EXHIBIT 4(B)
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this "Agreement") is made and entered
into as of July 31, 1996, by and between MERIDIAN INSURANCE GROUP, INC., an
Indiana corporation (the "Company"), and XXXXXXX X. XXXXXXXXX
("Xxxxxxxxx").
RECITALS
X. Xxxxxxxxx is and has been a key management employee of Citizens
Security Group Inc., a Minnesota corporation ("Citizens") and of its
affiliates.
B. The Company has entered into an Acquisition and Affiliation
Agreement dated as of March 20, 1996 (the "Acquisition and Affiliation
Agreement"), pursuant to which (1) Meridian Acquisition Corporation, an
indirect wholly-owned subsidiary of the Company has been merged with and
into Citizens (the "Merger") with the result that Citizens and its wholly-
owned subsidiaries, Citizens Fund Insurance Company and Insurance Company
of Ohio, have become indirect wholly-owned subsidiaries of the Company, and
(2) Citizens Security Mutual Insurance Company has become affiliated with
the Company.
C. In connection with the Merger and the Acquisition Agreement,
Xxxxxxxxx has entered into a Consulting Services Agreement with the Company
which, among other matters, provides for the grant to Xxxxxxxxx of an
option to purchase shares of common stock of the Company, as provided
herein.
AGREEMENT
In consideration of the premises and the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Xxxxxxxxx
agree as follows:
SECTION 1. GRANT OF OPTION. Upon and subject to the terms and
conditions set forth herein, the Company hereby grants to Xxxxxxxxx an
option (the "Option") to purchase up to Twenty Thousand (20,000) shares
(the "Shares") of the common stock of the Company (the "Common Stock"), at
a per share exercise price (the "Exercise Price") equal to $14.125.
SECTION 2. TIME OF EXERCISE OF OPTION. The Option shall become
exercisable (i) 25% on the first anniversary of the Effective Time, as such
term is defined in the Acquisition and Affiliation Agreement, and (ii) an
additional 25% on each of the second, third and fourth anniversary of the
Effective Time. In addition, in the event of Xxxxxxxxx'x death prior to
the fourth anniversary of the Effective Time, the Option shall become
immediately exercisable in full. The Option shall expire on and shall not
be exercisable after the earlier of: (a) the date ninety days following
Xxxxxxxxx'x death, or (b) the tenth anniversary of the Effective Time.
SECTION 3. METHOD OF EXERCISE; RESTRICTIONS. (a) To the extent
provided by Section 2 above, the Option may be exercised in whole or in
part (subject to Section 3(c) below), from time to time, by presentation
and surrender of this Agreement to the Company at its principal office,
together with an Option Exercise Form substantially in the form attached
hereto as EXHIBIT A, duly completed and executed for purchase of the
designated number of shares of Common Stock accompanied by payment of the
Exercise Price due in connection with such exercise.
(b) The Exercise Price shall be paid in cash (including certified or
cashier's check).
(c) If the Option shall have been exercised in part, the Company
shall, at the time of delivery of the certificates representing the Shares
issuable pursuant to such partial exercise, make appropriate notation of
the partial exercise of the Option on the face of this Agreement and return
this Agreement to Xxxxxxxxx.
(d) The Company shall make prompt delivery of the certificate(s)
representing the Shares purchased pursuant to the Option; provided,
however, that if any law or regulation requires the Company to take any
action with respect to such Shares before the issuance thereof, then the
date of delivery of such certificate shall be extended for the period
necessary to take such action.
SECTION 4. RESTRICTIONS ON TRANSFER. The Option is not transferable
by Xxxxxxxxx, except to his estate upon his death. During Xxxxxxxxx'x
lifetime the Option is exercisable only by him, and following Xxxxxxxxx'x
death the Option is exercisable only by his personal representative, to the
extent provided in Section 2. Xxxxxxxxx or his estate shall have no rights
in any of the Shares or otherwise as a shareholder of the Company by virtue
hereof until payment of the Exercise Price and delivery of such Shares as
herein provided. The Option and the rights granted hereunder shall not be
pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment, or similar
process. Upon any attempt to transfer, assign, pledge, hypothecate, or
otherwise dispose of the Option or any right granted hereunder or such
rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon the Option or any such rights, this
Agreement, the Option and such rights shall immediately and automatically
become null and void and of no further force or effect.
SECTION 5. ADJUSTMENTS. In order to prevent dilution of the rights
granted under the Option, the Exercise Price will be subject to adjustment
from time to time as provided in this Section 5 (such price or such price
as last adjusted pursuant to the terms hereof, as the case may be,
thereafter constituting the "Exercise Price" for all purposes), and the
number of shares of Common Stock obtainable upon exercise of the Option (or
part thereof), will be subject to adjustment from time to time as provided
in this Section 5:
(a) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company,
at any time prior to last date on which the Option may be
exercised, declares any stock dividend or subdivides (by any
stock split, recapitalization or otherwise) its outstanding
shares of Common Stock into a greater number of shares, the
number of shares of Common Stock obtainable upon exercise of the
Option will be proportionately increased and the per share
Exercise Price shall be proportionately decreased. If the
Company at any time prior to the exercise of the Option combines
(by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the number of
shares of Common Stock obtainable upon exercise of the Option
will be proportionately decreased and the per share Exercise
Price shall be proportionately increased.
