<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998.
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE MIIX GROUP, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 6719 22-3586492
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification No.)
Organization) Classification Code
Number)
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:
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
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. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per
share $325,000,000 $ 95,875
================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
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.
<PAGE> 2
[Logo] MEDICAL INTER-INSURANCE
EXCHANGE OF NEW JERSEY
Two Princess Road
Lawrenceville, New Jersey 08648
[LETTER FROM THE PRESIDENT TO COME]
<PAGE> 3
[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 (i) an amendment to the Rules and Regulations of
the Exchange to permit the dissolution of the Exchange and (ii) 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 (a) 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 (b) 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
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 Common Stock held by the
Exchange after the purchase of the Attorney-in-Fact, 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. Assuming that shares of Common Stock are
allocated to the purchase of the Attorney-in-Fact, it is expected that
approximately shares of Common Stock will be available for distribution to
Distributees. 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 Reorganization 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 WHITE 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
SUBJECT TO COMPLETION, DATED JULY 17, 1998
PROSPECTUS
SHARES
[Logo] THE MIIX GROUP, INCORPORATED
COMMON STOCK
This Prospectus is being furnished to Members 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") of the Exchange, and to Subscription Offerees (as defined
below), in connection with the Subscription Offering (as defined below).
Pursuant to the Plan of Reorganization, the Exchange will be dissolved and
Distributees (as defined below) will receive 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, solely for
Common Stock, 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 Common Stock held by the Exchange
after the purchase of the Attorney-in-Fact, 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. Assuming that shares of Common Stock are
allocated to the purchase of the Attorney-in-Fact, it is expected that
approximately shares of Common Stock will be available for distribution to
Distributees. 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. See "Glossary of
Selected Insurance Terms" and "Glossary of Reorganization and Subscription
Offering Terms" for the definition of certain terms used in this Prospectus.
Concurrently with the consummation of the Reorganization, but separate from
the Reorganization, The MIIX Group intends to sell Common Stock (i) through an
underwritten public offering (the "Public Offering") and (ii) through a
registered subscription offering (the "Subscription Offering," and with the
Public Offering, the "Offerings") to Subscription Offerees (as defined below).
It is currently anticipated that approximately shares of Common Stock will
be issued in connection with the Offerings. 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.
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 WHITE proxy card is being delivered to Members along with
this Prospectus. See "The Members' Meeting." In addition, a GREEN record card is
being sent to all Members. The GREEN record 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 15 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED BEFORE VOTING.
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.
<PAGE> 5
The date of this Prospectus is , 1998
<PAGE> 6
TABLE OF CONTENTS
PAGE
----
ADDITIONAL INFORMATION............................................ 3
FORWARD-LOOKING STATEMENTS........................................ 4
PROSPECTUS SUMMARY................................................ 5
The Company..................................................... 5
Business Strategy............................................... 5
The Reorganization and Distribution............................. 7
The Subscription Offering....................................... 9
Risk Factors.................................................... 13
Regulatory Approvals............................................ 13
Summary Financial and Operating Data............................ 14
RISK FACTORS...................................................... 15
THE MEMBERS' MEETING.............................................. 22
THE REORGANIZATION................................................ 23
Purpose......................................................... 23
Transfer of Assets and Liabilities to MIIX Insurance............ 23
Shares of Common Stock Issued to Distributees................... 23
Acquisition of the Attorney-in-Fact............................. 24
Conditions to Consummation of the Reorganization................ 24
Background of the Reorganization................................ 25
Recommendation of the Board of Governors;
Reasons for the Reorganization............................... 26
Opinion of Salomon Brothers Inc................................. 27
Accounting Treatment............................................ 29
Regulatory Approvals............................................ 29
Federal Tax Consequences........................................ 29
THE SUBSCRIPTION OFFERING......................................... 31
Priority; Allocation............................................ 31
Minimum and Maximum Subscription................................ 32
Subscription Price.............................................. 32
Subscription Procedures; Expiration of Subscription Offering.... 32
Delivery of Stock Certificates and Refunds...................... 32
No Transfer of Invitations to Subscribe......................... 33
Cancellation of Subscription Offering; Withdrawal............... 33
Interest on Subscription Funds.................................. 33
Federal Tax Consequences........................................
Subscription Services Agent..................................... 33
USE OF PROCEEDS................................................... 33
DIVIDEND POLICY................................................... 34
CAPITALIZATION.................................................... 35
SELECTED FINANCIAL AND OPERATING DATA............................ 36
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................... 37
BUSINESS.......................................................... 43
COMPARISON OF RIGHTS.............................................. 56
Liquidity/Marketability......................................... 56
Distributions................................................... 56
Meetings and Actions............................................ 57
Voting.......................................................... 57
Preferred Stock................................................. 57
Limited Liability............................................... 58
Removal of Governors/Directors.................................. 58
Business Combinations........................................... 58
Anti-takeover Provisions........................................ 58
Action by Written Consent....................................... 59
Miscellaneous................................................... 59
MANAGEMENT........................................................ 60
OWNERSHIP OF COMMON STOCK......................................... 67
DESCRIPTION OF CAPITAL STOCK...................................... 68
SHARES ELIGIBLE FOR FUTURE SALE................................... 71
STABILIZATION AND OTHER ACTIVITIES
IN CONNECTION WITH THE PUBLIC OFFERING........................... 71
LEGAL MATTERS..................................................... 72
EXPERTS........................................................... 72
GLOSSARY OF SELECTED INSURANCE
TERMS............................................................ 73
GLOSSARY OF REORGANIZATION AND SUBSCRIPTION OFFERING
TERMS........................................................... 76
INDEX TO COMBINED FINANCIAL
STATEMENTS...................................................... F-1
Annexes
A. Plan of Reorganization........................................ A-1
B. Opinion of Salomon Brothers Inc............................... B-1
C. Order of the Commissioner..................................... C-1
i
<PAGE> 7
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 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 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 PUBLIC OFFERING. COMMON STOCK TO BE OFFERED IN THE
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- ) 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 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.
3
<PAGE> 8
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 within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. 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 (viii) 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> 9
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 Public Offering is not exercised. See
"Glossary of Selected Insurance Terms" and "Glossary of Reorganization Related
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 effective date of the Reorganization, to the Exchange and its
subsidiaries, and the Attorney-in-Fact and its subsidiaries, collectively, and
at all times on or after such effective date, to The MIIX Group and its
subsidiaries, collectively; the term "Insurance Subsidiaries" refers, at all
times prior to such effective date, to Lawrenceville Property and Casualty Co.,
Inc. ("LP&C"), MIIX Insurance Company of New York ("MIIX New York") and
Lawrenceville Re, Ltd. ("Lawrenceville Re") and, at all times on or after such
effective 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 15
states. For the quarter ended March 31, 1998, approximately 29% 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 $55.2 million and $3.3 million,
respectively, for the three months ended March 31, 1998. As of March 31, 1998,
the Company had total assets of $1.4 billion and total equity of $304.7 million.
Since 1993, the Company's equity has grown at a compound annual rate of 9.9%.
BUSINESS STRATEGY
The Company has adopted a strategy which it believes will allow it to compete
effectively and create long-term growth. As part of this strategy, 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 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;
5
<PAGE> 10
- 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 15 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 29% in the quarter ended March 31, 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 8 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, 16%
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 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.
6
<PAGE> 11
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 exclusive endorsements
of the Medial 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.
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 of Governors
of the Exchange (the "Board of Governors") adopted a Plan of Reorganization that
included several key steps:
- Formation of MIIX Insurance, a new stock company domiciled in
New Jersey and formed for the purpose of assuming, solely in
exchange for Common Stock, all of the Exchange's business,
assets, and liabilities (except for the Common Stock and cash
to be distributed to Distributees pursuant to the Plan of
Reorganization), after which the Exchange will be dissolved
(with all policies issued by the Exchange being assumed by
MIIX Insurance and continuing in force) and Membership
Interests will be extinguished;
- Formation of The MIIX Group, a holding company for MIIX
Insurance, which is to acquire the Attorney-in-Fact from the
Medical Society in exchange for Common Stock and cash; and
- Allocation and distribution to Distributees of (i) Common
Stock or (ii) 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.
7
<PAGE> 12
Set forth below is an illustration of the Company's structure both before and
after the proposed Reorganization:
BEFORE THE REORGANIZATION:
Medical Inter-Insurance Medical Society of New Jersey
Exchange
Management
Contract
New Jersey State
Medical Underwriters, Inc. and
its subsidiaries**
Lawrenceville The MIIX Group,
Holdings, Inc. Incorporated
and its subsidiaries* (newly formed)
MIIX Insurance Company
(newly formed)
AFTER THE REORGANIZATION:
Public stockholders,
including Medical Society of New Jersey
and Distributees
The MIIX Group, Incorporated
New Jersey State Medical
MIIX Insurance Underwriters, Inc. and its
Company subsidiaries**
Lawrenceville
Holdings, Inc.
and its subsidiaries*
* Includes LP&C and MIIX New York.
** Includes Hamilton National Leasing Corporation, Pegasus Advisors, Inc.,
MIIX Healthcare Group, Inc., Lawrenceville Re and certain other
subsidiaries.
8
<PAGE> 13
On March 5, 1998, the Insurance Commissioner of the State of New Jersey (the
"Commissioner") approved the Plan of Reorganization, subject to certain
conditions. See "-- Regulatory Approvals." The consummation of the
Reorganization is also subject to certain other conditions precedent, including
that the Company receive an opinion of its tax advisors substantially to the
effect that the Reorganization shall constitute a tax-free reorganization to the
Company for federal income tax purposes. Members 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 GREEN record card will accompany each copy of this Prospectus delivered to
Members. The record 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, but separate from
the Reorganization, 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 (the "Subscription Shares") in the Subscription
Offering to Subscription Offerees. 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. Each such 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 after
the Effective 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.
Common Stock to be Outstanding
Immediately After the Reorganization
and the Offerings ............................... Approximately shares.
(Assumes that all
Subscription Shares offered
pursuant to the Subscription
Offering are sold in the
Subscription Offering, that
shares of Common Stock
are issued in connection
with the Public Offering and
the Reorganization, and that
the underwriters for the
Public Offering do not
exercise their over-
allotment option.)
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
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
be
9
<PAGE> 14
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."
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 Effective 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 Effective Date
("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
Effective 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
does not satisfy such
criteria on the fourth
business day prior to the
Effective 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
desire and intent that
Subscription Offerees be the
persons defined above who
have a policyholder or other
designated relationship with
the Company on the Effective
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 Effective Date.
Subscription Offerees may
elect to subscribe for
Subscription Shares through
or on behalf of their
respective Associates.
"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; (ii) 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
(iii) any relative or spouse
of such person, or any
relative of such spouse, who
has the same home as such
person.
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
(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
10
<PAGE> 15
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"), which is
currently estimated to be
between $ and $ .
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
11
<PAGE> 16
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 sale of
such whole number of
Subscription Shares will be
refunded without interest.
Minimum and Maximum Subscription ................ Each Subscription Offeree
may subscribe for between
100 whole Subscription
Shares (the "Minimum
Subscription Amount") and
$250,000 worth of whole
Subscription Shares (subject
to adjustment as described
below, the "Maximum
Subscription Amount"). The
Company may, in its sole
discretion, increase or
decrease 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.
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 Subscription
Services Agent (as defined
below) not later than 4:00
p.m., New York time, on
1998 (the "Subscription
Expiration Time"). The
Company may extend the
Subscription Expiration Time
in its sole discretion.
Except as otherwise
described herein,
Subscription Agreements
received by the Subscription
Services Agent may not be
modified, amended or
withdrawn without the
consent of the Company. If a
Subscription Agreement is
not received by the
Subscription Services Agent
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.
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
12
<PAGE> 17
within 60 days
of the Subscription
Expiration Time,
Subscription Offerees will
be permitted to withdraw
their subscriptions.
Subscription Offerees may
also 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 % 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.
RISK FACTORS
Members and Subscription Offerees should carefully consider the factors set
forth herein under "Risk Factors" commencing on page 15, 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. 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 retained by
the Exchange, all of which is 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 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.
13
<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 three months ended March 31, 1997 and 1998, and the
selected balance sheet data as of December 31, 1993, 1994 and 1995 and as of
March 31, 1997 and 1998, are derived from unaudited financial statements of the
Company included elsewhere herein 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 is
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 three months ended March 31, 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 THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Direct premiums written $ 115,999 $ 127,647 $ 137,291 $ 143,218 $ 162,430 $ 126,689 $ 143,522
========== ========== ========== ========== ========== ========== ==========
Net premiums earned ... $ 84,928 $ 96,019 $ 105,256 $ 108,182 $ 123,600 $ 27,113 $ 35,892
Net investment income.. 48,223 47,447 51,760 49,208 54,624 13,208 14,873
Realized investment ... 29,891 (11,030) 13,149 8,683 10,296 195 1,441
gains (losses)
Other revenue ......... 4,051 7,343 9,968 11,524 11,870 3,017 2,963
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues ...... 167,093 139,779 180,133 177,597 200,390 43,533 55,169
---------- ---------- ---------- ---------- ---------- ---------- ----------
Losses and loss
adjustment expenses.. 110,402 98,899 107,889 110,866 122,828 27,849 36,194
Underwriting expenses . 11,739 12,777 14,743 17,130 25,047 5,164 7,757
Funds held charges .... 16,944 3,067 5,473 8,626 11,581 2,847 3,544
Other expenses ........ 2,020 4,224 6,905 11,699 9,987 3,241 3,512
Total expenses ...... 141,105 118,967 135,010 148,321 169,443 39,101 51,007
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes................ 25,988 20,812 45,123 29,276 30,947 4,432 4,162
Income taxes .......... 8,465 5,647 12,108 9,779 2,085 973 837
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income .......... $ 17,523 $ 15,165 $ 33,015 $ 19,497 $ 28,862 $ 3,459 $ 3,325
========== ========== ========== ========== ========== ========== ==========
Balance Sheet Data (at
end of period):
Total investments ..... $ 799,665 $ 787,621 $ 894,176 $ 919,697 $1,031,035 $ 936,225 $1,091,230
Total assets .......... 947,137 953,738 1,088,998 1,157,746 1,280,231 1,239,628 1,409,546
Total liabilities ..... 743,319 775,844 842,540 901,705 976,790 988,659 1,104,872
Total equity .......... 203,818 177,894 246,458 256,041 303,441 250,969 304,674
Statutory surplus ..... 147,803 156,246 184,651 208,738 248,050 213,597 254,949
Additional Data:
GAAP ratios:
Loss ratio .......... 130.0% 103.0% 102.5% 102.5% 99.4% 102.7% 100.8%
Expense ratio ....... 13.8 13.3 14.0 15.8 20.3 19.0 21.6
---------- ---------- ---------- ---------- ---------- ---------- ----------
Combined ratio ...... 143.8% 116.3% 116.5% 118.3% 119.7% 121.7% 122.4%
========== ========== ========== ========== ========== ========== ==========
Earnings Per Share(1) . $ 1.46 $ 1.26 $ 2.75 $ 1.62 $ 2.41 $ 0.29 $ 0.28
========== ========== ========== ========== ========== ========== ==========
Book Value Per
Share(1) ............ $ 16.98 $ 14.82 $ 20.54 $ 21.34 $ 25.29 $ 20.91 $ 25.39
========== ========== ========== ========== ========== ========== ==========
</TABLE>
(1) Gives effect in all periods to the assumed aggregate issuance of
approximately 12,000,000 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.
14
<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 Department of Banking and
Insurance of the State of New Jersey (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.
In 1997, more than 70% of the Company's direct premiums written were
generated 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."
15
<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 over 70% of the Company's
direct premiums were written in 1997, 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, 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."
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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 affect 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 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
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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."
ANTI-TAKEOVER PROVISIONS
The MIIX Group's certificate of incorporation and bylaws 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's Board of Directors ("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 which provide that directors may be removed only for cause
and
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only by the affirmative vote of a majority of holders of the outstanding
shares of voting securities; provisions which provide that The MIIX Group Board
may increase the size of the Board and may 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 8 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
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. If these approvals are not
granted prior to the effective date 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
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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 Effective Date.
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
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 (the "Year 2000
Issue"). This could result in system failures and improper information
processing that could disrupt the Company's business operations.
To address the Year 2000 Issue, the Company assigned a project manager to
study the Company's information systems and computers to determine whether they
will appropriately handle post-1999 date codes. This study
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included the Company's internal systems and services, as well as exposure from
service providers, brokers and other external business partners. Software
applications, hardware and technology infrastructure 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 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 affect 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.
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THE MEMBERS' MEETING
TIME, DATE AND PLACE
The Members' Meeting will be held 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 10,500 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 to expressly 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.
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 to assist in soliciting proxies
for the Members' Meeting at a fee of approximately $ plus certain
expenses.
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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.
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 that
includes several key steps:
- Formation of MIIX Insurance, a new stock company domiciled in New
Jersey formed for the purpose of assuming, solely in exchange for Common Stock,
all of the Exchange's business, assets, and liabilities (except for the Common
Stock and cash to be distributed to Distributees pursuant to the Plan of
Reorganization), after which the Exchange will be dissolved (with all policies
issued by the Exchange being assumed by MIIX Insurance and continuing in force)
and Membership Interests will be extinguished;
- Formation of The MIIX Group, a holding company for MIIX Insurance,
which is also to acquire the Attorney-in-Fact from the Medical Society in
exchange for Common Stock and cash; and
- Allocation and distribution to Distributees of (i) Common Stock or
(ii) 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 located outside the United States of America or is an address to
which mail is undeliverable.
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. 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. Pursuant to an
Assignment and Assumption Agreement to be entered into among the Exchange, The
MIIX Group and MIIX Insurance in connection with the Reorganization (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
and to the Medical Society in connection with the purchase of the
Attorney-in-Fact.
SHARES OF COMMON STOCK ISSUED TO DISTRIBUTEES
In connection with the Reorganization, approximately shares of Common
Stock will be issued 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
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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 to be held on
, 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
shares of Common Stock being issued in the Reorganization, after the purchase of
the Attorney-in-Fact, 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. 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 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 Public Offering
Price, or if the Public Offering is not consummated, an amount that reflects the
economic value of the Common Stock as determined in good faith by the Board of
Governors. 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.
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 "Effective Date"), The MIIX
Group will purchase all the outstanding common stock of the Attorney-in-Fact and
its subsidiaries 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 $11.0
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. All subsidiaries of the
Attorney-in-Fact are included in the purchase.
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
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. Such order was issued on
March 5, 1998. In addition, the Company has received a fairness opinion from
Salomon Brothers Inc. See "-- Opinion of Salomon Brothers Inc." 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.
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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 further explore 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 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 MIIX Group 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 MIIX Group 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,
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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 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
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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 SALOMON BROTHERS INC
On June 27, 1997, the Exchange retained Salomon Brothers Inc (the "Financial
Advisor"), to assist it in the investigation and possible execution of the
Reorganization. In connection with the engagement, the Exchange instructed the
Financial Advisor 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 Exchange imposed no limitations on
the Financial Advisor with respect to the investigation made, or the procedures
followed, by it in rendering its opinion. The Exchange selected the Financial
Advisor because of its reputation and expertise as a nationally recognized
investment banking firm. The Financial Advisor, as part of its investment
banking services, is regularly engaged in the valuation of businesses and
securities in 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.
The Financial Advisor 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.
THE FULL TEXT OF THE FINANCIAL ADVISOR'S OPINION, DATED OCTOBER 15, 1997,
WHICH SETS FORTH THE MATTERS REVIEWED, ASSUMPTIONS MADE, FACTORS CONSIDERED,
RELIANCE UPON OTHERS AND LIMITATIONS AS TO THE REVIEW UNDERTAKEN BY IT, IS
ATTACHED HERETO AS ANNEX B AND IS INCORPORATED BY REFERENCE HEREIN. THE
DISTRIBUTEES ARE URGED TO READ CAREFULLY THE OPINION OF THE FINANCIAL ADVISOR IN
ITS ENTIRETY. ANY DESCRIPTION OF OR REFERENCE TO THE FINANCIAL ADVISOR'S OPINION
IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE FULL TEXT OF
SUCH OPINION. THE PREPARATION OF A FAIRNESS OPINION IS A COMPLEX PROCESS AND IS
NOT NECESSARILY SUBJECT TO PARTIAL ANALYSIS OR SUMMARY DESCRIPTION. THE
FINANCIAL ADVISOR'S 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
FINANCIAL ADVISOR'S OPINION IS BASED ON CONDITIONS AS THEY EXISTED ON THE DATE
THEREOF AND THE FINANCIAL ADVISOR DOES NOT ASSUME RESPONSIBILITY TO UPDATE OR
REVISE ITS 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
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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.
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.
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.
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
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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 Exchange retained the Financial Advisor pursuant to an engagement letter
dated June 27, 1997. The Exchange paid the Financial Advisor an aggregate fee of
$400,000 pursuant to such engagement letter. The Exchange also agreed to
reimburse the Financial Advisor 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. 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
audited financial statements 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. Second, the
Reorganization must be 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 8 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
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.
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
PriceWaterhouseCoopers LLP, tax advisor to the Company (the "Tax Advisor"). The
description is based on the
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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 Internal Revenue
Service (the "IRS"), as currently in effect, all of which are subject to change
at any time, possibly with retroactive effect. This discussion may not apply if
a Member is a nonresident alien individual for federal tax purposes, a
corporation that is not incorporated in the United States, or a partnership that
is not engaged in a trade or business in the United States. 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 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
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, assuming they hold their Membership
Interests as capital assets, they shall recognize a capital gain equal to the
amount of the cash received. The treatment of such capital gain (long-term,
mid-term or short-term) will depend upon the period that the Member held his or
her Membership Interest in the Exchange. Under current law, net capital gain
recognized by individuals on the disposition of assets held (i) for more than 18
months is subject to a 20% minimum rate of tax, (ii) for more than one year and
not more than 18 months is subject to a 28% rate of tax and (iii) for one year
or less is taxed at ordinary income tax rates. Under the Internal Revenue
Service Restructuring and Reform Bill of 1998 recently passed by Congress and
awaiting President Clinton's signature, net capital gain recognized by
individuals on properly held for more than one year would be subject to a 20%
maximum rate of tax.
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THE SUBSCRIPTION OFFERING
The Company is offering up to Subscription Shares in the Subscription
Offering 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 Effective Date,
then the Company will return to such person without interest any subscription
funds previously delivered by such person. Subscription Offerees may elect to
subscribe for Subscription Shares through or on behalf of their respective
Associates.
The primary purpose of the Subscription Offering is to provide Subscription
Offerees who will have an interest in or relationship with the Company after the
Effective Date with an opportunity to acquire Common Stock. It is the desire and
intent that Subscription Offerees be those persons defined above who have a
policyholder or other designated relationship with the Company on the Effective
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 Effective 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 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
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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 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.
SUBSCRIPTION PRICE
The price for Subscription Shares will be equal to the Public Offering Price,
which is currently estimated to be between $ and $ . The Public
Offering Price will be determined by the Company in consultation with the
representatives of 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. 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 sale of such whole number of Subscription
Shares will be refunded without interest.
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 Subscription Services Agent not later than the
Subscription Expiration Time. The Company may extend the Subscription Expiration
Time in its sole discretion. Except as otherwise described herein, Subscription
Agreements received by the Subscription Services Agent may not be modified,
amended or withdrawn without the consent of the Company. If a Subscription
Agreement is not received by the Subscription Services Agent 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.
32
<PAGE> 37
DELIVERY OF STOCK CERTIFICATES AND REFUNDS
Upon the closing of the sales of Common Stock 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.
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.
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 the
Subscription Expiration Time, Subscription Offerees will be permitted to
withdraw their subscriptions. Subscription Offerees may also 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 % 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.
FEDERAL TAX CONSEQUENCES
The Company believes that, and the Company intends to take the position
for federal income tax purposes that, invitations to subscribe for Subscription
Shares do not have any fair market value (inasmuch as such invitations are
nontransferable, of short duration, provided to Subscription Offerees without
charge, and afford the Subscription Offeree only the ability to offer to
purchase Common Stock in the Subscription Offering (which offer the Company may
accept or reject in its sole discretion) at the Public Offering Price, which is
the same price at which such stock will be sold to other purchasers). However,
the IRS is not bound by this determination, and subscribers are encouraged to
consult with their tax advisors about the tax consequences of the Subscription
Offering.
SUBSCRIPTION SERVICES AGENT
FBR has been engaged by the Company to assist in effecting the Subscription
Offering by serving as Subscription Services Agent. FBR will assist the Company
in the Subscription Offering as follows: (i) training and educating employees
regarding the mechanics of the Subscription Offering; (ii) conducting any
information meetings for employees and Subscription Offerees; and (iii) keeping
records of all Subscription Agreements for the Subscription Offering. The
Company has established a telephone call center, which will be managed by FBR,
to coordinate the Subscription Offering and answer questions about the
Subscription Offering received by telephone. FBR will forward copies of this
Prospectus and subscription materials to Subscription Offerees upon request. The
Subscription Agreement and the required payment for Subscription Shares may be
sent to the Subscription Services Agent as follows:
Friedman, Billings, Ramsey & Co., Inc.
[Address]
[Phone No.]
Following receipt of Subscription Agreements from Subscription Offerees,
FBR will, among other things, verify that (i) the submitted checks and money
orders are honored, (ii) the Subscription Agreement has been fully and correctly
completed and signed, (iii) the Subscription Offeree has not previously
submitted a Subscription Agreement, and (iv) the subscriber is a Subscription
Offeree. All subscriptions that FBR is unable to so verify will be rejected and
returned after consultation with the Company. In addition, FBR will receive and
hold all funds submitted by Subscription Offerees and will disburse funds in the
event a refund is required.
33
<PAGE> 38
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. Based on an assumed Public Offering Price of $ per
share, the net proceeds to the Company from the sale of shares of Common
Stock in the Offerings is estimated to be approximately $ million after
deducting the underwriting discount and the other expenses of the Company in
connection with the Offerings. The net proceeds of the Offerings will be used
for capitalizing the Company's subsidiaries in order to support their continued
growth, for general corporate purposes, 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."
34
<PAGE> 39
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 March 31, 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 Offerings at an assumed Public
Offering Price of $ per share after deducting estimated underwriting
discounts and expenses of the Offerings of $ . 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 MARCH 31, 1998
------------------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
---------------- ----------------- ----------------
(in thousands)
<S> <C> <C> <C>
Total debt ..................................... $ 22,054 $ 22,054 $
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; 12,000,000 shares issued and
outstanding, as adjusted;
shares issued and outstanding, as further -- 120
adjusted
Additional paid-in capital ................. -- 277,531(1)
Surplus .................................. 279,151 --
Unrealized appreciation of invested assets,
net of deferred taxes ................... 25,523 25,523
-------- -------- ---
Total equity ............................... 304,674 303,174
======== ======== ===
Total capitalization ....................... $326,728 $325,228 $
======== ======== ===
</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. The As Further Adjusted column reflects the estimated underwriting
discounts of the Offerings of $ million and additional estimated
expenses of $ million.
35
<PAGE> 40
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 three months ended March 31, 1997 and 1998, and the
selected balance sheet data as of December 31, 1993, 1994 and 1995 and as of
March 31, 1997 and 1998, are derived from unaudited financial statements of the
Company included elsewhere herein 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 is
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 three months ended March 31, 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 THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------------- ------------------------
1993 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 $ 126,689 $ 143,522
========== ========== ========== ========== ========== ========== ==========
Net premiums earned ....... $ 84,928 $ 96,019 $ 105,256 $ 108,182 $ 123,600 $ 27,113 $ 35,892
Net investment income ..... 48,223 47,447 51,760 49,208 54,624 13,208 14,873
Realized investment gains
(losses) ................ 29,891 (11,030) 13,149 8,683 10,296 195 1,441
Other revenue ............. 4,051 7,343 9,968 11,524 11,870 3,017 2,963
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues .......... 167,093 139,779 180,133 177,597 200,390 43,533 55,169
---------- ---------- ---------- ---------- ---------- ---------- ----------
Losses and loss adjustment
expenses ................ 110,402 98,899 107,889 110,866 122,828 27,849 36,194
Underwriting expenses ..... 11,739 12,777 14,743 17,130 25,047 5,164 7,757
Funds held charges ........ 16,944 3,067 5,473 8,626 11,581 2,847 3,544
Other expenses ............ 2,020 4,224 6,905 11,699 9,987 3,241 3,512
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses .......... 141,105 118,967 135,010 148,321 169,443 39,101 51,007
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 25,988 20,812 45,123 29,276 30,947 4,432 4,162
Income taxes .............. 8,465 5,647 12,108 9,779 2,085 973 837
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income .............. $ 17,523 $ 15,165 $ 33,015 $ 19,497 $ 28,862 $ 3,459 $ 3,325
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total investments ......... $ 799,665 $ 787,621 $ 894,176 $ 919,697 $1,031,035 $ 936,225 $1,091,230
Total assets .............. 947,137 953,738 1,088,998 1,157,746 1,280,231 1,239,628 1,409,546
Total liabilities ......... 743,319 775,844 842,540 901,705 976,790 988,659 1,104,872
Total equity .............. 203,818 177,894 246,458 256,041 303,441 250,969 304,674
Statutory surplus ........ 147,803 156,246 184,651 208,738 248,050 213,597 254,949
ADDITIONAL DATA:
GAAP ratios:
Loss ratio .............. 130.0% 103.0% 102.5% 102.5% 99.4% 102.7% 100.8%
Expense ratio ........... 13.8 13.3 14.0 15.8 20.3 19.0 21.6
---------- ---------- ---------- ---------- ---------- ---------- ----------
Combined ratio .......... 143.8% 116.3% 116.5% 118.3% 119.7% 121.7% 122.4%
========== ========== ========== ========== ========== ========== ==========
Earnings Per Share(1) ..... $ 1.46 $ 1.26 $ 2.75 $ 1.62 $ 2.41 $ 0.29 $ 0.28
========== ========== ========== ========== ========== ========== ==========
Book Value Per Share(1) ... $ 16.98 $ 14.82 $ 20.54 $ 21.34 $ 25.29 $ 20.91 $ 25.39
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ----------
(1) Gives effect in all periods to the assumed aggregate issuance of
approximately 12,000,000 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.
36
<PAGE> 41
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 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 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, newly written policies may have 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 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.
Certain of the Company's 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 claims 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
37
<PAGE> 42
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.
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Direct premiums written. Direct premiums written for the quarter ended
March 31, 1998, were $143.5 million, a 13.3% increase over the $126.7 million
for the quarter ended March 31, 1997, as a result of the Company's continued
geographic expansion. Business written in the first quarter of 1998 included
$16.1 million of premiums written in states such as Kentucky, Ohio, Michigan and
Texas where the Company had not written any business in the first quarter of
1997 and prior. In states where the Company had written business in the first
quarter of 1997, such as Pennsylvania and Maryland, premium grew by $9.2
million. The growth in other states substantially offset a decrease in the
Company's New Jersey business. The decrease in New Jersey was mostly
attributable to policies that were not renewed primarily due to rate increases
for certain exposure classes that resulted from the Company's annual
underwriting process.
Net premiums earned. Net premiums earned for the quarter ended March 31,
1998, were $35.9 million, an increase of 32.4% over the $27.1 million for the
quarter ended March 31, 1997. Premiums earned in the first quarter are
substantially less than premiums written, as the majority of the Company's
policies have January 1 effective dates. While the entire premium for such
policies is considered written in the first quarter, the premiums are earned
ratably throughout the year.
Net investment income. Net investment income was $14.9 million for the
quarter ended March 31, 1998, an increase of 12.6% over the $13.2 million for
the quarter ended March 31, 1997. Cash flow from operations of $63.1 million for
the three months ended March 31, 1998 along with the substantial cash flow
generated during 1997, have contributed toward increases in the invested asset
base which approximated $1.1 billion as of March 31, 1998. The pre-tax book
yield on the investment portfolio remained unchanged at 5.56% compared to the
same period last year due to a lower yielding fixed maturity market, which was
offset by an allocation to higher yielding pre-tax securities.
Realized investment gains (losses). Net realized investment gains (losses)
were approximately $1.4 million for the quarter ended March 31, 1998 compared to
$0.2 million for the same period in 1997. Substantially all of these gains
resulted from the sale of bonds in a generally falling interest rate
environment.
Other revenue. Other revenue was $3.0 million for the quarter ended March
31, 1998, consistent with the $3.0 million for the quarter ended March 31, 1997
and is comprised primarily of revenues from the Company's non-insurance
subsidiaries.
Losses and loss adjustment expenses (LAE). The provision for losses and LAE
was $36.2 million for the quarter ended March 31, 1998, a 30.0% increase over
the $27.8 million for the quarter ended March 31, 1997 consistent with the
increase in net premiums earned. The loss and LAE ratio was 100.8% for the
quarter ended March 31, 1998 compared to 102.7% for the same period last year.
This modest improvement was principally attributable to changes in the Company's
business mix with the majority of new business being written on a claims made
basis. The provision for losses and LAE is net of $15.5 million for the quarter
ended March 31, 1998 and $13.5 million for the quarter ended March 31, 1997 of
incurred losses and LAE ceded to reinsurers.
Underwriting expenses. Underwriting expenses were $7.8 million for the
quarter ended March 31, 1998, an increase of 50.2% over the $5.2 million for the
quarter ended March 31, 1997. The expense ratio was 21.6% for the quarter ended
March 31, 1998 compared to 19.0% for the same period in 1997. This increase was
principally attributable to increases in staffing and commissions related to the
Company's geographic expansion and diversification. As previously discussed, the
Company is increasing the use of broker distribution channels, especially as it
expands into other states, which has resulted in increases in commission
expense.
Funds held charges. Funds held charges of $3.5 million for the quarter
ended March 31, 1998 increased by $0.7 million or 24.5% over the $2.8 million
for the quarter ended March 31, 1997 and relate to the interest credited
38
<PAGE> 43
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 $3.5 million for the quarter ended
March 31, 1998, an increase of 8.4% over the $3.2 million for the quarter ended
March 31, 1997 and is comprised primarily of the expenses of the Company's
non-insurance subsidiaries.
Income taxes. Income taxes were $0.8 million for the quarter ended March
31, 1998, a decrease of 14.0% from the $1.0 million for the quarter ended March
31, 1997. The effective tax rate decreased slightly to 20.1% for the quarter
ended March 31, 1998 from 22.0% for the same period in 1997.
Net income. Net income was $3.3 million for the quarter ended March 31,
1998, a 3.9% decrease from the $3.5 million for the quarter ended March 31,
1997, principally as a result of higher underwriting expenses, largely offset by
higher investment income and realized investment gains.
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 10.9% 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.
Underwriting expenses. Underwriting expenses were $25.0 million for the
year ended December 31, 1997, an increase of 46.2% over the $17.1 million for
the year ended December 31, 1996. The expense ratio was 20.3% for the year ended
December 31, 1997 compared to 15.8% for the year ended December 31, 1996. These
increases were principally attributable to increases in staffing and commissions
related to the Company's geographic expansion and costs related to ongoing
enhancements to its computer systems, as well as expenses associated with
various consulting projects geared toward business process improvement.
Funds held charges. Funds held of $11.6 million for the year ended December
31, 1997 increased by $2.9 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.
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Other expenses. Other expenses were $10.0 million for the year ended
December 31, 1997, a 14.6% decrease from the $11.7 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 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.
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.
Underwriting expenses. Underwriting expenses were $17.1 million for the
year ended December 31, 1996, an increase of 16.2% over the $14.7 million for
the year ended December 31, 1995. The expense ratio was 15.8% 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.
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Other expenses. Other expenses were $11.7 million for the year ended
December 31, 1996, a 69.4% increase from the $6.9 million for the year ended
December 31, 1995. This increase is primarily related to staffing and
professional fee expenditures associated with the Company's healthcare
consulting subsidiaries, some of which were acquired in 1995 and 1996, and its
investment advisory subsidiary which was acquired in 1996.
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.
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 (the "Year 2000
Issue"). This could result in system failures and improper information
processing that could disrupt the Company's business operations.
To address the Year 2000 Issue, the Company assigned a project manager to
study the Company's information systems and computers to determine whether they
will appropriately handle post-1999 date codes. This study included the
Company's internal systems and services, as well as exposure from service
providers, brokers and other external business partners. Software applications,
hardware and technology infrastructure 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 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
such Year 2000 issues.
The Company's Year 2000 cost is estimated to be less than $1 million
through the completion of its remediation efforts, which is expected in 1999.
FINANCIAL CONDITION
Cash and invested assets. Aggregate invested assets, including cash and
short term investments, were $1,092.7 million at March 31, 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 March 31, 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 billion, or 92.0% of the Company's investment
portfolio as of March 31, 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 4.8 years. At March 31, 1998, the Company's
investment portfolio also included $91.2 million, or approximately 8.0%,
invested in unaffiliated common stocks.
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 $901.7
million at March 31, 1998 and $876.7 million and $795.4 million at December 31,
1997 and 1996, respectively. Reinsurance recoverable on unpaid losses and LAE
was $432.3 million at March 31, 1998 and $430.8 million and $394.8 million at
December 31, 1997 and 1996, respectively. Funds held under reinsurance treaties,
which collateralize a significant portion of reinsurance
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recoverable on unpaid losses and LAE, were $344.8 million at March 31, 1998, and
$344.8 million and $340.3 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.
Equity. The Company's total equity was $304.7 million at March 31, 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.
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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. The current regulations of the New Jersey Insurance Department limit
dividends to the lesser of (i) 10% of the insurer's statutory surplus as of the
immediately preceding year or (ii) the insurer's net gain from operations. 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 $56.9 million and $20.4 million for the first
quarter of 1998 and 1997, respectively, and $65.9 million and $41.5 million for
the years ended 1997 and 1996, respectively. Because a substantial majority of
the Exchange's policies renew on January 1 of each year, cash flow from
operations tends to be higher in the first quarter of each year than in each
subsequent quarter. 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. 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 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.
RECENT DEVELOPMENTS
In July, 1998, management began the initial phase of the implementation of
a new computer system which is intended to replace the majority of the Company's
operating systems. The policy administration and billing systems have been
installed and the claims module is scheduled to be installed during December
1998. Upon the completion of the testing of this system, which will continue
throughout the third quarter 1998, management intends to abandon the old system.
Management therefore plans to take a charge, in the second quarter of 1998, of
approximately $8.5 million which represents the current net book value of this
asset.
The Company is seeking to obtain a new bank facility in the principal
amount of approximately $35 million from a large lender. The Company expects
that this facility will be in the form of an unsecured revolving line of credit
to be used when needed for general corporate purposes. There can be no assurance
that the Company will be able to obtain this new bank facility on terms that are
satisfactory to the Company.
Management periodically reevalutes its invested asset allocation. Based
upon current equity market volatility and other factors, the Company has
recently begun to liquidate its equity position which aggregated approximately
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$92 million as of June 30, 1998. It is expected that the liquidation process
will be completed during the third quarter of 1998 with all of the proceeds
being allocated to higher yielding fixed maturity investments. Management
expects to realize gains of approximately $20 million in connection with this
liquidation.
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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 15
states. For the quarter ended March 31, 1998, approximately 29% of the Company's
total written premiums 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 $55.2 million and $3.3 million,
respectively, for the three months ended March 31, 1998. As of March 31, 1998,
the Company had total assets of $1.4 billion and total equity of $304.7 million.
Since 1993, the Company's equity has grown at a compound annual rate of 9.9%.
BUSINESS STRATEGY
The Company has adopted a strategy which it believes will allow it to
compete effectively and create long-term growth. As part of this strategy, 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
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
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other states. Since 1996, the Company has expanded its operations significantly
and currently writes policies in 15 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 29% in the quarter ended March 31, 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 8 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, 16 % 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 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 exclusive endorsements
of the Medial Society of New Jersey (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.
