necessary as
provided above, then (i) each side shall appoint an arbitrator of its
choice within thirty (30) days of the submission of a notice of arbitration and
(ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator
of the tribunal within thirty (30) days following the appointment of the last
party-appointed arbitrator.  If
(x) the parties cannot agree on the sole arbitrator, (y) one party refuses
to appoint its party-appointed arbitrator within said thirty (30) day period or
(z) the party-appointed arbitrators cannot reach agreement on a presiding
arbitrator of the tribunal, then the appointing authority for the
implementation of such

 

 

procedure shall be the Senior United States District
Judge for the Northern District of Illinois, who shall appoint an independent
arbitrator who does not have any financial interest in the dispute, controversy
or claim.  If the Senior United States
District Judge for the Northern District of Illinois refuses or fails to act as
the appointing authority within ninety (90) days after being requested to do
so, then the appointing authority shall be the Chief Executive Officer of the
American Arbitration Association, who shall appoint an independent arbitrator
who does not have any financial interest in the dispute, controversy or
claim.  All decisions and awards by the
arbitration tribunal shall be made by majority vote.

 

(b)                                 Proceedings.  Unless otherwise expressly agreed in writing
by the parties to the arbitration proceedings:

 

(i)                                     The
arbitration proceedings shall be held in Chicago, Illinois, at a site chosen by
mutual agreement of the parties, or if the parties cannot reach agreement on a
location within thirty (30) days of the appointment of the last arbitrator,
then at a site in Chicago, Illinois chosen by the arbitrator(s);

 

(ii)                                  The
arbitrator(s) shall be and remain at all times wholly independent and
impartial;

 

(iii)                               The
arbitration proceedings shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as amended from time
to time;

 

(iv)                              Any
procedural issues not determined under the arbitral rules selected pursuant to
item (iii) above shall be determined by the law of the place of arbitration,
other than those laws which would refer the matter to another jurisdiction;

 

(v)                                 The
costs of the arbitration proceedings (including reasonable attorneys’ fees and
costs) shall be borne in the manner determined by the arbitrator(s);

 

(vi)                              The
decision of the arbitrator(s) shall be reduced to writing; final and binding
without the right of appeal; the sole and exclusive remedy regarding any
claims, counterclaims, issues or accounting presented to the arbitrator(s);
made and promptly paid in United States dollars free of any deduction or offset;
and any costs or fees incident to enforcing the award shall, to the maximum
extent permitted by law, be charged against the party resisting such
enforcement;

 

(vii)                           The
award shall include interest from the date of any breach or violation of this
Agreement, as determined by the arbitral award, and from the date of the award
until paid in full, at 6% per annum; and

 

(viii)                        Judgment
upon the award may be entered in any court having jurisdiction over the person
or the assets of the party owing the judgment or

 

 

application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may be.

 

(c)                                  Acknowledgment
Of Parties.  Each party acknowledges
that he or it has voluntarily and knowingly entered into an agreement to
arbitration under this Section 14 by executing this Agreement.

 

15.                                 Participant’s
Representations.  Notwithstanding
any of the provisions hereof, the Participant hereby agrees that he will not
exercise the Stock Option granted hereby, and that the Company will not be
obligated to issue any shares to the Participant hereunder, if the exercise
thereof or the issuance of such shares shall constitute a violation by the
Participant or the Company of any provision of any law or regulation of any
governmental authority or any rule of any stock exchange or inter-dealer
quotation system on which such shares are listed or traded, provided that the
foregoing shall not be deemed to be a limitation of any other obligation of the
Company hereunder.

 

16.                                 Investment
Representation.  Unless the Common
Stock is issued to him in a transaction registered under applicable federal and
state securities laws, by his execution hereof, the Participant represents and
warrants to the Company that all Common Stock which may be purchased hereunder
will be acquired by the Participant for investment purposes for his own account
and not with any intent for resale or distribution in violation of federal or
state securities laws.  Unless the Common
Stock is issued to him in a transaction registered under the applicable federal
and state securities laws, all certificates issued with respect to the Common
Stock shall bear an appropriate restrictive investment legend and shall be held
indefinitely, unless they are subsequently registered under the applicable
federal and state securities laws or the Participant obtains an opinion of
counsel, in form and substance satisfactory to the Company and its counsel,
that such registration is not required.

