<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1998.
REGISTRATION NO. 333-59371
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE MIIX GROUP, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 6719 22-3586492
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
TWO PRINCESS ROAD
LAWRENCEVILLE, NEW JERSEY 08648
(609) 896-2404
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DANIEL GOLDBERG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE MIIX GROUP, INCORPORATED
TWO PRINCESS ROAD
LAWRENCEVILLE, NJ 08648
(609) 896-2404, EXT. 1274
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
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JAMES J. MARINO, ESQ. ALLAN G. SPERLING, ESQ.
CHRISTOPHER G. KARRAS, ESQ. CLEARY, GOTTLIEB, STEEN & HAMILTON
DECHERT PRICE & RHOADS ONE LIBERTY PLAZA
997 LENOX DRIVE NEW YORK, NY 10006
BUILDING #3, SUITE 210 (212) 225-2260
LAWRENCEVILLE, NJ 08648
(609) 620-3200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the conditions to the consummation of the reorganization of
the Registrant are satisfied.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
[MEDICAL INTER-INSURANCE EXCHANGE LOGO]
MEDICAL INTER-INSURANCE
EXCHANGE OF NEW JERSEY
TWO PRINCESS ROAD
LAWRENCEVILLE, NEW JERSEY 08648
PROPOSED PLAN OF REORGANIZATION -- YOUR VOTE IS VERY IMPORTANT
The Board of Governors of the Medical Inter-Insurance Exchange of New
Jersey ("Exchange") and the New Jersey Department of Banking and Insurance have
approved a Plan of Reorganization ("Plan") of the Exchange. Pursuant to the
Plan:
- The Exchange will be converted from a reciprocal insurer to a new stock
company, MIIX Insurance Company ("MIIX Insurance").
- The MIIX Group, Incorporated ("MIIX Group"), a public stock company, will
be the holding company for MIIX Insurance and all the other MIIX
companies.
- MIIX Group stock (or cash) will be distributed to eligible Exchange
members, resulting in tangible value for their membership interests,
value that could not be realized through the Exchange's current structure
as a reciprocal insurer.
Be assured that the Plan will have no impact on your current premium and
all policies currently in effect will remain in force in accordance with their
terms.
MIIX Group is conducting a Subscription Offering and following member
approval of the Plan, intends to conduct an Initial Public Offering ("IPO").
MIIX Group shares will be listed on The New York Stock Exchange under the symbol
" ."
YOUR PROMPT VOTE IS VERY IMPORTANT. IN ORDER FOR THE PLAN TO BE APPROVED
AND THE SUBSCRIPTION OFFERING AND IPO TO TAKE PLACE, TWO-THIRDS (2/3) OF THE
VOTES CAST MUST BE FOR THE ADOPTION OF THE PLAN. THE MANAGEMENT TEAM JOINS THE
BOARD OF GOVERNORS IN RECOMMENDING THAT YOU VOTE FOR APPROVAL OF THE PLAN.
This Prospectus provides you with detailed information about the Plan and
Subscription Offering. I encourage you to read this entire document carefully.
If you have any questions, please call the MIIX Conversion Information Center at
1-800- .
Daniel Goldberg
President
Chief Executive Officer
<PAGE> 3
[MEDICAL INTER-INSURANCE EXCHANGE LOGO]
MEDICAL INTER-INSURANCE
EXCHANGE OF NEW JERSEY
TWO PRINCESS ROAD
LAWRENCEVILLE, NEW JERSEY 08648
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD , 1998
TO THE MEMBERS OF THE MEDICAL INTER-INSURANCE EXCHANGE:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the members of the Medical Inter-Insurance Exchange of New Jersey (the
"Exchange") will be held at on , 1998, to consider
and vote upon a proposal to approve:
- An amendment to the Rules and Regulations of the Exchange to permit
the dissolution of the Exchange, and
- A Plan of Reorganization (the "Plan of Reorganization") pursuant to
which the Exchange will be dissolved and certain current and former members
("Distributees") of the Exchange will receive:
- publicly traded common stock ("Common Stock") of The MIIX Group,
Incorporated ("The MIIX Group"), a newly formed Delaware
corporation that is currently a wholly owned subsidiary of the
Exchange, or
- cash, in the case of Distributees who would otherwise receive
fewer than 100 shares of Common Stock or whose address as shown
on the records of the Exchange is outside the United States of
America or is an address to which mail is undeliverable.
The MIIX Group owns all the outstanding common stock of MIIX Insurance
Company, a newly formed stock insurer that, upon consummation of the
Reorganization, will assume, solely for Common Stock, all the assets and
liabilities of the Exchange (except for the Common Stock and cash to be
distributed to Distributees pursuant to the Plan of Reorganization). In
addition, upon consummation of the Plan of Reorganization, The MIIX Group will
purchase all the outstanding common stock of New Jersey State Medical
Underwriters, Inc. (the "Attorney-in-Fact") from the Medical Society of New
Jersey in exchange for Common Stock and cash.
Each Distributee shall be allocated a pro rata share of the 12,000,000
shares of Common Stock to be allocated to Distributees pursuant to the Plan of
Reorganization in the proportion that direct premiums earned by the Exchange
attributable to such Distributee, less return premiums, over the three years
prior to October 15, 1997, bear to direct premiums earned by the Exchange
attributable to all Distributees, less return premiums, over the same period.
The total amount of direct premiums earned by the Exchange attributable to all
Distributees, less return premiums, over the three years prior to October 15,
1997 was approximately $350 million.
Members who were named insureds on policies that were in force on October
15, 1997, are entitled to notice of, and to vote at, the Special Meeting. Each
such member is entitled to one vote. Approval of the Plan of Reorganization and
the related amendment to the Rules and Regulations of the Exchange requires the
affirmative vote of two-thirds of the members voting in person or by proxy.
Whether or not you plan to attend the Special Meeting, please sign and date
the enclosed proxy card and return it in the postage-paid envelope that has been
enclosed for your convenience.
Hillel Ben-Asher, M.D.
Chairman of the Board of Governors
Dated: , 1998
<PAGE> 4
PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1998
[MEDICAL INTER-INSURANCE EXCHANGE LOGO]
SHARES
THE MIIX GROUP, INCORPORATED
COMMON STOCK
This Prospectus is being furnished to Members (as defined below) of the
Medical Inter-Insurance Exchange of New Jersey, a New Jersey reciprocal insurer
(the "Exchange"), in connection with the proposed Plan of Reorganization (the
"Plan of Reorganization," and the transactions contemplated thereby are referred
to as the "Reorganization") of the Exchange. Pursuant to the Plan of
Reorganization, the Exchange will be dissolved, and Distributees (as defined
below) will collectively receive up to 12,000,000 shares (the "Reorganization
Shares") of common stock, par value $.01 per share ("Common Stock"), of The MIIX
Group, Incorporated, a Delaware corporation ("The MIIX Group"), or cash, in the
case of Distributees who would otherwise receive fewer than 100 shares of Common
Stock or whose address as shown on the records of the Exchange is outside the
United States of America or is an address to which mail is undeliverable. The
MIIX Group is currently a wholly owned subsidiary of the Exchange and owns all
the outstanding common stock of MIIX Insurance Company ("MIIX Insurance"), a
newly formed stock insurer. Upon consummation of the Reorganization, MIIX
Insurance will assume all the assets and liabilities of the Exchange, except for
the Common Stock and cash to be distributed in the Reorganization. All policies
issued by the Exchange will be included in such assumption and will continue in
force after the Reorganization. In addition, upon consummation of the
Reorganization, The MIIX Group will purchase all the outstanding common stock of
New Jersey State Medical Underwriters, Inc., a New Jersey not-for-profit
corporation (the "Attorney-in-Fact"), from the Medical Society of New Jersey
(the "Medical Society") in exchange for Common Stock and cash. Each Distributee
shall be allocated a pro rata share of the Reorganization Shares in the
proportion that direct premiums earned by the Exchange attributable to such
Distributee, less return premiums, over the three years prior to October 15,
1997, bear to direct premiums earned by the Company attributable to all
Distributees, less return premiums, over the same period. The total amount of
direct premiums earned by the Exchange attributable to all Distributees, less
return premiums, over the three years prior to October 15, 1997, was
approximately $350 million. Distributees who receive cash in lieu of Common
Stock will receive an amount of cash equal to the product of (i) the number of
shares of Common Stock which they would otherwise be entitled to receive and
(ii) the Conversion Value. The "Conversion Value" means either (i) the price at
which the Common Stock is offered to the public in the event an initial public
offering is consummated simultaneously with the Reorganization, or (ii) if no
such initial public offering is consummated simultaneously with the
Reorganization, then the economic value of the Common Stock as determined in
good faith by the Board of Governors of the Exchange. See "Glossary of Selected
Insurance Terms" and "Glossary of Reorganization and Subscription Offering
Terms" for the definition of certain terms used in this Prospectus.
This Prospectus is also being furnished to Subscription Offerees (as
defined below). Concurrently with the consummation of the Reorganization, but as
separate transactions, The MIIX Group intends to sell Common Stock (i) through
an underwritten public offering (the "Public Offering") and (ii) through a
registered non-underwritten subscription offering (the "Subscription Offering"
and, with the Public Offering, the "Offerings"). The price at which Common Stock
will be sold in the Subscription Offering will be the price at which Common
Stock is sold in the Public Offering. The consummation of each Offering is
conditioned on the consummation of the Reorganization and the consummation of
the Subscription Offering is conditioned on the consummation of the Public
Offering. However, the consummation of the Reorganization is not conditioned on
the consummation of either Offering and the consummation of the Public Offering
is not conditioned on the consummation of the Subscription Offering. This
Prospectus relates solely to the Subscription Offering and the Members' Meeting
and does not constitute an offer to sell, or a solicitation of an offer to buy,
Common Stock in the anticipated Public Offering. Common Stock to be offered in
the anticipated Public Offering will be offered only by means of a separate
Prospectus.
Consummation of the Reorganization is subject to certain conditions,
including the approval of at least two-thirds of the Members voting in person or
by proxy at a special meeting scheduled to be held on , 1998 (the
"Members' Meeting"). Only Members are entitled to notice of, and to vote at, the
Members' Meeting. A proxy card is being delivered to Members along with this
Prospectus. See "The Members' Meeting." In addition, a share allocation card is
being sent to all Members. The share allocation card shows each Member the
estimated whole number of shares of Common Stock that such Member will receive
if the Reorganization is approved and consummated.
IF THE REORGANIZATION IS NOT APPROVED, NO COMMON STOCK WILL BE DISTRIBUTED
AND THE EXCHANGE WILL CONTINUE TO DO BUSINESS AS A RECIPROCAL INSURER.
Application has been made for approval of the listing of the Common Stock
on the New York Stock Exchange (the "NYSE") under the symbol .
SEE "RISK FACTORS" COMMENCING ON PAGE 16 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED BEFORE VOTING OR SUBSCRIBING FOR SHARES IN
THE SUBSCRIPTION OFFERING.
THE SECURITIES TO BE ISSUED HEREUNDER HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ADDITIONAL INFORMATION................ 3
FORWARD-LOOKING STATEMENTS............ 4
PROSPECTUS SUMMARY.................... 5
The Company...................... 5
Business Strategy................ 5
Overview of the Transactions..... 7
The Reorganization and
Distribution................... 7
The Subscription Offering........ 10
Risk Factors..................... 14
Regulatory Approvals............. 14
Summary Financial and Operating
Data........................... 15
RISK FACTORS.......................... 16
THE MEMBERS' MEETING.................. 23
THE REORGANIZATION.................... 24
General.......................... 24
Purpose.......................... 25
Transfer of Assets and
Liabilities to MIIX
Insurance...................... 25
Shares of Common Stock Issued to
Distributees................... 26
Acquisition of the
Attorney-in-Fact............... 26
Conditions to Consummation of the
Reorganization................. 26
Background of the
Reorganization................. 27
Recommendation of the Board of
Governors; Reasons for the
Reorganization................. 28
Opinion of Financial Advisor..... 29
Accounting Treatment............. 32
Regulatory Approvals............. 32
Federal Tax Consequences......... 33
Consequences to Members.......... 33
THE SUBSCRIPTION OFFERING............. 34
Priority; Allocation............. 35
Minimum and Maximum
Subscription................... 35
Subscription Price............... 35
Subscription Procedures;
Expiration of Subscription
Offering....................... 36
Delivery of Stock Certificates
and Refunds.................... 36
No Transfer of Invitations to
Subscribe...................... 36
Cancellation of Subscription
Offering; Withdrawal........... 37
Interest on Subscription Funds... 37
Federal Tax Consequences......... 37
Subscription Services Agent...... 38
</TABLE>
<TABLE>
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USE OF PROCEEDS....................... 38
DIVIDEND POLICY....................... 38
CAPITALIZATION........................ 39
SELECTED FINANCIAL AND OPERATING
DATA................................ 40
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 41
BUSINESS.............................. 50
COMPARISON OF RIGHTS.................. 66
Liquidity/Marketability.......... 66
Distributions.................... 66
Meetings and Actions............. 66
Voting........................... 67
Preferred Stock.................. 67
Limited Liability................ 68
Removal of Governors/Directors... 68
Business Combinations............ 68
Anti-takeover Provisions......... 68
Action by Written Consent........ 69
Miscellaneous.................... 69
MANAGEMENT............................ 70
OWNERSHIP OF COMMON STOCK............. 79
DESCRIPTION OF CAPITAL STOCK.......... 81
SHARES ELIGIBLE FOR FUTURE SALE....... 84
STABILIZATION AND OTHER ACTIVITIES IN
CONNECTION WITH THE ANTICIPATED
PUBLIC OFFERING..................... 84
LEGAL MATTERS......................... 84
EXPERTS............................... 85
GLOSSARY OF SELECTED INSURANCE
TERMS............................... 86
GLOSSARY OF REORGANIZATION AND
SUBSCRIPTION OFFERING TERMS......... 90
INDEX TO COMBINED FINANCIAL
STATEMENTS.......................... F-1
Annexes
A. Plan of Reorganization............. A-1
B. Opinion of Salomon Smith Barney.... B-1
C. Order of the Commissioner.......... C-1
</TABLE>
2
<PAGE> 6
STATE INSURANCE HOLDING COMPANY LAWS AND REGULATIONS APPLICABLE TO THE MIIX
GROUP IN GENERAL PROVIDE THAT NO PERSON MAY ACQUIRE CONTROL OF THE MIIX GROUP,
AND THUS INDIRECT CONTROL OF ITS INSURANCE SUBSIDIARIES, UNLESS SUCH PERSON HAS
PROVIDED CERTAIN REQUIRED INFORMATION TO, AND SUCH ACQUISITION IS APPROVED (OR
NOT DISAPPROVED) BY, THE APPROPRIATE INSURANCE REGULATORY AUTHORITIES GENERALLY,
ANY PERSON ACQUIRING BENEFICIAL OWNERSHIP OF 10% OR MORE OF THE COMMON STOCK
WOULD BE PRESUMED TO HAVE ACQUIRED SUCH CONTROL, UNLESS THE APPROPRIATE
INSURANCE REGULATORY AUTHORITIES UPON ADVANCE APPLICATION DETERMINE OTHERWISE.
IN CONNECTION WITH THE ANTICIPATED PUBLIC OFFERING, THE UNDERWRITERS
THEREOF MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT
THE PRICE OF THE COMMON STOCK, INCLUDING BY OVER-ALLOTMENT, ENTERING INTO
STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "STABILIZATION AND OTHER
ACTIVITIES IN CONNECTION WITH THE ANTICIPATED PUBLIC OFFERING."
THIS PROSPECTUS RELATES SOLELY TO THE SUBSCRIPTION OFFERING AND THE
MEMBERS' MEETING AND DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, COMMON STOCK IN THE ANTICIPATED PUBLIC OFFERING. COMMON STOCK
TO BE OFFERED IN THE ANTICIPATED PUBLIC OFFERING WILL BE OFFERED ONLY BY MEANS
OF A SEPARATE PROSPECTUS.
ADDITIONAL INFORMATION
The MIIX Group has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments, exhibits,
schedules, and supplements thereto, the "Registration Statement"), on Form S-1
(Registration No. 333-59371) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock to be issued in
the Reorganization and the Subscription Offering. As permitted by the rules and
regulations of the Commission, this Prospectus, which constitutes a part of the
Registration Statement, does not contain all information set forth in the
Registration Statement. For further information, please refer to the
Registration Statement, including exhibits and schedules thereto, which can be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Additionally, material filed by The MIIX Group can be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005. In addition, the
Commission maintains a Web site (http://www.sec.gov) that contains registration
statements, reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission, including
The MIIX Group. Statements contained in this Prospectus relating to the contents
of any contract or other document referred to herein are not necessarily
complete, and reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified by such reference.
No person is authorized to give any information or to make any
representation with respect to the matters described in this Prospectus other
than those contained herein and, if given or made, such information or
representation should not be relied upon as having been authorized by The MIIX
Group or any other person. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this
Prospectus, or make a solicitation of a proxy, in any jurisdiction in which, or
to or from any person to or from whom, it is unlawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any distribution of
securities hereunder shall under any circumstances be deemed to imply that
3
<PAGE> 7
there has been no change in the assets, properties or affairs of The MIIX Group
or the Exchange since the date hereof or that the information set forth herein
is correct as of any time subsequent to the date hereof.
To date, The MIIX Group has not been subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Following the completion of the Reorganization, The MIIX Group intends to
furnish its stockholders with annual reports containing audited consolidated
financial statements reported upon by its independent auditors.
Until , 1998, all dealers effecting transactions in the
Common Stock, whether or not participating in this distribution, may be required
to deliver a Prospectus.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements. Discussions
concerning such forward-looking statements may be found in the material set
forth under "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as the Prospectus generally. These forward-looking statements include the
plans and objectives of management for future operations, including plans and
objectives relating to the products and future economic performance of the
Company (as defined under "Prospectus Summary" below). The forward-looking
statements set forth in this Prospectus include or relate to, but are not
limited to: (i) the Company having sufficient liquidity and working capital;
(ii) the Company's strategy to seek consistent profitable growth; (iii) the
Company's ability to increase its market share; (iv) the Company's ability to
diversify its product lines; (v) the Company's ability to expand into additional
states; (vi) the Company's avoidance of any material loss on collection of
reinsurance recoverables; and (vii) the continued adequacy of the Company's loss
and LAE reserves.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
competitively price and market its insurance products, appropriately reserve for
losses and LAE and successfully handle claims; that competitive conditions will
not change materially or adversely; that demand for the Company's products will
be strong; that the market will accept the Company's new products and services;
that the Company will retain existing agents and key management personnel; that
the Company's reinsurers will remain solvent; and that there will be no material
adverse change in the Company's operations or business. Assumptions relating to
the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking statements will be realized.
Budgeting, reserving and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause the
Company to alter its marketing, capital expenditures or other budgets, which may
in turn affect the Company's results of operations. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
4
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Financial data and ratios set forth in
this Prospectus have been presented in accordance with generally accepted
accounting principles ("GAAP"), unless otherwise indicated. Except as otherwise
specified, all information in this Prospectus assumes that the over-allotment
option granted in connection with the anticipated Public Offering is not
exercised. See "Glossary of Selected Insurance Terms" and "Glossary of
Reorganization and Subscription Offering Terms" for definitions of certain terms
used in this Prospectus.
For purposes of this Prospectus, the term "Company" refers, at all times
prior to the closing date of the Reorganization (the "Closing Date"), to the
Exchange and its subsidiaries, and the Attorney-in-Fact and its subsidiaries,
collectively, and at all times on or after the Closing Date, to The MIIX Group
and its subsidiaries, collectively; the term "Insurance Subsidiaries" refers, at
all times prior to the Closing Date, to Lawrenceville Property and Casualty Co.,
Inc. ("LP&C"), MIIX Insurance Company of New York ("MIIX New York," which is
currently named Surety Re pending regulatory approval of a change in name) and
Lawrenceville Re, Ltd. ("Lawrenceville Re") and, at all times on or after the
Closing Date, to MIIX Insurance Company, a New Jersey stock insurer ("MIIX
Insurance"), LP&C, Lawrenceville Re and MIIX New York.
THE COMPANY
Based on direct premiums written in 1997, the Company is the leading
provider of medical professional liability insurance in New Jersey and is ranked
10th among medical professional liability insurers in the United States. The
Company currently insures approximately 14,800 physicians and other medical
professionals who practice alone, in medical groups, clinics or in other health
care organizations. The Company also insures more than 70 hospitals, extended
care facilities, health maintenance organizations ("HMOs") and other managed
care organizations (collectively, "health care institutions"). The Company's
business has historically been concentrated in New Jersey but has expanded to
other states in recent years. The Company currently writes policies in 17
states. For the six months ended June 30, 1998, approximately 33% of the
Company's total direct premiums written were generated outside of New Jersey. In
addition to the Company's medical malpractice insurance operations, the Company
also offers a broad range of complementary insurance products to its insureds
and operates several fee-based consulting and other businesses.
Medical professional liability insurance, also known as medical malpractice
insurance, insures the physician, other medical professional or health care
institution against liabilities arising from the rendering of, or failure to
render, professional medical services. Under the typical medical professional
liability policy, the insurer also is obligated to defend the insured against
alleged claims.
In 1997, total medical professional liability direct premiums written in
the United States were approximately $5.9 billion, of which $299.3 million were
written in New Jersey, according to data compiled by A.M. Best Company, Inc.
("A.M. Best"), an insurance rating agency. The Company's market share of such
direct premiums written was 2.8% in the United States and 40% in New Jersey
according to A.M. Best. In 1997, medical malpractice insurance accounted for
approximately 98% of the Company's direct premiums written.
The Company's total revenues and net income were $200.4 million and $28.9
million, respectively, for 1997 and were $114.6 million and $4.8 million,
respectively, for the six months ended June 30, 1998. As of June 30, 1998, the
Company had total assets of $1.4 billion and total equity of $309.7 million.
BUSINESS STRATEGY
The Company has adopted a strategy that it believes will allow it to
compete effectively and create long-term growth. To maximize the strategy's
effectiveness, the Company has adopted the Plan of Reorganization to convert
from a reciprocal insurer to a stock insurer, which will provide the Company
with greater
5
<PAGE> 9
flexibility and access to capital. See "The Reorganization" and "The
Subscription Offering." The Company's strategy is to:
- continue to expand geographically by increasing the number of states in
which the Company writes policies;
- enhance product offerings to facilitate "one-stop shopping" for the
Company's extensive customer base;
- expand distribution channels;
- maintain underwriting discipline to seek to assure that profitability,
rather than premium volume, is emphasized;
- take advantage of strategic acquisition opportunities; and
- maintain the Company's historically close relationship with the medical
community.
This strategy is designed to capitalize on the Company's strengths that have
enabled it to achieve its current market position, including (i) its experience
with, commitment to and focus on medical professional liability insurance, (ii)
its history of providing a stable premium environment to its customers, (iii)
the high level of service it delivers to insureds, including the aggressive
defense of claims on their behalf, (iv) its "A (Excellent)" rating by A.M. Best,
(v) its capacity on a per insured basis, (vi) its ability to customize product
features and programs to fit the needs of different customers and (vii) its
close relationship with the medical community.
Expand Geographically. From its inception in 1977 through 1990, all of the
Company's business was written in New Jersey. In 1991, the Company began to
write business in Pennsylvania and in 1996 began its expansion to other states.
Since 1996, the Company has expanded its operations significantly and currently
writes policies in 17 states. As a result of this expansion, the proportion of
the Company's business written in states other than New Jersey has grown from
approximately 11% in 1996 to 33% in the six months ended June 30, 1998. In order
to facilitate continued geographic expansion, the Company has obtained authority
to write insurance in 20 states and the District of Columbia and is in the
process of obtaining such authority in eight other states. In addition, the
Company has opened four regional sales and customer support offices to assist
its marketing efforts outside of New Jersey. Over time, the Company intends to
seek authority to write insurance in all 50 states, although the Company may
choose to not write insurance in all such states.
Enhance Product Offerings. In addition to its core medical professional
liability insurance products, the Company has developed other products and
services for health care institutions. Additional products currently offered
include comprehensive liability coverage for medical offices, directors and
officers, managed care errors and omissions, employment practices, fiduciary,
property and worker's compensation. Most of these coverages are underwritten by
the Company; several products are marketed by the Company and underwritten by
other insurance carriers with which the Company has developed strategic
alliances. The Company has also introduced the option for large health care
institutions to purchase excess insurance coverage on a multi-year basis for a
guaranteed prepaid premium. The Company intends to continue to increase the
number of products it offers to its customer base in order to be able to provide
them with a full range of coverages.
Expand Distribution Channels. The Company has traditionally written
insurance on a direct basis in New Jersey. In connection with the Company's
expansion outside New Jersey, the Company has increasingly utilized brokers. In
1997, 43% of the Company's direct premiums written were generated through
brokers. By increasing its use of this distribution channel, the Company will be
better positioned to achieve growth. In order to expand further its distribution
channels, the Company intends to develop additional brokerage relationships with
selected brokers who have demonstrated expertise in the medical malpractice
insurance market.
Maintain Underwriting Discipline. The Company's experience with,
commitment to and focus on medical professional liability insurance for over 20
years has allowed it to develop strong knowledge of the market and to build an
extensive data base of medical malpractice claims experience. The Company takes
6
<PAGE> 10
advantage of this specialized expertise in medical professional liability
insurance to set premiums that it believes are appropriate for exposures being
insured. As the Company expands its business, it will maintain underwriting
discipline and emphasize profitability over premium growth.
Take Advantage of Strategic Acquisition Opportunities. The Company
believes that the Reorganization will better position the Company to make
strategic acquisitions by providing greater access to capital as a source of
financing and creating an attractive stock acquisition currency. The Company
believes that consolidation will continue in the medical professional liability
insurance industry and that opportunities to make a strategic acquisition may
arise, thus providing an effective way to expand the Company's business, product
offerings and geographic scope.
Maintain Close Relationship with the Medical Community. Since its founding
in 1977, the Company has maintained a close relationship with the medical
community. In addition to the active involvement of practicing physicians on
several of the Company's advisory committees, the Company and the medical
professional liability insurance that it offers have the endorsements of the
Medical Society and the New Jersey Association of Osteopathic Physicians and
Surgeons, as well as endorsements of the Connecticut Hospital Association and
various other medical associations and specialty societies. The Company will
continue to utilize practicing physicians on advisory committees to provide
management with input on medical practice patterns, claims, customer needs and
other relevant matters. In addition, the Company will endeavor to maintain its
medical society endorsements.
The Company's principal executive offices are located at Two Princess Road,
Lawrenceville, New Jersey 08648. The telephone number of the Company's principal
executive offices is (609) 896-2404.
OVERVIEW OF THE TRANSACTIONS
The Company is contemplating three different transactions -- the
Reorganization, the Subscription Offering and the Public Offering.
- Reorganization. Pursuant to the Plan of Reorganization, the Company will
reorganize from a reciprocal insurer to a stock corporation. If the
Reorganization is consummated, Distributees will receive Common Stock or,
in certain cases, cash. The Reorganization will not be consummated
unless, among other things, it is approved at the Members' Meeting. See
"The Reorganization and Distribution."
- Subscription Offering. During the period between the date of this
Prospectus and the date of the Members' Meeting, the Company will accept
Subscription Offerees' applications to subscribe for Common Stock. The
Company will stop accepting Subscription Agreements (as defined below) at
4:00 p.m. on , 1998, four business days before the Members'
Meeting (such deadline, as extended from time to time, the "Subscription
Expiration Time"). See "The Subscription Offering."
- Public Offering. If the Reorganization is approved at the Members'
Meeting, the Company intends to distribute a separate prospectus in
connection with the Public Offering. The Company intends to consummate
the Reorganization, the Subscription Offering and the Public Offering
simultaneously; however, the Reorganization could be consummated without
either of the Offerings being consummated, and the Public Offering could
be consummated without the Subscription Offering being consummated.
These transactions are described in greater detail below.
THE REORGANIZATION AND DISTRIBUTION
The Exchange is currently organized as a New Jersey reciprocal insurer, and
accordingly has no stockholders. Since the Exchange's inception, the business of
the Exchange has been managed by the Attorney-in-Fact, which is a wholly owned
subsidiary of the Medical Society. On October 15, 1997, the Board
7
<PAGE> 11
of Governors of the Exchange (the "Board of Governors") adopted a Plan of
Reorganization. The key components of the Plan of Reorganization are set forth
below.
- The Exchange has formed a new subsidiary, MIIX Insurance. MIIX Insurance
was formed to assume, if the Reorganization is consummated, all of the
Exchange's assets and liabilities (except for the Common Stock and cash
to be distributed pursuant to the Reorganization), including insurance
policies written by the Exchange. After consummation of the
Reorganization, MIIX Insurance will continue the Exchange's business of
writing insurance policies and the Exchange will be dissolved.
- The Exchange has formed a new subsidiary, The MIIX Group. The purpose of
The MIIX Group is to act as a holding company for MIIX Insurance and the
Company's other subsidiaries. The MIIX Group is the entity that will
issue Common Stock in the Reorganization and the Offerings.
- The MIIX Group will acquire the Attorney-in-Fact from the Medical Society
for $11 million worth of Common Stock and $100,000 in cash.
- When the Exchange is dissolved, the Reorganization Shares will be
available for distribution to the Distributees. The distribution of the
Reorganization Shares is registered under the Registration Statement of
which this Prospectus forms a part.
- The Reorganization Shares will be allocated to Distributees in the
proportion that direct premiums earned by the Exchange attributable to
each Distributee, less return premiums, over the three years prior to
October 15, 1997, bear to direct premiums earned by the Company
attributable to all Distributees, less return premiums, over the same
period. The total amount of direct premiums earned by the Exchange
attributable to all Distributees, less return premiums, over such
period, was approximately $350 million.
- If a Distributee would be allocated fewer than 100 shares of Common
Stock, or if such Distributee's address as shown on the records of the
Exchange is outside the United States or is an address to which mail is
undeliverable, such Distributee will receive cash in lieu of Common
Stock. Distributees who receive cash in lieu of Common Stock will
receive an amount of cash equal to the product of (i) the number of
shares of Common Stock which they would otherwise be entitled to
receive and (ii) the Conversion Value. If a Distributee's address as
shown on the records of the Exchange is an address to which mail is
undeliverable, the Company will hold such Distributee's cash
distribution and will endeavor to contact such Distributee using any
other information in the Company's possession. If the Company is unable
to contact such Distributee, the Company will continue to hold the cash
for the Distributee, subject to any escheat laws that may apply.
- To the extent that a Distributee receives cash in lieu of Common Stock,
the Common Stock otherwise distributable to such Distributee will not
be distributed to other Distributees. Thus, fewer than 12,000,000
shares of Common Stock will be distributed pursuant to the
Reorganization. The Company currently estimates that approximately
11,900,000 shares of Common Stock will be distributed pursuant to the
Reorganization. Assuming that the Conversion Value is equal to
$ , approximately $ will be distributed to Distributees
in lieu of Common Stock. Cash payments will be made from the Company's
existing cash reserves.
Thus, if the Reorganization is consummated, (i) the Exchange will be
dissolved, (ii) the Distributees will receive Common Stock of The MIIX Group, or
cash, (iii) MIIX Insurance will assume the assets and liabilities of the
Exchange, and (iv) The MIIX Group will be the holding company for MIIX
Insurance, the other subsidiaries of the Exchange and the Attorney-in-Fact.
These steps will occur simultaneously and are described in greater detail below
under "The Reorganization."
8
<PAGE> 12
Set forth below is an illustration of the Company's structure both before
and after the proposed Reorganization:
[REORGANIZATION CHART]
- ---------------
* Includes LP&C and MIIX New York.
** Includes Hamilton National Leasing Corporation, Pegasus Advisors, Inc., MIIX
Healthcare Group, Inc., Lawrenceville Re, Ltd. and certain other
subsidiaries.
On March 5, 1998, the Commissioner (the "Commissioner") of the New Jersey
Department of Banking and Insurance (the "New Jersey Department") approved the
Plan of Reorganization, subject to certain conditions. See "-- Regulatory
Approvals." The consummation of the Reorganization is also subject to
9
<PAGE> 13
certain other conditions precedent, including that the Company receive an
opinion from its tax advisors substantially to the effect that the
Reorganization shall constitute a tax-free reorganization to the Company for
federal income tax purposes. Distributees are urged to consult their tax
advisors as to the consequences to them of their receipt of Common Stock or cash
in connection with the Reorganization. See "The Reorganization -- Conditions to
Consummation of the Reorganization" and "The Reorganization -- Federal Tax
Consequences."
A share allocation card will accompany each copy of this Prospectus
delivered to Members. The share allocation card shows the estimated whole number
of shares of Common Stock that the applicable Member will receive pursuant to
the Reorganization if the Reorganization is approved and consummated.
THE SUBSCRIPTION OFFERING
Concurrently with the consummation of the Reorganization on the Closing
Date, but as separate transactions, The MIIX Group intends to sell Common Stock
through the Public Offering and through the Subscription Offering. The Company
is offering up to shares of Common Stock ("Subscription Shares") in the
Subscription Offering to Subscription Offerees. The price per share in the
Subscription Offering" will be equal to the price per share in the Public
Offering. Subscription Offerees who wish to subscribe for Subscription Shares
should follow the instructions set forth in the subscription agreement included
with the copy of this Prospectus being sent to the Subscription Offerees (the
"Subscription Agreement"). Each such completed Subscription Agreement will
constitute an offer to purchase Subscription Shares, which offer the Company may
accept or reject in its sole discretion. The consummation of each Offering is
conditioned on the consummation of the Reorganization and the consummation of
the Subscription Offering is conditioned on the consummation of the Public
Offering. However, the consummation of the Reorganization is not conditioned on
the consummation of either Offering and the consummation of the Public Offering
is not conditioned on the consummation of the Subscription Offering. See "The
Subscription Offering."
The primary purpose of the Subscription Offering is to provide Subscription
Offerees who will have an interest in or relationship with the Company on and
after the Closing Date with an opportunity to purchase Common Stock.
Set forth below is a summary of certain terms of the Subscription Offering.
Common Stock Offered by the
Company Pursuant to the
Subscription Offering....... Up to shares of Common Stock.
Common Stock to be Outstanding
Immediately After the
Reorganization and the
Offerings................... Approximately million shares. (Assumes
that (i) all Subscription Shares offered
pursuant to the Subscription Offering are sold
in the Subscription Offering, (ii)
approximately million shares of Common
Stock are issued in connection with the Public
Offering, (iii) 12,000,000 shares of Common
Stock are issued to Distributees in connection
with the Reorganization, (iv) $11 million worth
of Common Stock, or approximately shares
based on an assumed Public Offering price of
$ per share, are issued to the Medical
Society in connection with the purchase of the
Attorney-in-Fact, and (v) that the underwriters
for the Public Offering do not exercise their
over-allotment option. Based on these
assumptions, after the consummation of the
Reorganization and the Offerings, (i)
Distributees will own approximately %, (ii)
Subscription Offerees will own approximately
%, (iii) purchasers in the Public Offering
will own approximately %,
10
<PAGE> 14
and (iv) the Medical Society will own
approximately %, of the outstanding Common
Stock.)
Voting Rights................. The Common Stock has one vote per share. For a
description of the rights of holders of Common
Stock, see "Description of Capital Stock" and
"Comparison of Rights."
Use of Proceeds............... The net proceeds of the Offerings will be used
for general corporate purposes which may
include, without limitation, capitalizing the
Company's subsidiaries in order to support
their continued growth, for general corporate
purposes, and for financing potential
acquisitions.
Dividend Policy............... The Company currently intends to pay regular
quarterly cash dividends. The Company initially
expects to pay a quarterly cash dividend of
$.05 per share commencing with the first
quarter of 1999. The declaration and payment of
dividends to holders of Common Stock will be at
the discretion of The MIIX Group Board of
Directors ("The MIIX Group Board") and will
depend upon the Company's financial condition,
results of operations, cash requirements,
future prospects, regulatory restrictions on
the payment of dividends to the Company by the
Insurance Subsidiaries and other factors deemed
relevant by The MIIX Group Board. There can be
no assurance that the Company will declare and
pay any dividends. See "Management's Discussion
and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital
Resources."
Subscription Offerees......... "Subscription Offerees" means (i) policyholders
of the Exchange or LP&C as of both August 31,
1998 and four business days prior to the
Closing Date ("Eligible Policyholders"), (ii)
persons who are directors, officers or
employees of the Company as of both August 31,
1998 and four business days prior to the
Closing Date, and immediate family members of
such persons (collectively, "Employees"), and
(iii) other persons, as selected by the Company
in its sole discretion, who have business
relationships with the Company as of both
August 31, 1998 and four business days prior to
the Closing Date ("Service Providers"). A
person who satisfies one of the criteria of
being a Subscription Offeree as of August 31,
1998 who subscribes for shares and who does not
satisfy such criteria on the fourth business
day prior to the Closing Date will not be sold
Subscription Shares, and the Company will
return to such person without interest any
subscription funds previously delivered by such
person. It is the Company's desire and intent
that Subscription Offerees be the persons
defined above who have a policyholder or other
designated relationship with the Company on and
after the Closing Date. However, in order to
satisfy the logistics of consummating the
Subscription Offering, it is necessary that
persons satisfy the criteria of being a
Subscription Offeree as of August 31, 1998 and
the fourth business day prior to the Closing
Date.
Priority; Allocation.......... Eligible Policyholders will receive first
priority in the Subscription Offering. If there
are insufficient Subscription Shares available
to satisfy all subscriptions of the Eligible
Policyholders (after taking
11
<PAGE> 15
into account any reductions in the Maximum
Subscription Amount (as defined below)),
Subscription Shares will be allocated among
Eligible Policyholders on a pro rata basis in
the same proportion that the subscription of
each bears to the total subscriptions received
from all Eligible Policyholders, subject to a
minimum allocation of 100 Subscription Shares.
To the extent that there are Subscription
Shares remaining after the allocation of
Subscription Shares to Eligible Policyholders,
such Subscription Shares will be available for
sale to Employees. If there are insufficient
Subscription Shares available to satisfy all
subscriptions of Employees (after taking into
account any reductions in the Maximum
Subscription Amount), Subscription Shares will
be allocated among Employees on a pro rata
basis in the same proportion that the
subscription of each bears to the total
subscriptions received from all Employees,
subject to a minimum allocation of 100
Subscription Shares. In addition, if there are
insufficient Subscription Shares available to
satisfy all subscriptions of Employees, then
the Company may elect to direct the
underwriters of the Public Offering to sell
Common Stock to Employees in the Public
Offering. To the extent that there are
Subscription Shares remaining after the
allocation of Subscription Shares to Employees,
such Subscription Shares will be available for
sale to Service Providers. If there are
insufficient Subscription Shares available to
satisfy all subscriptions of the Service
Providers (after taking into account any
reductions in the Maximum Subscription Amount),
Subscription Shares will be allocated among
Service Providers on a pro rata basis in the
same proportion that the subscription of each
bears to the total subscriptions received from
all Service Providers, subject to a minimum
allocation of 100 Subscription Shares. If any
Subscription Offeree's allocation would be less
than 100 Subscription Shares, then such
Subscription Offeree will not be sold
Subscription Shares, and the Company will
return to such person without interest any
subscription funds previously delivered by such
person.
Subscription Price............ The price at which Subscription Shares will be
sold will be equal to the price at which shares
of Common Stock are sold to the public in the
Public Offering (the "Public Offering Price").
When Subscription Offerees submit payment to
the Company for Subscription Shares, such
payment will be based upon an assumed Public
Offering Price of $ per Subscription
Share (the "Assumed Price"). If the Public
Offering Price is lower than the Assumed Price,
then the Subscription Offeree will be deemed to
have subscribed for the same number of
Subscription Shares that his or her payment
would have purchased at the Assumed Price, and
the excess payment will be refunded without
interest. Subscription Offerees may elect in
their respective Subscription Agreements to
withdraw their entire subscription if the
Public Offering Price is higher than the
Assumed Price. If this election is not made
when the Subscription Agreement is completed,
then the Subscription Offeree will be deemed to
have subscribed for the maximum whole number of
Subscription Shares that his or her payment
would purchase at the Public Offering Price,
and any excess cash remain-
12
<PAGE> 16
ing after the purchase of such whole number of
Subscription Shares will be refunded without
interest. If the number of shares for which
such Subscription Offeree will be deemed to
have subscribed is less than 100 Subscription
Shares because the Public Offering Price is
greater than the Assumed Price, then such
Subscription Offeree will not be sold
Subscription Shares, and the Company will
return to such person without interest any
subscription funds previously delivered by such
person.
Minimum and Maximum
Subscription.................. Each Subscription Offeree may subscribe for
between 100 whole Subscription Shares (the
"Minimum Subscription Amount") and whole
Subscription Shares (subject to adjustment as
described below, the "Maximum Subscription
Amount"). The Company may, in its sole
discretion, increase or decrease to any extent
the Maximum Subscription Amount. If a
Subscription Offeree satisfies multiple
criteria for becoming a Subscription Offeree
(i.e., if a person is both an Eligible
Policyholder and an Employee), then such
Subscription Offeree may only subscribe for up
to the Maximum Subscription Amount. The Maximum
Subscription Amount will be assessed against
each Subscription Offeree and his, her or its
Associates as a single group. "Associate" is
defined as: (i) any corporation or organization
(other than the Company) of which a
Subscription Offeree is an officer or partner
or is, directly or indirectly, the beneficial
owner of 10% or more of any class of equity
securities; or (ii) any relative or spouse of
such person, or any relative of such spouse,
who has the same home as such person.
Subscription Procedures;
Expiration of Subscription
Offering.................... Together with this Prospectus, the Company is
delivering to Subscription Offerees a
Subscription Agreement pursuant to which such
Subscription Offeree may subscribe for
Subscription Shares. To subscribe for
Subscription Shares, a Subscription Offeree
must complete and sign the Subscription
Agreement and such form must be received,
together with payment by check or money order
in United States dollars, by the Company not
later than the Subscription Expiration Time.
The Company may extend the Subscription
Expiration Time in its sole discretion. If the
Subscription Expiration Time is extended, the
Company will deliver notice thereof to all
Subscription Offerees. The Subscription
Expiration Time may be extended any number of
times for any length of time. Except as
otherwise described herein, Subscription
Agreements may not be modified, amended or
withdrawn without the consent of the Company.
If a Subscription Agreement is not received by
the Company by the Subscription Expiration Time
or is executed incorrectly, the Subscription
Agreement will be invalid, subject to the
Company's discretionary right to accept the
subscription. The Company shall have the right
in its absolute discretion and without
liability to any Subscription Offeree (i) to
determine which subscriptions, if any, to
accept and (ii) to reject any subscriptions for
any reason or for no reason.
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<PAGE> 17
Cancellation; Withdrawal...... The Company may in its sole discretion at any
time prior to the closing of the Subscription
Offering determine to cancel the Subscription
Offering. If the Subscription Offering shall
not have been consummated within 60 days of
, 1998 the fourth business day
prior to the Members' Meeting, Subscription
Offerees will be permitted to withdraw their
subscriptions. The consummation of the
Subscription Offering may be delayed or
canceled because the Subscription Offering will
only be consummated in connection with the
Public Offering. If the Public Offering is
delayed or canceled due to unfavorable market
conditions or any other circumstances, then the
Subscription Offering will be similarly delayed
or canceled. Subscription Offerees may elect,
at the time when they complete their respective
Subscription Agreements, to cancel their
subscriptions if the Public Offering Price
exceeds the Assumed Price.
Interest on Subscription
Funds......................... Subscription funds will be held in an account
with the Subscription Services Agent pending
consummation of the Subscription Offering or
the refund of such funds to Subscription
Offerees. If the Subscription Offering is not
consummated within 60 days of , ,
1998, the fourth business day prior to the
Members' Meeting, and (i) a Subscription
Offeree withdraws its subscription as described
above or (ii) the Company cancels the
Subscription Offering, then funds submitted by
Subscription Offerees will be refunded with 4%
per annum simple interest calculated from the
sixty-first day after the Subscription
Expiration Time ("Subscription Interest").
Except as described above, interest will not be
paid on subscription funds.
Subscription Services Agent... Friedman, Billings, Ramsey & Co. Inc. ("FBR")
RISK FACTORS
Members and Subscription Offerees should carefully consider the factors set
forth herein under "Risk Factors" commencing on page 16, as well as other
information contained in this Prospectus.
REGULATORY APPROVALS
The consummation of the Reorganization requires the approval of the
Commissioner. This approval was granted on March 5, 1998, subject to two
conditions. First, the Commissioner must approve the formation of MIIX
Insurance. This approval was obtained on August 3, 1998. Second, the
Reorganization must be approved by the affirmative vote of at least two-thirds
of those Members voting in person or by proxy.
Pursuant to the Plan of Reorganization, MIIX Insurance is to assume all the
assets of the Exchange (except for the Common Stock and cash to be distributed
in the Reorganization). However, insurance licenses cannot be transferred.
Accordingly, MIIX Insurance must obtain regulatory approval to become an
admitted carrier in each of the eight states other than New Jersey in which the
Exchange is currently licensed. These states are Connecticut, Delaware,
Kentucky, Maryland, Michigan, Pennsylvania, Vermont and West Virginia. These
states must also approve MIIX Insurance's rates, rules and policy forms, which
the Company expects initially will be a continuation of those currently used by
the Exchange. In addition, Virginia, which is LP&C's state of domicile, and
Texas, in which LP&C has been deemed to be commercially domiciled, must approve
the change in LP&C's ultimate parent from the Exchange to The MIIX Group.
Finally, Connecticut and Delaware approvals and the consent of the reinsurers
will be required in connection with the assignment to MIIX Insurance of the
various reinsurance agreements under which the Exchange cedes risk.
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<PAGE> 18
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth selected combined financial and operating
data for the Company. The selected income statement data set forth below for
each of the years in the three year period ended December 31, 1997 and the
selected balance sheet data as of December 31, 1997 and 1996 are derived from
the combined financial statements of the Company audited by Ernst & Young LLP,
independent auditors, included elsewhere herein and should be read in
conjunction with, and are qualified by reference to, such statements and the
related notes thereto. The selected income statement data for the years ended
1993 and 1994 and for the six months ended June 30, 1997 and 1998, and the
selected balance sheet data as of December 31, 1993, 1994 and 1995 and as of
June 30, 1997 and 1998, are derived from unaudited financial statements of the
Company which management believes incorporate all of the adjustments necessary
for the fair presentation of the financial condition and results of operations
for such periods. All selected financial data are presented in accordance with
GAAP, except for the item entitled "statutory surplus," which is presented in
accordance with Statutory Accounting Principles ("SAP"). See "Glossary of
Selected Insurance Terms." The statutory surplus amounts are derived from the
audited statutory financial statements of the Exchange and the Insurance
Subsidiaries (except with respect to the information provided for the six months
ended June 30, 1997 and 1998, which is derived from unaudited statutory
financial statements) and, in the opinion of management, fairly reflect the
specified data for the periods presented.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------- -----------------------
1993(1) 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Direct premiums written.............. $ 115,999 $ 127,647 $ 137,291 $ 143,218 $ 162,430 $ 134,803 $ 158,650
========== ========== ========== ========== ========== ========== ==========
Net premiums earned.................. $ 84,928 $ 96,019 $ 105,256 $ 108,182 $ 123,600 $ 57,907 $ 74,520
Net investment income................ 48,223 47,447 51,760 49,208 54,624 26,128 30,941
Realized investment gains (losses)... 29,891 (11,030) 13,149 8,683 10,296 (296) 4,246
Other revenue........................ 4,051 7,343 9,968 11,524 11,870 5,509 4,885
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues..................... 167,093 139,779 180,133 177,597 200,390 89,248 114,592
---------- ---------- ---------- ---------- ---------- ---------- ----------
Losses and loss adjustment
expenses........................... 89,202 98,899 107,889 110,866 122,828 58,669 73,220
Underwriting expenses................ 11,739 12,777 14,743 18,385 26,855 11,596 17,581
Funds held charges................... 16,944 3,067 5,473 8,626 11,581 5,588 5,946
Impairment of fixed assets........... -- -- -- -- -- -- 8,541
Other expenses....................... 2,020 4,224 6,905 10,444 8,179 5,100 5,123
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses..................... 119,905 118,967 135,010 148,321 169,443 80,953 110,411
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of change in
accounting principle............... 47,188 20,812 45,123 29,276 30,947 8,295 4,181
Income tax expense (benefit)......... 15,885 5,647 12,108 9,779 2,085 1,279 (654)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle..... 31,303 15,165 33,015 19,497 28,862 7,016 4,835
Cumulative effect of change in
accounting principle, net of taxes
of ($7,420)........................ 13,780 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income......................... $ 17,523 $ 15,165 $ 33,015 $ 19,497 $ 28,862 $ 7,016 $ 4,835
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Total investments.................... $ 799,665 $ 787,621 $ 894,176 $ 919,697 $1,031,035 $ 965,637 $1,168,223
Total assets......................... 947,137 953,738 1,088,998 1,157,746 1,280,231 1,249,958 1,431,219
Total liabilities.................... 743,319 775,844 842,540 901,705 976,790 979,487 1,121,534
Total equity......................... 203,818 177,894 246,458 256,041 303,441 270,471 309,685
Statutory surplus.................... 147,803 156,246 184,651 208,738 248,050 229,923 256,610
ADDITIONAL DATA:
GAAP ratios:
Loss ratio........................... 105.0% 103.0% 102.5% 102.5% 99.4% 101.3% 98.3%
Expense ratio........................ 13.8 13.3 14.0 17.0 21.7 20.0 23.6
---------- ---------- ---------- ---------- ---------- ---------- ----------
Combined ratio....................... 118.8% 116.3% 116.5% 119.5% 121.1% 121.3% 121.9%
========== ========== ========== ========== ========== ========== ==========
Earnings Per Share (pro forma)(2)...... $ 1.40 $ 1.21 $ 2.64 $ 1.56 $ 2.31 $ 0.56 $ 0.39
========== ========== ========== ========== ========== ========== ==========
Book Value Per Share (pro forma)(2).... $ 16.31 $ 14.23 $ 19.72 $ 20.48 $ 24.28 $ 21.64 $ 24.77
========== ========== ========== ========== ========== ========== ==========
</TABLE>
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(1) In 1993 the Company eliminated the practice of discounting its liabilities
for unpaid losses and loss adjustment expenses. The cumulative effect of
this change amounted to approximately $21.2 million before income taxes and
had the effect of reducing net income by approximately $13.8 million or
$1.10 per share.
(2) Gives effect in all periods to the assumed aggregate issuance of
approximately [12,500,000] shares of Common Stock to (i) Distributees and
(ii) the Medical Society in connection with the purchase of the
Attorney-in-Fact. Does not give effect to the sale of Common Stock in the
Offerings.
15
<PAGE> 19
RISK FACTORS
The following risk factors, in addition to other information set forth in
this Prospectus, should be carefully considered by Members and Subscription
Offerees in making an investment decision regarding the Common Stock.
POSSIBLE ADVERSE IMPACT OF LITIGATION
A group of current and previous policyholders of the Company has retained a
law firm and filed a motion for rehearing with the New Jersey Department and the
Commissioner, actions that appear designed to rescind regulatory approval of the
Plan of Reorganization. The motion challenged the authority of the New Jersey
Department to approve the actions contemplated under the Reorganization, the
fairness of the proposed allocation of Common Stock, and other key elements of
the Reorganization. The New Jersey Department has denied the motion, and the
group has filed a notice of appeal with the Appellate Division of the Superior
Court of New Jersey. The issues raised by the appeal are (i) whether the
Commissioner had the authority to approve the Plan of Reorganization in the
absence of any statute expressly permitting reciprocal insurers to engage in the
type of transaction contemplated by the Plan of Reorganization, (ii) whether
adequate notice was given to members of the Exchange regarding the
Reorganization, (iii) whether sufficient evidence was presented to the
Commissioner to support the terms of the Plan of Reorganization and (iv) whether
the New Jersey Department should have granted the request for a rehearing. The
group has also filed with the New Jersey Department a motion to stay (i) the
Commissioner's order approving the Plan of Reorganization and (ii) the denial of
the group's motion for rehearing, pending disposition of the group's appeal to
the Appellate Division of the Superior Court of New Jersey. The New Jersey
Department has denied this motion. Following the denial by the Commissioner of
the group's motion to stay the effectiveness of the order approving the Plan of
Reorganization, the group filed a motion with the Appellate Division of the
Superior Court of New Jersey to stay the order and for a remand of the
proceeding to the New Jersey Department for rehearing. This motion is currently
pending.
In addition, other persons could bring actions against the Company for a
variety of reasons, including but not limited to the relative allocation of
Common Stock among Distributees, the method by which the Company determined
which members of the Exchange would be Distributees, or the absence of any
statute expressly permitting reciprocal insurers to engage in the type of
transaction contemplated by the Plan of Reorganization. Final adjudication of
any such case could take a year or more and the parties could appeal any
decision. Such appeals, if made, could require a number of years to resolve. If
any such action is brought, the Company intends to vigorously defend the
Reorganization. However, no assurance can be given that a court would not enjoin
the holding of the Members' Meeting or that the Company will ultimately prevail
on the merits. Damages awarded under any such suit cannot be predicted and could
have a material adverse effect on the Company. If the Reorganization is
completed, but the authority of the New Jersey Department to approve conversion
from a reciprocal insurer to a stock company is overturned, the remedy a court
might grant is uncertain. Such remedy could have a material adverse effect on
the Company and its stockholders.
CONCENTRATION OF BUSINESS
Substantially all of the Company's direct premiums written are generated
from medical malpractice insurance policies issued to physicians, medical groups
and health care entities. As a result, negative developments in the economic,
competitive, or regulatory conditions affecting the medical malpractice
insurance industry, particularly as such developments might affect medical
malpractice insurance for physicians, could have a material adverse effect on
the Company's financial condition and results of operations.
As of June 30, 1998, approximately 67% of the Company's 1998 premiums were
written in New Jersey. The revenues and profitability of the Company are
therefore subject to prevailing regulatory, economic, competitive and other
conditions in New Jersey. See "-- Competition" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
There can be no assurance that the Company will be successful in
implementing its strategy to expand and diversify its geographic market. See
"-- Expansion into New Markets."
16
<PAGE> 20
MEDICAL MALPRACTICE INSURANCE INDUSTRY FACTORS
Many factors influence the financial results of the medical malpractice
insurance industry, some of which are beyond the control of the Company and can
adversely affect the Company's results of operations. These factors include,
among other things, aggressive pricing by competitors, pricing cycles and
overcapacity that result in downward pressure on rates, greater than expected
severity and frequency of claims, regulatory actions that reduce the Company's
discretion with respect to the pricing of its products, changes in inflation and
interest rates that make it difficult for the Company to make adequate provision
for loss and LAE reserves, and judicial and legislative decisions relating to
insurance coverage issues and the amount of compensation payable with respect to
injuries that undermine insurers' expectations with respect to the level of risk
being assumed in a number of ways, including expansive coverage interpretations,
eliminating exclusions, multiplying limits of coverage, and creating rights for
policyholders not set forth in the insurance contract.
The availability of medical malpractice insurance, or the industry's
underwriting capacity, is determined principally by the industry's level of
capitalization, historical underwriting results, returns on investment and
perceived premium rate adequacy. Historically, the financial performance of the
medical malpractice industry has tended to fluctuate in cyclical patterns
characterized by periods of greater competition in pricing and underwriting
terms and conditions (a "soft insurance market") followed by periods of capital
shortage and lesser competition (a "hard insurance market"). In a soft insurance
market, competitive conditions could result in premium rates and underwriting
terms and conditions which may be below profitable levels. For a number of
years, the medical malpractice insurance industry in New Jersey and in many
other states has experienced a soft insurance market. There can be no assurance
as to whether or when industry conditions will improve or the extent to which
any improvement in industry conditions may improve the Company's results of
operations.
COMPETITION
The physician professional liability insurance market in the United States
is highly competitive. According to A.M. Best, in 1996 there were 357 companies
nationally that wrote medical professional liability insurance and, of those,
112 were writing in New Jersey. In New Jersey, where approximately 67% of the
Company's 1998 premiums were written as of June 30, 1998, the Company's
principal competitor is Princeton Insurance Companies. In New Jersey and other
states, the Company's principal competitors include CNA Insurance Group,
Frontier Insurance Group, Inc., PHICO Insurance Company and St. Paul Companies.
These companies rank among the top 20 medical malpractice insurers nationally
and are actively engaged in soliciting insureds in the states in which the
Company writes insurance. In addition, as the Company expands into new states,
it may face strong competition from local carriers that are closely focused on
narrow geographic markets. The Company expects to encounter such competition
from doctor-owned insurance companies and commercial companies in other states
as it carries out its expansion plans. Many of the Company's current and
potential competitors may have greater financial resources than the Company and
may seek to acquire market share by decreasing pricing for their products below
prevailing market rates, thereby reducing profitability. Several insurance
companies that have greater financial resources than the Company have started to
write medical malpractice insurance in New Jersey. There can be no assurance
that the Company will be able to compete effectively against these potential and
existing competitors.
The hospital professional liability insurance market is also extremely
competitive. Most of the Company's principal insurance company competitors for
physicians and medical groups also now actively compete in the hospital
professional liability insurance market. Moreover, the Company's primary
competitor in New Jersey was founded to provide professional liability coverage
to hospitals, while the Company traditionally served the individual physician
market. The Company also believes that the number of health care entities that
insure their affiliated physicians through self-insurance may increase, reducing
the market for physician professional liability insurance. These competitive
factors may adversely affect the Company's results of operations.
As the Company expands into new product lines and new geographic markets,
it will compete with established companies in such markets, many of which will
have existing relationships with the physicians,
17
<PAGE> 21
medical groups, hospitals, and other healthcare providers that the Company will
seek to insure. Competitors may also have existing relationships with insurance
brokers or other distribution channels. These factors may adversely affect the
Company's financial condition and results of operations. See
"Business -- Competition."
LOSS AND LAE RESERVES
The reserves for losses and LAE established by the Company are estimates of
amounts needed to pay reported and unreported claims and related LAE. The
estimates are based on assumptions related to the ultimate cost of settling such
claims based on facts and interpretation of circumstances then known,
predictions of future events, estimates of future trends in claims frequency and
severity, judicial theories of liability, legislative activity, and other
factors. Establishment of appropriate reserves is, however, an inherently
uncertain process involving estimates of future losses, and there can be no
assurance that currently established reserves will prove adequate in light of
subsequent actual experience. Clusters of cases, such as breast implant or
"Fen-Phen" cases, cannot be predicted by the Company. The inherent uncertainty
is greater for certain types of insurance, such as medical malpractice, where a
longer period may elapse before notice of a claim or a determination of
liability is made and where the judicial, political, and regulatory climates are
changing. Medical malpractice claims and expenses may be paid over a period of
10 or more years, which is longer than most property and casualty claims. Trends
in losses on "long-tail" lines of business such as medical malpractice may be
slow to emerge and, accordingly, the Company's reaction in terms of modifying
underwriting practices and changing premium rates may lag underlying loss
trends. In addition, changes in the practice of medicine and healthcare
delivery, such as the emergence of new, larger medical groups that do not have
an established claims history and additional claims resulting from restrictions
on treatment by managed care organizations, may require the Company to adjust
its underwriting and reserving practices. See "-- Changes in Health Care."
There can be no assurance that the Company's ultimate losses and LAE will
not deviate, perhaps substantially, from the estimates reflected in the
Company's financial statements. If the Company's reserves should prove
inadequate, the Company would be required to increase its loss and LAE reserves,
which would cause a corresponding reduction in earnings in the period that such
reserves are increased. This could have a material adverse effect on the
Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Loss
and LAE Reserves" and "Business -- Loss and LAE Reserves."
CHANGES IN HEALTH CARE
In recent years, a number of factors related to the emergence of "managed
care" have negatively impacted or threaten to impact the medical practice and
economic independence of physicians. Physicians have found it more difficult to
conduct a traditional fee-for-service practice and many have been forced to join
or affiliate with managed care organizations, health care delivery systems or
practice management organizations. This consolidation has begun to reduce the
role of the physician and the medical group in the medical malpractice insurance
purchasing decision. In addition, the consolidation could reduce primary medical
malpractice insurance premiums paid by doctors and hospitals, as larger health
care systems generally retain more risk by accepting higher deductibles and
self-insured retentions or form their own captive insurance companies.
Furthermore, larger health care systems may possess sufficient bargaining power
to negotiate discounted rates. These factors could have a material adverse
effect on the Company's profitability.
EXPANSION INTO NEW MARKETS
The Company's strategy includes expanding and diversifying its product
lines and geographic markets to meet the insurance needs of the changing health
care market, while maintaining its traditional personalized service for
physicians and medical groups, and customized products for health care
institutions. Such expansion and diversification are contingent on various
factors, including, among others, the availability of adequate capital,
marketing success, the ability to set profitable rates, and applicable
regulatory requirements. The Company's business expansion may also occur through
the acquisition of, or combination with, other medical professional liability
insurers or other entities. There can be no assurance that any such acquisition
or
18
<PAGE> 22
combination will be profitable for the Company. There can be no assurance that
the Company's expansion will be successful.
As the Company expands and diversifies its product lines into areas where
the Company is inexperienced, the Company will be required to retain qualified
personnel with the requisite experience in such areas. Competition for such
personnel may be intense, and there can be no assurance that the Company will be
able to attract and retain such personnel. In addition, the Company will have to
seek distribution channels for its new products. This may increase the Company's
dependence on insurance brokers and other intermediaries. There can be no
assurance that the Company will be able to develop such distribution channels or
maintain satisfactory relationships with insurance brokers and other
intermediaries.
A.M. BEST RATINGS
Ratings have become an increasingly important factor in establishing the
competitive position of insurance companies. The Company is rated "A
(Excellent)" by A.M. Best, the third highest rating of 16 ratings assigned by
A.M. Best. A.M. Best's ratings reflect its opinion of an insurance company's
financial strength, operating performance, strategic position, and ability to
meet its obligations to policyholders, and are not evaluations directed to
purchasers of an insurance company's securities. In March 1998, A.M. Best
reaffirmed the Company's "A (Excellent)" rating. The Company's rating is subject
to periodic review by A.M. Best and cannot be assured. If the Company's rating
is reduced from its current level by A.M. Best, the Company's results of
operations could be adversely affected. See "Business -- A.M. Best Ratings."
ENDORSEMENTS
The Company has received endorsements and support from various state
medical and osteopathic societies and a number of local county medical
associations in building its physician and medical group policyholder base. The
Company has relied on its relationships with physicians and medical associations
in marketing its policies in competition with commercial insurance companies and
other physician-governed companies. The Company will endeavor to maintain its
endorsements and continue its close relationships with physicians and medical
groups through personalized service. There can be no assurance, however, that
the Company will be able to maintain these relationships and endorsements.
REINSURANCE
The amount and cost of reinsurance available to companies specializing in
medical professional liability insurance are subject, in large part, to
prevailing market conditions beyond the control of the Company. The Company's
ability to provide professional liability insurance at competitive premium rates
and coverage limits on a continuing basis will depend in part on its ability to
secure adequate reinsurance in amounts and at rates that are commercially
reasonable. Moreover, the Company must obtain the consents of its current
reinsurers to assign the reinsurance contracts written with the Exchange to MIIX
Insurance. There can be no assurance that the Company will be able to obtain its
reinsurers' consents or to secure adequate reinsurance, and any failure to
obtain such consents or reinsurance could have a material adverse effect on the
Company. Furthermore, the Company is subject to a credit risk with respect to
its reinsurers because reinsurance does not relieve the Company of liability to
its insureds for the risks ceded to reinsurers. A significant reinsurer's
inability to make payment under the terms of a reinsurance treaty could have a
material adverse effect on the Company. See "Business -- Reinsurance."
HOLDING COMPANY STRUCTURE; LIMITATION ON DIVIDENDS
The MIIX Group is an insurance holding company whose assets after the
Reorganization will consist primarily of all the outstanding capital stock of
the Insurance Subsidiaries, the Attorney-in-Fact, and downstream subsidiaries of
those companies. As an insurance holding company, The MIIX Group's ability to
meet its obligations and to pay dividends, if any, will largely depend on the
receipt of sufficient funds from its subsidiaries. The payment of dividends to
The MIIX Group by the Insurance Subsidiaries is subject to general limitations
imposed by applicable insurance laws. See "Business -- Regulation -- Holding
Company Regulation" and "Business -- Regulation -- Regulation of Dividends from
Insurance Subsidiaries."
19
<PAGE> 23
ANTI-TAKEOVER PROVISIONS
The MIIX Group's certificate of incorporation and by-laws include
provisions that may be deemed to have anti-takeover effects and may delay,
defer, or prevent a takeover attempt that stockholders may consider to be in
their best interests. These provisions include: a Board of Directors consisting
of three classes with staggered terms; authorization to issue up to 50,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"), in
one or more series, with such rights, obligations, powers, and preferences as
The MIIX Group Board may provide; a limitation which permits only The MIIX Group
Board, the Chairman or Vice Chairman of The MIIX Group Board or the Chief
Executive Officer (or in the event of his or her absence or disability, any Vice
President) of The MIIX Group, to call a special meeting of stockholders; a
prohibition against stockholders acting by written consent; provisions allowing
directors to be removed only for cause and only by the affirmative vote of a
majority of holders of the outstanding shares of voting securities; provisions
allowing The MIIX Group Board to increase the size of the Board and fill
vacancies and newly created directorships; and certain advance notice procedures
for nominating candidates for election to The MIIX Group Board and for proposing
business before a meeting of stockholders. In addition, state insurance holding
company laws that will be applicable to The MIIX Group generally provide that no
person may acquire control of The MIIX Group without the prior approval of
appropriate insurance regulatory authorities. See "Management," "Description of
Capital Stock -- Delaware Law and Certain Charter and Bylaw Provisions," and
"Business -- Regulation -- Holding Company Regulation."
REGULATORY AND RELATED MATTERS
Insurance companies are subject to supervision and regulation by the state
insurance authority in each state in which they transact business. Such
supervision and regulation relate to numerous aspects of an insurance company's
business and financial condition, including limitations on lines of business,
underwriting limitations, the setting of premium rates, the establishment of
standards of solvency, statutory surplus requirements, the licensing of insurers
and agents, concentration of investments, levels of reserves, the payment of
dividends, transactions with affiliates, changes of control, and the approval of
policy forms. Such regulation is concerned primarily with the protection of
policyholders' interests rather than stockholders' interests. See
"Business -- Regulation."
State regulatory oversight and various proposals at the federal level may
in the future adversely affect the Company's results of operations. In recent
years the state insurance regulatory framework has come under increased federal
scrutiny, and certain state legislatures have considered or enacted laws that
alter and, in many cases, increase state authority to regulate insurance
companies and insurance holding company systems. Furthermore, the National
Association of Insurance Commissioners (the "NAIC") and state insurance
regulators are reexamining existing laws and regulations, which in many states
has resulted in the adoption of certain laws that specifically focus on
insurance company investments, issues relating to the solvency of insurance
companies, risk-based capital ("RBC") guidelines, interpretations of existing
laws, the development of new laws and the definition of extraordinary dividends.
See "Business -- Regulation -- Risk-Based Capital," "Business -- Regulation --
NAIC-IRIS Ratios," and "Business -- Regulation -- Regulation of Investments."
Changes in or the adoption of laws or regulations regarding such issues or other
matters, including the rates charged for insurance coverage, could have a
material adverse effect on the operations of the Company. State agencies and
officials responsible for administering such laws and regulations have broad
powers, which they exercise primarily for the protection of policyholders.
STATE INSURANCE REGULATORY APPROVALS
Because New Jersey's statutory scheme does not have an explicit process for
converting a reciprocal insurance exchange into a stock company, the conversion
will be accomplished through two assumption agreements by which the Exchange
will transfer its ongoing business, assets and liabilities to MIIX Insurance.
However, insurance licenses cannot be transferred. Accordingly, it will be
necessary for MIIX Insurance to gain state regulatory approval to become an
admitted carrier in each of the eight states other than New Jersey in which the
Exchange currently writes business. These states are Connecticut, Delaware,
Kentucky, Maryland, Michigan, Pennsylvania, Vermont and West Virginia. These
states must also approve MIIX Insurance's rates, rules and policy forms, which
the Company expects will initially be a continuation of those
20
<PAGE> 24
currently used by the Exchange. In addition, Virginia, which is LP&C's state of
domicile, and Texas, in which LP&C has been deemed to be commercially domiciled,
must approve the change in LP&C's ultimate parent from the Exchange to The MIIX
Group. Finally, Connecticut and Delaware approvals and the consent of the
reinsurers will be required in connection with the assignment to MIIX Insurance
of the various reinsurance agreements under which the Exchange cedes risk. If
these approvals are not granted prior to the consummation of the Reorganization,
it may prevent the consummation of the Reorganization as currently contemplated
and, because MIIX Insurance will not be authorized to write new business in such
states, may have an adverse effect on the Company.
SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of Common Stock issued in the Reorganization and the
Offerings (except for the shares issued to the Medical Society, the directors
and officers of The MIIX Group, and other affiliates of The MIIX Group) will be
eligible for immediate sale in the public market. No prediction can be made as
to the effect, if any, that future sales of shares, or the availability of
shares for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of such shares of
Common Stock in the public market following effectiveness of the Reorganization
and the Offerings or the perception that such sales could occur could adversely
affect the market price of the Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity securities.
See "Shares Eligible for Future Sale."
LACK OF PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to the Reorganization and the Offerings, there has been no public
market for the Common Stock and there can be no assurance that an active trading
market will develop or be sustained. The Company has applied to list the shares
of Common Stock to be issued in the Reorganization and the Offerings on the
NYSE. There can be no assurance as to the price at which Common Stock will trade
on the NYSE. In addition, factors such as the variations in the Company's
financial results or other developments affecting the Company could cause the
market price of the Common Stock to fluctuate significantly after the Offerings.
Completion of the Public Offering is not a condition to the effectiveness
of the Plan of Reorganization. If the Plan of Reorganization becomes effective,
but the Public Offering does not occur, the Company will still seek to list the
shares of Common Stock distributed to Distributees on the NYSE. However, in the
absence of the Public Offering, there can be no assurance that an active or
orderly trading market for the Common Stock will develop. The absence of an
active or orderly trading market could have an adverse effect on the market
price of the Common Stock subsequent to the Closing Date, the ability of
Subscription Offerees to resell the Subscription Shares and the ability of the
Company to raise additional capital in the equity markets in the future.
FAILURE TO CONSTITUTE A TAX-FREE REORGANIZATION
PricewaterhouseCoopers LLP (the "Tax Advisor") has delivered an opinion
(the "Tax Opinion") stating that consummation of the Plan of Reorganization
generally will constitute a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. The Internal
Revenue Service (the "IRS") and the courts have not previously considered the
treatment of a transaction in the form described herein. The Tax Opinion
represents the Tax Advisor's best judgment of how a court would rule. However,
the opinion is not binding upon either the IRS or any court. A ruling has not
been, and will not be, sought from the IRS with respect to the U.S. federal
income tax consequences of the consummation of the Plan of Reorganization.
Accordingly, the IRS and/or a court could reach a conclusion that differs from
the conclusions in the Tax Opinion. In that event, it is possible that the
consummation of the Plan of Reorganization would be treated as a taxable
transaction, in which case the Exchange and Members receiving Common Stock would
recognize taxable gain. See "The Reorganization -- Federal Tax Consequences."
DEPENDENCE ON KEY PERSONNEL
The Company's success since 1992 has been significantly dependent on the
contributions of Daniel Goldberg, the Company's President and Chief Executive
Officer, and the loss of his services could have a material adverse effect on
the Company's business, results of operations and financial condition. The
21
<PAGE> 25
Company's success also depends to a significant extent on a number of other key
employees of the Company and the loss of their services could also have a
material adverse effect on the Company. In addition, the Company believes that
its future success will depend in part on its ability to attract and retain
additional highly skilled professional, managerial, sales, and marketing
personnel. Competition for such personnel is intense. There can be no assurance
that the Company will be successful in attracting and retaining the personnel
that it requires for its business and planned growth.
GUARANTY FUND, ASSESSMENTS AND OTHER LIABILITIES
Property and casualty insurers like the Company are subject to assessments
in most states where they are licensed for the provision of funds necessary for
the settlement of covered claims under certain policies of impaired, insolvent
or failed insurance companies. Maximum contributions required by law in any one
year vary by state, and have historically been between 1% and 2% of annual
premiums written. The Company cannot predict with certainty the amount of future
assessments but expects assessments in 1998 to be levied by Pennsylvania,
Kentucky and Maryland. In each of these three states, the amount of the
assessment under current law cannot exceed 2% of the direct premiums written by
the Company in that state. Significant assessments could have a material adverse
effect on the Company's financial condition or results of operations.
In addition to guaranty fund assessments, there is a possibility that the
Company could be required to pay some portion of the estimated $2 billion
liability of Pennsylvania's Medical Professional Liability Catastrophe (CAT)
Loss Fund. This fund provides a level of malpractice coverage above that of
primary carriers. A study is currently under way to assess the level of unfunded
liability and recommend legislative solutions. Options include a bond issue;
primary carriers assuming some of the fund's liability; major reinsurers funding
the liability; or continuing current surcharges until the liability is
eliminated. A determination that primary carriers are to share the fund's
liability could have a material adverse effect on the Company.
YEAR 2000; INFORMATION TECHNOLOGY
Because certain computer software programs have historically been designed
to use a two-digit code to identify the year for date-sensitive material, such
programs may not properly recognize post twentieth century dates. This could
result in system failures and improper information processing that could disrupt
the Company's business operations.
The Company began evaluating this issue in 1996 and during 1997 assigned a
project manager to study the Company's information systems and computers to
determine whether they will appropriately handle post-1999 date codes. The
identification of compliance issues included the Company's internal systems and
processes, as well as exposure from service providers, brokers and other
external business partners. Software applications, hardware and information
technology ("I/T") infrastructure and non I/T systems such as the Company's
phone, security and heating and ventilating systems have been reviewed to
identify those requiring upgrading or replacement to improve current computing
capabilities and to ensure that they are Year 2000 compliant.
The Company has completed its review of its internal systems but has not
yet completed its investigation of whether its service providers, brokers and
other external business partners may experience Year 2000 problems that could
affect the Company. The Company expects to complete its Year 2000 compliance
efforts in 1999. However, there can be no assurance that the Company will not
experience failure of its internal systems or its non I/T systems, or that the
Company's service providers, brokers and other external business partners will
not experience Year 2000 problems, either of which could have a material adverse
effect on the Company's operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."
The Company is significantly dependent upon effective information systems.
Any failure in, or failure to timely update, the Company's information systems
could have a material adverse effect on the Company's results of operations or
financial condition. The Company is in the process of updating its computer
systems that relate to policy administration, billing, claims, and other aspects
of the Company's business. There can be no assurance that such updates will be
implemented without causing significant disruption to the Company's operations.
Any such disruptions could have a material adverse effect on the Company's
ability to conduct its operations and could increase administrative expenses.
22
<PAGE> 26
THE MEMBERS' MEETING
TIME, DATE AND PLACE
The Members' Meeting will be held at on ,
, 1998 at . At the Members' Meeting, Members will
consider and vote upon a proposal to approve (i) an amendment to the Rules and
Regulations of the Exchange to permit the dissolution of the Exchange (the
"Amendment") and (ii) the Plan of Reorganization.
ADOPTION DATE, QUORUM AND VOTE REQUIRED
Only persons who were Members of the Exchange on October 15, 1997, the date
on which the Board of Governors adopted the Plan of Reorganization, are entitled
to vote at the Members' Meeting. There are approximately 10,700 such Members.
Each such Member is entitled to one vote at the Members' Meeting.
The presence, either in person or by proxy, of 101 Members is necessary to
constitute a quorum at the Members' Meeting. The affirmative vote of not less
than two-thirds of the Members present in person or by proxy at the Members'
Meeting is required to approve and adopt the Amendment and the Plan of
Reorganization.
THE AMENDMENT
As part of the Plan of Reorganization, the Exchange will dissolve. At the
time of the adoption of the Plan of Reorganization, the Exchange's Rules and
Regulations did not contain any provision expressly authorizing such
dissolution. Therefore, the Board of Governors has approved an amendment to the
Rules and Regulations expressly to permit such dissolution, and the Company is
seeking the Members' approval of such amendment.
RECOMMENDATION OF THE BOARD OF GOVERNORS
The Board of Governors believes that the Plan of Reorganization is fair to,
and in the best interests of, the Exchange and its members. The Board of
Governors has unanimously adopted the Plan of Reorganization and recommends that
Members vote FOR the proposal to approve and adopt the Amendment and the Plan of
Reorganization. See "The Reorganization -- Recommendation of the Board of
Governors; Reasons for the Reorganization."
INTERESTS OF MEMBERS OF THE BOARD OF GOVERNORS IN THE REORGANIZATION
Each member of the Board of Governors is a Member who will be entitled to
vote upon the Amendment and the Reorganization and to receive Common Stock
pursuant to the Reorganization. In addition, members of the Board of Governors
and their families will be eligible to participate in the Subscription Offering.
The estimated number of shares that each member of the Board of Governors will
receive pursuant to the Reorganization and the Subscription Offering is set
forth below. See "Management" and "Ownership of Common Stock."
PROXIES
All proxies that are properly executed and returned to the Company will be
voted at the Members' Meeting or any adjournments and postponements thereof in
accordance with the instructions thereon, or if no instructions are given, will
be voted for approval and adoption of the Amendment and the Plan of
Reorganization. Members are urged to mark the boxes on the proxy to indicate how
they wish to vote. A Member may revoke a proxy at any time before it is voted by
submitting a later dated proxy, by appearing in person at the Members' Meeting
and voting thereat, or by delivering a written notice to the Secretary of the
Company stating that the proxy is revoked.
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PROXY SOLICITATION
The Company will bear the cost of soliciting proxies. In addition to
solicitation by mail, proxies may be solicited by the directors, officers and
employees of the Company, who will not be specifically compensated for such
services, by personal interview, telephone or other telecommunication. In
addition, the Exchange has retained D.F. King & Co. to assist in soliciting
proxies for the Members' Meeting at a fee of approximately $7,500 plus certain
expenses.
THE REORGANIZATION
The following discussion of the Reorganization is qualified in its entirety
by reference to the Plan of Reorganization, a copy of which is attached as Annex
A hereto.
GENERAL
The Exchange is organized as a reciprocal insurer. Since the Exchange's
inception, the business of the Exchange has been managed by the
Attorney-in-Fact, which is a wholly owned subsidiary of the Medical Society. On
October 15, 1997, the Board of Governors adopted a Plan of Reorganization. The
key components of the Plan of Reorganization are set forth below.
- The Exchange has formed a new subsidiary, MIIX Insurance. MIIX Insurance
was formed to assume, if the Reorganization is consummated, all of the
Exchange's assets and liabilities (except for the Common Stock and cash
to be distributed pursuant to the Reorganization), including insurance
policies written by the Exchange. After consummation of the
Reorganization, MIIX Insurance will continue the Exchange's business of
writing insurance policies and the Exchange will be dissolved.
- The Exchange has formed a new subsidiary, The MIIX Group. The purpose of
The MIIX Group is to act as a holding company for MIIX Insurance and the
Company's other subsidiaries. The MIIX Group is the entity that will
issue Common Stock in the Reorganization and the Offerings.
- The MIIX Group will acquire the Attorney-in-Fact from the Medical Society
for $11 million worth of Common Stock and $100,000 in cash.
- When the Exchange is dissolved, the Reorganization Shares will be
available for distribution to Distributees. The distribution of the
Reorganization Shares is registered under the Registration Statement of
which this Prospectus forms a part.
- The Reorganization Shares will be allocated to Distributees in the
proportion that direct premiums earned by the Exchange attributable to
each Distributee, less return premiums, over the three years prior to
October 15, 1997, bear to direct premiums earned by the Company
attributable to all Distributees, less return premiums, over the same
period. The total amount of direct premiums earned by the Exchange
attributable to all Distributees, less return premiums, over such
period, was approximately $350 million.
- If a Distributee would be allocated fewer than 100 shares of Common
Stock, or if such Distributee's address as shown on the records of the
Exchange is outside the United States or is an address to which mail
is undeliverable, such Distributee will receive cash in lieu of Common
Stock. Distributees who receive cash in lieu of Common Stock will
receive an amount of cash equal to the product of (i) the number of
shares of Common Stock which they would otherwise be entitled to
receive and (ii) the Conversion Value. If a Distributee's address as
shown on the records of the Exchange is an address to which mail is
undeliverable, the Company will hold such Distributee's cash
distribution and will endeavor to contact such Distributee using any
other information in the Company's possession. If the Company is
unable to contact such Distributee, the Company will continue to hold
the cash for the Distributee, subject to any escheat laws that may
apply.
- To the extent that a Distributee receives cash in lieu of Common
Stock, the Common Stock otherwise distributable to such
Distributee will not be distributed to other Distributees. Thus,
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fewer than 12,000,000 shares of Common Stock will be distributed
pursuant to the Reorganization. The Company currently estimates
that 11,900,000 shares of Common Stock will be distributed pursuant
to the Reorganization. Assuming that the Conversion Value is equal
to $ , approximately $ will be distributed to
Distributees in lieu of Common Stock. Cash payments will be made
from the Company's existing cash reserves.
Thus, if the Reorganization is consummated, (i) the Exchange will be
dissolved, (ii) the Distributees will receive Common Stock of The MIIX Group, or
cash, (iii) MIIX Insurance will assume the assets and liabilities of the
Exchange, and (iv) The MIIX Group will be the holding company for MIIX
Insurance, the other subsidiaries of the Exchange and the Attorney-in-Fact.
These steps will occur simultaneously and are described in greater detail below.
On March 5, 1998, the Commissioner approved the Plan of Reorganization
subject to two conditions. First, the Commissioner must approve the formation of
MIIX Insurance. This approval was obtained on August 3, 1998. Second, in
accordance with the terms of the Plan of Reorganization, the Members must
approve the Plan of Reorganization by the affirmative vote of two-thirds of
those Members voting.
PURPOSE
The principal purposes of the Reorganization are to enhance the Company's
strategic and financial flexibility and to provide Distributees with marketable
stock in The MIIX Group. As a reciprocal insurer, the Company can increase its
capital primarily through retained surplus. The Company believes that in the
long term this source will not be sufficient to meet its business objectives. As
a stock company, the Company will have greater access to the capital markets.
The Company believes that such access will enhance the Company's ability to
expand its existing business and to develop new business opportunities. In
addition, as a stock company the Company will have a well-recognized and
flexible organizational form that may facilitate strategic acquisitions.
TRANSFER OF ASSETS AND LIABILITIES TO MIIX INSURANCE
Pursuant to an Assumption Reinsurance and Administration Agreement to be
entered into among the Exchange, the MIIX Group and MIIX Insurance (the
"Reinsurance Assignment"), all the rights and obligations under policies written
by the Exchange, and all instruments of reinsurance ceded by the Exchange in
respect of such policies, will be transferred to MIIX Insurance in consideration
of the transfer by the Exchange to MIIX Insurance of invested assets, premium
receivables, reinsurance recoverables and other assets having a value equal to
the liabilities transferred under the Reinsurance Agreement. Following the
effectiveness of the Reinsurance Agreement, MIIX Insurance will become directly
liable under the assumed direct written policies and will service and administer
those policies. The Reinsurance Agreement's effectiveness is conditioned upon
the approval of the Commissioner and the commissioners of insurance of the
states of Connecticut and Delaware. The Commissioner's approval was obtained in
connection with the approval of the Plan of Reorganization. As promptly as
possible following the effectiveness of the Reinsurance Agreement, MIIX
Insurance will mail to each policyholder of the Exchange (and to former
policyholders with claims outstanding on the Closing Date or arising after the
Closing Date) a certificate of assumption notifying them that their policies
have been transferred to MIIX Insurance. Pursuant to an Assignment and
Assumption Agreement to be entered into among the Exchange, The MIIX Group and
MIIX Insurance (the "Asset Assignment" and, with the Reinsurance Assignment, the
"Assumption Agreements"), MIIX Insurance will assume all the non-insurance
liabilities of the Exchange, and the Exchange will transfer to MIIX Insurance
all of the non-insurance operating assets and properties used or held for use in
connection with, necessary for, or material to, the business and operations
currently conducted by the Exchange. The Common Stock and cash to be paid to
Distributees is excluded from such transfer. In consideration of the foregoing
assignments by the Exchange, The MIIX Group will issue Common Stock to the
Exchange, which Common Stock will be distributed to Distributees pursuant to the
Reorganization. See "The Reorganization -- General." The Asset Assignment is
conditioned upon the approval of the Commissioner, which has already been
obtained in connection with the Commissioner's approval of the Plan of
Reorganization.
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SHARES OF COMMON STOCK ISSUED TO DISTRIBUTEES
In connection with the Reorganization, 12,000,000 shares of Common Stock
will be available for allocation to Distributees. "Distributees" are Persons who
were Named Insureds (regardless of the person or group who paid the premiums) in
one or more Policies that were In Force on the Adoption Date and Persons who
were at any time during the three-year period prior to the Adoption Date Named
Insureds in one or more Policies. Corporate policyholders and other
policyholders who are not natural persons are not Distributees. See "Glossary of
Reorganization Related Terms."
Distributees will be allocated shares of Common Stock if the Plan of
Reorganization is approved by the Members at the Members' Meeting, and the other
conditions to the consummation of the Reorganization are met. See "-- Conditions
to Consummation of the Reorganization." Each Distributee will be allocated a pro
rata share of the 12,000,000 shares of Common Stock available for allocation to
Distributees, in the proportion that direct premiums earned by the Exchange
attributable to such Distributee, less return premiums, over the three years
prior to October 15, 1997, bear to direct premiums earned by the Exchange
attributable to all Distributees, less return premiums, over the same period.
The number of shares allocated will be rounded to the nearest integer, with
one-half share allocation being rounded upward. Therefore, the actual number of
shares so allocated will not precisely equal each Distributee's pro rata share
of the Exchange's earned premiums over the three years prior to October 15,
1997. The total amount of direct premium earned by the Exchange attributable to
all Distributees, less return premiums, over the three years prior to October
15, 1997 was approximately $350 million. Distributees who (i) have as their
address for mailing purposes shown on the records of the Company an address
outside the United States of America or an address to which mail is
undeliverable, or (ii) are allocated a number of shares of Common Stock fewer
than 100, will be paid cash for those shares. The gross amount of cash paid in
consideration for each such share shall equal the Conversion Value. If a
Distributee's address as shown on the records of the Exchange is an address to
which mail is undeliverable, the Company will hold such Distributee's cash
distribution and will endeavor to contact such Distributee using any other
information in the Company's possession. If the Company is unable to contact
such Distributee, the Company will continue to hold the cash for the
Distributee, subject to any escheat laws that may apply. To the extent that a
Distributee receives cash in lieu of Common Stock, the Common Stock otherwise
distributable to such Distributee will not be distributed to other Distributees.
Thus, fewer than 12,000,000 shares of Common Stock will be distributed pursuant
to the Reorganization. The Company currently estimates that 11,900,000 shares of
Common Stock will be distributed pursuant to the Reorganization. Assuming that
the Conversion Value is equal to $ , approximately $ will be
distributed to Distributees in lieu of Common Stock. Cash payments will be made
from the Company's existing cash reserves.
ACQUISITION OF THE ATTORNEY-IN-FACT
Pursuant to a Stock Purchase Agreement dated as of October 15, 1997,
between The MIIX Group and the Medical Society (the "Stock Purchase Agreement"),
on the date on which the Reorganization is effected, The MIIX Group will
purchase all the outstanding common stock of the Attorney-in-Fact from the
Medical Society in exchange for (i) $100,000 in cash and (ii) that number of
shares of Common Stock with a value equal to $11 million based on the Public
Offering Price, or if the Public Offering is not consummated, on the average
trading price (based upon the mean of the daily high and low share price) for
the first 15 days of trading of the Common Stock on any nationally recognized
securities exchange. Based on an assumed Public Offering Price of $ per
share, shares of Common Stock will be paid to the Medical Society. All
subsidiaries of the Attorney-in-Fact are included in the purchase. The Common
Stock received by the Medical Society pursuant to the Stock Purchase Agreement
may not be transferred by the Medical Society for a period of 10 years following
October 15, 1997 except to the Company or its affiliates at fair market value or
to another party if the Company's Board of Directors approves such transfer.
CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
The consummation of the Reorganization is subject to the conditions that
(i) the Company has received an opinion from a nationally-recognized investment
banking firm as to the fairness of the Plan of Reorganization; (ii) the Company
has received an opinion from its tax advisors substantially to the effect that
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the transfer of the Exchange's assets to, and assumption of its liabilities by,
MIIX Insurance, and the dissolution of the Exchange, shall qualify as a tax-free
reorganization; (iii) the Members of the Exchange shall have approved the Plan
of Reorganization by the affirmative vote of two-thirds of those Members voting;
(iv) the Attorney-in-Fact shall have canceled all powers of attorney entered
into with any applicant for insurance with the Exchange; (v) all requisite
approvals of the Reinsurance Assignment shall have been obtained; (vi) the
Company shall have filed with the Commissioner certain certificates as to the
satisfaction of the conditions to the consummation of the Plan of
Reorganization; and (vii) the Commissioner shall have issued a certificate of
authority to MIIX Insurance to do business for the same lines of insurance
currently permitted of the Exchange and shall have granted MIIX Insurance any
required rate and form approvals, and the order of the Commissioner approving
the Plan of Reorganization shall have become final. The order approving the Plan
of Reorganization was issued on March 5, 1998 and became final on April 20,
1998. On August 3, 1998, the Commissioner granted a certificate of authority to
MIIX Insurance authorizing it to do business in the same lines of insurance
currently permitted of the Exchange. In addition, the Company has received a
fairness opinion from Salomon Brothers Inc. See "-- Opinion of Financial
Advisor." The consummation of each Offering is conditioned on the consummation
of the Reorganization and the consummation of the Subscription Offering is
conditioned on the consummation of the Public Offering. However, the
consummation of the Reorganization is not conditioned on the consummation of
either Offering and the consummation of the Public Offering is not conditioned
on the consummation of the Subscription Offering.
BACKGROUND OF THE REORGANIZATION
The Company has historically relied upon premium payments as its primary
source of capital. However, the Company believes that in the long term this
source will be insufficient to meet the Company's business objectives. On
January 28, 1997, representatives of the Company met with representatives of
Salomon Brothers Inc to discuss various capital raising alternatives. Such
alternatives included reorganizing as a stock insurer.
The strategic planning committees of the Board of Governors and the Board
of Directors of the Attorney-in-Fact held meetings on May 29, 1997 and May 30,
1997. At these meetings, representatives of Salomon Brothers Inc made a
presentation regarding trends in the medical malpractice insurance and health
care industries, an overview of the Company's business, and various capital
raising alternatives. At the conclusion of these presentations, the strategic
planning committees of the Board of Governors and the Board of Directors of the
Attorney-in-Fact authorized management to continue to explore the capital
raising alternatives discussed at the meeting.
On June 18, 1997, representatives of Salomon Brothers Inc met with the
strategic planning committees of the Board of Governors and the Board of
Directors of the Attorney-in-Fact to explore further the strategic alternatives
discussed on May 29, 1997 and May 30, 1997. In particular, the Salomon Brothers
Inc representatives discussed with the committees a proposed plan by which the
Exchange would reorganize as a stock insurer, acquire the Attorney-in-Fact, and
raise capital through an initial public offering. Upon the conclusion of this
meeting, Salomon Brothers Inc was asked to make a formal presentation to the
Board of Governors and the Board of Directors of the Attorney-in-Fact.
On July 30, 1997, representatives of Salomon Brothers Inc joined a special
meeting of the Board of Governors and the Board of Directors of the
Attorney-in-Fact. At this meeting, representatives of Salomon Brothers Inc
discussed various capital raising alternatives, including the key features of a
proposed plan by which the Exchange would reorganize as a stock insurer, acquire
the Attorney-in-Fact, and raise capital through an initial public offering.
After discussing the various alternatives and certain issues relating to the
reorganization of the Exchange as a stock insurer, the Board of Governors and
the Board of Directors of the Attorney-in-Fact directed their respective
managements to develop a plan for the reorganization of the Exchange as a stock
insurer.
On July 8, 1997, August 14, 1997, September 5, 1997, September 12, 1997,
September 26, 1997, and October 6, 1997, representatives of the Company met with
representatives of the New Jersey Department to
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discuss the proposed reorganization. The New Jersey Department, in conjunction
with its legal counsel, determined the procedures governing the reorganization
process. At these meetings, representatives of the New Jersey Department
reviewed and discussed drafts of the Company's proposed plan of reorganization
and accompanying documents. All elements of the proposed plan were evaluated,
including but not limited to the formation of the successor company, the
purchase of the Attorney-in-Fact, the distribution of Common Stock and cash, the
dissolution of the Exchange, and reinsurance implications.
On September 17, 1997, meetings were held to update the Board of Governors
and the Board of Directors of the Attorney-in-Fact as to the status of the
proposed reorganization. Representatives of Salomon Brothers Inc made a
presentation to the Board of Governors and the Board of Directors of the
Attorney-in-Fact regarding the structure and other details of the proposed plan
of reorganization.
The terms of the acquisition of the Attorney-in-Fact were initially
proposed pursuant to a term sheet that was reviewed and commented upon by
representatives of the Company and the Medical Society during the period that
the Plan of Reorganization was being developed. In a negotiating session held on
October 6, 1997, representatives of the Company and the Medical Society
negotiated final terms of the Stock Purchase Agreement for the acquisition of
all the stock of the Attorney-in-Fact and its subsidiaries.
On October 15, 1997, a regular meeting of the Board of Governors was held.
At this meeting, Mr. Kenneth Koreyva, Vice President and Chief Financial Officer
of the Exchange, reviewed with the Board of Governors the terms and structure of
the proposed plan of reorganization. The Exchange's counsel discussed certain
legal aspects of the proposed plan of reorganization. Representatives of Salomon
Brothers Inc discussed the terms of the proposed plan of reorganization and
delivered a written opinion to the Board of Governors that, based upon the
assumptions and limitations set forth therein, as of October 15, 1997 (i) the
consideration to be paid to Distributees, as a group, in the Reorganization
pursuant to the Plan of Reorganization is fair, from a financial point of view,
to the Distributees, as a group in the Reorganization and (ii) the consideration
to be paid for all the outstanding common stock of the Attorney-in-Fact and its
subsidiaries is fair, from a financial point of view, to the Exchange. The Board
of Governors asked various questions during the course of these presentations.
The Board of Governors then approved the Plan and authorized management to file
the Plan with the New Jersey Department.
On October 16, 1997, the Plan of Reorganization was filed with the New
Jersey Department. On December 22, 1997, the New Jersey Department conducted a
public hearing regarding the Plan of Reorganization. On March 5, 1998, the
Commissioner approved the Plan of Reorganization, subject to certain conditions.
See "The Reorganization -- Regulatory Approvals."
RECOMMENDATION OF THE BOARD OF GOVERNORS; REASONS FOR THE REORGANIZATION
The Board of Governors has concluded that the terms of the Reorganization
are fair to, and in the best interests of, the Exchange and its members. In
reaching this conclusion the Board of Governors considered a variety of factors,
including but not limited to the following:
- The Board of Governors' belief that the Company must be able to grow
in order to maximize the Company's ability to realize continued
success and to provide a high level of service to its insureds.
- The Board of Governors' belief that such growth requires access to
capital, and that the Company must take on a corporate form in order
to gain access to capital markets.
- The Board of Governors' belief that other insurers that are
organized as stock companies possess a competitive advantage over
the Company, because stock companies (i) have access to capital
markets, (ii) operate under corporate statutes that provide greater
certainty and greater flexibility than the New Jersey statute
governing reciprocal insurers as to the types of activities in which
the Company may engage, and (iii) are better recognized and more
accepted in the business community than reciprocal insurers.
- The opinion of Salomon Brothers Inc that (i) the consideration to be
received by the Distributees, as a group, in the Reorganization
pursuant to the Plan of Reorganization is fair, from a financial
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point of view, to the Distributees, as a group, and (ii) the
consideration to be paid for all the outstanding common stock of the
Attorney-in-Fact and its subsidiaries is fair, from a financial point
of view, to the Exchange.
- The expected treatment of the Reorganization as a tax-free
reorganization.
- The fact that Distributees will receive publicly traded Common Stock
in the Reorganization, in contrast to the illiquid nature of
Membership Interests.
The Board of Governors also considered certain potential risks of the
Reorganization, including but not limited to the following:
- The fact that stockholders of the Company might have interests that
are not aligned with the interests of insureds, and that such
stockholders would have ultimate control over the Company.
- The fact that as a public company, the Company would be subject to a
heightened degree of scrutiny and market pressures.
In making the determination that only Distributees would receive Common
Stock, the Board of Governors considered, in the absence of governing law in New
Jersey, expert commentary and the many analogous state laws that maintain a
"look-back" approach to the demutualization of mutual insurers in order to
reflect members' and recent former members' respective recent contributions
(measured in terms of premiums). Among the states that have adopted such a
look-back approach, a three-year look-back period is the most frequently used
methodology.
The foregoing discussion of the information and factors considered by the
Board of Governors is not intended to be exhaustive, but the Company believes it
includes all of the material factors considered by the Board of Governors. In
making its determination, the Board of Governors did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. The Board of Governors did not
classify the various factors according to whether they were favorable,
unfavorable or neutral to its conclusions. In addition, individual members of
the Board of Governors may have given different weights to different factors.
OPINION OF FINANCIAL ADVISOR
On June 27, 1997, the Exchange retained Salomon Brothers Inc to assist it
in the investigation and possible execution of the Reorganization. In connection
with the engagement, the Exchange instructed Salomon Brothers Inc to evaluate
the fairness, from a financial point of view, (i) to the Distributees, as a
group, of the consideration to be received by the Distributees in the
Reorganization pursuant to the Plan of Reorganization and (ii) to the Exchange
of the consideration to be paid for all of the stock of the Attorney-in-Fact and
its subsidiaries.
The total amount of consideration to be received by the Distributees as a
group pursuant to the Reorganization is the value of the Company and its
subsidiaries before the consummation of the Offerings, less the $11.1 million
dollars in cash and stock that the Medical Society will receive in connection
with the acquisition of the Attorney-in-Fact. The number of shares to be
received by the Medical Society will be based on the Public Offering Price ($11
million / Public Offering Price) or, if the Public Offering is not consummated,
based on the average trading price (based upon the mean of the daily high and
low share price) for the first fifteen days of trading of the Common Stock on
any nationally recognized securities exchange ($11 million / average trading
price).
The Exchange imposed no limitations on Salomon Brothers Inc with respect to
the investigation made, or the procedures followed, by it in rendering its
opinion. The Exchange selected Salomon Brothers Inc because of its reputation
and expertise as a nationally recognized investment banking firm. Salomon
Brothers Inc, as part of its investment banking services, is regularly engaged
in the valuation of businesses and securities in
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connection with stock repurchases, mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Salomon Brothers Inc delivered its written opinion, dated October 15, 1997,
to the Board of Governors stating that, as of the date of such opinion, and
based upon the procedures and subject to the assumptions and qualifications
described in such opinion, (i) the consideration to be received by the
Distributees, as a group, in the Reorganization pursuant to the Plan of
Reorganization is fair, from a financial point of view, to the Distributees, as
a group, and (ii) the consideration to be paid for all the outstanding common
stock of the Attorney-in-Fact and its subsidiaries is fair, from a financial
point of view, to the Exchange. Salomon Smith Barney (the "Financial Adviser"),
successor to Salomon Brothers Inc, has confirmed Salomon Brothers Inc's opinion
dated October 15, 1997 by delivery of a written opinion dated the date of this
Prospectus (the "Bring-Down Opinion"). In connection with the Bring-Down
Opinion, the Financial Advisor updated its analysis performed in connection with
Salomon Brothers Inc's opinion delivered on October 15, 1997 and reviewed the
assumptions on which such analysis was based and the factors considered in
connection therewith. The Exchange imposed no limitations on the Financial
Advisor with respect to the investigation made, or the procedures followed, by
it in rendering the Bring-Down Opinion.
THE FULL TEXT OF THE BRING-DOWN OPINION, WHICH SETS FORTH THE MATTERS
REVIEWED, ASSUMPTIONS MADE, FACTORS CONSIDERED, RELIANCE UPON OTHERS AND
LIMITATIONS AS TO THE REVIEW UNDERTAKEN BY IT, IS ATTACHED AS ANNEX B HERETO AND
IS INCORPORATED BY REFERENCE HEREIN. THE DISTRIBUTEES ARE URGED TO READ
CAREFULLY THE BRING-DOWN OPINION IN ITS ENTIRETY. ANY DESCRIPTION OF OR
REFERENCE TO THE BRING-DOWN OPINION IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO, THE FULL TEXT OF SUCH OPINION. THE BRING-DOWN OPINION IS
DIRECTED TO THE BOARD OF GOVERNORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY MEMBER AS TO WHETHER SUCH MEMBER SHOULD VOTE TO APPROVE THE PLAN OF
REORGANIZATION OR TO ANY SUBSCRIPTION OFFEREE AS TO WHETHER SUCH SUBSCRIPTION
OFFEREE SHOULD SUBSCRIBE FOR SUBSCRIPTION SHARES. THE BRING-DOWN OPINION IS
BASED ON CONDITIONS AS THEY EXISTED ON THE DATE THEREOF AND THE FINANCIAL
ADVISOR DOES NOT ASSUME RESPONSIBILITY TO UPDATE OR REVISE SUCH OPINION BASED
UPON CIRCUMSTANCES OR EVENTS OCCURRING AFTER THE DATE THEREOF.
The Financial Advisor was not requested to opine as to, and its opinion
does not address, the Exchange's underlying business decision to effect the
Reorganization or any aspect of the Subscription Offering. In addition, the
Financial Advisor's opinion expressly excludes any opinion as to: (i) which of
the Exchange's policyholders are to be included among the Distributees; (ii) the
fairness of the proposed consideration to be paid to any Distributee,
individually, or to any class of Distributees in connection with the
Reorganization, including any provisions of the Plan of Reorganization relating
to which Distributees receive Common Stock, the allocation of such Common Stock
among Distributees and any other provisions of the Plan of Reorganization that
distinguish among Distributees; and (iii) the price at which Common Stock may be
sold in the Public Offering, if consummated, the fair market value of any shares
of Common Stock to be issued pursuant to the Plan of Reorganization or the price
at which Common Stock issued in connection with the Plan of Reorganization or
pursuant to the Public Offering, if consummated, will trade. The Financial
Advisor noted that the Public Offering Price, if the Reorganization and the
Public Offering are consummated, will be a function of market conditions and the
recent performance of and outlook for the Exchange at that time. Further, the
Financial Advisor noted its belief that trading in the Common Stock for a period
following the completion of a distribution of the Common Stock, including the
Public Offering, if consummated, would be characterized by a redistribution of
the Common Stock among Distributees and other investors and that the Common
Stock may trade during such periods of redistribution below the prices at which
it would trade on a fully distributed basis.
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In conducting its analysis and in arriving at its opinion, the Financial
Advisor reviewed, analyzed and relied upon material bearing upon the financial
and operating condition and prospects of the Exchange and material prepared in
connection with the Reorganization. The Financial Advisor considered such
financial and other factors it deemed appropriate under the circumstances,
including, among other things, the following: (i) the historical and
then-current financial position and results of operations of the Exchange and
the Attorney-in-Fact; (ii) the business prospects of the Exchange and the
Attorney-in-Fact; (iii) the historical relationship between the Exchange and the
Attorney-in-Fact; (iv) the historical and current market for the equity
securities of certain other companies that it believed to be comparable to the
Exchange, The MIIX Group or the Attorney-in-Fact; (v) the nature and terms of
certain other transactions that it believed to be relevant; (vi) the fact that
the Exchange had advised it that growth is extremely important to remain an
effective and competitive insurer in the future; (vii) the fact that the
Exchange had advised the Financial Advisor that it is of significant strategic
importance that it have broader access to external capital to finance such
growth; (viii) the Exchange's "A (Excellent)" rating by A.M. Best and the
considerations on which such rating is based; (ix) the fact that, in its present
form as a reciprocal insurer, the Exchange has limited access to capital markets
for new capital; (x) the fact that, following the Reorganization, the Exchange
would have a capital structure potentially enabling it to access the capital
markets for new capital; and (xi) the illiquidity of Membership Interests. In
addition, the Financial Advisor took into account its assessment of general
economic, market and financial conditions and its experience in connection with
similar transactions and securities valuation generally. The nature and terms of
the transactions that the Financial Adviser believed to be relevant included the
demutualizations or conversions of the following companies: Allmerica Financial
Corp., Amerus Life Holdings, Inc., Farm Family Holdings, Inc., Guarantee Life
Companies, Inc., Old Guard Group, Inc., SCPIE Holdings Inc. and Trigon
Healthcare, Inc.
In preparing its opinion, the Financial Advisor assumed, at the Exchange's
instruction, that: (i) the Reorganization will meet all applicable legal and
regulatory requirements and that all necessary action will have been taken to
comply with all applicable laws and requirements, including the receipt of all
required approvals by policyholders, regulators and otherwise; (ii) the
Reorganization will qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986; (iii) any credit facility
entered into by the Exchange or The MIIX Group and any borrowings thereunder
will not have a material adverse impact on the Exchange's business operations or
performance or ratings by A.M. Best; and (iv) the terms of the Public Offering
will not affect the legal or tax treatment of the Reorganization. The Financial
Adviser was advised as to certain legal matters by counsel to the Exchange and
as to certain tax matters by the Exchange's tax advisor and, with respect to
such matters, it relied upon such counsel and tax advisor.
In connection with rendering its opinion, the Financial Advisor reviewed
and analyzed among other things, the following: (i) a draft dated October 7,
1997 of the Plan of Reorganization; (ii) drafts dated October 7, 1997 of the
Assumption Agreements; (iii) a draft dated October 8, 1997 of the Stock Purchase
Agreement; (iv) the statutory annual statements provided by the Exchange for the
years 1992 through 1996; (v) certain GAAP financial data provided by the
Exchange, including the unaudited income statements and balance sheets of the
Exchange and the Attorney-in-Fact for the years 1992 through 1996 and the six
month period ending June 30, 1997; (vi) certain other internal information,
primarily financial in nature, including projections, concerning the business
and operations of the Exchange and the Attorney-in-Fact furnished to it by the
Exchange for purposes of its analysis; (vii) certain publicly available
information with respect to certain other companies that it believed to be
comparable to the Exchange and the trading markets for certain of such other
companies' securities; and (viii) certain publicly available information
concerning the nature and terms of certain other transactions that it considered
relevant to its inquiry. In addition, the Financial Advisor considered such
other information, financial studies, analyses, investigations and financial,
economic and market criteria that it deemed relevant and it discussed the
foregoing, as well as other matters it believed relevant to its inquiry, with
the management of the Exchange and the Attorney-in-Fact. The Financial Advisor
compared publicly available financial information and market data of comparable
companies of the Exchange (including FPIC Insurance Group, Inc., Medical
Assurance, Inc., MMI Companies, Inc., Professionals Group Inc. and SCPIE
Holdings Inc.) with certain financial data of the Exchange not for the
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purposes of comparative valuation but primarily to determine that The MIIX Group
would have an appropriate capital structure and the requisite financial
performance and size to be viable as a publicly traded company upon the
consummation of the Reorganization.
In its review and analysis and in arriving at its opinion, the Financial
Advisor assumed and relied upon the accuracy and completeness of all of the
financial and other information that was provided to it or was publicly
available and did not attempt to independently verify the same and further
relied upon the assurances of management of the Exchange that they were not
aware of any facts that would make such information inaccurate or misleading.
The Financial Advisor, upon the advice and consent of management of the
Exchange, assumed that projections provided by the Exchange were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of the Exchange as to the future financial
performance of the Exchange and the Attorney-in-Fact, and noted that it
expressed no opinion with respect to such projections or the assumptions on
which they were based. In addition, the Financial Advisor did not make or obtain
any evaluations or appraisals of the properties and facilities of the Exchange
or the Attorney-in-Fact nor did it make a physical inspection of such properties
and facilities. Further, the Financial Advisor assumed that the Plan of
Reorganization, Assumption Agreements and the Stock Purchase Agreement will not,
when executed, contain any terms or conditions that differ materially from the
terms and conditions contained in the drafts of such documents it reviewed, the
conditions precedent to the Reorganization contained in the Plan of
Reorganization and to the purchase of all of the stock of the Attorney-in-Fact
and its subsidiaries contained in the Stock Purchase Agreement will be satisfied
and the Reorganization and the acquisition of the Attorney-in-Fact will be
consummated in accordance with the terms of the Plan of Reorganization and the
Stock Purchase Agreement.
The preparation of financial analyses and fairness opinions is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analysis or summary description. The Financial Advisor made no attempt
to assign specific weights to the relevance of the factors considered.
Accordingly, the Financial Advisor believes that the summary set forth above
must be considered as a whole, and that selecting certain of the factors
considered by the Financial Advisor, without considering all of such factors,
could create a misleading or incomplete view of the processes underlying the
analysis conducted by the Financial Advisor and its opinion.
The Exchange retained Salomon Brothers Inc pursuant to an engagement letter
dated June 27, 1997. The Exchange paid Salomon Brothers Inc an aggregate fee of
$400,000 pursuant to such engagement letter. The Exchange also agreed to
reimburse Salomon Brothers Inc for all reasonable out-of-pocket expenses,
including fees and expenses of counsel, in connection with rendering such
services as contemplated in the engagement letter, and to retain the Financial
Advisor to act as a lead underwriter in connection with the Public Offering, if
conducted, for which the Financial Advisor will receive customary fees. The
foregoing fees and expenses were payable whether or not the Financial Advisor
gave the Exchange a favorable fairness opinion. The Company has agreed to
indemnify the Financial Advisor and its affiliated entities, directors,
officers, employees, legal counsel, agents and controlling persons against
certain costs, expenses and liabilities to which they may become subject arising
out of or in connection with their engagement. In addition, the Financial
Advisor has previously rendered certain investment banking and financial
advisory services to the Company, for which it will receive customary
compensation.
ACCOUNTING TREATMENT
The Reorganization will be accounted for as a combination of entities under
common control. As a result, assets and liabilities will be accounted for at
historical cost, which is consistent with the presentation set forth in the
financial statements and selected financial and operating data contained in this
Prospectus.
REGULATORY APPROVALS
Consummation of the Reorganization requires the approval of the
Commissioner. This approval was granted on March 5, 1998, subject to two
conditions. First, the Commissioner must approve the formation of MIIX
Insurance. This approval was obtained on August 3, 1998. Second, the
Reorganization must be
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approved by the affirmative vote of at least two-thirds of those Members voting
in person or by proxy. An appeal has been filed that challenges the validity of
the Commissioner's approval of the Reorganization. See "Risk Factors -- Possible
Adverse Impact of Litigation."
Pursuant to the Plan of Reorganization, MIIX Insurance is to assume all the
assets of the Exchange except for the Common Stock and cash to be distributed in
the Reorganization. However, insurance licenses cannot be transferred.
Accordingly, MIIX Insurance must obtain regulatory approval to become an
admitted carrier in each of the eight states other than New Jersey in which the
Exchange is currently licensed. These states are Connecticut, Delaware,
Kentucky, Maryland, Michigan, Pennsylvania, Vermont and West Virginia. These
states must also approve MIIX Insurance's rates, rules and policy forms, which
the Company expects will initially be a continuation of those currently used by
the Exchange. In addition, Virginia, which is LP&C's state of domicile, and
Texas, in which LP&C has been deemed to be commercially domiciled, must approve
the change in LP&C's ultimate parent from the Exchange to The MIIX Group.
Finally, Connecticut and Delaware approvals and the consent of the reinsurers
will be required in connection with the assignment to MIIX Insurance of the
various reinsurance agreements under which the Exchange cedes risk.
FEDERAL TAX CONSEQUENCES
The following is a description of the principal United States federal
income tax consequences to the Company and to Members receiving Common Stock or
cash in the Reorganization. This discussion is based on the advice of the Tax
Advisor. The description is based on the Internal Revenue Code of 1986, as
amended (the "Code"), its legislative history, existing and proposed regulations
thereunder, judicial decisions and published rulings and other administrative
interpretations issued by the IRS, as currently in effect, all of which are
subject to change at any time, possibly with retroactive effect. This discussion
does not address all aspects of federal taxation that may be relevant to
particular Members. Thus, for example, the discussion is addressed only to a
Member who is a citizen or resident of the United States who is subject to
United States federal income tax on a net income basis in respect of the
Reorganization, and the discussion may not be applicable to Members who, for
United States federal income tax purposes, are subject to special rules, such as
persons whose functional currency is not the U.S. dollar or persons who do not
hold their Membership Interests as capital assets. Further, the discussion that
follows, and the advice upon which it is based, are not binding on the IRS or
any court. See "Risk Factors -- Failure to Constitute a Tax-Free
Reorganization."
This discussion does not address any federal estate tax or any state, local
or foreign tax considerations arising in connection with the Reorganization.
Each Member should consult his or her tax advisor to determine the federal,
state, local and any applicable foreign tax consequences of the Reorganization,
in their particular circumstances, including the effects of any changes in tax
laws or regulations after the date of this Prospectus.
Reorganization Treatment -- Consequences to the Company. Assuming that the
Reorganization takes place as described in this Prospectus it is the opinion of
the Tax Advisor that the transfer of the assets of the Exchange to, and the
assumption of the Exchange's liabilities by, MIIX Insurance, followed by the
dissolution of the Exchange shall constitute a reorganization within the meaning
of Section 368(a) of the Code. Accordingly, neither the Exchange, MIIX Insurance
nor The MIIX Group will realize any taxable income as a result of the
consummation of the Plan of Reorganization.
CONSEQUENCES TO MEMBERS
In General. The distribution of Common Stock and cash to Members in
connection with the Reorganization shall be treated as made in exchange for
their existing Membership Interests, which shall be treated as stock for
purposes of Section 368(a) of the Code.
Consequences to Members Receiving Solely Common Stock. Members who receive
solely Common Stock in the Reorganization shall not recognize any gain or loss
for federal income tax purposes on the receipt of such Common Stock. The tax
basis of the Common Stock received shall be equal to the tax basis of the
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Membership Interest surrendered, which is deemed to be zero. The holding period
of the Common Stock received by a Member shall include the period that the
Member held his or her Membership Interest in the Exchange.
Consequences to Members Receiving Solely Cash. A Member who receives
solely cash will be treated as having received such cash as a distribution in
exchange for his or her Membership Interest. Members are deemed to have a tax
basis of zero in their Membership Interests and they shall recognize a capital
gain equal to the amount of the cash received. The treatment of such capital
gain (long-term or short-term) will depend upon the period that the Member held
his or her Membership Interest in the Exchange. Under recently enacted
legislation, long-term capital gain recognized by an individual generally is
subject to a maximum rate of 20% in respect of property held for more than one
year.
Possible Alternative Treatment of the Reorganization. The IRS and the
courts have not previously considered the treatment of a transaction in the form
described herein. The Tax Opinion represents the Tax Advisor's best judgment of
how a court would rule. However, the opinion is not binding upon either the IRS
or any court. A ruling has not been, and will not be, sought from the IRS with
respect to the United States federal income tax consequences of the consummation
of the Plan of Reorganization. Accordingly, the IRS and/or a court could reach a
conclusion that differs from the conclusions in the Tax Opinion.
If the consummation of the Plan of Reorganization were not treated as a
tax-free reorganization within the meaning of Section 368(a) of the Code, then a
Member exchanging a Membership Interest for Common Stock would recognize capital
gain on such exchange in an amount equal to the fair market value of the Common
Stock received by the Member less its tax basis in the exchanged Membership
Interest (which, as discussed above, would be zero). The tax basis of the Common
Stock received pursuant to the Plan of Reorganization would generally be equal
to the fair market value of that stock on the date of consummation of the Plan,
and the holding period of the exchanged Membership Interest would not be
included in the holding period of the Common Stock received. In addition, if the
consummation of the Plan of Reorganization were not treated as a tax-free
reorganization, the Exchange would recognize taxable gain on the transfer of its
assets to MIIX Insurance in an amount equal to the fair market value of the
consideration received by the Exchange in exchange for the assets less the
Exchange's aggregate tax basis in those assets.
THE SUBSCRIPTION OFFERING
The Company is offering Subscription Shares in the Subscription
Offering. The Company is offering Subscription Shares to the Subscription
Offerees in the following order of priority: (i) Eligible Policyholders, (ii)
Employees and (iii) Service Providers. All subscriptions received will be
subject to the availability of Subscription Shares after satisfaction of all
subscriptions of all persons having priority in the Subscription Offering and to
the maximum and minimum purchase limitations described below. Such subscriptions
will constitute offers to purchase Subscription Shares, which offers the Company
may accept or reject in its sole discretion. If a person \who satisfies one of
the criteria of being a Subscription Offeree as of August 31, 1998 subscribes
for shares and does not satisfy such criteria on the fourth business day prior
to the Closing Date, then the Company will return to such person without
interest any subscription funds previously delivered by such person.
The primary purpose of the Subscription Offering is to provide Subscription
Offerees who will have an interest in or relationship with the Company on and
after the Closing Date with an opportunity to acquire Common Stock. It is the
Company's desire and intent that Subscription Offerees be persons who have a
policyholder or other designated relationship with the Company on the Closing
Date. However, in order to satisfy the logistics of consummating the
Subscription Offering it is necessary that persons satisfy the criteria of being
a Subscription Offeree as of August 31, 1998 and the fourth business day prior
to the Closing Date. Subscription Offerees who wish to subscribe for
Subscription Shares should follow the instructions set forth in the Subscription
Agreement included with the copy of this Prospectus being sent to the
Subscription Offerees. The consummation of each Offering is conditioned on the
consummation of the Reorganization and the consummation of the Subscription
Offering is conditioned on the consummation of the Public Offering. However, the
consummation of the Reorganization is not conditioned on the consummation of
either Offering
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and the consummation of the Public Offering is not conditioned on the
consummation of the Subscription Offering.
PRIORITY; ALLOCATION
Eligible Policyholders will receive first priority in the Subscription
Offering. If there are insufficient Subscription Shares available to satisfy all
subscriptions of the Eligible Policyholders (after taking into account any
reductions in the Maximum Subscription Amount), Subscription Shares will be
allocated among Eligible Policyholders on a pro rata basis in the same
proportion that the subscription of each bears to the total subscriptions
received from all Eligible Policyholders, subject to a minimum allocation of 100
Subscription Shares.
To the extent that there are Subscription Shares remaining after the
allocation of Subscription Shares to Eligible Policyholders, such Subscription
Shares will be available for sale to Employees. If there are insufficient
Subscription Shares available to satisfy all subscriptions of Employees (after
taking into account any reductions in the Maximum Subscription Amount),
Subscription Shares will be allocated among Employees on a pro rata basis in the
same proportion that the subscription of each bears to the total subscriptions
received from all Employees, subject to a minimum allocation of 100 Subscription
Shares. In addition, if there are insufficient Subscription Shares available to
satisfy all subscriptions of Employees, then the Company may elect to direct the
underwriters of the Public Offering to sell Common Stock to Employees in the
Public Offering.
To the extent that there are Subscription Shares remaining after the
allocation of Subscription Shares to Employees, such Subscription Shares will be
available for sale to Service Providers. If there are insufficient Subscription
Shares available to satisfy all subscriptions of the Service Providers (after
taking into account any reduction in the Maximum Subscription Amount),
Subscription Shares will be allocated among Service Providers on a pro rata
basis in the same proportion that the subscription of each bears to the total
subscriptions received from all Service Providers, subject to a minimum
allocation of 100 Subscription Shares.
If any Subscription Offeree's allocation would be less than 100
Subscription Shares, then such Subscription Offeree will not be sold
Subscription Shares, and the Company will return to such person without interest
any subscription funds previously delivered by such person.
MINIMUM AND MAXIMUM SUBSCRIPTION
Each Subscription Offeree may subscribe for a number of whole Subscription
Shares between the Minimum Subscription Amount and the Maximum Subscription
Amount. The Company may, in its sole discretion, increase or decrease to any
extent the Maximum Subscription Amount. Any change in the Maximum Subscription
Amount will apply to all Subscription Offerees. The Company may elect to change
the Maximum Subscription Amount if, for example, the Eligible Policyholders
subscribed for the entire amount of Subscription Shares being offered; in such
case, the Company may choose to lower the Maximum Subscription Amount so that
Subscription Shares would be available for sale to Employees and/or Service
Providers. If a Subscription Offeree satisfies multiple criteria for becoming a
Subscription Offeree (i.e., if a person is both an Eligible Policyholder and an
Employee), then such Subscription Offeree may only subscribe for up to the
Maximum Subscription Amount. The Maximum Subscription Amount will be assessed
against each Subscription Offeree and his, her or its Associates as a single
group.
SUBSCRIPTION PRICE
The price for Subscription Shares will be equal to the Public Offering
Price. The Company has elected to sell Subscription Shares at the Public
Offering Price so that there will not be any disparity in price between
investors who purchase shares in the Subscription Offering and the Public
Offering, which Offerings are intended to be consummated simultaneously. The
Public Offering Price will be determined by the Company in consultation with the
representatives of the underwriters of the Public Offering. Because the Public
Offering Price will not be known prior to the Subscription Expiration Time, when
Subscription Offerees submit payment to the Company for Subscription Shares such
payment will be based upon the Assumed Price of
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$ per share. If the Public Offering Price is lower than the Assumed Price,
then the Subscription Offeree will be deemed to have subscribed for the same
number of Subscription Shares that his or her payment would have purchased at
the Assumed Price, and the excess payment will be refunded without interest.
Subscription Offerees may elect in their respective Subscription Agreements to
withdraw their entire subscription if the Public Offering Price is higher than
the Assumed Price. If this election is not made when the Subscription Agreement
is completed then the Subscription Offeree will be deemed to have subscribed for
the maximum whole number of Subscription Shares that his or her payment would
purchase at the Public Offering Price, and any excess cash remaining after the
purchase of such whole number of Subscription Shares will be refunded without
interest. If the number of shares that such Subscription Offeree will be deemed
to have Subscribed for is less than 100 Subscription Shares because the Public
Offering Price is greater than the Assumed Price, then such Subscription Offeree
will not be sold Subscription Shares, and the Company will return to such person
without interest any subscription funds previously delivered by such person.
SUBSCRIPTION PROCEDURES; EXPIRATION OF SUBSCRIPTION OFFERING
Together with this Prospectus, the Company is delivering to Subscription
Offerees a Subscription Agreement pursuant to which such Subscription Offerees
may subscribe for Subscription Shares. To subscribe for Subscription Shares, a
Subscription Offeree must complete and sign the Subscription Agreement and such
form must be received, together with payment by check or money order in United
States dollars, by the Company not later than the Subscription Expiration Time.
The Company may extend the Subscription Expiration Time in its sole discretion.
If the Subscription Expiration Time is extended, the Company will deliver
written notice thereof to all Subscription Offerees. The Subscription Expiration
Time may be extended any number of times for any length of time. The
consummation of the Subscription Offering may be delayed or canceled because the
Subscription Offering will only be consummated in connection with the Public
Offering. If the Public Offering is delayed or canceled due to unfavorable
market conditions or any other circumstances, then the Subscription Offering
will be similarly delayed or canceled. Except as otherwise described herein,
Subscription Agreements may not be modified, amended or withdrawn without the
consent of the Company. If a Subscription Agreement is not received by the
Company by the Subscription Expiration Time or is completed incorrectly, the
Subscription Agreement will be invalid, subject to the Company's discretionary
right to accept the Subscription. The Company shall have the right in its
absolute discretion and without liability to any Subscription Offeree (i) to
determine which subscriptions, if any, to accept and (ii) to reject any
subscriptions for any reason or for no reason.
DELIVERY OF STOCK CERTIFICATES AND REFUNDS
Upon the closing of the sales of Subscription Shares under the Subscription
Offering or as soon thereafter as reasonably practicable, the Company will issue
(i) stock certificates representing the Subscription Shares sold in the
Subscription Offering and (ii) cash refunds of any funds accepted by the Company
that are not applied to the purchase of Subscription Shares. Subscription
Offerees will be provided an opportunity to designate a brokerage account into
which their Common Stock issued in connection with the Subscription Offering
will be deposited. The Company intends that the closing of the sales of
Subscription Shares will take place simultaneously with the closing of the
Public Offering and the Reorganization. The Company expects that this will take
place approximately one month after the Subscription Expiration Time; however,
there can be no assurance that such closing will not be delayed or canceled.
NO TRANSFER OF INVITATIONS TO SUBSCRIBE
Subscription Offerees may not transfer or assign the Company's invitation
to subscribe for Subscription Shares. Such invitations may be accepted only by
the person to whom they are granted and only for such person's account. Each
person subscribing will be required to certify that such person is purchasing
shares solely for such person's own account and that such person has no
agreement or understanding regarding the sale or transfer of such shares.
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CANCELLATION OF SUBSCRIPTION OFFERING; WITHDRAWAL
The Company may determine, in its sole discretion at any time prior to the
closing of the Subscription Offering, to cancel the Subscription Offering. If
the Subscription Offering shall not have been consummated within 60 days of
, 1998, the fourth business day prior to the Members' Meeting,
Subscription Offerees will be permitted to withdraw their subscriptions. The
consummation of the Subscription Offering may be delayed or canceled because the
Subscription Offering will only be consummated in connection with the Public
Offering. If the Public Offering is delayed or canceled due to unfavorable
market conditions or any other circumstances, then the Subscription Offering
will be similarly delayed or canceled. Subscription Offerees may elect, at the
time when they complete their respective Subscription Agreements, to cancel
their subscriptions if the Public Offering Price exceeds the Assumed Price.
INTEREST ON SUBSCRIPTION FUNDS
Subscription funds will be held in an account with the Subscription
Services Agent pending consummation of the Subscription Offering or the refund
of such funds to Subscription Offerees. If the Subscription Offering is not
consummated within 60 days of the Subscription Expiration Time and (i) a
Subscription Offeree withdraws its subscription as described above or (ii) the
Company cancels the Subscription Offering, then funds submitted by Subscription
Offerees will be refunded with 4% per annum simple interest calculated from the
sixty-first day after the Subscription Expiration Time. Except as described
above, interest will not be paid on subscription funds.
FEDERAL TAX CONSEQUENCES
The following is a description of the principal United States federal
income tax consequences to Subscription Offerees receiving the opportunity to
offer to purchase Common Stock in the Subscription Offering. This discussion is
based on the advice of the Tax Advisor. The description is based on the Code,
its legislative history, existing and proposed regulations thereunder, judicial
decisions and published rulings and other administrative interpretations issued
by the IRS, as currently in effect, all of which are subject to change at any
time, possibly with retroactive effect. This discussion does not address all
aspects of federal taxation that may be relevant to particular Subscription
Offerees. Thus, for example, the discussion is addressed only to a Subscription
Offeree that is an individual who is a citizen or resident of the United States,
a United States domestic corporation or any other person that is subject to
United States federal income tax on a net income basis in respect of the
Subscription Offering, and the discussion may not be applicable to Subscription
Offerees who, for United States federal income tax purposes, are subject to
special rules, such as insurance companies, tax-exempt organizations, or persons
whose functional currency is not the United States dollar. Further, the
discussion that follows, and the advice upon which it is based, are not binding
on the IRS or any court.
This discussion does not address any federal estate tax or any state, local
or foreign tax considerations arising in connection with the Subscription
Offering. Each Subscription Offeree should consult his or its tax advisor to
determine the federal, state, local and any applicable foreign tax consequences
of the Subscription Offering, in his or its particular circumstances, including
the effects of any changes in tax laws or regulations after the date of this
Prospectus.
Consequences to Employees and Service Providers. Employees and Service
Providers receiving the opportunity to offer to purchase Common Stock in the
Subscription Offering will likely be viewed as having received such opportunity
in connection with the performance of services and will likely be taxed under
the rules applicable to the taxation of nonqualified stock options. Under such
rules, an Employee or Service Provider would not recognize income in connection
with the receipt of such opportunity, and would only recognize income, if any,
when the Common Stock is purchased to the extent that the fair market value of
the Common Stock received exceeds the amount paid for the Common Stock. Since
the Common Stock to be issued in the Subscription Offering will be purchased on
the date of the Public Offering at a purchase price equal to the Public Offering
Price established by the underwriters of the Public Offering, the Employee or
Service Provider likely should not recognize income upon such purchase. No
assurance can be given, however, that the IRS will not assert that the value of
the Common Stock received is in excess of the price paid upon such purchase.
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Consequences to Eligible Policyholders. Since the opportunity to offer to
purchase Common Stock in the Subscription Offering is being granted to
policyholders of the Exchange and LP&C in their capacity as policyholders, and
not in connection with the Reorganization, it is likely that such policyholders
should be treated as receiving a policyholder dividend to the extent of the fair
market value, if any, of the opportunity received. The policyholder dividend
would be subject to tax, in the amount of its fair market value, as ordinary
income, provided the policyholder was entitled to a deduction for premiums paid.
Policyholders who purchase Common Stock in the Subscription Offering likely will
not recognize gain or loss upon such purchase and will likely acquire a tax
basis in the Common Stock equal to the sum of the subscription price and the tax
basis (if any) of the opportunity to subscribe in the Subscription Offering.
Policyholders who do not purchase Common Stock in the Subscription Offering
would generally be entitled to a short-term capital loss for the tax basis (if
any) of the opportunity to subscribe in the Subscription Offering on the date
that such opportunity expires.
SUBSCRIPTION SERVICES AGENT
FBR has been engaged by the Company to assist in effecting the Subscription
Offering by serving as Subscription Services Agent. The Company has established
a telephone call center, which will be managed by FBR, to answer questions about
the Subscription Offering received by telephone. FBR will forward copies of this
Prospectus and subscription materials to Subscription Offerees upon request.
USE OF PROCEEDS
The principal purposes of the Reorganization are to enhance the Company's
strategic and financial flexibility, and to provide Distributees with marketable
stock in The MIIX Group. The principal purpose of the Subscription Offering is
to provide Subscription Offerees who will have an interest in or relationship
with the Company on and after the Closing Date with an opportunity to
participate in the future performance of the Company. The principal purpose of
the Public Offering will be to enhance the liquidity of the shares of Common
Stock to be received by the Distributees as part of the Reorganization. Based on
an assumed Public Offering Price of $ per share, the net proceeds to
the Company from the sale of Common Stock in the Offerings (assuming the
Subscription Offering is fully subscribed) is estimated to be approximately
$ million after deducting the underwriting discount and the other
expenses of the Company in connection with the Reorganization and the Offerings.
The net proceeds of the Offerings will be used for general corporate purposes
which may include, without limitation, capitalizing the Company's subsidiaries
in order to support their continued growth and for financing potential
acquisitions. The Company will not receive any proceeds from the issuance of the
Common Stock to Distributees pursuant to the Reorganization. See "Dividend
Policy."
DIVIDEND POLICY
The Company currently intends to pay regular quarterly cash dividends. The
Company initially expects to pay a quarterly cash dividend of $.05 per share
commencing with the first quarter of 1999. The declaration and payment of
dividends to holders of Common Stock will be at the discretion of The MIIX Group
Board and will be dependent upon the Company's financial condition, results of
operations, cash requirements, future prospects, regulatory restrictions on the
payment of dividends to the Company by the Insurance Subsidiaries and other
factors deemed relevant by The MIIX Group Board. There can be no assurance that
the Company will declare and pay any dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The MIIX Group is an insurance holding company whose business is conducted
through the Insurance Subsidiaries, the Attorney-in-Fact, and downstream
subsidiaries of those companies. The MIIX Group's ability to pay dividends to
its stockholders and meet its other obligations, including operating expenses
and any debt service, will depend primarily on the receipt of sufficient funds
from the Insurance Subsidiaries. The payment of dividends by the Insurance
Subsidiaries to The MIIX Group will be restricted by applicable insurance law.
See "Risk Factors -- Holding Company Structure; Limitation on Dividends,"
"Business -- Regulation -- Regulation of Dividends from Insurance Subsidiaries,"
and "Description of Capital Stock."
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CAPITALIZATION
The information set forth in the table presented below is derived from the
combined financial statements and the related notes thereto included elsewhere
in this Prospectus. The table presents the capitalization at June 30, 1998 of:
(i) the Exchange and the Attorney-in-Fact on a combined basis, (ii) The MIIX
Group, As Adjusted, to reflect the Reorganization (after deducting estimated
reorganization costs) and (iii) The MIIX Group, As Further Adjusted, to reflect
the sale of shares of Common Stock in the Public Offering at an
assumed Public Offering Price of $ per share after deducting estimated
underwriting discounts and expenses of the Offerings. See "The Reorganization."
The table should be read in conjunction with the historical financial statements
and the related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
-------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total debt................................................ $ 21,972 $ 21,972 $ 21,972
-------- -------- --------
Equity:
Preferred stock, $.01 par value, 50,000,000 shares
authorized, no shares issued and outstanding......... -- -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, no shares issued and outstanding;
approximately 12,500,000 shares issued and
outstanding, as adjusted; approximately
shares issued and outstanding, as further adjusted... -- 125
Additional paid-in capital.............................. -- 276,293(1)
Surplus.............................................. 280,661 --
Unrealized appreciation of invested assets, net of
deferred taxes....................................... 29,024 29,024 29,024
-------- -------- --------
Total equity............................................ 309,685 305,442
======== ======== ========
Total capitalization.................................... $331,657 $327,414 $
======== ======== ========
</TABLE>
- ---------------
(1) Additional paid-in capital in the As Adjusted column gives effect in all
periods to the assumed aggregate issuance of shares of Common Stock to (i)
Distributees and (ii) the Medical Society in connection with the purchase of
the Attorney-in-Fact and is reduced by $1.5 million to reflect the estimated
expenses related to transactions which would be charged to operations at
consummation of the Reorganization if the Offerings do not occur. Cash
issued to Distributees in lieu of common stock will be accounted for as a
dividend and accordingly will serve to reduce equity by approximately $2.0
million. The As Further Adjusted column reflects the sale of the shares of
Common Stock in the Public Offering less the estimated underwriting
discounts of the Public Offering of $ million and additional estimated
expenses of $1.0 million.
39
<PAGE> 43
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected combined financial and operating
data for the Company. The selected income statement data set forth below for
each of the years in the three year period ended December 31, 1997 and the
selected balance sheet data as of December 31, 1997 and 1996 are derived from
the combined financial statements of the Company audited by Ernst & Young LLP,
independent auditors, included elsewhere herein and should be read in
conjunction with, and are qualified by reference to, such statements and the
related notes thereto. The selected income statement data for the years ended
1993 and 1994 and for the six months ended June 30, 1997 and 1998, and the
selected balance sheet data as of December 31, 1993, 1994 and 1995 and as of
June 30, 1997 and 1998, are derived from unaudited financial statements of the
Company which management believes incorporate all of the adjustments necessary
for the fair presentation of the financial condition and results of operations
for such periods. All selected financial data are presented in accordance with
GAAP, except for the item entitled "statutory surplus" which is presented in
accordance with SAP. The statutory surplus amounts are derived from the audited
statutory financial statements of the Exchange and the Insurance Subsidiaries
(except with respect to the information provided for the six months ended June
30, 1997 and 1998, which is derived from unaudited statutory financial
statements) and, in the opinion of management, fairly reflect the specified data
for the periods presented.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------- -----------------------
1993(1) 1994 1995 1996 1997 1997 1998
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Direct premiums written.................. $115,999 $127,647 $ 137,291 $ 143,218 $ 162,430 $ 134,803 $ 158,650
======== ======== ========== ========== ========== ========== ==========
Net premiums earned...................... $ 84,928 $ 96,019 $ 105,256 $ 108,182 $ 123,600 $ 57,907 $ 74,520
Net investment income.................... 48,223 47,447 51,760 49,208 54,624 26,128 30,941
Realized investment gains (losses)....... 29,891 (11,030) 13,149 8,683 10,296 (296) 4,246
Other revenue............................ 4,051 7,343 9,968 11,524 11,870 5,509 4,885
-------- -------- ---------- ---------- ---------- ---------- ----------
Total revenues......................... 167,093 139,779 180,133 177,597 200,390 89,248 114,592
-------- -------- ---------- ---------- ---------- ---------- ----------
Losses and loss adjustment expenses...... 89,202 98,899 107,889 110,866 122,828 58,669 73,220
Underwriting expenses.................... 11,739 12,777 14,743 17,130 25,047 11,596 17,581
Funds held charges....................... 16,944 3,067 5,473 8,626 11,581 5,588 5,946
Impairment of fixed assets............... -- -- -- -- -- -- 8,541
Other expenses........................... 2,020 4,224 6,905 11,699 9,987 5,100 5,123
-------- -------- ---------- ---------- ---------- ---------- ----------
Total expenses......................... 119,905 118,967 135,010 148,321 169,443 80,953 110,411
-------- -------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of change in accounting
principle.............................. 47,188 20,812 45,123 29,276 30,947 8,295 4,181
Income tax expense (benefit)............. 15,885 5,647 12,108 9,779 2,085 1,279 (654)
-------- -------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of change
in accounting principle................ 31,303 15,165 33,015 19,497 28,862 7,016 4,835
Cumulative effect of change in accounting
principle, net of taxes of ($7,420).... 13,780 -- -- -- -- -- --
-------- -------- ---------- ---------- ---------- ---------- ----------
Net income............................. $ 17,523 $ 15,165 $ 33,015 $ 19,497 $ 28,862 $ 7,016 $ 4,835
======== ======== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Total investments........................ $799,665 $787,621 $ 894,176 $ 919,697 $1,031,035 $ 965,637 $1,168,223
Total assets............................. 947,137 953,738 1,088,998 1,157,746 1,280,231 1,249,958 1,431,219
Total liabilities........................ 743,319 775,844 842,540 901,705 976,790 979,487 1,121,534
Total equity............................. 203,818 177,894 246,458 256,041 303,441 270,471 309,685
Statutory surplus........................ 147,803 156,246 184,651 208,738 248,050 229,923 256,610
ADDITIONAL DATA:
GAAP ratios:
Loss ratio............................. 105.0% 103.0% 102.5% 102.5% 99.4% 101.3% 98.3%
Expense ratio.......................... 13.8 13.3 14.0 17.0 21.7 20.0 23.6
-------- -------- ---------- ---------- ---------- ---------- ----------
Combined ratio......................... 118.8% 116.3% 116.5% 119.5% 121.1% 121.3% 121.9%
======== ======== ========== ========== ========== ========== ==========
Earnings Per Share (pro forma)(2)........ $ 1.40 $ 1.21 $ 2.64 $ 1.56 $ 2.31 $ 0.56 $ 0.39
======== ======== ========== ========== ========== ========== ==========
Book Value Per Share (pro forma)(2)...... $ 16.31 $ 14.23 $ 19.72 $ 20.48 $ 24.28 $ 21.64 $ 24.77
======== ======== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) In 1993 the Company eliminated the practice of discounting its liabilities
for unpaid losses and low adjustment expenses. The cumulative effect of this
change amounted to approximately $21.2 million before income taxes and had
the effect of reducing net income by approximately $13.8 million or $1.10
per share.
(2) Gives effect in all periods to the assumed aggregate issuance of
approximately [12,500,000] shares of Common Stock to (i) Distributees and
(ii) the Medical Society in connection with the purchase of the
Attorney-in-Fact. Does not give effect to the sale of Common Stock in the
Offerings.
40
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the related notes thereto appearing elsewhere in this Prospectus.
GENERAL
The Exchange was organized as a New Jersey reciprocal insurance exchange by
the Medical Society to provide physicians with an alternative to commercial
medical professional liability insurance and was approved to begin issuing
policies in 1977. A reciprocal exchange under the law of New Jersey is an
organization through which individuals, partnerships, trustees or corporations
designated as "subscribers" or "members" are authorized to exchange reciprocal
or interinsurance contracts with each other. Such contracts are executed by an
attorney-in-fact acting on behalf of the subscribers through a power of
attorney. The Attorney-in-Fact manages the Exchange, including the underwriting
and issuance of insurance policies, the collection and investment of premiums,
and the service and administration of the policyholders and their claims. The
Attorney-in-Fact is a corporation that is wholly owned by the Medical Society
and was formed for the sole purpose of acting as the attorney-in-fact of the
Exchange, which it does pursuant to a management contract that requires the
Exchange to reimburse the costs of the Attorney-in-Fact.
The historical financial statements and financial information included
throughout this Prospectus reflect the combined financial information of the
Exchange and the Attorney-in-Fact, which are commonly controlled and managed
entities.
The medical malpractice insurance industry is cyclical in nature. Many
factors influence the financial results of the medical malpractice insurance
industry, several of which are beyond the control of the Company. These factors
include, among other things, changes in severity and frequency of claims;
changes in applicable law; regulatory reform; and changes in inflation, interest
rates and general economic conditions.
The availability of medical malpractice insurance, or the industry's
underwriting capacity, is determined principally by the industry's level of
capitalization, historical underwriting results, returns on investment and
perceived premium rate adequacy.
Management periodically reviews the Company's guidelines for premiums,
premium surcharges, discounts, cancellations and non-renewals and other related
matters. As part of this review, rates and rating classifications for its
physicians, medical groups and other insureds are evaluated based on current and
historical loss, LAE and other actuarially significant data. This process may
result in changes in rates for certain exposure classes.
Currently, the majority of the Company's policies have January 1 effective
dates. Premium is recognized as written in the quarter the policy is effective,
yet the premiums are earned ratably throughout the year. As the Company expands
geographically, new policies are being written with effective dates other than
January 1.
Reinsurance. The Company reinsures its risks primarily under two
reinsurance contracts, a specific excess of loss treaty ("Specific Contract")
and an aggregate excess of loss treaty ("Aggregate Contract"). Under the
Specific Contract, the Company's retentions for casualty business range from $2
million to $3 million per loss per policy. Coverage on casualty business is
provided in layers up to $48 million per loss per policy above the retentions.
Coverage for casualty business under the Specific Contract is limited by an
aggregate deductible, aggregate limits by layer and required Company
participation in upper layer losses. Property coverage is also provided under
the Specific Contract in the amount of $14.5 million in excess of a Company
retention of $500,000 per loss per policy and is subject to an aggregate limit.
The Company has maintained specific excess of loss reinsurance coverage
generally similar to that just described for several years.
The Aggregate Contract provides several coverages on an aggregate excess of
loss, specific excess of loss, and quota share basis. The primary coverage
afforded under the Aggregate Contract attaches above a Company retention
measured as a 75% loss and allocated loss adjustment expense ratio ("loss and
ALAE
41
<PAGE> 45
ratio"). Reinsurers provide coverage for an additional 75% loss and ALAE ratio,
with an aggregate annual limit of $130 million. The Company has maintained
aggregate excess of loss coverage substantially similar to that just described
since 1993. In addition, in 1992 the Company entered into an aggregate excess of
loss reinsurance contract to protect underwriting and operating results from
adverse development for losses and ALAE which occurred on or before December 31,
1992.
The Company's aggregate reinsurance contracts are maintained on a funds
withheld basis whereby the Company holds the ceded premiums in a funds withheld
account for purposes of paying losses and related loss adjustment expenses.
Interest charges are credited on funds withheld at predetermined contractual
rates. Reinsurance recoverable on unpaid losses is recorded on the balance sheet
net of the funds withheld under such reinsurance contracts.
Loss and LAE Reserves. Medical malpractice and other property and casualty
loss and LAE reserves are established based on known facts and interpretation of
circumstances, including the Company's experience with similar cases and
historical trends involving claim payment patterns, loss payments, pending
levels of unpaid claims, as well as court decisions and economic conditions. The
effects of inflation are considered in the reserving process. Establishment of
appropriate reserves is an inherently uncertain process, and there can be no
assurance that currently established reserves will prove adequate in light of
subsequent actual experience.
Underwriting Expenses. The Company's continued expansion into other states
and markets will most likely increase underwriting expenses. The Company
believes that its plan of expansion via broker-distribution channels will
increase its marketing expenses, but it also believes that this relationship
will reduce the need to make other significant expenditures in order to expand
into other states. Commissions for policies sold on a brokerage basis typically
range from 2.0% to 12.5% of premiums, whereas the Company does not incur
commissions on products it sells directly. To the extent that brokered business
represents an increased percentage of the Company's business in the future,
expense ratios will increase.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
Direct premiums written: Direct premiums written were $158.6 million for
the six months ended June 30, 1998, a 17.7% increase over the $134.8 million for
the six months ended June 30, 1997. Near the end of 1997, PIE Mutual Insurance
Company came under the control of the Ohio Department of Insurance. The
Company's entrance into states such as Ohio, Michigan and Kentucky during 1998
afforded it the ability to write approximately $14.5 million of premiums which
can largely be attributed to former PIE Mutual business. During the second
quarter 1997, the Company began doing business in Texas and wrote approximately
$4.7 million of premiums. For the six months ended June 30, 1998 the Company
increased its writing in Texas by $1.5 million bringing its total to $6.2
million. In other states where the Company had written business in the second
quarter of 1997, mainly Pennsylvania and Maryland, premiums grew by $12.2
million. This new or increased business more than offset a $6.1 million decrease
in New Jersey written premium for the six months ended June 30, 1998 as compared
to the six months ended June 30, 1997. Approximately $4.5 million of this
decrease in New Jersey business is related to policies that normally would have
renewed January 1, 1998, but which were accelerated to November, 1997, as part
of the Company's competitive strategy. This action caused a timing difference in
the recognition of written premium in 1998. The Company's geographic expansion
is continuing to reduce the concentration of business in New Jersey which
currently comprises 67% of written premiums as compared to approximately 73% in
1997 and 89% in 1996.