ENHANCE 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."
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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 has the exclusive 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
27% 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
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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 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 comprised 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 high standards of 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 physician and
medical group insureds based on loss and LAE experience it has developed over
the past 20 years 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.
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The claims representatives at the Company have on average 10 years of
experience with the Company and/or 10 years of prior 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 also 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.
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 its 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.
49
<PAGE> 54
Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------------- --------------------------
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 27,849 36,194
Prior years............................. -- -- 1,497 -- --
---------- ---------- ---------- ---------- ----------
Total incurred............................. 107,889 110,866 122,828 27,849 36,194
---------- ---------- ---------- ---------- ----------
Paid related to:
Current year............................ 3,000 3,630 3,930 620 668
Prior years............................. 97,496 116,194 73,547 18,670 12,115
---------- ---------- ---------- ---------- ----------
Total paid................................. 100,496 119,824 77,477 19,290 12,783
---------- ---------- ---------- ---------- ----------
Balance at end of period, net of
reinsurance recoverable ................. 409,565 400,607 445,958 409,166 469,369
Reinsurance recoverable.................... 339,095 394,842 430,763 408,153 432,343
---------- ---------- ---------- ---------- ----------
Balance at end of period, gross of
reinsurance.............................. $ 748,660 $ 795,449 $ 876,721 $ 817,319 $ 901,712
========== ========== ========== ========== =========
</TABLE>
The following table reflects the development of reserves for unpaid losses
and LAE 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 table
reflects all years (including 1987 through 1992) on an undiscounted basis. The
first line shows the reserves, net of reinsurance recoverables, as originally
reported at the end of the stated year. Each calendar year-end reserve includes
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 original recorded reserve 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 reserve
amount and the reserve amount 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.
50
<PAGE> 55
The table reflects the effects 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
1996 shown below. This table presents development data by calendar year and does
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>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOSS AND LAE RESERVES: ..... $395,099 $452,781 $502,528 $553,051 $585,563 $384,670 $387,94 $402,172 $409,565 $400,607
LIABILITY REESTIMATED AS OF:
One year later ........ 408,745 447,477 513,096 534,087 577,450 384,196 387,94 402,172 409,565 402,104
Two years later ....... 403,871 465,300 494,044 524,264 576,974 384,200 387,94 402,172 410,433
Three years later ..... 423,520 445,913 488,404 523,783 576,979 384,198 387,94 402,587
Four years later ...... 402,195 436,659 487,957 523,787 576,977 384,243 388,11
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) (868) (1,497)
</TABLE>
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <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 $116,194 $ 73,547
Two years later.... 109,979 134,743 144,141 245,270 318,200 164,156 178,278 211,637 194,550
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
</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 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
51
<PAGE> 56
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 THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Ceded premiums earned.................. $ 31,633 $ 36,404 $ 42,067 $ 8,280 $ 9,090
Ceded Losses and Loss
Adjustment Expenses............... $ 53,405 $ 57,064 $ 66,563 $ 11,692 $ 12,759
Funds held charges..................... $ 5,473 $ 8,626 $ 11,581 $ 2,847 $ 3,544
</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 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
52
<PAGE> 57
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 Attorney-in-Fact 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 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: Pacific Investment Management
Company, General Re-New England Asset Management, Loomis Sales & Company, L.P.,
and Prime Advisors, Inc. The Company also uses two outside investment managers
for equity securities: Sanford C. Bernstein & Co., Inc., and Vanguard
Institutional Index Fund.
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.
53
<PAGE> 58
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 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 $ 179,854 $ 184,042
State, municipalities and
political subdivisions..... 258,775 261,614 202,386 209,605 169,488 175,046
Mortgage-backed securities and
related securities......... 260,849 261,955 308,577 313,571 316,421 321,371
Corporate.................... 56,607 56,795 132,875 136,294 187,224 189,974
---------- ---------- ---------- ---------- --------- ----------
Total Fixed Maturity Securities... 762,202 764,270 834,052 853,977 852,987 870,433
---------- ---------- ---------- ---------- --------- ----------
Equity Securities:
Unaffiliated Preferred Stock... -- -- 2,500 2,500 2,500 2,500
Unaffiliated Common Stock...... 55,334 67,230 66,520 89,080 66,974 88,688
---------- ---------- ---------- ---------- --------- ----------
Total Equity Securities........... 55,334 67,230 69,020 91,580 69,474 91,188
---------- ---------- ---------- ---------- --------- ----------
TOTAL............................. $ 817,536 $ 831,500 $ 903,072 $ 945,557 $ 922,461 $ 961,621
========== ========== ========== ========== ========= ==========
</TABLE>
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 March 31, 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)......... $615,100 $628,348 72.1%
AA................................................. 36,175 37,393 4.3
A.................................................. 145,469 147,160 16.9
BBB................................................ 55,743 57,032 6.6
Not Rated ......................................... 500 500 0.1
-------- -------- -----
Total.............................................. $852,987 $870,433 100.0%
======== ======== =====
</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.
54
<PAGE> 59
The following table sets forth certain information concerning the
maturities of fixed maturity securities in the Company's investment portfolio as
of March 31, 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............................... $ 23,347 $ 23,256 2.7%
Due after one year through five years.............. 127,838 129,295 14.9
Due after five years through ten years............. 99,389 103,535 11.9
Due after ten years................................ 285,992 292,976 33.6
Mortgage-backed and related securities............. 316,421 321,371 36.9
----------- ------------ -----
Totals............................................. $ 852,987 $ 870,433 100.0%
=========== ============ =====
</TABLE>
The average effective maturity and the average modified duration of the
securities in the Company's fixed maturity portfolio as of March 31, 1998, was
10.5 years and 6.21 years, respectively.
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 over 70% of the Company's direct
premiums were written in 1997, 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. 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 following the strategy that has resulted in
its substantial and consistent growth over the past five years - 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.
55
<PAGE> 60
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 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 state
insurance 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.
56
<PAGE> 61
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
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, MIIX'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.
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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
Insurance Commissioner. 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 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.
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PROPERTIES
As of March 31, 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 Claims
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.
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
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before the election. If nominations are not so filed, the unanimous vote of the
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."
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.
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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.
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."
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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
Joseph J. Hudson Vice President, Marketing and Business Development
N/A
Kenneth Koreyva Vice President, Chief Financial Officer and Treasurer
N/A
Angelo S. Agro, M.D. Director
Hillel M. Ben-Asher, M.D. Director
Harry M. Carnes, M.D. Director
Andrew Coronato, M.D. Director
Palma E. Formica, M.D. Director
John S. Garra, M.D. Director
Paul J. Hirsch, M.D. Director
Louis L. Keeler, M.D. Director
Henry R. Liss, M.D. Director
Arganey Lucas, Jr., M.D. Director
S. Stuart Mally, M.D. Director
Vincent A. Maressa, Esq. Director
Murray N. Matez, D.O. Director
Robert S. Maurer, D.O. Director
A. Richard Miskoff, D.O. Director
Charles J. Moloney, M.D. Director
Eileen Marie Moynihan, M.D. Director
Fred M. Palace, M.D. Director
John J. Pastore, M.D. Director
Pascal A. Pironti, M.D. Director
Carl Restivo, Jr., M.D. Director
Joseph A. Riggs, M.D. Director
Bernard Robins, M.D. Director
Herman M. Robinson, M.D. Director
Gabriel F. Sciallis, M.D. Director
Benjamin I. Smolenski, M.D. Director
Martin L. Sorger, M.D. Director
Bessie M. Sullivan, M.D. Director
Harvey P. Yeager, M.D. Director
</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, has been President and Chief Executive
Officer of the Attorney-in-Fact and a member of the Board of Directors of the
Attorney-in-Fact since 1990. Mr. Goldberg is a member of the Board of Directors
of ACCRA Holdings Corp. and American Fidelity & Liberty Insurance Company. He is
a member of the Academy of Hospital Attorneys.
Joseph J. Hudson, 57, 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.
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Kenneth Koreyva, 42, 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. He is a member of the American
Institute of Certified Public Accountants.
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., 57, 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.
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
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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 Practitioners, 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
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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 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).
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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. , , and .
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 Messrs. , and .
Nominating Committee. The Nominating Committee nominates candidates for
membership of the Board of Directors. The Nominating Committee consists of four
members. The Members of the Nominating Committee are , ,
and .
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. Ben-Asher, Liss, Hirsch and
Agro.
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.
Directors who are not employees of the Attorney-in-Fact will receive an annual
stipend of $ . The Chairman of the Board of Directors of The MIIX Group will
be paid $ per Board meeting and other non-employee Directors will be paid
$ per Board meeting. Fees to non-employee Directors for participation on
committees of the Board of Directors will be $ per meeting. The Chairman of
the Executive Committee receives an additional annual stipend of $ . All
non-employee Directors are reimbursed for reasonable travel and other expenses
incurred to attend meetings of The MIIX Group Board and committees thereof.
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 other most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers"), for the year ended December 31, 1997.
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<PAGE> 72
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION(S) SALARY BONUS COMPENSATION(1) COMPENSATION(2)
------------------------------------------------- ------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Daniel Goldberg, President and Chief Executive
Officer......................................... $ $ $ $
Joseph J. Hudson, Vice President, Marketing and
Business Development............................
Kenneth Koreyva, Vice President, Chief
Financial Officer and Treasurer.................
</TABLE>
EMPLOYMENT AGREEMENTS
The Company anticipates entering into employment agreements (the
"Employment Agreements") with one or more of its executive officers.
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, cash or any combination thereof.
A maximum of 2,250,000 shares of Common Stock, or such other amount as
shall equal 15% of the issued and outstanding 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 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
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<PAGE> 73
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 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 forfeit 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 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, restricted stock is 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 full-time employees of the
Company (defined as employees whose work week constitutes at least 35 hours) 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 employees of The MIIX Group. The Retirement Plan is an
employee non-contributory, tax-qualified defined benefit plan that provides each
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.
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> 74
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:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFIT
YEARS OF CREDITED SERVICE AT AGE 65
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 Messrs. Goldberg, , ,
and are years, years, years, and years,
respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
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.
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 represents the number of shares each director and certain persons
and entities affiliated with each director will receive as members of the
Exchange pursuant to the Reorganization, and the number of shares that each
director has indicated that he and his affiliates intend 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.
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<PAGE> 75
<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE PERCENT
NAME BENEFICIALLY OF
OWNED CLASS
- ------------------------------------------------------ ----------------- ------------------
<S> <C> <C>
Daniel Goldberg.....................................
Joseph J. Hudson....................................
Kenneth Koreyva.....................................
Angelo S. Agro, M.D.................................
Hillel M. Ben-Asher, M.D............................
Harry M. Carnes, M.D................................
Andrew Coronato, M.D................................
Palma E. Formica, M.D...............................
John S. Garra, M.D..................................
Paul J. Hirsch, M.D.................................
Louis L. Keeler, M.D................................
Henry R. Liss, M.D..................................
Arganey Lucas, Jr., M.D.............................
S. Stuart Mally, M.D................................
Vincent A. Maressa, Esq. ...........................
Murray N. Matez, D.O................................
Robert S. Maurer, D.O...............................
A. Richard Miskoff, D.O.............................
Charles J. Moloney, M.D.............................
Eileen Marie Moynihan, M.D..........................
Fred M. Palace, M.D.................................
John J. Pastore, M.D................................
Pascal A. Pironti, M.D..............................
Carl Restivo, Jr., M.D..............................
Joseph A. Riggs, M.D................................
Bernard Robins, M.D.................................
Herman M. Robinson, M.D.............................
Gabriel F. Sciallis, M.D............................
Benjamin I. Smolenski, M.D..........................
Martin L. Sorger, M.D...............................
Bessie M. Sullivan, M.D.............................
Harvey P. Yeager, M.D...............................
All directors and executive officers as a group
(32 persons)....................................
</TABLE>
- - Less than 1%
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
,000,000 shares ( ,000,000 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").
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<PAGE> 76
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."
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
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<PAGE> 77
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 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.
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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 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 shares (or shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock issued and
outstanding. 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
74
<PAGE> 79
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.
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.
75
<PAGE> 80
GLOSSARY OF SELECTED INSURANCE TERMS
ALLOCATED LOSS ADJUSTMENT EXPENSES ("ALAE")
Loss adjustment expenses, such as legal fees and outside claims adjusters'
fees, 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.
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.
76
<PAGE> 81
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.
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.
77
<PAGE> 82
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.
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.
78
<PAGE> 83
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.
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 effective date of the Reorganization, the
Exchange and its subsidiaries and the Attorney-in-Fact and its subsidiaries,
collectively. At all times on or after such effective date, The MIIX Group,
Incorporated, and its subsidiaries, collectively.
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 Effective Date, of the Exchange or LP&C.
79
<PAGE> 84
EMPLOYEE
Persons who are directors, officers or employees of the Company as of both
August 31, 1998 and four business days prior to the Effective Date.
EXCHANGE
The Medical Inter-Insurance Exchange, a New Jersey reciprocal insurer.
FAIR MARKET VALUE
The average closing price of a share of the Common Stock on the principal
exchange on which the Common Stock is then trading, if any, on the first five
trading days following the Effective Date; or if the Common Stock is not traded
on an exchange but is quoted on NASDAQ or a successor quotation system, the
average last sales price (if the Common Stock is then listed as a National
Market Issue under the NASD National Market System) or the average of the mean
between the closing representative bid and asked prices (in all other cases) for
the Common Stock on the first five trading days following the Effective Date as
reported by NASDAQ or such successor quotation system.
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 is
the parent company for all of the MIIX companies upon the Effective Date 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.
INSURANCE SUBSIDIARIES
At all times prior to the effective date of the Reorganization, LP&C, MIIX
New York and Lawrenceville Re. At all times on or after such effective 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.
80
<PAGE> 85
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.
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.
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 Effective 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 OFFEREES
Eligible Policyholders, Employees and Service Providers.
TRANSFER AGENT
First Chicago Trust Company of New York, or its successors or assigns.
81
<PAGE> 86
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
QUARTERLY COMBINED FINANCIAL STATEMENTS (UNAUDITED)
Combined Balance Sheets as of December 31, 1997 and March 31, 1998........................................... F-2
Combined Statements of Income for the three months ended March 31, 1997 and 1998............................. F-3
Combined Statements of Equity for the three months ended March 31, 1998...................................... F-4
Combined Statements of Cash Flows for the three months ended March 31, 1997 and 1998......................... F-5
Notes to Combined Financial Statements....................................................................... F-6
AUDITED COMBINED FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................... F-7
Combined Balance Sheets as of December 31, 1996 and 1997..................................................... F-8
Combined Statements of Income for the years ended December 31, 1995, 1996 and 1997........................... F-9
Combined Statements of Equity for the three years ended December 31, 1997.................................... F-10
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997....................... F-11
Notes to Combined Financial Statements....................................................................... F-12
Schedule I - Summary of Investments--Other than Investments in Related Parties............................... F-22
</TABLE>
F-1
<PAGE> 87
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Securities available-for-sale:
Fixed-maturity investments, at fair value (amortized cost: 1997 -
$834,052; 1998 -$852,987)..................................... $ 853,977 $ 870,433
Equity investments, at fair value (cost: 1997 - $69,020; 1998 -
$69,474)....................................................... 91,580 91,188
Short-term investments .......................................... 85,478 129,609
---------- ----------
Total investments ............................................... 1,031,035 1,091,230
Cash ............................................................ 168 1,432
Reinsurance recoverable on unpaid losses, net ................... 85,980 87,528
Prepaid reinsurance premiums .................................... 19,621 21,556
Deferred income taxes ........................................... 24,198 25,027
Premiums receivable ............................................. 8,245 58,273
Other assets .................................................... 110,984 124,500
---------- ----------
Total assets .................................................... $1,280,231 $1,409,546
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses ...................... $ 876,721 $ 901,712
Premium deposits ................................................ 21,024 --
Unearned premiums ............................................... 20,886 120,443
Other liabilities ............................................... 58,159 82,717
---------- ----------
Total liabilities ............................................... 976,790 1,104,872
---------- ----------
Commitments and contingencies (Note 3)
EQUITY
Surplus ......................................................... 275,826 279,151
Unrealized appreciation on securities available-for-sale, net of
deferred taxes .................................................. 27,615 25,523
---------- ----------
Total equity .................................................... 303,441 304,674
---------- ----------
Total liabilities and equity .................................... $1,280,231 $1,409,546
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 88
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------- -------
(unaudited)
<S> <C> <C>
REVENUES
Net premiums earned ................. $27,113 $35,892
Net investment income ............... 13,208 14,873
Realized investment gains ........... 195 1,441
Other revenue ....................... 3,017 2,963
------- -------
Total revenues ...................... 43,533 55,169
------- -------
EXPENSES
Losses and loss adjustment expenses.. 27,849 36,194
Underwriting expenses ............... 5,164 7,757
Funds held charges .................. 2,847 3,544
Other operating expenses ............ 3,241 3,512
------- -------
Total expenses ...................... 39,101 51,007
------- -------
Income before income taxes .......... 4,432 4,162
Provision for income taxes .......... 973 837
------- -------
Net income .......................... $ 3,459 $ 3,325
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 89
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF EQUITY
(in thousands)
(unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
OF INVESTMENTS, TOTAL
SURPLUS NET OF TAXES EQUITY
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1997............... $ 275,826 $ 27,615 $ 303,441
Net income.............................. 3,325 3,325
Other comprehensive income, net of
tax:
Unrealized depreciation on securities
available-for-sale, net of deferred
taxes .................................. (2,092) (2,092)
---------------- ---------------- ----------------
Balance at March 31, 1998.................. $ 279,151 $ 25,523 $ 304,674
================ ================ ================
</TABLE>
See accompanying notes.
F-4
<PAGE> 90
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1997 1998
-------- ---------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................. $ 3,459 $ 3,325
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, accretion and amortization ............... 899 1,063
Realized (gains) losses ................................ (378) (1,442)
Unpaid losses and loss adjustment expenses,
net of reinsurance recoverable ....................... 14,255 23,443
Premium deposits, net of prepaid reinsurance premiums... (10,364) (5,237)
Deferred income tax provision .......................... (416) 300
Premiums receivable, net of allowance .................. (54,959) (50,028)
Unearned premiums, net of prepaid reinsurance premiums.. 70,022 81,835
Other assets ........................................... (10,923) (14,512)
Other liabilities ...................................... 10,913 24,359
-------- ---------
Net cash provided by operating activities ................... 22,508 63,106
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed-maturity investment sales ............... 56,677 91,434
Proceeds from fixed-maturity investments matured, called,
or prepaid ............................................... 10,229 25,989
Proceeds from equity investment sales ....................... -- 1,942
Cost of investments acquired ................................ (91,821) (136,959)
Change in short-term investments, net ....................... (4,464) (44,131)
Other, net .................................................. (550) (316)
-------- ---------
Net cash used in investing activities ....................... (29,929) (62,041)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) from notes payable .................. (802) 199
-------- ---------
Net cash provided by (used in) financing activities ......... (802) 199
-------- ---------
Net change in cash .......................................... (8,223) 1,264
Cash at beginning of year ................................... 6,292 168
-------- ---------
Cash at end of period ....................................... $ (1,931) $ 1,432
======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 91
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-7
through F-22.
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
financial statements during the first quarter 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 or losses, net of tax, 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
three-month periods ended March 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Net income ................................................ $ 3,459 $ 3,325
Other comprehensive income:
Unrealized depreciation on securities available-for-sale,
net of deferred taxes .................................. (8,531) (2,092)
-------- -------
Comprehensive income (loss) ............................... $(5,072) $ 1,233
======= =======
</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 is constructed using European-style
S&P 500 options and at March 31, 1998, had an unrealized loss, net of tax, of
$6,814,000, which is included in the unrealized depreciation of investments in
other comprehensive income as of March 31, 1998. The Collar will expire on July
13, 1998. 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> 92
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-7
<PAGE> 93
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-8
<PAGE> 94
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 17,130 25,047
Funds held charges ................... 5,473 8,626 11,581
Other operating expenses ............. 6,905 11,699 9,987
-------- -------- --------
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-9
<PAGE> 95
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
COMBINED STATEMENTS OF EQUITY
(in thousands)
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<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-10
<PAGE> 96
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-11
<PAGE> 97
1. ORGANIZATION AND RELATED MATTERS
The Medical Inter-Insurance Exchange ("Exchange") is organized as a
reciprocal insurance exchange under the provisions of Chapter 50, Title 17 of
the New Jersey Statutes to provide a wide range of insurance products to the
medical profession and health care institutions primarily in the states of New
Jersey and Pennsylvania. In 1996, the Exchange formed a down-stream investment
holding company, Lawrenceville Holdings, Inc. ("LHI"). On April 16, 1996, LHI
acquired all 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 and LP&C are managed by the New
Jersey State Medical Underwriters, Inc. (the "Attorney-in-Fact"), which is a
wholly-owned subsidiary of the Medical Society of New Jersey.
The primary business of the Exchange, LHI, LP&C and the Attorney-in-Fact
(collectively, "the Company") is medical professional liability and it issues
claims-made, modified claims made with prepaid reporting endorsement and
occurrence policies. The Company is licensed in twenty-nine states with the
majority of its business in New Jersey, Pennsylvania and Texas.
A substantial portion of the Exchange's initial capitalization consisted of
$22.9 million of non-interest-bearing subordinated loan certificates, which were
issued in amounts varying by medical specialty. In 1995, the Exchange received
regulatory approval to redeem the remaining subordinated loan certificates.
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 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
F-12
<PAGE> 98
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 for all
claims-made policies with prepaid extended reporting endorsements are recorded
using occurrence basis accounting. 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.
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 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.
F-13
<PAGE> 99
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>
F-14
<PAGE> 100
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 related 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 related 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.
F-15
<PAGE> 101
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 related securities 308,577 313,571
-------- --------
Total ................................ $834,052 $853,977
======== ========
</TABLE>
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.
F-16
<PAGE> 102
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 the underwriting and
operating results from unexpected increases in frequency, severity, and
acceleration of the payments of losses and loss adjustment expenses.
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.
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.
Interest is credited on these funds at predetermined contractual rates.
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. 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. 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 gain or loss. 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
F-17
<PAGE> 103
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
<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>
<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 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:
F-18
<PAGE> 104
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<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>
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>
F-19
<PAGE> 105
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-20
<PAGE> 106
MEDICAL INTER-INSURANCE EXCHANGE
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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-21
<PAGE> 107
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-22
<PAGE> 108
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> 109
TABLE OF CONTENTS
PAGE
ARTICLE I: DEFINITIONS.................................................. A-1
ARTICLE II: APPROVAL BY THE COMMISSIONER................................ A-3
2.1 Application..................................................... A-4
2.2 Commissioner's Public Hearing................................... A-4
2.3 Approval of Plan................................................ A-4
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-5
4.4 Initial Public Offering......................................... A-6
ARTICLE V: POLICIES..................................................... A-6
5.1 Policies ....................................................... A-6
5.2 Who is a Named Insured.......................................... A-6
5.3 In Force ....................................................... A-6
ARTICLE VI: ALLOCATION OF CONSIDERATION TO DISTRIBUTEES................. A-7
6.1 Allocation of Consideration..................................... A-7
6.2 Payment of Consideration........................................ A-7
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-8
ARTICLE VIII: ADDITIONAL PROVISIONS..................................... A-8
8.1 Assumption Certificates......................................... A-8
8.2 Notices ....................................................... A-8
8.3 Adjustment of Share Numbers..................................... A-8
8.4 Authority to Remedy Errors...................................... A-8
8.5 Corrections..................................................... A-8
8.6 Amendment of the Plan........................................... A-8
8.7 Extension of Time Periods....................................... A-8
8.8 Abandonment of Plan............................................. A-8
8.9 Costs and Expenses.............................................. A-8
8.10 Addresses of Members............................................ A-9
8.11 Governing Law................................................... A-9
8.12 Confidentiality................................................. A-9
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)
A - i
<PAGE> 110
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.
A - 1
<PAGE> 111
"Company" has the meaning specified in the first paragraph hereof.
"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.
A - 2
<PAGE> 112
"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.
"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 - 3
<PAGE> 113
(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.
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%
A-4
<PAGE> 114
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;
(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
A-5
<PAGE> 115
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)(j) 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.
(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.
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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 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 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.
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.
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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 II, 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
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<PAGE> 119
ANNEX B
[Letterhead of Salomon Brothers Inc]
October 15, 1997
Board of Governors
Medical Inter-Insurance Exchange
Two Princess Road
Lawrenceville, New Jersey 08648
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, (i) to the Distributees (as defined below) of Medical
Inter-Insurance Exchange (the "Company"), as a group, of the consideration to be
received by the Distributees upon the exchange by Members (as defined below) of
Membership Interests (as defined below) and the distribution to Look-Back
Insureds (as defined below) in the reorganization (the "Reorganization") of the
Company from a reciprocal insurer into a domestic stock insurer pursuant to the
Plan of Reorganization of the Company (the "Plan") and (ii) to the Company of
the consideration to be paid by the Company in the NJSMU Acquisition (as defined
below). As used herein, the "Distributees" shall mean the Members and the
Look-Back Insureds; "Members" shall mean persons who are named insureds in one
or more policies that are in force on the date of adoption of the Plan (the
"Adoption Date"); "Membership Interests" shall mean all rights or interests of
Members of the Company arising under the Rules and Regulations of the Company or
otherwise by law at the effective date of the Reorganization (the "Effective
Date"); and "Look-Back Insureds" shall mean natural persons, other than Members,
who were named insureds in one or more policies that were in force at any time
during the three-year period prior to the Adoption Date.
As more fully set forth in the Plan, in the Reorganization, (i) all of the
assets of the Company, other than consideration to be received by the
Distributees, will be transferred to MIIX Insurance Company (the "Stock
Insurer"), a newly organized New Jersey domestic stock insurer and a
wholly-owned subsidiary of The MIIX Group, Incorporated (the "Holding Company"),
a Delaware stock holding company, and all of the Company's insurance and
non-insurance liabilities shall be assumed by the Stock Insurer pursuant to an
Assumption Reinsurance and Administration Agreement and an Assignment and
Assumption Agreement, each between the Company and the Stock Insurer
(collectively, the "Assignment Agreements"); (ii) Distributees shall become
entitled to receive shares of common stock par value $.01 per share, of the
Holding Company ("Holding Company Stock") and cash, with each Distributee
entitled to receive a pro rata portion of the shares of Holding Company Stock
allocated for distribution, based upon the percentage that direct premiums
earned by the Company attributable to such Distributee, less return premiums,
over the three years prior to the Adoption Date bears to direct premiums earned
by the Company attributable to all Distributees, less return premiums, over such
period, rounded to the nearest integral number of shares, with cash being paid
in lieu of shares to Distributees who would receive fewer than 100 shares of
Holding Company Stock and to certain other Distributees; (iii) all Membership
Interests will be extinguished; and (iv) the Company will be dissolved.
In addition, as more fully set forth in the Plan, on the Effective Date, the
Holding Company will acquire (the "NJSMU Acquisition") 100% of the stock of New
Jersey State Medical Underwriters, Inc. and its subsidiaries ("NJSMU"), a New
Jersey corporation and a wholly owned subsidiary of Medical Society of New
Jersey ("Medical Society"), in exchange for shares of Holding Company Stock with
a market value of $11,000,000, determined as set forth in the Purchase Agreement
between and among the Company, the Holding Company and Medical Society (the
"Purchase Agreement"), and cash in the amount of $100,000, pursuant to the
Purchase Agreement. The Plan also
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contemplates that, at the discretion of the board of directors of the Holding
Company, Holding Company Stock may be offered to the public in an initial public
offering (the "Initial Public Offering").
In connection with rendering our opinion we have reviewed and analyzed, among
other things, the following: (i) a draft dated October 7,1997 of the Plan; (ii)
a draft dated October 7,1997 of the Assignment Agreements; (iii) a draft dated
October 8,1997 of the Purchase Agreement; (iv) the statutory annual statements
provided by the Company for the years 1992 through 1996; (v) certain GAAP
financial data provided by the Company, including the unaudited income statement
and balance sheet of the Company and NJSMU 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 Company and NJSMU furnished to us by the
Company for purposes of our analysis; (vii) certain publicly available
information with respect to certain other companies that we believe to be
comparable to the Company 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 we consider
relevant to our inquiry. We have also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria that we deemed relevant. We have also discussed the foregoing, as well
as other matters we believe relevant to our inquiry, with the management of the
Company and NJSMU.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information and have further relied upon the assurances of management of the
Company that they are not aware of any facts that would make any of such
information inaccurate or misleading. We have not conducted a physical
inspection of any of the properties or facilities of the Company or NJSMU, nor
have we made or obtained or assumed any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities. With respect to projections, we have, upon the advice and consent of
management of the Company, assumed that such projections have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the Company and NJSMU and we express no view with respect to such
projections or the assumptions on which they were based. We have assumed that
the definitive Plan, Assignment Agreements and 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 we have reviewed, the
conditions precedent to the Reorganization contained in the Plan and to the
NJSMU Acquisition contained in the Purchase Agreement will be satisfied and the
Reorganization and the NJSMU Acquisition will be consummated in accordance with
the terms of the Plan and the Purchase Agreement.
Furthermore, you have directed us to assume and we have assumed 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 Company or
the Holding Company and any borrowings thereunder will not have a material
adverse impact on the Company's business operations or performance or ratings by
A.M. Best Company, Inc. ("A.M. Best") and (iv) the terms of the Initial Public
Offering (which have not yet been determined) will not affect the legal or tax
treatment of the Plan or the Reorganization. We have been advised as to certain
legal matters by counsel to the Company and as to certain tax matters by the
Company's tax advisor and, with respect to such matters, we have relied upon
such counsel and tax advisor.
In conducting our analysis and arriving at our opinion as expressed herein, we
have considered such financial and other factors as we have deemed appropriate
under the circumstances including, among others, the following: (i) the
historical and current financial position and results of operations of the
Company and NJSMU; (ii) the business prospects of the Company and NJSMU; (iii)
the historical relationship between the Company and NJSMU; (iv) the historical
and current market for the equity securities of certain other companies that we
believe to be comparable to
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the Company, the Holding Company or NJSMU; (v) the nature and terms of certain
other transactions that we believe to be relevant; (vi) the fact that the
Company has advised us that growth is extremely important to remain an effective
and competitive insurer in the future; (vii) the fact that the Company had
advised us that it is of significant strategic importance that it have broader
access to external capital to finance this growth; (viii) the Company'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
Company has limited access to capital markets for new capital; (x) the fact
that, following the Reorganization, the Company would have a capital structure
potentially enabling it to access the capital markets for new capital; and (xi)
the illiquidity of Membership Interests. We have also taken into account our
assessment of general economic, market and financial conditions as well as our
experience in connection with similar transactions and securities valuation
generally. Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof and we assume no responsibility to update or
revise our opinion based upon circumstances or events occurring after the date
hereof. Our opinion is, in any event, limited to the fairness, from a financial
point of view, to the Distributees, as a group, of the consideration to be
received by the Distributees in the Reorganization pursuant to the Plan, does
not address the Company's underlying business decision to effect the
Reorganization, and does not constitute a recommendation to any Member as to how
such Member should vote with respect to the Plan.
You have not asked for our opinion and we do not express any opinion as to: (i)
which of the Company'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 relating to which
Distributees receive Holding Company Stock, the allocation of such Holding
Company Stock among Distributees and any other provisions of the Plan that
distinguish among Distributees; and (iii) the price at which Holding Company
Stock may be sold in the Initial Public Offering (the "IPO Price"), the fair
market value of any shares of Holding Company Stock to be issued pursuant to the
Plan or the price at which the Holding Company Stock issued in connection with
the Plan or pursuant to the Initial Public Offering will trade. We note that the
IPO Price will be a function of market conditions and the recent performance of
and outlook for the Company at that time. We believe that trading in the Holding
Company Stock for a period following the completion of a distribution of the
Holding Company Stock, including the Initial Public Offering, would be
characterized by a redistribution of the Holding Company Stock among
Distributees that were issued shares of Holding Company Stock and other
investors. It is possible that during these periods of redistribution the
Holding Company Stock may trade at prices below the prices at which it would
trade on a fully distributed basis.
As you are aware, Salomon Brothers Inc. has acted as financial advisor to the
Company in connection with the Reorganization and will receive a fee for our
services. In addition, the Company has also agreed to retain Salomon Brothers
Inc. as lead manager in connection with the proposed IPO. Additionally, Salomon
Brothers Inc. has previously rendered certain investment banking and financial
advisory services to the Company, for which we will receive customary
compensation.
This opinion is intended solely for the benefit and use of the Board of
Governors of the Company in considering the transaction to which it relates and
may not be used for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose, without the prior
written consent of Salomon Brothers Inc., except that this opinion may be
reproduced in full in, and references to the opinion and to Salomon Brothers
Inc. and its relationship with the Company (in each case in such form as Salomon
Brothers Inc. shall approve) may be included in, the proxy statement the Company
distributes to the Members and a copy of this opinion may be provided to the
Commissioner of Banking and Insurance of the State of New Jersey.
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Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, (i) the consideration to be received by
Distributees, as a group, in the Reorganization pursuant to the Plan is fair,
from a financial point of view, to the Distributees, as a group, and (ii) the
consideration to be paid by the Company in the NJSMU Acquisition is fair, from a
financial point of view, to the Company.
Very truly yours,
SALOMON BROTHERS INC
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<PAGE> 123
ANNEX C
STATE OF NEW JERSEY
DEPARTMENT OF BANKING AND INSURANCE
IN THE MATTER OF THE REORGANIZATION )
OF THE MEDICAL INTER-INSURANCE ) ORDER APPROVING
EXCHANGE ) 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;
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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"). 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.
ELIZABETH RANDALL
---------------------------
Elizabeth Randall
Commissioner
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[MEDICAL INTER-INSURANCE EXCHANGE LOGO]
<PAGE> 126
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 ....................... *
Blue Sky Fees and Expenses ............ *
Legal Fees and Expenses ............... *
Accounting Fees and Expenses .......... *
Registrar and Transfer Agent Fees ..... *
Printing and Engraving Expenses ....... *
Miscellaneous ......................... *
-------
Total ................................. $ *
=======
</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.
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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:
EXHIBIT
NUMBER DESCRIPTION
1.1 Underwriting Agreement among The MIIX Group, Incorporated,___________
_______________________________(1).
2.1 Plan of Reorganization of Medical Inter-Insurance Exchange.
3.1 Amended and Restated Certificate of Incorporation of the MIIX Group,
Incorporated(1).
3.2 Bylaws of The MIIX Group, Incorporated.
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(1).
10.2 Extension of Lease between the Medical Society of New Jersey and New
Jersey State Medical Underwriters, dated June 26, 1998(1).
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(1).
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(1).
10.5 Specific Excess Reinsurance Contract, effective January 1, 1997,
between Medical Inter-Insurance Exchange of New Jersey and American
Re-Insurance Company(1).
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.(1)
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(1).
II-2
<PAGE> 128
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.(1)
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(1)
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.(1)
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.(1)
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.(1)
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.(1)
10.14 1998 Long Term Incentive Equity Plan of The MIIX Group,
Incorporated(1).
21.1 Subsidiaries of The MIIX Group, Incorporated.
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Coopers & Lybrand LLP (included in Exhibit 8.1).
24.1 Powers of Attorney (included on the signature pages to this
Registration Statement).
27.1 Financial Data Schedules.
99.1 Consent of Salomon Brothers Inc
99.2 Form of Proxy Cards(1).
99.3 Form of Record Cards(1).
- ----------
(1) To be filed by amendment.
(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.
II-3
<PAGE> 129
ITEM 17. UNDERTAKINGS.
(a) 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 indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) 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.
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<PAGE> 130
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 July 17, 1998.
By: DANIEL GOLDBERG
-------------------------------------
Daniel Goldberg
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Vincent A. Maressa, Esq., Daniel Goldberg and
Kenneth Koreyva, each and individually, his or her attorneys-in-fact, with full
power of substitution and resubstitution, for him or her in any and all
capacities, to sign any or all amendments or post-effective amendments to this
Registration Statement or any Registration Statement for the same offering that
is effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same with exhibits thereto and other documents
in connection therewith or in connection with the registration of Common Stock
under the Securities Exchange Act of 1934, as amended, with the Securities and
Exchange Commission, granting unto each of such attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying and
confirming all that each such attorney-in-fact, or his agent or substitutes, may
do or cause to be done by virtue hereof.
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>
DANIEL GOLDBERG President, Chief Executive Officer and
- ---------------------------- Director (principal executive officer) July 17, 1998
Daniel Goldberg
KENNETH KOREYVA Vice President and Chief
- ---------------------------- Financial Officer (principal financial July 17, 1998
Kenneth Koreyva accounting officer)
ANGELO S. AGRO Director July 17, 1998
- ----------------------------
Angelo S. Agro, M.D.
HILLEL M. BEN-ASHER Director July 17, 1998
- ----------------------------
Hillel M. Ben-Asher, M.D.
HARRY M. CARNES Director July 17, 1998
- ----------------------------
Harry M. Carnes, M.D.
Director
- ----------------------------
Andrew Coronato, M.D.
</TABLE>
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<PAGE> 131
<TABLE>
<S> <C> <C>
PALMA E. FORMICA Director July 17, 1998
- ----------------------------
Palma E. Formica, M.D.
JOHN S. GARRA Director July 17, 1998
- ----------------------------
John S. Garra, M.D.
PAUL HIRSCH Director July 17, 1998
- ----------------------------
Paul Hirsch, M.D.
LOUIS L. KEELER Director July 17, 1998
- ----------------------------
Louis L. Keeler, M.D.
HENRY R. LISS Director July 17, 1998
- ----------------------------
Henry R. Liss, M.D.
ARGANEY LUCAS, JR., M.D. Director July 17, 1998
- ----------------------------
Arganey Lucas, Jr., M.D.
S. STUART MALLY Director July 17, 1998
- ----------------------------
S. Stuart Mally, M.D.
VINCENT A. MARESSA Director July 17, 1998
- ----------------------------
Vincent A. Maressa, Esq.
MURRAY N. MATEZ Director July 17, 1998
- ----------------------------
Murray N. Matez, D.O.
ROBERT S. MAURER Director July 17, 1998
- ----------------------------
Robert S. Maurer, D.O.
A. RICHARD MISKOFF, D.O. Director July 17, 1998
- ----------------------------
A. Richard Miskoff, D.O.
CHARLES J. MOLONEY Director July 17, 1998
- ----------------------------
Charles J. Moloney, M.D.
EILEEN MARIE MOYNIHAN, M.D. Director July 17, 1998
- ----------------------------
Eileen Marie Moynihan, M.D.
Director
- ----------------------------
Fred M. Palace, M.D.
JOHN J. PASTORE Director July 17, 1998
- ----------------------------
John J. Pastore, M.D.
PASCAL A. PIRONTI, M.D. Director July 17, 1998
- ----------------------------
Pascal A. Pironti, M.D.
Director
- ----------------------------
Carl Restivo, Jr., M.D.
JOSEPH A. RIGGS Director July 17, 1998
- ----------------------------
Joseph A. Riggs, M.D.
</TABLE>
II-6
<PAGE> 132
<TABLE>
<S> <C> <C>
BERNARD ROBINS Director July 17, 1998
- ----------------------------
Bernard Robins, M.D.
HERMAN M. ROBINSON Director July 17, 1998
- ----------------------------
Herman M. Robinson, M.D.
