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 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 immediately become
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:______________________________
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"
__________________________________
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:
_____________________________
_____________________________
