<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period From _________ to __________.
Commission File Number: 001-14593
THE MIIX GROUP, INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3586492
(State or other jurisdiction of incorporation or (I.R.S. employer
organization) identification number)
TWO PRINCESS ROAD, LAWRENCEVILLE, NEW JERSEY 08648
(Address of principal executive offices and zip code)
(609) 896-2404
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act: Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value on March 22, 2000 of the voting stock held
by non-affiliates of the registrant was $160,652,552.
As of March 22, 2000, the number of outstanding shares of the
Registrant's Common Stock was 14,512,083.
DOCUMENTS INCORPORATED BY REFERENCE
No proxy statement, annual report to security holders or prospectus
filed pursuant to Rule 424(b) under the Securities Act of 1933 is incorporated
by reference into this Report on Form 10-K.
<PAGE> 2
THE MIIX GROUP, INCORPORATED
1999 FORM 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I ........................................................................ 2
ITEM 1. BUSINESS................................................................ 2
ITEM 2. PROPERTIES.............................................................. 21
ITEM 3. LEGAL PROCEEDINGS....................................................... 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................... 22
PART II ........................................................................ 22
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS... 22
ITEM 6. SELECTED FINANCIAL DATA................................................. 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............. 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................. 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................... 33
PART III ........................................................................ 33
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................... 33
ITEM 11. EXECUTIVE COMPENSATION.................................................. 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 37
PART IV ........................................................................ 37
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........ 37
SIGNATURES ...................................................................... 42
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES...................................... F-1
</TABLE>
1
<PAGE> 3
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Form 10-K, the Company's Annual Report to
Stockholders, any Form 10-Q or any Form 8-K of the Company or any other written
or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to uncertainties and other factors that could cause
actual results to differ materially from such statements. These uncertainties
and other factors (which are described in more detail elsewhere in this Form
10-K) include, but are not limited to: (i) the Company having sufficient
liquidity and working capital; (ii) the Company's ability to achieve consistent
profitable growth; (iii) the Company's ability to diversify its product lines;
(iv) the continued adequacy of the Company's loss and loss adjustment expense
reserves; and (v) the Company's avoidance of any material loss on collection of
reinsurance recoverables. The words "believe," "expect," "anticipate,"
"project," and similar expressions identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
The MIIX Group, Incorporated ("The MIIX Group") was organized as a Delaware
corporation in October 1997 and is the parent company of a group of insurance
and insurance-related subsidiaries conducting business principally in New
Jersey. The MIIX Group began operating as a publicly traded company on July 30,
1999. On August 4, 1999, the reorganization of the Medical Inter-Insurance
Exchange of New Jersey (the "Exchange") was consummated according to a Plan of
Reorganization. The Plan of Reorganization included several key components,
including: formation of The MIIX Group to be the ultimate parent; the transfer
of assets and liabilities held by the Exchange to MIIX Insurance Company (MIIX),
formed for that purpose; acquisition of New Jersey State Medical Underwriters,
Inc. and its wholly owned subsidiaries (the "Underwriter"); distribution of
shares of common stock of The MIIX Group and/or cash to current and former
members of the Exchange("distributees") as defined in the Plan of
Reorganization; and dissolution of the Exchange. In connection with the
reorganization, 11,854,033 shares of The MIIX Group Common Stock were issued to
distributees and 814,815 shares of The MIIX Group Common Stock were issued to
the Medical Society of New Jersey, plus $100,000 in cash, in exchange for all
Common Stock of the Underwriter. The MIIX Group sold three million shares of its
Common Stock in an underwritten public offering ("the Offering") that closed on
August 4, 1999. Of the offered shares, 90,000 were reserved for sale and
subsequently sold to officers and employees of the Company. On August 11, 1999
an additional 450,000 shares were sold to underwriters of the Offering pursuant
to an over-allotment option contained in the Offering underwriting agreement.
The Common Stock is listed on the New York Stock Exchange("NYSE") under the
trading symbol "MHU."