 

17.                                 Lock
Up.  In connection with an underwritten
public offering of Common Stock, upon the request of the Company or the
principal underwriter managing such public offering, no shares of Common Stock
received by the Participant under this Award Agreement may be sold, offered for
sale or otherwise disposed of without the prior written consent of the Company
or such underwriter, as the case may be, for up to one hundred eighty (180)
days after the effectiveness of the registration statement filed in connection
with such offering, if all of the Company’s directors and officers agree to be
similarly bound, and releases from any and all lock-up agreements in connection
with such offering are granted on a pro-rata basis.

 

18.                                 Participant’s
Acknowledgments.  The Participant
acknowledges receipt of a copy of the Plan, which is annexed hereto, and
represents that he or she is familiar with the terms and provisions thereof.

 

19.                                 Law
Governing.  This Agreement shall be
governed by, construed, and enforced in accordance with the laws of the State
of Delaware (excluding any conflict of laws rule or principle of Delaware law
that might refer the governance, construction, or interpretation of this
agreement to the laws of another state).

 

 

20.                                 No
Right to Continue Service or Employment. 
Nothing herein shall be construed to confer upon the Participant the
right to continue in the employ or to provide services to the Company or any
Subsidiary, whether as an employee or as a consultant or as an Outside
Director, or interfere with or restrict in any way the right of the Company or
any Subsidiary to discharge the Participant as an employee, consultant or
Outside Director at any time.

 

21.                                 Legal
Construction.  In the event that any
one or more of the terms, provisions, or agreements that are contained in this
Agreement shall be held by a Court of competent jurisdiction to be invalid,
illegal, or unenforceable in any respect for any reason, the invalid, illegal,
or unenforceable term, provision, or agreement shall not affect any other term,
provision, or agreement that is contained in this Agreement and this Agreement
shall be construed in all respects as if the invalid, illegal, or unenforceable
term, provision, or agreement had never been contained herein.

 

22.                                 Covenants
and Agreements as Independent Agreements. Each of the covenants and
agreements that is set forth in this Agreement shall be construed as a covenant
and agreement independent of any other provision of this Agreement.  The existence of any claim or cause of
action of the Participant against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Company of the covenants and agreements that are set forth in this
Agreement.

 

23.                                 Entire
Agreement.  This Agreement, together
with the Plan, supersde any and all other prior understandings and agreements,
either oral or in writing, between the parties with respect to the subject
matter hereof and constitute the sole and only agreements between the parties
with respect to the said subject matter. 
All prior negotiations and agreements between the parties with respect
to the subject matter hereof are merged into this Agreement and the Plan.  Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, orally or otherwise,
have been made by any party or by anyone acting on behalf of any party, which
are not embodied in this Agreement or the Plan and that any agreement,
statement or promise that is not contained in this Agreement or the Plan shall
not be valid or binding or of any force or effect.

 

24.                                 Parties
Bound.  The terms, provisions, and
agreements that are contained in this Agreement shall apply to, be binding
upon, and inure to the benefit of the parties and their respective heirs,
executors, administrators, legal representatives, and permitted successors and
assigns, subject to the limitation on assignment expressly set forth herein.

 

25.                                 Modification.  No change or modification of this Agreement
shall be valid or binding upon the parties unless the change or modification is
in writing and signed by the parties.

 

26.                                 Headings.  The headings that are used in this Agreement
are used for reference and convenience purposes only and do not constitute
substantive matters to be considered in construing the terms and provisions of
this Agreement.

 

27.                                 Gender
and Number.  Words of any gender
used in this Agreement shall be held and construed to include any other gender,
and words in the singular number shall be held to include the plural, and vice
versa, unless the context requires otherwise.

 

 

28.                                 Notice.  Any notice required or permitted to be
delivered hereunder shall be deemed to be delivered only when actually received
by the Company or by the Participant, as the case may be, at the addresses set
forth below, or at such other addresses as they have theretofore specified by
written notice delivered in accordance herewith:

 

a.                                       Notice
to the Company shall be addressed and delivered as follows:

 

First Acceptance Corporation

3813 Green Hills Village Drive

Nashville, Tennessee 37215

Attn: Secretary

Facsimile: 
(615) 844-2898

 

b.                                      Notice
to the Participant shall be addressed and delivered as set forth on the
signature page.