GABRIEL F. SCIALLIS Director July 17, 1998
- ----------------------------
Gabriel F. Sciallis, M.D.
Director
- ----------------------------
Benjamin I. Smolenski, M.D.
MARTIN L. SORGER Director July 17, 1998
- ----------------------------
Martin L. Sorger, M.D.
BESSIE M. SULLIVAN Director July 17, 1998
- ----------------------------
Bessie M. Sullivan, M.D.
HARVEY P. YEAGER Director July 17, 1998
- ----------------------------
Harvey P. Yeager, M.D.
</TABLE>
II-7
<PAGE> 1
EXHIBIT 2.1
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> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I: DEFINITIONS........................................................................................2
ARTICLE II: APPROVAL BY THE COMMISSIONER.....................................................................4
2.1 Application..................................................................................4
2.2 Commissioner's Public Hearing................................................................4
2.3 Approval of Plan.............................................................................4
ARTICLE III: APPROVAL BY MEMBERS.............................................................................4
3.1 Member Vote..................................................................................4
3.2 Notice of Members' Meeting...................................................................5
3.3 Certification................................................................................5
ARTICLE IV: THE REORGANIZATION...............................................................................5
4.1 Holding Company and Stock Insurer............................................................5
4.2 Effect of Reorganization.....................................................................5
4.3 Conditions to Effectiveness of Plan..........................................................6
4.4 Initial Public Offering......................................................................7
ARTICLE V: POLICIES..........................................................................................7
5.1 Policies.....................................................................................7
5.2 Who is a Named Insured.......................................................................7
5.3 In Force.....................................................................................8
ARTICLE VI: ALLOCATION OF CONSIDERATION TO DISTRIBUTEES......................................................8
6.1 Allocation of Consideration..................................................................8
6.2 Payment of Consideration.....................................................................9
ARTICLE VII: ACQUISITION OF THE UNDERWRITER.................................................................10
7.1 Stock Purchase Agreement....................................................................10
7.2 Determination of Consideration for Stock of the Underwriter.................................10
ARTICLE VIII: ADDITIONAL PROVISIONS.........................................................................10
8.1 Assumption Certificates.....................................................................10
8.2 Notices.....................................................................................10
8.3 Adjustment of Share Numbers.................................................................10
8.4 Authority to Remedy Errors..................................................................11
8.5 Corrections.................................................................................11
8.6 Amendment of the Plan.......................................................................11
8.7 Extension of Time Periods...................................................................11
1 - i
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
8.8 Abandonment of Plan.........................................................................11
8.9 Costs and Expenses..........................................................................11
8.10 Addresses of Members........................................................................11
8.11 Governing Law...............................................................................11
8.12 Confidentiality.............................................................................11
</TABLE>
EXHIBIT A - Form of Certificate of Incorporation of the Holding Company
EXHIBIT B - Form of By-Laws of the Holding Company
EXHIBIT C - Form of Certificate of Incorporation of the Stock Insurer
EXHIBIT D - Form of By-Laws of the Stock Insurer
EXHIBIT E - Form of Assumption Reinsurance and Administration Agreement
between the Company and the Stock Insurer
EXHIBIT F - Form of Assignment and Assumption Agreement between the
Company and the Stock insurer
EXHIBIT G - Form of Stock Purchase Agreement between and among the
Holding Company and the Medical Society of New Jersey
1 - ii
<PAGE> 4
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.
"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.
1 - 2
<PAGE> 5
"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.
"Underwriter" means New Jersey State Medical Underwriters,
Inc., a New Jersey Corporation that is the attorney-in-fact for the Company.
1-3
<PAGE> 6
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.
1-4
<PAGE> 7
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.
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;
1-5
<PAGE> 8
(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;
1-6
<PAGE> 9
(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
1-7
<PAGE> 10
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)(j) 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.
(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 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.
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<PAGE> 11
(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 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.
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.
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<PAGE> 12
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 II, 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.
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<PAGE> 13
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.
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.
1-11
<PAGE> 14
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/s/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:
/s/Catherine E. Williams
Assistant Corporate Secretary
New Jersey State Medical Underwriters, Inc.
Attorney-in-Fact for
Medical Inter-Insurance Exchange of New Jersey
1-12
<PAGE> 15
EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
THE MIIX GROUP, INCORPORATED
Article I.
The name of the Corporation is The MIIX Group, Incorporated.
Article II.
The Corporation's registered office in the State of Delaware is at 222
Delaware Avenue, Wilmington, Delaware 19899. The name of its registered agent at
such address is P. Clarkson Collins, Esq.
Article III.
The nature of the business of the Corporation and its purpose is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, including without
limitation, holding all of the voting stock of MIIX Insurance Company, a New
Jersey stock insurance company.
Article IV.
Section 1. The total number of shares of stock which the Corporation
shall have authority to issue is one hundred-fifty million (150,000,000) shares,
consisting of (a) one-hundred million (100,000,000) shares of Common Stock, par
value $.01 per share (the "Common Stock"), and (b) fifty million (50,000,000)
shares of preferred stock, par value $.01 per share.
Section 2. The Common Stock shall be subject to the express terms of
any series of preferred stock.
<PAGE> 16
Section 3. Except as may be provided in this Certificate of
Incorporation or in a preferred stock Certificate of Designation (as hereinafter
defined), if any, the Common Stock shall have the exclusive right to vote for
the election of Directors and for all other purposes, and holders of preferred
stock shall not be entitled to receive notice of any meeting of stockholders at
which they are not entitled to vote.
Section 4. Subject to the rights of holders of preferred stock, if any,
and subject to any other provisions of this Certificate of Incorporation,
holders of Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be declared
thereon by the Board of Directors from time to time out of assets or funds of
the Corporation legally available therefor.
Section 5. Additional preferred stock may be issued at any time and
from time to time in one or more series. The Board of Directors is hereby
authorized to provide by resolution or resolutions from time to time for the
issuance of shares of preferred stock in one or more series and, by filing a
certificate pursuant to the applicable provisions of the General Corporation Law
of the State of Delaware (referred to herein as a "Preferred Stock Certificate
of Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of shares of each such series and the qualifications, limitations and
restrictions thereof. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:
(a) The designation of the series, which may be by
distinguishing number, letter or title.
(b) The number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in the applicable
Preferred Stock Certificate of Designation) increase or decrease (but not below
the number of shares thereof then outstanding).
(c) Whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series.
(d) The conditions upon which and dates as of which dividends,
if any, shall be payable, and the relation which such dividends, if any, shall
bear to the dividends payable on any other class or classes of stock.
(e) The redemption rights and price or prices, if any, for
shares of the series.
2
<PAGE> 17
(f) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
(g) The amounts payable on and the preferences, if any, of
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(h) Whether the shares of the series shall be convertible or
exchangeable into shares of any other class or series, or any other security, of
the Corporation or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates as of
which such shares shall be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made.
(i) Restrictions on the issuance of shares of the same series
or of any other class or series.
(j) The voting rights, if any, of the holders of shares of the
series.
Section 6. No stockholder of the Corporation shall be entitled
to exercise any right of cumulative voting.
Section 7. No stockholder of the Corporation shall have any
preemptive or preferential right, nor be entitled as such as a matter of right,
to subscribe for or purchase any part of any new or additional issue of stock of
the Corporation of any class or series, whether issued for money or for
consideration other than money, or of any issue of securities convertible into
stock of the Corporation.
Section 8. The Corporation shall be entitled to treat the
person in whose name any share of its stock is registered as the owner thereof
for all purposes and shall not be bound to recognize any equitable or other
claim to, or interest in, such share on the part of any other person, whether or
not the Corporation shall have notice thereof, except as expressly provided by
applicable law.
Article V.
The Board of Directors is hereby authorized to create and issue,
whether or not in connection with the issuance and sale of any of its stock or
other securities or property, rights entitling the holders thereof to purchase
from the Corporation shares of stock or other securities of the Corporation or
any other corporation. The times at which and the terms
3
<PAGE> 18
upon which such rights are to be issued shall be determined by the Board of
Directors and set forth in the contracts or instruments that evidence such
rights. The authority of the Board of Directors with respect to such rights
shall include, but not be limited to, determination of the following:
(a) The initial purchase price per share or other unit of the
stock or other securities or property to be purchased upon exercise of such
rights.
(b) Provisions relating to the times at which and the
circumstances under which such rights may be exercised or sold or otherwise
transferred, either together with or separately from, any other stock or other
securities of the Corporation.
(c) Provisions which adjust the number or exercise price of
such rights, or amount or nature of the stock or other securities or property
receivable upon exercise of such rights, in the event of a combination, split or
recapitalization of any stock of the Corporation, a change in ownership of the
Corporation's stock or other securities or a reorganization, merger,
consolidation, sale of assets or other occurrence relating to the Corporation
or any stock of the Corporation, and provisions restricting the ability of the
Corporation to enter into any such transaction absent an assumption by the other
party or parties thereto of the obligations of the Corporation under such
rights.
(d) Provisions which deny the holder of a specified percentage
of the outstanding stock or other securities of the Corporation the right to
exercise such rights and/or cause the rights held by such holder to become void.
(e) Provisions which permit the Corporation to redeem such
rights.
(f) The appointment of a rights agent with respect to such
rights.
Article VI.
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for the
purpose of creating, defining, limiting and regulating the powers of the
Corporation and its Directors and stockholders:
(a) The number of Directors constituting the initial Board of
Directors shall be thirty (30) and, subject to the rights of holders of any
series of preferred stock, if any, to elect additional Directors under specified
circumstances, thereafter the number of Directors shall be as set forth in or
pursuant to the By-laws of the Corporation, but shall not be less than nine (9)
nor more than thirty-five (35). The Board of Directors, other than those who may
4
<PAGE> 19
be elected by the holders of any series of preferred stock, if any, shall be
divided into three classes, designated Classes I, II and III, which shall be as
nearly equal in number as possible. Directors of Class I shall be elected to
hold office for a term expiring at the annual meeting of stockholders to be held
in 1998, Directors of Class II shall be elected to hold office for a term
expiring at the annual meeting of stockholders to be held in 1999 and Directors
of Class III shall be elected to hold office for a term expiring at the annual
meeting of stockholders to be held in 2000. 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.
(b) Subject to the rights of any holders of any series of
preferred stock, if any, to elect additional Directors under specified
circumstances, the holders of a majority of the combined voting power of the
then outstanding stock of the Corporation entitled to vote generally in the
election of Directors may remove any Director or the entire Board of Directors,
but only for cause.
(c) Vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
and newly created Directorships resulting from any increase in the authorized
number of Directors shall be filled in the manner provided in the By-laws of the
Corporation.
(d) Advance notice of nominations for the election of
Directors shall be given in the manner and to the extent provided in the By-laws
of the Corporation.
(e) The election of Directors may be conducted in any manner
approved by the stockholders at the time when the election is held and need not
be by written ballot.
(f) All corporate powers and authority of the Corporation
(except as at the time otherwise provided by law, by this Certificate of
Incorporation or by the By-laws) shall be vested in and exercised by the Board
of Directors.
(g) The Board of Directors shall have the power without the
assent or vote of the stockholders to adopt, amend, alter or repeal the By-laws
of the Corporation, except to the extent that the By-laws or this Certificate of
Incorporation otherwise provide. In addition to any requirements of law and any
other provision of this Certificate of Incorporation, the stockholders of the
Corporation may adopt, amend, alter or repeal any provision of the By-laws upon
the affirmative vote of the holders of two-thirds (2/3) or more of the combined
voting power of the then outstanding stock of the Corporation entitled to vote
generally in the election of Directors.
5
<PAGE> 20
(h) A Director of the Corporation, in determining what he or
she reasonably believes to be in the best interests of the Corporation, shall
consider the interests of the Corporation's stockholders and, in his or her
discretion, may consider the following:
(1) the interests of the policyholders of the
Corporation's subsidiaries;
(2) the interests of the Corporation's employees,
independent contractors, agents, suppliers, creditors and
customers;
(3) the economy of the nation;
(4) community and societal interests; and
(5) the long-term as well as the short-term interests
of the Corporation and its stockholders, including the
possibility that these interests may be best served by
continuing the existing ownership structure of the
Corporation.
Article VII.
Section 1. No Director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of his or her
fiduciary duty as a Director, provided that nothing contained in this Article
shall eliminate or limit the liability of a Director (a) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (c) under Section 174 of the General Corporation
Law of the State of Delaware, or (d) for any transaction from which the Director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after the filing of this Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended.
Section 2. Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director or the Corporation existing at the time of such repeal
or modification.
Article VIII.
6
<PAGE> 21
Effective as of the time the Common Stock shall be registered pursuant
to the provisions of the Securities Exchange Act of 1934, as amended, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of the stockholders of the
Corporation, and the ability of the stockholders to consent in writing to the
taking of any action is specifically denied.
Article IX.
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein conferred
upon stockholders or Directors (in the present form of this Certificate of
Incorporation or as hereinafter amended) are granted subject to this
reservation; provided, however, that any amendment or repeal of Article VII of
this Certificate of Incorporation shall not adversely affect any right or
protection existing hereunder immediately prior to such amendment or repeal;
and, provided, further, that Section 6 of Article IV and Articles V, VI, VII,
VIII, and IX of this Certificate of Incorporation shall not be amended, altered
or repealed without the affirmative vote of the holders of at least two-thirds
(2/3) of the then outstanding stock of the Corporation entitled to vote
generally in the election of Directors.
7
<PAGE> 22
EXHIBIT B
THE MIIX GROUP, INCORPORATED
BY-LAWS
As adopted on October 15, 1997
<PAGE> 23
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
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<S> <C>
ARTICLE I STOCKHOLDERS..................................................................................1
Section 1.01. Annual Meetings...............................................................1
Section 1.02. Special Meetings..............................................................1
Section 1.03. Notice of Meetings; Waiver....................................................1
Section 1.04. Quorum........................................................................2
Section 1.05. Voting........................................................................2
Section 1.06. Voting by Ballot..............................................................2
Section 1.07. Adjournment...................................................................2
Section 1.08. Proxies.......................................................................2
Section 1.09. Notice of Stockholder Business and Nominations................................4
Section 1.10. Organization; Procedure.......................................................6
Section 1.11. Inspectors of Elections.......................................................6
Section 1.12. Opening and Closing of Polls..................................................7
Section 1.13. No Stockholder Action by Written Consent......................................7
ARTICLE II BOARD OF DIRECTORS...........................................................................8
Section 2.01. General Powers................................................................8
Section 2.02. Number and Term of Office.....................................................8
Section 2.03. Election of Directors.........................................................8
Section 2.04. Annual and Regular Meetings...................................................8
Section 2.05. Special Meetings; Notice......................................................9
Section 2.06. Quorum; Voting................................................................9
Section 2.07. Adjournment...................................................................9
Section 2.08. Action Without a Meeting......................................................9
Section 2.09. Regulations; Manner of Acting.................................................9
Section 2.10. Action by Telephonic Communications..........................................10
Section 2.11. Resignations.................................................................10
Section 2.12. Removal of Directors.........................................................10
Section 2.13. Vacancies and Newly Created Directorships....................................10
Section 2.14. Compensation.................................................................10
Section 2.15. Reliance on Accounts and Reports, etc........................................10
ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES...................................................11
Section 3.01. Committees of Directors......................................................11
Section 3.02. Other Committees.............................................................11
Section 3.03. Powers.......................................................................12
Section 3.04. Proceedings..................................................................12
Section 3.05. Quorum and Manner of Acting..................................................13
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<PAGE> 24
<TABLE>
<S> <C>
Section 3.06. Action by Telephonic Communications..........................................12
Section 3.07. Absent or Disqualified Members...............................................12
Section 3.08. Resignations.................................................................13
Section 3.09. Removal......................................................................13
Section 3.10. Vacancies....................................................................13
ARTICLE IV OFFICERS....................................................................................14
Section 4.01. Number.......................................................................14
Section 4.02. Election.....................................................................14
Section 4.03. Compensation.................................................................14
Section 4.04. Removal and Resignation; Vacancies...........................................14
Section 4.05. Authority and Duties of Officers.............................................14
Section 4.06. Chairman of the Board........................................................14
Section 4.07. The President................................................................15
Section 4.08. Vice Presidents..............................................................15
Section 4.09. The Secretary................................................................15
Section 4.10. Treasurer....................................................................16
Section 4.11. Additional Officers..........................................................16
Section 4.12. Security.....................................................................16
ARTICLE V CAPITAL STOCK................................................................................16
Section 5.01. Certificates of Stock, Uncertificated Shares.................................16
Section 5.02. Signatures; Facsimile........................................................16
Section 5.03. Lost, Stolen or Destroyed Certificates.......................................17
Section 5.04. Transfer of Stock............................................................17
Section 5.05. Record Date..................................................................17
Section 5.06. Registered Stockholders......................................................17
Section 5.07. Transfer Agent and Registrar.................................................18
ARTICLE VI INDEMNIFICATION..............................................................................18
Section 6.01. Nature of Indemnity..........................................................18
Section 6.02. Successful Defense...........................................................19
Section 6.03. Determination that Indemnification is Proper.................................19
Section 6.04. Advance Payment of Expenses..................................................19
Section 6.05. Procedure for Indemnification of Directors and Officers......................19
Section 6.06. Survival; Preservation of Other Rights.......................................20
Section 6.07. Insurance....................................................................20
Section 6.08. Severability.................................................................20
ARTICLE VII OFFICES....................................................................................21
Section 7.01. Registered Office............................................................21
Section 7.02. Other Offices................................................................21
ARTICLE VIII GENERAL PROVISIONS........................................................................21
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<TABLE>
<S> <C>
Section 8.01. Dividends....................................................................21
Section 8.02. Reserves.....................................................................21
Section 8.03 Execution of Instruments.....................................................21
Section 8.04. Corporate Indebtedness.......................................................22
Section 8.05. Deposits.....................................................................22
Section 8.06. Checks.......................................................................22
Section 8.07. Sale, Transfer, etc. of Securities...........................................22
Section 8.08. Voting as Stockholder........................................................22
Section 8.09. Fiscal Year..................................................................23
Section 8.10. Seal.........................................................................23
Section 8.11. Books and Records; Inspection................................................23
ARTICLE IX AMENDMENT OF BY-LAWS........................................................................23
Section 9.01. Amendment....................................................................23
ARTICLE X CONSTRUCTION.................................................................................23
Section 10.01. Construction.................................................................23
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<PAGE> 26
THE MIIX GROUP, INCORPORATED
BY-LAWS
As adopted on October __ , 1997
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the stockholders
of the Corporation for the election of Directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, date and hour as designated by the Board of Directors and set forth in
the notice or waiver of notice of the meeting. [Sections 211(a), (b).](1)
Section 1.02. Special Meetings. Special meetings of the stockholders
may be called at any time by the Chief Executive Officer (or, in the event of
his or her absence or disability, by any Vice President), or by the Chairman or
Vice Chairman of the Board of Directors. A special meeting shall be called by
the Chief Executive Officer (or, in the event of his or her absence or
disability, by any Vice President), or by the Chairman or Vice Chairman of the
Board of Directors pursuant to a resolution approved by a majority of the entire
Board of Directors. Such special meetings of the stockholders shall be held at
such places, within or without the State of Delaware, as shall be specified in
the respective notices or waivers of notice thereof. Except as expressly
provided in this By-law, any power of the stockholders of the Corporation to
call a special meeting is specifically denied. [Section 211(d).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the record of stockholders of the Corporation, or,
if he or she shall have filed with the Secretary of the Corporation a written
request that notices to him or her be mailed to some other address, then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.
- --------
(1) Section references in brackets refer to sections of the Delaware General
Corporation Law.
<PAGE> 27
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of stockholders
shall constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened. [Sections 222, 229.]
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of one-third of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-laws, a
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation at the close of business on the day next preceding
the day on which notice of the meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of
Incorporation or by these By-laws, the vote of a majority of the shares
represented in person or by proxy at any meeting at which a quorum is present
shall be sufficient for the transaction of any business at such meeting.
[Sections 212(a), 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
taken by written ballot unless otherwise required by law. Any vote which need
not be taken by ballot may be conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting of
the stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.05 of these By-laws, a notice
of the adjourned meeting, conforming to the requirements of Section 1.03 of
these By-laws, shall be given to each stockholder of record entitled to vote at
such meeting. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting. [Section 222(c).]
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Section 1.08. Proxies. Any stockholder entitled to vote at any meeting
of the stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person or persons to vote at any
such meeting and express such consent or dissent for him or her by proxy. A
stockholder may authorize a valid proxy by executing a written instrument signed
by such stockholder, or by causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature, or by transmitting or authorizing the transmission of a telegram,
cablegram or other means of electronic transmission to the person designated as
the holder of the proxy, a proxy solicitation firm or a like authorized agent.
No such proxy shall be voted or acted upon after the expiration of three years
from the date of such proxy, unless such proxy provides for a longer period.
Every proxy shall be revocable at the pleasure of the stockholder executing it,
except in those cases where applicable law provides that a proxy shall be
irrevocable. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or by filing another duly executed proxy bearing a later date
with the Secretary. Proxies by telegram, cablegram or other electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of a writing or transmission
created pursuant to this section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. [Sections 212(b), (c), (d), (e).]
Section 1.09. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) by or at the direction of the Board of Directors or the
Chairman of the Board, or (b) by any stockholder of the Corporation who is
entitled to vote at the meeting, who complies with the notice procedures set
forth in clauses (2) and (3) of this paragraph and who was a stockholder of
record at the time such notice is delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder, pursuant to clause (b) of
paragraph (A)(1) of this By-law, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not less than ninety
days nor more than one hundred and twenty days prior to the first
anniversary of the preceding year's annual meeting; provided, that if
the date of the annual meeting is advanced by more than twenty days or
delayed by more than seventy days from such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than one
hundred and twenty days prior to such annual meeting and not later than
the close of business on the later of
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the ninetieth day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such
meeting is first made. For purposes of determining whether a
stockholder's notice shall have been delivered in a timely manner for
the annual meeting of stockholders, the "first anniversary of the
preceding year's annual meeting" shall be deemed to be October 15,
1997. In no event shall the adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as
a Director all information relating to such person that is required to
be disclosed in solicitations of proxies for election of directors, or
is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14a-11 thereunder, including such person's written consent to
being named in the proxy statement as a nominee and to serving as a
Director if elected; (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in
such business of such stockholder and of any beneficial owner on whose
behalf the proposal is made; and (c) as to the stockholder giving the
notice and any beneficial owner on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they
appear on the Corporation's books, and of such beneficial owner and
(ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-law to the contrary, in the event that the
number of Directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all
of the nominees for Director or specifying the size of the increased
Board of Directors made by the Corporation at least one hundred days
prior to the first anniversary of the preceding year's annual meeting,
a stockholder's notice under this paragraph shall also be considered
timely, but only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close
of business on the tenth day following the day on which such public
announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business as shall have
been brought before the special meeting of the stockholders pursuant to the
Corporation's notice of meeting pursuant to Section 1.03 of these By-laws shall
be conducted at such meeting. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which Directors
are to be elected pursuant to the Corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-law and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. Nominations
by stockholders of persons for election to the Board of Directors may
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be made at such special meeting of stockholders if the stockholder's notice as
required by paragraph (A)(2) of this Bylaw shall be delivered to the Secretary
at the principal executive offices of the Corporation not earlier than the one
hundred and twentieth day prior to such special meeting and not later than the
close of business on the later of the ninetieth day prior to such special
meeting or the tenth day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting. In no event shall the
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(C) General. (1) Only persons who are nominated in accordance with the
procedures set forth in this By-law shall be eligible to serve as Directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this By-law and, if any proposed nomination or business is not in compliance
with this By-law, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this By-law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14, or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this By-law. Nothing in this By-law shall be
deemed to affect any rights (a) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act, or (b) of the holders of any series of
Preferred Stock, if any, to elect Directors if so provided under any
applicable Preferred Stock Certificate of Designation (as defined in
the Certificate of Incorporation).
Section 1.10. Organization; Procedure. At every meeting of stockholders
the presiding officer shall be the Chairman of the Board or, in the event of his
or her absence or disability, the Vice Chairman of the Board. The Secretary, or
in the event of his or her absence or disability, the Assistant Secretary, if
any, or if there be no Assistant Secretary, in the absence of the Secretary, an
appointee of the presiding officer, shall act as Secretary of the meeting. The
order of business and all other matters of procedure at every meeting of
stockholders may be determined by such presiding officer.
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Section 1.11. Inspectors of Elections. Preceding any meeting of the
stockholders, the Board of Directors shall appoint one or more persons to act as
Inspectors of Elections, and may designate one or more alternate inspectors. In
the event no inspector or alternate is able to act, the person presiding at the
meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of the duties of an inspector,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspector shall:
(a) ascertain the number of shares outstanding and the voting power of
each;
(b) determine the shares represented at a meeting and the validity of
proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors; and
(e) certify his or her determination of the number of shares
represented at the meeting, and his or her count of all votes and ballots.
The inspector may appoint or retain other persons or entities to assist
in the performance of the duties of inspector.
When determining the shares represented and the validity of proxies and
ballots, the inspector shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 1.08 of these By-laws, ballots and the regular books and records of
the Corporation. The inspector may consider other reliable information for the
limited purpose of reconciling proxies and ballots submitted by or on behalf of
banks, brokers or their nominees or a similar person which represent more votes
than the holder of a proxy is authorized by the record owner to cast or more
votes than the stockholder holds of record. If the inspector considers other
reliable information as outlined in this section, the inspector, at the time of
his or her certification pursuant to (e) of this section, shall specify the
precise information considered, the person or persons from whom the information
was obtained, when this information was obtained, the means by which the
information was obtained, and the basis for the inspector's belief that such
information is accurate and reliable. [Sections 231(a), (b), (d).]
Section 1.12. Opening and Closing of Polls. The date and time for the
opening and the closing of the polls for each matter to be voted upon at a
stockholder meeting shall be announced at the meeting. The inspector of the
election shall be prohibited from accepting any ballots, proxies or votes or any
revocations thereof or changes thereto after the closing of the polls, unless
the Court of Chancery upon application by a stockholder shall determine
otherwise. [Section 231(c).]
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<PAGE> 32
Section 1.13. No Stockholder Action by Written Consent. Effective as of
the time the Common Stock shall be registered pursuant to the provisions of the
Exchange Act, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of the stockholders of the Corporation, and the ability of the stockholders to
consent in writing to the taking of any action is specifically denied.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by
law, by the Certificate of Incorporation or by these By-laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation. [Section 141(a).]
Section 2.02. Number and Term of Office. Subject to the rights of the
holders of any series of Preferred Stock, if any, the number of Directors shall
be fixed from time to time exclusively pursuant to a resolution adopted by a
majority of the entire Board, but shall consist of not less than nine (9)
Directors nor more than thirty-five (35) Directors. The Directors, other than
those who may be elected by the holders of any series of Preferred Stock, if
any, shall be divided into three classes, designated Classes I, II and III,
which shall be as nearly equal in number as possible. Directors of Class I shall
be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in 1999, Directors of Class II shall be elected to hold
office for a term expiring at the annual meeting of stockholders to be held in
2000 and Directors of Class III shall be elected to hold office for a term
expiring at the annual meeting of stockholders to be held in 2001. 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. Each Director (whenever elected) shall hold office until his or her
successor has been duly elected and qualified, or until his or her earlier
death, resignation or removal, except that each Director who attains retirement
age as determined by the Board of Directors during the term for which elected
shall hold office only until the next annual meeting of stockholders following
attainment of retirement age, at which time a person may be elected as Director
to complete the unexpired term of office, if any, for which the Director
attaining retirement age had been elected. [Section 141(b).]
Section 2.03. Election of Directors. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-laws, the Directors shall be elected at each
annual meeting of the stockholders. If the annual meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
stockholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election. [Sections 211(b), (c), 216.]
Section 2.04. Annual and Regular Meetings. The annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may
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come before the meeting shall be held as soon as possible following adjournment
of the annual meeting of the stockholders at the place of such annual meeting of
the stockholders. Notice of such annual meeting of the Board of Directors need
not be given. The Board of Directors from time to time may by resolution provide
for the holding of regular meetings and fix the place (which may be within or
without the State of Delaware) and the date and hour of such meetings. Notice of
regular meetings need not be given, provided, however, that if the Board of
Directors shall fix or change the time or place of any regular meeting, notice
of such action shall be mailed promptly, or sent by telephone, including a voice
messaging system or other system or technology designed to record and
communicate messages, telegraph, facsimile, electronic mail or other electronic
means to each Director who shall not have been present at the meeting at which
such action was taken, addressed to him or her at his or her usual place of
business, or shall be delivered to him or her personally. Notice of such action
need not be given to any Director who attends the first regular meeting after
such action is taken without protesting the lack of notice to him or her, prior
to or at the commencement of such meeting, or to any Director who submits a
signed waiver of notice, whether before or after such meeting. [Section 141(g).]
Section 2.05. Special Meetings; Notice. Special meetings of the Board
of Directors shall be held whenever called by the Chief Executive Officer (or,
in the event of his or her absence or disability, by any Vice President), or by
the Chairman or Vice Chairman of the Board of Directors at such place (within or
without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Special meetings of
the Board of Directors may be called on twenty-four hours' notice, if notice is
given to each Director personally or by telephone, including a voice messaging
system or other system or technology designed to record and communicate
messages, telegraph, facsimile, electronic mail or other electronic means, or on
five days' notice, if notice is mailed to each Director, addressed to him or her
at his or her usual place of business. Notice of any special meeting need not be
given to any Director who attends such meeting without protesting the lack of
notice to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting, and any business may be transacted thereat. [Sections 141(g), 229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total number of Directors then in
office shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present in
person at any meeting at which a quorum is present shall be the act of the Board
of Directors. [Section 141(b).]
Section 2.07. Adjournment. A majority of the Directors present, whether
or not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the time and place of the adjourned meeting are not announced at the time of
adjournment, in which case notice conforming to the requirements of Section 2.05
of these By-laws shall be given to each Director.
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<PAGE> 34
Section 2.08. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors. [Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent consistent
with applicable law, the Certificate of Incorporation and these By-laws, the
Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the Corporation as the Board of Directors may deem
appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the Board
of Directors may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting. [Section 141(i).]
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
Chief Executive Officer or the Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery. [Section 141(b).]
Section 2.12. Removal of Directors. Subject to the rights of the
holders of any series of Preferred Stock, if any, to elect additional Directors
under specified circumstances, any Director may be removed at any time, but only
for cause, upon the affirmative vote of the holders of a majority of the
combined voting power of the then outstanding stock of the Corporation entitled
to vote generally in the election of Directors. Any vacancy in the Board of
Directors caused by any such removal may be filled at such meeting by the
stockholders entitled to vote for the election of the Director so removed. If
such stockholders do not fill such vacancy at such meeting, such vacancy may be
filled in the manner provided in Section 2.13 of these By-laws. [Section
141(k).]
Section 2.13. Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any series of Preferred Stock, if any, to elect
additional Directors under specified circumstances, and except as provided in
Section 2.12, if any vacancies occur in the Board of Directors, by reason of
death, resignation, removal or otherwise, or if the authorized number of
Directors shall be increased, the Directors then in office shall continue to
act, and such vacancies and newly created Directorships may be filled by a
majority of the Directors then in office, although less than a quorum. A
Director elected to fill a vacancy or a newly created Directorship shall hold
office until his or her successor has been elected and qualified or until his or
her earlier death, resignation or removal. [Section 223.]
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Section 2.14. Compensation. The amount, if any, which each Director
shall be entitled to receive as compensation for his or her services as such
shall be fixed from time to time by resolution of the Board of Directors.
[Section 141(h).]
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
member of any committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation. [Section 141(e).]
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. Committees of Directors. The Board of Directors shall
establish an Executive Committee, a Nominating Committee and an Audit Committee.
Such committees shall have the following complement and responsibilities in
addition to any the Board of Directors may by resolution establish:
(A) Executive Committee. The Executive Committee of the Board of
Directors shall consist of four members who shall serve for a term of one year
or until their successors are appointed. The members of the Executive Committee
shall be Directors of the Corporation and shall be appointed to the Executive
Committee by the Chairman of the Board, provided such appointments are confirmed
by a majority of the entire Board of Directors. The Executive Committee shall
exercise the full power of the Board of Directors between meetings of the Board,
subject to the limitations set forth in Section 3.03 below.
(B) Nominating Committee. The Nominating Committee shall consist of
four members. Each member of the Nominating Committee shall serve a one-year
term. All members shall be appointed by the Chairman of the Board of Directors
or the Vice-Chairman, or such other officer as the Board of Directors may
designate from time to time, provided such appointments are confirmed by a
majority of the entire Board of Directors. The Nominating Committee shall
nominate candidates for membership of the Board of Directors and shall cause the
names of its nominees to be mailed to all shareholders not less than thirty days
before the annual meeting at which the election shall take place. A stockholder
may nominate a candidate for election to the Board of Directors provided the
nominating stockholder gives written notice of his or her intention to nominate
a Director and the name of the nominee not less than thirty days before the
annual meeting at which the election shall take place.
(C) Audit Committee. The Audit Committee shall consist of three
members, at least two of whom shall be Directors appointed by the Chairman of
the Board of Directors, provided
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<PAGE> 36
such appointments are confirmed by a majority of the entire Board of Directors
and each of whom shall serve one-year terms. No member of the Audit Committee
shall be an employee of the Corporation. The Audit Committee shall meet
periodically with the Corporation's management, internal auditors and
independent public accountants to discuss the scope of the annual audit,
internal control, internal auditing and financial reporting matters. The
Corporation's independent public accountants and internal auditors shall have
direct access to the Audit Committee.
Section 3.02. Other Committees. The Board of Directors may designate
one or more other committees, each such committee to consist of such number of
Directors as from time to time may be fixed by the Board of Directors. The Board
of Directors may designate one or more Directors as alternate members of any
such committee, who may replace any absent or disqualified member or members at
any meeting of such committee. Thereafter, members (and alternate members, if
any) of each such committee may be designated at the annual meeting of the Board
of Directors. Any such committee may be abolished or re-designated from time to
time by the Board of Directors. Each member (and each alternate member) of any
such committee (whether designated at an annual meeting of the Board of
Directors or to fill a vacancy or otherwise) shall hold office until his or her
successor shall have been designated or until he or she shall cease to be a
Director, or until his or her earlier death, resignation or removal. [Section
141(c).]
Section 3.03. Powers. During the intervals between the meetings of the
Board of Directors, the executive committee, except as otherwise provided in
this section, and subject to the provisions of the Certificate of Incorporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the property, affairs and business of the
Corporation, including the power to declare dividends and to authorize the
issuance of stock. Each such other committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the executive committee nor any such other committee shall have the
power or authority:
(a) to amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the Delaware
General Corporation Law, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other
class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of
the shares of any series);
(b) to adopt an agreement of merger or consolidation;
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(c) to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) to amend the By-laws of the Corporation; or
(f) to abolish or usurp the authority of the Board of
Directors.
The executive committee shall have, and any such other committee may be
granted by the Board of Directors, power to authorize the seal of the
Corporation to be affixed to any or all papers which may require it. [Section
141(c).]
Section 3.04. Proceedings. Each such committee may fix its own rules of
procedure and may meet at such place (within or without the State of Delaware),
at such time and upon such notice, if any, as it shall determine from time to
time. Each such committee shall keep regular minutes of its meetings and report
the same to the Board of Directors at the next meeting of the Board following
such committee meeting; except that when the Board meeting is held within two
days after the committee meeting, such report shall, if not made at the first
meeting, be made to the Board at its second meeting following such committee
meeting.
Section 3.05. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such committee, at all meetings of any
committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such committee.
Any action required or permitted to be taken at any meeting of any such
committee may be taken without a meeting, if all members of such committee shall
consent to such action in writing and such writing or writings are filed with
the minutes of the proceedings of the committee. The members of any such
committee shall act only as a committee, and the individual members of such
committee shall have no power as such. [Section 141(c), (f).]
Section 3.06. Action by Telephonic Communications. Members of any
committee designated by the Board of Directors may participate in a meeting of
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting. [Section 141(i).]
Section 3.07. Absent or Disqualified Members. In the absence or
disqualification of a member of any committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. [Section 141(c).]
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Section 3.08. Resignations. Any member (and any alternate member) of
any committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.09. Removal. Any member (and any alternate member) of any
committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such committee at any time, either for or without
cause, by resolution adopted by a majority of the whole Board of Directors.
Section 3.10. Vacancies. If any vacancy shall occur in any committee,
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a Chairman of the Board, a Vice Chairman
of the Board, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Board of Directors also may elect one or more other officers as
the Board of Directors may determine. Any number of offices may be held by the
same person. No officer other than a Chairman of the Board need be a Director of
the Corporation. The President shall be designated by the Board as the Chief
Executive Officer of the Corporation.
[Section 142(a), (b).]
Section 4.02. Election. Officers shall be chosen in such manner and
shall hold their offices for such terms as determined by the Board of Directors.
Each officer shall hold office until his or her successor has been elected and
qualified, or until his or her earlier death, resignation or removal.
[Section 142(b).]
Section 4.03. Compensation. The compensation of all officers and agents
of the Corporation who are also Directors of the Corporation shall be fixed by
the Board of Directors. The Board of Directors may delegate the power to fix the
compensation of officers and agents of the Corporation to an officer of the
Corporation.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors or by the
Chief Executive Officer, if such powers of removal have been conferred by the
Board of Directors. Any officer may resign at any time by delivering a written
notice of resignation, signed by such officer, to the Board of Directors or the
President. Unless otherwise specified therein, such resignation shall take
effect upon delivery. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise, shall be filled by the Board of
Directors. [Section 142(b), (e).]
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Section 4.05. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law. [Section 142(a).]
Section 4.06. Chairman of the Board. The Chairman of the Board shall,
if present, preside at all meetings of the stockholders and of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned by the Board of Directors.
Section 4.07. Vice Chairman of the Board. The Vice Chairman of the
Board shall, in the absence of the Chairman of the Board, preside at all
meetings of the stockholders and of the Board of Directors and exercise and
perform such other powers and duties as may be from time to time assigned by the
Board of Directors.
Section 4.08. The President. The President shall have such powers and
duties as may be prescribed from time to time by the Board of Directors, the
Chairman of the Board, or elsewhere in these By-laws. In the absence or
disability of the Chairman of the Board and the Vice Chairman of the Board, the
President shall exercise the powers and perform the duties of the Chairman of
the Board.
Section 4.09. Vice Presidents. Vice Presidents shall have such powers
and perform such duties as may be prescribed from time to time by the Chief
Executive Officer, the Board of Directors, or elsewhere in these By-laws.
Section 4.10. The Secretary. The Secretary shall have the following
powers and duties:
(a) He or she shall keep or cause to be kept a record of all
the proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in
accordance with the provisions of these By-laws and as required by law.
(c) Whenever any committee shall be appointed pursuant to a
resolution of the Board of Directors, he or she shall furnish a copy of
such resolution to the members of such committee.
(d) He or she shall be the custodian of the records and of the
seal of the Corporation and cause such seal (or a facsimile thereof) to
be affixed to all certificates representing shares of the Corporation
prior to the issuance thereof and to all instruments the execution of
which on behalf of the Corporation under its seal shall have been duly
authorized in accordance with these By-laws, and when so affixed he or
she may attest the same.
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(e) He or she shall properly maintain and file all books,
reports, statements, certificates and all other documents and records
required by law, the Certificate of Incorporation or these By-laws.
(f) He or she shall have charge of the stock books and ledgers
of the Corporation and shall cause the stock and transfer books to be
kept in such manner as to show at any time the number of shares of
stock of the Corporation of each class issued and outstanding, the
names (alphabetically arranged) and the addresses of the holders of
record of such shares, the number of shares held by each holder and the
date as of which each became such holder of record.