For purposes of this Report on Form 10-K, the "Company" refers at all times
prior to August, 4, 1999, the effective date of the Reorganization, to the
Exchange and its subsidiaries, collectively, and at all times on or after such
effective date, to The MIIX Group and its subsidiaries, collectively; the term
"The MIIX Group" refers at all times to The MIIX Group, Incorporated, excluding
its subsidiaries.
OVERVIEW
Based on direct premiums written in 1998, the Company is the leading provider of
medical professional liability insurance in New Jersey and is ranked 8th among
medical professional liability insurers in the United States. The Company
currently insures approximately 16,000 physicians and other medical
professionals who practice alone, in medical groups, clinics or in other health
care organizations. The Company also insures more than 185 hospitals, extended
care facilities, and other health care organizations. 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 23 states and the
District of Columbia. In 1999, approximately 47% 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.
2
<PAGE> 4
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 1998, total medical professional liability direct premiums written in the
United States were approximately $6.0 billion, according to data compiled by
A.M. Best, an insurance rating agency, and in New Jersey were approximately
$273.4 million, according to data compiled by OneSource Information Services,
Inc. ("OneSource"), an online data service. The Company's market share of such
direct premiums written was 3.8% in the United States according to data compiled
by A.M. Best and 41% in New Jersey according to data compiled by OneSource. In
1999, medical malpractice insurance accounted for approximately 99% of the
Company's direct premiums written.
The Company had total revenues and net income of $265.1 million and $20.8
million, respectively, for 1999 and $264.9 million and $29.7 million,
respectively, for 1998. As of December 31, 1999, the Company had total assets of
$1.8 billion and total equity of $318.7 million.
The Exchange was organized as a New Jersey reciprocal insurance exchange in
1977. A New Jersey reciprocal insurance exchange is an entity that may be formed
by persons seeking a particular type of insurance coverage. In the case of the
Exchange, medical and osteopathic physicians formed the Exchange to provide
medical malpractice insurance. The Exchange had been operated to generate
profits, and such profits were part of the Exchange's surplus account. Under New
Jersey law, the business of a reciprocal insurance exchange must be conducted by
a separate entity acting as the attorney-in-fact of such exchange. The
Underwriter, a corporation that, prior to the reorganization, had been wholly
owned by the Medical Society of New Jersey, served as attorney-in-fact for the
Exchange.
State laws regulate the process of soliciting insurance, the underwriting of
insurance, the rates charged, the nature of insurance products sold, the
financial accounting methods of the insurer, the amount of money required to be
maintained by the insurer to guard against insolvency and many other aspects of
the day-to-day operations of the Company. See "Business -- Regulation."
BUSINESS STRATEGY
The Company has adopted a strategy which it believes will allow it to compete
effectively and create long-term growth. To maximize the strategy's
effectiveness, the Company completed the Plan of Reorganization to convert from
a reciprocal insurer to a stock insurer, in order to provide the Company with
greater flexibility and access to capital. The Company's strategy is to:
- maintain the Company's historically close relationship with
the medical community;
- maintain underwriting discipline to seek to assure that
profitability, rather than premium volume, is emphasized;
- enhance product offerings to facilitate "one-stop shopping"
for the Company's extensive customer base;
- take advantage of strategic merger and acquisition
opportunities;
- expand distribution channels; and
- continue to expand geographically.
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.
3
<PAGE> 5
Maintain Close Relationship with the Medical Community. Since its founding in
1977, the Company has maintained a close relationship with the medical
community. In addition to the active involvement of practicing physicians on
several of the Company's advisory committees, the Company and the medical
professional liability insurance that it offers have the endorsements of
different medical associations. 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 the medical associations'
endorsements.
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
database 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, the Company intends to maintain underwriting
discipline and emphasize profitability over premium growth.
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.