 

29.                                 Tax
Requirements.  The Participant, upon
exercise of any portion of the Stock Option, shall be required to pay the
Company the amount of all taxes which the Company is required to withhold as a
result of the exercise of the Stock Option; such obligation to pay such taxes
may be satisfied by any of the following or any combination thereof:  (a) the delivery of cash to the Company in
an amount that equals or exceeds (to avoid the issuance of fractional shares
under (c) below) the required tax withholding obligation of the Company; (b) if
the Company, in its sole discretion, so consents in writing, the actual
delivery by the exercising Participant to the Company of shares of Common Stock
other than (i) Restricted Stock or (ii) Common Stock that the Participant
owns but has acquired from the Company within six months prior to the date of
exercise, which shares so delivered have an aggregate Fair Market Value that
equals or exceeds (to avoid the issuance of fractional shares under (c) below)
the required tax withholding payment; or (c) the Company’s withholding of a
number of shares to be delivered upon the exercise of the Stock Option, which
shares so withheld have an aggregate Fair Market Value that equals (but does
not exceed) the required tax withholding payment; provided that, shares cannot
be withheld in connection with the exercise of a Stock Option in excess of the
minimum number required for tax withholding, and to permit the Stock Option to
be accounted for as a fixed award.  Any
such withholding payments with respect to the exercise of any portion of the
Stock Option in cash or by actual delivery of shares of Common Stock shall be
required to be made within thirty (30) days after the delivery to the
Participant of any certificate representing the shares of Common Stock acquired
upon exercise of the Stock Option.  The
Company may, in its discretion, withhold such taxes from any other remuneration
paid by the Company or a Subsidiary to the Participant.

 

30.                                 Option
Cash-out.  The Company may only make
provisions for a cash payment to the holder of this Stock Option, as
contemplated by Article 11 or Section 12.3 of the Plan, in the event and
subject to the consummation of the sale of substantially all of the assets or
capital stock of the Company for cash.

 

 

31.                                 Failure
to Pay Option Price; Notice to Participant.  Section 8.3(c) of the Plan shall not apply to this Option unless
the Participant receives from the Company written notice of an event giving
rise to the forfeiture right described in Section 8.3(c) of the Plan and the
Participant fails to cure such event within five (5) days after his receipt of
such notice.

 

 

* * * * * * * *

 

 

IN WITNESS WHEREOF, the Company has caused this Award
Agreement to be executed by its duly authorized officer, and the Participant,
to evidence his consent and approval of all the terms hereof, has duly executed
this Agreement, as of the date specified in Section 1 hereof.

 

	
   

  	
  FIRST
  ACCEPTANCE CORPORATION:

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ Donald J. Edwards

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Donald J. Edwards

  
	
   

  	
  Its:

  	
  Chief Executive Officer and President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ Stephen J. Harrison

  	
   

  
	
   

  	
  Stephen J. Harrison

  
	
   

  	
   

  
	
   

  	
  Address:Exhibit
10.6

 

NONQUALIFIED
STOCK OPTION AGREEMENT

FIRST ACCEPTANCE CORPORATION 2002 LONG TERM INCENTIVE PLAN

 

 

1.                                       Grant
of Option.  Pursuant to the First
Acceptance Corporation 2002 Long Term Incentive Plan (the “Plan”) for employees, consultants and outside
directors of First Acceptance Corporation, a Delaware corporation (the “Company”), the
Company hereby grants to

 

Thomas M.
Harrison, Jr. (the “Participant”),

 

an option to purchase shares of Common Stock, par value $.01 per share
(“Common Stock”), of the
Company as follows:

 

On the date hereof, the Company grants to the
Participant an option (the “Option” or “Stock Option”) to purchase 100,000 full shares (“Optioned Shares”) of
Common Stock at an Option Price equal to Six and 64/100  Dollars  ($6.64) per share (subject to adjustment as provided in the
Plan).  The Date of Grant of this Stock
Option is April 30, 2004.

 

The “Option Period”
shall commence on the Date of Grant and shall expire on the date immediately
preceding the tenth (10th) anniversary of the Date of Grant.  The Stock Option is a Nonqualified Stock
Option.