(g) He or she shall sign (unless the Treasurer, an Assistant
Treasurer or an Assistant Secretary shall have signed) certificates
representing shares of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(h) He or she shall perform, in general, all duties incident
to the office of Secretary and such other duties as may be specified in
these By-laws or as may be assigned to him or her from time to time by
the Board of Directors or the Chief Executive Officer.
Section 4.11. Treasurer. The Treasurer shall have custody of all the
funds, securities and other valuables of the Corporation which may have or shall
come into his or her hands. He or she shall have such powers and perform such
duties as may be prescribed by the Chief Executive Officer, the Board of
Directors or elsewhere in these By-laws.
Section 4.12. Additional Officers. The Board of Directors may appoint
such other officers and agents as it may deem appropriate, and such other
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as may be determined from time to time by
the Board of Directors. The Board of Directors from time to time may delegate to
the Chief Executive Officer the power to appoint subordinate officers or agents
and to prescribe their respective rights, terms of office, authorities and
duties. Any such officer or agent may remove any such subordinate officer or
agent appointed by him or her, for or without cause. [Section 142(a), (b).]
Section 4.13. Security. The Board of Directors may require any officer,
agent or employee of the Corporation to provide security for the faithful
performance of his or her duties, in such amount and of such character as may be
determined from time to time by the Board of Directors. [Section 142(c).]
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ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares. The shares
of the Corporation shall be represented by certificates, provided that the Board
of Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these Bylaws. [Section 158.]
Section 5.02. Signatures; Facsimile. All of such signatures on the
certificate referred to in Section 5.01 of these By-laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue. [Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Corporation
may direct that a new certificate be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon delivery to the Corporation of an affidavit of the owner or
owners of such certificate, setting forth such allegation. The Corporation may
require the owner of such lost, stolen or destroyed certificate, or his or her
legal representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of any such new
certificate. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares, duly endorsed
or accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the Delaware General
Corporation Law. Subject to the provisions of the Certificate of Incorporation
and these By-laws, the Board of Directors may prescribe such additional rules
and regulations as
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it may deem appropriate relating to the issue, transfer and registration of
shares of the Corporation. [Section 151(f).]
Section 5.05. Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
Section 5.07. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (a "Proceeding"),
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was or has agreed to become a Director or officer of the
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Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a Director or officer, of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, and may indemnify any person who was or
is a party or is threatened to be made a party to such an action, suit or
proceeding by reason of the fact that he or she is or was or has agreed to
become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her or on his or her
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding had no reasonable cause to
believe his or her conduct was unlawful; except that in the case of an action or
suit by or in the right of the Corporation to procure a judgment in its favor
(1) such indemnification shall be limited to expenses (including attorneys'
fees) actually and reasonably incurred by such person in the defense or
settlement of such action or suit, and (2) no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding the foregoing,
but subject to Section 6.05 of these By-laws, the Corporation shall not be
obligated to indemnify a Director or officer of the Corporation in respect of a
Proceeding (or part thereof) instituted by such Director or officer, unless such
Proceeding (or part thereof) has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 of these By-laws or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 6.03. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 6.01
of these By-laws (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
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standard of conduct set forth in Section 6.01 of these By-laws. Any
indemnification of an employee or agent of the Corporation under Section 6.01 of
these By-laws (unless ordered by a court) may be made by the Corporation upon a
determination that indemnification of the employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 6.01 of these By-laws. Any such determination shall be made (1)
by a majority vote of the Directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
Directors, or if such Directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a Director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article. Such expenses (including attorneys' fees) incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate. The Board of Directors may authorize the
Corporation's counsel to represent such Director, officer, employee or agent in
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
Section 6.05. Procedure for Indemnification of Directors and Officers.
Any indemnification of a Director or officer of the Corporation under Sections
6.01 and 6.02 of these Bylaws, or advance of costs, charges and expenses to a
Director or officer under Section 6.04 of these By-laws, shall be made promptly,
and in any event within thirty days, upon the written request of the Director or
officer. If a determination by the Corporation that the Director or officer is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If the
Corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within thirty days, the right to indemnification or advances as granted by this
Article shall be enforceable by the Director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 6.04 of these
By-laws where the required undertaking, if any, has been received by or tendered
to the Corporation) that the claimant has not met the standard of conduct set
forth in Section 6.01 of these By-laws, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, its independent legal counsel, and its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in Section 6.01 of these
By-laws, nor the fact that there has been an actual determination by the
Corporation (including its Board of Directors, its independent legal counsel,
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and its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in whole
or in part upon any such state of facts. Such a "contract right" may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
Director, officer or employee of the Corporation, or is or was serving at the
request of the Corporation as a Director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her or on his or
her behalf in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of this Article, provided that such
insurance is available on acceptable terms, which determination shall be made by
a vote of a majority of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
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ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at 222 Delaware Avenue in
the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's capital stock.
A member of the Board of Directors, or a member of any committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the Director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid. [Sections 172, 173.]
Section 8.02. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may similarly modify or abolish any such reserve.
[Section 171.]
Section 8.03 Execution of Instruments. The Chief Executive Officer, any
Vice President, the Secretary or the Treasurer may enter into any contract or
execute and deliver any instrument in the name and on behalf of the Corporation.
The Board of Directors or the President may authorize any other officer or agent
to enter into any contract or execute and deliver any instrument in the name and
on behalf of the Corporation. Any such authorization may be general or limited
to specific contracts or instruments.
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Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors, provided that the Chief
Executive Officer may authorize indebtedness incurred in the ordinary course of
business up to $2 million. Such authorization may be general or confined to
specific instances. Loans so authorized may be effected at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual. All bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board of Directors or the Chief Executive
Officer shall authorize. When so authorized by the Board of Directors or the
Chief Executive Officer, any part of or all the properties, including contract
rights, assets, business or good will of the Corporation, whether then owned or
thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or
assigned in trust as security for the payment of such bonds, debentures, notes
and other obligations or evidences of indebtedness of the Corporation, and of
the interest thereon, by instruments executed and delivered in the name of the
Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited
from time to time in such banks, trust companies or other depositories as may be
determined by the Board of Directors or the Chief Executive Officer, or by such
officers or agents as may be authorized by the Board of Directors or the Chief
Executive Officer to make such determination.
Section 8.06. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the Chief
Executive Officer from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
authorized by the Board of Directors or by the Chief Executive Officer, any Vice
President, the Secretary or the Treasurer or any other officers designated by
the Board of Directors or the Chief Executive Officer may sell, transfer,
endorse, and assign any shares of stock, bonds or other securities owned by or
held in the name of the Corporation, and may make, execute and deliver in the
name of the Corporation, under its corporate seal, any instruments that may be
appropriate to effect any such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors, the Chief Executive Officer or any Vice
President shall have full power and authority on behalf of the Corporation to
attend any meeting of stockholders of any corporation in which the Corporation
may hold stock, and to act, vote (or execute proxies to vote) and exercise in
person or by proxy all other rights, powers and privileges incident to the
ownership of such stock. Such officers acting on behalf of the Corporation shall
have full power and authority to execute any instrument expressing consent to or
dissent from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.
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Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be circular in
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. Subject to any express provision in the
Certificate of Incorporation to the contrary, these By-laws may be amended,
altered or repealed:
(a) by resolution adopted by a majority of the Board of
Directors at any special or regular meeting of the Board if, in the
case of such special meeting only, notice of such amendment, alteration
or repeal is contained in the notice or waiver of notice of such
meeting; or
(b) at any regular or special meeting of the stockholders upon
the affirmative vote of the holders of two-thirds or more of the
combined voting power of the outstanding shares of the Corporation
entitled to vote generally in the election of Directors if, in the case
of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting.
[Section 109(a).]
ARTICLE X
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict between the
provisions of these By-laws as in effect from time to time and the provisions of
the Certificate of Incorporation of the Corporation as in effect from time to
time, the provisions of such Certificate of Incorporation shall be controlling.
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Exhibit C
CERTIFICATE OF INCORPORATION
OF
MIIX INSURANCE COMPANY
This is to certify that we, the undersigned, intending to form a
corporation under Title 17, Chapters 17 to 33 and Title 17B, Chapter 17-4 of the
Revised Statutes of New Jersey as amended and supplemented, do hereby certify
and state:
FIRST: Name. The name of the Corporation shall be MIIX Insurance
Company.
SECOND: Office. The principal office of the Corporation in the State
of New Jersey, which shall also be its registered office, is to be located at
Two Princess Road, Lawrenceville, New Jersey, and the registered agent upon whom
process may be served shall be the Corporation.
THIRD: Purpose. The kinds of insurance to be transacted by the
Corporation shall be the kinds of insurance specified by the following
paragraphs under N.J.S.A. 17:17-1:
(a) Against direct or indirect loss or damage to property, including loss
of use or occupancy by fire, smoke; smudge; lightning; tempest on land,
including windstorm, tornado and cyclone; earthquake; collapse of
buildings; hail; frost or snow; weather or climatic conditions, including
excess or deficiency of moisture, flood, rain or drought, rising of the
waters of the ocean or its tributaries; bombardment; invasion;
insurrection; riot; civil war or commotion; military or usurped power;
vandalism or malicious mischief; striking employees; explosion, whether
fire ensues or not, except explosion of steam boilers and flywheels; and
arising from the use of elevators, aircraft, automobiles or other
vehicles; against loss or damage by insects or disease to farm crops or
products and loss of rental value of land used in producing the crops or
products;
(b) Against any kinds of loss or damage to: vessels, craft, aircraft,
cars, automobiles and vehicles of every kind, including all kinds of
automobile and aircraft insurance (excepting insurance against loss by
reason of bodily injury to the person), as well as all goods, freights,
cargoes, merchandise, effects, disbursements, profits, moneys, bullion,
precious stones, securities, choses in
<PAGE> 50
action, evidence of debt, valuable papers, bottomry and respondentia
interests, and all other kinds of property and interests therein, in
respect to, appertaining to or in connection with any and all risks or
perils of navigation, transit, or transportation, including war risks, on
or under any seas or other waters, on land or in the air, or while being
assembled, packed, crated, baled, compressed or similarly prepared for
shipment or while awaiting the same or during any delays, storage,
transshipment or reshipment incident thereto, including marine builder's
risk and all personal property floater risks, and to person or to property
in connection with or appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss of or damage to
either, arising out of or in connection with the construction, repair,
operation, maintenance or use of the subject matter of the insurance (but
not including life insurance or surety bonds) but, except as herein
specified, not against loss by reason of bodily injury to the person;
(e) Against loss or damage resulting from accident to or injury suffered
by any person for which loss or damage the insured is liable, including,
if the insured is a state or a political subdivision of a state or a
municipal corporate instrumentality of one or more states, loss or damage
resulting from accident to or injury suffered by any person for which loss
or damage the insured would be liable if it were a private corporation;
(f) Against damage to property of the insured or loss of life or damage to
the person or property of others for which the insured is liable
(including, if the insured is a state or a political subdivision of a
state or a municipal corporate instrumentality of one or more states, loss
of life or damage to the person or property of others for which the
insured would be liable if it were a private corporation), caused by the
explosion of steam boilers, pipes, engines, motors and machinery connected
therewith or operated thereby;
(g) Against loss from the defaults of persons in positions of trust,
public or private, or against loss or damage on account of neglect or
breaches of duty or obligations guaranteed by the insurer; and against
loss by banks, bankers, brokers, financial or moneyed corporations or
associations, of any bills of exchange, notes, checks, drafts, acceptances
of drafts, bonds, securities, evidences of debt, deeds, mortgages,
documents, gold or silver, bullion, currency, money, platinum and other
precious metals, refined or unrefined and articles made therefrom,
jewelry, watches, necklaces, bracelets, gems, precious and semiprecious
stones, and also against loss resulting from damage, except by fire, to
the insured's premises, furnishings, fixtures, equipment, safes and vaults
therein caused by burglary, robbery, hold-up, theft or larceny, or attempt
thereat. No such indemnity indemnifying against loss of any property as
specified herein shall indemnify
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against the loss of any such property occurring while in the mail or in
the custody or possession of a carrier for hire for the purpose of
transportation, except for the purpose of transportation by an armored
motor vehicle accompanied by one or more armed guards;
(j) Against loss or damage by burglary, theft, larceny, robbery, forgery,
fraud, vandalism or malicious mischief, or any one or more of such
hazards; and against any and all kinds of loss or destruction of or damage
to moneys, securities, currencies, scrip, coins, bullion, bonds, notes,
drafts, acceptances of drafts, bills of exchange and other valuable papers
or documents, except while in the custody or possession of and being
transported by a carrier for hire or in the mail; and against loss or
damage to automobiles and aircraft by burglary, larceny, or theft,
vandalism or malicious mischief, confiscation or wrongful conversion,
disposal or concealment, whether held under conditional sale contract or
subject to chattel mortgages, or otherwise, or any one or more of such
hazards;
(k) Against loss of and damage to glass, including lettering and
ornamentation thereon, and the frame in which the glass is set resulting
from breakage of the insured glass;
(l) Against loss or damage by water or other fluid to any goods or
premises arising from the breaking or leakage of sprinklers, pumps, or
other apparatus erected for extinguishing fires, or of other conduits or
containers, or by water entering through leaks or openings in buildings,
and of water pipes and against accidental injury to such sprinklers,
pumps, conduits, containers, water pipes and other apparatus; including
loss of use or occupancy of the property so damaged;
(m) Upon the lives of horses, cattle and other livestock or against loss
by theft of any such property or both;
(n) Against loss or damage to property by smoke or smudge, or both;
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(o) Any specified kinds of insurance not included in any of the foregoing
subsections and which are proper subjects of insurance, including but not
limited to the following:
i. Loss or damage to property by epidemic;
ii. Against loss or damage to property by power failure or
mechanical breakdown;
iii. Insurance against loss or damage to property or any
insurable interest therein caused by insects or by radiation
resulting from atomic fission;
iv. Engine breakdown;
v. Loss or damage to property of the assured caused by falling
of tanks or equipment from protecting property against fire, by
explosion other than steam boilers, pipes, engines, motor and
machinery connected therewith (except fire);
vi. Limited to the right to participate in associations or
pools, such as NEPIA and NELIA, which associations or pools are
authorized to write "all risks" insurance involving Nuclear Fuel
exposure;
vii. Economic security;
viii. All other liability not covered hereunder, including
voluntarily assumed liability.
"Health insurance" as defined in N.J.S.A. 17B:17-4 as a contract or
agreement whereby an insurer is obligated to pay or allow a benefit of
pecuniary value with respect to the bodily injury, disablement, sickness,
death by accident or accidental means of a human being, or because of any
expense relating thereto, or because of any expense incurred in prevention
of sickness, and includes every risk pertaining to any of the enumerated
risks. Health insurance does not include workers' compensation coverages.
FOURTH: Stock. The Corporation is to be a stock company.
FIFTH: Capital. The amount of capital stock of the Corporation shall
be $1,000,000, divided into 100 shares of common stock having a par value of
$1.00 per share. The whole amount of the capital stock set forth in the
certificate of incorporation shall be actually paid in.
SIXTH: Duration. The duration of the Corporation shall be perpetual.
SEVENTH: Policyholder Dividends. The Corporation may issue both
participating and non-participating policies with respect to any kind of
insurance which the
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<PAGE> 53
Corporation is authorized to transact. Dividends shall be in accordance with
rates and rules applicable to such kind or kinds of insurance as may be
determined by the Board of Directors, subject to statutory requirements. The
Board of Directors shall have the power to adopt by-laws pertaining to such
declaration and payment which, in their judgment, seems necessary or desirable.
EIGHTH: Officers. The principal officers of this Corporation shall
be a Chairman of the Board of Directors, one or more Vice Chairmen of the Board
of Directors, a President, one or more Vice Presidents, a Secretary, a
Treasurer, and such other officers as the Board of Directors may determine to
elect in accordance with the provisions of the by-laws of this Corporation by
resolution adopted by a majority of the entire Board. All officers shall hold
office for a term of one year unless sooner removed by the entire Board of
Directors.
NINTH: Management of the Affairs of the Corporation. The Board of
Directors, in addition to all other rights and powers bestowed upon it by law,
shall have the power, without the assent or vote of the shareholders, to make,
alter, and repeal by-laws as set forth in the by-laws of the Corporation.
TENTH: Amendment. The company reserves the right to amend, alter,
change, or repeal any provision contained in this certificate, in the manner now
or hereafter prescribed by law. All rights and powers conferred herein on
shareholders, directors, and officers are subject to this reserved power.
ELEVENTH: Incorporators. The names and addresses of the
incorporators of the Corporation are as follows:
Name and Address
Hillel M. Ben-Asher, M.D.
34 Normandy Heights Road
Morristown, NJ 07960
Palma E. Formica, M.D.
St. Peter's Medical Center
254 Easton Avenue
New Brunswick, NJ 08901-1780
Daniel Goldberg
Two Princess Road
Lawrenceville, NJ 08648
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<PAGE> 54
Paul J. Hirsch, M.D.
720 US Highway 202-206
Bridgewater, NJ 08807
Henry R. Liss, M.D.
29 Ridge Road
Summit, NJ 07901-2916
Vincent A. Maressa, Esq.
Two Princess Road
Lawrenceville, NJ 08648
Murray A. Matez, DO
430 Cherry Hill Boulevard
Cherry Hill, NJ 08002
Charles J. Moloney, M.D.
601 Chester Avenue
Moorestown, NJ 08057
Fred M. Palace, M.D.
17 Exeter Lane
Morristown, NJ 07960
Carl Restivo, Jr., M.D.
281 Terhune Drive
Wayne, NJ 07470
Gabriel F. Sciallis, M.D.
2211 Whitehorse-Mercerville Rd.
Mercerville, NJ 08619
Martin L. Sorger, M.D.
Montclair Ortho. Group
200 Highland Avenue
Glen Ridge, NJ 07028
6
<PAGE> 55
TWELFTH: Initial Board of Directors. The names and addresses of the
first Board of Directors and Officers of the Corporation and their term of
office are as follows:
Name and Address
Hillel M. Ben-Asher, M.D.
34 Normandy Heights Road
Morristown, NJ 07960
Palma E. Formica, M.D.
St. Peter's Medical Center
254 Easton Avenue
New Brunswick, NJ 08901-1780
Daniel Goldberg
Two Princess Road
Lawrenceville, NJ 08648
Paul J. Hirsch, M.D.
720 US Highway 202-206
Bridgewater, NJ 08807
Henry R. Liss, M.D.
29 Ridge Road
Summit, NJ 07901-2916
Vincent A. Maressa, Esq.
Two Princess Road
Lawrenceville, NJ 08648
Murray A. Matez, DO
430 Cherry Hill Boulevard
Cherry Hill, NJ 08002
Charles J. Moloney, M.D.
601 Chester Avenue
Moorestown, NJ 08057
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<PAGE> 56
Fred M. Palace, M.D.
17 Exeter Lane
Morristown, NJ 07960
Carl Restivo, Jr., M.D.
281 Terhune Drive
Wayne, NJ 07470
Gabriel F. Sciallis, M.D.
2211 Whitehorse-Mercerville Rd.
Mercerville, NJ 08619
Martin L. Sorger, M.D.
Montclair Ortho. Group
200 Highland Avenue
Glen Ridge, NJ 07028
8
<PAGE> 57
WE, THE UNDERSIGNED, being the incorporators hereinbefore named, for
the purpose of forming an insurance corporation pursuant to Subtitle 3 of Title
17 of the New Jersey Statutes, relating to the formation of insurance companies,
do make this Certificate, hereby declaring and certifying that this is our act
and deed and the facts herein stated are true, and accordingly set our hands
this _____ day of __________, 1997.
----------------------------------------
Hillel M. Ben-Asher, M.D.
----------------------------------------
Palma E. Formica, M.D.
----------------------------------------
Daniel Goldberg
----------------------------------------
Paul J. Hirsch, M.D.
----------------------------------------
Henry R. Liss, M.D.
----------------------------------------
Vincent A. Maressa, Esq.
----------------------------------------
Murray A. Matez, DO
----------------------------------------
Charles J. Moloney, M.D.
----------------------------------------
Fred M. Palace, M.D.
9
<PAGE> 58
----------------------------------------
Carl Restivo, Jr., M.D.
----------------------------------------
Gabriel F. Sciallis, M.D.
----------------------------------------
Martin L. Sorger, M.D.
STATE OF NEW JERSEY )
) ss:
COUNTY OF MERCER )
On this ___ day of ____ , 19 ___ , before me a Notary Public within and for said
County, personally appeared [ten or more names],
____________,____________,____________, known to be persons named as
incorporators and who executed this Certificate of Incorporation and, who being
duly sworn, depose and say that they executed the same as their free act and
deed and for the uses and purposes therein expressed.
_______________________________
_______________________________
Notary Public
(Notary Seal)
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Exhibit D
BY-LAWS
OF
MIIX INSURANCE COMPANY
(the "Corporation")
ARTICLE I
OFFICES
1.1. PRINCIPAL OFFICES. The registered office of the Corporation
shall be at Two Princess Road, Lawrenceville, New Jersey 08648-2382. The agent
in charge of such office against whom process may be served is the General
Counsel of the Corporation.
1.2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of New Jersey as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
2.1. GENERAL. All meetings of the shareholders of the Corporation
shall be held at such time and place, within or without the State of New Jersey,
as shall be fixed by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
<PAGE> 60
2.2. ANNUAL MEETINGS. A meeting of shareholders shall be held in
each year for the election of Directors at such time and place as the Board of
Directors shall determine. Any other proper business, notice of which was given
in the notice of the meeting or in a duly executed waiver of notice thereof, may
be transacted at the annual meeting. Elections of Directors need not be by
written ballot, unless a shareholder demands election by ballot at the election
and before the voting begins.
2.3. NOTICE OF ANNUAL MEETINGS. Written notice of the annual meeting
shall be given to each shareholder entitled to vote at that meeting not less
than thirty days nor more than sixty days prior to the date of the meeting.
2.4. SHAREHOLDER LIST. The officer or agent who has charge of the
stock transfer books of the Corporation shall prepare, make and certify, and
have available at the time and place of the meeting, a complete list of the
shareholders entitled to vote at a shareholders' meeting or any adjournment
thereof, arranged by class (or group of shareholders maintained by the
Corporation for convenience of reference) in alphabetical order, showing the
address of each shareholder and the number of shares registered in the name of
each shareholder. Such list shall be produced at the time and place of the
meeting and shall be open to the examination of any shareholder during the whole
time of the meeting. Such list shall be prima facie evidence of who are the
shareholders entitled to examine such list or to vote at any meeting.
2.5. SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of
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Incorporation of the Corporation, may be called by the Board of Directors or the
President of the Corporation and shall be called by the President or Secretary
of the Corporation at the request in writing of not less than 10% of all the
shares entitled to vote at the meeting. Such request shall state the purpose or
purposes of the proposed meeting.
2.6. NOTICE OF SPECIAL MEETINGS. Written notice of a special meeting
of shareholders, stating the time, place and object thereof, shall be given to
each shareholder entitled to vote at such meeting, not less than ten days nor
more than sixty days before the date fixed for the meeting.
2.7. BUSINESS OF SPECIAL MEETINGS. Business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice.
2.8. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation of the Corporation.
If a quorum shall not be present or represented at the commencement
of any meeting of the shareholders, the shareholders entitled to vote, whether
present in person or represented by proxy, shall adjourn the meeting to another
date, without notice of such other date other than announcement at the meeting
until a quorum shall be present or represented; provided, however, that, if
after the adjournment the Board of Directors fixes a new record date for the
adjourned meeting, a notice of the meeting shall be sent as
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set forth in Section 2.6 hereof. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the original meeting.
Whenever the holders of any class or series of shares are entitled
to vote separately on a specified item of business, a quorum of the holders of,
such class shall be present at the commencement of the meeting in order for such
vote to be valid.
The shareholders present in person or by proxy at a duly organized
meeting may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. Less than a
quorum may adjourn.
2.9. VOTING REQUIREMENTS. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power, present
in person or represented by proxy, shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
statutes or of the Certificate of Incorporation, the vote of a greater number of
shares of stock is required, in which case such express provision shall govern
and control the decision of such question; provided, however, that Directors
shall be elected by a plurality of the votes cast at an election of Directors.
2.10. VOTING. Except as otherwise may be provided in the Certificate
of Incorporation of the Corporation, when entitled to vote, each shareholder
shall at every meeting of the shareholders be entitled to one vote on each
matter submitted to a vote in person or by proxy for each share of the Common
Stock having voting power in respect
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of such matter held by such shareholder. No proxy shall be voted on or after
eleven months from its date, unless the proxy expressly provides for a longer
period, but in no event after three years from its date.
2.11. ACTION WITHOUT MEETING. Whenever the vote of shareholders at a
meeting thereof is required or permitted to be taken in connection with any
corporate action by any provisions of the statutes or of the Certificate of
Incorporation, the meeting and vote of shareholders may be dispensed with, if
all the shareholders who would have been entitled to vote upon the action if
such meeting were held, shall consent in writing to such corporate action being
taken, except that, in the case of any action to be taken pursuant to Chapter 10
of the General Corporation Law of the State of New Jersey (relating to mergers),
such action may be taken without a meeting only if all shareholders consent
thereto in writing, or only if all shareholders entitled to vote thereon consent
thereto in writing and the Corporation provides to all nonconsenting
shareholders the advance notification of his or her right to dissent from such
action, as required by Section 6(2)(b) of Chapter 5 of the New Jersey General
Corporation Law (N.J.S.A. Section 14A:5-6(2)(b)).
Notwithstanding any provision in this Section to the contrary, and
except as otherwise required by the General Corporation Law of the State of New
Jersey, any action other than the annual election of Directors which is
permitted to be taken at a meeting of shareholders, may be taken without a
meeting upon the written consent of less than all the shareholders entitled to
vote thereon, if such action is permitted by the
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Certificate of Incorporation and the shareholders who so consent would be
entitled to cast at least the minimum number of votes which would be required to
take such action at a meeting at which all shareholders entitled to vote thereon
are present.
ARTICLE III
DIRECTORS
3.1. BOARD. The number of Directors which shall constitute the whole
Board shall be as the Directors may by resolution determine but in no event
shall be less than ten (10) nor more than twelve (12). The President of the
Corporation shall serve ex officio on the Board of Directors and shall vote as
any other Director in accordance with these By-laws. The first Board of
Directors, including such ex officio Directors, shall have a complement of
twelve (12) and shall consist of the persons named in the original Certificate
of Incorporation of the Corporation (the "First Board"). Directors need not be
United States citizens, or residents of the State of New Jersey, or shareholders
of the Corporation but must be at least 18 years of age. The First Board shall
serve until the first the annual meeting of the shareholders. Upon expiration of
the term of the First Board, a new Board of Directors shall be elected at the
annual meeting of the shareholders, and each Director elected thereat shall
serve as hereinafter provided and until his or her successor shall have been
elected and qualified, unless such Director resigns or becomes disqualified,
disabled or is otherwise removed. At the first annual meeting the Directors
shall be divided into three classes, designated Classes I, II and III, which
shall be as nearly equal in number as possible. Directors of Class I shall be
elected to hold office
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for a term expiring at the annual meeting of shareholders to be held in 1999,
Directors of Class II shall be elected to hold office for a term expiring at the
annual meeting of shareholders to be held in 2000 and Directors of Class III
shall be elected to hold office for a term expiring at the annual meeting of
shareholders to be held in 2001. At each succeeding annual meeting of
shareholders following such initial classification and election, the respective
successors of each class shall be elected for three year terms.
A Director may resign by not less than 30 days' prior written notice
to the Corporation.
The Board shall have the power to remove a Director from the Board
and to suspend a Director from the Board pending a final determination that
cause exists for removal, by a majority vote of all other Directors at a regular
or special meeting at which a quorum is present.
3.2. VACANCIES. Any directorship not filled at the annual meeting
and any vacancy, however caused and including a vacancy caused by reason of an
increase in the number of Directors, occurring in the Board may be filled by the
affirmative vote of a majority of the remaining Directors even though less than
a quorum of the Board, or by a sole remaining Director. When one or more
Directors shall resign from the Board effective at a future date, a majority of
the Directors then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective, and each Director
so chosen shall hold office as herein provided in the filling of other
vacancies.
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3.3. MANAGEMENT. The business of the Corporation shall be managed by
its Board of Directors which may exercise all such powers of the Corporation and
do all such lawful acts and things, except when indicated otherwise by law or by
the Certificate of Incorporation or these By-laws.
3.4. MEETINGS OF THE BOARD. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of New Jersey, unless otherwise provided by the Certificate of
Incorporation.
3.5. ANNUAL ORGANIZATIONAL MEETING. The first meeting of each newly
elected Board of Directors shall be held immediately after and at the same place
as the meeting of the shareholders at which it was elected and no notice of such
meeting shall be necessary to the newly elected Directors in order legally to
constitute the meeting, provided a quorum shall be present.
3.6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held with or without notice at such time and at such place as shall from
time to time be determined by the Board.
3.7. SPECIAL MEETINGS. Special meetings of the Board may be called
by the Chairman of the Board, the President or any four Directors on ten days'
notice, which need not specify the purpose of or business to be transacted at
the meeting, to each Director, either personally or by mail or by telegram.
3.8. QUORUM OF BOARD. At all meetings of the Board, a majority of
Directors then in office shall constitute a quorum for the transaction of
business and the
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act of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.9. CONFERENCE PARTICIPATION. Any or all Directors may participate
in a meeting of the Board or a committee of the Board by means of conference
telephone or any means of communication by which all persons participating in
the meeting are able to hear each other.
3.10. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if, prior or subsequent to such action,
all members of the Board or of such committee, as the case may be, consent
thereto in writing or writings, and the written consent(s) are filed with the
minutes of proceedings of the Board or committee.
3.11. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation, which, to the extent provided in the resolutions, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation ex-
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cept as otherwise restricted in Section 3.12 hereof or by the General
Corporation Law of the State of New Jersey; provided, in the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may by resolution of the majority
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. The Board of Directors shall
establish an Executive Committee, a Nominating Committee and an Audit Committee.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors at the next meeting of the Board following such committee
meeting; except that when the Board meeting is held within two days after the
committee meeting, such report shall, if not made at the first meeting, be made
to the Board at its second meeting following such committee meeting. Such
committees shall have the following complement and responsibilities in addition
to any the Board of Directors may by resolution establish:
(a) Executive Committee. The Executive Committee of the Board of
Directors shall consist of four members who shall serve for a term of one
year or until their successors are appointed. The members of the Executive
Committee shall be Directors of the Corporation and shall be appointed to
the Executive Committee by the Chairman of the Board, provided such
appointments are confirmed by a majority of the entire Board of Directors.
The Executive
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Committee shall exercise the full power of the Board of Directors between
meetings of the Board, subject to the limitations set forth in Section 13
below.
(b) Nominating Committee. The Nominating Committee shall consist of
five members, including two members who are not Directors. Each member of
the Nominating Committee shall serve a one-year term. All members shall be
appointed by the Chairman of the Board of Directors, provided such
appointments are confirmed by a majority of the entire Board of Directors.
The Nominating Committee shall nominate candidates for membership of the
Board of Directors and shall cause the names of its nominees to be mailed
to all shareholders not less than thirty days before the annual meeting at
which the election shall take place. A stockholder may nominate a
candidate for election to the Board of Directors provided the nominating
stockholder gives written notice of his or her intention to nominate a
Director and the name of the nominee not less than thirty days before the
annual meeting at which the election shall take place.
(c) Audit Committee. The Audit Committee shall consist of three
members, at least two of whom shall be Directors appointed by the Chairman
of the Board of Directors, provided such appointments are confirmed by a
majority of the entire Board of Directors and each of whom shall serve
one-year terms. No member of the Audit Committee shall be an employee of
the Corporation. The Audit Committee shall meet periodically with the
Corporation's management, internal auditors and independent public
accountants to discuss the scope of the
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annual audit, internal control, internal auditing and financial reporting
matters. The Corporation's independent public accountants and internal
auditors shall have direct access to the Audit Committee.
(d) Other Committees. The Chairman of the Board of Directors,
subject to confirmation by a majority of the entire Board, may appoint
such other committees as he or she shall deem necessary or appropriate to
the management of the Corporation. Committees may include persons who are
not Directors, provided that at least one member of each committee shall
be a Director and that any act of any committee which has members who are
not Directors shall be advisory, shall not bind the Board or the
Corporation and shall be subject to Board approval.
3.12. PERMITTED ACTIONS OF THE COMMITTEES. (a) Any
committee created pursuant to these By-laws may exercise the authority delegated
to it, except that no such committee shall:
(i) make, alter or repeal any By-law of the Corporation;
(ii) elect or appoint any Director, or remove any officer or
Director;
(iii) make any grants or distributions of funds;
(iv) amend or repeal any resolution previously adopted by the
Board which by its terms is amendable or repealable only by
the Board; or
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(v) submit to shareholders any action that requires
shareholders' approval.
(b) The Board, by resolution adopted by a majority of the entire
Board, may:
(i) fill any vacancy in any such committees;
(ii) appoint one or more Directors to serve as alternate
member(s) of any such committee, to act in the absence or
disability of member(s) of any such committee with all the
powers of such absent or disabled member(s) of a committee;
(iii) abolish any such committee created pursuant to Section
3.11(d) hereof at its pleasure; or
(iv) remove any Director from membership on such committee at
any time, with or without cause.
3.13. QUORUM OF COMMITTEES. A majority of each committee shall
constitute a quorum for the transaction of business, and the act of the majority
of the committee members present at a meeting at which a quorum is present shall
be the act of such committee. Each committee shall appoint from among its
members a chairman unless the resolution of the Board establishing such
committee designates the chairman, in which case, in the event of a vacancy in
the chairmanship, the Board shall fill the vacancy.
3.14. COMPENSATION OF DIRECTORS AND COMMITTEE MEMBERS. The Board of
Directors, by the affirmative vote of a majority of Directors in office
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and irrespective of any personal interest of any of them, shall have the
authority to establish reasonable compensation of Directors who are not
otherwise employees of the Corporation for services to the Corporation as
Directors. Without limiting the foregoing, the Directors (whether or not also
employees of the Corporation) shall be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.15. RELIANCE ON ACCOUNTS AND REPORTS, ETC. A Director, or a member
of any committee designated by the Board of Directors shall, in the performance
of his or her duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or committees designated by the Board of Directors, or by any other person as
to the matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
ARTICLE IV
NOTICES
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4.1. NOTICES. Notices to Directors and shareholders shall be in
writing and delivered personally, mailed, telecopied or sent by telex to the
Directors or shareholders at their addresses appearing on the records of the
Corporation. Notice by mail shall be deemed to be given at the time when the
same shall be mailed. Notice to Directors may also be given by telegram.
4.2. WAIVERS. (a) Whenever any notice is required to be given under
the provisions of the statutes or of the Certificate of Incorporation or of
these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
(b) The attendance of any shareholder or Director at a meeting, in
person or by proxy if a shareholder meeting, without protesting prior to the
conclusion of the meeting the lack of notice of such meeting, shall constitute a
waiver of notice by him or her.
ARTICLE V
OFFICERS
5.1. OFFICERS. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a Chairman of the Board, a Vice Chairman of
the Board, a
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President, a Secretary and a Treasurer. The President may choose one or more
Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any two or more
offices may be held by the same person, but no officer shall execute,
acknowledge, or verify any instrument in more than one capacity if such
instrument is required by law to be executed, acknowledged, or verified by two
or more officers.
5.2. APPOINTMENT AT ORGANIZATIONAL MEETING. The Board of Directors,
at its first meeting after each annual meeting of shareholders, shall choose a
Chairman, a Vice Chairman, a President, a Secretary and a Treasurer.
5.3. OTHER OFFICERS. The Board of Directors may appoint such other
officers as it shall deem necessary who shall exercise such powers and perform
such duties as shall be determined from time to time by the Board. Election or
appointment of an officer shall not of itself create contract rights.
5.4. SALARIES. The salaries of all officers of the Corporation shall
be fixed by the Board of Directors, except Vice Presidents, Assistant
Secretaries and Assistant Treasurers each of whose salary shall be set by the
President and confirmed by the Board of Directors.
5.5. TERM; REMOVAL; VACANCIES; RESIGNATION. The officers of the
Corporation shall hold office for a one-year term or until their successors are
chosen and qualified, subject to earlier termination through removal with or
without cause or through written resignation. Any officer elected or appointed
by the Board of Directors may be removed with or without cause at any time by
the affirmative vote of a
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majority of the Board of Directors present at a meeting at which there is a
quorum. Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
An officer may resign by providing thirty days' prior written notice
of such resignation to the Corporation. Such resignation shall be effective on
the thirtieth day after notice thereof is given to the Corporation or on such
later date as may be stated in such resignation.
5.6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors
shall be the presiding officer at all meetings of the shareholders and of the
Board of Directors of the Corporation and at all meetings of the Executive
Committee of the Board and shall perform all duties incident to such office,
subject to the control of the Board of Directors.
5.7. VICE CHAIRMAN. In the absence of the Chairman of the Board of
Directors, or during any disability on the part of the Chairman of the Board to
act, the Vice Chairman of the Board of Directors shall perform the functions of
the Chairman and shall perform such other duties as the Board of Directors of
the Corporation may prescribe.
5.8. PRESIDENT. (a) The President shall be the chief executive
officer of the Corporation and shall have general supervision of the affairs of
the Corporation and general and active management of the business of the
Corporation subject to the policies and direction of the Board of Directors, and
shall supervise and direct all of the employees
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of the Corporation, and shall see that all orders and resolutions of the Board
of Directors are carried into effect. The President may delegate in his or her
discretion any of his or her powers to any officer or such other executives as
he or she may designate.
(b) In the absence of the Chairman of the Board of Directors and of
the Vice Chairman or during any disability on the part of the Chairman of the
Board and of the Vice Chairman, the President shall perform the functions of the
Chairman thereat. The President shall perform such other duties as the Board of
Directors of the Corporation may prescribe from time to time.
(c) The President shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
5.9. VICE PRESIDENT(S). The Vice President or, if there shall be
more than one, the Vice Presidents in the order determined by the President,
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties and
have such other powers as the President may from time to time prescribe.
5.10. SECRETARY AND ASSISTANT SECRETARIES. (a) The Secretary shall
have charge of such books, documents and papers as the Board of Directors may
determine and shall have custody of the corporate seal. The Secretary shall
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attend all meetings of the Board of Directors and all meetings of the
shareholders and record all the proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He or she shall
give, or cause to he given, notice of all meetings of the shareholders and
special meetings of the Board of Directors, and shall perform such other duties
as may he prescribed by the Board of Directors or President, under whose
supervision he or she shall be. He or she shall have custody of the corporate
seal of the Corporation and he, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it and, when so affixed, it may be
attested by his or her signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature.
(b) The Assistant Secretary or, if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors, shall,
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
5.11. TREASURER AND ASSISTANT TREASURERS. (a) The Treasurer shall
see that an accounting system is maintained in such manner as to give a true and
accurate accounting of the financial transactions of the Corporation and its
facilities. The Treasurer shall have the custody of the corporate funds and
securities and
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shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors.
(b) He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors at
its regular meetings or when the Board of Directors so requires, an account of
all his or her transactions as Treasurer and of the financial condition of the
Corporation. Annually, he or she shall submit to the Board a proposed budget for
the ensuing fiscal year.