(b) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. Any capital reorganization, reclassification,
consolidation, merger, share exchange, sale of all or
substantially all of the Company's assets to another person or
similar transaction which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets, including
cash, with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of
any Organic Change, the Company will, at the Company's sole
election, either: (i) make appropriate provisions to allow this
Option to be exercised in full immediately prior to the Organic
Change; (ii) make appropriate provisions to ensure that Xxxxxxxxx
will, upon consummation of the Organic Change, receive the
economic benefit of the Option, as though the Option were
exercisable in full at that time; or (iii) make appropriate
provisions to ensure that Xxxxxxxxx will, after consummation of
the Organic Change, have the right to acquire and receive in lieu
of the shares of Common Stock immediately theretofore acquirable
and receivable upon the exercise of the Option, such shares of
stock, securities or assets, including cash, as may be issued or
payable pursuant to the terms of the transaction constituting the
Organic Change with respect to or in exchange for the number of
shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of the Option had such Organic Change
not taken place. In any such case, upon consummation of the
Organic Change, the Option shall cease to be exercisable for
shares of Common Stock.
SECTION 6. NOTICE OF ADJUSTMENT. On the happening of an event
requiring an adjustment of the Exercise Price or the number or kind of
securities or other property purchasable hereunder, the Company shall
forthwith give written notice to Xxxxxxxxx stating the adjusted Exercise
Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in
reasonable detail the method of calculation and the facts upon which the
calculation is based. The Board of Directors of the Company, acting in
good faith, shall determine the calculation and all other matters relating
to any adjustment provided for under Section 5, which determination shall
be binding upon Xxxxxxxxx.
SECTION 7. REGISTRATION STATEMENT ON FORM S-8. Prior to the first
date on which the Option becomes exercisable and until the last date of the
term of the Option (or such earlier date on which all Option Shares have
been acquired), the Company shall use good faith efforts to file with the
Securities and Exchange Commission and maintain the effectiveness of a
Registration Statement on Form S-8 (or such other substantially similar
form as may then be available to the Company for the registration of the
Option Shares) for the purpose of registering the Option Shares under the
Securities Act of 1933, as amended; provided, however, that the Company's
obligations pursuant to this Section 7 are expressly conditioned upon its
ability or eligibility to use a Registration Statement on Form S-8 (or a
substantially similar form) to register the Option Shares. The expenses of
registering the Option Shares pursuant hereto shall be borne by the
Company.
SECTION 8. ENDORSEMENT ON SHARE CERTIFICATES. In the event Xxxxxxxxx
exercises the Option at a time when the Shares are not registered under the
Securities Act of 1933 as contemplated by Section 7 above, the certificate
representing such Shares shall be required to bear a legend in
substantially the following form:
"The shares represented by this certificate have not been
registered under the federal Securities Act of 1933 or the
securities laws of any state and have been issued and sold in
reliance upon certain exemptive provisions of such laws. Such
shares may not be sold or transferred except if, in the opinion
of counsel reasonably acceptable to the Company, any such sale or
transfer would be pursuant to an effective registration statement
under the applicable state and federal securities laws or
pursuant to an exemption from such registration."
SECTION 9. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the Company and Xxxxxxxxx and their
respective heirs, personal representatives, successors and assigns;
provided that the assignment of this Agreement by Xxxxxxxxx is expressly
prohibited pursuant to Section 4 above.
SECTION 10. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed effective as of the day and year first above written.
"COMPANY"
MERIDIAN INSURANCE GROUP, INC.
By: /S/ XXXXX X. XXXX
Xxxxx X. Xxxx, President and
Chief Executive Officer
XXXXXXXXX AFFIRMS THAT HE HAS READ AND UNDERSTANDS THE CONTENTS OF
THIS AGREEMENT AND THAT HE ACCEPTS THE OPTION ON THE TERMS AND CONDITIONS
SET FORTH HEREIN.
"XXXXXXXXX"
/S/ XXXXXXX X. XXXXXXXXX
Xxxxxxx X. Xxxxxxxxx
Social Security Number
Address:
EXHIBIT A
TO
STOCK OPTION AGREEMENT
OPTION EXERCISE FORM
Meridian Insurance Group, Inc.
0000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxx 00000
Reference is hereby made to that certain Stock Option Agreement dated
July 31, 1996, between Meridian Insurance Group, Inc. and Xxxxxxx X.
Xxxxxxxxx (the "Agreement"). Capitalized terms used herein shall have the
meanings ascribed in the Agreement.
The undersigned hereby:
1.Irrevocably subscribes for _______ Shares of Common Stock of the
Company at the Exercise Price (as defined in the Agreement) and encloses
payment herewith in the amount of $__________.
2.Acknowledges that such Shares shall be issued by the Company pursuant
to, and subject to the terms of the Agreement.
3.[IF NEEDED] Acknowledges that he is acquiring the Shares for
investment solely for his own account and not with a view to distribution
or resale thereof, and that he is familiar with the business and affairs of
the Company and has reviewed all such financial information and other
materials and information as he has deemed desirable in connection with his
purchase of the Shares.
4.[IF NEEDED] Acknowledges and agrees that such Shares shall bear a
legend substantially similar to that described in the Agreement.
5.Represents and warrants that he is the sole holder of the Option, that
the Option is outstanding, unexpired and unexercised to the extent
necessary for this exercise, and that the exercise of the Option hereby is
in full compliance with the terms of the Agreement.
6.[IF A PARTIAL EXERCISE] Herewith surrenders to the Company the
Agreement for notation of the partial exercise of the Option, subject to
return to the undersigned upon such notation.
7.Requests that a certificate for such Shares of Common Stock be issued
in the name of the undersigned and delivered to the undersigned at the
address set forth below.
Date: ____________________
Xxxxxxx X. Xxxxxxxxx
Social Security Number
Address:
