NON-QUALIFIED STOCK OPTION AGREEMENT

Exhibit 10.3

This Non-Qualified Stock Option Agreement (the “Agreement”) is effective as of <GRANT DATE> (the “Grant Date”), by and between The Hanover Insurance Group, Inc., a Delaware corporation (the “Company”), and Xxxxxx X. Xxxxxxxxx (“Participant” or “you”). Capitalized terms used without definition herein shall have the meanings set forth in The Hanover Insurance Group 2014 Long-Term Incentive Plan (as it may be amended from time to time, the “Plan”).

PREAMBLE

WHEREAS, the Company considers it desirable and in the best interests of the Company that Participant be given an opportunity to acquire a proprietary interest in the Company in the form of options to purchase shares of Stock.

NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants and promises hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Grant of Option. The Administrator hereby grants to Participant a non-statutory stock option (the “Stock Option”) to purchase <NUMBER OF OPTIONS> shares of Stock (the “Shares”), for a price of <XXXXX XXXXX> per share (the “Option Price”), which is not less than the per-Share fair market value on the Grant Date. The Stock Option is intended to be, and is hereby designated, a non-statutory option that does not qualify as an incentive stock option as defined in Section 422.

Expiration of Option. To the extent not earlier terminated, forfeited or expired, the Stock Option shall automatically terminate and cease being exercisable on the tenth anniversary of the Grant Date (the “Expiration Date”).

Vesting. Subject to the terms of this Agreement and the Plan, and provided Participant remains continuously an Employee of the Company or one of its Affiliates (the Company and its Affiliates hereinafter referred to as “THG”) through the applicable vesting date, the Stock Option shall vest and become exercisable in the following cumulative installments:

As to one third (33.33%) of the total number of Shares, on the first anniversary of the Grant Date;

As to an additional one third (33.33%) of the total number of Shares, on the second anniversary of the Grant Date; and

As to the remaining Shares, on the third anniversary of the Grant Date.

On the first two vesting dates set forth above, to the extent the Stock Option would otherwise become exercisable with respect to a fractional Share, such Share shall be rounded down so that the Stock Option is only exercisable with respect to a whole number of Shares.

Termination of Employment and Other Events.

(a)Termination for Cause. If Participant's Employment is terminated for “Cause” (as defined in Section 20) or occurs in circumstances that would have constituted grounds for Participant’s Employment to be terminated for Cause, effective immediately prior to such termination, the Stock Option, whether or not vested, shall be automatically cancelled and forfeited and be returned to the Company for no consideration.

(b)Voluntary Termination. If Participant voluntarily terminates his/her Employment (other than for “Good Reason” (as defined in Section 20)), effective immediately prior to such termination, any portion of the Stock Option that is not then vested shall be automatically cancelled and

forfeited and be returned to the Company for no consideration, and, except in the case of Retirement, such portion of the Stock Option that is then vested shall remain exercisable until the earlier of (i) three (3) months following the date of termination, or (ii) the Expiration Date.

(c)Disability. Subject to the remainder of this Section 4(c), if Participant is Disabled prior to the date this Stock Option becomes fully vested and exercisable pursuant to Section 3, (i) a prorated portion of this Stock Option shall automatically vest on the date Participant is Disabled, and (ii) the remaining unvested portion of this Stock Option shall be automatically canceled and forfeited and returned to the Company for no consideration. To the extent all or any portion of this Stock Option is outstanding and exercisable on the date Participant is Disabled, the vested portion of the Stock Option shall remain exercisable until the earlier of (x) one (1) year following the date Participant is Disabled, or (y) the Expiration Date. For purposes of this subsection, the pro-ration of the Stock Option that vests on the date Participant is Disabled shall be determined by dividing the number of days since the Grant Date by 1,096 and applying this percentage to the Stock Option. In the event the Participant had already vested in a portion of the Stock Option prior to becoming Disabled, the number of Stock Options that vest upon becoming Disabled shall be determined by calculating the pro-rata number of Stock Options that Participant is otherwise entitled to, determined as set forth above, and deducting from this amount the number of Stock Options that had already vested. Any fractional Stock Option shall be rounded down such that only whole Stock Options are vested. For purposes of this subsection, Participant shall be “Disabled” if he or she has been unable, for a period of twelve consecutive months, to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and has been receiving income replacement benefits for a period of twelve consecutive months under the Company’s Long-Term Disability Program. The date that Participant is Disabled for purposes of this Agreement is the twelve-month anniversary of the date Participant commences receiving such benefits under the Company’s Long-Term Disability Program.

If Participant ceases to receive benefits under the Company’s Long-Term Disability Program prior to becoming Disabled and immediately returns to active Employment, the Stock Option will continue to vest in accordance with Section 3 of this Agreement.

(d)Death. If Participant’s Employment is terminated due to his or her death prior to the date this Stock Option becomes fully vested and exercisable pursuant to Section 3, (i) a prorated portion of the Stock Option shall automatically vest on the date Participant dies, and (ii) the remaining unvested portion of the Stock Option shall be automatically canceled and forfeited and returned to the Company for no consideration. To the extent all or any portion of the Stock Option is outstanding and exercisable on the date Participant dies, the vested portion of the Stock Option shall remain exercisable until the earlier of (x) one (1) year following the date Participant dies, or (y) the Expiration Date. For purposes of this subsection, the pro-ration of the Stock Option that vests on the date Participant dies shall be determined by dividing the number of days since the Grant Date by 1,096 and applying this percentage to the Stock Option. In the event the Participant had already vested in a portion of the Stock Option prior to his or her death, the number of Stock Options that shall vest upon death shall be determined by calculating the pro-rata number of Stock Options that Participant is otherwise entitled to, determined as set forth above, and deducting from this amount the number of Stock Options that had already vested. Any fractional Stock Option shall be rounded down such that only whole Stock Options are vested.

(e)Covered Transaction/Change in Control. Subject to Section 4(e)(iv), in the event of a Covered Transaction (other than a Change in Control, whether or not it is a Covered Transaction), the Administrator shall, with respect to the Stock Options, take one of the actions set forth in Sections 7(a)(1), 7(a)(2) or 7(a)(3) of the Plan. Notwithstanding the terms of the Plan, but subject to Section 4(e)(iv), in the event of a Change in Control (whether or not it is a Covered Transaction), the following rules shall apply:

(i) Except as provided below in Sections 4(e)(ii) or 4(e)(iv), in the event of a Change in Control, to the extent the Stock Options are outstanding immediately prior to the Change in Control, Participant shall automatically vest in 100% of the Stock Options.

(ii) Notwithstanding Section 4(e)(i), no acceleration of vesting shall occur with respect to the Stock Options if the Administrator reasonably determines in good faith prior to the occurrence of a Change in Control that this Award shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted award hereinafter called an “Alternative Award”), by Participant's employer (or the parent or a subsidiary of such employer) immediately following the Change in Control, provided that any such Alternative Award must:

(A) be based on stock which is traded, or will be traded upon consummation of the Change in Control, on an established securities market;

(B) provide such Participant (or each Participant in a class of Participants) with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under this Award, including, but not limited to, an identical or better vesting schedule;

(D) have terms and conditions which provide that in the event that Participant's employment is involuntarily terminated (other than for Cause) or Participant terminates employment for Good Reason prior to the third anniversary of the Grant Date, Participant shall automatically vest in 100% of the Alternative Award and any conditions on a Participant's rights under, or any restrictions on transfer or exercisability applicable to, the vested portion of such Alternative Award shall be waived or shall lapse.

(iii) Notwithstanding Sections 4(e)(i) and 4(e)(ii) above, in the event of a Change in Control, the Administrator may elect, in its sole discretion at any time prior to the effective date of the Change in Control, to accelerate all of the Stock Options

(iv) Notwithstanding any language contained herein to the contrary, the foregoing provisions contained in this Section 4(e) shall not apply with respect to any Stock Options granted to Participant on or prior to June 20, 2017 (the “First Year Option Awards”). Accordingly, unless the Administrator affirmatively elects, in writing, to apply the provisions of Section 4(e)(i), (ii) or (iii) to such First Year Option Awards, upon a Change in Control and/or Covered Transaction, any portion of the Stock Option that is not then vested shall be automatically cancelled and forfeited and be returned to the Company for no consideration.