Net premiums earned: Net premiums earned increased approximately $16.6
million, or 28.7% to $74.5 million, for the six months ended June 30, 1998 from
$57.9 million for the same period in 1997. As of June 30, 1998 and 1997, the
Company has earned approximately 47% and 43%, respectively, of the year-to-date
premiums written. This ratio generally coincides with the fact that currently,
approximately 70% of the Company's policies have been written with a January 1
effective date.
42
<PAGE> 46
Net investment income: Net investment income increased approximately $4.8
million or 18.4% to $30.9 million for the six months ended June 30, 1998 from
$26.1 million for the same period in 1997. Average invested assets increased to
approximately $1.1 billion during the six months ended June 30, 1998 compared to
approximately $941 million for the same period last year. The average annualized
pre-tax yield on the investment portfolio increased to 5.64% for the six months
ended June 30, 1998 from 5.56% for the same period in 1997, primarily as a
result of changes in asset allocation with an increased concentration in higher
pre-tax yielding securities and a corresponding decrease in government and tax
exempt security holdings.
Realized investment gains (losses): Net realized investment gains (losses)
increased approximately $4.5 million to $4.2 million for the six months ended
June 30, 1998 compared to a realized loss of $0.3 million for the same period in
1997. Approximately $3.3 million of the current year gains resulted from the
sale of bonds in a generally falling interest rate environment and the remainder
resulted from the sale of stocks.
Other revenue: Other revenue decreased approximately $0.6 million or 11.3%
to $4.9 million for the six months ended June 30, 1998 from $5.5 million for the
same period last year and is comprised primarily of revenues from the Company's
non-insurance subsidiaries. Other revenue for the Company's reinsurance
brokerage and leasing subsidiaries increased by $0.6 million as compared to the
same period last year. This was offset somewhat by a $0.2 million decrease in
revenue from the Company's investment advisory service which was disposed of at
the beginning of the second quarter 1998. In addition, the Company had
historically offered its insureds the option to pay premiums on an installment
basis for a finance charge. Management discontinued this installment program in
1998 and as a result, finance charge income decreased by approximately $1.0
million as compared to the same period in the prior year. However, this was
largely offset by interest earnings (reflected in net investment income) on the
additional funds that were collected up front rather than over time through
installments.
Losses and loss adjustment expenses (LAE): The provision for losses and
LAE increased $14.5 million or 24.8% to $73.2 million for the six months ended
June 30, 1998 from $58.7 million for the same period in 1997. As a percentage of
earned premiums, incurred losses and LAE decreased to 98.3% for the six months
ended June 30, 1998 from 101.3% for the same period in 1997. This continued
improvement is principally attributable to an increasing portion of the
Company's business being written on a claims made basis which has been priced
using lower loss ratio assumptions than that deemed necessary for policies
written on an occurrence basis. The provision for losses and LAE is net of $39.0
million and $28.4 million for the six months ended June 30, 1998 and 1997,
respectively, of incurred losses and LAE ceded to reinsurers, primarily on a
funds withheld basis.
Underwriting expenses: Underwriting expenses increased $6.0 million or
51.6% to $17.6 million for the six months ended June 30, 1998, from $11.6
million for the six months ended June 30, 1997. The expense ratio was 23.6% for
the six months ended June 30, 1998 compared to 20.0% for the same period in
1997. Approximately $2.3 million of this increase was attributable to the cost
of acquiring new business, (primarily through a broker distribution network),
and an additional $2.3 million related to the expansion of both facilities and
staff necessary to service this business. Also in the second quarter 1998, the
Company recognized approximately $1 million in connection with guaranty fund
assessments associated with insurance company insolvencies, primarily in
Pennsylvania and Ohio.
Funds held charges: Funds held charges increased $0.3 million or 6.4% to
$5.9 million for the six months ended June 30, 1998 from $5.6 million for the
six months ended June 30, 1997 and relate to the interest credited on amounts
held under certain reinsurance treaties. This increase is the result of the net
effect of interest expense accrued on funds held under certain reinsurance
contracts, which was offset by a decrease related to an adjustment to ceded
premiums associated with the 1993 aggregate treaty.
Impairment of Fixed Assets: Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" ("SFAS No. 121") requires recognition of impairment
losses for long-lived assets whenever events or changes in circumstances result
in the carrying amount of an asset to exceed the sum of the expected future cash
flow associated with
43
<PAGE> 47
the asset. During the second quarter 1998 management began replacing its policy
administration system and accordingly recognized an $8.5 million pre-tax charge
which represents the net book value of the old computer system.
Other expenses: Other expenses were unchanged at $5.1 million for the six
months ended June 30, 1998, and for the six months ended June 30, 1997 and is
comprised primarily of non-insurance company operating expenses.
Income taxes: Income taxes decreased approximately $1.9 million to a $0.6
million tax benefit for the six months ended June 30, 1998, from a tax expense
of approximately $1.3 million for the six months ended June 30, 1997. The
difference between the effective tax rate and the statutory rate relates
primarily to tax exempt interest and state income taxes. The income tax benefit
in the current year is largely attributable to a state income tax benefit
recognized due to the writeoff of fixed assets.
Net income: Net income was $4.8 million for the six months ended June 30,
1998, a 31% decrease from the $7.0 million for the same period in the prior
year. This decrease was the net result of a number of factors but is primarily
due to higher net investment income, realized gains and lower income taxes
offset by higher underwriting costs and the charge for the impairment of fixed
assets.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Direct premiums written. Direct premiums written were $162.4 million for
the year ended December 31, 1997, a 13.4% increase over the $143.2 million for
the year ended December 31, 1996, as the Company significantly accelerated its
geographic expansion. An almost three-fold increase (to $44.1 million) in
premiums written outside of New Jersey more than offset a 7.3% decrease (to
$118.3 million) in New Jersey business, which was primarily attributable to
policies that were not renewed due to rate increases for certain exposure
classes that resulted from the Company's annual underwriting process.
Net premiums earned. Net premiums earned were $123.6 million for the year
ended December 31, 1997, an increase of 14.3% over the $108.2 million for the
year ended December 31, 1996. This increase is generally consistent with the
increase in direct premiums written.
Net Investment Income. Net investment income was $54.6 million for the
year ended December 31, 1997, an increase of 11.0% over the $49.2 million for
the year ended December 31, 1996. Cash flow from operations of $68.7 million for
the year ended December 31, 1997 provided the majority of the increase in the
Company's invested asset base which totaled approximately $1 billion at December
31, 1997. Although the invested asset base increased, the pre-tax book yield on
invested assets remained unchanged at 5.60%.
Realized investment gains (losses). Net realized investment gains (losses)
were approximately $10.3 million for the year ended December 31, 1997 compared
to $8.7 million for the year ended December 31, 1996. Substantially all of these
gains during 1997 resulted from the sale of equity securities and from the sale
of bonds in 1996.
Other revenue. Other revenue was $11.9 million for the year ended December
31, 1997, a slight increase of 3.0% over the $11.5 million for the year ended
December 31, 1996 and is comprised primarily of revenue from the Company's
non-insurance subsidiaries.
Losses and loss adjustment expenses (LAE). The provision for losses and
LAE was $122.8 million for the year ended December 31, 1997, an increase of
10.8% over the $110.9 million for the year ended December 31, 1996. The loss and
LAE ratio was 99.4% for the year ended December 31, 1997 compared to 102.5% for
1996. This decrease is primarily attributed to changes in the Company's business
mix with an increasing amount of policies being issued on a claims made basis.
The provision for losses and LAE is net of $66.6 million for the year ended
December 31, 1997 and $57.1 million for the year ended December 31, 1996 of
incurred losses and LAE ceded to reinsurers.
44
<PAGE> 48
Underwriting expenses. Underwriting expenses were $26.9 million for the
year ended December 31, 1997, an increase of 46.1% over the $18.4 million for
the year ended December 31, 1996. The expense ratio was 21.7% for the year ended
December 31, 1997 compared to 17.0% for the year ended December 31, 1996.
Approximately $5.0 million of the increase is attributable to staffing,
commissions, premium taxes and facilities costs related to the Company's
geographic expansion and increases in direct premiums written. Additional
increases of approximately $1.6 million are related to various consulting
projects geared towards business process enhancements and approximately $0.6
million relates to an increase in the reserve for uncollectible accounts
receivable with the remaining increases attributable to the Company's geographic
expansion.
Funds held charges. Funds held of $11.6 million for the year ended
December 31, 1997 increased by $3.0 million or 34.3% over the $8.6 million for
the year ended December 31, 1996 and relate to the interest credited on amounts
held under certain reinsurance treaties. This increase is consistent with the
change in the related funds held balances.
Other expenses. Other expenses were $8.2 million for the year ended
December 31, 1997, a 21.7% decrease from the $10.4 million for the year ended
December 31, 1996. The majority of this savings was due to the discontinuance of
certain unprofitable programs previously conducted in one of the Company's
consulting subsidiaries.
Income Taxes. Income taxes were $2.1 million for the year ended December
31, 1997, a decrease of 78.7% from the $9.8 million for the year ended December
31, 1996. The effective tax rate was 6.7% for the year ended December 31, 1997
compared to 33.4% for 1996, primarily due to the reversal of reserves for
potential tax contingencies, the majority of which were provided for in 1996 and
which were resolved in the Company's favor in 1997.
Net income. Net income was $28.9 million for the year ended December 31,
1997, a 48% increase from the $19.5 million for the year ended December 31,
1996, principally as a result of higher investment income and realized
investment gains and lower income taxes.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Direct premiums written. Direct premiums written were $143.2 million for
the year ended December 31, 1996, a 4.3% increase over the $137.3 million for
the year ended December 31, 1995. The majority of this increase was due to the
addition of a number of large physician groups and hospitals primarily in New
Jersey and Pennsylvania.
Net premiums earned. Net premiums earned were $108.2 million for the year
ended December 31, 1996, a 2.8% increase over the $105.3 million for the year
ended December 31, 1995. For the most part, this increase correlates with the
increase in direct premiums written.
Net investment income. Net investment income was $49.2 million for the
year ended December 31, 1996, a 4.9% decrease from $51.8 million for the year
ended December 31, 1995. While cash flow from operations of $40.8 million for
the year ended December 31, 1996 increased the asset base which aggregated
$925.9 million as of December 31, 1996, the pre-tax book yield on invested
assets fell from 6.19% in 1995 to 5.60% in 1996 primarily due to the Exchange's
decision to allocate $50 million to the lower book yielding equity market as
part of its total return portfolio strategy.
Realized investment gains (losses). Net realized investment gains (losses)
were approximately $8.7 million for the year ended December 31, 1996 compared to
$13.1 million for the year ended December 31, 1995. Substantially all of these
gains resulted from the sale of bonds in a generally falling interest rate
environment.
45
<PAGE> 49
Other revenue. Other revenue was $11.5 million for the year ended December
31, 1996, a 15.6% increase from the $10.0 million for the year ended December
31, 1995. This increase resulted primarily from higher revenue earned by the
Company's reinsurance brokerage and leasing subsidiaries.
Losses and loss adjustment expenses. The provision for losses and LAE was
$110.9 million for the year ended December 31, 1996, a 2.8% increase over the
$107.9 million for the year ended December 31, 1995. The loss and LAE ratio was
102.5% for each of the years ended December 31, 1996 and 1995. The provision for
losses and LAE is net of $57.1 million for the year ended December 31, 1996, and
$53.4 million for the year ended December 31, 1995 of incurred losses and LAE
ceded to reinsurers.
Other underwriting expenses. Underwriting expenses were $18.4 million for
the year ended December 31, 1996, an increase of 24.7% over the $14.7 million
for the year ended December 31, 1995. The expense ratio was 17.0% for the year
ended December 31, 1996 compared to 14.0% for 1995. This increase was
principally attributable to costs related to ongoing enhancements to its various
computer systems.
Funds held charges. Funds held charges of $8.6 million for the year ended
December 31, 1996 increased $3.2 million or 57.6% over the $5.5 million for the
year ended December 31, 1995 and relate to the interest credited on amounts held
under certain reinsurance treaties. This is consistent with the change in the
related funds held balances.
Other expenses. Other expenses were $10.4 million for the year ended
December 31, 1996, a 51.3% increase from the $6.9 million for the year ended
December 31, 1995. Approximately $2.4 million of the change is related to
increases in staffing and professional fee expenditures by the non-insurance
subsidiaries, including the Company's healthcare consulting subsidiaries, some
of which were acquired or formed in 1995 and 1996, and its investment advisory
subsidiary which was acquired in 1996. The remaining increase of $1.1 million
relates to start-up expenditures and other general operating expenses of the
Company's subsidiaries.
Income Taxes. Income taxes were $9.8 million for the year ended December
31, 1996, a decrease of 19.2% from the $12.1 million for the year ended December
31, 1995. The effective tax rate was 33.4% for the year ended December 31, 1996,
an increase from 26.8% for 1995, due primarily to the establishment of reserves
for potential tax contingencies in 1996 offset in part by an increase in tax
exempt investment income in 1996.
Net income. Net income was $19.5 million for the year ended December 31,
1996, a 40.9% decrease from the $33.0 million for the year ended December 31,
1995, principally as a result of higher operating expenses and lower investment
income and realized investment gains.
FINANCIAL CONDITION
Cash and invested assets. Aggregate invested assets, including cash and
short term investments, were $1,171.2 million at June 30, 1998 and $1,031.2
million and $925.9 million at December 31, 1997 and 1996, respectively. The
increase in invested assets between December 31, 1996 and June 30, 1998 resulted
primarily from cash flow from operations generated during the period and net
realized and unrealized investment gains.
Fixed maturities available for sale, including short-term investments,
aggregated approximately $1.1 billion, or 92.0% of the Company's investment
portfolio as of June 30, 1998. At that date, the average credit quality of the
Company's fixed income portfolio was "AA+," as defined by Standard & Poor's,
while the portfolio duration was 4.6 years. At June 30, 1998, the Company's
investment portfolio also included $94.8 million, or approximately 8.0%,
invested in unaffiliated common stocks.
In 1997, the Company implemented an "equity collar" around the Company's
equity securities of $81.6 million. An "equity collar" is an option position
created with the simultaneous purchase and sale of an equal number of put and
call options. This resulting option position establishes, for a specified time
period, both a ceiling and a floor with respect to the financial performance of
the underlying asset upon which the equity collar is established. The collar
transaction was executed on July 8, 1997 and expired on January 2, 1998. The
purpose of the collar was to reduce equity market volatility and to stabilize
unassigned surplus. The collar was constructed using European-style S&P 500
options, and as of December 31, 1997, the collar had no unrealized
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gain or loss. A "European-style" option is an option contract that may be
exercised only upon expiration of the contract whereas an "American-style"
option may be exercised at any time prior to the expiration of the contract. The
reference to "S&P 500" refers to the underlying asset upon which the option
contract's value will be based. To minimize loss exposure due to credit risk,
the Company utilizes intermediaries with a Standard and Poor's rating of "AA" or
better.
On January 13, 1998, the Company implemented another equity collar with a
notional value of $85 million around the Company's equity portfolio. The purpose
of the collar was to reduce equity market volatility and to stabilize unassigned
surplus.
Other than the equity collar, the Company does not hold any derivative
investments.
Unpaid losses and LAE, reinsurance recoverable on unpaid losses and LAE and
funds held under reinsurance treaties. Gross unpaid losses and LAE were $921.4
million at June 30, 1998 and $876.7 million and $795.4 million at December 31,
1997 and 1996, respectively. The increases in these amounts were consistent with
the continued growth in the Company's book of business. Reinsurance recoverable
on unpaid losses and LAE was $425.1 million at June 30, 1998 and $430.8 million
and $394.8 million at December 31, 1997 and 1996, respectively. Funds held under
reinsurance treaties, which are unrestricted, collateralize a significant
portion of reinsurance recoverable on unpaid losses and LAE and were $331.1
million at June 30, 1998, and $344.8 million and $340.3 million at December 31,
1997 and 1996, respectively.
Equity. The Company's total equity was $309.7 million at June 30, 1998 and
$303.4 million and $256.0 million at December 31, 1997 and 1996, respectively.
The increases were attributable to net income and changes in unrealized net
appreciation of investments.
LIQUIDITY AND CAPITAL RESOURCES
The MIIX Group, Incorporated. The MIIX Group is a holding company whose
only material assets immediately after the Reorganization will be the capital
stock of MIIX Insurance and the Attorney-in-Fact. The net proceeds of the
Offerings will primarily be used to capitalize the Company's subsidiaries for
general corporate purposes, while a portion of the proceeds may be retained at
the holding company. The MIIX Group's ongoing cash flow will consist primarily
of dividends and other permissible payments from its subsidiaries. The MIIX
Group will depend upon such payments for funds for general corporate purposes
and for the payment of dividends on the Common Stock.
The payment of dividends to The MIIX Group by MIIX Insurance will be
subject to limitations imposed by the New Jersey Holding Company Act. Based upon
these limitations, the maximum amount that will be available for payment of
dividends to The MIIX Group by MIIX Insurance in 1998 without the prior approval
of regulatory authorities is subject to restrictions related to surplus and net
income. MIIX Insurance's future cash flow available to The MIIX Group may be
influenced by a variety of factors, including cyclical changes in the medical
malpractice insurance market, MIIX Insurance's financial results, insurance
regulatory changes, including changes in the limitations imposed by the New
Jersey Holding Company Act on the payment of dividends by MIIX Insurance, and
changes in general economic conditions. The MIIX Group expects that the current
limitations that will be imposed on MIIX Insurance should not affect its ability
to declare and pay dividends sufficient to support The MIIX Group's initial
dividend policy. See "Risk Factors -- Holding Company Structure; Limitation on
Dividends," "Dividend Policy" and "Business -- Regulation -- Regulation of
Dividends from Insurance Subsidiaries."
MIIX Insurance. The primary sources of MIIX Insurance's liquidity, on both
a short- and long-term basis, will be funds provided by insurance premiums
collected, net investment income, recoveries from reinsurance and proceeds from
the maturity or sale of invested assets. Funds are generally used to pay claims,
LAE, operating expenses, reinsurance premiums and taxes. The Exchange's net cash
flow from operating activities was approximately $78.4 million and $22.9 million
for the second quarter of 1998 and 1997, respectively, and $65.9 million and
$41.5 million for the years ended 1997 and 1996, respectively. The higher amount
of cash flow from operations in 1998 compared to 1997 was principally due to
higher payments of losses and LAE in 1997 as well as accelerated collections of
premiums as the Company outsourced its
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installment payment plans in 1998. Because of the inherent unpredictability
related to the timing of the payment of claims, it is not unusual for cash flow
from operations for a medical malpractice insurance company to vary, perhaps
substantially, from year to year.
The Exchange held collateral of $344.8 million and $340.3 million at
December 31, 1997 and 1996 respectively, in the form of funds withheld, for
recoverable amounts on ceded unpaid losses and loss adjustment expenses under
certain reinsurance agreements. Under the contracts, reinsurers may require that
a trust fund be established to hold the collateral should one or more triggering
events occur, such as a downgrade in the Company's A.M. Best rating to B+ or
lower, or a reduction in statutory capital and surplus to less than $20 million.
Otherwise, no restrictions are placed on investments held in support of the
funds withheld. In accordance with the provisions of the reinsurance contracts,
the funds withheld are credited with interest at contractual rates ranging from
7.50% to 8.60%, which is recorded as an expense in the year incurred.
The Exchange has invested, and MIIX Insurance will invest, its positive
cash flow from operations in both fixed maturity securities, including
short-term investments, and equity securities. The Exchange's investment
strategy, which will be continued by MIIX Insurance immediately after the
Reorganization, seeks to maximize after-tax income through a high quality,
diversified, duration sensitive, taxable bond and tax-preferenced municipal bond
portfolio, while maintaining an adequate level of liquidity, together with a
modest level of investment in equity securities.
Based on historical trends, market conditions and its business plans, the
Company believes that its sources of funds will be sufficient to meet its
liquidity needs over the next 18 months and beyond. However, because economic,
market, and regularity conditions may change, there can be no assurance that the
Company's funds will be sufficient to meet these liquidity needs.
The Company is considering the purchase of its headquarters in
Lawrenceville, New Jersey, which it currently leases, for a market value of
approximately $7 million.
YEAR 2000
Because certain computer software programs have historically been designed
to use a two-digit code to identify the year for date-sensitive material, such
programs may not properly recognize post twentieth century dates. This could
result in system failures and improper information processing that could disrupt
the Company's business operations.
The Company began evaluating this issue in 1996 and during 1997 assigned a
project manager to study the Company's information systems and computers to
determine whether they will appropriately handle post-1999 date codes. The
identification of compliance issues included the Company's internal systems and
processes, as well as exposure from service providers, brokers and other
external business partners. Software applications, hardware and information
technology ("I/T") infrastructure and non I/T systems such as the Company's
phone, security and heating and ventilating systems have been reviewed to
identify those requiring upgrading or replacement to improve current computing
capabilities and to ensure that they are Year 2000 compliant.
The Company has completed this review of its internal systems and believes
that its claims administration system is not Year 2000 compliant. The Company
has purchased a replacement system that is Year 2000 compliant and is expected
to be installed by December 1998. A project team is continuing to test software
in use throughout the Company in order to validate the assessment that all other
internal systems will function after the Year 2000. The Company has not yet
completed its investigation of whether its service providers, brokers and other
external business partners may experience Year 2000 problems that could affect
the Company; however, the Company's investigations to date have not revealed any
Year 2000 issues that would materially impact the Company's operations.
Management is currently evaluating alternative contingency plans that could
become necessary if its own or its significant external business partners' Year
2000 remediation efforts fail. Such alternatives will most likely involve the
assignment of internal and external resources to process business manually
during the duration of any non-compliance. It is not possible at this time to
estimate the cost, if any, of such contingency plans.
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Remediation costs to date (including expenditures associated with
replacement systems) have been approximately $350,000 and are estimated to be
less than $1 million through the completion of remediation, which is expected in
1999. These costs have been considered in preparing the Company's capital and
operating budgets.
RECENT DEVELOPMENTS
During the second quarter, the Company entered into a definitive agreement
to purchase MIIX New York (which is currently named Surety Re pending regulatory
approval of a change in name) for approximately $2.8 million. These assets are
included in the combined financial statements. MIIX New York wrote no business
during 1997 or year-to-date 1998.
The equity collar expired on July 13, 1998, at which time the underlying
hedged equity securities had an unrealized gain of approximately $38 million
offset by the loss on the collar of approximately $14 million.
The Company liquidated its equity securities in July 1998 which had an
aggregate fair value of approximately $92.3 million at June 30, 1998. All of the
proceeds were allocated to higher yielding fixed maturity investments and a net
gain of approximately $24 million was realized.
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BUSINESS
Based on direct premiums written in 1997, the Company is the leading
provider of medical professional liability insurance in New Jersey and is ranked
10th among medical professional liability insurers in the United States. The
Company currently insures approximately 14,800 physicians and other medical
professionals who practice alone, in medical groups, clinics or in other health
care organizations. The Company also insures more than 70 hospitals, extended
care facilities, health maintenance organizations ("HMOs") and other managed
care organizations (collectively, "health care institutions"). The Company's
business has historically been concentrated in New Jersey but has expanded to
other states in recent years. The Company currently writes policies in 17
states. For the six months ended June 30, 1998, approximately 33% of the
Company's total direct premiums written were generated outside of New Jersey. In
addition to the Company's medical malpractice insurance operations, the Company
also offers a broad range of complementary insurance products to its insureds
and operates several fee-based consulting and other businesses.
Medical professional liability insurance, also known as medical malpractice
insurance, insures the physician, other medical professional or health care
institution against liabilities arising from the rendering of, or failure to
render, professional medical services. Under the typical medical professional
liability policy, the insurer also is obligated to defend the insured against
alleged claims.
In 1997, total medical professional liability direct premiums written in
the United States were approximately $5.9 billion, of which $299.3 million were
written in New Jersey, according to data compiled by A.M. Best Company, Inc.
("A.M. Best"), an insurance rating agency. The Company's market share of such
direct premiums written was 2.8% in the United States and 40% in New Jersey
according to A.M. Best. In 1997, medical malpractice insurance accounted for
approximately 98% of the Company's direct premiums written.
The Company's total revenues and net income were $200.4 million and $28.9
million, respectively, for 1997 and were $114.6 million and $4.8 million,
respectively, for the six months ended June 30, 1998. As of June 30, 1998, the
Company had total assets of $1.4 billion and total equity of $309.7 million.
The Exchange was organized as a New Jersey reciprocal insurance exchange by
the Medical Society to provide physicians with an alternative to commercial
medical professional liability insurance and was approved to begin issuing
policies in 1977. A reciprocal exchange under the law of New Jersey is an
organization through which individuals, partnerships, trustees or corporations
designated as "subscribers" or "members" are authorized to exchange reciprocal
or interinsurance contracts with each other. Such contracts are executed by an
attorney-in-fact acting on behalf of the subscribers through a power of
attorney. The Attorney-in-Fact manages the Exchange, including the underwriting
and issuance of insurance policies, the collection and investment of premiums,
and the service and administration of the policyholders and their claims. The
Attorney-in-Fact is a corporation that is wholly owned by the Medical Society
and was formed for the sole purpose of acting as the attorney-in-fact of the
Exchange, which it does pursuant to a management contract that requires the
Exchange to reimburse the costs of the Attorney-in-Fact. The Exchange was
initially capitalized through the issuance of non-interest-bearing subordinated
loan certificates in an aggregate principal amount of $22.9 million. These
certificates were issued in varying principal amounts to many of the physicians
who were initial members. The loan certificates have been redeemed, with the
last such redemption occurring in 1995. As an insurer, the Exchange is required
to maintain levels of capital and surplus as determined by the insurance
regulators of certain states. See "Business -- Regulation -- Insurance Company
Regulation." The profits from the Exchange's operations are retained in a
surplus account.
BUSINESS STRATEGY
The Company has adopted a strategy which it believes will allow it to
compete effectively and create long-term growth. To maximize the strategy's
effectiveness, the Company has adopted the Plan of Reorganization to convert
from a reciprocal insurer to a stock insurer, which will provide the Company
with greater
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flexibility and access to capital. See "The Reorganization" and "The
Subscription Offering." The Company's strategy is to:
- continue to expand geographically by increasing the number of states
in which the Company writes policies;
- enhance product offerings to facilitate "one-stop shopping" for the
Company's extensive customer base;
- expand distribution channels;
- maintain underwriting discipline to seek to assure that profitability,
rather than premium volume, is emphasized;
- take advantage of strategic acquisition opportunities; and
- maintain the Company's historically close relationship with the
medical community.
This strategy is designed to capitalize on the Company's strengths that have
enabled it to achieve its current market position, including (i) its experience
with, commitment to and focus on medical professional liability insurance, (ii)
its history of providing a stable premium environment to its customers, (iii)
the high level of service it delivers to insureds, including the aggressive
defense of claims on their behalf, (iv) its "A (Excellent)" rating by A.M. Best,
(v) its capacity on a per insured basis, (vi) its ability to customize product
features and programs to fit the needs of different customers and (vii) its
close relationship with the medical community.
Expand Geographically. From its inception in 1977 through 1990, all of the
Company's business was written in New Jersey. In 1991, the Company began to
write business in Pennsylvania and in 1996 began its expansion to other states.
Since 1996, the Company has expanded its operations significantly and currently
writes policies in 17 states. As a result of this expansion, the proportion of
the Company's business written in states other than New Jersey has grown from
approximately 11% in 1996 to 33% in the six months ended June 30, 1998. In order
to facilitate continued geographic expansion, the Company has obtained authority
to write insurance in 20 states and the District of Columbia and is in the
process of obtaining such authority in eight other states. In addition, the
Company has opened four regional sales and customer support offices to assist
its marketing efforts outside of New Jersey. Over time, the Company intends to
seek authority to write insurance in all 50 states, although the Company may
choose to not write insurance in all such states.
Enhance Product Offerings. In addition to its core medical professional
liability insurance products, the Company has developed other products and
services for health care institutions. Additional products currently offered
include comprehensive liability coverage for medical offices, directors and
officers, managed care errors and omissions, employment practices, fiduciary,
property and worker's compensation. Most of these coverages are underwritten by
the Company; several products are marketed by the Company and underwritten by
other insurance carriers with which the Company has developed strategic
alliances. The Company has also introduced the option for large health care
institutions to purchase excess insurance coverage on a multi-year basis for a
guaranteed prepaid premium. The Company intends to continue to increase the
number of products it offers to its customer base in order to be able to provide
them with a full range of coverages.
Expand Distribution Channels. The Company has traditionally written
insurance on a direct basis in New Jersey. In connection with the Company's
expansion outside New Jersey, the Company has increasingly utilized brokers. In
1997, 43% of the Company's direct premiums written were generated through
brokers. By increasing its use of this distribution channel, the Company will be
better positioned to achieve growth. In order to expand further its distribution
channels, the Company intends to develop additional brokerage relationships with
selected brokers who have demonstrated expertise in the medical malpractice
insurance market.
Maintain Underwriting Discipline. The Company's experience with,
commitment to and focus on medical professional liability insurance for over 20
years has allowed it to develop strong knowledge of the
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market and to build an extensive data base of medical malpractice claims
experience. The Company takes advantage of this specialized expertise in medical
professional liability insurance to set premiums that it believes are
appropriate for exposures being insured. As the Company expands its business, it
will maintain underwriting discipline and emphasize profitability over premium
growth.
Take Advantage of Strategic Acquisition Opportunities. The Company
believes that the Reorganization will better position the Company to make
strategic acquisitions by providing greater access to capital as a source of
financing and creating an attractive stock acquisition currency. The Company
believes that consolidation will continue in the medical professional liability
insurance industry and that opportunities to make a strategic acquisition may
arise, thus providing an effective way to expand the Company's business, product
offerings and geographic scope.
Maintain Close Relationship with the Medical Community. Since its founding
in 1977, the Company has maintained a close relationship with the medical
community. In addition to the active involvement of practicing physicians on
several of the Company's advisory committees, the Company and the medical
professional liability insurance that it offers have the endorsements of the
Medical Society and the New Jersey Association of Osteopathic Physicians and
Surgeons, as well as endorsements of the Connecticut Hospital Association and
various other medical associations and specialty societies. The Company will
continue to utilize practicing physicians on advisory committees to provide
management with input on medical practice patterns, claims, customer needs and
other relevant matters. In addition, the Company will endeavor to maintain its
medical society endorsements.
PRODUCT OFFERINGS
The Company has developed a variety of insurance products to cover the
professional liability exposure of individual providers such as physicians,
surgeons and dentists, medical groups, clinics and hospitals, extended care
facilities and other health care providers. The Company's core products include
medical professional liability insurance for individual providers, medical
groups and health care institutions on a "claims made," "modified claims made"
or "occurrence basis." See "Glossary of Selected Insurance Terms."
In addition to its core medical professional liability insurance products,
the Company has developed other products and services for health care
institutions. Expanded products offered include comprehensive liability coverage
for medical offices, directors and officers, managed care errors and omissions,
employment practices, fiduciary, property and worker's compensation.
For premises liability and property exposures of medical offices, the
Company offers the Medical Office Policy written on an occurrence basis.
Commercial general liability coverage is offered on an occurrence basis only.
Excess/umbrella liability is a two-part policy covering excess of underlying
policies and excess of self-insured retention. Directors and officers coverage
and errors and omissions coverage are offered on a claims made basis to managed
care organizations. Extended reporting period coverage or "tail coverage" is
offered to those accounts written on a claims made basis to extend the period
when losses could be reported to the Company. The Company has also introduced
the option for large health care institutions to purchase excess insurance
coverage on a multi-year basis for a guaranteed prepaid premium. Such coverages
are also available with reinstatement options, combined with the ability to
pre-purchase such options at the inception of the policy. Most of these
coverages are underwritten by the Company; several products are marketed by the
Company and underwritten by other insurance carriers with which the Company has
developed strategic alliances.
MARKETING AND POLICYHOLDER SERVICES
The Company employs various strategies for marketing its products and
providing policyholder services. In New Jersey, the Company markets its products
to physicians and physician groups principally though medical associations,
referrals by existing policyholders, advertisements in medical journals,
seminars on health care topics for physicians, and direct mail solicitation. The
Company's professional liability program
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has the endorsement of the Medical Society and the New Jersey Association of
Osteopathic Physicians and Surgeons, as well as the endorsements of various
county medical associations and specialty societies. In addition to these direct
marketing channels, the Company sells its products through independent brokers
and agents who currently produce approximately 20% of the Company's direct
premiums written in New Jersey. Health care institutions frequently prefer
brokers over direct solicitation when they purchase professional liability
insurance, and the Company believes that its broker relationships in New Jersey
are important to its ability to grow in that market segment. To provide
localized marketing and policyholder services in New Jersey and nationally, the
Company has established five regional offices. See "-- Business Strategy --
Maintain Close Relationship with the Medical Community."
Outside New Jersey, the Company markets its products exclusively through
independent brokers and agents. In 1997, 108 independent brokers and agents
actively marketed the Company's products in 13 states and produced approximately
43% of the Company's direct written premiums on a national basis. No national
broker or regional agency accounted for more than 8% of the Company's year-end
direct premiums written. The Company selects brokers and agents that it believes
have demonstrated growth and stability in the medical malpractice insurance
industry, strong sales and marketing capabilities, and a focus on selling
medical professional liability insurance. Brokers and agents receive market rate
commissions and other incentives based on the business they produce. The Company
strives to maintain relationships with those brokers and agents who are
committed to promoting the Company's products and are successful in producing
business for the Company. See "-- Business Strategy -- Expand Distribution
Capabilities."
The Company also provides risk management services through its home office
and regional offices. In addition to supplementing the Company's marketing
efforts, these services are designed to reduce potential loss exposures by
educating policyholders on ways to improve medical practice and implement risk
reduction measures. The Company conducts surveys for hospitals and large medical
groups to review their practice procedures and to focus on specific areas in
which concerns arise. The Company prepares reports that identify areas of the
insured's medical practice that may need attention and provides recommendations
to the policyholder. The Company also presents periodic seminars for medical
societies and other groups to educate physicians on risk management techniques.
These educational programs are designed to increase risk awareness and to reduce
the risk of injury to patients and third parties.
UNDERWRITING
The Company maintains a dual underwriting function at its home office and
at each regional office. The home office Underwriting Department is responsible
for the underwriting and servicing of all institutional accounts and individual
providers that exceed the regional office underwriting authority. In addition,
the home office Underwriting Department is responsible for the issuance,
establishment and implementation of underwriting standards for all of the
coverages underwritten by the Company.
The Company's regional office underwriting staff have the authority to
evaluate, approve and issue medical professional liability coverage for
individual providers and medical groups with annual premiums up to a threshold
amount.
The Company follows consistent and strict procedures with respect to the
issuance of all professional liability insurance policies. Individual providers
are required to submit an application for coverage along with supporting claims
history and proof of licensure. The individual provider applications provide
information regarding the medical training, current practice and claims history
of the applicant. Institutions are required to submit an application for
coverage, hard copy loss runs, proof of accreditation, financial statements,
copies of contracts with medical providers, information on employed
professionals and other information. An account analysis form is completed for
each submission and, if coverage is approved, the coverage recommendation and
the pricing methodology is added.
Risk management surveys may be performed prior to quoting a large account
to ascertain the insurability of the risk. All written accounts are referred to
the Risk Management Department to schedule risk
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management services. Representatives from the Risk Management Department meet
with the insured institution to develop programs to control and reduce risk.
The Underwriting Department meets periodically with the Underwriting
Committee to review the guidelines for premium surcharges, cancellations and
non-renewals and any candidate for cancellation or non-renewal. The Underwriting
Committee is composed solely of physicians who are members of either the Board
of Governors or the Board of Directors of the Attorney-in-Fact and are insured
by the Company. Members of the Underwriting Committee are not employees of the
Company.
The Company maintains quality control through periodic audits at the
underwriting and processing levels. Renewal accounts are underwritten as
thoroughly as new accounts. Insureds who no longer meet underwriting guidelines
are identified as non-renewal candidates. All non-renewal candidates are
referred to the home office Underwriting Department and discussed with the
Underwriting Committee to approve the Underwriter's recommendations.
PRICING
The Company establishes, through its own actuarial staff and independent
consulting actuaries, rates and rating classifications for its insureds based on
loss and LAE experience it has developed and on other relevant information. The
Company has various rating classifications based on practice location, medical
specialty and other factors. The Company applies various discounts, including
discounts for part-time practice, physicians just entering medical practice,
large medical groups and claims experience. The Company has established its
premium rates and ratings classifications for hospitals and managed care
organizations using actuarially significant data filed publicly by other
insurers.
CLAIMS
The Company's Claim Department is responsible for claims investigation,
establishment of appropriate case reserves for loss and ALAE, defense planning
and coordination, supervision of attorneys engaged by the Company to defend a
claim, and negotiation of the settlement or other disposition of a claim. All of
the Company's primary policies require it to defend its insureds. Medical
malpractice claims often involve the evaluation of highly technical medical
issues, severe injuries, and conflicting medical opinions. In almost all cases,
the person bringing the claim against the insured is already represented by
legal counsel when the claim is reported to the Company.
Litigation defense is provided almost exclusively by private law firms with
lawyers whose primary focus is defending malpractice cases. The Company also
maintains a staff counsel office located in New Jersey to defend malpractice
cases.
The claims representatives at the Company have on average 10 years of
experience handling medical professional liability cases. The Company limits the
average number of cases handled per claims representative to ensure personal
attention to each case.
The claims operation is assisted in its efforts by its technical unit,
which is responsible for training and educating the claims staff. The technical
unit manages the Company's relationship with defense counsel and helps control
ALAE associated with claims administration. The unit also is responsible for
tracking developments in case law and coordinating mass tort litigation.
A major resource for the Company's claims function is its database built
over a 20-year period. The database provides comprehensive details on each
claim, from incident to resolution, coupled with a document file relating to
each claim. The database enables the Company's claims professionals to analyze
trends in claims by specialty, type of injury, precipitating causes, frequency
and severity, plaintiffs' counsel, expert witnesses, and other factors. The
Company also uses the data to identify and analyze trends and to develop
seminars to educate individual physicians, physician groups, hospital staff, and
other insureds on risk management to control and reduce their exposure to
claims.
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LOSS AND LAE RESERVES
The determination of loss and LAE reserves involves projection of ultimate
losses through an actuarial analysis of the claims history of the Company and
other professional liability insurers, subject to adjustments deemed appropriate
by the Company due to changing circumstances. Included in the Company's claims
history are losses and LAE paid by the Company in prior periods, and case
reserves for anticipated losses and ALAE developed by the Company's Claim
Department as claims are reported and investigated. Actuaries rely primarily on
such historical loss experience in determining reserve levels on the assumption
that historical loss experience provides a good indication of future loss
experience despite the uncertainties in loss trends and the delays in reporting
and settling claims. As additional information becomes available, the estimates
reflected in earlier loss reserves may be revised. Any increase in the amount of
reserves, including reserves for insured events of prior years, could have an
adverse effect on the Company's results of operations for the period in which
the adjustments are made.
The uncertainties inherent in estimating ultimate losses on the basis of
past experience have grown significantly in recent years principally as a result
of judicial expansion of liability standards and expansive interpretations of
insurance contracts. These uncertainties may be further affected by, among other
factors, changes in the rate of inflation and changes in the propensities of
individuals to file claims. The inherent uncertainty of establishing reserves in
the casualty insurance business is even greater for companies writing long-tail
casualty insurance, such as medical malpractice insurance. This is due primarily
to the longer time that typically elapses between the covered incident and the
resolution of the claim.
The Company utilizes internal and independent actuaries in establishing its
reserves. The Company's independent actuaries review the Company's reserves for
losses and LAE at the end of each fiscal year and prepare a report that includes
a recommended level of reserves. The Company considers this recommendation as
well as other factors, such as loss retention levels, premium rates and known,
anticipated or estimated changes in frequency and severity of claims, in
establishing the amount of its reserves for losses and LAE. The Company
continually refines reserve estimates as experience develops and further claims
are reported and settled. The Company reflects adjustments to reserves in the
results of the periods in which such adjustments are made. Medical malpractice
insurance is a line of business for which the initial loss and LAE estimates may
be adversely impacted by events occurring long after the reporting of the claim,
such as sudden severe inflation or adverse judicial or legislative decisions.
The Company has established its loss and LAE reserves within the range of
reserve estimates determined by its independent actuarial firm.
Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance as of January 1, net of
reinsurance recoverable........... $402,172 $409,565 $400,607 $400,607 $445,958
Incurred related to:
Current year...................... 107,889 110,866 121,331 58,669 73,220
Prior years....................... -- -- 1,497 -- --
-------- -------- -------- -------- --------
Total incurred...................... 107,889 110,866 122,828 58,669 73,220
-------- -------- -------- -------- --------
Paid related to:
Current year...................... 3,000 3,630 3,930 1,253 1,445
Prior years....................... 97,496 116,194 73,547 48,697 21,363
-------- -------- -------- -------- --------
Total paid.......................... 100,496 119,824 77,477 49,950 22,808
-------- -------- -------- -------- --------
Balance at end of period, net of
reinsurance recoverable........... 409,565 400,607 445,958 409,326 496,370
Reinsurance recoverable............. 339,095 394,842 430,763 422,004 425,053
-------- -------- -------- -------- --------
Balance at end of period, gross of
reinsurance....................... $748,660 $795,449 $876,721 $831,330 $921,423
======== ======== ======== ======== ========
</TABLE>
55
<PAGE> 59
The following tables reflect the development of reserves for unpaid losses
and LAE, including reserves on assumed reinsurance, for the periods indicated at
the end of that year and each subsequent year. From 1987 through 1992, the
Company had discounted its unpaid losses and LAE, using rates of 5% (1987-1990);
4% (1991) and 2.8% (1992). Discounting of unpaid losses and LAE was discontinued
during 1993 with all unpaid losses and LAE amounts existing at December 31, 1993
and subsequent years recorded at full undiscounted values. For consistency of
presentation, the following tables reflect all years (including 1987 through
1992) on an undiscounted basis. The first line shows the reserves as originally
reported at the end of the stated year. Reserves at each calendar year-end
include the estimated unpaid liabilities for that report or accident year and
for all prior report or accident years. The section under the caption "Liability
reestimated as of" shows the originally recorded reserves as adjusted as of the
end of each subsequent year to reflect the cumulative amounts paid and all other
facts and circumstances discovered during each year. The line "Cumulative
redundancy" reflects the difference between the latest reestimated reserves and
the reserves as originally established. The section under the caption
"Cumulative amount of liability paid through" shows the cumulative amounts paid
through each subsequent year on those claims for which reserves were carried as
of each specific year end.
The tables reflect the effect of all changes in amounts of prior periods.
For example, if a loss determined in 1995 to be $100,000 was first reserved in
1987 at $150,000, the $50,000 redundancy (original estimate minus actual loss)
would be included in the cumulative redundancy in each of the years 1987 through
1994 shown below. The tables present development data by calendar year and do
not relate the data to the year in which the claim was reported or the incident
actually occurred. Conditions and trends that have affected the development of
these reserves in the past will not necessarily recur in the future.
TABLE I. LOSS AND LAE RESERVES DEVELOPMENT - GROSS
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss and LAE Reserves........ $395,594 $453,181 $502,928 $554,076 $593,828 $629,064 $667,200 $688,455
LIABILITY REESTIMATED AS OF:
One year later.............. 409,285 447,867 516,113 541,778 583,133 616,042 623,988 688,455
Two years later............. 404,401 468,307 503,199 529,531 570,108 572,831 623,986 688,450
Three years later........... 426,667 454,530 495,663 516,501 532,877 572,831 623,989 689,539
Four years later............ 409,703 443,908 482,667 487,918 532,878 572,871 624,737
Five years later............ 399,717 431,792 463,784 487,921 540,067 570,469
Six years later............. 389,085 417,224 463,788 490,398 538,129
Seven years later........... 379,810 417,230 456,563 486,236
Eight years later........... 379,814 410,014 449,493
Nine years later............ 378,109 406,461
Ten years later............. 376,638
CUMULATIVE REDUNDANCY
(DEFICIENCY)................ 18,956 46,720 53,435 67,840 55,699 58,595 42,463 (1,084)
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loss and LAE Reserves........ $748,660 $795,449
LIABILITY REESTIMATED AS OF:
One year later.............. 748,660 796,946
Two years later............. 745,217
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
CUMULATIVE REDUNDANCY
(DEFICIENCY)................ 3,443 (1,497)
</TABLE>
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
One year later.............. $ 53,458 $ 57,514 $ 80,959 $ 67,483 $ 79,239 $ 83,837 $ 83,522 $ 98,053
Two years later............. 110,109 136,725 146,137 144,987 161,532 165,737 179,714 212,284
Three years later........... 182,534 196,344 218,676 221,931 238,998 256,860 284,828 293,325
Four years later............ 231,288 253,882 286,181 288,463 318,934 348,868 343,563
Five years later............ 275,567 304,194 335,723 339,121 389,638 395,244
Six years later............. 305,793 338,594 370,225 390,991 413,413
Seven years later........... 324,092 356,151 391,596 401,626
Eight years later........... 337,843 370,304 396,442
Nine years later............ 349,149 371,815
Ten years later............. 351,228
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
One year later.............. $116,532 $101,217
Two years later............. 214,484
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
</TABLE>
56
<PAGE> 60
The Company has experienced favorable development on gross reserves held at
each year end in the table except 1994 and 1996, largely in reserves first
recorded in 1992 and prior years. The Company believes that this favorable
development has resulted from (i) the Exchange's conservative approach to
establishing reserves for medical malpractice insurance losses and LAE; and (ii)
the improvements made to the Exchange's internal claims settlement process.
Development of reserves first recorded in 1994 and later years has been slight,
as no clear development trends have yet emerged.
TABLE II. LOSS AND LAE RESERVES DEVELOPMENT - NET
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss and LAE
Reserves-Gross.............. $395,594 $453,181 $502,928 $554,076 $593,828 $629,064 $667,200 $688,455
Reinsurance Recoverable and
Unpaid Losses............... 495 400 400 1,025 8,265 244,394 279,260 286,283
-------- -------- -------- -------- -------- -------- -------- --------
LOSS AND LAE RESERVES-NET:... $395,099 $452,781 $502,528 $553,051 $585,563 $384,670 $387,940 $402,172
LIABILITY REESTIMATED AS OF:
One year later.............. 408,745 447,477 513,096 534,087 577,450 384,196 387,944 402,172
Two years later............. 403,871 465,300 494,044 524,264 576,974 384,200 387,940 402,172
Three years later........... 423,520 445,913 488,404 523,783 576,979 384,198 387,948 402,587
Four years later............ 402,195 436,659 487,957 523,787 576,977 384,243 388,110
Five years later............ 392,328 436,228 487,960 523,787 584,171 384,713
Six years later............. 391,881 436,229 487,961 526,267 585,566
Seven years later........... 391,075 436,232 480,740 526,884
Eight years later........... 391,076 429,021 480,449
Nine years later............ 389,375 432,247
Ten years later............. 394,683
CUMULATIVE REDUNDANCY
(DEFICIENCY)................ 416 20,534 22,079 26,167 (3) (43) (170) (415)
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loss and LAE
Reserves-Gross.............. $748,660 $795,449
Reinsurance Recoverable and
Unpaid Losses............... 339,095 394,842
-------- --------
LOSS AND LAE RESERVES-NET:... $409,565 $400,607
LIABILITY REESTIMATED AS OF:
One year later.............. 409,565 402,104
Two years later............. 410,433
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
CUMULATIVE REDUNDANCY
(DEFICIENCY)................ (868) (1,497)
</TABLE>
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE AMOUNT OF LIABILITY
PAID THROUGH:
One year later............... $ 53,318 $ 57,524 $ 78,967 $ 67,479 $236,090 $ 83,628 $ 82,136 $ 97,496
Two years later.............. 109,979 134,743 144,141 245,270 318,200 164,156 178,278 211,637
Three years later............ 180,412 194,358 280,261 322,065 394,379 255,278 284,097 274,154
Four years later............. 229,162 289,966 347,702 387,337 492,314 348,031 323,961
Five years later............. 294,491 340,262 396,078 455,993 563,813 376,116
Six years later.............. 324,708 373,737 442,578 508,658 578,642
Seven years later............ 343,003 403,292 464,744 521,327
Eight years later............ 368,752 418,240 477,581
Nine years later............. 380,853 430,070
Ten years later.............. 393,482
<CAPTION>
1995 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
CUMULATIVE AMOUNT OF LIABILITY
PAID THROUGH:
One year later............... $116,194 $73,547
Two years later.............. 194,550
Three years later............
Four years later.............
Five years later.............
Six years later..............
Seven years later............
Eight years later............
Nine years later.............
Ten years later..............
</TABLE>
The Company has experienced limited net loss and LAE reserve development
primarily as a result of aggregate excess reinsurance contracts in place since
1992. The aggregate excess reinsurance contracts provide coverage for losses and
LAE above a loss and ALAE to earned premiums ratio of 80% (1993 and 1994) and
75% (1995, 1996 and 1997) and therefore have the effect of holding incurred
losses and LAE at a constant level.
General liability incurred losses have been less than 1.9% of medical
malpractice incurred losses in the last five years. The Company does not have
material reserves for pollution claims and the Company's claims experience for
pollution coverage has been negligible.
While the Company believes that its reserves for losses and LAE are
adequate, there can be no assurance that the Company's ultimate losses and LAE
will not deviate, perhaps substantially, from the estimates reflected in the
Company's financial statements. If the Company's reserves should prove
inadequate, the
57
<PAGE> 61
Company will be required to increase reserves, which could have a material
adverse effect on the Company's financial condition or results of operations.
See "Risk Factors -- Loss and LAE Reserves."
REINSURANCE
Reinsurance Ceded. The Company follows customary industry practice by
reinsuring some of its business. The Company typically cedes to reinsurers a
portion of its risks and pays a fee based upon premiums received on all policies
so subject to such reinsurance. Insurance is ceded principally to reduce net
liability on individual risks and to provide aggregate loss and LAE protection.
Although reinsurance does not legally discharge the ceding insurer from its
primary liability for the full extent of the policies reinsured, it does make
the reinsurer liable to the insurer to the extent of the reinsurance ceded. The
Company determines how much reinsurance to purchase based upon its evaluation of
the risks it has insured, consultations with its reinsurance brokers, and market
conditions, including the availability and pricing of reinsurance. The Company's
reinsurance arrangements are generally placed through Pegasus Advisors, Inc., a
reinsurance broker wholly owned by the Attorney-in-Fact and to be acquired by
the Company as part of the acquisition of the Attorney-in-Fact and its
subsidiaries.
The Company reinsures its risks primarily under two reinsurance contracts,
the Specific Contract and the Aggregate Contract. Under the Specific Contract,
the Company's retentions for casualty business range from $2 million to $3
million per loss per policy. Coverage on casualty business is provided in layers
up to $48 million per loss per policy above the retentions. Coverage for
casualty business under the Specific Contract is limited by an aggregate
deductible, aggregate limits by layer and required Company participation in
upper layer losses. Property coverage is also provided under the Specific
Contract in the amount of $14.5 million in excess of a Company retention of
$500,000 per loss per policy and is subject to an aggregate limit. The Company
has maintained specific excess of loss reinsurance coverage generally similar to
that just described for several years.
The Aggregate Contract provides several coverages on an aggregate excess of
loss, specific excess of loss, and quota share basis. The primary coverage
afforded under the Aggregate Contract attaches above a Company retention
measured as a 75% loss and ALAE ratio ("loss and ALAE ratio"). Reinsurers
provide coverage for an additional 75% loss and ALAE ratio, with an aggregate
annual limit of $130 million. The Company has maintained aggregate excess of
loss coverage generally similar to that just described since 1993. In addition,
in 1992 the Company entered into an aggregate excess of loss reinsurance
contract to protect underwriting and operating results from adverse developments
for losses and ALAE which occurred on or before December 31, 1992.
The major elements of ceded reinsurance activity are summarized in the
following table:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Ceded premiums earned.................... $31,633 $36,404 $42,067 $15,854 $17,385
Ceded Losses and Loss Adjustment
Expenses............................... $53,405 $57,064 $66,563 $28,425 $39,048
Funds held charges....................... $ 5,473 $ 8,626 $11,581 $ 5,588 $ 5,946
</TABLE>
Credit risk from reinsurance is controlled by placing the reinsurance with
large, highly rated reinsurers and by collateralizing amounts recoverable from
reinsurers. The following table identifies the Company's most significant
reinsurers, the total amount recoverable from them as of December 31, 1997, and
collateral held by the Company primarily in the form of funds withheld and
letters of credit as of December 31, 1997. No other
58
<PAGE> 62
single reinsurer's percentage participation in 1997 exceeded 5% of the total
reinsurance recoverable at December 31, 1997.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-------------------------------
TOTAL AMOUNT TOTAL AMOUNT OF
REINSURER RECOVERABLE COLLATERAL HELD
- --------- ------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Hannover Reinsurance (Ireland) Ltd.......................... $253,355 $255,866
Eisen und Stahl Reinsurance (Ireland) Ltd................... 64,001 63,977
Scandinavian Reinsurance Company Ltd........................ 51,344 51,391
London Life and Casualty Reinsurance Corporation............ 48,254 48,365
Underwriters Reinsurance Company (Barbados)................. 27,053 26,827
</TABLE>
The Company analyzes the credit quality of its reinsurers and relies on its
brokers and intermediaries to assist it in such analysis. To date, the Company
has not experienced any material difficulties in collecting reinsurance
recoverables. No assurance can be given, however, regarding the future ability
of any of the Company's reinsurers to meet their obligations. See "Risk
Factors -- Reinsurance."
Reinsurance Assumed. The Company assumed reinsurance in annual amounts of
less than $1 million through 1995. The Company assumed reinsurance under three
programs, with assumed premiums of $2.2 million and $4.6 million in 1996 and
1997, respectively. The Company provides medical professional liability
reinsurance coverage to American Medical Mutual, Inc., A Risk Retention Group
("AMM") under a quota share contract and two excess of loss contracts. AMM is
also managed by the New Jersey State Medical Underwriters, Inc. and in 1997 had
$3.6 million of premiums written. The Company participated in the IRM Services,
Inc. property pool ("the Pool") with a 5% share in 1996 and 1997. The Pool was
discontinued and placed into runoff on November 30, 1996. Only minimal further
activity beyond 1997 is expected under this arrangement. The Company was also a
participant in quota share reinsurance contracts in 1996 and 1997 with
Underwriters Reinsurance Company, whereby the Company reinsured up to $250,000
per risk on business identified by Underwriters Reinsurance Company as casualty
facultative business. The contract was discontinued on March 1, 1998.
In addition, in 1997 the Company assumed reinsurance under a novation
agreement pertaining to certain policies written for a large hospital group
during 1989 through 1997. Premiums associated with this agreement amounted to
$10.9 million in 1997. Existing ceded reinsurance agreements with the hospital
group's captive insurer covering the novated business remain in effect following
the novation.
The Company believes that as more managed care organizations and integrated
health care delivery systems retain a larger part of their exposure directly or
through captive arrangements, they will need to obtain excess insurance or
reinsurance for the potentially larger losses, and the Company believes that it
is prepared to meet this need through assumed reinsurance arrangements.
INVESTMENT PORTFOLIO
An important component of the operating results of the Company has been the
return on its invested assets. Investments of the Company are made by investment
managers and internal management under policies established and supervised by
the Investment Advisory and Finance Committee of the Board of Governors and
Board of Directors of the Attorney-in-Fact (the "Investment Committee"). The
Company's current investment policy has placed primary emphasis on investment
grade, fixed maturity securities and maximization of after-tax yields while
minimizing credit risk of the portfolio. The Company currently uses four outside
investment managers for fixed maturity securities.
59
<PAGE> 63
The following table sets forth the composition of the investment portfolio
of the Company at the dates indicated. All of the fixed maturity securities are
held as available-for-sale.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
-------------------- -------------------- ----------------------
COST OR COST OR COST OR
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- -------- --------- -------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturity Securities:
Bonds:
US Government and
Agencies.................. $185,971 $183,906 $190,214 $194,507 $137,609 $ 143,234
State, municipalities and
political subdivisions.... 258,775 261,614 202,386 209,605 172,910 178,578
Mortgage-backed securities
and other asset-backed
securities................ 260,849 261,955 308,577 313,571 331,651 336,637
Corporate................... 56,607 56,795 132,875 136,294 273,625 277,725
-------- -------- -------- -------- -------- ----------
Total Fixed Maturity
Securities........... 762,202 764,270 834,052 853,977 915,795 936,174
-------- -------- -------- -------- -------- ----------
Equity Securities:
Unaffiliated Preferred Stock... -- -- 2,500 2,500 2,500 2,500
Unaffiliated Common Stock...... 55,334 67,230 66,520 89,080 68,019 92,292
-------- -------- -------- -------- -------- ----------
Total Equity
Securities........... 55,334 67,230 69,020 91,580 70,519 94,792
-------- -------- -------- -------- -------- ----------
Total.................. $817,536 $831,500 $903,072 $945,557 $986,314 $1,030,966
======== ======== ======== ======== ======== ==========
</TABLE>
In July 1998 the Company substantially liquidated its unaffiliated common
stock portfolio.
The Company's investment portfolio of fixed maturity securities consists
primarily of intermediate-term, investment-grade securities along with a modest
allocation to below investment-grade (i.e. high yield) fixed maturity securities
not to exceed 7.5% of invested assets. The Company's investment policy provides
that all security purchases be limited to rated securities or unrated securities
approved by the Investment Committee.
The table below contains additional information concerning the investment
ratings of the Company's fixed maturity investments at June 30, 1998:
<TABLE>
<CAPTION>
PERCENTAGE OF
S&P RATING OF INVESTMENT(1) AMORTIZED COST FAIR VALUE FAIR VALUE
--------------------------- -------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
AAA (including US Government and Agencies)............ $567,984 $583,078 62.2%
AA.................................................... 43,837 45,152 4.8
A..................................................... 187,371 190,580 20.3
BBB................................................... 76,603 78,201 8.4
Other Ratings......................................... 39,500 38,663 4.2
Not Rated............................................. 500 500 0.1
-------- -------- -----
Total....................................... $915,795 $936,174 100.0%
======== ======== =====
</TABLE>
- ---------------
(1) The ratings set forth above are based on the ratings, if any, assigned by
Standard & Poor's Rating Services ("S&P"). If S&P's ratings were
unavailable, the equivalent ratings supplied by another nationally
recognized ratings agency were used.
60
<PAGE> 64
The following table sets forth certain information concerning the
maturities of fixed maturity securities in the Company's investment portfolio as
of June 30, 1998, by contractual maturity:
<TABLE>
<CAPTION>
PERCENTAGE OF
MATURITY OF INVESTMENT AMORTIZED COST FAIR VALUE FAIR VALUE
---------------------- -------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Due one year or less.................................. $ 26,402 $ 26,446 2.8%
Due after one year through five years................. 125,761 126,731 13.5
Due after five years through ten years................ 116,977 120,772 12.9
Due after ten years................................... 315,004 325,588 34.8
Mortgage-backed and other asset-backed securities..... 331,651 336,637 36.0
-------- -------- -----
Totals...................................... $915,795 $936,174 100.0%
======== ======== =====
</TABLE>
The average effective maturity and the average modified duration of the
securities in the Company's fixed maturity portfolio as of June 30, 1998, was
10.5 years and 6.31 years, respectively.
Standard, mortgage-backed securities are issued on and collateralized by an
underlying pool of single-family home mortgages. Principal and interest payments
from the underlying pool are distributed pro rata to the security holders. More
complex mortgage-backed security structures prioritize the distribution of
interest and principal payments to different classes of securities backed by the
same underlying collateral mortgages. Regardless of structure, mortgage-backed
securities involve the same risks associated with all fixed income investments:
interest rate risk, reinvestment rate risk, and default or credit risk. In
addition, mortgage-backed securities also involve prepayment risk, which is the
risk that a security's originally scheduled interest and principal payments will
differ considerably due to interest rate changes. As part of an ongoing
portfolio risk management process, the Company continues to use and adopt
financial modeling techniques to monitor and manage the risks associated with
its fixed income portfolio holdings.
"Other asset backed securities" are classified similarly to mortgage-backed
securities as these types of securities also involve prepayment risk. Assets
other than traditional home mortgages are used to collateralize these types of
securities. Examples include securities backed by home equity loans, lease
receivables, high yield bonds, credit card receivables, and auto loan
receivables.
The Company's short-term investments are comprised of "AAA-rated" and
"AA-rated" money market instruments and money market mutual funds.
Asset and liability matching is an important part of the Company's
portfolio management process. The Company utilizes financial modeling and
scenario analysis to monitor closely the effective modified duration of both
assets and liabilities in order to minimize any "gapping" or "mismatching"
issues with respect to the balance sheet. Any adjustments to portfolio strategy
indicated from such analysis are made to reflect emerging liability pay-out
trends, significant changes in financial markets, and the Company's changing
business. Effective asset/liability management has resulted in the Company's
ability to consistently pay claims from operating funds without disrupting the
Company's long-term investment strategy.
COMPETITION
The physician professional liability insurance market in the United States
is highly competitive. According to A.M. Best, in 1996 there were 357 companies
nationally that wrote medical professional liability insurance and 112 companies
licensed in New Jersey. In New Jersey, where approximately 67% of the Company's
1998 premiums were written as of June 30, 1998, the Company's principal
competitor is Princeton Insurance Companies. In New Jersey and other states, the
Company's principal competitors include CNA Insurance Group, Frontier Insurance
Group, Inc., PHICO Insurance Company and St. Paul Companies. These companies
rank among the top 20 medical malpractice insurers nationally and are actively
engaged in soliciting insureds in the states in which the Company writes
insurance. In addition, as the Company expands into new states, it may face
strong competition from local carriers that are closely focused on narrow
geographic markets. The Company expects to encounter such competition from
doctor-owned insurance
61
<PAGE> 65
companies and commercial companies in other states as it carries out its
expansion plans. Many of the Company's current and potential competitors may
have greater financial resources than the Company and may seek to acquire market
share by decreasing pricing for their products below prevailing market rates,
thereby reducing profitability. Several insurance companies that have greater
financial resources than the company have started to write medical malpractice
insurance in New Jersey. The Company believes that the principal competitive
factors, in addition to pricing, include financial stability and A.M. Best
ratings, breadth and flexibility of coverage, and the quality and level of
services provided.
The hospital professional liability insurance market is also extremely
competitive. Most of the Company's principal insurance company competitors for
physicians and medical groups also now actively compete in the hospital
professional liability insurance market. Moreover, the Company's primary
competitor in New Jersey was founded to provide professional liability coverage
to hospitals, while the Company traditionally served the individual physician
market. The Company also believes that the number of health care entities that
insure their affiliated physicians through self-insurance may rise.
The Company plans to compete by diversifying its products, expanding
geographically, extending its distribution channels, and differentiating itself
through superior claims, risk management, and customer services. All markets in
which the Company now writes insurance and in which it expects to enter have
certain competitors with substantially greater financial and operating resources
than the Company. See "Risk Factors -- Competition."
REGULATION
The Exchange, MIIX Insurance, LP&C and MIIX New York are each subject to
supervisory regulation by their respective states of incorporation, commonly
called the state of domicile. The Exchange and MIIX Insurance are domiciled in
New Jersey, LP&C is domiciled in Virginia and MIIX New York is domiciled in New
York. Therefore, the laws and regulations of these states, including the tort
liability laws and the laws relating to professional liability exposures and
reports, have the most significant impact on the operations of the combined
company. Lawrenceville Re, a wholly owned subsidiary of the Attorney-in-Fact, is
domiciled in Bermuda.
Holding Company Regulation. As part of a holding company system, the
Exchange, MIIX Insurance, LP&C and MIIX New York are subject to the Insurance
Holding Company Systems Acts (the "Holding Company Act") of their domiciliary
states. The Holding Company Act requires the domestic company to file
information periodically with the state insurance department and other state
regulatory authorities, including information relating to its capital structure,
ownership, financial condition and general business operations. Certain
transactions between an insurance company and its affiliates, including sales,
loans or investments, are deemed "material" and require prior approval by New
Jersey or Virginia insurance regulators. In New Jersey and Virginia,
transactions with affiliates involving loans, sales, purchases, exchanges,
extensions of credit, investments, guarantees, or other contingent obligations
which within any 12 month period aggregate at least 3% of the insurance
company's admitted assets or 25% of its capital and surplus, whichever is
greater, require prior approval. Prior approval is also required for all
management agreements, service contracts, and cost-sharing arrangements between
affiliates. Certain reinsurance agreements or modifications also require prior
approval.
Certain other material transactions, not involving affiliates, must be
reported to the domiciliary regulatory agency within 15 days after the end of
the calendar month in which the transaction occurred (in contrast to prior
approval). These transactions include acquisitions and dispositions of assets
that are nonrecurring, are not in the ordinary course of business, and exceed 5%
of the Company's admitted assets. Similarly, nonrenewals, cancellations, or
revisions of ceded reinsurance agreements, which affect statutorily established
percentages of the Company's business, are also subject to disclosure.
The Holding Company Act also provides that the acquisition or change of
"control" of a domestic insurance company or of any person or entity that
controls such an insurance company cannot be consummated without prior
regulatory approval. In general, a presumption of "control" arises from the
ownership of voting securities and securities that are convertible into voting
securities, which in the aggregate
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constitute 10% or more of the voting securities of the insurance company or of a
person or entity that controls the insurance company, such as The MIIX Group. A
person or entity seeking to acquire "control," directly or indirectly, of the
Company would generally be required to file an application for change of control
containing certain information required by statute and published regulations and
provide a copy of the application to the Company. The Holding Company Act also
effectively restricts the Company from consummating certain reorganizations or
mergers without prior regulatory approval.
Regulation of Dividends from Insurance Subsidiaries. The Holding Company
Act of the State of New Jersey will limit the ability of MIIX Insurance to pay
dividends to The MIIX Group. Without prior notice to and approval of the
Commissioner, MIIX Insurance may not declare or pay an extraordinary dividend,
which is defined as any dividend or distribution of cash or other property whose
fair market value together with other dividends or distributions made within the
preceding 12 months exceeds the greater of such subsidiary's statutory net
income of the preceding calendar year or 10% of statutory surplus as of the
preceding December 31. The law further requires that an insurer's statutory
surplus following a dividend or other distribution be reasonable in relation to
its outstanding liabilities and adequate to meet its financial needs. New Jersey
permits the payment of dividends only out of statutory earned (unassigned)
surplus unless the payment out of other funds is approved by the Commissioner.
In addition, a New Jersey insurance company is required to give the New Jersey
Department notice of any dividend after declaration, but prior to payment.
The other United States domiciled Insurance Subsidiaries will be subject to
similar provisions and restrictions under the Holding Company Acts of other
states.
Insurance Company Regulation. The Company is subject to the insurance laws
and regulations in each state in which it is licensed to do business. The
Company is licensed in 29 states and the District of Columbia. The extent of
regulation varies by state, but such regulation usually includes: (i) regulating
premium rates and policy forms; (ii) setting minimum capital and surplus
requirements; (iii) regulating guaranty fund assessments; (iv) licensing
companies and agents; (v) approving accounting methods and methods of setting
statutory loss and expense reserves; (vi) setting requirements for and limiting
the types and amounts of investments; (vii) establishing requirements for the
filing of annual statements and other financial reports; (viii) conducting
periodic statutory examinations of the affairs of insurance companies; (ix)
approving proposed changes of control; and (x) limiting the amounts of dividends
that may be paid without prior regulatory approval. Such regulation and
supervision are primarily for the benefit and protection of policyholders and
not for the benefit of investors.
Insurance Guaranty Associations. Most states, including New Jersey and
Virginia, require admitted property and casualty insurers to become members of
insolvency funds or associations that generally protect policyholders against
the insolvency of such insurers. Members of the fund or association must
contribute to the payment of certain claims made against insolvent insurers.
Maximum contributions required by law in any one year vary by state, and are
usually between 1% and 2% of annual premiums written by a member in that state
during the preceding year. New Jersey and Virginia, the states in which the
Exchange and LP&C are respectively domiciled, and Texas, Pennsylvania, Maryland,
Kentucky, states in which the Company has significant business, permit a maximum
assessment of 2%. Ohio permits a maximum assessment of 1.5%. New Jersey permits
recoupment of guaranty fund payments through future policy surcharges. Virginia
and Texas permit premium tax reductions as a means of recouping guaranty fund
payments. Most other states permit recoupment through future rate increases.
Examination of Insurance Companies. Every insurance company is subject to
a periodic financial examination under the authority of the insurance
commissioner of its state of domicile. Any other state interested in
participating in a periodic examination may do so. The last completed periodic
financial examination of the Exchange, based on December 31, 1993 financial
statements, was completed on March 5, 1995, and a report was issued on June 21,
1995. The Exchange currently is undergoing another periodic examination that
began on November 24, 1997, and is expected to be completed during the summer of
1998. The last periodic financial examination of LP&C, based on December 31,
1996 financial statements, was completed on April 25, 1997, and a report was
issued on August 4, 1997. Various states also conduct "market conduct
examinations" which are unscheduled examinations designed to monitor the
compliance with state
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laws and regulations concerning the filing of rates and forms and company
operations in general. The Company has not undergone a market conduct
examination.
Risk-Based Capital. In addition to state-imposed insurance laws and
regulations, insurers are subject to the general statutory accounting practices
and the reporting format of the National Association of Insurance Commissioners
(the "NAIC"). The NAIC's methodology for assessing the adequacy of statutory
surplus of property and casualty insurers includes a risk-based capital ("RBC")
formula that attempts to measure statutory capital and surplus needs based on
the risks in a company's mix of products and investment portfolio. The formula
is designed to allow state insurance regulators to identify potentially
under-capitalized companies. Under the formula, a company determines its RBC by
taking into account certain risks related to the insurer's assets (including
risks related to its investment portfolio and ceded reinsurance) and the
insurer's liabilities (including underwriting risks related to the nature and
experience of its insurance business). The RBC rules provide for different
levels of regulatory attention depending on the ratio of an insurance company's
total adjusted capital to its "authorized control level" of RBC. At December 31,
1997, the Exchange's RBC was 2.75 times greater than the threshold requiring the
least regulatory attention. At December 31, 1997, LP&C's RBC was 17.05 times
greater than the threshold requiring the least regulatory attention.
NAIC-IRIS Ratios. The NAIC Insurance Regulatory Information System
("IRIS") was developed by a committee of state insurance regulators and is
primarily intended to assist state insurance departments in executing their
statutory mandates to oversee the financial condition of insurance companies
operating in their respective states. IRIS identifies 12 ratios for the property
and casualty insurance industry and specifies a range of "usual values" for each
ratio. Departure from the "usual value" range on four or more ratios may lead to
increased regulatory oversight from individual state insurance commissioners. In
1997 LP&C had two ratios (change in net writings and change in surplus) outside
the usual value range, which were triggered from a zero prior year basis since
LP&C was acquired in 1996. In 1996 the Exchange had one ratio (investment yield
ratio) fall outside of the usual range, which resulted from the lower pre-tax
yields provided by the tax exempt securities in its investment portfolio. The
Exchange also had one ratio (estimated current reserve deficiency to surplus)
fall outside of the usual range in 1995. This occurred primarily as a result of
a reduction in the cost of reinsurance protection in 1995 relative to 1994 and
1993, which increased net premiums but did not result in an increase in net loss
reserves.
Regulation of Investments. The Insurance Subsidiaries are subject to state
laws and regulations that require diversification of their investment portfolios
and limit the amount of investments in certain investment categories such as
below investment grade fixed income securities, real estate and equity
investments. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as non-admitted
assets for purposes of measuring statutory surplus and, in some instances, would
require divestiture of such non-qualifying investments over specified time
periods unless otherwise permitted by the state insurance authority under
certain conditions. The Company did not have any non-qualifying investments in
1997.
Prior Approval of Rates and Policies. Pursuant to the New Jersey Insurance
Code, a domestic insurer must submit policies and endorsements to the
Commissioner for prior approval, but rating plans and rates are not subject to
review until 30 days after use. Virginia law requires LP&C to submit rating
plans, rates, policies, and endorsements to regulators for prior approval. The
possibility exists that the Company may be unable to implement desired rates,
policies, endorsements, forms, or manuals if such items are not approved by the
applicable regulatory authorities. See "Risk Factors -- Regulatory and Related
Matters." In the past, all of the Company's rate applications have been approved
in the normal course of review. In most other states, policy forms usually are
subject to prior approval by the regulatory agency while rates usually are "file
and use."
Medical Malpractice Tort Reform. Major revisions to New Jersey's statutory
scheme governing medical malpractice took effect in 1995. These revisions
included raising joint and several liability standards, requiring certificates
of merit, eliminating strict liability of health care providers due to defective
products used in their practices, and capping punitive damages at the greater of
five times compensatory damages or $350,000. These changes are bringing
stability to the medical malpractice insurance business in New Jersey by making
it more
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feasible for insurers to assess certain risks. Legislation passed in 1996 in
Pennsylvania provides, among other things, that plaintiffs must prove causation
in informed consent cases, that punitive damages assessed against individual
defendants be capped at twice the compensatory damages, and that the
Pennsylvania Medical Professional Liability Catastrophe Loss Fund (the "Cat
Fund") be responsible for delay damages and post-judgment interest. Texas tort
reform applicable to cases accruing on or after September 1, 1996, bars
plaintiffs from recovery if their own negligence is more than 50% responsible
for their injuries, while defendants shall be jointly and severally liable only
if found to be more than 50% responsible. Exemplary damages shall not exceed the
greater of $200,000, or two times the economic damage plus the non-economic
damage, not to exceed $750,000.
Medical Malpractice Reports. The Exchange and LP&C principally write
medical malpractice insurance and additional requirements are placed upon them
to report detailed information with regard to settlements or judgments against
their insureds. In addition, the Company is required to report to state
regulatory agencies or the National Practitioners Data Bank payments, claims
closed without payments, and actions by the Company, such as terminations or
surcharges, with respect to its insureds. Penalties may attach if the Company
fails to report to either the state agency or the National Practitioners Data
Bank.
Catastrophe Funds. In two states in which the Company writes insurance,
its liability is capped at a level below the Company's typical policyholder
limits of coverage. Pennsylvania's Cat Fund provides coverage for medical
malpractice claims exceeding $300,000 per claim and $900,000 aggregate per year.
The Cat Fund coverage is limited to $900,000 per claim and $2.7 million in the
aggregate. Beginning in 1999, the Cat Fund will provide coverage for claims
exceeding $400,000 and $1.2 million in the aggregate, up to a maximum of
$800,000 per claim and $2.4 million in the aggregate. Similarly, after July 1,
1998, physicians in Indiana will be required to purchase insurance limits of
$250,000 per claim and $750,000 in the aggregate. The Indiana Patient
Compensation Fund provides an additional $1 million of coverage per claim for an
insured. A plaintiff's maximum total recovery for medical malpractice causing
injury or death is $1.25 million in Indiana.
A.M. BEST RATINGS
In 1997 A.M. Best, which rates insurance companies based on factors of
concern to policyholders, rated the Company "A (Excellent)" for the third
consecutive year. This is the third highest rating of 16 ratings that A.M. Best
assigns. The Company earned its first rating, a "B+," in 1992 and achieved an
"A" rating by 1995.
A.M. Best publications indicate that the "A" rating is assigned to those
companies that in A.M. Best's opinion have a strong ability to meet their
obligations to policyholders over a long period of time. In evaluating a
company's financial and operating performance, A.M. Best reviews the company's
profitability, leverage, and liquidity; its book of business; the adequacy and
soundness of its reinsurance; the quality and estimated market value of its
assets; the adequacy of its loss reserves and surplus; its capital structure;
the experience and competence of its management; and its market presence. See
"Risk Factors -- A.M. Best Ratings."
EMPLOYEES
As of June 30, 1998, the Company employed approximately 220 persons. None
of the Company's employees is covered by a collective bargaining agreement. The
Company believes that its relations with its employees are good.
PROPERTIES
As of June 30, 1998, the Company leased 49,000 square feet of space from
the Medical Society in Lawrenceville, New Jersey, where its home office and
Mid-Atlantic Region office are located. The Company also leases 28,000 square
feet of space in a second Lawrenceville office building, where its Claim
Department and a subsidiary are based. The Company's regional office facilities
are located in rented office space in Indianapolis (5,000 square feet), Boston
(3,670 square feet), Atlanta (4,190 square feet) and Dallas (5,000 square feet).
The Company believes that its office space is adequate for its present needs and
that it will be able to secure additional office space in the future if
necessary. The Company is considering the purchase of its
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headquarters in Lawrenceville, New Jersey, which it currently leases, for a
market value of approximately $7 million.
LITIGATION
The Company may be a party to litigation from time to time in the ordinary
course of business. Except as described under "Risk Factors -- Possible Adverse
Impact of Litigation," the Company is not currently a party to any litigation
which may have a material adverse effect on the Company.
COMPARISON OF RIGHTS
Members of the Exchange, a reciprocal insurer, have certain rights as
members which are described herein as "Membership Interests." Membership
Interests consist of the rights arising under the Rules and Regulations of the
Exchange (the "Rules and Regulations") or under law. Upon consummation of the
Reorganization, Membership Interests will be extinguished, and Distributees will
become stockholders of The MIIX Group or will receive cash. Holders of Common
Stock will have certain rights under the Certificate of Incorporation and
By-laws of The MIIX Group and under Delaware Law.
The following is a comparison of certain rights of Members of the Exchange
and holders of Common Stock. This comparison is not intended to be complete and
is qualified in its entirety by reference to the Rules and Regulations of the
Exchange, copies of which will be sent to Members upon request, and by reference
to the Certificate of Incorporation and By-laws of The MIIX Group, which are
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
LIQUIDITY/MARKETABILITY
A Membership Interest is not transferable and terminates when the coverage
period or certificate period of the member under the policy issued by the
Exchange terminates by expiration of time, cancellation or otherwise. The MIIX
Group has applied for listing of the shares of Common Stock on the NYSE. As a
result, The MIIX Group anticipates that there will be a public market for the
shares of Common Stock.
DISTRIBUTIONS
If the Board of Governors, in its reasonable discretion, determines that
the surplus of the Exchange is adequate to meet estimated operating requirements
and provide protection for members and that there is additional surplus
available for distribution to members, the Board may distribute all or a portion
of this additional surplus to members. Each member's share of such distribution
is determined by the Board of Governors in its reasonable discretion. When a
person ceases to be member, such person loses rights to future dividends or
other distributions.
There is no statute describing how assets would be distributed upon a
liquidation of the Exchange.
After the Reorganization holders of Common Stock will be entitled to
participate equally in dividends if, as and when declared by the Board of
Directors of The MIIX Group, and in the distribution of assets in the event of
dissolution, subject to the rights of holders of Preferred Stock, if any. See
"Dividend Policy."
MEETINGS AND ACTIONS
Any actions required to be taken by the members of the Exchange may be
taken at a duly called annual or special meeting. Special meetings of the
members may be called only by the Chairman of the Board of Governors and shall
be called by him upon the written request of one-third of the total number of
Governors and 20 members of the Exchange. The business transacted at any special
meeting of the members is confined to matters specified in the notice of
meeting. The Rules and Regulations contain an advance notice procedure with
respect to the election of Governors. All nominations for elections of Governors
must be filed with the Attorney-in-Fact at least 10 days before the election. If
nominations are not so filed, the unanimous vote of the
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members represented in person or by proxy at the meeting shall be necessary to
elect one not so nominated to the Board of Governors.
Any action required or permitted to be taken by the stockholders of The
MIIX Group must be taken by vote of the stockholders at a duly called annual or
special meeting of stockholders and not by written consent. Special meetings of
stockholders may be called only by the Chief Executive Officer (or, in the event
of his or her absence or disability, by any Vice President) or the Chairman or
Vice Chairman of the Board of Directors, and shall be called by any of them
pursuant to a resolution adopted by a majority of the Board of Directors. The
business transacted at any special meeting of stockholders is confined to
matters specified in the notice of meeting. The MIIX Group By-laws establish an
advance notice procedure with regard to the nomination by stockholders of
candidates for election as directors and with regard to proposals of business to
be brought before an annual meeting of stockholders of The MIIX Group. Notice as
to any such stockholder nomination or other proposal must be received by The
MIIX Group not less than 90 days nor more than 120 days prior to the anniversary
date of the immediately preceding annual meeting. In the event that the date of
the annual meeting is advanced by more than 20 days or delayed by more than 70
days from such anniversary date, however, the By-laws provide additional time
for notice. In addition, such notice must contain certain specified information
concerning the person to be nominated or the matters to be brought before the
meeting as well as the name and address of the stockholder and the class and
number of shares beneficially owned by the stockholder submitting the proposal.
VOTING
Each member of the Exchange is entitled to one vote on all matters
submitted to the members for action or approval. The Rules and Regulations
generally require the affirmative vote of a majority of members to approve
matters submitted to the members unless a higher vote is required by law or the
Rules and Regulations. The Rules and Regulations may be amended by members of
the Exchange upon the affirmative vote of two-thirds of the members represented
in person or by proxy at a meeting.
Holders of Common Stock are entitled to one vote per share on all matters
with respect to which the holders of Common Stock are entitled to vote
(including the election of directors) and, except as otherwise required by law
or by the terms of any series of Preferred Stock, if any, the holders of Common
Stock will possess all stockholder voting power. The Certificate of
Incorporation of The MIIX Group provides that certain provisions thereof may not
be amended without the affirmative vote of two-thirds of the outstanding stock
entitled to vote in the election of directors. The By-laws may be amended by
stockholders upon the affirmative vote of two-thirds or more of the combined
voting power of The MIIX Group entitled to vote in the election of directors.
There is no right of cumulative voting.
PREFERRED STOCK
The Exchange is not authorized to issue preferred stock.
The MIIX Group Board of Directors is authorized, subject to any limitations
prescribed by law, without further action by stockholders, to issue up to
50,000,000 shares of Preferred Stock from time to time in one or more series
and, with respect to each series, to determine the terms thereof, including the
number of shares, dividend rates, redemption rights, conversion rights, voting
rights and rights on liquidation. See "Description of Capital Stock -- Preferred
Stock." Because The MIIX Group Board of Directors has the power to establish the
preferences, powers and rights of each series, it may afford the holders of any
particular series of Preferred Stock preferences, powers and rights (including
dividend rights, voting powers and liquidation preferences) senior to the rights
of the holders of Common Stock. No shares of Preferred Stock will be outstanding
immediately following the Reorganization and the Offerings, and The MIIX Group
has no immediate plans to issue any series of Preferred Stock. The issuance of a
series of Preferred Stock could, depending on the terms of such series, have the
effect of discouraging, delaying or preventing a third party from acquiring or
proposing to acquire a majority of the outstanding voting stock of The MIIX
Group. See "Description of Capital Stock -- Delaware Law and Certain Charter and
By-law Provisions."
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LIMITED LIABILITY
The liability of a member is generally limited to the premiums accrued
under the current policies of insurance issued by the Exchange to such member,
so long as a statutory minimum surplus is maintained. The liability of holders
of Common Stock is generally limited to the value of the Common Stock held by
the holder.
REMOVAL OF GOVERNORS/DIRECTORS
The Exchange's Rules and Regulations are silent as to the removal of
Governors. The MIIX Group's Certificate of Incorporation provides that directors
can be removed from office only for cause by a majority of the voting power of
the then outstanding shares of stock entitled to vote generally in the election
of directors.
BUSINESS COMBINATIONS
The Rules and Regulations of the Exchange state that the Board of Governors
may liquidate the Exchange only with the affirmative vote of two-thirds of the
members. The Rules and Regulations are silent with respect to business
combinations such as mergers and consolidations.
The Delaware General Corporation Law (the "DGCL") generally requires that a
majority of the stockholders approve a merger or consolidation or the sale,
lease or exchange of all or substantially all of a corporation's property and
assets. The DGCL contains additional restrictions where such action or
transaction is with, or proposed by or on behalf of, an "Interested Stockholder"
(defined generally as a person owning 15% or more of The MIIX Group's
outstanding voting stock). See "-- Anti-takeover Provisions" and "Description of
Capital Stock -- Delaware Law and Certain Charter and Bylaw Provisions."
ANTI-TAKEOVER PROVISIONS
The Board of Governors is divided into three classes of directors, serving
staggered three-year terms. As a result, one-third of the Board of Governors is
elected each year. This classified board provision could delay a majority of
members who do not like the policies of the Board of Governors from replacing a
majority of the Board of Governors for two years.
The MIIX Group Board is divided into three classes of directors, serving
staggered terms expiring in 1999, 2000 and 2001 and thereafter three-year terms.
The classified board provisions could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to gain control of The
MIIX Group. The Certificate of Incorporation and Bylaws of The MIIX Group also
contain certain provisions that may delay, defer or prevent a change of control
of The MIIX Group and make removal of management more difficult. These
provisions are intended to (i) enhance the likelihood of continuity and
stability in the composition of The MIIX Group Board of Directors and in the
policies formulated by The MIIX Group Board, (ii) discourage certain types of
transactions which may involve an actual or threatened change of control of The
MIIX Group, (iii) reduce the vulnerability of The MIIX Group to an unsolicited
proposal for a takeover that does not contemplate the acquisition of all its
outstanding shares or an unsolicited proposal for the restructuring or sale of
all or part of The MIIX Group, and (iv) discourage certain tactics that may be
used in proxy fights.
In addition, the issuance of shares of Preferred Stock by The MIIX Group
(or the issuance of rights to purchase such shares) could be used to discourage
an unsolicited acquisition proposal. For instance, the issuance of a series of
Preferred Stock might impede a business combination by including class voting
rights that would enable the holders to block such a transaction. Also, under
certain circumstances, the issuance of Preferred Stock could adversely affect
the voting power of the holders of Common Stock.
The MIIX Group is a Delaware corporation and is subject to the provisions
of Section 203 of the DGCL. In general, Section 203 prevents an Interested
Stockholder from engaging in a "business combination" (as defined in Section
203) with The MIIX Group for three years following the date that person became
an interested stockholder, subject to certain exceptions.
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The provisions described in "-- Meetings and Actions" and "-- Removal of
Governors/Directors," together with the ability of The MIIX Group Board to
authorize the issuance of Preferred Stock without further stockholder action,
could delay or frustrate the removal of incumbent directors or the assumption of
control of The MIIX Group by the holder of a large block of Common Stock. These
provisions could also discourage or make more difficult a merger, tender offer
or proxy contest even if a majority of the stockholders might consider such
event to be in their best interest. See "Description of Capital
Stock -- Delaware Law and Certain Charter and By-law Provisions."
ACTION BY WRITTEN CONSENT
The Rules and Regulations do not state whether members of the Exchange may
act by written consent. Effective as of the time that the Common Stock is
registered pursuant to the Exchange Act, the Certificate of Incorporation and
the By-laws of The MIIX Group will prohibit stockholders from acting by written
consent.
MISCELLANEOUS
Neither Membership Interests in the Exchange nor Common Stock entitle their
holders to any preemptive rights, conversion rights or redemption rights.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the individuals who
currently serve as directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME POSITION CLASS
- ---- -------- -----
<S> <C> <C>
Daniel Goldberg.............................. President, Chief Executive Officer and Director III
Joseph J. Hudson............................. Executive Vice President, Marketing and N/A
Business Development
Kenneth Koreyva.............................. Executive Vice President, Chief Financial N/A
Officer and Treasurer
Lisa Kramer.................................. Vice President, Claims N/A
Ronald Wade.................................. Vice President, Underwriting N/A
Angelo S. Agro, M.D. ........................ Director III
Hillel M. Ben-Asher, M.D. ................... Director III
Harry M. Carnes, M.D. ....................... Director III
Andrew Coronato, M.D. ....................... Director I
Palma E. Formica, M.D. ...................... Director II
John S. Garra, M.D. ......................... Director II
Paul J. Hirsch, M.D. ........................ Director III
Louis L. Keeler, M.D. ....................... Director II
Henry R. Liss, M.D. ......................... Director I
Arganey Lucas, Jr., M.D. .................... Director I
S. Stuart Mally, M.D. ....................... Director I
Vincent A. Maressa, Esq. .................... Director III
Murray N. Matez, D.O. ....................... Director I
Robert S. Maurer, D.O. ...................... Director II
A. Richard Miskoff, D.O. .................... Director II
Charles J. Moloney, M.D. .................... Director II
Eileen Marie Moynihan, M.D. ................. Director III
Fred M. Palace, M.D. ........................ Director I
John J. Pastore, M.D. ....................... Director I
Pascal A. Pironti, M.D. ..................... Director I
Carl Restivo, Jr., M.D. ..................... Director III
Joseph A. Riggs, M.D. ....................... Director I
Bernard Robins, M.D. ........................ Director II
Herman M. Robinson, M.D. .................... Director I
Gabriel F. Sciallis, M.D. ................... Director II
Benjamin I. Smolenski, M.D. ................. Director II
Martin L. Sorger, M.D. ...................... Director III
Bessie M. Sullivan, M.D. .................... Director III
Harvey P. Yeager, M.D. ...................... Director II
</TABLE>
The MIIX Group's Certificate of Incorporation provides for a Board of
Directors consisting of at least nine but not more than thirty-five directors.
At each succeeding Annual Meeting of stockholders following such initial
classification and election, the respective successors of each class shall be
elected for three-year terms.
Daniel Goldberg, 51, Director, President and Chief Executive Officer of the
Attorney-in-Fact, has served in each of these capacities since 1990. Mr.
Goldberg is a member of the Board of Directors of ACCRA
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Holdings Corp. and American Fidelity & Liberty Insurance Company. He is a member
of the Academy of Hospital Attorneys.
Joseph J. Hudson, 57, Executive Vice President, Marketing and Business
Development has served as Vice President of Marketing and Business Development
of the Attorney-in-Fact since 1994. Prior to that, he was a Vice President at
Alexander & Alexander, Inc. He is a member of the American Society of Hospital
Risk Managers, the Professional Liability Underwriting Society and the Society
of Chartered Property and Casualty Underwriters.
Kenneth Koreyva, 42, Executive Vice President, Chief Financial Officer and
Treasurer has served as Vice President, Chief Financial Officer and Treasurer of
the Attorney-in-Fact since 1997. From 1991 until 1997, he served as Vice
President in various capacities. Prior to that, he was a partner with the
accounting firm of Coopers & Lybrand. He is a member of the American Institute
of Certified Public Accountants.
Lisa Kramer, 52, Vice President, Claims of the Attorney-in-Fact, has served
in this capacity since 1990. She is a member of the American Bar Association,
the International Association of Defense Counsel and the Philadelphia Bar
Association.
Ronald D. Wade, 54, Vice President, Underwriting of the Attorney-in-Fact,
has served in this capacity since 1997. From 1996 until 1997 he was Senior Vice
President, Special Projects and Chief Operating Officer of ICA, a subsidiary of
P.I.E. Mutual Insurance Company. Prior to that he was Executive Vice President,
Chief Operating Officer and Assistant Secretary of Ohio Hospital Insurance
Company for more than five years. He is a member of the American Society of
Hospital Risk Managers and the Professional Liability Underwriters Association.
Angelo S. Agro, M.D., 49, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He is a physician certified by the
American Board of Otolaryngology. Dr. Agro has practiced in Voorhees, New
Jersey, for more than five years with Professional Otolaryngology Associates. He
is a member of the American Academy of Otolaryngology, the American Medical
Association, the American College of Surgeons, and the Medical Society of New
Jersey. Dr. Agro is a trustee of Camden County College and Secretary of the
Board.
Hillel M. Ben-Asher, M.D., 66, Director, has been Chairman of the Board of
Governors of the Exchange since 1988 and a member of the Board of Governors
since 1977. He has been a board-certified physician in Morristown, New Jersey,
for more than five years with Blair Medical Associates. Dr. Ben-Asher is a
Fellow of the American College of Physicians and a member of the American
Medical Association, the American Society of Internal Medicine, and the New
Jersey Society of Internal Medicine.
Harry M. Carnes, M.D., 66, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1989. He has been a physician in
Audubon, New Jersey, for more than five years. Dr. Carnes is a member of the
American Academy of Family Practice, the Camden City Medical Society, and the
Medical Society of New Jersey.
Andrew Coronato, M.D., 58, Director, has been a member of the Board of
Governors of the Exchange since 1991. He has been a board-certified physician in
Westfield, New Jersey, for more than five years with Medical Diagnostic
Association, P.A. Dr. Coronato is a Fellow of the American College of
Gastroenterology and American College of Physicians. He is a member of the
American Gastroenterologic Association and the Medical Society of New Jersey.
Palma E. Formica, M.D., 70, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1982. She has been a board-certified
physician in New Brunswick, New Jersey, for more than five years with St.
Peter's Medical Center and a Professor of Clinical Family Medicine at the
University of Medicine and Dentistry of New Jersey (UMDNJ) Robert Wood Johnson
Medical School. Dr. Formica is a member of the Academy of Medicine of New
Jersey, the American Academy of Family Physicians, the American College of
Physician Executives, the American Medical Association, the American Medical
Political Action Committee, the Medical Society of New Jersey, the Middlesex
County Medical Society, the New Jersey Academy of Family Physicians, and the
Organization of Medical Society Presidents.
71
<PAGE> 75
John S. Garra, M.D., 58, Director, has been a member of the Board of
Governors of the Exchange since 1992. He has been a board-certified physician in
Collingswood, New Jersey, for more than five years. Dr. Garra is a member of the
American College of Obstetricians and Gynecologists, the American College of
Surgeons, the American Fertility Society, the Medical Society of New Jersey, and
the New Jersey Society of Surgeons.
Paul J. Hirsch, M.D., 60, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
physician in Bridgewater, New Jersey, for more than five years with BioSport
Orthopedics & Sports Medicine. Dr. Hirsch is a member of the American Academy of
Orthopedic Surgeons, the American Orthopaedic Association, the American College
of Surgeons, the Arthroscopy Association of North America, the American Medical
Association, and the Medical Society of New Jersey. He currently serves on the
Boards of Trustees for Raritan Valley Community College, the Journal of Bone and
Joint Surgery and the Academy of Medicine of New Jersey. Dr. Hirsch is a
clinical professor of orthopedic surgery at Seton Hall School of Graduate
Medical Education.
Louis L. Keeler, M.D., 65, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1994. He has been a board-certified
physician in Haddon Heights, New Jersey, for over five years. Dr. Keeler is a
member of the American Medical Association, the American Urological Association,
and the Medical Society of New Jersey.
Henry R. Liss, M.D., 73, Director, has been a member of the Board of
Governors of the Exchange since 1977. He has been a board-certified physician in
Summit, New Jersey, for more than five years as a neurosurgery consultant. Dr.
Liss is a member of the American Association of Neurological Surgeons, the
American Medical Association, the American Society of Military Surgeons, and the
Congress of Neurosurgeons.
Arganey Lucas, Jr., M.D., 70, Director, has been a member of the Board of
Governors of the Exchange since 1987. He is a retired board-certified
anesthesiologist. Dr. Lucas is a member of the Academy of Medicine, the American
Medical Association, the American Society of Anesthesiologists, the Medical
Society of New Jersey, the National Medical Association, the New Jersey State
Society of Anesthesiologists, the North Jersey Medical Society, and the Morris
County Medical Society.
S. Stuart Mally, M.D., 72, Director, has been a member of the Board of
Governors of the Exchange since 1990. He has been a board-certified physician in
Atlantic City, New Jersey, for more than five years. Dr. Mally is a fellow of
the American College of Surgeons and a member of the Medical Society of New
Jersey and the Society of Surgeons of New Jersey. Dr. Mally is a former
President of the New Jersey Society of Surgeons and the New Jersey Chapter,
American College of Surgeons.
Vincent A. Maressa, Esq., 56, Director, has been Chairman of the Board of
Directors of the Attorney-in-Fact since 1990 and a member of the Board of
Directors of the Attorney-in-Fact since 1977. He has been the Executive Director
and General Counsel of the Medical Society of New Jersey since 1973. Mr. Maressa
is a member of the American Bar Association, the American Society of Medical
Executives, and the Mercer County Bar Association.
Murray N. Matez, D.O., 70, Director, has been a member of the Board of
Governors of the Exchange since 1979. He has been a board-certified physician in
Camden, New Jersey, for more than five years. Dr. Matez has been a physician at
Lourdes Medical Associates, P.A. since 1996. Prior to that, Dr. Matez was a solo
practitioner. He is a member of the American College of Osteopathic Family
Physicians, the American Osteopathic Association, the Camden County Society of
Osteopathic Physicians and Surgeons and the New Jersey Chapter of American
College of Osteopathic Family Physicians. Dr. Matez is also a member and a
former President of the New Jersey Association of Osteopathic Physicians and
Surgeons.
Robert S. Maurer, D.O., 65, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1977. He has been a board-certified
physician in Stratford, New Jersey, for more than five years. Dr. Maurer has
been an Associate Professor of Clinical Family Medicine at UMDNJ-SOM since 1992.
He is a member of the American Osteopathic Association, the American Osteopathic
College of Family Practition-
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<PAGE> 76
ers, the American Osteopathic College of Rheumatology, the Middlesex County
Osteopathic Society, and the New Jersey Association of Osteopathic Surgeons and
Physicians.
A. Richard Miskoff, D.O., 56, Director, has been a member of the Board of
Governors of the Exchange since 1994. He has been a board-certified physician in
Edison, New Jersey, for more than five years. Dr. Miskoff is a member of the
American Osteopathic Association, the American Society of Clinical Oncologists,
the American Society of Hematology, and the New Jersey Association of
Osteopathic Physicians.
Charles J. Moloney, M.D., 64, Director, has been a member of the Board of
Governors of the Exchange since 1979. He has been a board-certified physician in
Moorestown, New Jersey, for more than five years. Dr. Moloney is a member of the
American Academy of Pediatrics and the Medical Society of New Jersey.
Eileen Marie Moynihan, M.D., 45, Director, has been a member of the Board
of Governors of the Exchange since 1995. She has been a board-certified
rheumatologist in Woodbury, New Jersey for more than five years. Dr. Moynihan
has also been Medical Director of the Eastern District Office for XACT Medicare
(Highmark Inc.) since 1988. She is a member of the Academy of Medicine of New
Jersey, the American College of Rheumatology, the American Medical Association,
the Camden County Medical Society and the New Jersey Rheumatism Association. Dr.
Moynihan is also a member and treasurer of the Medical Society of New Jersey.
Fred M. Palace, M.D., 62, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
radiologist in Morristown, New Jersey, for more than five years with Morris
Imaging Assoc., P.A. Dr. Palace is a member of the Medical Society of New
Jersey.
John J. Pastore, M.D., 71, Director, has been a member of the Board of
Governors of the Exchange since 1977. He has been a board-certified physician in
Vineland, New Jersey, for more than five years. Dr. Pastore is a member of the
American Academy of Family Physicians, the American Medical Association, the
Geriatric Society, and the Medical Society of New Jersey.
Pascal A. Pironti, M.D., 64, Director, has been a member of the Board of
Governors of the Exchange since 1982. He has been a board-certified urologist in
Summit, New Jersey, for more than five years. Dr. Pironti is a member of the
American College of Surgeons, the American Medical Association, the American
Urological Association, the Medical Society of New Jersey, and the Society of
Clinical Urologists.
Carl Restivo, Jr., M.D., 52, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1997. He has been a board-certified
physician in Jersey City, New Jersey, for more than five years. Dr. Restivo is a
Delegate for the New Jersey Chapter of the American Medical Association and a
past president of the Arthritis Foundation. He is a past president of the
Medical Society of New Jersey.
Joseph A. Riggs, M.D., 64, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
physician in Haddon Heights, New Jersey, for more than five years. Dr. Riggs is
a member of the American Medical Association, the Camden County Medical Society,
the Medical Society of New Jersey, the New Jersey Obstetrics and Gynecology
Society, and the American College of Obstetricians and Gynecologists.
Bernard Robins, M.D., 70, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
physician in Tewksbury Township, New Jersey, for more than five years. Dr.
Robins is a member of the Medical Society of New Jersey.
Herman M. Robinson, M.D., 64, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
radiologist in Millburn, New Jersey, for more than five years. Dr. Robinson is a
member of the American College of Radiology, the American Medical Association,
the Medical Society of New Jersey, and the Radiology Society of New Jersey.
Gabriel F. Sciallis, M.D., 54, Director, has been a member of the Board of
Governors of the Exchange since 1979. He has been a board-certified physician in
Mercerville, New Jersey, for more than five years. He is
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<PAGE> 77
a member of the American Academy of Dermatology, the Dermatology Society of New
Jersey, the Medical Society of New Jersey, and the Mercer County Medical
Association.
Benjamin I. Smolenski, M.D., 58, Director, has been a member of the Board
of Governors of the Exchange since 1990. He has been a board-certified
orthopedic surgeon in Mount Laurel, New Jersey, for more than five years with
Smolenski Brill Hagren & Schwartz P.A. Dr. Smolenski is a member of the American
Academy of Orthopedic Surgery, the American College of Surgeons, Eastern
Orthopedic, the Medical Society of New Jersey, and the Philadelphia Orthopaedic
Society.
Martin L. Sorger, M.D., 63, Director, has been a member of the Board of
Governors of the Exchange since 1979. He has been a board-certified orthopedic
physician in Glen Ridge, New Jersey, and a member of the Montclair Orthopedic
Group for more than five years. Dr. Sorger is a member of the Alumni Council
Columbia Medical School, the American Academy of Orthopedic Surgeons, the
American College of Surgeons and a former member of its Board of Councilors, and
the American Medical Association. He is a former president of the New Jersey
Orthopedic Society and a member of its executive committee.
Bessie M. Sullivan, M.D., 56, Director, has been a member of the Board of
Governors of the Exchange since 1992. She has been a board-certified physician
in Edison, New Jersey, for more than five years with the Arthritis, Allergy &
Immunology Center. Dr. Sullivan is a member of the American Medical Association,
the American Rheumatism Association, the New Jersey Medical Society, and the
Union City Medical Society.
Harvey P. Yeager, M.D., 64, Director, has been a member of the Board of
Governors of the Exchange since 1985. He has been a board-certified
otolaryngologist-head and neck surgeon in West Orange, New Jersey, for more than
five years. Dr. Yeager is a member of the American Academy of Otolaryngology,
the American Society of Head and Neck Surgery and the Medical Society of New
Jersey. He is a former president of the New Jersey Academy of Ophthalmology and
Otolaryngology and a former member of the Board of Directors of Physicians
Insurers Associates of American (PIAA).
COMMITTEES OF THE MIIX GROUP, INCORPORATED
The MIIX Group Board has the following standing committees:
Executive Committee. The Executive Committee has the authority to exercise
all powers of The MIIX Group Board between meetings of The MIIX Group Board,
except as provided by the Certificate of Incorporation or the By-laws of The
MIIX Group, or by applicable law. The Executive Committee consists of four
members, Messrs. Goldberg and Maressa, and Drs. Ben-Asher and Hirsch.
Audit Committee. The Audit Committee meets periodically with the Company's
management and independent auditors to discuss the scope of the annual audit,
internal control, and financial reporting matters. The Company's independent
auditors have direct access to the Audit Committee. The Audit Committee consists
of three members, all of whom are independent directors. The members of the
Audit Committee are Drs. Agro, Carnes and Sullivan.
Compensation Committee. The Compensation Committee sets the compensation
of the Company's directors and executive officers. The Compensation Committee
has five members consisting of Mr. Maressa and Drs. Agro, Ben-Asher, Hirsch and
Liss.
The MIIX Group Board may from time to time establish certain other
committees to facilitate the management of The MIIX Group.
DIRECTOR COMPENSATION
Following the Reorganization, directors will receive the following fees.
The Chairman will receive an annual stipend of $35,000, the Vice-Chairman will
receive an annual stipend of $20,000, the Secretary will receive an annual
stipend of $20,000, the Chairman of the Audit Committee will receive an annual
stipend of $25,000, the Chairman of any other committee will receive an annual
stipend of $16,000, and other members of the Board will receive an annual
stipend of $14,000. Board members will not receive travel expense reimbursement
for meetings held in New Jersey.
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<PAGE> 78
In 1991, the Company invested in a number of corporate owned life insurance
policies insuring the lives of members of the Board of Governors, the Board of
Directors of the Attorney-in-Fact and committee members of such Boards. The
proceeds of such policies were payable to the Company. Under a separate Board
Members Plan the beneficiaries of such members were entitled to death benefit
payments from the Company over a ten-year period. On July 15, 1998, the Company
terminated such Board Members Plan.
EXECUTIVE COMPENSATION
The MIIX Group was organized as a Delaware corporation in October, 1997,
and consequently did not pay any cash compensation to its executive officers for
the year ended December 31, 1997. The following Summary Compensation Table sets
forth information concerning the compensation by the Company of (i) the
Company's President and Chief Executive Officer and (ii) the four other most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers"), for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION(S) SALARY BONUS
------------------------------ -------- -------
<S> <C> <C>
Daniel Goldberg, President and Chief Executive Officer...... $433,750(1) $76,000
Joseph J. Hudson, Executive Vice President, Marketing and
Business Development...................................... 200,000 33,000
Kenneth Koreyva, Executive Vice President, Chief Financial
Officer and Treasurer..................................... 225,000 49,500
Lisa Kramer, Vice President, Claims......................... 225,000 24,000
Ronald Wade, Vice President, Underwriting................... 179,400 26,000
</TABLE>
- ---------------
(1) Includes $78,750 of deferred compensation paid in 1997.
EMPLOYMENT AGREEMENTS
The Attorney-in-Fact has in effect Employment Agreements dated as of
, 1998 ("Employment Agreements") with each of Messrs. Goldberg,
Koreyva and Hudson. Each Employment Agreement is for a three year term. Mr.
Goldberg's Employment Agreement provides for a base salary of $430,000 per
annum, Mr. Koreyva's Employment Agreement provides for a base salary of $275,000
per annum and Mr. Hudson's Employment Agreement provides for a base salary of
$250,000 per annum. Bonuses are payable at the discretion of the Board of
Directors of the Attorney-in-Fact. In the event of a termination of employment,
severance pay including up to three years' salary (in the case of Mr. Goldberg)
or two years' salary (in the case of Messrs. Koreyva and Hudson) is payable
under certain circumstances.
The Attorney-in-Fact is party to an employment agreement dated as of August
1, 1990, with Ms. Kramer. This is currently a year-to-year agreement. Ms.
Kramer's current compensation under such agreement is $225,000 per annum. If Ms.
Kramer's employment is terminated without cause, the Attorney-in-Fact is
required to pay Ms. Kramer's salary and benefits through the end of the term of
the Agreement, reduced by the amount of any compensation received by Ms. Kramer
from other employment.
The Attorney-in-Fact is party to an employment agreement dated as of
November 1, 1997 with Mr. Wade. This agreement is for a two year term. Mr.
Wade's base salary per annum under this agreement is $179,400. If Mr. Wade's
employment is terminated without cause, the Attorney-in-Fact is required to pay
Mr. Wade's salary and benefits for 12 months or, if earlier, until Mr. Wade
obtains full-time employment with another employer. If Mr. Wade's employment is
terminated prior to November 1, 1999, he is entitled to receive the greater of
(i) the amount determined in accordance with the preceding sentence and (ii) his
salary and benefits payable through November 1, 1999.
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<PAGE> 79
STOCK PURCHASE AND LOAN AGREEMENTS
Upon the closing of the Reorganization, the Company intends to enter into
Stock Purchase and Loan Agreements with each of Messrs. Goldberg, Koreyva and
Hudson. The purpose of these agreements is to align more closely the interests
of such officers with the interests of the Company's stockholders. Pursuant to
such agreements, the Company will loan $1,290,000 to Mr. Goldberg, $550,000 to
Mr. Koreyva and $500,000 to Mr. Hudson. The proceeds of such loans will be used
to purchase unregistered shares of Common Stock from the Company at the Public
Offering Price, and the interest rate charged therefor will be the minimum rate
necessary to avoid income imputation under the Code as of the date of the
closing of the Reorganization. Although the purchased shares will be pledged to
the Company to secure the applicable loan, each loan will be made with full
recourse against the applicable executive. Each loan has a five-year term.
COMPENSATION PLANS
Long Term Incentive Equity Plan.
The MIIX Group has adopted, and the Exchange as its sole stockholder has
approved, the 1998 Long Term Incentive Equity Plan (the "Incentive Plan"). Any
officer or key employee of The MIIX Group who is nominated by the Chief
Executive Officer of The MIIX Group and approved by the committee designated by
The MIIX Group's Board of Directors to administer the Plan (the "Committee")
will be eligible to receive awards under the Incentive Plan. Awards under the
Incentive Plan may be in the form of incentive stock options, non-qualified
options, stock appreciation rights ("SARs"), performance shares, restricted
stock, dividend equivalents or any combination thereof.
A maximum of 2,250,000 shares of Common Stock will be available for awards
during the term of the Incentive Plan. The maximum number of shares of Common
Stock that may be awarded to any employee under the Incentive Plan during any
calendar year shall not exceed 250,000. These limitations may be adjusted in the
event of a stock split, recapitalization, merger or similar event.
The price per share at which Common Stock may be purchased upon exercise of
an option granted under the Incentive Plan shall not be less than the fair
market value of a share of Common Stock on the date of grant. In the case of an
incentive stock option granted to a person owning more than 10% of the combined
voting power of all classes of stock of The MIIX Group (a "Ten Percent
Stockholder"), the option price per share shall not be less than 110% of the
fair market value of a share of Common Stock on the date of grant. An employee
who has been granted options may, at the discretion of the Committee, be
credited as of dividend payment dates that occur during the option period with
dividend equivalents that may be converted into Common Stock or cash at such
time and subject to such limitations as may be determined by the Committee. The
Committee shall specify when an option may be exercised, but the term shall in
no event be greater than 10 years (5 years in the case of a Ten Percent
Stockholder). The Committee shall specify the option price and other conditions
of exercise. In general, options granted pursuant to the Incentive Plan
terminate upon the earliest to occur of (i) the full exercise of the option,
(ii) the expiration of the option by its terms or (iii) no more than 5 years (3
months for incentive stock options) after termination of the option holder's
employment with The MIIX Group.
An SAR must be granted in tandem with all or a portion of a related option.
An SAR may be granted either at the time of the grant of the option or at a
later time during the term of the option and shall be exercisable only to the
extent that the underlying option is exercisable. The base price of an SAR shall
be the option price under the related option. An SAR shall entitle the employee
to surrender unexercised the related option (or any portion of such option) and
to receive a payment equal to the excess of the fair market value of the shares
of Common Stock covered by the SAR on the date of exercise over the base price
of the SAR. Such payment may be in cash, in shares of Common Stock, in shares of
restricted stock, or any combination thereof, as the Committee shall determine.
Upon exercise of an SAR, the related option shall be canceled automatically to
the extent of the number of shares of Common Stock covered by such exercise, and
such shares shall no longer be available for purchase under the option.
Conversely, if the related option is exercised as to some or all of the shares
of Common Stock covered by the grant, the related SAR, if any, shall be canceled
automatically to the extent of the number of shares of Common Stock covered by
the option
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<PAGE> 80
exercise. As a general matter, SARs are governed by the same rules regarding
term and termination as stock options.
An award of restricted stock is a grant by The MIIX Group of a specified
number of shares of Common Stock that are subject to forfeiture upon the
happening of specified events. The Committee may establish the terms of a
restricted stock award. Under certain conditions to be determined by the
Committee, restricted stock is subject to forfeiture upon termination of an
employee's employment.
The Committee may also grant performance awards, which are conditional
grants of Common Stock or cash which vest upon the attainment of certain goals.
An employee who has been granted performance awards may, at the discretion of
the Committee, be credited as of dividend payment dates that occur during the
performance period with dividend equivalents that may be converted into Common
Stock or cash at such time and subject to such limitations as may be determined
by the Committee. Under certain conditions to be determined by the Committee,
performance awards are subject to forfeit upon termination of an employee's
employment.
Upon a change of control of The MIIX Group, unless the Board of Directors
of The MIIX Group determines that awards may be assumed by the successor
corporation, (i) at the discretion of the Board of Directors of The MIIX Group
either all options shall become immediately exercisable or shall be canceled in
exchange for a cash payment equal to the excess of the fair market value of the
underlying common stock over the exercise price of the option and (ii) all
restricted stock and performance awards shall become nonforfeitable and
immediately payable in cash.
401(k) Plan. Following the Reorganization, the Company will assume the
401(k) Plan from the Attorney-in-Fact. The 401(k) Plan offers eligible employees
of the Company an opportunity to contribute to the 401(k) Plan on a regular
basis through payroll deductions in amounts equal to but not greater than 15% of
their compensation. The 401(k) Plan's benefits are based on amounts contributed
and individual account investment performance. All employees of the Company who
are over age 21 years and have completed one year of service with the Company
are eligible to participate in the 401(k) Plan.
The Company matches 50% of an employee's contribution to the 401(k) Plan up
to 6% of such employee's compensation. The amount of matching contributions made
by the Company for the fiscal years ended December 31, 1997, 1996, and 1995 were
$258,324, $256,291 and $238,485, respectively. In addition, the Company may make
discretionary contributions to the 401(k) Plan to be allocated among the
employees' accounts on the basis of their relative levels of compensation.
Pension Benefits. Following the Reorganization, the Company will assume
from the Attorney-in-Fact a retirement plan (the "Retirement Plan") that
provides pensions for substantially all employees of The MIIX Group. The
Retirement Plan is an employee non-contributory, tax-qualified defined benefit
plan that provides each covered employee with a basic annual benefit at normal
retirement (age 65) equal to 1.5% of the employee's highest five year average
basic compensation, plus .59% of such average compensation in excess of $10,000,
times years of service (subject to applicable law limitations on the amount of
earnings which may be considered for benefit accrual purposes under tax
qualified plans) with the Company. Covered employees attaining age 21 and having
completed one year of service are eligible to participate in the Retirement
Plan. Benefits vest after five years of service.
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<PAGE> 81
The following table sets forth the estimated maximum annual benefits
payable under the Retirement Plan to a Company officer or employee retiring at
age 65 with the specified combination of final average compensation and years of
credited service:
ESTIMATED ANNUAL BENEFIT YEARS OF CREDITED SERVICE AT AGE 65
<TABLE>
<CAPTION>
AVERAGE
COMPENSATION 10 15 20 25 30 35 40
- ------------ ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000 $25,535 $38,303 $51,070 $63,838 $76,605 $ 89,373 $ 98,748
150,000 30,760 46,140 61,520 76,900 92,280 107,660 118,910
160,000+* 32,850 49,275 65,700 82,125 98,550 114,975 126,975
</TABLE>
- ---------------
* The Internal Revenue Code does not permit more than $160,000 in annual
compensation to count towards the determination of benefits under the pension
plan.
The amounts shown in the table are straight life annuities payable under
the Retirement Plan without reduction for the joint and survivor annuity.
Retirement benefits listed in the table are not subject to any deduction for
Social Security benefits.
The earnings subject to the retirement plans for each of the executive
officers in the Summary Compensation Table is determined from the compensation
amounts shown under "Salary," but not the amounts shown under "Bonus." As of
December 31, 1997, the years of service of Mr. Goldberg, Mr. Hudson, Mr.
Koreyva, Ms. Kramer and Mr. Wade are eight years, four years, seven years, eight
years, and one year, respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Attorney-in-Fact leases 49,000 square feet for its home office and
Mid-Atlantic Region office from the Medical Society pursuant to a lease
agreement dated June 29, 1981. Annual lease payments are approximately $770,000.
The Attorney-in-Fact has informed the Company that it believes the lease
payments made to the Medical Society were not materially different from the
rental that would have been charged by a non-affiliated person in an
arm's-length transaction. The Company held a note receivable of $3.2 million and
$3.0 million, included in other assets, at December 31, 1996 and 1997,
respectively, from the Medical Society, collateralized by the building in which
the Company maintains its home office. The note provides for monthly payments of
$40,000, which includes interest at 9.05% until September 1, 2004 and reduced
payments thereafter until June 1, 2009.
A majority of the members of The MIIX Group Board of Directors are also
policyholders and Distributees and are eligible to subscribe in the Subscription
Offering. Such directors may experience claims requiring coverage under their
respective policies with the Company.
Mr. Goldberg is the chief executive officer of AMM. New Jersey State
Medical Underwriters Inc. manages the business of AMM. In 1997, AMM paid New
Jersey State Medical Underwriters Inc. $360,000 for such management services.
The Company leases its headquarter space from the Medical Society. Vincent A.
Maressa, a director of the Medical Society, will be one of the initial directors
of the Company upon consummation of the Reorganization.
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<PAGE> 82
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of the closing of the Offering by (i) each person
who will own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director and executive officer named in the Summary
Compensation Table and (iii) all directors and executive officers of The MIIX
Group as a group. The number of shares of Common Stock beneficially owned by
each director and executive officer represents the number of shares each
director and certain persons and entities affiliated with each director and
executive officer will receive as members of the Exchange pursuant to the
Reorganization, and the number of shares that each director and executive
officer has indicated that he or she intends to purchase in the Subscription
Offering. This estimate does not include any shares which any director or
executive officer may purchase in the Public Offering. Except as noted below,
each holder listed below will have sole investment and voting power with respect
to the shares beneficially owned by the holder.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES TO BE
TO BE BENEFICIALLY
BENEFICIALLY ACQUIRED IN THE PERCENT
ACQUIRED IN THE SUBSCRIPTION OF
NAME REORGANIZATION OFFERING CLASS
- ---- ---------------- ---------------- -------
<S> <C> <C> <C>
Daniel Goldberg.................................... 0 0** *
Joseph J. Hudson................................... 0 0** *
Kenneth Koreyva.................................... 0 0** *
Lisa Kramer........................................ 0 ** *
Ronald Wade........................................ 0 0** *
Angelo S. Agro, M.D. .............................. 2,103 *
Hillel M. Ben-Asher, M.D. ......................... 980 *
Harry M. Carnes, M.D. ............................. 586 *
Andrew Coronato, M.D. ............................. 1,427 *
Palma E. Formica, M.D. ............................ 405 *
John S. Garra, M.D. ............................... 4,093 *
Paul J. Hirsch, M.D. .............................. 3,256 *
Louis L. Keeler, M.D. ............................. 1,986 *
Henry R. Liss, M.D. ............................... 359 *
Arganey Lucas, Jr., M.D. .......................... 766 *
S. Stuart Mally, M.D. ............................. 1,727 *
Vincent A. Maressa, Esq. .......................... 0 *
Murray N. Matez, D.O. ............................. 616 *
Robert S. Maurer, D.O. ............................ 95 *
A. Richard Miskoff, D.O. .......................... 589 *
Charles J. Moloney, M.D. .......................... 588 *
Eileen Marie Moynihan, M.D. ....................... 815 *
Fred M. Palace, M.D. .............................. 1,291 *
John J. Pastore, M.D. ............................. 803 *
Pascal A. Pironti, M.D. ........................... 1,758 *
Carl Restivo, Jr., M.D. ........................... 451 *
Joseph A. Riggs, M.D. ............................. 562 *
Bernard Robins, M.D. .............................. 745 *
Herman M. Robinson, M.D. .......................... 1,227 *
Gabriel F. Sciallis, M.D. ......................... 703 *
Benjamin I. Smolenski, M.D. ....................... 3,207 *
Martin L. Sorger, M.D. ............................ 3,468 *
</TABLE>
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<PAGE> 83
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES TO BE
TO BE BENEFICIALLY
BENEFICIALLY ACQUIRED IN THE PERCENT
ACQUIRED IN THE SUBSCRIPTION OF
NAME REORGANIZATION OFFERING CLASS
- ---- ---------------- ---------------- -------
<S> <C> <C> <C>
Bessie M. Sullivan, M.D. .......................... 1,117 *
Harvey P. Yeager, M.D. ............................ 2,287 *
All directors and executive officers as a group (34
persons)......................................... 37,915
</TABLE>
- ---------------
* Less than 1%
** Pursuant to separate Stock Purchase and Loan Agreements to be entered into
as of the Closing Date between the Company and each of Messrs. Goldberg,
Hudson and Koreyva, Mr. Goldberg will purchase approximately 66,000 shares
of Common Stock based on the Assumed Price, Mr. Hudson will purchase
approximately 26,000 shares of Common Stock based on the Assumed Price and
Mr. Koreyva will purchase approximately 28,000 shares of Common Stock based
on the Assumed Price. See "Management -- Stock Purchase and Loan
Agreements." In addition, on the Closing Date, Mr. Goldberg will be granted
options to purchase 175,000 shares of Common Stock, of which 43,750 will be
immediately exercisable, Mr. Hudson will be granted options to purchase
60,000 shares of Common Stock, of which 15,000 will be immediately
exercisable, Mr. Koreyva will be granted options to purchase 80,000 shares
of Common Stock, of which 20,000 will be immediately exercisable, Ms. Kramer
will be granted options to purchase 10,000 shares of Common Stock, of which
2,500 will be immediately exercisable, and Mr. Wade will be granted options
to purchase 5,000 shares of Common Stock, of which 1,250 will be immediately
exercisable. None of the options that will not be immediately exercisable
upon grant will become exercisable within 60 days of the date of grant. The
shares to be purchased pursuant to the Stock Purchase and Loan Agreements,
and the immediately exercisable options, are included under the total
ownership shown for "All directors and executive officers as a group" above.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of The MIIX Group as of the completion of the
Reorganization will consist of 100,000,000 shares of Common Stock, $.01 par
value, and 50,000,000 shares of Preferred Stock, $.01 par value. Upon completion
of the Reorganization and the Offerings, there will be approximately
million shares ( million shares if the Underwriters' over-allotment option
is exercised in full) of Common Stock issued and outstanding and no shares of
Preferred Stock issued and outstanding.
The following description of the capital stock of The MIIX Group does not
purport to be complete or to give full effect to Delaware statutory or common
law and is, in all respects, qualified by reference to the applicable provisions
of the DGCL, the Certificate of Incorporation of The MIIX Group (the
"Certificate") and The MIIX Group By-laws (the "By-laws").
COMMON STOCK
Holders of Common Stock are entitled to such dividends and other
distributions as The MIIX Group Board may declare from funds legally available
therefor, subject to the preferential rights of Preferred Stock, if any, and the
requirements of applicable law. Holders of Common Stock are entitled to one vote
per share on any matter subject to stockholder approval, including the election
of directors. The Certificate does not provide for cumulative voting in
connection with the election of directors. No holder of Common Stock will have
any preemptive right to subscribe for any shares of capital stock issued in the
future. The rights, preferences and powers of holders of Common Stock are
subject to the rights of the holders of any series of preferred stock that The
MIIX Group may issue in the future.
Upon any voluntary or involuntary liquidation, dissolution, or winding up
of the affairs of the Company, the holders of Common Stock are entitled to share
ratably in any distribution of the Company's net assets remaining after payment
of creditors and subject to preferential rights of the holders of Preferred
Stock, if any. All of the outstanding shares of Common Stock are, and the shares
offered by the Company and the selling shareholders will be, fully paid and
non-assessable.
PREFERRED STOCK
Pursuant to the Certificate, The MIIX Group Board may by resolution
establish one or more classes or series of Preferred Stock having such number of
shares and relative voting rights, designation, dividend rates, liquidation, and
other rights, preferences, and limitations as may be fixed by The MIIX Group
Board without further stockholder approval. Preferred Stock may be entitled to
preferences over Common Stock with respect to dividends, liquidation,
dissolution, or winding up of the Company in such amounts as are established by
The MIIX Group Board resolutions issuing such shares. Preferred Stock may also
enjoy redemption or sinking fund rights or voting rights (including the right to
vote as a class with respect to the election of directors, major corporate
transactions, or otherwise) that may limit, qualify, or otherwise adversely
affect the voting rights of the Common Stock.
Such rights, preferences, privileges, and limitations as may be established
for the Preferred Stock could also have the effect of delaying, deferring, or
preventing a change in control of the Company, making removal of the present
management of the Company more difficult, restricting the payment of dividends
and other distributions to the holders of Common Stock, diluting the voting
power of the Common Stock to the extent that the Preferred Stock has voting
rights, or diluting the equity interests of the Common Stock to the extent that
the Preferred Stock is convertible into Common Stock. Accordingly, the issuance
of Preferred Stock may be used as an "anti-takeover" device without further
action on the part of the stockholders of The MIIX Group. See "-- Delaware Law
and Certain Charter and By-law Provisions."
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DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The following is a description of certain provisions of the DGCL, the
Certificate, and the By-laws. This summary does not purport to be complete and
is qualified in its entirety by reference to the DGCL, the Certificate, and the
By-laws.
The MIIX Group is subject to the provisions of Section 203 of the DGCL.
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless the business combination is approved
in a prescribed manner. A "business combination" includes certain mergers, asset
sales, and other transactions resulting in a financial benefit to the
"interested stockholder." Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15% of the corporation's voting stock.
Certain provisions of the Certificate and the By-laws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the policies formulated by The
MIIX Group Board. In addition, these provisions also are intended to ensure that
The MIIX Group Board will have sufficient time to act in a manner that The MIIX
Group Board believes to be in the best interests of the MIIX Group and its
stockholders. These provisions also are designed to reduce the vulnerability of
The MIIX Group to an unsolicited proposal for a takeover of The MIIX Group that
does not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of The MIIX
Group. The provisions are also intended to discourage certain tactics that may
be used in proxy fights. These provisions, however, could delay or frustrate the
removal of incumbent directors or the assumption of control of The MIIX Group by
the holder of a large block of Common Stock and could also discourage or make
more difficult a merger, tender offer, or proxy contest, even if such event
would be favorable to the interest of stockholders.
Classified Board of Directors. The Certificate provides for The MIIX Group
Board to be divided into three classes of directors, with each class as nearly
equal in number as possible, serving staggered three-year terms (other than
directors which may be elected by holders of Preferred Stock). As a result,
approximately one-third of The MIIX Group Board will be elected each year. The
classified board provision will help to assure the continuity and stability of
The MIIX Group Board and the business strategies and policies of The MIIX Group
as determined by The MIIX Group Board. The classified board provision could have
the effect of discouraging a third party from making an unsolicited tender offer
or otherwise attempting to obtain control of The MIIX Group without the approval
of the Board. In addition, the classified board provision could delay
stockholders who do not like the policies of The MIIX Group Board from electing
a majority of The MIIX Group Board for two years.
No Stockholder Action by Written Consent; Special Meetings. The
Certificate provides that stockholder action can only be taken at an annual or
special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The By-laws provide that special meetings of
stockholders may be called only by The MIIX Group Board, the Chief Executive
Officer (or in the event of his or her absence or disability, by any Vice
President) of The MIIX Group or the Chairman or Vice Chairman of The MIIX Group
Board. Stockholders are not permitted to call a special meeting of stockholders
or to require that The MIIX Group Board call a special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The By-laws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of The MIIX Group (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that
only persons who are nominated by, or at the direction of, The MIIX Group Board
or its Chairman, or by a stockholder who has given timely written notice to the
Secretary of The MIIX Group prior to the meeting at which directors are to be
elected, will be eligible for election as directors of The MIIX Group. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, The MIIX Group Board or its Chairman or by a stockholder who has
given timely written notice
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<PAGE> 86
to the Secretary of The MIIX Group of such stockholder's intention to bring such
business before such meeting. Under the Stockholder Notice Procedure, if a
stockholder desires to submit a proposal or nominate persons for election as
directors at an annual meeting, the stockholder must submit written notice to
The MIIX Group not less than 90 days nor more than 120 days prior to the first
anniversary of the previous year's annual meeting. In the event that the date of
the annual meeting is advanced by more than 20 days or delayed by more than 70
days from such anniversary date, however, the By-laws provide additional time
for notice. In addition, under the Stockholder Notice Procedure, a stockholder's
notice to The MIIX Group proposing to nominate a person for election as a
director or relating to the conduct of business other than the nomination of
directors must contain certain specified information. If the chairman of a
meeting determines that business was not properly brought before the meeting, in
accordance with the Stockholder Notice Procedure, such business shall not be
discussed or transacted.
Number of Directors; Removal; Filling Vacancies. The Certificate and the
By-laws provide that The MIIX Group Board will consist of not less than 9 and
not more than 35 members (other than directors elected by holders of Preferred
Stock), the exact number to be fixed from time to time by resolution adopted by
the directors of The MIIX Group. The MIIX Group Board currently consists of 30
directors. Furthermore, subject to the rights of the holders of any series of
Preferred Stock, if any, the Certificate and By-laws authorize The MIIX Group
Board to elect additional directors under specified circumstances and fill any
vacancies that occur in the Board of Directors by reason of death, resignation,
removal, or otherwise. A director so elected by The MIIX Group Board to fill a
vacancy or a newly created directorship holds office until his successor is
elected and qualified or until his or her earlier death, resignation or removal.
Subject to the rights of the holders of any series of Preferred Stock, if any,
the Certificate and the By-laws also provide that directors may be removed only
for cause and only by the affirmative vote of holders of a majority of the
combined voting power of the then outstanding stock of The MIIX Group entitled
to vote generally in the election of directors. The effect of these provisions
is to preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of The MIIX Group Board by filling the vacancies
created by such removal with its own nominees.
By-laws. The Certificate provides that the By-laws are subject to
adoption, amendment, alteration, repeal, or rescission either by (i) The MIIX
Group Board without the assent or vote of the stockholders or (ii) the
affirmative vote of the holders of not less than two-thirds of the combined
voting power of the outstanding shares entitled to vote generally in the
election of directors. This provision makes it more difficult for stockholders
to make changes in the By-laws by allowing the holders of a minority of the
voting securities to prevent the holders of a majority of voting securities from
amending the By-laws.
Indemnification and Limitations on Liability. The DGCL permits a Delaware
corporation to include in its charter and bylaws certain provisions to eliminate
the personal liability of directors for monetary damages and to indemnify its
directors and officers. The By-laws provide that subject to certain exceptions
in the case of actions by or in the right of The MIIX Group, The MIIX Group
shall indemnify its directors and officers, and may indemnify its agents and
employees, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her,
incurred by reason of the fact that such person was serving as a director,
officer, employee or agent of The MIIX Group, so long as such person acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interest of The MIIX Group, and, with respect to any criminal action, so
long as the indemnified party had no reason to believe that his or her conduct
was unlawful. The Certificate provides that directors shall not be liable to The
MIIX Group or The MIIX Group's stockholders for monetary damages for breach of
his or her fiduciary duty as a director, except that liability may not be
eliminated (i) for any breach of such person's duty of loyalty, (ii) for acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction in which such person received an improper personal benefit. Section
145 (a) of the DGCL provides that a corporation may indemnify a director,
officer, employee, or agent if such person acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe the conduct was unlawful. In addition, effective upon
consummation of the
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Reorganization, The MIIX Group will enter into indemnification agreements with
each of its directors and certain of its executive officers that generally
provide for similar indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
Chicago Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Reorganization and the Offerings, the Company will
have approximately 16.4 million shares (or approximately 16.8 million shares if
the Underwriters' over-allotment option is exercised in full) of Common Stock
issued and outstanding. See "Prospectus Summary -- The Subscription Offering --
Common Stock to be Outstanding Immediately after the Reorganization and the
Offerings." All such shares of Common Stock will be freely tradable without
restriction or further registration under the Securities Act, except to the
extent that such shares are held by an affiliate of the Company. It is expected
that the Company, The MIIX Group Board and the executive officers will enter
into an agreement with the underwriters of the Public Offering not to offer,
sell, or otherwise dispose of any equity securities of the Company for a certain
number of days after the date of the Public Offering prospectus without the
prior written consent of the underwriters.
In general, Rule 144 of the Securities Act ("Rule 144"), as currently in
effect, provides that an "affiliate" (as defined in Rule 144) is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of (i) the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the sale or (ii) 1% of the shares of Common Stock
then outstanding. Sales under Rule 144 are subject to certain holding periods,
manner of sale restrictions, notice requirements, and availability of current
public information concerning the Company.
Prior to the Reorganization and the Offerings, there has been no public
market for the Common Stock and no prediction can be made as to the effect, if
any, that the sale or availability for sale of shares of Common Stock will have
on the market price of the Common Stock. Sales of substantial amounts of such
shares in the public market could adversely affect the market price of the
Common Stock.
STABILIZATION AND OTHER ACTIVITIES
IN CONNECTION WITH THE PUBLIC OFFERING
In connection with the Public Offering, representatives of the underwriters
thereof (the "Underwriters"), may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Rule 104 of Regulation M under the Exchange Act. Over-allotment involves
syndicate sales in excess of the offering size, which creates a short position
for the Underwriters. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Common Stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriters to reclaim a
selling concession from an Underwriter or a dealer when the Common Stock
originally sold by such an Underwriter or a dealer are purchased in a covering
transaction to cover syndicate short positions. Such over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Common Stock to be higher than it would otherwise be in the absence
of such transactions. These transactions, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the Common Stock to be issued pursuant to the
Reorganization and the Subscription Offering will be passed upon for the Company
by Dechert Price & Rhoads, Lawrenceville, New Jersey, counsel for the Company.
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EXPERTS
The combined financial statements and schedule of the Company at December
31, 1996 and 1997, and for each of the three years in the period ended December
31, 1997 appearing in this Prospectus and Registration Statement are included
and have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon appearing elsewhere herein and are included in reliance
upon such report given the authority of such firm as experts in accounting and
auditing.
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GLOSSARY OF SELECTED INSURANCE TERMS
ALLOCATED LOSS ADJUSTMENT EXPENSES ("ALAE")
Loss Adjustment Expenses allocated to a specific claim.
A.M. BEST
An independent rating agency that reports on the financial condition of
insurance companies.
ASSUMED PREMIUMS
Premiums arising from reinsurance policies under which the insurer accepts
a portion of the risk insured by another insurer (the ceding company).
CAPACITY
An insurer's ability to provide coverage up to the stated amount of a
policy through the insurer's reinsurance arrangements.
CEDE
To transfer risk and related premium in connection with a reinsurance
transaction.
CLAIMS MADE (REPORTED) BASIS
A liability insurance policy written on a basis that generally insures only
claims that are reported (made) to the insurer during the policy period, or
reported (made) during any extended reporting period provided in the policy or
any endorsement thereto, but only if the claims arise from incidents that
occurred after a retroactive date stated in the policy. A claims made (reported)
policy is to be distinguished from an "occurrence policy."
COMBINED RATIO
The sum of the loss ratio and the expense ratio, expressed as a percentage.
Generally, a combined ratio below 100% indicates an underwriting profit and a
combined ratio above 100% indicates an underwriting loss.
DIRECT PREMIUMS WRITTEN
Total premiums written by an insurer other than premiums for reinsurance
assumed by an insurer.
EXCESS INSURANCE
Insurance which covers the insured only for losses in excess of a stated
amount or a specific primary policy.
EXCESS OF LOSS REINSURANCE
A generic term describing reinsurance that indemnifies the reinsured
against all or a specified portion of losses on underlying insurance policies in
excess of a specified dollar amount, called a "layer" or "retention."
EXPENSE RATIO
Policy acquisition costs and other underwriting expenses, divided by net
premiums earned under GAAP accounting, expressed as a percentage.
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GAAP
Generally accepted accounting principles in use throughout the United
States in the preparation of financial statements, including the financial
statements presented in this Prospectus.
GROSS PREMIUMS WRITTEN
Total of (i) direct premiums written, plus (ii) reinsurance assumed
premiums.
INCURRED BUT NOT REPORTED ("IBNR") RESERVES
The estimated liabilities for future payments of losses and LAE that have
occurred, but have not yet been reported to the insurer.
LOSS ADJUSTMENT EXPENSES ("LAE")
Expenses incurred in the settlement of claims, including outside adjustment
expenses, legal fees, and internal administration costs associated with the
claims adjustment process, but not including general overhead expenses.
LOSS ADJUSTMENT EXPENSE ("LAE") RESERVES
Liabilities established for LAE. LAE includes an estimated provision for
IBNR.
LOSS RATIO
The ratio of net incurred losses and LAE to net premiums earned. Net
incurred losses include an estimated provision for IBNR.
MODIFIED CLAIMS MADE BASIS
A claims made policy with pre-funded Tail Coverage.
NET PREMIUMS WRITTEN
Gross premiums written less premiums ceded.
NOVATION
An agreement of all parties to a contract to substitute a new party and
discharge one of the original parties to the contract.
OCCURRENCE BASIS
A liability insurance policy written on a basis that generally insures
claims that arise from incidents that occurred during the policy period,
irrespective of when the claims are reported.
PREMIUMS CEDED
The consideration paid to reinsurers in connection with reinsurance
transactions.
PREMIUMS EARNED
The portion of premiums written applicable to the expired period of
policies and, accordingly, recognized as revenue during a given period.
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QUOTA SHARE BASIS
Reinsurance wherein the insurer cedes an agreed fixed percentage of
liabilities, premiums and losses for each policy covered on a pro rata basis.
REDUNDANCY (DEFICIENCY)
Estimates in reserves change as more information becomes known about the
frequency and severity of claims for each year. A redundancy (deficiency) exists
when the original liability estimate is greater (less) than the reestimated
liability. The cumulative redundancy (deficiency) is the aggregate net change in
estimates over time subsequent to establishing the original liability estimate.
REINSURANCE
A procedure whereby an original insurer cedes a portion of the premium to a
reinsurer as payment for the reinsurer's assumption of a portion of the risk;
referred to as reinsurance ceded by the original insurer and as reinsurance
assumed by the reinsurer.
RESERVES
Liabilities established by insurers to reflect the estimated cost of claims
and the related LAE expenses that the insurer will ultimately be required to pay
in respect of insurance it has written.
RETENTION
The amount or portion of risk that an insurer retains for its own account.
Losses in excess of the retention level are paid by the reinsurer. In quota
share treaties, the retention may be a percentage of the original policy's
limit. In excess of loss reinsurance, the retention is a dollar amount of loss,
a loss ratio or a percentage of loss.
RISK-BASED CAPITAL REQUIREMENTS ("RBC")
Regulatory and rating agency targeted surplus based on the relationship of
statutory surplus, with certain adjustments, to the sum of stated percentages of
each element of a specified list of company risk exposures.
SEVERITY
The average claim cost, statistically determined by dividing dollars of
losses by the number of claims.
STATUTORY ACCOUNTING PRACTICES ("SAP")
The accounting rules and procedures promulgated or permitted by the
National Association of Insurance Commissioners ("NAIC") for financial reporting
by insurers licensed in one or more states of the United States.
STATUTORY SURPLUS
Total assets less total liabilities as determined in accordance with SAP.
TAIL COVERAGE
A provision that offers protection for any incidents that occurred while
insured, even after coverage is discontinued.
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UNDERWRITING
The process whereby an insurer, directly or through its agent, reviews
applications submitted for insurance coverage and determines whether it will
accept all or part of the coverage being requested, and sets the applicable
premium.
UNEARNED PREMIUMS
A reserve account that contains the portion of premium attributable to the
unexpired period of policies that has been written by an insurer but has not
been recognized as net earned premiums and accounted for as revenues.
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<PAGE> 93
GLOSSARY OF REORGANIZATION AND SUBSCRIPTION OFFERING TERMS
ADOPTION DATE
October 15, 1997, the date that the Board of Governors adopted the Plan of
Reorganization.
ASSOCIATE
Any corporation or organization (other than the Company) of which a
Subscription Offeree is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; any trust or
other estate in which such person has a substantial beneficial interest or as to
which such person serves as a director or in a similar fiduciary capacity,
provided, however, such term shall not include Company employee benefit plans in
which such person has a substantial beneficial interest or serves as a director
or in a similar fiduciary capacity; or any relative or spouse of such person, or
any relative of such spouse, who has the same home as such person.
ATTORNEY-IN-FACT
New Jersey State Medical Underwriters, Inc., a New Jersey corporation that
is the Exchange's attorney-in-fact.
BOARD OF GOVERNORS
The Board of Governors of the Exchange.
CERTIFICATE OF AUTHORITY
A certificate issued by the Commissioner to the Stock Insurer to do
business for same lines of insurance currently permitted of the Company.
CLOSING DATE
The date on which the closing of the transactions contemplated by the Plan
of Reorganization takes place. If the Offerings are consummated as described
herein, they will also close on the Closing Date.
CODE
Internal Revenue Code of 1986, as amended.
COMMISSIONER
The Commissioner of the New Jersey Department, or such governmental
officer, body or authority as may succeed such Commissioner as the primary
regulator of the Company's insurance business under applicable law.
COMPANY
At all times prior to the Closing Date, the Exchange and its subsidiaries
and the Attorney-in-Fact and its subsidiaries, collectively. At all times on or
after the Closing Date, The MIIX Group, Incorporated, and its subsidiaries,
collectively.
CONVERSION VALUE
Either (i) the price at which the Common Stock is offered to the public in
the event an initial public offering is consummated simultaneously with the
Reorganization, or (ii) if no such initial public offering is consummated
simultaneously with the Reorganization, then the economic value of the Common
Stock as determined in good faith by the Board of Governors of the Exchange.
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DISTRIBUTEE
A Member or Look-Back Insured.
EARNED PREMIUM
For the applicable period, earned premiums in respect of a Policy.
EFFECTIVE DATE
The date on which the Certificate of Authority is issued by the
Commissioner, provided that in no event shall the Effective Date be less than 30
days after the Final Order Date nor more than 12 months after the Final Order
Date, unless such period is extended by the Commissioner. The Plan of
Reorganization shall be deemed to have become effective on the Effective Date at
the time specified in the Certificate of Authority.
ELIGIBLE POLICYHOLDER
Policyholders, as of both August 31, 1998 and four business days prior to
the Closing Date, of the Exchange or LP&C.
EMPLOYEE
Persons who are directors, officers or employees of the Company as of both
August 31, 1998 and four business days prior to the Closing Date.
EXCHANGE
The Medical Inter-Insurance Exchange, a New Jersey reciprocal insurer.
FINAL ORDER DATE
April 19, 1998, the date on which the order of the Commissioner approving
the Plan of Reorganization and the transactions contemplated thereby became
final.
HOLDING COMPANY
The MIIX Group, Incorporated, a newly-formed Delaware corporation that will
be the parent company for all of the MIIX companies upon the consummation of the
Plan of Reorganization.
IN FORCE
A Policy shall be deemed to be In Force as of any date if, as shown on the
Company's records, (1)(i) such Policy has been issued and the status of such
Policy has been changed from pending to In Force on the Company's records, or
(ii) in the case of an individual Policy, the Company's administrative office
has received by such date in respect of such Policy an application, complete on
its face, together with payment of the full initial premium (unless submission
of such premium is precluded by the Company's underwriting rules), provided that
any Policy referred to in this clause (ii) is issued as applied for and the
status of such Policy has been changed from pending to In Force on the Company's
records within 30 days of such date, and (2) such Policy has not been
surrendered, canceled, or otherwise terminated; provided that a Policy shall be
deemed to be In Force after lapse for nonpayment of premiums until expiration of
any applicable grace period (or other similar period however designated in such
Policy) during which the Policy is in full force for its basic benefits.
INITIAL PUBLIC OFFERING
An initial public offering by the Holding Company of shares of Holding
Company Stock.
91
<PAGE> 95
INSURANCE SUBSIDIARIES
At all times prior to the Closing Date, LP&C, MIIX New York and
Lawrenceville Re. At all times on or after the Closing Date, MIIX Insurance
Company, MIIX New York, LP&C, and Lawrenceville Re.
LOOK-BACK INSURED
A Person who is not a Member, but who at any time during the three-year
period prior to the Adoption Date was the Named Insured in one or more Policies
issued by the Company and who, therefore, was a member of the Company during
such period under Article II of the Company's Rules & Regulations.
MEMBER
A Person who is the Named Insured in one or more Policies that are In Force
on the Adoption Date and who, therefore, is a member on the Adoption Date under
Article II of the Company's Rules & Regulation.
MEMBERS' MEETING
A special meeting of Members held after the Commissioner's approval of the
Plan of Reorganization, at which Members shall be entitled to vote on the
proposal to approve the Plan.