 

2.                                       Capitalized
Terms.  The capitalized terms used
herein that are defined in the Plan shall have the same meanings assigned to
them in the Plan as in effect on the date hereof; any amendments to the Plan
shall not affect this Stock Option unless agreed to in writing by the
Participant.  If there is a conflict
between any of the terms and provisions of this Stock Option and the Plan, the
terms and provisions of this Stock Option shall govern.

 

3.                                       Vesting;
Time of Exercise.

 

(a)                                  Except
as specifically provided in this Agreement and Section 15.6 of the Plan, the
Optioned Shares shall vest, and the Stock Option shall become exercisable, as
follows:

 

i.                                          Twenty
percent (20%) of the total Optioned Shares shall vest, and that portion of the
Stock Option shall become exercisable, on the first anniversary of the Date of
Grant, provided the Participant is employed by (or, if the Participant is a
consultant or an Outside Director, is providing services to) the Company or a
Subsidiary from the Date of Grant to that date.

 

ii.                                       One
and two-thirds percent (1 2/3%) of the total Optioned Shares shall vest, and
that portion of the Stock Option shall become exercisable, on the last day of
each month subsequent to the first anniversary of the Date of Grant, through
and including April 30, 2009, provided the Participant is employed by the
Company or a Subsidiary from the Date of Grant to each such date.

 

 

iii.                                    All of the Optioned Shares not previously
vested shall immediately become fully vested, and this Stock Option shall
become fully exercisable, if not previously exercisable, upon the effective
date of the earliest to occur of the following: (i) a Change of Control, (ii)
the Participant’s Termination of Service by the Participant for Good Reason,
(iii) the Participant’s Termination of Service by the Company without Cause, or
(iv) the Participant’s Termination of Service due to the Participant’s
permanent disability or death in accordance with the terms of the Employment
Agreement.  For purposes of this Stock
Option, “Good Reason,” and “Cause” shall be given the same meanings assigned
to such terms in the Employment Agreement, dated as of April 30, 2004, by and
between the Company and the Participant (the “Employment
Agreement”).

 

4.                                       Term;
Forfeiture.  Except as otherwise
provided in this Agreement, the portion of this Option that is not exercisable,
or does not become exercisable, on the date of the Participant’s Termination of
Service, will, together with the related unvested Optioned Shares, expire,
terminate, and be forfeited on that date. 
The exercisable portion of the Stock Option that relates to Optioned
Shares that are or become vested on the date of the Participant’s Termination
of Service, will terminate and be forfeited at the first of the following to
occur:

 

(a)                                  5
p.m. on the date the Option Period terminates;

 

(b)                                 5
p.m. on the date that is twelve (12) months following the Participant’s
Termination of Service by the Company for Cause; or

 

(c)                                  5
p.m. on the date that is
twenty-four (24) months following the date of the Participant’s Termination of
Service for any reason other than by the Company for Cause, including a
Termination of Service due to the Participant’s death or disability,
Termination of the Service by the Participant with or without Good Reason, and
Termination of Service by the Company without Cause.

 

5.                                       Who
May Exercise.  Subject to the terms
and conditions set forth in Sections 3 and 4 above, during the
lifetime of the Participant, the Stock Option may be exercised only by the
Participant, or by the Participant’s guardian or personal or legal
representative, or by any transferee as permitted under Section 8
herein.  If the Participant’s
Termination of Service is due to his death prior to the date specified in Section
4(a) hereof, or the Participant dies prior to the termination dates
specified in Sections 4(a) – (c) hereof, and the Participant has not
exercised the Stock Option as to the maximum number of vested Optioned Shares
as set forth in Section 3 hereof as of the date of death, the
following persons may exercise the exercisable portion of the Stock Option on
behalf of the Participant at any time prior to the earliest of the dates
specified in Section 4 hereof: 
the personal representative of his estate, or the person who acquired
the right to exercise the Stock Option by bequest or inheritance or by reason
of the death of the Participant or a transferee as permitted in Section 8
herein; provided that the Stock Option shall remain subject to the other terms
of this Agreement,  Section 15.6 of the
Plan and applicable laws, rules, and regulations.

 

 

6.                                       No
Fractional Shares.  The Stock Option
may be exercised only with respect to full shares, and no fractional share of
stock shall be issued.

 

7.                                       Manner
of Exercise.  Subject to such
administrative regulations as the Committee may from time to time adopt, the
Stock Option may be exercised by the delivery of written notice to the
Committee setting forth the number of shares of Common Stock with respect to
which the Stock Option is to be exercised, the date of exercise thereof (the “Exercise Date”) which
shall be the day upon which such notice is given in accordance herewith.  On the Exercise Date, the Participant shall
deliver to the Company consideration with a value equal to the total Option
Price of the shares to be purchased, payable as follows:  (a) cash, check, bank draft, or money order
payable to the order of the Company, (b) Common Stock owned by the Participant
on the Exercise Date, valued at its Fair Market Value on the Exercise Date, and
which the Participant has not acquired from the Company within six (6) months
prior to the Exercise Date, (c) if the Optioned Shares are other than
Nonpublicly Traded, by delivery (including by FAX) to the Company or its
designated agent of an executed irrevocable option exercise form together with
irrevocable instructions from the Participant to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the shares of Common Stock purchased
upon exercise of the Stock Option or to pledge such shares as collateral for a
loan and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price, and/or (d) in any other form of valid
consideration that is acceptable to the Committee in its sole discretion.

 

Upon payment of all amounts due from the Participant,
the Company shall cause certificates for the Optioned Shares then being
purchased to be delivered to the Participant (or the person exercising the
Participant’s Stock Option in the event of his death) at its principal business
office as soon as practicable (but in no case more than three (3) days) after
the Exercise Date in order to permit timely sales under applicable exchange
rules or to permit timely participation in any liquidity event.  The obligation of the Company to deliver
shares of Common Stock shall, however, be subject to the condition that if at
any time the Company shall determine in its discretion that the listing,
registration, or qualification of the Stock Option or the Optioned Shares upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary as a condition of,
or in connection with, the Stock Option or the issuance or purchase of shares
of Common Stock thereunder, then the Stock Option may not be exercised in whole
or in part unless such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
reasonably acceptable to the Committee.

 

8.                                       Transfer
and Assignment.  Except as otherwise
provided in this Section 8, this Stock Option may not be assigned,
transferred, pledged, hypothecated, or otherwise conveyed or encumbered by the
Participant, except by will or by the laws of descent and distribution.  Notwithstanding the foregoing, this Stock
Option may be transferred, assigned or otherwise conveyed to (i) any of the
Participant’s Immediate Family Members, (ii) a trust or trusts for the exclusive
benefit of such Immediate Family Members, (iii) a partnership in which the only
partners are (1) such Immediate Family Members and/or (2) entities, a majority
of the beneficial ownership of which is owned by Immediate Family Members, (iv)
an entity exempt from federal income tax pursuant to Section 501(c)(3) of the
Code, or (v) a split interest trust or pooled income fund described in Section
2522(c)(2) of the Code; provided, that (x) there shall be no consideration for

 

 

any such transfer, (y) subsequent transfers may not be made hereunder
except those by will or the laws of decent and distribution, and (z) a
Termination of Service of Participant shall continue to have the effects in Sections
3 and 4 as if Participant had not transferred, assigned or otherwise
conveyed this Stock Option.

 

9.                                       Rights
as Stockholder.  The Participant
will have no rights as a stockholder with respect to any shares covered by the
Stock Option until the issuance of a certificate or certificates to the
Participant for the Optioned Shares, subject to the Company’s obligation to
issue such certificate(s) as soon as practicable in accordance with Section
7 above.  The Optioned Shares shall
be subject to the terms and conditions of this Agreement regarding such
Optioned Shares.  Except as otherwise
provided in Section 10 hereof, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.

 

10.                                 Adjustment
of Number of Optioned Shares and Related Matters.  The number of shares of Common Stock covered by the Stock Option,
and the Option Prices thereof, shall be subject to adjustment in accordance
with Articles 11 - 13 of the Plan.

 

11.                                 Nonqualified
Stock Option.  The Stock Option
shall not be treated as an Incentive Stock Option.

 

12.                                 Voting.  The Participant, as record holder of some or
all of the Optioned Shares following exercise of this Stock Option, has the
exclusive right to vote, or consent with respect to, such Optioned Shares until
such time as the Optioned Shares are transferred in accordance with this
Agreement; provided, however, that this Section shall not create
any voting right where the holders of such Optioned Shares otherwise have no
such right.