(c) If required by resolution of the Board of Directors, he or she
shall give the Corporation a bond (which shall be renewed as the Board of
Directors may require) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the Corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
(d) The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors, shall,
in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the
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Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
5.12. DUTIES OF OFFICERS MAY BE DELEGATED. The Board of Directors
may delegate the powers or duties of any of the officers of the Corporation to
any other officer or to any Director.
ARTICLE VI
CERTIFICATES OF STOCK
6.1. CERTIFICATES. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by, or in the name of the Corporation by,
the Chairman or Vice Chairman of the Board of Directors or the President or a
Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the Corporation, certifying the number and class of
shares owned by such holder in the Corporation.
6.2. FACSIMILES. Where a certificate is signed (1) by a transfer
agent or an assistant transfer agent or (2) by a transfer clerk acting on behalf
of the Corporation and a registrar, the signature of any such Chairman or Vice
Chairman of the Board of Directors, President, Vice President, Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary may be a facsimile. In
case any officer or officers who have signed, or whose facsimile signature or
signatures have been used on, any such certificate or certificates shall cease
to be such officer or officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates have been
delivered
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by the Corporation, such certificate or certificates may nevertheless be adopted
by the Corporation and be issued and delivered as though the person or persons
who signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the Corporation.
6.3. LOST CERTIFICATES. The Corporation may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Corporation may, in its discretion and as a
condition precedent to the issuance thereof, require the owner thereof to take
such action or execute such documents as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost or destroyed or with respect to the issuance of such
new certificate.
6.4. TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, subject to the restrictions on transfer set forth in Section 6.5
below, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transactions upon its books.
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6.5. FIXING RECORD DATE. (a) In order that the Corporation may
determine the shareholders entitled to notice or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to or dissent
from any proposed corporate action without a meeting, or to determine the
shareholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
(b) If no record date is fixed:
(i) The record date for the determination of shareholders
entitled to notice of or to vote at a shareholders' meeting
shall be at
the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close
of business on the day next preceding the day on which the
meeting is held.
(ii) The record date for determining shareholders for any
other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto.
(iii) A determination of shareholders of record for a
shareholders' meeting shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may
fix a
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new record date for the adjourned meeting, in which case a new
notice thereof shall be given as provided in Section 2.3 or
2.6 hereof, as applicable.
(c) Only such shareholders as shall be shareholders of record on the
date fixed under (a) or (b) above shall be entitled to such notice of, and to
vote at, such meeting and any adjournment thereof or to receive payment of such
dividend, or other distribution or allotment of any rights, or entitled to
exercise any such rights, or for the purpose of any other lawful action or to
give such consent, as the case may be, notwithstanding any transfer of any stock
on the books of the corporation after any such record date fixed as aforesaid.
6.6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of New Jersey.
ARTICLE VII
GENERAL PROVISIONS
7.1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the Provisions of the General Corporation Law of New Jersey and the
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Certificate of Incorporation of the Corporation, may be declared by the Board of
Directors at any regular or special meeting pursuant to law. Dividends may be
paid in cash, in property, or in shares of capital stock, except when the
Corporation is or would become insolvent as the result of such payment or when
such payment would not be permitted under the Certificate of Incorporation or
the General Corporation Law of the State of New Jersey. The holders of any class
of capital stock shall be entitled to share equally in any dividends declared
with respect to such class.
7.2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation legally available for dividends such
sum or sums as the Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Directors shall think conducive to the interest of
the Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
7.3. ANNUAL STATEMENT. The Board of Directors shall present at each
annual meeting, and at any special meeting of the shareholders when called for
by vote of a majority of the shareholders, a full and clear statement of the
business and financial condition of the Corporation. Any financial report made
by the Board of Directors need not be verified by any certified public
accountant unless the shareholders so direct by a majority vote at the annual
meeting or any special meeting of the shareholders.
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7.4. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other persons as
the Board of Directors may from time to time designate.
7.5. FISCAL YEAR. The fiscal year of the Corporation shall be the
calendar year beginning January 1 and ending December 31 of each year.
7.6. SEAL. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its organization and the words "Corporate Seal,
New Jersey".
The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any manner reproduced.
7.7. INDEMNIFICATION. (a) To the extent permitted by law, the
Corporation shall indemnify the following persons (the "indemnified party"):
(i) each member of the Board of Directors, each member of any
committee or any subcommittee, each officer and employee of the
Corporation, and the estate, executor, administrator, heirs, legatees and
devisees of any such person; and
(ii) every member insured of the Corporation both as a member and by
reason of such insured having one or more of its personal representatives
or employees serving in any of the capacities or positions specified in
clause (a) herein above.
Such indemnification shall cover all judgments (including interest), fines,
amounts paid or agreed upon in settlement, reasonable costs and expenses
including attorneys' fees, and any other liability that may be incurred as a
result of any claim, action, suit, or
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proceeding, whether civil, criminal, administrative, or other, prosecuted or
threatened to be prosecuted, other than by or in the right of the Corporation,
in which case only his or her expenses (including attorneys' fees) will be so
indemnified, for or on account of any act performed or omitted or obligation
entered into, if done or omitted in good faith without intent to defraud, within
what the indemnified party reasonably believed to be the scope of his or her or
its employment or authority, and for a purpose and in a manner which he or she
or it reasonably believed to be in or not opposed to the best interests of, and
in connection with the conduct of the affairs of the Corporation, its Board of
Directors, or any committee thereof. Such indemnification also shall cover
criminal actions or proceedings if, in addition, the indemnified party had no
reasonable cause to believe that his or her or its conduct was unlawful.
However, if any such claim, action, suit, or proceeding is compromised or
settled, it must be done so with the prior express approval of the Board of
Directors.
(b) Such indemnification shall not depend on whether or not such
insured is a shareholder of the Corporation, or such person is a member of the
Board of Directors, or any committee, at the time such claim, action, suit, or
proceeding is begun, prosecuted or threatened, nor on whether or not the
liability to be indemnified was incurred prior to the adoption of this section.
(c) Any indemnification provided pursuant to these By-laws, unless
ordered by a court, may be made by the Corporation only as authorized in a
specific case upon a determination that indemnification is proper in the
circumstances because the
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indemnified party met the applicable standard of conduct set forth in these
By-laws. Such determination shall be made as to the right to indemnification
hereunder, and as to the time, manner and amount of payment thereof, by a
majority of the disinterested members of the Board of Directors. In the event
that a majority of the members of the Board of Directors are seeking
indemnification hereunder as a result of the same occurrence, such determination
in the first instance shall be made by vote of the voting shareholders of the
Corporation as provided in these By-laws.
(d) Expenses incurred by any person who may be an indemnified party
in connection with a proceeding may be paid by the Corporation in advance of the
final disposition of the proceeding, provided Corporation receives from such
person an undertaking by or on behalf of such person to repay such amount unless
it is ultimately determined that he or she is entitled to be indemnified.
(e) Nothing in this Section 7.7 is intended to make an adverse
determination finally binding upon the person or insured seeking indemnity under
this section, or to preclude any such person or insured from appealing an
adverse determination against him or her or it, or from instituting legal
proceedings to enforce a right of indemnification under this section.
(f) The right of indemnification hereunder shall not be exclusive of
other rights such person or insured may have as a matter of law or otherwise;
provided that no indemnification shall be made to or on behalf of an indemnified
person with a judgment or other final adjudication adverse to such person which
establishes that his or her acts or
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omissions (1) were in breach of his or her duty of loyalty to the Corporation or
its share holders, (2) were not in good faith or involved a knowing violation of
law or (3) resulted in receipt by such person of an improper personal benefit.
7.8. LIABILITY OF DIRECTORS AND OFFICERS. Directors and officers of
the Corporation shall not be personally liable to the Corporation or the
shareholders of the Corporation for damages for breach of any duty owed to the
Corporation or the shareholders of the Corporation, except Directors and
officers of the Corporation may be so liable for any breach of duty based upon
an act or omission (a) in breach of such person's duty of loyalty to the
Corporation or the shareholders of the Corporation, (b) not in good faith or
involving a knowing violation of law, or (c) resulting in receipt by such
Director or officer of an improper personal benefit.
ARTICLE VIII
AMENDMENTS
8.1. PROCEDURES. These By-laws may be altered, amended or changed or
new By-laws may be adopted by a majority of the Board of Directors, or by the
vote of shareholders at any meeting of the shareholders, provided that notice of
the specific alteration, amendment, change, or, if new By-laws are contemplated,
a complete set thereof, be sent to each voting shareholder in the requisite
notice of the meeting at which the proposed action is to be submitted. In the
event of Board action concerning By-law amendments or revision, thirty days'
prior written notice of the action shall be sent
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to the shareholders before the Board action becomes effective. A majority of all
voting shareholders in person or by proxy shall constitute approval.
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Exhibit E
ASSUMPTION REINSURANCE
AND
ADMINISTRATION AGREEMENT
THIS ASSUMPTION REINSURANCE AND ADMINISTRATION AGREEMENT (the "Agreement") dated
as of [________], 1997, by and between
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
(the "Company")
and
MIIX INSURANCE COMPANY
(the "Substituted Insurer")
In consideration of the mutual covenants hereinafter set forth, the Company and
the Substituted Insurer (each individually, a "Party", and collectively, the
"Parties") agree as follows:
ARTICLE 1
Assignment and Assumption
1.1 Subject to Article 9 of this Agreement (Condition Precedent) and to
the terms, conditions, exclusions and limitations contained in this Agreement,
the Company hereby sells, assigns, transfers and conveys all its rights and
obligations in relation to the Subject Policies to the Substituted Insurer, and
the Substituted Insurer hereby purchases, shall be bound by and assumes all of
the Company's rights and obligations in relation to the Subject Policies
(including the Policy Liabilities) from the Company.
1.2 The Substituted Insurer shall have the benefit of any and all
defenses, setoffs and counterclaims to which the Company would be entitled with
respect to such Policy Liabilities, it being expressly understood and agreed by
the Parties hereto that no such defenses, setoffs or counterclaims are waived by
the execution of this Agreement or
<PAGE> 90
the consummation of the transactions contemplated hereunder and that, as of the
Effective Time (as defined below), the Substituted Insurer shall be fully
subrogated to all such defenses, setoffs and counterclaims.
1.3 As of the Effective Time, the Substituted Insurer shall be
the successor to the Company under the Subject Policies as if such Subject
Policies were direct obligations of the Substituted Insurer. The Substituted
Insurer substitutes itself as of the Effective Time in the place and stead of
the Company as if named in the place of the Company, and each Insured under any
Policy may thereafter disregard the Company as a party thereto and treat the
Substituted Insurer as if it had been originally obligated thereunder. After the
Effective Time, the Insureds shall have the right to file claims arising under
the Subject Policies directly with the Substituted Insurer and the Substituted
Insurer hereby consents to be subject to direct action taken by any Insured in
accordance with such insured's rights under the Policy; provided, however, that
this Agreement shall not confer upon any Insured rights other than such rights
that the Insured would have had in the absence of this Agreement (except that in
assessing such rights no effect shall be given to any bankruptcy, liquidation,
insolvency, dissolution, reorganization or moratorium of the Company, or the
effect of laws or legal procedures affecting enforcement of creditors' rights
against the Company generally). On and after the Effective Time, the Substituted
Insurer shall have all rights to subrogation and salvage under the Subject
Policies.
1.4 The Substituted Insurer and Company shall cooperate and
promptly use their best efforts to: (a) obtain all applicable insurance
regulatory approvals and consents other than those obtained pursuant to Article
9 hereof and (b) issue to each Insured who (i) has a Subject Policy in-force on
the Effective Date, (ii) has an outstanding claim under a Subject Policy on the
Effective Date, or (iii) files a claim under any Subject Policy after the
Effective Date, a certificate of assumption (and accompanying transmittal
letter) substantially in the form attached hereto as Exhibit A-1 and A-2,
respectively.
ARTICLE 2
Definitions
2.1 As used in this Agreement, capitalized terms shall have
the following meanings:
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"Ceded Reinsurance Contract": any binder, contract, agreement, treaty,
certificate, retrocession or other instrument of reinsurance ceded by the
Company, other than this Agreement, in respect of any Subject Policy.
"Covered Losses": all Losses and Loss Adjustment Expenses in respect of
the Subject Policies.
"Effective Time": 12:01 a.m. (Eastern Standard time), [_______],
199_.(1)
"Indemnity Payments": all payments in respect of Settled Losses made by
the Substituted Insurer.
"Insured": the direct insured with respect to any Subject Policy.
"Loss Adjustment Expenses": all costs and expenses that are incurred 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 interest accrued after award or judgment and
prejudgment interest awarded against the insured.
"Losses": gross amounts payable by the Company in settlement of
liability.
"Policy": any binder, policy, contract or certificate of direct
insurance issued or made by or on behalf of the Company.
"Policy Liabilities": all gross liabilities and obligations of the
Company based upon or arising out of the Subject Policies, including Loss
Adjustment Expenses, before deduction for all applicable cessions, if any, under
the Company's reinsurance programs together with (i) losses, liabilities, costs
and expenses arising out of the Company's participation in assigned risk plans,
residual market pools, guaranty funds or governmentally mandated programs or
associations of any kind which are predicated in any way on the Subject Policies
or the premium volume generated by the Subject Policies, regardless of when the
losses, liabilities, costs or expenses are incurred or reported, any premium,
loss or charge is assessed, or any policy under any such plan, pool, program or
association is written, and (ii) losses, liabilities, costs and expenses arising
out of claims of reinsurers relating to the Subject Policies, whether for
additional premiums or otherwise to the extent that such claims are based on
events occurring after the Effective Time. "Policy
(1) Insert Effective Time of the Plan of Conversion.
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Liabilities" excludes liabilities and obligations paid or otherwise discharged
prior to the Effective Time.
"Recoveries": Reinsurance Recoveries, salvage and subrogation actually
recovered by the Company in respect of Settled Losses.
"Reinsurance Recoveries": recoveries (including additional commissions)
in respect of Settled Losses actually received by the Company after the
Effective Time from reinsurers under the Company's Ceded Reinsurance Contracts,
including the net amount received by the Company in any commutation of any Ceded
Reinsurance Contract, excluding amounts so received that do not relate to
Settled Losses, less any additional premium payable or commission returnable by
the Company under the Company's Ceded Reinsurance Contracts in respect of
Settled Losses. The Substituted Insurer shall not be considered a reinsurer for
the purposes of this definition.
"Settled Losses": Covered Losses settled or paid by the Company after
the Effective Time.
"Subject Policies": all Policies covering all business issued, renewed,
written or accepted by the Company prior to the Effective Time.
"Substituted Insurer": MIIX Insurance Company, a New Jersey stock
insurer.
ARTICLE 3
Commencement and Termination
3.1 The liability of the Substituted Insurer shall commence at the
Effective Time and shall remain in effect until all liability under the Subject
Policies has expired.
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ARTICLE 4
Assignment of Reinsurance Agreements
4.1 Regardless of whether reinsurance confirmation agreements
are entered into between the Substituted Insurer and any reinsurer, the
Substituted Insurer shall be substituted for and succeed to all of the rights
and liabilities of the Company, and shall be recognized for all purposes as
"Medical Inter-Insurance Exchange of New Jersey" thereunder in substitution for
the Company, under any Ceded Reinsurance Contracts. As of the Effective Time,
the Company shall sell, assign, transfer and convey, and the Substituted Insurer
shall purchase, be bound by and assume, any and all rights and obligations of
the Company under any Ceded Reinsurance Contracts including amounts held by or
which may become due from reinsurers for losses or loss adjustment expenses on
the Subject Policies for which the Substituted Insurer has assumed liability or
for losses paid by the Company prior to the Effective Time, it being understood
that all costs incurred in effecting Reinsurance Recoveries shall be borne by
the Substituted Insurer. The Substituted Insurer shall use its best efforts to
effect, as promptly as possible, an endorsement to each Assigned Reinsurance
Contract substituting the Substituted Insurer for the Company as to all
reinsurance which relates exclusively to the Subject Policies, in substantially
the form attached hereto as Exhibit B. The Company agrees to enter into such
endorsements and, if reasonably requested by the Substituted Insurer, aid the
Substituted Insurer, at the Substituted Insurer's expense, in obtaining any such
endorsement.
4.2 The Company represents and warrants that all Ceded
Reinsurance Contracts in effect as of the Effective Time relate solely to the
Subject Policies.
ARTICLE 5
Territory
5.1 This Agreement shall apply to Subject Policies covering
risks wherever situated.
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<PAGE> 94
ARTICLE 6
Transfer Consideration
6.1 As consideration of the Substituted Insurer's assumption
and indemnification of the Policy Liabilities, the Company shall transfer to the
Substituted Insurer on the Effective Time admitted assets which shall consist of
invested assets, premium receivables, reinsurance recoverables and other assets
(such other assets being other than invested assets) having a value equal to the
liabilities transferred under this Agreement. The Company shall also assign to
the Substituted Insurer its rights in respect of the Subject Policies under all
Ceded Reinsurance Contracts transferred to the Substituted Insurer pursuant to
Article 4 (Assignment of Reinsurance Agreements).
ARTICLE 7
Policy Administration
7.1 The Substituted Insurer shall administer and service all
of the Subject Policies assigned and assumed under this Agreement. The Company
grants to the Substituted Insurer authority in all matters relating to risk
management and policy and contract administration, to the extent such authority
may be granted pursuant to applicable law, including but not limited to policy
changes, reinstatement standards, premium rate changes, policy renewals,
producers' commissions and administrative methods and procedures. In order to
assist and to more fully evidence the substitution of the Substituted Insurer in
the place and stead of the Company, the Company hereby nominates, constitutes
and appoints the Substituted Insurer as the attorney-in-fact of the Company with
respect to the rights, duties, privileges and obligations of the Company in and
to the Subject Policies and the Ceded Reinsurance Contracts, with full power and
authority to act in the name, place and stead of the Company with respect to the
Subject Policies and the Ceded Reinsurance Contracts, including without
limitation, the power, without reservation, to service all Subject Policies; to
adjust, to defend, to settle and to pay all claims; to recover salvage and
subrogation for any losses incurred under any of the Subject Policies; to
adjust, draw down or otherwise act as to letters of credit; to take such other
and further actions as may be necessary or desirable to effect the transactions
contemplated by this Agreement; and to execute documents necessary to accomplish
the foregoing.
7.2 The Substituted Insurer shall bear all expenses in
connection with the administration of the Subject Policies.
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<PAGE> 95
7.3 The Substituted Insurer shall have authority and
discretion with respect to all matters relating to claim settlement, salvage,
arbitration and litigation concerning the Subject Policies. The Substituted
Insurer shall bear all expenses incurred in connection with settling such
claims, with recovering any salvage amounts, with exercising rights of
subrogation or with such arbitration or litigation, including but not limited to
the cost of routine investigations, legal fees and interest charges and shall
pay directly on behalf of the Company all amounts due under the Subject
Policies.
ARTICLE 8
Indemnification
8.1 The Substituted Insurer shall indemnify the Company
against and hold it harmless, from all losses, claims, damages and liabilities
and shall reimburse the Company for all expenses of any kind or nature
whatsoever (including reasonable attorneys' fees) as incurred, that are based
upon or arise out of (x) breach of any obligation of the Substituted Insurer
provided for in this Agreement, or (y) the failure by the Substituted Insurer to
discharge any obligations of the Company to the extent that the same are assumed
by the Substituted Insurer pursuant to this Agreement.
ARTICLE 9
Condition Precedent
9.1 The obligations of the Parties under this Agreement shall
be subject to the condition precedent that this Agreement shall have been
approved by: (a) the Commissioner of the New Jersey Department of Banking and
Insurance; (b) the Commissioner of Insurance of the State of Connecticut; and
(c) the Commissioner of Insurance of the State of Delaware.
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<PAGE> 96
ARTICLE 10
Errors and Omissions
10.1 Any inadvertent delay, omission or error shall not be
held to relieve either Party hereto from any liability which would attach to
that Party hereunder if such delay, omission or error had not been made,
provided such delay, omission or error is corrected promptly upon discovery.
ARTICLE 11
Currency
11.1 All of the provisions of this Agreement are expressed in
terms of United States dollars and all amounts shall be paid in United States
funds.
ARTICLE 12
Service of Suit
12.1 The Parties consent to the jurisdiction of the Superior
Court of the State of New Jersey, County of Mercer, and of the United States
District Court for the District of New Jersey, for all purposes in connection
with this Agreement.
12.2 The Substituted Insurer appoints its Corporate Secretary
as its authorized agent to accept and acknowledge on its behalf service of any
and all process which may be served in any such suit.
12.3 Further, pursuant to any statute of any state, territory,
or district of the United States which make provisions therefor, the Substituted
Insurer hereby designates the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in such statute, or his
successor or successors in office, as its true and lawful attorney upon whom may
be served any lawful process in any such suit, suit instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement.
12.4 Each of the Parties consents to process being served in
any suit provided for in this Article by serving a copy thereof upon the Party
or upon its agent for service of process appointed pursuant to this Article, by
certified mail, return receipt
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<PAGE> 97
requested, or by personal service or in such other manner as may be permissible
under the rules of the applicable court.
ARTICLE 13
Notices
13.1 All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered or mailed by
certified or registered mail, return receipt requested, postage prepaid, and
shall be addressed:
(a) If to the Company, to:
General Counsel
Medical Inter-Insurance Exchange of
New Jersey
Two Princess Road
Lawrenceville, NJ 08648
Phone: (609) 896-2404
Fax: (609) 896-2910
(b) If to the Substituted Insurer, to:
General Counsel
MIIX Insurance Company
Two Princess Road
Lawrenceville, NJ 08648
Phone: (609) 896-2404
Fax: (609) 896-2910
or to such other address as such Party shall have specified by notice to the
other Party.
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<PAGE> 98
ARTICLE 14
Governing Law
14.1 This Agreement shall be governed in all respects,
including as to validity, interpretation and effect, by the laws of the State of
New Jersey, without giving effect to the conflict of laws rules thereof.
10
<PAGE> 99
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by its duly authorized officer and its corporate
seal affixed hereto as of the Effective Time.
Medical Inter-Insurance Exchange
of New Jersey
By:_____________________________
Name:___________________________
Title:__________________________
Acknowledged and accepted as of the date hereof.
MIIX Insurance Company
By:____________________________
Name:__________________________
Title:_________________________
11
<PAGE> 100
Exhibit A-1
MIIX INSURANCE COMPANY
Two Princess Road
Lawrenceville, NJ 08648
(609) 896-2404
NOTICE AND CERTIFICATION
OF
ASSUMPTION
Policy No.:
Issued To:
This is to certify that, pursuant to the terms of an
Assumption and Administration Agreement, the above policy and all endorsements
thereto (herein called the "Policy") issued by Medical Inter-Insurance Exchange
of New Jersey have been assigned to and assumed by MIIX Insurance Company.
This change is effective 12:01 a.m. (Eastern Standard time),
[_______], 199_(2).
All of the terms and conditions of the Policy remain
unchanged, except that MIIX Insurance Company shall be the insurer. All premium
payments, notices, claims and suits or actions on the Policy shall hereafter be
made directly to MIIX Insurance Company as though it had issued the Policy
originally.
Inquiries concerning the Policy should be directed to MIIX
Insurance Company at the address indicated above.
(2) Insert Effective Time of the Plan of Conversion.
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<PAGE> 101
IN WITNESS WHEREOF, MIIX Insurance Company has caused this
Notice and Certification of Assumption to be signed by its duly authorized
officer.
MIIX Insurance Company
By: ______________________________
[_____________________]
[_____________________]
2
<PAGE> 102
Exhibit A-2
MIIX Insurance Company
Two Princess Road
Lawrenceville, NJ 08648
(609) 896-2404
[Name of Policyholder]
[Address of Policyholder]
Re: Policy No. ________
Policy Transfer Date: [_______, 199_]
Notice Date: [_______, 199_]
Dear ________:
Please be advised that, as of the Policy Transfer Date
referred to above, all obligations and liabilities under the above insurance
policy previously issued to you by Medical Inter-Insurance Exchange of New
Jersey have been assigned to and assumed by MIIX Insurance Company. Enclosed is
a Notice and Certificate of Assumption that evidences this assumption. This
assignment and assumption in no way affects your insurance coverage, except that
MIIX Insurance Company is now the insurer in place of Medical Inter-Insurance
Exchange of New Jersey.
Reason for the Policy Transfer
In connection with a Plan of Reorganization approved by the
members of Medical Inter-Insurance Exchange of New Jersey and by the New Jersey
Department of Banking and Insurance, Medical Inter-Insurance Exchange of New
Jersey is reorganizing into a stock insurer, MIIX Insurance Company. MIIX
Insurance Company, as the successor to Medical Inter-Insurance Exchange of New
Jersey, is managed and operated by the same people who managed and operated
Medical Inter-Insurance Exchange of New Jersey, and they will offer the same
service provided to you previously.
1
<PAGE> 103
Acceptance of the Policy Transfer
This assignment and assumption does not require any action on
your part. We will not be contacting you further regarding your policy transfer.
In the future, please direct all premium payments, notices and notice of claims
and suits to MIIX Insurance Company at the above address.
Very truly yours,
MIIX Insurance Company
[_____________________]
[_____________________]
2
<PAGE> 104
Exhibit B
CEDED REINSURANCE CONFIRMATION AGREEMENT ENDORSEMENT
This Agreement is made and entered into by and among MEDICAL
INTER-INSURANCE EXCHANGE OF NEW JERSEY (the "Ceding Company"), MIIX INSURANCE
COMPANY (the "Substituted Ceding Company") and [NAME OF REINSURER] ("Reinsurer")
as of the __ day of ________, 199_.
WHEREAS, the Ceding Company and the Reinsurer entered into a
reinsurance contract (Contract Number ___________) dated ________ __, 199_ (the
"Contract") whereby the Reinsurer acts as a reinsurer of the Ceding Company; and
WHEREAS, the Ceding Company and the Substituted Ceding Company
have entered into an Assumption and Administration Agreement dated as of
[_______] 199_ whereby the Substituted Ceding Company has assumed all of the
gross policy obligations under the policies which are the subject of the
Contract effective as of 12:01 a.m. Eastern Standard time), [_________],
199_(3); and
WHEREAS, the parties wish to substitute the Substituted Ceding
Company for the Ceding Company as a party to the Contract;
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein, the Ceding Company, the Substituted Ceding Company
and the Reinsurer agree as follows:
1. As of the Effective Time (as defined below), the
Substituted Ceding Company shall assume all of the liabilities and obligations
of the Ceding Company under the Contract and shall be substituted for the Ceding
Company, in the Ceding Company's name, place and stead, as the cedent thereon so
as to effect an amendment to the Contract to replace the Cedant with MIIX
Insurance Company and release the Ceding Company from any and all liabilities or
obligations thereunder.
2. As of the Effective Time, the Substituted Ceding Company
shall be entitled to all of the rights of the Ceding Company under the Contract
and shall be entitled to enforce all such rights in the name, place and stead of
the Ceding Company.
_______________
(3) Insert Effective Time of the Plan of Conversion.
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<PAGE> 105
3. As used in this endorsement, "Effective Time" shall mean
12:01 a.m. Eastern Standard time), [_________], 199_(4).
IN WITNESS WHEREOF, the parties have entered into this Endorsement as
of the first day and year written above.
MEDICAL INTER-INSURANCE
EXCHANGE OF NEW JERSEY
By: ______________________________
Name:
Title:
MIIX INSURANCE COMPANY
By: ______________________________
Name:
Title:
[NAME OF REINSURER]
By: ______________________________
Name:
Title:
_____________
(4) Insert Effective Time of the Plan of Conversion.
4
<PAGE> 106
Exhibit F
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), dated as of [_________],
1997 (the "Effective Date"), between Medical Inter-Insurance Exchange of New
Jersey ("MIIX"), a New Jersey reciprocal insurance exchange and MIIX Insurance
Company, a New Jersey insurance corporation ("New MIIX").
W I T N E S S E T H :
WHEREAS, pursuant to the Plan of Reorganization of MIIX dated
October 15, 1997, MIIX will reorganize into New MIIX, a stock insurer that is
the successor to MIIX;
WHEREAS, pursuant to the Assumption Reinsurance and
Administration Agreement dated the date hereof between MIIX and New MIIX (the
"Assumption Reinsurance Agreement"), MIIX has transferred to New MIIX all of the
outstanding insurance liabilities of MIIX;
WHEREAS, New MIIX wishes to assume and MIIX wishes to transfer
to New MIIX, (i) all of the non-insurance assets and properties used or held for
use in connection with, necessary for or material to the business and operation
as currently conducted and as contemplated by MIIX to be conducted, and (ii) all
of the non-insurance liabilities of MIIX, upon the terms and subject to the
conditions hereinafter set forth;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, New MIIX does hereby
agree that, subject to Section 6 of this Agreement, as of the Effective Date:
1. Assumption of Assets. New MIIX does hereby irrevocably and
unconditionally assume all right, title and interest of MIIX in and to the
properties, assets and rights of every nature, kind and description, tangible
and intangible (including goodwill), whether real, personal or mixed, whether
accrued, contingent or otherwise and whether now existing or hereinafter
acquired primarily relating to or used or held for use in connection with the
business of MIIX as the same may exist on the date hereof, taking into account
the transfers contemplated under the Assumption Reinsurance Agreement,
including without limitation all those items in the following categories
(collectively, the "Assets"):
<PAGE> 107
(a) all real property owned or leased by MIIX and all
licenses, permits, approvals and qualifications relating to any real
property issued to MIIX by any governmental authority;
(b) all machinery, equipment, furniture, furnishings,
automobiles, trucks, vehicles, tools, computers and similar property
owned or leased by MIIX (including, but not limited to, any of the
foregoing purchased subject to any conditional sales or title retention
agreement in favor of any other person);
(c) all shares of common stock of Lawrenceville Holding Inc.
held by MIIX;
(d) all of the rights of MIIX under contracts, arrangements,
licenses, leases and other agreements, including, without limitation,
any right to assert claims and take other rightful actions in respect
of breaches, defaults and other violations of such contracts,
arrangements, licenses, leases and other agreements and otherwise,
other than any such rights of MIIX transferred to New MIIX under the
terms of the Assumption Reinsurance Agreement;
(e) all books, records, manuals and other materials (in any
form or medium), including, without limitation, all records and
materials maintained at the headquarters of MIIX, advertising matter,
catalogues, correspondence, mailing lists, lists of members,
photographs, and records, purchasing materials and records, personnel
records, blueprints, records, data and copyright and trademark
disclosures, media materials and plates, accounting records, and
litigation files;
(f) to the extent their transfer is permitted by law, all
licenses or approvals of any governmental authority, including all
applications therefor;
(g) all cash and cash equivalents held by MIIX on the date
hereof;
(h) all credits, prepaid expenses, deferred charges, advance
payments, deposits and prepaid items, other than any such assets MIIX
transferred to New MIIX under the terms of the Assumption Reinsurance
Agreement;
(i) all notes and accounts receivable held by MIIX and all
notes, bonds and other evidences of indebtedness of and rights to
receive payments from any person held by MIIX, other any such assets
MIIX transferred to New MIIX under the terms of the Assumption
Reinsurance Agreement;
2
<PAGE> 108
(j) all rights to causes of action, lawsuits, judgments,
claims and demands of any nature available to or being pursued by MIIX
with respect to the business of MIIX or the ownership, use, function or
value of any Asset, whether arising by way of counterclaim or
otherwise;
(k) all guarantees, warranties, indemnities and similar rights
in favor of MIIX with respect to any Asset; and
(l) all copyrights, trademarks, and all rights thereunder or
in respect thereof primarily relating to or used or held for use in
connection with the business of MIIX, including, but not limited to,
rights under computer software leases and rights to sue for and
remedies against past, present and future infringements of copyrights
or trademarks held by MIIX and rights of priority and protection of
interests therein under the laws of any jurisdiction worldwide and all
tangible embodiments thereof; and
(m) any assets held by MIIX not included in any of the
foregoing subsections, other than assets transferred to New MIIX under
the terms of the Assumption Reinsurance Agreement.
2. Assumption of Liabilities. New MIIX does hereby irrevocably
and unconditionally assume, become responsible for, and agree to pay, perform,
fulfill, honor and discharge when due, all of MIIX's liabilities or obligations
of any nature, whether known, unknown, absolute, accrued, contingent or
otherwise and whether due or to become due, except other than those transferred
to New MIIX under the terms of the Assumption Reinsurance Agreement
(collectively, the "Assumed Liabilities").
3. Indemnification. New MIIX shall indemnify MIIX against and
hold it harmless from all losses, claims, damages and liabilities and shall
reimburse MIIX for all expenses of any kind or nature whatsoever (including
reasonable attorneys' fees) as incurred, that are based upon or arise out of (x)
breach of any obligation of New MIIX provided for in this Agreement, or (y) the
failure by New MIIX to discharge any obligations of MIIX to the extent that the
same are assumed by New MIIX pursuant to this Agreement.
4. Third Parties. The assumption by New MIIX of the assets and
liabilities of MIIX herein provided is not intended by New MIIX or MIIX to
expand the right and remedies of any third party against New MIIX as compared to
the rights and remedies which such third party would have had against MIIX had
New MIIX not assumed such assets and liabilities. Subject to New MIIX's
obligations hereunder, nothing herein contained shall, or shall be construed to,
prejudice the right of New MIIX to
3
<PAGE> 109
contest any claim or demand with respect to any obligation or liability assumed
hereunder and New MIIX shall have all rights which MIIX may have or have had to
defend or contest any such claim or demand.
5. New MIIX's Rights. MIIX hereby irrevocably constitutes and
appoints New MIIX (and each of New MIIX's successors and permitted assigns) its
true and lawful attorney and agent, with full power of substitution, in its name
or otherwise, to pay, discharge, adjust, settle or compromise any Assumed
Liabilities, to prosecute or defend any action or claim in connection therewith,
and to submit to arbitration any controversy relating thereto, subject to New
MIIX's obligations hereunder.
6. Condition Precedent. The obligations of the Parties under
this Agreement shall be subject to the condition precedent that this Agreement
shall have been approved by the Commissioner of the New Jersey Department of
Banking and Insurance.
7. Notices. All notices and other communications shall be in
writing and shall be delivered personally or mailed postage prepaid, certified
or registered mail, return receipt requested, or telexed, to the party at the
address set forth after its respective name below or at such different address
as such party shall have advised the other party in writing:
If to MIIX:
General Counsel
Medical Inter-Insurance Exchange of New Jersey
Two Princess Road
Lawrenceville, NJ 08648
Telephone: (609) 896-2404
Facsimile: (609) 896-2910
If to New MIIX:
General Counsel
MIIX Insurance Company
Two Princess Road
Lawrenceville, NJ 08648
Telephone: (609) 896-2404
Facsimile: (609) 896-2910
or, in each case, at such other address as may be specified in writing to the
other party hereto in accordance herewith.
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<PAGE> 110
7. Governing Law. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the laws of
the State of New Jersey, without giving effect to the conflict of laws rules
thereof.
8. Amendment; Waiver. No amendment, modification or discharge
of this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time.
9 Remedies. The rights and remedies herein provided are
cumulative and none is exclusive of any other, or of any rights or remedies that
any party may otherwise have at law or in equity.
10. Successors and Assigns. This Agreement shall be binding
upon New MIIX and its successors and assigns and shall inure to the benefit of
and be enforceable by MIIX and their respective successors and assigns.
11. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements, understandings, and negotiations,
both written and oral, between the parties with respect to the subject matter
hereof.
12. Miscellaneous. This Agreement may be executed in
counterparts (or by counterpart signature pages), each of which shall be deemed
an original and all of which constitute one and the same instrument The headings
in this Agreement are for the purpose of reference only and shall not limit or
otherwise affect the meaning hereof.
5
<PAGE> 111
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by its duly authorized officer as of the Effective
Date.
Medical Inter-Insurance Exchange
of New Jersey
By:____________________________
Name:__________________________
Title:_________________________
Acknowledged and accepted as of the date hereof.
MIIX Insurance Company
By:____________________________
Name:__________________________
Title:_________________________
6
<PAGE> 112
Exhibit G
STOCK PURCHASE AGREEMENT
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
Dated as of October 15, 1997
<PAGE> 113
TABLE OF CONTENTS
Section Page
1. Sale and Purchase of the Company Shares................................. 1
1.1. Sale and Purchase of the Company Shares........................ 1
1.2. Determination of MIIX Holding Share Amount..................... 1
1.3. Closing........................................................ 2
2. Representations and Warranties of the Medical Society.................. 2
2.1. Authorization, etc............................................. 2
2.2. Title to Company Shares........................................ 2
2.3. No Conflicts, etc.............................................. 3
2.4. Corporate Status............................................... 3
2.5. Investments. ................................................. 4
2.6. Financial Statements........................................... 4
2.7. Undisclosed Liabilities, etc................................... 4
2.8. Tax Matters.................................................... 5
2.9. Absence of Changes............................................. 5
2.10. Assets........................................................ 7
2.11. Contracts; Enforceability..................................... 7
2.12. Litigation.................................................... 7
2.13. Compliance with Laws and Instruments; Licenses and Consents... 8
2.14. Affiliate Transactions........................................ 9
2.15. Employee Benefit ............................................. 9
2.16. Brokers, Finders, etc......................................... 9
2.17. Purchase for Investment....................................... 9
3. Representations and Warranties of MIIX Holding......................... 10
3.1. Authorization, etc............................................. 10
3.2. Title to MIIX Holding Shares................................... 10
3.3. No Conflicts, etc.............................................. 10
3.4. Corporate Status............................................... 11
3.5. Investments. ................................................. 11
3.6. Financial Statements........................................... 11
3.7. Undisclosed Liabilities, etc................................... 12
3.8. Tax Matters.................................................... 12
3.9. Absence of Changes............................................. 13
3.10. Assets........................................................ 14
3.11. Contracts; Enforceability..................................... 14
3.12. Litigation.................................................... 15
3.13. Compliance with Laws and Instruments; Licenses and Consents... 15
3.14. Affiliate Transactions........................................ 16
3.15. Employee Benefit ............................................. 16
3.16. Brokers, Finders, etc......................................... 16
3.17. Purchase for Investment....................................... 17
i
<PAGE> 114
4. Covenants of the Medical Society....................................... 17
4.1. Conduct of Business............................................ 17
4.2. Access and Information......................................... 19
4.3. Subsequent Governmental Filings................................ 19
4.4. Public Announcements........................................... 19
4.5. Further Actions................................................ 20
4.6. Further Assurances............................................. 20
5. Covenants of MIIX Holding.............................................. 21
5.1. Conduct of Business............................................ 21
5.2. Access and Information......................................... 22
5.3. Subsequent Governmental Filings................................ 23
5.4. Public Announcements........................................... 23
5.5. Further Actions................................................ 23
5.6. Further Assurances............................................. 24
6. Covenants of MIIX Holding and the Medical Society...................... 24
6.1. Transitional Arrangements...................................... 24
6.2. Confidentiality................................................ 24
7. Conditions Precedent................................................... 24
7.1. Conditions to Obligations of Each Party........................ 24
7.1.1. Effectiveness of MIIX Plan of Reorganization............... 24
7.1.2. Other Regulatory Approvals................................. 25
7.1.3. No Injunction, etc......................................... 25
7.1.4. HSR Act Notification....................................... 25
7.2. Conditions to Obligations of MIIX Holding...................... 25
7.2.1. Representations, Performance............................... 25
7.2.2. Resignation of Directors................................... 25
7.2.3. Corporate and Other Proceedings............................ 26
7.3. Conditions to Obligations of the Medical Society............... 26
7.3.1. Representations, Performance, etc.......................... 26
7.3.2. Corporate Proceedings...................................... 26
8. Termination............................................................ 26
8.1. Termination.................................................... 26
8.2. Effect of Termination.......................................... 27
9. Survival of Representations and Warranties, etc........................ 27
10. Definitions.......................................................... 28
10.1. Terms Generally............................................... 28
10.2. Certain Terms................................................. 28
11. Post-Closing Covenants of the Medical Society........................ 34
11.1. Use of Seller's Name.......................................... 34
11.2. Sale of Medical Society Shares............................... 34
11.3. Right of First Refusal....................................... 34
ii
<PAGE> 115
12. Miscellaneous........................................................ 35
12.1. Expenses...................................................... 35
12.2. Notices....................................................... 35
12.3. Governing Law, etc............................................ 36
12.4. Binding Effect................................................ 37
12.5. Assignment.................................................... 37
12.6. No Third Party Beneficiaries.................................. 37
12.7. Amendment; Waivers, etc....................................... 37
12.8. Entire Agreement.............................................. 38
12.9. Severability.................................................. 38
12.10. Headings..................................................... 38
12.11. Counterparts................................................. 38
iii
<PAGE> 116
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of October 15, 1997,
between The MIIX Group, Incorporated, a Delaware corporation ("MIIX Holding"),
and The Medical Society of the State of New Jersey, a New Jersey not-for-profit
corporation (the "Medical Society").
W I T N E S S E T H :
WHEREAS, the Medical Society owns all of the issued and
outstanding shares of the common stock, no par value (the "Company Shares"), of
New Jersey State Medical Underwriters, Inc., a New Jersey corporation (the
"Company"); and
WHEREAS, after the consummation of the transactions
contemplated by the Plan of Reorganization (the "MIIX Plan of Reorganization")
of Medical Inter-Insurance Exchange of New Jersey ("MIIX"), dated the date
hereof, MIIX Holding will own all of the issued and outstanding shares of the
common stock, par value $1.00 per share, of MIIX Insurance Company, a New Jersey
insurer ("New MIIX");
WHEREAS, after the consummation of the transactions
contemplated by the MIIX Plan of Reorganization, New MIIX, as the successor to
MIIX, will assume all of the assets and liabilities of MIIX;
WHEREAS, the Medical Society wishes to sell the Company Shares
to MIIX Holding, and MIIX Holding wishes to purchase the Company Shares from the
Medical Society, on the terms and conditions and for the consideration described
in this Agreement (defined terms having the meanings indicated in Article 10);
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations and warranties made herein and of the mutual benefits
to be derived herefrom, the parties hereto agree as follows:
1. Sale and Purchase of the Company Shares.
1.1. Sale and Purchase of the Company Shares. Subject to the
terms and conditions hereof, at the Closing the Medical Society will sell all of
the Company Shares to MIIX Holding and MIIX Holding will purchase all of the
Company Shares from the Medical Society, for an aggregate purchase price of
$11,100,000 (the "Purchase Price"), payable in (i) cash in the amount of
$100,000 and (ii) common stock of MIIX Holding (the "MIIX Holding Shares") with
a value of $11,000,000 (the "MIIX Holding Share Amount"), as calculated pursuant
to Section 1.2.
1.2. Determination of MIIX Holding Share Amount. (a) The
number of MIIX Holding Shares constituting the MIIX Holding Share Amount shall
be calculated using the price per share (before deducting underwriters'
commissions) at which MIIX
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Holding Shares are sold to the public pursuant to a public offering registered
on or prior to the Closing Date pursuant to the Securities Act of 1933, as
amended.
(b) If no registered public offering of MIIX Holding
Shares shall have occurred on or prior to the Closing Date, the number of MIIX
Holding Shares constituting the MIIX Holding Share Amount shall be determined
based upon the average trading price (based upon the mean of the daily high and
low share price) for the first fifteen days of trading of MIIX Holding Shares on
any nationally recognized securities exchange, and the MIIX Holding Share Amount
shall be payable at the close of business on the fifteenth trading day of MIIX
Holding Shares.
1.3. Closing. The closing of the sale and purchase of the
Company Shares (the "Closing") shall take place at the offices of Debevoise &
Plimpton, 875 Third Avenue, New York, New York, at 10:00 a.m. on the Effective
Date of the MIIX Plan of Reorganization, or, if no registered public offering of
MIIX Holding Shares shall have occurred on or prior to such date, on the day
following the fifteenth trading day of MIIX Holding Shares on any nationally
recognized securities exchange, unless the parties otherwise agree in writing
(the "Closing Date"). At the Closing:
(a) the Medical Society will deliver to MIIX Holding, free and
clear of any Liens, one or more certificates representing all of the
Company Shares, duly endorsed in blank or accompanied by stock powers
or other instruments of transfer duly executed in blank, and bearing or
accompanied by all requisite stock transfer stamps; and
(b) MIIX Holding will deliver to the Medical Society (i) MIIX
Holding Shares as calculated pursuant to Section 1.2 hereof in exchange
for the Company Shares so delivered by the Medical Society, duly
endorsed in blank or accompanied by stock powers or other instruments
of transfer duly executed in blank, and bearing or accompanied by all
requisite stock transfer stamps; and (ii) $100,000 cash by wire
transfer to an account to be designated by the Medical Society at least
five business days in advance of the Closing.
2. Representations and Warranties of the Medical Society.
The Medical Society represents and warrants to MIIX Holding as
follows, as of the date hereof and as of the Closing Date:
2.1. Authorization, etc. The Medical Society has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement, the performance of the
Medical Society's obligations hereunder, and the consummation of the
transactions contemplated hereby, have been duly authorized by all requisite
corporate action of the Medical Society. This Agreement constitutes the legal,
valid and binding obligation of the Medical Society enforceable against the
Medical Society in accordance with its terms.
2.2. Title to Company Shares. The Medical Society owns,
beneficially and of record, the Company Shares, free and clear of any Liens.
Upon the delivery of and
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payment for the Company Shares at the Closing as provided for in this
Agreement, MIIX Holding will acquire good and valid title to all the Company
Shares, free and clear of any Lien other than any Lien created by MIIX Holding.
(a) Authorized Capital Stock of the Company. The authorized
capital stock of the Company consists of 10 shares of common stock, no par
value, of which only the Company Shares are issued and outstanding. The Company
Shares have been duly authorized and validly issued and are fully paid and
nonassessable.
(b) Authorized Capital Stock of the Company Group. Schedule
2.2(c) contains a complete and correct description of the shares of stock or
other equity interests that are authorized, or issued and outstanding, of the
Company Group. All of such outstanding shares of stock or other equity interests
are duly authorized, validly issued, fully paid and nonassessable, and are free
and clear of any Liens.
(c) No Equity Rights. Except for this Agreement, no
subscriptions, options, warrants, conversion or other rights, agreements,
commitments, arrangements or understandings of any kind obligating the Medical
Society or any other Person, contingently or otherwise, to issue or sell, or
cause to be issued or sold, any shares of capital stock of any class of any
member of the Company Group, or any securities convertible into or exchangeable
for any such shares, are outstanding, and no authorization therefor has been
given. There are no outstanding contractual or other rights or obligations to or
of any member of the Medical Society or any other Person to repurchase, redeem
or otherwise acquire any outstanding shares or other equity interests of any
member of the Company Group.
2.3. No Conflicts, etc. The execution, delivery and
performance of this Agreement by the Medical Society, and the consummation of
the transactions contemplated hereby and thereby, do not and will not conflict
with, contravene, result in a violation or breach of or default under (with or
without the giving of notice or the lapse of time or both), create in any other
Person a right or claim of termination, amendment, or require modification,
acceleration or cancellation of, or result in the creation of any Lien (or any
obligation to create any Lien) upon any of the properties or assets of the
Medical Society or any member of the Company Group under, (a) any Law applicable
to the Medical Society or any of its respective properties or assets, (b) any
provision of any of the Organizational Documents of the Medical Society, (c) any
Contract, or (d) any agreement or instrument to which the Medical Society is a
party or by which any of its properties or assets may be bound, except, in the
case of clauses (c) and (d), for violations and defaults that, individually and
in the aggregate, could not reasonably be expected to have or result in a
Material Adverse Effect to any member of the Company Group.
2.4. Corporate Status. (a) Organization. Each of the Medical
Society and each member of the Company Group is a for-profit or not-for-profit
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey, and has full corporate power and authority to
conduct its business and to own or lease and to operate its properties as and in
the places where such business is conducted and such properties are owned,
leased or operated.
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(b) Qualification. Each member of the Company Group is duly
qualified or licensed to do business and is in good standing in the
jurisdictions set forth on Schedule 2.4(b), which comprises each jurisdiction in
which the nature of its business or the properties owned or leased by it makes
such qualification or licensing necessary.
(c) Organizational Documents. The Medical Society has
delivered to MIIX Holding complete and correct copies of the Organizational
Documents of the Medical Society and each member of the Company Group, as
amended, modified or waived through and in effect on the date hereof. Each of
the Organizational Documents of the Medical Society and each member of the
Company Group is in full force and effect. Neither the Medical Society nor any
member of the Company Group is in violation of any of the provisions of its
Organizational Documents. The minute books of the Medical Society and each
member of the Company Group correctly reflect in all material respects (i) all
corporate actions taken by the stockholders that the stockholders were required
by applicable Law to take, (ii) all corporate actions taken by the directors of
the Medical Society and each member of the Company Group that the board of
directors of such company were required by applicable Law to take and (iii) all
other corporate actions taken by the stockholders and directors of the Medical
Society and each member of the Company Group (including by any committee of the
board of directors).
2.5. Investments. (a) No member of the Company Group owns a
majority interest in any other Person, except as set forth in Schedule 2.2(c)
and in Schedule 2.5(a).
2.6. Financial Statements. (a) The Medical Society has
delivered to MIIX Holding complete and correct copies of the Financial
Statements.
(b) The Financial Statements are complete and correct in all
respects, have been derived from the accounting books and records of the Company
Group, and have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods presented in the Financial Statements subject, in the case of
interim unaudited Financial Statements, only to normal recurring year-end
adjustments.
(c) The balance sheets included in the Financial Statements
present fairly the financial position of the Company Group as at the respective
dates thereof, and the statements of income, statements of stockholder's equity
and statements of cash flows included in such Financial Statements present
fairly the results of operations and cash flows of the Company Group for the
respective periods indicated.
2.7. Undisclosed Liabilities, etc. No member of the Company
Group has any liabilities or obligations of any nature, whether known, unknown,
absolute, accrued, contingent or otherwise and whether due or to become due,
except (a) as set forth in Schedule 2.7, (b) as and to the extent disclosed or
reserved against in the Balance Sheet or specifically disclosed in the notes
thereto or (c) for liabilities and obligations that (i) are incurred after the
date of the Balance Sheet in the ordinary course of business and are not
prohibited by this Agreement and (ii) individually and in the aggregate, could
not reasonably be expected to be material to any member of the Company Group or
to have or result in a Material Adverse Effect. Since June 30, 1997, there has
not occurred or come to exist any Material Adverse Effect with respect to any
member of the Company Group.
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2.8. Tax Matters. Except as set forth in Schedule 2.8:
(a) each member of the Company Group has (i) duly filed (or
there has been filed on their behalf) with the appropriate governmental
authorities all income Tax Returns and all other material Tax Returns required
to be filed by them on or prior to the date hereof, and (ii) duly paid in full
or made provision in accordance with GAAP (or there has been paid or provision
has been made on their behalf) for the payment of all material Taxes for all
periods or portions thereof ending through the date hereof;
(b) no federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or any Subsidiary of the
Company wherein an adverse determination or ruling in any one such proceeding or
in all such proceedings in the aggregate would have a Material Adverse Effect on
the Company Group;
(c) the federal income Tax Returns of the Company Group have
been examined by the Internal Revenue Service (or the applicable statutes of
limitation for the assessment of federal income Taxes for such periods have
expired) for all periods through and including December 31, 1994, and no
material deficiencies were asserted as a result of such examinations that have
not been resolved and fully paid. No member of the Company Group has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes with respect to any Tax
Returns of the Company or any of the Subsidiaries of the Company;
(d) no member of the Company Group is a party to any material
tax sharing, tax indemnity or other agreement or arrangement with any entity not
included in the Company's Financial Statements; and
(e) no member of the Company Group has been a member of any
affiliated group within the meaning of Section 1504(a) of the Code, or any
similar affiliated or consolidated group for tax purposes under state, local or
foreign law (other than a group the common parent of which is the Company), or
has any liability for the Taxes of any person (other than a member of the
Company Group) under Treasury Regulations Section 1.1502-6 or any similar
provision of state, local or foreign law as a transferee or successor, by
contract or otherwise.
2.9. Absence of Changes. Since June 30, 1997, except (i) as
set forth in Schedule 2.9, no member of the Company Group has:
(a) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock or otherwise purchased or
redeemed, directly or indirectly, any shares of its capital stock;
(b) issued or sold any shares of any class of its capital
stock, or any securities convertible into or exchangeable for any such
shares, or issued, sold, granted or entered into any subscriptions,
options, warrants, conversion or other rights, agreements, commitments,
arrangements or understandings of any kind, contingently or otherwise,
to purchase or otherwise acquire any such shares or any securities
convertible into or exchangeable for any such shares;
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(c) incurred any indebtedness for borrowed money, issued or
sold any debt securities or prepaid any debt, except for borrowings and
repayments in the ordinary course of business;
(d) mortgaged, pledged or otherwise subjected to any Lien, any
of its Real Property or other properties or assets, tangible or
intangible, except for Permitted Liens in the ordinary course of
business;
(e) forgiven, canceled, compromised, waived or released any
debts, claims or rights, except for debts, claims and rights, forgiven,
canceled, compromised, waived or released in the ordinary course of
business;
(f) made any material modification to any existing Contract or
entered into (x) any material agreement, commitment or other
transaction, or (y) any material agreement or commitment that, pursuant
to its terms, is not cancelable without penalty on less than 30 days'
notice;
(g) except pursuant to approved employee benefit plans adopted
on or prior to 90 days prior to the date hereof or otherwise in the
ordinary course of business, paid any bonus to any officer, director,
employee, sales representative, agent or consultant, or granted to any
officer, director, employee, sales representative, agent or consultant
any other increase in compensation in any form;
(h) entered into, adopted or amended any material employment,
consulting, retention, change-in-control, collective bargaining, bonus
or other incentive compensation, profit-sharing, health or other
welfare, stock option or other equity, pension, retirement, vacation,
severance, deferred compensation or other employment, compensation or
benefit plan, policy, agreement, trust, fund or arrangement for the
benefit of any officer, director, employee, sales representative,
agent, consultant or Affiliate (whether or not legally binding);
(i) suffered any damage, destruction or loss (whether or not
covered by insurance), or any strike or other employment-related
problem, or any change in relations with or any loss of a supplier,
customer or employee, that, individually or in the aggregate, could
reasonably be expected to have or result in a Material Adverse Effect
to any member of the Company Group;
(j) amended any of its Organizational Documents;
(k) changed in any respect its accounting practices, policies
or principles;
(l) incurred, assumed, guaranteed or otherwise become directly
or indirectly liable with respect to any liability or obligation
(whether absolute, accrued, contingent or otherwise and whether direct
or indirect, or as guarantor or otherwise with respect to any liability
or obligation of any other Person that is material to the Company
Group);
(m) made a sale of any assets that is material to the Company
Group, other than inventory in the ordinary course of business;
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(n) made any material changes in policies or practices
relating to selling practices, returns, discounts or other terms of
sale or accounting therefor or in policies of employment;
(o) made any other changes that has resulted or would result
in a Material Adverse Effect to any member of the Company Group, or
(p) taken any action or omitted to take any action that would
result in the occurrence of any of the foregoing.
2.10. Assets. The Company Group owns, or otherwise has full,
exclusive, sufficient and legally enforceable rights to use, all of the
properties and assets (real, personal or mixed, tangible or intangible), used or
held for use in connection with, necessary for the conduct of, or otherwise
material to, the Business (the "Assets") of the Company Group. The Company Group
has good, valid and marketable title to, or in the case of leased property has
good and valid leasehold interests in, all Assets that are material to the
Business, including but not limited to all such Assets reflected in the Balance
Sheet or acquired since the date thereof (except as may be disposed of in the
ordinary course of business after the date hereof and in accordance with this
Agreement), in each case free and clear of any Lien, except Permitted Liens. The
Company Group has maintained all tangible Assets that are material to the
Business in good repair, working order and operating condition subject only to
ordinary wear and tear, and all such tangible Assets are fully adequate and
suitable for the purposes for which they are presently being used.
2.11. Contracts; Enforceability. All Contracts of the Company
Group are legal, valid, binding, in full force and effect and enforceable
against each party thereto, except to the extent that any failure to be
enforceable, individually and in the aggregate, could not reasonably be expected
to have or result in a Material Adverse Effect to any member of the Company
Group. Except as set forth in Schedule 2.11, there does not exist under any
Contract any violation, breach or event of default, or event or condition that,
after notice or lapse of time or both, would constitute a violation, breach or
event of default thereunder, on the part of any member of the Company Group or
any other Person. Except as set forth in Schedule 2.11, the enforceability of
all Contracts will not be affected in any manner by the execution, delivery or
performance of this Agreement, and no Contract contains any change in control or
other terms or conditions that will become applicable or inapplicable as a
result of the consummation of the transactions contemplated by this Agreement.
2.12. Litigation. Except as set forth on Schedule 2.12, there
is no Litigation pending or threatened by, against or affecting the Medical
Society or any member of the Company Group, or any of their respective
properties or assets, that, individually or in the aggregate, could reasonably
be expected to impair the ability of the Medical Society to perform its
obligations hereunder or to have or result in a Material Adverse Effect to the
Medical Society or any member of the Company Group.
2.13. Compliance with Laws and Instruments; Licenses and
Consents. (a) Compliance. Except as set forth on Schedule 2.13(a), (i) neither
the Medical Society nor any member of the Company Group is not, and has not
been, in conflict with or in
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violation or breach of or default under (x) any Law applicable to it or any of
its properties, assets, operations or business, (y) any provision of its
Organizational Documents, or (z) any Contract, or any other agreement or
instrument to which it is party or by which it or any of its properties or
assets is bound or affected, except for any such conflicts, breaches, violations
and defaults that, individually or in the aggregate, could not reasonably be
expected to have or result in a Material Adverse Effect to the Medical Society
or any member of the Company Group and (ii) neither the Medical Society nor any
member of the Company Group has received notice of, and has no knowledge of, any
claim alleging any such conflict, violation, breach or default.
(b) Licenses and Consents. (i) Except as specified in Schedule
2.13(b)(i), no Governmental Approval or other Consent is required to be obtained
or made by the Medical Society or any member of the Company Group in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(ii) Each member of the Company Group doing an insurance
business in any State possesses a license, certificate of authority, permit or
other authorization to transact an insurance business as an agent, managing
general agent or attorney-in-fact (an "Insurance License") in each State or
other jurisdiction in which such company is required to possess an Insurance
License, except for such failures to have an Insurance License as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect to such member of the Company Group. All such Insurance Licenses
are listed in Schedule 2.13(b)(ii) and are in full force and effect and neither
the Medical Society nor any such member of the Company Group has received any
notice of any event, inquiry, investigation or proceeding that would reasonably
be expected to result in the suspension, revocation or limitation of any such
Insurance License, and, to the knowledge of the Medical Society, there is no
basis for any such suspension, revocation or limitation.
(iii) Each member of the Company Group possesses all other
licenses, certificates of authority, permits or other authorizations required to
transact its business in each State or other jurisdiction in which such company
is required to possess such licenses, certificates of authority, permits or
other authorizations, except for such failures as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect to such
member of the Company Group. All such other licenses, certificates of authority,
permits or other authorizations are in full force and effect and neither the
Medical Society nor any such member of the Company Group has received any notice
of any event, inquiry, investigation or proceeding that would reasonably be
expected to result in the suspension, revocation or limitation of any such
license, certificate of authority, permit or other authorization, and, to the
knowledge of the Medical Society, there is no basis for any such suspension,
revocation or limitation.
2.14. Affiliate Transactions. (a) Each agreement, contract,
arrangement, understanding, transfer of assets or liabilities or other
commitments or transaction, whether or not entered into in the ordinary course
of business, to or by which any member of the Company Group, on the one hand,
and the Medical Society or any of its Affiliates, on the other hand, is or has
been a party or otherwise bound or affected, and that were entered into on or
after 90 days prior to the date hereof, was on terms and conditions as favorable
to the relevant member of the Company Group as would have been obtainable
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by it at the time in a comparable arm's-length transaction with a Person other
than the Medical Society or any of its Affiliates.
2.15. Employee Benefit Matters. (a) With respect to each
employee benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of ERISA)
maintained or contributed to by the Company or any member of the Company Group
(the "Benefit Plans"), the Company has made available to MIIX Holding a copy of
(i) the most recent annual report (Form 5500) filed with the IRS, (ii) such
Benefit Plan, (iii) if applicable, each trust agreement relating to such Benefit
Plan, (iv) the most recent summary plan description for each Benefit Plan for
which a summary plan description is required and (v) the most recent
determination letter, if any, issued by the IRS with respect to any Benefit Plan
qualified under Section 401(a) of the Code.
(b) With respect to the Benefit Plans, except as set forth in
Schedule 2.15(b), no event has occurred, and, to the knowledge of the Medical
Society, there exists no condition or set of circumstances, in connection with
which the Company or any member of the Company Group could be subject to an
material liability under the terms of such Benefit Plans, ERISA, the Code or any
other applicable law, rule or regulation.
(c) Except as set forth in Schedule 2.15(c) or as otherwise
required by any applicable Law, rule, regulation, order, writ or judgment, no
Benefit Plan of the Company or any member of the Company Group provides retiree
medical or retiree life insurance benefits to any employee or former employee
(or any beneficiary thereof), except to the extent that provision of any such
benefit, either individually or in the aggregate, would not result in a material
liability to the Company or any member of the Company Group.
2.16. Brokers, Finders, etc. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on without
the participation of any Person acting on behalf of the Medical Society in such
a manner as to, and the transactions contemplated hereby will not otherwise,
give rise to any valid claim against any member of the Company Group or MIIX
Holding for any brokerage or finder's commission, fee or similar compensation,
or for any bonus payable to any officer, director, employee, agent or
representative of or consultant to any member of the Company Group upon
consummation of the transactions contemplated hereby.
2.17. Purchase for Investment. The Medical Society will hold
the MIIX Holding Shares solely for investment, with no present intention to
resell the MIIX Holding Shares.
3. Representations and Warranties of MIIX Holding. MIIX
Holding represents and warrants to the Medical Society as follows, as of the
Closing Date:
3.1. Authorization, etc. MIIX Holding has full corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement, the performance of MIIX Holding's obligations
hereunder, and the consummation of the transactions contemplated hereby, have
been duly authorized by all
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requisite corporate action of MIIX Holding. This Agreement constitutes the
legal, valid and binding obligation of MIIX Holding enforceable against MIIX
Holding in accordance with its terms.
3.2. Title to MIIX Holding Shares. The MIIX Holding Shares are
free and clear of any Liens. Upon the delivery of and payment for the MIIX
Holding Shares at the Closing as provided for in this Agreement, the Medical
Society will acquire good and valid title to all the MIIX Holding Shares, free
and clear of any Lien other than any Lien created by the Medical Society.
(a) Authorized Capital Stock of MIIX Holding. The authorized
capital stock of MIIX Holding consists of 100 million shares of common stock,
par value $.01 per share and 50 million shares of preferred stock, par value
$.01 per share. The MIIX Holding Shares have been duly authorized and validly
issued and are fully paid and nonassessable.
(b) Authorized Capital Stock of MIIX Holding Group. Schedule
3.2(c) contains a complete and correct description of the shares of stock or
other equity interests that are authorized, or issued and outstanding, of the
MIIX Holding Group. All of such outstanding shares of stock or other equity
interests are duly authorized, validly issued, fully paid and nonassessable, and
are free and clear of any Liens.
(c) No Equity Rights. Except for this Agreement and except as
contemplated by the MIIX Plan of Reorganization, no subscriptions, options,
warrants, conversion or other rights, agreements, commitments, arrangements or
understandings of any kind obligating MIIX Holding or any other Person,
contingently or otherwise, to issue or sell, or cause to be issued or sold, any
shares of capital stock of any class of any member of the MIIX Holding Group, or
any securities convertible into or exchangeable for any such shares, are
outstanding, and no authorization therefor has been given. There are no
outstanding contractual or other rights or obligations to or of any member of
MIIX Holding or any other Person to repurchase, redeem or otherwise acquire any
outstanding shares or other equity interests of any member of the MIIX Holding
Group.
3.3. No Conflicts, etc. The execution, delivery and
performance of this Agreement by MIIX Holding, and the consummation of the
transactions contemplated hereby and thereby, do not and will not conflict with,
contravene, result in a violation or breach of or default under (with or without
the giving of notice or the lapse of time or both), create in any other Person a
right or claim of termination, amendment, or require modification, acceleration
or cancellation of, or result in the creation of any Lien (or any obligation to
create any Lien) upon any of the properties or assets of MIIX Holding or any
member of the MIIX Holding Group under, (a) any Law applicable to MIIX Holding
or any of its respective properties or assets, (b) any provision of any of the
Organizational Documents of MIIX Holding, (c) any Contract, or (d) any agreement
or instrument to which MIIX Holding is a party or by which any of its properties
or assets may be bound, except, in the case of clauses (c) and (d), for
violations and defaults that, individually and in the aggregate, could not
reasonably be expected to have or result in a Material Adverse Effect to any
member of the MIIX Holding Group.
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3.4. Corporate Status. (a) Organization. Each of MIIX Holding
and each member of the MIIX Holding Group is a corporation or inter-insurance
exchange duly organized, validly existing and in good standing under the laws of
the State of New Jersey, and has full corporate power and authority to conduct
its business and to own or lease and to operate its properties as and in the
places where such business is conducted and such properties are owned, leased or
operated.
(b) Qualification. Each member of the MIIX Holding Group is
duly qualified or licensed to do business and is in good standing in the
jurisdictions set forth on Schedule 2.4(b), which comprises each jurisdiction in
which the nature of its business or the properties owned or leased by it makes
such qualification or licensing necessary.
(c) Organizational Documents. MIIX Holding has delivered to
the Medical Society complete and correct copies of the Organizational Documents
of MIIX Holding and each member of the MIIX Holding Group, as amended, modified
or waived through and in effect on the date hereof. Each of the Organizational
Documents of MIIX Holding and each member of the MIIX Holding Group is in full
force and effect. Neither MIIX Holding nor any member of the MIIX Holding Group
is in violation of any of the provisions of its Organizational Documents. The
minute books of MIIX Holding and each member of the MIIX Holding Group correctly
reflect in all material respects (i) all corporate actions taken by the
stockholders that the stockholders were required by applicable Law to take, (ii)
all corporate actions taken by the directors of MIIX Holding and each member of
the MIIX Holding Group that the board of directors of such company were required
by applicable Law to take and (iii) all other corporate actions taken by the
stockholders and directors of MIIX Holding and each member of the MIIX Holding
Group (including by any committee of the board of directors).
3.5. Investments. (a) No member of the MIIX Holding Group owns
a majority interest in any other Person, except as set forth in Schedule 3.2(c)
and in Schedule 3.5(a).
3.6. Financial Statements. (a) MIIX Holding has delivered to
the Medical Society complete and correct copies of the Financial Statements.
(b) The Financial Statements are complete and correct in all
respects, have been derived from the accounting books and records of MIIX, and
have been prepared in accordance with statutory accounting principles applied on
a consistent basis throughout the periods presented in the Financial Statements
subject, in the case of interim unaudited Financial Statements, only to normal
recurring year-end adjustments.
(c) The balance sheets included in the Financial Statements
present fairly the financial position of MIIX as at the respective dates
thereof, and the statements of income, statements of stockholder's equity and
statements of cash flows included in such Financial Statements present fairly
the results of operations and cash flows of MIIX for the respective periods
indicated.
3.7. Undisclosed Liabilities, etc. No member of the MIIX
Holding Group has any liabilities or obligations of any nature, whether known,
unknown, absolute, accrued, contingent or otherwise and whether due or to become
due, except (a) as set
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forth in Schedule 3.7, (b) as and to the extent disclosed or reserved against in
the Balance Sheet or specifically disclosed in the notes thereto or (c) for
liabilities and obligations that (i) are incurred after the date of the Balance
Sheet in the ordinary course of business or pursuant to the MIIX Plan of
Reorganization and are not prohibited by this Agreement and (ii) individually
and in the aggregate, could not reasonably be expected to be material to any
member of the MIIX Holding Group or to have or result in a Material Adverse
Effect. Since June 30, 1997, there has not occurred or come to exist any
Material Adverse Effect with respect to any member of the MIIX Holding Group.
3.8. Tax Matters. Except as set forth in Schedule 3.8:
(a) each member of the MIIX Holding Group has (i) duly filed
(or there has been filed on their behalf) with the appropriate governmental
authorities all income Tax Returns and all other material Tax Returns required
to be filed by them on or prior to the date hereof, and (ii) duly paid in full
or made provision in accordance with GAAP (or there has been paid or provision
has been made on their behalf) for the payment of all material Taxes for all
periods or portions thereof ending through the date hereof;
(b) no federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of each member of the MIIX Holding Group
wherein an adverse determination or ruling in any one such proceeding or in all
such proceedings in the aggregate would have a Material Adverse Effect on the
MIIX Holding Group;
(c) the federal income Tax Returns of the MIIX Holding Group
have been examined by the Internal Revenue Service (or the applicable statutes
of limitation for the assessment of federal income Taxes for such periods have
expired) for all periods through and including December 31, 1994, and no
material deficiencies were asserted as a result of such examinations that have
not been resolved and fully paid. The MIIX Holding Group has not granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes with respect to any Tax
Returns of the MIIX Holding Group;
(d) no member of the MIIX Holding Group is a party to any
material tax sharing, tax indemnity or other agreement or arrangement with any
entity not included in the MIIX Holding Group; and
(e) no the member of the MIIX Holding Group has been a member
of any affiliated group within the meaning of Section 1504(a) of the Code, or
any similar affiliated or consolidated group for tax purposes under state, local
or foreign law (other than a group the common parent of which is MIIX or MIIX
Holding), or has any liability for the Taxes of any person (other than the
members of the MIIX Holding Group) under Treasury Regulations Section 1.1502-6
or any similar provision of state, local or foreign law as a transferee or
successor, by contract or otherwise.
3.9. Absence of Changes. Since June 30, 1997, except (i) as
set forth in Schedule 3.9, no member of the MIIX Holding Group has:
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(a) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock or otherwise purchased or
redeemed, directly or indirectly, any shares of its capital stock;
(b) issued or sold any shares of any class of its capital
stock, or any securities convertible into or exchangeable for any such
shares, or issued, sold, granted or entered into any subscriptions,
options, warrants, conversion or other rights, agreements, commitments,
arrangements or understandings of any kind, contingently or otherwise,
to purchase or otherwise acquire any such shares or any securities
convertible into or exchangeable for any such shares;
(c) incurred any indebtedness for borrowed money, issued or
sold any debt securities or prepaid any debt, except for borrowings and
repayments in the ordinary course of business;
(d) mortgaged, pledged or otherwise subjected to any Lien, any
of its Real Property or other properties or assets, tangible or
intangible, except for Permitted Liens in the ordinary course of
business;
(e) forgiven, canceled, compromised, waived or released any
debts, claims or rights, except for debts, claims and rights, forgiven,
canceled, compromised, waived or released in the ordinary course of
business;
(f) made any material modification to any existing Contract or
entered into (x) any material agreement, commitment or other
transaction or (y) any material agreement or commitment that, pursuant
to its terms, is not cancelable without penalty on less than 30 days'
notice;
(g) except pursuant to approved employee benefit plans adopted
on or prior to 90 days prior to the date hereof or otherwise in the
ordinary course of business, paid any bonus to any officer, director,
employee, sales representative, agent or consultant, or granted to any
officer, director, employee, sales representative, agent or consultant
any other increase in compensation in any form;
(h) entered into, adopted or amended any employment,
consulting, retention, change-in-control, collective bargaining, bonus
or other incentive compensation, profit-sharing, health or other
welfare, stock option or other equity, pension, retirement, vacation,
severance, deferred compensation or other employment, compensation or
benefit plan, policy, agreement, trust, fund or arrangement for the
benefit of any officer, director, employee, sales representative,
agent, consultant or Affiliate (whether or not legally binding);
(i) suffered any damage, destruction or loss (whether or not
covered by insurance), or any strike or other employment-related
problem, or any change in relations with or any loss of a supplier,
customer or employee, that, individually or in the aggregate, could
reasonably be expected to have or result in a Material Adverse Effect
to any member of the MIIX Holding Group;
(j) amended any of its Organizational Documents;
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(k) changed in any respect its accounting practices, policies
or principles;
(l) incurred, assumed, guaranteed or otherwise become directly
or indirectly liable with respect to any liability or obligation
(whether absolute, accrued, contingent or otherwise and whether direct
or indirect, or as guarantor or otherwise with respect to any liability
or obligation of any other Person) that is material to MIIX Group;
(m) made a sale of any assets that is material to the MIIX
Group, other than inventory in the ordinary course of business;
(n) made any material changes in policies or practices
relating to selling practices, returns, discounts or other terms of
sale or accounting therefor or in policies of employment;
(o) made any other changes that has resulted or would result
in a Material Adverse Effect to any member of the MIIX Holding Group,
or
(p) taken any action or omitted to take any action that would
result in the occurrence of any of the foregoing.
3.10. Assets. As of the Closing Date, the MIIX Holding Group
owns, or otherwise has full, exclusive, sufficient and legally enforceable
rights to use, all of the Assets of the MIIX Holding Group. The MIIX Holding
Group has good, valid and marketable title to, or in the case of leased property
has good and valid leasehold interests in, all Assets that are material to the
Business, including but not limited to all such Assets reflected in the Balance
Sheet or acquired since the date thereof (except as may be disposed of in the
ordinary course of business after the date hereof and in accordance with this
Agreement), in each case free and clear of any Lien, except Permitted Liens. The
MIIX Holding Group has maintained all tangible Assets that are material to the
Business in good repair, working order and operating condition subject only to
ordinary wear and tear, and all such tangible Assets are fully adequate and
suitable for the purposes for which they are presently being used.
3.11. Contracts; Enforceability. All Contracts of the MIIX
Holding Group are legal, valid, binding, in full force and effect and
enforceable against each party thereto, except to the extent that any failure to
be enforceable, individually and in the aggregate, could not reasonably be
expected to have or result in a Material Adverse Effect to any member of the
MIIX Holding Group. Except as set forth in Schedule 3.11, there does not exist
under any Contract any violation, breach or event of default, or event or
condition that, after notice or lapse of time or both, would constitute a
violation, breach or event of default thereunder, on the part of any member of
the MIIX Holding Group or any other Person. Except as set forth in Schedule
3.11, the enforceability of all Contracts will not be affected in any manner by
the execution, delivery or performance of this Agreement, and no Contract
contains any change in control or other terms or conditions that will become
applicable or inapplicable as a result of the consummation of the transactions
contemplated by this Agreement.
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3.12. Litigation. Except as set forth on Schedule 3.12, there
is no Litigation pending or threatened by, against or affecting MIIX Holding or
any member of the MIIX Holding Group, or any of their respective properties or
assets, that, individually or in the aggregate, could reasonably be expected to
impair the ability of MIIX Holding to perform its obligations hereunder or to
have or result in a Material Adverse Effect to MIIX Holding or any member of the
MIIX Holding Group.
3.13. Compliance with Laws and Instruments; Licenses and
Consents. (a) Compliance. Except as set forth on Schedule 3.13(a), (i) neither
MIIX Holding nor any member of the MIIX Holding Group is not, and has not been,
in conflict with or in violation or breach of or default under (x) any Law
applicable to it or any of its properties, assets, operations or business, (y)
any provision of its Organizational Documents, or (z) any Contract, or any other
agreement or instrument to which it is party or by which it or any of its
properties or assets is bound or affected, except for any such conflicts,
breaches, violations and defaults that, individually or in the aggregate, could
not reasonably be expected to have or result in a Material Adverse Effect to
MIIX Holding or any member of the MIIX Holding Group and (ii) neither MIIX
Holding nor any member of the MIIX Holding Group has received notice of, and has
no knowledge of, any claim alleging any such conflict, violation, breach or
default.
(b) Licenses and Consents. (i) Except as specified in Schedule
3.13(b)(i), no Governmental Approval or other Consent is required to be obtained
or made by MIIX Holding or any member of the MIIX Holding Group in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(ii) Each member of the MIIX Holding Group doing an insurance
business in any State possesses an Insurance License in each State or other
jurisdiction in which such company is required to possess an Insurance License,
except for such failures to have an Insurance License as would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect to
such member of the MIIX Holding Group. All such Insurance Licenses are listed in
Schedule 3.13(b)(ii) and are in full force and effect and neither MIIX Holding
nor any such member of the MIIX Holding Group has received any notice of any
event, inquiry, investigation or proceeding that would reasonably be expected to
result in the suspension, revocation or limitation of any such Insurance
License, and, to the knowledge of MIIX Holding, there is no basis for any such
suspension, revocation or limitation.
(iii) Each member of the MIIX Holding Group possesses all
other licenses, certificates of authority, permits or other authorizations
required to transact its business in each State or other jurisdiction in which
such company is required to possess such licenses, certificates of authority,
permits or other authorizations, except for such failures as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect to such member of the MIIX Holding Group. All such other
licenses, certificates of authority, permits or other authorizations are in full
force and effect and neither MIIX Holding nor any such member of the MIIX
Holding Group has received any notice of any event, inquiry, investigation or
proceeding that would reasonably be expected to result in the suspension,
revocation or limitation of any such license, certificate of authority, permit
or other authorization, and, to the knowledge of MIIX Holding, there is no basis
for any such suspension, revocation or limitation.
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3.14. Affiliate Transactions. (a) Each agreement, contract,
arrangement, understanding, transfer of assets or liabilities or other
commitments or transaction, whether or not entered into in the ordinary course
of business, to or by which any member of the MIIX Holding Group, on the one
hand, and MIIX Holding or any of its Affiliates, on the other hand, is or has
been a party or otherwise bound or affected, and that were entered into on or
after 90 days prior to the date hereof, was on terms and conditions as favorable
to the relevant member of the MIIX Holding Group as would have been obtainable
by it at the time in a comparable arm's-length transaction with a Person other
than MIIX Holding or any of its Affiliates.
3.15. Employee Benefit Matters. (a) With respect to each
employee benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of ERISA)
maintained or contributed to by MIIX Holding or any member of the MIIX Holding
Group (the "MIIX Benefit Plans"), MIIX Holding has made available to the Medical
Society a copy of (i) the most recent annual report (Form 5500) filed with the
IRS, (ii) such MIIX Benefit Plan, (iii) if applicable, each trust agreement
relating to such MIIX Benefit Plan, (iv) the most recent summary plan
description for each MIIX Benefit Plan for which a summary plan description is
required and (v) the most recent determination letter, if any, issued by the IRS
with respect to any MIIX Benefit Plan qualified under Section 401(a) of the
Code.
(b) With respect to the MIIX Benefit Plans, except as set
forth in Schedule 3.15(b), no event has occurred, and, to the knowledge of MIIX
Holding, there exists no condition or set of circumstances, in connection with
which MIIX Holding or any member of MIIX Holding Group could be subject to an
material liability under the terms of such MIIX Benefit Plans, ERISA, the Code
or any other applicable law, rule or regulation.
(c) Except as set forth in Schedule 3.15(c) or as otherwise
required by any applicable Law, rule, regulation, order, writ or judgment, no
MIIX Benefit Plan of MIIX Holding or any member of MIIX Holding Group provides
retiree medical or retiree life insurance benefits to any employee or former
employee (or any beneficiary thereof), except to the extent that provision of
any such benefit, either individually or in the aggregate, would not result in a
material liability to MIIX Holding or any member of MIIX Holding Group.
3.16. Brokers, Finders, etc. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on without
the participation of any Person acting on behalf of MIIX Holding in such a
manner as to, and the transactions contemplated hereby will not otherwise, give
rise to any valid claim against any member of the MIIX Holding Group or the
Medical Society for any brokerage or finder's commission, fee or similar
compensation, or for any bonus payable to any officer, director, employee, agent
or representative of or consultant to any member of the MIIX Holding Group upon
consummation of the transactions contemplated hereby.
3.17. Purchase for Investment. MIIX Holding is purchasing the
Company Shares solely for investment, with no present intention to resell the
Company Shares. MIIX Holding hereby acknowledges that the Company Shares have
not been registered
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pursuant to the Securities Act of 1933, as amended, and may not be transferred
in the absence of such registration or an exemption therefrom under such Act.
4. Covenants of the Medical Society.
4.1. Conduct of Business. On and after the date hereof to the
Closing Date, except as expressly permitted or required by this Agreement or as
otherwise expressly consented to by MIIX Holding in writing, such consent not to
be unreasonably withheld, the Medical Society will, and will cause each member
of the Company Group to:
(i) carry on its business in the ordinary course of business,
in substantially the same manner as heretofore conducted, and use all
reasonable efforts to preserve intact its present business
organization, keep available the services of its present officers and
significant employees, and preserve its relationships with customers,
suppliers and others having business dealings with it, to the end that
its goodwill and going business shall be in all material respects
unimpaired following the Closing;
(ii) not declare dividends on, or redeem or repurchase any
shares of, any class of its capital stock, increase any obligations of
any member of the Company Group with respect to Indebtedness, repay any
loans or other amounts outstanding to the Medical Society or any of its
Affiliates, make capital expenditures that are material to the Company
Group, pay any bonuses or advances against salaries except as set forth
on Schedule 4.1, prepay any accounts payable, delay payment of any
trade payables other than in the ordinary course of business, or make
any other cash payments other than in the ordinary course of business;
(iii) maintain all of the tangible Assets and all other
tangible properties and assets owned, leased, occupied, operated or
used by it in good repair, working order and operating condition
subject only to ordinary wear and tear;
(iv) not transfer, assign, mortgage, pledge, hypothecate,
grant any security interest in, or otherwise subject to any other Lien,
any of its assets;
(v) use all reasonable efforts to keep in full force and
effect insurance comparable in amount and scope of coverage to
insurance now carried by it;
(vi) pay accounts payable and other obligations, when they
become due and payable, in the ordinary course of business;
(vii) perform in all material respects all of its obligations
under any Contracts, agreements or other instruments relating to or
affecting any of the properties and assets of any member of the Company
Group (including the Assets) or the Business;
(viii) not enter into or assume any Contract, or enter into or
permit any amendment, supplement, waiver or other modification in
respect thereof, except for such Contracts and amendments, supplements,
waivers and modifications thereof that, individually and in the
aggregate, are not material to any member of
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the Company Group or that are entered into, assumed or permitted in the
ordinary course of business and following prior notice to and
consultation with MIIX Holding;
(ix) maintain its books of account and records in the usual,
regular and ordinary manner consistent with past policies and practice;
(x) comply in all material respects with all Laws applicable
to it or any of its properties, assets or business;
(xi) not compromise, settle, grant any waiver or release
relating to or otherwise adjust any material Litigation, except in the
ordinary course of business, and following prior notice to and
consultation with MIIX Holding;
(xii) not cause or permit any amendment, supplement, waiver or
modification to or of any of its Organizational Documents;
(xiii) use all reasonable efforts to maintain each member of
the Company Group's good standing in its state of incorporation and in
the jurisdictions in which it is qualified to do business as a foreign
corporation and to maintain all Governmental Approvals and other
Consents necessary for, or otherwise material to, the Business;
(xiv) not merge or consolidate with, or agree to merge or
consolidate with, or purchase substantially all of the assets of, or
otherwise acquire, any business, business organization or division
thereof, or any other Person;
(xv) not make any material tax election, amend any tax return
previously filed, or settle or compromise any material federal, state,
local or foreign tax liability;
(xvi) not take any action or omit to take any action, which
action or omission would result in a breach of any of the
representations and warranties set forth in Section 2.8;
(xvii) promptly advise MIIX Holding in writing of any event,
occurrence, fact, condition, change, development or effect that,
individually or in the aggregate, could reasonably be expected to have
or result in a Material Adverse Effect or a breach of this Section 4.1;
(xviii) not agree or otherwise commit to take any of the
actions described in the foregoing paragraphs (i) through (xvii); and
(xix) conduct all affairs relating to the Company Group only
in the ordinary course of business, and in good faith in substantially
the same manner as such affairs would have been conducted if this
Agreement had not been entered into.
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4.2. Access and Information. (a) So long as this Agreement
remains in effect, the Medical Society will (and will cause each of the
Representatives of the Medical Society to) give MIIX Holding and its
Representatives full access during reasonable business hours to all of such
Person's respective properties, assets, books, contracts, commitments, reports
and records relating to the Company Group, and furnish to them all such
documents, records and information with respect to the properties, assets and
business of the Company Group and copies of any work papers relating thereto as
MIIX Holding shall from time to time reasonably request. In addition, the
Medical Society will permit MIIX Holding and its Representatives reasonable
access during reasonable business hours to the Medical Society, the Company
Group's lenders, customers and suppliers, other Persons with whom any member of
the Company Group does or has done business, and other Representatives or other
personnel of the Medical Society, as may be necessary or useful to MIIX Holding
in its judgement in connection with its review of the properties, assets and
business of the Company Group and the above-mentioned documents, records and
information. The Medical Society will keep MIIX Holding generally informed as to
the affairs of the Business.
(b) The Medical Society will retain all books and records
relating to the Company Group in accordance with the Medical Society's record
retention policies as presently in effect. On the Closing Date, the Medical
Society shall surrender all books and records relating to the Company Group to
MIIX Holding.
4.3. Subsequent Governmental Filings. From the date hereof to
and including the Closing Date, the Medical Society will timely file, or cause
to be timely filed, and concurrently deliver to MIIX Holding, copies of each
registration, report, statement, notice or other filing required to be filed by
any member of the Company Group with the Commissioner of Banking and Insurance
of the State of New Jersey (the "Commissioner") or any other Governmental
Authority under any applicable Law. All such registrations, reports, statements,
notices and other filings shall comply with applicable Law. As of their
respective dates, none of such registrations, reports, statements, notices or
other filings shall contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.4. Public Announcements. The Medical Society shall not make
any public announcement in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of MIIX Holding, except as
required by applicable Law, in which case the Medical Society shall provide
written notice as set forth in Section 12.2 of any such announcement, and except
as necessary to obtain any required Government Approval.
4.5. Further Actions. (a) The Medical Society shall use all
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all other things, necessary, proper or advisable in order for the
Medical Society to fulfill and perform its obligations in respect of this
Agreement to which it is a party, or otherwise to consummate and make effective
the transactions contemplated hereby.
(b) The Medical Society shall as promptly as practicable (i)
make, or cause to be made, all filings and submissions (including but not
limited to under the HSR Act)
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required under any Law applicable the Medical Society, and give such reasonable
undertakings as may be required in connection therewith, and (ii) use all
reasonable efforts to obtain or make, or cause to be obtained or made, all
Governmental Approvals and Consents necessary to be obtained or made by the
Medical Society, in each case in connection with this Agreement, the sale and
transfer of the Company Shares pursuant hereto, or the consummation of the other
transactions contemplated hereby or thereby.
(c) The Medical Society shall coordinate and cooperate with
MIIX Holding in exchanging such information and supplying such reasonable
assistance as may be reasonably requested by MIIX Holding in connection with the
filings and other actions contemplated by Section 5.5.
(d) At all times prior to the Closing Date, the Medical
Society shall promptly notify MIIX Holding in writing of any fact, condition,
event or occurrence that could result in the failure of any of the conditions
contained in Sections 7.1 and 7.2 to be satisfied, promptly upon becoming aware
of the same.
4.6. Further Assurances. Following the Closing Date, the
Medical Society shall from time to time execute and deliver such additional
instruments, documents, conveyances or assurances and take such other actions as
shall be necessary, or otherwise reasonably be requested by MIIX Holding, to
confirm and assure the rights and obligations provided for in this Agreement and
render effective the consummation of the transactions contemplated hereby, or
otherwise to carry out the intent and purposes of this Agreement (which include
the transfer to MIIX Holding of the ownership and intended related benefits of
the business of the Company Group).
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5. Covenants of MIIX Holding.
5.1. Conduct of Business. On and after the date hereof to the
Closing Date, except as expressly permitted or required by this Agreement or as
otherwise expressly consented to by the Medical Society in writing, such consent
not to be unreasonably withheld, MIIX Holding will, and will cause each member
of the MIIX Group to:
(i) carry on its business in the ordinary course of business,
in substantially the same manner as heretofore conducted, and use all
reasonable efforts to preserve intact its present business
organization, keep available the services of its present officers and
significant employees, and preserve its relationships with customers,
suppliers and others having business dealings with it, to the end that
its goodwill and going business shall be in all material respects
unimpaired following the Closing;
(ii) not declare dividends on, or redeem or repurchase any
shares of, any class of its capital stock, increase any obligations of
any member of the MIIX Group with respect to Indebtedness, repay any
loans or other amounts outstanding to any member of the MIIX Group,
make capital expenditures that are material to MIIX Group, pay any
bonuses or advances against salaries except as set forth on Schedule
4.1, prepay any accounts payable, delay payment of any trade payables
other than in the ordinary course of business, or make any other cash
payments other than in the ordinary course of business;
(iii) maintain all of the tangible Assets and all other
tangible properties and assets owned, leased, occupied, operated or
used by it in good repair, working order and operating condition
subject only to ordinary wear and tear;
(iv) not transfer, assign, mortgage, pledge, hypothecate,
grant any security interest in, or otherwise subject to any other Lien,
any of its assets;
(v) use all reasonable efforts to keep in full force and
effect insurance comparable in amount and scope of coverage to
insurance now carried by it;
(vi) pay accounts payable and other obligations, when they
become due and payable, in the ordinary course of business;
(vii) perform in all material respects all of its obligations
under any Contracts, agreements or other instruments relating to or
affecting any of the properties and assets of any member of the MIIX
Group (including the Assets) or the Business;
(viii) not enter into or assume any Contract, or enter into or
permit any amendment, supplement, waiver or other modification in
respect thereof, except for such Contracts and amendments, supplements,
waivers and modifications thereof that, individually and in the
aggregate, are not material to any member of the MIIX Group and that
are entered into, assumed or permitted in the ordinary
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course of business and following prior notice to and consultation with
the Medical Society;
(ix) maintain its books of account and records in the usual,
regular and ordinary manner consistent with past policies and practice;
(x) comply in all material respects with all Laws applicable
to it or any of its properties, assets or business;
(xi) not compromise, settle, grant any waiver or release
relating to or otherwise adjust any material Litigation, except in the
ordinary course of business, and following prior notice to and
consultation with the Medical Society;
(xii) not cause or permit any amendment, supplement, waiver or
modification to or of any of its Organizational Documents;
(xiii) use all reasonable efforts to maintain each member of
the MIIX Group's good standing in its state of incorporation and in the
jurisdictions in which it is qualified to do business as a foreign
corporation and to maintain all Governmental Approvals and other
Consents necessary for, or otherwise material to, the Business;
(xiv) not merge or consolidate with, or agree to merge or
consolidate with, or purchase substantially all of the assets of, or
otherwise acquire, any business, business organization or division
thereof, or any other Person;
(xv) not make any material tax election, amend any tax return
previously filed, or settle or compromise any material federal, state,
local or foreign tax liability;
(xvi) not take any action or omit to take any action, which
action or omission would result in a breach of any of the
representations and warranties set forth in Section 2.8;
(xvii) promptly advise the Medical Society in writing of any
event, occurrence, fact, condition, change, development or effect that,
individually or in the aggregate, could reasonably be expected to have
or result in a Material Adverse Effect or a breach of this Section 4.1;
(xviii) not agree or otherwise commit to take any of the
actions described in the foregoing paragraphs (i) through (xvii); and
(xix) conduct all affairs relating to the MIIX Group only in
the ordinary course of business, and in good faith in substantially the
same manner as such affairs would have been conducted if this Agreement
had not been entered into.
5.2. Access and Information. (a) So long as this Agreement
remains in effect, MIIX Holding will (and will cause each of the Representatives
of MIIX Holding to) give the Medical Society and its Representatives full access
during reasonable business
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hours to all of such Person's respective properties, assets, books, contracts,
commitments, reports and records relating to MIIX Group, and furnish to them all
such documents, records and information with respect to the properties, assets
and business of the MIIX Group and copies of any work papers relating thereto as
the Medical Society shall from time to time reasonably request. In addition,
MIIX Holding will permit the Medical Society and its Representatives reasonable
access during reasonable business hours to MIIX Holding, the MIIX Group's
lenders, customers and suppliers, other Persons with whom any member of the MIIX
Group does or has done business, and other Representatives or other personnel of
MIIX Holding, as may be necessary or useful to the Medical Society in its
judgement in connection with its review of the properties, assets and business
of the MIIX Group and the above-mentioned documents, records and information.
MIIX Holding will keep the Medical Society generally informed as to the affairs
of the Business.
(b) MIIX Holding will retain all books and records relating to
the MIIX Group in accordance with record retention policies as are presently in
effect. During the seven-year period beginning on the Closing Date, no member of
the MIIX Group shall dispose of or permit the disposal of any such books and
records not required to be retained under such policies without first giving 60
days' prior written notice to the Medical Society offering to surrender the same
to the Medical Society at the Medical Society's expense.
5.3. Subsequent Governmental Filings. From the date hereof to
and including the Closing Date, MIIX Holding will timely file, or cause to be
timely filed, and concurrently deliver to the Medical Society, copies of each
registration, report, statement, notice or other filing required to be filed by
any member of the MIIX Group with the Commissioner or any other Governmental
Authority under any applicable Law. All such registrations, reports, statements,
notices and other filings shall comply with applicable Law. As of their
respective dates, none of such registrations, reports, statements, notices or
other filings shall contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
5.4. Public Announcements. MIIX Holding shall not make any
public announcement in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of the Medical Society,
except as required by applicable Law, in which case MIIX Holding shall provide
written notice as set forth in Section 12.2 of any such announcement, and except
as necessary to obtain any required Government Approval.
5.5. Further Actions. (a) MIIX Holding shall use all
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done all other things, necessary, proper or advisable in order for MIIX
Holding to fulfill and perform its obligations in respect of this Agreement to
which it is a party, or otherwise to consummate and make effective the
transactions contemplated hereby.
(b) MIIX Holding shall as promptly as practicable (i) make, or
cause to be made, all filings and submissions (including but not limited to
under the HSR Act) required under any Law applicable to MIIX Holding or any
member of the MIIX Group,
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and give such reasonable undertakings as may be required in connection
therewith, and (ii) use all reasonable efforts to obtain or make, or cause to be
obtained or made, all Governmental Approvals and Consents necessary to be
obtained or made by any member of the MIIX Group, in each case in connection
with this Agreement, the sale and transfer of the MIIX Holding Shares pursuant
hereto, or the consummation of the other transactions contemplated hereby or
thereby.
(c) MIIX Holding shall coordinate and cooperate with the
Medical Society in exchanging such information and supplying such reasonable
assistance as may be reasonably requested by the Medical Society in connection
with the filings and other actions contemplated by Section 4.5.
(d) At all times prior to the Closing Date, MIIX Holding shall
promptly notify the Medical Society in writing of any fact, condition, event or
occurrence that could result in the failure of any of the conditions contained
in Sections 7.1 and 7.2 to be satisfied, promptly upon becoming aware of the
same.
5.6. Further Assurances. Following the Closing Date, MIIX
Holding shall from time to time execute and deliver such additional instruments,
documents, conveyances or assurances and take such other actions as shall be
necessary, or otherwise reasonably be requested by the Medical Society, to
confirm and assure the rights and obligations provided for in this Agreement and
render effective the consummation of the transactions contemplated hereby, or
otherwise to carry out the intent and purposes of this Agreement.
6. Covenants of MIIX Holding and the Medical Society.
6.1. Transitional Arrangements. Promptly following the
execution of this Agreement, representatives of the Medical Society shall, at
the request of MIIX Holding, meet with representatives of MIIX Holding, at such
times as may be reasonable, to coordinate the transition of the Business as
contemplated by this Agreement and to coordinate the handling of such other
matters as the Medical Society and MIIX Holding consider appropriate.
6.2. Confidentiality. The Parties hereto agree to maintain the
confidentiality of any confidential or proprietary information obtained pursuant
to the negotiation and execution of this Agreement, except as otherwise required
by Law.
7. Conditions Precedent.
7.1. Conditions to Obligations of Each Party. The obligations
of the Medical Society and MIIX Holding to consummate the transactions
contemplated hereby shall be subject to the fulfillment on or prior to the
Closing Date of the following conditions:
7.1.1. Effectiveness of MIIX Plan of Reorganization. The order
of the Commissioner approving the MIIX Plan of Reorganization shall have become
final, the MIIX Plan of Reorganization shall have become effective and the
transactions contemplated thereby shall have occurred, and the Commissioner
shall have issued a
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certificate of authority to New MIIX to do business for the same lines of
insurance currently permitted of MIIX and shall have granted to MIIX any
required rate and form approvals.
7.1.2. Other Regulatory Approvals. All other Governmental
Approvals and Consents required to consummate the transactions contemplated
hereby or to continue the Business of any member of the Company Group or the
MIIX Group shall have been made or obtained.
7.1.3. No Injunction, etc. Consummation of the transactions
contemplated hereby shall not have been restrained, enjoined or otherwise
prohibited or made illegal by any applicable Law, including any order,
injunction, decree or judgment of any court or other Governmental Authority; and
no such Law that would have such an effect shall have been promulgated, entered,
issued or determined by any court or other Governmental Authority to be
applicable to this Agreement. No action or proceeding shall be pending or
threatened by any Governmental Authority or other Person on the Closing Date
before any court or other Governmental Authority to restrain, enjoin or
otherwise prevent the consummation of the transactions contemplated hereby, or
to recover any material damages or obtain other material relief as a result of
such transactions, or that otherwise relates to the application of any such Law.
7.1.4. HSR Act Notification. The notifications of MIIX Holding
and the Medical Society pursuant to the HSR Act, if any, shall have been made
and the applicable waiting period and any extensions thereof shall have expired
or been terminated.
7.2. Conditions to Obligations of MIIX Holding. The
obligations of MIIX Holding to consummate the transactions contemplated hereby
shall be subject to the fulfillment on or prior to the Closing Date of the
following additional conditions, which the Medical Society agrees to use
reasonable efforts to cause to be fulfilled:
7.2.1. Representations, Performance. (a) The representations
and warranties of the Medical Society contained in Section 2 (i) shall be true
and correct in all material respects at and as of the date hereof, and (ii)
shall be repeated and shall be true and correct in all material respects on and
as of the Closing Date with the same effect as though made on and as of the
Closing Date.
(b) The Medical Society shall have in all material respects
duly performed and complied with all agreements, covenants and conditions
required by this Agreement to be performed or complied with by the Medical
Society prior to or on the Closing Date.
(c) The Medical Society shall have delivered to MIIX Holding a
certificate, dated the Closing Date and signed by the Medical Society, to the
effect set forth above in this Section 7.2.1.
7.2.2. Resignation of Directors. All directors of any member
of the Company Group whose resignations shall have been requested by MIIX
Holding not less than five days prior to the Closing Date shall have submitted
their resignations or been removed from office effective as of the Closing Date.
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7.2.3. Corporate and Other Proceedings. All corporate,
partnership and other proceedings of the Medical Society in connection with the
transactions contemplated by this Agreement, and all documents and instruments
incident thereto, shall be satisfactory in form and substance to MIIX Holding
and its counsel, and MIIX Holding and its counsel shall have received all such
documents and instruments, or copies thereof, certified if requested, as may be
reasonably requested.
7.3. Conditions to Obligations of the Medical Society. The
obligation of the Medical Society to consummate the transactions contemplated
hereby shall be subject to the fulfillment, on or prior to the Closing Date, of
the following additional conditions, which MIIX Holding agrees to use reasonable
efforts to cause to be fulfilled:
7.3.1. Representations, Performance, etc. (a) The
representations and warranties of MIIX Holding contained in Section 3 (i) shall
be true and correct in all material respects at and as of the date specified
therein and (ii) shall be repeated and shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though made at
and as of such time.
(b) MIIX Holding shall have in all material respects duly
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed or complied with by it prior to or on the Closing
Date.
(c) MIIX Holding shall have delivered to the Medical Society a
certificate dated the Closing Date and signed by MIIX Holding's President or a
Vice President to the effect set forth above in this Section 7.3.1.
7.3.2. Corporate Proceedings. All corporate proceedings of
MIIX Holding in connection with the transactions contemplated by this Agreement
and all documents and instruments incident thereto, shall be satisfactory in
form and substance to the Medical Society and their counsel, and the Medical
Society and their counsel shall have received all such documents and
instruments, or copies thereof, certified if requested, as may be reasonably
requested.
8. Termination.
8.1. Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) By the written agreement of MIIX Holding and the Medical
Society; or
(b) By either MIIX Holding or the Medical Society by written
notice to the other party if any event, shall occur or exist that
otherwise shall have made it impossible to satisfy a condition
precedent to the non-terminating party's obligations to consummate the
transactions contemplated by this Agreement, unless the occurrence or
existence of such event, fact or condition shall be due to
the failure of the terminating party to perform or comply with any of
the agreements, covenants or conditions hereof to be performed or
complied with by such party prior to the Closing; or
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(c) By either MIIX Holding or the Medical Society by written
notice to the other party if the Closing does not occur on or prior to
December 31, 1998, unless such date is extended by the mutual written
consent of the Medical Society and MIIX Holding, provided, however,
that the right to terminate this Agreement pursuant to this clause (c)
shall not be available to any party whose failure to fulfil any
obligation under this Agreement, or whose breach of any representation
or warranty by it set forth herein, has been the cause of, or resulted
in, the failure to the Closing to have occurred on or before such date.
8.2. Effect of Termination. In the event of the termination of
this Agreement pursuant to the provisions of Section 8.1, this Agreement shall
become void and have no effect, without any liability to any Person in respect
hereof or of the transactions contemplated hereby on the part of any party
hereto, or any of its directors, officers, Representatives, stockholders or
Affiliates, except for any liability resulting from such party's breach of this
Agreement.
9. Survival of Representations and Warranties, etc. The
representations and warranties of the parties contained herein shall expire as
of the Closing Date.
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10. Definitions.
10.1. Terms Generally. The words "hereby", "herein", "hereof",
"hereunder" and words of similar import refer to this Agreement as a whole
(including any Exhibits and Schedules hereto) and not merely to the specific
section, paragraph or clause in which such word appears. All references herein
to Articles, Sections, Exhibits and Schedules shall be deemed references to
Articles and Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise require. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
The definitions given for terms in this Section 10 and elsewhere in this
Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
10.2. Certain Terms. Whenever used in this Agreement
(including in the Schedules), the following terms shall have the respective
meanings given to them below or in the Sections indicated below:
Acquisition Transaction: as defined in Section 4.2.
Affiliate: of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, the first Person, including but
not limited to a Subsidiary of the first Person, a Person of which the
first Person is a Subsidiary, or another Subsidiary of a Person of
which the first Person is also a Subsidiary. "Control" (including the
terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract or credit arrangement, as
trustee or executor, or otherwise.
Agreement: this Stock Purchase Agreement, including the
Exhibits and Schedules hereto.
Assets: as defined in Section 2.10.
Balance Sheet: with respect to the Company Group, the
consolidated balance sheet of the Company as of June 30, 1997 included
in the Company Group's Financial Statements; with respect to the MIIX
Holding Group, the balance sheet of MIIX as of June 30, 1997 included
in MIIX's Financial Statements.
Benefit Plan as defined in Section 2.15.
Business: the business and operations of the Company Group or
the MIIX Holding Group, as the case may be, as previously or currently
conducted or contemplated to be conducted.
Closing: as defined in Section 1.3.
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Closing Date: as defined in Section 1.3.
Code: the Internal Revenue Code of 1986, as amended.
Commissioner: as defined in Section 4.3.
Company: as defined in the first recital to this Agreement.
Company Group: the Company and its Subsidiaries.
Company Shares: as defined in the first recital to this
Agreement.
Consent: any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, certificate,
exemption, order, registration, declaration, filing, report or notice
of, with or to any Person.
Contract: all loan agreements, indentures, letters of credit
(including related letter of credit applications and reimbursement
obligations), mortgages, security agreements, pledge agreements, deeds
of trust, bonds, notes, guarantees, surety obligations, warranties,
licenses, franchises, permits, powers of attorney, purchase orders,
leases, and other agreements, contracts, instruments, obligations,
offers, commitments, arrangements and understandings, written or oral,
to which any member of the Company Group or the MIIX Holding Group, as
the case may be, is a party or by which it or any of its properties or
assets may be bound or affected, in each case as amended, supplemented,
waived or otherwise modified, that are of the types listed in clauses
(a) through (o) below:
(a) leases, subleases, licenses, occupancy agreements,
permits, franchises, insurance policies, agreements, Governmental
Approvals and other Contracts concerning or relating to the Real
Property;
(b) employment, consulting, severance, agency, bonus,
compensation, or other trusts, funds and other Contracts relating to or
for the benefit of current, future or former employees, officers,
directors, sales representatives, distributors, dealers, agents,
independent contractors or consultants (whether or not legally
binding), including sales agency or distributorship agreements or
arrangements for the sale of any of the products or services of any
member of the Company Group or the MIIX Holding Group, as the case may
be;
(c) loan agreements, indentures, letters of credit (including
related letter of credit applications and reimbursement obligations),
mortgages, security agreements, pledge agreements, deeds of trust,
bonds, notes, guarantees, instruments and other contracts relating to
the borrowing of money or obtaining of or extension of credit;
(d) licenses, licensing arrangements and other Contracts
providing in whole or in part for the use of, or limiting the use of,
any Intellectual Property;
(e) finder's Contracts;
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(f) joint venture, partnership and similar Contracts involving
a sharing of profits or expenses;
(g) stock purchase agreements, asset purchase agreements and
other acquisition or divestiture agreements, including but not limited
to any agreements relating to the acquisition, lease or disposition of
any member of the Company Group or the MIIX Holding Group, as the case
may be, any material assets or properties (other than sales of
inventory made in the ordinary course of business), any business, or
any capital stock of or other interest in any Person by the Medical
Society or any member of the Company Group or MIIX Holding or any
member of the MIIX Holding Group, as the case may be, within the last
ten years, or involving continuing indemnity or other obligations;
(h) Contracts prohibiting or materially restricting the
ability of the Company to conduct the business of the Company, to
engage in any business or operate in any geographical area or to
compete with any Person;
(i) material orders and other Contracts for the purchase or
sale of materials, supplies, products or services;
(j) orders and other Contracts with or for the direct or
indirect benefit of the Medical Society or any Affiliate of the Medical
Society (other than another member of the Company Group) (whether or
not legally binding);
(k) orders and other Contracts with or for the direct or
indirect benefit of any member of the MIIX Holding Group or any
Affiliate of the MIIX Holding Group (other than another member of the
MIIX Holding Group) (whether or not legally binding);
(l) Contracts providing for future payments that are
conditioned, in whole or in part, on a change in control;
(m) powers of attorney, except routine powers of attorney
relating to representation before governmental agencies or given in
connection with qualification to conduct business in another
jurisdiction;
(n) Contracts not entered into in the ordinary course of
business;
(o) any Contract or series of related Contracts that are or
would be material; and
(p) Contracts that are or will be material to the business,
operations, results of operations, condition (financial or otherwise),
assets or properties of any member of the Company Group or the MIIX
Holding Group, as the case may be.
Financial Statements: (i) with respect to the Company Group,
the consolidated financial statements of the Company as at and for the
six-month period ended June 30, 1997 and the years ended December 31,
1996, 1995 and 1994, together with reports on such year-end statements
by Ernst & Young LLP,
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the Company's independent public accountants, including in each case a
balance sheet, a statement of income, a statement of stockholders'
equity and a statement of cash flows, and accompanying notes; (ii) with
respect to the MIIX Holding Group, the consolidated financial
statements of MIIX as at and for the six-month period ended June 30,
1997 and the years ended December 31, 1996, 1995 and 1994, together
with reports on such year-end statements by Ernst & Young LLP, MIIX's
independent public accountants, including in each case a balance sheet,
a statement of income, a statement of stockholders' equity and a
statement of cash flows, and accompanying notes.
GAAP: as defined in Section 2.6(b).
Governmental Approval: any Consent of, with or to any
Governmental Authority.
Governmental Authority: any nation or government, any state or
other political subdivision thereof; any entity, authority or body
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including,
without limitation, any government authority, agency, department,
board, commission or instrumentality of the United States, any State of
the United States or any political subdivision thereof; any court,
tribunal or arbitrator; and any self-regulatory organization.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
Indebtedness: as applied to any Person, means, without
duplication, (a) all indebtedness for borrowed money, (b) all
obligations evidenced by a note, bond, debenture, letter of credit,
draft or similar instrument, (c) that portion of obligations with
respect to capital leases that is properly classified as a liability on
a balance sheet in conformity with GAAP, (d) notes payable and drafts
accepted representing extensions of credit, (e) any obligation owed for
all or any part of the deferred purchase price of property or services,
which purchase price is due more than six months from the date of
incurrence of the obligation in respect thereof, and (f) all
indebtedness and obligations of the types described in the foregoing
clauses (a) through (e) to the extent secured by any Lien on any
property or asset owned or held by that Person regardless of whether
the indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person.
Insurance License: as defined in Section 2.16.
Law: all applicable provisions of all (a) constitutions,
treaties, statutes, laws (including the common law), codes, rules,
regulations, ordinances or orders of any Governmental Authority, (b)
Governmental Approvals and (c) orders, decisions, injunctions,
judgments, awards and decrees of or agreements with any Governmental
Authority.
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Lien: any mortgage, pledge, deed of trust, hypothecation,
right of others, claim, security interest, encumbrance, burden, title
defect, title retention agreement, lease, sublease, license, occupancy
agreement, easement, covenant, condition, encroachment, voting trust
agreement, interest, option, right of first offer, negotiation or
refusal, proxy, lien, charge or other restrictions or limitations of
any nature whatsoever, including but not limited to such Liens as may
arise under any Contract.
Litigation: any action, cause of action, claim, demand, suit,
proceeding, citation, summons, subpoena, inquiry or investigation of
any nature, civil, criminal, regulatory or otherwise, in law or in
equity, pending or threatened, by or before any court, tribunal,
arbitrator or other Governmental Authority.
Material Adverse Effect: any (a) event, occurrence, fact,
condition, change, development or effect that is materially adverse to
the business, operations, prospects, results of operations, condition
(financial or otherwise), properties (including intangible properties),
assets (including intangible assets) or liabilities of any member of
the Company Group or the MIIX Holding Group or (b) material impairment
of the ability of the Medical Society or MIIX Holding to perform its
obligations hereunder.
MIIX: as defined in the second recital to this Agreement.
MIIX Benefit Plan as defined in Section 3.15.
MIIX Holding: as defined in the first paragraph of this
Agreement.
MIIX Holding Group: Prior to the Closing Date, MIIX Holding
and its Subsidiaries and MIIX; on and after the Closing Date, MIIX
Holding and its Subsidiaries.
MIIX Holding Shares: as defined in Section 1.1.
MIIX Holding Share Price: as defined in Section 1.2.
MIIX Holding Share Amount: as defined Section 1.1.
MIIX Plan of Reorganization: as defined in the second recital
to this Agreement.
MIIX Shares: as defined in the second recital to this
Agreement.
material respects: the phrase "all material respects" shall
mean: all respects (in the case of any representation or warranty
containing any materiality qualification), and all material respects
(in the case of any representation or warranty without any materiality
qualification).
New MIIX: as defined in the second recital to this Agreement.
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Offer: as defined in Section 11.3.
ordinary course of business: the usual, regular and ordinary
course of business consistent with the past custom and practice
thereof.
Organizational Documents: as to any Person, its certificate or
articles of incorporation, by-laws and other organizational documents.
Permitted Liens: (a) Liens reserved against in the Balance
Sheet, to the extent so reserved, (b) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained in
accordance with GAAP, or (c) those Liens that individually and in the
aggregate with all other Permitted Liens, do not and will not
materially detract from the value of any property or assets, or
materially interfere with the use thereof as currently used or
contemplated to be used, or otherwise have or result in a Material
Adverse Effect.
Person: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Authority or
other entity.
Purchase Price: as defined in Section 1.1.
Representatives: as to any Person, its accountants, counsel,
consultants (including actuarial, environmental and industry
consultants), officers, directors, employees, agents and other advisors
and representatives.
Rights: as defined in Section 4.6.
Medical Society: as defined in the introductory paragraph of
this Agreement.
Stockholder's Notice: as defined in Section 11.3.
Subsidiaries: each corporation or other Person in which a
Person owns or controls, directly or indirectly, capital stock or other
equity interests representing more than 50% of the outstanding voting
stock or other equity interests.
Tax: any federal, state, local or foreign income, alternative,
minimum, accumulated earnings, personal holding company, franchise,
capital stock, profits, windfall profits, gross receipts, sales, use,
value added, transfer, registration, stamp, premium, excise, customs
duties, severance, environmental (including taxes under section 59A of
the Code), real property, personal property, ad valorem, occupancy,
license, occupation, employment, payroll, social security, disability,
unemployment, workers' compensation, withholding, estimated or other
similar tax, duty, fee, assessment or other governmental charge or
deficiencies thereof (including all interest and penalties thereon and
additions thereto).
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Tax Returns: all federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and
information returns and any amendments to any of the foregoing relating
to Taxes.
11. Post-Closing Covenants of the Medical Society.
11.1. Use of Seller's Name. In connection with this agreement,
for a period of ten years from the date hereof, (i) New MIIX and its affiliates
shall have the sole right to use the Medical Society's name for the purpose of
promoting and marketing the products and services offered by MIIX Holding Group;
and (ii) neither the Medical Society nor any of its affiliates shall affiliate
with or endorse any property-casualty or disability insurer other than members
of the MIIX Holding Group, nor compete with members or affiliates of the MIIX
Holding Group in any other manner. The parties agree that part of the Purchase
Price shall be deemed a royalty payment in exchange for such rights.
11.2. Sale of Medical Society Shares. For a period of ten
years from the date hereof, neither the Medical Society or any of its affiliates
shall transfer by direct or indirect transfer, sale, assignment, pledge,
encumbrance, hypothecation or other disposition, whether with or without
consideration or whether voluntarily or involuntarily or by operation of law,
any interest in any of MIIX Holding Shares received as consideration for the
Company Shares pursuant to this Agreement, except transfers to MIIX Holding or
its subsidiaries and Affiliates at the then-existing fair market value, unless
the Medical Society receives the consent of the Board of Directors of MIIX
Holding, which consent may be conditioned on compliance with any conditions
proposed by the Board of Directors of MIIX Holding.
11.3. Right of First Refusal (a) If at any time MIIX Holding
Shares remain issued and outstanding the Medical Society or any of its
affiliates desires to dispose of any or all of its MIIX Holding Shares, (i) such
transfer must be pursuant to a bona fide written offer received from a proposed
third party purchaser (the "Offer"). The Medical Society shall give written
notice (the "Stockholder's Notice") to MIIX Holding not fewer than 30 days
before the date of the proposed disposition, which notice shall specify the
terms and conditions of the Offer and the identity of the offeror. Pursuant to
paragraphs (b) and (c) below, MIIX Holding shall have the option, but not the
obligation, to purchase all, but not less than all, of the MIIX Holding Shares
for which the Offer was made at the price and upon the terms and conditions set
forth in the Offer. Such option shall be exercisable by MIIX Holding by giving
notice to the Medical Society within the time period provided in paragraph (b)
below.
(b) MIIX Holding shall have the option, but not the
obligation, by providing written notice to the Medical Society within 20
business days following the receipt of the Stockholder's Notice, to purchase
all, but not less than all, of the MIIX Holding Shares for which the Offer was
made at the price and upon the terms and conditions set forth in the Offer.
(c) If, for any reason, MIIX Holding fails to exercise the
option provided for in paragraph (b) hereof within the 20 business day period
described in paragraph (b) hereof, its option shall expire, and the Medical
Society shall have the right
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for a period of 40 days following the expiration of such option, to sell all of
the MIIX Holding Shares subject to the Offer; provided, that such sale may only
be to the original offeror and pursuant to the terms and conditions of the
Offer. If, at the end of 60 days following the receipt of the Stockholder's
Notice, such MIIX Holding Shares remain unsold pursuant to the provisions of
this paragraph (c), such MIIX Holding Shares shall become subject once again to
the provisions and restrictions hereof.
(d) The right of first refusal set forth in this Section 11.3
shall apply (i) to the MIIX Holding Shares received by the Medical Society as
consideration for the Company Shares pursuant to this Agreement beginning at
such time as the restrictions set forth in Section 11.2 cease to apply to such
shares, and (ii) at all times to any MIIX Holding Shares other than the MIIX
Holding Shares received as consideration for the Company Shares pursuant to this
Agreement held by the Medical Society or any of its affiliates.
12. Miscellaneous.
12.1. Expenses. (a) Except as set forth below in this Section
12.1 or as otherwise specifically provided for in this Agreement, the Medical
Society, on the one hand, and MIIX Holding, on the other hand, shall bear their
respective expenses, costs and fees (including attorneys', auditors' and
financing commitment fees) in connection with the transactions contemplated
hereby, including the preparation, execution and delivery of this Agreement and
compliance herewith, whether or not the transactions contemplated hereby shall
be consummated.
(b) Notwithstanding any other provision of this Agreement,
MIIX Holding shall be responsible for, and the Medical Society shall not bear,
any Taxes that relate to an election or deemed election pursuant to section 338
of the Code or any similar provision under any state or local Tax law with
respect to the purchase and sale of the Company Shares pursuant to this
Agreement.
(c) The Medical Society shall be responsible for, and neither
MIIX Holding nor the Company Group shall bear, any Taxes that relate to the
purchase and sale of the Company Shares pursuant to this Agreement (including,
without limitation, applicable transfer Taxes, gains Taxes and Income Taxes
resulting directly from such sale of the Company Shares), except as may
specifically be provided to the contrary in this Agreement.
12.2. Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
sent by next-day or overnight mail or delivery or (d) sent by telecopy or
telegram, as follows:
35
<PAGE> 151
(i) if to MIIX Holding,
The MIIX Group, Inc.
Two Princess Road
Lawrenceville, New Jersey 08648
Fax: (609) 896-2910
Telephone: (800) 234-6449, Ext. 1166
Attention: General Counsel
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Telephone: (212) 909-6000
Attention: Thomas M. Kelly, Esq.
(ii) if to the Medical Society,
Medical Society of New Jersey
Two Princess Road
Lawrenceville, New Jersey 08648-2302
Fax: (609) 896-6074
Telephone: (609) 896-1368
Attention: Vincent A. Maressa
Executive Director/General Counsel
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other
communications shall be deemed to have been received (w) if by personal delivery
on the day after such delivery, (x) if by certified or registered mail, on the
seventh business day after the mailing thereof, (y) if by next-day or overnight
mail or delivery, on the day delivered, (z) if by telecopy or telegram, on the
next day following the day on which such telecopy or telegram was sent, provided
that a copy is also sent by certified or registered mail.