MEMBERSHIP INTERESTS
As of the Effective date, all the rights or interests of the Members of the
Company arising under the Company's Rules & Regulations or otherwise by law,
including, but not limited to, any right to vote and any right to a return of
the surplus of the Company, which may exist with regard to the surplus of the
Company not apportioned or declared prior to the Effective Date by the Board for
policyholder dividends. For purposes of the Plan of Reorganization, Membership
Interests shall not include any other right expressly conferred by an insurance
policy.
NAMED INSURED
The Named Insured in any Policy as of any date shall be determined on the
basis of the Company's records as of such date in accordance with the following
provisions: (a) the Named Insured in a Policy shall be as shown on the Policy
Declarations page in the Company's records; (b) the Named Insured in a Policy
that is a group insurance policy shall be the Person or Persons specified as
Named Insureds; (c) except as otherwise set forth here, the identity of the
Named Insured of a Policy shall be determined without giving effect to any
interest of any other Person in such Policy; (d) in any situation not expressly
covered by the foregoing provisions, the first Named Insured, as reflected on
the records of, and as determined in good faith by, the Company, shall
conclusively be presumed to be the Named Insured in such Policy, provided such
Named Insured is a Person, and the Company shall not be required to examine or
consider any other facts or circumstances; (e) any dispute as to the identity of
the Named Insured in a Policy or the right to vote or receive consideration
shall be resolved in accordance with the foregoing and such other procedures as
may be acceptable to the Commissioner.
NEW JERSEY DEPARTMENT
The Department of Banking and Insurance of the State of New Jersey.
PERSON
A natural person. A Person who is the Named Insured of Policies in more
than one legal capacity (e.g., a trustee under separate trusts) shall be deemed
to be a separate Person in each such capacity.
PLAN OF REORGANIZATION
The Plan of Reorganization, including all Exhibits thereto.
92
<PAGE> 96
POLICY
Each insurance policy duly issued by the Company.
REORGANIZATION
The reorganization of the Exchange as a stock insurer pursuant to, and the
related transactions contemplated by, the Plan of Reorganization.
REORGANIZATION SHARES
The 12,000,000 shares of Common Stock that may be allocated among
Distributees in the Reorganization.
SERVICE PROVIDER
Persons, as selected by the Company in its sole discretion, who have
business relationships with the Company as of both August 31, 1998 and four
business days prior to the Closing Date.
STOCK INSURER
MIIX Insurance, a newly-incorporated New Jersey domestic stock insurer that
is a wholly-owned subsidiary of the Holding Company and is the successor to the
Company.
SUBSCRIPTION EXPIRATION TIME
4:00 p.m., New York City time, four business days before the Members'
Meeting, or such later date as may be determined by the Company from time to
time.
SUBSCRIPTION OFFEREES
Eligible Policyholders, Employees and Service Providers.
TRANSFER AGENT
First Chicago Trust Company of New York, or its successors or assigns.
93
<PAGE> 97
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUARTERLY COMBINED FINANCIAL STATEMENTS (UNAUDITED)
Combined Balance Sheets as of December 31, 1997 and June 30,
1998...................................................... F-2
Combined Statements of Income for the six months ended June
30, 1997 and 1998......................................... F-3
Combined Statements of Equity for the six months ended June
30, 1998.................................................. F-4
Combined Statements of Cash Flows for the six months ended
June 30, 1997 and 1998.................................... F-5
Notes to Combined Financial Statements...................... F-6
AUDITED COMBINED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-8
Combined Balance Sheets as of December 31, 1996 and 1997.... F-9
Combined Statements of Income for the years ended December
31, 1995, 1996 and 1997................................... F-10
Combined Statements of Equity for the three years ended
December 31, 1997......................................... F-11
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997.......................... F-12
Notes to Combined Financial Statements...................... F-13
Schedule I -- Summary of Investments -- Other than
Investments in Related Parties............................ F-24
</TABLE>
(ALL OTHER SCHEDULES FOR WHICH PROVISION IS MADE IN THE APPLICABLE ACCOUNTING
REGULATION OF THE SECURITIES AND EXCHANGE COMMISSION ARE NOT REQUIRED UNDER THE
RELATED INSTRUCTIONS OR ARE INAPPLICABLE AND THEREFORE HAVE BEEN OMITTED.)
F-1
<PAGE> 98
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Securities available-for-sale:
Fixed-maturity investments, at fair value (amortized cost:
1997 -- $834,052; 1998 -- $915,795)....................... $ 853,977 $ 936,174
Equity investments, at fair value (cost: 1997 -- $69,020;
1998 -- $70,519).......................................... 91,580 94,792
Short-term investments...................................... 85,478 137,257
---------- ----------
Total investments................................. 1,031,035 1,168,223
Cash........................................................ 168 3,015
Reinsurance recoverable on unpaid losses, net............... 85,980 94,039
Prepaid reinsurance premiums................................ 19,621 15,235
Deferred income taxes....................................... 24,198 27,115
Premiums receivable......................................... 8,245 9,607
Deferred policy acquisition costs........................... 100 4,607
Other assets................................................ 110,884 109,378
---------- ----------
Total assets...................................... $1,280,231 $1,431,219
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses.................. $ 876,721 $ 921,423
Premium deposits............................................ 21,024 --
Unearned premiums........................................... 20,886 89,139
Payable for securities...................................... 229 41,669
Other liabilities........................................... 57,930 69,303
---------- ----------
Total liabilities................................. 976,790 1,121,534
---------- ----------
Commitments and contingencies (Note 3)
EQUITY
Surplus..................................................... 275,826 280,661
Unrealized appreciation on securities available-for-sale,
net of deferred taxes..................................... 27,615 29,024
---------- ----------
Total equity...................................... 303,441 309,685
---------- ----------
Total liabilities and equity...................... $1,280,231 $1,431,219
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 99
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1998
------- --------
(UNAUDITED)
<S> <C> <C>
REVENUES
Net premiums earned......................................... $57,907 $ 74,520
Net investment income....................................... 26,128 30,941
Realized investment gains................................... (296) 4,246
Other revenue............................................... 5,509 4,885
------- --------
Total revenues.................................... 89,248 114,592
------- --------
EXPENSES
Losses and loss adjustment expenses......................... 58,669 73,220
Underwriting expenses....................................... 11,596 17,581
Funds held charges.......................................... 5,588 5,946
Impairment of fixed assets.................................. -- 8,541
Other operating expenses.................................... 5,100 5,123
------- --------
Total expenses.................................... 80,953 110,411
------- --------
Income before income taxes.................................. 8,295 4,181
Provision (benefit) for income taxes........................ 1,279 (654)
------- --------
Net income.................................................. $ 7,016 $ 4,835
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 100
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
OF INVESTMENTS, TOTAL
SURPLUS NET OF TAXES EQUITY
-------- --------------- --------
(UNAUDITED)
<S> <C> <C> <C>
Balance at December 31, 1997............................ $275,826 $27,615 $303,441
Net income............................................ 4,835 4,835
Other comprehensive income, net of tax:
Unrealized appreciation on securities
available-for-sale, net of deferred taxes.......... 1,409 1,409
-------- ------- --------
Balance at June 30, 1998................................ $280,661 $29,024 $309,685
======== ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 101
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 7,016 $ 4,835
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, accretion and amortization............. 967 851
Impairment of fixed assets........................... -- 8,541
Realized (gains) losses.............................. 73 (4,296)
Unpaid losses and loss adjustment expenses, net of
reinsurance recoverable............................. 15,215 36,643
Premium deposits, net of prepaid reinsurance
premiums............................................ (10,428) (5,285)
Deferred income tax provision........................ 3,032 (2,917)
Premiums receivable, net of allowance................ (29,029) (1,362)
Unearned premiums, net of prepaid reinsurance
premiums............................................ 47,656 56,900
Deferred policy acquisition costs.................... (2,240) (4,507)
Other assets......................................... (10,513) (8,073)
Other liabilities.................................... 16,141 11,240
-------- ---------
Net cash provided by operating activities................. 37,890 92,570
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed-maturity investment sales............. 105,003 256,601
Proceeds from fixed-maturity investments matured, called,
or prepaid............................................. 21,475 53,447
Proceeds from equity investment sales..................... 2,906 (2,119)
Cost of investments acquired.............................. (149,197) (386,296)
Payable for securities.................................... -- 41,440
Change in short-term investments, net..................... (18,021) (51,779)
Other, net................................................ (1,714) (1,150)
-------- ---------
Net cash used in investing activities..................... (39,548) (89,856)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) from notes payable................ (113) 133
-------- ---------
Net cash provided by (used in) financing activities....... (113) 133
-------- ---------
Net change in cash........................................ (1,771) 2,847
Cash at beginning of year................................. 6,292 168
-------- ---------
Cash at end of period..................................... $ 4,521 $ 3,015
======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 102
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The combined financial statements for the interim periods included herein
are unaudited. However, they have been prepared in accordance with generally
accepted accounting principles for interim financial information and in the
opinion of management, such information reflects all adjustments considered
necessary for a fair presentation. Operating results for the interim period are
not necessarily indicative of the results to be expected for the full year.
These combined financial statements and notes should be read in conjunction
with the audited combined financial statements and notes of the Exchange and the
Attorney-in-Fact for the year ended December 31, 1997 included in pages F-8
through F-24.
2. COMPREHENSIVE INCOME
Statement of Financial Accounting Standard No. 130 -- Reporting
Comprehensive Income, ("SFAS 130") became effective for years beginning after
December 15, 1997 and therefore, is applicable to the Company for the
presentation of quarterly financial statements during 1998. For purposes of
comparison, all previous financial statements presented include the SFAS 130
disclosures. The Company considers its investment portfolio as
available-for-sale and had unrealized gains at each balance sheet date that are
reflected as comprehensive income in the Combined Statements of Equity.
The components of comprehensive income, net of related tax, for the periods
ended June 30, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net income.................................................. $ 7,016 $ 4,835
Other comprehensive income:
Unrealized appreciation on securities available-for-sale,
net of deferred taxes.................................. 7,414 1,409
------- -------
Comprehensive income........................................ $14,430 $ 6,244
======= =======
</TABLE>
3. OFF-BALANCE SHEET RISK AND OTHER COMMITMENTS
On January 13, 1998, the Company implemented an "equity collar" (the
"Collar") with a notional value of $85 million around the Company's equity
portfolio. The purpose of the Collar was to reduce equity market volatility and
to stabilize unassigned surplus. The Collar was constructed using European-style
S&P 500 options. At June 30, 1998 unrealized gains on the equity portfolio, of
approximately $35 million were offset by the unrealized loss on the Collar of
approximately $11 million, both of which are included in the combined balance
sheets in the net unrealized appreciation of securities available for sale. The
Collar has been accounted for as a hedge transaction held for purposes other
than trading. The Collar expired on July 13, 1998, at which time the underlying
hedged securities had approximately $38 million of unrealized gains offset by
$14 million of unrealized loss on the Collar. To minimize loss exposure due to
credit risk, the Company utilizes only those intermediaries that are approved by
the Securities Valuation Office of the National Association of Insurance
Commissioners.
F-6
<PAGE> 103
4. IMPAIRMENT OF FIXED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
("SFAS No. 121") requires recognition of impairment losses for long-lived assets
whenever events or changes in circumstances result in the carrying amount of an
asset to exceed the sum of the expected future cash flow associated with the
asset. During the second quarter 1998, management began replacing its policy
administration system and accordingly recognized an $8.5 million pre-tax charge
(impairment of fixed assets) which represents the net book value of the old
computer system.
5. DEFERRED POLICY ACQUISITION COSTS
The following represents the components of deferred policy acquisition
costs and the amounts that were charged to expense for the six months ended June
30, 1998.
<TABLE>
<S> <C>
Balance at beginning of period.............................. $ 100
Cost deferred during the period............................. 9,086
Amortization expense........................................ (4,579)
-------
Balance at end of period.................................... $ 4,607
=======
</TABLE>
6. PAYABLE FOR SECURITIES
The payable for securities of $41.7 million as of June 30, 1998 relates to
investment transactions for which trades occurred prior to the quarter end but
for which settlement was not finalized until after that date.
7. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. Adoption of this
statement is not expected to have a significant impact on the Company's
financial position or results of operations.
F-7
<PAGE> 104
REPORT OF INDEPENDENT AUDITORS
Board of Governors
Medical Inter-Insurance Exchange
Board of Directors
New Jersey State Medical Underwriters, Inc.
We have audited the accompanying combined balance sheets as of December 31,
1996 and 1997, of Medical Inter-Insurance Exchange and subsidiaries and New
Jersey State Medical Underwriters, Inc. and the related combined statements of
income, equity, and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedule
listed in the index at F-1. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Medical
Inter-Insurance Exchange and subsidiaries and New Jersey State Medical
Underwriters Inc. at December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Hackensack, New Jersey
March 25, 1998
F-8
<PAGE> 105
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Securities available-for-sale:
Fixed-maturity investments, at fair value (amortized cost:
1996 -- $762,202; 1997 -- $834,052).................... $ 764,270 $ 853,977
Equity investments, at fair value (cost: 1996 -- $55,334;
1997 -- $69,020)....................................... 67,230 91,580
Short-term investments.................................... 88,197 85,478
---------- ----------
Total investments................................. 919,697 1,031,035
Cash........................................................ 6,292 168
Reinsurance recoverable on unpaid losses, net............... 54,568 85,980
Prepaid reinsurance premiums................................ 28,500 19,621
Deferred income taxes....................................... 32,544 24,198
Other assets................................................ 116,145 119,229
---------- ----------
Total assets...................................... $1,157,746 $1,280,231
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses.................. $ 795,449 $ 876,721
Premium deposits............................................ 37,248 21,024
Unearned premiums........................................... 8,298 20,886
Other liabilities........................................... 60,710 58,159
---------- ----------
Total liabilities................................. 901,705 976,790
---------- ----------
Commitments and contingencies (Notes 5 and 6)
EQUITY
Surplus..................................................... 246,964 275,826
Unrealized appreciation on securities available-for-sale,
net of deferred taxes..................................... 9,077 27,615
---------- ----------
Total equity...................................... 256,041 303,441
---------- ----------
Total liabilities and equity...................... $1,157,746 $1,280,231
========== ==========
</TABLE>
See accompanying notes.
F-9
<PAGE> 106
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Net premiums earned........................................ $105,256 $108,182 $123,600
Net investment income...................................... 51,760 49,208 54,624
Net realized investment gains.............................. 13,149 8,683 10,296
Other revenue.............................................. 9,968 11,524 11,870
-------- -------- --------
Total revenues................................... 180,133 177,597 200,390
-------- -------- --------
EXPENSES
Losses and loss adjustment expenses........................ 107,889 110,866 122,828
Underwriting expenses...................................... 14,743 18,385 26,855
Funds held charges......................................... 5,473 8,626 11,581
Other operating expenses................................... 6,905 10,444 8,179
-------- -------- --------
Total expenses................................... 135,010 148,321 169,443
-------- -------- --------
Income before income taxes................................. 45,123 29,276 30,947
Provision for income taxes................................. 12,108 9,779 2,085
-------- -------- --------
Net income....................................... $ 33,015 $ 19,497 $ 28,862
======== ======== ========
</TABLE>
See accompanying notes.
F-10
<PAGE> 107
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
SUBORDINATED (DEPRECIATION)
LOAN OF INVESTMENTS, TOTAL
SURPLUS CERTIFICATES NET OF TAXES EQUITY
-------- ------------ --------------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1995................. $194,452 $ 4,604 $(21,161) $177,895
Net income............................... 33,015 33,015
Unrealized appreciation of investments,
net of tax............................ 40,152 40,152
Redemption of subordinated loan
certificates.......................... (4,604) (4,604)
-------- ------- -------- --------
Balance at December 31, 1995............... 227,467 -- 18,991 246,458
Net income............................... 19,497 19,497
Unrealized depreciation of investments,
net of tax............................ (9,914) (9,914)
-------- ------- -------- --------
Balance at December 31, 1996............... 246,964 -- 9,077 256,041
Net income............................... 28,862 28,862
Unrealized appreciation of investments,
net of tax............................ 18,538 18,538
-------- ------- -------- --------
Balance at December 31, 1997............... $275,826 $ -- $ 27,615 $303,441
======== ======= ======== ========
</TABLE>
See accompanying notes.
F-11
<PAGE> 108
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 33,015 $ 19,497 $ 28,862
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, accretion and amortization........... 3,305 4,308 3,698
Realized gains..................................... (13,183) (8,731) (10,495)
Unpaid losses and loss adjustment expenses, net of
reinsurance recoverable.......................... 39,689 49,750 49,860
Premium deposits, net of prepaid reinsurance
premiums......................................... (245) (30,513) (5,159)
Deferred income tax provision...................... 2,446 509 (1,637)
Unearned premiums, net of prepaid reinsurance
premiums......................................... (2,493) 3,644 10,402
Other assets....................................... (16,421) (6,143) (3,682)
Other liabilities.................................. 3,732 8,437 (3,172)
--------- --------- ---------
Net cash provided by operating activities............. 49,845 40,758 68,677
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed-maturity investment sales......... 311,871 606,172 228,055
Proceeds from fixed-maturity investments matured,
called, or prepaid................................. 43,212 97,325 121,609
Proceeds from equity investment sales................. 10 3,386 24,249
Cost of investments acquired.......................... (395,643) (704,951) (448,124)
Change in short-term investments, net................. 7,054 (35,007) 2,719
Acquisition of goodwill............................... -- (1,961) --
Other, net............................................ (6,784) (3,910) (3,930)
--------- --------- ---------
Net cash used in investing activities................. (40,280) (38,946) (75,422)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Subordinated loan certificates redeemed............... (3,977) (248) --
Proceeds from notes payable........................... 22,150 32,900 13,200
Repayment of notes payable............................ (20,899) (26,722) (12,579)
Other................................................. -- (289) --
--------- --------- ---------
Net cash provided by (used in) financing activities... (2,726) 5,641 621
--------- --------- ---------
Net change in cash.................................... 6,839 7,453 (6,124)
Cash at beginning of year............................. (8,000) (1,161) 6,292
--------- --------- ---------
Cash at end of year................................... $ (1,161) $ 6,292 $ 168
========= ========= =========
</TABLE>
See accompanying notes.
F-12
<PAGE> 109
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND RELATED MATTERS
The Medical Inter-Insurance Exchange (the "Exchange") was organized as a
New Jersey reciprocal insurance exchange by the Medical Society of New Jersey
(the "Medical Society") to provide physicians with an alternative to commercial
medical professional liability insurance and was approved to begin issuing
policies in 1977. A reciprocal exchange under the law of New Jersey is an
organization through which individuals, partnerships, trustees or corporations
designated as "subscribers" or "members" are authorized to exchange reciprocal
or interinsurance contracts with each other. Such contracts are executed by an
attorney-in-fact acting on behalf of the subscribers through a power of
attorney. New Jersey State Medical Underwriters, Inc. (the "Attorney-in-Fact")
manages the Exchange, including the underwriting and issuance of insurance
policies, the collection and investment of premiums, and the service and
administration of the policyholders and their claims. The Attorney-in-Fact is a
corporation that is wholly owned by the Medical Society and was formed for the
sole purpose of acting as the attorney-in-fact for the Exchange, which it does
pursuant to a management contract that requires the Exchange to reimburse the
costs of the Attorney-in-Fact.
In 1996, the Exchange formed a down-stream holding company, Lawrenceville
Holdings, Inc. ("LHI"). On April 16, 1996, LHI acquired all of the common stock
of a property and casualty insurance company, Lawrenceville Property and
Casualty Co., Inc. ("LP&C"), which is domiciled in Virginia, and is licensed in
twenty-two states in the mid-atlantic and southeast regions of the United
States.
The Exchange, LHI, LP&C and the Attorney-in-Fact (collectively, "the
Company") provide a wide range of insurance products to the medical profession
and health care institutions primarily in the states of New Jersey, Pennsylvania
and Texas. The Company's primary business is medical professional liability and
it issues claims-made, modified claims made with prepaid extended reporting
endorsements and occurrence policies. The Company currently maintains licenses
in twenty-nine states.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") which differs
from statutory accounting practices prescribed or permitted by regulatory
authorities. The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below:
Principles of Combination and Consolidation
The accompanying combined financial statements combine the consolidated
financial statements of the Exchange and the Attorney-in-Fact, which are
commonly controlled and managed entities. The consolidated financial statements
of the Exchange include the accounts of the Exchange, LHI and LP&C. The
Exchange's consolidated statements of income, policyholders' equity and cash
flows include the activity of LP&C from April 16, 1996, the date of acquisition.
The consolidated financial statements of the Attorney-in-Fact include the
accounts of the Attorney-in-Fact and its wholly-owned subsidiaries, Medical
Brokers, Inc., an insurance broker; Pegasus Advisors, Inc., a reinsurance
broker; Hamilton National Leasing Corp. ("Hamilton"), a leasing company; MIIX
Healthcare Group, Inc., a health care consulting company; Medical Group
Management, Inc. ("MGM"), a managed-care management services company;
Lawrenceville Re, Ltd., a Bermuda-based reinsurance company formed on December
7, 1995; and MIIX Capital Management, an investment advisory firm purchased on
January 30, 1996. All significant intercompany transactions and balances have
been eliminated in the combination and consolidations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying
F-13
<PAGE> 110
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
notes. Such estimates and assumptions could change in the future as more
information becomes known which could impact the amounts reported and disclosed
herein.
Investments
The Company has designated its entire investment portfolio as
available-for-sale. As such, all investments are carried at their fair market
values. The Company has no securities classified as "trading" or "held-to-
maturity." Transfers to these categories are restricted.
Changes in fair values of available-for-sale securities, after adjustment
of deferred income taxes, are reported as unrealized appreciation or
depreciation directly in equity and, accordingly, have no effect on net income.
For the loan-backed bonds, the Company recognizes income using a constant
effective yield based on anticipated prepayments and the estimated economic life
of securities. Prepayment assumptions are obtained from both proprietary and
broker/dealer estimates and are consistent with the current interest rate and
economic environment. When actual prepayments differ significantly from
anticipated prepayments, which are assessed at least annually, the effective
yield is recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the security. That adjustment is included in net investment
income.
Derivative financial instruments held are classified as other than trading.
As such, all derivatives are carried at their fair market values. Changes in
fair values, net of deferred taxes, are reported as unrealized appreciation or
depreciation directly in equity and accordingly have no effect on net income.
Premiums and discounts on investments are amortized to investment income
using the interest method over the contractual lives of the investments.
Realized investment gains and losses are included as a component of revenues
based on a specific identification of the investment sold.
Short-term investments include investments maturing within one-year and
other cash and cash equivalent balances earning interest.
Losses and Loss Adjustment Expenses
Estimates for unpaid losses and loss adjustment expenses are based on the
Company's evaluation of reported claims and actuarial analyses of the Company's
operations since its inception, including assumptions regarding expected
ultimate losses and reporting patterns, and estimates of future trends in claim
severity and frequency. Although variability is inherent in such estimates,
management believes that the reserves for unpaid losses and loss adjustment
expenses are adequate. These estimates are reviewed regularly and any
adjustments to prior year reserves are reflected in current year operating
results.
The claims made policy sold to physicians and surgeons in New Jersey by the
Exchange includes a standard prepaid extended reporting endorsement. The
endorsement provides coverage to the insured, triggered by termination of the
policy for any reason, for claims incurred during the claims made coverage
period but reported after the termination date of the policy. With the prepaid
extended reporting endorsement, insureds effectively receive occurrence-like
coverage following policy termination. The Exchange accounts for this policy at
policy inception as if it provided occurrence coverage. Loss and loss adjustment
expense reserves are established for all losses anticipated to be incurred
during the coverage period of the policy, whether reported during the life of
the policy or during the extended reporting period after policy termination.
F-14
<PAGE> 111
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Premiums
Premiums are recorded as earned over the life of the policies to which they
apply. Premium deposits represent amounts received prior to the effective date
of the new or renewal policy period. The reserve for unearned premiums is
determined on a monthly pro-rata basis. Gross premiums include both direct and
assumed premiums earned.
Reinsurance
Reinsurance premiums, losses, and loss adjustment expenses are accounted
for on a basis consistent with the accounting for the original policies issued
and the terms of the reinsurance contracts. Premium deposits, unearned premiums,
and unpaid losses and loss adjustment expenses are reported gross of reinsurance
amounts.
Deferred Policy Acquisition Costs
Policy acquisition costs, (primarily commissions, premium taxes and other
selling expenses) which vary with and are directly related to the production of
business, are capitalized and amortized over the effective period of the related
policies. Anticipated investment income is considered in determining if premium
deficiencies exist.
Income Taxes
Deferred income taxes arise as a result of applying enacted statutory tax
rates to the temporary differences between the financial statement carrying
value and the tax basis of assets and liabilities.
Reclassification
Certain amounts have been reclassified for the prior years to be comparable
to the 1997 presentation.
Cash Flow Reporting
For purposes of reporting cash-flows, cash consists of amounts held at
banks, cash in money market accounts and time deposits with original maturities
of generally three months or less.
Accounting Pronouncements Not Yet Adopted
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 provides new accounting and
reporting standards for transfers of financial assets and extinguishments of
liabilities. The Company adopted this statement on January 1, 1997 with no
significant impact on the Company's financial position or results of operations.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-3 "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." The SOP provides guidance for
determining when a liability for guaranty fund and other insurance-related
assessments should be recognized and how such liability should be measured. The
adoption of this statement is not expected to have a significant impact on the
Company's financial position or results of operations.
F-15
<PAGE> 112
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverable of
$286.3 million, $339.1 million and $394.8 million,
respectively............................................. $402,172 $409,565 $400,607
Incurred related to:
Current year............................................. 107,889 110,866 121,331
Prior years.............................................. -- -- 1,497
-------- -------- --------
Total incurred............................................. 107,889 110,866 122,828
Paid related to:
Current year............................................. 3,000 3,630 3,930
Prior years.............................................. 97,496 116,194 73,547
-------- -------- --------
Total paid................................................. 100,496 119,824 77,477
-------- -------- --------
Balance as of December 31, net of reinsurance
recoverable.............................................. 409,565 400,607 445,958
Reinsurance recoverable.................................... 339,095 394,842 430,763
-------- -------- --------
Balance, gross of reinsurance.............................. $748,660 $795,449 $876,721
======== ======== ========
</TABLE>
Direct losses and loss adjustment expense reserve estimates have been
reviewed regularly and adjusted where judged prudent to do so. Medical
malpractice business, particularly occurrence or occurrence-like coverage, has a
very long development period. Cases may take years to be reported, and, as a
rule, take several years to adjust, settle or litigate. In addition, general
long term trends impacting ultimate reserve values such as changes in liability
standards and expanding views of contract interpretation increase the
uncertainty. Information from reviews of estimates of direct losses did not
indicate a basis to revise earlier estimates in 1995 and 1996.
4. INVESTMENTS
The Company's investment strategy focuses primarily on the purchase of
high-quality debt securities, which resulted in the fixed income portfolio's
having a Standard and Poor's average quality rating of AA+ at December 31, 1997.
The portfolio does not include any investments in real estate or below
investment grade securities.
F-16
<PAGE> 113
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The actual or amortized cost and estimated market value of the Company's
available-for-sale securities as of December 31, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------- MARKET
COST GAINS LOSSES VALUE
--------- ------- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996
U.S. Treasury securities and obligations of U.S
government corporations and agencies............. $185,971 $ 1,179 $3,244 $183,906
Obligations of states and political subdivisions... 258,775 3,268 429 261,614
Corporate securities............................... 56,607 376 188 56,795
Mortgage-backed and other asset backed
securities....................................... 260,849 3,168 2,062 261,955
-------- ------- ------ --------
Total fixed maturity investments................... 762,202 7,991 5,923 764,270
Equity investments................................. 55,334 12,071 175 67,230
-------- ------- ------ --------
Total investments........................ $817,536 $20,062 $6,098 $831,500
======== ======= ====== ========
1997
U.S. Treasury securities and obligations of U.S
government corporations and agencies............. $190,214 $ 4,349 $ 56 $194,507
Obligations of states and political subdivisions... 202,386 7,224 5 209,605
Corporate securities............................... 132,875 3,986 567 136,294
Mortgage-backed and other asset backed
securities....................................... 308,577 5,463 469 313,571
-------- ------- ------ --------
Total fixed maturity investments................... 834,052 21,022 1,097 853,977
Equity investments................................. 69,020 23,154 594 91,580
-------- ------- ------ --------
Total investments........................ $903,072 $44,176 $1,691 $945,557
======== ======= ====== ========
</TABLE>
The fair values for fixed maturity securities are based on quoted marked
prices, where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services.
The fair values for equity securities are based on quoted market prices. At
December 31, 1996 and 1997, $52.3 million and $69.7, million respectively, of
the Company's equity investments were invested in the Vanguard Institutional
Index Fund.
The amortized cost and estimated fair value of fixed maturity investments
at December 31, 1997, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less..................................... $ 8,615 $ 8,623
Due after one year through five years....................... 124,991 126,725
Due after five years through ten years...................... 127,935 132,798
Due after ten years......................................... 263,934 272,260
Mortgage-backed and other asset backed securities........... 308,577 313,571
-------- --------
Total............................................. $834,052 $853,977
======== ========
</TABLE>
F-17
<PAGE> 114
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Major categories of the Company's net investment income are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity investments............................ $50,624 $46,022 $49,853
Equity investments.................................... 564 2,149 1,798
Other................................................. 3,396 3,274 5,700
------- ------- -------
Subtotal............................................ 54,584 51,445 57,351
Investment expenses................................... 2,824 2,237 2,727
------- ------- -------
Net investment income................................. $51,760 $49,208 $54,624
======= ======= =======
</TABLE>
Realized gains and losses from sales of investments are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity investments
Gross realized gains................................ $14,806 $11,522 $ 2,803
Gross realized losses............................... 1,657 3,279 1,158
------- ------- -------
Net realized gains on fixed maturity investments...... 13,149 8,243 1,645
Equity investments
Gross realized gains................................ -- 474 8,719
Gross realized losses............................... -- 34 68
------- ------- -------
Net realized gains on equity investments.............. -- 440 8,651
------- ------- -------
Net realized gains on investments..................... $13,149 $ 8,683 $10,296
======= ======= =======
</TABLE>
The change in the Company's unrealized appreciation (depreciation) on fixed
maturity investments was $59,093, $(24,896), and $17,857 for the years ended
December 31, 1995, 1996 and 1997, respectively. The corresponding amounts for
equity securities were $2,253, $9,643, and $10,664.
At December 31, 1997, investments in fixed maturity securities with a
carrying amount of approximately $6.8 million were on deposit with state
insurance departments to satisfy regulatory requirements.
5. REINSURANCE
Certain premiums, losses and loss adjustment expenses are ceded to other
insurance companies under various reinsurance agreements in-force during 1995,
1996 and 1997. These reinsurance agreements protect
F-18
<PAGE> 115
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the underwriting and operating results from unexpected increases in frequency,
severity, and acceleration of the payments of losses and loss adjustment
expenses, and contain the following significant terms:
<TABLE>
<CAPTION>
CONTRACT COVERAGE TYPE RETENTION COVERAGE LIMIT OTHER
-------- ------------- --------- -------------- -----
<S> <C> <C> <C> <C>
1995 Specific Excess Per loss $2-$3 million $18 million Aggregate deductible
Aggregate limits
1995 Aggregate Excess Aggregate 75% loss and ALAE ratio 75% loss and ALAE ratio Aggregate limit
1996 Specific Excess Per loss $2-$3 million $28 million Aggregate limits
Aggregate deductible
1996 Aggregate Excess Aggregate 75% loss and ALAE ratio 75% loss and ALAE ratio Aggregate limit
1997 Specific Excess Per loss $2-$3 million $38 million Aggregate deductible
Aggregate limits
1997 Aggregate Excess Aggregate 75% loss and ALAE ratio 75% loss and ALAE ratio Aggregate limit
</TABLE>
In 1992, MIIX implemented, on a funds withheld basis, an aggregate excess
of loss reinsurance treaty to protect the underwriting and operating results
from adverse development for losses and loss adjustment expenses occurring on or
before December 31, 1992. Coverage of $300 million is provided under the treaty
above a retention of $367 million of losses on the subject business after
January 1, 1993.
The effect of assumed and ceded reinsurance on premiums is summarized in
the following table (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- --------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Direct............... $137,291 $136,544 $143,218 $142,399 $162,430 $150,099
Assumed.............. 775 345 3,550 2,187 15,478 15,568
Ceded................ (35,303) (31,633) (34,595) (36,404) (44,252) (42,067)
-------- -------- -------- -------- -------- --------
Net premiums......... $102,763 $105,256 $112,173 $108,182 $133,656 $123,600
======== ======== ======== ======== ======== ========
</TABLE>
During 1995, 1996 and 1997, approximately $53.4 million, $57.1 million and
$66.6 million, respectively, of losses and loss adjustment expenses were ceded
to reinsurers.
The Company remains liable in the event that amounts recoverable from
reinsurers are uncollectible. To minimize its exposure to losses from reinsurer
insolvencies, the Company enters into reinsurance arrangements with carriers
rated "A" or better by A.M. Best. At December 31, 1996 and 1997, the Company
held collateral under related reinsurance agreements for all unpaid losses and
loss adjustment expenses ceded in the form of funds withheld of $340.3 million
and $344.8 million and letters of credit of $93.5 million and $126.0 million,
respectively.
Reinsurance recoverable on unpaid losses, net, included in the Combined
Balance Sheets, have been offset by funds withheld under reinsurance treaties.
In accordance with the provisions of the reinsurance contracts, the funds
withheld are credited with interest at contractual rates ranging from 7.5% to
8.6%, which is recorded as a period expense in the year incurred.
6. COMMITMENTS, OFF BALANCE SHEET RISK AND OTHER LIABILITIES
Investment securities with an aggregate market value of $131.2 million and
$92.1 million were loaned to various brokers in connection with a securities
lending program at December 31, 1996 and 1997, respectively. These securities
are returnable on demand and collateralized by cash deposits amounting to
approximately 102% of the market value of the securities loaned. Since the
Company may demand that a counterparty return the securities which it has
borrowed at any time, the Company retains effective control of all assets
F-19
<PAGE> 116
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
participating in the securities lending program. The Company receives lending
fees and continues to earn interest on the loaned securities.
In 1997, the Company implemented an "equity collar" (collar) around the
Company's equity securities of $81.6 million. An "equity collar" is an option
position created with the simultaneous purchase and sale of an equal number of
put and call options which serves as a hedge transaction, the purpose of which
is to reduce equity market volatility and to protect surplus from significant
declines in the market value of the Company's equity securities. This resulting
option position establishes both a ceiling and a floor with respect to the
financial performance of the underlying asset, upon which the "equity collar" is
established, for a specified time period. The collar transaction was executed on
July 8, 1997 and expired on January 2, 1998. The collar was constructed using
European-style S&P 500 options and as of December 31, 1997, the collar had no
unrealized gain or loss. A "European-style" option is an option contract that
may be exercised only upon expiration of the contract. To minimize loss exposure
due to credit risk, the Company utilizes intermediaries with a Standard and
Poor's rating of "AA" or better.
Hamilton has entered into a loan and security agreement with a bank with
respect to financing its leases receivable, which is collateralized by specified
leases receivable and the related equipment. Aggregate borrowing under the
agreement cannot exceed $22.0 million. The term of the agreement, as amended, is
from November 24, 1993 through May 31, 1998. Hamilton was in compliance with
this agreement's requirements on December 31, 1996 and 1997. As of December 31,
1996 and 1997 notes payable amounted to $15.4 million and $17.8 million,
respectively, with installments due through 2001 with interest rates ranging
from 6.775% to 8.865% during 1997.
The following are the maturities of the Company's notes payable, primarily
related to Hamilton (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998....................................................... $11,342
1999....................................................... 6,081
2000....................................................... 3,210
2001....................................................... 1,238
-------
$21,871
=======
</TABLE>
Interest paid in 1995, 1996 and 1997 was $1.1 million, $1.0 million and
$1.7 million, respectively.
The Company leases office space and office equipment. Rent expense for
1995, 1996 and 1997 was $1.0 million, $1.4 million and $1.5 million,
respectively, including rent paid to the Medical Society of New Jersey of $0.6
million, $0.7 million and $0.8 million for 1995, 1996 and 1997, respectively.
Minimum future rental obligations for leases currently in effect are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998....................................................... $ 2,015
1999....................................................... 1,763
2000....................................................... 1,632
2001....................................................... 1,258
2002....................................................... 926
Thereafter................................................. 2,579
-------
$10,173
=======
</TABLE>
The Company provided a letter of credit on behalf of American Medical
Mutual, Inc., A Risk Retention Group, with which it has a service agreement. As
of December 31, 1996 and 1997, investments with an
F-20
<PAGE> 117
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
approximate value of $1.6 and $1.5 million, respectively included in the
accompanying combined financial statements, were pledged to banks in connection
with this irrevocable letter of credit.
The Company has employment contracts with certain officers, which commit
the Company to various salary and fringe benefit obligations as specified in the
individual agreements.
7. STATUTORY ACCOUNTING PRACTICES
The Exchange, domiciled in New Jersey, LP&C, domiciled in Virginia, and
Lawrenceville Re, domiciled in Bermuda, prepare statutory-basis financial
statements in accordance with accounting practices prescribed or permitted by
the New Jersey Department of Banking and Insurance, Virginia Department of
Insurance and the Bermuda Registrar of Companies, respectively. "Prescribed"
statutory accounting practices include state laws, regulations, and general
administrative rules, as well as a variety of publications of the National
Association of Insurance Commissioners (NAIC). "Permitted" statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices may differ from state to state, may differ from company to company
within a state, and may change in the future. The NAIC currently is in the
process of codifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Policyholders' surplus and net income, as reported to the domiciliary
state insurance departments in accordance with its prescribed or permitted
statutory accounting practices for these three companies, are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income for the year.................. $ 35,994 $ 20,109 $ 35,645
Statutory surplus at year-end...................... 184,651 208,738 $248,050
</TABLE>
The maximum amount of dividends that domestic insurance companies in New
Jersey and Virginia can pay to their policyholders without prior approval of the
respective Insurance Commissioners is subject to restrictions relating to
statutory surplus and statutory net income. No dividends were paid or declared
in 1995, 1996 or 1997.
8. INCOME TAXES
For federal income tax purposes, the Exchange and the Attorney-in-Fact
separately file consolidated returns with their respective subsidiaries.
The components of the income tax provision in the accompanying statements
of income are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provisions:
Federal.............................................. $ 9,559 $9,008 $ 3,626
State................................................ 103 262 96
------- ------ -------
9,662 9,270 3,722
------- ------ -------
Deferred provisions:
Federal.............................................. 2,495 969 (1,884)
State................................................ (49) (460) 247
------- ------ -------
2,446 509 (1,637)
------- ------ -------
$12,108 $9,779 $ 2,085
======= ====== =======
</TABLE>
F-21
<PAGE> 118
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax computed at the federal statutory tax rate
to total income tax expense is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax at 35%............................. $15,793 $10,247 $10,831
Increase (decrease) in taxes resulting from:
Tax-exempt interest................................. (3,893) (4,490) (3,583)
Provision for (reversal of) tax contingencies and
other tax matters................................ 0 5,224 (4,217)
Other............................................... 208 (1,202) (946)
------- ------- -------
Total income taxes.......................... $12,108 $ 9,779 $ 2,085
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Discounting of loss reserves.............................. $33,797 $37,005
Net operating loss carryforwards.......................... 1,125 444
Other..................................................... 3,922 3,238
Valuation allowance....................................... (107) (258)
------- -------
Total deferred tax assets......................... 38,737 40,429
------- -------
Deferred tax liabilities:
Unrealized gains on fixed maturity investments............ 723 6,973
Unrealized gain on equity investments..................... 4,164 7,896
Other..................................................... 1,306 1,362
------- -------
Total deferred tax liabilities.................... 6,193 16,231
------- -------
Net deferred tax assets........................... $32,544 $24,198
======= =======
</TABLE>
Deferred tax assets, net of valuation allowance, are presently considered
by management to be realizable based on the level of anticipated future taxable
income. Net deferred tax assets and income tax expense in future years can be
significantly affected by changes in enacted tax rates or by unexpected adverse
events that would impact management's conclusions as to the ultimate
realizability of deferred tax assets.
At December 31, 1996 and 1997, the Company had income taxes payable
included in other liabilities of $7.0 million and $2.6 million, respectively.
The amount of income taxes paid in 1995, 1996 and 1997 was $4.5 million,
$4.0 million and $6.2 million, respectively.
As a result of developments during 1996 related to Internal Revenue Service
examinations, the Company established a provision for tax contingencies of
$5,224. During 1997, the Company reached favorable resolutions and was able to
release $4,217 of that amount. The federal income tax returns of the Exchange
and the Attorney-In-Fact have been examined by the Internal Revenue Service
through the years 1994 and 1993, respectively. Management believes the Company
has adequately provided for any remaining tax contingencies.
F-22
<PAGE> 119
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. NOTES RECEIVABLE
The Company held a note receivable of $3.2 million and $3.0 million,
included in other assets, at December 31, 1996 and 1997, respectively, from the
Medical Society of New Jersey, collateralized by the building in which the
Company maintains its home office. The note provides for monthly payments of
$40,000, which includes interest at 9.05% until September 1, 2004 and reduced
payments thereafter until June 1, 2009.
10. RETIREMENT PLANS
The Company provides a noncontributory defined pension plan covering
substantially all its employees. The funding policy for the plan is to make
minimum annual contributions required by applicable regulations.
The components of pension expense for 1995, 1996 and 1997 include the
following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service cost.......................................... $ 447 $ 541 $ 560
Interest cost......................................... 309 365 416
Actual return on plan assets.......................... (1,336) (1,020) (1,158)
Net amortization and deferral......................... 688 201 217
------- ------- -------
Net pension cost...................................... $ 108 $ 87 $ 35
======= ======= =======
</TABLE>
The funded status of the Company's plan at December 31, 1996 and 1997 was
as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accumulated benefit obligation including vested benefits of
$3.8 million in 1996 and $4.8 million in 1997............. $ 3,996 $ 5,163
======= =======
Projected benefit obligation................................ $ 5,421 $ 6,737
Plan assets at fair value................................... 7,613 8,718
------- -------
Plan assets in excess of projected benefit obligation....... 2,192 1,981
Unrecognized net gain from past experience, which is
different from that assumed, and effect of changes in
assumptions............................................... (3,421) (3,267)
Unrecognized transition asset being recognized over 15
years..................................................... (155) (133)
------- -------
Accrued pension liability................................... $(1,384) $(1,419)
======= =======
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 8% and 7.5% at December 31, 1996 and 1997,
respectively. The expected long-term rate of return on plan assets was 9% in
1995, 1996 and 1997. Plan assets are primarily invested in listed stocks,
registered investment company holdings and U.S. government obligations.
The Company also has a contributory 401(k) Retirement Savings Plan which
covers substantially all employees. Employee contributions up to 6% of earnings
are matched by the Company at a rate of 50(cent) per $1.00. The maximum
contribution by an employee for 1997 cannot exceed $9,500. Total contributions
by employees amounted to $0.7 million in 1995, 1996 and 1997. Employer
contributions for the same period totaled $0.2 million, $0.3 million and $0.3
million, respectively.
11. PLAN OF REORGANIZATION
In 1997, the Exchange's Board of Governors unanimously approved a plan to
convert from a reciprocal insurance exchange to a New Jersey domestic stock
insurer. On March 5, 1998, the Commissioner of Banking and Insurance of the
State of New Jersey approved this plan subject to ratification by members of the
Exchange at a special meeting to be scheduled in mid-year 1998.
F-23
<PAGE> 120
SCHEDULE I
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT ON
COST FAIR VALUE BALANCE SHEET
-------- ---------- -------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
United States Government and government agencies and
authorities....................................... $410,855 $ 419,735 $ 419,735
States, municipalities and political subdivisions.... 202,386 209,605 209,605
Public Utilities..................................... 948 970 970
All other corporate bonds............................ 218,263 222,067 222,067
Certificates of Deposit.............................. 1,600 1,600 1,600
-------- ---------- ----------
Total Fixed Maturities............................ 834,052 853,977 853,977
-------- ---------- ----------
Equity Securities:
Common Stock:
Public Utilities.................................. 493 668 668
Banks, trust and insurance companies.............. 3,940 4,745 4,745
Industrial, miscellaneous and all other........... 10,107 13,923 13,923
Mutual Funds...................................... 51,980 69,744 69,744
Non-redeemable preferred stock....................... 2,500 2,500 2,500
-------- ---------- ----------
Total Equity Securities........................... 69,020 91,580 91,580
-------- ---------- ----------
Short-term Investments................................. 85,478 85,478 85,478
-------- ---------- ----------
Total Investments...................................... $988,550 $1,031,035 $1,031,035
======== ========== ==========
</TABLE>
F-24
<PAGE> 121
ANNEX A
PLAN OF REORGANIZATION
OF
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
AS FILED WITH THE NEW JERSEY
DEPARTMENT OF BANKING AND INSURANCE
ON
OCTOBER 16, 1997
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I: DEFINITIONS...................................... A-1
ARTICLE II: APPROVAL BY THE COMMISSIONER.................... A-3
2.1 Application.......................................... A-3
2.2 Commissioner's Public Hearing........................ A-3
2.3 Approval of Plan..................................... A-3
ARTICLE III: APPROVAL BY MEMBERS............................ A-3
3.1 Member Vote.......................................... A-3
3.2 Notice of Members' Meeting........................... A-4
3.3 Certification........................................ A-4
ARTICLE IV: THE REORGANIZATION.............................. A-4
4.1 Holding Company and Stock Insurer.................... A-4
4.2 Effect of Reorganization............................. A-4
4.3 Conditions to Effectiveness of Plan.................. A-4
4.4 Initial Public Offering.............................. A-5
ARTICLE V: POLICIES......................................... A-5
5.1 Policies............................................. A-5
5.2 Who is a Named Insured............................... A-5
5.3 In Force............................................. A-5
ARTICLE VI: ALLOCATION OF CONSIDERATION TO DISTRIBUTEES..... A-6
6.1 Allocation of Consideration.......................... A-6
6.2 Payment of Consideration............................. A-6
ARTICLE VII: ACQUISITION OF THE UNDERWRITER................. A-7
7.1 Stock Purchase Agreement............................. A-7
7.2 Determination of Consideration for Stock of the
Underwriter............................................ A-7
ARTICLE VIII: ADDITIONAL PROVISIONS......................... A-7
8.1 Assumption Certificates.............................. A-7
8.2 Notices.............................................. A-7
8.3 Adjustment of Share Numbers.......................... A-7
8.4 Authority to Remedy Errors........................... A-7
8.5 Corrections.......................................... A-7
8.6 Amendment of the Plan................................ A-7
8.7 Extension of Time Periods............................ A-7
8.8 Abandonment of Plan.................................. A-7
8.9 Costs and Expenses................................... A-7
8.10 Addresses of Members................................. A-8
8.11 Governing Law........................................ A-8
8.12 Confidentiality...................................... A-8
</TABLE>
<TABLE>
<S> <C> <C>
EXHIBIT A -- Form of Certificate of Incorporation of the Holding Company
(omitted from this copy)
EXHIBIT B -- Form of By-Laws of the Holding Company (omitted from this
copy)
EXHIBIT C -- Form of Certificate of Incorporation of the Stock Insurer
(omitted from this copy)
EXHIBIT D -- Form of By-Laws of the Stock Insurer (omitted from this
copy)
EXHIBIT E -- Form of Assumption Reinsurance and Administration Agreement
between the Company and the Stock Insurer (omitted from this
copy)
EXHIBIT F -- Form of Assignment and Assumption Agreement between the
Company and the Stock Insurer (omitted from this copy)
EXHIBIT G -- Form of Stock Purchase Agreement between and among the
Holding Company and the Medical Society of New Jersey
(omitted from this copy)
</TABLE>
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<PAGE> 123
PLAN OF REORGANIZATION
OF
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
This Plan of Reorganization, which has been adopted by the Board of
Governors (the "Board") of Medical Inter-Insurance Exchange of New Jersey (the
"Company"), a reciprocal insurer organized under Chapter 50, Title 17 of the New
Jersey Statutes, at a meeting duly called and held at the offices of the Company
on October 15, 1997 (the "Adoption Date"), provides for the reorganization of
the Company from a reciprocal insurer into a New Jersey stock domestic stock
insurer owned by a Delaware stock holding company.
The principal purposes for the Company's reorganization are to enhance the
Company's strategic and financial flexibility and to provide Distributees with
(i) marketable stock of The MIIX Group, Incorporated (the "Holding Company"), a
newly-formed corporation that upon the effectiveness of this Plan of
Reorganization will become the holding company for MIIX Insurance Company (the
"Stock Insurer"), the successor to the Company, or, (ii) in certain cases, cash.
THE REORGANIZATION WILL NOT IN ANY WAY CHANGE PREMIUMS OR REDUCE POLICY BENEFITS
OR OTHER POLICY OBLIGATIONS PROVIDED UNDER EXISTING POLICIES ISSUED TO THE
COMPANY'S POLICYHOLDERS.
At present, the Company can increase its capital primarily through retained
surplus contributed by its business. The Company's management believes that in
the long term this source will not be sufficient to meet its business
objectives. The Company's business has generated significant contributions to
statutory surplus, but management believes that growth is necessary to remain an
effective, competitive, financially secure insurer in the future and that such
growth requires additional permanent capital beyond that which can be internally
generated. Upon reorganization, the Stock Insurer, the successor to the Company,
will have a corporate structure that will enable it to access the capital
markets through its proposed parent Holding Company. This new corporate
structure will enable the successor to the Company to obtain capital from a
variety of sources, including through an initial public offering of the common
stock of the Holding Company, which may be conducted at the discretion of the
Board concurrent with or at any time after the effectiveness of the
reorganization of the Company as set forth herein. In addition, the new
corporate structure will facilitate potential acquisitions by creating a more
flexible corporate organization which, among other things, will permit the
issuance of stock to consummate such acquisitions. Finally, the reorganization
of the Company pursuant to this Plan of Reorganization will provide Distributees
with marketable shares of Holding Company stock or cash.
The Company and the Board intend that the reorganization, including the
transfer of assets of the Company to the Stock Issuer as described in Section
4.2 below and the distribution of Holding Company Stock to Members, qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
ARTICLE I: DEFINITIONS
As used in this Plan of Reorganization, the following terms have the
following meanings:
"Adoption Date" has the meaning specified in the first paragraph hereof.
"Allocable Shares" means 12 million shares of common stock of the Holding
Company.
"Board" has the meaning specified in the first paragraph hereof.
"Certificate of Authority" has the meaning specified in Section 4.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning specified in the first paragraph hereof.
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<PAGE> 124
"Commissioner" means the Commissioner of Banking and Insurance of the State
of New Jersey, or such governmental officer, body or authority as may succeed
such Commissioner as the primary regulator of the Company's insurance business
under applicable law.
"Conversion Value" means the price per share at which Holding Company Stock
is offered to the public in the Initial Public Offering, or, if no Initial
Public Offering shall have been made, the price per share that would reflect the
economic value of the Holding Company Stock as determined in good faith by the
Board.
"Distributee" means a Member or a Look-Back Insured.
"Effective Date" has the meaning specified in Section 4.3.
"Effective Time" has the meaning specified in Section 4.3.
"Final Order Date" has the meaning specified in Section 4.3.
"Holding Company" means The MIIX Group, Incorporated, a corporation
organized under the laws of the State of Delaware.
"Holding Company Stock" means the shares of common stock, par value $.01
per share, of the Holding Company.
"In Force" has the meaning specified in Section 5.3.
"Information Statement" has the meaning specified in Section 3.2.
"Initial Public Offering" means an initial public offering by the Holding
Company of shares of Holding Company Stock.
"Look-Back Insured" means a Person who is not a Member, but who at any time
during the three-year period prior to the Adoption Date was the Named Insured in
one or more Policies issued by the Company and who, therefore, was a member of
the Company during such period under Article II of the Company's Rules &
Regulations.
"Member" means a Person who is the Named Insured in one or more Policies
that are In Force on the Adoption Date and who, therefore, is a member on the
Adoption Date under Article II of the Company's Rules & Regulations.
"Members' Meeting" has the meaning specified in Section 3. 1.
"Membership Interests" means, as of the Effective Date, all the rights or
interests of Members of the Company at such time arising under the Rules and
Regulations of the Company or otherwise by law, including, but not limited to,
any right to vote and any right to a return of the surplus of the Company, which
may exist with regard to the surplus of the Company not apportioned or declared
prior to the Effective Date by the Board for policyholder dividends. For
purposes of the Plan of Reorganization, Membership Interests shall not include
any other right expressly conferred by an insurance policy.
"Named Insured" shall have the meaning specified in Section 5.2.
"Person" means a natural person. A Person who is the Named Insured of
Policies in more than one legal capacity (e.g., a trustee under separate trusts)
shall be deemed to be a separate Person in each such capacity.
"Plan of Reorganization" means this Plan of Reorganization (including all
Exhibits hereto), as it may be amended from time to time in accordance with
Section 8.7.
"Policy" has the meaning specified in Section 5.1.
"Public Hearing" has the meaning specified in Section 2.2.
"Stock Insurer" means MIIX Insurance Company, a newly-incorporated New
Jersey domestic stock insurer that is a wholly owned subsidiary of the Holding
Company and is the successor to the Company.
"Transfer Agent" means the transfer agent to be designated by the Company,
or its successors or assigns.
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<PAGE> 125
"Underwriter" means New Jersey State Medical Underwriters, Inc., a New
Jersey Corporation that is the attorney-in-fact for the Company.
ARTICLE II: APPROVAL BY THE COMMISSIONER
2.1. Application. The Company shall seek the approval of the Commissioner
for the reorganization of the Company into a stock insurer owned by a stock
holding company, as set forth in Article IV below by filing with the
Commissioner an application including the following documents:
(a) this Plan of Reorganization, including all exhibits hereto;
(b) a certification that this Plan of Reorganization has been duly
adopted by a vote of at least two-thirds of the members of the Board; and
(c) any other additional information as the Commissioner may
reasonably request.
In addition, the Holding Company shall file with the Commissioner an application
for the formation of the Stock Insurer containing all required documents.
2.2. Commissioner's Public Hearing. (a) This Plan of Reorganization is
subject to the approval of the Commissioner after a hearing thereon (the "Public
Hearing"), which shall be held pursuant to procedures established by the
Commissioner under New Jersey law and regulations.
2.3. Approval of Plan. The Commissioner shall make a determination
whether to approve the Plan of Reorganization after the completion of the Public
Hearing. The Stock Insurer shall be formed and licensed to do business for the
same lines of insurance currently permitted of the Company upon the entry of an
order by the Commissioner approving the Plan and the transactions contemplated
thereby.
ARTICLE III: APPROVAL BY MEMBERS
3.1. Member Vote. After the Commissioner's determination to approve the
Plan, the Company shall hold a special meeting of Members (the "Members'
Meeting"). At such Members' Meeting, the Members shall be entitled to vote on
the proposal to approve the Plan of Reorganization.
(a) The Plan of Reorganization is subject to the approval of not less
than two-thirds of the votes of the Members voting thereon in person or by
proxy at the Members' Meeting.
(b) Based upon the Company's records and pursuant to Article II,
Section Three of the Company's Rules and Regulations, each Member shall be
entitled to one vote.
3.2. Notice of Members' Meeting. (a) The Company shall mail notice of the
Members' Meeting to all Members. The notice shall set forth the reasons for the
vote and the time and place of the Members' Meeting. Such notice shall be sent
by first class mail to the address of each Member as it appears on the records
of the Company, at least 30 days prior to the Members' Meeting and shall be in a
form satisfactory to the Commissioner.
(b) Such notice of such Members' Meeting shall include an information
statement (the "Information Statement") containing the following
information:
(i) a copy of the Plan;
(ii) a copy of the Commissioner's order approving the Plan;
(iii) an explanation of the Plan;
(iv) a copy of an opinion from a nationally-recognized investment
banking firm to the effect that the Plan is fair from a financial point
of view as at the date of such opinion; and
(v) a description of the Company's business, including financial
statements.
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<PAGE> 126
3.3. Certification. Promptly after the Members' Meeting, the Company
shall file a certification with the Commissioner setting forth the vote and
certifying whether the Plan of Reorganization was approved by at least
two-thirds of the votes of the Members voting in person or by proxy at the
Members' Meeting.
ARTICLE IV: THE REORGANIZATION
4.1. Holding Company and Stock Insurer. Prior to the Effective Time,
(i) the Holding Company shall exist as a duly organized Delaware corporation
that is a wholly-owned subsidiary of the Company, and (ii) the Holding Company
shall own 100% of the stock of the Stock Insurer, which shall be a duly
organized New Jersey insurer.
4.2. Effect of Reorganization. (a) At the Effective Time:
(i) pursuant to the Assumption Reinsurance and Administration
Agreement between the Company and the Stock Insurer substantially in the
form attached hereto as Exhibit E and the Assignment and Assumption
Agreement between the Company and the Stock Insurer substantially in the
form attached hereto as Exhibit F, all of the assets of the Company,
except the voting stock of the Holding Company, and the cash to be
distributed to Distributees pursuant to Article VI hereunder, shall be
transferred to the Stock Insurer, in exchange, all of the Company's
insurance and non-insurance liabilities shall be assumed by the Stock
Insurer without recourse to the Company;
(ii) pursuant to the Stock Purchase Agreement between and among the
Holding Company and The Medical Society of the State of New Jersey
substantially in the form attached hereto as Exhibit G (the "Stock
Purchase Agreement"), the Holding Company shall acquire 100% of the
stock of the Underwriter, in exchange for newly-issued Holding Company
Stock and cash, pursuant to a formula as set forth in Section 7.2 below;
(iii) Distributees shall be entitled to receive Holding Company
Stock or cash, allocated pursuant to Article VI hereof;
(iv) all Membership Interests shall be extinguished; and
(v) the Company shall dissolve.
(b) On the Effective Date, the Company shall cause to be issued to the
Transfer Agent, for the respective accounts of the Distributees entitled to
receive such stock pursuant to Article VI, a number of shares of Holding
Company Stock determined in accordance with Article VI.
(c) As promptly as possible after the Effective Date, the Transfer
Agent shall transfer to the Distributees such shares of Holding Company
Stock, allocated in accordance with Article VI, as are registered in the
respective names of such Distributees. As promptly as possible after the
Effective Date, the Holding Company shall pay or cause the Company to pay
or credit cash consideration to eligible Distributees in accordance with
Article VI.
4.3. Conditions to Effectiveness of Plan. The effectiveness of the Plan
is subject to the conditions that:
(i) the Company has received an opinion from a
nationally-recognized investment banking firm to the effect that the
Plan is fair from a financial point of view as at the date of such
opinion;
(ii) the Company has received on or prior to the Effective Date
rulings from the Internal Revenue Service or opinions of its tax
advisors substantially to the effect that the transfer of Company's
assets to, and assumption of its liabilities by, the Stock Insurer, and
dissolution of the Company, shall qualify as a tax-free reorganization.
(iii) the Members shall have approved the Plan as specified in
Section 3.3 hereof;
(iv) the Underwriter shall cancel all powers of attorney entered
into with any applicant for insurance with the Company;
A-4
<PAGE> 127
(v) all requisite approvals of the Assumption Reinsurance and
Administration Agreement shall have been obtained;
(vi) the Company shall have filed with the Commissioner the
certificate set forth in Section 3.3 hereof and a certificate stating
that the conditions set forth in clause (ii) -- (v) have been satisfied;
and
(vii) the order of the Commissioner set forth in Section 2.5 has
become final (the date of such event the "Final Order Date"), and the
Commissioner shall have issued a certificate of authority (the
"Certificate of Authority") to the Stock Insurer to do business for the
same lines of insurance currently permitted of the Company and shall
have granted to the Stock Insurer any required rate and form approvals.
The effective date of the Plan of Reorganization (the "Effective Date") shall be
the date on which the Certificate of Authority issued by the Commissioner
becomes effective, provided that in no event shall the Effective Date be less
than 30 days after the Final Order Date nor more than 12 months after the Final
Order Date, unless such period is extended by the Commissioner. The Plan of
Reorganization shall be deemed to have become effective on the Effective Date at
the time specified in the Certificate of Authority (the "Effective Time").
4.4. Initial Public Offering. An Initial Public Offering may be conducted
at the discretion of the Board concurrent with or at any time after the
Effective Date.
ARTICLE V: POLICIES
5.1. Policies. Each insurance policy duly issued by the Company is deemed
to be a Policy for purposes of this Plan of Reorganization.
5.2. Who is a Named Insured. The Named Insured in any Policy as of any
date shall be determined on the basis of the Company's records as of such date
in accordance with the following provisions;
(a) The Named Insured in a Policy shall be as shown on the Policy
Declarations page in the Company's records.
(b) The Named Insured in a Policy that is a group insurance policy
shall be the Person or Persons specified as Named Insureds.
(c) Except as otherwise set forth in this Article V, the identity of
the Named Insured of a Policy shall be determined without giving effect to
any interest of any other Person in such Policy.
(d) In any situation not expressly covered by the foregoing provisions
of this Section 5.2, the first Named Insured, as reflected on the records
of, and as determined in good faith by, the Company, shall conclusively be
presumed to be the Named Insured in such Policy for purposes of this
Section 5.2, provided such Named Insured is a Person, and the Company shall
not be required to examine or consider any other facts or circumstances.
(e) Any dispute as to the identity of the Named Insured in a Policy or
the right to vote or receive consideration shall be resolved by the Company
in accordance with the foregoing.
5.3. In Force. (a) A Policy shall be deemed to be in force ("In Force")
as of any date if, as shown on the Company's records, (1)(i) such Policy has
been issued and the status of such Policy has been changed from pending to in
force on the Company's records, or (ii) in the case of an individual Policy, the
Company's administrative office has received by such date in respect of such
Policy an application, complete on its face, together with payment of the full
initial premium (unless submission of such premium is precluded by the Company's
underwriting rules), provided that any Policy referred to in this clause (ii) is
issued as applied for and the status of such Policy has been changed from
pending to in force on the Company's records within 30 days of such date, and
(2) such Policy has not been surrendered, canceled or otherwise terminated;
provided that a Policy shall be deemed to be In Force after lapse for nonpayment
of premiums until expiration
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<PAGE> 128
of any applicable grace period (or other similar period however designated in
such Policy) during which the Policy is in full force for its basic benefits.
(b) A Policy shall not be deemed to be In Force merely because, prior
to the date on which such Policy was issued, insurance coverage may have
been provided by a binder of coverage.
(c) A Policy shall not be deemed to be In Force as of any date if the
Policy is returned to the Company and all return premiums due have been
refunded within 60 days after such date.
ARTICLE VI: ALLOCATION OF CONSIDERATION TO DISTRIBUTEES
6.1. Allocation of Consideration. (a) The consideration to be given to
Distributees shall be shares of Holding Company Stock, or, as set forth in
Section 6.2(b), cash. Solely for purposes of calculating the amount of such
consideration, each Distributee will be allocated (but not issued) shares of
Holding Company Stock in accordance with this Article VI.
(b) Each Distributee shall be allocated a pro rata share of the
Holding Company Stock held by the Company after the purchase of the
Underwriter, in proportion to the percentage that direct premium earned by
the Company attributable to such Distributee, less return premiums, over
the three years prior to the Adoption Date bears to direct premium earned
by the Company attributable to all Distributees, less return premiums, over
the three years prior to the Adoption Date.
(c) The number of shares of Holding Company Stock calculated in
accordance with Section 6.1(b) in respect of each Distributee shall be the
sum of the number of shares of Holding Company Stock after rounding such
number to the nearest integral number of shares (with one-half being
rounded upward). Because of such rounding, the aggregate number of certain
Distributees' Holding Company Stock will not necessarily be precisely equal
to the such Distributee's pro rata proportion of direct premium earned by
such Distributee over the three years prior to the Adoption Date.
6.2. Payment of Consideration. (a) The Company shall be deemed to issue
to the Transfer Agent for the account of each Distributee a number of shares of
Holding Company Stock equal to the number of shares of Holding Company Stock
allocated to such Distributee, except that a Distributee shall not be issued
such shares of Holding Company Stock and shall instead be paid cash (in an
amount determined pursuant to subsection (b) of this Section 6.2) based on the
number of shares of Holding Company Stock allocated to such Distributee as
provided in this Article VI.
(b) A Distributee shall not be issued such shares of Holding Company
Stock and shall instead be paid cash based on the number of shares of
Holding Company Stock allocated to such Distributee as provided in this
Article VI if: (i) shares of Holding Company Stock are allocable to a
Distributee whose address for mailing purposes as shown on the records of
the Company is located outside the States of the United States of America
or is shown on the Company's records to be an address at which mail to such
Distributee is undeliverable, or (ii) such Distributee is allocated an
integral number of shares of Holding Company Stock that is less than or
equal to 99 (as each such number is subject to proportional adjustment as
provided in Section 8.3).
(c) If consideration is to be paid or credited to a Distributee in
cash, the amount of such consideration shall be equal to the number of
shares of Holding Company Stock allocable to such Distributee as provided
in this Article VI multiplied by the Conversion Value. Payment shall be
made by check, net of any applicable withholding tax, as soon as reasonably
practicable after the Effective Date.
(d) In the event that a Person who is a Distributee is the Named
Insured in more than one Policy, any calculation of consideration to be
allocated to such Distributee shall aggregate earned premium under all
Policies in which such Person is the Named Insured.
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<PAGE> 129
ARTICLE VII: ACQUISITION OF THE UNDERWRITER
7.1. Stock Purchase Agreement. Pursuant to the terms of the Stock
Purchase Agreement, the Holding Company shall acquire on the Effective Date 100%
of the stock of the Underwriter in exchange for specified, negotiated
consideration consisting of shares of Holding Company Stock and cash in an
amount of $11.1 million.
7.2. Determination of Consideration for Stock of The Underwriter. The
consideration for the stock of the Underwriter was determined in negotiations
with The Medical Society of the State of New Jersey. Consideration to be paid to
The Medical Society of the State of New Jersey is set forth in a formula in the
Stock Purchase Agreement.
ARTICLE VIII: ADDITIONAL PROVISIONS
8.1. Assumption Certificates. Pursuant to the Assumption Reinsurance
Agreement between the Company and the Stock Insurer, on or after the Effective
Date, the Stock Insurer shall mail assumption certificates to all current
policyholders of the Company to transfer by assumption reinsurance the
obligations of the Company to the Stock Insurer.
8.2. Notices. If the Company complies substantially and in good faith
with the requirements of this Plan of Reorganization with respect to the giving
of any required notice to policyholders or Members, its failure in any case to
give such notice to any person or persons entitled thereto shall not impair the
validity of the actions and proceedings taken under this Plan of Reorganization
or entitle such person to any injunctive or other equitable relief with respect
thereto.
8.3. Adjustment of Share Numbers. Subject to the Commissioner's approval,
by vote of the Company's Board or a duly authorized committee thereof at any
time before the Effective Date, the Company may adjust the number of shares of
Holding Company Stock set forth in the definition of Allocable Shares. Upon such
an adjustment, the following numbers of shares of Holding Company Stock in the
Plan of Reorganization shall be adjusted proportionately; (a) the number of
shares set forth in the definition of Allocable Shares in Article I, and (b) the
number of shares of Holding Company Stock expected to be outstanding on the
Effective Date. The number of shares resulting from any such adjustment shall be
rounded up to the next higher whole share.
8.4. Authority to Remedy Errors. Subject to the terms of the Plan of
Reorganization and with, the prior approval of the Commissioner, at or after the
Effective Date, the Holding Company may issue additional shares of Holding
Company Stock and take any other action it deems appropriate to remedy errors or
miscalculations made in connection with this Plan of Reorganization.
8.5. Corrections. The Company may make such modifications as are
appropriate to correct errors, clarify existing items or make additions to
correct manifest omissions in this Plan of Reorganization. After the conclusion
of the Public Hearing, any such modification shall be made only with the prior
approval of the Commissioner.
8.6. Amendment of The Plan. Prior to the conclusion of the Public
Hearing, the Plan of Reorganization may be amended by the vote of at least
two-thirds of the members of the Board.
8.7. Extension of Time Periods. Any time periods for action by the
Commissioner set forth in this Plan may be extended with the consent of the
Company.
8.8. Abandonment of Plan. The Company may, by at least a two-thirds vote
of the Board and upon reasonable notice to the Commissioner, abandon the Plan of
Reorganization at any time before the issuance of the Certificate of Authority
by the Commissioner.
8.9. Costs and Expenses. All reasonable out-of-pocket costs of the
Commissioner related to the review of the Plan of Reorganization shall be paid
by the Company and/or the Holding Company.
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8.10. Addresses of Members. The mailing address of a Member as of any
date for purposes of this Plan of Reorganization shall be the Member's last
known address as shown on the records of the Company as of such date.
8.11. Governing Law. The terms of the Plan of Reorganization shall be
governed by and construed in accordance with the laws of the State of New
Jersey.
8.12. Confidentiality. All information relating to the Plan of
Reorganization, other than information which has become part of the record for
the Public Hearing, shall be given confidential treatment and shall not be made
public by the Commissioner or any other person without the prior written consent
of the Company unless the Commissioner, after giving the Company and its
affiliates who would be affected thereby notice and opportunity to be heard,
determines that the interests of policyholders or the public will be served by
the publication thereof, in which event the Commissioner may publish all or any
part thereof in such manner as the Commissioner may deem appropriate.
IN WITNESS WHEREOF, Medical Inter-Insurance Exchange, by authority of its
Board of Governors, has caused this Plan of Reorganization to be duly executed
this 15th day of October, 1997.
MEDICAL INTER-INSURANCE
EXCHANGE OF NEW JERSEY
By DANIEL GOLDBERG
--------------------------------------
Daniel Goldberg
President & Chief Executive Officer
New Jersey State Medical Underwriters,
Inc.
Attorney-in-Fact for
Medical Inter-Insurance Exchange of
New Jersey
Attest:
CATHERINE E. WILLIAMS
Catherine E. Williams
Assistant Corporate Secretary
New Jersey State Medical Underwriters, Inc.
Attorney-in-Fact for
Medical Inter-Insurance Exchange of New Jersey
A-8
<PAGE> 131
ANNEX B
[TO COME]
B-1
<PAGE> 132
[TO COME]
B-2
<PAGE> 133
[TO COME]
B-3
<PAGE> 134
ANNEX C
STATE OF NEW JERSEY
DEPARTMENT OF BANKING AND INSURANCE
IN THE MATTER OF THE REORGANIZATION
OF THE MEDICAL INTER-INSURANCE
EXCHANGE
ORDER APPROVING
PLAN OF REORGANIZATION
This matter having been opened by the Commissioner of Banking and Insurance
("Commissioner"), State of New Jersey pursuant to the authority of N.J.S.A.
17:1-15e, 17:17-10, 17:50-1 et seq. and all powers expressed or implied therein;
and
IT APPEARING that the Medical Inter-Insurance Exchange ("MIIX") is a
reciprocal insurance exchange formed in 1977 pursuant to N.J.S.A. 17:50-1 et
seq. and is governed by a Board of Governors elected by its
members/policyholders; and
IT FURTHER APPEARING that MIIX was formed under the auspices of the Medical
Society of New Jersey ("Medical Society"), a physician trade association,
initially in order to create a medical malpractice insurer committed to service
the Medical Society's membership; and
IT FURTHER APPEARING that MIIX is managed by an attorney-in-fact, New
Jersey State Medical Underwriters, Inc. ("Medical Underwriters") which is wholly
owned by the Medical Society; and
IT FURTHER APPEARING that MIIX has matured into a significant insurer of
medical malpractice liability in New Jersey, with a significant share of the New
Jersey medical malpractice insurance market; and that in addition to New Jersey,
MIIX is licensed and conducts business in Connecticut, Pennsylvania, Delaware,
Maryland and Kentucky, and is also licensed to transact business in Michigan,
Vermont and West Virginia;
IT FURTHER APPEARING that on October 16, 1997, the MIIX Board of Governors
filed with the Department of Banking and Insurance ("Department") a plan of
reorganization by which MIIX would change its structure from a reciprocal
insurance exchange into a domestic stock insurer; and
IT FURTHER APPEARING that the stated purpose for the reorganization is to
provide MIIX with a corporate structure that will enable it to access capital
markets through its parent holding company, and thus provide a long-term source
of permanent capital to allow the company to grow and develop new business as
well as strengthen its ability to meet all of its commitments, thereby
permitting growth necessary for it to remain an effective, competitive,
financially secure insurer in the future; and
IT FURTHER APPEARING that the plan of reorganization consists of the
following:
1. Formation of the MIIX Group, Inc. ("MIIX Group"), which will be
the ultimate parent company of all of the MIIX companies upon the effective
date of the plan and will wholly own MIIX Insurance Company;
2. Formation of MIIX Insurance Company ("New MIIX"), to be a New
Jersey domiciled stock insurer and successor to MIIX;
3. The assumption of all existing MIIX business and liabilities by
New MIIX;
4. The allocation and distribution of MIIX Group's stock and cash by
which MIIX Group will acquire 100 percent of the stock of Medical
Underwriters from the Medical Society and all subsidiaries of Medical
Underwriters, and the distribution of MIIX Group's stock or equivalent cash
to current members of MIIX as defined in its rules and regulations
("members"), and former MIIX members who were insured at any time during
the three years prior to the plan adoption date ("look back insureds").
C-1
<PAGE> 135
The amount of stock will be based on MIIX direct premium on, less any
return premium (that is, net earned premium), attributable to each member
and look back insured over the three years prior to the plan adoption date.
Pursuant to the plan, cash will be distributed instead of stock to members
and look back insureds where the allocation would be less than 100 shares;
and
5. The dissolution of MIIX as a reciprocal exchange; and
IT FURTHER APPEARING that the Department reviewed the plan and related
documents and information, and provided notice of the proposed plan both by
publication in the December 1, 1997 issue of the New Jersey Register and by mail
to persons comprising the Department's mailing list for the Insurance Division;
and
IT FURTHER APPEARING that following the review of the plan by the
Department staff, the Department sought comments, views and relevant data from
interested parties and the public, and pursuant to N.J.S.A. 52:14B-4g, held a
hearing on December 22, 1997 to receive public comment from interested parties
regarding whether the proposed plan should be approved; and
IT FURTHER APPEARING that the Department accepted written comments until
December 31, 1997 from interested parties regarding the proposed plan as well as
any additional documentation or responses from comments from MIIX; and
IT FURTHER APPEARING that the Department received two timely written
comments from MIIX member insureds on the proposed plan; and
IT FURTHER APPEARING that the Hearing Officer for the hearing filed a
report dated March 3, 1998 that recommended that the proposed plan of
reorganization as filed by MIIX on October 16, 1997 be approved, subject to the
conditions of approval by the MIIX membership in accordance with its rules of
governance and the formation of New MIIX in accordance with applicable law; and
IT FURTHER APPEARING that upon review of the Hearing Officer's Report and
the recommendations set forth therein, and for the reasons set forth therein, I
find that it is appropriate to approve the proposed plan of reorganization
subject to the conditions set forth in the Hearing Officer's Report dated March
3, 1998.
THEREFORE, IT IS ON this 5th day of March, 1998,
ORDERED that the proposed plan of reorganization as filed by MIIX on
October 16, 1997 is approved, subject to the conditions of authorization and
approval by the MIIX membership in accordance with its rules of governance, and
the formation of New MIIX in accordance with applicable law.
/s/ ELIZABETH RANDALL
--------------------------------------
Elizabeth Randall
Commissioner
C-2
<PAGE> 136
med inter logo
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 95,875
NYSE Filing Fee............................................. 162,280
Blue Sky Fees and Expenses.................................. 0
Legal Fees and Expenses..................................... 1,300,000
Accounting Fees and Expenses................................ 525,000
Registrar and Transfer Agent Fees........................... 100,000
Printing and Engraving Expenses............................. 200,000
Miscellaneous............................................... 75,000
----------
Total............................................. $2,458,155
==========
</TABLE>
- ---------------
* To be completed by amendment.
Each amount set forth above, except the SEC registration fee and NYSE
filing fee, is estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law (the "DGCL") permits a Delaware
corporation to include in its charter and bylaws certain provisions to eliminate
the personal liability of directors for monetary damages and to indemnify its
directors and officers. The MIIX Group By-laws (the "By-laws") provide that
subject to certain exceptions in the case of actions by or in the right of the
Company, the Company shall indemnify its directors and officers, and may
indemnify its agents and employees, against judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her, incurred by reason of
the fact that such person was serving as a director, officer, employee or agent
of the Company, so long as such person acted and in a manner reasonably believed
to be in or not opposed to the best interest of the Company, and, with respect
to any criminal action, so long as the indemnified party had no reason to
believe that his or her conduct was unlawful. The MIIX Group's Certificate of
Incorporation provides that directors shall not be liable to the Company or the
Company's stockholders for monetary damages for breach of his or her fiduciary
duty as a director, except that liability may not be eliminated (i) for any
breach of such person's duty of loyalty, (ii) for acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL or (iv) for any transaction in which such person
received an improper personal benefit. Section 145(a) of the DGCL provides that
a corporation may indemnify a director, officer, employee, or agent if such
person acted in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful. In addition, effective upon consummation of the Reorganization, The
MIIX Group will enter into indemnification agreements with each of its directors
and certain of its executive officers that generally provide for similar
indemnification. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The Underwriting Agreement provides for indemnification by the Underwriters
of the registrant and its directors, officers and controlling persons for
certain liabilities, including liabilities arising under the Securities Act of
1933, as amended.
II-1
<PAGE> 138
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The MIIX Group was incorporated under the laws of the State of Delaware on
October 14, 1997. On October 15, 1997, The MIIX Group issued 10 shares of its
Common Stock, par value $.01 per share, to the Medical Inter-Insurance Exchange
of New Jersey for an aggregate purchase price of $10. Such issuance was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof, because such issuance did not involve any public offering
of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Plan of Reorganization of Medical Inter-Insurance
Exchange.(2)
3.1 Amended and Restated Certificate of Incorporation of the
MIIX Group, Incorporated.(1)
3.2 Bylaws of The MIIX Group, Incorporated.(2)
5.1 Opinion of Dechert Price & Rhoads.(1)
8.1 Tax Opinion of Coopers & Lybrand LLP.(1)
10.1 Lease Between the Medical Society of New Jersey and New
Jersey State Medical Underwriters, Inc. dated June 29, 1981.
10.2 Extension of Lease between the Medical Society of New Jersey
and New Jersey State Medical Underwriters, dated June 26,
1998.
10.3 Lease Between Princeton Pike Corporate Center Associates IV
and Physician Healthcare Plan of New Jersey Inc. dated May
24, 1991 and assigned to New Jersey State Medical
Underwriters, Inc. on February 11, 1997.
10.4 Specific Excess Reinsurance Contract, effective January 1,
1997, among Medical Inter-Insurance Exchange of New Jersey
and Swiss Reinsurance Company; Hannover Ruckversicherungs;
Underwriters Reinsurance Company; Kemper Reinsurance
Company; and London Life and Casualty Reinsurance
Corporation.
10.5 Specific Excess Reinsurance Contract, effective January 1,
1997, between Medical Inter-Insurance Exchange of New Jersey
and American Re-Insurance Company.
10.6 Combined Quota Share, Aggregate and Specific Excess of Loss
Reinsurance Treaty, effective November 1, 1996, among
Medical Inter-Insurance Exchange of New Jersey and Hannover
Reinsurance (Ireland) Ltd.,; E&S Reinsurance (Ireland) Ltd.;
Underwriters Reinsurance Company (Barbados) Inc.; London
Life and Reinsurance Corporation; and Lawrenceville Re, Ltd.
10.7 Specific Excess Reinsurance Contract, effective January 1,
1996 and terminated December 31, 1996, among Medical
Inter-Insurance Exchange of New Jersey and Swiss Reinsurance
Company; Hannover Ruckversicherungs; Underwriters
Reinsurance Company; American Re-Insurance Company; Kemper
Reinsurance Company; and London Life and Casualty
Reinsurance Corporation.
10.8 Combined Aggregate and Casualty Catastrophe Excess of Loss
Reinsurance Treaty, effective January 1, 1996 among Medical
Inter-Insurance Exchange of New Jersey and Hannover
Reinsurance (Ireland) Ltd.; Eisen und Stahl Reinsurance
(Ireland) Ltd.; London Life and Casualty Reinsurance
Corporation; and Scandinavian Reinsurance Company, Ltd.; and
Lawrenceville Re, Ltd.
</TABLE>
II-2
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.9 Specific Excess Reinsurance Contract, effective January 1,
1995 and terminated December 31, 1995 among Medical
Inter-Insurance Exchange of New Jersey and Swiss Reinsurance
Company; Hannover Ruckversicherungs; Underwriters
Reinsurance Company; and PMA Reinsurance Corporation.
10.10 Combined Aggregate and Casualty Catastrophe Excess of Loss
Reinsurance Treaty, effective January 1, 1995 among Medical
Inter-Insurance Exchange of New Jersey and Hanover
Reinsurance (Ireland) Ltd.; Eisen und Stahl Reinsurance
(Ireland) Ltd.; London Life and Casualty Reinsurance
Corporation; and Scandinavian Reinsurance Company Ltd.
10.11 Combined Aggregate and Casualty Catastrophe Excess of Loss
Reinsurance Treaty, effective January 1, 1994 among Medical
Inter-Insurance Exchange of New Jersey and Scandinavian
Reinsurance Company Ltd.; Hannover Reinsurance (Ireland)
Ltd.; and Eisen und Stahl Reinsurance (Ireland) Ltd.
10.12 Combined Aggregate and Casualty Catastrophe Excess of Loss
Reinsurance Treaty, effective January 1, 1993 among Medical
Inter-Insurance Exchange of New Jersey and Scandinavian
Reinsurance Company Ltd.; Hannover Reinsurance (Ireland)
Ltd.; and Eisen und Stahl Reinsurance (Ireland) Ltd.
10.13 Combined Aggregate and Casualty Catastrophe Excess of Loss
Reinsurance Treaty, effective December 15, 1992 among
Medical Inter-Insurance Exchange of New Jersey and Hannover
Reinsurance (Ireland) Ltd.; and Eisen und Stahl Reinsurance
(Ireland) Ltd.
10.14 1998 Long Term Incentive Equity Plan of The MIIX Group,
Incorporated.
10.15 Employment Agreement between New Jersey State Medical
Underwriters, Inc. and Daniel Goldberg.(1)
10.16 Employment Agreement between New Jersey State Medical
Underwriters, Inc. and Kenneth Koreyva.(1)
10.17 Employment Agreement between New Jersey State Medical
Underwriters, Inc. and Joseph Hudson.(1)
10.18 Employment Agreement between New Jersey State Medical
Underwriters, Inc. and Lisa Kramer.
10.19 Employment Agreement between New Jersey State Medical
Underwriters, Inc. and Ronald Wade.
10.20 Form of Stock Purchase and Loan Agreement between The MIIX
Group, Incorporated and Daniel Goldberg.(1)
10.21 Form of Stock Purchase and Loan Agreement between The MIIX
Group, Incorporated and Kenneth Koreyva.(1)
10.22 Form of Stock Purchase and Loan Agreement between The MIIX
Group, Incorporated and Joseph Hudson.(1)
10.23 Subscription Agreement.(1)
21.1 Subsidiaries of The MIIX Group, Incorporated.(2)
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of PricewaterhouseCoopers LLP (included in Exhibit
8.1).
23.4 Report of Independent Auditor -- June 30, 1998 Review.
24.1 Powers of Attorney.(2)
27.1 Financial Data Schedules.
</TABLE>
II-3
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
99.1 Consent of Salomon Brothers Inc.
99.2 Form of Proxy Cards.(1)
99.3 Form of Record Cards.(1)
</TABLE>
- ---------------
(1) To be filed by amendment.
(2) Previously filed.
(b) Financial Statement Schedules:
The required schedules are included on page F-22 of the Prospectus forming
part of this Registration Statement and are incorporated herein by reference.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnifica-
II-4
<PAGE> 141
tion by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining the liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Lawrenceville and State of New Jersey on September 2, 1998.
By: /s/ DANIEL GOLDBERG
------------------------------------
Daniel Goldberg
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ DANIEL GOLDBERG President, Chief Executive September 2, 1998
- ------------------------------------------------ Officer and Director (principal
Daniel Goldberg executive officer)
/s/ KENNETH KOREYVA Executive Vice President and September 2, 1998
- ------------------------------------------------ Chief Financial Officer
Kenneth Koreyva (principal financial accounting
officer)
* Director September 2, 1998
- ------------------------------------------------
Angelo S. Agro, M.D.
* Director September 2, 1998
- ------------------------------------------------
Hillel M. Ben-Asher, M.D.
* Director September 2, 1998
- ------------------------------------------------
Harry M. Carnes, M.D.
* Director September 2, 1998
- ------------------------------------------------
Palma E. Formica, M.D.
* Director September 2, 1998
- ------------------------------------------------
John S. Garra, M.D.
* Director September 2, 1998
- ------------------------------------------------
Paul Hirsch, M.D.
* Director September 2, 1998
- ------------------------------------------------
Louis L. Keeler, M.D.
* Director September 2, 1998
- ------------------------------------------------
Henry R. Liss, M.D.
* Director September 2, 1998
- ------------------------------------------------
Arganey Lucas, Jr., M.D.
* Director September 2, 1998
- ------------------------------------------------
S. Stuart Mally, M.D.
</TABLE>
II-6
<PAGE> 143
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Director September 2, 1998
- ------------------------------------------------
Vincent A. Maressa, Esq.
* Director September 2, 1998
- ------------------------------------------------
Murray N. Matez, D.O.
* Director September 2, 1998
- ------------------------------------------------
Robert S. Maurer, D.O.
* Director September 2, 1998
- ------------------------------------------------
A. Richard Miskoff, D.O.
* Director September 2, 1998
- ------------------------------------------------
Charles J. Moloney, M.D.
* Director September 2, 1998
- ------------------------------------------------
Eileen Marie Moynihan, M.D.
* Director September 2, 1998
- ------------------------------------------------
John J. Pastore, M.D.
* Director September 2, 1998
- ------------------------------------------------
Pascal A. Pironti, M.D.
* Director September 2, 1998
- ------------------------------------------------
Joseph A. Riggs, M.D.
* Director September 2, 1998
- ------------------------------------------------
Bernard Robins, M.D.
* Director September 2, 1998
- ------------------------------------------------
Herman M. Robinson, M.D.
* Director September 2, 1998
- ------------------------------------------------
Gabriel F. Sciallis, M.D.
* Director September 2, 1998
- ------------------------------------------------
Martin L. Sorger, M.D.
* Director September 2, 1998
- ------------------------------------------------
Bessie M. Sullivan, M.D.
* Director September 2, 1998
- ------------------------------------------------
Harvey P. Yeager, M.D.
*By: /s/ DANIEL GOLDBERG
-------------------------------------------
Daniel Goldberg
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 1
EXHIBIT 10.1
AGREEMENT OF LEASE
Between
THE MEDICAL SOCIETY OF NEW JERSEY
and
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
Dated: June 29, 1981
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEMISED PREMISES....................................................... 1
2. COMMENCEMENT DATE...................................................... 2
3. TERM................................................................... 2
4. RENT................................................................... 2
5. UTILITIES AND SERVICES................................................. 5
6. ADDITIONAL SPACE - TERMINATION......................................... 7
7. OTHER TENANTS.......................................................... 8
8. SIGNS.................................................................. 8
9. COMMON AREAS GRAPHICS.................................................. 8
10. ALTERATIONS............................................................ 9
11. REPAIRS................................................................ 10
12. ASSIGNMENT............................................................. 11
13. USE OF PREMISES........................................................ 12
14. SUBORDINATION AND NONDISTURBANCE....................................... 12
15. LOSS, DAMAGE........................................................... 14
16. FIRE, CASUALTY......................................................... 14
17. EMINENT DOMAIN......................................................... 15
18. ACCESS TO PREMISES..................................................... 16
19. HOLDOVER............................................................... 16
20. BANKRUPTCY............................................................. 16
21. DEFAULT................................................................ 17
22. REMEDIES............................................................... 18
23. WAIVER................................................................. 19
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
24. TITLE - QUIET ENJOYMENT................................................ 19
25. NOTICES................................................................ 19
26. PARKING................................................................ 20
27. SUBROGATION WAIVER..................................................... 20
28. RULES AND REGULATIONS.................................................. 20
29. REAL ESTATE TAXES...................................................... 21
30. INSURANCE.............................................................. 22
31. INDEMNIFICATION........................................................ 24
32. CONSENT BY LANDLORD.................................................... 25
33. CURING LANDLORD'S AND TENANT'S DEFAULTS................................ 25
34. RECORDING.............................................................. 26
35. BROKERS................................................................ 27
36. PERFORMANCE OF LANDLORD'S OBLIGATIONS.................................. 27
37. CERTAIN INFORMATION TO BE FURNISHED BY LANDLORD........................ 27
38. SUPPLEMENTAL SERVICES BY TENANT........................................ 27
39. CHOICE OF LAW.......................................................... 28
40. CAPTIONS............................................................... 28
41. SEVERABILITY........................................................... 28
42. ENTIRE AGREEMENT; AMENDMENTS........................................... 28
</TABLE>
<PAGE> 4
EXHIBITS
Exhibit A List of Plans and Specifications
Exhibit B List of Present and Contemplated Mortgages
Exhibit C Exceptions to Title
Exhibit D Landlord's Rules and Regulations
Exhibit E Memorandum of Lease
<PAGE> 5
LEASE
AGREEMENT OF LEASE, made this 29th day of June 1981, between THE
MEDICAL SOCIETY OF NEW JERSEY, a New Jersey corporation, having offices at Two
Princess Road, Lawrenceville, New Jersey (the "Landlord"), and NEW JERSEY STATE
MEDICAL UNDERWRITERS, INC., a New Jersey corporation, having offices at Two
Princess Road, Lawrenceville, New Jersey (the "Tenant"),
W I T N E S S E T H:
That Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord all that part of the building and premises (the "Building") located at
Two Princess Road, Lawrenceville, New Jersey, specified in Paragraph 1 hereof,
to be occupied and used for office purposes for the term set forth in Paragraph
3, unless sooner terminated as herein provided, at an annual rental as set forth
in Paragraph 4, payable, in advance, in monthly installments, as specified in
Paragraph 4, all such payments to be made at the office of Landlord at Two
Princess Road, Lawrenceville, New Jersey, or such other place as Landlord may
from time to time designate in writing.
The parties hereto, for themselves, their legal representatives,
successors and assigns, hereby covenant as follows:
1. DEMISED PREMISES. The premises leased hereby shall consist of a part
of the first floor and mezzanine of the Building comprising 7942 net square feet
of office space and 9039.5 gross square feet of space (the "Demised Premises").
<PAGE> 6
In addition to the foregoing premises, this Lease shall also include,
without limitation, Tenant's right of access to and use of all common areas of
the Building, including meeting room areas subject to the priority of the
Landlord's requirements as to availability, and all parking as specified in
Paragraph 26 in common with other tenants of the Building.
Landlord represents and covenants that the improvements to the Demised
Premises made at its cost and expense have been constructed and completed by it
substantially in accordance with the plans, specifications and other documents
listed on Exhibit A annexed hereto and made part hereof (as amended by the
parties prior to the date hereof), and comply with all applicable governmental
laws, ordinances, regulations, approvals and other requirements.
2. COMMENCEMENT DATE. The Commencement Date for the payment of rent
shall be January 1, 1981.
3. TERM. The term of the Lease shall commence as provided in Paragraph
2 and shall terminate twenty-five (25) years after the Commencement Date (the
"Termination Date"), unless sooner terminated as herein provided. Both parties
shall execute and deliver an instrument in recordable form setting forth the
actual Commencement Date and Termination Date pursuant to this Lease. Such
instrument shall be in the form attached hereto as Exhibit E (the "Memorandum of
Lease").
4. RENT. Tenant shall pay to Landlord the rent herein reserved at the
times and in the manner herein provided
-2-
<PAGE> 7
during the term of the Lease and for such future time as Tenant shall hold the
Demised Premises, unless otherwise stated.
(a) The annual rent payable by Tenant hereunder shall be computed on
the basis of 7942 net square feet of office space for the Demised Premises at
the rate of $6.50 per square foot for the first five years after the
Commencement Date.
(b) The annual rent payable by Tenant hereunder shall be computed on
the basis of 7942 net square feet of office space for the Demised Premises for
each of the second, third, fourth and fifth five-year periods after the
Commencement date as follows:
(i) 180 days prior to the expiration of the first, second,
third and fourth five-year periods after the Commencement Date, Landlord shall
notify Tenant in writing of the proposed rental per square foot for the next
succeeding five-year period.
(ii) No later than 150 days prior to the expiration of the
first, second, third and fourth five-year periods after the Commencement Date,
Tenant shall notify Landlord of its acceptance or rejection of the proposed
rental per square foot for the next succeeding five-year period.
(1) If accepted, Landlord and Tenant shall execute a
written agreement prior to the commencement of the next succeeding five-year
period establishing that (A) payment of annual rentals based upon such proposed
rental per square foot shall commence on the first day of the first month of the
next succeeding five-year period, (B) shall remain constant throughout such
five-year period, and (C) all of the other terms, covenants and conditions of
this Lease shall remain in full force and effect without amendment.
(2) If rejected, Tenant shall accompany its notice of
rejection with a counterproposal as to the rental per square foot. If Landlord
and Tenant are unable to agree upon
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a rental per square foot within 30 days after Landlord's receipt of Tenant's
notice of rejection and counterproposal, then Tenant shall immediately request
the American Arbitration Association to appoint a single independent arbitrator.
The rental per square foot shall be fixed in binding arbitration by the
arbitrator who shall serve at the equal cost and expense of Landlord and Tenant.
Landlord and Tenant each shall be afforded a reasonable opportunity to present
evidence of value to the arbitrator, including opinion evidence and testimony.
(3) In fixing the rental per square foot under this
subparagraph (ii), Landlord, Tenant, and in the case of an arbitration under the
preceding subparagraph, the Arbitrator, shall consider, among other things, the
size, appearance, maintenance, location and accessibility of the Building, and
shall fix a rental per square foot commensurate with rentals charged for similar
space in similar buildings in the neighboring locality.
(4) If the rental per square foot is not established
prior to commencement of any of the second, third, fourth or fifth five-year
periods after the Commencement Date, then Tenant shall continue to pay monthly
installments of annual rentals based upon the rental per square foot for the
immediately preceding five-year period.
(5) Immediately following the fixing of a rental per
square foot pursuant to this subparagraph (ii), Landlord and Tenant shall
execute a written agreement establishing that: (A) the annual rentals payable
based upon such rental per square foot shall be payable commencing on the first
day of the first month of the appropriate five-year period; (B) shall remain
constant throughout such five-year period, and (C) all of the other terms,
covenants and conditions of this Lease shall remain in full force and effect
without amendment. Tenant shall receive a credit against the amounts payable
under this subparagraph (5) for any amounts paid under subparagraph (4), and the
difference, if any, between the amounts payable under this
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subparagraph (5) and the amounts paid under subparagraph (4) shall be payable by
(credited to) the Tenant in twelve consecutive equal monthly installments
commencing on the first day of the first month following the execution of the
written agreement described in this subparagraph.
(c) The annual rental provided for in this Paragraph 4 shall be in full
payment for all space occupied by or used by Tenant, and for all services
provided the Tenant hereunder, except as otherwise provided in this Lease.
(d) Rent shall be payable on the Commencement Date and the same
numbered day of each month during the term of the Lease, in advance, in an
amount which is equal to the amount of annual rental for the then current Lease
Year less amounts of such annual rental already paid divided by the number of
months remaining in the then current Lease Year. "Lease Year" shall be defined
as the twelve month period commencing on the Commencement Date and on each
successive annual anniversary date of the Commencement Date.
5. UTILITIES AND SERVICES. (a) The following specifically described
utilities and services shall be furnished by Landlord at its own cost and
expense:
(i) Cold water for drinking, lavatory and toilet purposes;
(ii) Landscaping and maintenance of the ground including snow
removal;
(iii) Operation, maintenance and repair of the heating,
air-conditioning (other than Tenant's computer room air
conditioning system), and electrical systems at all times
during the year;
(iv) Fire prevention;
(v) Maintenance and garbage collection at all times, and
janitorial services for the first year of the term of the
lease only;
(vi) Maintenance and repairs to the parking areas, including
lighting to permit safe access to and from the Building;
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(vii) Building security, provided that the costs of the Perimeter
alarm system shall be allocated as set forth in subparagraph
(b) (ii) below;
(viii) Repairs as specified by Paragraph 11; and
(ix) Sewer hook-ups, service and maintenance.
(b) The following specifically described utilities and services
shall be furnished by
Landlord but shall be paid for by the Tenant:
(i) Gas for heating and hot water, and electricity for
air-conditioning and general purposes, each of which shall be
separately metered for the Demised Premises and billed to the
Tenant; and
(ii) A Perimeter alarm system for the Building for which the Tenant
shall be billed for its allocable share of costs by the
Landlord.
Landlord shall not be liable for failure to furnish the utilities and
services specifically described in subparagraphs (a) and (b) to the extent such
failure is the result of labor disturbance, governmental restriction or
priority, fuel shortages, accident, the necessity of making repairs, delays
caused by labor. or material shortages or other causes beyond Landlord's
control.
(c) Tenant shall provide at its own cost and expense any additional
building security or fire prevention systems for the protection of its computer
equipment.
(d) Nothing set forth in subparagraphs (b) (ii) and (c) shall be
construed to diminish the Landlord's obligation to provide fire prevention and
building security as stated in subparagraphs (a) (iv) and (vii), nor shall the
Tenant's payment of its allocable share of the costs of the perimeter alarm
system pursuant to subparagraph (b) (ii) be construed as an acknowledgment of
the adequacy of that system for
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its intended purpose.
6. ADDITIONAL SPACE - TERMINATION BY TENANT. (a) Landlord shall accord
to Tenant a continuing right of first refusal as to any space in the Building,
including storage space, contiguous with the Demised Premises, from and after
one year after the Commencement Date as to space not then leased or as any such
space shall become the subject of a bona fide offer to lease, a letter of intent
to lease, or a proposed lease from time to time. Landlord shall provide Tenant
with prompt notice of any such offer, letter of intent or proposed lease,
together with a copy of same. Within fifteen (15) days after such notice, Tenant
may exercise such right by providing written notice thereof to Landlord. Such
notice shall clearly state that the Tenant agrees to rent the entire space set
forth in the bona fide offer to lease, the letter of intent to lease, or
proposed lease, and that Tenant intends to use that space for the purpose set
forth therein. As to any space which Tenant shall elect to lease, such space
shall become a part of the Demised Premises hereunder in accordance with all the
terms of this Lease, except that the annual rent (and all allowances and credits
contained in said offer, letter of intent or proposed lease) for such space
shall be the same as that provided for in such offer, letter of intent or
proposed lease.
(b) In the event that Tenant, in its sole discretion, determines that
the quantity or quality of space constituting
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the Demised Premises is not adequate for the conduct of its business, Tenant may
terminate its obligations under this Lease upon one year's prior written notice
to the Landlord.
7. OTHER TENANTS. To the extent not unlawful, Landlord shall not lease
any portion of the Building to any of Tenant's competitors, i.e. insurance
organizations engaged in underwriting professional liability insurance.
8. SIGNS. Tenant shall have the right (with the prior written approval
of Landlord, which approval shall not be unreasonably withheld) to install, at
its own cost and expense, all identifying signs upon entrances to the Demised
Premises together with one or more exterior signs containing the name of Tenant
or any company or association represented by the Tenant, as Tenant may elect.
Tenant may determine the size, color, location, materials and lighting of such
signs, which shall satisfy all applicable governmental requirements, provided
that Tenant shall be responsible for the removal of any such signs affixed to
the exterior of the Building upon termination of this lease, and shall, at its
sole cost and expense, restore the exterior of the Building affected by such
signs to its original condition, ordinary wear and tear by the elements
excepted.
9. COMMON AREAS GRAPHICS. Tenant shall provide the design for graphics
and signages installed in the common areas of the Building adjacent to space
occupied by Tenant subject to the approval of the Landlord, which approval will
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not be unreasonably withheld.
10. ALTERATIONS, Tenant may make alterations, decorations,
installations, additions or improvements in or to the Demised Premises with the
Landlord's prior written consent, which shall not be unreasonably withheld or
delayed; provided, however, no such prior consent shall be required for
non-structural alterations, decorations, installations, additions improvements.
All such work, alterations, decorations, installations, additions or
improvements shall be done at Tenant's sole cost and expense. All alterations,
installations, additions or improvements upon the Demised Premises made by
either party (excepting Tenant's moveable trade fixtures, graphics, decorations,
furnishings and business machinery and equipment including, without limitation,
Tenant's computer and computer room air-conditioning equipment, modular
furniture, steel shelving and moveable office partitions) shall, unless Landlord
shall elect otherwise (which election shall be made by giving a notice not less
than thirty (30) days prior to the expiration or other termination of this
Lease), become the property of Landlord, and shall remain upon, and be
surrendered with, the Demised Premises as a part thereof at the end of the term
of this Lease. In the event Landlord elects not to have any such alterations,
installations, additions, or improvements made by Tenant upon the Demised
Premises become its property, the same shall be removed by Tenant and Tenant
shall restore the Demised Premises to the
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condition existing immediately prior to such alterations, installations,
additions or improvements and such removal and restoration shall be at Tenant's
own cost and expense, which covenant shall survive the termination or expiration
of this Lease. Tenant agrees that any repairs, alterations, other improvements
or installations made by Tenant shall be done in a good and workmanlike manner
and in conformity with all laws, ordinances and regulations of all public
authorities having jurisdiction, that materials of good quality shall be
employed therein and that the structure of the Building will not be endangered
or impaired thereby. All salvage in connection therewith shall be disposed of by
Tenant. Tenant agrees that it will procure all necessary permits before making
any repairs, alterations, other improvements or installations. Landlord agrees
that, without cost or expense to Landlord, it will cooperate with Tenant in
obtaining such permits. Tenant agrees to pay promptly when due the entire cost
of any work done by or for Tenant upon the Demised Premises so that the Building
shall at all times be free of liens for labor or materials. Tenant agrees to
save and indemnify Landlord from any and all expense, injury, loss, claims, or
damages to it or to any other person or to property occasioned by or in
connection with any such repairs, alterations, other improvements or
installations.
11. REPAIRS. In addition to the maintenance, janitorial and other
services to be provided by Landlord pursuant to
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this Lease, Landlord, at its own cost and expense, shall keep the Building and
grounds, the common areas thereof and the Demised Premises and all fixtures and
equipment therein (other than the leasehold improvements constructed by the
Tenant and Tenant's furnishings, furniture, trade fixtures and decorations and
signs, but including the painting of the interior walls and columns of the
Demised Premises not less than once every five years) in such repair, order and
condition as the same are in at the commencement of the term hereof or may be
put in during the continuance thereof, reasonable use and wear excepted, and
shall keep in repair (promptly making any repairs or replacements necessary) the
roof and exterior of the Building, the plumbing, fire and building security
systems (other than those specified in Paragraph 5 (c)), heating, lighting, and
other electrical equipment, ventilating equipment, air conditioning equipment
(other than Tenant's computer room air conditioning equipment), parking areas,
windows, doors and glass, and make all structural repairs. Tenant shall, at the
expiration or earlier termination of the term hereof, remove from the Demised
Premises all the goods and effects of Tenant and peaceably surrender the Demised
Premises to Landlord in such repair, order and condition as the same are in at
the commencement of the term hereof, reasonable use and wear excepted.
12. ASSIGNMENT. Tenant shall have the right at all
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times to assign this Lease or sublet the Demised Premises or any portion thereof
with the prior written consent of the Landlord in each instance, which consent
shall not be unreasonably withheld.
13. USE OF PREMISES. Tenant shall use the Demised Premises only for
office use and shall not allow or suffer any trade or occupation to be carried
on upon said premises or use to be made thereof which shall be improper,
offensive or contrary to any law or to any municipal ordinance for the time
being in force and applicable, or that shall be injurious to any person or
property or liable to make void or voidable any insurance on the Demised
Premises, and Tenant shall be liable to pay to Landlord any increased cost of
insurance upon the Demised Premises or the Building of which said premises form
a part occasioned by any use made by Tenant of the Demised Premises.
14. SUBORDINATION AND NONDISTURBANCE. This Lease and Tenant's rights
hereunder are and shall be subject to the mortgage specified on Exhibit B
annexed hereto and made part hereof, as well as any future mortgages covering
the Demised Premises, except that, notwithstanding such subordination, so long
as Tenant is not in default hereunder, or any amendment hereof, no holder of any
such mortgage shall (by foreclosure, entry into possession or otherwise) cut off
this Lease or any amendment hereof or otherwise disturb or interfere with the
occupancy or possession by Tenant of the
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<PAGE> 17
Demised Premises or otherwise hereunder and under any amendment hereof or join
or name Tenant as party defendant in any action or proceeding to foreclose any
such mortgage, and upon taking possession of the Building, as a result of
foreclosure entry or otherwise, the holder of any such mortgage or any purchaser
of the Building or any part thereof, at foreclosure sale or otherwise will
recognize this Lease and any amendment thereof and the rights of Tenant
hereunder and Tenant shall attorn to and recognize such mortgagee or purchaser
as the Landlord hereunder. The provisions of this Paragraph 14 are intended to
be self executing and effective, to the extent permitted by law, without any
further action by Tenant or the holder of any such mortgage, but upon the
request of Landlord or Tenant and at Landlord's expense, the holder (or
prospective holder) of such mortgage shall promptly execute and deliver such
certificate or other recordable instrument as Landlord or Tenant may request, in
form and substance acceptable to the requesting party, to give full effect to
the provisions of this Paragraph 14. In the event that the holder or prospective
holder of any such mortgage shall fail to comply with the provisions of the
preceding sentence within thirty (30) days after Landlord or Tenant's request
therefor, Tenant shall have the right to cancel this Lease by notice to
Landlord, whereupon Landlord shall promptly refund to Tenant all amounts paid by
Tenant under this Lease and both parties shall be then released from all further
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obligation hereunder.
15. LOSS, DAMAGE. All personal property of any kind that may be on or
about the Demised Premises shall be at the sole risk of Tenant and Landlord
shall not be liable for any injury, loss or damage to any persons or property on
or about the Demised Premises unless the same is caused by or due to the
negligence or misconduct of Landlord, Landlord's agents, servants or employees,
and Tenant shall save Landlord harmless and indemnified against any such injury,
loss, damage, claim or liability arising from any omission, neglect or default
of Tenant. Tenant shall give immediate notice to Landlord in case of fire or
accident to or defects in any fixtures or equipment of the Building.
16. FIRE, CASUALTY. If the Building shall be partly damaged by fire or
other casualty, the damages shall be repaired as expeditiously as possible by
and at the expense of Landlord and until such repairs shall be made, rent shall
be payable hereunder with respect to the Demised Premises only to the extent
attributable to any part of the Demised Premises which is usable by Tenant. If
the Demised Premises are totally damaged or rendered wholly untenantable by fire
or other casualty, this Lease shall terminate at the election of either party,
written notice of such election to be given within thirty (30) days after such
fire or other casualty, and the rent shall be apportioned to the date of such
damage; provided, however, that if this Lease shall be so terminated
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at the election of the Landlord and within two years thereafter work shall
commence to restore the Demised Premises or any part of the Building, Landlord
shall promptly notify Tenant and Tenant shall have the right, exercisable within
ninety (90) days after Tenant's receipt of such notice, to reinstate this Lease
upon the completion of such restoration.
17. EMINENT DOMAIN. If the Building or the Demised Premises shall be
taken or condemned by any competent authority for any public or quasi-public use
or purpose, then, and in that event, the term of this Lease, at the option of
the Tenant, shall cease and terminate from the time when such possession shall
be required for such use or purpose, and without the apportionment of the award.
The rent, however, shall in any such case be apportioned to the date of such
taking. Tenant shall have the right to receive any relocation award provided by
law. A partial taking or condemnation of the Building or the Demised Premises
which shall materially interfere with the conduct of Tenant's main office in the
remainder of the Demised Premises or a taking or condemnation of more than 25%
of the parking area provided for in Paragraph 26 (unless immediately substituted
for by replacement parking reasonably satisfactory to Tenant) shall be deemed a
taking or condemnation of the Demised Premises for purposes of this Paragraph
17; provided, however, in the event of a partial taking which is not deemed a
taking or
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condemnation of the Demised Premises for the purposes of this Paragraph 17, rent
and other amounts payable hereunder shall be reduced to the extent attributable
to the portion of the Demised Premises taken or condemned.
18. ACCESS TO PREMISES. Landlord or Landlord's agents shall have the
right to enter the Demised Premises at all reasonable times, during business
days, but on prior notice to the Tenant, to examine the same, and to show them
to prospective purchasers or tenants of the Building.
19. HOLDOVER. If Tenant remains in possession of the Demised Premises
beyond the expiration date of the term hereof, it is the intention of the
parties and it is hereby agreed that a tenancy from month-to-month shall arise.
20. BANKRUPTCY. If at any time during the term of this Lease Tenant
shall make an assignment for the benefit of its creditors; or if Tenant shall
file a voluntary petition in bankruptcy; or if Tenant shall be adjudicated a
bankrupt or insolvent; or if the affairs of Tenant shall be taken over by or
pursuant to an order of any court or of any other officer or governmental
authority pursuant to any federal, state or other statute or law; or if Tenant
shall admit in writing its inability to pay debts generally as they become due;
or if Tenant shall file any petition or answer seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the present or any future bankruptcy act or any other present or
future applicable federal, state or other statute or law; or if Tenant shall
seek or consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or of all or any substantial part of its property; or if,
within ninety (90) days after the commencement of any proceeding against Tenant
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or future federal bankruptcy act
or any other
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present or future applicable federal, state or other statute or law, such
proceedings shall have not been dismissed; or if, within ninety (90) days after
the appointment, without the consent or acquiescence of Tenant, of any trustee,
receiver, or liquidator of Tenant or of all or any substantial part of its
property, such appointment shall not have been vacated; or in the event action
shall be taken by Tenant in furtherance of any of the aforesaid, purposes, then
and in any such event, Landlord may at its option terminate this Lease and all
rights of Tenant herein, by giving to Tenant notice in writing of the election
of Landlord so to terminate, and in such event neither Tenant nor any person
claiming by, through or under Tenant by virtue of any statute or of an order by
any court shall be entitled to possession or to remain in possession of the
Demised Premises but shall forthwith quit and surrender the Demised Premises.
Such causes for the termination of this Lease as set forth in this Paragraph 20
shall constitute a default by Tenant and all rights and remedies stated or
otherwise reserved under Paragraph 21 hereof shall be available to Landlord. The
word "Tenant" in this Paragraph 20 shall be construed to include any surety or
guarantor of this Lease.
21. DEFAULT. Tenant shall, without any previous demand therefor, pay to
Landlord the rent at the times and in the manner heretofore provided. In the
event:
(a) of default in the payment of said rent or of any installment
or part thereof, or in the payment of any other sum or any
part thereof which may become due from Tenant to Landlord
hereunder, at the times and in the manner provided herein, and
if the same shall remain in default for fifteen (15) days
after written notice from Landlord that said payment remains
unpaid and is overdue;
(b) the Demised Premises shall be deserted, abandoned or vacated,
or
(c) of the violation by Tenant of any of the covenants, agreements
and conditions herein provided or of any reasonable Rules and
Regulations now or hereafter established by Landlord
hereunder, and the failure to cure, or commence cure of, such
violation within
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thirty (30) days (or such lesser time as may be required by
statute, ordinance or regulation) after notice in writing of
such violation by Landlord to Tenant;
then upon the happening of any such event, Landlord may, at its option, elect
either to terminate this Lease or to enter the said Demised Premises as the
agent of Tenant, either by force or otherwise, without being liable for any
prosecution or damages therefor, and relet the Demised Premises as the agent of
Tenant, and receive the rent therefor, upon such terms as shall be satisfactory
to Landlord, and all rights of Tenant to repossess the Demised Premises under
this Lease shall cease and end upon such termination or entry. Such entry for
reletting by Landlord shall not operate to release Tenant from any rent to be
paid or covenants to be performed hereunder during the full term of this Lease.
For the purpose of reletting, Landlord shall be authorized to make such repairs
or alterations in or to the Demised Premises as may be necessary to place the
same in good order and condition. Tenant shall be liable for and hereby agrees
to pay to Landlord the cost of such repairs or alterations and all expenses of
such reletting. If the sum realized or to be realized from the reletting is
insufficient to satisfy the rent provided in this Lease, Landlord, at its
option, may require Tenant to pay such deficiency month-by-month, or
year-by-year.
22. REMEDIES. In the event of any breach or threatened breach by
Landlord or Tenant of any of the agreements, terms, covenants or conditions
contained in this Lease, Landlord or Tenant (as the case may be) shall be
entitled to enjoin such breach or threatened breach and shall have the right to
invoke any right and remedy allowed at law or in equity or by statute or
otherwise as though reentry, summary proceedings, and other remedies were not
provided for in this Lease.
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Each right and remedy of Landlord or Tenant provided for in this Lease
shall be cumulative and shall be in addition to every other right or remedy
provided for in this Lease and now or hereafter existing at law or in equity or
by statute or otherwise, and to the exercise or beginning of the exercise by
Landlord or Tenant or any one or more of the rights or remedies provided for in
this Lease or now or hereafter existing at law or in equity or by statute or
otherwise.
23. WAIVER. No waiver, express or implied, by Landlord of any breach of
any covenant, agreement or duty on the part of Tenant to be performed or
observed shall be construed as a waiver of any other breach of the same or any
other covenant, agreement or duty.
24. TITLE - QUIET ENJOYMENT. Landlord represents and warrants that it
is the owner in fee simple of the premises known as Two Princess Road,
Lawrenceville, New Jersey, free and clear of all liens, encumbrances and other
exceptions except as set forth in Exhibit C. So long as Tenant shall perform and
observe all the covenants and agreements and undertakings of this Lease on
Tenant's part to be performed and observed, Tenant shall have quiet, peaceful
and uninterrupted possession of the Demised Premises.
25. NOTICES. Any notice which Landlord may desire or be required to
give to Tenant shall be deemed sufficiently given or rendered if it is in
writing and is delivered to Tenant personally or sent by registered mail
addressed to Tenant at its address stated above, or at any time at such other
address as Tenant may from time to time specify in writing to Landlord. Any
notice which Tenant may desire or be required to give to Landlord shall be
deemed sufficiently given or rendered if it is in writing and is delivered to
Landlord at its address stated above, or at anytime at such other address as
Landlord may from time to time specify in writing to Tenant.
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26. PARKING. Landlord shall provide access to and maintain during the
term of this Lease on site parking within the parking area constructed by
Landlord adjacent to the Building for Tenant's use in common with other tenants
of the Building. Landlord shall not grant to any tenant exclusive access to or
use of any part of the parking area.
27. SUBROGATION WAIVER. To the maximum extent permitted by insurance
policies which are obtainable by them, Landlord and Tenant, for the benefit of
each other, hereby release and discharge each other from all claims and
liabilities and waive any and all rights of subrogation which might otherwise
exist, arising from or caused by hazards covered by insurance on the Building
and the Demised Premises.
28. RULES AND REGULATIONS. Tenant covenants, and agrees to faithfully
observe and comply with the Rules and Regulations annexed hereto and made part
hereof as Exhibit D as well as any other and further reasonable rules and
regulations applicable to all tenants of the Building which Landlord hereafter
from time to time at any time may make and provide to Tenant, provided that the
Tenant shall be under no obligation to comply with any of the Rules or
Regulations set forth on Exhibit D which are inconsistent with other terms of
this Lease, and provided further that, without limiting the generality of the
foregoing, the Tenant specifically reserves the right to:
(a) mark, paint or drill into walls, ceilings, partitions, floors,
wood, stone or iron work for the purpose of hanging pictures
and draperies or securing equipment;
(b) inscribe, paint or affix not only the signs referred to in
Paragraph 8, but also signs in the interior of the Building
with the approval of the Landlord, which approval shall not be
unreasonably withheld;
(c) employ workmen other than workmen of the Landlord for repairs
and other similar work that may be done on the Demised
Premises;
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(d) receive freight, furniture or bulky matter into the Building
at any time via the loading dock or the Tenant's separate
entrance; and
(e) receive routine deliveries of supplies into the building at
any time.
The purpose of said Rules and Regulations is to insure the maintenance of high
standards of dignified conduct, safety, care and cleanliness of the Demised
Premises and the Building of which it is a part and the preservation of good
order therein.
29. REAL ESTATE TAXES. (a) Landlord shall pay all real estate taxes for
the Building and premises including all special, additional or rollback taxes or
assessments, any other special taxes, levies or other amounts which Landlord may
be forced to pay by the operation or enactment of any law, ordinance or
regulation relating to the operation of the Building, and all interest or
penalties assessed with respect to any of the foregoing.
(b) Tenant shall pay, at the times and in the amounts set forth in
subparagraph (c), a portion of the real estate taxes for the Building and
premises excluding: (i) any such taxes incurred by reason of improvements
obtained and/or furnished for the exclusive use or benefit of other tenants or
which are subject to payment or reimbursement by other tenants, and (ii) all
special, additional or rollback taxes or assessments, any other special taxes,
levies or other amounts which Landlord may be forced to pay by the operation or
enactment of any law, ordinance or regulation relating to the operation of the
Building, and any interest or penalties assessed with respect to any of the
items set forth in this subparagraph (b).
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(c) Real estate taxes payable by the Tenant shall be paid upon
presentation by the Landlord of a receipted tax bill and an invoice setting
forth the amount due from the Tenant. The amount due from the Tenant with
respect to each tax bill paid by the Landlord shall be calculated as follows:
9039.5 gross square fee of space X Real Estate Taxes = Amount Payable
- -------------------------------- (as defined above)
62,150 square feet
(d) In the event that Tenant shall at any time request Landlord to
contest the validity or amount of any such real estate taxes or assessments, and
Landlord shall refuse or fail to initiate such contest, Tenant shall have the
right to institute such contest in the name of Landlord. In such event, Landlord
shall fully cooperate with Tenant, but without expense to Landlord, and will
execute any document or provide any testimony as Tenant may reasonably request
for any such proceedings. In the event that any such proceedings shall result in
a refund or credit to Landlord for any year, Landlord shall promptly pay to
Tenant, out of the amount of such refund or credit the reasonable legal fees and
other expenses incurred by Tenant in connection with such proceedings. The
Tenant's portion of the remaining amount of any refund obtained by Landlord
(determined by applying the formula set forth in subparagraph (c)) shall be
applied as a credit against the next succeeding installment or rent coming due.
30. INSURANCE. Landlord covenants to provide at Landlord's sole cost
and expense on or before the Commencement Date of the term hereof, and to keep
in full force and effect during the entire term hereof and so long thereafter as
Tenant, or anyone claiming by, through or under Tenant, shall occupy the Demised
Premises, insurance coverage as follows:
(a) A policy or policies of comprehensive Public Liability
Insurance with contractual liability endorsements, issued by
an insurer or insurers approved by Tenant, with respect to the
Demised Premises and the business of Tenant and any subtenant,
on terms approved
-22-
<PAGE> 27
by Tenant, in which both Tenant and Landlord shall be
adequately covered under reasonable limits of liability of not
less than One Million ($1,000,000.00) Dollars for injury or
death to any one person and One Million ($1,000,000.00)
Dollars for injury or death to more than one person and Five
Hundred Thousand ($500,000.00) Dollars with respect to
property damage.
(b) Workmen's compensation insurance covering all persons
employed, directly or indirectly by Landlord in connection
with the Building or any repair or alteration made or required
to be made by Landlord by this Lease and any other persons
(other than officers, agents or employees of Tenant) with
respect to whom death or bodily injury claims could be
asserted against Tenant or the Demised Premises, in limits not
less than those set forth in (a) above, or such other limits
as Tenant may request.
(c) Property and casualty insurance covering the Building and
Demised Premises (other than Tenant's furnishings, moveable
trade fixtures and exterior signs) in such amounts and against
such risks as are generally carried by landlords or tenants in
the area in similar buildings and such other hazard insurance
as the nature and condition of the Demised Premises may
require, in the reasonable judgment of Landlord, to afford
Tenant adequate protection for said risks.
(d) Boiler and Machinery insurance (direct damage and use and
occupancy on a replacement cost basis), except with respect to
the Tenant's computer room air-conditioning equipment.
All of the aforesaid insurance shall be issued in the name of Landlord
(and any designee(s) of Landlord) and Tenant and shall be written by one or more
responsible insurance companies reasonably satisfactory to Tenant and in form
reasonably satisfactory to Tenant. All such insurance shall contain endorsements
substantially as follows:
"It is understood and agreed that the insurer will give to (Tenant) ten
(10) days prior written notice of any material change in or
cancellation of this policy."
Landlord shall be solely responsible for payment of premiums and Tenant
shall not be required to pay any premium for such insurance, except that Tenant
shall be responsible for
-23-
<PAGE> 28
payment of a portion of the premium for fire insurance (but no other casualty
insurance) which shall be calculated in the same manner as Tenant's share of
real estate taxes pursuant to Paragraph 29. Landlord shall deliver to Tenant at
least fifteen (15) days prior to the time such insurance is first required to be
carried by Landlord, and thereafter, at least fifteen (15) days prior to the
expiration of such policy, either a duplicate original or certificate and true
copy of all policies procured by Landlord in compliance with its obligations
hereunder, together with satisfactory evidence of the payment of the premiums
therefor, it being the intention of the parties hereto that the insurance
required under the terms hereof shall be continuous during the entire term of
this Lease and any other period of time during which, pursuant to the term
hereof, said insurance is required.
Nothing in this Paragraph shall prevent Tenant from carrying, at its
own cost, any supplemental insurance with respect to the Demised Premises or
otherwise as it deems appropriate or entitle Landlord to any benefit under such
insurance or relieve Landlord from any of its obligations hereunder.
31. INDEMNIFICATION. Tenant agrees that, except as otherwise provided
herein, its use of the Demised Premises and common facilities is at its own risk
and hereby releases Landlord and its agents, servants, contractors and employees
from all claims and demands of every kind resulting from any accident, damage or
injury occurring therein, unless caused by the negligent or intentional acts or
omissions of Landlord or its agents, contractors, invitees, employees and
servants.
Tenant shall defend, indemnify and save harmless Landlord and
Landlord's agents and employees against and from all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses including but not
limited to reasonable counsel fees which may from time to time
-24-
<PAGE> 29
or at any time be asserted by third persons (including, but not limited to,
those for death, for personal injuries, or for loss or damage to property)
against Landlord or Landlord's agents by reason of or arising directly or
indirectly during the term of this Lease, or any time prior thereto that the
Tenant may have had possession of or been given access to all of or any portion
of the Demised Premises, out of or in connection with any or all of the
following:
(a) Tenant's operation in the Demised Premises;
(b) Any negligent or otherwise wrongful act or omission on the
part of Tenant or any of its agents, contractors,
subcontractors, servants, employees, subtenants, licensees or
invitees;
(c) Any work or thing done in, on or about the Demised Premises or
any part thereof by or at the instance of Tenant, its agents,
contractors, subcontractors, servants, employees, subtenants,
licensees or invitees;
(d) Any accident, injury or damage to any person or property
occurring in, on or about the Demised Premises or any part
thereof.
In case any action or proceeding is brought against Landlord by reason
of any such claim, Tenant upon written notice from Landlord shall at Tenant's
expense resist or defend such action or proceeding.
32. CONSENT BY LANDLORD. Whenever, under this Lease, provision is made
for Tenant securing the written consent or approval by Landlord, such consent or
approval shall be in writing and shall not be unreasonably withheld or delayed
by Landlord.
33. CURING TENANT'S DEFAULTS. If Tenant shall default in the
performance of any covenant, agreement, term, provision or condition, Landlord
may (but shall not be obligated to) perform the same for the account of Tenant
and at Tenant's expense if such default continues after thirty (30) days from
the date of the giving by Landlord to Tenant of written notice of such default.
Bills for any reasonable and necessary expense incurred by Landlord in
connection with
-25-
<PAGE> 30
any such performance by Landlord for the account of Tenant, and reasonable and
necessary bills for all costs, expenses and disbursements, including (without
being limited to) reasonable counsel fees, incurred in collecting or endeavoring
to collect the rent or other charges or any part thereof or enforcing or
endeavoring to enforce any rights against Tenant under or in connection with
this Lease, or pursuant to law, including (without being limited to) any such
cost, expense and disbursement involved in instituting and prosecuting summary
proceedings, as well as bills for any property, material, labor or services
provided, furnished or rendered, or caused to be provided, furnished or
rendered, by Landlord to Tenant and any charges for other services incurred by
Tenant under this Lease, may be sent by Landlord to Tenant monthly, or
immediately, at Landlord's option, and shall be due and payable by Tenant in
accordance with the terms of said bills and if not paid when due, the accounts
thereof shall immediately become due and payable as rent under this Lease
together with interest thereon at the rate of 12% per annum from the date the
said bills should have been paid in accordance with their terms. Landlord
reserves the right, without liability to Tenant and without constituting any
claim of constructive eviction to suspend furnishing or rendering to Tenant any
property, material, labor, utility or other service, wherever Landlord is
obligated to furnish or render the same at the expense of Tenant, in the event
that (but only for so long as) Tenant is more than thirty (30) days in arrears
in paying Landlord therefor.
34. RECORDING. Landlord and Tenant agree that this Lease shall not be
recorded. Simultaneously with the execution and delivery of this Lease, Landlord
and Tenant shall execute and deliver a memorandum of this Lease in recordable
form, which memorandum shall be in the form of Exhibit E attached hereto and
made a part hereof.
-26-
<PAGE> 31
35. BROKERS. Landlord and Tenant represent and warrant to each other
that no brokers or other persons are or shall be entitled to a brokerage
commission or other compensation arising out of the transactions contemplated
herein.
36. PERFORMANCE OF LANDLORD'S OBLIGATIONS. If Landlord defaults in the
performance of any covenant, term or condition required to be performed by it
under this Lease, Tenant, after not less than thirty (30) days notice to
Landlord may, but shall not be obligated to, remedy such default, and in
connection therewith, pay expenses and employ counsel, provided that Tenant
shall have the right to remedy such default without notice in the event of an
emergency. All sums expended on obligations incurred by Tenant in connection
therewith shall be payable by Landlord to Tenant upon demand.
37. CERTAIN INFORMATION TO BE FURNISHED BY LANDLORD. Landlord will
notify Tenant in writing whenever any portion of the Building (other than the
Demised Premises) becomes vacant or, as soon as practical after Landlord obtains
such knowledge, that it will become vacant and the date Landlord expects such
vacancy will occur.
After the leasing of any space in the Building other than to Tenant,
Landlord shall, if requested by Tenant, notify Tenant in writing regarding the
location and square footage of the space leased, the initial term of the lease
and the term of any renewal option.
38. SUPPLEMENTAL SERVICES BY TENANT. Tenant shall have the right, at
its own cost and expense, to provide services to the Demised Premises or the
Building, supplementing or in addition to those required to be provided by
Landlord hereunder and Landlord shall cooperate with Tenant in Tenant's
providing such supplemental or additional services.
-27-
<PAGE> 32
39. CHOICE OF LAW. This Lease shall be deemed to be a Lease made in New
Jersey and shall be governed by New Jersey law and federal law to the extent
applicable thereto.
40. CAPTIONS. The captions or headings in this Lease are for
convenience of reference only, and shall not control or affect the meaning or
construction of any provision hereof.
41. SEVERABILITY. In case any provision of this Lease shall for any
reason be held invalid, illegal or unenforceable in any respect, this Lease
shall be construed as if such provision had never been contained herein.
42. ENTIRE AGREEMENT; AMENDMENTS. This Lease constitutes the entire
agreement between the Landlord and Tenant and may not be amended except by an
instrument in writing signed by the parties.
IN WITNESS WHEREOF, Landlord and Tenant have caused their respective
duly authorized officers to sign this document on their respective behalfs as of
the day and year first above written.
ATTEST: THE MEDICAL SOCIETY OF NEW JERSEY
BY: /S/ Vincent A. Maressa BY: /S/ Armando F. Goracci
--------------------------------- --------------------------------
Executive Director Armando F. Goracci, President
ATTEST: NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
BY: /S/ Paul J. Waldron BY: /S/ Peter Sweetland
--------------------------------- --------------------------------
Paul J. Waldron Peter Sweetland, President
Assistant Secretary
-28-
<PAGE> 33
EXHIBIT A
Table of
Plans and Specifications
Plans of J. Harold Davidson, Architect, dated May 15, 1980. Letter from
Paul J. Waldron, Director, Administrative Services, New Jersey State Medical
Underwriters, Inc. to Arthur White, Director, Finance and Administrative
Services, Medical Society of New Jersey, dated January 11, 1980.
<PAGE> 34
EXHIBIT B
List of Present and Contemplated Mortgages
Mortgage from the Medical Society of New Jersey, Two Princess Road,
Lawrence Township, New Jersey ("Mortgagor") to The Prudential Insurance Company
of America, 745 Broad Street, Newark, New Jersey, in the initial principal
amount of $1,600,000, dated May 4, 1979 and recorded in Book 1762 of Mortgages
of Mercer County at Page 753 et seq. on May 16, 1979.
<PAGE> 35
EXHIBIT C
Exceptions to Title
1. The lien of the mortgage referred to in Exhibit B.
2. Taxes or special assessments which are not shown as existing liens
by the public records.
3. Right of Way as in Deed Book 1290, page 478.
4. Right of Way as in Deed Book 1520, page 203.
5. Survey made by Trenton Engineering Co., Inc., dated November 23,
1971 shows the following: (a) Objection to Title due to encroachment of blacktop
over the northeasterly line onto premises adjoining on the northwest, to a
distance of 15' more or less.
6. Rights in any underground pipe, conduit or other utility, not of
record.
7. Slope, grading, and drainage rights in the State of New Jersey as in
Deed Book 1520, page 203.
<PAGE> 36
EXHIBIT D
Landlord's Rules and Regulations
1. The sidewalks, entries, passages, elevators and staircases
shall not be obstructed or used for any other purposes than
ingress and egress.
2. The sashes, sash-doors, windows, glass doors and any lights or
skylights that reflect or admit light into the halls or other
places of the building shall not be covered or obstructed.
3. The water and wash closets and urinals shall not be used for
any other purpose than those for which they were constructed,
and the expense of any breakage, stoppage or damage resulting
from a violation of this rule shall be borne by the Tenant,
who, or whose clerks, agents, servants or licensees, shall
have caused it.
4. Except for the purpose of performing any duties under this
lease, Tenant shall not mark, paint, drill into, or, in any
way, deface, the walls, ceilings, partitions, floors, wood,
stone or iron work.
5. No sign, advertisement or notice shall be inscribed, painted
or affixed on any part of the outside or inside of the
building except as the Landlord shall determine.
6. The workmen of the Landlord must be employed by the Tenant for
repairs and other similar work that may be done on the demised
premises.
<PAGE> 37
7. No Tenant shall do or permit anything in the premises, or
bring or keep anything in them that shall, in any way,
increase the rate of fire insurance on the building, or on the
property kept in it, or obstruct or interfere with the rights
of other Tenants, or in any way injure or annoy them, or those
having business with them, or conflict with the regulations of
the Fire Department, or the fire laws, or with any insurance
policy upon the building, or any part of it, or with any rules
and ordinances established by the Board of Health or other
government authorities.
8. The Tenant shall not use any other method of heating than that
supplied by the Landlord.
9. The Landlord shall have power to prescribe the weight and
position of safes, which shall, in all cases, stand on
two-inch thick plank strips to distribute the weight of such
safes. All damage done to the building by taking a safe in or
out, or due to its being on the premises, shall be repaired at
the expense of the Tenant. The moving of safes shall occur
between 7 A.M. and 9 A.M. and between 4 P.M. and 6 P.M. upon
previous written notice to the Landlord's superintendent, and
the persons employed to move safes in and out of the building
shall be acceptable to the Landlord.
10. No freight, furniture, or bulky matter of any description,
will be received into the building between the hours of 9 A.M.
and 4 P.M.
-2-
<PAGE> 38
11. The Tenant shall not cause any unnecessary labor by
carelessness and indifference to the preservation of good
order and cleanliness in the Tenant's premises and in the
building.
12. Nothing shall be thrown by the Tenant, his clerks, servants or
licensees, out of the windows or doors, or down the passages
of the building.
13. No birds or other animals shall be brought or kept in or about
the building.
-3-
<PAGE> 39
EXHIBIT E
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE made June 29, 1981 by and between THE MEDICAL
SOCIETY OF NEW JERSEY, a New Jersey corporation, having offices at Two Princess
Road, Lawrenceville, New Jersey (the "Landlord"), and NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC., a New Jersey corporation, having offices at Two Princess
Road, Lawrenceville, New Jersey (the "Tenant");
WHEREAS, immediately prior to the execution hereof, the Landlord and
the Tenant entered into a Lease of a portion of the building (the "Building")
located on the premises (the "Premises") described on Schedule A attached
hereto, dated the date hereof (the "Lease"); and
WHEREAS, the Landlord and the Tenant, for the better securing of the
interests created in the Lease, desire to provide notice of certain terms and
provisions of the Lease;
NOW, therefore, the Landlord and the Tenant hereby declare that:
1. The Tenant will commence occupancy of a portion of the Building on
or about November 1, 1980. The term of the Lease is twenty-five years commencing
January 1, 1981, and terminating on December 31, 2005.
2. The Lease provides that-the interests described therein shall not be
disturbed nor otherwise affected as a result of the foreclosure of any Mortgage
covering the Premises.
<PAGE> 40
IN WITNESS WHEREOF the parties have executed this Memorandum the date
first above mentioned.
ATTEST: THE MEDICAL SOCIETY OF NEW JERSEY
BY: BY: /S/ Armando F. Goracci
--------------------------------- ------------------------------
Armando F. Goracci, President
ATTEST: NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
BY: BY: /S/ Peter Sweetland
--------------------------------- ------------------------------
Paul J. Waldron Peter Sweetland, President
Assistant Secretary
-2-
<PAGE> 41
STATE OF NEW JERSEY )
) ss.:
COUNTY OF MERCER )
BE IT REMEMBERED, that on this 29th day of June, 1981, before me, the
subscriber, a Notary Public of New Jersey personally appeared Paul J. Waldron,
who, being by me duly sworn on his oath, deposes and makes proof to my
satisfaction, that he is the Assistant Secretary of New Jersey State Medical
Underwriters, Inc., the Corporation named in the within Instrument; that Peter
Sweetland is the President of said Corporation; that the execution, as well as
the making of this Instrument, has been duly authorized by a proper resolution
of the Board of Directors of the said Corporation; that deponent well knows the
corporate seal of said Corporation; and that the seal affixed to said Instrument
is the proper corporate seal and was thereto affixed and said Instrument signed
and delivered by said President as and for the voluntary act and deed of said
Corporation, in the presence of deponent, who thereupon subscribed his name
thereto as attesting witness, and that the said Corporation received a true copy
of the within document without charge.
/s/ Paul J. Waldron
-----------------------------------
Paul J. Waldron
Assistant Secretary
Sworn to and subscribed before
me on this 29th day of June, 1981
/s/ Martha W. Salkin
- ---------------------------------
Notary Public
Prepared By: [NOTARIAL SEAL]
Paul R. Murphy, Esq. MARTHA W. SALKIN
Manger, Kalison & Murphy NOTARY PUBLIC OF NEW JERSEY
Airport Park My Commission Expires Sept. 1, 1983
35 Airport Road
Morristown, NJ 07960
<PAGE> 42
STATE OF NEW JERSEY )
) ss.:
COUNTY OF MERCER )
BE IT REMEMBERED, that on this 29th day of June, 1981, before me, the
subscriber, a Notary Public of New Jersey personally appeared Vincent A.
Maressa, who, being by me duly sworn on his oath, deposes and makes proof to my
satisfaction, that he is the Executive Director of the Medical Society of New
Jersey, the Corporation named in the within Instrument; that Armando F. Goracci,
M.D. is the President of said Corporation; that the execution, as well as the
making of this Instrument, has been duly authorized by a proper resolution of
the Board of Trustees of the said Corporation; that deponent well knows the
corporate seal of said Corporation; and that the seal affixed to said Instrument
is the proper corporate seal and was thereto affixed and said Instrument signed
and delivered by said President as and for the voluntary act and deed of said
Corporation, in the presence of deponent, who thereupon subscribed his name
thereto as attesting witness, and that the said Corporation received a true copy
of the within document without charge.
/s/ Vincent A. Maressa
---------------------------------
Executive Director
Sworn to and subscribed before
me on this 29th day of June, 1981
/s/ Joseph C. Lucci
- ---------------------------------
Notary Public
Prepared By:
Paul R. Murphy, Esq. [NOTARIAL SEAL]
Manger, Kalison & Murphy JOSEPH C. LUCCI
Airport Park NOTARY PUBLIC OF NEW JERSEY
35 Airport Road My Commission Expires Jan. 28,1983
Morristown, NJ 07960
<PAGE> 43
SCHEDULE A
Description of Premises
All that tract or parcel of land and premises, situate, lying and being
in the Township of Lawrence in the County of Mercer and State of New Jersey,
more particularly described as follows:
BEGINNING at a point in the northeasterly line of Princess Road distant
14.26 feet southeasterly from the southeasterly end of the curve having a radius
of 30 feet that connects the said line of Princess Road with the southeasterly
line of Princeton Pike and running; thence
(1) South 63 degrees, 40 minutes 30 seconds East, along the northeasterly
line of Princess Road, 158.48 feet to a point; thence
(2) Southeasterly, still along same, on a curve bearing to the left having
a radius of 570 feet, a distance of 431.84 feet to a point; thence
(3) North 72 degrees 55 minutes East, along the northerly line of Princess
Road, 451.02 feet to a point; thence
(4) North 6 degrees 36 minutes 10 seconds West, 505.38 feet to a point;
thence
(5) South 47 degrees 18 minutes 34.7 seconds West, 208.99 feet to a point;
thence
(6) South 59 degrees 49 minutes 55 seconds West, 121.90 feet to a point;
thence
(7) South 76 degrees 53 minutes 59.4 seconds West, 475.14 feet to a point;
thence
(8) South 70 degrees 53 minutes 21 seconds West, 43.98 feet to a point;
thence
(9) South 59 degrees 01 minute 33 seconds West, 42.83 feet to a point;
thence
<PAGE> 44
(10) South 42 degrees 33 minutes 18 seconds West, 135.86 feet to a point;
thence
(11) South 27 degrees 32 minutes 22 seconds West, 93.73 feet to the point
and place of BEGINNING.
According to description by Trenton Engineering Company, Inc.,
Professional Engineers and Surveyors, 2193 Spruce Street, Trenton, New Jersey
and subject to grants and restrictions of record.
And being the same premises known as Lot #4, Block 52, page 34 of the
Tax Map of Lawrence Township, New Jersey.
-2-
<PAGE> 45
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE made June 29, 1981 by and between THE MEDICAL
SOCIETY OF NEW JERSEY, a New Jersey corporation, having offices at Two Princess
Road, Lawrenceville, New Jersey (the "Landlord"), and NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC., a New Jersey corporation, having offices at Two Princess
Road, Lawrenceville, New Jersey (the "Tenant");
WHEREAS, immediately prior to the execution hereof, the Landlord and
the Tenant entered into a Lease of a portion of the building (the "Building")
located on the premises (the "Premises") described on Schedule A attached
hereto, dated the date hereof (the "Lease"); and
WHEREAS, the Landlord and the Tenant, for the better securing of the
interests created in the Lease, desire to provide notice of certain terms and
provisions of the Lease;
NOW, therefore, the Landlord and the Tenant hereby declare that:
1. The Tenant will commence occupancy of a portion of the Building on
or about November 1, 1980. The term of the Lease is twenty-five years commencing
January 1, 1981, and terminating on December 31, 2005.
2. The Lease provides that the interests described therein shall not be
disturbed nor otherwise affected as a result of the foreclosure of any Mortgage
covering the Premises.
<PAGE> 46
IN WITNESS WHEREOF the parties have executed this Memorandum the date
first above mentioned.
ATTEST: THE MEDICAL SOCIETY OF NEW JERSEY
BY: /S/ Vincent A. Maressa BY: /S/ Armando F. Goracci
--------------------------------- ----------------------------
Executive Director Armando F. Goracci, President
ATTEST: NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
BY: /S/ Paul J. Waldron BY: /S/ Peter Sweetland
--------------------------------- ----------------------------
Paul J. Waldron Peter Sweetland, President
Assistant Secretary
-2-
<PAGE> 47
SCHEDULE A
Description of Premises
All that tract or parcel of land and premises, situate, lying and being
in the Township of Lawrence in the County of Mercer and State of New Jersey,
more particularly described as follows:
BEGINNING at a point in the northeasterly line of Princess Road distant
14.26 feet southeasterly from the southeasterly end of the curve having a radius
of 30 feet that connects the said line of Princess Road with the southeasterly
line of Princeton Pike and running; thence
(1) South 63 degrees, 40 minutes 30 seconds East, along the northeasterly
line of Princess Road, 158.48 feet to a point; thence
(2) Southeasterly, still along same, on a curve bearing to the left having
a radius of 570 feet, a distance of 431.84 feet to a point; thence
(3) North 72 degrees 55 minutes East, along the northerly line of Princess
Road, 451.02 feet to a point; thence
(4) North 6 degrees 36 minutes 10 seconds West, 505.38 feet to a point;
thence
(5) South 47 degrees 18 minutes 34.7 seconds West, 208.99 feet to a point;
thence
(6) South 59 degrees 49 minutes 55 seconds West, 121.90 feet to a point;
thence
(7) South 76 degrees 53 minutes 59.4 seconds West, 475.14 feet to a point;
thence
(8) South 70 degrees 53 minutes 21 seconds West, 43.98 feet to a point;
thence
(9) South 59 degrees 01 minute 33 seconds West, 42.83 feet to a point;
thence
<PAGE> 48
(10) South 42 degrees 33 minutes 18 seconds West, 135.86 feet to a point;
thence
(11) South 27 degrees 32 minutes 22 seconds West, 93.73 feet to the point
and place of BEGINNING.
According to description by Trenton Engineering Company, Inc.,
Professional Engineers and Surveyors, 2193 Spruce Street, Trenton, New Jersey
and subject to grants and restrictions of record.
And being the same premises known as Lot #4, Block 52, page 34 of the
Tax Map of Lawrence Township, New Jersey.
-2-
<PAGE> 49
STATE OF NEW JERSEY )
) ss.:
COUNTY OF MERCER )
BE IT REMEMBERED, that on this 29th day of June, 1981, before me, the
subscriber, a Notary Public of New Jersey personally appeared Paul J. Waldron,
who, being by me duly sworn on his oath, deposes and makes proof to my
satisfaction, that he is the Assistant Secretary of New Jersey State Medical
Underwriters, Inc., the Corporation named in the within Instrument; that Peter
Sweetland is the President of said Corporation; that the execution, as well as
the making of this Instrument, has been duly authorized by a proper resolution
of the Board of Directors of the said Corporation; that deponent well knows the
corporate seal of said Corporation; and that the seal affixed to said Instrument
is the proper corporate seal and was thereto affixed and said Instrument signed
and delivered by said President as and for the voluntary act and deed of said
Corporation, in the presence of deponent, who thereupon subscribed his name
thereto as attesting witness, and that the said Corporation received a true copy
of the within document without charge.
/S/ Paul J. Waldron
-----------------------------------
Paul J. Waldron
Assistant Secretary
Sworn to and subscribed before
me on this 29th day of June, 1981
/S/ Martha W. Salkin
- ---------------------------------
Notary Public
Prepared By: [NOTARIAL SEAL]
Paul R. Murphy, Esq. MARTHA W. SALKIN
Manger, Kalison & Murphy NOTARY PUBLIC OF NEW JERSEY
Airport Park My Commission Expires Sept. 1, 1983
35 Airport Road
Morristown, NJ 07960
<PAGE> 50
STATE OF NEW JERSEY )
) ss.:
COUNTY OF MERCER )
BE IT REMEMBERED, that on this 29th day of June, 1981, before me, the
subscriber, a Notary Public of New Jersey personally appeared Vincent A.
Maressa, who, being by me duly sworn on his oath, deposes and makes proof to my
satisfaction, that he is the Executive Director of the Medical Society of New
Jersey, the Corporation named in the within Instrument; that Armando F. Goracci,
M.D. is the President of said Corporation; that the execution, as well as the
making of this Instrument, has been duly authorized by a proper resolution of
the Board of Trustees of the said Corporation; that deponent well knows the
corporate seal of said Corporation; and that the seal affixed to said Instrument
is the proper corporate seal and was thereto affixed and said Instrument signed
and delivered by said President as and for the voluntary act and deed of said
Corporation, in the presence of deponent, who thereupon subscribed his name
thereto as attesting witness, and that the said Corporation received a true copy
of the within document without charge.
