EXHIBIT 4.2
INCENTIVE STOCK OPTION AGREEMENT
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THIS AGREEMENT, dated ____________, 19__, is made by and between
Mercury General Corporation, a California corporation hereinafter referred to as
"Company," and ____________________, an employee of the Company or a Subsidiary
of the Company, hereinafter referred to as "Employee":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its no par value Common Stock; and
WHEREAS, the Company wishes to carry out the 1995 Equity Participation
Plan of Mercury General Corporation (the "Plan"), (the terms of which are hereby
incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and best interest of the Company
and its stockholders to grant the Incentive Stock Option provided for herein to
the Employee as an inducement to enter into or remain in the service of the
Company or its Subsidiaries and as an incentive for increased efforts during
such service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
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Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates otherwise.
Section 1.1 - Board "Board" shall mean the Board of Directors of the Company.
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Section 1.2 - Code "Code" shall mean the Internal Revenue Code of 1986, as
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amended.
Section 1.3 - Committee "Committee" shall mean the Compensation Committee of
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the Board or a subcommittee of the Board, appointed as provided in the Plan.
Section 1.4 - Company "Company" shall mean Mercury General Corporation, a
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California corporation.
Section 1.5 - Director "Director" shall mean a member of the Board.
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Section 1.6 - Exchange Act "Exchange Act" shall mean the Securities Exchange
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Act of 1934, as amended.
Section 1.7 - Officer "Officer" shall mean an officer of the Company, as
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defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in
the future.
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Section 1.8 - Option "Option" shall mean the incentive stock option to purchase
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Common Stock of the Company granted under this Agreement.
Section 1.9 - Plan "Plan" shall mean the 1995 Equity Participation Plan of
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Mercury General Corporation.
Section 1.10 - Rule 16b-3 "Rule 16b-3" shall mean that certain Rule 16b-3 under
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the Exchange Act, as such Rule may be amended in the future.
Section 1.11 - Secretary "Secretary" shall mean the Secretary of the Company.
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Section 1.12 - Securities Act "Securities Act" shall mean the Securities Act of
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1933, as amended.
Section 1.13 - Subsidiary "Subsidiary" shall mean any corporation in an
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unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one (1) of the other corporations in such chain.
Section 1.14 - Termination of Employment "Termination of Employment" shall mean
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the time when the employee-employer relationship between the Optionee and the
Company or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement, but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an Optionee by
the Company or a Subsidiary and (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship. The Committee, in its absolute discretion, shall determine the
effect of all other matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that a leave of absence shall constitute a Termination of
Employment if, and to the extent that, such leave of absence interrupts
employment for purposes of Section 422(a)(2) of the Code and the then applicable
regulations and revenue rulings under said Section.
ARTICLE II
GRANT OF OPTION
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Section 2.1 - Grant of Option
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In consideration of the Employee's agreement to remain in the employ
of the Company or its Subsidiaries and for other good and valuable
consideration, on the date hereof the Company irrevocably grants to the Employee
the option to purchase any part or all of an aggregate of ________ shares of its
no par value Common Stock, upon the terms and conditions set forth in this
Agreement.
Section 2.2 - Purchase Price
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The purchase price of the shares of stock covered by the Option shall
be $_____ per share without commission or other charge.
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Section 2.3 - Consideration to Company
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In consideration of the granting of this Option by the Company, the
Employee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is granted. Nothing in this Agreement or in the Plan shall confer upon
the Employee any right to continue in the employ of the Company or any
Subsidiary or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Employee at any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
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In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Employee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the Option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. Any such adjustment made by the
Committee shall be final and binding upon the Employee, the Company and all
other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
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Section 3.1 - Commencement of Exercisability
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(a) Subject to Sections 3.5 and 5.6, the Option shall become
exercisable in five (5) cumulative installments as follows:
(i) The first installment shall consist of one-fifth (1/5th) of
the shares covered by the Option and shall become exercisable on the first
anniversary of the date the Option is granted.
(ii) The second installment shall consist of one-fifth (1/5th) of
the shares covered by the Option and shall become exercisable on the second
anniversary of the date the Option is granted.
(iii) The third installment shall consist of one-fifth (1/5th) of
the shares covered by the Option and shall become exercisable on the third
anniversary of the date the Option is granted.
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(iv) The fourth installment shall consist of one-fifth (1/5th) of
the shares covered by the Option and shall become exercisable on the fourth
anniversary of the date the Option is granted.
(v) The fifth installment shall consist of one-fifth (1/5th) of
the shares covered by the Option and shall become exercisable on the fifth
anniversary of the date the Option is granted.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
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The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
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The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) If the Employee owned (within the meaning of Section 424(d) of
the Code), at the time the Option was granted, more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Subsidiary, the expiration of five (5) years from the date the Option was
granted; or
(c) The time of the Employee's Termination of Employment unless such
Termination of Employment results from his death, his retirement, his disability
(within the meaning of Section 22(e)(3) of the Code) or his being discharged not
for good cause; or
(d) The expiration of three (3) months from the date of the
Employee's Termination of Employment by reason of his retirement or his being
discharged not for good cause, unless the Employee dies within said three-month
period; or
(e) The expiration of one (1) year from the date of the Employee's
Termination of Employment by reason of his disability (within the meaning of
Section 22(e)(3) of the Code); or
(f) The expiration of one (1) year from the date of the Employee's
death; or
(g) The effective date of either the merger or consolidation of the
Company with or into another corporation, the exchange of all or substantially
all of the assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company,
unless the Committee waives this provision in connection with such transaction.