 

13.                                 Community
Property.  Each spouse individually
is bound by, and such spouse’s interest, if any, in any Optioned Shares is
subject to, the terms of this Agreement. 
Nothing in this Agreement shall create a community property interest
where none otherwise exists.

 

14.                                 Dispute
Resolution.  Any dispute,
controversy or claim arising out of or in relation to or in connection with
this Agreement, including without limitation any dispute as to the
construction, validity, interpretation, enforceability or breach of this
Agreement, shall be exclusively and finally settled by arbitration, and any
party may submit such dispute, controversy or claim, including a claim for
indemnification under this Section 14, to arbitration.

 

(a)                                  Arbitrators.  The arbitration shall be heard and
determined by one arbitrator, who shall be impartial and who shall be selected
by mutual agreement of the parties; provided, 
however, that if the dispute involves more than $2,000,000, then the
arbitration shall be heard and determined by three (3) arbitrators.  If three (3) arbitrators are necessary as
provided above, then (i) each side shall appoint an arbitrator of its
choice within thirty (30) days of the submission of a notice of arbitration and
(ii) the party-appointed arbitrators shall in turn appoint a presiding
arbitrator of the tribunal within thirty (30) days following the appointment of
the last party-appointed arbitrator.  If
(x) the parties cannot agree on the sole arbitrator, (y) one party refuses
to appoint its party-appointed arbitrator within said thirty (30)

 

 

day period or (z) the party-appointed arbitrators
cannot reach agreement on a presiding arbitrator of the tribunal, then the
appointing authority for the implementation of such procedure shall be the
Senior United States District Judge for the Northern District of Illinois, who
shall appoint an independent arbitrator who does not have any financial
interest in the dispute, controversy or claim. 
If the Senior United States District Judge for the Northern District of
Illinois refuses or fails to act as the appointing authority within ninety (90)
days after being requested to do so, then the appointing authority shall be the
Chief Executive Officer of the American Arbitration Association, who shall
appoint an independent arbitrator who does not have any financial interest in
the dispute, controversy or claim.  All
decisions and awards by the arbitration tribunal shall be made by majority
vote.

 

(b)                                 Proceedings.  Unless otherwise expressly agreed in writing
by the parties to the arbitration proceedings:

 

(i)                                     The
arbitration proceedings shall be held in Chicago, Illinois, at a site chosen by
mutual agreement of the parties, or if the parties cannot reach agreement on a
location within thirty (30) days of the appointment of the last arbitrator,
then at a site in Chicago, Illinois chosen by the arbitrator(s);

 

(ii)                                  The
arbitrator(s) shall be and remain at all times wholly independent and
impartial;

 

(iii)                               The
arbitration proceedings shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as amended from time
to time;

 

(iv)                              Any
procedural issues not determined under the arbitral rules selected pursuant to
item (iii) above shall be determined by the law of the place of arbitration,
other than those laws which would refer the matter to another jurisdiction;

 

(v)                                 The
costs of the arbitration proceedings (including reasonable attorneys’ fees and
costs) shall be borne in the manner determined by the arbitrator(s);

 

(vi)                              The
decision of the arbitrator(s) shall be reduced to writing; final and binding
without the right of appeal; the sole and exclusive remedy regarding any
claims, counterclaims, issues or accounting presented to the arbitrator(s);
made and promptly paid in United States dollars free of any deduction or offset;
and any costs or fees incident to enforcing the award shall, to the maximum
extent permitted by law, be charged against the party resisting such
enforcement;

 

(vii)                           The
award shall include interest from the date of any breach or violation of this
Agreement, as determined by the arbitral award, and from the date of the award
until paid in full, at 6% per annum; and

 

 

(viii)                        Judgment
upon the award may be entered in any court having jurisdiction over the person
or the assets of the party owing the judgment or application may be made to
such court for a judicial acceptance of the award and an order of enforcement,
as the case may be.

 

(c)                                  Acknowledgment
Of Parties.  Each party acknowledges
that he or it has voluntarily and knowingly entered into an agreement to
arbitration under this Section 14 by executing this Agreement.