/S/ Vincent A. Maressa
---------------------------------
Executive Director
Sworn to and subscribed before
me on this 29th day of June, 1981
/S/ Joseph C. Lucci
- ---------------------------------
Notary Public
Prepared By: [NOTARIAL SEAL]
Paul R. Murphy, Esq. JOSEPH C. LUCCI
Manger, Kalison & Murphy NOTARY PUBLIC OF NEW JERSEY
Airport Park My Commission Expires Jan. 29, 1984
35 Airport Road
Morristown, NJ 07960
<PAGE> 1
Exhibit 10.2
[Letterhead of Medical Society of New Jersey]
June 26, 1998
Daniel Goldberg, President
New Jersey State Medical Underwriters, Inc.
Two Princess Road
Lawrenceville, NJ 08648
Re: NJSMU Lease
Dear Dan:
This will confirm an extension of the rental agreement between the New Jersey
State Medical Underwriters (NJSMU) and the Medical Society of New Jersey (MSNJ)
regarding leased space. Effective June 1, 1998, the triple net payment per
square foot for office space and warehouse space is $16.20 and $7.00,
respectively.
The terms of this new lease will remain in effect for a period of one year until
May 31, 1999. The space utilized by NJSMU and rental payment is computed as
follows:
Lease Space
-----------
Total
First Floor Sq. Ft. Sq. Ft.
- ----------- ------- -------
Office Area 14,353
House of Delegates 6,468 20,821
------
Second Floor
- ------------
Office Area 25,740
------
Total Office Area 46,561
Warehouse Area 2,555
------
Total Leased Space 49,116
<PAGE> 2
-2-
Rental Amount
<TABLE>
<S> <C>
46,561 sq. ft. x $16.20 per sq. ft. = $754,288.20
2,555 sq. ft. x $7.00 per sq. ft. = 17,885.00
-----------
Total Annual Rental Payment $772,173.20
</TABLE>
The total amount of leased space covered under the rental agreement is 49,116
square feet resulting in a monthly rental payment of $64,347.77. All other
aspects of the basic lease remain unchanged.
Please indicate your recognition of this change by signing below.
Sincerely,
/s/ Vincent A. Maressa
Vincent A. Maressa
Executive Director/
General Counsel
Accepted NJSMU Accepted MSNJ
By /s/ Daniel Goldberg By /s/ Vincent A. Maressa
----------------------- -------------------------
Daniel Goldberg Vincent A. Maressa
President Executive Director/
General Counsel
PDW:
cc: Paul D. Weber
<PAGE> 1
EXHIBIT 10.3
LEASE COMMENCEMENT DATE AGREEMENT
THIS AGREEMENT made this 25th day of May, 1995 by and between Princeton
Pike Corporate Center Associates IV ("Landlord") and Physicians Healthcare Plan
of New Jersey, Inc. ("Tenant").
W I T N E S S E T H
WHEREAS, Landlord and Tenant entered into an Agreement of Lease dated
May 24, 1995 ("Lease") setting forth the terms of occupancy by Tenant of all or
a portion of a building located at 1009 Lenox Drive, Lawrenceville, New Jersey;
and
WHEREAS, the Lease is for an initial term of six (6) years(s) and the
Commencement Date of the Initial term of the Lease has been determined in
accordance with the provisions of Article 3 of the Lease.
NOW, THEREFORE, it is agreed and confirmed by the parties as follows:
1. The Commencement Date of the Initial term of the Lease is
5/25/95 and the termination date of the Initial term of the
Lease is 5/31/01.
2. The date on which the first payment of Base Rent is due from
Tenant is 12/1/95. (to include first Monthly Base Rent payment
and partial Monthly Base Rent for the period 11/25/95 -
11/30/95.)
3. This Agreement is executed by the parties for the purpose of
providing a record of the commencement, termination and Base
Rent commencement dates of the Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument as of the day and year first above written.
Attest/Witness: Landlord
Princeton Pike Corporate Center
Associates IV
By: /s/ Gregory J. Lezynski
- --------------------------------- -------------------------------
Gregory J. Lezynski, as agent
Attest/Witness: Tenant
By: /s/ Mike W. Smith
- --------------------------------- -------------------------------
Mike W. Smith, Vice President
Page 1 of 1
<PAGE> 2
AGREEMENT OF LEASE
This Agreement of Lease is entered into as of the 24th day of May, 1995
between the Landlord named below and the Tenant named below, as follows:
In consideration of the rents, covenants and conditions hereinafter
reserved and contained, Landlord hereby agrees to lease to Tenant, and Tenant
hereby agrees to hire from Landlord, the Demised Premises described herein.
Landlord and Tenant agree that the terms and conditions of this lease
are as set forth in this Agreement of Lease, and the attached General Terms of
Lease, including, without limitation, the exhibits or riders referred to in the
General Terms of Lease, all of which are incorporated herein and are hereinafter
referred to collectively as the "LEASE". For purposes of this Lease, and any
supplement(s), amendment(s) or modification(s) thereof, the terms listed below
shall have the following meanings:
"LANDLORD": PRINCETON PIKE CORPORATE CENTER ASSOCIATES IV
A NEW JERSEY PARTNERSHIP
ADDRESS: C/O GALE & WENTWORTH, INC.
PRINCETON FORRESTAL VILLAGE
136-200 MAIN STREET
PRINCETON, NEW JERSEY 08540
"TENANT": PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY INC.
A NEW JERSEY CORPORATION
ADDRESS: TWO PRINCESS ROAD
LAWRENCEVILLE, NJ 08648
"BASE RENT" shall mean, for the initial term of this Lease:
<TABLE>
<CAPTION>
TIME PERIOD RATE/rsf MONTHLY BASE RENT ANNUAL BASE RENT
<S> <C> <C> <C>
Lease Year 1 $17.50 $21,875.00* $131,250.00
*Commencing Month 7
Lease Years 2-3 $18.00 $42,079.50 $504,954.00
Lease Years 4-5 $19.00 $44,417.25 $533,007.00
Lease Year 6 $20.00 $46,755.00 $561,060.00
</TABLE>
This Base Rent schedule assumes a Demised Premises of 15,000 rsf ("Phase I") for
the first Lease Year and 28,053 rsf ("Phase II") thereafter.
As provided in Article 4 of the General Terms of Lease, provided, however, that
the first full monthly installment of Base Rent due for month 7 of the first
Lease Year will be paid by Tenant upon the signing of this Lease and credited to
Tenant on the Commencement Date (as defined below).
Provided Tenant is not in default of the terms of this Lease, beyond the
applicable cure period, for any time period for which rent is abated or
thereafter, the Tenant's Base Rent and additional rent obligation will be abated
by the Landlord for the first six months of the initial Lease Term.
Notwithstanding the foregoing sentence, Tenant will be required to pay tenant
electric during the six month abatement period.
"BASE YEAR" shall mean the Landlord's fiscal year from January 1, 1995 through
December 31, 1995 as referred to in Exhibit C to the General Terms of Lease.
"BILLING ADDRESS" shall mean the address at which Tenant will be billed which is
the Demised Premises.
"BUILDING" shall mean the two (2) story plus partial ground floor building
constructed on the property commonly known as Princeton Pike Corporate Center,
Building IV, 1009 Lenox Drive, Lawrenceville, NJ and shall include the "COMMON
FACILITIES" as defined below.
"BUILDING HOURS" shall mean Monday through Friday from 8:00 a.m. to 6:00 p.m.
and Saturdays from 9:00 a.m. until 12:00 p.m. (noon), excluding holidays. Tenant
access outside of the above hours shall be accomplished by means of a card
access system for which Tenant shall not be charged for the first 75 cards.
Thereafter, Tenant shall pay Landlord $10.00 per card that is requested by
Tenant and issued by Landlord.
<PAGE> 3
"COMMENCEMENT DATE" shall mean the date Landlord receives a Certificate of
Continuing Occupancy ("CCO") which will allow Tenant to occupy its Demised
Premises prior to any Tenant Improvement work being done, which date Landlord
estimates will be May 15, 1995. The Commencement Date for Phase II occupancy
will be one (1) year after Landlord receives a Certificate of Continuing
Occupancy. (See definition for Demised Premises below.)
"COMMON FACILITIES" shall mean the land surrounding the Building, the parking
lot(s) and all drives and walkways, all generally as shown on Exhibit A-2 to the
General Terms of Lease, and the lobby, elevator(s), if any, fire stairs, public
hallways, public lavatories, and all other general building facilities that
service all tenants of the Building, including, without limitation,
air-conditioning rooms, fan rooms, janitorial closets, electrical closets,
telephone closets, elevator shafts, machine rooms, and flumes, stacks, pipe
shafts and vertical ducts with their enclosing walls.
"DEMISED PREMISES" shall mean the space consisting in the aggregate of 28,053
rentable square feet located on the ground floor level as shown on the plan
attached as Exhibit A-1 to the General Terms of Lease. Tenant will initially be
charged Base Rent based on 15,000 rentable square feet.
Tenant acknowledges that some of the work to fitout the Demised Premises shall
take place during normal business hours. Tenant agrees that unless the result of
the negligence or willful misconduct of Landlord, its agents, employees or
contractors, Landlord shall have no liability to Tenant for loss of business or
otherwise, as a result thereof, nor shall any interruption be deemed to
constitute a partial or total eviction (constructive or otherwise) of Tenant
from the Demised Premises or give rise to any abatement or reduction of any
rentals, charges, payments or other sums reserved under this Lease. Landlord
agrees to use reasonable efforts to minimize the Interruption of Tenant's
business, but Tenant recognizes that such work will involve noise, dust and
other such disturbance during business hours. Landlord will give Tenant 48 hours
prior notice of any power or telephone disruptions during the fitout, that can
be reasonably anticipated by Landlord.
"HVAC OVERTIME RATE" shall mean $35.00 per hour as referred to and subject to
change as provided in Section 6.1 (b) of the General Terms of Lease.
"LEASE YEAR" shall mean a period of twelve (12) consecutive calendar months, the
first of which will begin on the Commencement Date, provided that if the
Commencement Date is not the first day of a calendar month the first Lease Year
will consist of the Partial Month referred to in Section 3.2 of the General
Terms of Lease and the next succeeding twelve (12) consecutive calendar months.
"MORTGAGEE" shall mean the holder of any mortgage now or hereafter encumbering
the Building (currently Mortgagee is: Connecticut General Life Insurance
Company, c/o Dorman & Wilson, 1 North Lexington Avenue, White Plains, New York
10602).
"OPERATING EXPENSES" shall mean real estate taxes, payments "in lieu of real
estate taxes", insurance premiums and other expenses, as referred to in Section
4.3 of, and as more particularly described In Exhibit C to, the General Terms of
Lease. Commencing with the second Lease Year, Tenant will pay to Landlord as
additional rent Tenant's Pro Rata Share (as defined below) of the Increase in
Building Operating Expenses over the actual Operating Expenses for Tenant's Base
Year. Landlord represents that to the best of Landlord's knowledge as of the
date of this Lease the Base Year Operating Expenses are to be $7.46/rsf.
Landlord agrees that annual Operating Expense escalations on controllable
operating expenses shall be subject to a cumulative cap. Such costs shall not
exceed the lesser of five percent (5%) or the increase in the NY, NJ and CT
consumer price index ("CPI 1982-1984 =100%) from the previous calendar year.
Landlord's management fee shall not exceed five (5%) percent of Tenant's gross
rents including Base Rent and Additional Rent inclusive of management fees and
costs of management personnel.
"PROPERTY" shall mean the real property located in the Township of Lawrence,
County of Mercer and State of New Jersey, as more particularly described in
Exhibit A to the General Terms of Lease.
"RATED CAPACITY OF ELECTRICAL SERVICE" shall mean electrical service as referred
to in Section 6.1(c) of the General Terms of Lease as limited by Tenant Plans.
"REAL ESTATE BROKER shall mean Commercial Property Network, Inc., Princeton
Gateway, 707 State Road, Suite 211, Princeton, New Jersey 08540. Landlord will
pay to Broker a brokerage commission based on a separate agreement between the
parties.
"SECURITY DEPOSIT" shall mean the sum of $50,000.00 in cash as referred to in
Article 17 of the General Terms of Lease, which amount shall be due and payable
upon the execution of this Lease plus an irrevocable letter of credit in the
amount of $250,000.00 covering the period through May 15, 1999.
<PAGE> 4
"STANDARD INDUSTRIAL CLASSIFICATION ("SIC") NUMBER" shall mean the SIC number
applicable to Tenant's primary business and referred to in Section 2.2 of the
General Terms of Lease which Tenant represents and warrants is 6411.
"TENANT ALLOWANCE" shall mean $84,159.00 (i.e. $3.00/rsf) to offset Tenant's
actual reasonable out of pocket expenses for items such as relocation costs,
security systems, telecommunications, wiring, purchase of furniture including
without limitation work stations and other installation and relocation costs.
"TENANT IMPROVEMENTS" shall mean the improvements to the Demised Premises
constructed for Tenant's use and occupancy of same as described in Exhibit D to
the General Terms of Lease. Tenant acknowledges that, except as set forth in
this Lease Tenant will accept the Demised Premises "as is" as of the
Commencement Date. Landlord will provide the Tenant Improvements as set forth in
Exhibit D.
"TENANT PARKING SPACES" shall mean 4.5 unassigned parking spaces per 1,000
usable square feet of Demised Premises.
"TENANT PLANS" shall mean the final plans, specifications and working drawings
required to be supplied by Landlord or Tenant and approved in writing by the
other party for the construction of the Demised Premises and the Tenant
Improvements as defined in Exhibit D to the General Terms of Lease.
"TENANT'S PRO RATA SHARE", as referred to In Exhibit C to the General Terms of
Lease, shall mean the ratio of (x) the rentable square feet in the Demised
Premises, over (y) the total rentable square feet in the Building, which
Landlord and Tenant agree is 15.3% percent based on a total rentable Building
size of 183,342 rentable square feet, which is subject to change upon a
recalculation of the total rentable Building size.
If any operating expense (as defined on Exhibit C) is related to any item
entirely within the Demised Premises and for the sole use and benefit of the
Tenant, then Tenant shall pay one hundred (100%) percent of the cost of such
item and further provided that if any operating expense is related to an item
entirely within the premises of another tenant then that tenant shall pay one
hundred (100%) percent of such cost. In a mixed use Building, Operating Expenses
which benefit solely one class of tenant shall be shared proportionately among
that class of tenant.
If Landlord determines that a service or operating expense relates to less than
100% of the Building and is applicable to Tenant's Demised Premises, then
Tenant's Pro Rata Share shall be the ratio of (x) the rentable square feet in
the Demised Premises over (y) the total rentable square feet in the Building to
which such operating expense or service applies.
"TERM" shall mean a period of six (6) years from the Commencement Date of Phase
I plus the Partial Month, if any, referred to in Section 3.2 of the General
Terms of Lease, and will, if the context requires, include any extension(s) of
the initial Term and be subject to earlier termination as provided in the
General Terms of Lease.
"USE" shall mean Tenant's occupancy of the Demised Premises as referred to in
Section 2.1 of the General Terms of Lease for the purpose of general office use
only.
Submission of this Lease for examination by or signature of Tenant does
not constitute an offer, reservation of space or option to lease. This Lease
will not be effective or binding upon the parties as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands
and seals, or caused this Lease to be signed by their duly authorized general
partner(s), officers or agents, as of the date and year first above written.
WITNESS: LANDLORD: PRINCETON PIKE
CORPORATE CENTER ASSOCIATES IV
BY: /s/ RONALD BERMAN
- ----------------------------- ------------------------------------
RONALD BERMAN, MANAGING GENERAL PARTNER
ATTEST/WITNESS: TENANT: PHYSICIAN HEALTHCARE
PLAN OF NEW JERSEY, INC.
/s/ [Illegible] BY: /s/ HENRY D. ROSIN, M.D.
- ----------------------------- ------------------------------------
HENRY D. ROSIN, M.D.
PRESIDENT AND CHAIRMAN OF THE BOARD
<PAGE> 5
GENERAL TERMS OF OFFICE LEASE
ATTACHED TO AGREEMENT OF LEASE
BETWEEN:
LANDLORD: PRINCETON PIKE CORPORATE CENTER ASSOCIATES IV
AND
TENANT PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
LEASE DATED _____________________________________________
<PAGE> 6
GENERAL TERMS OF OFFICE LEASE
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. DEMISED PREMISES.............................................................................1
ARTICLE 2. USE..........................................................................................1
ARTICLE 3. TERM OF LEASE................................................................................1
ARTICLE 4. RENT AND ADDITIONAL RENT.....................................................................1
ARTICLE 5. PREPARATION FOR OCCUPANCY; EXCUSABLE DELAY...................................................2
ARTICLE 6. UTILITIES AND SERVICES.......................................................................3
ARTICLE 7. COMPLIANCE WITH LAWS.........................................................................4
ARTICLE 8. EVENTS OF DEFAULT; REMEDIES..................................................................4
ARTICLE 9. CUMULATIVE REMEDIES; WAIVER..................................................................6
ARTICLE 10. SURRENDER OF DEMISED PREMISES................................................................6
ARTICLE 11. ASSIGNMENT OR SUBLETTING.....................................................................6
ARTICLE 12. MAINTENANCE AND REPAIRS; COVENANT AGAINST WASTE; RIGHT OF INSPECTION.........................8
ARTICLE 13. MECHANIC'S LIENS.............................................................................8
ARTICLE 14. ALTERATIONS..................................................................................9
ARTICLE 15. INSURANCE; WAIVER OF SUBROGATION; RELEASE...................................................10
ARTICLE 16. QUIET ENJOYMENT.............................................................................11
ARTICLE 17. SECURITY DEPOSIT............................................................................11
ARTICLE 18. DAMAGE OR DESTRUCTION.......................................................................11
ARTICLE 19. CONDEMNATION................................................................................12
ARTICLE 20. INDEMNIFICATION.............................................................................13
ARTICLE 21. SELF-HELP...................................................................................13
ARTICLE 22. ESTOPPEL CERTIFICATE........................................................................13
ARTICLE 23. SUBORDINATION AND NON-DISTURBANCE...........................................................13
ARTICLE 24. NOTICES.....................................................................................14
ARTICLE 25. BROKER......................................................................................14
ARTICLE 26. SIGNS.......................................................................................15
ARTICLE 27. HOLDOVER....................................................................................15
ARTICLE 28. LIMITATION OF LIABILITY.....................................................................15
ARTICLE 29. MODIFICATIONS REQUESTED BY MORTGAGEE........................................................15
ARTICLE 30. PARKING.....................................................................................15
ARTICLE 31. RULES AND REGULATIONS.......................................................................15
ARTICLE 32. REGULATION OF COMMON FACILITIES.............................................................16
ARTICLE 33. RIGHT TO RELOCATION.........................................................................16
ARTICLE 34. SHORT FORM LEASE............................................................................16
ARTICLE 35. CAPTIONS....................................................................................16
ARTICLE 36. APPLICABILITY TO SUCCESSORS AND ASSIGNS.....................................................16
ARTICLE 37. ENTIRE AGREEMENT; MODIFICATION..............................................................16
ARTICLE 38. MISCELLANEOUS...............................................................................16
</TABLE>
EXHIBITS
A Property Description
- A-1 Building Floor Plan and Demised Premises Designation
- A-2 Site Plan
B Commencement Date Agreement
C Operating Expenses
D Work Letter
- Schedule D-1 Base Building-Landlord's Work
- Schedule D-2 Technical Specifications for Tenant
Improvements and Guidelines for Tenants
Using Consultants & Contractors
- Schedule D-3 List of Tenant Drawings
E Cleaning Specifications
F Rules and Regulations
G Rider to Lease
H Form Letter of Credit
I Letter Directing Tenant's Rent Payment to Escrow Agent
J Subordination and Non-Disturbance Agreement
<PAGE> 7
ARTICLE 1. DEMISED PREMISES
SECTION 1.1 Tenant will have the exclusive right to use and occupy the
Demised Premises and the right to use in common with other tenants of the
Building, and their invitees, customers and employees, those public areas of the
Common Facilities, all subject to the terms, conditions and limitations
hereinafter set forth. Landlord specifically excepts and reserves for itself the
roof, airspace above the ceiling and below the floor (except to the extent
required for Tenant's fitout), the interior surfaces of exterior walls and the
exterior portions of the Building, including the loading areas for the right to
install, maintain, use, repair and replace pipes, duct work, conduits,
mechanical systems, antennae, utility lines and wires in the Building, provided
such reservation and rights do not materially impair Tenant's full use and
enjoyment of the Demised Premises.
SECTION 1.2 The use and control of the Common Facilities is reserved to
Landlord and Landlord may at any time, and from time to time, close any Common
Facilities to make repairs or renovations, effect construction, discourage
non-tenant parking and/or access, improve security or reconfigure particular
Common Facilities, and may do such other acts on, in and to the Common
Facilities as in its judgment may be desirable to insure and/or improve the
convenience thereof for Landlord and/or for present or future tenants of the
Building, all without liability to Tenant. Notwithstanding the foregoing, there
will be no change to the Demised Premises or the number of parking spaces and
Tenant will be entitled to reasonable access to the Demised Premises at all
times, with no material impairment to Tenant's use or enjoyment of the Demised
Premises.
ARTICLE 2. USE
SECTION 2.1 Tenant will use and occupy the Demised Premises for the Use
specified in the Agreement of Lease only and for no other use. Notwithstanding
the foregoing, Tenant's use of the Demised Premises will at all times be lawful
and will not constitute waste or nuisance to Landlord or any other tenant(s) in
the Building.
SECTION 2.2 Tenant warrants that it will not do or allow anything which
will cause its SIC number as set forth in the Agreement of Lease ( or the SIC
number of any assignee or subtenant ) to change and/or to fall within any of the
SIC number(s) to which the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et
seq., ("ISRA") is now or may hereafter be applicable. Tenant further warrants
that it will not use the Demised Premises, or any part thereof, to refine,
produce, store, handle, transfer, process or transport "Hazardous Wastes" or
"Hazardous Substances" as such terms are now or may hereafter be defined under
any federal, state or local law or regulation, including, without limitation,
N.J.S.A. 58:10-23.11(b)(k) et seq.; N.J.S.A. 13:1K-6 et seq.; or N.J.S.A.
7:1-3.3 et seq. except in de minimis quantities for typical office use. In the
event Tenant should breach this warranty, Landlord will have, in addition to any
other remedies available, the right to immediately terminate this Lease. I
ARTICLE 3. TERM OF LEASE
SECTION 3.1 The Demised Premises are hereby leased for the Term which
will commence on the date as set forth in the Agreement of Lease.
SECTION 3.2 If the Commencement Date is any date other than the first
day of a calendar month, the period between the Commencement Date and the last
day of the calendar month during which the Commencement Date occurs (the
"Partial Month") will be added to the Term.
SECTION 3.3 The parties hereto, at the request of either, will execute
a Commencement Date Agreement substantially in the form attached hereto as
Exhibit B.
SECTION 3.4 Tenant's inability or failure to take possession of the
Demised Premises on the Commencement Date will not delay the commencement of the
Term or Tenant's obligation to pay Base Rent, Operating Expenses or any
additional rent or to comply with any of its other obligations hereunder, except
to the extent due to the actions of Landlord, its agents, employees or
contractors.
SECTION 3.5 Intentionally Deleted.
ARTICLE 4. RENT AND ADDITIONAL RENT
SECTION 4.1 Except as set forth herein, Tenant will pay Base Rent and
all additional rent without any setoff, deduction, recoupment or demand
whatsoever. Base Rent will be paid in monthly installments, in advance, on the
first day of each calendar month during the Term in the amount set forth in the
Agreement of Lease.
SECTION 4.2 Notwithstanding the foregoing, if the Commencement Date is
not the first day of a calendar month, Base Rent and any additional rent for the
Partial Month will be prorated on a daily basis using the annual Base Rent
divided by three hundred sixty-five (365) days and will be paid on the
Commencement Date (and the total Base Rent accruing for the first Lease Year of
the Term will be the annual Base Rent set forth in the Agreement of Lease plus
the prorated rental for the Partial Month). Base Rent for any Partial Month will
be calculated by dividing the then annual applicable Base Rent by 365 days.
SECTION 4.3 Tenant will pay to Landlord, as additional rent, Tenant's
Pro Rata Share of Operating Expenses, all as more particularly defined and set
forth in Exhibit C. Tenant will pay all charges for electrical power service to
the Demised Premises as provided in Exhibit G.
SECTION 4.4 Any and all charges and costs which Tenant is required to
pay pursuant to this Lease, together with all interest and penalties that may
accrue thereon in the event of Tenant's failure to pay such amounts, and all
damages, costs and expenses which the Landlord may incur by reason of any
default of Tenant
<PAGE> 8
or failure on Tenant's part to comply with the terms of this Lease, will be
deemed to be Additional Rent. In the event of nonpayment by Tenant of any
Additional Rent, Landlord will have all of the rights and remedies with respect
thereto which Landlord has for the nonpayment of Base Rent.
SECTION 4.5 In addition to any other remedies provided for herein, for
each installment of Base Rent or payment of Additional Rent that is more than
seven (7) calendar days overdue, then Landlord may charge a one-time "late
charge" of four (4%) percent of the amount(s) so overdue. Tenant acknowledges
that such late charge is fair and reasonable and the late charge assessed
pursuant to this Lease is not interest but constitutes an agreement between
Landlord and Tenant as to the estimated compensation for costs and
administrative expenses incurred by Landlord due to such late payment(s) by
Tenant, the actual amount of which would be extremely difficult to calculate.
In addition, Landlord may charge Tenant the lessor of eighteen (18%)
percent per year or the maximum percentage allowed by law per year as interest
on such late payment(s) from the due date of any amount(s) so overdue.
The late charge and interest will be in addition to and not in lieu of
any other remedy Landlord may have under the circumstances and in addition to
any reasonable fees and charges of any agents or attorneys Landlord may employ
in the event of a default hereunder, whether authorized herein or by law. Any
such late charge and/or interest, it not previously paid, shall be added to and
become part of the next succeeding payment of Base Rent to be made hereunder and
shall be deemed to constitute Additional Rent.
SECTION 4.6 ACCEPTANCE OF RENT Tenant acknowledges that as of the date
of execution of this Lease, Landlord has directed Tenant to make Base Rent,
additional rent and/or other sums due and required in accordance with the letter
notice attached hereto as Exhibit I.
ARTICLE 5. PREPARATION FOR OCCUPANCY; EXCUSABLE DELAY
SECTION 5.1 Landlord will construct the Tenant Improvements within the
Demised Premises in accordance with Exhibit D (the "WORK LETTER").
SECTION 5.2 If Landlord is prevented from or delayed in complying with
its obligations set forth in this or any other Article of this Lease because of
delay(s) (whether affecting Landlord or its contractors, subcontractors or
materialmen) caused by or due to (I) actual or threatened administrative
proceedings or litigation which interfere with Landlord's ability to begin or
complete construction, (ii) delays in obtaining approval of construction plans,
building permits or Certificates or Temporary Certificates of Occupancy, (iii)
strikes or other labor troubles, riots, fire, acts of God, governmental
intervention or regulations, inability to obtain materials, weather, holding
over of tenants, or any other matters which are not within the reasonable
control of Landlord (all of the foregoing hereinafter referred to collectively
as "Excusable Delay"), then the schedule set forth herein, if adversely affected
by an Excusable Delay, will be extended by one (1) day for each day of an
Excusable Delay.
SECTION 5.3 If Landlord's ability, when required to do so, to obtain a
building permit or Certificate or Temporary Certificate of Occupancy or to
complete the Tenant Improvements, or deliver possession of all or part of the
Demised Premises is delayed due to any act or omission of Tenant or its agents,
employees, contractors or subcontractors ("TENANT DELAY"), then the Demised
Premises, building permit and/or Certificate or Temporary Certificate of
Occupancy will be deemed to have been completed or obtained, as the case may be,
and possession of the Demised Premises will be deemed to have been delivered to
Tenant, on the date when such event would have occurred but for such Tenant
Delay as same is certified in writing by Landlord's contractor.
Such delay shall include, but not be limited to:
(a) delay due to submission of Tenant Plans after the Tenant
Plans Deadline or delay in giving authorizations or approvals required for the
preparations for or construction of the Tenant Improvements;
(b) delay due to changes made or requested by or on behalf of
Tenant in the Tenant Plans (notwithstanding Landlord's approval of such
changes);
(c) delay due to any other interference with work in the
Demised Premises or in the Building, or any other act or omission, by Tenant,
its agents, employees, contractors or subcontractors;
(d) delay due to the postponement of any work at Tenant's
request;
(e) delay due to performance of any work in the Demised
Premises by any person or entity employed or retained by or on behalf of Tenant;
(f) delay due to Tenant requesting materials, finishes,
equipment or supplies where delivery or installation is unavailable from
Landlord's or its contractor's ordinary trade sources in such sequence with the
delivery/installation of other equipment, fixture and the like or as is required
under good construction scheduling practice, so as to delay Landlord in
completing the Demised Premises and obtaining a Certificate or Temporary
Certificate of Occupancy as scheduled; and
(g) delay due to Tenant's failure to authorize Landlord to
proceed with the Tenant Improvements or to timely pay to Landlord the amounts
due pursuant to Exhibit D.
All work done in the Demised Premises by Landlord or Tenant will be
done in accordance with applicable codes. If an event of Tenant Delay occurs or
is anticipated in connection with any work to be done in the Demised Premises
other than the initial fitout, Landlord will furnish Tenant with written notice
identifying the result of such delay and the impact of such delay on the
Schedule.
SECTION 5.4 If, as a result of any Tenant Delay pursuant to the
provisions of this Article, Landlord sustains any damages or any additional
costs or expenses for labor or material, Tenant will pay to Landlord (in
addition to the rent payable as a result of the establishing of the
Commencement Date as provided in Section 5.3 all such damages, costs and
expenses that Landlord may sustain.
ARTICLE 6. UTILITIES AND SERVICES
SECTION 6.1 Landlord will arrange to have furnished to the Building
and/or Demised Premises, as applicable, the following services, utilities,
supplies and facilities:
<PAGE> 9
(a) Passenger elevator service, if applicable, operated
automatically or manually, provided that Landlord may remove elevators from
service temporarily for purposes of moving freight and/or repair and
maintenance.
(b) Heat, hot and cold water, year round ventilation, and air
conditioning and heat during the seasons when they are required, as determined
in Landlord's reasonable judgment but consistent with the operation of Class A
office building. Heating, ventilation and air conditioning ("HVAC") will be
provided during Building Hours only. Landlord will furnish HVAC beyond the
Building Hours, provided that notice requesting such service is delivered to
Landlord before noon on the business day when such service is required for that
evening, and by noon of the preceding business day when such service is required
on a Saturday, Sunday or holiday. Landlord's charge for supplying such
additional service will be paid by Tenant (for each HVAC zone of the Demised
Premises, if applicable) at the HVAC Overtime Rate which will be subject to
change by Landlord from time to time on thirty (30) days prior written notice to
Tenant and will be based upon Landlord's actual cost for supplying HVAC to
Tenant, such actual cost to include: 1) cost to the utility company; 2) cost of
allocation of depreciating the HVAC system and 3) cost of allocation of service
contracts, systems repair and maintenance. Landlord will bill Tenant for HVAC
overtime charges and will submit with its invoice a tabulation of the hours and
the dates in which the overtime HVAC was furnished. Tenant will reimburse
Landlord therefore (as additional rent) within fifteen (15) days after receipt
of Landlord's invoice.
(c) In order to insure that such capacity is not exceeded and
to avert possible adverse effect upon the Building's electrical service, Tenant
will not, without Landlord's prior written consent in each instance, (i) connect
any additional fixtures, appliances or equipment to the electric distribution
system other than (a) the lighting in accordance with the Tenant Plans approved
by Landlord and (b) lamps, electric typewriters, word processors, personal
computers, calculators, copy machines, state of the art office equipment and
other small office machines, and kitchen equipment, or (ii) make any alteration
or addition to the electric system. Should Landlord grant such consent, all
additional risers or other equipment required therefore will be provided by
Landlord and the charges therefore will be paid by Tenant upon Landlord's
demand.
(d) Removal of ice and snow from the walks, drives and parking
facilities during Building Hours within a reasonable time after accumulation
thereof.
(e) Maintenance of the Common Facilities and cleaning and
janitorial service for the Demised Premises after 6:00 p.m. Monday through
Friday (excluding holidays), as provided in Exhibit E.
If at any time Tenant's use of any utility service (if any utility is
not directly metered or paid by Tenant to the utility authorized providing such
service) or if Tenant's use of any available Building service exceeds Tenant's
Pro Rata Share of the Building Operating Expenses, Landlord reserves the right
to bill Tenant separately for the cost of such service or usage, but without
markup or profit to Landlord. Such usage will be calculated at Landlord's option
by the use of checkmeters, survey or specific invoicing by outside vendors.
Subject to the provisions of Section 6.2, Landlord represents that the
HVAC System is capable of maintaining heat at a minimum of 66(degrees) in the
Demised Premises when the outdoor temperature is 14(degrees) F. and air
conditioning at a minimum of 78(degrees) F. dry bulb and 67(degrees) F. wet bulb
and a 50 percent humidity in the Demised Premises when the outdoor temperature
is 91(degrees) F. dry bulb and 76(degrees) F. wet bulb during summer months.
SECTION 6.2 Tenant expressly agrees that Landlord will not be
responsible for the failure of supply to Tenant of any of the aforesaid or any
other utility or service, nor will Landlord be liable for any damages resulting
from, nor there be any abatement of rent or additional rent as a result of such
failure. Notwithstanding the foregoing, if such failure of supply results from
Landlord's negligence and the Demised Premises thereby becomes untenantable for
five (5) consecutive days after notice from Tenant specifying the basis of
Tenant's claim, then from and after the expiration of said five (5) day period
and until such failure is cured, Tenant's Base Rent will be abated in such
proportion as the usable square footage of the portion of the Demised Premises
which becomes untenantable bears to the total usable square footage of the
Demised Premises, provided, however, that:
(a) Tenant, upon serving upon Landlord any notice pursuant to
this Section 6.2, will also serve a copy of such notice upon the Mortgagee, and
no notice by Tenant to Landlord hereunder will be deemed to have been duly given
unless and until a copy thereof has been so served; and
(b) Mortgagee will have the right to cure such failure, or
cause same to be cured, and Tenant Will accept such cure by or at the instance
of Mortgagee as if the same had been made by the Landlord. Notwithstanding the
foregoing, should such utility failure be due to the negligence of Landlord, its
agents, employees or contractors, the five (5) day time period shall be reduced
to one (1) business day. Landlord will use reasonable efforts to correct any
utility failure promptly.
SECTION 6.3 Landlord and Tenant will comply with any applicable energy
or water conservation measures, voluntary or mandatory, which may be imposed by
any federal, state, county or municipal governmental agency, including, without
limitation, limits on permitted HVAC temperature settings, requirements limiting
volume of consumption or curtailment of Building Hours. The effect of such
compliance will not be deemed an eviction, actual or constructive, or a breach
of the provisions of this Lease which will be suspended, as necessary, for the
period(s) during which such conservation measures are in effect.
SECTION 6.4 Landlord represents that there is telephone service
available in the Building, but Tenant is responsible for bringing such service
to the Demised Premises and for any in-premises setup of telephone service.
Tenant will arrange for and pay for its telephone service directly to the
telephone company.
ARTICLE 7. COMPLIANCE WITH LAWS
SECTION 7.1 Tenant will, at its expense, promptly observe and comply or
cause compliance with all laws and ordinances, orders, rules, regulations and
requirements of all federal, state, county or municipal governments, and
appropriate departments, agencies, commissions, boards and offices thereof,
including but not limited to those governing indoor air quality or pollution
standards and the Americans with Disabilities Act ("ADA"), and of the Board of
Fire Underwriters and/or of any other body exercising similar functions, and of
all insurance companies writing policies covering the Building and/or Demised
Premises, or any part thereof, foreseen or unforeseen, ordinary as well as
extraordinary, which relate or pertain to Tenant's use and occupancy of the
Demised Premises, including the conduct of Tenant's business therein, and
whether or not the same (a) involve any change of governmental policy, (b) are
now in force or are hereafter passed, enacted or directed, or (c) require
extraordinary repairs, alterations, equipment or additions or any work (or
changes to such work or any other requirements incidental thereto) of any kind
which may be applicable to, or in and about, the Demised
<PAGE> 10
Premises, including, without limitation, the fixtures and equipment thereof, or
the purposes to which the Demised Premises are put, or manner of use of the
Demised Premises at the commencement or during the Term of this Lease. Tenant
will provide copies to Landlord of any notices with regard to violations of the
ADA.
SECTION 7.2 Tenant's obligations as set forth in Section 7.1 will
include, but not be limited to, compliance with any and all laws, orders, rules,
regulations and requirements relating to life safety and environmental control,
conservation or protection, including, without limitation, the Occupational
Safety and Health Act ("OSHA"), the Spill Compensation and Control Act and the
Industrial Site Recovery Act ("ISRA"), with respect to the use of and operations
at the Demised Premises. Without limitation of the foregoing, if during the Term
the operations of any occupant of the Demised Premises now or hereafter become
subject to the requirements of ISRA, then upon any event which, it applicable to
Tenant, would "trigger" the applicability of ISRA, Tenant will, at its own
expense, take or cause such occupant to take such action as is required by ISRA.
Notwithstanding the foregoing, in the event Landlord takes any action which
would trigger the applicability of ISRA, Tenant agrees to cooperate with
Landlord in obtaining ISRA approval, including without limitation, (i) executing
and delivering any affidavits, applications or other filings required by the New
Jersey Department of Environmental Protection ("NJDEP") and at Landlord's
expense, (ii) allowing inspections and testing of the Demised Premises and (iii)
performing any requirement reasonably requested by Landlord and necessary for
the receipt of the ISRA approval.
SECTION 7.3 In the event that Tenant is not obligated to comply with
Section 7.2 for any reason, including without limitation inapplicability of ISRA
to Tenant or any other occupant of the Demised Premises, then prior to any
assignment or subletting of any portion of the Demised Premises and prior to the
expiration or sooner termination of this Lease or any sublease, Tenant, at its
sole expense, will obtain from the NJDEP and deliver to Landlord a "letter of
non-applicability". Tenant will also provide Landlord with a duplicate original
of the affidavit and any and all other information submitted to the NJDEP in
connection with the request of such letter. Any representation or certification
made by Tenant, its agents, employees and invitees, in connection with any
request for a letter of non-applicability shall constitute a representation and
warranty by Tenant in favor of Landlord.
SECTION 7.4 In the event of Tenant's failure to comply fully with this
Article 7 Landlord may, but will not be required to, perform any or all of
Tenant's obligations as aforesaid.
SECTION 7.5 Tenant will defend, indemnify and hold harmless Landlord,
its agents, successors and assigns from and against, and be responsible for
payment of, any and all costs, expenses, claims, fines, penalties and damages
that may, in any manner, arise out of or be imposed because of the failure of
Tenant to comply with the provisions of this Article 7, including the expenses
incurred by Landlord in the exercise of its rights pursuant to Section 7.4, and
all of the foregoing shall be deemed additional rent.
Landlord agrees to indemnify Tenant for any costs, expenses (including
reasonable attorneys' fees), damages or other liabilities incurred by Tenant
arising out of the use, placement, storage or disposal of hazardous or toxic
waste or substances in or on the Property by Landlord, its employees, agents or
invitees. Except for de minimis quantities for typical office use, the term
'hazardous or toxic waste or substances' means any wastes or substances
classified as hazardous or toxic under any applicable federal, state or local
law, statute, rule, regulation or ordinance (including ECRA), as well as any
wastes or hazardous substances excluded from the definition of a 'hazardous
substance' by the last sentence of 42 U.S.c. 9601 (14) and any chemical
substances or mixtures regulated pursuant to 15 U.S.C. 2601 et. seq.
SECTION 7.6 In the event Tenant is required to obtain ISRA approval due
to events related to Tenant's, its agent's or employee's actions or due to its
permitted use and the scheduled expiration or earlier termination of the Term of
this Lease (collectively, a "LEASE TERMINATION") occurs prior to obtaining such
ISRA approval, Tenant will continue to pay (i) Base Rent at one and one-half
(1.50) times the rate in effect immediately prior to such Lease Termination and
(ii) all additional rent as provided under the Lease, until such ISRA approval
has been obtained, but Tenant will have no further right to occupy or use the
Demised Premises after the Lease Termination. Tenant's obligations under this
Article 7 shall survive termination of the Lease.
SECTION 7.7 Landlord warrants that as of the Commencement Date of this
Lease, to Landlord's knowledge, the Building and Property is not in violation of
applicable federal, state, county and municipal laws and regulations in effect
as of such date and there are no environmental violations, hazardous wastes or
materials in or around the Building as of the Commencement Date. Landlord will
be responsible for any costs incurred by Tenant due to any non-compliance in
connection with this representation.
If, however, after the commencement Date of the Lease, as a result of
new laws or regulations, it is determined that the Building or Property are in
violation of such new laws or regulations except if due to Tenant's Permitted
Use and/or any action or omission on the part of Tenant, Landlord, or some other
tenant or their agents, employees or invitees, Landlord will cause the Building
and Property to comply and the costs thereof will be allocated in accordance
with the provisions of Exhibit C of this Lease.
ARTICLE 8. EVENTS OF DEFAULT; REMEDIES
SECTION 8.1 It will be a default hereunder if, at any time after the
date hereof, any one of the following events (herein called an "EVENT OF
DEFAULT") occurs:
(a) if Tenant falls to pay any installment of the Base Rent or
Operating Expenses, or any part thereof, when same is due and payable and such
failure continues for five (5) days after the same is due and payable;
Notwithstanding the foregoing, Landlord agrees that it will notice Tenant up to
three (3) times in any Lease Year of any failure to pay an Installment of Base
Rent or Operating Expenses and it will not be an event of default if Tenant pays
such overdue amount within five (5) days of the receipt of such notice; or
(b) if Tenant fails to pay any other item of additional rent
or any other charges required to be paid by Tenant hereunder and such failure
continues for ten (10) days after notice thereof from Landlord to Tenant; or
(c) If Tenant fails to perform any of the requirements of this
Lease (other than the payment of money) on the part of Tenant to be performed or
observed and such failure continues for thirty (30) days after notice thereof
from Landlord to Tenant; or provided, however, if such default shall be of a
nature that it cannot reasonably be cured by Tenant within such thirty (30) day
period, Tenant shall have such additional time as shall be reasonably necessary,
provided Tenant promptly commences a cure within said thirty (30) day period and
diligently proceeds to cure same thereafter provided that under no circumstances
will such additional time exceed ninety (90) days.
(d) Deleted Intentionally.
(e) if Tenant assigns, mortgages or encumbers this Lease, or
sublets the Demised Premises, or any part thereof, other than as expressly
permitted hereunder; or
(f) If Tenant makes an assignment for the benefit of its
creditors; or
(g) if any petition is filed by or against Tenant in any
court, whether or not pursuant to any statute of the United States or of any
State, in any bankruptcy, reorganization, extension, arrangement or insolvency
proceedings, and with regard to a petition filed against Tenant the same is not
dismissed within forty-five (45) days, provided that during such period Tenant
continues to pay all Base Rent and all additional rent and performs all of its
obligations under this Lease; or
(h) if, a receiver or trustee is appointed for all or any
substantial portion of Tenant's property,
<PAGE> 11
and with regard to a proceeding brought against Tenant the same is not dismissed
in forty-five (45) days, provided that during such period Tenant continues to
pay all Base Rent and all additional rent and performs all of its obligations
under this Lease; or
(i) if a petition or a proceeding is filed or commenced by or
against Tenant for its dissolution or liquidation (other than in connection with
any merger permitted hereunder), or if Tenant's property is taken by any
governmental authority in connection with a dissolution or liquidation, and with
regard to a petition filed or commenced against Tenant the same is not dismissed
within forty-five (45) days, provided that during such period Tenant continues
to pay all Base Rent and all additional rent and performs all of its obligations
under this Lease; or
(j) if a levy for substantially all of Tenant's property at
the Demised Premises or upon the Lease or upon Tenant's leasehold interest
hereunder, under judgment against Tenant is not satisfied or bonded within
thirty (30) days.
SECTION 8.2 Upon the occurrence of any one or more of the
aforementioned events of default, and the expiration of the period of time for
curing the same, if any, Landlord may give to Tenant a notice (hereinafter
called "NOTICE OF TERMINATION") of its intention to end the Term of this Lease
at the expiration of five (5) days from the date of service of such Notice of
Termination. At the expiration of such five (5) days the Term hereof, as well as
all of the right, title and interest of Tenant hereunder, will wholly cease and
expire in the same manner and with the same force and effect as if the date of
expiration of such five (5) day period were the date originally specified herein
for the expiration of the Term, and Tenant will then quit and surrender the
Demised Premises to Landlord, but Tenant will remain liable to Landlord as
hereinafter provided. Notwithstanding the foregoing provisions of this Section
8.2, Landlord will not be required to give any notice of default, and no cure
period shall be applicable to the failure of Tenant to observe or perform any of
its agreements or obligations hereunder, if within any one hundred eighty (180)
day period Tenant has committed four material defaults hereunder and Landlord
has transmitted to Tenant four material default notices.
SECTION 8.3 If this Lease is terminated as provided above, Landlord, or
Landlord's agents or servants, may at any time thereafter re-enter the Demised
Premises, remove Tenant, its agents, employees, servants, licensees, permittees
and any subtenants or assignees, and all or any of its or their property, either
by summary dispossess proceedings or by any suitable action or proceeding at
law, without being liable to indictment damages of any nature, and recover and
enjoy the Demised Premises together with all additions, alterations and
improvements thereto.
SECTION 8.4 In case of any such termination by summary proceedings or
otherwise, Tenant agrees that:
(a) The Base Rent and all additional rent required to be paid
by Tenant hereunder will thereupon become due and be paid up to the time of such
termination or dispossess. Tenant will also pay to Landlord, as additional rent,
all of Landlord's reasonable expenses for attorneys' fees, brokerage
commissions, all costs paid or incurred by Landlord for retaking and
repossessing the Demised Premises (including the removal of persons and property
therefrom), restoring the Demised Premises to good order and condition, altering
and otherwise preparing the same for reletting (without regard to whether such
alterations may be characterized as capital improvements), and for all other
reasonable costs and expenses incurred in securing a new tenant or tenants (all
of the foregoing collectively referred to as the "EARLY TERMINATION DAMAGES").
(b) Landlord may, at any time and from time to time, relet the
Demised Premises, in whole or in part, in its own name, for a term or terms
which, at Landlord's option, may be for the remainder of the then current Term
of this Lease, or for any longer or shorter period. Landlord undertakes to use
reasonable efforts to relet the Demised Premises so as to mitigate damages but
will not be required to prefer such reletting to any letting of other vacant
space in the Building.
(c) Tenant will be obligated and agrees to pay to Landlord,
upon demand, and Landlord will be entitled to recover from Tenant, the Early
Termination Damages plus damages in an amount equal to the excess, if any, of
(i) all Base Rent and all additional rent as would have been required to be paid
by Tenant under this Lease for each calendar month had this Lease and the Term
not been so terminated, over (ii) the rents, if any, collected by Landlord in
respect of such calendar month pursuant to any reletting. In no event will
Tenant be entitled to receive any excess of such rents over the sums payable by
Tenant to Landlord hereunder. Said damages will be payable by Tenant to Landlord
in monthly installments in the same manner as Base Rent hereunder, and no suit
or action brought to collect the amount of the deficiency for any month will in
any way prejudice Landlord's right to collect the deficiency for any subsequent
month by a similar proceeding.
Alternatively, Landlord may, at Landlord's sole option,
without notice and without prejudice to any other rights or remedies of Landlord
hereunder or at law or in equity, recover from Tenant, in addition to the Early
Termination Damages, as liquidated damages for such default, expiration and/or
dispossess, an amount equal to the difference between (i) the Base Rent and all
additional rent reserved in this Lease from the date of such default to the date
of expiration of the Term and (ii) the then fair market rental value of the
Demised Premises for the same period, discounted to present value at a rate not
more than six (6%) percent per annum. Said damages will become due and payable
to Landlord immediately upon such breach of this Lease and without regard to
whether this Lease be terminated or not, and if this Lease be terminated,
without regard to the manner in which it is terminated.
(d) Suit or suits for the recovery of any and all such
damages, or for any installments thereof, may be brought by Landlord from time
to time at its election, and nothing herein contained will be deemed to require
Landlord to postpone suit until the date the Term would have expired had the
Lease not been terminated as provided herein or under any provision of law or
had Landlord not re-entered into or upon the Demised Premises.
(e) If any statute or rule of law governing Landlord's claim
for damages will limit the amount of such claim capable of being so proved and
allowed, Landlord will be entitled to prove as and for liquidated damages and
have allowed an amount equal to the maximum allowed by or under any such statute
or rule of law.
SECTION 8.5 In connection with any reletting, Landlord, at its option,
may make such alterations, repairs
<PAGE> 12
and/or decorations in the Demised Premises as in its reasonable
judgment Landlord considers advisable and necessary, and the making of such
alterations, repairs and/or decorations will not operate or be construed to
release Tenant from liability hereunder.
SECTION 8.6 Tenant, for itself and all claiming through or under
Tenant, including, but not limited to its. creditors, upon the termination of
this Lease in accordance with the terms hereof or in the event of re-entry or
recovery of possession of the Demised Premises by process of law or otherwise,
hereby waives to the fullest extent permitted by law any right of redemption
provided or permitted by any statute, law or decision now or hereafter in force,
and hereby waives, surrenders and gives up all rights or privileges which it or
they may or might have under and by reason of any present or future law or
decision to redeem the Demised Premises or for a continuation of this Lease
after having been dispossessed or ejected therefrom by process of law.
ARTICLE 9. CUMULATIVE REMEDIES; WAIVER
SECTION 9.1 Every term, condition, agreement or provision contained in
this Lease will also be deemed to be a covenant.
SECTION 9.2 In addition to the other remedies provided in this Lease,
Landlord will be entitled to the restraint by injunction of any violation or
attempted or threatened violation of any of the terms or covenants of this
Lease. Landlord's remedies under the terms of this Lease are cumulative and are
not intended to be exclusive of any other remedies to which Landlord may be
lawfully entitled, at law or in equity, in case of any breach by Tenant of any
provision of this Lease.
SECTION 9.3 The failure of Landlord to insist in any one or more cases
upon the strict performance of any of the terms or covenants of this Lease, or
to exercise any option herein contained, will not be construed as a waiver or a
relinquishment for the future of any such term or covenant. No waiver by
Landlord of any term or covenant of this Lease will be deemed to have been made
unless made in writing signed by Landlord.
SECTION 9.4 Neither the payment by Tenant nor acceptance by Landlord of
rent or any other payment, nor the acceptance by Landlord of performance of
anything required by this Lease to be performed, with the knowledge of the
breach of any term or covenant of this Lease, will be deemed a waiver of such
breach or of any of Landlord's rights hereunder. Landlord's acceptance of rent
or any other payment in a lesser amount than is due (regardless of any
endorsement on any check, or any statement in any letter accompanying any such
rent or payment) will not operate or be construed either as an accord and
satisfaction or in any manner other than as payment on account of the earliest
rent or other sums then unpaid.
SECTION 9.5 Tenant and Landlord each waive all right to trial by jury
in any proceeding instituted with respect to this Lease.
ARTICLE 10. SURRENDER OF DEMISED PREMISES
SECTION 10.1 Tenant will, upon the expiration or earlier termination of
this Lease, quit and surrender the Demised Premises to Landlord, together with
all Tenant Improvements and other alterations (unless Landlord elects otherwise
as hereinafter provided) and replacements thereof then on the Demised Premises,
in good order, condition and repair, except for reasonable wear and tear. Prior
to the expiration or earlier termination of this Lease, the Tenant will remove
all of its property, equipment and trade fixtures from the Demised Premises
without damage, leaving the Demised Premises in broom-clean condition. All
property not removed by Tenant will be deemed abandoned by Tenant and Landlord
reserves the right to charge the cost of removal, storage and/or disposal of
same to Tenant.
SECTION 10.2 If the Demised Premises is not surrendered at the end of
the Term including a failure to surrender by virtue of failure to comply with
ISRA as referred to in Section 7.6 above, or if the Demised Premises is damaged
or is not in broom-clean condition upon surrender, Tenant will indemnify
Landlord against any loss or liability resulting, including, without limitation
and in addition to any other remedy or claim of Landlord's, any claims made or
damages sustained by any succeeding tenant founded on the delay, condition
and/or damage.
SECTION 10.3 Tenant's obligations under this Article 10 will survive
the expiration or earlier termination of this Lease and surrender of the Demised
Premises.
ARTICLE 11. ASSIGNMENT OR SUBLETTING
SECTION 11.1 Tenant will neither assign this Lease, sublet the Demised
Premises or any part thereof nor encumber its interest in this Lease unless it
first complies with this Article 11.
SECTION 11.2 Provided that (a) Tenant is not then in breach or default
of any of the terms or conditions of the Lease after expiration of any
applicable grace periods, and (b) Landlord gives prior written consent to the
proposed assignment or subletting which consent shall not unreasonably withheld
or delayed, Tenant will be entitled to sublet the Demised Premises or a portion
thereof, or to assign this Lease, but only in accordance with and subject to the
provisions of this Article 11. Landlord will have the reasonable right to
withhold its consent if Tenant's proposal for such subletting or assignment
would violate any restrictive covenant or exclusive uses granted to any other
tenant(s) in the Building or Property or if there is a proposed substantial
deviation from the general character and condition of the Building or Property.
SECTION 11.3 (a) If Tenant desires to assign this Lease or to sublet
all or part of the Demised Premises, it must, prior to entering into such
assignment or sublease, serve notice upon Landlord of its intention to make such
assignment or subletting ("TENANT'S NOTICE") which notice will contain (i) the
name, address and financial
<PAGE> 13
information of the proposed assignee or subtenant, (ii) the full and complete
terms and conditions of the assignment or subletting and, in the case of
subletting, the exact space to be sublet, (iii) the amount of Rental and all
other consideration to be paid by the subtenant or assignee, (iv) the nature of
the proposed assignee's or subtenant's business and its proposed use of the
Demised Premises, and (v) a copy of plans and, if available, specifications for
any required alterations to the Demised Premises. In the event that Landlord or
Mortgages requires any additional or supplementary information, Landlord or
Mortgagee will advise Tenant, in writing, within twenty (20) days of Landlord's
receipt of Tenant's Notice and Tenant will supply same within a reasonable time.
(b) Except for the prospective sublease or assignment by
Tenant to (i) an affiliate, (ii) New Jersey State Medical Underwriters, Inc., or
its affiliates or (iii) for a total of 5,000 r.s.f. or less of the Demised
Premises during this Lease Term, Landlord has the right by giving Tenant notice
of its election to do so ("LANDLORD'S NOTICE") within fourteen (14) days after
the later of receipt of Tenant's Notice or receipt of the requested additional
or supplementary information, if applicable, either (i) to terminate this Lease
as to all or that portion of the Demised Premises which is the subject of the
proposed assignment or sublease if for all or substantially all of the balance
of the term, or (ii) to require that Tenant shall pay to Landlord fifty (50%)
percent of (x) the net amount (i.e. after deducting the reasonable broker's
commissions, if any, and other reasonable costs and expenses incurred in
connection with obtaining the assignment or sublease, as the case may be
including without limitation concessions and workletter) of any consideration
received by Tenant for the assignment or sublease and (y) the amount by which
the Base Rent, Operating Expenses and other additional rent to be paid under the
sublease or assignment exceed the Base Rent, Operating Expenses and other
additional rent to be paid under this Lease (herein the "Rent Surcharge"). Such
amounts will be paid to Landlord as and when they are received by Tenant. In the
event of an election by Landlord to terminate this Lease as provided in (i)
above, Landlord shall first give Tenant a three (3) day period within which to
provide Landlord written notice of Tenant's withdrawal of the requested
assignment; and thereafter in the absence of such withdrawal such termination
shall become effective on the commencement date of the proposed sublease or the
effective date of the proposed assignment, as the case may be, but in no event
earlier than thirty (30) days after the giving of Landlord's Notice, and Base
Rent and all additional rent payable by Tenant will be so adjusted and
apportioned as of the date of such termination. Notwithstanding the above, with
respect to affiliates of New Jersey State Medical Underwriters, Inc. Landlord
reserves its right to require that Tenant pay to Landlord the Rent Surcharge as
provided for in this subsection.
(c) Notwithstanding the foregoing, Tenant's right to make an
assignment or sublease and the effectiveness of any assignment or sublease is
conditional upon (i) there being no uncured default under the Lease as of the
effective date of the assignment or sublease, (ii) Tenant's delivery to
Landlord, within three (3) days after their execution, of a duplicate original
of the assignment or sublease and, in the event of an assignment, an agreement
reasonably acceptable to Landlord wherein the assignee assumes and agrees to
keep, observe and perform all of the covenants, conditions and obligations of
Tenant under the Lease, and (iii) upon request by Landlord and as additional
rent, Tenant will pay Landlord a processing fee of Five Hundred ($500.00)
Dollars or such greater amount as is reasonable under the circumstances for
document review and/or preparation in connection with the proposed transaction.
SECTION 11.4 If this Lease is assigned, or if the Demised Premises or
any part thereof is sublet or otherwise occupied by anyone other than Tenant,
after default by Tenant, Landlord may collect rent from the assignee, subtenant
or occupant and apply the net amount collected to the amounts due hereunder, but
no such assignment, subletting, occupancy or collection will be deemed a waiver
of this covenant, an acceptance of the assignee, subtenant or occupant as tenant
or a release of Tenant from the further performance of the terms, covenants and
conditions of this Lease.
SECTION 11.5 Notwithstanding any assignment, sublease or other
occupancy with or without Landlord's consent, Tenant will remain primarily
liable on this Lease unless expressly agreed to by Landlord to the contrary, in
writing. Any violation of any provision of this Lease, whether by act or
omission, by any assignee, subtenant or occupant, will be deemed a violation of
such provision by Tenant, it being the intention of the parties that Tenant will
be liable to Landlord for any and all acts and omissions of any and all
assignees, sublenants or other occupants of the Demised Premises.
SECTION 11.6 For purposes of this Article 11, if Tenant is a
corporation or partnership, any dissolution, merger, consolidation or other
reorganization of such corporation or partnership, or the sale or other transfer
or disposition of a "controlling interest" in the corporate shares or
partnership interests of Tenant, as the case may be, (whether such sale,
transfer or other disposition occurs at one time or at intervals so that, in the
aggregate, such sale, transfer or other disposition of a "controlling interest"
shall have occurred), will be deemed to constitute an assignment of this Lease.
For the purposes of this Article 11, the term "controlling interest" means (a)
as to a tenant which is a corporation the ownership of shares possessing and
having the right to exercise more than fifty (50%) percent of the total combined
voting power of all classes of shares issued, outstanding and entitled to vote
for the election of directors, (whether direct ownership or indirect ownership
through ownership of shares possessing and having the right to exercise more
than fifty (50%) percent of the total combined voting power of all classes of
shares of another corporation or corporations), and (b) as to a tenant which is
a partnership, more than fifty (50%) percent of partnership interest of the
general partners of such partnership (whether direct ownership or indirect
ownership through control of a corporate general partner).
Tenant shall have the right, without Landlord's consent but with prior
reasonable notice to Landlord, to assign this Lease or sublease the Demised
Premises: (a) if the sublease or assignment involves less than 5,000 r.s.f. or
(b) to any parent, subsidiary or affiliate corporation of Tenant, or any
corporation into which Tenant may merge, for any of the then remaining portion
of the unexpired Lease Term or any option period provided: (i) the proposed
assignee is financially qualified or is an otherwise satisfactory credit risk;
(ii) the assignee corporation provides Landlord with financial statements
certified by an office or individual of the assignee demonstrating net assets
equal to or greater than Tenant's; (iii) such assignee has sufficient experience
and continues to operate the business conducted in the premises in the same
manner and for the same use as Tenant pursuant to the provisions of the Lease.
An affiliate is defined as any corporation which controls or is controlled by
the parent corporation of Tenant which shall then control the affiliate and any
corporation which is a member with Tenant in a relationship of joint venture,
partnership or other form of business association.
SECTION 11.7 Without limiting any of the provision of this Article 11,
if pursuant to the Federal Bankruptcy Code or any similar law having the same
general purpose, (herein the "CODE"), Tenant is permitted to assign its interest
in this Lease notwithstanding the restrictions set forth above, Landlord will be
entitled to assurance of future performance by an assignee expressly permitted
under such Code which will be deemed to mean, at a minimum, the deposit of cash
or cash equivalent security in an amount equal to the sum of one (1) year's Base
Rent plus an amount equal to the additional rent for the calendar year preceding
the year in which such assignment is intended to become effective. Such security
will be held by Landlord for the balance of the term, without interest, as
security for the full performance of all Tenant's obligations under this Lease,
and may be applied in the manner specified in Article 17 below.
<PAGE> 14
ARTICLE 12. MAINTENANCE AND REPAIRS; COVENANT AGAINST WASTE RIGHT OF
INSPECTION
SECTION 12.1 Tenant will, at its sole cost and expense, maintain the
Demised Premises and all of its fixtures, systems, equipment and improvements,
in clean, safe, orderly and sanitary condition free of accumulation of dirt and
rubbish. Tenant will not permit or suffer any overloading of the floors of the
Demised Premises and will not do or suffer any waste or injury with respect
thereto. In case of any destruction or damage of any kind whatsoever to the
Demised Premises, or any part thereof, including, without limitation, any glass
and the Tenant Improvements in or at the Demised Premises, Tenant shall repair
said damage or destruction as speedily as possible at Tenant's own cost and
expense, provided, however, that if any such damage or destruction results
solely from the act, fault or negligence of Landlord, or anyone acting under
Landlord, then it will be the responsibility of Landlord to make the repairs at
its expense. Tenant will also be responsible, at its own cost and expense, to
(a) repair HVAC, electrical or plumbing system(s) ("TENANT SYSTEM") which
service only the Demised Premises and which are specifically installed therein
above the base building standard, (b) maintain throughout the Term an HVAC
maintenance contract, and, if requested by Landlord, a maintenance contract on
any other Tenant Systems, covering any such Tenant System(s) beyond the base
building standard, in such form and with such company as is approved by
Landlord, and (c) furnish for Landlord's installation, and pay Landlord for its
installation of, bulbs, starters and ballasts for lighting fixtures. When used
in this Article, the term "REPAIR(S)" includes replacement(s), restoration(s),
addition(s), improvement(s), alteration(s) and/or renewal(s) when necessary.
Prior to making any repairs, Tenant will notify Landlord of the nature of the
damage or destruction and contractors Tenant intends to employ to effect the
repairs. The provisions and conditions of Article 14 applicable to changes or
alterations (including the condition that Landlord may require that the repairs
be performed by its agents, servants, employees or contractors) will similarly
apply to repairs required to be done by Tenant under this Article. To the extent
that there are any warranties or guaranties applicable to the Demised Premises,
including the fixtures, equipment and systems therein, which would be applicable
to the obligations of Tenant under this Article 12, Landlord will assign said
warranties or guaranties to Tenant. Landlord will maintain and repair the common
areas and base building HVAC, plumbing and electrical systems through the
Building Operating Expenses as set forth in Exhibit C.
SECTION 12.2 Landlord will be responsible for and will make all
necessary repairs to the bearing walls, foundation and structural portions of
the roof of the Building, provided, however, that if any such repairs result
from the act, fault or negligence of Tenant, such repairs will be made by
Landlord at Tenant's expense.
SECTION 12.3 Upon prior reasonable notice (except in case of emergency
when notice will not be required) Tenant will permit Landlord and its authorized
representative to enter the Demised Premises during usual business hours for the
purposes of (i) inspecting the same, (ii) curing any defaults on the part of
Tenant in making any necessary repairs, (iii) performing of any work which may
be necessary to comply with any laws, ordinances, rules, regulations, or
requirements of any public authority, or which may be necessary to prevent waste
or deterioration in connection with the Demised Premises, and (iv) exhibiting
the Demised Premises during the last year of the Term. Nothing in this Section
12.3 imposes any duty upon the part of Landlord to do any such work or to make
any repairs to the Demised Premises of any kind whatsoever, except as
specifically provided herein, and the performance thereof by Landlord will not
constitute a waiver of Tenant's default in failing to perform the same. Landlord
will promptly, after Tenant has given Landlord notice of the necessity
therefore, make all repairs required to be made hereunder by Landlord, provided,
however, that Landlord will not in any event be liable, nor will Tenant be
entitled to any abatement or setoff or deduction from rent, nor will the
obligations of Tenant under this Lease be affected in any manner whatsoever, for
inconvenience, annoyance, disturbance, loss of business or other damage of
Tenant or any other occupant of the Demised Premises, or any part thereof, by
reason of (i) making repairs, the performing of any work on the Demised Premises
or any noise, vibration or other disturbance, (ii) bringing materials, supplies
and equipment into or through the Demised Premises, or (iii) the Demised
Premises being rendered wholly or partially untenantable (collectively
"INCONVENIENCE") because of Landlord's failure to make any repairs required to
be made hereunder by Landlord which Landlord fails to correct and diligently
pursue to completion within five (5) days notice from Tenant. Landlord will
exercise due diligence not to interfere with Tenant's business operation, but
will not be required to employ overtime labor to avoid such interference,
provided, however, Landlord will employ overtime labor, at Tenant's expense, if
requested to do so by Tenant.
SECTION 12.4 (a) Tenant agrees that Landlord may, at its sole
discretion and at any time or from time to time during the Term, perform
structural and/or non-structural renovation work on, in and/or to the Building
and Common Facilities, any of which work may require access to the same from
within the Demised Premises. Tenant will provide such access at all reasonable
times, upon reasonable notice, for the purpose of performing such work, and
Landlord will incur no liability to Tenant, nor will Tenant be entitled to any
abatement of rent, on account of any Inconvenience at the Demised Premises
(provided that Tenant is not denied access to said Demised Premises and provided
that there does not occur any material inconvenience which deprives Tenant of
the reasonable ability to perform its usual business operation in the Demised
Premises).
(b) Landlord will use reasonable efforts (which will not
include any obligation to employ labor at overtime rates) to avoid disruption of
Tenant's business during any such entry upon the Demised Premises and agrees to
use overtime labor, if requested by Tenant, at Tenant's expense.
(c) If Tenant or Landlord commences any action or proceeding
seeking injunctive, declaratory or monetary relief in connection with the rights
reserved under this Section, then the prevailing party in any such action or
proceeding will have the non-prevailing party pay reasonable legal fees costs
and disbursements in an way related to or arising out of such action or
proceeding.
ARTICLE 13. MECHANIC'S LIENS
SECTION 13.1 Tenant will not suffer or permit any Construction Lien
Claim or Notice of Unpaid Balance and Right To File Lien ("LIEN") against the
Demised Premises and/or Property or any part thereof, by reason of any work,
services, material and/or equipment provided, or claimed to have been provided,
for or to Tenant or
<PAGE> 15
any contractor and/or subcontractor employed in connection with any improvement
of or to the Demised Premises or any part thereof through or under Tenant or
anyone holding same through or under Tenant. If at any time a Lien is filed
against the Demised Premises and/or Property, Tenant will cause the same to be
discharged of record or bonded over within thirty (30) days after notice to
Tenant of the filing of same. If Tenant fails to discharge or bond over any such
Lien within such period, then, in addition to any other right or remedy of
Landlord, Landlord may elect, but shall not be obligated, either to procure the
discharge of the Lien by bonding or by payment or deposit into court of the
amount claimed to be due, or to compel the prosecution of an action for the
foreclosure of such Lien by the lienor and to pay the amount of the judgment, if
any, in favor of the lienor with interest, costs and allowances. Any amounts
paid or deposited by Landlord for any of the aforesaid purposes, and all
reasonable legal and other expenses and disbursements of Landlord, including
reasonable counsel fees, in defending any action or in or about procuring the
discharge of such Lien, together with interest thereon at the rate which
Chemical Bank announces as its so called prime rate or base rate, from time to
time, plus three (3%) percent, from the date of payment or deposit, will become
due and payable forthwith by Tenant to Landlord, as additional rent.
SECTION 13.2 Nothing in this Lease will be deemed or construed as the
consent or authorization of Landlord, express or implied, by inference or
otherwise, to any improvement to or any alteration or repair of or to the
Demised Premises or any part thereof, or to Tenant's contracting for or
permitting the providing of any work, services, material and/or equipment, which
might give rise to the right to file any Lien against Landlord's interest in the
Demised Premises or the Property.
ARTICLE 14. ALTERATIONS
SECTION 14.1 Tenant will not make, cause or permit any alterations,
additions or improvements ("ALTERATIONS") in or to the Demised Premises without
in each instance obtaining Landlord's prior written consent thereto, which
consent shall not be unreasonably withheld or delayed. By way of Illustration
but not limitation, Landlord will be entitled to withhold its consent if the
proposed alterations (i) impair or affect the structural soundness or integrity
of the Demised Premises, Building, or any of the systems or equipment therein,
(ii) lessen the present or future value of the Demised Premises or Building,
(iii) change the type of use of the Demised Premises in any material respect, or
(iv) increase the risk of damage or injury to the Demised Premises, the Building
or the occupants of the Building. Any such consent by Landlord may be upon
condition that the work be performed by Landlord's agents, servants, employees
or contractors and that Tenant furnish to Landlord such evidence of Tenant's
financial ability to assure payment and/or completion as Landlord may reasonably
require. If Landlord so elects and notifies Tenant at the time of Tenant's
request to make such alterations, Tenant will, at its sole cost and expense,
remove any non-structural alterations at the expiration or other termination of
this Lease, repair all damage caused by such removal and restore the Demised
Premises to the condition in which they were prior to the installation of any
such alterations. Nothing herein contained will be construed to restrict
Tenant's right to install or to make any changes in Tenant's own movable trade
fixtures or non-structural alterations which do not affect any building systems
or to qualify Landlord's obligation to make structural replacements as provided
in Section 12.2. The provisions of this Article 14 are subject to the terms and
conditions of any mortgage to which this Lease is subordinate and if the consent
of any such mortgagee is required for such work, such consent will be obtained
by Tenant before any such work is commenced. In that regard, Landlord agrees to
reasonably cooperate with Tenant in obtaining the consent of such mortgagee.
Plans and specifications for any proposed alterations will be submitted
to Landlord upon the request for its consent together with a reputable
contractor's (which may include a contractor in Tenant's employ) estimate of the
cost thereof. However, such review and consent by Landlord will not be deemed
Landlord's opinion as to acceptability to or compliance with municipal
requirements. Upon completion of the alterations Landlord is to receive one
print and one reproducible copy of the construction plans marked to show
as-built conditions. Landlord will not require Tenant to remove any improvements
which do not require unusual demolition for office fitout demolition. Landlord
and Tenant will agree at time of alteration approval as to what Tenant has to
remove.
SECTION 14.2 In making any alteration contemplated by this Article, or
any repair or restoration CONTEMPLATED by other terms and conditions of this
Lease, the parties will comply with all applicable laws, regulations, ordinances
and orders and procure all requisite permits, all at Tenant's expense. Copies of
all such approvals, authorizations and permits will be delivered to and retained
by Landlord. Each party will, on written request from the other, execute any
documents necessary to be signed on its part in order to obtain any such permit.
All alterations made hereunder will be performed in a first-class, good and
workmanlike manner using new materials at least equivalent in quality to those
used in the construction of the Building. If the alterations are not performed
by Landlord or its agents, employees, servants or contractors, Landlord may
impose a reasonable charge (not to exceed $50.00 per hour) for the supervision
and inspection of the construction of the alterations.
SECTION 14.3 All alterations (other than Tenant's trade fixtures) made
by Tenant will upon termination of this Lease immediately be and become the sole
and absolute property of Landlord and will remain upon and be surrendered with
the Demised Premises unless Landlord has elected as provided in Section that
such alterations be removed, in which event they will be removed by Tenant and
the Demised Premises restored to its original condition at Tenant's expense upon
or prior to the surrender of possession.
SECTION 14.4 If Landlord, in its absolute discretion, determines that
the performance of any work to be completed by Tenant's contractor(s) interferes
with, delays, hampers or prevents Landlord's contractor(s) from proceeding with
completion of its work in the Building, the Demised Premises, the premises of
any other tenant or the Common Facilities, Tenant will, at the earliest possible
time within twenty-four (24) hours after Landlord's determination (which need
not be communicated in writing and may be given orally by Landlord, its agents
or contractors, to Tenant, or its agents or contractors), cause its contractors
to cease all work being performed by it or on its behalf and to withdraw from
the Demised Premises and the Building until further notice from Landlord.
To the end that there will be no labor dispute which would interfere
with the construction, completion or operation of the Building or Common
Facilities, or any part of either, including, but not limited to, the Demised
<PAGE> 16
Premises, Tenant agrees that for any work which Tenant performs, whether or not
such work is permitted or required pursuant to the Lease, Tenant will engage the
services of only such contractors and subcontractors as will work in harmony,
and without causing any labor dispute, with each other, with Landlord's
contractors and subcontractors and with the contractors and subcontractors of
all others working in or upon the Building or Common Facilities, or any part of
either, and Tenant shall require its contractors and subcontractors to employ
only such labor as will work in harmony, and without causing labor dispute, with
all other labor then working in or upon the Building or Common Facilities or any
part of either. Furthermore, only those contractors and subcontractors as have
been duly licensed by the authority having jurisdiction over the appropriate
profession and which have been approved in writing by the Landlord may perform
any work for Tenant in or upon the Demised Premises. The intent of this section
is to ensure harmonious labor in the Building.
SECTION 14.5 Tenant will maintain, or cause Tenant's contractors to
maintain, worker's compensation and comprehensive or commercial general
liability insurance and property damage insurance, all in amounts, and with
companies and on forms reasonably satisfactory to Landlord and on an occurrence
basis. SUCH INSURANCE WILL BE IN EFFECT AT ALL TIMES DURING ANY PERIOD OF SUCH
CONTRACTOR'S ENTRY UPON THE DEMISED PREMISES AND CERTIFICATES OF INSURANCE WILL
BE DELIVERED TO LANDLORD PRIOR TO ANY SUCH ENTRY BY TENANT OR TENANT'S
CONTRACTORS. If required by Landlord, such insurance will name Landlord and
Landlord's contractor and/or construction manager as additional insured(s), and
in all cases will be primary insurance not contributing with other insurance
Landlord or its contractor and/or construction manager may carry. Landlord will
not in any way be liable for any injury, loss, theft or damage which may occur
to any supplies or equipment of, or any decorations or installations made by,
Tenant or Tenant's contractors, the same being at the sole risk of Tenant and
Tenant's contractors.
ARTICLE 15. INSURANCE WAIVER OF SUBROGATION; RELEASE
SECTION 15.1 During the term hereof, Tenant will, at its own cost and
expense, provide and keep in force the following insurance:
(a) Commercial general liability insurance, written on an
occurrence basis, naming Landlord as an additional insured, against claims for
bodily injury, death or property damage occurring in or about the Demised
Premises, the Building and the Common Facilities (including, without limitation,
bodily injury, death or property damage resulting directly or indirectly from or
in connection with any alteration, improvement or repair thereof made by or on
behalf of Tenant), with limits on an occurrence basis of not less than
$3,000,000.00/$5,000,000.00 for bodily injury or death and $1,000,000.00 for
property damage or $5,000,000.00 combined single limit. Tenant's coverage must
include (i) premises/operations, (ii) independent contractors, and (iii) broad
form contractual liability in support of the indemnity provisions of Article 20.
(b) Workman's Compensation and employer's liability in
statutory amounts
(c) Insurance covering its contents and all Tenant
Improvements, from loss or damage from fire and casualty and, as to Tenant
Improvements, such coverage shall be all-risk special form insurance (or its
equivalent) with replacement cost and agreed amount endorsements naming Landlord
as loss payee and Mortgagee under a New York standard non-contributory mortgagee
endorsement as their interests may appear.
(d) Such other insurance as Landlord or any mortgagee may
reasonably require from time to time.
SECTION 15.2 All policies will be obtained by Tenant and copies of same
or, at Landlord's option, certificates evidencing required coverage will be
delivered to Landlord at least ten (10) days prior to the earlier of (i) Tenant,
its contractors, agents, and/or employees entering the Demised Premises or (ii)
the Commencement Date, together with a copy, certified to be a true copy by the
insurance company, of the endorsement which adds the Landlord and any other
parties required herein, as additional named insureds. All insurance
certificates must be on standard form ACORD 25-S (7/90) or an equivalent form
acceptable to Landlord. All insurance will be written by companies with a Best's
rating of not less than A-, satisfactory to the Landlord and Mortgagee and
authorized to do business in the State of New Jersey. All policies will be for
periods of not less than one (1) year and contain a provision whereby the same
cannot be cancelled or materially altered unless Landlord is given at least
thirty (30) days prior written notice of such cancellation. Tenant will procure
and pay for such insurance from time to time and promptly deliver to Landlord
certificates thereof at least thirty (30) days before the expiration thereof.
All such insurance will be primary insurance not contributing with other
insurance Landlord or its contractor and/or construction manager may carry.
If Tenant is prohibited from entering the Demised Premises due to its
failure to comply with the insurance requirements of this Lease, the
Commencement Date of the Lease or the delivery of the Demised Premises to Tenant
will not be delayed.
SECTION 15.3 If Tenant or its contractor does not procure insurance as
required, Landlord may in accordance with Article 21 of this Lease, cause such
insurance to be issued, and Tenant shall pay to Landlord as additional rent
within ten (10) days of Landlord's request for same the premium for such
insurance and interest.
SECTION 15.4 All policies of insurance to be obtained pursuant to this
Article 15 and all other policies which Landlord or Tenant may carry which
affect, relate or pertain to the Demised Premises, the Building, the Common
Facilities or any of Tenant's contents, the Tenant Improvements, fixtures and
property must include a waiver by the insurer of all rights of subrogation.
Notwithstanding anything in this Lease to the contrary, neither Landlord,
Tenant, nor any of their respective agents, officers, employees or invitees will
be liable to the other for, and each hereby expressly releases or waives any
claim for loss or damage caused by any risk covered by a so-called all-risk
special form insurance policy (or its equivalent) or a commercial or
comprehensive general liability policy, as applicable, without regard to whether
such coverage is in effect. Such release and waiver shall include any such risk
as to which a party elects to self-insure, in whole or in part, by virtue of any
applicable deductible provisions of any insurance coverage or otherwise.
Moreover, Tenant expressly waives and releases Landlord from any claim for any
loss or damage to its business, contents, fixtures and/or property to the extent
<PAGE> 17
required to be covered by insurance hereunder, whether or not such loss or
damage results from the negligence of Landlord, its agents, officers, employees
and/or invitees. If the release of Landlord as set forth in this section
contravenes any law with respect to exculpatory agreements, the liability of
Landlord will not be deemed released but will be secondary to the other's
insurer.
If the payment of an additional premium is required for the inclusion
of such a waiver of subrogation provision, each party shall advise the other of
the amount of any such additional premium and the other party at its election
may, but shall not be obligated to, pay the same. If such other party shall not
elect to pay such additional premium, or if it shall not otherwise be possible
to obtain such a waiver of subrogation provision, neither party shall be
required to obtain such a waiver of subrogation provision from its insurer, but
the release provisions of this Section 15.4 shall nonetheless be effective to
the fullest extent possible without resulting in a contravention or breach of
the terms for any applicable insurance" policy.
SECTION 15.5 Landlord will obtain any and all insurance coverage in
connection with the use and operation of the Building, which will include, but
not be limited to: fire and casualty at full replacement value of the Building
(all-risk special form or its equivalent); comprehensive or commercial general
liability insurance with limits of not less than $3,000,000.00/$5,000,000.00 for
personal injury or death and $1,000,000.00 for property damage or $5,000,000.00
combined single limit; workmen's compensation at no less than the statutory
requirement; employer's liability; difference in conditions; rent insurance for
no less than one (1) year's annual operating income; business interruption
insurance at not less than $500,000.00; and any and all other insurance,
including boiler and machinery insurance, as Landlord or Mortgagee require to
protect adequately the interest of Landlord against risks afforded by such
insurance coverage.
ARTICLE 16. QUIET ENJOYMENT
SECTION 16.1 Landlord covenants that so long as this Lease is in effect
and Tenant pays the rents and performs the covenants and conditions contained in
this Lease, Tenant may peacefully hold and enjoy the Demised Premises during the
Term subject, however, to the terms of this Lease.
ARTICLE 17. SECURITY DEPOSIT
SECTION 17.1 Simultaneously with the execution of this Lease, Tenant
will deposit with Landlord the Security Deposit as security for Tenant's
faithful and timely payment and performance by Tenant of all of Tenant's
obligations, covenants, conditions and agreements under this Lease. Within sixty
(60) days after the expiration of the Term, Landlord will return the Security
Deposit with any interest thereon to Tenant, less such portion thereof as
Landlord has utilized to make good any failure by Tenant to comply with any of
Tenant's obligations, covenants, conditions or agreements hereunder.
SECTION 17.2 In the event of any default by Tenant hereunder, Landlord
has the right, but is not obligated, to apply all or any portion of the Security
Deposit to cure each default, in which event Tenant will within five (5) days of
written demand, promptly deposit with Landlord the amount necessary to restore
the Security Deposit to its original amount.
SECTION 17.3 The Security Deposit will be held by Landlord and may be
commingled with its other funds. In the event of sale or transfer of Landlord's
interest in the Building, Landlord has the right to transfer the Security
Deposit to such purchaser or transferee, in which event Landlord will upon such
transfer, be released from all liability to Tenant for the return of the
Security Deposit. Tenant will look only to the new landlord for the return of
the Security Deposit.
ARTICLE 18. DAMAGE OR DESTRUCTION
SECTION 18.1 In case of any damage to or destruction of the Demised
Premises, or any part hereof, Tenant will promptly give written notice thereof
to Landlord.
SECTION 18.2 If the Building or the Demised Premises is partially or
totally damaged or destroyed by fire or other cause, then, whether or not the
damage or destruction resulted from the fault or neglect of Tenant (and if this
Lease has not been terminated as hereinafter provided in this Article 18),
Landlord will diligently undertake to repair the damage and restore and rebuild
the Building and/or the Demised Premises (which for purposes of this Article 18
shall include the Tenant Improvements to its initial condition as of the
Commencement Date provided the conditions of Section 18.6 are met), at its
expense, with reasonable dispatch after notice to Landlord of the damage or
destruction, provided, however, that Landlord will not be required to repair or
replace any of Tenant's property.
SECTION 18.3 If the Building or the Demised Premises is partially
damaged or partially destroyed by fire or other cause, the rents payable
hereunder will be abated to the extent that the Demised Premises has been
rendered unusable to Tenant in the conduct of its business and for the period
from the date of such damage or destruction to the date the damage has been
repaired or restored. If the Demised Premises or a major part thereof has been
totally (which shall be deemed to include substantially) damaged or destroyed or
rendered completely unusable to Tenant in the conduct of its business on account
of fire or other cause, the rents shall completely abate as of the date of the
damage or destruction and until Landlord repairs, restores and rebuilds the
Demised Premises, provided, however, that if Tenant reoccupies a portion of the
Demised Premises for the conduct of Tenant's business during the time that the
restoration work is taking place and prior to the date that same are made
completely tenantable, rents allocable to such portion will be payable by Tenant
from the date of such occupancy.
<PAGE> 18
SECTION 18.4 Upon receipt of notice from Landlord that the Demised
Premises cannot be restored within such 180 day period, Tenant shall have the
right to terminate this lease by written notice to Landlord within ten (10) days
of receipt of Landlord's notice. Failure to Tenant to furnish Landlord such
written notice within ten (10) days shall constitute a waiver of Tenant's right
to terminate. In case of any damage or destruction mentioned in this Article 18,
Landlord may terminate this Lease, by notice to Tenant, if the Demised Premises
and/or the Building are not reasonably capable of restoration within one hundred
eighty (180) days. Within thirty (30) days after such fire or casualty, Landlord
will advise Tenant in writing as to whether or not it can restore the Demised
Premises within the one hundred eighty (180) day period referred to above, and
whether or not it elects to terminate this Lease as provided in this Section
18.4. If Landlord elects not to terminate the Lease, then Landlord will have two
hundred ten (210) days from receipt of Tenant's notice of such damage to restore
the Demised Premises.
SECTION 18.5 Provided that Landlord diligently prosecutes such repair
and restoration, Landlord will have no liability if the time for repair or
restoration extends beyond the two hundred ten (210) day period. During any
period of restoration, Tenant will be responsible for the security of its goods,
fixtures and equipment and will be responsible at its cost and expense to remove
same from the damaged Demised Premises pending restoration if necessary, it
being understood and agreed that Landlord will have no responsibility or
liability with respect thereto if the same remain in the damaged area.
SECTION 18.6 Notwithstanding anything to the contrary contained herein,
Landlord's obligation to repair will not extend to the Tenant Improvements
unless Tenant makes available to Landlord the funds to pay for the cost of such
repairs including the costs of Landlord's labor and materials. Furthermore,
should the damage or destruction occur during the last year of the Term, then
notwithstanding any contrary provision contained herein, Landlord will have the
option of not repairing the Demised Premises. Landlord must give Tenant notice
of its election not to repair within thirty (30) days of receipt of Tenant's
notice of the damage or destruction or such option will be deemed terminated.
SECTION 18.7 No damages, compensation or claim will be payable by
Landlord for Inconvenience, loss of business or otherwise rising from any repair
or restoration of any portion of the Demised Premises or of the Building
pursuant to this Article. Landlord will use reasonable and diligent efforts to
effect such repair or restoration promptly and in such manner as not to
unreasonably interfere with Tenant's use and occupancy.
SECTION 18.8 Notwithstanding anything to the contrary contained herein,
Landlord's obligations to repair the damage and restore and rebuild the Building
and/or the Demised Premises pursuant to this Article will be contingent upon its
obtaining all necessary approvals from the applicable governmental authorities.
SECTION 18.9 Tenant waives the benefit of N.J.S.A. 46:8-6 and 46:8-7
and agrees that Tenant will not be relieved of the obligations to pay the Base
Rent or any additional rent in case of damage to or destruction of the Building
and/or Demised Premises except as expressly provided in this Lease.
ARTICLE 19. CONDEMNATION
SECTION 19.1 If, at any time during the Term of this Lease, title to
the whole or materially all of the Building and/or Demised Premises is taken by
the exercise of the right of condemnation or eminent domain (hereinafter
referred to as the "PROCEEDINGS") or by agreement between Landlord and those
authorized to exercise such right, this Lease will terminate and expire on the
date of such taking, all Base Rent and additional rent provided to be paid by
Tenant will be apportioned and paid to the date of such taking, and the total
award made in such proceedings will be paid to Landlord except that Tenant may
make a separate claim for the unamortized cost of the Tenant improvements and
any other damages under the New Jersey Relocation Assistance Act. For the
purpose of this Article 19, "materially all of the Building and/or Demised
Premises" will be deemed to have been taken if, as a result of the taking, the
premises remaining after such taking are not reasonably usable for Tenant's
business purposes as determined by Tenant in its reasonable judgment.
SECTION 19.2 If, at any time during the Term of this Lease, title to
less than materially all of the Building and/or Demised Premises is taken as
aforesaid (a "PARTIAL CONDEMNATION"), the entire award will be paid to Landlord,
and Landlord will have the option to (a) restore the Building and/or Demised
Premises to an architecturally and/or functionally complete unit with reasonable
promptness, subject to ordinary delays beyond Landlord's control, provided that
after such restoration the Demised Premises as restored is sufficient to meet
Tenant's needs, except that Tenant may make a separate claim for the unamortized
cost of the Tenant improvements and any other damages under the New Jersey
Relocation Assistance Act, or (b) terminate this Lease. Landlord will exercise
its option to cancel by written notice to Tenant to be given not more than
forty-five (45) days from the date of such Partial Condemnation and this Lease
will become null and void as of date of notice.
SECTION 19.3 If title to less than materially all of the Building
and/or Demised Premises is taken as aforesaid and this Lease continues, the Base
Rent, and any additional rent will be reduced to an amount equivalent to the
proportionate square footage of the Demised Premises.
SECTION 19.4 Tenant further agrees that if, at any time after the date
hereof, the whole or any part of the Building and/or Demised Premises is taken
or condemned by any competent authority for its temporary use or occupancy
(herein a "TAKING"), this Lease will not terminate by reason thereof and Tenant
will continue to pay, in the manner and at the time herein specified, the full
amount of the Base Rent and all additional rent payable by Tenant hereunder,
and, except only to the extent that Tenant may be prevented from so doing
pursuant to the terms of the order of the condemning authority, to perform and
observe all of the other terms, covenants, conditions and obligations hereof
upon the part of Tenant to be performed and observed, as though such Taking had
not occurred. In the event of any such Taking Tenant will be entitled to receive
the entire amount of any
<PAGE> 19
award made for such Taking applicable to the Demised Premises, whether paid by
way of damages, rent or otherwise (except that if the award is made in a lump
sum, the award will be held by the Landlord and paid out to Tenant in equal
monthly installments), except that portion of the award attributable to or for
restoration, if any, which will be held by and belong to the Landlord, provided,
however, if such period of temporary use or occupancy shall extend beyond the
expiration date or termination of this Lease such award shall be apportioned
between Landlord and Tenant as of such date of expiration or termination of the
Term. If the period of temporary use or occupancy ends during the Term of this
Lease, Tenant will, at its sole cost and expense, restore the Demised Premises
as nearly as practicable to the condition of the same immediately prior to the
Taking, and it the period of temporary use or occupancy does not end during the
Term of this Lease, Landlord will be entitled to the portion of the award that
is attributable to restoration of the Demised Premises.
SECTION 19.5 Except as expressly provided in the preceding sections of
this Article, Tenant will neither have nor make any claim whatsoever for any
award or payment for the Demised Premises or any part thereof, and Tenant shall
neither have nor make any claim whatsoever for any award or payment for the
value of Tenant's leasehold under this Lease or the value of the unexpired
portion of the Term of this Lease. Nothing herein shall preclude Tenant from the
right to recover for direct loss of its personal property or trade fixtures or
for relocation expenses, if applicable.
ARTICLE 20. INDEMNIFICATION
SECTION 20.1 Subject to the provisions of Article 15, Tenant covenants
and agrees, at its sole cost and expense and in addition to any other right or
remedy of Landlord hereunder, to indemnify and save harmless Landlord and/or
Mortgagee from and against any and all loss, cost, expense, liability and claims
(but excluding any liability arising to the extent out of the negligence of
Landlord or its agents, employees or contractors), including, without
limitation, reasonable attorneys' fees and court costs, arising from or in
connection with (a) Tenant's use, occupancy, operation and control of the
Demised Premises or Common Facilities, (b) the conduct or management of any
work, or any act or omission whatsoever, done in or on the Demised Premises by
or under the direction or at the request of Tenant, (c) any breach or default on
the part of Tenant in the payment of any rent or performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or (d) any act or negligence of Tenant or any of its agents, contractors,
servants, employees, licensees or invitees.
SECTION 20.2 In the event that any action or proceeding is brought
against Landlord and/or Mortgagee by reason of any claims covered by the
foregoing indemnity, Tenant will, upon notice from Landlord and/or Mortgagee,
resist or defend such action or proceeding by competent counsel. Landlord and/or
Mortgagee will not defend such action or proceeding so long as Tenant is
diligently doing so. Landlord and/or Mortgagee will give prompt notice to Tenant
of any action or proceeding brought against Landlord and/or Mortgagee by reason
of any claims covered by the foregoing indemnity, together with copies of any
documents served on Landlord and/or Mortgagee in connection therewith, and
Landlord and/or Mortgagee will not settle any such claim without Tenant's
written consent.
ARTICLE 21. SELF-HELP
SECTION 21.1 Tenant covenants and agrees that if it at any time fails
to make any payments or perform any act which it s obligated to make or perform
under this Lease, then Landlord may, but will not be obligated to, after
Tenant's time to make any such payment or perform any such act as provided in
this Lease has expired and any required notice has been given, and without
waiving or releasing Tenant from any of its obligations under this Lease, make
any such payment or perform any such act in such manner and to such extent as is
necessary and consistent with Tenant's obligations hereunder. In exercising any
such rights, Landlord may pay or incur costs and expenses, including, without
limitation, reasonable attorneys' fees. Notwithstanding the foregoing, Landlord
may make any such payment or perform any such act before Tenant's time to do so
(as provided in Article 8) has expired, if payment or performance of the same is
necessary or required prior to the expiration of the applicable grace period for
the preservation or protection of the Building and/or Demised Premises.
SECTION 21.2 All sums so paid or incurred in connection with the
performance of any such act by Landlord, together with interest thereon from the
date that the Landlord made such expenditure at the rate which Chemical Bank
announces as its so-called prime rate or base rate, from time to time for the
first month after the making of such expenditure, and thereafter at the rate of
three (3) percentage points above the such prime lending rate or the maximum
rate allowed by law, whichever is less, will be deemed additional rent hereunder
and, except as otherwise in this Lease expressly provided, will be payable to
Landlord on demand or, at the option of Landlord, may be added to any rent then
due or thereafter becoming due under this Lease.
ARTICLE 22. ESTOPPEL CERTIFICATE
SECTION 22.1 Each party agrees that at any time and from time to time,
within ten (10) days of the receipt of written request by the other, it will
execute, acknowledge and deliver a statement in writing certifying (i) that this
Lease is unmodified and in full force and effect, or if there have been
modifications that the same is in full force and effect as modified and stating
the modification, (ii) the dates to which the Base Rent and other charges have
been paid and the amount of same, (iii) to the best of knowledge of the
certifying party whether there are any defaults or rent abatements or offsets
claimed, and (iv) any other reasonable information including but not limited to
the representations set forth in Article 23. Notwithstanding the foregoing, it
is intended that any such statement delivered pursuant to this Article may be
relied upon by any prospective purchaser of the fee or mortgagee or assignee of
any mortgage of the Landlord's interest in the Building and/or Demised Premises
and the statement will contain such other information as is requested, and be in
the form required, by such purchaser, mortgagee or assignee.
<PAGE> 20
ARTICLE 23. SUBORDINATION AND NON-DISTURBANCE
SECTION 23.1 This Lease is and will at all times be subject and
subordinate to (i) the lien of any mortgage(s) on or affecting the Building or
any part thereof, at the date hereof, and (ii) subject to the provisions of
Section 23.2, any mortgage(s) hereafter made affecting the Building or any part
thereof, and all renewals, modifications, consolidations, replacements, or
extensions thereof, Irrespective of the time of recording such mortgage(s). The
provisions of this subordination shall be automatic and no further instrument of
subordination will be necessary, but in confirmation of this subordination
Tenant will, at Landlord's request, execute and deliver such further instruments
as may be required by the holder(s) of said mortgage(s).
SECTION 23.2 The subordination to any mortgage(s) hereafter made is
expressly conditioned upon any such mortgagee(s) executing and delivering to
Tenant an agreement, in form for recording, pursuant to which such mortgagee(s)
agrees that the leasehold estate granted to Tenant hereunder and the rights of
Tenant pursuant to this Lease to quiet and peaceful possession of the Demised
Premises will not be terminated, modified, affected or disturbed by any action
which such mortgagee may take to foreclose its mortgage or to enforce its rights
or remedies, nor will Tenant be named a defendant in any foreclosure action, as
long as no event of default has occurred under this Lease (other than events of
default theretofore cured or in the process of being cured as permitted by the
provisions of Article 8 hereof) and as long as Tenant pays the Base Rent and all
additional rent due and performs its obligations hereunder within the applicable
grace periods and without offsets or defenses thereto, except as otherwise
herein expressly set forth.
SECTION 23.3 If any mortgagee or any other person claiming by or
through any mortgagee, or by or through any foreclosure proceeding or sale in
lieu of foreclosure, succeeds to the rights of Landlord under this Lease, Tenant
will, at the request of such successor or at Landlord's request, attorn to and
recognize such successor as the landlord of Tenant under this Lease, and Tenant
will promptly execute, acknowledge and deliver at any time any instruments
requested by such person to evidence such attornment and/or confirm Tenant's
agreement to attorn. Upon such attornment, this Lease will continue as a direct
lease from such successor landlord to Tenant, upon and subject to all of the
provisions of this Lease for the remainder of the Term, except that the
successor landlord will not be:
(a) liable for any previous act or omission of Landlord under
this Lease or the return of any security deposit unless physically delivered to
successor-landlord;
(b) subject to any offset, defense or counterclaim not
expressly provided for in this Lease which has theretofore accrued to Tenant
against Landlord;
(c) bound by (i) any modification of this Lease after the date
of such mortgage, (ii) any prepayment of more than one (1) month's Base Rent or
additional rent, or (iii) any assignment, surrender, termination, cancellation,
waiver, release, amendment or modification of the Lease, unless same has been
expressly approved in writing by the holder of such mortgage through or by
reason of which the successor landlord shall have succeeded to the rights of
Landlord under this Lease;
(d) bound by any security deposit which Tenant may have paid
to any prior landlord, unless such deposit is in an escrow fund available to
mortgagee, or actually received by Mortgagee;
(e) bound by any provision in the Lease which obligates the
landlord to erect or complete any building or to perform any construction work
or to make any improvements to the Demised Premises or to expand or rehabilitate
any existing improvements or to restore any improvements following any casualty
or taking;
(f) bound by any notice of termination given by Landlord to
Tenant without Mortgagee's written consent thereto; or
(g) personally liable under the Lease and Mortgagee's
liability under the Lease shall be limited to the ownership interest of Lender
in the Demised Premises. Tenant will further agree with Mortgagee that Tenant
will not voluntarily subordinate the Lease to any lien or encumbrance without
Mortgagee's prior written consent.
SECTION 23.4 Notwithstanding the above provisions of this Section, a
copy of the required form of Subordination and Non-Disturbance agreement has
been attached hereto as Exhibit J.
ARTICLE 24. NOTICES
SECTION 24.1 Except as expressly provided in this Lease to the
contrary, all notices, demands and requests (other than invoices for Base Rent
or additional rent) which are required to be given by either party to the other
will be in writing and will be sent by United States first-class certified mail,
return receipt requested, addressed (i) to Landlord at its address set forth in
the Agreement of Lease, "Attention: Director of Asset Management", with a copy
to Landlord at its address set forth above, "Attention: Corporate Counsel", and
with a copy to Mortgagee, (ii) to Tenant hand delivered or delivered in
accordance with this Section at the Demised Premises, or (iii) at such other
place as either party may from time to time designate in a written notice to the
other party. Until Tenant takes occupancy of the Demised Premises, notices to
Tenant shall be at Tenant's address as set forth in the Agreement of Lease.
SECTION 24.2 Any notice given in accordance with the provisions of this
paragraph shall be deemed given when the primary notice is actually delivered or
when proper delivery of the primary notice is refused, without regard to the
date on which any copy is delivered or proper delivery thereof is refused. Any
notice (primary or copy) given to an entity shall be deemed to be delivered on
the date such notice is received or proper delivery is refused by the entity,
without regard to when such notice is delivered by the entity to the individual
to whose attention it is directed and without regard to the fact that proper
delivery is refused by someone other than the individual to whose attention it
is directed. Notices may be given on behalf of any party by such party's
attorney(s).
SECTION 24.3 Either party may, at its option, substitute for service by
United States first-class certified mail, service by Federal Express or similar
overnight courier, provided that such courier obtains and makes available to its
customers written evidence of delivery. Notice given via such courier is deemed
to be given upon receipt or upon refusal to accept delivery, as applicable.
Notices may be given by a party or by an agent or
<PAGE> 21
attorney for a party on its behalf.
ARTICLE 25. BROKER
SECTION 25.1 Landlord and Tenant represent to each other that they
dealt with no broker in connection with this Lease other than the Broker
identified in the Agreement of Lease.
SECTION 25.2 Tenant agrees that if any claim should be made for
commissions by any broker by reason of any act of Tenant or its representatives,
Tenant will hold Landlord free and harmless from any and all loss, liabilities
and expenses in connection therewith. Landlord will give prompt notice to Tenant
after any such claim is made by any broker. Tenant will have the right to defend
such claim and Landlord will not pay or settle such claim as long as Tenant is
defending same.
SECTION 25.3 Landlord agrees that if any claims should be made for
commissions by any broker by reason of any act of Landlord or its
representatives, Landlord will hold Tenant free and harmless from any and all
loss, liabilities and expenses in connection therewith. Tenant will give prompt
notice to Landlord after any such claim is made by any such broker. Landlord
will have the right to defend such claim and Tenant will not pay or settle such
claim as long as Landlord is defending same.
ARTICLE 26. SIGNS
SECTION 26.1 Tenant will not place any signs on the land, or the
exterior or interior of the Building, or in any window whereby such sign would
be visible from the outside of the Building, except as agreed to in writing by
Landlord. Tenant will obtain, at its sole cost and expense, any and all permits,
licenses or approvals which may be necessary in connection with its sign or
signs.
SECTION 26.2 Landlord will provide a single entry identifying Tenant
and the floor on which the Demised Premises is located on the directory in the
first floor lobby and, if applicable, on any directory Landlord may provide on
the floor on which the Demised Premises is located and/or any directory Landlord
may provide in any elevator(s).
ARTICLE 27. HOLDOVER
SECTION 27.1 If Tenant continues in the occupancy of the Demised
Premises after the expiration or sooner termination of the Term and Tenant is
not in good faith negotiations with Landlord for an extension or renewal of the
Lease, such occupancy will be deemed to be a default by Tenant (without the
necessity of any notice). Tenant's occupancy will be deemed a month-to-month
tenancy subject to the terms of the Lease. Provided Landlord files a summary
dispossess action and obtains a judgment against Tenant in connection therewith,
Tenant will pay as Landlord's sole and exclusive remedy twice the Base Rent in
effect upon the expiration of the Term together with twice the additional rent
herein provided.
ARTICLE 28. LIMITATION OF LIABILITY
SECTION 28.1 Notwithstanding any contrary provision contained in this
Lease, neither Landlord, nor any of its officers, directors, principals,
partners, agents or employees will be responsible or liable to the Tenant:
(a) for any damage or injury resulting from acts or omissions
of persons occupying or using any other part of the Building or for any injury
or damage resulting from bursting, stoppage or leakage of water, sprinkler, gas,
sewer or steam pipes; or
(b) for any consequential damages or lost profits, under any
circumstances whatsoever; or
(c)
Notwithstanding the provisions of this Section, if Landlord is in
default with respect to its obligations hereunder and is thereby or otherwise
determined to be liable to Tenant (whether as a result of negligence, strict
liability, breach of warranty or any other theory or concept of liability),
Landlord will be liable for monetary damages only and as of the date such cause
of action occurs, following a final judgment establishing such default or
liability. In any such event, Tenant will look solely to the equity and net cash
flow of Landlord in the Building for the satisfaction of Tenant's remedies or
Landlord's liability and it is expressly understood and agreed that Landlord's
liability under the terms, covenants, warranties and obligations of this Lease
or otherwise, will in no event exceed the loss of its equity in the Building, or
extend personally to any principal, partner or officer, director, agent or
employee, as applicable, of Landlord. Nothing in this Section shall prevent
Tenant from seeking injunctive relief or from recovering insurance proceeds
under Landlord's insurance policies.
ARTICLE 29. MODIFICATIONS REQUESTED BY MORTGAGEE
SECTION 29.1 Tenant hereby agrees that if any lender to the Landlord
proposing to make a mortgage on Landlord's interest in the Building and/or
Demised Premises requires, as a condition to making any loan to be secured by
such mortgage, that Tenant agrees to modifications to this Lease, or that Tenant
supply financial statements and/or other information, then Tenant agrees that it
will enter into an agreement with Landlord making such modifications as are
requested by such lender and will supply such financial statements and other
information as are requested by such lender. Under no circumstances will Tenant
be required to agree to any modification which changes the Demised Premises,
increases the Base Rent or any additional rent, abridges or enlarges the Term,
or requires the expenditure of funds by Tenant which Tenant is not obligated to
expend pursuant to the existing terms of this Lease. Tenant will execute such
modification or supply such information within ten (10) days after Landlord's
request. In the event of Tenant's refusal, Landlord will have the right, among
other remedies, to cancel and terminate this Lease.
<PAGE> 22
ARTICLE 30. PARKING
SECTION 30.1 Subject to terms hereof, Tenant will have the right to use
the Tenant Parking Spaces in the parking lot(s) of the Building located as shown
on Exhibit A-2. Any and all references to parking "area(s)" in the Lease
including all Exhibits shall be deemed to mean parking "lot(s)".
ARTICLE 31. RULES AND REGULATIONS
SECTION 31.1 Tenant, its agents, employees, contractors, licensees and
invitees, will at all times abide by and observe the Rules and Regulations
attached hereto as Exhibit F. In addition, Tenant, its agents, employees,
contractors, licensees and invitees will abide by and observe such modified or
new rules or regulations as may be promulgated from time to time by Landlord for
the operation and maintenance of the Building and Common Facilities, provided,
however, that a copy of same are sent to Tenant and that the same are in
conformity with common practice and usage in similar buildings and are not
inconsistent with the provisions of this Lease. Nothing contained in this Lease
will be construed to impose upon Landlord any duty or obligation to enforce such
Rules and Regulations, or the terms, conditions or covenants contained in any
other lease, as against any other tenant, and Landlord will not be liable to
Tenant for violation of the same by any other tenant, its employees, agents,
contractors, licensees or invitees. If there is any inconsistency between this
Lease and the Rules and Regulations set forth in Exhibit F, the terms of this
Lease will govern.
ARTICLE 32. REGULATION OF COMMON FACILITIES
SECTION 32.1 The Common Facilities are at all times subject to the
exclusive control and management of Landlord. Landlord will have the right to
change the areas, locations and arrangements of parking areas, lobbies and other
Common Facilities (provided that Tenant will have reasonable access to the
Demised Premises and its use and enjoyment of the Demised Premises and parking
will not be materially impaired); to enter into, modify and terminate easements
and other agreements pertaining to the use and maintenance of the parking areas
and other Common Facilities; to restrict parking by tenants, their officers,
agents, and employees to employee parking areas; to construct surface or
elevated parking areas and facilities; to establish and change the level of
parking surfaces; to close all or any portion of the parking areas or other
Common Facilities to such extent as may, in the opinion of Landlord, be
necessary to prevent a dedication thereof or the accrual of any rights to any
person or to the public therein; to close temporarily any or all portions of the
said areas or facilities to discourage non-tenant parking; and to do and perform
such other acts in and to the Common Facilities as, in the exercise of good
business judgment, Landlord may determine to be advisable.
SECTION 32.2 Landlord reserves any and all rights not expressly granted
to Tenant hereunder, including, but not limited to, the following rights which
are reserved to Landlord for its purpose in operating the Building: (a) the
exclusive right to the use of the name of the Building, except that Tenant may
use the name of the Building as its business address and for no other purpose;
(b) the right to change the name or address of the Building, without incurring
any liability to Tenant for so doing; (c) the right to install and maintain a
sign or signs on the exterior of the Building or on the Common Facilities; (d)
the exclusive right to use or dispose of the use of the roof of the Building;
(e) the right to limit the space on the directory of the Building to be allotted
to Tenant, and (f) the right to grant to anyone the right to conduct any
particular business or undertaking in the Building consistent with Class A
office uses.
ARTICLE 33. RIGHT TO RELOCATE INTENTIONALLY DELETED.
ARTICLE 34. SHORT FORM LEASE
SECTION 34.1 The parties will, at the request of either one, execute
duplicate originals of an instrument in recordable form which will constitute a
short form of lease, setting forth a description of the Demised Premises, the
Term of this Lease and any other portions hereof, except the rent provisions,
that either party may reasonably request.
ARTICLE 35. CAPTIONS
SECTION 35.1 The captions in this Lease are for convenience and
reference only, and in no way define, limit or describe the scope or intent of
this Lease and are in no way to affect the interpretation or construction of
this Lease.
ARTICLE 36.
SECTION 36.1 The provisions of this Lease will be binding upon and
inure to the benefit of Landlord and Tenant, and their respective heirs,
successors, legal representatives and assigns, but nothing herein will grant to
Tenant the right to assign this Lease other than pursuant to the provisions
hereof. It is understood that the term "Landlord" as used in this Lease means
only the owner, a mortgagee in possession, or a term lessee of the Building, so
that in the event of any sale of the Building or of any term lease thereof, or
if a mortgagee takes possession of the Building, the Landlord named herein will
be and hereby is entirely freed and relieved of all covenants and obligations of
Landlord hereunder accruing thereafter, and it will be deemed, without further
agreement, that the purchaser, the term lessee of the Building, or the mortgagee
in possession has assumed and agreed to carry out any and all covenants and
obligations of landlord hereunder accruing from and after the date of transfer,
lease or possession, as applicable.
<PAGE> 23
ARTICLE 37. ENTIRE AGREEMENT MODIFICATION
SECTION 37.1 This Lease (i) constitutes the entire and only agreement
between the parties relating to the subject matter hereof, (ii) cancels and
supersedes any prior agreements or discussions between the parties or their
representatives, and (iii) may not be modified except by an instrument in
writing which is signed by both parties.
ARTICLE 38. MISCELLANEOUS
SECTION 38.1 The terms, covenants, conditions, provisions and
agreements of this Lease are deemed to be severable. If any clause or provision
herein contained is adjudged to be invalid or unenforceable by a court of
competent jurisdiction or by operation of any applicable law or regulation, it
will not affect the validity of any other clause or provision herein, but such
other clauses or provisions will remain in full force and effect. In addition,
Landlord may pursue the relief or remedy sought in any invalid clause, by
conforming such clause with the provisions of the statute or regulation as if
the particular provisions of the applicable statute or regulation were set forth
herein at length.
SECTION 38.2 This Lease is not to be strictly construed against either
Landlord or Tenant. No remedy or election given by any provision in this Lease
is deemed exclusive unless so indicated, but each, wherever possible, is
cumulative with all other remedies in law or at equity.
SECTION 38.3 All obligations of Tenant which by their nature involve
performance in any particular, or which cannot be ascertained to have been fully
performed until after the end of the Term, will survive the expiration or sooner
termination of this Lease.
SECTION 38.4 Unless Landlord has previously agreed to be reasonable in
a specific section of this Lease, with respect to any provision of this Lease
which provides, or is held to provide, that Landlord may withhold or delay any
consent or any approval or exercise its judgment or discretion, Tenant in no
event will be entitled to make, and Tenant hereby waives, any claim for damages,
directly or by way of setoff, counterclaim or defense, based upon any claim or
assertion by Tenant that Landlord has unreasonably withheld or unreasonably
delayed any consent or approval or unreasonably exercised its judgment or
discretion.
SECTION 38.5 This Lease is to be interpreted, governed by and enforced
in accordance with the substantive laws of the State in which the Property is
located without regard to choice of laws concepts.
(The balance of this page is intentionally left blank)
<PAGE> 24
EXHIBIT A
PRINCETON PIKE CORPORATE CENTER, BUILDING IV
DESCRIPTION OF LANDS IN LAWRENCE TOWNSHIP, MERCER COUNTY, NEW JERSEY
BEGINNING at a point in the southerly line of Lenox Drive that is the following
courses and distances from the southeasterly end of the line that serves as a
cut off for vision between the northeasterly line of Lenox Drive and the
southeasterly line of Princeton Pike (33 feet from center line):
a) S 58(degrees)12'17" E, along the northeasterly line of Lenox Drive,
1,613.30 feet to a point; thence
b) Southeasterly, on a curve bearing to the right having a radius of 70.00
feet, a distance of 98.54 feet to the point of BEGINNING, and running
thence:
1) Easterly, along the southerly line of Lenox Drive, on a curve
bearing to the left having a radius of 560.00 feet, a distance
of 694.18 feet to a point; thence
2) S 43(degrees)14'12" E, 74.58 feet to a point; thence
3) N 85(degrees)D23'35 E, 1,028.93 feet to a point; thence
4) S 11(degrees)06'07" E, 853.83 feet to a point; thence
5) S 5(degrees)51'07" E, 62.33 feet to a point in the northerly
line of Interstate 295; thence
6) S 81(degrees)23'04"W, along said line of said Highway, 1.18
feet to a point; thence
7) N 79(degrees)00"16" W, still along same, 139.13 feet to a
point; thence
8) N 71(degrees)25'05" W, still along same, 143.24 feet to a
point; thence
9) N 67(degrees)46'57" W, still along same, 419.84 feet to a
point; thence
10) N 71(degrees)38'12" W, still along same, 414.77 feet to a
point; thence
11) N 79(degrees)54'53" W, still along same, 722.49 feet to a
point; thence
12) N 87(degrees)11'34" W, still along same, 9.43 feet to a point;
thence
13) N 23(degrees)32'58" W, 307.84 feet to a point; thence
14) Northerly, on a curve bearing to the left having a radius of
70.00 feet, a distance of 15.41 feet to the point and place of
BEGINNING.
Containing 21.311 more or less acres.
Subject to easements of record.
<PAGE> 25
EXHIBIT A-1
[Building Floor Plan and Demised Premises Designation]
<PAGE> 26
EXHIBIT A-2
[Site Plan]
<PAGE> 27
EXHIBIT B
LEASE COMMENCEMENT DATE AGREEMENT
THIS AGREEMENT made this _____ day of _______ , 19___ by and between
________________________________________ ("Landlord") and
___________________________ ("Tenant").
W I T N E S S E T H
WHEREAS, Landlord and Tenant entered into an Agreement of Lease dated
"Lease") setting forth the terms of occupancy by Tenant of all or a portion of a
building located at __________________ , New Jersey; and
WHEREAS, the Lease is for an initial term of ____(__) years(s) and the
Commencement Date of the Initial term of the Lease has been determined in
accordance with the provisions of Article 3 of the Lease.
NOW, THEREFORE, it is agreed and confirmed by the parties as follows:
1. The Commencement Date of the initial term of the Lease is
_______ and the termination date of the initial term of the
Lease is _________ .
2. The date on which the first payment of Base Rent is due from
Tenant is __________________.
3. This Agreement is executed by the parties for the purpose of
providing a record of the commencement, termination and Base
Rent commencement dates of the Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument as of the day and year first above written.
Attest/Witness: Landlord
_______________________________ By: ______________________________
Attest/Witness: Tenant
_______________________________ By: ______________________________
Page 1 of 1
<PAGE> 28
EXHIBIT C
OPERATING EXPENSES
1. Commencing with the second Lease Year, and for each Lease Year thereafter,
Tenant will pay to Landlord Tenant's Pro Rata Share of the amount by which (x)
the "OPERATING EXPENSES" (as hereinafter defined) during each fiscal year of
Landlord exceed (y) the Operating Expenses for the Base Year. Payment will be
made as provided below.
2. (a) "OPERATING EXPENSES" are defined as Real Estate Taxes (as defined
below) and any and all costs and expenses incurred by Landlord relating or
pertaining to the Building and/or Demised Premises and deemed by Landlord to be
reasonable, appropriate and for the best interests of the Demised Premises and
Building, including, but not limited to, the cost of: (i) gas, oil, electricity,
steam, water and other utilities (excluding tenants' electricity) without markup
or profit to Landlord; (ii) installing, operating, maintaining, repairing,
replacing (subject to the provisions of Section 2(b) below) any part or parts
of, and/or providing Common Facilities utilities, services, lighting, mechanical
and electrical equipment, (including heating, ventilation and air-conditioning
equipment) and similar items which are or will be utilized to provide services
and utilities; (iii) maintenance, repair, lighting, cleaning, painting,
striping, decorating, policing, management, superintendence and security; (iv)
reasonable and customary insurance maintained by Landlord including any
deductible feature; (v) removal of snow, ice and debris, regulation of traffic,
inspection of machinery and equipment and personal property taxes and other
charges incurred in connection with such machinery and equipment; (vi)
replacement of paving curbs, walkways, planters and maintaining any lawn and/or
plantings; (vii) a reasonable management fee not to exceed five (5%) percent of
Base Rent and Additional Rent; and (viii) any and all other expenses paid by the
Landlord in the operation, maintenance and repair of the Building (including the
equipment and systems therein) or the park in which the Building is located, if
applicable, (pro rated as required among all buildings benefited) except as
otherwise expressly excluded herein.
(b) Operating Expenses will not include: (i) any expenses for which the
Landlord is reimbursed or indemnified (either by an insurer, condemnor, tenant
or otherwise); (ii) interest or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying lease or leases; (iii) the
cost of any work or services performed for or facilities furnished to a tenant
at the tenant's cost; (iv) leasing or other brokerage commissions; (v) tenant
concessions; (vi) legal fees for negotiations of leases or for enforcing tenant
defaults, or legal fees incurred in defending lawsuits not directly related to
the contest or appeal of any item which is otherwise included as an Operating
Expense; or (vii) capital expenditures, except as provided for herein. Operating
Expenses will include the cost of any capital improvement made to the Building
after the date hereof (1) which and to the extent it actually reduces other
Operating Expenses or (2) which is required under a law or regulation that was
not applicable to the Building as of the date of this Lease, the cost thereof to
be amortized in accordance with manufacturer's estimation where applicable or
GAAP if no manufacturer's estimate exists (not to exceed ten (10) years)
together with interest on the unamortized balance at the rate being paid by
Landlord for funds borrowed for the purposes of constructing said capital
improvements (or the rate at which Landlord then customarily borrows funds for
similar expenditures if no funds were so borrowed). Operating Expenses shall
also include capital expenses necessitated by casualties to the extent that they
are not covered by insurance or in the amounts and levels of coverage required
to be maintained by Landlord, including any deductible feature of any insurance
carried by Landlord with respect thereto.
(c) Real Estate Taxes are defined as the annual real estate taxes,
payments "in lieu" of real estate taxes, assessments (whether general or special
and including all assessments for public improvements or benefits) or other
rents, rates and charges, excises, levies, license fees, permit fees, inspection
fees and other authorization fees and charges, in each case whether general or
special, which are levied or assessed against the Building, and/or the Demised
Premises. Real Estate Taxes will not include income, franchise, inheritance or
foreign ownership or foreign control taxes (but Tenant will at all times be
responsible for any taxes levied, assessed or imposed upon its property),
provided, however, that:
(i) if at any time after the date of this Lease the method of
taxation of real estate prevailing at the date of this Lease (other than a
change from "in lieu" payment and ad valorem assessment) is altered and there is
levied, assessed or imposed on Landlord in substitution, in whole or in part,
for the present general real estate, a corporation franchise tax or any other
tax, however denominated and by whatever taxing authority (including, but not
limited to, any municipal, county, state or federal authority) which shall be
measured by or based in whole or in part upon the Demised Premises, or the value
thereof, or the revenues or rents derived therefrom, then all such taxes, or the
part thereof so measured or based, shall be deemed to be included within the
phrase "REAL ESTATE TAXES" used herein but only to the extent to which such
taxes are substituted for the present general Real Estate Taxes; and
(ii) if the Real Estate Taxes applicable to the Base Year are,
at any time, reduced as a result of tax appeal, reassessment, or any other
reason, then for purposes of this Lease such reduced taxes will be the Base Year
Real Estate Taxes, and Tenant will pay to Landlord, within thirty (30) days of
its receipt of notification of the reduced Base Year Real Estate Taxes, any
amounts due as a result of such reduction in the Base Year Real Estate Taxes.
Similarly, if the Real Estate Taxes for any year of the Term after the Base Year
are reduced as a result of tax appeal, reassessment or any other reason,
Tenant's Pro Rata Share of the excess of such Real Estate Taxes over the Base
Year Real Estate Taxes Will include in any subsequent year's reduced taxes the
cost and expenses, including attorneys' fees, associated with such reduction, if
any. Notwithstanding the above, in no event shall Landlord be entitled to
receive more than the actual Operating Expenses (including real estate taxes)
for such year.
<PAGE> 29
3. If during the Base Year or any subsequent fiscal year of Landlord less than
ninety-five (95%) percent of the Building is occupied for the whole of such
year, those Operating Expenses which are affected by variations in occupancy
levels will, for the Base Year or subsequent fiscal year of Landlord, as the
case may be, be adjusted by Landlord in the calculation of Operating Expenses so
as to approximate the sum which would have been reasonably incurred for
ninety-five (95%) percent occupancy for the whole of such year. Landlord
reserves the right to adjust Base Year costs to delete the cost of any items
which are included in Base Year calculations but are subsequently deleted as an
Operating Expense.
BILLING & PAYMENT
The amounts required to be paid by Tenant pursuant hereto
shall be paid by Tenant in monthly installments commencing with the second Lease
Year in such amounts as are estimated by Landlord from time to time. At such
reasonable time after the end of the Base Year as Landlord may select, Landlord
will deliver to Tenant a statement of the Base Year Operating Expenses. At such
reasonable time after the end of each subsequent fiscal year as Landlord may
reasonably select, Landlord will deliver to Tenant a statement of the Operating
Expenses for such fiscal year and the excess of same, if any, over the total
Base Year Operating Expenses. Tenant agrees to pay to Landlord and Landlord
agrees to credit to Tenant, or pay to Tenant if the Term has expired, as
applicable, within thirty (30) days of receipt of such statement, such amount as
may be necessary to effect proper adjustment for payment of Operating Expenses.
Failure of Landlord to provide any statement called for hereunder within the
time prescribed will not relieve Tenant from its obligations hereunder.
BILLING AND PAYMENT "Tenant shall have the right, upon thirty (30) days prior
notice in writing to Landlord, to audit the records of the Landlord at
Landlord's office as to the Operating Expenses of the Building for any fiscal
year for which additional rent is paid by Tenant for an increase in Operating
Expenses, but only within six (6) months following the end of such fiscal year.
Such audit shall be performed during Landlord's usual business hours at
Landlord's principal office and without interference with the conduct of
Landlord's business.
If the Tenant shall contend that the expenses that are
included in such written statement Landlord furnished to Tenant as express terms
of this Lease are overstated, and if not satisfactorily settled between Landlord
and Tenant within sixty (60) days after the completion of Tenant's audit, the
accountant of the Landlord and the accountant of the Tenant shall mutually
select a disinterested accountant, who shall be a certified public accountant
licensed by the State of New Jersey, who shall determine whether such expenses
are or are not Operating Expenses of the Building in accordance with the express
terms of this Lease, which determination shall be binding upon both parties. In
the event such accountants are unable to agree upon a third accountant, either
party may apply to the New Jersey Superior Court for the appointment of a third
accountant. The decision of the third accountant shall be binding. Landlord
shall reimburse Tenant any overpayment at the lesser of prime plus four (4%)
percent or 18% and pay one-half the expenses of the third accountant only if the
Operating Expenses set forth in the statement of Operating Expenses Landlord
furnished to Tenant were more than five (5%) percent greater than the amount
determined by the third accountant to be in accordance with the express terms of
the Lease. Pending resolution of the issue, Tenant shall continue to make
monthly estimated payments or the adjustments required by the Operating Expenses
Statements as provided herein, subject to retroactive adjustment upon final
determination of the third accountant.
Failure of Tenant to request such audit in the allotted time
period shall be deemed a waiver of this right by Tenant."
APPORTIONMENT, SURVIVAL
Any Operating Expenses, whether or not a lien upon the
Building and/or Demised Premises, which accrue on an annual basis but relate in
part to a period prior to or subsequent to the Term, shall be apportioned
between Landlord and Tenant as of the beginning or end of the Term, as
applicable based upon the final bill for the applicable year, it being intended
that Tenant will pay its pro rata share of only that portion of the Operating
Expenses as is allocable to the Term of this Lease. Tenant's obligation to pay
Occupancy Expenses, as provided above, accruing during the Term will survive the
expiration or earlier termination of this Lease.
<PAGE> 30
EXHIBIT D
WORK LETTER
Except as set forth in the Agreement of Lease, Tenant agrees to accept the
Demised Premises "as is" at the Commencement Date. Landlord will proceed with
construction of the Tenant Improvements as set forth in the Agreement of Lease.
I. LANDLORD'S WORK AND TENANT'S WORK
LANDLORD'S WORK AT LANDLORD'S COST
Schedule D-1, attached hereto, includes a description of design
specifications which are part of the "BASE BUILDING" and are to be provided by
Landlord in connection with the initial construction of the Building.
Landlord will provide a occupancy of the Demised Premises to Tenant
based upon the Architectural Space Plan dated April 26,1995 prepared by ICI (see
attached Schedule D-3). This work will include the following:
- - Required demolition to accommodate the work stations indicated in the
plan.
- - Necessary carpet repairs/replacement in areas affected by demolition.
Prior to the commencement of Landlord's Work, Tenant may elect to
require that Landlord replace the carpet with a 26 ounce Philadelphia
carpet (equity line) or similar in areas affected by the demolition of
partitions.
- - Construction of a training room to accommodate 30 people; Landlord's
work includes installation of a large whiteboard and an allowance of
$5,000 for an accordion door.
- - Repaint throughout the premises; make necessary wall covering repairs.
- - Installation of a partition wall and two entrance doors in order to
segregate the executive area;
- - HVAC and sprinkler modifications.
- - Installation of 15 new receptacles and allowance for electric
energizing of tenant supplied work stations.
- - Necessary ceiling, drywall and electric repairs.
Prior to Tenant's occupancy, the existing telephone and computer system will be
removed, however, all supporting cabling will remain. Tenant will be responsible
for arranging for telephone and/or telecommunications service and security
system, if desired, in its own name.
TENANT'S WORK AT TENANT'S COST
All other Tenant Improvements required by Tenant will be Tenant's Work at
Tenant's sole cost and expense.
II. REPAIRS AND CORRECTIONS
In connection with its Landlord's Work, Landlord agrees to repair and correct
any work or materials installed by it or its contractor in the Demised Premises
which prove defective as a result of faulty materials, equipment or workmanship
which appear within one (1) year after the Commencement Date, provided Tenant
shall have given written notice thereof to Landlord within said one (1) year
period. Notwithstanding the foregoing, Landlord shall not be responsible to
repair or correct any defective work or material installed by Tenant or any
contractor other than Landlord's contractor, or any work or materials that prove
defective or are modified or damaged as a result of any act or omission of
Tenant or any of its employees, agents, contractors, invitees, licensees or
subtenants.
III. POSSESSION BY TENANT
The taking of possession of the Demised Premises or any part thereof by Tenant
shall constitute an acknowledgment by Tenant that the Premises are in good
condition and that all work and materials provided by Landlord are satisfactory,
except: (i) as to any defects or incomplete work that are described in a written
notice given by Tenant to Landlord no later than sixty (60) days after Tenant
commences occupancy of the Demised Premises, and (ii) as to any equipment that
is used seasonally, if Tenant takes possession of the Demised Premises during a
season when such equipment is not in use, and (iii) as to any defective work or
material which Landlord agrees to repair and correct under Section III above,
but only if such defective work or
<PAGE> 31
material could not reasonably be observed within said twenty (20) day period.
IV. ACCESS DURING CONSTRUCTION
Should Tenant choose to perform work with its own contractors while Landlord is
also performing work within or around the Demised Premises, Tenant work except
for Tenant's installation of telephones will not commence until the Landlord has
completed its work, unless otherwise permitted by Landlord in its sole
discretion. Any approval to commence work in the Demised Premises is conditioned
upon Tenant's workmen and mechanics working in harmony and not interfering with
the labor employed by Landlord and/or Landlord's contractors or by any other
tenant(s) or its (their) contractor(s).
TENANT PLANS
1. TENANT PLANS. Tenant, or Landlord at Tenant's request, will prepare any
needed plans for the Demised Premises (the "Tenant Plans") in accordance with
Schedule D-2 attached hereto. Tenant also agrees to furnish to Landlord for its
approval, the following information and/or drawings, as applicable:
a. Location and extent of floor loading in excess of building
standard;
b. Any special air-conditioning needs by location, and general
description of need;
c. Location and description of special plumbing requirements;
d. Estimated total electrical load, including lighting, for the
entire Premises, showing amount, location and type, and
including a list of heat producing equipment and machinery,
specifying manufacturer and type of equipment/machinery,
number of units and electrical wattage per unit; and
e. Any requested modifications or changes to Base Building
design.
All Tenant Plans are expressly subject to Landlord's approval, and must receive
municipal approvals for building permit.
2. PERMIT FEES
a. Unless Landlord does the work or Landlord notifies Tenant to
the contrary, Tenant's contractor must administer all filings
for any permits or other filing requirements of the
municipality for work planned within the Premises.
b. Tenant will be responsible for paying all municipal fees
connected with securing required permits or approval for any
Tenant Work. Tenant shall also be responsible for providing
Landlord with properly signed and sealed sub tradefiling
documents.
c. No work will be allowed to start without the issuance of the
proper authorization or permits, from the appropriate
municipal officials. Once secured, the permit must be
prominently posted at the work site, along with the plans.
Except for any work which does not require permitting from the municipality, all
of the Tenant Plans must be signed, stamped and sealed by the appropriate design
professional licensed in the State of New Jersey (i.e., architectural plans by
licensed architect and structural or mechanical plans by the appropriate
engineer).
3. APPROVAL BY LANDLORD
Tenant Plans shall be subject to Landlord's prior written approval.
Landlord agrees that it will not unreasonably withhold its approval of the
Tenant Plans, provided, however, that Landlord will have sole and absolute
discretion to approve or disapprove any element(s) of the Tenant Plans that will
(i) be visible from the exterior of the Demised Premises or Building, or (ii)
involve or may affect any structural or exterior element of the Building or any
area or element of any Common Facility or delay completion of the Demised
Premises or Building, or (iii) increase the cost of construction or of insurance
or taxes on the Building, or (iv) require unusual expense to readapt the Demised
Premises or Building to normal use on lease termination or increase the cost of
construction or of insurance or taxes on the Building, unless Tenant first gives
assurance reasonably acceptable to Landlord for payment of such Tenant Plans,
changes or modifications
<PAGE> 32
by Landlord will not constitute approval of any delays caused by Tenant or in
implementing the work shown on such plans and shall not be deemed a waiver of
any rights or remedies that may arise as a result of such delays.
If Landlord requires any changes pursuant to the preceding paragraph, Tenant
shall cause its architect to change the Tenant Plans in accordance with
Landlord's reasonable requirements and promptly resubmit them to Landlord,
indicating thereon the revision date and listing every change made to the
previous submission of the Tenant Plans. These changes and resubmissions shall
continue until the Tenant Plans have been approved by Landlord, such approval
not to be unreasonably withheld or delayed. Promptly after approval by Landlord
of such Tenant Plans, four (4) copies thereof signed by Tenant will be delivered
to Landlord for signature, whereupon two (2) fully executed copies shall be
delivered to Tenant.
The Tenant Plans as approved by Landlord shall be final and shall not be changed
by Tenant without Landlord's prior approval.
4. CONSTRUCTION OF TENANT WORK
If any work in the Demised Premises is not performed by Landlord, Tenant agrees
that all work will conform to the Guidelines.
Landlord reserves the right to approve Tenant's choice of contractor and all
work to be performed in the Demised Premises will be in accordance with the
provisions and requirements of the Lease including but not limited to Articles
14, 15 Exhibit D and Guidelines. Tenant will be responsible for obtaining the
final Certificate of Occupancy for the Demised Premises in connection with the
Tenant Work.
All construction documents shall be available to Landlord for inspection during
construction.
5. MATERIALS AND WORKMANSHIP
All work performed in the Demised Premises shall be performed in a good and
workmanlike manner and in accordance with all applicable laws and regulations
and in substantial conformance with the final approved Tenant Plans. Due
diligence shall be exercised in completing the Tenant Improvements or any
subsequent Alterations.
6. REPRODUCIBLE COPIES
Upon completion of any Tenant Improvements or Alterations, Tenant will provide
to Landlord one (1) print and one (1) reproducible copy of the as-built
Alterations Plans, including without limitation, plumbing, electrical, HVAC and
architectural plans.
7. CODE ENFORCEMENT REQUIREMENTS
Any requirements of the local code enforcement officers applicable to arising
from the construction of the Alterations or the nature, location, layout or
installation of Tenant's furniture and/or trade fixtures, i.e., are the sole
responsibility of Tenant.
<PAGE> 33
SCHEDULE D-1
PRINCETON PIKE CORPORATE CENTER
BUILDINGS I, II, III, 1V
BASE BUILDING - LANDLORD'S WORK
1. GENERAL CONSTRUCTION
Base Building is designed in accordance with Use Group Classification
"B" (Business Use) & Type "2C" construction classification of the BOCA
Code.
Construction is structural steel frame with poured concrete floor
decks. Exterior walls are constructed of precast concrete panels with
insulated interior drywall wall construction in Demised Premises. Base
Building is fully sprinklered.
Floors are designed to sustain a live load of 100 pounds per square
foot, including partition allowance of 20 pounds per square foot.
2. TOILET FACILITIES
Each floor is provided with one (1) men's & one (1) women's toilet
room, each furnished with fixtures in accordance with the New Jersey
Uniform Construction Code ("NJUCC") and municipal ordinance applicable
at the time of construction.
3. DRINKING FOUNTAIN
Water coolers are provided on each floor in accordance with the NJUCC.
4. ELEVATORS
Base Building is provided with two (2) hydraulic passenger elevators
with a capacity of 3,000 lbs. each.
5. PARKING
Parking is provided for four (4) cars per 1,000 square feet of usable
area, as indicated on Exhibit A-2 to the General Terms of Lease.
SCHEDULE D-2
CONSTRUCTION & FINISH
SPECIFICATIONS FOR TENANT IMPROVEMENTS
1. FLOOR COVERING
Colors, designs, and specifications for carpet, floor tile and base
shall be as specified by Tenant and approved by Landlord. Carpet shall
be 28 oz. face weight, 100% nylon face fiber.
2. PARTITIONS
Demising partitions shall be 3-5/8" steel studs 24" O.C, with 5/8"
gypsum board, fire rated where required, up to underside of structural
slab above and having full height sounds attenuation insulation.
Interior partitions shall be 3-5/8" steel studs 24" O.C. with 5/8"
gypsum board each side and extend to underside of finished ceiling.
Drywall edge at ceiling shall be finished with spackle bead.
Partitions (permanent or-moveable) terminating at the building exterior
wall shall meet either a mullion of window or a column and accommodate
heating elements, window shades and other building systems as required.
3. PAINTING AND STAINING
Interior wall surfaces of gypsum board shall receive one (1) prime coat
and one (1) finish coat of latex egg shell finish, colors to be
selected by Tenant from building standard color chart. Pittsburgh paint
or approved equal shall be used as building standard color chart.
Exposed interior ferrous metal surfaces including piping duct work and
mechanical equipment shall receive one (1) coat of alkyd enamel primer
and one (1) finish coat of alkyd enamel.
Metal doors, door bucks, and other metal surfaces not having shop
finish shall receive one (1) prime coat of alkyd enamel primer and one
(1) finish coat of alkyd enamel.
All wood doors shall be finished with one (1) coat sanding sealer and
one (1) coat clear polyurethane.
Interior wall surfaces receiving wall coverings shall be painted with
one (1) coat of semigloss latex paint.
4. DOORS
Entrance door and buck to Tenant's space: Buck shall be 16 gauge
"knocked down" hollow metal primed and ready for painting. Door shall
be full height solid core, oak veneer, 3'-0"x8'-0"x1'-3/4".
Interior doors and bucks: All bucks shall be 16 gauge "knocked down"
hollow metal primed and ready for painting. All doors shall be solid
core wood veneer, 3'-0"x7'-0"x1'3/4". Emergency exit doors will be as
required by code.
<PAGE> 34
5. HARDWARE
Finish hardware to be medium duty commercial type, manufacturer & model
as approved by Landlord. All interior doors shall be provided with
lever handle latch sets. All doors to be equipped with hardware in
accordance with applicable codes, including NJUCC Barrier-Free Subcode.
Hardware shall also include door stops and silencers.
Tenant entrance doors shall be provided with a lock set and door
closer, in accordance with applicable codes for egress. All locks shall
be keyed to the building master keying system.
Rod for coat closet shall be 1" diameter chrome finished metal.
6. CEILING
Ceiling shall be white 2'x4'x5/8" acoustical ceiling tiles in an
exposed white grid system suspended at a ceiling height of
approximately 9'-0" above finished floor. Exceptions to the ceiling
height shall be made to accommodate piping, mechanical ducts and
shafts, and other obstructions located above the ceiling.
7. WINDOW BLINDS
Perimeter window blinds shall be horizontal narrow slat window blinds.
8. ELECTRICAL SYSTEMS
Tenant's Demised Premises shall be provided with electrical service in
accordance with applicable codes. Demised Premises shall be serviced by
designated meter for which Tenant shall establish an account with
servicing utility company. Service shall be made available from the
Building's common electrical room. Tenant shall provide the required
space within the Demised Premises for installation of wall mounted
electrical panels, floor mounted transformers and other required
electrical equipment.
9. LIGHTING FIXTURES
Standard fixtures shall be 2'x4' lighting fixtures with 4-40 watt
fluorescent lamps to provide a minimum of 60 foot candles. Fixtures
shall be with E type, energy saving ballast and provide plenum air
return function. Emergency egress lighting shall be provided by the use
of standard fixtures with emergency battery back-up power, as required
by code.
10. COMMUNICATION SYSTEMS
Tenant shall be responsible for providing and installing at its expense
communication systems including, but not limited to, telephone, fiber
optics, computers, intercom systems, and audio visual systems. Wiring
installed systems above finished ceilings shall be approved for plenum
installation. Tenant shall provide required area(s) within Demised
Premises for communication systems equipment.
Access to the Demised Premises through the Building's core by servicing
utility shall be coordinated with and approved by Landlord.
11. PLUMBING
Existing wet columns are provided which Tenant may tap for private
facilities at Tenant's expense. Water heater(s) shall be provided and
installed at Tenant's expense. Tenant shall provide required area
within the Demised Premises for the installation of water heater(s).
12. HVAC
Tenant's Demised Premises shall be provided with a variable air volume
cooling system with an economizer cycle. The air conditioning system
shall be designed to maintain within normal tolerances for a
first-class office building an inside space condition of 78 degrees F.
dry bulb. and 67 degrees F. wet bulb, and a fifty (50%) percent
humidity with outdoor temperature of 91 degrees F. dry bulb and 76
degrees F. wet bulb during summer months. During the winter heating
season a continuous perimeter baseboard radiation system and solar heat
gain sensors will be capable of maintaining a minimum temperature of 72
degrees F. with normal anticipated occupancy when the outside
temperature is 9 degrees F.
One (1) variable air volume box terminal (controlled by one (1)
thermostat) is existing approximately every 1.000 square feet of net
useable floor area.
13. FIRE PROTECTION
The sprinkler system has been designed in accordance with applicable
building codes.
Any additional requirement for sprinkler system service (adds,
relocates, deletions) made necessary by the Tenant's usage of the
Demised Premises will be at the Tenant's cost.
Portable dry chemical fire extinguishers to be provided as required by
code, by Tenant.
Heat and smoke detection systems shall be provided as required by
codes, by Tenant.
14. IDENTIFICATION
Tenant identification shall be provided by Landlord at Tenant's cost on
lobby directory as well as at entrance door to Demised Premises,
subject to approval by Landlord.
<PAGE> 35
SCHEDULE D-2
GUIDELINES FOR TENANTS RETAINING CONSULTANTS
AND CONTRACTORS
If Tenant elects to not retain Landlord's architect(s)/engineer(s) or
construction management services for construction, alterations, modifications,
or other changes within the Premises, Tenant must adhere to criteria and
guidelines as follows:
I. BEFORE CONSTRUCTION
A. FLOOR PLANS:
1. All floor plans must be submitted at 1/4" scale or
1/8" scale only. Indicate key plan with egress
indicated and north arrow and show partition layout
(i.e. space plan or floor layout).
2. Architectural plans must show architectural details,
door schedules, finish schedules, plumbing fixtures,
all finishes and specifications and comply with
proper handicapped and other code criteria including
but not limited to exit signs and sprinkler head
locations.
3. Reflected ceiling plan must show light fixture
placements, emergency egress lighting, and all
architectural features. Indicate all finishes and
specify same.
4. Plans must include finish specifications, i.e.,
paint, carpet, wall cover, baseboard, etc. (Window
blinds are building standard, not subject to Tenant
choice.) Plans must delineate between new
construction vs. existing conditions.
5. Electrical floor plans must show all receptacles,
panels, light switches, fixture placements and
switching. Indicate all circuitry as required. Show
location of source for service tie-in, if required
(indicate distance and include riser diagram).
6. Indicate in detail any cabinetry work. Details are
required showing all finishes.
7. Mechanical floor plans must show duct layout, size
connection details, sprinkler lines, and other
mechanical conditions proposed and existing.
Mechanical plans must include specifications as
required and locate sources, distance and tie-in
locations, and include riser diagrams.
8. All of Tenant Plans must be signed, stamped and
sealed by the appropriate design professional
licensed in the State of New Jersey (i.e.,
architectural plans by licensed architect and
structural or mechanical plans by the appropriate
engineer).
9. All plans and construction specifications are subject
to Landlord's written approval, which may be withheld
at Landlord's sole discretion. Reasons for Landlord
to withhold approval include, but are not limited to
(i) such work proposed is not consistent with other
existing or planned improvements in building; (ii)
such work will overburden existing or planned
building systems; and (iii) lack of any of the above
noted information.
B. GENERAL CONSTRUCTION GUIDELINES:
1. General contractor and subcontractors must be
approved by Landlord in writing prior to construction
commencement. Landlord reserves the exclusive right
to disapprove Tenant's general contractor or
subcontractors. Landlord will supply Tenant with a
list of acceptable contractors upon request.
2. General contractor and subcontractors must use labor
that will perform in harmony with other trades
working in the region. At no time may Tenant work
interfere with Landlord's or other tenant's work or
normal operations of the Building.
3. Certificates of Insurance naming Landlord, DKM
Properties Corp., and their agents and employees as
additional insureds must be submitted to Landlord
prior to Tenant's entry upon the Premises, including
delivery of any materials to Premises, or
construction commencement with coverage for
commercial general liability, and property damage in
the amounts required in the Lease. Landlord reserves
the right to dictate limits of coverage.
4. Copies of any notification by the municipality of
additional requirements in connection with permit
approval must be delivered to Landlord.
C. MUNICIPAL REQUIREMENTS:
1. All plans must be filed with the Township of
Lawrence. Plans must be signed and sealed by the
appropriate design professional licensed in the State
of New Jersey (i.e., architectural plans by licensed
architect and structural or mechanical plans by the
appropriate engineer).
2. Tenant will be responsible for paying all municipal
fees connected with securing required permits or
approval. Tenant shall also be responsible for
providing Landlord with properly signed and sealed
sub trade filing documents.
3. No work will be allowed to start without the issuance
of the proper authorization or permits, from the
appropriate Municipal officials. Once secured, the
permit must be prominently posted at the work site,
along with the plans.
<PAGE> 36
D. FEES:
1. If Landlord is submitting plans on behalf of Tenant,
Tenant must submit a non-refundable deposit payable
to Landlord in the amount of Five Hundred ($500.00)
Dollars with submission of plans and specifications.
The deposit will be used to offset Landlord's costs
associated with filing of the Tenant Plans on behalf
of the Tenant.
2. Should Tenant Plans not conform to the criteria
outlined in Section A (Floor Plans), Landlord is not
obligated to correct Tenant Plans or otherwise modify
them to so conform. Landlord will return same to
Tenant for resubmission.
3. Tenant shall be responsible for paying all municipal
fees connected with securing the permit or other
municipal approval necessary to proceed with the
proposed work.
4. If Landlord is not doing the work, Landlord will
inspect the to assure conformance to the plans and
specifications. The maximum number of inspections
will be determined by work mutual agreement between
the Landlord and Tenant based on the scope of
improvements and as a condition for the Landlord's
approval of the proposed project. If subsequent to
such agreement between the Landlord and the Tenant,
the concept of Tenant's plan or the scope of Tenant's
work changes, then the agreed upon schedule of
inspections will be subject to similar revision based
on the scope of work load which is revised and sent
to Landlord for its approval. Inspection time will
include travel to and from the Landlord's office in
Lawrenceville, NJ. The rate for any inspections is
$60.00 per hour, which rate may be changed based on
Landlord's costs.
E. COST ESTIMATING:
1. Landlord reserves the right to bid on the Tenant's
Work, subject to the following:
a. While every effort is made to promptly
furnish cost estimates for the Tenant work,
it must be understood that the speed and
accuracy of the Landlord's estimates will
reflect the quality and completeness of the
Tenant's documents.
b. With proper preparation of documents as
outlined herein, Tenant should anticipate
completed estimates within approximately
seven (7) business days from the submission
of a properly completed bid package to
Landlord.
II. DURING CONSTRUCTION
1. Tenant's contractors will be subject to the same rules and
regulations as imposed on Landlord's contractors, relative to
work hours, elevator use, cartage removal, protection, and
other customary procedures as appropriate. Tenant may contact
Landlord's Chief Engineer at (609) 799-7400 with questions or
details on such rules and regulations.