12.3. Governing Law, etc. THIS AGREEMENT SHALL BE GOVERNED IN
ALL RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE
INTERNAL LAWS OF THE STATE OF NEW JERSEY, WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS RULES THEREOF. Each of MIIX Holding and the Medical Society irrevocably
agrees that all claims in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby and thereby, or with
respect to any such action or proceeding, shall be heard and determined in such
a New Jersey State or Federal court, and that such jurisdiction of such courts
with respect thereto shall be exclusive, except solely to the extent that all
such courts shall lawfully decline to exercise such jurisdiction. Each of
36
<PAGE> 152
MIIX Holding and the Medical Society hereby waives, and agrees not to assert, as
a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document or in respect of any such
transaction, that it is not subject to such jurisdiction. Each of MIIX Holding
and the Medical Society hereby waives, and agrees not to assert, to the maximum
extent permitted by law, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document or in respect of
any such transaction, that such action, suit or proceeding may not be brought or
is not maintainable in such courts or that the venue thereof may not be
appropriate or that this Agreement or any such document may not be enforced in
or by such courts. MIIX Holding and the Medical Society hereby consent to and
grant any such court jurisdiction over the person of such parties and over the
subject matter of any such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 12.2 or in such other manner as may be permitted by law, shall be
valid and sufficient service thereof.
12.4. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
12.5. Assignment. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto, and any purported assignment or other transfer without
such consent shall be void and unenforceable; provided, that MIIX Holding may
assign this Agreement to any Subsidiary of MIIX Holding, or to any lender to
MIIX Holding or any Subsidiary or Affiliate thereof as security for obligations
to such lender, and provided, further, that no assignment to any such lender
shall in any way affect MIIX Holding's obligations or liabilities under this
Agreement.
12.6. No Third Party Beneficiaries. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
12.7. Amendment; Waivers, etc. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and none is exclusive of any other, or of any rights or
remedies that any party may otherwise have at law or in equity. The rights and
remedies of any party based upon, arising out of or otherwise in respect of any
inaccuracy or breach of any representation, warranty, covenant or agreement or
failure to fulfill any condition shall in no way be limited by the fact that the
act, omission, occurrence or other state of facts upon which any claim of any
such inaccuracy or breach
37
<PAGE> 153
is based may also be the subject matter of any other representation, warranty,
covenant or agreement as to which there is no inaccuracy or breach. The
representations and warranties of the Medical Society shall not be affected or
deemed waived by reason of any investigation made by or on behalf of MIIX
Holding (including but not limited to by any of its advisors, consultants or
representatives) or by reason of the fact that MIIX Holding or any of such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
12.8. Entire Agreement. This Agreement (when executed and
delivered), constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
12.9. Severability. If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provision in question invalid, inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever.
12.10. Headings. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
12.11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
38
<PAGE> 154
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
The Medical Society of the State of New Jersey
By________________________
Name:
Title:
The MIIX Group, Incorporated
By_______________________
Name:
Title:
39
<PAGE> 1
EXHIBIT 3.2
THE MIIX GROUP, INCORPORATED
BY-LAWS
As adopted on October 15, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ARTICLE I STOCKHOLDERS..................................................................................1
Section 1.01. Annual Meetings...............................................................1
Section 1.02. Special Meetings..............................................................1
Section 1.03. Notice of Meetings; Waiver....................................................1
Section 1.04. Quorum........................................................................2
Section 1.05. Voting........................................................................2
Section 1.06. Voting by Ballot..............................................................2
Section 1.07. Adjournment...................................................................2
Section 1.08. Proxies.......................................................................2
Section 1.09. Notice of Stockholder Business and Nominations................................4
Section 1.10. Organization; Procedure.......................................................6
Section 1.11. Inspectors of Elections.......................................................6
Section 1.12. Opening and Closing of Polls..................................................7
Section 1.13. No Stockholder Action by Written Consent......................................7
ARTICLE II BOARD OF DIRECTORS...........................................................................8
Section 2.01. General Powers................................................................8
Section 2.02. Number and Term of Office.....................................................8
Section 2.03. Election of Directors.........................................................8
Section 2.04. Annual and Regular Meetings...................................................8
Section 2.05. Special Meetings; Notice......................................................9
Section 2.06. Quorum; Voting................................................................9
Section 2.07. Adjournment...................................................................9
Section 2.08. Action Without a Meeting......................................................9
Section 2.09. Regulations; Manner of Acting.................................................9
Section 2.10. Action by Telephonic Communications..........................................10
Section 2.11. Resignations.................................................................10
Section 2.12. Removal of Directors.........................................................10
Section 2.13. Vacancies and Newly Created Directorships....................................10
Section 2.14. Compensation.................................................................10
Section 2.15. Reliance on Accounts and Reports, etc........................................10
ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES...................................................11
Section 3.01. Committees of Directors......................................................11
Section 3.02. Other Committees.............................................................11
Section 3.03. Powers.......................................................................12
Section 3.04. Proceedings..................................................................12
Section 3.05. Quorum and Manner of Acting..................................................13
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</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 3.06. Action by Telephonic Communications..........................................12
Section 3.07. Absent or Disqualified Members...............................................12
Section 3.08. Resignations.................................................................13
Section 3.09. Removal......................................................................13
Section 3.10. Vacancies....................................................................13
ARTICLE IV OFFICERS....................................................................................14
Section 4.01. Number.......................................................................14
Section 4.02. Election.....................................................................14
Section 4.03. Compensation.................................................................14
Section 4.04. Removal and Resignation; Vacancies...........................................14
Section 4.05. Authority and Duties of Officers.............................................14
Section 4.06. Chairman of the Board........................................................14
Section 4.07. The President................................................................15
Section 4.08. Vice Presidents..............................................................15
Section 4.09. The Secretary................................................................15
Section 4.10. Treasurer....................................................................16
Section 4.11. Additional Officers..........................................................16
Section 4.12. Security.....................................................................16
ARTICLE V CAPITAL STOCK................................................................................16
Section 5.01. Certificates of Stock, Uncertificated Shares.................................16
Section 5.02. Signatures; Facsimile........................................................16
Section 5.03. Lost, Stolen or Destroyed Certificates.......................................17
Section 5.04. Transfer of Stock............................................................17
Section 5.05. Record Date..................................................................17
Section 5.06. Registered Stockholders......................................................17
Section 5.07. Transfer Agent and Registrar.................................................18
ARTICLE VI INDEMNIFICATION..............................................................................18
Section 6.01. Nature of Indemnity..........................................................18
Section 6.02. Successful Defense...........................................................19
Section 6.03. Determination that Indemnification is Proper.................................19
Section 6.04. Advance Payment of Expenses..................................................19
Section 6.05. Procedure for Indemnification of Directors and Officers......................19
Section 6.06. Survival; Preservation of Other Rights.......................................20
Section 6.07. Insurance....................................................................20
Section 6.08. Severability.................................................................20
ARTICLE VII OFFICES....................................................................................21
Section 7.01. Registered Office............................................................21
Section 7.02. Other Offices................................................................21
ARTICLE VIII GENERAL PROVISIONS........................................................................21
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</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 8.01. Dividends....................................................................21
Section 8.02. Reserves.....................................................................21
Section 8.03 Execution of Instruments.....................................................21
Section 8.04. Corporate Indebtedness.......................................................22
Section 8.05. Deposits.....................................................................22
Section 8.06. Checks.......................................................................22
Section 8.07. Sale, Transfer, etc. of Securities...........................................22
Section 8.08. Voting as Stockholder........................................................22
Section 8.09. Fiscal Year..................................................................23
Section 8.10. Seal.........................................................................23
Section 8.11. Books and Records; Inspection................................................23
ARTICLE IX AMENDMENT OF BY-LAWS........................................................................23
Section 9.01. Amendment....................................................................23
ARTICLE X CONSTRUCTION.................................................................................23
Section 10.01. Construction.................................................................23
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</TABLE>
<PAGE> 5
THE MIIX GROUP, INCORPORATED
BY-LAWS
As adopted on October 15, 1997
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the stockholders
of the Corporation for the election of Directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, date and hour as designated by the Board of Directors and set forth in
the notice or waiver of notice of the meeting. [Sections 211(a), (b).](1)
Section 1.02. Special Meetings. Special meetings of the stockholders
may be called at any time by the Chief Executive Officer (or, in the event of
his or her absence or disability, by any Vice President), or by the Chairman or
Vice Chairman of the Board of Directors. A special meeting shall be called by
the Chief Executive Officer (or, in the event of his or her absence or
disability, by any Vice President), or by the Chairman or Vice Chairman of the
Board of Directors pursuant to a resolution approved by a majority of the entire
Board of Directors. Such special meetings of the stockholders shall be held at
such places, within or without the State of Delaware, as shall be specified in
the respective notices or waivers of notice thereof. Except as expressly
provided in this By-law, any power of the stockholders of the Corporation to
call a special meeting is specifically denied. [Section 211(d).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the record of stockholders of the Corporation, or,
if he or she shall have filed with the Secretary of the Corporation a written
request that notices to him or her be mailed to some other address, then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.
- --------
(1) Section references in brackets refer to sections of the Delaware General
Corporation Law.
<PAGE> 6
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of stockholders
shall constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened. [Sections 222, 229.]
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of one-third of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-laws, a
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation at the close of business on the day next preceding
the day on which notice of the meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of
Incorporation or by these By-laws, the vote of a majority of the shares
represented in person or by proxy at any meeting at which a quorum is present
shall be sufficient for the transaction of any business at such meeting.
[Sections 212(a), 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
taken by written ballot unless otherwise required by law. Any vote which need
not be taken by ballot may be conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting of
the stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.05 of these By-laws, a notice
of the adjourned meeting, conforming to the requirements of Section 1.03 of
these By-laws, shall be given to each stockholder of record entitled to vote at
such meeting. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting. [Section 222(c).]
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<PAGE> 7
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting
of the stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person or persons to vote at any
such meeting and express such consent or dissent for him or her by proxy. A
stockholder may authorize a valid proxy by executing a written instrument signed
by such stockholder, or by causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature, or by transmitting or authorizing the transmission of a telegram,
cablegram or other means of electronic transmission to the person designated as
the holder of the proxy, a proxy solicitation firm or a like authorized agent.
No such proxy shall be voted or acted upon after the expiration of three years
from the date of such proxy, unless such proxy provides for a longer period.
Every proxy shall be revocable at the pleasure of the stockholder executing it,
except in those cases where applicable law provides that a proxy shall be
irrevocable. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or by filing another duly executed proxy bearing a later date
with the Secretary. Proxies by telegram, cablegram or other electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of a writing or transmission
created pursuant to this section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. [Sections 212(b), (c), (d), (e).]
Section 1.09. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) by or at the direction of the Board of Directors or the
Chairman of the Board, or (b) by any stockholder of the Corporation who is
entitled to vote at the meeting, who complies with the notice procedures set
forth in clauses (2) and (3) of this paragraph and who was a stockholder of
record at the time such notice is delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder, pursuant to clause (b) of
paragraph (A)(1) of this By-law, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not less than ninety
days nor more than one hundred and twenty days prior to the first
anniversary of the preceding year's annual meeting; provided, that if
the date of the annual meeting is advanced by more than twenty days or
delayed by more than seventy days from such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than one
hundred and twenty days prior to such annual meeting and not later than
the close of business on the later of
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<PAGE> 8
the ninetieth day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such
meeting is first made. For purposes of determining whether a
stockholder's notice shall have been delivered in a timely manner for
the annual meeting of stockholders, the "first anniversary of the
preceding year's annual meeting" shall be deemed to be October 15,
1997. In no event shall the adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as
a Director all information relating to such person that is required to
be disclosed in solicitations of proxies for election of directors, or
is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14a-11 thereunder, including such person's written consent to
being named in the proxy statement as a nominee and to serving as a
Director if elected; (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in
such business of such stockholder and of any beneficial owner on whose
behalf the proposal is made; and (c) as to the stockholder giving the
notice and any beneficial owner on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they
appear on the Corporation's books, and of such beneficial owner and
(ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-law to the contrary, in the event that the
number of Directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all
of the nominees for Director or specifying the size of the increased
Board of Directors made by the Corporation at least one hundred days
prior to the first anniversary of the preceding year's annual meeting,
a stockholder's notice under this paragraph shall also be considered
timely, but only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close
of business on the tenth day following the day on which such public
announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business as shall have
been brought before the special meeting of the stockholders pursuant to the
Corporation's notice of meeting pursuant to Section 1.03 of these By-laws shall
be conducted at such meeting. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which Directors
are to be elected pursuant to the Corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-law and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. Nominations
by stockholders of persons for election to the Board of Directors may
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<PAGE> 9
be made at such special meeting of stockholders if the stockholder's notice as
required by paragraph (A)(2) of this Bylaw shall be delivered to the Secretary
at the principal executive offices of the Corporation not earlier than the one
hundred and twentieth day prior to such special meeting and not later than the
close of business on the later of the ninetieth day prior to such special
meeting or the tenth day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting. In no event shall the
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(C) General. (1) Only persons who are nominated in accordance with the
procedures set forth in this By-law shall be eligible to serve as Directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this By-law and, if any proposed nomination or business is not in compliance
with this By-law, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this By-law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14, or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this By-law. Nothing in this By-law shall be
deemed to affect any rights (a) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act, or (b) of the holders of any series of
Preferred Stock, if any, to elect Directors if so provided under any
applicable Preferred Stock Certificate of Designation (as defined in
the Certificate of Incorporation).
Section 1.10. Organization; Procedure. At every meeting of stockholders
the presiding officer shall be the Chairman of the Board or, in the event of his
or her absence or disability, the Vice Chairman of the Board. The Secretary, or
in the event of his or her absence or disability, the Assistant Secretary, if
any, or if there be no Assistant Secretary, in the absence of the Secretary, an
appointee of the presiding officer, shall act as Secretary of the meeting. The
order of business and all other matters of procedure at every meeting of
stockholders may be determined by such presiding officer.
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<PAGE> 10
Section 1.11. Inspectors of Elections. Preceding any meeting of the
stockholders, the Board of Directors shall appoint one or more persons to act as
Inspectors of Elections, and may designate one or more alternate inspectors. In
the event no inspector or alternate is able to act, the person presiding at the
meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of the duties of an inspector,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspector shall:
(a) ascertain the number of shares outstanding and the voting power of
each;
(b) determine the shares represented at a meeting and the validity of
proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors; and
(e) certify his or her determination of the number of shares
represented at the meeting, and his or her count of all votes and ballots.
The inspector may appoint or retain other persons or entities to assist
in the performance of the duties of inspector.
When determining the shares represented and the validity of proxies and
ballots, the inspector shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 1.08 of these By-laws, ballots and the regular books and records of
the Corporation. The inspector may consider other reliable information for the
limited purpose of reconciling proxies and ballots submitted by or on behalf of
banks, brokers or their nominees or a similar person which represent more votes
than the holder of a proxy is authorized by the record owner to cast or more
votes than the stockholder holds of record. If the inspector considers other
reliable information as outlined in this section, the inspector, at the time of
his or her certification pursuant to (e) of this section, shall specify the
precise information considered, the person or persons from whom the information
was obtained, when this information was obtained, the means by which the
information was obtained, and the basis for the inspector's belief that such
information is accurate and reliable. [Sections 231(a), (b), (d).]
Section 1.12. Opening and Closing of Polls. The date and time for the
opening and the closing of the polls for each matter to be voted upon at a
stockholder meeting shall be announced at the meeting. The inspector of the
election shall be prohibited from accepting any ballots, proxies or votes or any
revocations thereof or changes thereto after the closing of the polls, unless
the Court of Chancery upon application by a stockholder shall determine
otherwise. [Section 231(c).]
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Section 1.13. No Stockholder Action by Written Consent. Effective as of
the time the Common Stock shall be registered pursuant to the provisions of the
Exchange Act, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of the stockholders of the Corporation, and the ability of the stockholders to
consent in writing to the taking of any action is specifically denied.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by
law, by the Certificate of Incorporation or by these By-laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation. [Section 141(a).]
Section 2.02. Number and Term of Office. Subject to the rights of the
holders of any series of Preferred Stock, if any, the number of Directors shall
be fixed from time to time exclusively pursuant to a resolution adopted by a
majority of the entire Board, but shall consist of not less than nine (9)
Directors nor more than thirty-five (35) Directors. The Directors, other than
those who may be elected by the holders of any series of Preferred Stock, if
any, shall be divided into three classes, designated Classes I, II and III,
which shall be as nearly equal in number as possible. Directors of Class I shall
be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in 1999, Directors of Class II shall be elected to hold
office for a term expiring at the annual meeting of stockholders to be held in
2000 and Directors of Class III shall be elected to hold office for a term
expiring at the annual meeting of stockholders to be held in 2001. 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. Each Director (whenever elected) shall hold office until his or her
successor has been duly elected and qualified, or until his or her earlier
death, resignation or removal, except that each Director who attains retirement
age as determined by the Board of Directors during the term for which elected
shall hold office only until the next annual meeting of stockholders following
attainment of retirement age, at which time a person may be elected as Director
to complete the unexpired term of office, if any, for which the Director
attaining retirement age had been elected. [Section 141(b).]
Section 2.03. Election of Directors. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-laws, the Directors shall be elected at each
annual meeting of the stockholders. If the annual meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
stockholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election. [Sections 211(b), (c), 216.]
Section 2.04. Annual and Regular Meetings. The annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may
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come before the meeting shall be held as soon as possible following adjournment
of the annual meeting of the stockholders at the place of such annual meeting of
the stockholders. Notice of such annual meeting of the Board of Directors need
not be given. The Board of Directors from time to time may by resolution provide
for the holding of regular meetings and fix the place (which may be within or
without the State of Delaware) and the date and hour of such meetings. Notice of
regular meetings need not be given, provided, however, that if the Board of
Directors shall fix or change the time or place of any regular meeting, notice
of such action shall be mailed promptly, or sent by telephone, including a voice
messaging system or other system or technology designed to record and
communicate messages, telegraph, facsimile, electronic mail or other electronic
means to each Director who shall not have been present at the meeting at which
such action was taken, addressed to him or her at his or her usual place of
business, or shall be delivered to him or her personally. Notice of such action
need not be given to any Director who attends the first regular meeting after
such action is taken without protesting the lack of notice to him or her, prior
to or at the commencement of such meeting, or to any Director who submits a
signed waiver of notice, whether before or after such meeting. [Section 141(g).]
Section 2.05. Special Meetings; Notice. Special meetings of the Board
of Directors shall be held whenever called by the Chief Executive Officer (or,
in the event of his or her absence or disability, by any Vice President), or by
the Chairman or Vice Chairman of the Board of Directors at such place (within or
without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Special meetings of
the Board of Directors may be called on twenty-four hours' notice, if notice is
given to each Director personally or by telephone, including a voice messaging
system or other system or technology designed to record and communicate
messages, telegraph, facsimile, electronic mail or other electronic means, or on
five days' notice, if notice is mailed to each Director, addressed to him or her
at his or her usual place of business. Notice of any special meeting need not be
given to any Director who attends such meeting without protesting the lack of
notice to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting, and any business may be transacted thereat. [Sections 141(g), 229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total number of Directors then in
office shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present in
person at any meeting at which a quorum is present shall be the act of the Board
of Directors. [Section 141(b).]
Section 2.07. Adjournment. A majority of the Directors present, whether
or not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the time and place of the adjourned meeting are not announced at the time of
adjournment, in which case notice conforming to the requirements of Section 2.05
of these By-laws shall be given to each Director.
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Section 2.08. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors. [Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent consistent
with applicable law, the Certificate of Incorporation and these By-laws, the
Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the Corporation as the Board of Directors may deem
appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the Board
of Directors may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting. [Section 141(i).]
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
Chief Executive Officer or the Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery. [Section 141(b).]
Section 2.12. Removal of Directors. Subject to the rights of the
holders of any series of Preferred Stock, if any, to elect additional Directors
under specified circumstances, any Director may be removed at any time, but only
for cause, upon the affirmative vote of the holders of a majority of the
combined voting power of the then outstanding stock of the Corporation entitled
to vote generally in the election of Directors. Any vacancy in the Board of
Directors caused by any such removal may be filled at such meeting by the
stockholders entitled to vote for the election of the Director so removed. If
such stockholders do not fill such vacancy at such meeting, such vacancy may be
filled in the manner provided in Section 2.13 of these By-laws. [Section
141(k).]
Section 2.13. Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any series of Preferred Stock, if any, to elect
additional Directors under specified circumstances, and except as provided in
Section 2.12, if any vacancies occur in the Board of Directors, by reason of
death, resignation, removal or otherwise, or if the authorized number of
Directors shall be increased, the Directors then in office shall continue to
act, and such vacancies and newly created Directorships may be filled by a
majority of the Directors then in office, although less than a quorum. A
Director elected to fill a vacancy or a newly created Directorship shall hold
office until his or her successor has been elected and qualified or until his or
her earlier death, resignation or removal. [Section 223.]
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Section 2.14. Compensation. The amount, if any, which each Director
shall be entitled to receive as compensation for his or her services as such
shall be fixed from time to time by resolution of the Board of Directors.
[Section 141(h).]
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
member of any committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation. [Section 141(e).]
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. Committees of Directors. The Board of Directors shall
establish an Executive Committee, a Nominating Committee and an Audit Committee.
Such committees shall have the following complement and responsibilities in
addition to any the Board of Directors may by resolution establish:
(A) Executive Committee. The Executive Committee of the Board of
Directors shall consist of four members who shall serve for a term of one year
or until their successors are appointed. The members of the Executive Committee
shall be Directors of the Corporation and shall be appointed to the Executive
Committee by the Chairman of the Board, provided such appointments are confirmed
by a majority of the entire Board of Directors. The Executive Committee shall
exercise the full power of the Board of Directors between meetings of the Board,
subject to the limitations set forth in Section 3.03 below.
(B) Nominating Committee. The Nominating Committee shall consist of
four members. Each member of the Nominating Committee shall serve a one-year
term. All members shall be appointed by the Chairman of the Board of Directors
or the Vice-Chairman, or such other officer as the Board of Directors may
designate from time to time, provided such appointments are confirmed by a
majority of the entire Board of Directors. The Nominating Committee shall
nominate candidates for membership of the Board of Directors and shall cause the
names of its nominees to be mailed to all shareholders not less than thirty days
before the annual meeting at which the election shall take place. A stockholder
may nominate a candidate for election to the Board of Directors provided the
nominating stockholder gives written notice of his or her intention to nominate
a Director and the name of the nominee not less than thirty days before the
annual meeting at which the election shall take place.
(C) Audit Committee. The Audit Committee shall consist of three
members, at least two of whom shall be Directors appointed by the Chairman of
the Board of Directors, provided
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such appointments are confirmed by a majority of the entire Board of Directors
and each of whom shall serve one-year terms. No member of the Audit Committee
shall be an employee of the Corporation. The Audit Committee shall meet
periodically with the Corporation's management, internal auditors and
independent public accountants to discuss the scope of the annual audit,
internal control, internal auditing and financial reporting matters. The
Corporation's independent public accountants and internal auditors shall have
direct access to the Audit Committee.
Section 3.02. Other Committees. The Board of Directors may designate
one or more other committees, each such committee to consist of such number of
Directors as from time to time may be fixed by the Board of Directors. The Board
of Directors may designate one or more Directors as alternate members of any
such committee, who may replace any absent or disqualified member or members at
any meeting of such committee. Thereafter, members (and alternate members, if
any) of each such committee may be designated at the annual meeting of the Board
of Directors. Any such committee may be abolished or re-designated from time to
time by the Board of Directors. Each member (and each alternate member) of any
such committee (whether designated at an annual meeting of the Board of
Directors or to fill a vacancy or otherwise) shall hold office until his or her
successor shall have been designated or until he or she shall cease to be a
Director, or until his or her earlier death, resignation or removal. [Section
141(c).]
Section 3.03. Powers. During the intervals between the meetings of the
Board of Directors, the executive committee, except as otherwise provided in
this section, and subject to the provisions of the Certificate of Incorporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the property, affairs and business of the
Corporation, including the power to declare dividends and to authorize the
issuance of stock. Each such other committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the executive committee nor any such other committee shall have the
power or authority:
(a) to amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the Delaware
General Corporation Law, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other
class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of
the shares of any series);
(b) to adopt an agreement of merger or consolidation;
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(c) to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) to amend the By-laws of the Corporation; or
(f) to abolish or usurp the authority of the Board of
Directors.
The executive committee shall have, and any such other committee may be
granted by the Board of Directors, power to authorize the seal of the
Corporation to be affixed to any or all papers which may require it. [Section
141(c).]
Section 3.04. Proceedings. Each such committee may fix its own rules of
procedure and may meet at such place (within or without the State of Delaware),
at such time and upon such notice, if any, as it shall determine from time to
time. Each such committee shall keep regular minutes of its meetings and report
the same to the Board of Directors at the next meeting of the Board following
such committee meeting; except that when the Board meeting is held within two
days after the committee meeting, such report shall, if not made at the first
meeting, be made to the Board at its second meeting following such committee
meeting.
Section 3.05. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such committee, at all meetings of any
committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such committee.
Any action required or permitted to be taken at any meeting of any such
committee may be taken without a meeting, if all members of such committee shall
consent to such action in writing and such writing or writings are filed with
the minutes of the proceedings of the committee. The members of any such
committee shall act only as a committee, and the individual members of such
committee shall have no power as such. [Section 141(c), (f).]
Section 3.06. Action by Telephonic Communications. Members of any
committee designated by the Board of Directors may participate in a meeting of
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting. [Section 141(i).]
Section 3.07. Absent or Disqualified Members. In the absence or
disqualification of a member of any committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. [Section 141(c).]
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Section 3.08. Resignations. Any member (and any alternate member) of
any committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.09. Removal. Any member (and any alternate member) of any
committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such committee at any time, either for or without
cause, by resolution adopted by a majority of the whole Board of Directors.
Section 3.10. Vacancies. If any vacancy shall occur in any committee,
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a Chairman of the Board, a Vice Chairman
of the Board, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Board of Directors also may elect one or more other officers as
the Board of Directors may determine. Any number of offices may be held by the
same person. No officer other than a Chairman of the Board need be a Director of
the Corporation. The President shall be designated by the Board as the Chief
Executive Officer of the Corporation.
[Section 142(a), (b).]
Section 4.02. Election. Officers shall be chosen in such manner and
shall hold their offices for such terms as determined by the Board of Directors.
Each officer shall hold office until his or her successor has been elected and
qualified, or until his or her earlier death, resignation or removal.
[Section 142(b).]
Section 4.03. Compensation. The compensation of all officers and agents
of the Corporation who are also Directors of the Corporation shall be fixed by
the Board of Directors. The Board of Directors may delegate the power to fix the
compensation of officers and agents of the Corporation to an officer of the
Corporation.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors or by the
Chief Executive Officer, if such powers of removal have been conferred by the
Board of Directors. Any officer may resign at any time by delivering a written
notice of resignation, signed by such officer, to the Board of Directors or the
President. Unless otherwise specified therein, such resignation shall take
effect upon delivery. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise, shall be filled by the Board of
Directors. [Section 142(b), (e).]
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<PAGE> 18
Section 4.05. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law. [Section 142(a).]
Section 4.06. Chairman of the Board. The Chairman of the Board shall,
if present, preside at all meetings of the stockholders and of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned by the Board of Directors.
Section 4.07. Vice Chairman of the Board. The Vice Chairman of the
Board shall, in the absence of the Chairman of the Board, preside at all
meetings of the stockholders and of the Board of Directors and exercise and
perform such other powers and duties as may be from time to time assigned by the
Board of Directors.
Section 4.08. The President. The President shall have such powers and
duties as may be prescribed from time to time by the Board of Directors, the
Chairman of the Board, or elsewhere in these By-laws. In the absence or
disability of the Chairman of the Board and the Vice Chairman of the Board, the
President shall exercise the powers and perform the duties of the Chairman of
the Board.
Section 4.09. Vice Presidents. Vice Presidents shall have such powers
and perform such duties as may be prescribed from time to time by the Chief
Executive Officer, the Board of Directors, or elsewhere in these By-laws.
Section 4.10. The Secretary. The Secretary shall have the following
powers and duties:
(a) He or she shall keep or cause to be kept a record of all
the proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in
accordance with the provisions of these By-laws and as required by law.
(c) Whenever any committee shall be appointed pursuant to a
resolution of the Board of Directors, he or she shall furnish a copy of
such resolution to the members of such committee.
(d) He or she shall be the custodian of the records and of the
seal of the Corporation and cause such seal (or a facsimile thereof) to
be affixed to all certificates representing shares of the Corporation
prior to the issuance thereof and to all instruments the execution of
which on behalf of the Corporation under its seal shall have been duly
authorized in accordance with these By-laws, and when so affixed he or
she may attest the same.
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<PAGE> 19
(e) He or she shall properly maintain and file all books,
reports, statements, certificates and all other documents and records
required by law, the Certificate of Incorporation or these By-laws.
(f) He or she shall have charge of the stock books and ledgers
of the Corporation and shall cause the stock and transfer books to be
kept in such manner as to show at any time the number of shares of
stock of the Corporation of each class issued and outstanding, the
names (alphabetically arranged) and the addresses of the holders of
record of such shares, the number of shares held by each holder and the
date as of which each became such holder of record.
(g) He or she shall sign (unless the Treasurer, an Assistant
Treasurer or an Assistant Secretary shall have signed) certificates
representing shares of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(h) He or she shall perform, in general, all duties incident
to the office of Secretary and such other duties as may be specified in
these By-laws or as may be assigned to him or her from time to time by
the Board of Directors or the Chief Executive Officer.
Section 4.11. Treasurer. The Treasurer shall have custody of all the
funds, securities and other valuables of the Corporation which may have or shall
come into his or her hands. He or she shall have such powers and perform such
duties as may be prescribed by the Chief Executive Officer, the Board of
Directors or elsewhere in these By-laws.
Section 4.12. Additional Officers. The Board of Directors may appoint
such other officers and agents as it may deem appropriate, and such other
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as may be determined from time to time by
the Board of Directors. The Board of Directors from time to time may delegate to
the Chief Executive Officer the power to appoint subordinate officers or agents
and to prescribe their respective rights, terms of office, authorities and
duties. Any such officer or agent may remove any such subordinate officer or
agent appointed by him or her, for or without cause. [Section 142(a), (b).]
Section 4.13. Security. The Board of Directors may require any officer,
agent or employee of the Corporation to provide security for the faithful
performance of his or her duties, in such amount and of such character as may be
determined from time to time by the Board of Directors. [Section 142(c).]
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ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares. The shares
of the Corporation shall be represented by certificates, provided that the Board
of Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these Bylaws. [Section 158.]
Section 5.02. Signatures; Facsimile. All of such signatures on the
certificate referred to in Section 5.01 of these By-laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue. [Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Corporation
may direct that a new certificate be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon delivery to the Corporation of an affidavit of the owner or
owners of such certificate, setting forth such allegation. The Corporation may
require the owner of such lost, stolen or destroyed certificate, or his or her
legal representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of any such new
certificate. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares, duly endorsed
or accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the Delaware General
Corporation Law. Subject to the provisions of the Certificate of Incorporation
and these By-laws, the Board of Directors may prescribe such additional rules
and regulations as
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it may deem appropriate relating to the issue, transfer and registration of
shares of the Corporation. [Section 151(f).]
Section 5.05. Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
Section 5.07. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (a "Proceeding"),
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was or has agreed to become a Director or officer of the
- 17 -
<PAGE> 22
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a Director or officer, of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, and may indemnify any person who was or
is a party or is threatened to be made a party to such an action, suit or
proceeding by reason of the fact that he or she is or was or has agreed to
become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her or on his or her
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding had no reasonable cause to
believe his or her conduct was unlawful; except that in the case of an action or
suit by or in the right of the Corporation to procure a judgment in its favor
(1) such indemnification shall be limited to expenses (including attorneys'
fees) actually and reasonably incurred by such person in the defense or
settlement of such action or suit, and (2) no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding the foregoing,
but subject to Section 6.05 of these By-laws, the Corporation shall not be
obligated to indemnify a Director or officer of the Corporation in respect of a
Proceeding (or part thereof) instituted by such Director or officer, unless such
Proceeding (or part thereof) has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 of these By-laws or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 6.03. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 6.01
of these By-laws (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
- 18 -
<PAGE> 23
standard of conduct set forth in Section 6.01 of these By-laws. Any
indemnification of an employee or agent of the Corporation under Section 6.01 of
these By-laws (unless ordered by a court) may be made by the Corporation upon a
determination that indemnification of the employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 6.01 of these By-laws. Any such determination shall be made (1)
by a majority vote of the Directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
Directors, or if such Directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a Director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article. Such expenses (including attorneys' fees) incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate. The Board of Directors may authorize the
Corporation's counsel to represent such Director, officer, employee or agent in
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
Section 6.05. Procedure for Indemnification of Directors and Officers.
Any indemnification of a Director or officer of the Corporation under Sections
6.01 and 6.02 of these Bylaws, or advance of costs, charges and expenses to a
Director or officer under Section 6.04 of these By-laws, shall be made promptly,
and in any event within thirty days, upon the written request of the Director or
officer. If a determination by the Corporation that the Director or officer is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If the
Corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within thirty days, the right to indemnification or advances as granted by this
Article shall be enforceable by the Director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 6.04 of these
By-laws where the required undertaking, if any, has been received by or tendered
to the Corporation) that the claimant has not met the standard of conduct set
forth in Section 6.01 of these By-laws, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, its independent legal counsel, and its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in Section 6.01 of these
By-laws, nor the fact that there has been an actual determination by the
Corporation (including its Board of Directors, its independent legal counsel,
- 19 -
<PAGE> 24
and its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in whole
or in part upon any such state of facts. Such a "contract right" may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
Director, officer or employee of the Corporation, or is or was serving at the
request of the Corporation as a Director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her or on his or
her behalf in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of this Article, provided that such
insurance is available on acceptable terms, which determination shall be made by
a vote of a majority of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
- 20 -
<PAGE> 25
ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at 222 Delaware Avenue in
the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's capital stock.
A member of the Board of Directors, or a member of any committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the Director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid. [Sections 172, 173.]
Section 8.02. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may similarly modify or abolish any such reserve.
[Section 171.]
Section 8.03 Execution of Instruments. The Chief Executive Officer, any
Vice President, the Secretary or the Treasurer may enter into any contract or
execute and deliver any instrument in the name and on behalf of the Corporation.
The Board of Directors or the President may authorize any other officer or agent
to enter into any contract or execute and deliver any instrument in the name and
on behalf of the Corporation. Any such authorization may be general or limited
to specific contracts or instruments.
- 21 -
<PAGE> 26
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors, provided that the Chief
Executive Officer may authorize indebtedness incurred in the ordinary course of
business up to $2 million. Such authorization may be general or confined to
specific instances. Loans so authorized may be effected at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual. All bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board of Directors or the Chief Executive
Officer shall authorize. When so authorized by the Board of Directors or the
Chief Executive Officer, any part of or all the properties, including contract
rights, assets, business or good will of the Corporation, whether then owned or
thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or
assigned in trust as security for the payment of such bonds, debentures, notes
and other obligations or evidences of indebtedness of the Corporation, and of
the interest thereon, by instruments executed and delivered in the name of the
Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited
from time to time in such banks, trust companies or other depositories as may be
determined by the Board of Directors or the Chief Executive Officer, or by such
officers or agents as may be authorized by the Board of Directors or the Chief
Executive Officer to make such determination.
Section 8.06. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the Chief
Executive Officer from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
authorized by the Board of Directors or by the Chief Executive Officer, any Vice
President, the Secretary or the Treasurer or any other officers designated by
the Board of Directors or the Chief Executive Officer may sell, transfer,
endorse, and assign any shares of stock, bonds or other securities owned by or
held in the name of the Corporation, and may make, execute and deliver in the
name of the Corporation, under its corporate seal, any instruments that may be
appropriate to effect any such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors, the Chief Executive Officer or any Vice
President shall have full power and authority on behalf of the Corporation to
attend any meeting of stockholders of any corporation in which the Corporation
may hold stock, and to act, vote (or execute proxies to vote) and exercise in
person or by proxy all other rights, powers and privileges incident to the
ownership of such stock. Such officers acting on behalf of the Corporation shall
have full power and authority to execute any instrument expressing consent to or
dissent from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.
- 22 -
<PAGE> 27
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be circular in
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. Subject to any express provision in the
Certificate of Incorporation to the contrary, these By-laws may be amended,
altered or repealed:
(a) by resolution adopted by a majority of the Board of
Directors at any special or regular meeting of the Board if, in the
case of such special meeting only, notice of such amendment, alteration
or repeal is contained in the notice or waiver of notice of such
meeting; or
(b) at any regular or special meeting of the stockholders upon
the affirmative vote of the holders of two-thirds or more of the
combined voting power of the outstanding shares of the Corporation
entitled to vote generally in the election of Directors if, in the case
of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting.
[Section 109(a).]
ARTICLE X
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict between the
provisions of these By-laws as in effect from time to time and the provisions of
the Certificate of Incorporation of the Corporation as in effect from time to
time, the provisions of such Certificate of Incorporation shall be controlling.
- 23 -
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
MIIX Insurance Company, a New Jersey corporation
<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- ) and related Prospectus of The MIIX Group, Incorporated for the
registration of shares of its common stock.
/s/ Ernst & Young LLP
Hackensack, New Jersey
July 17, 1998
<PAGE> 1
Exhibit 99.1
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and the description of our
opinion, dated October 15, 1997, referred to under the heading "THE
REORGANIZATION-Opinion of Salomon Brothers Inc" in and to the inclusion of such
opinion letter as Annex B to the Prospectus, dated July 17, 1998, contained in
the Registration Statement on Form S-1 of The MIIX Group, Incorporated. By
giving such consent we do not thereby admit that we are experts with respect to
any part of such Registration Statement within the meaning of the term "expert"
as used in, or that we come 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 BROTHERS INC
By: Mario P. Torsiello
--------------------------
Name: Mario P. Torsiello
Title: Managing Director
July 16, 1998
New York, New York
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
AND UNAUDITED FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION 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>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<DEBT-HELD-FOR-SALE> 853,977 870,433
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 91,580 91,188
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 1,031,035 1,091,230
<CASH> 168 1,432
<RECOVER-REINSURE> 85,980 87,528
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 1,280,231 1,409,546
<POLICY-LOSSES> 876,721 901,712
<UNEARNED-PREMIUMS> 20,886 120,443
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 21,871 22,054
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 303,441 304,674
<TOTAL-LIABILITY-AND-EQUITY> 1,280,231 1,409,546
123,600 35,892
<INVESTMENT-INCOME> 54,624 14,873
<INVESTMENT-GAINS> 10,296 1,441
<OTHER-INCOME> 11,870 2,963
<BENEFITS> 122,828 36,194
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 25,047 7,757
<INCOME-PRETAX> 30,947 4,162
<INCOME-TAX> 2,085 837
<INCOME-CONTINUING> 28,862 3,325
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 28,862 3,325
<EPS-PRIMARY> 0 0
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<RESERVE-OPEN> 400,607 445,958
<PROVISION-CURRENT> 121,331 36,194
<PROVISION-PRIOR> 1,497 0
<PAYMENTS-CURRENT> 3,930 668
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