 

15.                                 Participant’s
Representations.  Notwithstanding
any of the provisions hereof, the Participant hereby agrees that he will not
exercise the Stock Option granted hereby, and that the Company will not be
obligated to issue any shares to the Participant hereunder, if the exercise
thereof or the issuance of such shares shall constitute a violation by the
Participant or the Company of any provision of any law or regulation of any
governmental authority or any rule of any stock exchange or inter-dealer
quotation system on which such shares are listed or traded, provided that the
foregoing shall not be deemed to be a limitation of any other obligation of the
Company hereunder.

 

16.                                 Investment
Representation.  Unless the Common
Stock is issued to him in a transaction registered under applicable federal and
state securities laws, by his execution hereof, the Participant represents and
warrants to the Company that all Common Stock which may be purchased hereunder
will be acquired by the Participant for investment purposes for his own account
and not with any intent for resale or distribution in violation of federal or
state securities laws.  Unless the Common
Stock is issued to him in a transaction registered under the applicable federal
and state securities laws, all certificates issued with respect to the Common
Stock shall bear an appropriate restrictive investment legend and shall be held
indefinitely, unless they are subsequently registered under the applicable
federal and state securities laws or the Participant obtains an opinion of
counsel, in form and substance satisfactory to the Company and its counsel,
that such registration is not required.

 

17.                                 Lock
Up.  In connection with an underwritten
public offering of Common Stock, upon the request of the Company or the
principal underwriter managing such public offering, no shares of Common Stock
received by the Participant under this Award Agreement may be sold, offered for
sale or otherwise disposed of without the prior written consent of the Company
or such underwriter, as the case may be, for up to one hundred eighty (180)
days after the effectiveness of the registration statement filed in connection
with such offering, if all of the Company’s directors and officers agree to be
similarly bound, and releases from any and all lock-up agreements in connection
with such offering are granted on a pro-rata basis.

 

18.                                 Participant’s
Acknowledgments.  The Participant
acknowledges receipt of a copy of the Plan, which is annexed hereto, and
represents that he or she is familiar with the terms and provisions thereof.

 

19.                                 Law
Governing.  This Agreement shall be
governed by, construed, and enforced in accordance with the laws of the State
of Delaware (excluding any conflict of laws rule or principle of

 

 

Delaware law that might refer the governance, construction, or
interpretation of this agreement to the laws of another state).

 

20.                                 No
Right to Continue Service or Employment. 
Nothing herein shall be construed to confer upon the Participant the
right to continue in the employ or to provide services to the Company or any
Subsidiary, whether as an employee or as a consultant or as an Outside
Director, or interfere with or restrict in any way the right of the Company or
any Subsidiary to discharge the Participant as an employee, consultant or
Outside Director at any time.

 

21.                                 Legal
Construction.  In the event that any
one or more of the terms, provisions, or agreements that are contained in this
Agreement shall be held by a Court of competent jurisdiction to be invalid,
illegal, or unenforceable in any respect for any reason, the invalid, illegal,
or unenforceable term, provision, or agreement shall not affect any other term,
provision, or agreement that is contained in this Agreement and this Agreement
shall be construed in all respects as if the invalid, illegal, or unenforceable
term, provision, or agreement had never been contained herein.

 

22.                                 Covenants
and Agreements as Independent Agreements. Each of the covenants and
agreements that is set forth in this Agreement shall be construed as a covenant
and agreement independent of any other provision of this Agreement.  The existence of any claim or cause of
action of the Participant against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Company of the covenants and agreements that are set forth in this
Agreement.

 

23.                                 Entire
Agreement.  This Agreement, together
with the Plan, supersde any and all other prior understandings and agreements,
either oral or in writing, between the parties with respect to the subject
matter hereof and constitute the sole and only agreements between the parties
with respect to the said subject matter. 
All prior negotiations and agreements between the parties with respect
to the subject matter hereof are merged into this Agreement and the Plan.  Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, orally or otherwise,
have been made by any party or by anyone acting on behalf of any party, which
are not embodied in this Agreement or the Plan and that any agreement,
statement or promise that is not contained in this Agreement or the Plan shall
not be valid or binding or of any force or effect.

 

24.                                 Parties
Bound.  The terms, provisions, and
agreements that are contained in this Agreement shall apply to, be binding
upon, and inure to the benefit of the parties and their respective heirs,
executors, administrators, legal representatives, and permitted successors and
assigns, subject to the limitation on assignment expressly set forth herein.