(f)Retirement. If Participant’s Employment terminates as a result of his/her Retirement, effective immediately prior to the effective date of Participant’s Retirement, any portion of the Stock Option that is not then vested shall be automatically cancelled and forfeited and be returned to the Company for no consideration, and such portion of the Stock Option that is then vested shall remain exercisable until the earlier of (i) three (3) years following the effective date of Participant’s Retirement, or (ii) the Expiration Date.

For the purpose of this Agreement, “Retirement” shall be deemed to occur if (i) Participant’s Employment voluntarily terminates (other than as a result of the events set forth in this Section 4), and (ii) he or she is 65 years of age or older, as of such termination date.

(g)Involuntary/Constructive Termination. In the event Participant’s Employment is terminated by the Company (other than as a result of, or in connection with, the events set forth above in this

Section 4), or Participant terminates Employment for Good Reason, effective immediately prior to such termination, subject to the last sentence of this Section 4(g), the portion of the Stock Option that would have vested under Section 3 had Participant remained employed during the twelve (12)-month period following the date of such termination of Employment shall automatically vest as of the date of such termination of Employment (such accelerated vesting, the “Vesting Credit”), and after the application of such Vesting Credit, any portion of the Stock Option that is not then vested shall be automatically cancelled and forfeited and be returned to the Company for no consideration, and such portion of the Stock Option that is then vested (including any such additional Stock Options that vest as a result of the Vesting Credit) shall remain exercisable until the earlier of (i) three (3) months following the date of termination, or (ii) the Expiration Date. Any entitlement to the Vesting Credit is expressly conditioned on, and shall only be effective upon, Participant’s execution of the separation agreement required pursuant to Section 6 of that certain Offer Letter dated May 15, 2016, by and between the Company and Participant (the “Offer Letter”).

Notice of Exercise and Payment for Shares. This Stock Option may be exercised by Participant or, if appropriate, Participant’s legal representative, by giving written notice to the Administrator stating the number of Shares to be purchased. Such notice must be accompanied by payment in full of the Option Price for the Shares to be purchased.

Exercise notices hereunder shall be in such form as is acceptable to the Administrator, including by electronic notice with electronic signature. If notice is provided by a person other than Participant, this Stock Option will not be deemed to have been exercised until the Administrator has received such evidence as it may require that the person exercising the Stock Option has the right to do so.

For all other notices, such notices must be in writing and, if to the Company, shall be delivered personally to the Human Resources Department or such other party as designated by the Company or mailed to its principal office and, if to the Participant, shall be delivered personally or mailed to the Participant at his or her address on the records of the Company.

Payment may be made in (a) shares of Stock (including through a “net exercise” (as set forth in subsection (b)), (b) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock that would otherwise be issued upon exercise of the Stock Option by a number of whole shares having a fair market value equal to the aggregate Option Price of the Stock Option, (c) cash or a combination of shares of Stock and cash for the number of Shares specified, or (d) through a broker-assisted exercise program acceptable to the Administrator.

To the extent that the Option Price of this Stock Option is less than the fair market value of a share of Stock by $0.50 or more on the date described below (determined by using the closing price of a share of Stock on such date, or if the Stock is not traded on such date, the most recent date on which the Stock was traded), this Stock Option, to the extent then outstanding and vested, will be automatically exercised, without any action required on behalf of Participant, by a “net exercise” as described in clause (b) of the paragraph above, on (x) the Expiration Date, if Participant has remained continuously Employed from the Grant Date through the Expiration Date, or (y) on the last day of the post-termination exercise period of this Stock Option as set forth in Section 4 above, in the case the Employment of Participant was involuntarily terminated by the Company for reasons other than for Cause, was terminated by reason of death, being Disabled or Retirement, or voluntarily terminated by Participant.

Delivery of Shares. Upon receipt of notice and payment as provided hereunder, the Company shall make delivery of such Shares within a reasonable period, but in no event later than 30 days.

Non-Hire/Solicitation/Confidentiality/Code of Conduct. As a condition of Participant’s eligibility to receive this Stock Option and regardless of whether such Stock Option vests or is exercised, Participant agrees that he or she will (a) not, directly or indirectly, during the term of Participant’s Employment, and for a period of one year thereafter, hire, solicit, entice away or in any way interfere with THG’s relationship with, any of its officers or employees, or in any way attempt to do so or

participate with, assist or encourage a third party to do so, (b) neither disclose any of THG’s confidential and proprietary information to any third party, nor use such information for any purpose other than for the benefit of THG and in accordance with THG policy; (c) not, during the term of Participant’s Employment, and for a period of one year thereafter, interfere with or seek to interfere with, THG’s relationships with any of its policyholders, customers, clients, agents or vendors; and (d) at all times comply with (i) THG’s Code of Conduct and other policies and procedures as in effect from time to time, and (ii) any non-competition, non-disclosure, non-solicitation or similar agreement he or she may have with the Company or its Affiliates. The terms of this Section 7 shall survive the expiration or earlier termination of this Agreement.

Specific Performance/Damages.

(a)

Participant hereby acknowledges and agrees that in the event of any breach of Section 7 of this Agreement, the Company would be irreparably harmed and could not be made whole by monetary damages. Participant accordingly agrees to waive the defense in any action for injunctive relief or specific performance that a remedy at law would be adequate and that the Company, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to an injunction or to compel specific performance of Section 7.

(b)

In addition to any other remedy to which the Company may be entitled at law or in equity (including the remedy provided in the preceding paragraph), Participant hereby acknowledges and agrees that in the event of any breach of Section 7 of this Agreement, Participant shall be required to refund to the Company the value received by Participant upon exercise of the Stock Options measured by the amount that the "Stock Value" exceeds the Option Price; provided, however, that the Company makes any such claim, in writing, against Participant alleging a violation of Section 7 not later than two years following Participant’s termination of Employment. The Stock Value shall be the sale price of the Shares issued upon exercise of the Stock Option, if and to the extent such Shares were sold on the date of such exercise; otherwise, the Stock Value shall be the closing price of Shares as reported on the New York Stock Exchange (or such other exchange or facility as is determined by the Administrator if the Shares are not then traded on the New York Stock Exchange) on the date of the exercise of the Stock Option.

Successors. The provisions of this Agreement will benefit and will be binding upon the permitted assigns, successors in interest, personal representatives, estates, heirs and legatees of each of the parties hereto. However, the Stock Option is non-assignable, except as may be permitted by the Plan.

10.

Interpretation. The terms of the Stock Option are as set forth in this Agreement and in the Plan. The Plan is

incorporated into this Agreement by reference, which means that this Agreement is limited by and subject to the express terms and provisions of the Plan. In the event of a conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.

11.

Facsimile or Electronic Signature. The parties may execute this Agreement by means of a facsimile or electronic signature.

12.

Entire Agreement; Counterparts. This Agreement, the Plan and the Offer Letter contain the entire understanding between the parties concerning the subject contained in this Agreement. Except for the Agreement, the Plan and the Offer Letter, there are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties hereto, relating to the subject matter of this Agreement, that are not fully expressed herein. This Agreement may be signed in one or more counterparts, all of which shall be considered one and the same agreement.

13.

Further Assurances. Each party to this Agreement agrees to perform all further acts and to execute and deliver all further documents as may be reasonably necessary to carry out the intent of this Agreement.

14.

Severability. In the event that any of the provisions, or portions thereof, of this Agreement are held to be unenforceable or invalid by any court of competent jurisdiction, the validity and enforceability of the

remaining provisions, or portions thereof, will not be affected, and such unenforceable provisions shall be automatically replaced by a provision as similar in terms as may be valid and enforceable.

15.

Construction. Whenever used in this Agreement, the singular number will include the plural, and the plural number will include the singular, and the masculine or neuter gender shall include the masculine, feminine, or neuter gender. The headings of the Sections of this Agreement have been inserted for purposes of convenience and shall not be used for interpretive purposes. The Administrator shall have full discretion to interpret and administer this Agreement. Any actions or decisions by the Administrator in connection with this Agreement shall be conclusive and binding upon Participant.

16.

No Effect on Employment. Nothing contained in this Agreement shall be construed to limit or restrict the right of THG to terminate Participant’s Employment at any time, with or without cause, or to increase or decrease Participant’s compensation from the rate of compensation in existence at the time this Agreement is executed.

17.

Taxes. The exercise of this Stock Option will give rise to “wages” subject to withholding. Participant expressly acknowledges and agrees that Participant’s rights hereunder, including the right to be issued Shares upon exercise, are subject to Participant promptly remitting to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion) any amounts determined by the Company to be required to be withheld. No Shares will be transferred pursuant to the exercise of this Stock Option unless and until the person exercising this Stock Option has remitted to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements, or has made other arrangements satisfactory to the Company with respect to such taxes. Participant authorizes the Company to withhold such amount from any amounts otherwise owed to Participant. The Company may, at its option, withhold a sufficient number of Shares to satisfy the minimum federal, state and local tax withholding due (or such greater amount as would not result in adverse accounting consequences to the Company, as determined by, and in the sole discretion of, the Company) and remit the balance of the Shares to Participant. If this Stock Option is automatically exercised as provided in the last paragraph of Section 5 above or if Participant pays the Option Price through a “net exercise” of this Stock Option as provided by Section 5 above, the minimum federal, state and local tax withholding due in connection with the exercise of this Stock Option shall be satisfied by the Company withholding a sufficient number of Shares to satisfy with minimum federal, state and local tax withholding due (or such greater amount as would not result in adverse accounting consequences to the Company, as determined by, and in the sole discretion of, the Company). The Company makes no representations to Participant with respect to the tax treatment of any amount paid or payable pursuant to this Award.

18.

Waiver of Jury Trial. By accepting this Award under the Plan, Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under (a) the Plan, (b) any Award, or (c) any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection with any of the foregoing, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury.

19.

Additional Restrictions. The Administrator may cancel, rescind, withhold or otherwise limit or restrict the Stock Options (in whole or in part) at any time if Participant is not in compliance with all applicable provisions of this Agreement and the Plan, or if Participant breaches any agreement with THG, including with respect to the Code of Conduct or other policies of THG, or any non-competition, non-solicitation, confidentiality or other similar provisions. Without limiting the generality of the foregoing, the Administrator may recover the Stock Options and payments under or gain in respect thereto to the extent required to comply with Section 10D of the Securities Exchange Act of 1934, as amended, or any stock exchange or similar rule adopted under said Section. In addition, rights, payments and benefits under this Award shall be subject to repayment to, or recoupment by, THG in accordance with any clawback or recoupment policies and procedures that THG may adopt from time to time.

20.

Definitions. As used herein, the terms “Cause” and “Good Reason” shall have the meanings set forth in the Offer Letter.

21.

Notice and Opportunity to Cure.

(a)

Good Reason Event. In the event Participant believes a Good Reason event has been triggered, Participant must give the Board written notice of the purported Good Reason event within ten (10) business days of the first occurrence of such triggering event. The Company shall have the right to cure such purported Good Reason event within thirty (30) days of receipt of said notice. To the extent that the Company does not cure such event within this thirty (30) day period, Participant shall be required to terminate his Employment within thirty (30) days thereafter in order to have his termination of Employment treated as a Good Reason termination hereunder.

(b)

Termination for Cause. In the event that the Company believes that it has the right to terminate Participant’s Employment for Cause, the Company must give Participant written notice of the purported Cause. The Company shall provide Participant with notice of such purported Cause within ten (10) business days after the Board has become aware that Cause has been triggered (except that failure to provide notice timely shall be without prejudice to the Company’s right to terminate Participant with Cause unless such delay materially impaired Participant’s ability to cure such matter within the time-period hereinafter provided). If such matter is susceptible to cure, then Participant shall have the right to do so within thirty (30) days of receipt of said notice. To the extent that such matter is not susceptible to cure, or Participant does not cure such event within this thirty (30) day period, the Company shall be required to terminate Participant’s Employment within thirty (30) days thereafter in order for Participant’s termination of Employment treated as a Cause termination.

IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the Grant Date.


	THE HANOVER INSURANCE GROUP, INC.

	By:
	Name: Xxxxxxxxx Xxxxxxx-Xxxxxxxx
	Title: Senior Vice President & CHRO



	Xxxxxx X. Xxxxxxxxx

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NON-QUALIFIED STOCK OPTION AGREEMENT

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