Take Advantage of Strategic Merger and Acquisition Opportunities. The Company
believes that the Reorganization has better positioned the Company to make
strategic mergers and acquisitions by providing greater access to capital as a
source of financing and creating an attractive stock acquisition currency. The
Company believes that consolidation in the medical professional liability
insurance industry will continue and that opportunities to make a strategic
merger and acquisition may arise, thus providing an effective way to expand the
Company's business, product offerings and geographic scope.
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 and agents. In 1999,
68% of the Company's direct premiums written were generated through independent
brokers and agents. By increasing its use of this distribution channel, the
Company will be better positioned to achieve growth. In order to expand its
distribution channels further, the Company intends to develop additional
relationships with selected brokers and agents who have demonstrated expertise
in the medical malpractice insurance market.
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 23 states and the District of Columbia. 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 47% in 1999. Over time,
the Company intends to become licensed to write insurance in all 50 states,
although the Company may choose not to write insurance in certain states based
on market or regulatory conditions. In addition, the Company has three regional
sales and customer support offices to assist its marketing efforts outside of
New Jersey.
PRODUCT OFFERINGS
The Company has developed a variety of insurance products to cover the
professional liability exposure of individual and institutional 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.
4
<PAGE> 6
In New Jersey, the Company offered physicians traditional occurrence coverage
from 1977 through 1986 and has offered a form of occurrence-like coverage,
"modified claims made," from 1987 to the present. The Company's modified claims
made policy is called the Permanent Protection Plan (the "PPP"). Under the PPP,
coverage is provided for claims reported to the Company during the policy period
arising from incidents since inception of the policy. The PPP includes "tail
coverage" for claims reported after the expiration of the policy for occurrences
during the policy period. The premium for tail coverage is included as part of
the annual premium, and the insured physician automatically receives tail
coverage when the policy is terminated for any reason. The automatic provision
for tail coverage in effect results in occurrence-like coverage provided under
the PPP.
Traditional claims made coverage is offered to institutions in New Jersey. In
Pennsylvania traditional occurrence coverage is primarily offered to physicians
and traditional claims made coverage is primarily offered to institutions. In
other states, the Company issues policies primarily on a claims made coverage
basis to physicians and institutions. Tail coverage may be offered as an
endorsement to those accounts written on a pure claims made basis to extend the
period when losses could be reported to the Company. Additional premium is
collected at the time such endorsement is purchased by the insured. In a number
of states, the Company offers policy limits up to $10,000,000 per incident and
$12,000,000 in the aggregate for individual physicians. Policy limits of up to
$75,000,000 per incident and in the aggregate are offered to institutions and
medical groups.
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 provides coverage excess of underlying policies or
self-insured retentions. Directors and officers coverage and errors and
omissions coverage are offered on a claims made basis. 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. The Company
underwrites most of these coverages, and the remaining coverages are marketed by
the Company and underwritten by other insurance carriers with which the Company
has developed strategic alliances.
Substantially all of the Company's policies are offered for periods of one year,
with renewal occurring on the anniversary date of the policy inception. Premiums
are recorded as earned over the life of the policy period. The PPP policy
provides occurrence-like coverage, and accordingly the premiums are earned in
the period the policy is written consistent with the recording of the expected
ultimate loss and LAE reserves on an occurrence basis. A profile of the
Company's direct premiums written is summarized in the table below.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
(in thousands)
% of % of % of
$ total $ total $ total
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Professional Liability Products
Occurrence/Occurrence-like $152,520 62% $141,437 61% $127,610 79%
Claims Made 89,253 37% 82,543 36% 31,195 19%
Other Products 2,653 1% 6,334 3% 3,625 2%
======== === ======== === ======== ===
Direct Premiums Written $244,426 100% $230,314 100% $162,430 100%
======== === ======== === ======== ===
</TABLE>
The Company expects that the majority of new policies issued in states other
than New Jersey and Pennsylvania will be on a claims made basis. As a result,
the Company expects the profile of its direct written premiums to be different
in the future. When claims made coverage is more significant as a percentage of
the Company's business, loss reserves may develop more rapidly. See "Business --
Loss and LAE Reserves."
5
<PAGE> 7
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 through 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 endorsement of different
medical associations. In addition to these direct marketing channels, the
Company sells its products through independent brokers and agents who currently
produce approximately 40% 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 operates three
regional offices. See "Business -- Business Strategy -- Maintain Close
Relationship with the Medical Community."
Outside New Jersey, the Company markets its products exclusively through
independent brokers and agents. In 1999, 128 independent brokers and agents
actively marketed the Company's products in 23 states and the District of
Columbia and produced approximately 68% of the Company's direct premiums written
on a national basis. No national broker or regional agency accounted for more
than 11% 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 --
Business Strategy -- Expand Distribution Capabilities."
The Company also provides risk management services through its home office and
regional offices. In addition to supplementing the Company's marketing efforts,
these services are designed to reduce potential loss exposures by educating
policyholders on ways to improve medical practice and implement risk reduction
measures. The Company conducts surveys for hospitals and large medical groups to
review their practice procedures and to focus on specific areas in which
concerns arise. The Company prepares reports that identify areas of the
insured's medical practice that may need attention and provides recommendations
to the policyholder. The Company also presents periodic seminars for medical
societies and other groups to educate physicians on risk management techniques.
These educational programs are designed to increase risk awareness and to reduce
the risk of injury to patients and third parties.
UNDERWRITING
The Company maintains a dual underwriting function at its home office and at
each regional office. The home office Underwriting Department is responsible for
the underwriting and servicing of all institutional accounts and individual
providers that exceed the regional office underwriting authority. In addition,
the home office Underwriting Department is responsible for the issuance,
establishment and implementation of underwriting standards for all of the
coverages underwritten by the Company.
The Company's regional office underwriting staff have the authority to evaluate,
approve and issue medical professional liability coverage for individual
providers and medical groups with annual premiums up to a threshold amount.
The Company follows consistent and strict procedures with respect to the
issuance of all professional liability insurance policies. Individual providers
are required to submit an application for coverage along with supporting claims
history and proof of licensure. The individual provider applications provide
information regarding the medical training, current practice and claims history
of the applicant. Institutions are required to submit an application for
coverage, hard copy loss runs, proof of accreditation, financial statements,
copies of contracts with medical providers, information on employed
professionals and other information. An account analysis form is completed for
each submission and, if coverage is approved, the coverage recommendation and
the pricing methodology is added.
6
<PAGE> 8
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
of the Company to review the guidelines for premium surcharges, cancellations
and non-renewals and any candidate for cancellation or non-renewal. The
Underwriting Committee is composed of senior officers of the Company.
The Company maintains quality control through periodic audits at the
underwriting and processing levels. Renewal accounts are underwritten as
thoroughly as new accounts. Insureds who no longer meet underwriting guidelines
are identified as non-renewal candidates. All non-renewal candidates are
referred to the home office Underwriting Department and discussed with the
Underwriting Committee to approve the Underwriting Department's recommendations.
PRICING
The Company establishes, through its own actuarial staff and independent
consulting actuaries, rates and rating classifications for its insureds based
on loss and loss adjustment expense ("LAE") experience it has developed and on
other relevant information. The Company has various rating classifications
based on practice location, medical specialty and other factors. The Company
applies various discounts, including discounts for part-time practice,
physicians just entering medical practice, large medical groups and claims
experience. The Company has established its premium rates and ratings
classifications for hospitals and managed care organizations using the
Company's own loss and LAE data as well as data filed publicly by other
insurers.
CLAIMS
The Company's Claims Department is responsible for claims investigation,
establishment of appropriate case reserves for loss and allocated loss
adjustment expenses ("ALAE"), defense planning and coordination, supervision of
attorneys engaged by the Company to defend a claim, and negotiation of the
settlement or other disposition of a claim. All of the Company's primary
policies require it to defend its insureds. Medical malpractice claims often
involve the evaluation of highly technical medical issues, severe injuries, and
conflicting medical opinions. In almost all cases, the person bringing the claim
against the insured is already represented by legal counsel when the claim is
reported to the Company.
Litigation defense is provided almost exclusively by private law firms with
lawyers whose primary focus is defending malpractice cases. The Company also
maintains a staff counsel office located in New Jersey to defend malpractice
cases.
The claims representatives at the Company have on average more than 10 years of
experience handling medical professional liability cases. The Company limits the
average number of cases handled per claims representative to ensure personal
attention to each case.
The claims operation is assisted in its efforts by its technical unit, which is
responsible for training and educating the claims staff. The technical unit
manages the Company's relationship with defense counsel and helps control ALAE
associated with claims administration. The unit also is responsible for tracking
developments in case law and coordinating mass tort litigation.
A major resource for the Company's claims function is its database built over a
21-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.
7
<PAGE> 9
LOSS AND LAE RESERVES
Loss reserves recorded by the Company include estimates of amounts owed for
losses and for LAE. LAE consists of two types of costs, allocated loss
adjustment expenses ("ALAE") and unallocated loss adjustment expenses ("ULAE").
ALAE are settlement costs that can be allocated to a specific claim such as
attorney fees and court costs. ULAE consists of costs that are general in nature
and cannot be allocated to any specific claim, primarily including salaries and
overhead associated with the Company's claim department. ULAE reserves recorded
by the Company represent management's best estimate of the internal costs
necessary to settle all incurred claims, including incurred but not reported
("IBNR") claims.
The determination of loss and LAE reserves involves the projection of ultimate
losses through an actuarial analysis of the claims history of the Company and
other professional liability insurers, subject to adjustments deemed appropriate
by the Company due to changing circumstances. Included in the Company's claims
history are losses and LAE paid by the Company in prior periods, and case
reserves for anticipated losses and ALAE developed by the Company's claim
department as claims are reported and investigated. Management relies 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 aggregate reserves reported in the financial statements, 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.
There are significant inherent uncertainties in estimating ultimate losses in
the casualty insurance business and these uncertainties are increased in periods
when a company is expanding into new markets with new distribution channels. The
uncertainties are even greater for companies writing long-tail casualty
insurance, such as medical malpractice insurance, and in particular the
occurrence or occurrence-like coverages that substantially make up the Company's
current reserves. These additional uncertainties are due primarily to the longer
period of time during which an insured may seek coverage for a claim in respect
of an occurrence or occurrence-like policy as opposed to a claims made policy.
With the longer claim reporting and development period, reserves are more likely
to be impacted by, among other factors, changes in judicial liability standards
and interpretation of insurance contracts, changes in the rate of inflation and
changes in the propensities of individuals to file claims.
The Company offered traditional occurrence coverage from 1977 through 1986 and
has offered a form of occurrence-like coverage, "modified claims made," from
1987 to the present. The Company's modified claims made policy is the PPP. See
"Business-- Product Offerings." Under the PPP, coverage is provided for claims
reported to the Company during the policy period arising from incidents since
inception of the policy. The PPP includes "tail coverage" for claims reported
after expiration of the policy for occurrences during the policy period and thus
is reserved on an occurrence basis. Loss and LAE reserves carried for PPP
policies and traditional occurrence policies constitute approximately 80% of the
gross loss and LAE reserves at December 31, 1999.
The following table provides a summary of gross loss and LAE reserves by policy
type.