 

25.                                 Modification.  No change or modification of this Agreement
shall be valid or binding upon the parties unless the change or modification is
in writing and signed by the parties.

 

26.                                 Headings.  The headings that are used in this Agreement
are used for reference and convenience purposes only and do not constitute
substantive matters to be considered in construing the terms and provisions of
this Agreement.

 

 

27.                                 Gender
and Number.  Words of any gender
used in this Agreement shall be held and construed to include any other gender,
and words in the singular number shall be held to include the plural, and vice
versa, unless the context requires otherwise.

 

28.                                 Notice.  Any notice required or permitted to be
delivered hereunder shall be deemed to be delivered only when actually received
by the Company or by the Participant, as the case may be, at the addresses set
forth below, or at such other addresses as they have theretofore specified by
written notice delivered in accordance herewith:

 

a.                                       Notice
to the Company shall be addressed and delivered as follows:

 

First Acceptance Corporation

3813 Green Hills Village Drive

Nashville, Tennessee 37215

Attn: Secretary

Facsimile: 
(615) 844-2898

 

b.                                      Notice
to the Participant shall be addressed and delivered as set forth on the
signature page.

 

29.                                 Tax
Requirements.  The Participant, upon
exercise of any portion of the Stock Option, shall be required to pay the
Company the amount of all taxes which the Company is required to withhold as a
result of the exercise of the Stock Option; such obligation to pay such taxes
may be satisfied by any of the following or any combination thereof:  (a) the delivery of cash to the Company in
an amount that equals or exceeds (to avoid the issuance of fractional shares
under (c) below) the required tax withholding obligation of the Company; (b) if
the Company, in its sole discretion, so consents in writing, the actual
delivery by the exercising Participant to the Company of shares of Common Stock
other than (i) Restricted Stock or (ii) Common Stock that the Participant
owns but has acquired from the Company within six months prior to the date of
exercise, which shares so delivered have an aggregate Fair Market Value that
equals or exceeds (to avoid the issuance of fractional shares under (c) below)
the required tax withholding payment; or (c) the Company’s withholding of a
number of shares to be delivered upon the exercise of the Stock Option, which
shares so withheld have an aggregate Fair Market Value that equals (but does
not exceed) the required tax withholding payment; provided that, shares cannot
be withheld in connection with the exercise of a Stock Option in excess of the
minimum number required for tax withholding, and to permit the Stock Option to
be accounted for as a fixed award.  Any
such withholding payments with respect to the exercise of any portion of the Stock
Option in cash or by actual delivery of shares of Common Stock shall be
required to be made within thirty (30) days after the delivery to the
Participant of any certificate representing the shares of Common Stock acquired
upon exercise of the Stock Option.  The
Company may, in its discretion, withhold such taxes from any other remuneration
paid by the Company or a Subsidiary to the Participant.

 

30.                                 Option
Cash-out.  The Company may only make
provisions for a cash payment to the holder of this Stock Option, as
contemplated by Article 11 or Section 12.3 of the Plan, in the event

 

 

and subject to the consummation of the sale of substantially all of the
assets or capital stock of the Company for cash.

 

31.                                 Failure
to Pay Option Price; Notice to Participant.  Section 8.3(c) of the Plan shall not apply to this Option unless
the Participant receives from the Company written notice of an event giving
rise to the forfeiture right described in Section 8.3(c) of the Plan and the
Participant fails to cure such event within five (5) days after his receipt of
such notice.

 

 

* * * * * * * *

 

 

IN WITNESS WHEREOF, the Company has caused this Award
Agreement to be executed by its duly authorized officer, and the Participant,
to evidence his consent and approval of all the terms hereof, has duly executed
this Agreement, as of the date specified in Section 1 hereof.

 

	
   

  	
  FIRST
  ACCEPTANCE CORPORATION:

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ Donald J. Edwards

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Donald J. Edwards

  
	
   

  	
  Its:

  	
  Chief Executive Officer and President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ Thomas M. Harrison, Jr.

  	
   

  
	
   

  	
  Thomas M. Harrison, Jr.

  
	
   

  	
   

  
	
   

  	
  Address:

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