At least ten (10) days prior to the effective date of such merger,
consolidation,
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acquisition, liquidation or dissolution, the Committee shall give the Employee
notice of such event if the Option has then neither been fully exercised nor
become unexercisable under this Section 3.3.
Section 3.4 - Acceleration of Exercisability
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In the event of the merger or consolidation of the Company with or
into another corporation, the exchange of all or substantially all of the assets
of the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(g), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation, or a parent or subsidiary of such corporation, so that
such assumption or substitution complies with the provisions of Section 424(a)
of the Code; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 3.5 or Section
5.6.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and determinations regarding whether provisions for
assumption or substitution have been made as defined in subsection (b) above.
Section 3.5 - Special Tax Consequences
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The Employee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other incentive stock
option plans of the Company and any Subsidiary) exceeds $100,000, such options
shall be treated as not qualifying under Section 422 of the Code but rather
shall be taxed as non-qualified options. The Employee further acknowledges that
the rule set forth in the preceding sentence shall be applied by taking options
into account in the order in which they were granted. For purposes of these
rules, the fair market value of stock shall be determined as of the time the
option with respect to such stock is granted.
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ARTICLE IV
EXERCISE OF OPTION
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Section 4.1 - Person Eligible to Exercise
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During the lifetime of the Employee, only he may exercise the Option
or any portion thereof. After the death of the Employee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Employee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
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Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
one hundred (100) shares (or the minimum installment set forth in Section 3.1,
if a smaller number of shares) and shall be for whole shares only.
Section 4.3 - Manner of Exercise
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The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Employee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is exercised; or
(ii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Employee duly endorsed for transfer to
the Company or (B) subject to the timing requirements of Section 4.4,
shares of the Company's Common Stock issuable to the Employee upon exercise
of the Option, with a fair market value (as determined under the Plan) on
the date of Option exercise equal to the aggregate purchase price of the
shares with respect to which such Option or portion is exercised; or
(iii) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision)
and payable upon such terms as may be prescribed by the Committee. The
Committee may also prescribe the form of such note and the security to be
given for such note. The Option may not be exercised, however, by delivery
of a promissory note or by a loan from the Company when or where such loan
or other extension of credit is prohibited by law; or
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(iv) With the consent of the Committee, delivery of property of
any kind which constitutes good and valuable consideration with a fair
market value on the date of Option exercise equal to the aggregate purchase
price of the shares with respect to which such Option or portion is
exercised; or
(v) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (i), (ii), (iii) and
(iv); and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Employee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares;
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Employee duly endorsed for
transfer or (ii) subject to the timing requirements of Section 4.4, shares of
the Company's Common Stock issuable to the Employee upon exercise of the Option,
valued in accordance with the Plan at the date of Option exercise, may be used
to make all or part of such payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Employee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
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Shares of the Company's Common Stock issuable to the Employee upon
exercise of the Option may be used to satisfy the Option price or the tax
withholding consequences of such exercise only (i) during the period beginning
on the third (3rd) business day following the date of release of the quarterly
or annual summary statement of sales and earnings of the Company and ending on
the twelfth (12th) business day following such date or (ii) pursuant to an
irrevocable written election by the Employee to use shares of the Company's
Common Stock issuable to the Employee upon exercise of the Option to
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pay all or part of the Option price or the withholding taxes (subject to the
approval of the Committee) made at least six (6) months prior to the payment of
such Option price or withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
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The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee or Board shall, in its
absolute discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee or Board may from time to time establish
for reasons of administrative convenience; and
(e) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option.
Section 4.6 - Rights as Shareholder
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The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
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Section 5.1 - Administration
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The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. In
its absolute discretion, the
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Board may at any time and from time to time exercise any and all rights or
duties of the Committee under the Plan and this Agreement except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
Section 5.2 - Option Not Transferable
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Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
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The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4 - Notices
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Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Employee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Employee shall,
if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
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Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Shareholder Approval
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The Plan will be submitted for approval by the Company's stockholders
within twelve (12) months after the date the Plan was initially adopted by the
Board. This Option may not be exercised to any extent by anyone prior to the
time when the Plan is approved by the stockholders, and if such approval has not
been obtained by the end of said twelve-month period, this Option shall
thereupon be cancelled and become null and void.
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Section 5.7 - Notification of Disposition
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The Employee shall give prompt notice to the Company of any
disposition or other transfer of any shares of stock acquired under this
Agreement if such disposition or transfer is made (a) within two (2) years from
the date of granting the Option with respect to such shares or (b) within one
(1) year after the transfer of such shares to him. Such notice shall specify
the date of such disposition or other transfer and the amount realized, in cash,
other property, assumption of indebtedness or other consideration, by the
Employee in such disposition or other transfer.
Section 5.8 - Construction
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This Agreement shall be administered, interpreted and enforced under
the laws of the State of California.
Section 5.9 - Conformity to Securities Laws
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The Employee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
MERCURY GENERAL CORPORATION
By________________________________________
President
By________________________________________
Secretary
________________________________
Employee
________________________________
Address
Employee's Taxpayer
Identification Number:
________________________________
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