2. Should Tenant choose to perform work with its own contractors
while the Landlord is also performing work within or around
the Premises, Tenant work will not commence until the Landlord
has completed its work, unless otherwise permitted by
Landlord, in its sole discretion.
3. Tenant must adhere to the same guidelines outlined herein when
processing change orders or scope modifications. No
construction for change orders will be allowed to proceed
without Landlord's written approval.
4. SHOULD TENANT IGNORE ANY OF THE CRITERIA DESCRIBED HEREIN OR
IN ANY SECTION OR EXHIBIT OF THE LEASE (SPECIFICALLY INCLUDING
BUT NOT LIMITED TO EXHIBIT C) AND PERFORM OR CAUSE TO BE
PERFORMED ANY CONSTRUCTION NOT IN ACCORDANCE WITH TENANT PLANS
APPROVED BY LANDLORD, TENANT WILL BE REQUIRED TO DISASSEMBLE
ALL SUCH CONSTRUCTION AND RETURN THE DEMISED PREMISES TO ITS
FORMER CONDITION AT TENANT'S SOLE COST. IF TENANT DOES NOT
DISASSEMBLE SUCH CONSTRUCTION AND RETURN THE SITE TO ITS
FORMER CONDITION AFTER TEN (10) DAYS' WRITTEN NOTICE TO TENANT
FROM LANDLORD, LANDLORD IS AUTHORIZED BY TENANT TO PERFORM
SAME AT TENANT'S SOLE COST, AND TENANT SHALL REIMBURSE
LANDLORD PROMPTLY FOR ALL COSTS.
5. Tenant or its contractor must submit written notification and
receive written approval from Landlord for any type of
shutdown on the electrical, mechanical or sprinkler system, as
our security system monitors both the sprinklers and fire
protection systems. Landlord reserves the right to require
that Tenant use Landlord's contractor for any work involving
the shutdown of such systems. In addition, it should be noted
that any conditions which are discovered as a result of the
modifications to existing systems made by Tenant are the full
responsibility of Tenant to repair at its sole cost. For
example, if pressure testing of the sprinkler system is
required due to Tenant Improvements or Changes by Tenant and
such testing reveals leaks. Tenant will be responsible at its
sole cost, to bring the system back into the code through the
repair of any such leaks. This work shall be at no cost to
Landlord or any of its affiliates.
6. Landlord must be notified in writing of all scheduled work, in
order that Landlord may notify, at our sole discretion, any
neighboring tenants of such activity.
7. For any work performed on Building roof system, or other
systems under a manufacturer's warranty, the work must be
performed by the original contractor. The company which is the
approved roof system applicator will be furnished upon
request.
III. AFTER CONSTRUCTION
1. All contractors and subcontractors completing work must
provide Landlord with proper Release of Liens form(s) and
Tenant's Certification as attached to the Lease (or furnished
by Landlord) for each billing period and, most importantly, at
the completion of Tenant work. Tenant agrees to indemnify and
save Landlord harmless from and against any and all damages
sustained as a result of any liens filed by contractors or
subcontractors and as otherwise set for the in the Lease.
<PAGE> 37
2. A one (1) year warranty is required on materials and
workmanship of all work per Tenant Plans.
3. Within ten (10) days of completion of any Tenant work
performed by Tenant's contractors, Tenant shall submit to
Landlord two (2) sets of as-built drawings as set forth in
Exhibit D, showing all improvements or alterations to the
Demised Premises. Such as-built drawings shall include all
change orders occurring during the course of construction and
provide all pertinent specifications for such construction
work.
<PAGE> 38
SCHEDULE D-3
[Proposed Space Plan for Physicians HealthCare]
<PAGE> 39
EXHIBIT E
CLEANING SPECIFICATIONS
GENERAL (FIVE NIGHTS PER WEEK):
1. Sweep, dry mop or vacuum all floor areas of resilient tile, wood or
carpet, as applicable, and remove matter such as gum and tar which has
adhered to the floor.
2. Empty all waste receptacles, removing waste to a designated central
location and properly store for disposal.
3. Empty and wet wipe all ash trays.
4. Clean all cigarette urns.
5. Clean and sanitize all water fountains and coolers.
6. Clean entry door glass and sidelight, if any, and wipe metal trim.
7. Secure doors and windows and leave on designated night lights.
8. Clean elevators nightly, including walls, ceilings, saddles and doors.
9. Maintain janitor's closets and clean related equipment.
10. Damp mop all non-resilient floors such as concrete, terrazo and ceramic
tile.
PERIODICALLY (AS NOTED):
11. Dust office furniture, window sills and all other surfaces up to 84"
high (weekly spot clean as needed).
12. Remove fingermarks from woodwork, walls and partitions.
13. Spot wash interior partition glass and door glass to remove smudge
marks weekly.
14. High dust partitions, pipes, vents and moldings once per month.
15. Strip and recondition resilient floor areas using buffable non-slip
type floor finish two (2) times a year.
16. Dust all venetian blinds three (3) times a year or as needed.
17. Vacuum all ceiling and wall air supply and exhaust diffusers and grills
four (4) times per year.
18. Clean interior and exterior windows four (4) times per year.
EXHIBIT F
RULES AND REGULATIONS
1. Tenant will not obstruct or permit its employees, agents, invitees or
licensees to obstruct, in any way, the sidewalks, entry passages, corridors,
halls, stairways or elevators of the Building, or use the same in any way other
than as a means of passage to and from the Demised Premises; bring in, store,
test or use any materials in the Building which could cause a fire or an
explosion or produce any fumes or vapor; smoke in any elevator, stairwell or any
designated "no smoking" area; throw substances of any kind out of windows or
doors, or down the stairs, halls or passages of the Building; sit on or place
anything upon the window sills; or clean the windows.
2. Waterclosets and urinals shall not be used for any purpose other than
those for which they were constructed and no sweepings, rubbish, ashes,
newspaper or any other substances of any kind will be thrown into them. Waste
and excessive or unusual use of water is prohibited.
3. The windows, doors, partitions and lights which reflect or admit light
into the halls or other places of the Building will not be obstructed. NO SIGNS,
ADVERTISEMENTS OR NOTICES WILL BE INSCRIBED, PAINTED, AFFIXED OR DISPLAYED IN,
ON, UPON OR BEHIND ANY WINDOWS, except as may be required by law or agreed upon
in writing by Landlord. Except as expressly provided in the Lease, no sign,
advertisement or notice will be inscribed, painted or affixed on any doors,
partitions or other part of the inside or outside of the Building, without the
prior written consent of the Landlord.
4. No contract of any kind with any supplier of towels, water, ice, toilet
articles, waxing, rug shampooing, venetian blind washing, furniture polishing,
lamp servicing, cleaning of electrical fixtures, removal of waste paper, rubbish
or garbage, or other like service will be entered into by Tenants, nor will any
vending machine of any kind be installed in the Demised Premises, without the
prior written consent of Landlord.
5. When electric wiring of any kind is introduced, it will be done only by
contractors approved by Landlord an must be connected as approved by Landlord.
No stringing or cutting of wires will be allowed.
6. Landlord has the right to approve or proscribe the weight, size and
position of all safes and other bulky or heavy
<PAGE> 40
equipment or articles. All sales or other heavy equipment or articles will stand
on a base of such size as is designated by Landlord. All freight, including
furniture and equipment, brought into the Building by Tenant and the time of
moving the same in and out of the Building, will be done under the supervision
of Landlord. Landlord will not be responsible for loss of or damage to any such
equipment or freight from any cause and any damage done to the Building by
moving or maintaining any such equipment or freight will be repaired at the
expense of the Tenant. Landlord reserves the right to inspect all freight to be
brought into the Building and to exclude from the Building all freight which
violates any of these Rules and Regulations or the Lease of which these Rules
and Regulations are a part.
7. No machinery of any kind or articles of unusual size or weight will be
allowed in the Building without the prior written consent of Landlord. Business
machines and mechanical equipment will be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Landlord's judgement, to absorb and
prevent vibration, noise and annoyance to other tenants.
8. No additional or different lock or locks will be placed by Tenant on
any door without the prior written consent of Landlord, which shall not be
unreasonably withheld. Two (2) keys will initially be furnished to Tenant by
Landlord and two (2) additional keys will be supplied to Tenant by Landlord upon
request, without charge. Any additional keys requested by Tenant will be paid
for by Tenant. Tenant, its agents and employees, will not have any duplicate key
made. Any and all keys to doors and washrooms will be returned to Landlord on or
before the termination of the Lease. In the event of a loss of any keys, Tenant
will pay Landlord the cost thereof and, if applicable, the costs of replacing
the locks related thereto.
9. Except as is expressly provided in the Lease to the contrary, Tenant
will not employ any person or person for the purpose of cleaning the Demised
Premises without the prior written consent of Landlord. Landlord will not be
responsible to Tenant for any loss of property from the Demised Premises, or for
any damage done to the Demised Premises or the effects of Tenant by cleaners
employed by Tenant or any of its employees, or by any other person or any other
cause however occurring.
10. No bicycles, vehicles or animals of any kind will be brought into or
kept in or about the Demised Premises other than in areas which are specifically
designated for such purpose, if any.
11. The requirements of Tenant will be attended to only upon application at
the office of Landlord. Employees of Landlord will not perform, or be requested
by Tenant to perform, any work for Tenant or do anything outside of their
regular duties, unless under special instructions from Landlord.
12. The Demised Premises will not be used for lodging or sleeping purposes
and cooking therein is prohibited. Tenant will not use the Demised Premises or
permit the Demised Premises to be used for the sale of food or beverages.
13. Tenant will not conduct, or permit any other person to conduct any
auction upon the Demised Premises; manufacture or store goods, wares or
merchandise upon the Demised Premises, without the prior written approval of
Landlord, except the storage of usual supplies and inventory to be used by
Tenant in the conduct of its business; permit the Demised Premises to be used
for gambling; make or permit to be made any unusual noises or any musical
instrument, radio, television or recorded or wired music to be played in such a
manner as to disturb or annoy other tenants; or permit any unusual odors to be
produced upon the Demised Premises.
14. No awning or other projections will be attached to the outside walls of
the Building. No curtains, blinds, shades or screens will be attached to or hung
in, or used in connection with any window or door of the Demised Premises,
without the prior written consent of Landlord and any such curtains, blinds and
shades must be of a quality, type, design and color, and attached in a manner
approved by Landlord.
15. Canvassing, soliciting and peddling in the Building are prohibited, and
Tenant will cooperate to prevent the same.
16. All deliveries and loading and unloading of goods or freight will be
done in the areas and through the entrances designated for such purposes by the
Landlord. Timing will be reviewed with Landlord and mutually agreed upon by
Landlord and Tenant. Neither Tenant or others will use any hand trucks or
similar moving devices except those equipped with rubber tires and side guards.
No hand trucks or similar moving devices will be allowed in passenger elevators.
17. Tenant will have the right in common with Landlord and other tenants of
the Building and their employees and invitees to use the parking area(s) and/or
parking garage, if any, provided by Landlord for the parking of passenger
automobiles, other than parking spaces specifically identified as allocated to
others by Landlord. Landlord may issue parking permits (which Tenant will
require all of its employees to display in or on their vehicles), install a gate
system or impose any other system Landlord deems necessary for the use of the
parking area(s). The Tenant and the Tenant's employees will park their vehicles
only in those portions of the parking area designated for that purpose by
Landlord. TENANT AGREES THAT IT AND ITS EMPLOYEES AND INVITEES WILL NOT PARK
THEIR AUTOMOBILES IN PARKING SPACES ALLOCATED FOR VISITORS OR RESERVED TO OTHERS
BY LANDLORD AND WILL COMPLY WITH SUCH RULES AND REGULATIONS FOR USE OF THE
PARKING AREA(S) AS LANDLORD MAY FROM TIME TO TIME PRESCRIBE. VIOLATION OF THE
REGULATION MAY RESULT IN VEHICLE(S) BEING TOWED AT THE EXPENSE OF THE
OWNER/OPERATOR OF SUCH VEHICLE(S). Landlord is not responsible for any damage or
theft of any vehicle in the parking area(s) and will not be required to keep
parking spaces clear of unauthorized vehicles or to otherwise supervise the use
of the parking area(s). Landlord reserves the right to change any existing or
future parking area, roads or driveways, to make any repairs or alterations
deemed necessary to any parking area, road and/or driveway and to temporarily
revoke or modify the parking rights granted to Tenant hereunder.
18. Before closing and leaving the Demised Premises, Tenant will ensure
that all entrance doors have been locked.
19. Landlord has the right to prohibit any advertising by Tenant which in
Landlord's reasonable opinion tends to impair the reputation of the Building
(and/or park in which the Building is located) or its desirability as a building
for offices, and upon written notice from Landlord, Tenant will refrain from or
discontinue such advertising.
<PAGE> 41
EXHIBIT G
RIDER TO LEASE BETWEEN PRINCETON PIKE CORPORATE CENTER ASSOCIATES IV
("LANDLORD") AND PHYSICIANS HEALTH CARE OF NEW JERSEY ("TENANT")
Notwithstanding the provisions of the above-captioned Lease between
Landlord and Tenant, the following provisions are incorporated into and made a
part of the Lease, and if inconsistent with any of the provisions of the Lease,
the provisions of this Rider shall govern:
ARTICLE 4. BASE RENT AND ADDITIONAL RENT
SECTION 4.3 The Demised Premises is currently separately metered for electric
usage. Tenant will pay all charges for electric usage directly to Landlord based
on a checkmeter to the Demised Premises.
ARTICLE 5. PREPARATION FOR OCCUPANCY; EXCUSABLE DELAY
SECTION 5.1 Add the following to the end of this Section: "Tenant acknowledges
that all fitup work will be done after Tenant takes possession of the Demised
Premises under a CCO as set forth in the Agreement of Lease."
SECTION 5.3 Add the following to the beginning of this Section: "When
applicable,."
ARTICLE 6. UTILITIES AND SERVICES
ADD THE FOLLOWING NEW SUBSECTION:
SECTION 6.1(f) If the Atrium cafeteria is closed for a period greater than sixty
(60) days, Landlord will provide Tenant with an area on the courtyard level to
accommodate customary plumbing and refrigeration for Tenant's kitchen needs.
ARTICLE 17. SECURITY DEPOSIT
ADD THE FOLLOWING NEW SUBSECTION:
"SECTION 17.4 LETTER OF CREDIT
A. Within ten (10) business days after the delivery to Tenant of a
fully executed copy of this Lease and receipt by Tenant of the executed
Subordination and Non-Disturbance Agreement described in Section 23, the Tenant
will deposit with Landlord a Letter of Credit ("LC"), in the amount of Two
Hundred Fifty Thousand and 00/100 ($250,000.00) Dollars. The LC will constitute
part of the Security Deposit required pursuant to Article 17 in addition to
$50,000.00 cash, subject to all of the following terms and conditions (in
addition to and not in lieu of the provisions of Article 17 which shall apply to
the LC, as applicable, and to any monies received by Landlord as a result of a
draw on the LC):
(i) The LC will be irrevocable and unconditional for a term
through May 15, 1999 unless Landlord receives not less than sixty (60) days
notice of non-renewal;
(ii) The LC will be issued by an established and recognized
banking institution approved by Landlord and in the form attached hereto as
Exhibit H; and
(iii) Any monies paid to Landlord by the issuer of the LC will
be retained by Landlord as the requisite Security Deposit, subject to
disposition in accordance with the provisions of Article 17 of this Lease; and
(iv) Except as set forth in Section 17.1, in the event that
Landlord receives notice that the LC will not be renewed, Landlord will notify
Tenant of such event and Tenant will, not later than thirty (30) days prior to
the scheduled expiration of the expiring LC, deliver to Landlord a replacement
LC, complying with all of the terms and conditions set forth herein and
effective commencing on the first business day after the date of expiration of
the expiring LC. Tenant's failure to deliver a replacement LC as set forth
herein will, notwithstanding any other provision of this Lease to the contrary,
including, without limitation, the provisions of Section 8.1, constitute an
uncured event of default under this Lease giving Landlord the right to
immediately draw upon the expiring LC. If Landlord draws on the expiring LC,
Landlord will pay to Tenant all sums received as a result of such drawing as, if
and when Tenant delivers to Landlord a replacement LC complying with the terms
hereof.
(v) Tenant's failure to fully, completely and punctually
comply with the above requirements, TIME BEING SPECIFICALLY AND EXPRESSLY HEREBY
MADE OF THE ESSENCE, will constitute a material default.
<PAGE> 42
ARTICLE 21. SELF-HELP
ADD THE FOLLOWING NEW SUBSECTION:
SECTION 21.3 "If Landlord defaults in the performance of its obligations under
this Lease and if such Landlord's default materially and adversely affects
Tenant's use and occupancy of the Demised Premises for the operation of Tenant's
business therein or if Landlord fails to pay taxes or assessments, or if such
failure continues for a period exceeding thirty (30) days or such additional
reasonable time if any obligation of Landlord cannot be completed within such
thirty (30) days after notice thereof to Landlord and the expiration of any
applicable grace period, Tenant shall have the right, upon written notice to
Landlord and its Mortgagee, supported by written estimates of cost of any work,
to expend any reasonable sums in the correction or curing of Landlord's failure
to perform, and if Tenant performs any such obligation of Landlord, Landlord
agrees that it will pay to Tenant the reasonable costs thereof, and if Landlord
shall fall to make such payment within five (5) days after Tenant's written
request therefor, then Tenant shall have the right to deduct such sums from the
next payment of Base Rent payable under this Lease. This remedy shall be in
addition to any other remedies available to Tenant pursuant to this Lease or
provided by law. In no event will Tenant's payments or costs hereunder become a
lien against the Demised Premises, Building or Property."
ARTICLE 23. SUBORDINATION AND NON-DISTURBANCE
SECTION 23.1 Add the following to the end of this Section: "Landlord will obtain
a Subordination and Non-Disturbance Agreement for Tenant with Landlord's
Mortgagee in form reasonably satisfactory to Tenant, which form is attached
hereto as Exhibit J."
ARTICLE 26. SIGNAGE
SECTION 26.2 Add the following to the end of this Section: "Tenant's name will
be displayed on the existing exterior ground mounted tenant directory sign which
is located near the front center of the Building facing Interstates 95 and 295.
In addition, Tenant's name will be displayed on Building standard signage
directly adjacent to its suite entrance off the elevator lobby. The rear
entrance to the Demised Premises will also contain signage identifying Tenant
similar to the current signage for DKM."
ARTICLE 39. RIGHT TO INSTALL SATELLITE DISH
SECTION 39.1 Tenant shall have the right to install a satellite dish on the roof
of the Building at Tenant's sole cost and expense, subject to compliance with
the following conditions:
a) Six weeks before Tenant intends to commence the installation work,
Tenant shall supply Landlord with a listing of all equipment to be
installed on the roof including, without limitation, general
description of the equipment, name of manufacturer, model number or
other manner of identifying the equipment, specifications for the
equipment including, without limitation, size, weight and electrical
power requirements, working drawings for all cable installation whether
on the roof or elsewhere in the Building, name and address of the
contractor who will install the equipment and cabling on Tenant's
behalf and the manner in which the equipment is to be affixed to the
roof including, without limitation, plans and specifications which will
indicate the determination of a qualified engineer as to whether or not
additional structural reinforcement is required and the location of the
installation. Landlord reserves the right (i) to approve the contractor
selected by Tenant and (ii) to specify the color and finish of the
equipment to be installed so that same will be in keeping with the
aesthetics of the Building provided such colors can be obtained by
Tenant.
b) The information supplied by Tenant as set forth in Subsection a) shall
be subject to Landlord's review and approval which approval shall not
be unreasonably withheld or delayed. Landlord reserves the right to
have such information reviewed by Landlord's engineer in which event
Tenant shall pay the reasonable costs and expenses of such review.
c) Tenant shall be responsible for compliance with all applicable laws,
ordinances and regulations in connection with such installation,
including, without limitation, compliance with local zoning codes,
building codes and Federal Communications Commission permits if
required. PRIOR TO THE COMMENCEMENT OF THE INSTALLATION WORK Tenant
shall deliver to Landlord a copy of the building permit and other
certificates or approvals and such other evidence of such compliance as
may be reasonably required by landlord. Landlord makes no warranties or
representation that Tenant's roof installation can be made in
compliance with local ordinance and Tenant relies solely on its
independent investigation in this regard. Landlord will cooperate with
Tenant at Tenant's sole expense in obtaining any required permits.
<PAGE> 43
d) The installation and removal of the equipment shall in all respects be
subject to the conditions of this Lease including but not limited to
Articles 10 and 14. If the installation of the satellite dish is not
done by Landlord, Landlord may supervise and/or inspect such
installation and charge a fee to compensate Landlord for the cost of
such supervision and/or inspection. In addition, Tenant's installation
must be in accordance with Landlord's roof warranty which may require
inspection by the company which installed the roof of the Building. If
Tenant's installation will result in any penetration of the roof,
Tenant must complete the attached certificate. Tenant shall furnish
Landlord with as-built drawings upon completion.
e) Landlord shall have the right with thirty days written notice to
Tenant, to require Tenant to remove or relocate its equipment, at
Landlord's sole expense. Landlord shall make a reasonable effort to
provide to Tenant an adequate relocation space. Failure to do so shall
not be considered a constructive eviction on Landlord's part or a
denial of any essential services to Tenant.
f) Tenant's access to the roof to install, maintain or remove the
equipment shall be subject to the rules and regulations of the Building
and shall only be provided on forty-eight (48) hours advance written
notice to Landlord so that Landlord's representative(s) may be present
at the time such access is provided. In the event of an emergency,
Tenant will not be required to give prior notice, but Tenant shall give
subsequent notice to Landlord. Landlord and its representatives shall
have the same rights to inspect Tenant's satellite dish and television
antenna as provided in Article 12.3 of this Lease.
g) Tenant agrees to the extent reasonably possible to connect the
satellite dish to its meter servicing the Demised Premises. In the
event the satellite cannot be connected to the same meter as the
Demised Premises, Tenant agrees to the installation of a separate
electrical meter or submeter to monitor the electrical uses of Tenant's
equipment and agrees to pay to Landlord, upon demand, the charges of
the utility company for such electrical services to Tenant's equipment.
The cost and expense of installation of the meter shall be the
responsibility of the Tenant.
h) In the event that Tenant desires to replace upgrade or otherwise modify
its equipment, such replacement, upgrading or modification shall be
subject to all the terms and conditions of this Article.
i) Tenant's use of the roof space for its equipment shall be nonexclusive
and Tenant acknowledges that Landlord may, from time to time, grant to
other tenants the right to make similar use of other areas of the roof.
Landlord agrees to make reasonable efforts to provide that the
equipment or installations of such other tenants will not interfere
with the installation made by Tenant pursuant to this paragraph.
However, Landlord will not be required to relocate any HVAC, electrical
or other equipment and structures of the Building. Tenant shall take
such actions as may reasonably be required in order to prevent
interference by Tenant's equipment with other communications equipment
installed on the roof by any other tenant or by Landlord.
j) In connection with Tenant's installation, Tenant shall use only
shielded cable/plenum rated to prevent interference with other Building
or tenant communication systems, use cable which complies with
applicable local fire and building codes and provide appropriate
identification for Tenant's cabling at all points where such cable is
accessible.
k) Tenant agrees to have its satellite dish included under its current
policy of insurance for the Demised Premises. Tenant shall indemnity
and save Landlord harmless from any and all cost, expense, claim,
injury or liability in any way arising or relating to the installation,
operation or removal of Tenant's equipment or cabling through the
Building, including, without limitation, expenses related to damage to
the roof of the Building, and claims, injury or damages of any other
tenants in the Building or the office park, their employees, agents and
invitees except to the extent that same results from negligent acts or
omissions of Landlord, its employees, agents and invitees.
l) In the event that any of Tenant's installations are to be made through
space occupied by other tenants in the Building, Tenant shall be
responsible to obtain, in advance of such installation, and to provide
to Landlord in advance of such installation, written waivers or
consents of such other tenants to the installation. Landlord covenants
to assist Tenant at Tenant's sole expense in obtaining such waivers or
consents.
- END OF RIDER -
<PAGE> 44
EXHIBIT H
[LETTERHEAD OF ISSUING BANK]
[Name of Landlord)
c/o Gale & Wentworth
Princeton Forrestal Village
136-200 Main Street
Princeton, New Jersey 08540
Gentlemen:
At the request of our customer, [NAME OF TENANT], we hereby establish our
Irrevocable Letter of Credit No._____, in your favor in the amount of
U.S.________ ($________) Dollars effective upon the date hereof and expiring at
our main office, [BANK'S ADDRESS], on May 15, 1999.
Funds under this Irrevocable Letter of Credit are available to you upon receipt
of (a) a certificate of an officer/general partner of the Landlord stating that
(i) an uncured default or defaults exist(s), and that all applicable cure
periods have passed and the Landlord has given all applicable Notices pursuant
to a certain Lease Agreement dated ____________________ between you, as
Landlord, and [NAME OF TENANT], as Tenant, and specifying and describing such
default or defaults and (ii) a copy of the above certificate has been delivered
to Tenant at the Demised Premises, or if Tenant no longer occupies the Demised
Premises, then at such location as is specified under the Lease, prior to
delivery us and (b) the original of this Irrevocable Letter of Credit.
If we receive such certificate on or before the close of business on the
expiration date of this Letter of Credit, we will forthwith honor the request.
This Irrevocable Letter of Credit sets forth In full the terms of our
undertaking and such undertaking shall not in any way be modified, amended or
amplified by reference to any document or instrument referred to herein or in
which this Irrevocable Letter of Credit may be referred to or to which this
Irrevocable Letter of Credit relates and any such reference shall not be deemed
to incorporate herein by reference any document or instrument. This Irrevocable
Letter of Credit is transferable by you on one (1) occasion to a subsequent
owner of record of title to the real property at which the Demised Premises is
located upon presentation of (i) your certification of transfer of title, (ii) a
copy of the recorded deed vesting title in such subsequent owner and (iii) the
original of this Irrevocable Letter of Credit.
This Irrevocable Letter of Credit is subject to applicable provisions of the
Uniform Customs and Practice for Documentary Credits (1983 Revision),
International Chamber of Commerce Publication No. 400, which shall in all
respects be deemed a part hereof as fully as if incorporated herein.
Drawings under this Irrevocable Letter of Credit cannot be effected before
________.
Very truly yours,
ISSUING BANK
AUTHORIZED SIGNATURE
F24
<PAGE> 45
EXHIBIT I
FORM OF TENANT LETTER
Gentlemen,
We hereby authorize and direct you to pay the rent and other amounts due us
under the referenced lease directly to:
Connecticut General Life Insurance company
c/o Dorman & Wilson, Inc.
P.O. Box 366
One North Lexington Avenue
White Plains, New York 10602-0366
Please direct any Inquiries to the undersigned.
Very truly yours,
<PAGE> 46
EXHIBIT J
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
Tenant Name: ___________________________
Trade Name: ____________________________
Room/Unit No.: _________________________
THIS AGREEMENT is dated the ___________ day of _______________,
19_____, and is made by and among CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
having an address c/o CIGNA Investments, Inc., 900 Cottage Grove Road,
Bloomfield, Connecticut 06002, Attn: Real Estate Investment Services S-319
("Mortgagee"), _____________________________________________, d/b/a
________________________________________________________, having an address of
_______________________________________________________________ ("Tenant"), and
________________________________________________________, having an address of
___________________________________________________________________ (Landlord).
A. Tenant has entered into a lease ("Lease") dated
_______________, 19______ with __________________________ as lessor
("Landlord"), covering the premises known as ________________________ (the
"Premises") within the property known as ______, more particularly described as
shown on Exhibit A, attached hereto (the "Real Property").
B. Mortgagee has agreed to make or has made a mortgage loan in
the amount of $ ___________ to Landlord, secured by a mortgage of the Real
Property (the "Mortgage"), and the parties desire to set forth their agreement
herein.
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. The Lease and all extensions, renewals, replacements
or modifications thereof are and shall be subject and subordinate to the
Mortgage and all terms and conditions thereof insofar as it affects the Real
Property of which the Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof, to the full extent of
amounts secured thereby and interest thereon.
2. Tenant shall attorn to and recognize any purchaser at
a foreclosure sale under the Mortgage, any transferee who acquires the Premises
by deed in lieu of foreclosure, and the successor and assigns of such
purchaser(s), as its landlord for the unexpired balance (and any extensions, if
exercised) of the term of the Lease on the same terms and conditions set forth
in the Lease.
3. If it becomes necessary to foreclose the Mortgage,
Mortgagee shall neither terminate the Lease nor join Tenant in summary or
foreclosure proceedings so long as Tenant is not in default under any of the
terms, covenants, or conditions of the Lease.
4. If Mortgage succeeds to the interest of Landlord
under the Lease, Mortgagee shall not be:
a. liable for any act or omission of any prior
landlord (including Landlord);
Page 1
<PAGE> 47
b. liable for the return of any security
deposit unless such deposit has been delivered to Mortgagee by Landlord or is in
an escrow fund available to Mortgagee;
c. subject to any offsets or defenses that
Tenant might have against any prior landlord (including Landlord);
d. bound by any rent or additional rent that
Tenant might have paid for more than the current month to any prior landlord
(including Landlord);
e. bound by any amendment, modification, or
termination of the Lease without Mortgagee's consent;
f. personally liable under the Lease,
Mortgagee's liability thereunder being limited to its interest in the Real
Property; or
g. bound by any notice of termination given by
Landlord to Tenant without Mortgagee's prior written consent thereto.
5. This Agreement shall be binding on and shall inure to
the benefit of the parties hereto and their successors and assigns.
6. Tenant shall give Mortgagee, by certified mail,
return receipt requested, or by commercial overnight delivery service, a copy of
any notice of default served on Landlord, at Mortgagee's address set forth above
or at such other address as to which Tenant has been notified in writing. If
Landlord shall have failed to cure such default within the time provided for in
the Lease, then Mortgagee shall have an additional ten (10) days within which to
cure any default capable of being cured by the payment of money and an
additional thirty (30) days within which to cure any other default or if such
default cannot be cured within that time, then such additional time as may be
necessary to cure such default shall be granted if within such thirty (30) days
Mortgagee has commenced and is diligently pursuing the remedies necessary to
cure such default (including, but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event the Lease shall
not be terminated while such remedies are being so diligently pursued.
7. Landlord has agreed under the Mortgage and other loan
documents that rentals payable under the Lease shall be paid directly by Tenant
to Mortgagee upon default by Landlord under the Mortgage. After receipt of
notice from Mortgagee to Tenant, at the address set forth above or at such other
address as to which Mortgage has been notified in writing, that rentals under
the Lease should be paid to Mortgagee, Tenant shall pay to Mortgagee, or at the
direction of the Mortgagee, all monies due or to become due to Landlord under
the Lease. Tenant shall have no responsibility to ascertain whether such demand
by Mortgagee is permitted under the Mortgage, or to inquire into the existence
of default. Landlord hereby waives any right, claim, or demand it may now or
hereafter have against Tenant by reason of such payment to Mortgagee, and any
such payment shall discharge the obligations of Tenant to make such payment to
landlord.
8. Tenant declares, agrees and acknowledges that
Mortgagee, in making disbursements pursuant to any agreement relating to the
Loan, is under no obligation or duty to, nor has Mortgagee represented that it
will, see to the application of such proceeds by the person or persons to whom
Mortgagee disburses such proceeds, and any application or use of such proceeds
for purposes other than those provided for in such agreement shall not defeat
the subordination herein made in whole or in part.
Page 2
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have executed these presents as
of the day and year first above written.
Mortgagee: ___________________________ ________________________ Date
By: __________________________________
Its: _________________________________
Tenant: ______________________________ Date _______________________
By: __________________________________
Its: _________________________________
Landlord: ____________________________ Date _______________________
By: __________________________________
Its: _________________________________
Page 3
<PAGE> 49
[CORPORATION]
[STATE OR COMMONWEALTH OF ___________________ ]
:ss.
[COUNTY OF __________________________________ ]
On this, the ________ day of __________________________, before me,
notary public, the undersigned officer, personally appears
__________________________________, who acknowledged himself to be the
______________________________________ of ___________________________________,
a corporation, and the foregoing instrument for the purposes therein contained,
by signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal the day
and year aforesaid.
__________________________________
Notary Public
My Commission Expires
<PAGE> 50
[PARTNERSHIP]
[STATE OF ]
:ss.
[COUNTY OF ]
On this _______ day of ___________________________ in the year ________
before me, ____________________________________, a Notary Public of said State,
duly commissioned and sworn, personally appeared ____________________________,
known to me (or proved to me on the oath of _____________________________) to
be a general partner of a limited partnership that executed the within
instrument, and acknowledged to me that such partnership executed the same.
___________________________________
Notary Public in and for said State
<PAGE> 51
[CII ON BEHALF OF CGLIC]
STATE OF CONNECTICUT )
) ss.
COUNTY OF HARTFORD )
On this _______ of _____________________, 19____, personally appeared
____________________________ who acknowledged himself to be the
_______________________________ of CIGNA Investments, Inc., a corporation, duly
authorized to sign on behalf of _________________________, a corporation, and
that he, being authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
____________________________________
Notary Public
My Commission Expires:
<PAGE> 52
ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT
THIS ASSUMPTION OF LEASE (this "Assumption") dated as of
2/11/97 by PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY INC., a New Jersey
corporation having an office at 1009 Lenox Drive, Lawrenceville, NJ 08648
("PHP") to NJ STATE MEDICAL UNDERWRITERS, a New Jersey corporation having an
office at 2 Princess Road, Lawrenceville, New Jersey 08648 ("ASSIGNEE").
WITNESSETH
For valuable consideration, the receipt and adequacy of which
are hereby expressly acknowledged, PHP and ASSIGNEE agree that:
1. ASSIGNMENT AND DELIVERY OF THE PREMISES. PHP assigns to
ASSIGNEE, effective as of 10/1/96 (the "Effective Date"), all of PHP's
right, title and interest and ASSIGNEE assumes and agrees to perform each and
every obligation of PHP under the lease dated May 24, 1995 between Princeton
Pike Corporate Center Associates IV, a New Jersey partnership (the "Landlord")
and PHP (the "Lease"), with respect to the 28,053 rsf of office space (the
"Premises") located at ground floor level of 1009 Lenox Drive, Lawrenceville,
New Jersey (the "Building"). ASSIGNEE acknowledges delivery of the Premises as
of the Effective Date. ASSIGNEE will provide Landlord with a replacement cash
Security Deposit in the amount of $150,000.00 and upon receipt of such deposit
Landlord agrees that the PHP Letter of Credit may be terminated and Landlord
shall return the $50,000.00 PHP Security Deposit to PHP.
As additional security for Landlord's agreement to this Assignment, the Lease
shall be guaranteed by The Medical Inter-Insurance Exchange ("Guarantor"), a New
Jersey corporation having an office at 2 Princess Road, Lawrenceville, New
Jersey 08648 using the Guaranty form attached hereto as Exhibit A.
2. PARTIAL SUBLEASE. Landlord acknowledges that ASSIGNEE can
sublease approximately 9,351 rsf of the Premises to PHP for its continued use at
the same rates and under the same conditions contained in the Lease, but that
ASSIGNEE will be primarily responsible under the Lease for all payments of rent.
Landlord's acknowledge of such sublease is not intended to create privity
between Landlord and PHP with regard to such sublease or any of the
responsibilities of Tenant under the Lease and Landlord will look to ASSIGNEE
only for all obligations of Tenant under the Lease.
3. ENTIRE AGREEMENT. This Assumption embodies the entire
agreement of PHP and ASSIGNEE with respect to the subject matter of this
Assumption, and it supersedes any prior agreements, whether written or oral,
with respect to the subject matter of this Assumption. There are no agreements
or understandings which are not set forth in this Assumption. This Assumption
may be modified only by a written instrument duly executed by PHP and ASSIGNEE
and consented to in writing by Landlord.
Page 1 of 2
<PAGE> 53
4. BINDING EFFECT. The terms and provisions of this Assumption
will inure to the benefit of, and will be binding upon, the successors, assigns,
personal representatives, heirs, devisees, and legatees of PHP and ASSIGNEE. PHP
and ASSIGNEE have executed this Assumption on the respective dates set forth
beneath their signatures below. Any agent or other person executing this
Assignment and Assumption Agreement on behalf of either party represents and
warrants to the other and to Landlord that he or she has full power and
authority to execute this agreement on such party's behalf.
5. GOVERNING LAW. This Assumption shall be construed in
accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed this Assignment
as of the dates listed below.
<TABLE>
<S> <C>
Attest: PHYSICIANS HEALTHCARE PLAN OF NEW JERSEY
/S/ Maria A. Puglisi By: Karen A. Brayer
- --------------------------------------------- ---------------------------------------
Name: MARIA A. PUGLISI Name: KAREN A. BRAYER
Title: A Notary Public of New Jersey Title: ACTING CEO
(Seal) My Commission Expires August 3, 2000 Date: 3/18/97
Attest: NJ MEDICAL UNDERWRITERS
/S/ Maria A. Puglisi By: /S/ D J Goldberg
- --------------------------------------------- -----------------------------------------
Name: MARIA A. PUGLISI Name: David Goldberg
Title: A Notary Public of New Jersey Title: President & CEO
(Seal) My Commission Expires August 3, 2000 Date: 3/19/97
</TABLE>
In acknowledgment of guaranty obligations set forth in Paragraph 1 of this
agreement:
<TABLE>
<S> <C>
Attest: THE MEDICAL INTER-INSURANCE EXCHANGE
/S/ Maria A. Puglisi By: /S/ D J Goldberg
- --------------------------------------------- --------------------------------------
Name: MARIA A. PUGLISI Name: David Goldberg
Title: A Notary Public of New Jersey Title: President & CEO
(Seal) My Commission Expires August 3, 2000 Date: 3/19/97
</TABLE>
LANDLORD'S CONSENT
Provided PHP becomes current in all of its Lease rental obligations prior to the
Effective Date of the Assumption Agreement, Landlord hereby consents to this
Assumption Agreement as of the 2nd day of APRIL , 1997 and further agrees that
PHYSICIANS HEALTHCARE PLAN OF NEW JERSEY, a New Jersey corporation is hereby
released from the obligations of the Lease which are assumed by NJ MEDICAL
UNDERWRITERS, A New Jersey corporation and guaranteed by THE MEDICAL
INTER-OFFICE EXCHANGE, a New Jersey corporation ("Guarantor") pursuant to the
Page 2 of 2
<PAGE> 54
above Assumption of Lease Agreement, provided that ASSIGNEE provides a cash
Security Deposit in accordance with the provisions of Article 17 of the Lease of
$150,000. Landlord agrees that upon Landlord's receipt of the $150,000 Security
Deposit from ASSIGNEE, PHP may then terminate its Letter of Credit and Landlord
shall return the $50,000.00 cash PHP Security Deposit. Landlord also consents to
the Sublease as set forth in Paragraph 2 above, but Landlord shall collect all
rentals from ASSIGNEE and ASSIGNEE shall remain primarily liable under the
Lease.
PRINCETON PIKE CORPORATE CENTER
ASSOCIATES IV
ATTEST: BY: PIKE IV HOLDING, L.L.C., a New
Jersey limited liability company
By: DKM Properties Corp., attorney-in-fact
By:/s/ Donald M. Slaught
- ------------------------------- ---------------------------------------
Anita J. Marvulli, Asst. Secty. Donald M. Slaght, Vice President - Leasing
Page 3 of 2
<PAGE> 1
EXHIBIT 10.4
SPECIFIC EXCESS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
BY
THE REINSURERS SUBSCRIBING THE RESPECTIVE
INTERESTS AND LIABILITIES AGREEMENTS HERETO
(HEREINAFTER REFERRED TO AS THE "REINSURERS")
ARTICLE I: CLASSES OF BUSINESS REINSURED
A. By this Contract, the Reinsurers agree to reinsure the liability which
may accrue to the Company under all of its original policies,
contracts, binders and certificates of insurance or reinsurance
classified by the Company as:
Medical and Dental Practitioners Liability (including
Corporate and Professional Premises Liability Coverage, where
applicable);
Hospital and Other Healthcare Institution Professional
Liability;
Commercial General Liability, Employers' Liability, Automobile
Liability and all other Non-Professional (including Excess/
Umbrella) Liability unless excluded under Article III; all
either written in respect of Health Care Institutions or in
conjunction with Professional Liability coverages written for
such institutions
(hereinafter called "policies"), unless otherwise excluded under
ARTICLE III: EXCLUSIONS, issued or renewed on or after the effective
date, subject to the terms, conditions and limitations hereinafter set
forth.
B. It is understood that this Contract applies to losses first occurring
under occurrence policies and/or claims made thereon under claims made
policies issued or renewed on or after the effective date hereof.
Permanent Protection Plan policies underwritten by the Company shall in
all cases be deemed to be Loss Occurrence policies covering on a losses
occurring during basis. Reinsurers shall be subject to all of the
conditions of the Permanent Protection Plan policies including policy
limits and aggregate limit formulas under the extended reporting
coverage therein.
<PAGE> 2
ARTICLE II: COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1997, and shall
continue in force thereafter until terminated.
B. Either party may terminate this Contract on any December 31 by giving
the other party not less than 90 days prior written notice.
C. Unless otherwise mutually agreed, reinsurance hereunder on business in
force on the effective date of termination shall remain in full force
and effect until expiration, cancellation or next premium anniversary
of such business, whichever first occurs, but in no event beyond 12
months following the effective date of termination, plus any extension
of coverage for extended reporting as per the original policies of the
Company.
Reinsurers shall remain liable in respect of policies issued or renewed
during the Term in force on the basis of underlying coverage.
Reinsurers shall receive their share of premiums for such respective
policies and there shall not be any return of unearned premium in
respect thereto.
ARTICLE III: EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
1. Reinsurance assumed, except reinsurance from American Medical Mutual,
Inc. Risk Retention Group and Lawrenceville Property and Casualty
Insurance Company and Lawrenceville Re Ltd., where the underwriting is
through New Jersey State Medical Underwriters, Inc.
2. Claims emanating from policies issued by the Company with effective
dates after the termination date of this Contract.
3. Directors and Officers Liability when written as such.
4. Financial Guaranty and Insolvency Business.
5. All liability of the Company arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, however denominated, established or governed, which
provides for any assessment of or payment or assumption by the Company
of part or all of any claim, debt, charge, fee or other obligation or
an insurer, or its successors or assigns, which has been declared by
any competent authority to be insolvent, or which is otherwise deemed
unable to meet any claim, debt, charge, fee or other obligation in
whole or in part.
-2-
<PAGE> 3
6. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability -Reinsurance U.S.A. and Canada" except for incident arising
from nuclear medicine, attached to and forming part of this Contract.
7. Any business derived from participation in any Pool, Association or
Syndicate.
ARTICLE IV: RETENTIONS AND LIMITS
A. Coverage A (Each Insured Coverage): The Company shall retain and be
liable for the first $X amount as per the table below of the Paid
portion of Ultimate Net Loss as respects any one original policy, each
claim. The Reinsurers shall then be liable for the amount by which such
Paid portion of Ultimate Net Loss exceeds the Company's Retention, but
the liability of the Reinsurers shall not exceed $13,000,000 Ultimate
Net Loss plus pro rata Loss Adjustment Expenses as respects any one
original policy, each claim.
Notwithstanding the above, the Company shall also retain, in each
contract year, the first $13,000,000 of the Paid portion of Ultimate
Net Loss plus pro rata Loss Adjustment Expenses in the aggregate
otherwise recoverable under Coverage A.
<TABLE>
<CAPTION>
States Class of Business Retention $X =
------ ----------------- --------------
<S> <C> <C>
Other than PA Medical & Dental Practitioner Prof. Liab. $2,000,000
Other than PA Hospital & All Other Health Care Institutions
Professional Liability $3,000,000
PA All Professional Liability
(Physicians, Surgeons & Institutions) $2,200,000
All States General Liability, Employers' Liability,
Automobile Liability and all Non
Professional Liability Coverage written in
respect of Health Care Institutions or in
conjunction with Professional Liability (health
care) coverages. $3,000,000
</TABLE>
In no event shall Reinsurers be liable, in each contract year, for more
than $39,000,000 in respect of the sum of the Paid portion of Ultimate
Net Loss and Pro rata Loss Adjustment Expense, Loss in Excess of Policy
Limits, and Extra Contractual Obligations, in the aggregate for
Coverage A.
B. Coverage B (Each Insured Coverage): For purposes of Coverage B only,
the Company shall retain and be liable for the Paid portion of Ultimate
Net Loss equal to the sum of the Retention and Limit under Coverage A
as respects any original policy, each claim. The Reinsurers shall then
be liable for 90% of the amount by which the Paid portion of Ultimate
Net Loss exceeds the sum of the Retention and Limit under Coverage A,
but the liability of the Reinsurers shall not exceed 90% of $10,000,000
plus pro rata Loss Adjustment Expenses as respects any original policy,
each claim.
-3-
<PAGE> 4
In no event shall Reinsurers be liable, in each contract year, for more
than $27,000,000 (being 90% of $30,000,000) in respect of the sum of
the Paid portion of Ultimate Net Loss and Pro rata Loss Adjustment
Expense, Loss in Excess of Policy Limits, and Extra Contractual
Obligations, in the Aggregate for Coverage B.
C. Coverage C (Each Insured Coverage): For purposes of Coverage C only,
the Company shall retain and be liable for the Paid portion of Ultimate
Net Loss equal to the sum of the Retention and Limit under Coverage A
and $10,000,000 paid indemnity plus pro rata expenses in respect of
Coverage B as respects any original policy, each claim. The Reinsurers
shall then be liable for 90% of the amount by which such Paid portion
of Ultimate Net Loss exceeds the sum of the Retention and Limit under
Coverage A and $10,000,000 paid indemnity plus pro rata expenses in
respect of Coverage B, but the liability of the Reinsurers shall not
exceed 90% of $10,000,000 plus pro rata Loss Adjustment Expenses as
respects any original policy, each claim.
In no event shall Reinsurers be liable, in each contract year, for more
than $27,000,000 (being 90% of $30,000,000) in respect of the sum of
the Paid portion of Ultimate Net Loss and Pro rata Loss Adjustment
Expense, Loss in Excess of Policy Limits, and Extra Contractual
Obligations, in the Aggregate for Coverage C.
D. Coverage D (Each Insured Coverage): For purposes of Coverage D only,
the Company shall retain and be liable for the Paid portion of Ultimate
Net Loss equal to the sum of the Retention and Limit under Coverage A
and $10,000,000 paid indemnity plus pro rata expenses in respect of
Coverage B and $10,000,000 paid indemnity plus pro rata expenses in
respect of Coverage C as respects any original policy, each claim. The
Reinsurers shall then be liable for 90% of the amount by which such
Paid portion of Ultimate Net Loss exceeds the sum of the Retention and
Limit under Coverage A and $10,000,000 paid indemnity plus pro rata
expenses in respect of Coverage B and $10,000,000 paid indemnity plus
pro rata expenses in respect of Coverage C, but the liability of the
Reinsurers shall not exceed 90% of $5,000,000 plus pro rata Loss
Adjustment Expenses as respects any original policy, each claim.
In no event shall Reinsurers be liable, in each contract year, for more
than $13,500,000 (being 90% of $15,000,000) in respect of the sum of
the Paid portion of Ultimate Net Loss and Pro rata Loss Adjustment
Expense, Loss in Excess of Original Policy Limits, and Extra
Contractual Obligations, in the Aggregate, for Coverage D.
E. Under no circumstances shall Reinsurers be liable in respect of the
Company's policies that provide aggregate loss coverage, medical stop
loss and/or capitation coverage to its clients.
F. In order for the Company to be able to recover a claim under Coverages
A, B, C and D above, the Company must report the respective claim
recoverable for each contract year within ten years from January 1 of
such contract year.
-4-
<PAGE> 5
G. Under no circumstance shall Coverage B Limit be available or used by
the Company in respect of Coverage A Ultimate Net Loss coverage.
H. Under no circumstance shall Coverage C Limit be available or used by
the Company in respect of Coverages A and B Ultimate Net Loss coverage.
I. Under no circumstance shall Coverage D Limit be available or used by
the Company in respect of Coverages A, B and C Ultimate Net Loss
coverage.
ARTICLE V: DEFINITIONS
A. "Paid portion of Ultimate Net Loss" as used herein is defined as the
sum or sums (including Loss in Excess of Policy Limits, Extra
Contractual Obligations, as hereinafter defined) paid by the Company in
settlement of claims including any and all vicarious liability arising
from Business Reinsured and in satisfaction of judgments rendered on
account of such claims, after deduction of all salvage, all recoveries,
including the Pennsylvania catastrophe fund, if applicable, and all
claims on inuring insurance or reinsurance, whether collectible or not.
The Paid portion of Ultimate Net Loss shall not include any Loss
Adjustment Expense or outstanding loss reserves. Nothing herein shall
be construed to mean that losses under this Contract are not
recoverable until the Company's Paid portion of Ultimate Net Loss has
been ascertained. The Paid portion of Ultimate Net Loss shall be
calculated on a per claim, per policy per insured basis. If the Company
issues multiple policies to an insured, the policies will be deemed to
be one original policy for purposes of coverage under this Reinsurance
Contract.
B. "Outstanding portion of Ultimate Net Losses" as used herein is defined
as the sum of outstanding loss reserves including losses outstanding in
respect of covered Excess of Policy Limits and covered Extra
Contractual Obligations and incurred but not reported amounts less any
outstanding recoveries, salvage and inuring reinsurance claims.
C. "Loss in Excess of Policy Limits" and "Extra Contractual Obligations"
as used herein shall be defined as follows:
1. "Loss in Excess of Policy Limits" shall mean 90% subject to
the limitations below of any amount paid or payable by the
Company in excess of its policy limits, but otherwise within
the terms of its policy, as a result of a settlement by the
Company or an action against it by its insured or its
insured's assignee to recover damages the insured is legally
obligated to pay to a third party claimant because of the
Company's alleged or actual negligence, breach of contract or
bad faith in rejecting a settlement within policy limits, or
in discharging its duty to defend or prepare the defense in
the trial of an action against its insured, or in discharging
its duty to prepare or prosecute an appeal consequent upon
such an action. A Loss in Excess of Policy Limits shall be
deemed to have occurred on the same date as the loss covered
or alleged to be covered under the policy.
-5-
<PAGE> 6
The Company shall only include the amount of 90% of Loss in
Excess of Policy Limits within Ultimate Net Loss to reach the
Coverage Section Limit in accordance with the following table:
<TABLE>
<CAPTION>
For Subject Policies with Limits "Greater Than and Up To"
---------------------------------------------------------
For G.L.
Empl. Liabil.
Auto Liabil.
For all states For all states other For Pennsylvania & All Other
other than PA than PA for Health Care Inst. Non-Professn'l
Coverage Section for Phys. & Surg. Health Care Inst. Phys. & Surgeons Liability
- ---------------- ----------------- ----------------- ---------------- ---------
<S> <C> <C> <C> <C>
Coverage A Limit $ 2 M to $15 M $ 3 M to $16 M $ 2.2 M to $15.2 M $ 3 M to $16 M
Coverage B Limit 15 M to 25 M 16 M to 26 M 15.2 M to 25.2 M 16 M to 26 M
Coverage C Limit 25 M to 35 M 26 M to 36 M 25.2 M to 35.2 M 26 M to 36 M
Coverage D Limit 35 M to 40 M 36 M to 41 M 35.2 M to 40.2 M 36 M to 41 M
</TABLE>
2. "Extra Contractual Obligations" shall mean 90% of any
punitive, exemplary, compensatory, multiplied or consequential
damages, other than Loss in Excess of Policy Limits paid or
payable by the Company as a result of an action against it by
its insured, its insured's assignee or a third party claimant,
which action alleges negligence, breach of contract or bad
faith on the part of the Company in handling a claim under a
policy subject to this Contract. An Extra Contractual
Obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
The Company shall only include the amount of 90% of Extra
Contractual Obligations within Ultimate Net Loss to reach the
Coverage Section Limit in accordance with the following table:
<TABLE>
<CAPTION>
For Subject Policies with Limits "Greater Than and Up To"
---------------------------------------------------------
For G.L.
Empl. Liabil.
Auto Liabil.
For all states For all states other For Pennsylvania & All Other
other than PA than PA for Health Care Inst. Non-Professn'l
Coverage Section for Phys. & Surg. Health Care Inst. Phys. & Surgeons Liability
- ---------------- ----------------- ----------------- ---------------- ---------
<S> <C> <C> <C> <C>
Coverage A Limit $ 2 M to $15 M $ 3 M to $16 M $ 2.2 M to $15.2 M $ 3 M to $16 M
Coverage B Limit 15 M to 25 M 16 M to 26 M 15.2 M to 25.2 M 16 M to 26 M
Coverage C Limit 25 M to 35 M 26 M to 36 M 25.2 M to 35.2 M 26 M to 36 M
Coverage D Limit 35 M to 40 M 36 M to 41 M 35.2 M to 40.2 M 36 M to 41 M
</TABLE>
Notwithstanding anything stated herein, this Contract shall not apply
to any Loss in Excess of Policy Limits or any Extra Contractual
Obligation incurred by the Company as a result of any fraudulent and/or
criminal act by any officer or director of the Company acting
individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
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<PAGE> 7
D. "Loss Occurrence" means a loss occurrence or medical incident, or
otherwise the series of accidents, acts, errors or omissions including
continuous or repeated exposure to substantially the same general
harmful conditions giving rise to coverage, all as defined and provided
within the underlying policies underwritten by the Company.
E. "Claims Made" as used herein shall mean the earlier of (1) or (2)
below:
1. When the insured first gives notice to the Company that a
claim has been made against the insured; or
2. When the insured first gives notice to the Company of a
specific medical incident involving a particular person which
may result in a claim against the original insured.
Notwithstanding the above, and in all cases, the Claims Made date shall
be as defined and provided within the underlying policies underwritten
by the Company.
F. "Losses Incurred" as used herein shall mean the sum of the Paid portion
of Ultimate Net Loss paid by the Reinsurers and the Outstanding portion
of Ultimate Net Loss due from the Reinsurers and the related paid and
outstanding Pro rata Loss Adjustment Expenses under policies issued or
renewed during the contract year under consideration.
G. 1. "Loss Adjustment Expense" as used herein shall mean expenses
allocable to the investigation defense and/or settlement of
specific claims, including litigation expenses and
postjudgment interest and legal expenses and costs incurred in
connection with coverage questions and legal actions connected
thereto, but not including office expenses or salaries of the
Company's regular employees.
2. "Pro rata Loss Adjustment Expenses" as used herein shall mean
the result obtained by multiplying the covered indemnity
percentage, as calculated below by the Company's "Loss
Adjustment Expense" for a given claim. The percentage shall be
determined by dividing the amount of Ultimate Net Loss
indemnity for a coverage section by the Company's total
Ultimate Net Loss for a given claim.
H. "Gross Excess Limits Premium" as used herein shall mean the net written
increased limits premium of the Company for the Classes of Business
Reinsured for the respective layer of coverage limit hereon. Such
premiums shall represent the incremental gross premium of the Company
pertaining to the respective coverage layer hereon for which Gross
Excess Limits Premium is being calculated. Such net written premium
shall be comprised of claims made premium for underlying policies
written on such basis and occurrence premium as respects underlying
policies written on a loss occurrence basis (i.e. Permanent Protection
Plan policies). It is understood that net written increased limits
premium is less cancellation and return premium but is gross of any
deductions for original acquisition costs (i.e. brokerage).
-7-
<PAGE> 8
I. The first contract year shall be from January 1, 1997 through December
31, 1997, both days inclusive, and each subsequent 12-month period
shall be a separate contract year.
ARTICLE VI: CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Within 60 days after the end of each calendar quarter, the Company
shall provide the Reinsurers with a claims bordereau outlining any
claim on which the Company has placed a reserve value of $1,000,000 or
more.
B. The Company shall include with each claim bordereau, the following
information as respects new claims, pending claims and closed claims
during the quarter:
1. Claim number or reference number;
2. Name of Insured;
3. Name of Claimant;
4. Subject policy limit;
5. Claims Made date;
6. Loss Occurrence date;
7. Indemnity (paid and outstanding);
8. Expenses (paid and outstanding);
9. Indemnity recovery; if any;
10. Expense recovery; if any;
11. Status.
12. Claim manager report which includes narrative loss description
of each claim.
C. The Reinsurers shall have the right, at its own expense, to be
associated in the defense of any claim, suit or proceeding involving
this reinsurance.
D. The Company shall, at its full discretion, adjust and settle all claims
and losses. All such adjustments and settlements shall be binding on
the Reinsurers and the Reinsurers agrees to pay all amounts for which
it may be liable immediately after receipt of reasonable evidence of
the amount paid by the Company.
-8-
<PAGE> 9
ARTICLE VII: SALVAGE AND SUBROGATION
A. The Reinsurers shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and sums
paid to attorneys as retainer, of obtaining such reimbursement or
making such recovery) on account of claims and settlements involving
reinsurance hereunder. Salvage thereon shall always be used to
reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to
reimburse the Company for its primary loss. The Company hereby agrees
to enforce its rights to salvage or subrogation relating to any loss, a
part of which loss was sustained by the Reinsurers, and to prosecute
all claims arising out of such rights.
ARTICLE VIII: COVERAGE A PREMIUM
A. Deposit Premium: As respects each contract year, the Company shall pay
the Reinsurers an annual Deposit Premium equal to the greater of 50% of
Gross Excess Limits Premium or $3,500,000. The $3,500,000 shall be paid
in four equal installments of $875,000 on March 31, June 30, September
30 and December 31 of each contract year. The Company shall pay
additional Deposit Premium due, if any, during the contract year upon
finalizing Gross Excess Limits Premium for each respective calendar
quarter.
B. Minimum Premium: As respects each contract year, the Company shall pay
Reinsurers Actual Premium as per D. below, but not less than the
Minimum Premium which is equal to 16.67% of Gross Excess Limits Premium
in respect of policies with limits attaching in respect of Coverage A
or $1,500,000, whichever is greater.
C. Maximum Premium: As respects each contract year, the Company shall pay
Reinsurers Actual Premium as per D. below, but not greater than the
Maximum Premium which is equal to 63% of Gross Excess Limits Premium in
respect of policies with limits attaching in respect of Coverage A or
$4,500,000, whichever is greater.
D. Actual Premium: As respects each contract year, the Company shall
calculate Actual Premium which shall equal the sum of the Minimum
Premium (in B. above) plus 100% of Losses Incurred (net of the
$13,000,000 Ultimate Net Loss plus pro rata Loss Adjustment Expense
deductible) subject to the Minimum Premium (in B. above) and the
Maximum Premium (in C. above).
The Company shall calculate and report any decrease in Actual Premium
for each contract year within 60 days after the end of 36 months from
the beginning of each contract year, and within 60 days after the end
of each 12-month period thereafter until all Ultimate Net Losses and
pro rata Loss Adjustment Expenses subject hereto have been settled. The
Company shall calculate and report any increase in Actual Premium for
each agreement period within 60 days after the end of 12 months from
the beginning of each contract year, and within 60 days after the end
of each 12-month period thereafter until all Ultimate Net Losses and
pro rata Loss Adjustment Expenses subject hereto have been settled.
-9-
<PAGE> 10
The Reinsurers shall pay the Company any reported decrease in Actual
Premium less amounts previously paid in respect of Deposit Premium and
prior net Actual Premium payments upon 15 days of receipt of the
Company's report or 75 days in arrears of the respective year end
reporting date, whichever is later.
The Company shall pay the Reinsurers any reported increase in Actual
Premium less amounts previously paid in respect of Deposit Premium and
prior net Actual Premium payments upon the reporting of such Actual
Premium development to Reinsurers.
ARTICLE IX: COVERAGE B PREMIUM AND CEDING COMMISSION
A. Minimum Premium: As respects each contract year, the Company shall pay
the Reinsurers an annual Minimum Premium equal to 90% of Gross Excess
Limits Premium for policies with limits attaching hereunder in respect
of Coverage B. Minimum Premium above shall be payable by the Company to
Reinsurers quarterly within 45 days in arrears from the end of each
quarter paying all amounts due in respect of premiums collected by the
Company for the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the event
of the whole or any portion of the second Coverage B indemnity limit
being exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the Company shall pay to the
Reinsurers an Additional Premium calculated by applying to the annual
Minimum Premium to Reinsurers for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the
total amount of indemnity coverage afforded under Coverage B, subject
to a minimum of 100% as to time, to be paid simultaneously with the
payment of loss by the Reinsurers. Notwithstanding the above, the first
90% of $10,000,000 indemnity Limit shall be reinstated by the
Reinsurers free of charge.
Nevertheless, the Reinsurers' liability in any one claim shall never
exceed 90% of $10,000,000 Ultimate Net Loss plus pro rata Loss
Adjustment Expenses in respect of Coverage B.
C. Maximum Premium: As respects each contract year, the Maximum Premium
shall equal the product of the Minimum Premium multiplied by 2 (two).
D. Ceding Commission: The Reinsurers shall pay to the Company 17.5% of all
Coverage B Minimum Premium and Reinstatement Premium payable hereon by
the Company at the time the Company pays such premiums.
-10-
<PAGE> 11
ARTICLE X: COVERAGE C PREMIUM AND CEDING COMMISSION
A. Minimum Premium: As respects each contract year the Company shall pay
the Reinsurers an annual Minimum Premium equal to 90% of Gross Excess
Limits Premium for policies with limits attaching hereunder in respect
of Coverage C. Minimum Premium above shall be payable by the Company to
Reinsurers quarterly within 45 days in arrears from the end of each
quarter paying all amounts due in respect of premiums collected by the
Company for the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the event
of the whole or any portion of the second Coverage C indemnity limit
being exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the Company shall pay to the
Reinsurers an Additional Premium calculated by applying to the annual
Minimum Premium to Reinsurers for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the
total amount of indemnity coverage afforded under Coverage C, subject
to a minimum of 100% as to time, to be paid simultaneously with the
payment of loss by the Reinsurers. Notwithstanding the above, the first
90% of $10,000,000 indemnity Limit shall be reinstated by the
Reinsurers free of charge.
Nevertheless, the Reinsurers' liability in any one claim shall never
exceed 90% of $10,000,000 Ultimate Net Loss plus pro rata Loss
Adjustment Expenses in respect of Coverage C.
C. Maximum Premium: As respects each contract year, the Maximum Premium
shall equal the product of the Minimum Premium multiplied by 2 (two).
D. Ceding Commission: The Reinsurers shall pay to the Company 17.5% of all
Coverage C Minimum Premium and Reinstatement Premium payable hereon by
the Company at the time the Company pays such premiums.
ARTICLE XI: COVERAGE D PREMIUM AND CEDING COMMISSION
A. Minimum Premium: As respects each contract year, the Company shall pay
the Reinsurers an annual Minimum Premium equal to 90% of Gross Excess
Limits Premium for policies with limits attaching hereunder in respect
of Coverage D. Minimum Premium above shall be payable by the Company to
Reinsurers quarterly within 45 days in arrears from the end of each
quarter paying all amounts due in respect of premiums collected by the
Company for the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the event
of the whole or any portion of the second Coverage D indemnity limit
being exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the Company shall pay to the
Reinsurers an Additional Premium calculated by applying to the annual
Minimum Premium to Reinsurers for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the
total amount of
-11-
<PAGE> 12
indemnity coverage afforded under Coverage C, subject to a minimum of
100% as to time, to be paid simultaneously with the payment of loss by
the Reinsurers. Notwithstanding the above, the first 90% of $5,000,000
indemnity Limit shall be reinstated by the Reinsurers free of charge.
Nevertheless, the Reinsurers' liability in any one claim shall never
exceed 90% of $5,000,000 Ultimate Net Loss plus pro rata Loss
Adjustment Expenses in respect of Coverage D.
C. Maximum Premium: As respects each contract year, the Maximum Premium
shall equal the product of the Minimum Premium multiplied by 2 (two).
D. Ceding Commission: The Reinsurers shall pay to the Company 17.5% of all
Coverage D Minimum Premium and Reinstatement Premium payable hereon by
the Company at the time the Company pays such premiums.
ARTICLE XII: OFFSET
The Company and the Reinsurers shall have the right to OFFSET any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of OFFSET may exercise such right any time whether the
balances are on account of premiums or losses or otherwise.
ARTICLE XIII: ACCESS TO RECORDS
A. The Company shall place at the disposal of the Reinsurers at all
reasonable time, and the Reinsurers shall have the right to inspect,
through authorized representatives, all books, records, policies,
endorsements and papers of the Company in connection with any
reinsurance hereunder, or claims in connection herewith.
B. The Reinsurers agree that they will not disclose any confidential
information obtained by them hereunder to parties not subject to this
Contract except under the following circumstances and then only when
necessary:
1. When disclosure of such information is required in the normal
course of the Reinsurers' business; or
2. With the prior written consent of the Company; or
3. When the Reinsurers are required by a subpoena or court order
to disclose such information. The Reinsurers shall promptly
notify the Company of any attempt by a third party to obtain
from them any such confidential information.
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<PAGE> 13
C. The Reinsurers will provide the Company or its designated
representative with such information as the Reinsurers and Company may
agree is necessary to the Company's handling of the business reinsured
herein.
D. The obligation contained in this Article shall survive termination of
this Contract.
ARTICLE XIV: LIABILITY OF THE REINSURER
A. The liability of the Reinsurers shall follow that of the Company in
every case and be subject in all respects to all the general and
specific stipulations, clauses, waivers and modifications of the
Company's policies and any endorsements thereon. However, in no event
shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this Contract.
B. Nothing herein shall in any manner create any obligation or establish
any rights against the Reinsurers in favor of any third party or any
persons not parties to this Contract.
ARTICLE XV: NET RETAINED LIABILITY
A. This Contract applies only to that portion of any insurance or
reinsurance which the Company retains net for its own account (prior to
deduction of any underlying reinsurance), and in calculating the amount
of any loss hereunder and also in computing the amount or amounts in
excess of which this Contract attaches only loss or losses in respect
of that portion of any policy which the Company retains net for its own
account shall be included.
B. The amount of the Reinsurers' liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the
Company to collect from any other reinsurer(s), whether specific or
general, any amounts which may have become due from such reinsurer(s),
whether such inability arises from the insolvency of such other
reinsurer(s) or otherwise.
ARTICLE XVI: DELAYS, ERRORS OR OMISSIONS
Inadvertent delays, errors or omissions made in connections with this Contract
or any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery. In no event shall late notification of any claim,
except as provided in the sunset clause under ARTICLE IV, Section F, by the
Company constitute a ground upon which the Reinsurers have been prejudice by
such late notice. As used in this Article, the term "prejudice" shall mean that
a different outcome in the handling of any claim would have resulted but for the
untimely notice to Reinsurers.
-13-
<PAGE> 14
ARTICLE XVII: CURRENCY
Whenever the word "Dollars" or the "$" appears in this Contract, they shall be
construed to mean United States Dollars and all transactions under this Contract
shall be in United States Dollars.
ARTICLE XVIII: FEDERAL EXCISE TAX
If the Reinsurers are subject to the Federal Excise Tax, the Reinsurers agree to
allow, for the purpose of paying the Tax, up to 1% of the premium payable hereon
to the extent such premium is subject to the Tax. In the event of any return
premium becoming due hereunder, the Reinsurers will deduct from the amount of
the return premium the same percentage as it allowed, and the Company or its
agents should take steps to recover the Tax from the U.S.
Government.
ARTICLE XIX: UNAUTHORIZED REINSURERS
A. If the Reinsurers are unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurers agree to fund their
share of the Company's Outstanding portion of Ultimate Net Loss and Pro
rata Loss Adjustment Expense reserves and Coverage A return premium
accrued by the Company, as determined by the Company, respectively by:
1. Clean, irrevocable and unconditional letters of credit issued
and confirmed, if confirmation is required by the insurance
regulatory authorities involved, by a bank or banks meeting
the NAIC Securities Valuation Office credit standards for
issuers of letters of credit and acceptable to said insurance
regulatory authorities; and/or
2. Trust accounts in conformity with New York Regulation 114 for
the benefit of the Company and as may be required by any other
insurance regulatory authority; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance
regulatory authorities involved. The Reinsurers, at their sole option,
may fund in other than cash if their method and form of funding are
acceptable to the insurance regulatory authorities involved and the
Company.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued for a term of
at least one year and will include an "evergreen clause" which
automatically extends the term for at least one additional year at each
expiration date unless written notice of non-renewal is given to the
Company not less than 30 days
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<PAGE> 15
prior to said expiration date. The Company and the Reinsurers further
agree, notwithstanding anything to the contrary in this Contract, that
said letters of credit may be drawn upon by the Company or its
successors in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurers, but only for one or more
of the following purposes:
1. To reimburse itself for the Reinsurers' share of the Paid
portion of Ultimate Net Loss and/or Pro rata Loss Adjustment
Expenses paid under the terms of policies reinsured hereunder,
unless paid in cash by the Reinsurers;
2. To reimburse itself for the Reinsurers' share of any Coverage
A return premium due and other amounts claimed to be due
hereunder, unless paid in cash by the Reinsurers.
3. To fund a cash account in an amount equal to the Reinsurers'
share of any Outstanding portion of Ultimate Net Loss and Pro
rata Loss Adjustment Expense reserves and Coverage A return
premium funded by means of a letter of credit which (a) is
under non-renewal notice, if said letter of credit has not
been renewed or replaced by the Reinsurers 10 days prior to
its expiration date, or (b) the Reinsurers have failed to
increase to the amount requested by the Company, it being
understood that nothing in this Contract in any way shall
restrict or limit the rights of the Company under the terms of
the letter of credit;
4. To refund to the Reinsurers any sum in excess of the actual
amount required to fund the Reinsurers' share of the Company's
Outstanding portion of Ultimate Net Loss and Pro rata Loss
Adjustment Expense reserves and Coverage A return premium, if
so requested by the Reinsurers.
In the event the amount drawn by the Company on any letter of credit is
in excess of the actual amount required for B(1) or B(2), or in the
case of B(3), the actual amount determined to be due, the Company shall
promptly return to the Reinsurers the excess amount so drawn.
ARTICLE XX: INSOLVENCY
A. In the event of the Insolvency of the Company, this reinsurance shall
be payable directly to the Company or to its liquidator, receiver,
conservator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of the liability of
the Company without diminution because of the Insolvency of the Company
or because the liquidator, receiver, conservator or statutory successor
of the Company has failed to pay all or a portion of any claim. It is
agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the
Reinsurers of the pendency of a claim against the Company indicating
the policy or bond reinsured which claim would involve a possible
liability on the part of the Reinsurers within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in
the receivership, and that during the pendency of such claim, the
Reinsurers may investigate such claim and interpose, at its
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<PAGE> 16
own expense, in the proceeding where such claim is to adjudicated, any
defense or defenses that it may deem available to the Company or its
liquidator, receiver, conservator, or statutory successor. Accidental
failure to give such notice shall not excuse the obligation unless
Reinsurers are substantially prejudiced by the failure to give such
notice. The expense thus incurred by the Reinsurers shall be
chargeable, subject to the approval of the Court, against the Company
as part of the expense of conservation or liquidation to the extent of
a pro rata share of the benefit which may accrue to the Company solely
as a result of the defense undertaken by the Reinsurers.
B. Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this
Contract as though such expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the
Insolvency of the Company, the reinsurance under this Contract shall be
payable directly by the Reinsurers to the Company or to its liquidator,
receiver or statutory successor.
ARTICLE XXI: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereafter arising with respect
to this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to Arbitration. One Arbiter
shall be chosen by the Company, the other by the Reinsurers, and an
Umpire shall be chosen by the two Arbiters before they enter upon
Arbitration, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance companies. In the event
that either party should fail to choose an Arbiter within 30 days
following a written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an Umpire before
entering upon Arbitration. If the two Arbiters fail to agree upon the
selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two
of whom the other shall decline, and decision shall be made by drawing
lots. Nothing herein shall prevent either party from commencing a
proceeding in the United States District Court having jurisdiction over
the dispute for the purposes of having said court select an Umpire
pursuant to the Federal Arbitration Act 9 USC 1 er seq.
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Contract as an honorable engagement rather than merely as
a legal obligation and they are relieved of all judicial formalities
and may abstain from following the strict rules of law. The decision of
the Arbiters shall be final and binding on both parties; but failing to
agree, they shall call in the Umpire and the decision of the majority
shall be final and binding upon both parties. Judgment upon the final
written decision of the Arbiters may be entered in any court of
competent jurisdiction.
-16-
<PAGE> 17
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing
herein shall impair the rights of such reinsurers to assert several,
rather than joint, defenses or claims, nor be construed as changing the
liability of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
Arbitration. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the Arbitration shall be equally divided between the two parties.
E. Any Arbitration proceedings shall take place at a location in
Lawrenceville, New Jersey. All proceedings pursuant hereto shall be
governed by the law of the State of New Jersey.
ARTICLE XXII: SERVICE OF SUIT
A. It is agreed that in the event of the failure of the Reinsurers hereon
to pay any amount claimed to be due hereunder, the Reinsurers hereon,
at the request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States. The foregoing
shall not constitute a waiver of the right of the Reinsurers to
commence any suit in, or to remove, remand or transfer any suit to any
other court of competent jurisdiction in accordance with the applicable
statutes of the state or United States pertinent thereto.
B. It is further agreed that service of process in such suit may be made
upon Kroll & Tract, 520 Madison Avenue, New York, NY 10022-4235, United
States of America, and that in any suit instituted against any one of
them upon this Contract, the Reinsurers will abide by the final
decision of such Court or of any Appellate Court in the event of an
appeal.
C. The above named are authorized and directed to accept service of
process on behalf of the Reinsurers in any suit and/or upon the request
of the Company to give a written undertaking to the Company that they
will enter a general appearance upon the Reinsurers behalf in the event
such suit shall be instituted.
D. Further, pursuant to any statute of any state, territory or District of
the United States which makes provision therefor, the Reinsurers hereon
hereby designate the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purposes in the statute,
or his successor or successors in office, as their true and lawful
attorney upon whom may be served any lawful proceeding in any action,
suit or proceeding instituted by or on behalf of the Company or any
beneficiary hereunder arising out of this Contract, and hereby
designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
-17-
<PAGE> 18
ARTICLE XXIII: INTERMEDIARIES
Medical Brokers, Inc., Pegasus Advisors, Inc. and Lloyd Thompson Ltd. are hereby
recognized as the Intermediaries negotiating this Contract for all business
hereunder. All communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, Loss Adjustment Expense,
salvage and loss settlements) relating thereto shall be transmitted to the
Company or the Reinsurers through Pegasus Advisors, Inc. Payments by the Company
to the Intermediaries shall be deemed to constitute payment to the Reinsurers.
Payments by the Reinsurers to the Intermediaries shall be deemed to constitute
payment to the Company only to the extent that such payments are actually
received by the Company.
Notwithstanding the above, the Company and Reinsurers hereby agree that all
payments will be direct from the Reinsurers to the Company, or from the Company
to the Reinsurers, as appropriate.
-18-
<PAGE> 19
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - U.S.A.
1. This Agreement does not cover any loss or liability accruing to the Cedent as
a member of, or subscriber to, any association of insurers or reinsurers formed
for the purpose of covering nuclear energy risks or as a direct or indirect
reinsurer of any such member, subscriber, or association.
2. Without in any way restricting the operation of paragraph (1) of this Clause
it is understood and agreed that for all purposes of this Agreement all the
original policies of the Cedent (new, renewal and replacement) of the classes
specified in Clause II of this paragraph (2) from the time specified in Clause
III of this paragraph (2) shall be deemed to include the following provision
(specified as the Limited Exclusion Provision):
Limited Exclusion Provision
I. It is agreed that the policy does not apply under any
liability coverage, to (injury, sickness, disease, death or
destruction (bodily injury or property damage with respect to
which an insured under the policy is also an insured under a
nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for
its termination upon exhaustion of its limits of liability.
II. Family Automobile Policies (liability only), Special
Automobile Policies (private passenger automobiles, liability
only), Farmers Comprehensive Personal Liability Policies
(liability only), Comprehensive Personal Liability Policies
(liability only) or policies of a similar nature; and the
liability portion of combination forms related to the four
classes of policies stated above, such as the Comprehensive
Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the
Limited Exclusion Provision set out above; provided
this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies,
Special Automobile Policies or policies or
combination policies of a similar nature, issued by
the Cedent on New York risks, until 90 days following
approval of the Limited Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
3. Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of
paragraph (1) of this Clause, it is understood and agreed that for all
purposes of this Agreement the original liability policies of the
Cedent (new, renewal and replacement) affording the following
coverages:
1
<PAGE> 20
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad),
Protective Liability, Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability, Storekeepers
Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
Broad Exclusion Provision*
It is agreed that the policy does not apply:
1. Under an Liability Coverage, to
(injury, sickness, disease, death or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is
also an insured under a nuclear energy liability
policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy
but for its termination upon exhaustion of its limit
of liability; or
(b) resulting from the hazardous properties of nuclear
material and with respect to which (1) any person or
organization is required to maintain financial
protection pursuant to the Atomic Energy Act of 1954,
or any law amendatory thereof, or (2) the insured is,
or had this policy not been issued would be, entitled
to indemnity from the United States of America, or
any agency thereof, under any agreement entered into
by the United States of America, or any agency
thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any
Supplementary Payments Provision relating to (immediate
medical or surgical relief, (first aid, to expenses incurred
with respect to (bodily injury, sickness, disease or death
(bodily injury resulting from the hazardous properties of
nuclear material and arising out of the operation of a nuclear
facility by any person or organization.
III. Under any Liability Coverage, to (injury, sickness, disease,
death or destruction (bodily injury or property damage
resulting from the hazardous properties of nuclear material if
(a) the nuclear material (1) is at any nuclear facility
owned by, or operated by or on behalf of, an insured
or (2) has been discharged or dispersed therefrom;
2
<PAGE> 21
(b) the nuclear material is contained in spent fuel or
waste at any time possessed, handled, used,
processed, stored, transported or disposed or by or
on behalf of an insured; or
(c) (the injury, sickness, disease, death or destruction
(the bodily injury or property damage arises out of
the furnishing by an insured of services, materials,
parts or equipment in connection with the planning,
construction, maintenance, operation or use of any
nuclear facility, but if such facility is located
within the United States of America, its territories,
or possessions or Canada, this exclusion (c) applies
only to (injury to or destruction of property at such
nuclear facility. (property damage to such nuclear
facility and any property thereat.
IV. As used in this endorsement: "hazardous properties" include
radioactive, toxic or explosive properties; "nuclear material"
means source material, special nuclear material or by-product
material; "source material", "special nuclear material" and
"by-product material" have the meanings given to them in the
Atomic Energy Act of 1954 or in any law amendatory thereof;
"spent fuel" means any fuel element or fuel component, solid
or liquid, which has been used or exposed to radiation in a
nuclear reactor; "waste" means any waste material (1)
containing by-product material and (2) resulting from the
operation by any person or organization of any nuclear
facility included within the definition of nuclear facility
under paragraph(a) or (b) thereof; "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1)
separating the isotopes of uranium or plutonium, (2)
processing or utilizing spent fuel, or (3) handling,
processing or packaging waste,
(c) any equipment or device used for the processing,
fabricating or alloying of special nuclear material
if at any time the total amount of such material in
the custody of the Insured at the premises where such
equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium
233 or any combination thereof, or more than 250
grams of uranium 235,
(d) any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of
waste,
and includes the site on which any of the foregoing is
located, all operations conducted on such site and all
premises used for such operations; "nuclear reactor" means any
apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass
of fissionable material; (with respect to injury to or
destruction of property, the word "injury" or "destruction"
("property damage" includes all forms of radioactive
contamination of property. (includes all forms of radioactive
contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether
new, renewal or replacement, being policies which become
effective on or after 1st May, 1960, provided this paragraph
(3) shall not be applicable to
3
<PAGE> 22
(i) Garage and Automobile Policies issued by the Cedent
on New York risks, or
(ii) statutory liability insurance required under Chapter
90, General Laws of Massachusetts, until 90 days
following approval of the Broad Exclusion Provision
by the Governmental Authority having jurisdiction
thereof.
4. Without in anyway restricting the operation of paragraph (1) of this Clause,
it is understood and agreed that paragraphs (2) and (3) above are not applicable
to original liability policies of the Cedent in Canada and that with respect of
such policies this Clause shall be deemed to include the Nuclear Energy
Liability Exclusion Provisions adopted by the Canadian Underwriters' Association
or the Independent Insurance Conference of Canada.
------------------------------
*Note The words printed in italics in the Limited Exclusion Provision and in
the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a
Broad Exclusion Provision containing those words.
4
<PAGE> 23
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - CANADA
1. This Contract does not cover any loss or liability accruing to the Company as
a member of, or subscriber to, any association of insurers or reinsurers formed
for the purpose of covering nuclear energy risks or as a direct or indirect
reinsurer of any such member, subscriber, or association.
2. Without in any was restricting the operation of paragraph 1 of this Clause it
is agreed that for all purposes of this Contract all the original liability
contracts of the Company, whether new, renewal or replacement, of the following
classes, namely,
Personal Liability,
Farmers Liability,
Storekeepers Liability,
which become effective on or after 31st December 1984, shall be deemed to
include, from their inception dates and thereafter, the following provision: -
Limited Exclusion Provision
This Policy does not apply to bodily injury or property damage with
respect to which the Insured is also insured under a contract of
nuclear energy liability insurance (whether the Insured is named in
such contract or not and whether or not it is legally enforceable by
the Insured) issued by the Nuclear Insurance Association of Canada or
any other group or pool of insurers or would be an Insured under any
such policy but for its termination upon exhaustion of its limit of
liability.
With respect to property, loss of use of such property shall be deemed
to be property damage.
3. Without in any way restricting the operation of paragraph 1 of this Clause it
is agreed that for all purposes of this Contract all the original liability
contracts of the Company, whether new, renewal or replacement, of any class
whatsoever (other than Personal Liability, Farmers Liability, Storekeepers
Liability or Automobile Liability contracts), which become effective on or after
31st December 1984, shall be deemed to include, from their inception dates and
thereafter, the following provision: -
Broad Exclusion Provision
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear Liability
Act; or
(b) to bodily injury or property damage with respect to which an
Insured under this Policy is also insured under a contract of
nuclear energy liability insurance (whether the Insured is
named in such contract or not and whether or not it is legally
enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other insurer or group or pool of
insurers or would be an Insured under any such policy but for
its termination upon exhaustion of its limit of liability; or
1
<PAGE> 24
(c) to bodily injury or property damage resulting directly or
indirectly from the nuclear energy hazard arising from:
(1) the ownership, maintenance, operation or use of a
nuclear facility by or on behalf of an Insured;
(2) the furnishing by an Insured of services, materials,
parts or equipment in connection with the planning,
construction, maintenance, operation or use of any
nuclear facility; and
(3) the possession, consumption, use, handling, disposal
or transportation of fissionable substances or of
other radioactive material (except radioactive
isotopes, away from a nuclear facility, which have
reached the final stage of fabrication so as to be
usable for any scientific, medical, agricultural,
commercial or industrial purpose) used, distributed,
handled or sold by an Insured.
As used in this Policy:
(I) The term "nuclear energy hazard" means the
radioactive, toxic, explosive or other hazardous
properties of radioactive material;
(II) The term "radioactive material" means uranium,
thorium, plutonium, neptunium, their respective
derivatives and compounds, radioactive isotopes of
other elements and any other substances that the
Atomic Energy Control Board may, by regulation,
designate as being prescribed substances capable of
releasing atomic energy, or as being requisite for
the production, use or application of atomic energy;
(III) The term "nuclear facility" means:
(a) any apparatus designed or used to sustain
nuclear fission in a self-supporting chain
reaction or to contain a critical mass of
plutonium, thorium and uranium or any one or
more of them;
(b) any equipment or device designed or used for
(i) separating the isotopes of plutonium,
thoriurn and uranium or any one or more of
them, (ii) processing or utilizing spent
fuel, or (iii) handling, processing or
packaging waste;
(c) any equipment or device used for the
processing, fabricating or alloying of
plutonium, thorium or uranium enriched in
the isotope uranium 233 or in the isotope
uranium 235, or any one or more of them if
at any time the total amount of such
material in the custody of the Insured at
the premises where such equipment or device
is located consists of or contains more than
25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams
of uranium 235;
(d) any structure, basin, excavation, premises
or place prepared or used for the storage or
disposal of waste radioactive material;
2
<PAGE> 25
and includes the site on which any of the foregoing
is located, together with all operations conducted
thereon and all premises used for such operations.
(IV) the term "fissionable substance" means any prescribed
substance that is, or from which can be obtained, a
substance capable of releasing atomic energy by
nuclear fission.
(V) with respect to property, loss of use of such
property shall be deemed to be property damage.
3
<PAGE> 26
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
SWISS REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 45.46% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1997, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 25th day of September 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
-------------------------
In Zurich, Switzerland, this 17th day of September 1997,
For and on Behalf of Swiss Reinsurance Company
By: /s/
-------------------------
<PAGE> 27
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
HANNOVER RUCKVERSICHERUNGS
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 20.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1997, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 25th day of September 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
---------------------------
In Hannover, Germany, this 29th day of July 1997,
For and on Behalf of Hannover Ruckversicherungs
By: /s/
---------------------------
<PAGE> 28
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1,1997
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
UNDERWRITERS REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 14.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1997, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 25th day of September 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
--------------------------
In Woodland Hills, California, this 15th day of July 1997,
For and on Behalf of Underwriters Reinsurance Company
By: /s/
--------------------------
<PAGE> 29
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
KEMPER REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 7.69% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1997, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 25th day of September 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
---------------------------------
In Long Grove, Illinois, this 9th day of September 1997,
For and on Behalf of Kemper Reinsurance Company
By: /s/ John Jenkins
---------------------------------
John Jenkins, Assistant Vice President, Ref: 22776-6
<PAGE> 30
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
LONDON LIFE & CASUALTY REINSURANCE CORPORATION
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 3.85% share in the
interests and liabilities as set forth in the document attached hereto entitled,
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1997, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 25th day of September 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
---------------------------------
In Wildey, St. Michael, Barbados, this 31st day of July 1997,
For and on Behalf of London Life & Casualty Reinsurance Corporation
By: /s/ Michael D. Price
---------------------------------
<PAGE> 31
ADDENDUM NO. 1
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
THE REINSURERS SUBSCRIBING THE RESPECTIVE
INTERESTS AND LIABILITIES AGREEMENTS
(HEREINAFTER REFERRED TO AS "REINSURERS")
Effective July 1, 1997, the Reinsurers hereby agree to amend the 1997 Specific
Excess Reinsurance Contract (identification "slip\mixsp97d.cnt") provided to the
Company as follows:
1) Article 1: Classes of Business Reinsured, page 1 - Section A - Addition
of the following paragraph to be inserted preceding the final paragraph
of Section A:
"Property Coverage, including Fire, Allied Lines and Extended
Coverages, Inland Marine and Commercial Multi-Peril, all either written
in respect of Health Care Institutions or when written in conjunction
with Professional Liability coverages for Health Care Institutions."
2) Article III: Exclusions, page 3 - Addition of Exclusions 8., 9. and 10.
as follows:
"8. Earthquake coverages, when written as such.
9. North American War Exclusion Clause, attached to and forming
part of this Contract.
10. Seepage and Pollution Liability."
<PAGE> 32
3) Article IV: Retentions and Limits, page 3, Section A. - Deletion of the
first paragraph of Section A. and insertion of the following revised
paragraph:
"A. Coverage A (Each Insured): Coverage A shall apply to all
Classes of Business Reinsured except Property Coverage. The
Company shall retain and be liable for the first $X amount as
per the table below of the Paid portion of Ultimate Net Loss
as respects any one original policy, each claim. The
Reinsurers shall then be liable for the amount by which such
Paid portion of Ultimate Net Loss exceeds the Company's
Retention, but the liability of the Reinsurers shall not
exceed $13,000,000 Ultimate Net Loss plus pro rata Loss
Adjustment Expenses as respects any one original policy, each
claim."
4) Article IV: Retentions and Limits, page 3, Section B. - Deletion of the
first paragraph of Section B. and insertion of the following revised
paragraph:
"B. Coverage B (Each Insured): Coverage B shall apply to all
Classes of Business Reinsured except Property Coverage. For
purposes of Coverage B only, the Company shall retain and be
liable for the Paid portion of Ultimate Net Loss equal to the
sum of the Retention and Limit under Coverage A as respects
any original policy, each claim. The Reinsurers shall then be
liable for 90% of the amount by which the Paid portion of
Ultimate Net Loss exceeds the sum of the Retention and Limit
under Coverage A, but the liability of the Reinsurers shall
not exceed 90% of $10,000,000 plus pro rata Loss Adjustment
Expenses as respects any original policy, each claim."
5) Article IV: Retentions and Limits, page 4, Section C. - Deletion of the
first paragraph of Section C. and insertion of the following revised
paragraph:
"C. Coverage C (Each Insured): Coverage C shall apply to all
Classes of Business Reinsured except Property Coverage. For
purposes of Coverage C only, the Company shall retain and be
liable for the Paid portion of Ultimate Net Loss equal to the
sum of the Retention and Limit under Coverage A and
$10,000,000 paid indemnity plus pro rata expenses in respect
of Coverage B as respects any original policy, each claim. The
Reinsurers shall then be liable for 90% of the amount by which
such Paid portion of Ultimate Net Loss exceeds the sum of the
Retention and Limit under Coverage A and $10,000,000 paid
indemnity plus pro rata expenses in respect of Coverage B, but
the liability of the Reinsurers shall not exceed 90% of
$10,000,000 plus pro rata Loss Adjustment Expenses as respects
any original policy, each claim."
<PAGE> 33
6) Article IV: Retentions and Limits, page 4, Section D. - Deletion of the
first paragraph of Section D. and insertion of the following revised
paragraph:
"D. Coverage D (Each Insured): Coverage D shall apply to all
Classes of Business Reinsured except Property Coverage. For
purposes of Coverage D only, the Company shall retain and be
liable for the Paid portion of Ultimate Net Loss equal to the
sum of the Retention and Limit under Coverage A and
$10,000,000 paid indemnity plus pro rata expenses in respect
of Coverage B and $10,000,000 paid indemnity plus pro rata
expenses in respect of Coverage C as respects any original
policy, each claim. The Reinsurers shall then be liable for
90% of the amount by which such Paid portion of Ultimate Net
Loss exceeds the sum of the Retention and Limit under Coverage
A and $10,000,000 paid indemnity plus pro rata expenses in
respect of Coverage B and $10,000,000 paid indemnity plus pro
rata expenses in respect of Coverage C, but the liability of
the Reinsurers shall not exceed 90% of $5,000,000 plus pro
rata Loss Adjustment Expenses as respects any original policy,
each claim."
7) Article IV: Retentions and Limits, pages 4-5, Sections E., F., H. and
I. to be relettered as follows:
Section E to become Section F
Section F to become Section G
Section G to become Section H
Section H to become Section I
Section I to become Section J
8) Article IV: Retentions and Limits, page 4 - Addition of Section E as
follows:
"E. Coverage E (Each Insured Coverage): Coverage E shall apply to
the Property Coverage Class of Business Reinsured only. For
purposes of Coverage E only, the Company shall retain and be
liable for the first $500,000 of the Paid portion of Ultimate
Net Loss as respects each and every loss, each original
policy. Reinsurers shall then be liable for 100% of the amount
by which such Paid portion of Ultimate Net Loss exceeds the
Company's Retention, but the liability of the Reinsurers shall
not exceed $14,500,000 Ultimate Net Loss plus Pro Rata Loss
Adjustment Expense as respects each and every loss, each
original policy.
In no event shall Reinsurers be liable, in each contract year,
for more than $43,500,000 in respect of the sum of the Paid
portion of Ultimate Net Loss plus Pro Rata Loss Adjustment
Expense, Loss in Excess of Original Policy Limits, and Extra
Contractual Obligations, in the Aggregate, for Coverage E."
<PAGE> 34
9) Article V: Definitions, page 8 - Addition of Definition J. as follows:
"J. "Gross Written Premium" as used herein. shall mean the written
premium of the Company, including additional premiums and
premium adjustments less any return premiums in respect of
policies written during the term of this Contract."
10) Article VI: Claims and Loss Adjustment Expenses, page 8 - Section A -
Addition of the following paragraph as follows:
"Within 60 days after the end of each calendar quarter, the Company
shall provide the Reinsurers with a claims bordereau, as respects to
Coverage E, outlining any claim on which the Company has a paid or
outstanding loss value equal to or greater than $300,000 Ultimate Net
Loss. The Company may request, where necessary, an individual cash call
for any claim payments equal to or greater than $500,000 from
Reinsurers for Coverage E only."
11) Renumbering of current Article XII and all subsequent Articles, i.e.:
Article XII to become Article XIII
Article XIII to become Article XIV
Article XIV to become Article XV
and continuing through the final Article of the Contract
and insertion of new Article XII as follows:
"ARTICLE XII: COVERAGE E PREMIUM AND CEDING COMMISSION
A. Initial Premium: As respects each contract year, the Company
shall pay the Reinsurers an Initial Premium equal to X% of
each Policy's Gross Written Premium as per the Coded Excess
Schedule, attaching hereto and forming part of the 1997
Specific Excess Reinsurance Contract, for policies with limits
attaching hereunder in respect of Coverage E. Initial Premium
shall be payable by the Company to the Reinsurers quarterly
within 60 days in arrears from the end of each quarter paying
all amounts due in respect of premiums collected by the
Company for the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in
the event of the whole or any portion of the second Coverage E
indemnity limit being exhausted by loss, the amount so
exhausted shall be automatically reinstated from the time of
the loss and the Company shall pay to the Reinsurers an
Additional Premium calculated by applying the aggregate Gross
Written Premium to the Reinsurers for Coverage E for the
respective contract year to the percentage that the amount of
indemnity so reinstated bears to the total amount of indemnity
coverage afforded
<PAGE> 35
under Coverage E, to be paid simultaneously with the payment
of loss by the Reinsurers. Notwithstanding the above, the
first 100% of $14,500,000 indemnity limit shall be reinstated
by the Reinsurers free of charge.
C. Ceding Commission: The Reinsurers shall pay to the Company
17.5% of all Coverage E Initial Premium and Reinstatement
Premium payable hereon by the Company at the time the Company
pays such premiums.
The Company shall provide the Reinsurers with a bordereau outlining the
Gross Written Premium and the Coded Excess Schedule Premium for each
policy written under Coverage E within 60 days after the end of each
calendar quarter. The bordereau shall include detailed information by
state, policy limit, construction type, including addresses, and
probable maximum losses."
In Witness Whereof, the Company has caused this Addendum to be executed by its
duly authorized representatives:
Signed in Lawrenceville, New Jersey, this day of , 1998
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /S/ Daniel J. Goldberg
------------------------------------
Title: President & CEO
------------------------------------
<PAGE> 36
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be
executed by its duly authorized representative:
Signed in Zurich, Switzerland, for a 45.46% share of the respective
Reinsurance Contract this
20 day of May, 1998
for and on behalf of
SWISS REINSURANCE COMPANY
By: /S/ C. Cotti /S/ T. Sigg
------------------------------------
Title: Swiss Reinsurance Company
------------------------------------
<PAGE> 37
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Wildey, St. Michael, Barbados, W.L, for a 3.85% share of the
respective Reinsurance Contract this 6th day of May, 1998
for and on behalf of
LONDON LIFE AND CASUALTY REINSURANCE CORPORATION
By: /S/ M.A. Gonsalves [SEAL]
------------------------------------
Title: Vice President
<PAGE> 38
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Calabasas, California, for a 14.00% share of the respective
Reinsurance Contract, this 20th day of May, 1998 for and on behalf of
UNDERWRITERS REINSURANCE COMPANY
By: /S/ Denise Coleman
------------------------------------
Title: Sr. Vice President
------------------------------------
<PAGE> 39
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Long Grove, Illinois, for a 7.69% share of the respective Reinsurance
Contract, this 19th day of June, 1998
for and on behalf of
KEMPER REINSURANCE COMPANY
By: /S/ Lee A. Brenner
------------------------------------
Title: Lee A. Brenner, Sr. Vice President, Ref: 22776-6
-------------------------------------------------
<PAGE> 40
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Hannover, Germany, for a 20.00% share of the respective agreement,
this 24th day of June, 1998
for and on behalf of
HANNOVER RUCKVERSICHERUNGS
Reference: LY 2474A, Add. 1, eff. 1-1-97
-------------------------------------------------
Title:
-------------------------------------------------
hannover re
-----------
Hannover
Ruckversicherungs-Aktiengesellschaft
/S/
------------------------------------
North American Treaty Dpt.
<PAGE> 41
ADDENDUM NO. 2
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
(HEREINAFTER REFERRED TO AS "REINSURANCE CONTRACT")
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
BY
THE REINSURERS SUBSCRIBING THE RESPECTIVE
INTERESTS AND LIABILITIES AGREEMENTS
(HEREINAFTER REFERRED TO AS THE "REINSURERS")
I. Effective January 1, 1998, the Reinsurers hereby agree to amend the 1997
Specific Excess Reinsurance Contract (identification "slip\mixsp97d.cnt")
provided to the Company as follows:
1) Article IV: Retentions and Limits, page 4 - Deletion of Section D. and
insertion of the following revised Section D:
"Coverage D (Each Insured Coverage): Coverage D shall apply to all
Classes of Business Reinsured except Property Coverage. For purposes of
Coverage D only, the Company shall retain and be liable for the Paid
portion of Ultimate Net Loss equal to the sum of the Retention and
Limit under Coverage A and $ 10,000,000 paid indemnity plus pro rata
expenses in respect of Coverage B and $ 10,000,000 paid indemnity plus
pro rata expenses in respect of Coverage C as respects any original
policy, each claim. The Reinsurers shall then be liable for 90% of the
amount by which such Paid portion of Ultimate Net Loss exceeds the sum
of the Retention and Limit under Coverage A and $10,000,00 paid
indemnity plus pro rata expenses in respect of Coverage B and
$10,000,000 paid indemnity plus pro rata expenses in respect of
Coverage C, but the liability of the Reinsurers shall not exceed 90% of
$15,000,000 plus pro rata Loss Adjustment Expenses as respects any
original policy, each claim.
In no event shall Reinsurers be liable, in each contract year, for more
than $40,500,000 (being 90% of $45,000,000) in respect of the sum of
the Paid portion of Ultimate Net Loss and Pro rata Loss Adjustment
Expense, Loss in Excess of Original Policy Limits, and Extra
Contractual Obligations, in the Aggregate, for Coverage D."
1
<PAGE> 42
2) Article V: Definitions, page 6 - Sections 1 and 2., Subject Policy
Limits Tables - Deletion of Coverage D Limits and insertion of the
following revised limits:
<TABLE>
<CAPTION>
For G.L.
Empl. Liabil.
Auto Liabil.
For all states For all states other For Pennsylvania & All Other
other than PA than PA for Health Care Inst. Non-Professn'l
Coverage Section for Phys. & Surg. Health Care Inst. Phys. & Surgeons Liability
- ---------------- ----------------- ----------------- ---------------- ---------
<S> <C> <C> <C> <C>
"Coverage D Limit 35M to 50M 36M to 51M 35.3M to 50.3M 36M to 51M"
</TABLE>
3) Article XI: Coverage D Premium and Ceding Commission, pages 11 - 12 -
Deletion of Section B and insertion of the following revised Section B:
"B. Reinstatement Premium: As respects each contract year, and in
the event of the whole or any portion of the second Coverage D
indemnity limit being exhausted by loss, the amount so
exhausted shall be automatically reinstated from the time of
the loss and the Company shall pay to the Reinsurers an
Additional Premium calculated by applying to the annual
Minimum Premium to Reinsurers for the respective contract year
the percentage that the amount of indemnity so reinstated
bears to the total amount of indemnity coverage afforded under
Coverage C, subject to a minimum of 100% as to time, to be
paid simultaneously with the payment of loss by the
Reinsurers. Notwithstanding the above, the first 90% of
$15,000,000 indemnity limit shall be reinstated by the
Reinsurers free of charge.
Nevertheless, the Reinsurers' liability in any one claim shall
never exceed 90% of $15,000,000 Ultimate Net Loss plus pro
rata Loss Adjustment Expenses in respect of Coverage D."
2
<PAGE> 43
In Witness Whereof, the Company has caused this Addendum to be executed by its
duly authorized representative:
Signed in Lawrenceville, New Jersey, this day of, 1998 for and on behalf of
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /S/ Daniel J. Goldberg
-------------------------------------------------
Title: President & CEO
-------------------------------------------------
3
<PAGE> 44
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Zurich, Switzerland, for a 45.46% share of the respective Reinsurance
Contract, this 20 day of May, 1998
for and on behalf of
SWISS REINSURANCE COMPANY
By: /S/ C. Cotti /S/ T. Sigg
-------------------------------------------------
Title: Swiss Reinsurance Company
-------------------------------------------------
<PAGE> 45
Effective January 1, 1998, London Life and Casualty Reinsurance Corporation's
participation in the Reinsurance Contract shall be amended from 3.85% to 3.07%.
This Agreement therefore amends the respective Interests and Liabilities
Agreement to a 3.07% share of the Reinsurance Contract effective January 1,
1998.
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Wildey, St. Michael, Barbados, W.I., for a 3.07% share of the
respective Reinsurance Contract,
this 6th day of May, 1998
for and on behalf of
LONDON LIFE AND CASUALTY REINSURANCE CORPORATION
By: /S/ M.A. Gonsalves [SEAL]
---------------------------------
Title: Vice President
---------------------------------
<PAGE> 46
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Calabasas, California, for a 14.00% share of the respective
Reinsurance Contract,
this 20th day of May, 1998
for and on behalf of
UNDERWRITERS REINSURANCE COMPANY
By: /S/ Denise Coleman
-------------------------------------------------
Title: Senior Vice President
-------------------------------------------------
<PAGE> 47
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Long Grove, Illinois, for a 7.69% share of the respective Reinsurance
Contract,
this 19th day of June, 1998
for and on behalf of
KEMPER REINSURANCE COMPANY
By: /S/ Lee A. Brenner
-------------------------------------------------
Title: Lee A. Brenner, Sr. Vice President, Ref: 22776-6
-------------------------------------------------
<PAGE> 48
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Hannover, Germany, for a 20.00% share of the respective agreement,
this 25th day of June, 1998
for and on behalf of
HANNOVER RUCKVERSICHERUNGS
Reference: LY2474A, Add 2, eff-1-1-98
--------------------------------------
Title:
--------------------------------------
hannover re
------------------------------------
Hannover
Ruckversicherungs-Aktiengesellschaft
/S/
--------------------------------
North American Treaty Dpt.
<PAGE> 49
ADDENDUM NO. 3
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
THE REINSURERS SUBSCRIBING THE RESPECTIVE
INTERESTS AND LIABILITIES AGREEMENTS
(HEREINAFTER REFERRED TO AS "REINSURERS")
Effective January 1, 1997, the Reinsurers hereby agree to amend the 1997
Specific Excess Reinsurance Contract (identification "slip\mixsp97d.cnt")
provided to the Company as follows:
1) Article IV: Retentions and Limits, page 3 - Section A - Delete the
Pennsylvania retention in the table and replace with the following
revised retention:
"PA All Professional Liability $2,300,000
(Physicians, Surgeons & Institutions)"
2) Article V: Definitions, page 6 - Sections 1 and 2 - Delete Coverage A,
B, C and D Limits in the table for the column "For Pennsylvania Health
Care Inst. Phys. & Surgeons" only and replace with the following
revised limits:
<TABLE>
<CAPTION>
For Pennsylvania
Health Care Inst.
Coverage Section Phys. & Surgeons
---------------- ----------------
<S> <C> <C>
Coverage A Limit "$ 2.3M to $15.3M
Coverage B Limit 15.3M to 25.3M
Coverage C Limit 25.3M to 35.3M
Coverage D Limit 35.3M to 40.3M"
</TABLE>
1
<PAGE> 50
In Witness Whereof, the Company has caused this Addendum to be executed by its
duly authorized representatives:
Signed in Lawrenceville, New Jersey, this day of , 1998
for and on behalf of
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /S/ Daniel J. Goldberg
-------------------------------------------------
Title: President & CEO
-------------------------------------------------
2
<PAGE> 51
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Zurich, Switzerland, for a 45.46% share of the respective Reinsurance
Contract, this 20th day of May, 1998 for and on behalf of SWISS REINSURANCE
COMPANY
By: /S/ C. Cotti /S/ T. Sigg
-------------------------------------------------
Title: Swiss Reinsurance Company
-------------------------------------------------
1
<PAGE> 52
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Hannover, Germany, for a 20.00% share of the respective agreement,
this 24th day of June, 1998 for and on behalf of HANNOVER RUCKVERSICHERUNGS
Reference: LY 2474A, Add. 3, eff. 1-1-97
-----------------------------------------
Title:
-----------------------------------------
hannover re
-----------
Hannover
Ruckversicherungs-Aktiengesellschaft
/S/ H. Gradtke /S/ E.V. Heimburg
-------------------------------------------
North American Treaty Dpt.
2
<PAGE> 53
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Long Grove, Illinois, for a 7.69% share of the respective Reinsurance
Contract, this 19th day of June, 1998 for and on behalf of KEMPER REINSURANCE
COMPANY
By: /S/ Lee A. Brenner
-------------------------------------------------
Title: Lee A. Brenner, Sr. Vice President, Ref: 22776-6
-------------------------------------------------
3
<PAGE> 54
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Calabasas, California, for a 14.00% share of the respective
Reinsurance Contract, this 20th day of May, 1998 for and on behalf of
UNDERWRITERS REINSURANCE COMPANY
By: /S/ Denise Coleman
-------------------------------------------------
Title: Senior Vice President
-------------------------------------------------
4
<PAGE> 55
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Wildey, St. Michael, Barbados, W.I., for a 3.85% share of the
respective Reinsurance Contract,
this 6th day of May, 1998
for and on behalf of
LONDON LIFE AND CASUALTY REINSURANCE CORPORATION
By: /S/ M.S. Gonsalves [SEAL]
-------------------------------------------------
Title: Vice President
-------------------------------------------------
5
<PAGE> 56
ADDENDUM NO. 4
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
THE REINSURERS SUBSCRIBING THE RESPECTIVE
INTERESTS AND LIABILITIES AGREEMENTS
(HEREINAFTER REFERRED TO AS "REINSURERS")
Effective December 31, 1997, the Reinsurers hereby agree to amend the 1997
Specific Excess Reinsurance Contract (identification '.'slip\jnixsp97d.cnt")
provided to the Company as follows:
ARTICLE III: EXCLUSIONS, Exclusion 1. - Addition of the following paragraph:
"In addition, this exclusion shall also not apply to assumed
reinsurance underwritten by the Company for captives or other
insurance facilities of hospitals and all other health care
institutions where the underwriting is through the New Jersey
State Medical Underwriters, Inc."
In Witness Whereof, the Company has caused this Addendum to be executed by its
duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 24th day of April, 1998
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
---------------------------------------
Title: President & CEO
---------------------------------------
1
<PAGE> 57
In Witness Whereof, the Reinsurers hereto have caused this Addendum to be
executed by their duly authorized representatives:
Signed in Zurich, Switzerland, for a 45.46% share of the respective agreement,
this 20 day of May, 1998
SWISS REINSURANCE COMPANY
By: /s/ C. Cotti /s/ T. Sigg
---------------------------------------
Title: Swiss Reinsurance Company
---------------------------------------
2
<PAGE> 58
In Witness Whereof, the Reinsurers hereto have caused this Addendum to be
executed by their duly authorized representatives:
Signed Hannover, Germany, for a 20.00% share of the respective agreement, this
24th day of June, 1998
HANNOVER RUCKVERSICHERUNGS
Reference: LY2474A, Add 4 eff. 12-31-97
Title:
------------------------------------------
hannover re
-----------
Hannover
Ruckversicherungs-Aktiengesellschaft
/S/ H. Gradtke /S/ C.V. Heimburg
--------------------------------------------
North American Treaty Dpt.
3
<PAGE> 59
In Witness Whereof, the Reinsurers hereto have caused this Addendum to be
executed by their duly authorized representatives:
Signed Long Grove, Illinois, for a 7.69% share of the respective agreement, this
19th day of June, 1998
KEMPER REINSURANCE COMPANY
By: /s/ Lee A. Brenner
---------------------------------------------------
Title: Lee A. Brenner, Sr. Vice President, Ref: 22776-6
---------------------------------------------------
4
<PAGE> 60
In Witness Whereof, the Reinsurers hereto have caused this Addendum to be
executed by their duly authorized representatives:
Signed in Woodland Hills, California, for a 14.00% share of the respective
agreement, this 20th day of May, 1998
UNDERWRITERS REINSURANCE COMPANY
By: /S/ Denise Coleman
---------------------------------------------------
Title: Senior Vice President
---------------------------------------------------
5
<PAGE> 61
In Witness Whereof, the Reinsurers hereto have caused this Addendum to be
executed by their duly authorized representatives:
Signed in Wildey, St. Michael, Barbados, W.I., for a 3.85% share of the
respective agreement, this 6th day of May, 1998
LONDON LIFE AND CASUALTY INSURANCE CORPORATION
By: /S/ M.A. Gonsalves [SEAL]
---------------------------------------------------
Title: Vice President
---------------------------------------------------
6
<PAGE> 1
EXHIBIT 10.5
SPECIFIC EXCESS
REINSURANCE CONTRACT
Effective: January 1, 1997
issued to
Medical Inter-Insurance Exchange of New Jersey
Lawrenceville, New Jersey
(hereinafter referred to as the "Company")
by
American Re-Insurance Company
Subscribing to its respective Interests and Liabilities Agreements hereto
(hereinafter referred to as the "Reinsurer")
ARTICLE I: CLASSES OF BUSINESS REINSURED
A. By this Contract, the Reinsurer agrees to reinsure the liability which may
accrue to the Company under all of its original policies, contracts,
binders and certificates of insurance or reinsurance classified by the
Company as:
Medical and Dental Practitioners Liability (including Corporate and
Professional Premises Liability Coverage, where applicable);
Hospital and Other Healthcare Institution Professional Liability;
Commercial General Liability, Employers' Liability, Automobile
Liability and all other Non-Professional (including Excess/
Umbrella) Liability unless excluded under Article III; all either
written in respect of Health Care Institutions or in conjunction
with Professional Liability coverages written for such institutions.
(hereinafter called "policies"), unless otherwise excluded under ARTICLE III:
EXCLUSIONS, issued or renewed on or after the effective date, subject to the
terms, conditions and limitations hereinafter set forth.
B. It is understood that this Contract applies to losses first occurring
under occurrence policies and/or claims made thereon under claims made
policies issued or renewed on or after the effective date hereof.
Permanent Protection Plan policies underwritten by the Company shall in
all cases be
<PAGE> 2
deemed to be Loss Occurrence policies covering on a losses occurring
during basis. The Reinsurer shall be subject to all of the conditions of
the Permanent Protection Plan policies including policy limits and
aggregate limit formulas under the extended reporting coverage therein.
ARTICLE II: COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1997, and shall
continue in force thereafter until terminated.
B. Either party may terminate this Contract on any December 31 by giving the
other party not less than 90 days prior written notice.
C. Unless otherwise mutually agreed, reinsurance hereunder on business in
force on the effective date of termination shall remain in full force and
effect until expiration, cancellation or next premium anniversary of such
business, whichever first occurs, but in no event beyond 12 months
following the effective date of termination, plus any extension of
coverage for extended reporting as per the original policies of the
Company.
Reinsurer shall remain liable in respect of policies issued or renewed
during the Term in force on the basis of underlying coverage. Reinsurer
shall receive its share of premiums for such respective policies and there
shall not be any return of unearned premium in respect thereto.
ARTICLE III: EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
1. Reinsurance assumed, except reinsurance from American Medical
Mutual, Inc. Risk Retention Group and Lawrenceville Property and
Casualty Insurance Company and Lawrenceville Re Ltd., where the
underwriting is through New Jersey State Medical Underwriters, Inc.
2. Claims emanating from policies issued by the Company with effective
dates after the termination date of this Contract.
3. Directors and Officers Liability when written as such.
4. Financial Guaranty and Insolvency Business.
5. All liability of the Company arising by contract, operation of law,
or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund"
includes any guaranty fund, insolvency fund, plan, pool,
association, fund or other arrangement, however denominated,
established or governed, which provides for any assessment of or
payment or assumption by the Company of part or all of any claim,
debt, charge, fee or other
<PAGE> 3
obligation or an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent, or which
is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
6. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability - Reinsurance USA and Canada" except for incident arising
from nuclear medicine, attached to and forming part of this
Contract.
7. Any business derived from participation in any Pool, Association or
Syndicate.
ARTICLE IV: RETENTIONS AND LIMITS
A. Coverage A (Each Insured Coverage): The Company shall retain and be liable
for the first $X amount as per the table below of the Paid portion of
Ultimate Net Loss as respects any one original policy, each claim. The
Reinsurer shall then be liable for the amount by which such Paid portion
of Ultimate Net Loss exceeds the Company's Retention, but the liability of
the Reinsurer shall not exceed $13,000,000 Ultimate Net Loss plus pro rata
Loss Adjustment Expenses as respects any one original policy, each claim.
Notwithstanding the above, the Company shall also retain, in each contract
year, the first $13,000,000 of the Paid portion of Ultimate Net Loss plus
pro rata Loss Adjustment Expenses in the aggregate otherwise recoverable
under Coverage A.
<TABLE>
<CAPTION>
States Class of Business Retention $X =
- ------ ----------------- --------------
<S> <C> <C>
Other than PA Medical & Dental Practitioner Prof. Lab. $2,000,000
Other than PA Hospital & All Other Health Care Institutions
Professional Liability $3,000,000
PA All Professional Liability (Physicians, Surgeons
& Institutions) $2,200,000
All States General Liability, Employers'
Liability, Automobile Liability and all
Non Professional Liability Coverage
written in respect of Health Care
Institutions or in conjunction with
Professional Liability (health care)
coverages. $3,000,000
</TABLE>
In no event shall the Reinsurer be liable, in each contract year, for more
than $39,000,000 in respect of the sum of the Paid portion of Ultimate Net
Loss and Pro rata Loss Adjustment Expense, Loss in Excess of Policy
Limits, and Extra Contractual Obligations, in the aggregate for Coverage
A.
B. Coverage B (Each Insured Coverage): For purposes of Coverage B only, the
Company shall retain and be liable for the Paid portion of Ultimate Net
Loss equal to the sum of the Retention
<PAGE> 4
and Limit under Coverage A as respects any original policy, each claim.
The Reinsurer shall then be liable for 90% of the amount by which the Paid
portion of Ultimate Net Loss exceeds the sum of the Retention and Limit
under Coverage A, but the liability of the Reinsurer shall not exceed 90%
of $10,000,000 plus pro rata Loss Adjustment Expenses as respects any
original policy, each claim.
In no event shall the Reinsurer be liable, in each contract year, for more
than $27,000,000 (being 90% of $30,000,000) in respect of the sum of the
Paid portion of Ultimate Net Loss and Pro rata Loss Adjustment Expense,
Loss in Excess of Policy Limits, and Extra Contractual Obligations, in the
Aggregate for Coverage B.
C. Coverage C (Each Insured Coverage): For purposes of Coverage C only, the
Company shall retain and be liable for the Paid portion of Ultimate Net
Loss equal to the sum of the Retention and Limit under Coverage A and
$10,000,000 paid indemnity plus pro rata expenses in respect of Coverage B
as respects any original policy, each claim. The Reinsurer shall then be
liable for 90% of the amount by which such Paid portion of Ultimate Net
Loss exceeds the sum of the Retention and Limit under Coverage A and
$10,000,000 paid indemnity plus pro rata expenses in respect of Coverage
B, but the liability of the Reinsurer shall not exceed 90% of $10,000,000
plus pro rata Loss Adjustment Expenses as respects any original policy,
each claim.
In no event shall the Reinsurer be liable, in each contract year, for more
than $27,000,000 (being 90% of $30,000,000) in respect of the sum of the
Paid portion of Ultimate Net Loss and Pro rata Loss Adjustment Expense,
Loss in Excess of Policy Limits, and Extra Contractual Obligations, in the
Aggregate for Coverage C.
D. Coverage D (Each Insured Coverage): For purposes of Coverage D only, the
Company shall retain and be liable for the Paid portion of Ultimate Net
Loss equal to the sum of the Retention and Limit under Coverage A and
$10,000,000 paid indemnity plus pro rata expenses in respect of Coverage B
and $10,000,000 paid indemnity plus pro rata expenses in respect of
Coverage C as respects any original policy, each claim. The Reinsurer
shall then be liable for 90% of the amount by which such Paid portion of
Ultimate Net Loss exceeds the sum of the Retention and Limit under
Coverage A and $10,000,000 paid indemnity plus pro rata expenses in
respect of Coverage B and $10,000,000 paid indemnity plus pro rata
expenses in respect of Coverage C, but the liability of the Reinsurer
shall not exceed 90% of $5,000,000 plus pro rata Loss Adjustment Expenses
as respects any original policy, each claim.
In no event shall the Reinsurer be liable, in each contract year, for more
than $13,500,000 (being 90% of $15,000,000) in respect of the sum of the
Paid portion of Ultimate Net Loss and Pro rata Loss Adjustment Expense,
Loss in Excess of Original Policy Limits, and Extra Contractual
Obligations, in the Aggregate, for Coverage D.
E. Under no circumstances shall the Reinsurer be liable in respect of the
Company's policies that provide aggregate loss coverage medical stop loss
and/or captivation coverage to its clients.
F. In order for the Company to be able to recover a claim under Coverages A,
B, C and D above, the Company must report the respective claim recoverable
for each contract year within ten years from January 1 of such contract
year.
<PAGE> 5
G. Under no circumstance shall Coverage B Limit be available or used by the
Company in respect of Coverage A Ultimate Net Loss coverage.
H. Under no circumstance shall Coverage C Limit be available or used by the
Company in respect of Coverages A and B Ultimate Net Loss coverage.
I. Under no circumstance shall Coverage D Limit be available or used by the
Company in respect of Coverages A, B and C Ultimate Net Loss coverage.
ARTICLE V: DEFINITIONS
A. "Paid portion of Ultimate Net Loss" as used herein is defined as the sum
or sums (including Loss in Excess of Policy Limits, Extra Contractual
Obligations, as hereinafter defined) paid by the Company in settlement of
claims including any and all vicarious liability arising from Business
Reinsured and in satisfaction of judgments rendered on account of such
claims, after deduction of all salvage, all recoveries, including the
Pennsylvania catastrophe fund, if applicable, and all claims on inuring
insurance or reinsurance, whether collectible or not. Ultimate Net Loss
shall not include any Loss Adjustment Expense or outstanding loss
reserves. Nothing herein shall be construed to mean that losses under this
Contract are not recoverable until the Company's Paid portion of Ultimate
Net Loss has been ascertained. The Paid portion of Ultimate Net Loss shall
be calculated on a per claim, per policy per insured basis. If the Company
issues multiple policies to an insured, the policies will be deemed to be
one original policy for purposes of coverage under this Reinsurance
Contract.
B. "Outstanding portion of Ultimate Net Losses" as used herein is defined as
the sum of outstanding loss reserve including losses outstanding in
respect of covered Excess of Policy Limits and covered Extra Contractual
Obligations and incurred but not reported amounts less any outstanding
recoveries, salvage and inuring reinsurance claims.
C. "Loss in Excess of Policy Limits" and "Extra Contractual Obligations" as
used herein shall be defined as follows:
1. "Loss in Excess of Policy Limits" shall mean 90% subject to the
limitations below of any amount paid or payable by the Company in
excess of its policy limits, but otherwise within the terms of its
policy, as a result of a settlement by the Company or an action
against it by its insured or its insured's assignee to recover
damages the insured is legally obligated to pay to a third party
claimant because of the Company's alleged or actual negligence,
breach of contract or bad faith in rejecting a settlement within
policy limits, or in discharging its duty to defend or prepare the
defense in the trial of an action against its insured, or in
discharging its duty to prepare or prosecute an appeal consequent
upon such an action. A Loss in Excess of Policy Limits shall be
deemed to have occurred on the same date as the loss covered or
alleged to be covered under the policy.
The Company shall only include the amount of 90% of Loss in Excess
of Policy Limits
<PAGE> 6
within Ultimate Net Loss to reach the Coverage Section Limit in
accordance with the following table:
For Subject Policies with Limits "Greater Than and Up To"
<TABLE>
<CAPTION>
For G.L.
Emil. Liable.
Auto Liable.
For all states other For all states other For Pennsylvania & All Other
than PA than PA for Health Care Inst. Non-Professn'l
Coverage Section for Pays. & Surge. Health Care Inst. Pays. & Surgeons Liability
- ---------------- -------------------- -------------------- ---------------- --------------
<S> <C> <C> <C> <C>
Coverage A Limit $2M to $15M $3M to $16M $2.2M to $15.2M $3M to $16M
Coverage B Limit 15M to 25M 16M to 26M 15.2M to 25.2M 16M to 26M
Coverage C Limit 25M to 35M 26M to 36M 25.2M to 35.2M 26M to 36M
Coverage D Limit 35M to 40M 36M to 41M 35.2M to 40.2M 36M to 41 M
</TABLE>
2. "Extra Contractual Obligations" shall mean 90% of any punitive,
exemplary, compensatory, multiplied or consequential damages, other
than Loss in Excess of Policy Limits paid or payable by the Company
as a result of an action against it by its insured, its insured's
assignee or a third party claimant, which action alleges negligence,
breach of contract or bad faith on the part of the Company in
handling a claim under a policy subject to this Contract. An Extra
Contractual Obligation shall be deemed to have occurred on the same
date as the loss covered or alleged to be covered under the policy.
The Company shall only include the amount of 90% of Extra
Contractual Obligations within Ultimate Net Loss to reach the
Coverage Section Limit in accordance with the following table:
For Subject Policies with Limits "Greater Than and Up To"
<TABLE>
<CAPTION>
For G.L.
Empl. Liabil.
Auto Liabil.
For all states other For all states other For Pennsylvania & All Other
than PA than PA for Health Care Inst. Non-Professn'l
Coverage Section for Phys. & Surg. Health Care Inst. Phys. & Surgeons Liability
- ---------------- -------------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Coverage A Limit $2M to $15M $3M to $16M $2.2M to $15.2M $3M to $16M
Coverage B Limit 15M to 25M 16M to 26M 15.2M to 25.2M 16M to 26M
Coverage C Limit 25M to 35M 26M to 36M 25.2M to 35.2M 26M to 36M
Coverage D Limit 35M to 40M 36M to 41M 35.2M to 40.2M 36M to 41 M
</TABLE>
Notwithstanding anything stated herein, this Contract shall not
apply to any Loss in Excess of Policy Limits or any Extra
Contractual Obligation incurred by the Company as a result of any
fraudulent and/or criminal act by any officer or director of the
Company acting individually or
<PAGE> 7
collectively or in collusion with any individual or corporation or
any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
D. "Loss Occurrence" means a loss occurrence or medical incident, or
otherwise the series of accidents, acts, errors or omissions
including continuous or repeated exposure to substantially the same
general harmful conditions giving rise to coverage, all as defined
and provided within the underlying policies underwritten by the
Company.
E. "Claims Made" as used herein shall mean the earlier of (1) or (2)
below:
1. When the insured first gives notice to the Company that a
claim has been made against the insured; or
2. When the insured first gives notice to the Company of a
specific medical incident involving a particular person which
may result in a claim against the original insured.
Notwithstanding the above, and in all cases, the Claims Made date
shall be as defined and provided within the underlying policies
underwritten by the Company.
F. "Losses Incurred" as used herein shall mean the sum of the Paid
portion of Ultimate Net Loss paid by the Reinsurer and the
Outstanding portion of Ultimate Net Loss due from the Reinsurer and
the related Paid and Outstanding Pro rata Loss Adjustment Expenses
under policies issued or renewed during the contract year under
consideration.
G. 1. "Loss Adjustment Expense" as used herein shall mean expenses
allocable to the investigation defense and/or settlement of
specific claims, including litigation expenses and
postjudgment interest and legal expenses and costs incurred in
connection with coverage questions and legal actions connected
thereto, but not including office expenses or salaries of the
Company's regular employees.
2. "Pro rata Loss Adjustment Expenses" as used herein shall mean
the result obtained by multiplying the covered indemnity
percentage, as calculated below by the Company's "Loss
Adjustment Expense" for a given claim. The percentage shall be
determined by dividing the amount of Ultimate Net Loss
indemnity for a coverage section by the Company's total
Ultimate Net Loss for a given claim.
H. "Gross Excess Limits Premium" as used herein shall mean the net
written increased limits premium of the Company for the Classes of
Business Reinsured for the respective layer of coverage limit
hereon. Such premiums shall represent the incremental gross premium
of the Company pertaining to the respective coverage layer hereon
for which Gross Excess Limits Premium is being calculated. Such net
written premium shall be comprised of claims made premium for
underlying policies written on such basis and occurrence premium as
respects underlying policies written on a loss occurrence basis
(i.e. Permanent Protection Plan policies). It is understood that net
written increased limits premium is less cancellation and return
premium but is gross of any deductions for original acquisition
costs (i.e. brokerage).
<PAGE> 8
I. The first contract year shall be from January 1, 1997 through
December 31, 1997, both days inclusive, and each subsequent 12-month
period shall be a separate contract year.
ARTICLE VI: CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Within 60 days after the end of each calendar quarter, the Company
shall provide the Reinsurer with a claims bordereau outlining any
claim on which the Company has placed a reserve value of $1,000,000
or more.
B. The Company shall include with each claim bordereau, the following
information as respects new claims, pending claims and closed claims
during the quarter:
1. Claim number or reference number;
2. Name of Insured;
3. Name of Claimant;
4. Subject policy limit;
5. Claims Made date;
6. Loss Occurrence date;
7. Indemnity (paid and outstanding);
8. Expenses (paid and outstanding);
9. Indemnity recovery; if any;
10. Expense recovery; if any;
11. Status.
12. Claim manager report which includes narrative loss description
of each claim.
C. The Reinsurer shall have the right, at its own expense, to be
associated in the defense of any claim, suit or proceeding involving
this reinsurance.
D. The Company shall, at its full discretion, adjust and settle all
claims and losses. All such adjustments and settlements shall be
binding on the Reinsurer and the Reinsurer agrees to pay all amounts
for which it may be liable immediately after receipt of reasonable
evidence of the amount paid by the Company.
<PAGE> 9
ARTICLE VII: SALVAGE AND SUBROGATION
The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss was sustained
by the Reinsurer, and to prosecute all claims arising out of such rights.
ARTICLE VIII: COVERAGE A PREMIUM AND CEDING COMMISSIONS
A. Deposit Premium: As respects each contract year, the Company shall pay the
Reinsurer an annual Deposit Premium equal to the greater of 50% of Gross
Excess Limits Premium or $3,500,000. The $3,500,000 shall be paid in four
equal installments of $875,000 on March 31, June 30, September 30 and
December 31 of each contract year. The Company shall pay additional
Deposit Premium due, if any, during the contract year upon finalizing
Gross Excess Limits Premium for each respective calendar quarter.
B. Minimum Premium: As respects each contract year, the Company shall pay the
Reinsurer Actual Premium as per D. below, but not less than the Minimum
Premium which is equal to 16.67% of Gross Excess Limits Premium in respect
of policies with limits attaching in respect of Coverage A or $1,500,000,
whichever is greater.
C. Maximum Premium: As respects each contract year, the Company shall pay the
Reinsurer Actual Premium as per D. below, but not greater than the Maximum
Premium which is equal to 63% of Gross Excess Limits Premium in respect
of policies with limits attaching in respect of Coverage A or $4,500,000,
whichever is greater.
D. Actual Premium: As respects each contract year, the Company shall
calculate Actual Premium which shall equal the sum of the Minimum Premium
(in B. above) plus 100% of Losses Incurred (net of the $13,000,000
Ultimate Net Loss plus pro rata Loss Adjustment Expense deductible)
subject to the Minimum Premium (in B. above) and the Maximum Premium (in
C. above).
The Company shall calculate and report any decrease in Actual Premium for
each contract year within 60 days after the end of 36 months from the
beginning of each contract year, and within 60 days after the end of each
12-month period thereafter until all Ultimate Net Losses and pro rata Loss
Adjustment Expenses subject hereto have been settled. The Company shall
calculate and report any increase in Actual Premium for each agreement
period within 60 days after the end of 12 months from the beginning of
each contract year, and within 60 days after the end of each 12-month
period thereafter until all Ultimate Net Losses and pro rata Loss
Adjustment Expenses subject hereto have been settled.
<PAGE> 10
The Reinsurer shall pay the Company any reported decrease in Actual
Premium less amounts previously paid in respect of Deposit Premium and
prior net Actual Premium payments upon 15 days of receipt of the Company's
report or 75 days in arrears of the respective year end reporting date,
whichever is later.
The Company shall pay the Reinsurer any reported increase in Actual
Premium less amounts previously paid in respect of Deposit Premium and
prior net Actual Premium payments upon the reporting of such Actual
Premium development to Reinsurer.
E. Ceding Commissions - Reinsurer shall allow a Ceding Commission equal to
18% of Ultimate Coverage A Minimum Premium as defined in Section B. above.
Such Ceding Commission shall be payable as Deposit Premiums are paid to
Reinsurer. The 18% rate shall, therefore, be applied to 42.86% of Coverage
A Deposit Premiums (which approximate $3,500,000) paid by the Company. A
final adjustment for Ceding Commission shall be made and paid when
ultimate Gross Excess Limits Premium is determined by the Company.
ARTICLE IX: COVERAGE B PREMIUM AND CEDING COMMISSION
A. Minimum Premium: As respects each contract year, the Company shall pay the
Reinsurer an annual Minimum Premium equal to 90% of Gross Excess Limits
Premium for policies with limits attaching hereunder in respect of
Coverage B. Minimum Premium above shall be payable by the Company to the
Reinsurer quarterly within 45 days in arrears from the end of each quarter
paying all amounts due in respect of premiums collected by the Company for
the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the event of
the whole or any portion of the second Coverage B indemnity limit being
exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the Company shall pay to the
Reinsurer an Additional Premium calculated by applying to the annual
Minimum Premium to Reinsurer for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the total
amount of indemnity coverage afforded under Coverage B, subject to a
minimum of 100% as to time, to be paid simultaneously with the payment of
loss by the Reinsurer. Notwithstanding the above, the first 90% of
$10,000,000 indemnity Limit shall be reinstated by the Reinsurer free of
charge.
Nevertheless, the Reinsurer's liability in any one claim shall never
exceed 90% of $10,000,000 Ultimate Net Loss plus pro rata Loss Adjustment
Expenses in respect of Coverage B.
C. Maximum Premium: As respects each contract year, the Maximum Premium shall
equal the product of the Minimum Premium multiplied by 2 (two).
<PAGE> 11
D. Ceding Commission: The Reinsurer's shall pay to the Company 25.75% of all
Coverage B Minimum Premium and Reinstatement Premium payable hereon by the
Company at the time the Company pays such premiums.
ARTICLE X: COVERAGE C PREMIUM AND CEDING COMMISSION
A. Minimum Premium: As respects each contract year, the Company shall pay the
Reinsurer an annual Minimum Premium equal to 90% of Gross Excess Limits
Premium for policies with limits attaching hereunder in respect of
Coverage C. Minimum Premium above shall be payable by the Company to
Reinsurer quarterly within 45 days in arrears from the end of each quarter
paying all amounts due in respect of premiums collected by the Company for
the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the event of
the whole or any portion of the second Coverage C indemnity limit being
exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the Company shall pay to the
Reinsurer an Additional Premium calculated by applying to the annual
Minimum Premium to Reinsurer for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the total
amount of indemnity coverage afforded under Coverage C, subject to a
minimum of 100% as to time, to be paid simultaneously with the payment of
loss by the Reinsurer. Notwithstanding the above, the first 90% of
$10,000,000 indemnity Limit shall be reinstated by the Company free of
charge.
Nevertheless, the Reinsurer's liability in any one claim shall never
exceed 90% of $10,000,000 Ultimate Net Loss plus pro rata Loss Adjustment
Expenses in respect of Coverage C.
C. Maximum Premium: As respects each contract year, the Maximum Premium shall
equal the product of the Minimum Premium multiplied by 2 (two).
D. Ceding Commission: The Reinsurer shall pay to the Company 25.75% of all
Coverage C Minimum Premium and Reinstatement Premium payable hereon by the
Company at the time the Company pays such premiums.
ARTICLE XI: COVERAGE D PREMIUM AND CEDING COMMISSION
A. Minimum Premium: As respects each contract year, the Company shall pay the
Reinsurer an annual Minimum Premium equal to 90% of Gross Excess Limits
Premium for policies with limits attaching hereunder in respect of
Coverage D. Minimum Premium above shall be payable by the Company to
Reinsurer quarterly within 45 days in arrears from the end of each quarter
paying all amounts due in respect of premiums collected by the Company for
the respective quarter.
<PAGE> 12
B. Reinstatement Premium: As respects each contract year, and in the event of
the whole or any portion of the second Coverage D indemnity limit being
exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the Company shall pay to the
Reinsurer an Additional Premium calculated by applying to the annual
Minimum Premium to Reinsurer for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the total
amount of indemnity coverage afforded under Coverage C, subject to a
minimum of 100% as to time, to be paid simultaneously with the payment of
loss by the Reinsurer. Notwithstanding the above, the first 90% of
$5,000,000 indemnity Limit shall be reinstated by the Company free of
charge.
Nevertheless, the Reinsurer's liability in any one claim shall never
exceed 90% of $5,000,000 Ultimate Net Loss plus pro rata Loss Adjustment
Expenses in respect of Coverage D.
C. Maximum Premium: As respects each contract year, the Maximum Premium shall
equal the product of the Minimum Premium multiplied by 2 (two).
D. Ceding Commission: The Reinsurer shall pay to the Company 25.75% of all
Coverage D Minimum Premium and Reinstatement Premium payable hereon by the
Company at the time the Company pays such premiums.
ARTICLE XII: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of premiums or losses or otherwise,
due from such party to another party under this Agreement or any other
reinsurance agreement heretofore or hereafter entered into between them,
against any amounts, whether on account of premiums or losses or otherwise
due from the latter party to the former party. The party asserting the
right of offset may exercise this right, whether as assuming or ceding
insurer or in both roles in the relevant agreement or agreements.
B. Each party hereby assigns and pledges to the other party (or to each other
party, if more than one) all of its rights under this Agreement to receive
premium or loss payments at any time from such other party ("Collateral"),
to secure its premium or loss obligations to such other party at any time
under this Agreement and any other reinsurance agreement heretofore or
hereafter entered into by and between them ("Secured Obligations"). If at
any time a party is in default under any Secured Obligation or shall be
subject to any liquidation, rehabilitation, reorganization or conservation
proceeding, each other party shall be entitled in its discretion, to apply
or withhold for the purpose of applying in due course, any Collateral
assigned and pledged to it by the former party and otherwise to realize
upon such Collateral as security for such Secured Obligations.
<PAGE> 13
C. The security interest described herein, and the term "Collateral", shall
apply to all payments and other proceeds in respect of the rights assigned
and pledged. A party's security interest in Collateral shall be deemed
evidenced only by the counterpart of this Agreement delivered to such
party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no waiver,
delay or failure to exercise, in respect of any right, shall constitute a
waiver of any other right. The provisions of this Article shall survive
any cancellation or other termination of this Agreement.
ARTICLE XIII: ACCESS TO RECORDS
A. The Company shall place at the disposal of the Reinsurer at all reasonable
time, and the Reinsurer shall have the right to inspect, through
authorized representatives, all books, records, policies, endorsements and
papers of the Company in connection with any reinsurance hereunder, or
claims in connection herewith.
B. The Reinsurer agrees that it will not disclose any confidential
information obtained by it hereunder to parties not subject to this
Contract except under the following circumstances and then only when
necessary:
1. When disclosure of such information is required in the normal course
of the Reinsurer's business; or
2. With the prior written consent of the Company; or
3. When the Reinsurer is required by a subpoena or court order to
disclose such information. The Reinsurer shall promptly notify the
Company of any attempt by a third party to obtain from it any such
confidential information.
C. The Reinsurer will provide the Company or its designated representative
with such information as the Reinsurer and Company may agree is necessary
to the Company's handling of the business reinsured herein.
D. The obligation contained in this Article shall survive termination of this
Contract.
ARTICLE XIV: LIABILITY OF THE REINSURER
A. The liability of the Reinsurer shall follow that of the Company in every
case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Company's policies
and any endorsements thereon. However, in no event shall this be construed
in any way to provide coverage outside the terms and conditions set forth
in this Contract.
<PAGE> 14
B. Nothing herein shall in any manner create any obligation or establish any
rights against the Reinsurer in favor of any third party or any persons
not parties to this Contract.
ARTICLE XV: NET RETAINED LIABILITY
A. This Contract applies only to that portion of any insurance or reinsurance
which the Company retains net for its own account (prior to deduction of
any underlying reinsurance), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of which
this Contract attaches only loss or losses in respect of that portion of
any policy which the Company retains net for its own account shall be
included.
B. The amount of the Reinsurer's liability hereunder in respect of any loss
or losses shall not be increased by reason of the inability of the Company
to collect from any other reinsurer(s), whether specific or general, any
amounts which may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other reinsurer(s) or
otherwise.
ARTICLE XVI: DELAYS, ERRORS OR OMISSIONS
Inadvertent delays, errors or omissions made in connections with this Contract
or any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery. In no event shall late notification of any claim,
except as provided in the sunset clause under ARTICLE IV, Section F, by the
Company constitute a ground upon which the Reinsurer has been prejudice by such
late notice. As used in this Article, the term "prejudice" shall mean that a
different outcome in the handling of any claim would have resulted but for the
untimely notice to the Reinsurer.
ARTICLE XVII: CURRENCY
Whenever the word "Dollars" or the "$" appears in this Contract, they shall be
construed to mean United States Dollars and all transactions under this Contract
shall be in United States Dollars.
ARTICLE XVIII: FEDERAL EXCISE TAX
If the Reinsurer is subject to the Federal Excise Tax, the Reinsurer agrees to
allow, for the purpose of paying the Tax, up to I % of the premium payable
hereon to the extent such premium is subject to the Tax. In the event of any
return premium becoming due hereunder, the Reinsurer will deduct from the amount
of the return premium the same percentage as it allowed, and the Company or its
agents should take steps to recover the Tax from the U.S.Government.
<PAGE> 15
ARTICLE XIX: UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its
share of the Company's Outstanding portion of Ultimate Net Loss and Pro
rata Loss Adjustment Expense reserves and Coverage A return premium
accrued by the Company, as determined by the Company, respectively by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit
and acceptable to said insurance regulatory authorities; and/or
2. Trust accounts in conformity with New York Regulation 114 for the
benefit of the Company and as may be required by any other insurance
regulatory authority; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the
insurance regulatory authorities involved and the Company.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued for a term of at
least one year and will include an "evergreen clause" which automatically
extends the term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company not less than
30 days prior to said expiration date. The Company and the Reinsurer
further agree, notwithstanding anything to the contrary in this Contract,
that said letters of credit may be drawn upon by the Company or its
successors in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one or more of
the following purposes:
1. To reimburse itself for the Reinsurer's share of the Paid portion of
Ultimate Net Loss and/or Pro rata Loss Adjustment Expenses paid
under the terms of policies reinsured hereunder, unless paid in cash
by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any Coverage A
return premium due and other amounts claimed to be due hereunder,
unless paid in cash by the Reinsurer.
3. To fund a cash account in an amount equal to the Reinsurer's share
of any Outstanding portion of Ultimate Net Loss and Pro rata Loss
Adjustment
<PAGE> 16
Expense reserves and Coverage A return premium funded by means of a
letter of credit which (a) is under non-renewal notice, if said
letter of credit has not been renewed or replaced by the Reinsurer
10 days prior to its expiration date, or (b) the Reinsurer has
failed to increase to the amount requested by the Company, it being
understood that nothing in this Contract in any way shall restrict
or limit the rights of the Company under the terms of the letter of
credit;
4. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's Outstanding
portion of Ultimate Net Loss and Pro rata Loss Adjustment Expense
reserves and Coverage A return premium, if so requested by the
Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(l) or B(2), or in the case of
B(3), the actual amount determined to be due, the Company shall promptly
return to the Reinsurer the excess amount so drawn.
ARTICLE XX: INSOLVENCY
A. In the event of the Insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver,
conservator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of the liability of
the Company without diminution because of the Insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of
the Company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor
of the Company shall give written notice to the Reinsurer of the pendency
of a claim against the Company indicating the policy or bond reinsured
which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such
claim is to adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or
statutory successor. Accidental failure to give such notice shall not
excuse the obligation unless the Reinsurer is substantially prejudiced by
the failure to give such notice. The expense thus incurred by the
Reinsurer shall be chargeable, subject to the approval of the Court,
against the Company as part of the expense of conservation or liquidation
to the extent of a pro rata share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
<PAGE> 17
C. It is further understood and agreed that, in the event of the Insolvency
of the Company, the reinsurance under this Contract shall be payable
directly by the Reinsurer to the Company or to its liquidator, receiver or
statutory successor.
ARTICLE XXI: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to
this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to Arbitration. One Arbiter shall
be chosen by the Company, the other by the Reinsurer, and an Umpire shall
be chosen by the two Arbiters before they enter upon Arbitration, all of
whom shall be active or retired disinterested executive officers of
insurance or reinsurance companies. In the event that either party should
fail to choose an Arbiter within 30 days following a written request by
the other party to do so, the requesting party may choose two Arbiters who
shall in turn choose an Umpire before entering upon Arbitration. If the
two Arbiters fail to agree upon the selection of an Umpire within 30 days
following their appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall decline, and the
decision shall be made by drawing lots. Nothing herein shall prevent
either party from commencing a proceeding in the United States District
Court having jurisdiction over the dispute for the purposes of having said
court select an Umpire pursuant to the Federal Arbitration Act 9 USC 1 er
seq.
B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this
Contract as an honorable engagement rather than merely as a legal
obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be
final and binding upon both parties. Judgment upon the final written
decision of the Arbiters may be entered in any court of competent
jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Contract from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
Arbitration. In the event that the two Arbiters are chosen by one party,
as above provided, the expense of the Arbiters, the Umpire and the
Arbitration shall be equally divided between the two parties.
E. Any Arbitration proceedings shall take place at a location in
Lawrenceville, New Jersey. All proceedings pursuant hereto shall be
governed by the law of the State of New Jersey.
<PAGE> 18
INTERESTS AND LIABILITIES AGREEMENT
to the
SPECIFIC EXCESS REINSURANCE CONTRACT
Effective: January 1, 1997
between
Medical Inter-Insurance Exchange of New Jersey
Lawrenceville, New Jersey
(hereinafter referred to as the "Company")
and
American Re-Insurance Company
(hereinafter referred to as the "Reinsurer")
It is hereby mutually agreed that the Reinsurer shall have a 9.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT" Effective: January 1, 1997, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 25th day of September, 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
---------------------------------------------------------------
In Princeton, New Jersey, this ____ day of _______________, 19___, For and on
Behalf of American Re-Insurance Company
By: /s/ John S. Chace
---------------------------------------------------------------
<PAGE> 19
ADDENDUM NO. 1
TO THE
INTERESTS AND LIABILITIES AGREEMENT
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ENTERED INTO BY AND BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
AND
AMERICAN RE-INSURANCE COMPANY
(HEREINAFTER REFERRED TO AS "SUBSCRIBING REINSURER")
Effective July 1, 1997, Endorsement No. 1 is attached hereto and forms a part of
the 1997 Specific Excess Reinsurance Contract.
Nothing herein contained shall alter, vary or extend any provision or condition
of the Agreement other than as above stated.
IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be
executed in triplicate this 24th day of April, 1998.
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
-------------------------------------
Title: President & CEO
-------------------------------------
AMERICAN RE-INSURANCE COMPANY
By: /s/ John S. Chace
-------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 20
ENDORSEMENT NO. 1
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
AMERICAN RE-INSURANCE COMPANY
PRINCETON, NEW JERSEY
(HEREINAFTER REFERRED TO AS "REINSURER")
Effective July 1, 1997, the Reinsurer hereby agrees to amend the 1997 Specific
Excess Reinsurance Contract provided to the Company as follows:
1) Article 1: Classes of Business Reinsured, page 1 - Section A - Addition of
the following paragraph to be inserted preceding the final paragraph of
Section A:
"Property Coverage, including Fire, Allied Lines and Extended Coverages,
Inland Marine and Commercial Multi-Peril, all either written in respect of
Health Care Institutions or when written in conjunction with Professional
Liability coverages for Health Care Institutions."
2) Article III: Exclusions, page 3 - Addition of Exclusions 8., 9. and 10. as
follows:
"8. Earthquake coverages, when written as such.
9. North American War Exclusion Clause, attached to and forming part of
this Contract.
10. Seepage and Pollution Liability."
3) Article IV: Retentions and Limits, page 3, Section A. - Deletion of the
first paragraph of Section A. and insertion of the following revised
paragraph:
2
<PAGE> 21
"A. Coverage A (Each Insured): Coverage A shall apply to all Classes of
Business Reinsured except Property Coverage. The Company shall
retain and be liable for the first $X amount as per the table below
of the Paid portion of Ultimate Net Loss as respects any one
original policy, each claim. The Reinsurer shall then be liable for
the amount by which such Paid portion of Ultimate Net Loss exceeds
the Company's Retention, but the liability of the Reinsurer shall
not exceed $13,000,000 Ultimate Net Loss plus pro rata Loss
Adjustment Expenses as respects any one original policy, each
claim."
4) Article IV: Retentions and Limits, page 3, Section B. - Deletion of the
first paragraph of Section B. and insertion of the following revised
paragraph:
"B. Coverage B (Each Insured): Coverage B shall apply to all Classes of
Business Reinsured except Property Coverage. For purposes of
Coverage B only, the Company shall retain and be liable for the Paid
portion of Ultimate Net Loss equal to the sum of the Retention and
Limit under Coverage A as respects any original policy, each claim.
The Reinsurer shall then be liable for 90% of the amount by which
the Paid portion of Ultimate Net Loss exceeds the sum of the
Retention and Limit under Coverage A, but the liability of the
Reinsurer shall not exceed 90% of $10,000,000 plus pro rata Loss
Adjustment Expenses as respects any original policy, each claim."
5) Article IV: Retentions and Limits, page 4, Section C. - Deletion of the
first paragraph of Section C. and insertion of the following revised
paragraph:
"C. Coverage C (Each Insured): Coverage C shall apply to all Classes of
Business Reinsured except Property Coverage. For purposes of
Coverage C only, the Company shall retain and be liable for the Paid
portion of Ultimate Net Loss equal to the sum of the Retention and
Limit under Coverage A and $10,000,000 paid indemnity plus pro rata
expenses in respect of Coverage B as respects any original policy,
each claim. The Reinsurer shall then be liable for 90% of the amount
by which such Paid portion of Ultimate Net Loss exceeds the sum of
the Retention and Limit under Coverage A and $10,000,000 paid
indemnity plus pro rata expenses in respect of Coverage B, but the
liability of the Reinsurer shall not exceed 90% of $10,000,000 plus
pro rata Loss Adjustment Expenses as respects any original policy,
each claim."
3
<PAGE> 22
6) Article IV: Retentions and Limits, page 4, Section D. - Deletion of the
first paragraph of Section D. and insertion of the. following revised
paragraph:
"D. Coverage D (Each Insured): Coverage D shall apply to all Classes of
Business Reinsured except Property Coverage. For purposes of
Coverage D only, the Company shall retain and be liable for the Paid
portion of Ultimate Net Loss equal to the sum of the Retention and
Limit under Coverage A and $10,000,000 paid indemnity plus pro rata
expenses in respect of Coverage B and $10,000,000 paid indemnity
plus pro rata expenses in respect of Coverage C as respects any
original policy, each claim. The Reinsurer shall then be liable for
90% of the amount by which such Paid portion of Ultimate Net Loss
exceeds the sum of the Retention and Limit under Coverage A and
$10,000,000 paid indemnity plus pro rata expenses in respect of
Coverage B and $10,000,000 paid indemnity plus pro rata expenses in
respect, of Coverage C, but the liability of the Reinsurer shall not
exceed 90% of $5,000,000 plus pro rata Loss Adjustment Expenses as
respects any original policy, each claim."
7) Article IV: Retentions and Limits, pages 4-5, Sections E., F., G., H. and
I. to be relettered as follows:
Section E to become Section F
Section F to become Section G
Section G to become Section H
Section H to become Section I
Section I to become Section J
8) Article IV: Retentions and Limits, page 4 - Addition of Section E as
follows:
"E. Coverage E (Each Insured Coverage): Coverage E shall apply to the
Property Coverage Class of Business Reinsured only. For purposes of
Coverage E only, the Company shall retain and be liable for the
first $500,000 of the Paid portion of Ultimate Net Loss as respects
each and every loss, each original policy. Reinsurer shall then be
liable for 100% of the amount by which such Paid portion of Ultimate
Net Loss exceeds the Company's Retention, but the liability of the
Reinsurer shall not exceed $14,500,000 Ultimate Net Loss plus Pro
Rata Loss Adjustment Expense as respects each and every loss, each
original policy.
In no event shall Reinsurer be liable, in each contract year, for
more than $43,500,000 in respect of the sum of the Paid portion of
Ultimate Net Loss plus Pro Rata Loss Adjustment Expense, Loss in
Excess of Original Policy Limits, and Extra Contractual Obligations,
in the Aggregate, for Coverage E."
4
<PAGE> 23
9) Article V: Definitions, page 8 - Addition of Definition J. as follows:
"J. "Gross Written Premium" as used herein shall mean the written
premium of the Company, including additional premiums and premium
adjustments less any return premiums in respect of policies written
during the term of this Contract."
10) Article VI: Claims and Loss Adjustment Expenses, page 8 - Section A -
Addition of the following paragraph as follows:
"Within 60 days after the end of each calendar quarter, the Company shall
provide the Reinsurer with a claims bordereau, as respects to Coverage E,
outlining any claim on which the Company has a paid or outstanding loss
value equal to or greater than $300,000 Ultimate Net Loss. The Company may
request, where necessary, an individual cash call for any claim payments
equal to or greater than $500,000 from Reinsurer for Coverage E only."
11) Renumbering of current Article XII and all subsequent Articles, i.e.:
Article XII to become Article XIII
Article XIII to become Article XIV
Article XIV to become Article XV
and continuing through the final Article of the Contract
and insertion of new Article XII as follows:
"ARTICLE XII: COVERAGE E PREMIUM AND CEDING COMMISSION
A. Initial Premium: As respects each contract year, the Company shall
pay the Reinsurer an Initial Premium equal to X% of each Policy's
Gross Written, Premium as per the Coded Excess Schedule, attaching
hereto and forming part of the 1997 Specific Excess Reinsurance
Contract, for policies with limits attaching hereunder in respect of
Coverage E. Initial Premium shall be payable by the Company to the
Reinsurer quarterly within 60 days in arrears from the end of each
quarter paying all amounts due in respect of premiums collected by
the Company for the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the
event of the whole or any portion of the second Coverage E indemnity
limit being exhausted by loss, the amount so exhausted shall be
automatically reinstated from the time of the loss and the Company
shall pay to the Reinsurer an Additional Premium calculated by
applying the aggregate Gross Written Premium to the Reinsurer for
Coverage E for the respective contract year to the percentage that
the amount of indemnity so reinstated bears to the total amount of
indemnity coverage afforded under Coverage E, to be paid
simultaneously with the payment of loss
5
<PAGE> 24
by the Reinsurer. Notwithstanding the above, the first 100% of
$14,500,000 indemnity limit shall be reinstated by the Reinsurer
free of charge.
C. Ceding Commission: The Reinsurer shall pay to the Company 25.75% of
all Coverage E Initial Premium and Reinstatement Premium payable
hereon by the Company at the time the Company pays such premiums.
The Company shall provide the Reinsurer with a bordereau outlining the
Gross Written Premium and the Coded Excess Schedule Premium for each
policy written under Coverage E within 60 days after the end of each
calendar quarter. The bordereau shall include detailed information by
state, policy limit, construction type, including addresses, and probable
maximum losses."
All other terms and conditions remain unchanged.
6
<PAGE> 25
EXHIBIT I
MEDICAL INTER-INSURANCE EXCHANGE
CODED EXCESS RATING GRID
PROPERTY PER RISK TREATY
<TABLE>
<CAPTION>
============================================================================================
Location Amount Subject ($M) % of Gross Written Premium
- --------------------------------------------------------------------------------------------
$4.5M xs $0.5M $5M xs $5M $5M xs $10M $10M xs $15M
============================================================================================
<S> <C> <C> <C> <C>
Over 0.5 - 0.6 2.83
- --------------------------------------------------------------------------------------------
0.6 - 0.7 5.53
- --------------------------------------------------------------------------------------------
0.7 - 0.8 7.82
- --------------------------------------------------------------------------------------------
0.8 - 0.9 9.70
- --------------------------------------------------------------------------------------------
0.9 - 1.0 11.59
- --------------------------------------------------------------------------------------------
1.0 - 1.2 14.56
- --------------------------------------------------------------------------------------------
1.2 - 1.4 17.25
- --------------------------------------------------------------------------------------------
1.4 - 1.6 19.14
- --------------------------------------------------------------------------------------------
1.6 - 1.8 22.10
- --------------------------------------------------------------------------------------------
1.8 - 2.0 24.39
- --------------------------------------------------------------------------------------------
2.0 - 2.5 27.63
- --------------------------------------------------------------------------------------------
2.5 - 3.0 31.54
- --------------------------------------------------------------------------------------------
3.0 - 4.0 35.44
- --------------------------------------------------------------------------------------------
4.0 - 5.0 38.68
- --------------------------------------------------------------------------------------------
5.0 - 7.0 39.35 4.04
- --------------------------------------------------------------------------------------------
7.0 - 10.0 40.30 7.41
- --------------------------------------------------------------------------------------------
10.0 - 15.0 41.78 7.41 4.04
- --------------------------------------------------------------------------------------------
15.0 - 20.0 40.84 7.41 5.39 2.70
- --------------------------------------------------------------------------------------------
20.0 - 25.0 40.43 7.68 6.06 4.99
- --------------------------------------------------------------------------------------------
25.0 - 30.0 40.43 8.09 5.66 5.39
- --------------------------------------------------------------------------------------------
30.0 - 40.0 39.49 7.68 5.39 5.39
- --------------------------------------------------------------------------------------------
40.0 - 50.0 38.54 7.28 5.26 5.26
============================================================================================
</TABLE>
<PAGE> 26
ADDENDUM NO. 2
TO THE
INTERESTS AND LIABILITIES AGREEMENT
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ENTERED INTO BY AND BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
AND
AMERICAN RE-INSURANCE COMPANY
(HEREINAFTER REFERRED TO AS "SUBSCRIBING REINSURER")
Effective January 1, 1998, Endorsement No. 2 is attached hereto and forms a part
of the 1997 Specific Excess Reinsurance Contract.
Effective January 1, 1998, American Re's share in the interests and liabilities
of the captioned Reinsurance Contract shall be amended from 9.00% to 9.78%.
Nothing herein contained shall alter, vary or extend any provision or condition
of the Agreement other than as above stated.
IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be
executed in triplicate this 24th day of April, 1998.
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
-------------------------------------
Title: President & CEO
-------------------------------------
AMERICAN RE-INSURANCE COMPANY
By: /s/ John S. Chace
-------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 27
ENDORSEMENT NO. 2
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
(HEREINAFTER REFERRED TO AS "REINSURANCE CONTRACT")
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
BY
AMERICAN RE-INSURANCE COMPANY
PRINCETON, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
I. Effective January 1, 1998, the Reinsurer hereby agrees to amend the 1997
Specific Excess Reinsurance Contract provided to the Company as follows:
1) Article IV: Retentions and Limits, page 4 - Deletion of Section D. and
insertion of the following revised Section D:
"Coverage D (Each Insured Coverage): Coverage D shall apply to all Classes
of Business Reinsured except Property Coverage. For purposes of Coverage D
only, the Company shall retain and be liable for the Paid portion of
Ultimate Net Loss equal to the sum of the Retention and Limit under
Coverage A and $10,000,000 paid indemnity plus pro rata expenses in
respect of Coverage B and $10,000,000 paid indemnity plus pro rata
expenses in respect of Coverage C at respects any original policy, each
claim. The Reinsurer shall then be liable for 90% of the amount by which
such Paid portion of Ultimate Net Loss exceeds the sum of the Retention
and Limit under Coverage A and $10,000,00 paid indemnity plus pro rata
expenses in respect of Coverage B and $10,000,000 paid indemnity plus pro
rata expenses in respect of Coverage C, but the liability of the Reinsurer
shall not exceed 90% of $15,000,000 plus pro rata Loss Adjustment Expenses
as respects any original policy, each claim.
In no event shall the Reinsurer be liable, in each contract year, for more
than $40,500,000 (being 90% of $45,000,000) in respect of the sum of the
Paid portion of Ultimate Net Loss and Pro rata Loss Adjustment Expense,
Loss in Excess of Original Policy Limits, and Extra Contractual
Obligations, in the Aggregate, for Coverage D."
2
<PAGE> 28
2) Article V: Definitions, page 6 - Sections 1 and 2., Subject Policy Limits
Tables - Deletion of Coverage D Limits and insertion of the following
revised limits:
<TABLE>
<CAPTION>
For G.L.
Empl. Liabil.
Auto Liabil.
For all states For all states For Pennsylvania & All Other
other than PA other than PA for Health Care Inst. Non-Professn'l
Coverage Section for Phys. & Surg. Health Care Inst. Phys. & Surgeons Liability
- ----------------- ----------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
"Coverage D Limit 35M to 50M 36M to 51M 35.3 M to 50.3M 36Mto 51M"
</TABLE>
3) Article XI: Coverage D Premium Ceding Commissions, pages 11-12 - Deletion
of Section B and insertion of the following revised Section B:
"B. Reinstatement Premium: As respects each contract year, and in the
event of the whole or any portion of the second Coverage D indemnity
limit being exhausted by loss, the amount so exhausted shall be
automatically reinstated from the time of the loss and the Company
shall pay to the Reinsurer an Additional Premium calculated by
applying to the annual Minimum Premium to the Reinsurer for the
respective contract year the percentage that the amount of indemnity
so reinstated bears to the total amount of indemnity coverage
afforded under Coverage C, subject to a minimum of 100% as to time,
to be paid simultaneously with the payment of loss by the Reinsurer.
Notwithstanding the above, the first 90% of $15,000,000 indemnity
limit shall be reinstated by the Reinsurer free of charge.
Nevertheless, the Reinsurer's liability in any one claim shall never
exceed 90% of $15,000,000 Ultimate Net Loss plus pro rata Loss
Adjustment Expenses in respect of Coverage D."
All other terms and conditions remain unchanged.
3
<PAGE> 29
ADDENDUM NO. 3
TO THE
INTERESTS AND LIABILITIES AGREEMENT
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ENTERED INTO BY AND BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
AND
AMERICAN RE-INSURANCE COMPANY
(HEREINAFTER REFERRED TO AS "SUBSCRIBING REINSURER")
Effective January 1, 1997, Endorsement No. 3 is attached hereto and forms a part
of the 1997 Specific Excess Reinsurance Contract.
Nothing herein contained shall alter, vary or extend any provision or condition
of the Agreement other than as above stated.
IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be
executed in triplicate this 24th day of April, 1998.
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
-------------------------------------
Title: President & CEO
-------------------------------------
AMERICAN RE-INSURANCE COMPANY
BY: /s/ John S. Chace
-------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 30
ENDORSEMENT NO. 3
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT'
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
AMERICAN RE-INSURANCE COMPANY
PRINCETON, NEW JERSEY
(HEREINAFTER REFERRED TO AS "REINSURER")
Effective January 1, 1997, ie Reinsurer hereby agrees to amend the 1997 Specific
Excess Reinsurance Contract provided to the Company as follows:
1) Article IV: Retention and Limits, page 3 - Section A - Delete the
Pennsylvania retention in the table and replace with the following revised
retention:
<TABLE>
<S> <C> <C>
PA All Professional Liability $2,300,000
(Physicians, Surgeons & Institutions)"
</TABLE>
2) Article V: Definitions, page 6 - Sections I and 2 - Delete Coverage A, B,
C and D Limits in the table for the column "For Pennsylvania Health Care
Inst. Phys. & Surgeons" only and replace with the following revised
limits:.
<TABLE>
<CAPTION>
For Pennsylvania
Health Care Inst.
Coverage Section Phys & Surgeons
---------------- --------------------
<S> <C>
Coverage A Limit "$ 2.3M to $ 15.3M
Coverage B Limit 15.3M to 25.3M
Coverage C Limit 25.3M to 35.3M
Coverage D Limit 35.3M to 40.3M"
</TABLE>
All other terms and conditions remain unchanged.
<PAGE> 31
ADDENDUM NO. 4
TO THE
INTERESTS AND LIABILITIES AGREEMENT
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ENTERED INTO BY AND BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE, OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
AND
AMERICAN RE-INSURANCE COMPANY
(HEREINAFTER REFERRED TO AS "SUBSCRIBING REINSURER")
Effective December 31, 1997, Endorsement No. 4 is attached hereto and forms a
part of the 1997 Specific Excess Reinsurance Contract.
Nothing herein contained shall alter, vary or extend any provision or condition
of the Agreement other than as above stated.
IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be
executed in triplicate this 24th of April, 1998.
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
-------------------------------------
Title: President and CEO
-------------------------------------
AMERICAN RE-INSURANCE COMPANY
By: /s/ John S. Chace
-------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 32
ENDORSEMENT NO. 4
TO THE
1997 SPECIFIC EXCESS REINSURANCE CONTRACT
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
AMERICAN RE-INSURANCE COMPANY
PRINCETON, NEW JERSEY
(HEREINAFTER REFERRED TO AS "REINSURER")
Effective December 31, 1997, the Reinsurer hereby agrees to amend the 1997
Specific Excess Reinsurance Contract provided to the Company as follows:
ARTICLE III EXCLUSIONS, Exclusion 1. - Addition of the following paragraph:
"In addition, this exclusion shall also not apply to assumed
reinsurance underwritten by the Company for captives or other insurance
facilities of hospitals and all other health care institutions where
the underwriting is through the New Jersey State Medical Underwriters,
Inc."
All other terms and conditions remain unchanged.
<PAGE> 1
EXHIBIT 10.6
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
EFFECTIVE NOVEMBER 1, 1996
<TABLE>
<CAPTION>
ARTICLE SUMMARY PAGE
- ------- ------- ----
<S> <C> <C>
1 BUSINESS COVERED 2
2 COMMENCEMENT AND TERMINATION 2
3 TERRITORY AND INURING REINSURANCE 3
4 EXCLUSIONS 3
5 COVERAGES AND AGGREGATE LIMITS 3
6 DEFINITIONS 6
7 NET RETAINED LIABILITY 8
8 COVERAGE A, PART A ADVANCE AND ACTUAL CONSIDERATION, 9
COVERAGE A, PART B ACTUAL CONSIDERATION AND CEDING COMMISSION,
COVERAGE A ADDITIONAL COVERAGE CONSIDERATION, REINSURERS' EXPENSE
CHARGE, COVERAGE B CONSIDERATION, COVERAGE C CONSIDERATION AND
COVERAGE D CONSIDERATION
9 OFFSET AND SECURITY 13
10 REPORTS AND LOSS SETTLEMENTS 13
11 PROFIT SHARING, FUNDS WITHHELD ACCOUNT, INTEREST CREDIT 15
AND EXPERIENCE ACCOUNT
12 LIABILITY OF THE REINSURER AND CURRENCY 17
13 COMMUTATION 17
14 EXCESS OF ORIGINAL POLICY LIMITS 18
15 EXTRA CONTRACTUAL OBLIGATIONS 18
16 ERRORS AND OMISSIONS 18
17 ACCESS TO RECORDS 19
18 ACTUARIAL REVIEW 19
19 LOSS RESERVE AND ADVANCE PREMIUM FUNDING 19
20 FUNDS WITHHELD TRUST ACCOUNT 20
21 INSOLVENCY 20
22 ARBITRATION 21
23 CHANGES IN ADMINISTRATIVE PRACTICES 22
24 TAXES 22
25 SERVICE OF SUIT 22
26 NO ASSIGNMENT 23
27 INTERMEDIARY 23
</TABLE>
<PAGE> 2
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC
EXCESS OF LOSS
REINSURANCE AGREEMENT NO. 1996
BETWEEN
THE REINSURERS SUBSCRIBING THE RESPECTIVE INTERESTS
AND LIABILITIES AGREEMENTS HERETO
(HEREINAFTER CALLED "REINSURERS")
AND
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER CALLED THE "CEDING COMPANY")
ARTICLE 1: BUSINESS COVERED
This Treaty shall indemnify the Ceding Company with respect to Ultimate Net
Losses which may accrue to the Ceding Company under any and all Policies subject
to the Terms and Conditions of this Treaty.
As respects all Coverages hereon, the Reinsurers shall provide coverage on a
risks attaching basis for each Coverage Year in respect of all of the Ceding
Company's Policies underwritten during each respective Coverage Year. Premiums
received in advance of each Coverage Year are deemed to be part of the Subject
Net Written Premium for that Coverage Year. Coverage shall in all cases follow
the underlying basis of coverage of the original Policies written by the Ceding
Company. For all purposes, the "Permanent Protection Policies (PPP)" written by
the Ceding Company shall in all cases be deemed to cover on a losses occurring
during basis of underlying coverage. Reinsurers shall be subject to all of the
conditions of the PPP including policy limits and the aggregate limit formula
under the extended reporting coverage therein.
Reinsurers shall remain liable for all losses covered as detailed above during
the Term until all such losses are paid or this Treaty is commuted.
ARTICLE 2: COMMENCEMENT AND TERMINATION
This Treaty is effective November 1, 1996 and shall remain continuously in
effect thereafter unless terminated. Either party may terminate this Treaty at
any November 1st by giving the other party not less than 90 days prior written
notice by certified mail. Unless otherwise mutually agreed, reinsurance
hereunder on Business Covered in force at the effective date of termination
shall remain in full force and effect until expiration, cancellation or next
anniversary of such business, whichever first occurs, but in no event beyond 12
months following the effective date of termination plus any extension of
coverage for extended reporting provided under the original policies of the
Ceding Company.
Should this Treaty expire while a Coverage A loss covered in respect of a loss
occurrence policy, such as the PPP, is in progress, the Reinsurers shall be
responsible for the loss in progress in the
-2-
<PAGE> 3
same manner and to the same extent they would have been responsible had the
Treaty expired the day following the conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Treaty will cover Policies written within the United States of America. All
other Reinsurance Agreements that inure to the benefit of this Treaty shall be
deemed in place until all liability of the Reinsurers hereon is finalized by
payment of all losses or commutation.
ARTICLE 4: EXCLUSIONS
This Treaty shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause. attached hereto;
C. Business assumed from Pools, Syndicates, and Associations.
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - U.S.A., except that provisions of this clause
shall not apply to liability arising out of the practice of Nuclear
Medicine and activities relating to Nuclear Medicine by the original
insured.
E. War Risks, in accordance with the North American War Exclusion Clause
attached hereto;
F. Unallocated Loss Adjustment Expenses as described in ARTICLE 6, Section
E.
G. Underlying Policies written by the Ceding Company on an aggregate basis
(provider stop loss).
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS
A. Coverage A, Part A - 75% Quota Share Coverage
Reinsurers shall indemnify the Ceding Company for 75% (seventy five
percent) quota share of Ultimate Net Loss arising from covered losses
for each applicable Coverage Year during the Term of this Treaty
subject to the Coverage A Aggregate Limit hereon. This Quota Share
shall be in respect of the Business Covered exposure period related to
Coverage A Advance Consideration only.
The Aggregate Limit for each Coverage Year Coverage A, Part A shall
equal 167% (one hundred sixty-seven percent) of Coverage A, Part A
Advance Consideration. If the quota share is converted to an aggregate
excess coverage, the Aggregate Limit for Coverage A, Part A shall be
zero dollars for the respective Coverage Year.
If the quota share is not converted to an aggregate excess coverage,
the Ceding Company shall track the advance premium by policy to the
coverage time afforded by the advance premium under each policy. The
quota share shall cover the Ceding Company on the basis of the coverage
of the underlying original policies during such advance premium
coverage time.
-3-
<PAGE> 4
The Coverage A quota share can be converted to an aggregate excess of
loss coverage during the first quarter retroactive to January 1st of
any applicable Coverage Year. This conversion is at the mutual
agreement of the Ceding Company and the Reinsurers and is subject to
the following conditions not being present prior to the conversion
date:
1. The Ceding Company's A.M. Best Rating falls below C; and
2. The Ceding Company's surplus crops below $60,000,000 (sixty
million dollars).
If both of these conditions are present during the first quarter, then
Coverage A, Part A quota share coverage cannot be converted into the
aggregate excess of loss for the applicable Coverage Year.
Coverage A, Part B.
Should the Ceding Company's Loss Ratio exceed 75% (seventy-five
percent) (hereinafter called the Retention), the Reinsurers shall be
liable for 100% (one hundred percent) of the paid amount of Ultimate
Net Losses in excess of the Retention subject to a maximum Aggregate
Limit of 75% (seventy-five percent) of SNWP unless the Reinsurers agree
to provide additional Aggregate Limit as per the following paragraph.
This aggregate excess coverage shall cover the Ceding Company on the
basis of the coverage of the underlying original policies. If the quota
share is converted to aggregate excess of loss coverage, the aggregate
coverage shall also cover the Ceding Company on the basis of the
coverage of the underlying original policies during the coverage time
pertaining to advance premium deposits received through December 31st
preceding the respective Coverage Year. If the quota share is not
converted to aggregate excess of loss coverage, the aggregate excess
shall not cover the underlying original policies during the coverage
time pertaining to advance premium deposits received through December
31st preceding the respective Coverage Year.
The Reinsurers may unilaterally and individually offer at any time, and
the Ceding Company shall accept and purchase additional coverage up to
100% (one hundred percent) of the paid amount of Ultimate Net Losses in
excess of the Ceding Company's Loss Ratio of 150% (one hundred fifty
percent) subject to a maximum aggregate additional limit of 5.6% (five
point six percent) of SNWP. In no event shall Reinsurers be liable for
more than $130,000,000 (one hundred and thirty million dollars) in the
aggregate for Coverage A, Part B for each Coverage Year.
Coverages B, C and D hereon shall inure to Coverage A, Parts A and B.
Therefore, Ultimate Net Losses in respect of the Ceding Company's Net
Retained Liability shall be reduced by any amounts recoverable in
respect of Coverages B, C and D.
B. Coverage B
The Reinsurers shall indemnify the Ceding Company for 100% (one hundred
percent) up to $10,250,000 (ten million, two hundred and fifty thousand
dollars) of the indemnity portion of the paid amount of Ultimate Net
Losses (exclusive of Loss Adjustment Expense) each and every loss per
insured excess of $750,000 (seven hundred and fifty thousand dollars)
of the indemnity portion of the paid amount of Ultimate Net Losses
(exclusive of Loss Adjustment Expense) each and every loss per insured,
plus pro rata Loss Adjustment Expenses in respect of Business Covered.
In no event shall Reinsurers be liable for more than $14,250,000
(fourteen million, two hundred fifty thousand dollars) inclusive of
both the indemnity portion of Ultimate Net Loss and pro rata Loss
Adjustment Expenses in respect of Coverage B hereon for each Coverage
Year.
-4-
<PAGE> 5
The Ceding Company shall retain an aggregate deductible equal to 20%
(twenty percent) of cumulative SNWP for each Coverage Year. This
deductible shall apply to the aggregate sum of per insured indemnity
portion of Ultimate Net Losses (exclusive of Loss Adjustment Expenses)
$2,250,000 (two million, two hundred and fifty thousand dollars) excess
of $750,000 (seven hundred and fifty thousand dollars) each and every
loss. Pro rata Loss Adjustment Expenses shall be covered and apply to
the aggregate deductible. Also, the Ceding Company shall retain
$8,000,000 (eight million dollars) for each Coverage Year in respect of
the aggregate sum of per insured indemnity portion of Ultimate Net
Losses (exclusive of Loss Adjustment Expenses) for the layer $8,000,000
(eight million dollars) excess of $3,000,000 (three million dollars)
each and every loss. Pro rata Loss Adjustment Expenses shall also be
covered and apply to the aggregate deductible. Coverage B shall inure
to Coverage A, Part A or B hereon as applicable, and Coverage C hereon.
All of the indemnity portion of Ultimate Net Losses plus pro rata Loss
Adjustment Expense retained by the Ceding Company as part of the above
aggregate deductible, shall be part of the Ceding Company's Net
Retained Liability and, therefore, covered under Coverage A, Parts A or
B hereon as applicable.
C. Coverage C
Reinsurers shall indemnify the Ceding Company for 100% (one hundred
percent) up to $14,250,000 (fourteen million, two hundred and fifty
thousand dollars) of the indemnity portion of the paid amount of
Ultimate Net Loss (exclusive of Loss Adjustment Expenses) excess of
$750,000 (seven hundred and fifty thousand dollars) of the indemnity
portion of the paid amount of Ultimate Net Loss (exclusive of Loss
Adjustment Expenses) per Loss Occurrence as respects Loss Occurrences
during the Term. Pro rata Loss Adjustment Expenses shall also be
covered. Notwithstanding the definition of Ultimate Net Loss as per
Section D of ARTICLE 6: DEFINITIONS, Loss Adjustment Expense shall be
excluded from the determination of Ultimate Net Loss referenced in this
Coverage C. Reinsurers shall, however, indemnify the Ceding Company for
pro-rata Loss Adjustment Expenses in addition to loss indemnity amounts
subject to an Aggregate Limit in all equal to $14,250,000 (fourteen
million, two hundred and fifty thousand dollars) for each Coverage
Year. Coverage C shall inure to Coverage A, Part A or B hereon, as
applicable.
D. Coverage D
Reinsurers shall indemnify the Ceding Company for 100% (one hundred
percent) up to $5,000,000 (five million dollars) of the paid amount of
Ultimate Net Losses (exclusive of Loss Adjustment Expense) each and
every loss per insured excess of $11,000,000 (eleven million dollars)
of the paid amount of Ultimate Net Losses (exclusive of Loss Adjustment
Expense) each and every loss per insured, plus pro rata Loss Adjustment
Expense in respect of Covered Losses. In no event shall Reinsurers be
liable for more than $7,500,000 (seven million, five hundred thousand
dollars) for each Coverage Year inclusive of both the indemnity portion
of Ultimate Net Loss and pro rata Loss Adjustment Expenses in respect
of Coverage D hereon.
For each Coverage Year, the Ceding Company shall retain $5,000,000
(five million dollars) in respect of aggregate per insured Ultimate Net
Losses (exclusive of Loss Adjustment Expense) in the layer $5,000,000
(five million dollars) excess of $11,000,000 (eleven million dollars)
of indemnity losses otherwise recoverable under Coverage D plus pro
rata Loss Adjustment Expense. Coverage D shall inure to Coverage A,
Part A or B as applicable and Coverages B and C hereon.
-5-
<PAGE> 6
Ultimate Net Losses within the aggregate deductible shall be part of
the Ceding Company's Net Retained Liability and, therefore, covered
under either the Coverage A, Part A Quota Share or Part B Aggregate
Excess coverage, as applicable.
ARTICLE 6: DEFINITIONS
A. "Cumulative Subject Net Written Premiums" (SNWP) shall mean for the
respective Coverage Year, the cumulative Net Written and Assumed
Written Premium Income less cancellations and returns and less premiums
paid for all other reinsurances for the Coverage Year, except for
Non-Traditional Reinsurance Agreements which shall be disregarded for
the calculation of SNWP.
If the Coverage A, Part A Quota Share is converted to the Coverage A,
Part B Aggregate Excess of Loss coverage, SNWP shall include all direct
advance premium for the Coverage Year. If the Coverage A, Part A Quota
Share continues as is, SNWP shall exclude the SNWP related to all the
direct advance premium for the respective Coverage Year. Direct advance
premium refers to all actual amounts collected by the Ceding Company
from its insureds in advance of the respective Coverage Year.
B. 1. "Non-Traditional Reinsurance Agreements" shall mean any
reinsurance agreement which allows for Profit Sharing (or any
other form of contractual adjustment) exceeding 25% (twenty
five percent) of initial reinsurance premium paid. This
definition does not apply to the Ceding Company's inuring
swing rated excess reinsurance coverages.
2. "Traditional Reinsurance Agreements" shall mean any
reinsurance agreement which is not a non-traditional
reinsurance agreement.
C. The term "Ultimate Net Loss" means the actual loss including any and
all vicarious liability, arising from a Loss Occurrence as covered in
accordance with ARTICLE 1: BUSINESS COVERED, including pro rata Loss
Adjustment Expense, 80% (eighty) of Loss in Excess of Policy Limits and
80% (eighty percent ) of Extra Contractual Obligations, and including
losses incurred but not yet reported, all paid, payable, or to be paid,
by the Ceding Company after making deductions for all recoveries,
salvages, subrogations and all claims on inuring reinsurance, whether
such reinsurance is collectible or not; provided, however, that in the
event of the insolvency of the Ceding Company, payment by the
Reinsurers shall be made in accordance with the provisions of the
Insolvency Article. Nothing herein shall be construed to mean that
losses under this Treaty are not recoverable until the Ceding Company's
Ultimate Net Loss has been ascertained.
D. Ultimate Net Loss shall exclude from coverage hereon, all combined XPL
and ECO liability in excess of $15,000,000 (fifteen million dollars)
any one loss occurrence or claim first made and $30,000,000 (thirty
million dollars) in the aggregate for each Coverage Year. Both of these
amounts shall be after applying the 80% (eighty percent) factor for
XPL/ECO coverage. The $15,000,000 (fifteen million dollars), therefore,
relates to $18,750,000 (eighteen million, seven hundred and fifty
thousand dollars) of XPL/ECO liability from ground up in respect of a
single occurrence and $30,000,000 (thirty million dollars) relates to
$37,500,000 (thirty seven million, five hundred thousand dollars) of
aggregate XPL/ECO Ultimate Net Loss for each Coverage Year.
E. "Loss Adjustment Expense" means all costs and expenses allocable to a
specific claim or claims that are incurred by the Ceding Company in the
investigation, appraisal, adjustment, settlement, litigation, defense
or appeal of a specific claim, including court costs and costs of
supersedeas
-6-
<PAGE> 7
and appeal bonds, and including a) pre-judgment interest, unless
included as part of the award or judgment; b) post-judgment interest;
and c) legal expenses and costs incurred in connection with coverage
questions and legal actions connected thereto. Loss Adjustment Expense
does not include unallocated Loss Adjustment Expense. Unallocated Loss
Adjustment Expense includes, but is not limited to, salaries and
expenses of employees, and office and other overhead.
F. "Policies" means any and all original policies, contracts, and binders
of insurance or reinsurance underwritten by the Ceding Company and
classified under the listing below.
"Policies" shall also mean assumed reinsurance from Lawrenceville Re,
Ltd. of Bermuda (Lawrenceville Re), American Medical Mutual (AMM) of
Vermont and Lawrenceville Property and Casualty Insurance Company, Inc.
of Virginia (LP&C), in respect of assumed reinsurance underwritten by
Lawrenceville Re and original policies underwritten by AMM and LP&C and
classified also as:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage)*
Directors and Officers Liability
All Property and Other Coverages as provided in conjunction with
Professional Liability Coverages
Property Highly Protected Risk Assumed ->
Medical Office Policy Coverages
Hospital Professional Liability
Other Health Care Institution Liability
Professional Premises Liability
Commercial General Liability
Excess/Umbrella Liability
Errors and Omissions Liability
*Policies shall only include HIV coverage to insured medical and
dental practitioners of the Ceding Company. Coverages for others
for HIV shall only be available upon Reinsurers' approval.
-7-
<PAGE> 8
"Policies" shall also mean assumed reinsurance from Underwriters
Reinsurance Company (URC). URC business will be casualty facultative
assumed business. Policies shall also include other assumed reinsurance
subject to ARTICLE 7: NET RETAINED LIABILITY.
G. "Loss Ratio" means the ratio of Ultimate Net Losses incurred divided by
Cumulative Subject Net Written Premium as of the date of calculation.
H. "Ceded Loss Ratio" means the ratio of ceded Ultimate Net Losses
incurred divided by Cumulative Subject Net Written Premium as of the
date of calculation for the respective Coverage Year.
I. "Loss Occurrence" means Loss Occurrence or medical incident, or
otherwise the event giving rise to coverage, all as defined and
provided within the underlying Policies underwritten by the Ceding
Company.
J. "Coverage Year" mans such separate period beginning January 1st and
ending December 31st for the Term of this Treaty.
K. "Term" means the period November 1, 1996 through December 31, 1997 and
each and every Coverage Year thereafter that this reinsurance treaty is
in effect. There will no be no coverage for policies with advance
premium payment on or after November 1 termination in respect of the
subsequent Coverage Year.
ARTICLE 7: NET RETAINED LIABILITY
Coverage A applies only to that portion of any Loss Occurrence or claim first
made which the Ceding Company retains net for its own account. All other
Reinsurance Agreements, including Coverages B, C and D hereon, shall inure to
the benefit of this Treaty and be deemed in place until all liability hereon is
finalized.
The Ceding Company warrants that the minimum Net Retained Liability is $750,000
(seven hundred and fifty thousand dollars) per insured and $1,000,000 (one
million dollars) per event for insureds in New Jersey and $200,000 (two hundred
thousand dollars) per insured and $600,000 (six hundred thousand dollars) per
event for insureds in other states.
The Ceding Company warrants that the maximum Net Retained Liability is as
follows:
<TABLE>
<CAPTION>
Policies Classified As: Maximum Net Retained Liability
----------------------- ------------------------------
<S> <C>
Errors and Omissions Liability $ 2,000,000 any one policy
Directors & Officers Liability $ 2,000,000 any one policy
Medical Office Policy $ 2,000,000 any one policy for property coverages
$ 2,000,000 any one policy for casualty coverages
All Other Property Insurance $ 500,000 any one policy
including HPR Risks
Assumed Reinsurance from AMM $14,990,000 per claim per insured
</TABLE>
-8-
<PAGE> 9
<TABLE>
<CAPTION>
Policies Classified As: Maximum Net Retained Liability
----------------------- ------------------------------
<S> <C>
Assumed Reinsurance from URC $ 250,000 per claim per underlying insured
Assumed Reinsurance from LP&C $15,000,000 per claim per insured
and Lawrenceville Re
All Assumed Reinsurance Combined 250% of all combined assumed reinsurance
except for Lawrenceville Re, AMM excluding Lawrenceville Re, AMM & LP&C
and LP&C business SNWP in the aggregate.
All Other Policies $15,000,000 per claim per insured
</TABLE>
The above figures pertain to indemnity only. Therefore, Net Retained Liability
would be increased in respect of pro rata Loss Adjustment Expenses. The Ceding
Company must obtain special acceptance from Reinsurers prior to exceeding the
above maximum Net Retained Liability.
Furthermore, it is warranted that less than 15% (fifteen percent) of the Ceding
Company's SNWP during the Term of this Treaty will apply to the business where
the Ceding Company's Net Retained Liability is below $750,000 (seven hundred and
fifty thousand dollars) on a per insured and $1,000,000 (one million dollars) on
a per event basis. Also, it is warranted that less than 5% (five percent) of the
Ceding Company's SNWP or $7,000,000 (seven million dollars), whichever is
greater, will originate from assumed reinsurance business other than
Lawrenceville Re, AMM and LP&C.
ARTICLE 8: COVERAGE A, PART A ADVANCE AND ACTUAL CONSIDERATION
COVERAGE A, PART B ACTUAL CONSIDERATION AND CEDING COMMISSIONS,
REINSURERS' EXPENSE CHARGE, COVERAGE B CONSIDERATION
COVERAGE C CONSIDERATION AND COVERAGE D CONSIDERATION
A. Coverage A, Part A Advance and Actual Consideration - As consideration
for Coverage A, Part A for each Coverage Year, the Ceding Company shall
pay the Reinsurers annually 75% (seventy five percent) of all direct
advance premium deposits received through December 31st of a respective
Coverage Year. Such Consideration shall be credited to the Funds
Withheld Account on the November 1st preceding the respective Coverage
Year. Coverage A Advance Consideration shall be provisionally based
upon the direct advance premium deposit estimated and reported by the
Ceding Company on or before December 15th preceding each Coverage Year.
The Ceding Company shall recalculate a final amount within 45 (forty
five) days subsequent to January 1st of the respective Coverage Year.
Any additional amount due shall be credited to the Funds Withheld
Account on the November 1st preceding the respective coverage years.
Any return amount due shall be debited to the Funds Withheld Account on
the November 1st preceding the respective Coverage Year.
Coverage A, Part B Actual Consideration - Commencing with the calendar
quarter ending December 31st of each Coverage Year and each subsequent
calendar quarter end, the Ceding Company shall calculate the required
Coverage A, Part B Actual Consideration within 45 (forty five) days of
each calendar quarter end. Actual Consideration shall be based upon the
result of dividing ceded Coverage A, Part B Ultimate Net Losses by SNWP
as of each calculation date (hereinafter called the Ceded Loss Ratio)
for the respective Coverage Year.
-9-
<PAGE> 10
The Actual Consideration for Coverage A, Part B shall be based upon the
percentage of SNWP corresponding to the Ceded Loss Ratio as determined
per the table and narrative below for the respective Coverage Year:
<TABLE>
<CAPTION>
Ceded Actual Ceded Actual
Loss Consideration Loss Consideration
Ratio Coverage A, Part B Ratio Coverage A, Part B
----- (% of SNWP) ------ (% of SNWP)
----------- -----------
<S> <C> <C> <C> <C>
0 - 16 9.169 46 24.709
17 9.649 47 25.441
18 10.158 48 26.173
19 10.667 49 26.682
20 11.173 50 27.191
21 11.685 51 27.700
22 12.194 52 28.209
23 12.703 53 28.718
24 12.989 54 29.227
25 13.275 55 29.736
26 13.560 56 30.245
27 13.846 57 30.754
28 14.132 58 31.263
29 14.417 59 31.772
30 14.926 60 32.281
31 15.435 61 32.790
32 15.944 62 33.299
33 16.453 63 33.808
34 16.962 64 34.317
35 17.471 65 34.826
36 17.980 66 35.335
37 18.489 67 35.844
38 18.998 68 36.353
39 19.507 69 36.862
40 20.016 70 37.371
41 20.749 71 37.880
42 21.481 72 38.389
43 22.214 73 38.899
44 23.095 74 39.408
45 23.976 75 39.917
</TABLE>
If Ceded Loss Ratios are between the above table loss ratios, the
Actual Consideration percentage of SNWP shall be pro-rated between the
table Ceded Loss Ratio values.
The Actual Consideration for each Coverage Year shall be equal to the
cumulative SNWP for each Coverage Year multiplied by the percentage
determined by the above narrative and table calculations.
-10-
<PAGE> 11
For each Coverage Year, the Ceding Company shall credit the Funds
Withheld Account for this Actual Consideration less all prior payments
of both Coverage A, Part A Actual Consideration, if applicable, and
Coverage A, Part B Actual Consideration adjustments to date to
Reinsurers providing that Coverage A, Part A is converted to Coverage
A, Part B. If the sum of the prior payments of Coverage A, Part B
Actual Consideration adjustments and Coverage A, Part A Actual
Consideration exceed the Coverage A, Part B Actual Consideration amount
due, the Ceding Company shall debit the Funds Withheld Account for such
return Coverage A, Part B Actual Consideration adjustment. If, however,
Coverage A, Part A Quota Share is not converted to the Coverage A, Part
B Aggregate Excess of Loss, Coverage A, Part A Actual Consideration
shall not be subtracted from Actual Consideration.
For each individual Coverage Year, all Coverage A, Part A Actual
Consideration and Coverage A, Part B Actual Consideration less
Reinsurers' Expense Charge shall be withheld by the Ceding Company in
the Funds Withheld Account for the benefit of Reinsurers.
All Coverage A Actual Consideration adjustments and Advance
Consideration shall be deemed to be credited or (debited) from the
Funds Withheld Account as of November 1st of the preceding Coverage
Year for Interest Credit purposes hereon. Therefore, any adjustments to
increase Coverage A Actual Consideration shall result in an Interest
Credit from November 1st of the preceding Coverage Year to date for
such adjustment. Any adjustments to decrease the Coverage A Actual
Consideration shall result in a reduction of Interest Credit from
November 1st of the preceding Coverage Year to date for such
adjustment.
Coverage A Additional Coverage Consideration - In addition to Coverage
A, Part B Actual Consideration for each Coverage Year, the Ceding
Company shall credit the Funds Withheld Account for an amount equal to
42.5% (forty-two point five percent) of additional coverage, if any,
provided by Reinsurers. All such Consideration, if any, shall be
credited to the Funds Withheld Account as of November 1st of the
preceding Coverage Year for purposes of Interest Credit hereon.
Ceding Commission - Reinsurers shall allow a Ceding Commission of
$1,200,000 (one million, two hundred thousand dollars) to be due to the
Ceding Company on November 1st of the preceding Coverage Year. There
shall be no increase or decrease to this amount based upon loss
experience under this Treaty. The Ceding Company shall debit the Funds
Withheld Account as of November 1st of the preceding Coverage Year for
all Ceding Commissions.
B. Reinsurers' Expense Charge
The Ceding Company shall pay Reinsurers for each Coverage Year a
Reinsurers' Expense Charge equal to X%, as detailed in the table below,
of all Coverage A, Part A and Part B Actual Consideration, including
the Coverage A, Part A Advance Consideration subject to a minimum
amount of $2,275,000 (two million, two hundred and seventy five
thousand dollars) inclusive of intermediary commission, by direct
payment to Reinsurers hereon. There shall be no Reinsurers' Expense
Charge in respect of Coverage A Additional Coverage Consideration,
Coverage B Consideration, Coverage C Consideration and Coverage D
Consideration.
-11-
<PAGE> 12
For each Coverage Year X shall provisionally be 9.0% (nine percent) as
respects Coverage A, Part A Advance Consideration for purposes of
calculation and payment upon consummation of this Treaty and on or
about November 1st prior to each renewal Coverage Year. The Reinsurers'
Expense Charge on both the Coverage A, Part A Actual Consideration and
Coverage A, Part B Actual Consideration adjustments shall be
determined, redetermined and paid annually within 60 (sixty) days in
arrears of each calendar year end. Payments shall be made by direct
payment from the debtor to creditor party at such times.
There shall be no interest paid to Reinsurers on Reinsurers' Expense
Charge paid or refund of interest on Reinsurers' Expense Charge which
is refunded under this Treaty, upon return Actual Consideration
adjustments, if any.
X% for both Coverage A, Part A and Part B shall be based upon Coverage
Year Ceded Loss Ratio bands as follows:
<TABLE>
<CAPTION>
Ceded Loss Ratio X%
---------------- --
<S> <C> <C> <C>
Greater than or equal to 0% Less than or equal to 23.0% 6.0
Greater than 23.0% Less than or equal to 29.0% 7.0
Greater than 29.0% Less than or equal to 34.0% 8.0
Greater than 34.0% Less than or equal to 45.0% 9.0
Greater than 45.0% Less than or equal to 65.0% 8.0
Greater than 65.0% Less than or equal to 72.0% 7.0
Greater than 72.0% 6.0
</TABLE>
For purposes of Interest Credit hereon as per ARTICLE 11, Section C,
all Reinsurers' Expense Charge shall be deemed debited or credited as
applicable from the Funds Withheld Account as of November 1st of the
preceding Coverage Year.
C. Coverage B Consideration
The Ceding Company shall credit to the Funds Withheld Account as of
November 1st of the preceding Coverage Year, a Coverage B Consideration
equal to 80% (eighty percent) of the sum of Coverage B indemnity
portion of Ultimate Net Loss and pro rata Loss Adjustment Expenses
recoverable from Reinsurers for the Coverage Year subject to a maximum
Consideration of $11,400,000 (eleven million, four hundred thousand
dollars). Determination of Coverage B Consideration shall be made
within 45 (forty five) days following each calendar quarter end. All
Coverage B Consideration and adjustments for subsequent reporting shall
be deemed credited or debited as appropriate from the Funds Withheld
Account as of November 1st of the preceding Coverage Year. Interest
Credit shall be from November 1st of the preceding Coverage Year
forward based upon the ultimate Coverage B Consideration.
D. Coverage C Consideration
The Ceding Company shall credit to the Funds Withheld Account as of
November 1st of each Coverage Year, a Coverage C Consideration equal to
43.7% (forty three point seven percent) of Coverage A, Part A Advance
Consideration on or before February 15th of each Coverage Year to
maintain coverage for Coverage C. If, however, the Ceding Company
warrants no losses to
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Coverage C under this Treaty on or before February 15th of each
Coverage Year, the Coverage C Consideration shall be waived in its
entirety for the respective Coverage Year.
E. Coverage D Consideration
The Ceding Company shall pay to Reinsurers, in addition to all other
Consideration, Advance Consideration in respect of Coverage D of
$3,500,000 (three million, five hundred thousand dollars) for each
individual Coverage Year as soon as practicable on or after November
1st preceding each individual Coverage Year. Coverage D Consideration
is a cash payment to Reinsurers and, therefore, is not included in the
Funds Withheld Account.
ARTICLE 9: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of Consideration or losses and
allocated Loss Adjustment Expenses or otherwise, due from such party to
another party under this Treaty, against any amounts, whether on
account of Consideration or losses and allocated Loss Adjustment
Expenses or otherwise due from the latter party to the former party.
The party asserting the right of offset may exercise this right,
whether as assuming Reinsurers or Ceding Company in this Treaty.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one ) all of its rights under this Treaty to
receive Consideration or loss payments at any time from such other
party ("Collateral"), to secure its Consideration or loss obligations
to such other party at any time under this Treaty ("Secured
Obligations"). If at any time a party is in default under any Secured
Obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be
entitled in its discretion, to apply or to withhold for the purpose of
applying in due course, any Collateral assigned and pledged to it by
the former party and otherwise to realize upon such Collateral as
security for such Secured Obligations.
C. The security interest described herein, and the term "Collateral",
shall apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall
be deemed evidenced only by the counterpart of this Treaty delivered to
such party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Treaty.
ARTICLE 10: REPORTS AND LOSS SETTLEMENTS
A. Within 60 (sixty) days following the end of each calendar quarter, the
Ceding Company will report in writing to the Reinsurers for each
Coverage Year:
1. SNWP for the quarter and cumulative SNWP.
2. All Consideration calculations as necessary.
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3. Summary of subject Ultimate Net Losses paid during the period
and inception to date.
4. Summary of Ultimate Net Losses outstanding including a report
of incurred but not reported amounts.
5. The amount of Ultimate Net Losses ceded to this Treaty for the
period and inception to date indicating amounts due and
outstanding.
6. Individual claim information (claim managers report) for all
individual claims in excess of $2,000,000 (two million
dollars) indemnity from ground up and for claims in excess of
$750,000 (seven hundred and fifty thousand dollars) upon
Reinsurers' specific request.
7. Any other information needed by the Reinsurers to evaluate
this Treaty which is reasonably available to the Ceding
Company.
8. A report detailing the activity and balance within the Funds
Withheld Account.
B. 1. Coverage A Loss Settlements
Following each quarterly report, the Reinsurers shall pay all
cumulative Ultimate Net Losses Paid in respect of Business
Covered by the Ceding Company on and after January 1st of each
respective Coverage Year in excess of the Ceding Company's
Retention subject to the Aggregate Limits hereon. Payment
shall be made at 90 (ninety) days following each calendar
quarter end, if paid by Reinsurers from other funds of the
Reinsurers. Loss Settlements shall be first paid by deduction
from the Funds Withheld Account, this account shall be debited
at 90 (ninety) days following each calendar quarter. Loss
reimbursement at any calendar quarter for each Coverage Year
shall be equal to the amount of such cumulative Ultimate Net
Losses Paid at each date in excess of the Retention less net
loss reimbursements previously made by the Reinsurers, subject
to the Aggregate Limits in accordance with Section A of
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS.
2. Coverage B and C Loss Settlements
Following each calendar quarter report, the Reinsurers shall
pay all covered Coverage B and C Ultimate Net Losses paid by
the Ceding Company on and after January 1st of each respective
Coverage Year in respect of Business Covered subject to and in
accordance with Sections B and C of ARTICLE 5: COVERAGES AND
AGGREGATE LIMITS. Payment shall be made at 90 (ninety) days
following each calendar quarter, if paid by Reinsurers from
other funds of the Reinsurers. Loss Settlements shall be first
paid by deduction from the Funds Withheld Account; this
account shall be debited at 90 (ninety) days following each
calendar quarter.
3. Coverage D Loss Settlements
Following each calendar quarter report, the Reinsurers shall
pay all covered Coverage D Ultimate Net Losses paid by the
Ceding Company on or after January 1 of each respective
Coverage Year in respect of the Business Covered subject to
and in accordance with
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<PAGE> 15
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS. Payments shall be
made from the Reinsurers' funds by the Reinsurers 90 (ninety)
days following each calendar quarter.
3. Order of Settlements
All loss payments under B.1. and B.2., including all
Commutation payments, if any, above will be firstly made by
deduction from the Consideration and then from the Interest
Credit components of the Funds Withheld Account by the Ceding
Company until depleted. Thereafter, Reinsurers shall pay from
other funds of Reinsurers subject to all of the terms hereon.
ARTICLE 11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT,
INTEREST CREDIT AND EXPERIENCE ACCOUNT
A. Profit Sharing
Upon finalization of the payment of all losses recoverable hereon
and/or Commutation for any Coverage Year, if any, the Reinsurers will
pay to the Ceding Company 50% (fifty percent) of the remaining Funds
Withheld Account balance, if any received by the Reinsurers.
In addition, upon finalization of all ceded Ultimate Net Losses by
payment/or Commutation for any Coverage Year, the Ceding Company is to
receive within 45 (forty-five) days 100% (one hundred percent) of the
residual Experience Account (net of amounts used to make commutation
payment) for the respective Coverage Year, subject to the Experience
Account being a positive amount for the applicable Coverage Year upon
finalization of all ceded Ultimate Net Losses for that Coverage Year.
Unless Coverage A is commuted, the Experience Account shall not be
payable for ten years from the beginning of the respective Coverage
Year being commuted. (Payment of Profit sharing in accordance with this
Article shall release the Reinsurers from all current and future
liability hereunder for the respective Coverage Year.)
B. Funds Withheld Account
For purposes of this Article, the Ceding Company shall maintain a
cumulative Funds Withheld Account separately for each individual
Coverage Year comprised of the following Coverage Year amounts:
1. The Funds Withheld Account at October 30th preceding the
Coverage Year shall be equal to zero.
2. The Funds Withheld Account at each subsequent calendar quarter
end shall be equal to:
a. The Funds Withheld Account at the end of such prior
calendar quarter; plus
b. Any amounts credited or debited during the quarter
for the following:
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Coverage A, Part A Advance and Actual Consideration,
Coverage A, Part B Actual Consideration including
adjustments, Coverage A Additional Coverage
Consideration, Coverage B Consideration and Coverage
C Consideration, if any; less
c. Reinsurers' Expense Charge, if any; less
d. Ceding Commissions; less
e. Ceded Ultimate Net Losses paid under this Treaty for
the prior calendar quarter from the Funds Withheld
Account (including Commutation payments); plus
f. Interest Credit;
The Ceding Company shall report balances quarterly to the Reinsurers as
soon as practicable but no later than 75 (seventy five) days in arrears
of each calendar quarter end.
The Reinsurers shall not transfer or assign their rights to the Funds
Withheld Account hereon unless this Treaty is surrendered and a new
Treaty is issued. Under any and all circumstances, the Ceding Company
must make a book entry of a transfer or assignment in order for such
transfer or assignment to be valid.
C. Interest Credit
For each Coverage Year, the Ceding Company shall credit the Funds
Withheld Account monthly at each month end with interest calculated by
applying a monthly rate equal to one-twelfth (1/12th) of the percentage
stipulated below multiplied by the actual daily average Funds Withheld
Account balance for the respective calendar month, where the percentage
equals:
8.28% if the 12 month U.S. Treasury Bill rate is 8.28% or less:
or
8.28% + 50% of the amount by which the 12 month U.S. Treasury Bill rate
is greater than 8.28%.
The 12 month U.S. Treasury Bill rate to be used each year is the rate
in effect on the first business day of each year as reported in the
Wall Street Journal on the second business day of each year.
Interest Credit shall continue even in the event of the Ceding
Company's insolvency.
All Reinsurers' Expense Charges shall be deemed debited from the Funds
Withheld Account as of the November 1st preceding the applicable
Coverage Year.
D. Experience Account
The Reinsurers will establish, maintain and report to the Company
balances and changes to the Experience Account for each Coverage Year
independently which is comprised of the following cumulative accounts:
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1. Coverage D Consideration; plus
2. 5% (five percent) Annual Interest Credit on the average
Experience Account balance for the respective calendar year
period; less
3. All covered Coverages A, B, C and D ceded Ultimate Net Losses
paid by the Reinsurers that are not paid by deduction from the
Funds Withheld Account.
ARTICLE 12: LIABILITY OF THE REINSURER AND CURRENCY
A. The liability of the Reinsurer shall follow that of the Ceding Company
in every case and be subject in all respects to all the general and
specific stipulations, clauses, waivers and modifications of the Ceding
Company's policies and any endorsements thereon. However, in no event
shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this Contract.
B. Nothing herein shall in any manner create any obligation or establish
any rights against the Reinsurer in favor of any third party or any
persons not parties to this Contract.
C. All of the provisions of this Treaty involving dollar amounts are
expressed in terms of United States dollars and all Consideration and
loss and allocated Loss Adjustment Expense payments hereunder shall be
made in United States Dollars.
ARTICLE 13: COMMUTATION
On or after termination, the Ceding Company shall have the sole option,
effective at any calendar year end on or after December 31st of each Coverage
Year to commute all Coverages A, B, C and D ceded liability outstanding
hereunder. At Commutation, the Funds Withheld Account shall be dissolved and the
Ceding Company shall pay the entire amount of the respective Coverage Year Funds
Withheld to the Reinsurers hereon. The Ceding Company may offset the payment of
the Funds Withheld account against the commutation payment required at such
time. At Commutation, the Reinsurers shall pay to the Ceding Company the lesser
of:
A. The present value of Coverage A, Coverage B, Coverage C and Coverage D,
if any, ceded outstanding loss and allocated Loss Adjustment Expense
reserves as determined by a loss reserve analysis conducted by an
independent actuarial firm acceptable to both the Ceding Company and
the Reinsurers, with the Ceding Company bearing the cost of such
analysis; or
B. The existing value of the Funds Withheld Account (as defined in ARTICLE
11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT, INTEREST CREDIT AND
EXPERIENCE ACCOUNT) at the Commutation date plus the balance of the
Experience Account.
Said payment shall constitute, together with the Profit Sharing payment, a full
and final settlement of all terms of this Treaty; the Ceding Company will
execute a hold harmless agreement so stating and the Reinsurers will be thereby
released from all current and future liability hereunder.
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<PAGE> 18
Commutation payments in accordance with this Article shall be treated as
Ultimate Net Losses paid under this Treaty for determination of the Funds
Withheld Account.
ARTICLE 14: EXCESS OF ORIGINAL POLICY LIMITS
This Treaty shall protect the Ceding Company, within the limits hereof, for 80%
(eighty percent) of loss in excess of its original policy, such loss in excess
of the limit having been incurred because of failure by it to settle within the
policy limit or by reason of alleged or actual negligence, fraud, or bad faith
in rejecting an offer of settlement or in the preparation of the defense or in
the trial of any action against its insured or reinsured or in the preparation
or prosecution of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the Ceding
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the Ceding Company would have been contractually liable to pay had it not
been for the limit of the original policy.
ARTICLE 15: EXTRA CONTRACTUAL OBLIGATIONS
A. This Treaty shall protect the Ceding Company for 80% (eighty percent)
of any Extra Contractual Obligations within the limits hereof. The term
"Extra Contractual Obligations" is defined as those liabilities not
covered under any other provision of this Treaty and which arise from
the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following:
failure by the Ceding Company to settle within the policy limit, or by
reason of alleged or actual negligence, fraud, or bad faith in
rejecting an offer of settlement or in the preparation of the defense
or in the trial of any action against its insured or reinsured or in
the preparation or prosecution of an appeal consequent upon such
action.
B. The date on which any Extra Contractual Obligation is incurred by the
Ceding Company shall be deemed, in all circumstances, to be the date of
the original Loss Occurrence.
C. However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate
officer of the Ceding Company acting individually or collectively or in
collusion with any individual or corporation or any other organization
or party involved in the presentation, defense or settlement of any
claim covered hereunder.
ARTICLE 16: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
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ARTICLE 17: ACCESS TO RECORDS
The Ceding Company shall place at the disposal of the Reinsurers at all
reasonable times, and the Reinsurers shall have the right to inspect, through
its authorized representatives, all books, records, and papers of the Ceding
Company in connection with any reinsurance hereunder, or claims in connection
herewith.
The Reinsurers agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Treaty except under the
following circumstances and then only as necessary.
A. When disclosure of such information is required in the normal course of
Reinsurers' business; or
B. With the prior written consent of the Ceding Company; or
C. When Reinsurers are required by a subpoena or court order to disclose
such information. The Reinsurers shall promptly notify the Ceding
Company of any attempt by a third party to obtain from it any such
confidential information.
Reinsurers will provide Ceding Company or its designated representative with
such information as Reinsurers and Ceding Company may agree is necessary to the
Ceding Company's handling of the business reinsured herein.
The obligation contained in the provision shall survive termination of this
Treaty.
ARTICLE 18: ACTUARIAL REVIEW
Should the Reinsurers desire at any time to review the loss reserves established
by the Ceding Company as respects Coverage A and Coverage B Ultimate Net Losses,
the Reinsurers shall select an independent actuarial firm acceptable to the
Ceding Company to perform a reserve analysis. The costs of any reserve analysis
performed under this Article will be borne by the Reinsurers hereon. Such a
review shall be subject to the provisions of ARTICLE 17: ACCESS TO RECORDS.
ARTICLE 19: LOSS RESERVE AND ADVANCE PREMIUM FUNDING
The Reinsurers will maintain appropriate reserves with respect to their share of
the Advance Premium and loss reserves ceded and required under the terms of this
Treaty which are reported by the Ceding Company on the Business Covered of this
Treaty.
During the Term of this Treaty the Reinsurers agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the Ceding Company
issued by a bank acceptable to the Ceding Company adjusted to at all times be
equal to the ceded cumulative Ultimate Net Losses outstanding and Advance
Premium ceded hereunder less the Funds Withheld Account balance at such dates.
Such Letter of Credit shall be in the form, amount, and with an acceptable NAIC
bank required to allow the Ceding Company to take Full Statutory Credit for
amounts recoverable under this Treaty.
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The Ceding Company also agrees to not make drawings upon the Letter of Credit
provided by the Reinsurers for any purpose other than to reimburse the Ceding
Company for loss settlements due under this Reinsurance Treaty for which one or
more of the Reinsurers are in default by more than seven days and provided that
the Ceding Company shall give the Reinsurers three days written notice prior to
making any drawings.
The Ceding Company shall reimburse the Reinsurers for annual security cost equal
to .5% of the amount of Letter of Credit issued or maintained hereon as of each
December 31st. The Reinsurers shall request such reimbursement whereupon the
Ceding Company shall make payment by direct wire transfer to the Reinsurers. All
such amounts shall not be deducted from the Funds Withheld Account.
ARTICLE 20: FUNDS WITHHELD TRUST ACCOUNT
In the event that the Ceding Company experiences any one of the following
circumstances, the Reinsurers may require a Trust Fund, with an independent
bank, to be established for purposes of collateralizing the Funds Withheld
Account hereon:
1. The Ceding Company's A.M. Best's Rating is downgraded below
B+; or
2. The Ceding Company's combined statutory capital and surplus
falls below $60 (sixty) million; or
3. The Ceding Company effects both a change in ownership form
such that the resulting ownership extends beyond the insureds
of the Ceding Company and there is a change in the office of
President.
The Ceding Company shall fully and promptly comply with such request from the
Reinsurers. The Ceding Company shall transfer marketable assets with a market
value equal to the required Funds Withheld Account balance within 30 (thirty)
days from the Reinsurers' request to do so. The Ceding Company shall also
transfer additional assets to the Trust Fund, if needed, to maintain the Trust
Fund balance to be equal to the Funds Withheld requirement at each calendar
quarter end including the requisite Interest Credit required hereon.
ARTICLE 21: INSOLVENCY
A. In the event of the insolvency of the Ceding Company, the reinsurance
under this Treaty shall be payable by the Reinsurers (on the basis of
the liability of the Ceding Company under the policy or policies
reinsured without diminution because of the insolvency of the Ceding
Company) to the Ceding Company or to its liquidator, receiver or
statutory successor.
B. It is agreed, however, that liquidator or receiver or statutory
successor of the insolvent Ceding Company shall give written notice to
the Reinsurers of the pendency of a claim against the insolvent Ceding
Company on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the Reinsurers may investigate such claim
and interpose, at its own expense, in the proceeding where such claim
is to be adjudicated, any defense or defenses which it may deem
available to the Ceding Company or its
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liquidator or receiver or statutory successor. Accidental failure to
give such notice shall not excuse the obligation unless Reinsurers are
substantially prejudiced by the failure to give such notice. The
expense thus incurred by the Reinsurers shall be chargeable, subject to
court approval, against the insolvent Ceding Company as part of the
expense of liquidation to the extent of a proportionate share of the
benefit which may accrue to the Ceding Company solely as a result of
the defense undertaken by the Reinsurers.
C. Should the Ceding Company go into liquidation or should a receiver be
appointed, the Reinsurers shall be entitled to deduct from any sums
which may be or may become due to the Ceding Company under this Treaty
any sums which are due to the Reinsurers by the Ceding Company under
this Treaty and which are payable at a fixed or stated date, as well as
any other sums due the Reinsurers which are permitted to be offset
under applicable law.
ARTICLE 22: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with
respect to this Treaty, it is hereby mutually agreed that such dispute
or difference of opinion shall be submitted to arbitration. One Arbiter
shall be chosen by the Ceding Company, the other by the Reinsurer, and
an Umpire shall be chosen by the two Arbiters before they enter upon
arbitration, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance companies. In the event
that either party should fail to choose an Arbiter within 30 days
following a written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree upon the
selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two
of whom the other shall decline, and the decision shall be made by
drawing lots.
B. Each party shall present its case to the Arbiters within 30 (thirty)
days following the date of appointment of the Umpire. The Arbiters
shall consider this Treaty as an honorable engagement rather than
merely as a legal obligation and they are relieved of all judicial
formalities and may abstain from the following the strict rules of law.
The decision of the Arbiters shall be final and binding on both
parties; but failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both parties.
The decision shall be made in writing and will state the factual and
legal basis supporting such decision. Judgment upon the final decision
of the Arbiters may be entered in any court of competent jurisdiction.
C. If more than one Reinsurer is involved in the same dispute, all such
Reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Ceding Company to each
of the Reinsurers constituting one party provided, however, that
nothing herein shall impair the rights of such Reinsurers to assert
several, rather than joint, defenses or claims, nor be construed as
changing the liability of the Reinsurers participating under the terms
of this Treaty from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
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ARTICLE 23: CHANGES IN ADMINISTRATIVE PRACTICES
If any intentional or unintentional change in the Ceding Company's processing or
payment of claims materially increases the Reinsurer's economic loss under this
Treaty from what the economic loss would have been if there had been no such
change, the Reinsurers shall prepare, and the Ceding Company shall accept, an
adjustment of the portion of claims which is reimbursable, or any adjustments
which will make the Reinsurer's risk position equivalent to that which would
have been obtained under this Treaty if there had been no such change. The
Reinsurers shall have the right to use auditing techniques, sampling techniques,
or to otherwise investigate the nature and effect of any such change in
administrative practices or of any possible. compensatory adjustment therefore.
Any dispute with respect to such adjustment shall be resolved by arbitration as
provided in ARTICLE 22: ARBITRATION.
ARTICLE 24: TAXES
The Ceding Company is solely liable for any Federal Excise Tax (FET) applicable
to this Treaty. Any FET to be paid shall be paid directly by the Ceding Company
to the taxing authorities and is in addition to the Consideration. No deduction
shall be made from the Funds Withheld Account.
ARTICLE 25: SERVICE OF SUIT
It is agreed that in the event of the failure of Reinsurers hereon to pay any
amount claimed to be due hereunder, Reinsurers hereon, at the request of the
Ceding Company will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the Reinsurers to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Treaty shall be governed by the laws of
the State of New Jersey.
It is further agreed that service of process in such suit may be made upon Kroll
& Tract, 520 Madison Avenue, New York, New York 10022-4235, United States of
America and that in any suit instituted against any one of them upon this
Treaty, Reinsurers will abide by the final decision of such Court of any
Appellate Court in the event of an appeal.
The above named are authorized and directed to accept service of process on
behalf of Reinsurers in any suit and/or upon the request of the Ceding Company
to give a written undertaking to the Ceding Company that they will enter a
general appearance upon Reinsurers' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, Reinsurers hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor or successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
Ceding Company or any beneficiary hereunder arising out of this Treaty, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
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ARTICLE 26: NO ASSIGNMENT
The Ceding Company and the Reinsurers hereon hereby agree that neither party
shall have the right to assign its respective interests and liabilities,
including the Funds Withheld and the Experience Account, under this Treaty.
Notwithstanding the above, this clause shall not restrict the Ceding Company
from making investments it deems appropriate.
ARTICLE 27: INTERMEDIARY
Pegasus Advisors, Inc., 35 Tower Lane, Avon, Connecticut 06001, is hereby
recognized as the Intermediary negotiating this Treaty for all business
hereunder and through whom all communication's relating hereto (including but
not limited to notices, statements and reports) shall be transmitted to both
parties. It is understood, as regards remittances due either party hereunder,
that payment by the Ceding Company to the Intermediary, shall constitute payment
to the Reinsurer but payment by the Reinsurer to the Intermediary shall only
constitute payment to the Ceding Company to the extent such payments are
actually received by the Ceding Company. Notwithstanding the foregoing, it is
agreed that all payments will be direct from the Reinsurer to the Ceding
Company, or from the Ceding Company to the Reinsurer, as appropriate.
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INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC
EXCESS OF LOSS REINSURANCE TREATY NO. 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "CEDING COMPANY")
AND
HANNOVER REINSURANCE (IRELAND) LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 40% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS REINSURANCE TREATY,
Effective November 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 31st day of July 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
--------------------------
In Dublin, Ireland, this 21st day of July 1997, For and on behalf of Hannover
Reinsurance (Ireland) Ltd.
By: /s/ R. Elers [SEAL]
--------------------------
US263 100397
<PAGE> 25
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC
EXCESS OF LOSS REINSURANCE TREATY NO. 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "CEDING COMPANY")
AND
E&S REINSURANCE (IRELAND) LTD.
DUBLIN, IRELAND
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 10% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS REINSURANCE TREATY,
Effective November 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 31st day of July 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
----------------------------
In Dublin, Ireland, this 21st day of July 1997, For and on behalf of E&S
Reinsurance (Ireland) Ltd.
By: /s/ R. Elers [SEAL]
----------------------------
US263 200397
<PAGE> 26
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC
EXCESS OF LOSS REINSURANCE TREATY NO. 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "CEDING COMPANY")
AND
UNDERWRITERS REINSURANCE COMPANY (BARBADOS) INC.
ROCKLEY, CHRIST CHURCH, BARBADOS, W.I.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 35% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS REINSURANCE TREATY,
Effective November 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 31st day of July 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
------------------------------
In Rockley, Christ Church, Barbados, W.I., this 21st day of July 1997, For and
on behalf of Underwriters Reinsurance Company (Barbados) Inc.
By: /s/ [Illegible] , President & CEO
-------------------------------------------------------------
<PAGE> 27
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC
EXCESS OF LOSS REINSURANCE TREATY NO. 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "CEDING COMPANY")
AND
LONDON LIFE AND CASUALTY REINSURANCE CORPORATION
WILDEY, ST. MICHAEL, BARBADOS, W.I.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 14% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS REINSURANCE TREATY,
Effective November 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 31st day of July 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
-----------------------------
In Wildey, St. Michael, Barbados, W.I., this 28th day of July 1997,
For and on Behalf of London Life and Casualty Reinsurance Corporation
By: /s/ Michael D. Price
-----------------------------
<PAGE> 28
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC
EXCESS OF LOSS REINSURANCE TREATY NO. 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "CEDING COMPANY")
AND
LAWRENCEVILLE REINSURANCE COMPANY LTD.
HAMILTON, BERMUDA
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 1% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS REINSURANCE TREATY,
Effective November 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 31st day of July 1997,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Daniel J. Goldberg
----------------------------------
In Hamilton, Bermuda this 31st day of July 1997, For and on behalf of
Lawrenceville Reinsurance Company Ltd.
By: /s/ Allan Dunkle
----------------------------------
<PAGE> 29
ADDENDUM NO. 1
TO THE
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(HEREINAFTER REFERRED TO AS "REINSURANCE TREATY")
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "CEDING COMPANY")
BY
THE REINSURANCES SUBSCRIBING THE RESPECTIVE
INTERESTS AND LIABILITIES AGREEMENTS
(HEREINAFTER REFERRED TO AS THE "REINSURERS")
The Ceding Company and the Reinsurers hereto hereby agree to amend the captioned
Reinsurance Treaty, effective November 1, 1997, with respect to the Ceding
Company's policies underwritten for the 1998 Coverage Year and thereafter as
follows:
I. ARTICLE 5: COVERAGES AND AGGREGATE LIMITS, Section A., Coverage A, Part
B, Second Paragraph - Increase the maximum aggregate additional limit
from 5.6% (five point six percent) to 6.00% (six percent).
II. ARTICLE 7: NET RETAINED LIABILITY - Delete the entire final paragraph
and replace with the following revised paragraph:
"Furthermore, it is warranted that less than 5% (five percent) of the
Ceding Company's SNWP or $7,000,000 (seven million dollars), whichever
is greater, will originate from assumed reinsurance business other than
Lawrenceville Re, AMM and LP&C."
<PAGE> 30
III. ARTICLE 8: COVERAGE A, PART A ADVANCE AND ACTUAL CONSIDERATION,
COVERAGE A, PART B ACTUAL CONSIDERATION AND CEDING COMMISSIONS,
COVERAGE A ADDITION, COVERAGE CONSIDERATION, REINSURERS' EXPENSE
CHARGE, COVERAGE B CONSIDERATION, COVERAGE C CONSIDERATION AND COVERAGE
D CONSIDERATION
1) Section A, Coverage A, Part B Actual Consideration - Delete
the Actual Consideration/Ceded Loss Ratio table and replace
with the following revised table:
<TABLE>
<CAPTION>
"Ceded Actual Ceded Actual
Loss Consideration Loss Consideration
Ratio Coverage A, Part B Ratio Coverage A, Part B
------- (% of SNWP) ------- (% of SNWP)
----------- -----------
<S> <C> <C> <C> <C>
0 - 16 10.170 46 25.710
17 10.650 47 26.440
18 11.160 48 27.170
19 11.670 49 27.680
20 12.170 50 28.190
21 12.690 51 28.700
22 13.190 52 29.210
23 13.700 53 29.720
24 13.990 54 30.230
25 14.280 55 30.740
26 14.560 56 31.250
27 14.850 57 31.750
28 15.130 58 32.260
29 15.420 59 32.770
30 15.930 60 33.280
31 16.440 61 33.790
32 16.940 62 34.300
33 17.450 63 34.810
34 17.960 64 35.320
35 18.470 65 35.830
36 18.980 66 36.340
37 19.490 67 36.880
38 20.000 68 37.350
39 20.510 69 37.860
40 21.020 70 38.370
41 21.750 71 38.880
42 22.480 72 39.390
43 23.210 73 39.900
44 24.100 74 40.410
45 24.980 75 40.920"
</TABLE>
<PAGE> 31
2) Section A., Coverage A Additional Coverage Consideration -
Delete paragraph in its entirety and replace with the
following revised paragraph:
"In addition to Coverage A, Part B Actual Consideration for
each Coverage Year, the Ceding Company shall credit the Funds
Withheld Account for an amount equal to 52.0% (fifty two
percent) of additional coverage, if any, provided by
Reinsurers. All such Consideration, if any, shall be credited
to the Funds Withheld Account as of November 1st of the
preceding Coverage Year for purposes of Interest Credit
hereon."
3) Section B., Reinsurers' Expense Charge, Fourth paragraph -
Delete the Ceded Loss Ratio table and replace with the
following revised table:
<TABLE>
<CAPTION>
" Ceded Loss Ratio X%
---------------- --
<S> <C> <C> <C>
Greater than or equal to 0% Less than or equal to 23.0% 6.0
Greater than 23.0% Less than or equal to 29.0% 7.0
Greater than 29.0% Less than or equal to 34.0% 8.0
Greater than 34.0% Less than or equal to 40.0% 9.0
Greater than 40.0% Less than or equal to 65.0% 8.0
Greater than 65.0% Less than or equal to 72.0% 7.0
Greater than 72.0% 6.0 "
</TABLE>
IV. ARTICLE 11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT, INTEREST CREDIT AND
EXPERIENCE ACCOUNT, C. Interest Credit - Reduce the interest rate from
8.28% to 7.254% throughout Section C.
In Witness Whereof, the Company has caused this Addendum to be executed by its
duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 11th day of May, 1998 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
------------------------------
Title: President & CEO
------------------------------
<PAGE> 32
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Wildey, St. Michael, Barbados, W.I., for a 14.00% share of the
respective Reinsurance Treaty, this 16th day of June, 1998,
for and on behalf of London Life and Casualty Reinsurance Corporation
By: /s/ M.A. Gonsalves [SEAL]
-------------------------------
Title: /s/ Vice President
-------------------------------
<PAGE> 33
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Dublin, Ireland, for a 40.00% share of the respective Reinsurance
Treaty, this day of 26th May, 1998, for and on behalf of Hannover Reinsurance
(Ireland) Ltd.
By: /s/Reinhard Elers [SEAL]
-------------------------------
Title: Managing Director
-------------------------------
<PAGE> 34
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Dublin, Ireland, for a 10.00% share of the respective Reinsurance
Treaty, this day of 26th May, 1998, for and on behalf of E&S Reinsurance
(Ireland) Ltd.
By: /s/ Reinhard Elers [SEAL]
-------------------------------
Title: Managing Director
-------------------------------
<PAGE> 35
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Rockley, Christ Church, Barbados, W.I., for a 35.00% share of the
respective Reinsurance Treaty, this 18th day of May, 1998, for and on behalf of
Underwriters Reinsurance Company (Barbados) Inc.
By: /s/ [Illegible] [SEAL]
-------------------------------
Title: President & CEO
-------------------------------
<PAGE> 36
In Witness Whereof, the Reinsurer hereto has caused this Addendum to be executed
by its duly authorized representative:
Signed in Hamilton, Bermuda., for a 1.00% share of the respective Reinsurance
Treaty, this 18th day of May, 1998, for and on behalf of Lawrenceville Re, Ltd.
By: /s/ Allan Dunkle
-------------------------------
Title: Vice President
-------------------------------
<PAGE> 1
Exhibit 10.7
SPECIFIC EXCESS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1996
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
BY
THE SUBSCRIBING REINSURER(S) EXECUTING
THE INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED HERETO
(HEREINAFTER REFERRED TO AS THE "SUBSCRIBING REINSURER")
PREAMBLE
It is understood that the SUBSCRIBING REINSURERS participating in this Contract
through the INTERMEDIARY named in ARTICLE XXII having a 100% part of 100% share
in the interests and liabilities of the "Reinsurer".
ARTICLE I: CLASSES OF BUSINESS REINSURED
A. By this Contract, the REINSURER agrees to reinsure the liability which
may accrue to the COMPANY under all of its original policies,
contracts, binders and certificates of insurance or reinsurance
classified by the COMPANY as:
Medical and Dental Practitioners Liability (including
Corporate and Professional Premises Liability Coverage, where
applicable);
Hospital and Other Healthcare Institution Professional
Liability;
Commercial General Liability, Employers' Liability, Automobile
Liability and all other Non-Professional (including Excess/
Umbrella) Liability unless excluded under Article III; all
either written in respect of Health Care Institutions or in
conjunction with Professional Liability coverages written for
such institutions.
(hereinafter called "policies"), unless otherwise excluded under
ARTICLE III: EXCLUSIONS, issued or renewed on or after the effective
date, subject to the terms, conditions and limitations hereinafter set
forth.
1
<PAGE> 2
B. It is understood that this Contract applies to losses first occurring
under occurrence policies and/or claims made thereon under claims made
policies issued or renewed on or after the effective date hereof.
Permanent Protection Plan policies underwritten by the COMPANY shall in
all cases be deemed to be LOSS OCCURRENCE policies covering on a losses
occurring during basis. REINSURERS shall be subject to all of the
conditions of the Permanent Protection Plan policies including policy
limits and aggregate limit formulas under the extended reporting
coverage therein.
ARTICLE II: COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1996, and shall
continue in force thereafter until terminated.
B. Either party may terminate this Contract on any December 31 by giving
the other party not less than 90 days prior written notice.
C. Unless otherwise mutually agreed, reinsurance hereunder on business in
force on the effective date of termination shall remain in full force
and effect until expiration, cancellation or next premium anniversary
of such business, whichever first occurs, but in no event beyond 12
months following the effective date of termination, plus any extension
of coverage for extended reporting as per the original policies of the
COMPANY.
REINSURERS shall remain liable in respect of policies issued or renewed
during the TERM in force on the basis of underlying coverage.
REINSURERS shall receive their share of premiums for such respective
policies and there shall not be any return of unearned premium in
respect thereto.
ARTICLE III: EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
1. Reinsurance assumed, except reinsurance from American Medical
Mutual, Inc. Risk Retention Group and Lawrenceville Property
and Casualty Insurance Company, where the underwriting is
through New Jersey State Medical Underwriters, Inc.
2. Claims emanating from policies issued by the COMPANY with
effective dates after the termination date of this Contract.
3. Directors and Officers Liability when written as such.
4. Financial Guaranty and Insolvency Business.
2
<PAGE> 3
5. All liability of the COMPANY arising by contract, operation of
law, or otherwise, from its participation or membership,
whether voluntary or involuntary, in any insolvency fund.
"Insolvency fund" includes any guaranty fund, insolvency fund,
plan, pool, association, fund or other arrangement, however
denominated, established or governed, which provides for any
assessment of or payment or assumption by the COMPANY of part
or all of any claim, debt, charge, fee or other obligation or
an insurer, or its successors or assigns, which has been
declared by any competent authority to be insolvent, or which
is otherwise deemed unable to meet any claim, debt, charge,
fee or other obligation in whole or in part.
6. Nuclear risks as defined in the "Nuclear Incident Exclusion
Clause - Liability - Reinsurance U.S.A. and Canada" except for
incident arising from nuclear medicine, attached to and
forming part of this Contract.
7. Any business derived from participation in any Pool,
Association or Syndicate.
ARTICLE IV: RETENTIONS AND LIMITS
A. COVERAGE A (Each Insured Coverage): The COMPANY shall retain and be
liable for the first $X amount as per the table below of the paid
Ultimate Net Loss as respects any one original policy, each claim. The
REINSURER shall then be liable for the amount by which such paid
ULTIMATE NET LOSS exceeds the COMPANY'S RETENTION, but the liability of
the REINSURER shall not exceed $8,000,000 ULTIMATE NET LOSS plus pro
rata LOSS ADJUSTMENT EXPENSES as respects any one original policy, each
claim.
Notwithstanding the above, the COMPANY shall also retain the first
$8,000,000 of paid ULTIMATE NET LOSS plus pro rata LOSS ADJUSTMENT
EXPENSES in the aggregate otherwise recoverable under COVERAGE A.
<TABLE>
<CAPTION>
States Class of Business Retention $X =
------ ----------------- --------------
<S> <C> <C>
Other than PA Medical & Dental Practitioner Prof. Liab. $2,000,000
Other than PA Hospital & All Other Health Care Institutions
Professional Liability $3,000,000
PA All Professional Liability
(Physicians, Surgeons & Institutions) $2,200,000
All States General Liability, Employers' Liability, Automobile
Liability and all Non Professional Liability Coverage
written in respect of Health Care Institutions or in
conjunction with Professional Liability (health care)
coverages. $3,000,000
</TABLE>
3
<PAGE> 4
In no event shall REINSURERS be liable for more than $24,000,000
Ultimate Net Loss, inclusive of all pro rata LOSS ADJUSTMENT EXPENSE,
LOSS IN EXCESS OF POLICY LIMITS, and EXTRA CONTRACTUAL OBLIGATIONS, in
the aggregate for COVERAGE A.
B. COVERAGE B (Each Insured Coverage): The COMPANY shall retain and be
liable for paid Ultimate Net Loss equal to the sum of the RETENTION and
LIMIT under COVERAGE A as respects any original policy, each claim. The
REINSURER shall then be liable for 90% of the amount by which such paid
ULTIMATE NET LOSS exceeds the sum of the RETENTION and LIMIT under
COVERAGE A, but the liability of the REINSURER shall not exceed 90% of
$10,000,000 plus pro rata LOSS ADJUSTMENT EXPENSES as respects any
original policy, each claim.
In no event shall REINSURERS be liable for more than $27,000,000 (being
90% of $30,000,000) ULTIMATE NET LOSS, inclusive of all pro rata LOSS
ADJUSTMENT EXPENSE, LOSS IN EXCESS OF POLICY LIMITS, and EXTRA
CONTRACTUAL OBLIGATIONS, in the Aggregate for COVERAGE B.
C. COVERAGE C (Each Insured Coverage): The COMPANY shall retain and be
liable for paid Ultimate Net Loss equal to the sum of the RETENTION and
LIMIT under COVERAGE A and $10,000,000 paid indemnity plus pro rata
expenses in respect of COVERAGE B as respects any original policy, each
claim. The REINSURER shall then be liable for 90% of the amount by
which such paid ULTIMATE NET LOSS exceeds the sum of the RETENTION and
LIMIT under COVERAGE A and $10,000,000 paid indemnity plus pro rata
expenses in respect of COVERAGE B, but the liability of the REINSURER
shall not exceed 90% of $10,000,000 plus pro rata LOSS ADJUSTMENT
EXPENSES as respects any original policy, each claim.
In no event shall REINSURERS be liable for more than $27,000,000 (being
90% of $30,000,000) ULTIMATE NET LOSS, inclusive of all pro rata LOSS
ADJUSTMENT EXPENSE, LOSS IN EXCESS OF POLICY LIMITS, and EXTRA
CONTRACTUAL OBLIGATIONS, in the Aggregate for COVERAGE C.
D. Under no circumstances shall REINSURERS be liable for aggregate
coverage although the COMPANY'S original policies may provide aggregate
coverage.
E. In order for the COMPANY to be able to recover a claim under COVERAGES
A, B and C above, the COMPANY must report the respective claim
recoverable for each contract year within ten years from January 1 of
such contract year.
F. Under no circumstance shall COVERAGE B LIMIT be available or used by
the COMPANY in respect of COVERAGE A ULTIMATE NET LOSS coverage.
4
<PAGE> 5
G. Under no circumstance shall COVERAGE C LIMIT be available or used by
the COMPANY in respect of COVERAGES A and B ULTIMATE NET LOSS coverage.
ARTICLE V: DEFINITIONS
A. "ULTIMATE NET LOSS" as used herein is defined as the sum or sums
(including LOSS IN EXCESS OF POLICY LIMITS, EXTRA CONTRACTUAL
OBLIGATIONS, as hereinafter defined) paid or payable by the COMPANY in
settlement of claims including any and all vicarious liability arising
from BUSINESS REINSURED and in satisfaction of judgments rendered on
account of such claims, after deduction of all salvage, all recoveries,
including the Pennsylvania catastrophe fund, if applicable, and all
claims on inuring insurance or reinsurance, whether collectible or not.
ULTIMATE NET LOSS shall not include any LOSS ADJUSTMENT EXPENSE.
Nothing herein shall be construed to mean that losses under this
Contract are not recoverable until the COMPANY'S ULTIMATE NET LOSS has
been ascertained. ULTIMATE NET LOSS shall be calculated on a per claim,
per policy per insured basis. If the COMPANY issues multiple policies
to an insured, the policies will be deemed to be one original policy
for purposes of coverage under this Reinsurance Contract.
B. "LOSS IN EXCESS OF POLICY LIMITS" and "EXTRA CONTRACTUAL OBLIGATIONS"
as used herein shall be defined as follows:
1. "LOSS IN EXCESS OF POLICY LIMITS" shall mean 90% subject to
the limitations below of any amount paid or payable by the
COMPANY in excess of its policy limits, but otherwise within
the terms of its policy, as a result of a settlement by the
COMPANY or an action against it by its insured or its
insured's assignee to recover damages the insured is legally
obligated to pay to a third party claimant because of the
COMPANY'S alleged or actual negligence, breach of contract or
bad faith in rejecting a settlement within policy limits, or
in discharging its duty to defend or prepare the defense in
the trial of an action against its insured, or in discharging
its duty to prepare or prosecute an appeal consequent upon
such an action. A LOSS IN EXCESS OF POLICY LIMITS shall be
deemed to have occurred on the same date as the loss covered
or alleged to be covered under the policy.
The COMPANY shall only include the amount of 90% of LOSS IN
EXCESS OF POLICY LIMITS within ULTIMATE NET LOSS to reach the
COVERAGE A LIMIT in respect of underlying policies
underwritten with limits equal to or greater than $2,000,000
and up to $10,000,000 as respects any original policy, each
loss. There is no coverage for LOSS IN EXCESS OF POLICY LIMITS
for original policies with limits of $2,000,000 or less.
5
<PAGE> 6
The COMPANY shall include the amount of 90% of LOSS IN EXCESS
OF POLICY LIMITS within ULTIMATE NET LOSS to reach the
COVERAGE B LIMIT in respect of underlying policies
underwritten with limits greater than $10,000,000 and up to
$20,000,000 as respects any original policy, each loss.
The COMPANY shall include the amount of 90% of LOSS IN EXCESS
OF POLICY LIMITS within ULTIMATE NET LOSS to reach the
COVERAGE C LIMIT in respect of underlying policies
underwritten with limits greater than $20,000,000 and up to
$30,000,000 as respects any original policy, each loss.
2. "EXTRA CONTRACTUAL OBLIGATIONS" shall mean 90% of any
punitive, exemplary, compensatory, multiplied or consequential
damages, other than LOSS IN EXCESS OF POLICY LIMITS paid or
payable by the COMPANY as a result of an action against it by
its insured, its insured's assignee or a third party claimant,
which action alleges negligence, breach of contract or bad
faith on the part of the COMPANY in handling a claim under a
policy subject to this Contract. An EXTRA CONTRACTUAL
OBLIGATION shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
The COMPANY shall only include the amount of 90% of EXTRA
CONTRACTUAL OBLIGATIONS within ULTIMATE NET LOSS to reach the
COVERAGE A LIMIT in respect of underlying policies
underwritten with limits equal to or greater than $2,000,000
and up to $10,000,000 as respects any original policy, each
loss. There is no coverage for EXTRA CONTRACTUAL OBLIGATIONS
for original policies with limits of $2,000,000 or less.
THE COMPANY shall include the amount of 90% of EXTRA
CONTRACTUAL OBLIGATIONS within ULTIMATE NET LOSS to reach the
COVERAGE B LIMIT in respect of underlying policies
underwritten with limits greater than $10,000,000 and up to
$20,000,000 as respects any original policy, each loss.
THE COMPANY shall include the amount of 90% of EXTRA
CONTRACTUAL OBLIGATIONS within ULTIMATE NET LOSS to reach the
COVERAGE C LIMIT in respect of underlying policies
underwritten with limits greater than $20,000,000 and up to
$30,000,000 as respects any original policy, each loss.
Notwithstanding anything stated herein, this Contract shall not apply
to any LOSS IN EXCESS OF POLICY LIMITS or any EXTRA CONTRACTUAL
OBLIGATION incurred by the COMPANY as a result of any fraudulent and/or
6
<PAGE> 7
criminal act by any officer or director of the COMPANY acting
individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
C. "LOSS OCCURRENCE" means a loss occurrence or medical incident, or
otherwise the series of accidents, acts, errors or omissions including
continuous or repeated exposure to substantially the same general
harmful conditions giving rise to coverage, all as defined and provided
within the underlying policies underwritten by the COMPANY.
D. "CLAIMS MADE" as used herein shall mean the earlier of (1) or (2)
below:
1. When the insured first gives notice to the COMPANY that a
claim has been made against the insured; or
2. When the insured first gives notice to the COMPANY of a
specific medical incident involving a particular person which
may result in a claim against the original insured.
Notwithstanding the above, and in all cases, the CLAIMS MADE date shall
be as defined and provided within the underlying policies underwritten
by the COMPANY.
E. "LOSSES INCURRED" as used herein shall mean losses and pro rata LOSS
ADJUSTMENT EXPENSES paid by the REINSURER as of the effective date of
calculation, plus the ceded reserves for known losses and pro rata LOSS
ADJUSTMENT EXPENSES outstanding as of the same date, less the
REINSURER'S proportion of any salvages recovered, all as respects
losses and related pro rata LOSS ADJUSTMENT EXPENSES under policies
issued or renewed during the contract year under consideration.
F. 1. "LOSS ADJUSTMENT EXPENSE" as used herein shall mean
expenses allocable to the investigation defense and/or
settlement of specific claims, including litigation expenses
and postjudgment interest and legal expenses and costs
incurred in connection with coverage questions and legal
actions connected thereto, but not including office expenses
or salaries of the COMPANY'S regular employees.
2. "Pro rata LOSS ADJUSTMENT EXPENSES" as used herein shall mean
the result obtained by multiplying the covered indemnity
percentage, as calculated below by the COMPANY'S "LOSS
ADJUSTMENT EXPENSE" for a given claim. The percentage shall be
determined by dividing the amount of ULTIMATE NET LOSS
indemnity for a coverage section by the COMPANY'S total
ULTIMATE NET LOSS for a given claim.
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<PAGE> 8
G. "GROSS EXCESS LIMITS PREMIUM" as used herein shall mean the
net written increased limits premium of the COMPANY for the
Classes of Business Reinsured for the respective layer of
coverage limit hereon. Such premiums shall represent the
incremental gross premium of the COMPANY pertaining to the
respective coverage layer hereon for which GROSS EXCESS LIMITS
PREMIUM is being calculated. Such net written premium shall be
comprised of claims made premium for underlying policies
written on such basis and occurrence premium as respects
underlying policies written on a loss occurrence basis (i.e.
Permanent Protection Plan policies). It is understood that net
written increased limits premium is less cancellation and
return premium but is gross of any deductions for original
acquisition costs (i.e. brokerage).
H. The first contract year shall be from January 1, 1996 through
December 31, 1996, both days inclusive, and each subsequent
12-month period shall be a separate contract year.
ARTICLE VI: CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Within 60 days after the end of each calendar quarter, the COMPANY
shall provide the REINSURER with a claims bordereau outlining any claim
on which the COMPANY has placed a reserve value of $1,000,000 or more.
B. The COMPANY shall include with each claim bordereau, the following
information as respects new claims, pending claims and closed claims
during the quarter:
1. Claim number or reference number;
2. Name of Insured;
3. Name of Claimant;
4. Subject policy limit;
5. CLAIMS MADE date;
6. LOSS OCCURRENCE date;
7. Indemnity (paid and outstanding);
8. Expenses (paid and outstanding);
9. Indemnity recovery; if any;
10. Expense recovery; if any;
8
<PAGE> 9
11. Status.
12. Claim manager report which includes narrative loss description
of each claim.
C. The REINSURER shall have the right, at its own expense, to be
associated in the defense of any claim, suit or proceeding involving
this reinsurance.
D. The COMPANY shall, at its full discretion, adjust and settle all claims
and losses. All such adjustments and settlements shall be binding on
the REINSURER and the REINSURER agrees to pay all amounts for which it
may be liable immediately after receipt of reasonable evidence of the
amount paid by the COMPANY.
ARTICLE VII: SALVAGE AND SUBROGATION
The REINSURER shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the COMPANY, less the actual cost, excluding salaries of
officials and employees of the COMPANY and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
COMPANY for its primary loss. The COMPANY hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss was sustained
by the REINSURER, and to prosecute all claims arising out of such rights.
ARTICLE VIII: COVERAGE A PREMIUM
A. Deposit Premium: As respects each contract year, the COMPANY shall pay
the REINSURERS an annual Deposit Premium equal to the greater of 50% of
GROSS EXCESS LIMITS PREMIUM or $3,500,000 in four equal installments of
$875,000 on March 31, June 30, September 30 and December 31 of each
contract year.
B. Minimum Premium: As respects each contract year, the COMPANY shall pay
REINSURERS Actual Premium as per D. below, but not less than the
Minimum Premium which is equal to 21% of GROSS EXCESS LIMITS PREMIUM in
respect of policies with limits attaching in respect of COVERAGE A or
$1,500,000, whichever is greater.
C. Maximum Premium: As respects each contract year, the COMPANY shall pay
REINSURERS Actual Premium as per D. below, but not greater than the
Maximum Premium which is equal to 63% of GROSS EXCESS LIMITS PREMIUM in
respect of policies with limits attaching in respect of COVERAGE A or
$4,500,000, whichever is greater.
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<PAGE> 10
D. Actual Premium: As respects each contract year, the COMPANY shall
calculate Actual Premium which shall equal the sum of the Minimum
Premium (in B. above) plus 100% of LOSSES INCURRED (net of the
$8,000,000 ULTIMATE NET LOSS plus pro rata LOSS ADJUSTMENT EXPENSE
deductible) subject to the Minimum Premium (in B. above) and the
Maximum Premium (in C. above).
The COMPANY shall calculate and report any downward Actual Premium for
each contract year within 60 days after the end of 36 months from the
beginning of each contract year, and within 60 days after the end of
each 12-month period thereafter until all ULTIMATE NET LOSSES and pro
rata LOSS ADJUSTMENT EXPENSES subject hereto have been settled. The
COMPANY shall calculate and report any upward Actual Premium for each
agreement period within 60 days after the end of 12 months from the
beginning of each contract year, and within 60 days after the end of
each 12-month period thereafter until all ULTIMATE NET LOSSES and pro
rata LOSS ADJUSTMENT EXPENSES subject hereto have been settled.
The REINSURER shall pay the COMPANY any reported downward Actual
Premium less amounts previously paid in respect of Deposit Premium and
prior net Actual Premium payments upon 15 days of receipt of the
COMPANY'S report or 75 days in arrears of the respective year end
reporting date, whichever is later.
The COMPANY shall pay the REINSURERS any reported upward Actual Premium
less amounts previously paid in respect of Deposit Premium and prior
net Actual Premium payments upon the reporting of such Actual Premium
development to REINSURERS.
ARTICLE IX: COVERAGE B PREMIUM AND CEDING COMMISSION
A. Minimum Premium: As respects each contract year, the COMPANY shall pay
the REINSURERS an annual Minimum Premium equal to 90% of GROSS EXCESS
LIMITS PREMIUM for policies with limits attaching hereunder in respect
of Coverage B. Minimum Premium above shall be payable by the COMPANY to
REINSURERS quarterly within 45 days in arrears from the end of each
quarter paying all amounts due in respect of premiums collected by the
COMPANY for the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the event
of the whole or any portion of the second COVERAGE B indemnity limit
being exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the COMPANY shall pay to the
REINSURERS an Additional Premium calculated by applying to the annual
Minimum Premium to REINSURERS for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the
total amount of indemnity coverage of indemnity so reinstated bears to
the total amount of indemnity coverage afforded under COVERAGE B,
subject to a minimum of 100% as to time, to be paid simultaneously with
the payment of loss by the REINSURERS. Notwithstanding the above, the
first 90% of $10,000,000 indemnity LIMIT shall be reinstated by the
REINSURERS free of charge.
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<PAGE> 11
Nevertheless, the REINSURERS liability in any one claim shall never
exceed 90% of $10,000,000 ULTIMATE NET LOSS plus pro rata LOSS
ADJUSTMENT EXPENSES in respect of COVERAGE B.
C. Maximum Premium: As respects each contract year, the Maximum Premium
shall equal the product of the Minimum Premium multiplied by 2 (two).
D. CEDING COMMISSION: The REINSURERS shall pay to the COMPANY 17.5% of
all COVERAGE B Minimum Premium and Reinstatement Premium payable hereon
by the COMPANY at the time the COMPANY pays such premiums.
ARTICLE X: COVERAGE C PREMIUM AND CEDING COMMISSION
A. Minimum Premium: As respects each contract year the COMPANY shall pay
the REINSURERS an annual Minimum Premium equal to 90% of GROSS EXCESS
LIMITS PREMIUM for policies with limits attaching hereunder in respect
of COVERAGE C. Minimum Premium above shall be payable by the COMPANY to
REINSURERS quarterly within 45 days in arrears from the end of each
quarter paying all amounts due in respect of premiums collected by the
COMPANY for the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the event
of the whole or any portion of the second COVERAGE C indemnity limit
being exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the COMPANY shall pay to the
REINSURERS an Additional Premium calculated by applying to the annual
Minimum Premium to REINSURERS for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the
total amount of indemnity coverage afforded under COVERAGE C, subject
to a minimum of 100% as to time, to be paid simultaneously with the
payment of loss by the REINSURERS. Notwithstanding the above, the first
90% of $10,000,000 indemnity LIMIT shall be reinstated by the COMPANY
free of charge.
Nevertheless, the REINSURERS liability in any one claim shall never
exceed 90% of $10,000,000 ULTIMATE NET LOSS plus pro rata LOSS
ADJUSTMENT EXPENSES in respect of COVERAGE C.
C. Maximum Premium: As respects each contract year, the Maximum Premium
shall equal the product of the Minimum Premium multiplied by 2 (two).
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<PAGE> 12
D. CEDING COMMISSION: The REINSURERS shall pay to the COMPANY 17.5% of all
COVERAGE C Minimum Premium and Reinstatement Premium payable hereon by
the COMPANY at the time the COMPANY pays such premiums.
ARTICLE XI: OFFSET
The COMPANY and the REINSURER shall have the right to OFFSET any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of OFFSET may exercise such right any time whether the
balances are on account of premiums or losses or otherwise.
ARTICLE XII: ACCESS TO RECORDS
A. The COMPANY shall place at the disposal of the REINSURER at all
reasonable time, and the REINSURER shall have the right to inspect,
through authorized representatives, all books, records, policies,
endorsements and papers of the COMPANY in connection with any
reinsurance hereunder, or claims in connection herewith.
B. The REINSURER agrees that they will not disclose any confidential
information obtained by it hereunder to parties not subject to this
Contract except under the following circumstances and then only when
necessary:
1. When disclosure of such information is required in the normal
course of the REINSURERS business; or
2. With the prior written consent of the COMPANY; or
3. When the REINSURER are required by a subpoena or court order
to disclose such information. The REINSURER shall promptly
notify the COMPANY of any attempt by a third party to obtain
from them any such confidential information.
C. The REINSURER will provide the COMPANY or its designated representative
with such information as the REINSURER and COMPANY may agree is
necessary to the COMPANY'S handling of the business reinsured herein
D. The obligation contained in this Article shall survive termination of
this Contract.
ARTICLE XIII: LIABILITY OF THE REINSURER
A. The liability of the REINSURER shall follow that of the COMPANY in
every case and be subject in all respects to all the general and
specific stipulations, clauses, waivers and modifications of the
COMPANY'S policies and any endorsements thereon. However, in no event
shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this Contract.
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<PAGE> 13
B. Nothing herein shall in any manner create any obligation or establish
any rights against the REINSURER in favor of any third party or any
persons not parties to this Contract.
ARTICLE XIV: NET RETAINED LIABILITY
A. This Contract applies only to that portion of any insurance or
reinsurance which the COMPANY retains net for its own account (prior to
deduction of any underlying reinsurance), and in calculating the amount
of any loss hereunder and also in computing the amount or amounts in
excess of which this Contract attaches only loss or losses in respect
of that portion of any policy which the COMPANY retains net for its own
account shall be included.
B. The amount of the REINSURERS liability hereunder in respect of any loss
or losses shall not be increased by reason of the inability of the
COMPANY to collect from any other reinsurer(s), whether specific or
general, any amounts which may have become due from such reinsurer(s),
whether such inability arises from the insolvency of such other
reinsurer(s) or otherwise.
ARTICLE XV: DELAYS, ERRORS OR OMISSIONS
Inadvertent delays, errors or omissions made in connections with this Contract
or any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery. In no event shall late notification of any claim,
except as provided in the sunset clause under ARTICLE IV, Section E, by the
COMPANY constitute a ground upon which the REINSURER have been prejudice by such
late notice. As used in this Article, the term "prejudice" shall mean that a
different outcome in the handling of any claim would have resulted but for the
untimely notice to REINSURERS.
ARTICLE XVI: CURRENCY
Whenever the word "Dollars" or the "$" appears in this Contract, they shall be
construed to mean United States Dollars and all transactions under this Contract
shall be in United States Dollars.
ARTICLE XVII: FEDERAL EXCISE TAX
If the REINSURER is subject to the FEDERAL EXCISE TAX, the REINSURER agrees to
allow, for the purpose of paying the TAX, up to 1% of the premium payable hereon
to the extent such premium is subject to the TAX. In the event of any return
premium becoming due hereunder, the REINSURER will deduct from the amount of the
return premium the same percentage as it allowed, and the COMPANY or its agents
should take steps to recover the TAX from the U.S. Government.
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<PAGE> 14
ARTICLE XVIII: UNAUTHORIZED REINSURERS
A. If the REINSURER is unauthorized in any state of the United States of
America or the District of Columbia, the REINSURER agrees to fund its
share of the COMPANY'S ceded outstanding loss and LOSS ADJUSTMENT
EXPENSE reserves, ceded incurred but not reported loss reserves and
COVERAGE A return premium accrued by the COMPANY, as determined by the
COMPANY, respectively by:
1. Clean, irrevocable and unconditional letters of credit issued
and confirmed, if confirmation is required by the insurance
regulatory authorities involved, by a bank or banks meeting
the NAIC Securities Valuation Office credit standards for
issuers of letters of credit and acceptable to said insurance
regulatory authorities; and/or
2. Trust accounts in conformity with New York Regulation 114 for
the benefit of the COMPANY and as may be required by any other
insurance regulatory authority; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the COMPANY on any
financial statement it is required to file with the insurance
regulatory authorities involved. The REINSURER, at its sole option, may
fund in other than cash if its method and form of funding are
acceptable to the insurance regulatory authorities involved and the
COMPANY.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued for a term of
at least one year and will include an "evergreen clause" which
automatically extends the term for at least one additional year at each
expiration date unless written notice of non-renewal is given to the
COMPANY not less than 30 days prior to said expiration date. The
COMPANY and the REINSURER further agree, notwithstanding anything to
the contrary in this Contract, that said letters of credit may be drawn
upon by the COMPANY or its successors in interest at any time, without
diminution because of the insolvency of the COMPANY or the REINSURER,
but only for one or more of the following purposes:
1. To reimburse itself for the REINSURER'S share of losses and/or
LOSS ADJUSTMENT EXPENSES paid under the terms of policies
reinsured hereunder, unless paid in cash by the REINSURER;
2. To reimburse itself for the REINSURER'S share of any COVERAGE
A return premium due and other amounts claimed to be due
hereunder, unless paid in cash by the REINSURER.
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<PAGE> 15
3. To fund a cash account in an amount equal to the REINSURER'S
share of any outstanding loss and LOSS ADJUSTMENT EXPENSE
reserves and ceded incurred but not reported loss reserves or
COVERAGE A return premium funded by means of a letter of
credit which (a) is under non-renewal notice, it said letter
of credit has not been renewed or replaced by the REINSURER 10
days prior to its expiration date, or (b) the REINSURER has
failed to increase to the amount requested by the COMPANY, it
being understood that nothing in this Contract in any way
shall restrict or limit the rights of the COMPANY under the
terms of the letter of credit;
4. To refund to the REINSURER any sum in excess of the actual
amount required to fund the REINSURER'S share of the COMPANY'S
ceded outstanding loss and LOSS ADJUSTMENT EXPENSE reserves
and ceded incurred but not reported loss reserves or COVERAGE
A return premium, if so requested by the REINSURER.
In the event the amount drawn by the COMPANY on any letter of credit is
in excess of the actual amount required for B(1) or B(3), or in the
case of B(2), the actual amount determined to be due, the COMPANY shall
promptly return to the REINSURER the excess amount so drawn.
ARTICLE XIX: INSOLVENCY
A. In the event of the INSOLVENCY of the COMPANY, this reinsurance shall
be payable directly to the COMPANY or to its liquidator, receiver,
conservator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of the liability of
the COMPANY without diminution because of the INSOLVENCY of the COMPANY
or because the liquidator, receiver, conservator or statutory successor
of the COMPANY has failed to pay all or a portion of any claim. It is
agreed, however, that the liquidator, receiver, conservator or
statutory successor of the COMPANY shall give written notice to the
REINSURER of the pendency of a claim against the COMPANY indicating the
policy or bond reinsured which claim would involve a possible liability
on the part of the REINSURER within a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the REINSURER
may investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to adjudicated, any defense or defenses
that it may deem available to the COMPANY or its liquidator, receiver,
conservator, or statutory successor. Accidental failure to give such
notice shall not excuse the obligation unless REINSURERS are
substantially prejudiced by the failure to give such notice. The
expense thus incurred by the REINSURER shall be chargeable, subject to
the approval of the Court, against the COMPANY as part of the expense
of conservation or liquidation to the extent of a pro rata share of the
benefit which
15
<PAGE> 16
may accrue to the COMPANY solely as a result of the defense undertaken
by the REINSURER.
B. Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this
Contract as though such expense had been incurred by the COMPANY.
C. It is further understood and agreed that, in the event of the
INSOLVENCY of the COMPANY, the reinsurance under this Contract shall be
payable directly by the REINSURER to the COMPANY or to its liquidator,
receiver or statutory successor.
ARTICLE XX: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereafter arising with respect
to this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to ARBITRATION. One Arbiter
shall be chosen by the COMPANY, the other by the REINSURER, and an
Umpire shall be chosen by the two Arbiters before they enter upon
ARBITRATION, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance companies. In the event
that either party should fail to choose an Arbiter within 30 days
following a written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an Umpire before
entering upon ARBITRATION. If the two Arbiters fail to agree upon the
selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two
of whom the other shall decline, and the decision shall be made by
drawing lots. Nothing herein shall prevent either party from commencing
a proceeding in the United States District Court having jurisdiction
over the dispute for the purposes of having said court select an Umpire
pursuant to the Federal Arbitration Act 9 USC 1 et seq.
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Contract as an honorable engagement rather than merely as
a legal obligation and they are relieved of all judicial formalities
and may abstain from following the strict rules of law. The decision of
the Arbiters shall be final and binding on both parties; but failing to
agree, they shall call in the Umpire and the decision of the majority
shall be final and binding upon both parties. Judgment upon the final
written decision of the Arbiters may be entered in any court of
competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the COMPANY to each of the
reinsurers constituting one party; provided, however, that nothing
herein shall impair the
16
<PAGE> 17
rights of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability of the
reinsurers participating under the terms of this Contract from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
ARBITRATION. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the ARBITRATION shall be equally divided between the two parties.
E. Any ARBITRATION proceedings shall take place at a location in
Lawrenceville, New Jersey. All proceedings pursuant hereto shall be
governed by the law of the State of New Jersey.
ARTICLE XXI: SERVICE OF SUIT
A. It is agreed that in the event of the failure of the REINSURER hereon
to pay any amount claimed to be due hereunder, the REINSURERS hereon,
at the request of the COMPANY, will submit to the jurisdiction of a
court of competent jurisdiction within the United States. The foregoing
shall not constitute a waiver of the right of the REINSURERS to
commence any suit in, or to remove, remand or transfer any suit to any
other court of competent jurisdiction in accordance with the applicable
statutes of the state or United States pertinent thereto.
B. It is further agreed that service of process in such suit may be made
upon Kroll & Tract, 520 Madison Avenue, New York, NY 10022-4235, United
States of America, and that in any suit instituted against any one of
them upon this Contract, the REINSURER will abide by the final decision
of such Court or of any Appellate Court in the event of an appeal.
C. The above named are authorized and directed to accept service of
process on behalf of the REINSURER in any suit and/or upon the request
of the COMPANY to give a written undertaking to the COMPANY that they
will enter a general appearance upon the REINSURERS behalf in the event
such suit shall be instituted.
D. Further, pursuant to any statute of any state, territory or District of
the United States which makes provision therefor, the REINSURER hereon
hereby designate the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purposes in the statute,
or his successor or successors in office, as their true and lawful
attorney upon whom may be served any lawful proceeding in any action,
suit or proceeding instituted by or on behalf of the COMPANY or any
beneficiary hereunder arising out of this Contract, and hereby
designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
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<PAGE> 18
ARTICLE XXII: INTERMEDIARIES
Medical Brokers, Inc., Pegasus Advisors, Inc. and Lloyd Thompson Ltd. are hereby
recognized as the INTERMEDIARIES negotiating this Contract for all business
hereunder. All communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, LOSS ADJUSTMENT EXPENSE,
salvage and loss settlements) relating thereto shall be transmitted to the
COMPANY or the REINSURER through Pegasus Advisors, Inc. Payments by the COMPANY
to the INTERMEDIARIES shall be deemed to constitute payment to the REINSURER.
Payments by the REINSURER to the INTERMEDIARIES shall be deemed to constitute
payment to the COMPANY only to the extent that such payments are actually
received by the COMPANY.
Notwithstanding the above, the COMPANY and REINSURERS hereby agree that all
payments will be direct from the REINSURER to the COMPANY, or from the COMPANY
to the REINSURERS, as appropriate.
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<PAGE> 19
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
SWISS REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 41.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1996, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kosler
----------------------------------------------------
In Zurich, Switzerland, this 2nd day of September 1996, For and on Behalf of
Swiss Reinsurance COMPANY
By: /s/ C. Cotti /s/ W. Schlapfer
----------------------------------------------------
<PAGE> 20
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
HANNOVER RUCKVERSICHERUNGS
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 25.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1996, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
----------------------------------------------
In Hannover, Germany, this 13th day of September 1996,
For and on Behalf of Hannover Ruckversicherungs
HANNOVER
By: Ruckversicherungs Aktiengesellschaft Reference #
------------------------------------------
EISEN UND STAHL 0-411263-3009
Ruckversicherungs Aktiengesellschaft
/s/ H. Gradtke /s/ C. v. Heimburg
North American Treaty Dpt.-VR 11
<PAGE> 21
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
UNDERWRITERS REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 13.46% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1996, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
------------------------------------------
In Woodland Hills, California, this 26th day of Aug. 1996,
For and on Behalf of Underwriters Reinsurance Company
By: /s/ Denise Coleman
------------------------------------------
<PAGE> 22
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
AMERICAN RE-INSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 9.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1996, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
------------------------------------------
In Princeton, New Jersey, this 10th day of September 1996,
For and on Behalf of American Re-Insurance Company
By: /s/ Paul H. Milione
------------------------------------------
<PAGE> 23
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
KEMPER REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 7.69% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1996, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
--------------------------------------------------
In Long Grove, Illinois, this 30th day of September 1996,
For and on Behalf of Kemper Reinsurance Company
By: /s/ Brian Cook
--------------------------------------------------
Brian J. Cook, Treaty Officer Ref: 22776-6
<PAGE> 24
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
LONDON LIFE & CASUALTY REINSURANCE CORPORATION
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 3.85% share in the
interests and liabilities as set forth in the document attached hereto entitled,
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1996, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
------------------------------------------------------
In Wildey, St. Michael, Barbados, this 27th day of August 1996,
For and on Behalf of London Life & Casualty Reinsurance Corporation
By: /s/ Michael D. Price, Acting President [SEAL]
------------------------------------------------------
<PAGE> 25
IN WITNESS WHEREOF, the REINSURER has caused this TERMINATION ENDORSEMENT to be
executed by its duly authorized officer:
SWISS REINSURANCE COMPANY
By: /s/ C. Cotti /s/ W. Schlapfer
------------------------------------------
5 June 1997
Title:
------------------------------------------
<PAGE> 26
IN WITNESS WHEREOF, the REINSURER has caused this TERMINATION ENDORSEMENT to be
executed by its duly authorized officer:
HANNOVER RUCKVERSICHERUNGS
By: Hannover, Germany, 27th of June 1997
-------------------------------------------------
HANNOVER
Title: Ruckversicherungs-Aktiengesellschaft
-------------------------------------------------
EISEN UND STAHL
Ruckversicherungs-Aktiengesellschaft Reference #: 0-411263-3009
/s/ H. Gradtke s/s C. v. Heimburg (242474A)
North American Treaty Dpt.-VR 11
<PAGE> 27
IN WITNESS WHEREOF, the REINSURER has caused this TERMINATION ENDORSEMENT to be
executed by its duly authorized officer:
UNDERWRITERS REINSURANCE COMPANY
By: /s/ Denise Coleman
-------------------------------------------------
Title: /s/ Senior Vice President
-------------------------------------------------
6/24/97
<PAGE> 28
IN WITNESS WHEREOF, the REINSURER has caused this TERMINATION ENDORSEMENT to be
executed by its duly authorized officer:
AMERICAN RE-INSURANCE COMPANY
By /s/ John S. Charo
-------------------------------------------------
Title: /s/ Vice President
-------------------------------------------------
<PAGE> 29
IN WITNESS WHEREOF, the REINSURER has caused this TERMINATION ENDORSEMENT to be
executed by its duly authorized officer:
KEMPER REINSURANCE COMPANY
By: /s/ Richard A. Clymer
-------------------------------------------------
Richard A. Clymer, Vice President Ref: 22776-6
Title:
-------------------------------------------------
<PAGE> 30
IN WITNESS WHEREOF, the REINSURER has caused this TERMINATION ENDORSEMENT to be
executed by its duly authorized officer:
LONDON LIFE AND CASUALTY REINSURANCE CORPORATION
By: /s/ Michael D. Price
-------------------------------------------------
Title: /s/ President [SEAL]
-------------------------------------------------
<PAGE> 1
Exhibit 10.8
INTER-INSURANCE EXCHANGE OF NEW JERSEY
COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS
REINSURANCE TREATY
EFFECTIVE JANUARY 1, 1996
<TABLE>
<CAPTION>
ARTICLE SUMMARY PAGE
- ------- ------- ----
<S> <C>
1 BUSINESS COVERED 2
2 TERM 3
3 TERRITORY AND INURING REINSURANCE 3
4 EXCLUSIONS 3
5 COVERAGES AND AGGREGATE LIMITS 4
6 DEFINITIONS 5
7 NET RETAINED LIABILITY 7
8 COVERAGE A DEPOSIT CONSIDERATION AND 8
COVERAGE A ACTUAL CONSIDERATION AND CEDING COMMISSION,
COVERAGE A ADDITIONAL COVERAGE CONSIDERATION,
REINSURERS' EXPENSE CHARGE AND COVERAGE B CONSIDERATION
9 OFFSET AND SECURITY 11
10 REPORTS AND LOSS SETTLEMENTS 12
11 PROFIT SHARING, FUNDS WITHHELD ACCOUNT AND
INTEREST CREDIT 13
12 LIABILITY OF THE REINSURER AND CURRENCY 15
13 COMMUTATION 15
14 EXCESS OF ORIGINAL POLICY LIMITS 16
15 EXTRA CONTRACTUAL OBLIGATIONS 16
16 ERRORS AND OMISSIONS 17
17 ACCESS TO RECORDS 17
18 ACTUARIAL REVIEW 17
19 LOSS RESERVE FUNDING 17
20 FUNDS WITHHELD TRUST ACCOUNT 18
21 INSOLVENCY 19
22 ARBITRATION 19
23 CHANGES IN ADMINISTRATIVE PRACTICES 20
24 TAXES 21
25 SERVICE OF SUIT 21
26 NO ASSIGNMENT 21
27 INTERMEDIARY 22
</TABLE>
<PAGE> 2
1996 COMBINED AGGREGATE AND CASUALTY
CATASTROPHE EXCESS OF LOSS
REINSURANCE AGREEMENT NO. 1996
BETWEEN
THE REINSURERS SUBSCRIBING THE RESPECTIVE INTERESTS
AND LIABILITIES AGREEMENTS HERETO
(HEREINAFTER CALLED "REINSURERS")
AND
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER CALLED THE "CEDING COMPANY")
ARTICLE 1: BUSINESS COVERED
This Agreement shall indemnify the CEDING COMPANY with respect to ULTIMATE NET
LOSSES which may accrue to the CEDING COMPANY under any and all POLICIES subject
to the Terms and Conditions of this Agreement.
As respects COVERAGES A and B hereon, the REINSURERS shall provide coverage on a
losses occurring during basis during the TERM in respect of all of the CEDING
COMPANY'S POLICIES underwritten on a losses occurring during basis. Also, as
respects COVERAGES A and B hereon, the REINSURERS shall provide coverage on a
claims first made basis during the TERM in respect of all of the CEDING
COMPANY'S POLICIES, including the HIV Endorsement, underwritten on a claims
first made basis. For all purposes, the "PERMANENT PROTECTION POLICIES (PPP)"
underwritten by the CEDING COMPANY shall in all cases be deemed to cover on a
losses occurring during basis of underlying coverage. REINSURERS shall be
subject to all of the conditions of the PPP including policy limits and the
aggregate limit formula under the extended reporting coverage therein.
As respects COVERAGE C hereon, the REINSURERS shall provide coverage hereon on a
losses occurring during basis during the TERM.
REINSURERS shall remain liable for all losses covered as detailed above during
the TERM until all such losses are paid or this Agreement is commuted. The
REINSURERS shall also remain liable for COVERAGES A, B AND C hereunder upon the
CEDING COMPANY'S election on or before December 31, 1996 to run-off business in
force on December 31, 1996. Upon the CEDING COMPANY'S election to run-off, the
reinsurance in force on December 31, 1996 shall remain in full force and effect
until expiration, cancellation, or next premium anniversary of such business,
whichever first occurs, but in no event beyond 12 months following the effective
date of termination, plus any extension of coverage for extended reporting as
per the ORIGINAL POLICIES of the CEDING COMPANY. If run-off is not elected by
the
-2-
<PAGE> 3
CEDING COMPANY, there shall be no payment of return CONSIDERATION due to the
CEDING COMPANY. If run-off is elected by the CEDING COMPANY, the REINSURERS
shall be entitled to ADDITIONAL CONSIDERATION in respect of COVERAGE A due to
the increase in SNEP hereon, as unearned subject premium on POLICIES in force
at December 31, 1996 becomes earned.
Such business in run-off shall be included in all calculations within this
Agreement, including but not limited to, SNEP and ULTIMATE NET LOSS for all
COVERAGES hereon.
ARTICLE 2: TERM
This Agreement shall be effective from January 1, 1996 through December 31,
1996, both days inclusive.
Should this Agreement expire while a COVERAGE A loss covered in respect of a
loss occurrence policy, such as the PPP is in progress, the REINSURERS shall be
responsible for the loss in progress in the same manner and to the same extent
they would have been responsible had the Agreement expired the day following the
conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Agreement will cover POLICIES written within the United States of America.
All other REINSURANCE AGREEMENTS that inure to the benefit of this Agreement
shall be deemed in place until all liability of the REINSURERS hereon is
finalized by payment of all losses or commutation.
ARTICLE 4: EXCLUSIONS
This Agreement shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause attached hereto;
C. Business assumed from Pools, Syndicates, and Associations except
business assumed in respect of the Improved Risk Mutual pool as per
ARTICLE 6: DEFINITIONS Section F.
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - U.S.A., except that provisions of this clause
shall not apply to liability arising out of the practice of Nuclear
Medicine and activities relating to Nuclear Medicine by the original
insured.
E. War Risks, in accordance with the North American War Exclusion Clause
attached hereto;
F. Unallocated LOSS ADJUSTMENT EXPENSES as described in ARTICLE 6, Section
E.
G. Underlying Policies written by the CEDING COMPANY on an aggregate basis
(provider stop loss).
-3-
<PAGE> 4
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS
A. COVERAGE A
Should the CEDING COMPANY'S LOSS RATIO exceed 75% (hereinafter called
the Retention), the REINSURERS shall be liable for 100% of the paid
amount of ULTIMATE NET LOSSES in excess of the Retention subject to a
maximum AGGREGATE LIMIT of 75% of SNEP unless the REINSURERS agree to
provide additional AGGREGATE LIMIT as per the following paragraph.
The REINSURERS may unilaterally offer at any time, and the CEDING
COMPANY shall accept and purchase additional coverage up to 100% of the
paid amount of ULTIMATE NET LOSSES in excess of the CEDING COMPANY'S
LOSS RATIO of 150% subject to a maximum aggregate additional limit of
5.6% of SNEP. In no event shall REINSURERS be liable for more than
$120,000,000 in the aggregate for COVERAGE A if coverage is cut-off and
$130,000,000 in the aggregate for COVERAGE A if coverage is run-off.
COVERAGES B and C hereon shall inure to COVERAGE A. Therefore, ULTIMATE
NET LOSSES in respect of the CEDING COMPANY'S NET RETAINED LIABILITY
shall be reduced by any amounts recoverable in respect of COVERAGES B
and C.
B. COVERAGE B
The REINSURERS shall indemnify the CEDING COMPANY for 100% of
$10,250,000 of the indemnity portion of ULTIMATE NET LOSSES (exclusive
of LOSS ADJUSTMENT EXPENSE) each and every loss per insured excess of
$750,000 of the indemnity portion of ULTIMATE NET LOSSES (exclusive of
LOSS ADJUSTMENT EXPENSE) each and every loss per insured plus pro rata
LOSS ADJUSTMENT EXPENSES in respect of BUSINESS COVERED. In no event
shall REINSURERS be liable for more than $14,000,000 inclusive of both
the indemnity portion of ULTIMATE NET LOSS and pro rata LOSS ADJUSTMENT
EXPENSES in respect of COVERAGE B hereon.
The CEDING COMPANY shall retain an aggregate deductible equal to 20% of
cumulative SNEP. This deductible shall apply to the aggregate sum of
per insured indemnity portion of ULTIMATE NET LOSSES (exclusive of LOSS
ADJUSTMENT EXPENSES) $2,250,000 excess of $750,000 each and every loss.
Pro rata LOSS ADJUSTMENT EXPENSES shall be covered and apply to the
aggregate deductible. Also, the CEDING COMPANY shall retain $8,000,000
in respect of the aggregate sum of per insured indemnity portion of
ULTIMATE NET LOSSES (exclusive of LOSS ADJUSTMENT EXPENSES) for the
layer $8,000,000 excess of $3,000,000 each and every loss. Pro rata
LOSS ADJUSTMENT EXPENSES shall also be covered and apply to the
aggregate deductible.
COVERAGE B shall inure to COVERAGES A and C hereon.
All of the indemnity portion of ULTIMATE NET LOSSES plus pro rata LOSS
ADJUSTMENT EXPENSE retained by the CEDING COMPANY as part of the above
aggregate deductible, shall be part of the CEDING COMPANY'S NET
RETAINED LIABILITY and, therefore, covered under COVERAGE A hereon.
-4-
<PAGE> 5
C. COVERAGE C
REINSURERS shall indemnify the CEDING COMPANY for $9,250,000 of the
indemnity portion of ULTIMATE NET LOSS (exclusive of LOSS ADJUSTMENT
EXPENSES) excess of $750,000 of the indemnity portion of ULTIMATE NET
LOSS (exclusive of LOSS ADJUSTMENT EXPENSES) per LOSS OCCURRENCE as
respects LOSS OCCURRENCES during the TERM. Pro rata LOSS ADJUSTMENT
EXPENSES shall also be covered. Notwithstanding the definition of
ULTIMATE NET LOSS as per Section D of ARTICLE 6: DEFINITIONS LOSS
ADJUSTMENT EXPENSE shall be excluded from the determination of ULTIMATE
NET LOSS referenced in this COVERAGE C. REINSURERS shall, however,
indemnify the CEDING COMPANY for pro-rata LOSS ADJUSTMENT EXPENSES in
addition to loss indemnity amounts subject to an AGGREGATE LIMIT in all
equal to $9,250,000. COVERAGE C shall inure to COVERAGE A.
ARTICLE 6: DEFINITIONS
A. "CUMULATIVE SUBJECT NET EARNED PREMIUMS" (SNEP) shall mean the
cumulative NET WRITTEN PREMIUM INCOME of the CEDING COMPANY during the
period January 1, 1996 through December 31, 1996 plus the NET WRITTEN
PREMIUM INCOME unearned at December 31, 1995 less the NET WRITTEN
PREMIUM INCOME unearned as of the calendar quarter end calculation date
but no later than December 31, 1996.
Notwithstanding the above, SNEP shall be net of premiums ceded to the
Quota Share treaty effective December 31, 1995. Furthermore, should
this Quota Share treaty effective December 31, 1995 be commuted, SNEP
shall be increased to reflect the reassumption of ceded premium.
B. "NET WRITTEN PREMIUM INCOME" shall mean gross written premiums of the
CEDING COMPANY less cancellations and returns and less premiums paid
for all other reinsurances for the period January 1, 1996 through
December 31, 1996, except for NON-TRADITIONAL REINSURANCE AGREEMENTS
which shall be disregarded for the calculation of SNEP.
C. 1. "NON-TRADITIONAL REINSURANCE AGREEMENTS" shall mean any
reinsurance agreement which allows for PROFIT SHARING (or any
other form of contractual adjustment) exceeding 25% of initial
reinsurance premium paid. This definition does not apply to
the CEDING COMPANY'S inuring swing rated excess and quota
share reinsurance coverages.
2. "TRADITIONAL REINSURANCE AGREEMENTS" shall mean any
reinsurance agreement which is not a non-traditional
reinsurance agreement.
D. The term "ULTIMATE NET LOSS" means the actual loss including any and
all vicarious liability, arising from a LOSS OCCURRENCE as covered in
accordance with ARTICLE 1: BUSINESS COVERED, including pro rata LOSS
ADJUSTMENT EXPENSE, 80% of LOSS IN EXCESS OF POLICY LIMITS and 80% of
EXTRA CONTRACTUAL OBLIGATIONS, and including losses incurred but not
yet reported, all paid, payable, or to be paid, by the CEDING COMPANY
after making deductions for all recoveries, salvages, subrogations and
all claims on inuring reinsurance, whether such reinsurance is
-5-
<PAGE> 6
collectible or not; provided, however, that in the event of the
insolvency of the CEDING COMPANY, payment by the REINSURERS shall be
made in accordance with the provisions of the INSOLVENCY Article.
Nothing herein shall be construed to mean that losses under this
Agreement are not "recoverable" until the CEDING COMPANY'S ULTIMATE NET
LOSS has been ascertained.
ULTIMATE NET LOSS shall be increased if the COMPANY commutes its Quota
Share treaty which is effective December 31, 1995 to reflect the
reassumption of ceded losses and loss adjustment expenses outstanding
and additional loss and loss adjustment expense development, if any.
ULTIMATE NET LOSS shall exclude from coverage hereon, all combined XPL
and ECO liability in excess of $10,000,000 any one loss occurrence or
claim first made and $20,000,000 in the aggregate. Both of these
amounts shall be after applying the 80% factor for XPL/ECO coverage.
The $10,000,000, therefore, relates to $12,500,000 of XPL/ECO liability
from ground up in respect of a single occurrence and $20,000,000
relates to $25,000,000 of aggregate XPL/ECO ULTIMATE NET LOSS.
E. "LOSS ADJUSTMENT EXPENSE" means all costs and expenses allocable to a
specific claim or claims that are incurred by the CEDING COMPANY in the
investigation, appraisal, adjustment, settlement, litigation, defense
or appeal of a specific claim, including court costs and costs of
supersedeas and appeal bonds, and including a) pre-judgment interest,
unless included as part of the award or judgment; b) post-judgment
interest; and c) legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto. LOSS ADJUSTMENT
EXPENSE does not include unallocated LOSS ADJUSTMENT EXPENSE.
Unallocated LOSS ADJUSTMENT EXPENSE includes, but is not limited to,
salaries and expenses of employees, and office and other overhead.
F. "POLICIES" means any and all original policies, contracts, and binders
of insurance underwritten by the CEDING COMPANY and classified under
the listing below.
"POLICIES" shall also mean assumed reinsurance from American Medical
Mutual (AMM) of Vermont and Lawrenceville Property and Casualty
Insurance Company, Inc. of New Jersey (LP&C), in respect of original
policies underwritten by AMM and LP&C and classified also as:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage)*
Directors and Officers Liability
Property and Other Coverages as provided within the CEDING
COMPANY'S Medical Office Policies
Hospital Professional Liability
Other Health Care Institution Liability
Professional Premises Liability
Commercial General Liability
Excess/Umbrella Liability
Errors and Omissions Liability
-6-
<PAGE> 7
*Policies shall only include HIV coverage to insured medical and dental
practitioners of the CEDING COMPANY. Coverages for others for HIV shall
only be available upon REINSURERS' approval.
"POLICIES" shall also mean assumed reinsurance from Underwriters
Reinsurance Company (URC) and Improved Risk Mutual (IRM). URC business
will be casualty facultative assumed business. IRM business shall be
property Highly Protected Risk (HPR) business. POLICIES shall also
include other assumed reinsurance subject to ARTICLE 7: NET RETAINED
LIABILITY.
G. "LOSS RATIO" means the ratio of ULTIMATE NET LOSSES incurred divided by
CUMULATIVE SUBJECT NET EARNED PREMIUM as of the date of calculation.
H. "CEDED LOSS RATIO" means the ratio of ceded ULTIMATE NET LOSSES
incurred divided by CUMULATIVE SUBJECT NET EARNED PREMIUM as of the
date of calculation.
I. "LOSS OCCURRENCE" means LOSS OCCURRENCE or medical incident, or
otherwise the event giving rise to coverage, all as defined and
provided within the underlying POLICIES underwritten by the CEDING
COMPANY.
ARTICLE 7: NET RETAINED LIABILITY
COVERAGE A applies only to that portion of any LOSS OCCURRENCE or claim first
made which the CEDING COMPANY retains net for its own account. All other
REINSURANCE AGREEMENTS, including COVERAGES B and C hereon, shall inure to the
benefit of this Agreement and be deemed in place until all liability hereon is
finalized.
The CEDING COMPANY warrants that the minimum NET RETAINED LIABILITY is $750,000
per insured and $1,000,000 per event for insureds in New Jersey and $200,000 per
insured and $600,000 per event for insureds in other states.
The CEDING COMPANY warrants that the maximum NET RETAINED LIABILITY is as
follows:
<TABLE>
<CAPTION>
Policies Classified As: Maximum NET RETAINED LIABILITY
----------------------- ------------------------------
<S> <C>
Errors and Omissions Liability $ 2,000,000 any one policy
Directors & Officers Liability $ 2,000,000 any one policy
Medical Office Policy $ 2,250,000 any one policy
Assumed Reinsurance from AMM $ 9,900,000 per claim per insured
Assumed Reinsurance from URC $ 250,000 per claim per underlying insured
Assumed Reinsurance from IRM $ 200,000 per claim per underlying insured
plus 250% of IRM SNEP in the aggregate.
All Assumed Reinsurance Combined 250% of all combined assumed reinsurance
except for AMM and LP&C business exchiding AMM & LP&C SNEP in the
aggregate.
All Other Policies $10,000,000 per claim per insured
</TABLE>
-7-
<PAGE> 8
The above figures pertain to indemnity only. Therefore, NET RETAINED LIABILITY
would be increased in respect of pro rata LOSS ADJUSTMENT EXPENSES. The CEDING
COMPANY must obtain special acceptance from REINSURERS prior to exceeding the
above maximum NET RETAINED LIABILITY.
Furthermore, it is warranted that less than 15% of the CEDING-COMPANY'S SNEP
during the TERM of this Agreement will apply to the business where the CEDING
COMPANY'S NET RETAINED LIABILITY is below $750,000 on a per insured and
$1,000,000 on a per event basis. Also, it is warranted that less than 5% of the
CEDING COMPANY'S SNEP or $7,000,000, whichever is greater, will originate from
assumed reinsurance business other than AMM and LP&C.
ARTICLE 8: COVERAGE A DEPOSIT CONSIDERATION AND
COVERAGE A ACTUAL CONSIDERATION AND CEDING COMMISSIONS,
COVERAGE A ADDITIONAL COVERAGE CONSIDERATION,
REINSURERS' EXPENSE CHARGE AND COVERAGE B CONSIDERATION
A. COVERAGE A DEPOSIT CONSIDERATION AND COVERAGE A ACTUAL CONSIDERATION
AND CEDING COMMISSION
The CEDING COMPANY shall pay to the REINSURERS a DEPOSIT CONSIDERATION
of $28,000,000 on January 1, 1996. The DEPOSIT CONSIDERATION shall be
deemed credited to the FUNDS WITHHELD ACCOUNT on January 1, 1996 for
all purposes hereon including INTEREST CREDIT.
Commencing with the calendar quarter ending December 31, 1996 and each
subsequent calendar quarter end, the CEDING COMPANY shall calculate the
required COVERAGE A ACTUAL CONSIDERATION within 45 days of each
calendar quarter end. ACTUAL CONSIDERATION shall be based upon the
result of dividing ceded ULTIMATE NET LOSSES by SNEP as of each
calculation date (hereinafter called the CEDED LOSS RATIO).
The ACTUAL CONSIDERATION shall be based upon the percentage of SNEP
corresponding to the CEDED LOSS RATIO as determined per the table and
narrative below:
<TABLE>
<CAPTION>
Ceded Actual Ceded Actual
Loss Consideration Loss Consideration
Ratio (% of SNEP) Ratio (% of SNEP)
----- ------------- ----- -------------
<S> <C> <C> <C> <C>
0 - 16 11.169 46 26.709
17 11.649 47 27.441
18 12.158 48 28.173
19 12.667 49 28.682
20 13.176 50 29.191
21 13.685 51 29.700
22 14.194 52 30.209
</TABLE>
-8-
<PAGE> 9
<TABLE>
<CAPTION>
Ceded Actual Ceded Actual
Loss Consideration Loss Consideration
Ratio (% of SNEP) Ratio (% of SNEP)
----- ------------- ----- -------------
<S> <C> <C> <C> <C>
23 14.703 53 30.718
24 14.989 54 31.227
25 15.275 55 31.736
26 15.560 56 32.245
27 15.846 57 32.754
28 16.132 58 33.263
29 16.417 59 33.772
30 16.926 60 34.281
31 17.435 61 34.790
32 17.944 62 35.299
33 18.453 63 35.808
34 18.962 64 36.317
35 19.471 65 36.826
36 19.980 66 37.335
37 20.489 67 37.844
38 20.998 68 38.353
39 21.507 69 38.862
40 22.016 70 39.371
41 22.749 71 39.880
42 23.481 72 40.389
43 24.214 73 40.899
44 25.095 74 41.408
45 25.976 75 41.917
</TABLE>
If CEDED LOSS RATIOS are between the above table loss ratios, the
ACTUAL CONSIDERATION percentage of SNEP shall be pro-rated between the
table CEDED LOSS RATIO values.
The ACTUAL CONSIDERATION shall be equal to the cumulative SNEP
multiplied by the percentage determined by the above narrative and
table calculations.
The CEDING COMPANY shall credit the FUNDS WITHHELD ACCOUNT for this
ACTUAL CONSIDERATION less all prior payments of ACTUAL CONSIDERATION
adjustments and DEPOSIT CONSIDERATION. If the sum of the prior payments
of ACTUAL CONSIDERATION adjustments and DEPOSIT CONSIDERATION exceed
the ACTUAL CONSIDERATION amount due, the CEDING COMPANY shall debit the
FUNDS WITHHELD ACCOUNT for such return ACTUAL CONSIDERATION adjustment.
All COVERAGE A ACTUAL CONSIDERATION adjustments and DEPOSIT
CONSIDERATION shall be deemed to be credited or (debited) from the
FUNDS WITHHELD ACCOUNT as of January 1, 1996 for INTEREST CREDIT
purposes hereon.
-9-
<PAGE> 10
Therefore, any adjustments to increase COVERAGE A ACTUAL CONSIDERATION
shall result in an INTEREST CREDIT from January 1, 1996 to date for
such adjustment. Any adjustments to decrease the COVERAGE A ACTUAL
CONSIDERATION shall result in a reduction of INTEREST CREDIT from
January 1, 1996 to date for such adjustment.
REINSURERS shall allow a CEDING COMMISSION of $1,200,000 to be due to
the CEDING COMPANY on January 1, 1996. There shall be no increase or
decrease to this amount based upon loss experience under this Treaty.
The CEDING COMPANY shall debit the FUNDS WITHHELD ACCOUNT as of January
1, 1996 for all CEDING COMMISSIONS.
B. COVERAGE A ADDITIONAL COVERAGE CONSIDERATION
In addition to COVERAGE A ACTUAL CONSIDERATION, the CEDING COMPANY
shall credit the FUNDS WITHHELD ACCOUNT for an amount equal to 42.5% of
additional coverage, if any, provided by REINSURERS. All such
CONSIDERATION, if any, shall be credited to the FUNDS WITHHELD ACCOUNT
as of January 1, 1996 for purposes of INTEREST CREDIT hereon.
C. REINSURERS' EXPENSE CHARGE
The COMPANY shall pay REINSURERS a REINSURER'S EXPENSE CHARGE equal to
X%, as detailed in the table below, of all ACTUAL CONSIDERATION,
including the DEPOSIT CONSIDERATION subject to a minimum amount of
$2,275,000, by direct payment to REINSURERS hereon. There shall be no
REINSURERS' EXPENSE CHARGE in respect of COVERAGE A ADDITIONAL COVERAGE
CONSIDERATION, COVERAGE B CONSIDERATION AND COVERAGE C CONSIDERATION.
X shall provisionally be 9.0% as respects DEPOSIT CONSIDERATION for
purposes of calculation and payment upon consummation of this
Agreement. The REINSURERS' EXPENSE CHARGE on both the DEPOSIT
CONSIDERATION and ACTUAL CONSIDERATION adjustments shall be determined,
redetermined and paid annually within 60 days in arrears of each
calendar year end. Payments shall be made by direct payment from the
debtor to creditor party at such times.
There shall be no interest paid to REINSURERS on REINSURERS' EXPENSE
CHARGE paid or refund of interest on REINSURERS' EXPENSE CHARGE which
is refunded under this Agreement, upon return ACTUAL CONSIDERATION
adjustments, if any.
X% shall be based upon CEDED LOSS RATIO bands as follows:
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<PAGE> 11
<TABLE>
<CAPTION>
CEDED LOSS RATIO X%
---------------- --
<S> <C> <C>
Greater than or equal to 0% Less than or equal to 23.0% 6.0
Greater than 23.0% Less than or equal to 29.0% 7.0
Greater than 29.0% Less than or equal to 34.0% 8.0
Greater than 34.0% Less than or equal to 45.0% 9.0
Greater than 45.0% Less than or equal to 65.0% 8.0
Greater than 65.0% Less than or equal to 72.0% 7.0
Greater than 72.0% 6.0
</TABLE>
For purposes of INTEREST CREDIT hereon as per ARTICLE 11, Section C,
all REINSURERS' EXPENSE CHARGE shall be deemed debited or credited as
applicable from the FUNDS WITHHELD ACCOUNT as of January 1, 1996.
D. COVERAGE B CONSIDERATION
The CEDING COMPANY shall credit to the FUNDS WITHHELD ACCOUNT as of
January 1, 1996, a COVERAGE B CONSIDERATION equal to 80% of the sum of
COVERAGE B indemnity portion of ULTIMATE NET LOSS and pro rata LOSS
ADJUSTMENT EXPENSES recoverable from REINSURERS' LOSS ADJUSTMENT
EXPENSES recoverable from REINSURERS subject to a maximum CONSIDERATION
of $11,200,000. Determination of COVERAGE B CONSIDERATION shall be made
within 45 days following each calendar quarter end. All COVERAGE B
CONSIDERATION and adjustments for subsequent reporting shall be deemed
credited or debited as appropriate from the FUNDS WITHHELD ACCOUNT as
of January 1, 1996. The intent is to result in INTEREST CREDIT from
January 1, 1996 forward based upon the ultimate COVERAGE B
CONSIDERATION.
E. COVERAGE C CONSIDERATION
The CEDING COMPANY shall credit to the FUNDS WITHHELD ACCOUNT as of
January 1, 1996, a COVERAGE C CONSIDERATION equal to 30.3% of DEPOSIT
CONSIDERATION on or before February 15, 1997 to maintain coverage for
COVERAGE C. If, however, the CEDING COMPANY warrants no losses to
COVERAGE C under this Agreement on or before February 15, 1997, the
COVERAGE C CONSIDERATION shall be waived in its entirety.
ARTICLE 9: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of CONSIDERATION or losses and
allocated LOSS ADJUSTMENT EXPENSES or otherwise, due from such party to
another party under this Agreement, against any amounts, whether on
account of CONSIDERATION or losses and allocated LOSS ADJUSTMENT
EXPENSES or otherwise due from the latter party to the former party.
The party asserting the right of offset may exercise this right,
whether as assuming REINSURERS or CEDING COMPANY in this Agreement.
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<PAGE> 12
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Agreement
to receive CONSIDERATION or loss payments at any time from such other
party ("Collateral"), to secure its CONSIDERATION or loss obligations
to such other party at any time under this Agreement ("Secured
Obligations"). If at any time a party is in default under any Secured
Obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be
entitled in its discretion, to apply or to withhold for the purpose of
applying in due course, any Collateral assigned and pledged to it by
the former party and otherwise to realize upon such Collateral as
security for such Secured Obligations.
C. The security interest described herein, and the term "Collateral",
shall apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall
be deemed evidenced only by the counterpart of this Agreement delivered
to such party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Agreement.
ARTICLE 10: REPORTS AND LOSS SETTLEMENTS
A. Within 60 days following the end of each calendar quarter, the CEDING
COMPANY will report in writing to the REINSURERS:
1. SNEP for the quarter and cumulative SNEP.
2. CONSIDERATION calculations as necessary.
3. Summary of subject ULTIMATE NET LOSSES paid during the period
and inception to date.
4. Summary of ULTIMATE NET LOSSES outstanding including a report
of incurred but not reported amounts.
5. The amount of ULTIMATE NET LOSSES ceded to this Agreement for
the period and inception to date indicating amounts due and
outstanding.
6. Individual claim information (claim managers report) for all
individual claims in excess of $2,000,000 indemnity from
ground up and for claims in excess of $750,000 upon
REINSURERS' specific request.
7. Any other information needed by the REINSURERS to evaluate
this Agreement which is reasonably available to the CEDING
COMPANY.
8. A report detailing the activity and balance within the FUNDS
WITHHELD ACCOUNT.
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<PAGE> 13
B. 1. COVERAGE A LOSS SETTLEMENTS
Following each quarterly report, the REINSURERS shall pay all
cumulative ULTIMATE NET LOSSES Paid in respect of BUSINESS
COVERED by the CEDING COMPANY on and after January 1, 1996 in
excess of the CEDING COMPANY'S Retention subject to the
AGGREGATE, LIMITS hereon. Payment shall be made at 90 days
following each calendar quarter end, or sooner if paid by
REINSURERS from other funds of the REINSURERS. If paid by
deduction from the FUNDS WITHHELD ACCOUNT, this account shall
be debited at 90 days following each calendar quarter. Loss
reimbursement at any calendar quarter shall be equal to the
amount of such cumulative ULTIMATE NET LOSSES Paid at each
date in excess of the Retention less net loss reimbursements
previously made by the REINSURERS, subject to the AGGREGATE
LIMITS in accordance with Section A of ARTICLE 5:
COVERAGES AND AGGREGATE LIMITS.
2. COVERAGE B AND C LOSS SETTLEMENTS
Following each calendar quarter report, the REINSURERS shall
pay all covered COVERAGE B and C ULTIMATE NET LOSSES paid by
the CEDING COMPANY on and after January 1, 1996 in respect of
BUSINESS COVERED subject to and in accordance with Sections B
and C of ARTICLE 5: COVERAGES AND AGGREGATE LIMITS Payment
shall be made at 90 days following each calendar quarter, or
sooner if paid by REINSURERS from other funds of the
REINSURERS. If paid by deduction from the FUNDS WITHHELD
ACCOUNT, this account shall be debited at 90 days following
each calendar quarter.
3. ORDER OF SETTLEMENTS
All loss payments under B.1. and B.2., including all
COMMUTATION payments, if any, above will be firstly made by
deduction from the CONSIDERATION and then from the INTEREST
CREDIT components of the FUNDS WITHHELD ACCOUNT by the CEDING
COMPANY until depleted. Thereafter, REINSURERS shall pay from
other funds of REINSURERS subject to all of the terms hereon.
ARTICLE 11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT
AND INTEREST CREDIT
A. PROFIT SHARING
Upon finalization of the payment of all losses recoverable hereon
and/or COMMUTATION amounts, if any, the REINSURERS will relinquish to
the CEDING COMPANY 100% of the remaining FUNDS WITHHELD ACCOUNT
balance, if any. Payment of PROFIT SHARING in accordance with this
ARTICLE shall release the REINSURERS from all current and future
liability hereunder.
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<PAGE> 14
B. FUNDS WITHHELD ACCOUNT
For purposes of this Article, the CEDING COMPANY shall maintain a
cumulative FUNDS WITHHELD ACCOUNT comprised of the following:
1. The FUNDS WITHHELD ACCOUNT at December 31, 1995 shall be equal
to zero.
2. The FUNDS WITHHELD ACCOUNT at each subsequent calendar quarter
end shall be equal to:
a. The FUNDS WITHHELD ACCOUNT at the end of such prior
calendar quarter; plus
b. Any amounts credited or debited during the quarter
for the following:
COVERAGE A DEPOSIT CONSIDERATION, COVERAGE A ACTUAL
CONSIDERATION adjustments, COVERAGE A ADDITIONAL
COVERAGE CONSIDERATION, COVERAGE B CONSIDERATION and
COVERAGE C CONSIDERATION adjustments, if any; less
c. REINSURERS' EXPENSE CHARGE, if any; plus
d. INTEREST CREDIT; less
e. CEDING COMMISSIONS; less
f. Ceded ULTIMATE NET LOSSES paid under this Agreement
for the prior calendar quarter from the FUNDS
WITHHELD ACCOUNT (including COMMUTATION payments).
The CEDING COMPANY shall report balances quarterly to the REINSURERS as
soon as practicable but no later than 75 days in arrears of each
calendar quarter end.
The REINSURERS shall not transfer or assign their rights to the FUNDS
WITHHELD ACCOUNT hereon unless this Agreement is surrendered and a new
Agreement is issued. Under any and all circumstances, the CEDING
COMPANY must make a book entry of a transfer or assignment in order for
such transfer or assignment to be valid.
C. INTEREST CREDIT
The CEDING COMPANY shall credit the FUNDS WITHHELD monthly at each
month end with interest calculated by applying a monthly rate equal to
one-twelfth (1/12th) of the percentage stipulated below multiplied by
the actual daily average FUNDS WITHHELD ACCOUNT balance for the
respective calendar month, where the percentage equals:
8.28% if the 12 month U.S. Treasury Bill rate is 8.28% or less; or
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<PAGE> 15
8.28% + 50% of the amount by which the 12 month U.S. Treasury Bill rate
is greater than 8.28%.
The 12 month U.S. Treasury Bill rate to be used each year is the rate
in effect on the first business day of each year as reported in the
Wall Street Journal on the second business day of each year.
INTEREST CREDIT shall continue even in the event of the COMPANY'S
insolvency.
ARTICLE 12: LIABILITY OF THE REINSURER AND CURRENCY
A. The liability of the REINSURER shall follow that of the CEDING COMPANY
in every case and be subject in all respects to all the general and
specific stipulations, clauses, waivers and modifications of the CEDING
COMPANY'S policies and any endorsements thereon. However, in no event
shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this Contract.
B. Nothing herein shall in any manner create any obligation or establish
any rights against the REINSURER in favor of any third party or any
persons not parties to this Contract.
C. All of the provisions of this Agreement involving dollar amounts are
expressed in terms of United States dollars and all CONSIDERATION and
loss and allocated LOSS ADJUSTMENT EXPENSE payments hereunder shall be
made in United States Dollars.
ARTICLE 13: COMMUTATION
The CEDING COMPANY shall have the sole option, effective at any calendar year
end on or after December 31, 1996 to commute all COVERAGES A, B and C ceded
liability outstanding hereunder. At COMMUTATION, the REINSURERS shall pay to the
CEDING COMPANY the lesser of:
A. The present value of COVERAGE A, COVERAGE B and COVERAGE C, if any,
ceded outstanding loss and allocated LOSS ADJUSTMENT EXPENSE reserves
as determined by a loss reserve analysis conducted by an independent
actuarial firm acceptable to both the CEDING COMPANY and the
REINSURERS, with the CEDING COMPANY bearing the cost of such analysis;
or
B. The existing value of the FUNDS WITHHELD ACCOUNT (as defined in ARTICLE
11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT AND INTEREST CREDIT) at the
COMMUTATION date.
Said payment shall constitute, together with the PROFIT SHARING payment, a full
and final settlement of all terms of this Agreement; the CEDING COMPANY will
execute a hold harmless agreement so stating and the REINSURERS will be thereby
released from all current and future liability hereunder.
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<PAGE> 16
COMMUTATION payments in accordance with this Article shall be treated as losses
and allocated LOSS ADJUSTMENT EXPENSES paid under this Agreement for
determination of the FUNDS WITHHELD ACCOUNT.
ARTICLE 14: EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the CEDING COMPANY, within the limits hereof, for
80% of loss in excess of its original policy, such loss in excess of the limit
having been incurred because of failure by it to settle within the policy limit
or by reason of alleged or actual negligence, fraud, or bad faith in rejecting
an offer of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or prosecution
of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the CEDING
COMPANY acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the CEDING COMPANY would have been contractually liable to pay had it not
been for the limit of the original policy.
ARTICLE 15: EXTRA CONTRACTUAL OBLIGATIONS
A. This Agreement shall protect the CEDING COMPANY for 80% of any EXTRA
CONTRACTUAL OBLIGATIONS within the limits hereof. The term "EXTRA
CONTRACTUAL OBLIGATIONS" is defined as those liabilities not covered
under any other provision of this Agreement and which arise from the
handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the
CEDING COMPANY to settle within the policy limit, or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer
of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
B. The date on which any EXTRA CONTRACTUAL OBLIGATION is incurred by the
CEDING COMPANY shall be deemed, in all circumstances, to be the date of
the original LOSS OCCURRENCE.
C. However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate
officer of the CEDING COMPANY acting individually or collectively or in
collusion with any individual or corporation or any other organization
or party involved in the presentation, defense or settlement of any
claim covered hereunder.
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<PAGE> 17
ARTICLE 16: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
ARTICLE 17: ACCESS TO RECORDS
The CEDING COMPANY shall place at the disposal of the REINSURERS at all
reasonable times, and the REINSURERS shall have the right to inspect, through
its authorized representatives, all books, records, and papers of the CEDING
COMPANY in connection with any reinsurance hereunder, or claims in connection
herewith.
The REINSURERS agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Agreement except under
the following circumstances and then only as necessary.
A. When disclosure of such information is required in the normal course of
REINSURERS' business; or
B. With the prior written consent of the CEDING COMPANY; or
C. When REINSURERS are required by a subpoena or court order to disclose
such information. The REINSURERS shall promptly notify the CEDING
COMPANY of any attempt by a third party to obtain from it any such
confidential information.
REINSURERS will provide CEDING COMPANY or its designated representative with
such information as REINSURER and CEDING COMPANY may agree is necessary to the
CEDING COMPANY'S handling of the business reinsured herein.
The obligation contained in the provision shall survive termination of this
Agreement.
ARTICLE 18: ACTUARIAL REVIEW
Should the REINSURERS desire at any time to review the loss reserves established
by the CEDING COMPANY as respects COVERAGE A and COVERAGE B ULTIMATE NET LOSSES,
the REINSURERS shall select an independent actuarial firm acceptable to the
CEDING COMPANY to perform a reserve analysis. The costs of any reserve analysis
performed under this Article will be borne by the REINSURERS hereon. Such a
review shall be subject to the provisions of ARTICLE 17: ACCESS TO RECORDS.
ARTICLE 19: LOSS RESERVE FUNDING
The REINSURERS will maintain appropriate reserves with respect to their share of
the loss reserves ceded and required under the terms of this Agreement which are
reported by the CEDING COMPANY on the BUSINESS COVERED of this Agreement.
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<PAGE> 18
During the TERM of this Agreement the REINSURERS agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the CEDING COMPANY
issued by a bank acceptable to the CEDING COMPANY adjusted to at all times be
equal to the ceded cumulative. ULTIMATE NET LOSSES outstanding hereunder less
the FUNDS WITHHELD ACCOUNT balance at such dates. Such Letter of Credit shall be
in the form, amount, and with an acceptable NAIC bank required to allow the
CEDING COMPANY to take Full Statutory Credit for amounts recoverable under this
Agreement.
The CEDING COMPANY also agrees to not make drawings upon the Letter of Credit
provided by the REINSURERS for any purpose other than to reimburse the CEDING
COMPANY for loss settlements due under this Reinsurance Agreement for which one
or more of the REINSURERS are in default by more than seven days and provided
that the CEDING COMPANY shall give the REINSURERS three days written notice
prior to making any drawings.
The CEDING COMPANY shall reimburse the REINSURERS for annual security cost equal
to .5% of the amount of Letter of Credit issued or maintained hereon as of each
December 31st. The REINSURERS shall request such reimbursement whereupon the
CEDING COMPANY shall make payment by direct wire transfer to the REINSURERS. All
such amounts shall not be deducted from the FUNDS WITHHELD ACCOUNT.
ARTICLE 20: FUNDS WITHHELD TRUST ACCOUNT
In the event that the CEDING COMPANY experiences any one of the following
circumstances, the REINSURERS may require a Trust Fund, with an independent
bank, to be established for purposes of collateralizing the FUNDS WITHHELD
ACCOUNT hereon:
1. The CEDING COMPANY'S A.M. Best's Rating is downgraded below
B+; or
2. The CEDING COMPANY'S combined statutory capital and surplus
falls below $60 million; or
3. The CEDING COMPANY effects both a change in ownership form
such that the resulting ownership extends beyond the insureds
of the COMPANY and there is a change in the office of
President.
The CEDING COMPANY shall fully and promptly comply with such request from the
REINSURERS. The CEDING COMPANY shall transfer marketable assets with a market
value equal to the required FUNDS WITHHELD ACCOUNT balance within 30 days from
the REINSURERS' request to do so. The CEDING COMPANY shall also transfer
additional assets to the TRUST FUND, if needed, to maintain the TRUST FUND
balance to be equal to the FUNDS WITHHELD requirement at each calendar quarter
end including the requisite INTEREST CREDIT required hereon.
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<PAGE> 19
ARTICLE 21: INSOLVENCY
A. In the event of the insolvency of the CEDING COMPANY, the reinsurance
under this Agreement shall be payable by the REINSURERS (on the basis
of the liability of the CEDING COMPANY under the policy or policies
reinsured without diminution because of the insolvency of the CEDING
COMPANY) to the CEDING COMPANY or to its liquidator, receiver or
statutory successor.
B. It is agreed, however, that liquidator or receiver or statutory
successor of the insolvent CEDING COMPANY shall give written notice to
the REINSURERS of the pendency of a claim against the insolvent CEDING
COMPANY on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the REINSURERS may investigate such claim
and interpose, at its own expense, in the proceeding where such claim
is to be adjudicated, any defense or defenses which it may deem
available to the CEDING COMPANY or its liquidator or receiver or
statutory successor. Accidental failure to give such notice shall not
excuse the obligation unless REINSURERS are substantially prejudiced by
the failure to give such notice. The expense thus incurred by the
REINSURERS shall be chargeable, subject to court approval, against the
insolvent CEDING COMPANY as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the
CEDING COMPANY solely as a result of the defense undertaken by the
REINSURERS.
C. Should the CEDING COMPANY go into liquidation or should a receiver be
appointed, the REINSURERS shall be entitled to deduct from any sums
which may be or may become due to the CEDING COMPANY under this
Agreement any sums which are due to the REINSURERS by the CEDING
COMPANY under this Agreement and which are payable at a fixed or stated
date, as well as any other sums due the REINSURERS which are permitted
to be offset under applicable law.
ARTICLE 22: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with
respect to this Agreement, it is hereby mutually agreed that such
dispute or difference of opinion shall be submitted to arbitration. One
Arbiter shall be chosen by the CEDING COMPANY, the other by the
REINSURER, and an Umpire shall be chosen by the two Arbiters before
they enter upon arbitration, all of whom shall be active or retired
disinterested executive officers of insurance or reinsurance companies
. In the event that either party should fail to choose an Arbiter
within 30 days following a written request by the other party to do so,
the requesting party may choose two Arbiters who shall in turn choose
an Umpire before entering upon arbitration. If the two Arbiters fail to
agree upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates within 10
days thereafter, two of whom the other shall decline, and the decision
shall be made by drawing lots.
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<PAGE> 20
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Agreement as an honorable engagement rather than merely
as a legal obligation and they are relieved of all judicial formalities
and may abstain from the following the strict rules of law. The
decision of the Arbiters shall be final and binding on both parties;
but failing to agree, they shall call in the Umpire and the decision of
the majority shall be final and binding upon both parties. The decision
shall be made in writing and will state the factual and legal basis
supporting such decision. Judgment upon the final decision of the
Arbiters may be entered in any court of competent jurisdiction.
C. If more than one REINSURER is involved in the same dispute, all such
REINSURERS shall constitute and act as one party for purposes of this
ARTICLE and communications shall be made by the CEDING COMPANY to each
of the REINSURERS constituting one party provided, however, that
nothing herein shall impair the rights of such REINSURERS to assert
several, rather than joint, defenses or claims, nor be construed as
changing the liability of the REINSURERS participating under the terms
of this Agreement from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
ARTICLE 23: CHANGES IN ADMINISTRATIVE PRACTICES
If any intentional or unintentional change in the CEDING COMPANY'S processing or
payment of claims materially increases the REINSURER'S economic loss under this
Agreement from what the economic loss would have been if there had been no such
change, the REINSURERS shall prepare, and the CEDING COMPANY shall accept, an
adjustment of the portion of claims which is reimbursable, or any adjustments
which will make the REINSURER'S risk position equivalent to that which would
have been obtained under this Agreement if there had been no such change. The
REINSURERS shall have the right to use auditing techniques, sampling techniques,
or to otherwise investigate the nature and effect of any such change in
administrative practices or of any possible. compensatory adjustment therefore.
Any dispute with respect to such adjustment shall be resolved by arbitration as
provided in ARTICLE 22: ARBITRATION.
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ARTICLE 24: TAXES
The CEDING COMPANY is solely liable for any FEDERAL EXCISE TAX (FET) applicable
to this Agreement. Any FET to be paid shall be paid directly by the CEDING
COMPANY to the taxing authorities and is in addition to the CONSIDERATION. No
deduction shall be made from the FUNDS WITHHELD ACCOUNT.
ARTICLE 25: SERVICE OF SUIT
It is agreed that in the event of the failure of REINSURERS hereon to pay any
amount claimed to be due hereunder, REINSURERS hereon, at the request of the
CEDING COMPANY will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the REINSURERS to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Agreement shall be governed by the laws
of the State of New Jersey.
It is further agreed that service of process in such suit may be made upon Kroll
& Tract, 520 Madison Avenue, New York, New York 10022-4235, United States of
America and that in any suit instituted against any one of them upon this
Agreement, REINSURERS will abide by the final decision of such Court of any
Appellate Court in the event of an appeal.
The above named are authorized and directed to accept service of process on
behalf of REINSURERS in any suit and/or upon the request of the CEDING COMPANY
to give a written undertaking to the CEDING COMPANY that they will enter a
general appearance upon REINSURERS' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, REINSURERS hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor or successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
CEDING COMPANY or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
ARTICLE 26: NO ASSIGNMENT
The CEDING COMPANY and the REINSURERS hereon hereby agree that neither party
shall have the right to assign its respective interests and liabilities,
including the FUNDS WITHHELD, under this Agreement. Notwithstanding the above,
this clause shall not restrict the CEDING COMPANY from making investments it
deems appropriate.
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ARTICLE 27: INTERMEDIARY
Pegasus Advisors, Inc., Two Northington Place, 35 Tower Lane, Avon, Connecticut
06001, is hereby recognized as the INTERMEDIARY negotiating this Agreement for
all business hereunder and through whom all communications relating hereto
(including but not limited to notices, statements and reports) shall be
transmitted to both parties. It is understood, as regards remittances due either
party hereunder, that payment by the CEDING COMPANY to the INTERMEDIARY, shall
constitute payment to the REINSURER but payment by the REINSURER to the
INTERMEDIARY shall only constitute payment to the CEDING COMPANY to the extent
such payments are actually received by the CEDING COMPANY. Notwithstanding the
foregoing, it is agreed that all payments will be direct from the REINSURER to
the CEDING COMPANY, or from the CEDING COMPANY to the REINSURER, as appropriate.
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<PAGE> 23
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
HANNOVER REINSURANCE (IRELAND) LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 40.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective January 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
-----------------------------------------------------
In Dublin, Ireland, this 17th day of September 1996 For and on Behalf of
Hannover Reinsurance (Ireland) Ltd.
By: /s/ D. Stenzel [SEAL]
-----------------------------------------------------
<PAGE> 24
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
EISEN UND STAHL REINSURANCE (IRELAND) LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 10.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
-----------------------------------------------------
In Dublin, Ireland, this 17th day of September 1996 For and on Behalf of Eisen
und Stahl Reinsurance (Ireland) Ltd.
By: /s/ D. Stenzel [SEAL]
-----------------------------------------------------
<PAGE> 25
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
LONDON LIFE & CASUALTY REINSURANCE CORPORATION
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 40.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
-----------------------------------------------------
In Wildey, St. Michael, Barbados, this 27th day of August 1996
For and on Behalf of London Life & Casualty Reinsurance Corporation
By: /s/ Michael D. Price, Acting President [SEAL]
-----------------------------------------------------
<PAGE> 26
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
SCANDINAVIAN REINSURANCE COMPANY LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 9.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
-----------------------------------------------------
In Hamilton, Bermuda this 6th day of September 1996, For and on Behalf of
Scandinavian Reinsurance Company Ltd.
By: /s/ W. David Brining /S/ Jens Juul
-----------------------------------------------------
<PAGE> 27
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1996
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
LAWRENCEVILLE REINSURANCE COMPANY LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 1.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1996, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
-----------------------------------------------------
In Lawrenceville, New Jersey, this 27th day of September 1996, For and on Behalf
of Lawrenceville Reinsurance Company Ltd.
By: /s/ Hugo Kostelni
-----------------------------------------------------
<PAGE> 1
EXHIBIT 10.9
SPECIFIC EXCESS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1995
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
BY
THE SUBSCRIBING REINSURER(S) EXECUTING
THE INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED HERETO
(HEREINAFTER REFERRED TO AS THE "SUBSCRIBING REINSURER")
PREAMBLE
It is understood that the SUBSCRIBING REINSURERS participating in this Contract
through the INTERMEDIARY named in ARTICLE XXII have a 100% part of 100% share in
the interests and liabilities of the "Reinsurer".
ARTICLE I: CLASSES OF BUSINESS REINSUED
A. By this Contract, the REINSURER agrees to reinsure the liability which
may accrue to the COMPANY under all of its original policies,
contracts, binders and certificates of insurance or reinsurance
classified by the COMPANY as:
Medical and Dental Practitioners Liability (including Corporate
and Professional Premises Liability Coverage, where
applicable);
Hospital and Other Heathcare Institution Professional Liability;
Commercial General Liability, Employers' Liability, Automobile
Liability and all other Non-Professional (including
Excess/Umbrella) Liability unless excluded under Article III; all
either written in respect of Health Care Institutions or in
conjunction with Professional Liability coverages written for such
institutions.
(hereinafter called "policies"), unless otherwise excluded under
ARTICLE III: EXCLUSIONS, issued or renewed on or after the
effective date, subject to the terms, conditions and limitations
hereinafter set forth.
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<PAGE> 2
B. It is understood that this Contract applies to losses first occurring
under occurrence policies and/or claims made thereon under claims made
policies issued or renewed on or after the effective date hereof.
Permanent Protection Plan policies underwritten by the COMPANY shall in
all cases be deemed to be LOSS OCCURRENCE policies covering on a losses
occurring during basis. REINSURERS shall be subject to all of the
conditions of the Permanent Protection Plan policies including policy
limits and aggregate limit formulas under the extended reporting
coverage therein.
ARTICLE II: COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1995, and shall
continue in force thereafter until terminated.
B. Either party may terminate this Contract on any December 31 by giving
the other party not less than 90 days prior written notice.
C. Unless otherwise mutually agreed, reinsurance hereunder on business in
force on the effective date of termination shall remain in full force
and effect until expiration, cancellation or next premium anniversary
of such business, whichever first occurs, but in no event beyond 12
months following the effective date of termination, plus any extension
of coverage for extended reporting as per the original policies of the
COMPANY.
REINSURERS shall remain liable in respect of policies issued or renewed
during the TERM in force on the basis of underlying coverage.
REINSURERS shall receive their share of premiums for such respective
policies and there shall not be any return of unearned premium in
respect thereto.
ARTICLE III: EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
1. Reinsurance assumed, except reinsurance from American Medical
Mutual, Inc. Risk Retention Group, where the underwriting is
through New Jersey State Medical Underwriters, Inc.
2. Claims emanating from policies issued by the COMPANY with
effective dates after the termination date of this Contract.
3. Directors and Officers Liability when written as such.
4. Financial Guaranty and Insolvency Business.
2
<PAGE> 3
5. All liability of the COMPANY arising by contract, operation of
law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency
fund" includes any guaranty fund, insolvency fund, plan, pool,
association, fund or other arrangement, however denominated,
established or governed, which provides for any assessment of or
payment or assumption by the COMPANY of part or all of any claim,
debt, charge, fee or other obligation or an insurer, or its
successors or assigns, which has been declared by any competent
authority to be insolvent, or which is otherwise deemed unable to
meet any claim, debt, charge, fee or other obligation in whole or
in part.
6. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause
- Liability - Reinsurance U.S.A. and Canada" except for incident
arising from nuclear medicine, attached to and forming part of
this Contract.
7. Any business derived from participation in any Pool, Association
or Syndicate.
ARTICLE IV: RETENTIONS AND LIMITS
A. COVERAGE A (Each Insured Coverage): The COMPANY shall retain and be
liable for the first $X amount as per the table below of paid Ultimate
Net Loss as respects any one original policy, each claim. The REINSURER
shall then be liable for the amount by which such paid ULTIMATE NET
LOSS exceeds the COMPANY'S RETENTION, but the liability of the
REINSURER shall not exceed $8,000,000 ULTIMATE NET LOSS plus pro rata
LOSS ADJUSTMENT EXPENSES as respects any one original policy, each
claim.
Notwithstanding the above, the COMPANY shall also retain the first
$8,000,000 of paid ULTIMATE NET LOSS plus pro rata LOSS ADJUSTMENT
EXPENSES in the aggregate otherwise recoverable under COVERAGE A.
<TABLE>
<CAPTION>
States Class of Business Retention $X =
------ ----------------- --------------
<S> <C> <C>
Other than PA Medical & Dental Practitioner Prof. Liab. $2,000,000
Other than PA Hospital & All Other Health Care Institutions
Professional Liability $3,000,000
PA All Professional Liability
(Physicians, Surgeons & Institutions) $2,200,000
All States General Liability, Employers' Liability,
Automobile Liability and all Non Professional
Liability Coverage written in conjunction with
Professional Liability (health care) coverages. $3,000,000
</TABLE>
3
<PAGE> 4
In no event shall REINSURERS be liable for more than $24,000,000
Ultimate Net Loss, inclusive of all pro rata LOSS ADJUSTMENT EXPENSE,
LOSS IN EXCESS OF POLICY LIMITS, and EXTRA CONTRACTUAL OBLIGATIONS, in
the aggregate for COVERAGE A.
B. COVERAGE B (Each Insured Coverage): The COMPANY shall retain and be
liable for paid Ultimate Net Loss equal to the sum of the RETENTION and
LIMIT under COVERAGE A as respects any original policy, each claim. The
REINSURER shall then be liable for 90% of the amount by which such paid
ULTIMATE NET LOSS exceeds the sum of the RETENTION and LIMIT under
COVERAGE A, but the liability of the REINSURER shall not exceed 90% of
$10,000,000 plus pro rata LOSS ADJUSTMENT EXPENSES as respects any
original policy, each claim.
In no event shall REINSURERS be liable for more than $27,000,000 (being
90% of $30,000,000) ULTIMATE NET LOSS, inclusive of all pro rata LOSS
ADJUSTMENT EXPENSE, LOSS IN EXCESS OF POLICY LIMITS, and EXTRA
CONTRACTUAL OBLIGATIONS, in the Aggregate for COVERAGE B.
C. Under no circumstances shall REINSURERS be liable for aggregate
coverage although the COMPANY'S original policies may provide aggregate
coverage.
D. In order for the COMPANY to be able to recover a claim under COVERAGES
A and B above, the COMPANY must report the respective claim recoverable
for each contract year within ten years from January 1 of such contract
year.
E. Under no circumstance shall COVERAGE B LIMIT be available or used by
the COMPANY in respect of COVERAGE A ULTIMATE NET LOSS coverage.
ARTICLE V: DEFINITIONS
A. "ULTIMATE NET LOSS" as used herein is defined as the sum or sums
(including LOSS IN EXCESS OF POLICY LIMITS, EXTRA CONTRACTUAL
OBLIGATIONS, as hereinafter defined) paid or payable by the COMPANY in
settlement of claims including any and all vicarious liability arising
from BUSINESS REINSURED and in satisfaction of judgments rendered on
account of such claims, after deduction of all salvage, all recoveries,
including the Pennsylvania catastrophe fund, if applicable, and all
claims on inuring insurance or reinsurance, whether collectible or no.
ULTIMATE NET LOSS shall not include any LOSS ADJUSTMENT EXPENSE.
Nothing herein shall be construed to mean that losses under this
Contract are not recoverable until the COMPANY'S ULTIMATE NET LOSS has
been ascertained. ULTIMATE NET LOSS shall be
4
<PAGE> 5
calculated on a per claim, per policy per insured basis. If the COMPANY
issues multiple policies to an insured, the policies will be deemed to
be one original policy for purposes of coverage under this Reinsurance
Contract.
B. "LOSS IN EXCESS OF POLICY LIMITS" and "EXTRA CONTRACTUAL OBLIGATIONS"
as used herein shall be defined as follows:
1. "LOSS IN EXCESS OF POLICY LIMITS" shall mean 90% subject to the
limitations below of any amount paid or payable by the COMPANY IN
EXCESS of its policy limits, but otherwise within the terms of its
policy, as a result of a settlement by the COMPANY or an action
against it by its insured or its insured's assignee to recover
damages the insured is legally obligated to pay to a third party
claimant because of the COMPANY'S alleged or actual negligence,
breach of contract or bad faith in rejecting a settlement within
policy limits, or in discharging its duty to defend or prepare the
defense in the trial of an action against its insured, or in
discharging its duty to prepare or prosecute an appeal consequent
upon such an action. A LOSS IN EXCESS OF POLICY LIMITS shall be
deemed to have occurred on the same date as the loss covered or
alleged to be covered under the policy.
The COMPANY shall only include the amount of 90% of LOSS IN EXCESS
OF POLICY LIMITS within ULTIMATE NET LOSS to reach the COVERAGE A
LIMIT in respect of underlying policies underwritten with limits
equal to or greater than $2,000,000 and up to $10,000,000 as
respects any original policy, each loss. There is no coverage for
LOSS IN EXCESS OF POLICY LIMITS for original policies with limits
of $2,000,000 or less.
The COMPANY shall include the amount of 90% of LOSS IN EXCESS OF
POLICY LIMITS within ULTIMATE NET LOSS to reach the COVERAGE B
LIMIT in respect of underlying policies underwritten with limits
greater than $10,000,000 and up to $20,000,000 as respects any
original policy, each loss.
2. "EXTRA CONTRACTUAL OBLIGATIONS" shall mean 90% of any punitive,
exemplary, compensatory, multiplied or consequential damages,
other than LOSS IN EXCESS OF POLICY LIMITS paid or payable by the
COMPANY as a result of an action against it by its insured, its
insured's assignee or a third party claimant, which action alleges
negligence, breach of contract or bad faith on the part of the
COMPANY in handling a claim under a policy subject to this
Contract. An EXTRA
5
<PAGE> 6
CONTRACTUAL OBLIGATION shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under the
policy.
The COMPANY shall only include the amount of 90% of EXTRA
CONTRACTUAL OBLIGATIONS within ULTIMATE NET LOSS to reach the
COVERAGE A LIMIT in respect of underlying policies underwritten
with limits equal to or greater than $2,000,000 and up to $10,000
as respect any original policy, each loss. There is no coverage
for EXTRA CONTRACTUAL OBLIGATIONS for original policies with
limits of $2,000,000 or less.
The COMPANY shall include the amount of 90% of EXTRA CONTRACTUAL
OBLIGATIONS within ULTIMATE NET LOSS to reach the COVERAGE B LIMIT
in respect of underlying policies underwritten with limits greater
than $10,000,000 and up to $20,000,000 as respects any original
policy, each loss.
Notwithstanding anything stated herein, this Contract shall not apply
to any LOSS IN EXCESS OF POLICY LIMITS or any EXTRA CONTRACTUAL
OBLIGATION incurred by the COMPANY as a result of any fraudulent and/or
criminal act by any officer or director of the COMPANY acting
individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
C. "LOSS OCCURRENCE" means a loss occurrence or medical incident, or
otherwise the series of accidents, acts, errors or omissions including
continuous or repeated exposure to substantially the same general
harmful conditions giving rise to coverage, all as defined and provided
within the underlying policies underwritten by the COMPANY.
D. "CLAIMS MADE" as used herein shall mean the earlier of (1) or (2)
below:
1. When the insured first gives notice to the COMPANY that a claim
has been made against the insured; or
2. When the insured first gives notice to the COMPANY of a specific
medical incident involving a particular person which may result in
a claim against the original insured.
6
<PAGE> 7
Notwithstanding the above, and in all cases, the CLAIMS MADE date shall
be as defined and provided within the underlying policies underwritten
by the COMPANY.
E. "LOSSES INCURRED" as used herein shall mean losses and pro rata LOSS
ADJUSTMENT EXPENSES paid by the REINSURER as of the effective date of
calculation, plus the ceded reserves for known losses and pro rata LOSS
ADJUSTMENT EXPENSES outstanding as of the same date, less the
REINSURER'S proportion of any salvages recovered, all as respects
losses and related pro rata LOSS ADJUSTMENT EXPENSES under policies
issued or renewed during the contract year under consideration.
F. 1. "LOSS ADJUSTMENT EXPENSE" as used herein shall mean expenses
allocable to the investigation defense and/or settlement of
specific claims, including litigation expenses and postjudgment
interest and legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto, but not
including office expenses or salaries of the COMPANY's regular
employees.
2. "Pro rata LOSS ADJUSTMENT EXPENSES" as used herein shall mean the
result obtained by multiplying the covered indemnity percentage,
as calculated below by the COMPANY'S "LOSS ADJUSTMENT EXPENSE" for
a given claim. The percentage shall be determined by dividing the
amount of ULTIMATE NET LOSS indemnity for a coverage section by
the COMPANY'S total ULTIMATE NET LOSS for a given claim.
G. "GROSS EXCESS LIMITS PREMIUM" as used herein shall mean the net written
increased limits premium of the COMPANY for the Classes of Business
Reinsured for the respective layer of coverage limit hereon. Such
premiums shall represent the incremental gross premium of the COMPANY
pertaining to the respective coverage layer hereon for which GROSS
EXCESS LIMITS PREMIUM is being calculated. Such net written premium
shall be comprised of claims made premium for underlying policies
written on such basis and occurrence premium as respects underlying
policies written on a loss occurrence basis (i.e. Permanent Protection
Plan policies). It is understood that net written increased limits
premium is less cancellation and return premium but is gross of any
deductions for original acquisition costs (i.e. brokerage).
H. The first contract year shall be from January 1, 1995 through December
31, 1995, both days inclusive, and each subsequent 12-month period
shall be a separate contract year.
7
<PAGE> 8
ARTICLE VI: CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Within 60 days after the end of each calendar quarter, the COMPANY
shall provide the REINSURER with a claims bordereau outlining any claim
on which the COMPANY has placed a reserve value of $1,000,000 or more.
B. The COMPANY shall include with each claim bordereau, the following
information as respects new claims, pending claims and closed claims
during the quarter:
1. Claim number or reference number;
2. Named of Insured;
3. Name of Claimant;
4. Subject policy limit;
5. CLAIMS MADE date;
6. LOSS OCCURRENCE date;
7. Indemnity (paid and outstanding);
8. Expenses (paid and outstanding);
9. Indemnity recovery; if any;
10. Expense recovery; if any;
11. Status.
12. Claim manager report which includes narrative loss description of
each claim.
8
<PAGE> 9
C. The REINSURER shall have the right, at its own expense, to be
associated in the defense of any claim, suit or proceeding involving
this reinsurance.
D. The COMPANY shall, at its full discretion, adjust and settle all claims
and losses. All such adjustments and settlements shall be binding on
the REINSURER and the REINSURER agrees to pay all amounts for which it
may be liable immediately after receipt of reasonable evidence of the
amount paid by the COMPANY.
ARTICLE VII: SALVAGE AND SUBROGATION
The REINSURER shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the COMPANY, less the actual cost, excluding salaries of
officials and employees of the COMPANY and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
COMPANY of its primary loss. The COMPANY hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss was sustained
by the REINSURER, and to prosecute all claims arising out of such rights.
ARTICLE VIII: COVERAGE A PREMIUM
A. Deposit Premium: As respects each contract year, the COMPANY shall pay
the REINSURERS an annual Deposit Premium equal to the greater of 50% of
GROSS EXCESS LIMITS PREMIUM or $3,500,000 in four equal installments of
$875,000 on March 31, June 30, September 30 and December 31 of each
contract year.
B. Minimum Premium: As respects each contract year, the COMPANY shall pay
REINSURERS Actual Premium as per D. below, but not less than the
Minimum Premium which is equal to 21% of GROSS EXCESS LIMITS PREMIUM in
respect of policies with limits attaching in respect of COVERAGE A or
$1,500,000, whichever is greater.
9
<PAGE> 10
C. Maximum Premium: As respects each contract year, the COMPANY shall pay
REINSURERS Actual Premium as per D. below, but not greater than the
Maximum Premium which is equal to 63% of GROSS EXCESS LIMITS PREMIUM in
respect of policies with limits attaching in respect of COVERAGE A or
$4,500,000, whichever is greater.
D. Actual Premium: As respects each contract year, the COMPANY shall
calculate Actual Premium which shall equal the sum of the Minimum
Premium (in B. above) plus 100% of LOSSES INCURRED (net of the
$8,000,000 ULTIMATE NET LOSS plus pro rata LOSS ADJUSTMENT EXPENSE
deductible) subject to the Minimum Premium (in B. above) and the
Maximum Premium (in C. above).
The COMPANY shall calculate and report any downward Actual Premium for
each contract year within 60 days after the end of 36 months from the
beginning of each contract year, and within 60 days after the end of
each 12-month period thereafter until all ULTIMATE NET LOSES and pro
rata LOSS ADJUSTMENT EXPENSES subject hereto have been settled. The
COMPANY shall calculate and report any upward Actual Premium for each
agreement period within 60 days after the end of 12 months from the
beginning of each contract year, and within 60 days after the end of
each 12-month period thereafter until all ULTIMATE NET LOSSES and pro
rata LOSS ADJUSTMENT EXPENSES subject hereto have been settled.
The REINSURER shall pay the COMPANY any reported downward Actual
premium less amounts previously paid in respect of Deposit Premium and
prior net Actual Premium payments upon 15 days of receipt of the
COMPANY'S report or 75 days in arrears of the respective year end
reporting date, whichever is later.
The COMPANY shall pay the REINSURERS any reported upward Actual Premium
less amounts previously paid in respect of Deposit Premium and prior
net Actual Premium payments upon the reporting of such Actual Premium
development to REINSURERS.
ARTICLE IX: COVERAGE B PREMIUM
A. Minimum Premium: As respects each contract year, the COMPANY shall pay
the REINSURERS an annual Minimum Premium equal to 90% of GROSS EXCESS
LIMITS PREMIUM for policies with limits attaching hereunder in respect
of COVERAGE B. Minimum Premium above shall be payable by the COMPANY to
REINSURERS quarterly within 45 days in arrears from the end of each
quarter
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<PAGE> 11
paying all amounts due in respect of premiums collected by the COMPANY
for the respective quarter.
B. Reinstatement Premium: As respects each contract year, and in the event
of the whole or any portion of the second COVERAGE B indemnity limit
being exhausted by loss, the amount so exhausted shall be automatically
reinstated from the time of the loss and the COMPANY shall pay to the
REINSURERS an Additional Premium calculated by applying to the annual
Minimum Premium to REINSURERS for the respective contract year, the
percentage that the amount of indemnity so reinstated bears to the
total amount of indemnity coverage afforded under COVERAGE B, subject
to a minimum of 100% as to time, to be paid simultaneously with the
payment of loss by the REINSURERS. Notwithstanding the above, the first
90% of $10,000,000 indemnity LIMIT shall be reinstated by the COMPANY
free of charge.
Nevertheless, the REINSURERS liability in any one claim shall never
exceed 90% of $10,000,000 ULTIMATE NET LOSS plus pro rata LOSS
ADJUSTMENT EXPENSES in respect of COVERAGE B.
C. Maximum Premium: As respects each contract year, the Maximum Premium
shall equal the product of the Minimum Premium multiplied by 2 (two).
ARTICLE X: COVERAGE B CEDING COMMISSIONS
The REINSURERS shall pay to the COMPANY 17.5% of all COVERAGE B Minimum Premium
and Reinstatement Premium payable hereon by the COMPANY at the time the COMPANY
pays such premiums.
ARTICLE XI: OFFSET
The COMPANY and the REINSURER shall have the right to OFFSET any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of OFFSET may exercise such right any time whether the
balances are on account of premiums or losses or otherwise.
ARTICLE XII: ACCESS TO RECORDS
A. The COMPANY shall place at the disposal of the REINSURER at all
reasonable time, and the REINSURER shall have the right to inspect,
through authorized representatives, all books, records, policies,
endorsements and papers of the COMPANY in connection with any
resinsurance hereunder, or claims in connection herewith.
B. The REINSURER agrees that it will not disclose any confidential
information obtained by it hereunder to parties not subject to this
Contract except under the following circumstances and then only when
necessary:
11
<PAGE> 12
1. When disclosure of such information is required in the normal
course of the REINSURERS business; or
2. With the prior written consent of the COMPANY; or
3. When the REINSURER is required by a subpoena or court order to
disclose such information. The REINSURER shall promptly notify the
COMPANY of any attempt by a third party to obtain from it any such
confidential information.
C. The REINSURER will provide the COMPANY or its designated representative
with such information as the REINSURER and COMPANY may agree is
necessary to the COMPANY'S handling of the business reinsured herein.
D. The obligation contained in this Article shall survive termination of
this Contract.
ARTICLE XIII: LIABILITY OF THE REINSURER
A. The liability of the REINSURER shall follow that of the COMPANY in
every case and be subject in all respects to all the general and
specific stipulations, clauses, waivers and modifications of the
COMPANY'S policies and any endorsements thereon. However, in no event
shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this Contract.
B. Nothing herein shall in any manner create any obligation or establish
any rights against the REINSURER in favor of any third party or any
persons not parties to this Contract.
ARTICLE XIV: NET RETAINED LIABILITY
A. This Contract applies only to that portion of any insurance or
reinsurance which the COMPANY retains net for its own account (prior to
deduction of any underlying reinsurance), and in calculating the amount
of any loss hereunder and also in computing the amount or amounts in
excess of which this Contract attaches only loss or losses in respect
of that portion of any policy which the COMPANY retains net for its own
account shall be included.
B. The amount of the REINSURERS liability hereunder in respect of any loss
or losses shall not be increased by reason of the inability of the
COMPANY to collect from any other reinsurer(s), whether specific or
general, any amounts which may have become due from such reinsurer(s),
whether such inability arises from the insolvency of such other
reinsurer(s) or otherwise.
12
<PAGE> 13
ARTICLE XV: DELAYS, ERRORS OR OMISSIONS
Inadvertent delays, errors or omissions made in connections with this Contract
or any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission not occurred, provided always that
such error or omission will be rectified as soon as possible after discovery. In
no event shall late notification of any claim, except as provided in the sunset
clause under ARTICLE IV, Section D, by the COMPANY constitute a ground upon
which the REINSURER has been prejudice by such late notice. As used in this
Article, the term "prejudice" shall mean that a different outcome in the
handling of any claim would have resulted but for the untimely notice to
REINSURERS.
ARTICLE XVI: CURRENCY
Whenever the word "Dollars" or the "$" appears in this Contract, they shall be
construed to mean United States Dollars and all transactions under this Contract
shall be in United States Dollars.
ARTICLE XVII: FEDERAL EXCISE TAX
If the REINSURER is subject to the FEDERAL EXCISE TAX, the REINSURER agrees to
allow, for the purpose of paying the TAX, up to 1% of the premium payable hereon
to the extent such premium is subject to the TAX. In the event of any return
premium becoming due hereunder, the REINSURER will deduct from the amount of the
return premium the same percentage as it allowed, and the COMPANY or its agents
should take steps to recover the TAX from the U.S.
Government.
ARTICLE XVIII: UNAUTHORIZED REINSURERS
A. If the REINSURER is unauthorized in any state of the United States of
America or the District of Columbia, the REINSURER agrees to fund its
share of the COMPANY'S ceded outstanding loss and LOSS ADJUSTMENT
EXPENSE reserves and ceded incurred but not reported loss reserves and
COVERAGE A return premium accrued by the COMPANY, as determined by the
COMPANY, respectively by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC
Securities Valuation Office credit standards for issuers of
letters of credit and acceptable to said insurance regulatory
authorities; and/or
2. Trust accounts in conformity with New York Regulation 114 for the
benefit of the COMPANY and as may be required by any other
insurance regulatory authority; and/or
13
<PAGE> 14
3. Cash advances;
if without such funding, a penalty would accrue to the COMPANY on
any financial statement it is required to file with the insurance
regulatory authorities involved. The REINSURER, at its sole
option, may fund in other than cash if its method and form of
funding are acceptable to the insurance regulatory authorities
involved and the COMPANY.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued for a term of
at least one year and will include an "evergreen clause" which
automatically extends the term for at least one additional year at each
expiration date unless written notice of non-renewal is given to the
COMPANY not less than 30 days prior to said expiration date. The
COMPANY and the REINSURER further agree, notwithstanding anything to
the contrary in this Contract, that said letters of credit may be drawn
upon by the COMPANY or its successors in interest at any time, without
diminution because of the insolvency of the COMPANY or the REINSURER,
but only for one or more of the following purposes.
1. To reimburse itself for the REINSURER'S share of losses and/or
LOSS ADJUSTMENT EXPENSES paid under the terms of policies
reinsured hereunder, unless paid in cash by the REINSURER;
2. To reimburse itself for the REINSURER'S share of any COVERAGE A
return premium due and other amounts claimed to be due hereunder,
unless paid in cash by the REINSURER.
3. To fund a cash account in an amount equal to the REINSURER'S share
of any outstanding loss and LOSS ADJUSTMENT EXPENSE reserves and
ceded incurred but not reported loss reserves or COVERAGE A return
premium funded by means of a letter of credit which (a) is under
non-renewal notice, if said letter of credit has not been renewed
or replaced by the REINSURER 10 days prior to its expiration date,
or (b) the REINSURER has failed to increase to the amount
requested by the COMPANY, it being understood that nothing in this
Contract in any way shall restrict or limit the rights of the
COMPANY under the terms of the letter of credit;
4. To refund to the REINSURER any sum in excess of the actual amount
required to fund the REINSURER'S share of the COMPANY'S ceded
outstanding loss and LOSS ADJUSTMENT EXPENSE reserves and ceded
incurred but not reported loss reserves or COVERAGE A return
premium, if so requested by the REINSURER.
14
<PAGE> 15
In the event the amount drawn by the COMPANY on any letter of
credit is in excess of the actual amount required for B(1) or
B(3), or in the case of B(2), the actual amount determined to be
due, the COMPANY shall promptly return to the REINSURER the excess
amount so drawn.
ARTICLE XIX: INSOLVENCY
A. In the event of the INSOLVENCY of the COMPANY, this reinsurance shall
be payable directly to the COMPANY or to its liquidator, receiver,
conservator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of the liability of
the COMPANY without diminution because of the INSOLVENCY of the COMPANY
or because the liquidator, receiver, conservator or statutory successor
of the COMPANY has failed to pay all or a portion of any claim. It is
agreed, however, that the liquidator, receiver, conservator or
statutory successor of the COMPANY shall give written notice to the
REINSURER of the pendency of a claim against the COMPANY indicating the
policy or bond reinsured which claim would involve a possible liability
on the part of the REINSURER within a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the REINSURER
may investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to adjudicated, any defense or defenses
that it may deem available to the COMPANY or its liquidator, receiver,
conservator, or statutory successor. Accidental failure to give such
notice shall not excuse the obligation unless REINSURERS are
substantially prejudiced by the failure to give such notice. The
expense thus incurred by the REINSURER shall be chargeable, subject to
the approval of the Court, against the COMPANY as part of the expense
of conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the COMPANY solely as a result of the
defense undertaken by the REINSURER.
B. Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this
Contract as though such expense had been incurred by the COMPANY.
C. It is further understood and agreed that, in the event of the
INSOLVENCY of the COMPANY, the reinsurance under this Contract shall be
payable directly by the REINSURER to the COMPANY or to its liquidator,
receiver or statutory successor.
15
<PAGE> 16
ARTICLE XX: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereafter arising with respect
to this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to ARBITRATION. One Arbiter
shall be chosen by the COMPANY, the other by the REINSURER, and an
Umpire shall be chosen by the two Arbiters before they enter upon
ARBITRATION, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance companies. In the event
that either party should fail to choose an Arbiter within 30 days
following a written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an Umpire before
entering upon ARBITRATION. If the two Arbiters fail to agree upon the
selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two
of whom the other shall decline, and the decision shall be made by
drawing lots. Nothing herein shall prevent either party from commencing
a proceeding in the United States District Court having jurisdiction
over the dispute for the purposes of having said court select an Umpire
pursuant to the Federal Arbitration Act 9 USC 1 er seq.
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Contract as an honorable engagement rather than merely as
a legal obligation and they are relieved of all judicial formalities
and may abstain from following the strict rules of law. The decision of
the Arbiters shall be final and binding on both parties; but failing to
agree, they shall call in the Umpire and the decision of the majority
shall be final and binding upon both parties. Judgment upon the final
written decision of the Arbiters may be entered in any court of
competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the COMPANY to each of the
reinsurers constituting one party, provided, however, that nothing
herein shall impair the rights of such reinsurers to assert several,
rather than joint, defenses or claims, nor be construed as changing the
liability of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
ARBITRATION. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the ARBITRATION shall be equally divided between the two parties.
E. Any ARBITRATION proceedings shall take place at a location in
Lawrenceville, New Jersey. All proceedings pursuant hereto shall be
governed by the law of the State of New Jersey.
16
<PAGE> 17
ARTICLE XXI: SERVICE OF SUIT
A. It is agreed that in the event of the failure of the REINSURER hereon
to pay any amount claimed to be due hereunder, the REINSURERS hereon,
at the request of the COMPANY, will submit to the jurisdiction of a
court of competent jurisdiction within the United States. The foregoing
shall not constitute a waiver of the right of the REINSURERS to
commence any suit in, or to remove, remand or transfer any suit to any
other court of competent jurisdiction in accordance with the applicable
statutes of the state or United States pertinent thereto.
B. It is further agreed that service of process in such suit may be made
upon Kroll & Tract, 520 Madison Avenue, New York, NY 10022-4235, United
States of America, and that in any suit instituted against any one of
them upon this Contract, the REINSURER will abide by the final decision
of such Court or of any Appellate Court in the event of an appeal.
C. The above named are authorized and directed to accept service of
process on behalf of the REINSURER in any suit and/or upon the request
of the COMPANY to give a written undertaking to the COMPANY that they
will enter a general appearance upon the REINSURERS behalf in the event
such suit shall be instituted.
D. Further, pursuant to any statute of any state, territory or District of
the United States which makes provision therefor, the REINSURER hereon
hereby designate the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purposes in the statute,
or his successor or successors in office, as their true and lawful
attorney upon whom may be served any lawful proceeding in any action,
suit or proceeding instituted by or on behalf of the COMPANY or any
beneficiary hereunder arising out of this Contract, and hereby
designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXII - INTERMEDIARIES
Medical Brokers, Inc., Pergasus Advisors, Inc. and Lloyd Thompson Ltd. Are
hereby recognized as the INTERMEDIARIES negotiating this Contract for all
business hereunder. All communications (including but not limited to notices,
statements, premium, return premium, commissions, taxes, losses, LOSS ADJUSTMENT
EXPENSE, salvage and loss settlements) relating thereto shall be transmitted to
the COMPANY or the REINSURER through Pegasus Advisors, Inc. Payments by the
COMPANY to the INTERMEDIARIES shall be deemed to constitute payment to the
REINSURER. Payments by the REINSURER to the INTERMEDIARIES shall be deemed to
constitute payment to the COMPANY only to the extent that such payments are
actually received by the COMPANY. Notwithstanding the above, the COMPANY and
REINSURERS hereby agree that all payments will be direct from the REINSURER to
the COMPANY, or from the COMPANY to the REINSURERS, as appropriate.
17
<PAGE> 18
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1995
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
SWISS REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 38.23% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1995, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by the respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /S/ Hugo Kostelni
----------------------------------------------
In Zurich, Switzerland, this 2nd day of September 1996,
For and on Behalf of Swiss Reinsurance Company
By: /s/ W. Schlapfer /s/ Luigi Koch
----------------------------------------------
<PAGE> 19
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1995
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
HANNOVER RUCKVERSICHERUNGS
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 32.35% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1995, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /S/ Hugo Kostelni
----------------------------------------------
In Hannover, Germany, this 12th day of September 1996,
For and on Behalf of Hannover Ruckversicherungs
HANNOVER
Ruckversicherungs-Alktiengesellschaft
By: Reference #
----------------------------------------------
EISEN UND STAHL 0-411263-3009
Ruckversicherungs-Alktengesellschaft
/s/ H. Gradtke /s/ C. v. Heimburg
North American Treaty Dpt.-VR 11
<PAGE> 20
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1995
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
UNDERWRITERS REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 17.65% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1995, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by the respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
----------------------------------------------
In Woodland Hills, California, this 26th day of August 1996,
For and on Behalf of Underwriters Reinsurance Company
By: /s/ Denise Coleman
----------------------------------------------
<PAGE> 21
INTERESTS AND LIABILITIES AGREEMENT
TO THE
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1995
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
PMA REINSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 11.77% share in the
interests and liabilities as set forth in the document attached hereto entitled
"SPECIFIC EXCESS REINSURANCE CONTRACT, Effective: January 1, 1995, issued to
Medical Inter-Insurance Exchange of New Jersey". The share of the Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Reinsurer shall in no
event participate in the interest and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by the respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27th day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
----------------------------------------------
In Philadelphia, Pennsylvania, this 25th day of September 1996,
For and on Behalf of PMA Reinsurance Company
By: /s/ Edward P. Brehm
----------------------------------------------
<PAGE> 22
Endorsement I
TERMINATION ENDORSEMENT
FOR
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE JANUARY 1, 1995
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
THE SUBSCRIBING REINSURERS
(HEREINAFTER REFERRED TO AS "SUBSCRIBING REINSURERS")
The COMPANY and the SUBSCRIBING REINSURERS hereby mutually agree to terminate
the captioned agreement at the close of December 31, 1995 in accordance with
Article II of the captioned contract.
SUBSCRIBING REINSURERS shall remain liable in respect of policies issued on
January 1, 1995 through December 31, 1995, both days inclusive, on the basis of
underlying coverage in accordance with the captioned contract.
IN WITNESS WHEREOF, the SUBSCRIBING REINSURER has caused this TERMINATION
ENDORSEMENT to be executed by its duly authorized officer on this 2nd day of
September, 1996.
SWISS REINSURANCE COMPANY
By: /s/ W. Schlapfer /s/ Luigi Koch
----------------------------------------------
Title:
-------------------------------------------
<PAGE> 23
Endorsement I
TERMINATION ENDORSEMENT
FOR
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE JANUARY 1, 1995
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
THE SUBSCRIBING REINSURERS
(HEREINAFTER REFERRED TO AS "SUBSCRIBING REINSURERS")
The COMPANY and the SUBSCRIBING REINSURERS hereby mutually agree to terminate
the captioned agreement at the close of December 31, 1995 in accordance with
Article II of the captioned contract.
SUBSCRIBING REINSURERS shall remain liable in respect of policies issued on
January 1, 1995 through December 31, 1995, both days inclusive, on the basis of
underlying coverage in accordance with the captioned contract.
IN WITNESS WHEREOF, the SUBSCRIBING REINSURER has caused this TERMINATION
ENDORSEMENT to be executed by its duly authorized officer on this 12th day of
September, 1996.
HANNOVER RUCKVERSICHERUNGS
HANNOVER
By: Ruckversicherungs-Aktiengesellschaft Reference #:
----------------------------------------------
EISEN UND STAHL 0-411263-3009
Title: Ruckversicherungs-Aktiengesellschaft
-------------------------------------------
/s/ H. Gradtke /s/ C. v. Heimburg
North American Treaty Dpt.-VR 11
<PAGE> 24
Endorsement I
TERMINATION ENDORSEMENT
FOR
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE JANUARY 1, 1995
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
THE SUBSCRIBING REINSURERS
(HEREINAFTER REFERRED TO AS "SUBSCRIBING REINSURERS")
The COMPANY and the SUBSCRIBING REINSURERS hereby mutually agree to terminate
the captioned agreement at the close of December 31, 1995 in accordance with
Article II of the captioned contract.
SUBSCRIBING REINSURERS shall remain liable in respect of policies issued on
January 1, 1995 through December 31, 1995, both days inclusive, on the basis of
underlying coverage in accordance with the captioned contract.
IN WITNESS WHEREOF, the SUBSCRIBING REINSURER has caused this TERMINATION
ENDORSEMENT to be executed by its duly authorized officer on this 26th day of
August, 1996.
UNDERWRITERS REINSURANCE COMPANY
By: /s/ Denise Coleman
----------------------------------------------
Title: Sr. Vice President
-------------------------------------------
<PAGE> 25
Endorsement I
TERMINATION ENDORSEMENT
FOR
SPECIFIC EXCESS REINSURANCE CONTRACT
EFFECTIVE JANUARY 1, 1995
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
(HEREINAFTER REFERRED TO AS "COMPANY")
BY
THE SUBSCRIBING REINSURERS
(HEREINAFTER REFERRED TO AS "SUBSCRIBING REINSURERS")
The COMPANY and the SUBSCRIBING REINSURERS hereby mutually agree to terminate
the captioned agreement at the close of December 31, 1995 in accordance with
Article II of the captioned contract.
SUBSCRIBING REINSURERS shall remain liable in respect of policies issued on
January 1, 1995 through December 31, 1995, both days inclusive, on the basis of
underlying coverage in accordance with the captioned contract.
IN WITNESS WHEREOF, the SUBSCRIBING REINSURER has caused this TERMINATION
ENDORSEMENT to be executed by its duly authorized officer on this ______ day of
January, 1996.
PMA REINSURANCE COMPANY
By: /s/ Edward P. Brehm
----------------------------------------------
Title: Vice President
-------------------------------------------
<PAGE> 1
Exhibit 10.10
INTER-INSURANCE EXCHANGE OF NEW JERSEY
COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS
REINSURANCE TREATY
EFFECTIVE JANUARY 1, 1995
ARTICLE SUMMARY PAGE
- ------- ------- ----
1 BUSINESS COVERED 2
2 TERM 3
3 TERRITORY AND INURING REINSURANCE 3
4 EXCLUSIONS 3
5 COVERAGES AND AGGREGATE LIMITS 4
6 DEFINITIONS 5
7 NET RETAINED LIABILITY 7
8 COVERAGE A DEPOSIT CONSIDERATION AND 7
COVERAGE A ACTUAL CONSIDERATION AND CEDING COMMISSION,
COVERAGE A ADDITIONAL COVERAGE CONSIDERATION,
REINSURERS' EXPENSE CHARGE AND COVERAGE B CONSIDERATION
9 OFFSET AND SECURITY 11
10 REPORTS AND LOSS SETTLEMENTS 11
11 PROFIT SHARING, FUNDS WITHHELD ACCOUNT AND
INTEREST CREDIT 13
12 LIABILITY OF THE REINSURER AND CURRENCY 14
13 COMMUTATION 14
14 EXCESS OF ORIGINAL POLICY LIMITS 15
15 EXTRA CONTRACTUAL OBLIGATIONS 15
16 ERRORS AND OMISSIONS 16
17 ACCESS TO RECORDS 16
18 ACTUARIAL REVIEW 16
19 LOSS RESERVE FUNDING 17
20 FUNDS WITHHELD TRUST ACCOUNT 17
21 INSOLVENCY 18
22 ARBITRATION 18
23 CHANGES IN ADMINISTRATIVE PRACTICES 19
24 TAXES 20
25 SERVICE OF SUIT 20
26 NO ASSIGNMENT 20
27 INTERMEDIARY 21
<PAGE> 2
1995 COMBINED AGGREGATE AND CASUALTY
CATASTROPHE EXCESS OF LOSS
REINSURANCE AGREEMENT NO. 1995
BETWEEN
THE REINSURERS SUBSCRIBING THE RESPECTIVE INTERESTS
AND LIABILITIES AGREEMENTS HERETO
(HEREINAFTER CALLED "REINSURERS")
AND
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER CALLED THE "CEDING COMPANY")
ARTICLE 1: BUSINESS COVERED
This Agreement shall indemnify the CEDING COMPANY with respect to ULTIMATE NET
LOSSES which may accrue to the CEDING COMPANY under any and all POLICIES subject
to the Terms and Conditions of this Agreement.
As respects COVERAGES A and B hereon, the REINSURERS shall provide coverage on a
losses occurring during basis during the TERM in respect of all of the CEDING
COMPANY'S POLICIES underwritten on a losses occurring during basis. Also, as
respects COVERAGES A and B hereon, the REINSURERS shall provide coverage on a
claims first made basis during the TERM in respect of all of the CEDING
COMPANY'S POLICIES, including the HIV Endorsement, underwritten on a claims
first made basis. For all purposes, the "PERMANENT PROTECTION POLICIES (PPP)"
underwritten by the CEDING COMPANY shall in all cases be deemed to cover on a
losses occurring during basis of underlying coverage. REINSURERS shall be
subject to all of the conditions of the PPP including policy limits and the
aggregate limit formula under the extended reporting coverage therein.
As respects COVERAGE C hereon, the REINSURERS shall provide coverage hereon on a
losses occurring during basis during the TERM.
REINSURERS shall remain liable for all losses covered as detailed above during
the TERM until all such losses are paid or this Agreement is commuted. The
REINSURERS shall also remain liable for COVERAGES A, B AND C hereunder upon the
CEDING COMPANY'S election on or before December 31, 1995 to run-off business in
force on December 31, 1995. Upon the CEDING COMPANY'S election to run-off, the
reinsurance in force on December 31, 1995 shall remain in full force and effect
until expiration, cancellation, or next premium anniversary of such business,
whichever first occurs, but in no event beyond 12 months following the effective
date of termination, plus any extension of coverage for extended reporting as
per the ORIGINAL POLICIES of the CEDING COMPANY. If run-off is not elected by
the CEDING COMPANY, there shall be no payment of return CONSIDERATION due to the
CEDING COMPANY. If run-off is elected by the CEDING COMPANY, the REINSURERS
shall be entitled to ADDITIONAL CONSIDERATION in
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<PAGE> 3
respect of COVERAGE A due to the increase in SNEP hereon, as unearned subject
premium on POLICIES in force at December 31, 1995 becomes earned.
Such business in run-off shall be included in all calculations within this
Agreement, including but not limited to, SNEP and ULTIMATE NET LOSS for all
COVERAGES hereon.
ARTICLE 2: TERM
This Agreement shall be effective from January 1, 1995 through December 31,
1995, both days inclusive.
Should this Agreement expire while a COVERAGE A loss covered in respect of a
loss occurrence policy, such as the PPP is in progress, the REINSURERS shall be
responsible for the loss in progress in the same manner and to the same extent
they would have been responsible had the Agreement expired the day following the
conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Agreement will cover POLICIES written within the United States of America.
All other REINSURANCE AGREEMENTS that inure to the benefit of this Agreement
shall be deemed in place until all liability of the REINSURERS hereon is
finalized by payment of all losses or commutation.
ARTICLE 4: EXCLUSIONS
This Agreement shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause attached hereto;
C. Business assumed from Pools, Syndicates, and Associations;
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - U.S.A., except that provisions of this clause
shall not apply to liability arising out of the practice of Nuclear
Medicine and activities relating. to Nuclear Medicine by the original
insured.
E. War Risks, in accordance with the North American War Exclusion Clause
attached hereto;
F. Unallocated LOSS ADJUSTMENT EXPENSES as described in ARTICLE 6, Section
E.
G. Underlying Policies written by the CEDING COMPANY on an aggregate basis
(provider stop loss).
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS
A. COVERAGE A
Should the CEDING COMPANY'S LOSS RATIO exceed 75% (hereinafter called
the Retention), the REINSURERS shall be liable for 100% of the paid
amount of ULTIMATE NET LOSSES in excess of the Retention subject to a
maximum AGGREGATE LIMIT of
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<PAGE> 4
75% of SNEP unless the REINSURERS agree to provide additional AGGREGATE
LIMIT as per the following paragraph.
The REINSURERS may unilaterally offer at any time, and the CEDING
COMPANY shall accept and purchase additional coverage up to 100% of the
paid amount of ULTIMATE NET LOSSES in excess of the CEDING COMPANY'S
LOSS RATIO of 150% subject to a maximum aggregate additional limit of
5.6% of SNEP. In no event shall REINSURERS be liable for more than
$120,000,000 in the aggregate for COVERAGE A if coverage is cut-off and
$130,000,000 in the aggregate for COVERAGE A if coverage is run-off.
COVERAGES B and C hereon shall inure to COVERAGE A. Therefore, ULTIMATE
NET LOSSES in respect of the CEDING COMPANY'S NET RETAINED LIABILITY
shall be reduced by any amounts recoverable in respect of COVERAGES B
and C.
B. COVERAGE B
The REINSURERS shall indemnify the CEDING COMPANY for 100% of
$10,250,000 of the indemnity portion of ULTIMATE NET LOSSES (exclusive
of LOSS ADJUSTMENT EXPENSE) each and every loss per insured excess of
$750,000 of the indemnity portion of ULTIMATE NET LOSSES (exclusive of
LOSS ADJUSTMENT EXPENSE) each and every loss per insured plus pro rata
LOSS ADJUSTMENT EXPENSES in respect of BUSINESS COVERED. In no event
shall REINSURERS be liable for more than $10,250,000 inclusive of both
the indemnity portion of ULTIMATE NET LOSS and pro rata LOSS ADJUSTMENT
EXPENSES in respect of COVERAGE B hereon.
The CEDING COMPANY shall retain an aggregate deductible equal to 20% of
cumulative SNEP. This deductible shall apply to the aggregate sum of
per insured indemnity portion of ULTIMATE NET LOSSES (exclusive of LOSS
ADJUSTMENT EXPENSES) $2,250,000 excess of $750,000 each and every loss.
Pro rata LOSS ADJUSTMENT EXPENSES shall also be covered and apply to
the aggregate deductible. Also, the CEDING COMPANY shall retain
$8,000,000 in respect of the aggregate sum of per insured indemnity
portion of ULTIMATE NET LOSSES (exclusive of LOSS ADJUSTMENT EXPENSES)
for the layer $8,000,000 excess of $3,000,000 each and every loss. Pro
rata LOSS ADJUSTMENT EXPENSES shall also be covered and apply to the
aggregate deductible. COVERAGE B shall inure to COVERAGES A and C
hereon.
All of the indemnity portion of ULTIMATE NET LOSSES plus pro rata LOSS
ADJUSTMENT EXPENSE retained by the CEDING COMPANY as part of the above
aggregate deductible, shall be part of the CEDING COMPANY'S NET
RETAINED LIABILITY and, therefore, covered under COVERAGE A hereon.
C. COVERAGE C
REINSURERS shall indemnify the CEDING COMPANY for $9,250,000 of the
indemnity portion of ULTIMATE NET LOSS (exclusive of LOSS ADJUSTMENT
EXPENSES) excess of $750,000 of the indemnity portion of ULTIMATE NET
LOSS (exclusive of LOSS ADJUSTMENT EXPENSES) per LOSS OCCURRENCE as
respects LOSS OCCURRENCES during the TERM. Pro rata LOSS ADJUSTMENT
EXPENSES shall also be covered. Notwithstanding the definition of
ULTIMATE NET LOSS as per Section D of ARTICLE 6: DEFINITIONS, LOSS
ADJUSTMENT EXPENSE shall be excluded from the
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<PAGE> 5
determination of ULTIMATE NET LOSS referenced in this COVERAGE C.
REINSURERS shall, however, indemnify the CEDING COMPANY for pro-rata
LOSS ADJUSTMENT EXPENSES in addition to loss indemnity amounts subject
to an AGGREGATE LIMIT in all equal to $9,250,000. COVERAGE C shall
inure to COVERAGE A.
ARTICLE 6: DEFINITIONS
A. "CUMULATIVE SUBJECT NET EARNED PREMIUMS" (SNEP) shall mean the
cumulative NET WRITTEN PREMIUM INCOME of the CEDING COMPANY during the
period January 1, 1995 through December 31, 1995 plus the NET WRITTEN
PREMIUM INCOME unearned at December 31, 1994 less the NET WRITTEN
PREMIUM INCOME unearned as of the calendar quarter end calculation date
but no later than December 31, 1995.
B. "NET WRITTEN PREMIUM INCOME" shall mean gross written premiums of the
CEDING COMPANY less cancellations and returns and less premiums paid
for all other reinsurances for the period January 1, 1995 through
December 31, 1995, except for NON-TRADITIONAL REINSURANCE AGREEMENTS
which shall be disregarded for the calculation of SNEP.
C. 1. "NON-TRADITIONAL REINSURANCE AGREEMENTS" shall mean any
reinsurance agreement which allows for PROFIT SHARING (or any
other form of contractual adjustment) exceeding 25% of initial
reinsurance premium paid. This definition does not apply to swing
rated excess reinsurance coverages.
2. "TRADITIONAL REINSURANCE AGREEMENTS" shall mean any reinsurance
agreement which is not a non-traditional reinsurance agreement.
D. The term "ULTIMATE NET LOSS" means the actual loss including any and
all vicarious liability, arising from a LOSS OCCURRENCE as covered in
accordance with ARTICLE 1: BUSINESS COVERED, including pro rata LOSS
ADJUSTMENT EXPENSE, 80% of LOSS IN EXCESS OF POLICY LIMITS and 80% of
EXTRA CONTRACTUAL OBLIGATIONS, and including losses incurred but not
yet reported, all paid, payable, or to be paid, by the CEDING COMPANY
after making deductions for all recoveries, salvages, subrogations and
all claims on inuring reinsurance, whether such reinsurance is
collectible or not; provided, however, that in the event of the
insolvency of the CEDING COMPANY, payment by the REINSURERS shall be
made in accordance with the provisions of the INSOLVENCY Article.
Nothing herein shall be construed to mean that losses under this
Agreement are not recoverable until the CEDING COMPANY'S ULTIMATE NET
LOSS has been ascertained. ULTIMATE NET LOSS shall exclude from
coverage hereon, all combined XPL and ECO liability in excess of
$10,000,000 any one loss occurrence or claim first made and $20,000,000
in the aggregate. Both of these amounts shall be after applying the 80%
factor for XPL/ECO coverage. The $10,000,000, therefore, relates to
$12,500,000 of XPL/ECO liability from ground up in respect of a single
occurrence and $20,000,000 relates to $25,000,000 of aggregate XPL/ECO
ULTIMATE NET LOSS.
E. "LOSS ADJUSTMENT EXPENSE" means all costs and expenses allocable to a
specific claim or claims that are incurred by the CEDING COMPANY in the
investigation, appraisal, adjustment, settlement, litigation, defense
or appeal of a specific claim, including court costs and costs of
supersedeas and appeal bonds, and including a) pre-judgment interest,
unless
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<PAGE> 6
included as part of the award or judgment; b) post-judgment interest;
and c) legal expenses and costs incurred in connection with coverage
questions and legal actions connected thereto. LOSS ADJUSTMENT EXPENSE
does not include unallocated LOSS ADJUSTMENT EXPENSE. Unallocated LOSS
ADJUSTMENT EXPENSE includes, but is not limited to, salaries and
expenses of employees, and office and other overhead.
F. "POLICIES" means any and all original policies, contracts, and binders
of insurance underwritten by the CEDING COMPANY and classified under
the listing below.
"POLICIES" shall also mean assumed reinsurance from American Medical
Mutual (AMM) of Vermont, in respect of original policies underwritten
by AMM and classified also as:
Medical and Dental Practitioner Professional Liability (including
HIV Endorsement Coverage)*
Directors and Officers Liability
Property and Other Coverages as provided within the CEDING
COMPANY'S Medical Office Policies
Hospital Professional Liability
Other Health Care Institution Liability
Professional Premises Liability
Commercial General Liability
Excess/Umbrella Liability
*Policies shall only include HIV coverage to insured medical and
dental practitioners of the CEDING COMPANY. Coverages for others
for HIV shall only be available upon REINSURERS' approval.
G. "LOSS RATIO" means the ratio of ULTIMATE NET LOSSES incurred divided by
CUMULATIVE SUBJECT NET EARNED PREMIUM as of the date of calculation.
H. "CEDED LOSS RATIO" means the ratio of ceded ULTIMATE NET LOSSES
incurred divided by CUMULATIVE SUBJECT NET EARNED PREMIUM as of the
date of calculation.
I. "LOSS OCCURRENCE" means LOSS OCCURRENCE or medical incident, or
otherwise the event giving rise to coverage, all as defined and
provided within the underlying POLICIES underwritten by the CEDING
COMPANY.
ARTICLE 7: NET RETAINED LIABILITY
COVERAGE A applies only to that portion of any LOSS OCCURRENCE or claim first
made which the CEDING COMPANY retains net for its own account. All other
REINSURANCE AGREEMENTS, including COVERAGES B and C hereon, shall inure to the
benefit of this Agreement and be deemed in place until all liability hereon is
finalized.
The CEDING COMPANY warrants that the minimum NET RETAINED LIABILITY is $750,000
per insured and $1,000,000 per event for insureds in New Jersey and $200,000 per
insured and $600,000 per event for insureds in other states.
The CEDING COMPANY warrants that the maximum NET RETAINED LIABILITY is as
follows:
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<PAGE> 7
<TABLE>
<CAPTION>
Policies Classified As: Maximum NET RETAINED LIABILITY
----------------------- ------------------------------
<S> <C>
Directors & Officers Liability $ 2,000,000 any one policy
Medical Office Policy $ 2,250,000 any one policy
Assumed Reinsurance from AMM $ 9,900,000 per claim per insured
All Other Policies $10,000,000 per claim per insured
</TABLE>
The above figures pertain to indemnity only. Therefore, NET RETAINED LIABILITY
would be increased in respect of pro rata LOSS ADJUSTMENT EXPENSES. The CEDING
COMPANY must obtain special acceptance from REINSURERS prior to exceeding the
above maximum NET RETAINED LIABILITY.
Furthermore, it is warranted that less than 15% of the CEDING COMPANY'S SNEP
during the TERM of this Agreement will apply to the business where the CEDING
COMPANY'S NET RETAINED LIABILITY is below $750,000 on a per insured and
$1,000,000 on a per event basis.
ARTICLE 8: COVERAGE A DEPOSIT CONSIDERATION AND
COVERAGE A ACTUAL CONSIDERATION AND CEDING COMMISSIONS,
COVERAGE A ADDITIONAL COVERAGE CONSIDERATION,
REINSURERS' EXPENSE CHARGE AND COVERAGE B CONSIDERATION
A. COVERAGE A DEPOSIT CONSIDERATION AND COVERAGE A ACTUAL CONSIDERATION
AND CEDING COMMISSION
The CEDING COMPANY shall pay to the REINSURERS a DEPOSIT CONSIDERATION
of $28,000,000 on January 1, 1995. The DEPOSIT CONSIDERATION shall be
deemed credited to the FUNDS WITHHELD ACCOUNT on January 1, 1995 for
all purposes hereon including INTEREST CREDIT.
Commencing with the calendar quarter ending December 31, 1995 and each
subsequent calendar quarter end, the CEDING COMPANY shall calculate the
required COVERAGE A ACTUAL CONSIDERATION within 45 days of each
calendar quarter end. ACTUAL
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<PAGE> 8
CONSIDERATION shall be based upon the result of dividing ceded ULTIMATE
NET LOSSES by SNEP as of each calculation date (hereinafter called the
CEDED LOSS RATIO).
The ACTUAL CONSIDERATION shall be based upon the percentage of SNEP
corresponding to the CEDED LOSS RATIO as determined per the table and
narrative below:
<TABLE>
<CAPTION>
Ceded Actual Ceded Actual
Loss Consideration Loss Consideration
Ratio ($ of SNEP) Ratio (% of SNEP)
----- ----------- ----- -----------
<S> <C> <C> <C>
0- 16 11.169 46 26.709
17 11.649 47 27.441
18 12.158 48 28.173
19 12.667 49 28.682
20 13.176 50 29.191
21 13.685 51 29.700
22 14.194 52 30.209
23 14.703 53 30.718
24 14.989 54 31.227
25 15.275 55 31.736
26 15.560 56 32.245
27 15.846 57 32.754
28 16.132 58 33.263
29 16.417 59 33.772
30 16.926 60 34.281
31 17.435 61 34.790
32 17.944 62 35.299
33 18.453 63 35.808
34 18.962 64 36.317
35 19.471 65 36.826
36 19.980 66 37.335
37 20.489 67 37.844
38 20.998 68 38.353
39 21.507 69 38.862
40 22.016 70 39.371
41 22.749 71 39.880
42 23.481 72 40.389
43 24.214 73 40.899
44 25.095 74 41.408
45 25.976 75 41.917
</TABLE>
If CEDED LOSS RATIOS are between the above table loss ratios, the
ACTUAL CONSIDERATION percentage of SNEP shall be pro-rated between the
table CEDED LOSS RATIO values.
The ACTUAL CONSIDERATION shall be equal to the cumulative SNEP
multiplied by the percentage determined by the above narrative and
table calculations.
The CEDING COMPANY shall credit the FUNDS WITHHELD ACCOUNT for this
ACTUAL CONSIDERATION less all prior payments of ACTUAL CONSIDERATION
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<PAGE> 9
adjustments and DEPOSIT CONSIDERATION. If the sum of the prior payments
of ACTUAL CONSIDERATION adjustments and DEPOSIT CONSIDERATION exceed
the ACTUAL CONSIDERATION amount due, the CEDING COMPANY shall debit the
FUNDS WITHHELD ACCOUNT for such return ACTUAL CONSIDERATION adjustment.
All COVERAGE A ACTUAL CONSIDERATION adjustments and DEPOSIT
CONSIDERATION shall be deemed to be credited or (debited) from the
FUNDS WITHHELD ACCOUNT as of January 1, 1996 for INTEREST CREDIT
purposes hereon. Therefore, any adjustments to increase COVERAGE A
ACTUAL CONSIDERATION shall result in an INTEREST CREDIT from January 1,
1996 to date for such adjustment. Any adjustments to decrease the
COVERAGE A ACTUAL CONSIDERATION shall result in a reduction of INTEREST
CREDIT from January 1, 1996 to date for such adjustment.
REINSURERS shall allow a CEDING COMMISSION of $1,200,000 to be due to
the CEDING COMPANY on January 1, 1995. There shall be no increase or
decrease to this amount based upon loss experience under this Treaty.
The CEDING COMPANY shall debit the FUNDS WITHHELD ACCOUNT as of January
1, 1995 for all CEDING COMMISSIONS.
B. COVERAGE A ADDITIONAL COVERAGE CONSIDERATION
In addition to COVERAGE A ACTUAL CONSIDERATION, the CEDING COMPANY
shall credit the FUNDS WITHHELD ACCOUNT for an amount equal to 42.5% of
additional coverage, if any, provided by REINSURERS. All such
CONSIDERATION, if any, shall be credited to the FUNDS WITHHELD ACCOUNT
as of January 1, 1995 for purposes of INTEREST CREDIT hereon.
C. REINSURERS' EXPENSE CHARGE
The COMPANY shall pay REINSURERS a REINSURERS' EXPENSE CHARGE equal to
X%, as detailed in the table below, of all ACTUAL CONSIDERATION,
including the DEPOSIT CONSIDERATION subject to a minimum amount of
$2,275,000, by direct payment to REINSURERS hereon. There shall be no
REINSURERS' EXPENSE CHARGE in respect of COVERAGE A ADDITIONAL COVERAGE
CONSIDERATION, COVERAGE B CONSIDERATION AND COVERAGE C CONSIDERATION.
X shall provisionally be 9.0% as respects DEPOSIT CONSIDERATION for
purposes of calculation and payment upon consummation of this
Agreement. The REINSURERS' EXPENSE CHARGE on both the DEPOSIT
CONSIDERATION and ACTUAL
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<PAGE> 10
CONSIDERATION adjustments shall be determined, redetermined and paid
annually within 60 days in arrears of each calendar year end. Payments
shall be made by direct payment from the debtor to creditor party at
such times.
There shall be no interest paid to REINSURERS on REINSURERS' EXPENSE
CHARGE paid or refund of interest on REINSURERS' EXPENSE CHARGE which
is refunded under this Agreement, upon return ACTUAL CONSIDERATION
adjustments, if any.
X% shall be based upon CEDED LOSS RATIO bands as follows:
<TABLE>
<CAPTION>
CEDED LOSS RATIO X%
---------------- --
<S> <C> <C> <C>
greater than or equal to 0% less than or equal to 23.0% 6.0
greater than 23.0% less than or equal to 29.0% 7.0
greater than 29.0% less than or equal to 34.0% 8.0
greater than 34.0% less than or equal to 45.0% 9.0
greater than 45.0% less than or equal to 65.0% 8.0
greater than 65.0% less than or equal to 72.0% 7.0
greater than 72.0% 6.0
</TABLE>
For purposes of INTEREST CREDIT hereon as per ARTICLE 11, Section C,
all REINSURERS' EXPENSE CHARGE shall be deemed debited or credited as
applicable from the FUNDS WITHHELD ACCOUNT as of January 1, 1995.
D. COVERAGE B CONSIDERATION
The CEDING COMPANY shall credit to the FUNDS WITHHELD ACCOUNT as of
January 1, 1995, a COVERAGE B CONSIDERATION equal to 80% of the sum of
COVERAGE B indemnity portion of ULTIMATE NET LOSS and pro rata LOSS
ADJUSTMENT EXPENSES recoverable from REINSURERS' LOSS ADJUSTMENT
EXPENSES recoverable from REINSURERS subject to a maximum CONSIDERATION
of $8,200,000. Determination of COVERAGE B CONSIDERATION shall be made
within 45 days following each calendar quarter end. All COVERAGE B
CONSIDERATION and adjustments for subsequent reporting shall be deemed
credited or debited as appropriate from the FUNDS WITHHELD ACCOUNT as
of January 1, 1995. The intent is to result in INTEREST CREDIT from
January 1, 1995 forward based upon the ultimate COVERAGE B
CONSIDERATION.
E. COVERAGE C CONSIDERATION
The CEDING COMPANY shall credit to the FUNDS WITHHELD ACCOUNT as of
January 1, 1995, a COVERAGE C CONSIDERATION equal to 30.3% of DEPOSIT
CONSIDERATION on or before February 15,1996 to maintain coverage for
COVERAGE C. If, however, the CEDING COMPANY warrants no losses to
COVERAGE C under this Agreement on or before February 15,1996, the
COVERAGE C CONSIDERATION shall be waived in its entirety.
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<PAGE> 11
ARTICLE 9: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of CONSIDERATION or losses and
allocated LOSS ADJUSTMENT EXPENSES or otherwise, due from such party to
another party under this Agreement, against any amounts, whether on
account of CONSIDERATION or losses and allocated LOSS ADJUSTMENT
EXPENSES or otherwise due from the latter party to the former party.
The party asserting the right of offset may exercise this right,
whether as assuming REINSURERS or CEDING COMPANY in this Agreement.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one ) all of its rights under this Agreement
to receive CONSIDERATION or loss payments at any time from such other
party ("Collateral"), to secure its CONSIDERATION or loss obligations
to such other party at any time under this Agreement ("Secured
Obligations"). If at any time a party is in default under any Secured
Obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be
entitled in its discretion, to apply or to withhold for the purpose of
applying in due course, any Collateral assigned and pledged to it by
the former party and otherwise to realize upon such Collateral as
security for such Secured Obligations.
C. The security interest described herein, and the term "Collateral",
shall apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall
be deemed evidenced only by the counterpart of this Agreement delivered
to such party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Agreement.
ARTICLE 10: REPORTS AND LOSS SETTLEMENTS
A. Within 60 days following the end of each calendar quarter, the CEDING
COMPANY will report in writing to the REINSURERS:
1. SNEP for the quarter and cumulative SNEP.
2. CONSIDERATION calculations as necessary.
3. Summary of subject ULTIMATE NET LOSSES paid during the period and
inception to date.
4. Summary of ULTIMATE NET LOSSES outstanding including a report of
incurred but not reported amounts.
5. The amount of ULTIMATE NET LOSSES ceded to this Agreement for the
period and inception to date indicating amounts due and
outstanding.
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<PAGE> 12
6. Individual claim information (claim managers report) for all
individual claims in excess of $2,000,000 indemnity from ground up
and for claims in excess of $750,000 upon REINSURERS' specific
request.
7. Any other information needed by the REINSURERS to evaluate this
Agreement which is reasonably available to the CEDING COMPANY.
8. A report detailing the activity and balance within the FUNDS
WITHHELD ACCOUNT.
B. 1. COVERAGE A LOSS SETTLEMENTS
Following each quarterly report, the REINSURERS shall pay all
cumulative ULTIMATE NET LOSSES Paid in respect of BUSINESS COVERED
by the CEDING COMPANY on and after January 1, 1995 in excess of
the CEDING COMPANY'S Retention subject to the AGGREGATE LIMITS
hereon. Payment shall be made at 90 days following each calendar
quarter end, or sooner if paid by REINSURERS from other funds of
the REINSURERS. If paid by deduction from the FUNDS WITHHELD
ACCOUNT, this account shall be debited at 90 days following each
calendar quarter. Loss reimbursement at any calendar quarter shall
be equal to the amount of such cumulative ULTIMATE NET LOSSES Paid
at each date in excess of the Retention less net loss
reimbursements previously made by the REINSURERS, subject to the
AGGREGATE LIMITS in accordance with Section A of ARTICLE 5:
COVERAGES AND AGGREGATE LIMITS.
2. COVERAGE B AND C LOSS SETTLEMENTS
Following each calendar quarter report, the REINSURERS shall pay
all covered COVERAGE B and C ULTIMATE NET LOSSES paid by the
CEDING COMPANY on and after January 1, 1996 in respect of BUSINESS
COVERED subject to and in accordance with Sections B and C of
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS. Payment shall be made
at 90 days following each calendar quarter, or sooner if paid by
REINSURERS from other funds of the REINSURERS. If paid by
deduction from the FUNDS WITHHELD ACCOUNT, this account shall be
debited at 90 days following each calendar quarter.
3. ORDER OF SETTLEMENTS
All loss payments under B.1. and B.2., including all COMMUTATION
payments, if any, above will be firstly made by deduction from the
CONSIDERATION and then from the INTEREST CREDIT components of the
FUNDS WITHHELD ACCOUNT by the CEDING COMPANY until depleted.
Thereafter, REINSURERS shall pay from other funds of REINSURERS
subject to all of the terms hereon.
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<PAGE> 13
ARTICLE 11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT
AND INTEREST CREDIT
A. PROFIT SHARING
Upon finalization of the payment of all losses recoverable hereon
and/or COMMUTATION amounts, if any, the REINSURERS will relinquish to
the CEDING COMPANY 100% of the remaining FUNDS WITHHELD ACCOUNT
balance, if any. Payment of PROFIT SHARING in accordance with this
ARTICLE shall release the REINSURERS from all current and future
liability hereunder.
B. FUNDS WITHHELD ACCOUNT
For purposes of this Article, the CEDING COMPANY shall maintain a
cumulative FUNDS WITHHELD ACCOUNT comprised of the following:
1. The FUNDS WITHHELD ACCOUNT at December 31, 1994 shall be equal to
zero.
2. The FUNDS WITHHELD ACCOUNT at each subsequent calendar quarter end
shall be equal to:
a. The FUNDS WITHHELD ACCOUNT at the end of such prior calendar
quarter; plus
b. Any amounts credited or debited during the quarter for the
following:
COVERAGE A DEPOSIT CONSIDERATION, COVERAGE A ACTUAL
CONSIDERATION adjustments, COVERAGE A ADDITIONAL COVERAGE
CONSIDERATION, COVERAGE B CONSIDERATION and COVERAGE C
CONSIDERATION adjustments, if any; less
c. REINSURERS' EXPENSE CHARGE, if any; plus
d. INTEREST CREDIT; less
e. CEDING COMMISSIONS; less
f. Ceded ULTIMATE NET LOSSES paid under this Agreement for the
prior calendar quarter from the FUNDS WITHHELD ACCOUNT
(including COMMUTATION payments).
The CEDING COMPANY shall report balances quarterly to the REINSURERS as
soon as practicable but no later than 75 days in arrears of each
calendar quarter end.
The REINSURERS shall not transfer or assign their rights to the FUNDS
WITHHELD ACCOUNT hereon unless this Agreement is surrendered and a new
Agreement is issued. Under any and all circumstances, the CEDING
COMPANY must make a book entry of a transfer or assignment in order for
such transfer or assignment to be valid.
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<PAGE> 14
C. INTEREST CREDIT
The CEDING COMPANY shall credit the FUNDS WITHHELD monthly at each
month end with interest calculated by applying a monthly rate equal to
one-twelfth (1/12th) of the percentage stipulated below multiplied by
the actual daily average FUNDS WITHHELD ACCOUNT balance for the
respective calendar month, where the percentage equals:
8.28% if the 12 month U.S. Treasury Bill rate is 8.28% or less:
or
8.28% + 50% of the amount by which the 12 month U.S. Treasury Bill rate
is greater than 8.28%.
The 12 month U.S. Treasury Bill rate to be used each year is the rate
in effect on the first business day of each year as reported in the
Wall Street Journal on the second business day of each year.
INTEREST CREDIT shall continue even in the event of the COMPANY'S
insolvency.
ARTICLE 12: LIABILITY OF THE REINSURER AND CURRENCY
A. The liability of the REINSURER shall follow that of the CEDING COMPANY
in every case and be subject in all respects to all the general and
specific stipulations, clauses, waivers and modifications of the CEDING
COMPANY'S policies and any endorsements thereon. However, in no event
shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this Contract.
B. Nothing herein shall in any manner create any obligation or establish
any rights against the REINSURER in favor of any third party or any
persons not parties to this Contract.
C. All of the provisions of this Agreement involving dollar amounts are
expressed in terms of United States dollars and all CONSIDERATION and
loss and allocated LOSS ADJUSTMENT EXPENSE payments hereunder shall be
made in United States Dollars.
ARTICLE 13: COMMUTATION
The CEDING COMPANY shall have the sole option, effective at any calendar year
end on or after December 31, 1995 to commute all COVERAGES A, B and C ceded
liability outstanding hereunder. At COMMUTATION, the REINSURERS shall pay to the
CEDING COMPANY the lesser of:
A. The present value of COVERAGE A, COVERAGE B and COVERAGE C, if any,
ceded outstanding loss and allocated LOSS ADJUSTMENT EXPENSE reserves
as determined by a loss reserve analysis conducted by an independent
actuarial firm acceptable to both the CEDING COMPANY and the
REINSURERS, with the CEDING COMPANY bearing the cost of such analysis;
or
B. The existing value of the FUNDS WITHHELD ACCOUNT (as defined in ARTICLE
11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT AND INTEREST CREDIT) at the
COMMUTATION date.
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<PAGE> 15
Said payment shall constitute, together with the PROFIT SHARING payment, a full
and final settlement of all terms of this Agreement; the CEDING COMPANY will
execute a hold harmless agreement so stating and the REINSURERS will be thereby
released from all current and future liability hereunder.
COMMUTATION payments in accordance with this Article shall be treated as losses
and allocated LOSS ADJUSTMENT EXPENSES paid under this Agreement for
determination of the FUNDS WITHHELD ACCOUNT.
ARTICLE 14: EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the CEDING COMPANY, within the limits hereof, for
80% of loss in excess of its original policy, such loss in excess of the limit
having been incurred because of failure by it to settle within the policy limit
or by reason of alleged or actual negligence, fraud, or bad faith in rejecting
an offer of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or prosecution
of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the CEDING
COMPANY acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the CEDING COMPANY would have been contractually liable to pay had it not
been for the limit of the original policy.
ARTICLE 15: EXTRA CONTRACTUAL OBLIGATIONS
A. This Agreement shall protect the CEDING COMPANY for 80% of any EXTRA
CONTRACTUAL OBLIGATIONS within the limits hereof. The term "EXTRA
CONTRACTUAL OBLIGATIONS" is defined as those liabilities not covered
under any other provision of this Agreement and which arise from the
handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the
CEDING COMPANY to settle within the policy limit, or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer
of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
B. The date on which any EXTRA CONTRACTUAL OBLIGATION is incurred by the
CEDING COMPANY shall be deemed, in all circumstances, to be the date of
the original LOSS OCCURRENCE.
C. However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate
officer of the CEDING COMPANY acting individually or collectively or in
collusion with any individual or corporation or any other organization
or party involved in the presentation, defense or settlement of any
claim covered hereunder.
-15-
<PAGE> 16
ARTICLE 16: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
ARTICLE 17: ACCESS TO RECORDS
The CEDING COMPANY shall place at the disposal of the REINSURERS at all
reasonable times, and the REINSURERS shall have the right to inspect, through
its authorized representatives, all books, records, and papers of the CEDING
COMPANY in connection with any reinsurance hereunder, or claims in connection
herewith.
The REINSURERS agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Agreement except under
the following circumstances and then only as necessary.
A. When disclosure of such information is required in the normal course of
REINSURERS' business; or
B. With the prior written consent of the CEDING COMPANY; or
C. When REINSURERS are required by a subpoena or court order to disclose
such information. The REINSURERS shall promptly notify the CEDING
COMPANY of any attempt by a third party to obtain from it any such
confidential information.
REINSURERS will provide CEDING COMPANY or its designated representative with
such information as REINSURER and CEDING COMPANY may agree is necessary to the
CEDING COMPANY'S handling of the business reinsured herein.
The obligation contained in the provision shall survive termination of this
Agreement.
ARTICLE 18: ACTUARIAL REVIEW
Should the REINSURERS desire at any time to review the loss reserves established
by the CEDING COMPANY as respects COVERAGE A and COVERAGE B ULTIMATE NET LOSSES,
the REINSURERS shall select an independent actuarial firm acceptable to the
CEDING COMPANY to perform a reserve analysis. The costs of any reserve analysis
performed under this Article will be borne by the REINSURERS hereon. Such a
review shall be subject to the provisions of ARTICLE 17: ACCESS TO RECORDS.
ARTICLE 19: LOSS RESERVE FUNDING
The REINSURERS will maintain appropriate reserves with respect to their share of
the loss reserves ceded and required under the terms of this Agreement which are
reported by the CEDING COMPANY on the BUSINESS COVERED of this Agreement.
During the TERM of this Agreement the REINSURERS agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the CEDING COMPANY
issued by a bank acceptable to the CEDING COMPANY adjusted to at all times be
equal to the ceded cumulative ULTIMATE
-16-
<PAGE> 17
NET LOSSES outstanding hereunder less the FUNDS WITHHELD ACCOUNT balance at such
dates. Such Letter of Credit shall be in the form, amount, and with an
acceptable NAIC bank required to allow the CEDING COMPANY to take Full Statutory
Credit for amounts recoverable under this Agreement.
The CEDING COMPANY also agrees to not make drawings upon the Letter of Credit
provided by the REINSURERS for any purpose other than to reimburse the CEDING
COMPANY for loss settlements due under this Reinsurance Agreement for which one
or more of the REINSURERS are in default by more than seven days and provided
that the CEDING COMPANY shall give the REINSURERS three days written notice
prior to making any drawings.
The CEDING COMPANY shall reimburse the REINSURERS for annual security cost equal
to .5% of the amount of Letter of Credit issued or maintained hereon as of each
December 31st. The REINSURERS shall request such reimbursement whereupon the
CEDING COMPANY shall make payment by direct wire transfer to the REINSURERS. All
such amounts shall not be deducted from the FUNDS WITHHELD ACCOUNT.
ARTICLE 20: FUNDS WITHHELD TRUST ACCOUNT
In the event that the CEDING COMPANY experiences any one of the following
circumstances, the REINSURERS may require a Trust Fund, with an independent
bank, to be established for purposes of collateralizing the FUNDS WITHHELD
ACCOUNT hereon:
1. The CEDING COMPANY'S A.M. Best's Rating is downgraded below B+; or
2. The CEDING COMPANY'S combined statutory capital and surplus falls
below $60 million; or
3. The CEDING COMPANY effects both a change in ownership form such
that the resulting ownership extends beyond the insureds of the
COMPANY and there is a change in the office of President.
The CEDING COMPANY shall fully and promptly comply with such request from the
REINSURERS. The CEDING COMPANY shall transfer marketable assets with a market
value equal to the required FUNDS WITHHELD ACCOUNT balance within 30 days from
the REINSURERS' request to do so. The CEDING COMPANY shall also transfer
additional
-17-
<PAGE> 18
assets to the TRUST FUND, if needed, to maintain the TRUST FUND balance to be
equal to the FUNDS WITHHELD requirement at each calendar quarter end including
the requisite INTEREST CREDIT required hereon.
ARTICLE 21: INSOLVENCY
A. In the event of the insolvency of the CEDING COMPANY, the reinsurance
under this Agreement shall be payable by the REINSURERS (on the basis
of the liability of the CEDING COMPANY under the policy or policies
reinsured without diminution because of the insolvency of the CEDING
COMPANY) to the CEDING COMPANY or to its liquidator, receiver or
statutory successor.
B. It is agreed, however, that liquidator or receiver or statutory
successor of the insolvent CEDING COMPANY shall give written notice to
the REINSURERS of the pendency of a claim against the insolvent CEDING
COMPANY on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the REINSURERS may investigate such claim
and interpose, at its own expense, in the proceeding where such claim
is to be adjudicated, any defense or defenses which it may deem
available to the CEDING COMPANY or its liquidator or receiver or
statutory successor. Accidental failure to give such notice shall not
excuse the obligation unless REINSURERS are substantially prejudiced by
the failure to give such notice. The expense thus incurred by the
REINSURERS shall be chargeable, subject to court approval, against the
insolvent CEDING COMPANY as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the
CEDING COMPANY solely as a result of the defense undertaken by the
REINSURERS.
C. Should the CEDING COMPANY go into liquidation or should a receiver be
appointed, the REINSURERS shall be entitled to deduct from any sums
which may be or may become due to the CEDING COMPANY under this
Agreement any sums which are due to the REINSURERS by the CEDING
COMPANY under this Agreement and which are payable at a fixed or stated
date, as well as any other sums due the REINSURERS which are permitted
to be offset under applicable law.
ARTICLE 22: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with
respect to this Agreement, it is hereby mutually agreed that such
dispute or difference of opinion shall be submitted to arbitration. One
Arbiter shall be chosen by the CEDING COMPANY, the other by the
REINSURER, and an Umpire shall be chosen by the two Arbiters before
they enter upon arbitration, all of whom shall be active or retired
disinterested executive officers of insurance or reinsurance companies
. In the event that either party should fail to choose an Arbiter
within 30 days following a written request by the other party to do so,
the requesting party may choose two Arbiters who shall in turn choose
an Umpire before entering upon arbitration. If the two Arbiters fail to
agree upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates within 10
days thereafter, two of whom the other shall decline, and the decision
shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Agreement as an honorable engagement rather than merely
as a legal obligation and they are relieved of all judicial
-18-
<PAGE> 19
formalities and may abstain from the following the strict rules of law.
The decision of the Arbiters shall be final and binding on both
parties; but failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both parties.
The decision shall be made in writing and will state the factual and
legal basis supporting such decision. Judgment upon the final decision
of the Arbiters may be entered in any court of competent jurisdiction.
C. If more than one REINSURER is involved in the same dispute, all such
REINSURERS shall constitute and act as one party for purposes of this
ARTICLE and communications shall be made by the CEDING COMPANY to each
of the REINSURERS constituting one party provided, however, that
nothing herein shall impair the rights of such REINSURERS to assert
several, rather than joint, defenses or claims, nor be construed as
changing the liability of the REINSURERS participating under the terms
of this Agreement from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
ARTICLE 23: CHANGES IN ADMINISTRATIVE PRACTICES
If any intentional or unintentional change in the CEDING COMPANY'S processing or
payment of claims materially increases the REINSURER'S economic loss under this
Agreement from what the economic loss would have been if there had been no such
change, the REINSURERS shall prepare, and the CEDING COMPANY shall accept, an
adjustment of the portion of claims which is reimbursable, or any adjustments
which will make the REINSURER'S risk position equivalent to that which would
have been obtained under this Agreement if there had been no such change. The
REINSURERS shall have the right to use auditing techniques, sampling techniques,
or to otherwise investigate the nature and effect of any such change in
administrative practices or of any possible compensatory adjustment therefore.
Any dispute with respect to such adjustment shall be resolved by arbitration as
provided in ARTICLE 22: ARBITRATION.
ARTICLE 24: TAXES
The CEDING COMPANY is solely liable for any FEDERAL EXCISE TAX (FET) applicable
to this Agreement. Any FET to be paid shall be paid directly by the CEDING
COMPANY to the taxing authorities and is in addition to the CONSIDERATION. No
deduction shall be made from the FUNDS WITHHELD ACCOUNT.
ARTICLE 25: SERVICE OF SUIT
It is agreed that in the event of the failure of REINSURERS hereon to pay any
amount claimed to be due hereunder, REINSURERS hereon, at the request of the
CEDING COMPANY will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the REINSURERS to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Agreement shall be governed by the laws
of the State of New Jersey.
It is further agreed that service of process in such suit may be made upon Kroll
& Tract, 520 Madison Avenue, New York, New York 10022-4235, United States of
America and that in any suit
-19-
<PAGE> 20
instituted against any one of them upon this Agreement, REINSURERS will abide by
the final decision of such Court of any Appellate Court in the event of an
appeal.
The above named are authorized and directed to accept service of process on
behalf of REINSURERS in any suit and/or upon the request of the CEDING COMPANY
to give a written undertaking to the CEDING COMPANY that they will enter a
general appearance upon REINSURERS' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, REINSURERS hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor or successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
CEDING COMPANY or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof
ARTICLE 26: NO ASSIGNMENT
The CEDING COMPANY and the REINSURERS hereon hereby agree that neither party
shall have the right to assign its respective interests and liabilities,
including the FUNDS WITHHELD, under this Agreement. Notwithstanding the above,
this clause shall not restrict the CEDING COMPANY from making investments it
deems appropriate.
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<PAGE> 21
ARTICLE 27: INTERMEDIARY
Pegasus Advisors, Inc., Two Northington Place, 35 Tower Lane, Avon, Connecticut
06001, is hereby recognized as the INTERMEDIARY negotiating this Agreement for
all business hereunder and through whom all communications relating hereto
(including but not limited to notices, statements and reports) shall be
transmitted to both parties. It is understood, as regards remittances due either
party hereunder, that payment by the CEDING COMPANY to the INTERMEDIARY, shall
constitute payment to the REINSURER but payment by the REINSURER to the
INTERMEDIARY shall only constitute payment to the CEDING COMPANY to the extent
such payments are actually received by the CEDING COMPANY. Notwithstanding the
foregoing, it is agreed that all payments will be direct from the REINSURER to
the CEDING COMPANY, or from the CEDING COMPANY to the REINSURER, as appropriate.
-21-
<PAGE> 22
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1995
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
HANNOVER REINSURANCE (IRELAND) LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 40.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
effective January 1, 1995, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /S/ Hugo Kosler
------------------------------------
In Dublin, Ireland, this 17th day of September 1996 For and on Behalf of
Hannover Reinsurance (Ireland) Ltd.
By: /S/ D. Stenzel [SEAL]
------------------------------------
<PAGE> 23
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1995
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
EISEN UND STAHL REINSURANCE (IRELAND) LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 10.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1995, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /S/ Hugo Kosler
------------------------------------
In Dublin, Ireland, this 17th day of September 1996 For and on Behalf of Eisen
und Stahl Reinsurance (Ireland) Ltd.
By: /S/ D. Stenzel [SEAL]
------------------------------------
<PAGE> 24
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1995
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
LONDON LIFE & CASUALTY REINSURANCE CORPORATION
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 30.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1995, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /S/ Hugo Kostelni
----------------------------------------------------
In Wildey, St. Michael, Barbados, this 27th day of August 1996
For and on Behalf of London Life & Casualty Reinsurance Corporation
By: [SEAL] /S/ Michael D Price, Acting President
----------------------------------------------------
<PAGE> 25
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1995
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
SCANDINAVIAN REINSURANCE COMPANY LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 20.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1995 issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /S/ Hugo Kostelni
----------------------------------------------------
In Hamilton, Bermuda this 6th day of September 1996, For and on Behalf of
Scandinavian Reinsurance Company Ltd.
By: /S/ W. David Brining /S/ Jens Juul
----------------------------------------------------
<PAGE> 1
EXHIBIT 10.11
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS
REINSURANCE TREATY
EFFECTIVE JANUARY 1, 1994
<TABLE>
<CAPTION>
ARTICLE SUMMARY PAGE
- ------- ------- ----
<S> <C>
1 BUSINESS COVERED 2
2 TERM 3
3 TERRITORY AND INURING REINSURANCE 3
4 EXCLUSIONS 3
5 COVERAGES AND AGGREGATE LIMITS 3
6 DEFINITIONS 4
7 NET RETAINED LIABILITY 6
8 COVERAGE A DEPOSIT CONSIDERATION AND 6
COVERAGE A ACTUAL CONSIDERATION,
COVERAGE A ADDITIONAL COVERAGE CONSIDERATION,
REINSURERS' EXPENSE CHARGE AND COVERAGE B CONSIDERATION
9 OFFSET AND SECURITY 9
10 REPORTS AND LOSS SETTLEMENTS 10
11 PROFIT SHARING, FUNDS WITHHELD ACCOUNT AND
INTEREST CREDIT 11
12 LIABILITY OF THE REINSURER AND CURRENCY 12
13 COMMUTATION 13
14 EXCESS OF ORIGINAL POLICY LIMITS 13
15 EXTRA CONTRACTUAL OBLIGATIONS 14
16 ERRORS AND OMISSIONS 14
17 ACCESS TO RECORDS 14
18 ACTUARIAL REVIEW 15
19 LOSS RESERVE FUNDING 15
20 FUNDS WITHHELD TRUST ACCOUNT 16
21 INSOLVENCY 16
22 ARBITRATION 17
23 CHANGES IN ADMINISTRATIVE PRACTICES 18
24 TAXES 18
25 SERVICE OF SUIT 18
26 NO ASSIGNMENT 19
27 INTERMEDIARY 19
</TABLE>
<PAGE> 2
1994 COMBINED AGGREGATE AND CASUALTY
CATASTROPHE EXCESS OF LOSS
REINSURANCE AGREEMENT NO. 1994
BETWEEN
THE REINSURERS SUBSCRIBING THE RESPECTIVE INTERESTS
AND LIABILITIES AGREEMENTS HERETO
(HEREINAFTER CALLED "REINSURERS")
AND
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER CALLED THE "CEDING COMPANY")
ARTICLE 1: BUSINESS COVERED
This Agreement shall indemnify the CEDING COMPANY with respect to ULTIMATE NET
LOSSES which may accrue to the CEDING COMPANY under any and all POLICIES subject
to the Terms and Conditions of this Agreement.
As respects COVERAGE A hereon, the REINSURERS shall provide coverage on a losses
occurring during basis during the TERM in respect of all of the CEDING COMPANY'S
POLICIES underwritten on a losses occurring during basis. Also, as respects
COVERAGE A hereon, the REINSURERS shall provide coverage on a claims first made
basis during the TERM in respect of all of the CEDING COMPANY'S POLICIES,
including the HIV Endorsement, underwritten on a claims first made basis. For
all purposes, the "PERMANENT PROTECTION POLICIES (PPP)" underwritten by the
CEDING COMPANY shall in all cases be deemed to cover on a losses occurring
during basis of underlying coverage. REINSURERS shall be subject to all of the
conditions of the PPP including policy limits and the aggregate limit formula
under the extended reporting coverage therein.
As respects COVERAGE B hereon, the REINSURERS shall provide coverage hereon on a
claims first made basis during the TERM regardless of the basis of coverage
provided by the CEDING COMPANY.
REINSURERS shall remain liable for all losses covered as detailed above during
the TERM until all such losses are paid or this Agreement is commuted.
-2-
<PAGE> 3
ARTICLE 2: TERM
This Agreement shall be effective from January 1, 1994 through December 31,
1994, both days inclusive.
Should this Agreement expire while a COVERAGE A loss covered in respect of a
loss occurrence policy, such as the PPP is in progress, the REINSURERS shall be
responsible for the loss in progress in the same manner and to the same extent
they would have been responsible had the Agreement expired the day following the
conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Agreement will cover POLICIES written within the United States of America.
All other REINSURANCE AGREEMENTS that inure to the benefit of this Agreement
shall be deemed in place until all liability of the REINSURERS hereon is
finalized by payment of all losses or commutation.
ARTICLE 4: EXCLUSIONS
This Agreement shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause attached hereto;
C. Business assumed from Pools, Syndicates, and Associations;
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - U.S.A., except that provisions of this clause
shall not apply to liability arising out of the practice of Nuclear
Medicine and activities relating to Nuclear Medicine by the original
insured.
E. War Risks, in accordance with the North American War Exclusion Clause
attached hereto;
F. Unallocated LOSS ADJUSTMENT EXPENSES as described in ARTICLE 6, Section
E.
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS
A. COVERAGE A
Should the CEDING COMPANY'S LOSS RATIO exceed 80% (hereinafter called
the Retention), the REINSURERS shall be liable for 100% of the paid
amount of ULTIMATE NET LOSSES in excess of the Retention subject to a
maximum AGGREGATE LIMIT of 70% of SNEP unless the REINSURERS agree to
provide additional AGGREGATE LIMIT as per the following paragraph.
-3-
<PAGE> 4
The REINSURERS may unilaterally offer at any time, and the CEDING
COMPANY shall accept and purchase additional coverage up to 100% of the
paid amount of ULTIMATE NET LOSSES in excess of the CEDING COMPANY'S
LOSS RATIO of 150% subject to a maximum aggregate additional limit of
6% of SNEP. Subject also to ARTICLE 5, Section C., in no event shall
REINSURERS be liable for more than $100,000,000 in the aggregate for
COVERAGE A.
COVERAGE B hereon shall inure to COVERAGE A. Therefore, ULTIMATE NET
LOSSES in respect of the CEDING COMPANY'S NET RETAINED LIABILITY shall
be reduced by any amounts recoverable in respect of COVERAGE B.
B. COVERAGE B
This AGREEMENT shall indemnify the CEDING COMPANY for $7,000,000
indemnity portion of ULTIMATE NET LOSS excess of $3,000,000 indemnity
portion of ULTIMATE NET LOSS per LOSS OCCURRENCE as respects claims
first made during the TERM. Pro rata LOSS ADJUSTMENT EXPENSES on each
claim first made shall also be covered. Notwithstanding the definition
of ULTIMATE NET LOSS as per Section D of ARTICLE 6: DEFINITIONS, LOSS
ADJUSTMENT EXPENSE shall be excluded from the determination of ULTIMATE
NET LOSS referenced in this COVERAGE B. This Agreement shall, however,
indemnify the CEDING COMPANY for pro-rata LOSS ADJUSTMENT EXPENSES in
addition to loss indemnity amounts subject to an AGGREGATE LIMIT in all
equal to $7,000,000.
In circumstances where two or more policies are involved in the same
occurrence and there is a difference in the date claims are made under
the original policies, the date the first claim is made shall be the
date of the event for purposes of any recovery hereunder.
C. AGGREGATE LIMIT
In no event shall REINSURERS be liable for more than $107,000,000 in
the Aggregate inclusive of covered LOSS ADJUSTMENT EXPENSE for this
Agreement for COVERAGES A and B combined.
ARTICLE 6: DEFINITIONS
A. "CUMULATIVE SUBJECT NET EARNED PREMIUMS" (SNEP) shall mean the
cumulative NET WRITTEN PREMIUM INCOME of the CEDING COMPANY during the
period January 1, 1994 through December 31, 1994 plus the NET WRITTEN
PREMIUM INCOME unearned at December 31, 1993 less the NET WRITTEN
PREMIUM INCOME unearned as of the calendar quarter end calculation date
but no later than December 31, 1994.
B. "NET WRITTEN PREMIUM INCOME" shall mean gross written premiums of the
CEDING COMPANY less cancellations and returns and less premiums paid
for all other reinsurances for the period January 1, 1994 through
December 31, 1994, except for NON-TRADITIONAL REINSURANCE AGREEMENTS
which shall be disregarded for the calculation of SNEP.
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<PAGE> 5
C. 1. "NON-TRADITIONAL REINSURANCE AGREEMENTS" shall mean any
reinsurance agreement which allows for PROFIT SHARING (or any
other form of contractual adjustment) exceeding 25% of initial
reinsurance premium paid. This definition does not apply to
swing rated excess reinsurance coverages.
2. "TRADITIONAL REINSURANCE AGREEMENTS" shall mean any
reinsurance agreement which is not a non-traditional
reinsurance agreement.
D. The term "ULTIMATE NET LOSS" means the actual loss, arising from a LOSS
OCCURRENCE as covered in accordance with ARTICLE 1: BUSINESS COVERED,
including LOSS ADJUSTMENT EXPENSE, 80% of LOSS IN EXCESS OF POLICY
LIMITS and 80% of EXTRA CONTRACTUAL OBLIGATIONS, and including losses
incurred but not yet reported, all paid, payable, or to be paid, by the
CEDING COMPANY after making deductions for all recoveries, salvages,
subrogations and all claims on inuring reinsurance, whether such
reinsurance is collectible or not; provided, however, that in the event
of the insolvency of the CEDING COMPANY, payment by the REINSURERS
shall be made in accordance with the provisions of the INSOLVENCY
Article. Nothing herein shall be construed to mean that losses under
this Agreement are not recoverable until the CEDING COMPANY'S ULTIMATE
NET LOSS has been ascertained.
E. "LOSS ADJUSTMENT EXPENSE" means all costs and expenses allocable to a
specific claim or claims that are incurred by the CEDING COMPANY in the
investigation, appraisal, adjustment, settlement, litigation, defense
or appeal of a specific claim, including court costs and costs of
supersedeas and appeal bonds, and including a) pre-judgment interest,
unless included as part of the award or judgment; b) post-judgment
interest; and c) legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto. LOSS ADJUSTMENT
EXPENSE does not include unallocated LOSS ADJUSTMENT EXPENSE.
Unallocated LOSS ADJUSTMENT EXPENSE includes, but is not limited to,
salaries and expenses of employees, and office and other overhead.
F. "POLICIES" means any and all original policies, contracts, and binders
of insurance underwritten by the CEDING COMPANY and classified as:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage)*
Hospital Professional Liability
Other Health Care Institution Liability
Professional Premises Liability
Commercial General Liability
Excess/Umbrella Liability
*Policies shall only include HIV coverage to insured medical and
dental practitioners of the CEDING COMPANY. Coverages for others
for HIV shall only be available upon REINSURERS' approval.
G. "LOSS RATIO" means the ratio of ULTIMATE NET LOSSES incurred divided by
CUMULATIVE SUBJECT NET EARNED PREMIUM as of the date of calculation.
H. "CEDED LOSS RATIO" means the ratio of ceded ULTIMATE NET LOSSES
incurred divided by CUMULATIVE SUBJECT NET EARNED PREMIUM as of the
date of calculation.
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<PAGE> 6
I. "LOSS OCCURRENCE" means LOSS OCCURRENCE or medical incident, or
otherwise the event giving rise to coverage, all as defined and
provided within the underlying POLICIES underwritten by the CEDING
COMPANY.
ARTICLE 7: NET RETAINED LIABILITY
COVERAGE A applies only to that portion of any LOSS OCCURRENCE which the CEDING
COMPANY retains net for its own account. All other REINSURANCE AGREEMENTS shall
inure to the benefit of this Agreement and be deemed in place until all
liability hereon is finalized.
The CEDING COMPANY warrants that the minimum NET RETAINED LIABILITY is $750,000
per insured and $1,000,000 per event for insureds in New Jersey and $200,000 per
insured and $600,000 per event for insureds in other states.
Notwithstanding the above, the CEDING COMPANY and REINSURERS mutually agree that
any and all ceded ULTIMATE NET LOSSES in respect of 1994 LOSS OCCURRENCES under
Section B of the MIIX Aggregate Excess of Loss Agreement dated December 15, 1992
shall inure to coverages under this Agreement whereby the NET RETAINED LIABILITY
of the CEDING COMPANY may be less than the above stated minimum NET RETAINED
LIABILITY.
Furthermore, it is warranted that less than 15% of the CEDING COMPANY'S SNEP
during the TERM of this Agreement will apply to the business where the CEDING
COMPANY'S NET RETAINED LIABILITY is below $750,000 on a per insured and
$1,000,000 on a per event basis.
ARTICLE 8: COVERAGE A DEPOSIT CONSIDERATION AND
COVERAGE A ACTUAL CONSIDERATION,
COVERAGE A ADDITIONAL COVERAGE CONSIDERATION,
REINSURERS' EXPENSE CHARGE AND COVERAGE B CONSIDERATION
A. COVERAGE A DEPOSIT CONSIDERATION AND COVERAGE A ACTUAL CONSIDERATION
The CEDING COMPANY shall pay to the REINSURERS a DEPOSIT CONSIDERATION
of $19,500,000 on January 1, 1994. The DEPOSIT CONSIDERATION shall be
deemed credited to the FUNDS WITHHELD ACCOUNT on January 1, 1994 for
all purposes hereon including INTEREST CREDIT.
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<PAGE> 7
Commencing with the calendar quarter ending December 31, 1994 and each
subsequent calendar quarter end, the CEDING COMPANY shall calculate the
required COVERAGE A ACTUAL CONSIDERATION within 45 days of each
calendar quarter end. ACTUAL CONSIDERATION shall be based upon the
result of dividing ceded ULTIMATE NET LOSSES by SNEP as of each
calculation date (hereinafter called the CEDED LOSS RATIO).
The ACTUAL CONSIDERATION shall be based upon the percentage of SNEP
corresponding to the CEDED LOSS RATIO as determined per the table and
narrative below:
<TABLE>
<CAPTION>
Ceded Actual Ceded Actual
Loss Consideration Loss Consideration
Ratio (% of SNEP) Ratio (% of SNEP)
----- ------------- ----- -------------
<S> <C> <C> <C>
0 - 12 9.056 42 23.505
13 9.132 43 24.268
14 9.636 44 24.773
15 10.141 45 25.277
16 10.559 46 25.782
17 10.632 47 26.286
18 10.706 48 26.791
19 10.779 49 27.295
20 10.852 50 27.800
21 10.926 51 28.304
22 11.085 52 28.809
23 11.590 53 29.313
24 12.094 54 29.818
25 12.599 55 30.323
26 13.103 56 30.827
27 13.608 57 31.332
28 14.112 58 31.836
29 14.617 59 32.341
30 15.122 60 32.845
31 15.626 61 33.350
32 16.131 62 33.854
33 16.635 63 34.359
34 17.140 64 34.863
35 17.644 65 35.368
36 18.149 66 35.872
37 19.171 67 36.377
38 20.107 68 36.882
39 21.042 69 37.386
40 21.978 70 37.891
41 22.741
</TABLE>
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<PAGE> 8
If CEDED LOSS RATIOS are between the above table loss ratios, the
ACTUAL CONSIDERATION percentage of SNEP shall be pro-rated between the
table CEDED LOSS RATIO values.
The ACTUAL CONSIDERATION shall be equal to the cumulative SNEP
multiplied by the percentage determined by the above narrative and
table calculations.
The CEDING COMPANY shall credit the FUNDS WITHHELD ACCOUNT for this
ACTUAL CONSIDERATION less all prior payments of ACTUAL CONSIDERATION
adjustments and DEPOSIT CONSIDERATION. If the sum of the prior payments
of ACTUAL CONSIDERATION adjustments and DEPOSIT CONSIDERATION exceed
the ACTUAL CONSIDERATION amount due, the CEDING COMPANY shall debit the
FUNDS WITHHELD ACCOUNT for such return ACTUAL CONSIDERATION adjustment.
All COVERAGE A ACTUAL CONSIDERATION adjustments and DEPOSIT
CONSIDERATION shall be deemed to be credited or (debited) from the
FUNDS WITHHELD ACCOUNT as of January 1, 1994 for INTEREST CREDIT
purposes hereon. Therefore, any adjustments to increase COVERAGE A
ACTUAL CONSIDERATION shall result in an INTEREST CREDIT from January 1,
1994 to date for such adjustment. Any adjustments to decrease the
COVERAGE A ACTUAL CONSIDERATION shall result in a reduction of INTEREST
CREDIT from January 1, 1994 to date for such adjustment.
B. COVERAGE A ADDITIONAL COVERAGE CONSIDERATION
In addition to COVERAGE A ACTUAL CONSIDERATION, the CEDING COMPANY
shall credit the FUNDS WITHHELD ACCOUNT for an amount equal to 43% of
additional coverage, if any, provided by REINSURERS. All such
CONSIDERATION, if any, shall be credited to the FUNDS WITHHELD ACCOUNT
as of January 1, 1994.
C. REINSURERS' EXPENSE CHARGE
The COMPANY shall pay REINSURERS a REINSURERS' EXPENSE CHARGE equal to
X%, as detailed in the table below, of all ACTUAL CONSIDERATION,
including the DEPOSIT CONSIDERATION, by direct payment to REINSURERS
hereon.
X shall provisionally be 6.9% as respects DEPOSIT CONSIDERATION for
purposes of calculation and payment upon consummation of this
Agreement. The REINSURERS' EXPENSE CHARGE on both the DEPOSIT
CONSIDERATION and ACTUAL CONSIDERATION adjustments shall be determined,
redetermined and paid annually within 60 days in arrears of each
calendar year end. Payments shall be made by direct payment from the
debtor to creditor party at such times.
There shall be no interest paid to REINSURERS on REINSURERS' EXPENSE
CHARGE paid or refund of interest on REINSURERS' EXPENSE CHARGE which
is refunded under this Agreement, upon return ACTUAL CONSIDERATION
adjustments, if any.
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<PAGE> 9
X% shall be based upon CEDED LOSS RATIO bands as follows:
<TABLE>
<CAPTION>
CEDED LOSS RATIO X%
---------------- --
<S> <C> <C>
Greater than or equal to 0% Less than or equal to 26.0% 5.9
Greater than 26.0% Less than or equal to 32.0% 6.9
Greater than 32.0% Less than or equal to 38.0% 7.9
Greater than 38.0% Less than or equal to 44.0% 6.9
Greater than 44.0% Less than or equal to 60.0% 5.9
Greater than 60.0% 6.9
</TABLE>
For purposes of INTEREST CREDIT hereon as per ARTICLE 11, Section C,
all REINSURERS' EXPENSE CHARGE shall be deemed debited or credited as
applicable from the FUNDS WITHHELD ACCOUNT as of January 1, 1994.
D. COVERAGE B CONSIDERATION
The CEDING COMPANY shall credit to the FUNDS WITHHELD ACCOUNT as of
January 1, 1994, a COVERAGE B CONSIDERATION equal to 33% of DEPOSIT
CONSIDERATION on or before February 15, 1995 to maintain coverage for
COVERAGE B. If, however, the CEDING COMPANY warrants no losses to
COVERAGE B under this Agreement, the COVERAGE B CONSIDERATION shall be
waived in its entirety.
ARTICLE 9: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of CONSIDERATION or losses and
allocated LOSS ADJUSTMENT EXPENSES or otherwise, due from such party to
another party under this Agreement, against any amounts, whether on
account of CONSIDERATION or losses and allocated LOSS ADJUSTMENT
EXPENSES or otherwise due from the latter party to the former party.
The party asserting the right of offset may exercise this right,
whether as assuming REINSURERS or CEDING COMPANY in this Agreement.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Agreement
to receive CONSIDERATION or loss payments at any time from such other
party ("Collateral"), to secure its CONSIDERATION or loss obligations
to such other party at any time under this Agreement ("Secured
Obligations"). If at any time a party is in default under any Secured
Obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be
entitled in its discretion, to apply or to withhold for the purpose of
applying in due course, any Collateral assigned and pledged to it by
the former party and otherwise to realize upon such Collateral as
security for such Secured Obligations.
C. The security interest described herein, and the term "Collateral",
shall apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall
be deemed evidenced only by the counterpart of this Agreement delivered
to such party.
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<PAGE> 10
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Agreement.
ARTICLE 10: REPORTS AND LOSS SETTLEMENTS
A. Within 45 days following the end of each calendar quarter, the CEDING
COMPANY will report in writing to the REINSURERS:
1. SNEP for the quarter and cumulative SNEP.
2. CONSIDERATION calculations as necessary.
3. Summary of subject ULTIMATE NET LOSSES paid during the period
and inception to date.
4. Summary of ULTIMATE NET LOSSES outstanding including a report
of incurred but not reported amounts.
5. The amount of ULTIMATE NET LOSSES ceded to this Agreement for
the period and inception to date indicating amounts due and
outstanding.
6. Any other information needed by the REINSURERS to evaluate
this Agreement which is reasonably available to the CEDING
COMPANY.
7. A report detailing the activity and balance within the FUNDS
WITHHELD ACCOUNT.
B. 1. COVERAGE A LOSS SETTLEMENTS
Following each December 31 report, the REINSURERS shall pay
all cumulative ULTIMATE NET LOSSES Paid in respect of BUSINESS
COVERED by the CEDING COMPANY on and after January 1, 1994 in
excess of the CEDING COMPANY'S Retention subject to the
AGGREGATE LIMITS hereon. Payment shall be made on each
succeeding February 28, or sooner if paid by REINSURERS from
other funds of the REINSURERS. If paid by deduction from the
FUNDS WITHHELD ACCOUNT, this account shall be debited on the
FEBRUARY 28 following each December 31 report. Loss
reimbursement at any calendar year shall be equal to the
amount of such cumulative ULTIMATE NET LOSSES Paid at each
date in excess of the Retention less net loss reimbursements
previously made by the REINSURERS, subject to the AGGREGATE
LIMITS in accordance with Section A of ARTICLE 5: COVERAGES
AND AGGREGATE LIMITS.
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<PAGE> 11
2. COVERAGE B AND C LOSS SETTLEMENTS
Following each December 31 report, the REINSURERS shall pay
all covered COVERAGE B ULTIMATE NET LOSSES paid by the CEDING
COMPANY on and after January 1, 1994 in respect of BUSINESS
COVERED subject to and in accordance with Section B of ARTICLE
5: COVERAGES AND AGGREGATE LIMITS. Payment shall be made on
each succeeding February 28, or sooner if paid by REINSURERS
from other funds of the REINSURERS. If paid by deduction from
the FUNDS WITHHELD ACCOUNT, this account shall be debited on
the FEBRUARY 28 following each December 31 report.
3. ORDER OF SETTLEMENTS
All loss payments under B.1. and B.2., including all
COMMUTATION payments, if any, above will be firstly made by
deduction from the CONSIDERATION and then from the INTEREST
CREDIT components of the FUNDS WITHHELD ACCOUNT by the CEDING
COMPANY until depleted. Thereafter, REINSURERS shall pay from
other funds of REINSURERS subject to all of the terms hereon.
ARTICLE 11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT
AND INTEREST CREDIT
A. PROFIT SHARING
Upon finalization of the payment of all losses recoverable hereon
and/or COMMUTATION amounts, if any, the REINSURERS will relinquish to
the CEDING COMPANY 100% of the remaining FUNDS WITHHELD ACCOUNT
balance, if any. Payment of PROFIT SHARING in accordance with this
ARTICLE shall release the REINSURERS from all current and future
liability hereunder.
B. FUNDS WITHHELD ACCOUNT
For purposes of this Article, the CEDING COMPANY shall maintain a
cumulative FUNDS WITHHELD ACCOUNT comprised of the following:
1. The FUNDS WITHHELD ACCOUNT at December 31, 1993 shall be equal
to zero.
2. The FUNDS WITHHELD ACCOUNT at each subsequent year end shall
be equal to:
a. The FUNDS WITHHELD ACCOUNT at the end of such prior
year; plus
b. Any amounts credited or debited during the year for
the following:
COVERAGE A DEPOSIT CONSIDERATION, COVERAGE A ACTUAL
CONSIDERATION adjustments, COVERAGE A ADDITIONAL
COVERAGE CONSIDERATION and COVERAGE B CONSIDERATION
adjustments, if any; less
-11-
<PAGE> 12
c. REINSURERS' EXPENSE CHARGE, if any; plus
d. INTEREST CREDIT; less
e. Ceded ULTIMATE NET LOSSES paid under this Agreement
for the prior year from the FUNDS WITHHELD ACCOUNT
(including COMMUTATION payments).
The CEDING COMPANY shall report balances quarterly to the REINSURERS as
soon as practicable.
The REINSURERS shall not transfer or assign their rights to the FUNDS
WITHHELD ACCOUNT hereon unless this Agreement is surrendered and a new
Agreement is issued. Under any and all circumstances, the CEDING
COMPANY must make a book entry of a transfer or assignment in order for
such transfer or assignment to be valid.
C. INTEREST CREDIT
The CEDING COMPANY shall credit the FUNDS WITHHELD monthly at each
month end with interest calculated by applying a monthly rate equal to
one-twelfth (1/12th) of the percentage stipulated below multiplied by
the actual daily average FUNDS WITHHELD ACCOUNT balance for the
respective calendar month, where the percentage equals:
8% if the 12 month U.S. Treasury Bill rate is 8% or less:
or
8% + 50% of the amount by which the 12 month U.S. Treasury Bill rate is
greater than 8%.
The 12 month U.S. Treasury Bill rate to be used each year is the rate
in effect on the first business day of each year as reported in the
Wall Street Journal on the second business day of each year.
INTEREST CREDIT shall continue even in the event of the COMPANY'S
insolvency.
ARTICLE 12: LIABILITY OF THE REINSURER AND CURRENCY
A. The liability of the REINSURER shall follow that of the CEDING COMPANY
in every case and be subject in all respects to all the general and
specific stipulations, clauses, waivers and modifications of the CEDING
COMPANY'S policies and any endorsements thereon. However, in no event
shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this Contract.
B. Nothing herein shall in any manner create any obligation or establish
any rights against the REINSURER in favor of any third party or any
persons not parties to this Contract.
-12-
<PAGE> 13
C. All of the provisions of this Agreement involving dollar amounts are
expressed in terms of United States dollars and all CONSIDERATION and
loss and allocated LOSS ADJUSTMENT EXPENSE payments hereunder shall be
made in United States Dollars.
ARTICLE 13: COMMUTATION
The CEDING COMPANY shall have the sole option, effective at any calendar year
end on or after December 31, 1994 to commute all Coverage A and B ceded
liability outstanding hereunder. At COMMUTATION, the REINSURERS shall pay to the
CEDING COMPANY the lesser of:
A. The present value of COVERAGE A and COVERAGE B, if any, ceded
outstanding loss and allocated LOSS ADJUSTMENT EXPENSE reserves as
determined by a loss reserve analysis conducted by an independent
actuarial firm acceptable to both the CEDING COMPANY and the
REINSURERS, with the CEDING COMPANY bearing the cost of such analysis;
or
B. The existing value of the FUNDS WITHHELD ACCOUNT (as defined in ARTICLE
11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT AND INTEREST CREDIT) at the
COMMUTATION date.
Said payment shall constitute, together with the PROFIT SHARING payment, a full
and final settlement of all terms of this Agreement; the CEDING COMPANY will
execute a hold harmless agreement so stating and the REINSURERS will be thereby
released from all current and future liability hereunder.
COMMUTATION payments in accordance with this Article shall be treated as losses
and allocated LOSS ADJUSTMENT EXPENSES paid under this Agreement for
determination of the FUNDS WITHHELD ACCOUNT.
ARTICLE 14: EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the CEDING COMPANY, within the limits hereof, for
80% of loss in excess of its original policy, such loss in excess of the limit
having been incurred because of failure by it to settle within the policy limit
or by reason of alleged or actual negligence, fraud, or bad faith in rejecting
an offer of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or prosecution
of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the CEDING
COMPANY acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the CEDING COMPANY would have been contractually liable to pay had it not
been for the limit of the original policy.
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<PAGE> 14
ARTICLE 15: EXTRA CONTRACTUAL OBLIGATIONS
A. This Agreement shall protect the CEDING COMPANY for 80% of any EXTRA
CONTRACTUAL OBLIGATIONS within the limits hereof. The term "EXTRA
CONTRACTUAL OBLIGATIONS" is defined as those liabilities not covered
under any other provision of this Agreement and which arise from the
handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the
CEDING COMPANY to settle within the policy limit, or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer
of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
B. The date on which any EXTRA CONTRACTUAL OBLIGATION is incurred by the
CEDING COMPANY shall be deemed, in all circumstances, to be the date of
the original LOSS OCCURRENCE.
C. However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate
officer of the CEDING COMPANY acting individually or collectively or in
collusion with any individual or corporation or any other organization
or party involved in the presentation, defense or settlement of any
claim covered hereunder.
ARTICLE 16: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
ARTICLE 17: ACCESS TO RECORDS
The CEDING COMPANY shall place at the disposal of the REINSURERS at all
reasonable times, and the REINSURERS shall have the right to inspect, through
its authorized representatives, all books, records, and papers of the CEDING
COMPANY in connection with any reinsurance hereunder, or claims in connection
herewith.
The REINSURERS agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Agreement except under
the following circumstances and then only as necessary.
A. When disclosure of such information is required in the normal course of
REINSURERS' business; or
B. With the prior written consent of the CEDING COMPANY; or
C. When REINSURERS are required by a subpoena or court order to disclose
such information. The REINSURERS shall promptly notify the CEDING
COMPANY of any attempt by a third party to obtain from it any such
confidential information.
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<PAGE> 15
REINSURERS will provide CEDING COMPANY or its designated representative with
such information as REINSURER and CEDING COMPANY may agree is necessary to the
CEDING COMPANY'S handling of the business reinsured herein.
The obligation contained in the provision shall survive termination of this
Agreement.
ARTICLE 18: ACTUARIAL REVIEW
Should the REINSURERS desire at any time to review the loss reserves established
by the CEDING COMPANY as respects COVERAGE A and COVERAGE B ULTIMATE NET LOSSES,
the REINSURERS shall select an independent actuarial firm acceptable to the
CEDING COMPANY to perform a reserve analysis. The costs of any reserve analysis
performed under this Article will be borne by the REINSURERS hereon. Such a
review shall be subject to the provisions of ARTICLE 17: ACCESS TO RECORDS.
ARTICLE 19: LOSS RESERVE FUNDING
The REINSURERS will maintain appropriate reserves with respect to their share of
the loss reserves ceded and required under the terms of this Agreement which are
reported by the CEDING COMPANY on the BUSINESS COVERED of this Agreement.
During the TERM of this Agreement the REINSURERS agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the CEDING COMPANY
issued by a bank acceptable to the CEDING COMPANY adjusted to at all times be
equal to the ceded cumulative ULTIMATE NET LOSSES outstanding hereunder less the
FUNDS WITHHELD ACCOUNT balance at such dates. Such Letter of Credit shall be in
the form, amount, and with an acceptable NAIC bank required to allow the CEDING
COMPANY to take Full Statutory Credit for amounts recoverable under this
Agreement.
The CEDING COMPANY also agrees to not make drawings upon the Letter of Credit
provided by the REINSURERS for any purpose other than to reimburse the CEDING
COMPANY for loss settlements due under this Reinsurance Agreement for which one
or more of the REINSURERS are in default by more than seven days and provided
that the CEDING COMPANY shall give the REINSURERS three days written notice
prior to making any drawings.
The CEDING COMPANY shall reimburse the REINSURERS for annual security cost equal
to .5% of the amount of Letter of Credit issued or maintained hereon as of each
December 31st. The REINSURERS shall request such reimbursement whereupon the
CEDING COMPANY shall make payment by direct wire transfer to the REINSURERS. All
such amounts shall not be deducted from the FUNDS WITHHELD ACCOUNT.
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<PAGE> 16
ARTICLE 20: FUNDS WITHHELD TRUST ACCOUNT
In the event that the CEDING COMPANY experiences any one of the following
circumstances, the REINSURERS may require a Trust Fund, with an independent
bank, to be established for purposes of collateralizing the FUNDS WITHHELD
ACCOUNT hereon:
1. The CEDING COMPANY'S A.M. Best's Rating is downgraded below
B+; or
2. The CEDING COMPANY'S combined statutory capital and surplus
falls below $60 million; or
3. The CEDING COMPANY effects both a change in ownership form
such that the resulting ownership extends beyond the insureds
of the COMPANY and there is a change in the office of
President.
The CEDING COMPANY shall fully and promptly comply with such request from the
REINSURERS. The CEDING COMPANY shall transfer marketable assets with a market
value equal to the required FUNDS WITHHELD ACCOUNT balance within 30 days from
the REINSURERS' request to do so. The CEDING COMPANY shall also transfer
additional assets to the TRUST FUND, if needed, to maintain the TRUST FUND
balance to be equal to the FUNDS WITHHELD requirement at each calendar quarter
end including the requisite INTEREST CREDIT required hereon.
ARTICLE 21: INSOLVENCY
A. In the event of the insolvency of the CEDING COMPANY, the reinsurance
under this Agreement shall be payable by the REINSURERS (on the basis
of the liability of the CEDING COMPANY under the policy or policies
reinsured without diminution because of the insolvency of the CEDING
COMPANY) to the CEDING COMPANY or to its liquidator, receiver or
statutory successor.
B. It is agreed, however, that liquidator or receiver or statutory
successor of the insolvent CEDING COMPANY shall give written notice to
the REINSURERS of the pendency of a claim against the insolvent CEDING
COMPANY on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the REINSURERS may investigate such claim
and interpose, at its own expense, in the proceeding where such claim
is to be adjudicated, any defense or defenses which it may deem
available to the CEDING COMPANY or its liquidator or receiver or
statutory successor. Accidental failure to give such notice shall not
excuse the obligation unless REINSURERS are substantially prejudiced by
the failure to give such notice. The expense thus incurred by the
REINSURERS shall be chargeable, subject to court approval, against the
insolvent CEDING COMPANY as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the
CEDING COMPANY solely as a result of the defense undertaken by the
REINSURERS.
-16-
<PAGE> 17
C. Should the CEDING COMPANY go into liquidation or should a receiver be
appointed, the REINSURERS shall be entitled to deduct from any sums
which may be or may become due to the CEDING COMPANY under this
Agreement any sums which are due to the REINSURERS by the CEDING
COMPANY under this Agreement and which are payable at a fixed or stated
date, as well as any other sums due the REINSURERS which are permitted
to be offset under applicable law.
ARTICLE 22: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with
respect to this Agreement, it is hereby mutually agreed that such
dispute or difference of opinion shall be submitted to arbitration. One
Arbiter shall be chosen by the CEDING COMPANY, the other by the
REINSURER, and an Umpire shall be chosen by the two Arbiters before
they enter upon arbitration, all of whom shall be active or retired
disinterested executive officers of insurance or reinsurance companies.
In the event that either party should fail to choose an Arbiter within
30 days following a written request by the other party to do so, the
requesting party may choose two Arbiters who shall in turn choose an
Umpire before entering upon arbitration. If the two Arbiters fail to
agree upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates within 10
days thereafter, two of whom the other shall decline, and the decision
shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Agreement as an honorable engagement rather than merely
as a legal obligation and they are relieved of all judicial formalities
and may abstain from the following the strict rules of law. The
decision of the Arbiters shall be final and binding on both parties;
but failing to agree, they shall call in the Umpire and the decision of
the majority shall be final and binding upon both parties. The decision
shall be made in writing and will state the factual and legal basis
supporting such decision. Judgment upon the final decision of the
Arbiters may be entered in any court of competent jurisdiction.
C. If more than one REINSURER is involved in the same dispute, all such
REINSURERS shall constitute and act as one party for purposes of this
ARTICLE and communications shall be made by the CEDING COMPANY to each
of the REINSURERS constituting one party provided, however, that
nothing herein shall impair the rights of such REINSURERS to assert
several, rather than joint, defenses or claims, nor be construed as
changing the liability of the REINSURERS participating under the terms
of this Agreement from several to joint.
-17-
<PAGE> 18
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
ARTICLE 23: CHANGES IN ADMINISTRATIVE PRACTICES
If any intentional or unintentional change in the CEDING COMPANY'S processing or
payment of claims materially increases the REINSURER'S economic loss under this
Agreement from what the economic loss would have been if there had been no such
change, the REINSURERS shall prepare, and the CEDING COMPANY shall accept, an
adjustment of the portion of claims which is reimbursable, or any adjustments
which will make the REINSURER'S risk position equivalent to that which would
have been obtained under this Agreement if there had been no such change. The
REINSURERS shall have the right to use auditing techniques, sampling techniques,
or to otherwise investigate the nature and effect of any such change in
administrative practices or of any possible compensatory adjustment therefore.
Any dispute with respect to such adjustment shall be resolved by arbitration as
provided in ARTICLE 22: ARBITRATION.
ARTICLE 24: TAXES
The CEDING COMPANY is solely liable for any FEDERAL EXCISE TAX (FET) applicable
to this Agreement. Any FET to be paid shall be paid directly by the CEDING
COMPANY to the taxing authorities and is in addition to the CONSIDERATION. No
deduction shall be made from the FUNDS WITHHELD ACCOUNT.
ARTICLE 25: SERVICE OF SUIT
It is agreed that in the event of the failure of REINSURERS hereon to pay any
amount claimed to be due hereunder, REINSURERS hereon, at the request of the
CEDING COMPANY will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the REINSURERS to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Agreement shall be governed by the laws
of the State of New Jersey.
It is further agreed that service of process in such suit may be made upon Kroll
& Tract, 520 Madison Avenue, New York, New York 10022-4235, United States of
America and that in any suit instituted against any one of them upon this
Agreement, REINSURERS will abide by the final decision of such Court of any
Appellate Court in the event of an appeal.
-18-
<PAGE> 19
The above named are authorized and directed to accept service of process on
behalf of REINSURERS in any suit and/or upon the request of the CEDING COMPANY
to give a written undertaking to the CEDING COMPANY that they will enter a
general appearance upon REINSURERS' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, REINSURERS hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor or successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
CEDING COMPANY or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof
ARTICLE 26: NO ASSIGNMENT
The CEDING COMPANY and the REINSURERS hereon hereby agree that neither party
shall have the right to assign its respective interests and liabilities,
including the FUNDS WITHHELD, under this Agreement. Notwithstanding the above,
this clause shall not restrict the CEDING COMPANY from making investments it
deems appropriate.
ARTICLE 27: INTERMEDIARY
Pegasus Advisors, Inc., Two Northington Place, 35 Tower Lane, Avon, Connecticut
06001, is hereby recognized as the INTERMEDIARY negotiating this Agreement for
all business hereunder and through whom all communications relating hereto
(including but not limited to notices, statements and reports) shall be
transmitted to both parties. It is understood, as regards remittances due either
party hereunder, that payment by the CEDING COMPANY to the INTERMEDIARY, shall
constitute payment to the REINSURER but payment by the REINSURER to the
INTERMEDIARY shall only constitute payment to the CEDING COMPANY to the extent
such payments are actually received by the CEDING COMPANY. Notwithstanding the
foregoing, it is agreed that all payments will be direct from the REINSURER to
the CEDING COMPANY, or from the CEDING COMPANY to the REINSURER, as appropriate.
-19-
<PAGE> 20
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1994
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
SCANDINAVIAN REINSURANCE COMPANY LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 50.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1994 issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
-------------------------------------------------------
In Hamilton, Bermuda this 6th day of September 1996, For and on Behalf of
Scandinavian Reinsurance Company Ltd.
By: /s/ W. David Brining /s/ Jens Juul [SEAL]
-------------------------------------------------------
<PAGE> 21
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1994
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
HANNOVER REINSURANCE (IRELAND) LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 40.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective January 1, 1994, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /S/ Hugo Kostelni
-------------------------------------------------------
In Dublin, Ireland, this 17th day of September 1996 For and on Behalf of
Hannover Reinsurance (Ireland) Ltd.
By: /S/ Dietmar Stenzel [SEAL]
-------------------------------------------------------
<PAGE> 22
INTERESTS AND LIABILITIES AGREEMENT
TO THE
COMBINED AGGREGATE AND CASUALTY CATASTROPHE
EXCESS OF LOSS REINSURANCE TREATY
EFFECTIVE: JANUARY 1, 1994
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
EISEN UND STAHL REINSURANCE (IRELAND) LTD.
(HEREINAFTER REFERRED TO AS THE "REINSURER")
It is hereby mutually agreed that the Reinsurer shall have a 10.00% share in the
interests and liabilities as set forth in the document attached hereto entitled
"COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS REINSURANCE TREATY,
Effective: January 1, 1994, issued to Medical Inter-Insurance Exchange of New
Jersey". The share of the Reinsurer shall be separate and apart from the shares
of the other reinsurers and shall not be joint with those of the other
reinsurers and the Reinsurer shall in no event participate in the interest and
liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers, have executed this Agreement, in triplicate, as of the dates
undermentioned.
In Lawrenceville, New Jersey, this 27 day of September 1996,
For and on Behalf of Medical Inter-Insurance Exchange of New Jersey
By: /s/ Hugo Kostelni
-------------------------------------------------------
In Dublin, Ireland, this 17th day of September 1996 For and on Behalf of Eisen
und Stahl Reinsurance (Ireland) Ltd.
By: /s/ D. Stenzel [SEAL]
-------------------------------------------------------
<PAGE> 1
EXHIBIT 10.12
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
COMBINED AGGREGATE AND CASUALTY CATASTROPHE EXCESS OF LOSS
REINSURANCE TREATY
EFFECTIVE JANUARY 1, 1993
<TABLE>
<CAPTION>
ARTICLE SUMMARY PAGE
- ------- ------- ----
<S> <C>
1 BUSINESS COVERED........................................................ 2
2 TERM ................................................................... 3
3 TERRITORY AND INURING REINSURANCE....................................... 3
4 EXCLUSIONS.............................................................. 3
5 COVERAGES AND AGGREGATE LIMITS.......................................... 3
6 DEFINITIONS............................................................. 4
7 NET RETAINED LIABILITY.................................................. 6
8 DEPOSIT CONSIDERATION, FINAL CONSIDERATION ADJUSTMENT, COVERAGE A
ADDITIONAL CONSIDERATION, REINSURERS' INITIAL EXPENSE CHARGE AND
COVERAGE B CONSIDERATION.............................................. 6
9 OFFSET AND SECURITY..................................................... 9
10 REPORTS AND LOSS SETTLEMENTS............................................ 9
11 PROFIT SHARING, FUNDS WITHHELD ACCOUNT.................................. 11
12 CURRENCY................................................................ 12
13 COMMUTATION............................................................. 12
14 EXCESS OF ORIGINAL POLICY LIMITS........................................ 13
15 EXTRA CONTRACTUAL OBLIGATIONS........................................... 13
16 ERRORS AND OMISSIONS.................................................... 14
17 ACCESS TO RECORDS....................................................... 14
18 ACTUARIAL REVIEW........................................................ 14
19 LOSS RESERVE FUNDING.................................................... 15
20 FUNDS WITHHELD TRUST ACCOUNT............................................ 15
21 INSOLVENCY.............................................................. 16
22 ARBITRATION............................................................. 17
23 CHANGES IN ADMINISTRATIVE PRACTICES..................................... 18
24 TAXES................................................................... 18
25 SERVICE OF SUIT......................................................... 18
26 NO ASSIGNMENT........................................................... 19
27 INTERMEDIARY............................................................ 19
</TABLE>
<PAGE> 2
1993 COMBINED AGGREGATE AND CASUALTY
CATASTROPHE EXCESS OF LOSS
REINSURANCE AGREEMENT NO. __
between
THE REINSURERS SUBSCRIBING THE RESPECTIVE INTERESTS
AND LIABILITIES AGREEMENTS HERETO
(hereinafter called "REINSURERS")
and
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter called the "CEDING COMPANY")
ARTICLE 1: BUSINESS COVERED
This Agreement shall indemnify the CEDING COMPANY with respect to ULTIMATE NET
LOSSES which may accrue to the CEDING COMPANY under any and all POLICIES subject
to the Terms and Conditions of this Agreement.
As respects COVERAGE A hereon, the REINSURERS shall provide coverage on a losses
occurring during basis during the TERM in respect of all of the CEDING COMPANY'S
POLICIES underwritten on a losses occurring during basis. Also, as respects
COVERAGE A hereon, the REINSURERS shall provide coverage on a claims first made
basis during the TERM in respect of all of the CEDING COMPANY'S POLICIES
underwritten on a claims first made basis. For all purposes, the "PERMANENT
PROTECTION POLICIES (PPP)" underwritten by the CEDING COMPANY shall in all cases
be deemed to cover on a losses occurring during basis of underlying coverage.
REINSURERS shall be subject to all of the conditions of the PPP including policy
limits and the aggregate limit formula under the extended reporting coverage
therein.
As respects COVERAGE B hereon, the REINSURERS shall provide coverage hereon on a
claims first made basis during the TERM regardless of the basis of coverage
provided by the CEDING COMPANY.
REINSURERS shall remain liable for all losses covered hereon during the TERM
until all such losses are paid or this Agreement is commuted.
<PAGE> 3
ARTICLE 2: TERM
This Agreement shall be effective from January 1, 1993 through December 31,
1993, both days inclusive.
Should this Agreement expire while a COVERAGE A loss covered in respect of a
loss occurrence policy, such as the PPP is in progress, the REINSURERS shall be
responsible for the loss in progress in the same manner and to the same extent
it would have been responsible had the Agreement expired the day following the
conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Agreement will cover POLICIES written within the United States of America.
All other REINSURANCE AGREEMENTS that inure to the benefit of this Agreement
shall be deemed in place until all liability of the REINSURERS hereon is
finalized by payment of all losses or commutation.
ARTICLE 4: EXCLUSIONS
This Agreement shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause attached hereto;
C. Business assumed from Pools, Syndicates, and Associations;
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - U.S.A., except that provisions of this clause
shall not apply to liability arising out of the practice of Nuclear
Medicine and activities relating to Nuclear Medicine by the original
insured.
E. War Risks, in accordance with the North American War Exclusion Clause
attached hereto;
F. Unallocated LOSS ADJUSTMENT EXPENSES as described in ARTICLE 6,
Section E.
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS
A. COVERAGE A
Should the CEDING COMPANY'S LOSS RATIO exceed 80% (hereinafter called
the Retention), the REINSURERS shall be liable for 100% of the paid
amount of
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<PAGE> 4
ULTIMATE NET LOSSES in excess of the Retention subject to a maximum
AGGREGATE LIMIT of 70% of SNEP. Subject also to ARTICLE 5.C., in no
event shall REINSURERS be liable for more than $75,000,000 in the
aggregate. COVERAGE B hereon shall inure to COVERAGE A. Therefore,
ULTIMATE NET LOSSES in respect of the CEDING COMPANY'S NET RETAINED
LIABILITY shall be reduced by any amounts recoverable in respect of
COVERAGE B.
B. COVERAGE B
This Agreement shall indemnify the CEDING COMPANY for $7,000,000
ULTIMATE NET LOSS excess of $3,000,000 ULTIMATE NET LOSS per LOSS
OCCURRENCE plus pro-rata LOSS ADJUSTMENT EXPENSES as respects claims
first made during the TERM. Notwithstanding the definition of ULTIMATE
NET LOSS as per Section D of ARTICLE 6: DEFINITIONS, LOSS ADJUSTMENT
EXPENSE shall be excluded from the determination of ULTIMATE NET LOSS
referenced in this COVERAGE B. This Agreement shall, however, indemnify
the CEDING COMPANY for pro-rata LOSS ADJUSTMENT EXPENSES in addition to
loss indemnity amounts subject to an AGGREGATE LIMIT in all equal to
$7,000,000.
In circumstances where two or more policies are involved in the same
occurrence and there is a difference in the date claims are made under
the original policies, the date the first claim is made shall be the
date of the event for purposes of any recovery hereunder.
C. AGGREGATE LIMIT
In no event shall REINSURERS be liable for more than $82,000,000 in the
Aggregate for this Agreement for COVERAGES A and B combined.
ARTICLE 6: DEFINITIONS
A. "CUMULATIVE SUBJECT NET EARNED PREMIUMS" (SNEP) shall mean the
cumulative NET WRITTEN PREMIUM INCOME of the CEDING COMPANY during the
period January 1, 1993 through December 31, 1993 plus the NET WRITTEN
PREMIUM INCOME unearned at December 31, 1992 less the NET WRITTEN
PREMIUM INCOME unearned as of the calendar quarter end calculation date
but no later than December 31, 1993.
B. "NET WRITTEN PREMIUM INCOME" shall mean gross written premiums of the
CEDING COMPANY less cancellations and returns and less premiums paid
for all other reinsurances for the period January 1, 1993 through
December 31, 1993, except for NON-TRADITIONAL REINSURANCE AGREEMENTS
which shall be disregarded for the calculation of SNEP.
-4-
<PAGE> 5
C. 1. "NON-TRADITIONAL REINSURANCE AGREEMENTS" shall mean any
reinsurance agreement which allows for PROFIT SHARING (or any
other form of contractual adjustment) exceeding 25% of initial
reinsurance premium paid. This definition does not apply to
swing rated excess reinsurance coverages.
2. "TRADITIONAL REINSURANCE AGREEMENTS" shall mean any
reinsurance agreement which is not a non-traditional
reinsurance agreement.
D. The term "ULTIMATE NET LOSS" means the actual loss, arising from a LOSS
OCCURRENCE as covered in accordance with ARTICLE 1: BUSINESS COVERED,
including LOSS ADJUSTMENT EXPENSE, 80% of loss in excess of policy
limits and 80% of EXTRA CONTRACTUAL OBLIGATIONS, and including losses
incurred but not yet reported, all paid, payable, or to be paid, by the
CEDING COMPANY after making deductions for all recoveries, salvages,
subrogations and all claims on inuring reinsurance, whether such
reinsurance is collectible or not; provided, however, that in the event
of the insolvency of the CEDING COMPANY, payment by the REINSURERS
shall be made in accordance with the provisions of the INSOLVENCY
Article. Nothing herein shall be construed to mean that losses under
this Agreement are not recoverable until the CEDING COMPANY'S ULTIMATE
NET LOSS has been ascertained.
E. "LOSS ADJUSTMENT EXPENSE" means all costs and expenses allocable to a
specific claim or claims that are incurred by the CEDING COMPANY in the
investigation, appraisal, adjustment, settlement, litigation, defense
or appeal of a specific claim, including court costs and costs of
supersedeas and appeal bonds, and including a) pre-judgment interest,
unless included as part of the award or judgment; b) post-judgment
interest; and c) legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto. LOSS ADJUSTMENT
EXPENSE does not include unallocated LOSS ADJUSTMENT EXPENSE.
Unallocated LOSS ADJUSTMENT EXPENSE includes, but is not limited to,
salaries and expenses of employees, and office and other overhead.
F. "POLICIES" means any and all original policies, contracts, and binders
of insurance underwritten by the CEDING COMPANY and classified as:
Medical and Dental Practitioner Professional Liability
Hospital Professional Liability
Professional Premises Liability
Commercial General Liability
Excess/Umbrella Liability
G. "LOSS RATIO" means the ratio of ULTIMATE NET LOSSES incurred divided by
CUMULATIVE SUBJECT NET EARNED PREMIUM as of the date of calculation.
-5-
<PAGE> 6
H. "LOSS OCCURRENCE" means LOSS OCCURRENCE or medical incident, or
otherwise the event giving rise to coverage, all as defined and
provided within the underlying POLICIES underwritten by the CEDING
COMPANY.
I. "REINSURERS INITIAL EXPENSE CHARGE" shall be 5.9% of all DEPOSIT
CONSIDERATION, FINAL CONSIDERATION ADJUSTMENT AND ADDITIONAL
CONSIDERATION hereon.
J. "REINSURERS' ADDITIONAL EXPENSE CHARGE" shall be 1% of all DEPOSIT
CONSIDERATION, FINAL CONSIDERATION ADJUSTMENT AND ADDITIONAL
CONSIDERATION hereon, if ceded ULTIMATE NET LOSSES in respect of
COVERAGE A are greater than 32.5% of SNEP but less than or equal to
60.0% of SNEP. REINSURERS' ADDITIONAL EXPENSE CHARGE shall be 2% of all
DEPOSIT CONSIDERATION, FINAL CONSIDERATION, ADJUSTMENT AND ADDITIONAL
CONSIDERATION hereon, if ceded COVERAGE A ULTIMATE NET LOSS is greater
than 60% of SNEP.
ARTICLE 7: NET RETAINED LIABILITY
COVERAGE A applies only to that portion of any LOSS OCCURRENCE which the CEDING
COMPANY retains net for its own account. All other REINSURANCE AGREEMENTS shall
inure to the benefit of this Agreement and be deemed in place until all
liability hereon is finalized.
The CEDING COMPANY warrants that the minimum NET RETAINED LIABILITY is $750,000
per insured and $1,000,000 per event for insureds in New Jersey and $200,000 per
insured and $600,000 per event for insureds in other states.
Notwithstanding the above, the CEDING COMPANY and REINSURERS mutually agree that
any and all ceded ULTIMATE NET LOSSES in respect of 1993 LOSS OCCURRENCES under
Section B of the MIIX Aggregate Excess of Loss Agreement dated December 15, 1992
shall inure to coverages under this Agreement whereby the NET RETAINED LIABILITY
of the CEDING COMPANY may be less than the above stated minimum NET RETAINED
LIABILITY.
Furthermore, it is warranted that less than 15% of the CEDING COMPANY'S SNEP
during the TERM of this Agreement will apply to the business where the CEDING
COMPANY'S NET RETAINED LIABILITY is below $750,000 on a per insured and
$1,000,000 on a per event basis.
ARTICLE 8: DEPOSIT CONSIDERATION, FINAL CONSIDERATION ADJUSTMENT,
COVERAGE A ADDITIONAL CONSIDERATION, REINSURERS' INITIAL EXPENSE
CHARGE AND COVERAGE B CONSIDERATION
-6-
<PAGE> 7
A. DEPOSIT CONSIDERATION, FINAL CONSIDERATION ADJUSTMENT
The CEDING COMPANY shall pay to the REINSURERS a DEPOSIT CONSIDERATION
of $18,668,012 on January 1, 1993. A determination of FINAL
CONSIDERATION as of December 31, 1993 shall be made and reported on or
before February 15, 1994. FINAL CONSIDERATION shall be equal to SNEP
multiplied by 17.709% subject to a minimum CONSIDERATION of
$16,145,308.
The CEDING COMPANY shall pay to REINSURERS, on or before February 15,
1994, the amount by which the FINAL CONSIDERATION exceeds the DEPOSIT
CONSIDERATION. The REINSURERS shall return to the CEDING COMPANY the
lesser of the amount by which DEPOSIT CONSIDERATION exceeds FINAL
CONSIDERATION or the minimum CONSIDERATION. The DEPOSIT CONSIDERATION
and the FINAL CONSIDERATION ADJUSTMENT, if any, due shall be deemed
credited (debited) to the FUNDS WITHHELD ACCOUNT on January 1, 1993 for
all purposes hereon including INTEREST CREDIT.
B. COVERAGE A ADDITIONAL CONSIDERATION
The CEDING COMPANY shall also credit the FUNDS WITHHELD ACCOUNT with
COVERAGE A ADDITIONAL CONSIDERATION equal to 50.4541% of the amount by
which cumulative ceded ULTIMATE NET LOSSES in respect of COVERAGE A
exceed 30% of SNEP. The maximum COVERAGE A ADDITIONAL CONSIDERATION
hereon is $22,000,000. Such COVERAGE A ADDITIONAL CONSIDERATION shall
be determined and reported quarterly within 45 (forty-five) days
following the end of each calendar quarter.
ALL COVERAGE A ADDITIONAL CONSIDERATION shall be credited by the CEDING
COMPANY to the FUNDS WITHHELD ACCOUNT as defined in Section B of
ARTICLE 11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT AND INTEREST CREDIT.
For that amount of REINSURERS' INITIAL EXPENSE CHARGE calculated as a
percentage of ADDITIONAL CONSIDERATION, the REINSURERS' INITIAL EXPENSE
CHARGE shall be wire transferred by the CEDING COMPANY directly to the
REINSURERS annually within 45 days of each December 31st indicating net
COVERAGE A ADDITIONAL CONSIDERATION due for the prior calendar year. If
the December 31st report indicates net return COVERAGE A ADDITIONAL
CONSIDERATION for the prior calendar year, REINSURERS shall wire
transfer directly to the CEDING COMPANY any annual return REINSURERS'
INITIAL EXPENSE CHARGE as a percentage of return ADDITIONAL
CONSIDERATION within 15 days following receipt of the December 31st
reporting.
-7-
<PAGE> 8
All COVERAGE A ADDITIONAL CONSIDERATION less REINSURERS' INITIAL
EXPENSE CHARGE shall be deemed to be credited or (debited) from the
FUNDS WITHHELD ACCOUNT as of January 1, 1993 for INTEREST CREDIT
purposes hereon. Therefore, any adjustments to increase COVERAGE A
ADDITIONAL CONSIDERATION shall result in an INTEREST CREDIT from
January 1, 1993 to date for such adjustment. Any adjustments to
decrease the COVERAGE A ADDITIONAL CONSIDERATION shall result in a
reduction of INTEREST CREDIT from January 1, 1993 to date for such
adjustment.
C. REINSURERS' INITIAL EXPENSE CHARGE
The CEDING COMPANY will wire transfer to REINSURERS 4.9% of DEPOSIT
CONSIDERATION as soon as possible on and after January 1, 1993. This
amount shall be deducted (debited) from the FUNDS WITHHELD ACCOUNT as
of January 1, 1993. The remaining 1.0% of DEPOSIT CONSIDERATION and
5.9% of FINAL CONSIDERATION ADJUSTMENT shall be wire transferred from
the CEDING COMPANY TO REINSURERS on or before February 15,1994. These
amounts shall be deducted (debited) from the FUNDS W1THBELD ACCOUNT as
of January 1, 1994.
The 5.9% of ADDITIONAL CONSIDERATION shall be wire transferred from the
CEDING COMPANY to REINSURERS within 45 days following December 31st of
each prior calendar year ADDITIONAL CONSIDERATION due. These amounts
shall be deducted (debited) from the FUNDS WITHHELD ACCOUNT as of
January 1, 1993. Any return CONSIDERATION will result in return
REINSURERS' INITIAL EXPENSE CHARGE which shall be wire transferred from
the REINSURERS to the CEDING COMPANY at the same time that REINSURERS'
INITIAL EXPENSE CHARGES are due. All such amounts shall be deducted (or
added as appropriate for return payments) from (to) the FUNDS WITHHELD
ACCOUNT hereon.
D. REINSURERS' ADDITIONAL EXPENSE CHARGE
All such amounts are to be wire transferred by the CEDING COMPANY to
REINSURERS within 60 days following each December 31 based upon the
LOSS RATIO as of such December 31st date. Furthermore, all such
payments shall not be included in CONSIDERATION or deducted from the
FUNDS WITHHELD ACCOUNT hereon.
E. COVERAGE B CONSIDERATION
The CEDING COMPANY shall credit to the FUNDS WITHHELD ACCOUNT as of
January 1, 1993, a COVERAGE B CONSIDERATION equal to 35.454% of FINAL
CONSIDERATION on or before February 15,1994 to maintain coverage for
COVERAGE B. If, however, the CEDING COMPANY warrants no losses to
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<PAGE> 9
COVERAGE B under this Agreement, the COVERAGE B CONSIDERATION shall be
waived in its entirety.
ARTICLE 9: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of CONSIDERATION or losses and
allocated LOSS ADJUSTMENT EXPENSES or otherwise, due from such party to
another party under this Agreement, against any amounts, whether on
account of CONSIDERATION or losses and allocated LOSS ADJUSTMENT
EXPENSES or otherwise due from the latter party to the former party.
The party asserting the right of offset may exercise this right,
whether as assuming REINSURERS or CEDING COMPANY in this Agreement.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one ) all of its rights under this Agreement
to receive CONSIDERATION or loss payments at any time from such other
party ("Collateral'), to secure its CONSIDERATION or loss obligations
to such other party at any time under this Agreement ("Secured
Obligations"). If at any time a party is in default under any Secured
Obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be
entitled in its discretion, to apply or to withhold for the purpose of
applying in due course, any Collateral assigned and pledged to it by
the former party and otherwise to realize upon such Collateral as
security for such Secured Obligations.
C. The security interest described herein, and the term "Collateral",
shall apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall
be deemed evidenced only by the counterpart of this Agreement delivered
to such party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Agreement.
ARTICLE 10: REPORTS AND LOSS SETTLEMENTS
A. Within 45 days following the end of each calendar quarter, the CEDING
COMPANY will report in writing to the REINSURERS:
1. SNEP for the quarter and cumulative SNEP.
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<PAGE> 10
2. CONSIDERATION calculations as necessary.
3. Summary of subject ULTIMATE NET LOSSES paid during the period
and inception to date.
4. Summary of ULTIMATE NET LOSSES outstanding including a report
of incurred but not reported amounts.
5. The amount of ULTIMATE NET LOSSES ceded to this Agreement for
the period and inception to date indicating amounts due and
outstanding.
6. Any other information needed by the REINSURERS to evaluate
this Agreement which is reasonably available to the CEDING
COMPANY.
7. A report detailing the activity and balance within the FUNDS
WITHHELD ACCOUNT.
B. 1. COVERAGE A LOSS SETTLEMENTS
Within 15 days of receipt by the REINSURERS of each December
31 report, the REINSURERS shall pay all cumulative ULTIMATE
NET LOSSES Paid in respect of BUSINESS COVERED by the CEDING
COMPANY on and after January 1, 1993 in excess of the CEDING
COMPANY'S Retention subject to the AGGREGATE LIMITS hereon.
Loss reimbursement at any calendar year shall be equal to the
amount of such cumulative ULTIMATE NET LOSSES Paid at each
date in excess of the Retention less net loss reimbursements
previously made by the REINSURERS, subject to the AGGREGATE
LIMITS in accordance with Section A of ARTICLE 5: COVERAGES
AND AGGREGATE LIMITS.
2. COVERAGE
Within 15 days of receipt by the REINSURERS of each December
31 report, the REINSURERS shall pay all covered COVERAGE B
ULTIMATE NET LOSSES paid by the CEDING COMPANY on and after
January 1, 1993 in respect of BUSINESS COVERED subject to and
in accordance with Sections B of ARTICLE 5: COVERAGES AND
AGGREGATE LIMITS.
3. All loss payments under B.1. and B.2., including all
COMMUTATION payments, if any, above will be firstly made by
deduction from the CONSIDERATION and then from the INTEREST
CREDIT components of the FUNDS WITHHELD ACCOUNT by the CEDING
COMPANY until depleted. Thereafter, REINSURERS shall pay from
other funds of REINSURERS subject to all of the terms hereon.
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ARTICLE 11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT
AND INTEREST CREDIT
A. PROFIT SHARING
Upon finalization of the payment of all losses recoverable hereon
and/or COMMUTATION amounts, if any, the REINSURERS will relinquish to
the CEDING COMPANY 92.5% of the remaining FUNDS WITHHELD ACCOUNT
balance, if any. Payment of PROFIT SHARING in accordance with this
ARTICLE shall release the REINSURERS from all current and future
liability hereunder. The CEDING COMPANY shall pay the other 7.5% of the
remaining FUNDS WITHHELD ACCOUNT balance to the REINSURERS at such
time.
B. FUNDS WITHHELD ACCOUNT
For purposes of this Article, the CEDING COMPANY shall maintain a
cumulative FUNDS WITHHELD ACCOUNT comprised of the following:
1. The FUNDS WITHHELD ACCOUNT at December 31, 1992 shall be equal
to zero.
2. The FUNDS WITHHELD ACCOUNT at each subsequent year end shall
be equal to:
a. The FUNDS WITHHELD ACCOUNT at the end of such prior
year; plus
b. FINAL CONSIDERATION ADJUSTMENT and DEPOSIT
CONSIDERATIONS, COVERAGE A ADDITIONAL CONSIDERATION
adjustments and COVERAGE B CONSIDERATION credited or
debited, if any; less
c. REINSURERS' INITIAL EXPENSE CHARGE, if any; plus
d. INTEREST CREDIT; less
e. Ceded ULTIMATE NET LOSSES paid under this Agreement
for the prior year from the FUNDS WITHHELD ACCOUNT
(including COMMUTATION payments).
The REINSURERS shall not transfer or assign their rights to the FUNDS
WITHHELD ACCOUNT hereon unless this Agreement is surrendered and a new
Agreement is issued. Under any and all circumstances, the CEDING
COMPANY must make a book entry of a transfer or assignment in order for
such transfer or assignment to be valid.
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<PAGE> 12
C. INTEREST CREDIT
The CEDING COMPANY shall credit the FUNDS WITHHELD annually at each
December 31st with interest calculated by applying an effective annual
rate of the percentage below multiplied by the actual daily average
FUNDS WITHHELD ACCOUNT balance for the respective calendar year, where
the percentage equals:
8% if the 12 month U.S. Treasury Bill rate is 8% or less:
or
8% + 50% of the amount by which the 12 month U.S. Treasury Bill rate is
greater than 8%.
The 12 month U.S. Treasury Bill rate to be used each year is the rate
in effect on the first business day of each year as reported in the
Wall Street Journal on the second business day of each year.
ARTICLE 12: CURRENCY
All of the provisions of this Agreement involving dollar amounts are expressed
in terms of United States dollars and all CONSIDERATION and loss and allocated
LOSS ADJUSTMENT EXPENSE payments hereunder shall be made in United States
Dollars.
ARTICLE 13: COMMUTATION
The CEDING COMPANY shall have the sole option, effective at any calendar year
end on or after December 31, 1993 to commute all Coverage A and B ceded
liability outstanding hereunder. At COMMUTATION, the REINSURERS shall pay to the
CEDING COMPANY the lesser of:
A. The present value of COVERAGE A and COVERAGE B, if any, ceded
outstanding loss and allocated LOSS ADJUSTMENT EXPENSE reserves as
determined by a loss reserve analysis conducted by an independent
actuarial firm acceptable to both the CEDING COMPANY and the
REINSURERS, with the CEDING COMPANY bearing the cost of such analysis;
or
B. The existing value of the FUNDS WITHHELD ACCOUNT (as defined in ARTICLE
11: PROFIT SHARING, FUNDS WITHHELD ACCOUNT AND INTEREST CREDIT) at the
COMMUTATION date.
Said payment shall constitute, together with the PROFIT SHARING payment, a full
and final settlement of all terms of this Agreement; the CEDING COMPANY Will
execute a hold
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<PAGE> 13
harmless agreement so stating and the REINSURERS will be thereby released from
all current and future liability hereunder.
COMMUTATION payments in accordance with this Article shall be treated as losses
and allocated LOSS ADJUSTMENT EXPENSES paid under this Agreement for
determination of the FUNDS WITHHELD ACCOUNT.
ARTICLE 14: EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the CEDING COMPANY, within the limits hereof for
80% of loss in excess of its original policy, such loss in excess of the limit
having been incurred because of failure by it to settle within the policy limit
or by reason of alleged or actual negligence, fraud, or bad faith in rejecting
an offer of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or prosecution
of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the CEDING
COMPANY acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the CEDING COMPANY would have been contractually liable to pay had it not
been for the limit of the original policy.
ARTICLE 15: EXTRA CONTRACTUAL OBLIGATIONS
A. This Agreement shall protect the CEDING COMPANY for 80% of any EXTRA
CONTRACTUAL OBLIGATIONS within the limits hereof. The term "EXTRA
CONTRACTUAL OBLIGATIONS" is defined as those liabilities not covered
under any other provision of this Agreement and which arise from the
handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the
CEDING COMPANY to settle within the policy limit, or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer
of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
B. The date on which any EXTRA CONTRACTUAL OBLIGATION is incurred by the
CEDING COMPANY shall be deemed, in all circumstances, to be the date of
the original LOSS OCCURRENCE.
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C. However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate
officer of the CEDING COMPANY acting individually or collectively or in
collusion with any individual or corporation or any other organization
or party involved in the presentation, defense or settlement of any
claim covered hereunder.
ARTICLE 16: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
ARTICLE 17: ACCESS TO RECORDS
The CEDING COMPANY shall place at the disposal of the REINSURERS at all
reasonable times, and the REINSURERS shall have the right to inspect, through
its authorized representatives, all books, records, and papers of the CEDING
COMPANY in connection with any reinsurance hereunder, or claims in connection
herewith.
The REINSURERS agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Agreement except under
the following circumstances and then only as necessary.
A. When disclosure of such information is required in the normal course of
REINSURERS' business; or
B. With the prior written consent of the CEDING COMPANY; or
C. When REINSURERS are required by a subpoena or court order to disclose
such information. The REINSURERS shall promptly notify the CEDING
COMPANY of any attempt by a third party to obtain from it any such
confidential information.
REINSURERS will provide CEDING COMPANY or its designated representative with
such information as REINSURER and CEDING COMPANY may agree is necessary to the
CEDING COMPANY'S handling of the business reinsured herein.
The obligation contained in the provision shall survive termination of this
Agreement.
ARTICLE 18: ACTUARIAL REVIEW
Should the REINSURERS desire at any time to review the loss reserves established
by the CEDING COMPANY as respects COVERAGE A and COVERAGE B ULTIMATE NET LOSSES,
the REINSURERS shall select an independent actuarial firm acceptable to the
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<PAGE> 15
CEDING COMPANY to perform a reserve analysis. The costs of any reserve analysis
performed under this Article will be borne by the REINSURERS hereon. Such a
review shall be subject to the provisions of ARTICLE 17: ACCESS TO RECORDS.
ARTICLE 19: LOSS RESERVE FUNDING
The REINSURERS will maintain appropriate reserves with respect to their share of
the loss reserves ceded and required under the terms of this Agreement which are
reported by the CEDING COMPANY on the BUSINESS COVERED of this Agreement.
During the TERM of this Agreement the REINSURERS agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the CEDING COMPANY
issued by a bank acceptable to the CEDING COMPANY adjusted to at all times be
equal to the ceded cumulative ULTIMATE NET LOSSES outstanding hereunder less the
FUNDS WITHHELD ACCOUNT balance at such dates. Such Letter of Credit shall be in
the form, amount, and with an acceptable NAIC bank required to allow the CEDING
COMPANY to take Full Statutory Credit for amounts recoverable under this
Agreement.
The CEDING COMPANY also agrees to not make drawings upon the Letter of Credit
provided by the REINSURERS for any purpose other than to reimburse the CEDING
COMPANY for loss settlements due under this Reinsurance Agreement for which one
or more of the REINSURERS are in default by more than seven days and provided
that the CEDING COMPANY shall give the REINSURERS three days written notice
prior to making any drawings.
The CEDING COMPANY shall reimburse the REINSURERS for annual security cost equal
to .5% of the amount of Letter of Credit issued or maintained hereon as of each
December 31st. The REINSURERS shall request such reimbursement whereupon the
CEDING COMPANY shall make payment by direct wire transfer to the REINSURERS. All
such amounts shall not be deducted from the FUNDS WITHHELD ACCOUNT.
ARTICLE 20: FUNDS WITHHELD TRUST ACCOUNT
In the event that the CEDING COMPANY experiences any one of the following
circumstances, the REINSURERS may require a Trust Fund, with an independent
bank, be established for purposes of collateralizing the FUNDS WITHHELD ACCOUNT
hereon:
1. The CEDING COMPANY'S A.M. Best's Rating is downgraded below
B+; or
2. The CEDING COMPANY'S combined statutory capital and surplus
falls below $60 million; or
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3. The CEDING COMPANY effects both a change in ownership form
such that the resulting ownership extends beyond the insureds
of the COMPANY and there is a change in the office of
President.
The CEDING COMPANY shall fully and promptly comply with such request from the
REINSURERS. The CEDING COMPANY shall transfer marketable assets with a market
value equal to the required FUNDS WITHHELD ACCOUNT balance within 30 days from
the REINSURERS' request to do so. The CEDING COMPANY shall also transfer
additional assets to the TRUST FUND, if needed, to maintain the TRUST FUND
balance to be equal to the FUNDS WITHHELD requirement at each calendar quarter
end including the requisite INTEREST CREDIT required hereon.
ARTICLE 21: INSOLVENCY
A. In the event of the insolvency of the CEDING COMPANY, the reinsurance
under this Agreement shall be payable by the REINSURERS (on the basis
of the liability of the CEDING COMPANY under the policy or policies
reinsured without diminution because of the insolvency of the CEDING
COMPANY) to the CEDING COMPANY or to its liquidator, receiver or
statutory successor, except as provided by Section 4118A of the New
York Insurance Law or except:
1. Where the Agreement specifically provides another payee of
such reinsurance in the event of the insolvency of the CEDING
COMPANY.
2. Where the REINSURERS, with the consent of the direct insured
or insureds, has assumed such policy obligations of the CEDING
COMPANY as direct obligations of the REINSURERS to the payees
under such policies and in substitution for the obligations of
the CEDING COMPANY to such payees.
B. It is agreed, however, that liquidator or receiver or statutory
successor of the insolvent CEDING COMPANY shall give written notice to
the REINSURERS of the pendency of a claim against the insolvent CEDING
COMPANY on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the REINSURERS may investigate such claim
and interpose, at its own expense, in the proceeding where such claim
is to be adjudicated, any defense or defenses which it may deem
available to the CEDING COMPANY or its liquidator or receiver or
statutory successor. The expense thus incurred by the REINSURERS shall
be chargeable, subject to court approval, against the insolvent CEDING
COMPANY as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the CEDING
COMPANY solely as a result of the defense undertaken by the REINSURERS.
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<PAGE> 17
C. Should the CEDING COMPANY go into liquidation or should a receiver be
appointed, the REINSURERS shall be entitled to deduct from any sums
which may be or may become due to the CEDING COMPANY under this
Agreement any sums which are due to the REINSURERS by the CEDING
COMPANY under this Agreement and which are payable at a fixed or stated
date, as well as any other sums due the REINSURERS which are permitted
to be offset under applicable law.
ARTICLE 22: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with
respect to this Agreement, it is hereby mutually agreed that such
dispute or difference of opinion shall be submitted to arbitration. One
Arbiter shall be chosen by the CEDING COMPANY, the other by the
REINSURER, and an Umpire shall be chosen by the two Arbiters before
they enter upon arbitration, all of whom shall be active or retired
disinterested executive officers of insurance or reinsurance companies.
In the event that either party should fail to choose an Arbiter within
30 days following a written request by the other party to do so, the
requesting party may choose two Arbiters who shall in turn choose an
Umpire before entering upon arbitration. If the two Arbiters fail to
agree upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates within 10
days thereafter, two of whom the other shall decline, and the decision
shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Agreement as an honorable engagement rather than merely
as a legal obligation and they are relieved of all judicial formalities
and may abstain from the following the strict rules of law. The
decision of the Arbiters shall be final and binding on both parties;
but failing to agree, they shall call in the Umpire and the decision of
the majority shall be final and binding upon both parties. The decision
shall be made in writing and will state the factual and legal basis
supporting such decision. Judgment upon the final decision of the
Arbiters may be entered in any court of competent jurisdiction.
C. If more than one REINSURER is involved in the same dispute, all such
REINSURERS shall constitute and act as one party for purposes of this
ARTICLE and communications shall be made by the CEDING COMPANY to each
of the REINSURERS constituting one party provided, however, that
nothing herein shall impair the rights of such REINSURERS to assert
several, rather than joint, defenses or claims, nor be construed as
changing the liability of the REINSURERS participating under the terms
of this Agreement from several to joint.
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<PAGE> 18
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
ARTICLE 23: CHANGES IN ADMINISTRATIVE PRACTICES
If any intentional or unintentional change in the CEDING COMPANY'S processing or
payment of claims materially increases the REINSURER'S economic loss under this
Agreement from what the economic loss would have been if there had been no such
change, the REINSURERS shall prepare, and the CEDING COMPANY shall accept, an
adjustment of the portion of claims which is reimbursable, or any adjustments
which will make the REINSURER'S risk position equivalent to that which would
have been obtained under this Agreement if there had been no such change. The
REINSURERS shall have the right to use auditing techniques, sampling techniques,
or to otherwise investigate the nature and effect of any such change in
administrative practices or of any possible compensatory adjustment therefore.
Any dispute with respect to such adjustment shall be resolved by arbitration as
provided in ARTICLE 22: ARBITRATION.
ARTICLE 24: TAXES
The CEDING COMPANY is solely liable for any FEDERAL EXCISE TAX (FET) applicable
to this Agreement. Any FET to be paid shall be paid directly by the CEDING
COMPANY to the taxing authorities and is in addition to the CONSIDERATION. No
deduction shall be made from the FUNDS WITHHELD ACCOUNT.
ARTICLE 25: SERVICE OF SUIT
It is agreed that in the event of the failure of REINSURERS hereon to pay any
amount claimed to be due hereunder, REINSURERS hereon, at the request of the
CEDING COMPANY will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the REINSURERS to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Agreement shall be governed by the laws
of the State of New Jersey.
It is further agreed that service of process in such suit may be made upon Kroll
& Tract, 520 Madison Avenue, New York, New York 10022-4235, United States of
America and that in any suit instituted against any one of them upon this
Agreement, REINSURERS will abide by the final decision of such Court of any
Appellate Court in the event of an appeal.
The above named are authorized and directed to accept service of process on
behalf of
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<PAGE> 19
REINSURERS in any suit and/or upon the request of the CEDING COMPANY to give a
written undertaking to the CEDING COMPANY that they will enter a general
appearance upon REINSURERS' behalf in the event such a suit shall be instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, REINSURERS hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor or successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
CEDING COMPANY or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
ARTICLE 26: NO ASSIGNMENT
The CEDING COMPANY and the REINSURERS hereon hereby agree that neither party
shall have the right to assign its respective interests and liabilities,
including the FUNDS WITHHELD, under this Agreement. Notwithstanding the above,
this clause shall not restrict the CEDING COMPANY from making investments it
deems appropriate.
ARTICLE 27: INTERMEDIARY
Pegasus Advisors, Inc., Two Northington Place, 35 Tower Lane Avon, Connecticut
06001, is hereby recognized as the INTERMEDIARY negotiating this Agreement for
all business hereunder and through whom all communications relating hereto
(including but not limited to notices, statements and reports) shall be
transmitted to both parties. It is understood, as regards remittances due either
party hereunder, that payment by the CEDING COMPANY to the INTERMEDIARY, shall
constitute payment to the REINSURER but payment by the REINSURER to the
INTERMEDIARY shall only constitute payment to the CEDING COMPANY to the extent
such payments are actually received by the CEDING COMPANY. Notwithstanding the
foregoing, it is agreed that all payments will be direct from the REINSURER to
the CEDING COMPANY, or from the CEDING COMPANY to the REINSURER, as appropriate.
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IN WITNESS WHEREOF, this Treaty has been executed
In Lawrenceville, New Jersey, this ____ day of __________1996,
FOR AND ON BEHALF OF THE MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: Daniel J. Goldberg
----------------------------------------------
<PAGE> 21
INTERESTS AND LIABILITIES AGREEMENT
FOR THE
COMBINED AGGREGATE AND CASUALTY
CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE JANUARY 1, 1993
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER CALLED THE "CEDING COMPANY")
AND
SCANDINAVIAN REINSURANCE COMPANY LIMITED
HAMILTON, BERMUDA
(HEREINAFTER CALLED THE "SUBSCRIBING REINSURERS")
It is hereby mutually agreed that the SUBSCRIBING REINSURERS' share in the
Interest and Liabilities of the REINSURERS as set forth in the Combined
Aggregate and Casualty Catastrophe Excess of Loss Reinsurance Agreement attached
hereto shall be for a proportion of 50% (fifty percent).
The shares of the SUBSCRIBING REINSURERS in the Interests and Liabilities of the
REINSURERS in respect of the said Combined Aggregate and Casualty Catastrophe
Excess of Loss Reinsurance Agreement shall be separate and apart from the shares
of the other REINSURERS to the Combined Aggregate and Casualty Excess of Loss
Reinsurance Agreement and the Interests and Liabilities of the SUBSCRIBING
REINSURERS shall not be joint with those of the other REINSURERS and in no event
shall the SUBSCRIBING REINSURERS participate in the Interests and Liabilities of
the other REINSURERS.
In WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
in triplicate by their duly authorized representatives:
Signed in Hamilton, Bermuda this 18th day of December, 1995, for and on behalf
of:
SCANDINAVIAN REINSURANCE COMPANY LIMITED
By: /S/ W. David Brining /S/ Jens Juul
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<PAGE> 22
INTERESTS AND LIABILITIES AGREEMENT
FOR THE
COMBINED AGGREGATE AND CASUALTY
CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE JANUARY 1, 1993
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER CALLED THE "CEDING COMPANY")
AND
HANNOVER REINSURANCE (IRELAND) LTD.
DUBLIN, IRELAND
AND
EISEN UND STAHL (IRELAND) LTD.
DUBLIN, IRELAND
(HEREINAFTER CALLED THE "SUBSCRIBING REINSURERS")
It is hereby mutually agreed that the SUBSCRIBING REINSURERS' share in the
Interest and Liabilities of the REINSURERS as set forth in the Combined
Aggregate and Casualty Catastrophe Excess of Loss Reinsurance Agreement attached
hereto shall be for a combined proportion of 50% (fifty percent).
The shares of the SUBSCRIBING REINSURERS in the Interests and Liabilities of the
REINSURERS in respect of the said Combined Aggregate and Casualty Catastrophe
Excess of Loss Reinsurance Agreement shall be separate and apart from the shares
of the other REINSURERS to the Combined Aggregate and Casualty Catastrophe
Excess of Loss
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<PAGE> 23
Reinsurance Agreement and the Interests and Liabilities of the SUBSCRIBING
REINSURERS shall not be joint with those of the other REINSURERS and in no event
shall the SUBSCRIBING REINSURERS participate in the Interests and Liabilities of
the other REINSURERS.
In WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
in triplicate by their duly authorized representatives:
For a 40% proportion, signed in Dublin, Ireland, this day of 17th day of
January, 1996 for and on behalf of:
HANNOVER REINSURANCE (IRELAND) LTD.
By: /S/ Dietmar Stenzel [SEAL]
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US 263 100293
For a 10% proportion signed in Dublin, Ireland, this day of 17th day of January,
1996, for and on behalf of
EISEN UND STAHL (IRELAND) LTD:
By: /S/ Dietmar Stenzel [SEAL]
-----------------------------------------------------------------
US 263 200293
-23-
<PAGE> 1
EXHIBIT 10.13
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
COMBINED AGGREGATE AND SPECIFIC
CASUALTY EXCESS OF LOSS
REINSURANCE AGREEMENT
EFFECTIVE DECEMBER 15, 1992
<TABLE>
<CAPTION>
ARTICLE SUMMARY PAGE
------- ------- ----
<S> <C> <C>
1 BUSINESS COVERED 1
2 TERM 1
3 TERRITORY AND INURING REINSURANCE 2
4 EXCLUSIONS 2
5 COVERAGES 2
6 LIMITS 3
7 DEFINITIONS 4
8 NET RETAINED LIABILITY 6
9 CONSIDERATION 6
10 OFFSET AND SECURITY 7
11 REPORTS AND LOSS SETTLEMENTS 8
12 PROFIT SHARING 9
13 CURRENCY 9
14 COMMUTATION 9
15 EXCESS OF ORIGINAL POLICY LIMITS 9
16 EXTRA CONTRACTUAL OBLIGATIONS 10
17 ERRORS AND OMISSIONS 10
18 ACCESS TO RECORDS 10
19 ACTUARIAL REVIEW 11
20 LOSS RESERVE FUNDING 11
21 FUNDS WITHHELD TRUST ACCOUNT 12
22 INSOLVENCY 12
23 ARBITRATION 13
24 CHANGES IN ADMINISTRATIVE PRACTICES 14
25 TAXES 14
26 SERVICE OF SUIT 14
27 INTERMEDIARIES 15
28 PROPORTION 16
</TABLE>
<PAGE> 2
COMBINED AGGREGATE AND SPECIFIC CASUALTY EXCESS OF LOSS
REINSURANCE AGREEMENT NO. ______
between
THE REINSURERS SUBSCRIBING THE RESPECTIVE INTERESTS
AND LIABILITIES AGREEMENTS HERETO
(hereinafter called "REINSURERS")
and
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter called the "CEDING COMPANY")
ARTICLE 1: BUSINESS COVERED
The CEDING COMPANY, shall cede and REINSURERS shall accept Cumulative Net Losses
Incurred, as herein provided and specified, which accrue to the CEDING COMPANY
as a result of all losses occurring on or before December 31, 1992 under any and
all policies, contracts, and binders of insurance (all hereinafter called
"Policies"), written by the CEDING COMPANY on or before December 31, 1992
(hereinafter called "Coverage A").
In addition, the CEDING COMPANY shall cede and the REINSURERS shall accept the
Ultimate Net Losses, as herein provided and specified, which accrue to the
CEDING COMPANY as a result of all losses occurring during the period January 1,
1993 through the termination date, in accordance with ARTICLE 2: TERM, under all
Policies written by the CEDING COMPANY on or before such termination date
(hereinafter called "Coverage B").
Policies include original policies written and classified by the CEDING COMPANY
as:
Medical and Dental Practitioner Professional Liability
Hospital Professional Liability
Professional Premises Liability
Commercial General Liability
Excess/Umbrella Liability
ARTICLE 2: TERM
This Treaty shall be effective from December 15, 1992 providing coverage in
respect of Coverage A and in respect of Coverage B. Coverage A shall continue
until such time as all BUSINESS COVERED is paid by the CEDING COMPANY unless
this Agreement is otherwise commuted by the CEDING COMPANY in accordance with
ARTICLE 14: COMMUTATION.
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<PAGE> 3
The CEDING COMPANY may terminate Coverage B at any December 31 on and after
December 31, 1994. Upon such termination, the REINSURERS shall remain liable for
all losses occurring from January 1, 1993 through the date of such termination
until such time as the Ultimate Net Losses are paid by the CEDING COMPANY unless
this Agreement is commuted by the CEDING COMPANY in accordance with ARTICLE 14:
COMMUTATION.
Should this Treaty expire while a Coverage B loss occurrence hereunder is in
progress, the REINSURERS shall be responsible for the loss in progress in the
same manner and to the same extent it would have been responsible had the Treaty
expired the day following the conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Treaty will cover Policies written within the United States of America. All
other reinsurance contracts in force at December 15, 1992 shall inure to the
benefit of this Treaty and be deemed in place until all liability of the
REINSURERS hereon is finalized.
ARTICLE 4: EXCLUSIONS
This Treaty shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause attached hereto;
C. Business assumed from Pools, Syndicates and Associations;
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - U.S.A., except that provisions of this clause
shall not apply to liability arising out of the practice of Nuclear
Medicine and activities relating to Nuclear Medicine by the original
insured.
E. War Risks, in accordance with the North American War Exclusion Clause
attached hereto;
F. Unallocated loss adjustment expenses as described in ARTICLE 7, Section
F.
ARTICLE 5: COVERAGES
Coverage A
1. The REINSURERS shall be liable for 100% of the amount, if any,
by which the CEDING COMPANY'S Cumulative Net Losses Paid in
respect of BUSINESS COVERED exceed the CEDING COMPANY'S net
retention (as defined in Section A, paragraph 2 of this
Article).
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<PAGE> 4
2. The CEDING COMPANY'S net retention for Coverage A shall be the
first $367,000,000 (full undiscounted value) of Cumulative Net
Losses Paid in respect of BUSINESS COVERED. Loss
reimbursements will be made by the REINSURERS only when
Cumulative Net Losses Paid exceed the net retention.
B. Coverage B
1. The REINSURERS shall be liable for the aggregate amount of
100% of $250,000 of Ultimate Net Loss excess of $500,000 of
Ultimate Net Loss in respect of each and every Loss Occurrence
in respect of BUSINESS COVERED in excess of the CEDING
COMPANY'S Cumulative Aggregate Deductible (as defined in
Section B, paragraph 2 of this Article) subject to the
available limit as determined in Section B, of ARTICLE 6:
LIMITS. When multiple policies are involved in the same Loss
Occurrence, the first claim date shall apply.
2. The CEDING COMPANY'S Cumulative Aggregate Deductible for
Coverage B shall be the percentage of Cumulative Subject Net
Earned Premium corresponding through the December 31st date of
termination as set forth in the following schedule:
<TABLE>
<CAPTION>
Losses Occurring From Percentage of Cumulative Subject
January 1, 1993 Through Net Earned Premiums
------------------------- ----------------------------
<S> <C> <C>
December 31, 1993 6.0%
December 31, 1994 7.0%
December 31, 1995 8.0%
December 31, 1996 10.0%
December 31, 1997 12.0%
</TABLE>
If termination of Coverage B is elected before December 31,
1997 by the CEDING COMPANY, the Cumulative Aggregate
Deductible shall be based upon the Percentage of Cumulative
Subject Net Earned Premiums corresponding to the last loss
occurrence year in force. Cumulative Subject Net Earned
Premiums shall be based upon the period January 1, 1993
through the termination date.
ARTICLE 6: LIMITS
A. Coverage A
1. The liability of the REINSURERS for Coverage A shall be
subject to a limit of $300,000,000 (full undiscounted value).
Also, in no event shall REINSURERS be liable for more than
$300,000,000 (full undiscounted value) overall aggregate limit
in respect of this Treaty for Coverages A and B combined.
3
<PAGE> 5
B. Coverage B
1. Coverage B available limit as respects discounted Coverage B
Ultimate Net Losses at any date shall in no event exceed the
amount by which the Funds Withheld account exceeds the
discounted ceded Cumulative Net Losses Incurred and still
outstanding (including losses incurred but not yet reported)
in respect of Coverage A at such date. The term discounted
Coverage B Ultimate Net Losses as used herein refers to the
amounts determined and calculated by the CEDING COMPANY. The
CEDING COMPANY shall then determine the full value of Coverage
B Ultimate Net Losses and available limit to be used for
statutory reporting. Coverage A ceded Cumulative Net Losses
Incurred which are still outstanding are to be discounted on
the basis of a 2.81% effective annual interest rate and with
the payment pattern utilized by the CEDING COMPANY in
determination of discount for Statutory reporting purposes as
of December 31, 1992.
If the amount by which the Funds Withheld account exceeds the
discounted Coverage A ceded Cumulative Net Losses Incurred
which are still outstanding (including losses incurred but not
yet reported) at such calculation date is less than the excess
amount previously calculated, the amount of discounted
Coverage B available limit will decrease accordingly. If
discounted Coverage B available limit decreases, the amount of
discounted Coverage B Ultimate Net Loss previously ceded in
excess of the latest determined discounted Coverage B
available limit will be reassumed by the CEDING COMPANY. If
such losses to be retained by the CEDING COMPANY were already
paid by the REINSURERS, the Funds Withheld account or the
REINSURERS shall be reinstated or paid, as appropriate based
upon original source of payment, along with interest at an
effective annual interest rate of 8% from the date of payment
to the date of return of funds to the Funds Withheld account
or the REINSURERS; respectively.
2. The liability of the REINSURERS for Coverage B shall be
subject to an aggregate limit of $60,000,000 (full
undiscounted value). However, in no event shall REINSURERS be
liable for more than $300,000,000 (full undiscounted value)
overall aggregate limit in respect of this Treaty for
Coverages A and B combined.
ARTICLE 7: DEFINITIONS
A. "Cumulative Net Losses Paid" shall mean the sum of Ultimate Net Losses
Paid by the CEDING COMPANY on and after January 1, 1993 arising out of
Policies with respect to Coverage A hereunder.
B. "Cumulative Net Losses Incurred" shall mean Cumulative Net Losses Paid
plus the CEDING COMPANY'S Ultimate Net Losses Outstanding (including
losses incurred but
4
<PAGE> 6
not yet reported as of the calculation date) arising out of Policies
with respect to Coverage A.
C. "Cumulative Subject Net Earned Premiums" shall mean the cumulative Net
Written Premium Income of the CEDING COMPANY during the period January
1, 1993 through the termination date in accordance with ARTICLE 2: TERM
plus the Net Written Premium Income unearned at December 31, 1992 less
the Net Written Premium Income unearned as of the calculation date but
no later than the termination date in accordance with ARTICLE 2: TERM
or December 31, 1997, whichever comes earlier.
D. "Net Written Premium Income" shall mean gross written premiums of the
CEDING COMPANY less cancellations and returns and less premiums paid
for specific excess of loss reinsurance, whether or not inuring to this
Treaty.
E. The term "Ultimate Net Loss" means the actual loss, arising from a loss
occurrence as defined in Section I of this Article, including loss
adjustment expense, 80% of loss in excess of policy limits and 80% of
extra contractual obligations, and including losses incurred but not
yet reported, all paid, payable, or to be paid, by the CEDING COMPANY
after making deductions for all recoveries, salvages, subrogations and
all claims on inuring reinsurance, whether such reinsurance is
collectible or not; provided, however, that in the event of the
insolvency of the CEDING COMPANY, payment by the REINSURER shall be
made in accordance with the provisions of the Insolvency Article.
Nothing herein shall be construed to mean that losses under this Treaty
are not recoverable until the CEDING COMPANY'S ultimate net loss has
been ascertained.
F. "Loss Adjustment Expense" means all costs and expenses allocable to a
specific claim that are incurred by the CEDING COMPANY in the
investigation, appraisal, adjustment, settlement, litigation, defense
or appeal of a specific claim, including court costs and costs of
supersedeas and appeal bonds, and including a) pre-judgment interest,
unless included as part of the award or judgment; b) post-judgment
interest; and c) legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto. Loss adjustment
expense does not include unallocated loss adjustment expense.
Unallocated loss adjustment expense includes, but is not limited to,
salaries and expenses of employees, and office and other overhead.
G. Return Ultimate Net Loss and interest thereon shall mean Ultimate Net
Loss actually paid by the REINSURERS either by deduction from the Funds
Withheld Account or by other funds of the REINSURERS which is refunded
in accordance with ARTICLE 6: LIMITS, Section B.1 along with interest
at an effective annual interest rate of 8%.
H. "Cumulative Aggregate Deductible" as used in this Treaty for Coverage B
shall mean aggregate Ultimate Net Losses retained by the CEDING COMPANY
under Coverage B before any losses are to be paid by the REINSURERS.
I. "Loss Occurrence" as used herein shall in all cases mean Loss
Occurrence or medical incident or otherwise the date of the event
giving rise to coverage as defined in the
5
<PAGE> 7
CEDING COMPANY'S underlying Policies Written as per ARTICLE I: BUSINESS
COVERED.
J. "Reinsurers Expense Charge" shall mean 20% of the amount of Coverage A
ceded Cumulative Net Losses Incurred (including losses incurred but not
yet reported amounts) in excess of $280,000,000.
ARTICLE 8: NET RETAINED LIABILITY
Coverage A applies only to that portion of any Loss Occurrence which the CEDING
COMPANY retains net for its own account.
The CEDING COMPANY warrants that the maximum net retained liability per insured
subject to this Treaty shall be as follows:
A. For Policy Years, as defined by the CEDING COMPANY, 1977
through 1988 - $1,000,000;
B. For Policy Years, as defined by the CEDING COMPANY, 1989
through 1992 - $2,000,000.
ARTICLE 9: CONSIDERATION
The CEDING COMPANY shall pay to the REINSURERS a CONSIDERATION of $201,062,500
at the inception of this Treaty. The CEDING COMPANY shall pay $9,062,500
directly to the REINSURERS within 15 days after the inception of this Treaty.
The remaining $192,000,000 shall be credited to the Funds Withheld account as of
December 15, 1992.
In addition, the CEDING COMPANY shall allow a deduction of Reinsurers Expense
Charge from the Funds Withheld Account at the time, if any, that ceded
Cumulative Net Losses Incurred exceeds $280,000,000. The CEDING COMPANY shall
pay the Reinsurers Expense Charge directly to the REINSURERS at such time.
The CEDING COMPANY will establish and maintain a Funds Withheld account tracking
daily balances and reporting quarterly within 45 days to the REINSURERS balances
and activities of the Funds Withheld account. The Funds Withheld Account shall
be comprised of the following cumulative amounts:
A. $192,000,000; plus
B. Investment Credit; less.
C. Cumulative Net Losses Paid for Coverage A and Ultimate Net Losses Paid
for Coverage B by the REINSURERS; plus
D. Return Ultimate Net Losses and interest thereon credited by the CEDING
COMPANY in accordance with Section B.1, of ARTICLE 6: LIMITS; less
E. Reinsurers Expense Charge.
6
<PAGE> 8
Effective December 15, 1992, the CEDING COMPANY shall credit the Funds Withheld
account quarterly at each calendar quarter-end with an Investment Credit
calculated by applying an effective annual rate of 8% times the actual daily
average Funds Withheld account balance for the respective current calendar
quarter. This calculation will be as follows:
1. An effective annual rate of 8% times
2. A factor calculated by dividing the period for which each
balance is held by the number of days in the year; times
3. Each Withheld Account Balance.
The sum of the calculations for a calendar quarter shall be the total Investment
Credit allocated to the Funds Withheld account for the quarter.
The REINSURERS shall not transfer or assign their rights to the FUNDS WITHHELD
ACCOUNT hereon unless this Agreement is surrendered and a new Agreement is
issued. Under any and all circumstances, MIIX must make a book entry of a
transfer or assignment in order for such transfer or assignment to be valid.
ARTICLE 10: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amount, whether on account of CONSIDERATION or losses and
allocated loss adjustment expenses or otherwise, due from such party to
another party under this Treaty, against any amounts, whether on
account of CONSIDERATION or losses and allocated loss adjustment
expenses or otherwise due from the latter party to the former party.
The party asserting the right of offset may exercise this right,
whether as assuming REINSURERS or CEDING COMPANY in this Treaty.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Treaty to
receive CONSIDERATION or loss payments at any time from such other
party ("Collateral"), to secure its CONSIDERATION or loss obligations
to such other party at any time under this Treaty ("Secured
Obligations"). If at any time a party is in default under any Secured
obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be
entitled in its discretion, to apply or to withhold for the purpose of
applying in due course, any Collateral assigned and pledged to it by
the former party and otherwise to realize upon such Collateral as
security for such Secured Obligations.
C. The security interest described herein, and the term "Collateral",
shall apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall
be deemed evidenced only by the counterpart of this Treaty delivered to
such party.
7
<PAGE> 9
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Treaty.
ARTICLE 11: REPORTS AND LOSS SETTLEMENTS
A. Within 45 days following the end of each calendar quarter, the CEDING
COMPANY will report in writing to the REINSURERS:
1. Summary of Cumulative Net. Losses Paid and Cumulative Net
Losses Incurred and Ultimate Net Losses during the quarter and
inception to date including a breakdown of amounts for losses
and Loss Adjustment Expense Paid and Outstanding including
IBNR.
2. Summary of Cumulative Subject Net Earned Premium to date,
calculations of Coverage B available limit and Ultimate Net
Loss ceded including the Cumulative Aggregate Deductible
calculations.
3. Any other information needed by the REINSURERS to evaluate
this Treaty which is reasonably available to the CEDING
COMPANY.
4. A report detailing the activity within the Funds Withheld
account.
B. Within 15 days of receipt by the REINSURERS but no sooner than 45 days
in arrears of each calendar quarter report, the REINSURERS shall pay
any amounts due in respect of Coverages A and B.
With respect to Coverage A, the REINSURERS shall pay all Cumulative Net
Losses Paid in respect of BUSINESS COVERED by the CEDING COMPANY on and
after January 1, 1993 in excess of the CEDING COMPANY'S net retention
subject to the Limit hereon. Loss reimbursement at any calendar
quarters end shall be equal to the amount of such Cumulative Net Losses
Paid at each date in excess of the net retention less net loss
reimbursements previously made by the REINSURERS, subject to the limit
in accordance with Section A.1 of ARTICLE 6: LIMITS.
The REINSURERS shall pay all covered Coverage B Ultimate Net Losses
paid by the CEDING COMPANY on and after January 1, 1993 in respect of
BUSINESS COVERED in excess of the Cumulative Aggregate Deductible with
respect to Coverage B, subject to the available and aggregate limit
thereon in accordance with Sections B.1 and B.2 of ARTICLE 6: LIMITS.
8
<PAGE> 10
All loss payments will firstly be made by deduction from the Funds
Withheld account until depleted. Thereafter, REINSURERS shall pay from
other funds of REINSURERS subject to all of the other terms hereon.
ARTICLE 12: PROFIT SHARING
Upon finalization of the payment of all losses recoverable hereon and
COMMUTATION amounts, if any, the REINSURERS will relinquish to the CEDING
COMPANY the remaining Funds Withheld account balance, if any. Payment of PROFIT
SHARING in accordance with this Article shall release the REINSURERS from all
current and future liability hereunder.
ARTICLE 13: CURRENCY
All of the provisions of this Treaty involving dollar amounts are expressed in
terms of United States dollars and all CONSIDERATION and loss and allocated loss
adjustment expense payments hereunder shall be made in United States Dollars.
ARTICLE 14: COMMUTATION
The CEDING COMPANY shall have the option, effective at any calendar quarter end
on or after December 31, 1997 to commute all Coverage A and B ceded liability
outstanding hereunder. At COMMUTATION, the REINSURERS shall pay to the CEDING
COMPANY the lesser of:
A. The present value of Coverage A and Coverage B, if any, ceded
outstanding loss and allocated loss adjustment expense reserves as
determined by a loss reserve analysis conducted by an independent
actuarial firm acceptable to both the CEDING COMPANY and the
REINSURERS, with the CEDING COMPANY bearing the cost of such analysis;
or
B. The existing value of the Funds Withheld account (as defined in ARTICLE
9: CONSIDERATION) at the commutation date.
Said payment shall constitute, together with the PROFIT SHARING payment, a full
and final settlement of all terms of this Treaty; the CEDING COMPANY will
execute a hold harmless agreement so stating and the REINSURERS will be thereby
released from all current and future liability hereunder.
Commutation payments in accordance with this Article shall be treated as losses
and allocated loss adjustment expenses paid under this Treaty for determination
of the Funds Withheld account.
ARTICLE 15: EXCESS OF ORIGINAL POLICY LIMITS
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<PAGE> 11
This Treaty shall protect the CEDING COMPANY, within the limits hereof, for 80%
of loss in excess of its original policy, such loss in excess of the limit
having been incurred because of failure by it to settle within the policy limit
or by reason of alleged or actual negligence, fraud, or bad faith in rejecting
an offer of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or prosecution
of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the CEDING
COMPANY acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the CEDING COMPANY would have been contractually liable to pay had it not
been for the limit of the original policy.
ARTICLE 16: EXTRA CONTRACTUAL OBLIGATIONS
A. This Treaty shall protect the CEDING COMPANY for 80% of any Extra
Contractual Obligations within the limits hereof. The term "Extra
Contractual Obligations" is defined as those liabilities not covered
under any other provision of this Treaty and which arise from the
handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the
CEDING COMPANY to settle within the policy limit, or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer
of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
B. The date on which any Extra Contractual obligation is incurred by the
CEDING COMPANY shall be deemed, in all circumstances, to be the date of
the original disaster and/or casualty.
C. However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate
officer of the CEDING COMPANY acting individually or collectively or in
collusion with any individual or corporation or any other organization
or party involved in the presentation, defense or settlement of any
claim covered hereunder.
ARTICLE 17: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
ARTICLE 18: ACCESS TO RECORDS
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<PAGE> 12
The CEDING COMPANY shall place at the disposal of the REINSURER at all
reasonable times, and the REINSURER shall have the right to inspect, through its
authorized representatives, all books, records, and papers of the CEDING COMPANY
in connection with any reinsurance hereunder, or claims in connection herewith.
The REINSURERS agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Agreement except under
the following circumstances and then only as necessary.
A. When disclosure of such information is required in the normal course of
REINSURER'S business; or
B. With the prior written consent of the CEDING COMPANY; or
C. When REINSURERS are required by a subpoena or court order to disclose
such information. The REINSURERS shall promptly notify the CEDING
COMPANY of any attempt by a third party to obtain from it any such
confidential information.
REINSURERS will provide CEDING COMPANY or its designated representative with
such information as REINSURER and CEDING COMPANY may agree is necessary to the
CEDING COMPANY'S handling of the business reinsured herein.
The obligation contained in the provision shall survive termination of this
Treaty.
ARTICLE 19: ACTUARIAL REVIEW
Should the REINSURERS desire at any time to review the loss reserves established
by the CEDING COMPANY as respects the Coverage A Cumulative Net Losses Incurred,
and Coverage B Ultimate Net Losses the REINSURERS shall select an independent
actuarial firm acceptable to the CEDING COMPANY to perform a reserve analysis.
The costs of any reserve analysis performed under this Article will be borne by
the REINSURERS hereon. Such a review shall be subject to the provisions of
Article 18.
ARTICLE 20: LOSS RESERVE FUNDING
The REINSURERS will maintain appropriate reserves with respect to their share of
the loss reserves ceded and required under the terms of this Treaty which are
reported by the CEDING COMPANY on the BUSINESS COVERED of this Treaty.
During the Term of this Treaty the REINSURERS agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the CEDING COMPANY
issued by a bank acceptable to the CEDING COMPANY adjusted to at all times be
equal to the ceded Cumulative Net Losses outstanding and Ultimate Net Losses
Outstanding hereunder less the Funds Withheld account balance at such dates.
Such Letter of Credit shall be in the form, amount, and with an acceptable NAIC
bank required to allow the CEDING COMPANY to take Full Statutory Credit for
amounts recoverable under this Treaty.
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<PAGE> 13
The CEDING COMPANY also agrees to not make drawings upon the Letter of Credit
provided by the REINSURERS for any purpose other than to reimburse the CEDING
COMPANY for loss settlements due under this reinsurance Treaty for which one or
more of the REINSURERS are in default by more than seven days and provided that
the CEDING COMPANY shall give the REINSURERS three days written notice prior to
making any drawings.
The CEDING COMPANY shall reimburse the REINSURERS for annual security cost equal
to .5% of the amount of Letter of Credit issued or maintained hereon as of each
December 31st. The REINSURERS shall request such reimbursement whereupon the
CEDING COMPANY shall make payment by direct wire transfer to the REINSURERS. All
such amounts shall not be deducted from the Funds Withheld Account.
ARTICLE 21: FUNDS WITHHELD TRUST ACCOUNT
In the event that the CEDING COMPANY experiences any one of the following
circumstances, the REINSURERS may require a Trust Fund, with an independent
bank, be established for purposes of collateralizing the Funds Withheld Account
hereon:
1. The CEDING COMPANY'S A.M. Best's Rating is downgraded below
B+; or
2. The CEDING COMPANY'S combined statutory capital and surplus
falls below $20 million; or
3. The CEDING COMPANY experiences a change in ownership of 30% or
more in any one calendar year.
The CEDING COMPANY shall fully and promptly comply with such request from the
REINSURERS.
ARTICLE 22: INSOLVENCY
A. In the event of the insolvency of the CEDING COMPANY, the reinsurance
under this Treaty shall be payable by the REINSURERS (on the basis of
the liability of the CEDING COMPANY under the policy or policies
reinsured without diminution because of the insolvency of the CEDING
COMPANY) to the CEDING COMPANY or to its liquidator, receiver or
statutory successor, except as provided by Section 4118A of the New
York Insurance Law or except:
1. Where the Treaty specifically provides another payee of such
reinsurance in the event of the insolvency of the CEDING
COMPANY.
2. Where the REINSURERS, with the consent of the direct insured
or insureds, has assumed such policy obligations of the CEDING
COMPANY as direct obligations of the REINSURERS to the payees
under such policies and in substitution for the obligations of
the CEDING COMPANY to such payees.
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<PAGE> 14
B. It is agreed, however, that liquidator or receiver or statutory
successor of the insolvent CEDING COMPANY shall give written notice to
the REINSURERS of the pendency of a claim against the insolvent CEDING
COMPANY on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the REINSURERS may investigate such claim
and interpose, at its own expense, in the proceeding where such claim
is to be adjudicated, any defense or defenses which it may deem
available to the CEDING COMPANY or its liquidator or receiver or
statutory successor. The expense thus incurred by the REINSURERS shall
be chargeable, subject to court approval, against the insolvent CEDING
COMPANY as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the CEDING
COMPANY solely as a result of the defense undertaken by the REINSURERS.
C. Should the CEDING COMPANY go into liquidation or should a receiver be
appointed, the REINSURERS shall be entitled to deduct from any sums
which may be or may become due to the CEDING COMPANY under this Treaty
any sums which are due to the REINSURERS by the CEDING COMPANY under
this Treaty and which are payable at a fixed or stated date, as well as
any other sums due the REINSURERS which are permitted to be offset
under applicable law.
ARTICLE 23: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with
respect to this Treaty, it is hereby mutually agreed that such dispute
or difference of opinion shall be submitted to arbitration. One Arbiter
shall be chosen by the CEDING COMPANY, the other by the REINSURER, and
an Umpire shall be chosen by the two Arbiters before they enter upon
arbitration, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance companies. In the event
that either party should fail to choose an Arbiter within 30 days
following a written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree upon the
selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two
of whom the other shall decline, and the decision shall be made by
drawing lots.
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Treaty as an honorable engagement rather than merely as a
legal obligation and they are relieved of all judicial formalities and
may abstain from the following the strict rules of law. The decision of
the Arbiters shall be final and binding on both parties; but failing to
agree, they shall call in the Umpire and the decision of the majority
shall be final and binding upon both parties. The decision shall be
made in writing and will state the factual and legal basis supporting
such decision. Judgment upon the final decision of the Arbiters may be
entered in any court of competent jurisdiction.
13
<PAGE> 15
C. If more than one REINSURER is involved in the same dispute, all such
REINSURERS shall constitute and act as one party for purposes of this
ARTICLE and communications shall be made by the CEDING COMPANY to each
of the REINSURERS constituting one party provided, however, that
nothing herein shall impair the rights of such REINSURERS to assert
several, rather than joint, defenses or claims, nor be construed as
changing the liability of the REINSURERS participating under the terms
of this Treaty from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
ARTICLE 24: CHANGES IN ADMINISTRATIVE PRACTICES
If any intentional or unintentional change in the CEDING COMPANY'S processing or
payment of claims materially increases the REINSURER'S economic loss under this
Treaty from what the economic loss would have been if there had been no such
change, the REINSURERS shall prepare, and the CEDING COMPANY shall accept, an
adjustment of the portion of claims which is reimbursable, or any adjustments
which will make the REINSURER'S risk position equivalent to that which would
have been obtained under this Treaty if there had been no such change. The
REINSURERS shall have the right to use auditing techniques, sampling techniques,
or to otherwise investigate the nature and effect of any such change in
administrative practices or of any possible compensatory adjustment therefore.
Any dispute with respect to such adjustment shall be resolved by arbitration as
provided in ARTICLE 23: ARBITRATION.
ARTICLE 25: TAXES
The CEDING COMPANY is solely liable for any Federal Excise Tax (FET) applicable
to this Treaty. Any FET to be paid shall be paid directly by the CEDING COMPANY
and is in addition to the CONSIDERATION.
ARTICLE 26: SERVICE OF SUIT
It is agreed that in the event of the failure of REINSURERS hereon to pay any
amount claimed to be due hereunder, REINSURERS hereon, at the request of the
CEDING COMPANY will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the REINSURERS to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Treaty shall be governed by the laws of
the State of New Jersey.
14
<PAGE> 16
It is further agreed that service of process in such suit may be made upon Kroll
& Tract, 500 Fifth Avenue, New York, New York 10110, United States of America
and that in any suit instituted against any one of them upon this Treaty,
REINSURERS will abide by the final decision of such Court of any Appellate Court
in the event of an appeal.
The above named are authorized and directed to accept service of process on
behalf of REINSURERS in any suit and/or upon the request of the CEDING COMPANY
to give a written undertaking to the CEDING COMPANY that they will enter a
general appearance upon REINSURERS' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, REINSURERS hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor or successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
CEDING COMPANY or any beneficiary hereunder arising out of this Treaty, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
ARTICLE 27: INTERMEDIARIES
Medical Brokers, Inc., Two Princess Road, Lawrenceville, New Jersey 08648 and
Pegasus Advisors, Inc., Tower Business Park, 86 Hopmeadow Street, P.O. Box 398,
Simsbury, Connecticut 06070, are hereby recognized as the intermediaries
negotiating this Treaty for all business hereunder and through whom all
communications relating hereto (including but not limited to notices, statements
and reports) shall be transmitted to both parties. It is understood, as regards
remittances due either party hereunder, that payment by the CEDING COMPANY to
either intermediary, shall constitute payment to the REINSURER but payment by
the REINSURER to either intermediary shall only constitute payment to the CEDING
COMPANY to the extent such payments are actually received by the CEDING COMPANY.
Notwithstanding the foregoing, it is agreed that all payments will be direct
from the REINSURER to the CEDING COMPANY, or from the CEDING COMPANY to the
REINSURER, as appropriate.
15
<PAGE> 17
ARTICLE 28: PROPORTION
This Agreement obligates the undersigned REINSURERS for their respective
percentages of the interests and liabilities set forth under this Agreement.
The participation of the REINSURERS in the interests and liabilities of this
Agreement shall be separate and apart from the participation of other REINSURERS
and shall not be joint with those other REINSURERS, and the REINSURERS shall in
no event participate in the interest and liabilities of the other REINSURERS.
IN WITNESS WHEREOF, THE PARTIES HERETO, BY THEIR AUTHORIZED REPRESENTATIVES HAVE
EXECUTED THIS AGREEMENT AS OF THE FOLLOWING DATES:
IN LAWRENCEVILLE, NEW JERSEY, THIS DAY OF MAY 1995,
FOR AND ON BEHALF OF MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
BY: /s/ Daniel J. Goldberg
---------------------------------
IN DUBLIN, IRELAND THIS DAY OF MAY 1995, FOR AND ON BEHALF OF HANNOVER
REINSURANCE (IRELAND) LTD.
PARTICIPATION: 80%
BY: /S/ D. Stenzel [SEAL]
---------------------------------
AND IN DUBLIN, IRELAND THIS DAY of MAY 1995, FOR AND ON BEHALF OF EISEN UND
STAHL REINSURANCE (IRELAND) LTD.
PARTICIPATION: 20%
BY: /S/ D. Stenzel [SEAL]
---------------------------------
16
<PAGE> 1
EXHIBIT 10.14
THE MIIX GROUP, INCORPORATED
1998 LONG TERM INCENTIVE EQUITY PLAN
<PAGE> 2
THE MIIX GROUP, INCORPORATED
1998 LONG TERM INCENTIVE EQUITY PLAN
1. PURPOSE OF THE PLAN
The purpose of the Plan is to promote the long term financial
success of The MIIX Group, Incorporated, its Subsidiaries and Affiliates, and to
materially increase shareholder value by: (i) providing performance related
incentives that motivate superior performance on the part of the Company's
officers and employees; (ii) providing the Company's officers and employees with
the opportunity to acquire an ownership interest in the Company, and to thereby
acquire a greater stake in the Company and a closer identity with it; and (iii)
enabling the Company to attract and retain the services of an outstanding
management team upon whose judgment, interest and special effort the successful
conduct of the Company's operations is largely dependent.
2. DEFINITIONS
2.1. "Act" means the Securities Exchange Act of 1934, as amended.
2.2. "Affiliate" means any entity other than the Subsidiaries in which
the Company has a substantial direct or indirect equity interest, as determined
by the Board.
2.3. "Award" means an award of Options, SARs, Performance Shares,
Restricted Stock, Dividend Equivalents or any combination thereof.
2.4. "Award Share" means any share of Common Stock purchased upon the
exercise of an Option or SAR, or issued pursuant to an Award of Restricted Stock
or a Performance Shares.
2.5. "Board" means the Board of Directors of the Company.
2.6. "Cause" means conduct on the part of a Participant that involves
(i) a willful failure to perform the Participant's duties, (ii) engaging in
serious misconduct that is injurious to the Company, or (iii) the Participant's
conviction of or a plea of guilty or nolo contendre to a felony or other crime
involving moral turpitude.
2.7. "Change of Control" shall mean, following the effective date of
this Plan, the occurrence of any of the following events:
2.7.1. the acquisition in one or more transactions by any
"Person" (as such term is used for purposes of Section 13(d) or Section 14(d) of
the Act") but excluding, for this purpose, the Company or its Subsidiaries or
any employee benefit plan of the Company or its Subsidiaries, of "Beneficial
Ownership" (within the meaning of Rule 13d-3 under the Act) of thirty-five
percent (35%) or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities");
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<PAGE> 3
2.7.2. the individuals who, as of the effective date of the
Plan, constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that if the
election, or nomination for election by the Company's shareholders, of any new
director was approved by a vote of at least a majority of the Incumbent Board,
such new director shall be considered as a member of the Incumbent Board, and
provided further that any reductions in the size of the Board that are
instituted voluntarily by the Incumbent Board shall not constitute a Change of
Control, and after any such reduction the "Incumbent Board" shall mean the Board
as so reduced;
2.7.3. a merger or consolidation involving the Company if the
shareholders of the Company, immediately before such merger or consolidation, do
not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty-five percent (65%) of the combined voting power
of the outstanding Voting Securities of the corporation resulting from such
merger or consolidation or a complete liquidation or dissolution of the Company
or a sale or other disposition of all or substantially all of the assets of the
Company; or
2.7.4. acceptance by shareholders of the Company of shares in
a share exchange if the shareholders of the Company, immediately before such
share exchange, do not own, directly or indirectly, immediately following such
share exchange, more than sixty-five percent (65%) of the combined voting power
of the outstanding Voting Securities of the corporation resulting from such
share exchange.
2.8. "Code" means the Internal Revenue Code of 1986, as amended.
2.9. "Committee" means the committee designated by the Board to
administer the Plan under Section 4. The Committee shall have at least three
members, each of whom shall be a member of the Board, a Disinterested Person and
an Outside Director.
2.10. "Common Stock" means the common stock of the Company, par value
$.01 per share, or such other class or kind of shares or other securities
resulting from the application of Section 11.
2.11. "Company" means the MIIX Group, Incorporated, a Delaware
corporation, or any successor corporation.
2.12. "Disability" or "Disabled" means a Participant's qualifying for
and receiving payments under a long-term disability plan of the Company or any
Subsidiary or Affiliate.
2.13. "Disinterested Person" means a person who meets the definition of
a "Non-Employee Director" under Rule 16b-3(b)(3) promulgated by the Securities
and Exchange Commission under the Act (as effective on November 1, 1996), or any
successor definition adopted by the Securities and Exchange Commission.
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<PAGE> 4
2.14. "Dividend Equivalent" means the right, awarded under Section 6 or
Section 9, to receive the equivalent value (in cash or in Common Stock) of
dividends paid on Common Stock.
2.15. "Employee" means an officer or other key employee of the Company,
a Subsidiary or an Affiliate, including any member of the Board who is such an
employee.
2.16. "Fair Market Value" means, on any given date:
2.16.1. if the Common Stock is listed on an established stock
exchange or exchanges, the mean between the highest and lowest prices of actual
sales of Common Stock on the principal exchange on which it is traded on such
date, or if no sale was made on such date on such principal exchange, on the
last preceding day on which the Common Stock was traded;
2.16.2. if the Common Stock is not then listed on an exchange,
but is quoted on NASDAQ or a similar quotation system, the mean between the
closing bid and asked prices per share for the Common Stock as quoted on NASDAQ
or similar quotation system on such date;
2.16.3. if the Common Stock is not then listed on an exchange
or quoted on NASDAQ or a similar quotation system, the book value, as determined
in accordance with generally accepted accounting principles, ascribed to the
shares of Common Stock by the Committee.
2.17. "Incentive Stock Option" means an Option which meets the
requirements of Section 422 of the Code and which is designated as an Incentive
Stock Option by the Committee.
2.18. "Non-Qualified Stock Option" means an Option not intended to be
an Incentive Stock Option, and designated as a Non-Qualified Option by the
Committee.
2.19. "Option" means the right, granted from time to time under Section
6 of the Plan, to purchase Common Stock for a specified period of time at a
stated price. An Option may be an Incentive Stock Option or a Non-Qualified
Stock Option.
2.20. "Outside Director" means a member of the Board who: (i) is not a
current employee of the Company, its Subsidiaries or Affiliates; (ii) is not a
former employee of the Company, its Subsidiaries or Affiliates who receives
during the year compensation for prior services with the Company, its
Subsidiaries or Affiliates (other than benefits under a tax-qualified retirement
plan); (iii) has not been an officer of the Company, its Subsidiaries or
Affiliates; and (iv) does not receive any remuneration from the Company, its
Subsidiaries or Affiliates (either directly or indirectly) in any capacity other
than as Director. This definition of "Outside Director" shall be interpreted and
applied in a manner consistent with the requirements of Treasury Regulation
Section 1.162-27(e)(3).
2.21. "Participant" means any Employee designated by the Committee to
participate in the Plan.
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<PAGE> 5
2.22. "Performance Award" means the conditional grant to a Participant
of the right to receive, at the end of the Performance Period, either (i) Common
Stock, (ii) cash equal to the Fair Market Value of the Common Stock at the end
of the Performance Period, or (iii) a combination of (i) and (ii) as specified
in the Award and provided that the terms, conditions and objectives specified in
the Award are satisfied.
2.23. "Performance Goal" means a goal that has been established by the
Committee and that must be met by the end of a Performance Period (but that is
substantially uncertain to be met before the grant). The Committee shall have
sole discretion to determine the specific targets within each category of
Performance Goals, and whether such Performance Goals have been achieved. With
respect to any Section 162(m) Participant, such Performance Goals shall include,
among other things: (i) the price of Common Stock, (ii) the market share of the
Company, its Subsidiaries or Affiliates (or any business unit thereof), (iii)
sales by the Company, its Subsidiaries or Affiliates (or any business unit
thereof), (iv) earnings per share of Common Stock, (v) return on equity of the
Company, or (vi) costs of the Company, its Subsidiaries or Affiliates (or any
business unit thereof).
2.24. "Performance Period" means the time period during which and the
conditions under which, the receipt of Performance Shares shall be earned under
the Plan.
2.25. "Plan" means The MIIX Group, Incorporated 1998 Long Term
Incentive Equity Plan herein set forth, as amended from time to time.
2.26. "Restriction Period" means the period during which Restricted
Stock awarded under the Plan is subject to forfeiture.
2.27. "Restricted Stock" means Common Stock awarded by the Committee
under Section 8 of the Plan.
2.28. "Retirement" means retirement from the active employment of the
Company, a Subsidiary or an Affiliate on or after (i) the Employee's 65th
birthday or (ii) the Employee's 55th birthday if the Employee has completed 10
years of service with the Company, its Subsidiaries and/or its Affiliates, or
any predecessor corporation.
2.29. "SAR" means the right to receive, in cash or in Common Stock, as
determined by the Committee, the increase in the Fair Market Value of the Common
Stock underlying the SAR from the date of grant to the date of exercise.
2.30. "Section 162(m) Participant" means any key employee designated by
the Committee as a key employee whose compensation for the fiscal year in which
the key employee is so designated or a future fiscal year may be subject to the
limit on deductible compensation imposed by Section 162(m) of the Internal
Revenue Code of 1986, as amended.
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<PAGE> 6
2.31. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company (or any subsequent
parent of the Company) if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
2.32. "Ten Percent Shareholder" means a person who on any given date
owns, either directly or indirectly (taking into account the attribution rules
contained in section 424(d) of the Code), stock possessing more than 10 percent
of the total combined voting power of all classes of stock of the Company or any
Subsidiary.
3. ELIGIBILITY
Any Employee who is nominated by the Chief Executive Officer
of the Company, and approved by the Committee, shall be eligible to
receive an Award under the Plan.
4. ADMINISTRATION
4.1. Members of the Committee shall be appointed by and hold office at
the pleasure of the Board. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
4.2. The Plan shall be administered by the Committee, which shall have
full power to interpret and administer the Plan, and full authority to act in
selecting the eligible Employees to whom Awards may be granted, in determining
the times at which such Awards may be granted, in determining the time and the
manner in which Options may be exercised, in determining the type and amount of
Awards that may be granted, in determining the terms and conditions of Awards
that may be granted under the Plan and the terms of agreements which will be
entered into with Participants (which terms shall not be inconsistent with the
terms of the Plan). The Committee also shall have the power to establish
different terms and conditions with respect to (i) the various types of Awards
granted under the Plan, (ii) the granting of the same type of Award to different
Participants (regardless of whether the Awards are granted at the same time or
at different times), and (iii) the establishment of different Performance Goals
for different Participants.
4.3. The Committee's powers shall include, but not be limited to, the
power to determine whether, to what extent and under what circumstances an
Option may be exchanged for cash, Common Stock or some combination thereof; to
determine whether, to what extent and under what circumstances an Award is made
and operates on a tandem basis with other Awards made hereunder; to determine
whether, to what extent and under what circumstances Common Stock or cash
payable with respect to an Award shall be deferred, either automatically or at
the election of the Participant (including the power to add deemed earnings to
any such deferral); and to determine the effect, if any, of a Change of Control
of the Company upon outstanding Awards; and to grant Awards (other than
Incentive Stock Options) that are transferable by the Participant.
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<PAGE> 7
4.4. The Committee shall have the power to adopt regulations for
carrying out the Plan and to make changes in such regulations as it shall, from
time to time, deem advisable. The Committee shall have the power unilaterally
and without approval of a Participant to amend an existing Award in order to
carry out the purposes of the Plan so long as such an amendment does not take
away any benefit granted to a Participant by the Award and as long as the
amended Award comports with the terms of the Plan. The Committee shall have the
full and final authority in its sole discretion to interpret the provisions of
the Plan and to decide all questions of fact arising in the application of the
Plan's provisions, and to make all determinations necessary or advisable for the
administration of the Plan. Any interpretation by the Committee of the terms and
provisions of the Plan and the administration thereof, and all action taken by
the Committee, shall be final, binding, and conclusive for all purposes and upon
all Participants.
4.5. The Committee may condition the grant of any Award or the lapse of
any Restriction Period or Performance Period, or any combination thereof, upon
the Participant's or Company's achievement of a Performance Goal that is
established by the Committee before the grant of the Award. Before granting an
Award or permitting the lapse of any Restriction Period or Performance Period
subject to this Section, the Committee shall certify that an individual has
satisfied the applicable Performance Goal.
4.6. Members of the Committee shall receive such compensation for their
services as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the Plan
shall be paid by the Company. The Committee may, with the approval of the Board,
employ attorneys, consultants, accountants and other service providers. The
Committee, the Board, the Company and the Company's officers shall be entitled
to rely upon the advice and opinions of any such person. No member of the
Committee or the Board shall be personally liable for any action, determination
or interpretation made with respect to the Plan and all members of the Committee
and the Board shall be fully protected by the Company in respect of any such
action, determination or interpretation in the manner provided in the Company's
Bylaws.
4.7. The Committee shall maintain a written record of its proceedings.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts unanimously approved in writing, shall be the acts of the Committee.
5. SHARES OF STOCK SUBJECT TO THE PLAN
5.1. Subject to adjustment as provided in Section 11, the total number
of shares of Common Stock available for Awards under the Plan shall be 2,250,000
shares.
5.2. The Committee may also grant Awards payable in cash. The payment
of Awards in cash shall not reduce the total number of shares of Common Stock
available for Awards under the Plan.
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<PAGE> 8
5.3. The maximum number of shares of Common Stock that may be awarded
to any Employee under the Plan during any calendar year shall not exceed 250,000
(the "Individual Limit"). Subject to Section 5.4 and Section 11, any Award that
is canceled or repriced by the Committee shall count against the Individual
Limit.
5.4. Any shares issued by the Company through the assumption or
substitution of outstanding grants from an acquired company shall not (i) reduce
the shares available for Awards under the Plan, or (ii) be counted against the
Individual Limit. Any shares issued hereunder may consist, in whole or in part,
of authorized and unissued shares or treasury shares. If any shares subject to
any Award granted hereunder are forfeited or such Award otherwise terminates
without the issuance of such shares or the payment of other consideration in
lieu of such shares, the shares subject to such Award, to the extent of any such
forfeiture or termination, shall again be available for Awards under the Plan.
6. OPTIONS
The grant of Options shall be subject to the following terms and
conditions:
6.1. Option Grants: Any Option granted under the Plan shall be
evidenced by an agreement executed by the Company and the Participant, which
agreement shall conform to the requirements of the Plan and may contain such
other provisions not inconsistent with the terms of the Plan as the Committee
shall deem advisable. Such agreements shall state whether the Option is an
Incentive Stock Option or Non-Qualified Stock Option.
6.2. Number of Shares: Subject to the Individual Limit, the Committee
shall specify the number of shares of Common Stock subject to each Option.
6.3. Option Price: The price per share at which Common Stock may be
purchased upon exercise of an Option shall not be less than the Fair Market
Value of a share of Common Stock on the date of grant. In the case of any
Incentive Stock Option granted to a Ten Percent Shareholder, the option price
per share shall not be less than 110% of the Fair Market Value of a share of
Common Stock on the date of grant.
6.4. Dividend Equivalents. Notwithstanding any provision of the Plan to
the contrary, a Participant who has been granted an Option pursuant to this
Section 6 may, at the discretion of the Committee, be credited as of dividend
payment dates, during the period beginning with the date of grant of the Option
and ending with the date such Option is exercised or expires, with Dividend
Equivalents with respect to the Common Stock underlying the Option. Such
Dividend Equivalents shall be credited to an account established on behalf of
the Participant by the Company. The Dividend Equivalents credited under this
Section 6.4 shall be converted to cash or additional shares of Common Stock
under such formula, at such time, and subject to such limitations as may be
determined by the Committee.
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<PAGE> 9
6.5. Term of Option and Vesting: The Committee shall specify when an
Option may be exercisable and the terms and conditions applicable thereto. The
term of an Option shall in no event be greater than 10 years (five years in the
case of an Incentive Stock Option granted to a Ten Percent Shareholder). Options
granted under the Plan may be subject to a vesting schedule set forth in the
applicable stock option agreement. The restrictions and conditions with respect
to the time and method of vesting of Options shall be as prescribed by the
Committee.
6.6. Incentive Stock Options: Each provision of the Plan and each
agreement relating to an Incentive Stock Option shall be construed and
interpreted in a manner consistent with the requirements of Section 422 of the
Code. In no event may a Participant be granted an Incentive Stock Option which
does not comply with the grant and vesting limitations prescribed by Section 422
of the Code. Without limiting the foregoing, the aggregate Fair Market Value
(determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option may first become exerciseable by a
Participant in any one calendar year under the Plan shall not exceed $100,000.
Notwithstanding any provision of this Plan to the contrary, Incentive Stock
Options may not be granted to Employees of Affiliates.
6.7. Restrictions on Transferability: No Incentive Stock Option shall
be transferable other than by will or the laws of descent and distribution and,
during the lifetime of the Participant, shall be exercisable only by the
Participant. Upon the death of a Participant, the person to whom the rights have
passed by will or by the laws of descent and distribution may exercise an
Incentive Stock Option only in accordance with this Section 6.
6.8. Exercise of Option and Payment of Option Price: The Committee
shall establish the time and the manner in which an Option may be exercised. The
option price of the shares of Common Stock received upon the exercise of an
Option shall be paid in full in cash at the time of the exercise or, with the
consent of the Committee, in whole or in part in Common Stock valued at Fair
Market Value on the date of exercise. The option price may also be paid in full
by the delivery of a properly executed exercise notice, together with
irrevocable instructions to a Company-designated broker to promptly deliver to
the Company the amount of sale or loan proceeds required to pay the exercised
price. With the consent of the Committee, payment upon the exercise of a
Non-Qualified Option may be made in whole or in part by Restricted Stock (based
on the fair market value of the Restricted Stock on the date the Option is
exercised, as determined by the Committee). In such case the Common Stock to
which the Option relates shall be subject to the same forfeiture restrictions
originally imposed on the Restricted Stock exchanged therefor.
6.9. Termination by Death or Disability: If a Participant's employment
with the Company, a Subsidiary or Affiliate terminates by reason of death or as
a result of the Participant's Disability, any unexercised Option granted to the
Participant may thereafter be exercised (to the extent such Option was
exercisable at the time of the Participant's death or Disability or may
thereafter become exercisable) by, where appropriate, the Participant or the
Participant's transferee, for a period of up to five years (as specified by the
Committee), (but only three months
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<PAGE> 10
in the case of an Incentive Stock Option which shall be extended to 12 months in
cases involving the Participant's Disability), from the date of death or
termination of employment due to Disability or until the expiration of the
stated term of the Option, whichever period is shorter.
6.10. Termination by Reason of Retirement: If a Participant's
employment by the Company, a Subsidiary or Affiliate terminates by reason of
Retirement, any unexercised Option granted to the Participant may thereafter be
exercised (to the extent such Option was exercisable at the time of the
Participant's Retirement or may thereafter become exercisable) by the
Participant (or, where appropriate, the Participant's transferee), for a period
of up to five years (as specified by the Committee), (but only three months in
the case of an Incentive Stock Option), from the date of the Participant's
Retirement or until the expiration of the stated term of the Option, whichever
period is shorter.
6.11. Termination for Cause: If a Participant's employment with the
Company, a Subsidiary or Affiliate terminates for Cause, any Options granted to
the Participant and which are unexercised shall terminate on the date of such
termination of employment, or notice of such termination of employment, if
earlier.
6.12. Other Termination: If a Participant's employment by the Company,
a Subsidiary or Affiliate terminates for any reason other than Death,
Disability, Retirement or for Cause, any unexercised Option granted to the
Participant may thereafter be exercised (to the extent such Option was
exercisable at the time of the Participant's termination or may thereafter
become exercisable) by the Participant (or, where appropriate, the Participant's
transferee) for a period of up to three months (as specified by the Committee)
from the date of termination of employment, or until the expiration of the
stated term of the Option, whichever period is shorter.
7. STOCK APPRECIATION RIGHTS
The grant of SARs shall be subject to the following terms and
conditions:
7.1. Grant of SARs: Any SAR granted under the Plan shall be evidenced
by an agreement executed by the Company and the Participant, which agreement
shall conform to the requirements of the Plan and may contain such other
provisions not inconsistent with the terms of the Plan as the Committee shall
deem advisable. All SARs granted under the Plan must be granted in tandem with
all or a portion of a related Option. A SAR may be granted either at the time of
the grant of the Option or at a time thereafter during the term of the Option
and shall be exercisable only to the extent that the related Option is
exercisable. The base price of a SAR shall be the option price under the related
Option.
7.2. Exercise of a SAR: An SAR shall entitle the Participant to
surrender unexercised the Option (or any portion of such Option) to which the
SAR relates and to receive a payment equal to the excess of the Fair Market
Value of the shares of Common Stock covered by the SAR on the date of exercise
over the base price of the SAR. Such payment may be in cash, in shares of Common
Stock, in shares of Restricted Stock, or any combination thereof, as the
Committee shall
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determine. Upon exercise of a SAR or lapse thereof, the related Option shall be
canceled automatically to the extent of the number of shares of Common Stock
covered by such exercise, and such shares shall no longer be available for
purchase under the Option. Conversely, if the related Option is exercised as to
some or all of the shares of Common Stock covered by the grant, the related SAR,
if any, shall be canceled automatically to the extent of the number of shares of
Common Stock covered by the Option exercise.
7.3. Other Applicable Provisions: SARs shall be subject to the same
terms and conditions applicable to Options as stated in sections 6.5, 6.9, 6.10,
6.11 and 6.12.
8. RESTRICTED STOCK
An Award of Restricted Stock is a grant by the Company of a specified
number of shares of Common Stock to the Participant, which shares are subject to
forfeiture upon the happening of specified events or upon the Participant's
and/or Company's failure to achieve Performance Goals established by the
Committee. A grant of Restricted Stock shall be subject to the following terms
and conditions:
8.1. Grant of Restricted Stock Award. Any Restricted Stock granted
under the Plan shall be evidenced by an agreement executed by the Company and
the Participant, which agreement shall conform to the requirements of the Plan,
and shall specify (i) the number of shares of Common Stock subject to the Award,
(ii) the Restriction Period applicable to each Award, (iii) the events that will
give rise to a forfeiture of the Award, (iv) the Performance Goals, if any, that
must be achieved in order for the restriction to be removed from the Award, (v)
the extent to which the Participant's right to receive Common Stock under the
Award will lapse if the Performance Goals, if any, are not met, and (vi) whether
the Restricted Stock is subject to a vesting schedule. The agreement may contain
such other provisions not inconsistent with the terms of the Plan as the
Committee shall deem advisable.
8.2. Delivery of Restricted Stock. Upon determination of the number of
shares of Restricted Stock to be granted to the Participant, the Committee shall
direct that a certificate or certificates representing the number of shares of
Common Stock be issued to the Participant with the Participant designated as the
registered owner. The certificate(s) representing such shares shall be legended
as to restrictions on the sale, transfer, assignment, or pledge of the
Restricted Stock during the Restriction Period and deposited by the Participant,
together with a stock power endorsed in blank, with the Company.
8.3. Dividend and Voting Rights. During the Restriction Period the
Participant shall have all of the rights of a shareholder, including the right
to vote the shares of Restricted Stock and receive dividends and other
distributions, provided that distributions in the form of Common Stock shall be
subject to the same restrictions as the underlying Restricted Stock.
8.4. Receipt of Common Stock. At the end of the Restriction Period, the
Committee shall determine, in light of the terms and conditions set forth in the
Restricted Stock agreement,
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the number of shares of Restricted Stock with respect to which the restrictions
imposed hereunder shall lapse. The Restricted Stock with respect to which the
restrictions shall lapse shall be converted to unrestricted Common Stock by the
removal of the restrictive legends from the Restricted Stock. Thereafter, Common
Stock equal to the number of shares of the Restricted Stock with respect to
which the restrictions hereunder shall lapse shall be delivered to the
Participant (or, where appropriate, the Participant's legal representative). The
Committee may, in its sole discretion, modify or accelerate the vesting and
delivery of shares of Restricted Stock.
8.5. Termination By Reason of Death, Disability or Retirement. Unless
otherwise determined by the Committee at the time of grant, if a Participant's
employment with the Company, a Subsidiary, or Affiliate terminates by reason of
the Participant's death, Disability or Retirement, the vested portion of the
Restricted Stock, if any, shall become non-forfeitable. The non-vested portion
of the Restricted Stock shall be forfeited as of the date of such termination of
employment.
8.6. Other Termination, Including For Cause. Unless otherwise
determined by the Committee at the time of grant, if a Participant's employment
with the Company, a Subsidiary or Affiliate terminates for any reason other than
for death, Disability, or Retirement, but including for Cause, any Restricted
Stock with respect to which the Restriction Period has not expired shall be
forfeited.
9. PERFORMANCE AWARD
9.1. Grant of Performance Award. Any Performance Award granted under
the Plan shall be evidenced by an agreement executed by the Company and the
Participant, which agreement shall conform to the requirements of the Plan and
shall specify (i) the number of shares of Common Stock subject to the Award,
(ii) the Performance Period applicable to each Award, (iii) the Performance
Goals that must be achieved in order for the Participant to be entitled to the
Award, (iv) the extent to which the Participant's right to receive the Award
will lapse if the Performance Goals are not met, and (v) whether the Performance
Award is subject to a vesting schedule. The agreement may contain such other
provisions not inconsistent with the terms of the Plan as the Committee shall
deem advisable.
9.2. Dividend and Voting Rights. Except as otherwise provided in
Section 9.3, during the Performance Period the Participant shall have no right
to receive dividends from and to vote the shares of Performance Shares.
9.3. Dividend Equivalents. Notwithstanding any provision of the Plan to
the contrary, a Participant who has been granted a Performance Award pursuant to
this Section 9 may, at the discretion of the Committee, be credited as of
dividend payment dates during the Performance Period with Dividend Equivalents
with respect to the Common Stock, if any, underlying the Performance Award. Such
Dividend Equivalents shall be credited to an account established on behalf of
the Participant by the Company. The Dividend Equivalents credited under this
Section
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<PAGE> 13
9.3 shall be converted to cash or additional shares of Common Stock under such
formula, at such time, and subject to such limitations as may be determined by
the Committee.
9.4. Receipt of Common Stock. As soon as practicable after the
Performance Period, the Committee shall determine the extent to which the
Performance Award have been earned on the basis of the Company's or
Participant's performance in relation to the Performance Goals set forth in the
Performance Award agreement. Once the Performance Award to which the Participant
is entitled has been determined, the Performance Award shall be paid to the
Participant (or, where appropriate, the Participant's legal representative). If
the Participant or the Company fails to achieve the Performance Goals specified
in the Performance Award agreement, all or a portion of the Performance Award
shall be forfeited.
9.5. Termination By Reason of Death, Disability or Retirement. Unless
otherwise determined by the Committee at the time of grant, if a Participant's
employment with the Company, a Subsidiary, or Affiliate terminates by reason of
the Participant's death, Disability or Retirement, the vested portion of a
Performance Award, if any, shall become non-forfeitable. The non-vested portion
of the Performance Award shall be forfeited as of the date of such termination
of employment.
9.6. Other Termination, Including For Cause. Unless otherwise
determined by the Committee at the time of grant, if a Participant's employment
with the Company, a Subsidiary or Affiliate terminates for any reason other than
for death, Disability, or Retirement, but including for Cause, any Performance
Award with respect to which the Performance Period has not expired shall be
forfeited.
10. DEFERRAL ELECTION
10.1. Election to Defer. Notwithstanding any provision of the Plan to
the contrary, any Participant may elect, with the concurrence of the Committee
and consistent with any rules and regulations established by the Committee, to
defer the receipt of unrestricted Common Stock that the Participant would
otherwise receive pursuant to Section 8 or Section 9, provided that such
election is made no later than the date that is twelve (12) months prior to the
date such Common Stock would otherwise be received.
10.2. Deferral Restrictions. Deferrals will only be allowed while the
Participant is an Employee of the Company, a Subsidiary or an Affiliate. Any
election to defer the receipt of Common Stock shall be irrevocable as long as
the Participant remains an Employee.
10.3. Normal Distribution. Shares of Common Stock, the receipt of which
is deferred pursuant to this Section 10 shall be distributed upon the
Participant's termination of employment.
10.4. Accelerated Distribution. The Committee may, in its sole
discretion, allow for the early payment of the unrestricted Common Stock
deferred pursuant to this Section 10 in the event of an "unforeseeable
emergency" of the Participant. An "unforeseeable emergency" is defined as
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<PAGE> 14
a unanticipated emergency caused by an event beyond the control of the
Participant, that would result in severe financial hardship if the distribution
were not permitted. Such distributions shall be limited to the amount necessary
to sufficiently address the financial hardship. Additionally, the Committee may
distribute the unrestricted Common Stock deferred by all Participants pursuant
this Section 10 if the Committee determines, in its discretion, that the
continued deferral of Common Stock hereunder is no longer in the best interest
of the Company.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, stock split,
spin-off, split-off, split-up, stock dividend, issuance of stock rights,
combination of shares, merger, consolidation or any other change in the
corporate structure of the Company affecting Common Stock, or any distribution
to shareholders other than a cash dividend, the Committee shall make appropriate
adjustment in the number and kind of shares authorized for use under the Plan
and any adjustments to outstanding Awards as it determines appropriate. The
adjustments to outstanding Awards shall include, but not be limited to, the
respective prices, limitations, and/or performance criteria applicable to the
outstanding Awards. No fractional shares of Common Stock shall be issued
pursuant to such an adjustment. The Fair Market Value of any fractional shares
resulting from adjustments pursuant to this Section shall, where appropriate, be
paid in cash to the Participant. The determinations and adjustments made by the
Committee pursuant to this Section 11 shall be conclusive.
12. CHANGE OF CONTROL OF THE COMPANY
12.1. Accelerated Vesting and Payment. Upon a Change of Control of the
Company, all Options that are unexercised and outstanding may, at the discretion
of the Board, (i) become immediately and fully exercisable, or (ii) be canceled
in exchange for a cash payment in an amount equal to the excess, if any, of the
Fair Market Value of the Common Stock underlying the Option as of the date of
the Change of Control over the exercise price of such Option. In addition, all
Restricted Stock and Performance Awards that are outstanding on the date of the
Change of Control shall become nonforfeitable and immediately payable in cash.
12.2. Alternative Awards. Upon a Change of Control, in lieu of the
accelerated exercisability and payment of Awards described in Section 12.1, at
the discretion of the Board the Awards that are outstanding as of the date of a
Change of Control, shall be assumed by the successor corporation, and shall be
substituted with awards involving the common stock of the successor corporation.
Provided, however, that the substitution of Awards described under this Section
12.2 shall occur only if (i) the common stock of the successor corporation is
traded on an established stock exchange or exchanges, or will be so traded
within 60 days of the Change of Control and (ii) the terms and conditions of the
substituted awards are no less favorable than the Awards granted by the Company.
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<PAGE> 15
13. EFFECTIVE DATE, TERMINATION AND AMENDMENT
The Plan shall become effective on July 13, 1998, subject to
shareholder approval. Options granted under the Plan prior to such shareholder
approval shall expressly not be exercisable prior to such approval. The Plan
shall remain in full force and effect until the earlier of 10 years from the
date of its adoption by the Board, or the date it is terminated by the Board.
The Board or the Committee shall have the power to amend, suspend or terminate
the Plan at any time, provided that no such amendment shall be made without
shareholder approval which shall (i) increase (except as provided in Section 11)
the total number of shares available for issuance pursuant to the Plan; (ii)
change the class of Employees eligible to be Participants; (iii) modify the
Individual Limit (except as provided Section 11) or the categories of
Performance Goals set forth in Section 2.24; (iv) change the provisions of this
Section 13; or (v) violate the requirements of Section 162(m) of the Code.
Termination of the Plan pursuant to this Section 13 shall not affect Awards
outstanding under the Plan at the time of termination.
14. TRANSFERABILITY
Except as provided below, Awards may not be pledged, assigned or
transferred for any reason during the Participant's lifetime, and any attempt to
do so shall be void and the relevant Award shall be forfeited. The Committee may
grant Awards (except Incentive Stock Options) that are transferable by the
Participant during his lifetime, but such Awards shall be transferable only to
the extent specifically provided in the agreement entered into with the
Participant. The transferee of the Participant shall, in all cases, be subject
to the provisions of the agreement between the Company and the Participant. The
rights of the transferee shall be no greater than the rights that would be
acquired by the Participant's estate if the Participant were to die prior to the
transfer of the Award.
15. GENERAL PROVISIONS
15.1. No Employment Rights. Nothing contained in the Plan, or any Award
granted pursuant to the Plan, shall confer upon any Employee any right with
respect to continuance of employment by the Company, a Subsidiary or Affiliate,
nor interfere in any way with the right of the Company, a Subsidiary or
Affiliate to terminate the employment of any Employee at any time.
15.2. Transfer of Employment. For purposes of this Plan, transfer of
employment between the Company and its Subsidiaries and Affiliates shall not be
deemed termination of employment.
15.3. Payment of Taxes. The Company shall have the power to withhold,
or require a Participant to remit to the Company, all taxes required to be paid
in connection with any Award, the exercise thereof and the transfer of shares of
Common Stock pursuant to this Plan. The Company's power to withhold a portion of
the cash or Common Stock received pursuant to an Award, or require that the
Participant remit the applicable taxes shall extend to all applicable Federal,
state, local or foreign withholding taxes. In the case of the payment of Awards
in the
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form of Common Stock or cash, or the exercise of Options or SARs, the Company
shall have the right to retain the shares of Common Stock or cash to be paid
pursuant to the Award, or the exercise of the Option or the SAR, until the
Committee determines that the applicable withholding taxes have been satisfied.
Agreements evidencing such Awards shall contain appropriate provisions to effect
withholding in this manner.
15.4. Participation of Foreign Nationals. Without amending the Plan,
Awards may be granted to Employees who are foreign nationals or employed outside
the United States or both, on such terms and conditions different from those
specified in the Plan as may, in the judgment of the Committee, be necessary or
desirable to further the purpose of the Plan.
15.5. Restrictions on Shares. The Award Shares shall be subject to
restrictions on transfer pursuant to applicable securities laws and such other
agreements as the Committee shall deem appropriate and shall bear a legend
subjecting the Award Shares to those restrictions on transfer in accordance with
the applicable Award. The certificates shall also bear a legend referring to any
restrictions on transfer arising hereunder or under any other applicable law,
regulation or agreement.
15.6. Requirements of Law. The Plan and each Award under the Plan shall
be subject to the requirement that if at any time the Committee shall determine
that (a) the listing, registration or qualification of the Award Shares upon any
securities exchange or under any state or federal law, (b) the consent or
approval of any government regulatory body or (c) an agreement by the recipient
of an Award with respect to the disposition of the Award Shares is necessary or
desirable as a condition of, or in connection with, the Plan or the granting of
such Award or the issue or purchase of the Award Shares thereunder, the Award
may not be consummated in whole or in part until such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
15.7. Amending of Awards. The Committee may amend any outstanding
Awards to the extent it deems appropriate. Such amendment may be made by the
Committee without the consent of the Participant, except in the case of
amendments adverse to the Participant, in which case the Participant's consent
is required to any such amendment.
15.8. No Limit on Compensation. Nothing contained in the Plan, or any
Award granted pursuant to the Plan, shall be construed to limit the right of the
Company to establish other plans or to pay compensation to its employees or, in
cash or property, or in any manner which is not expressly authorized under the
Plan.
15.9. No Shareholder Rights. The Participant shall have no rights as a
shareholder with respect to shares of Common Stock subject to an Award unless
and until legended certificates for the Award Shares are issued.
15.10. No Fractional Shares. An Option may be exercised only for a
whole number of shares of Common Stock.
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<PAGE> 17
15.11. Headings. Sections headings are included only for ease of
reference. Headings are not intended to constitute substantive provisions of the
Plan and shall not be used to interpret the scope of this Plan or the rights or
obligations of the Company in any way.
15.12. Governing Law. To the extent that Federal laws do not otherwise
control, the Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of the State of New Jersey and construed
accordingly.
To record the adoption of the Plan, The MIIX Group, Incorporated has caused its
authorized officers to affix its corporate name and seal this ______ day of
_________, 1998.
[CORPORATE SEAL] THE MIIX GROUP, INCORPORATED
Attest:
_________________________________ ____________________________________
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<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
AGREEMENT, made as of the First day of August, 1990, between
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC., a
corporation of the State of New Jersey, having its
principal place of business at 3131 Princeton Pike,
Lawrenceville, New Jersey (hereinafter called the
"Company")
and
LISA J. KRAMER, residing at 924 Rock Creek Road, Bryn
Mawr, Pennsylvania 19010 (hereinafter called "Ms.
Kramer")
WHEREAS, the Company desires to employ, retain and make secure
for itself the experience, abilities and services of Ms. Kramer as its Vice
President of Claims for a period of at least three (3) years from the effective
date hereof; and
WHEREAS, Ms. Kramer desires to be so employed by the Company
on the terms and conditions stated herein;
NOW, THEREFORE, it is mutually agreed by and between the
parties hereto as follows:
1. Term. The Company agrees to, and does hereby, employ Ms. Kramer as
its Vice President of Claims for a three (3) year term commencing August 1, 1990
and ending July 31, 1993, unless terminated sooner as herein provided. In the
event, however, that the Company does not intend to renew this Agreement for a
renewal term of at least one year, then it shall so notify Ms. Kramer not less
than one year prior to the expiration date set forth in the immediately
preceding sentence. The failure of the Company to furnish such timely notice of
non-renewal shall constitute the binding commitment of the Company to extend the
term of this Agreement (on the same terms and conditions as herein set forth)
for a period of at least one year, unless Ms.
<PAGE> 2
Kramer rejects such extension by written notice delivered to the Board of
Directors at least 120 days prior to the otherwise applicable expiration date.
2. Duties of Ms. Kramer. Ms. Kramer shall devote her entire business
time and attention to the interest and affairs of the Company in an executive
capacity as Vice President of Claims and will not during the period of her
employment hereunder engage in any other business or undertaking of any kind,
except those of an investment nature, without the prior written approval of the
President or the Board of Directors of the Company. Ms. Kramer shall be
furnished with a private office, stenographic help and such other facilities and
services suitable to her executive position as a Vice President and adequate for
the performance of her duties.
Ms. Kramer shall (subject to the supervision of the President,
to whom she shall report) be responsible for overseeing the activities of the
Claims Department. Ms. Kramer shall serve on such committees as the President or
the Board of Directors may from time to time direct. Ms. Kramer understands and
agrees that her duties may include the provision of services for or in respect
of other organizations with which the Company is affiliated by membership,
contract or otherwise. Ms. Kramer shall, in addition, perform the duties
incident to the foregoing as well as such other duties, not inconsistent with
the foregoing or with her executive position, as the President or the Board of
Directors may from time to time direct.
3. Relocation Expenses of Ms. Kramer. The Company shall assist Ms.
Kramer to relocate her principal residence to the Lawrenceville, NJ area
(including Bucks County, PA) as follows:
(a) The Company shall lend Ms. Kramer up to $60,000 at 10%
simple interest to be used as deposit moneys on a new home, provided Ms. Kramer
executes a promissory note
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<PAGE> 3
satisfactory to the Company in its form and content, and which note bears a term
not to exceed one year. Alternatively, the Company may guarantee a $60,000
credit line for Ms. Kramer at a commercial lending institution for up to a one
year period, provided Ms. Kramer executes a reimbursement agreement satisfactory
to the Company in its form and content.
(b) The Company shall reimburse Ms. Kramer for the following:
(i) interest on the loan described in (a);
(ii) up to 18 months of interest at the prevailing
market rate on a swing loan needed to finance acquisition of a new home pending
sale of Ms. Kramer's current home.
(iii) a relocation allowance of a minimum of Five
Thousand Dollars ($5,000.00) to be used for the payment of expenses incurred by
Ms. Kramer in relocating her principal residence to the Lawrenceville, New
Jersey area, such as the attorneys' fees for selling her current home and
purchasing a new home and moving costs. Expenses over the minimum relocation
allowance of Five Thousand Dollars ($5,000.00) may be reimbursed if the expenses
are reasonable, in the sole discretion of the Board of Directors. Such
relocation allowance shall be paid as soon as administratively feasible after
the submission of receipts or other documents by Ms. Kramer adequate to
substantiate the amount of and purpose of the expenditure; and
(iv) Actual broker's fees up to six percent of the
sale price of Ms. Kramer's current home.
(v) The maximum amount reimbursed under subparagraphs
(i), (ii), and (iv) combined shall not exceed six percent of the sale price of
Ms. Kramer's current home.
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4. Salary. During the term hereof, the Company shall pay to Ms. Kramer
a salary of One Hundred Fifty Thousand ($150,000) Dollars annually, payable in
equal bi-weekly installments. Such salary, and Ms. Kramer's performance
hereunder, shall be subject to a six-month review by the Board of Directors as
of February 1, 1991 and an annual review thereafter as of each August 1. Such
reviews will include cost of living and merit considerations. The Board of
Directors, in its sole and uncontrolled discretion, may grant a salary increase
as it deems appropriate.
5. Vacation. Ms. Kramer shall be entitled to four weeks vacation, with
pay, during each twelve month period hereof. Such vacation shall be taken on
reasonable prior notice and at a time and manner which shall not interfere with
the proper operation of the Company's business. No more than ten days of unused
vacation time may be carried over to any subsequent calendar year.
6. Employee Benefits. Ms. Kramer shall be entitled to any employee
benefits which may be made available to all salaried employees of the Company
and on the same terms and conditions as offered to any other salaried employee
of the Company. All matters of eligibility for benefits under any plan or plans
of retirement, deferred compensation, health, hospitalization, life insurance or
other benefits provided by the Company shall be determined in accordance with
the provisions of the employee benefit plans or the insurance policies, as the
case may be.
7. Automobile. During the period of Ms. Kramer's employment hereunder,
the Company shall supply her with an automobile suitable to her executive
position for her use, and the Company shall pay all maintenance, fuel, repairs
and insurance expense in connection with said automobile. Upon termination of
her employment with the Company, Ms. Kramer shall have
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the right to purchase from the Company, at its then "trade-in" value (according
to National Automobile Dealers Association publications, or other reputable
sources), the automobile supplied to her by the Company.
8. Other Business Expense. During the period of her employment, Ms.
Kramer will be reimbursed for her ordinary and necessary expenses incurred by
her for the Company in the performance of her duties hereunder in accordance
with the general policies of the Company as adopted by the Board of Directors
from time to time. Ms. Kramer agrees to account monthly to the Company in detail
reasonably sufficient to substantiate that all such expenses were ordinary and
necessary and incurred in the performance of her duties hereunder, or the
Company shall have no obligation to reimburse Ms. Kramer therefore.
9. Furnishing of Records. Ms. Kramer agrees to furnish to the Company,
or the insurer under any policy of insurance providing benefits hereunder, or
the trustee or administrator of any employee benefit plan of the Company, or to
the authorized representative of any of the same, such records or other
information as may be reasonably required by them in connection with the
provision of benefits or the reimbursement of expense hereunder. In the event
that Ms. Kramer fails to provide such records or furnish such information within
a reasonable time after request therefor, Ms. Kramer shall be deemed to have
waived her rights with respect to such benefits or such reimbursement hereunder
without liability to the Company.
10. Confidential Information and Materials. (a) Ms. Kramer hereby
acknowledges and agrees that all Confidential Information and Materials, as
defined below, of the Company she has received either directly or indirectly
within the scope of her employment, has been disclosed to her in a relationship
of confidence and she hereby covenants and agrees that she will keep the same
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<PAGE> 6
confidential as more fully specified below. (For purposes of this Paragraph, the
term "Company" shall include any entity affiliated with the Company through some
degree of common ownership). She will not, without having first obtained the
written consent of the Company, directly or indirectly, communicate, reproduce,
disclose, reveal or use, any Confidential Information and Materials of the
Company whether such Confidential Information was acquired or developed by her
in the course of her employment or was otherwise obtained. She agrees that she
will not utilize any Confidential Information and Materials either on her own
behalf or on behalf of any Person, in any enterprise, venture, project or
business. (The term "Person" shall refer to any individual, corporation,
partnership, joint venture or other entity or association).
This Agreement does not apply to Confidential Information and
Materials (i) that have entered the public domain through no fault of Ms.
Kramer, (ii) that the Company has authorized for public dissemination, (iii)
that were known to or possessed by her prior to her employment by the Company,
(iv) that were learned or obtained by her from sources having no duty of
confidentiality to the Company, or (v) that are generally available within the
medical professional liability insurance industry.
(b) All Confidential Information and Materials obtained in the
course of Ms. Kramer's employment by the Company, whether developed by her or
not, shall be the sole property of the Company, shall not be removed from the
premises of the Company without the written consent of the Company, and shall be
surrendered by her to the Company upon request by either the Company or upon
termination of her employment. She agrees not to retain any copies,
reproductions, notes or samples of Confidential Information and Materials.
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(c) Each and every Invention, as that term is defined below,
relating to the business or activities of the Company, that Ms. Kramer, solely
or jointly with others, made or conceived of during the term of her employment
by the Company shall be the sole and exclusive property of the Company.
(d) In the event of a breach or threatened breach by Ms.
Kramer of the provisions of this Agreement, the Company shall be entitled to an
injunction restraining her from disclosing, in whole or in part, information
about the Company or from rendering any services to any person, firm,
corporation, association or other entity to whom such information, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach, including the recovery of
damages from Ms. Kramer.
(e) Confidential Information and Materials means and includes,
but is not limited to the following, however obtained by or disclosed to Ms.
Kramer and either (i) used or contemplated for use (and, if in writing, shall
include machine readable forms) in or pertaining to the business as engaged in
by the Company or (ii) as may have been disclosed by the Company to Ms. Kramer:
patent disclosures and applications; technology; trade secrets; designs;
formulas; know-how; contracts; projects; documents; files; photographs;
drawings; sketches; data processing and computer software techniques; programs
and systems in any stage of development or completion; inventions; improvements;
discoveries; product components or compositions; processes; parts of processes;
manufacturing or engineering techniques; prototypes; tools; equipment; samples;
specimens; model; books; notebooks; papers; compilation of information; records
and specifications; operating methods; computer lists; the terms and conditions
of, and
-7-
<PAGE> 8
any information disclosed pursuant to, any license or similar agreement to which
the Company is party; the marketing methods, business plans, bid procedures,
operating practices and related financial data of the Company and of its
existing and potential licensors, licensees, customers, vendors, and suppliers;
the data and prices the Company obtains or has obtained, or at which it sells or
has sold, its product or services; research, development, manufacturing and
sales costs and receipts; lists or other written records used in the Company's
business; bids and proposals by the Company; information regarding Company's
financial condition; compensation and other terms of Company's collective
bargaining and other labor agreements.
"Inventions" shall mean and include any new inventions,
discoveries, modifications, improvements, ideas, conceptions, developments, and
designs, whether or not (i) patentable, (ii) tested, (iii) reduced to practice
or (iv) subject to copyright.
11. Termination with Cause. The Company shall have the right to
terminate Ms. Kramer's employment hereunder prior to the expiration of the term
provided herein, without liability to it, in the event of any of the following:
(a) Ms. Kramer's death;
(b) Ms. Kramer's inability to perform her duties as set forth
herein for a period of thirteen consecutive weeks , or a period of thirteen
weeks in any one calendar year, or sixteen weeks in any two year period during
the term hereof, except that the first sixteen weeks of disability resulting
from my pregnancy or childbirth shall not be counted;
(c) Demonstrable and material dereliction of duty or
responsibility by Ms. Kramer;
-8-
<PAGE> 9
(d) The performance of any material act of dishonesty by Ms.
Kramer relating to the Company or the type of duties to be performed by her
hereunder;
(e) Commission of a "crime" by Ms. Kramer, as such term is
defined in N.J.S.A., 2C:1-4 (which definition, it is noted, excludes disorderly
persons offenses and other petty offenses);
(f) The willful or grossly negligent commission by Ms. Kramer
of any act materially harmful to the Company;
(g) The willful or grossly negligent impairment by Ms. Kramer
of any Confidential Information and Materials as such term is defined in
Paragraph 10, or
(h) Except as may be permitted pursuant to the provisions of
Paragraph 2 hereof, employment or engagement in any occupation or business other
than Ms. Kramer's employment with the Company pursuant to this Agreement.
12. Termination Without Cause. The Company shall have the right to
terminate Ms. Kramer's employment hereunder, without cause, upon thirty (30)
days notice to Ms. Kramer, provided that, subject to the provisions of Paragraph
13 hereof, Ms. Kramer's compensation and benefits shall continue until the
expiration of the term provided herein.
13. Obligation To Ms. Kramer Upon Termination; Limit of Liability. In
the event of termination by the Company of Ms. Kramer's employment hereunder
prior to the expiration of the term herein provided without cause (or assertedly
without cause), Ms. Kramer agrees to utilize her best efforts promptly to obtain
other employment at a comparable salary to that provided herein and in a
position suitable in consideration of Ms. Kramer's ability, experience and
reputation. Any compensation (including the value of any fringe benefits)
received by Ms.
-9-
<PAGE> 10
Kramer pursuant to any other employment obtained shall serve to reduce any
liability of the Company hereunder. Should Ms. Kramer fail to make such efforts,
she shall be deemed to have waived all rights to compensation or other benefits
hereunder after the date of such termination (except such as shall be then
vested in her), and the Company shall have no liability hereunder after the date
of such termination. In no event shall the liability of the Company hereunder
exceed the amount of compensation and benefits provided hereby.
14. Termination By Ms. Kramer. Notwithstanding any provision herein
contained to the contrary, Ms. Kramer may at any time terminate her employment
hereunder upon 120 days written notice delivered to the Board of Directors of
the Company.
15. Employment After Termination or Expiration. In the event of the
termination of Ms. Kramer's employment with the Company for any reason,
including expiration of this Agreement, other than as set forth in the following
sentence, Ms. Kramer agrees that she will not, for a period of three years after
the effective date of such termination, compete directly or indirectly, as an
employee, consultant or otherwise, with the Company or with the Medical
Inter-Insurance Exchange of New Jersey (the "Exchange"), or accept employment
with any person, firm or corporation which competes directly or indirectly with
the Company or the Exchange; provided, however, that employment with any
insurance company which then (directly or through its subsidiaries and
affiliated companies) accounts for less than fifteen percent (15%) of all
written premiums for medical professional liability (including hospital
liability) insurance for New Jersey insured, shall not be deemed to violate the
terms hereof. The restrictions set forth in this Paragraph, however, shall not
apply in the event of (i) termination by the Company without cause as provided
in Paragraph 12 hereof, or (ii) expiration of this Agreement if the Company
shall not
-10-
<PAGE> 11
have offered (in writing) to extend the term hereof for at least one year and
upon the same terms and conditions as herein set forth. Ms. Kramer expressly
agrees that upon any breach or violation of the terms of this Paragraph, the
Company, in addition to any other remedy, shall be entitled, as a matter of
right, to injunctive relief in any court of competent jurisdiction.
16. Protection against Personal Liability. The Company agrees to
maintain, to the extent reasonably available, a directors' and officers'
liability insurance policy, naming Ms. Kramer as an insured thereunder, issued
by a reputable insurer, with policy limits of at least $1,000,000 (per claim and
in the aggregate) and containing coverages, conditions and exclusions which are
customary in such policies. The Company further agrees to reimburse Ms. Kramer
for any loss covered under such policy to the extent of any deductible amount
provided therein. In the event that the Company determines, in its reasonable
discretion, that such an insurance policy is not reasonably available, it shall
(in lieu of maintaining such a policy) indemnify Ms. Kramer against any and all
losses or expenses normally covered by such policies to the extent set forth in
the first two sentences of this Paragraph.
17. Assignment. The parties recognize and acknowledge that this
Agreement is one for the personal services of Ms. Kramer and, therefore, may not
be assigned by her; nor may the services required of her hereunder be performed
by any other person without the authorization of the Company.
18. Other Binding Instruments, Etc. In addition to the policies, plans
and other instruments and documents described in Paragraph 8 hereof, the
following instruments and documents are incorporated herein by reference and
shall not be deemed superseded by this Agreement:
-11-
<PAGE> 12
Any and all applications, agreements and elections relating to
the plans and policies referred to in Paragraph 6 hereof, or
relating to any other employee benefit plan program maintained
by the Company.
19. Oral Negotiations Superseded; Amendment. This Agreement and (to the
extent specified herein) any agreement, document or instrument referred to
herein integrate all the terms and conditions mentioned herein or incidental
hereto and supersede all oral negotiations and prior writings in respect to the
subject matter hereof. This Agreement may not be amended or modified in any
manner, including this provision against oral amendment or modification, except
by an instrument in writing signed by the parties hereto.
20. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the Company and Ms. Kramer and their respective successors,
assigns, executors and administrators, except that Ms. Kramer may not assign
this Agreement and may not substitute another person to perform the services
required to be performed by her hereunder except as specifically provided
herein.
21. Paragraph Headings. Paragraph headings used herein are for
convenience only and shall not affect construction of this Agreement.
22. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New Jersey.
23. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its duly authorized officers and its corporate seal to be hereunto
affixed, and Ms. Kramer has hereunto affixed her hand and seal, all as of the
day and year first above written.
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
By: /s/ Daniel Goldberg
----------------------------------------
Daniel Goldberg, President
ATTEST:
/s/ Palma E. Formica
- -----------------------------------
Palma E. Formica, M.D.
Secretary/Treasurer
/s/ Lisa J. Kramer
----------------------------------------
Lisa J. Kramer
WITNESS:
- -----------------------------------
-13-
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of November 1,
1997 between New Jersey State Medical Underwriters, Inc., a New Jersey
corporation having its principal place of business located at Two Princess Road,
Lawrenceville, New Jersey (hereinafter called the "Company") and Ronald Wade,
(hereinafter called the "Employee").
BACKGROUND
The Company deems it to be in its best interest to secure and
retain the services of Employee and Employee desires to work for the Company
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained, and intending to be legally bound hereby, the
parties hereto agree, as follows:
1. Term of Employment. Subject to the terms and conditions of this
Agreement, the Company hereby employs the Employee and the Employee hereby
accepts employment by the Company. The term of this Agreement shall be for a
period of two years, commencing on November 1, 1997 through November 1, 1999 and
thereafter shall renew for successive one-year terms until either party gives
written notice of termination in accordance with Paragraph 4 of this Agreement.
2. Duties. The Employee is engaged hereunder as a Vice President of the
Company and he agrees to perform the duties and services incident to that
position, or such other or further duties and services of a similar nature as
may be required of him by the President of the Company or his designee. The
Employee agrees, if requested, to serve as an officer of the Company and of any
subsidiary of the Company or affiliated company without additional compensation.
The
<PAGE> 2
Employee shall have such power and authority as shall reasonably be required to
enable him to perform his duties hereunder in an efficient manner, provided,
that in exercising such power and authority and performing such duties, he shall
at all times be subject to the supervision of the President of the Company or
his designee. The Employee shall devote his full business time, attention,
energies and best efforts to the performance of his duties hereunder and to the
promotion of the business and interests of the Company and of any corporate
subsidiaries or affiliated companies.
3. Compensation and Other Benefits.
(a) Salary. For all services rendered by the Employee under
this Agreement, the Company agrees to pay the Employee a salary of $179,400 per
annurn, payable on the usual and customary pay days of the Company plus such
additional compensation and bonuses as may be awarded from time to time to the
Employee at the sole discretion of the Company.
(b) Fringe Benefits. During the term of this Agreement, the
Employee shall be entitled to participate in all of the fringe benefit programs
provided for similar employees of the Company, including, without limitation,
all medical, disability, dental and life insurance benefits, retirement
programs, Split Dollar Life Insurance Program and incentive compensation plans
now in existence or hereafter adopted by the Company.
(c) Vacation. The Employee shall be entitled each year to a
vacation of twenty-five days, during which his compensation shall continue to be
paid to him. Each vacation shall be taken by the Employee at such time or times
as agreed upon in advance by the Company and Employee.
-2-
<PAGE> 3
(d) Automobile. During the period of employment hereunder, the
Company shall pay the Employee an automobile allowance in an amount equal to the
monetary automobile allowance for Vice Presidents of the Company.
(e) Reimbursement of Expenses. The Company shall reimburse the
Employee for all reasonable expenses incurred by Employee in connection with his
employment hereunder provided, however, that such expenses were incurred in
conformance with the policies of the Company, as established from time to time,
and Employee submits detailed vouchers and other records reasonably required by
the Company in support of the amount and nature of such expense.
(f) Taxes and Withholding. All compensation payable and other
benefits provided under this Agreement shall be subject to customary withholding
for income, F.I.C.A. and other employment taxes.
4. Termination of Employment.
(a) Death of Employee. If Employee dies during the term of
this Agreement, this Agreement shall terminate immediately and the Company shall
pay to Employee's spouse, if she survives him, or if not, to the Employee's
children in equal amounts, or if none survive, to his Estate, the balance of his
accrued and unpaid salary, unreimbursed expenses, and his unused accrued
vacation time (up to three weeks) through the termination date.
(b) Disability of Employee. If Employee, in the reasonable
opinion of the Company, is unable to perform his services by reason of
incapacity, either physical or mental, for a period of thirteen consecutive
weeks, or a period of thirteen weeks in one calendar year, the Company shall
have the right to terminate Employee's employment upon written notice to the
-3-
<PAGE> 4
Employee. If the Company decides to terminate Employee's employment under this
section, the Company shall pay to Employee the balance of his accrued and unpaid
salary, unreimbursed expenses, and his unused, accrued vacation time (up to
three weeks) through the termination date, together with the severance payments
described in Paragraph 5 hereof. If the Company decides not to terminate
Employee's employment as allowed under this section, the Company shall have the
option of reducing the salary thereafter payable to Employee by the amount of
payment the Employee receives pursuant to any disability program of the Company.
(c) Termination for Cause.
(i) For purposes of this Agreement, "for cause" shall
mean the following:
(1) the commission by Employee of fraud,
theft or misappropriation or embezzlement of Company funds;
(2) the conviction of Employee for
commission of a felony;
(3) the repeated and consistent failure of
Employee to be present at work, except as set forth above in connection with
Employee's disability;
(4) the commission by Employee of an act of,
or omission of an act, that would constitute a material breach of this
Agreement; or
(5) gross negligence in the performance of
his duties on behalf of the Company.
(ii) Employee's employment under this Agreement shall
terminate immediately upon written notice from the Company that the Company is
terminating the Employee "for cause". Upon the Company's termination of Employee
"for cause", the Company
-4-
<PAGE> 5
shall be required to pay to Employee the balance of his accrued and unpaid
salary, unreimbursed expenses, and his unused, accrued vacation time (up to
three weeks) through the termination date.
(d) Termination Without Cause. The Company may terminate
Employee's employment under this Agreement at any time upon thirty days' prior
written notice to the Employee. In the event of a termination "without cause",
the Company shall make payment to the Employee in accordance with Paragraph 5
below.
(e) Termination by Employee. Employee may terminate his
employment hereunder at any time upon not less than thirty days' prior written
notice. The Company shall be required to pay to Employee the balance of his
accrued and unpaid salary, unreimbursed expenses, and his unused, accrued
vacation time (up to three weeks) through the termination date.
5. Severance.
(a) In the event of the Company's termination of the Employee
"without cause", or in the event that the Company gives notice that this
Agreement will not be renewed in accordance with Paragraph I or in the event of
the Company's termination of the Employee's employment under Paragraph 4(b)
hereof, the Employee shall be entitled to receive salary and benefits in the
amount and manner provided in Paragraph 3 hereof commencing on the date written
notice of termination is mailed to Employee and ending on the earlier of (i)
twelve (12) months from the date of termination or (ii) the date on which
Employee obtains full-time employment with any third party, whichever is
earlier. Employee shall immediately notify Company in writing of such employment
and any payments received by the Employee pursuant to this Paragraph subsequent
to the commencement of such employment shall be promptly remitted to the
Company. Notwithstanding the foregoing, if Employee obtains full-time employment
with
-5-
<PAGE> 6
any third party at an annual salary level lower than his annual salary level at
the Company on the date of his termination "without cause", the Company shall
pay to Employee an amount equal to the difference in the salary levels from the
date on which Employee obtains such full-time employment for a period not to
exceed twelve (12) months from the date of termination.
(b) If the Company terminates Employee's employment prior to
November 1, 1999, other than for cause, employee shall be entitled to receive
salary and benefits in the amount and manner provided in Paragraph 3 hereof from
the date of termination to November 1, 1999 or the amount of salary and benefits
described in Paragraph 5(a) hereof, whichever is greater.
6. Non-Competition.
(a) For purposes of this Agreement, "competitor" shall mean
any company engaged in or about to be engaged in the business of developing,
producing or distributing a product or service in the professional liability
insurance business which is similar to any product or service produced or
performed or about to be produced or performed by the Company and its successors
and/or any of its subsidiaries or affiliated companies, and the Medical
Inter-Insurance Exchange and/or its subsidiaries or its successors.
(b) The Employee agrees that so long as he is employed by the
Company, and for a period of one (1) year thereafter, unless Employee's
employment is terminated by the Company without cause, he will not, directly or
indirectly, whether for compensation or not, own, manage, operate, join, control
or participate in, or be connected as a stockholder, officer, employee, partner,
creditor, guarantor, advisor or otherwise, with a competitor. The foregoing
shall not be construed, however, as preventing the Employee from investing his
assets in such form or manner as will not require services on the part of the
Employee in the operations of the
-6-
<PAGE> 7
businesses in which such investments are made and provided any such business is
publicly owned and the interest of Employee therein is solely that of an
investor owning not more than five percent of the outstanding equity securities
of any such business. Should Employee breach the provisions of this Paragraph,
the Company shall be entitled to cease all payments and benefits under the terms
of this Agreement and shall be entitled to pursue all remedies it might have
including, but not limited to, those contained in this Agreement.
(c) For the period of one (1) year after the termination of
this Agreement, except for termination by the Company without cause, Employee
shall not directly or indirectly, call upon or solicit insurance business from
any person or entity who was a client of the Company, the Medical
Inter-Insurance Exchange of New Jersey, Lawrenceville Property and Casualty Co.,
Inc., American Medical Mutual Inc. and/or their subsidiaries, successors or
affiliated companies at any time during the two years prior to the termination
of Employee's employment with the exception of those clients listed in Appendix
I.
(d) For the period of one (1) year after the termination of
this Agreement for any reason whatsoever, Employee shall not hire, retain or
engage as a director, officer, employee, agent or in any other capacity any
person or persons who are employed by the Company or who were at any time
(within a period of six (6) months immediately prior to the date of the
Employee's termination) employed by the Company or otherwise interfere with the
relationship between such persons and the Company.
(e) It is agreed that the Employee's services hereunder are
special, unique, unusual and extraordinary giving them peculiar value, the loss
of which cannot be reasonably or adequately compensated for by damages, and in
the event of the Employee's breach of this
-7-
<PAGE> 8
Paragraph, the Company shall be entitled to equitable relief by way of
injunction or otherwise. If the period of time or area herein specified should
be adjudged unreasonable in any court proceeding, then the period of time shall
be reduced by such number of months or the area shall be reduced by elimination
of such portion thereof as deemed unreasonable, so that this covenant may be
enforced during such period of time and in such area as is adjudged to be
reasonable.
7. Confidential Information.
(a) For the purposes of this Agreement, "confidential
information" shall mean all information about the Company or relating to any of
its products or services or any phase of its operations, including, without
limitation, trade secrets, lists of insureds and claims defense and recovery
methods and procedures not generally known to any of its competitors, with which
the Employee becomes acquainted during the term of his employment.
(b) During the time of Employment, or at any time thereafter,
the Employee shall not disclose or make available to any person, firm or company
any confidential information or any know-how or experience related thereto
without the express prior written authorization of the Company or except
pursuant to his employment with the Company. Upon termination of his employment,
the Employee shall return to the Company all confidential information in any
tangible form in his possession, including copies thereof.
8. Severability. The terms of this Agreement and each Paragraph thereof
shall be considered severable and the invalidity or unenforceability of any part
thereof shall not affect the validity or enforceability of the remaining
portions or provisions hereof.
9. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and delivered by registered or
certified mail or overnight delivery
-8-
<PAGE> 9
service, to his residence, in the case of the Employee or to its principal
office in the case of the Company.
10. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon its successors and
assigns. Neither this Agreement nor any rights or interests herein or created
hereby may be assigned or otherwise transferred voluntarily or involuntarily by
the Employee.
11. Waiver. The waiver by the Company or Employee of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach.
12. Applicable Law. This Agreement shall be interpreted and construed
under the laws of the State of New Jersey.
13. Entire Agreement. This instrument contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous agreements with respect to such subject matter. It may not be
changed or altered, except by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By: /s/ Daniel J. Goldberg
-------------------------------------
-9-
<PAGE> 10
/s/ Ronald Wade (L.S.)
----------------------------------------
Ronald Wade
-10-
<PAGE> 11
APPENDIX I
Bruce Hancock Medical Indemnity Group
7711 E. Cochise
Scottsdale, AZ 85258
Gary Billingsley Medical Indemnity Group
16404 NE 135th Street, Ste. 207
Redmond, WA 98052
Peter Rohde Medical Indemnity Group
P.O. Box 2510
Cody, WY 82414
Tom Sheridan 451 Creekside Drive
League City, TX 77573
Jay Menna Jay Menna Insurance Agency
1102 Kingwood, Suite 102
Kingwood, TX 77339
John Dotson Texas American Insurers
1300 S. University Drive, Ste. 605
Fort Worth, TX 76107
Bob Madeley Madeley & Company
4649 Insurance Lane
Dallas, TX 75205
Ken Archibald Archibald & Associates
510 Turtle Cove Boulevard, Ste. 100
Rockwall, TX 75087
Ralph Trimborn Associates Insurance Consultants, Inc.
1250 W. Dorothy Lane, Ste. 108
Dayton, OH 45409
-11-
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 25, 1998 with respect to the combined financial
statements and schedule of the Medical Inter-Insurance Exchange and New Jersey
State Medical Underwriters, Inc. included in the Registration Statement (Form
S-1 No. 333-59371) and related Prospectus of The MIIX Group, Incorporated for
the registration of shares of its common stock.
/s/ Ernst & Young LLP
New York, New York
September 2, 1998
<PAGE> 1
Exhibit 23.4
REPORT OF INDEPENDENT AUDITORS
Board of Governors
Medical Inter-Insurance Exchange
Board of Directors
New Jersey State Medical Underwriters, Inc.
We have reviewed the accompanying combined balance sheet of Medical
Inter-Insurance Exchange and subsidiaries and New Jersey State Medical
Underwriters, Inc. as of June 30, 1998, and the related combined statements of
income and cash flows for the six-month period ended June 30, 1997 and 1998, and
the combined statement of equity for the six-month period ended June 30, 1998.
These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we no not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying combined financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the combined balance sheets of Medical Inter-Insurance Exchange and
subsidiaries and New Jersey State Medical Underwriters, Inc. as of December 31,
1996 and 1997, and the related combined statements of income, equity, and cash
flows for each of the three years in the period ended December 31, 1997, not
presented herein, and in our report dated March 25, 1998, we expressed an
unqualified opinion on those combined financial statements. In our opinion, the
information set forth in the accompanying combined balance sheet as of December
31, 1997, is fairly stated, in all material respects, in relation to the
combined balance sheet from which it has been derived.
/s/ Ernst & Young LLP
New York, New York
September 2, 1998
F-2
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
AND UNAUDITED FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION STATEMENT ON
FORM S-1 OF WHICH THIS SCHEDULE FORMS A PART AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998 JUN-30-1998
<DEBT-HELD-FOR-SALE> 853,977 870,433 936,174
<DEBT-CARRYING-VALUE> 0 0 0
<DEBT-MARKET-VALUE> 0 0 0
<EQUITIES> 91,580 91,188 94,792
<MORTGAGE> 0 0 0
<REAL-ESTATE> 0 0 0
<TOTAL-INVEST> 1,031,035 1,091,230 1,168,223
<CASH> 168 1,432 3,015
<RECOVER-REINSURE> 85,980 87,528 94,039
<DEFERRED-ACQUISITION> 100 5,183 4,607
<TOTAL-ASSETS> 1,280,231 1,409,546 1,431,219
<POLICY-LOSSES> 876,721 901,712 921,423
<UNEARNED-PREMIUMS> 20,886 120,443 89,139
<POLICY-OTHER> 0 0 0
<POLICY-HOLDER-FUNDS> 0 0 0
<NOTES-PAYABLE> 21,871 22,054 21,972
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 303,441 304,674 309,685
<TOTAL-LIABILITY-AND-EQUITY> 1,280,231 1,409,546 1,431,219
123,600 35,892 74,520
<INVESTMENT-INCOME> 54,624 14,873 30,941
<INVESTMENT-GAINS> 10,296 1,441 4,246
<OTHER-INCOME> 11,870 2,963 4,885
<BENEFITS> 122,828 36,194 73,220
<UNDERWRITING-AMORTIZATION> 0 0 0
<UNDERWRITING-OTHER> 26,855 8,118 17,581
<INCOME-PRETAX> 30,947 4,162 4,181
<INCOME-TAX> 2,085 837 (654)
<INCOME-CONTINUING> 28,862 3,325 4,835
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 28,862 3,325 4,835
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
<RESERVE-OPEN> 400,607 445,958 445,958
<PROVISION-CURRENT> 121,331 36,194 73,220
<PROVISION-PRIOR> 1,497 0 0
<PAYMENTS-CURRENT> 3,930 668 1,445
<PAYMENTS-PRIOR> 73,547 12,115 21,363
<RESERVE-CLOSE> 445,958 469,369 496,370
<CUMULATIVE-DEFICIENCY> 0 0 0
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<PAGE> 1
Exhibit 99.1
CONSENT OF SALOMON SMITH BARNEY
Salomon Smith Barney, successor to Salomon Brothers Inc, hereby consents to
the use of Salomon Brothers Inc's name and the description of Salomon Brothers
Inc's opinion, dated October 15, 1997, referred to under the heading "THE
REORGANIZATION-Opinion of the Financial Advisor" in the Prospectus, dated
September 2, 1998, contained in the Registration Statement on Form S-1 of The
MIIX Group, Incorporated. By giving such consent Salomon Smith Barney does not
hereby admit that (1) Salomon Smith Barney is, or Salomon Brothers Inc was, an
expert with respect to any part of such Registration Statement within the
meaning of the term "expert" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, or (2) Salomon Smith Barney comes, or Salomon Brothers
Inc came, within the category of persons whose consent is required under the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
SALOMON SMITH BARNEY
By: /s/ Mario Torsiello
--------------------------
Name: Mario Torsiello
Title: Managing Director
September 2, 1998
New York, New York