Gross Loss and Loss Adjustment Expense Reserves by Policy Type
(in thousands)
<TABLE>
<CAPTION>
Professional Liability
----------------------------------------------
Occurrence/ % of Claims % of % of Total Gross
Occurrence-Like Total Made Total Other Total Reserves
--------------- ------- -------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Reserves Held as of:
December 31, 1997 $ 818,129 93.4% $ 42,423 4.8% $ 16,169 1.8% $ 876,721
December 31, 1998 825,636 86.8% 104,759 11.0% 21,264 2.2% 951,659
December 31, 1999 837,724 79.5% 185,497 17.6% 30,376 2.9% 1,053,597
</TABLE>
As displayed in the above table, the proportion of the gross loss and LAE
reserves held on claims made professional liability policies has grown from 4.8%
of total gross loss and LAE reserves held at December 31, 1997 to 17.6% at
December 31,
8
<PAGE> 10
1999. This is primarily the result of the Company's expansion into new states
since 1997. The majority of policies sold in these new states have been claims
made.
Since a significant portion of the Company's reserves are recorded on an
occurrence basis, and given the long time that typically elapses between the
coverage incident and the resolution of the claim, IBNR reserves have
consistently represented a majority of the gross reserves recorded by the
Company. The following table summarizes the components of gross loss and LAE
reserves including ULAE reserves, and indicates that IBNR reserves constitute a
majority of gross reserves on a consistent basis:
Components of Gross Loss and Loss Adjustment Expense Reserves
(in thousands)
<TABLE>
<CAPTION>
Loss and Loss and Total
ALAE Case % of ALAE IBNR % of ULAE % of Gross
Reserves Total Reserves Total Reserves Total Reserves
-------- ----- -------- ----- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Reserves Held as of:
December 31, 1997 $ 260,779 29.8% $ 591,158 67.4% $ 24,784 2.8% $ 876,721
December 31, 1998 299,178 31.4% 623,842 65.6% 28,639 3.0% 951,659
December 31, 1999 381,564 36.2% 640,096 60.8% 31,937 3.0% 1,053,597
</TABLE>
The Company has issued occurrence policies since 1977 and occurrence-like
policies since 1987. There is a significant lag in reporting of incidents or
occurrences inherent in the medical malpractice insurance industry. As a result
the Company continues to experience reported claims that are alleged to have
occurred as far back as 1977.
The following table illustrates the amount and percentage of gross loss and LAE
reserves held by the Company at December 31, 1999 categorized by accident year.
Gross Loss and Loss Adjustment Expense Reserves By Accident Year
As of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Accident Year Gross Reserves % of Total
- ---------------------------------------------- -------------- ----------
<S> <C> <C>
1977-89..................................... 23,795 2.3%
1990........................................ 8,821 .8%
1991........................................ 12,950 1.2%
1992........................................ 17,859 1.7%
1993........................................ 38,462 3.7%
1994........................................ 52,928 5.0%
1995........................................ 108,266 10.3%
1996........................................ 136,254 12.9%
1997........................................ 180,113 17.1%
1998........................................ 224,201 21.3%
1999........................................ 249,948 23.7%
------------ ------
Total Gross Reserves held by the Company.... $ 1,053,597 100.0%
============ ======
</TABLE>
As shown in the above tables, at December 31, 1999: approximately 80% of gross
reserves are occurrence based; over 60% of gross reserves are IBNR reserves; and
over 85% of gross reserves relate to the most recent five accident years, which
are the most immature in terms of loss development.
The Company uses a disciplined approach to setting and adjusting financial
statement loss and LAE reserves that begins with the claims adjudication
process. Claims examiners establish case reserves by a process that includes
extensive development and use of statistical information that allows for
comparison of individual claim characteristics against historical patterns and
emerging trends. This process also provides critical information for use in
pricing of products and establishing the IBNR component of the financial
statement reserves.
Initially, the Company establishes its best estimate of loss and LAE reserves
using pricing assumptions. The reserves are evaluated every quarter and annually
and are adjusted thereafter as circumstances warrant. These periodic evaluations
include a variety of loss development techniques that incorporate various data
accumulated in
9
<PAGE> 11
the claims settlement process including paid and incurred loss data, accident
year development statistics, and loss ratio analyses. Important in these
analyses are considerations of the amounts for which claims have settled in
comparison to case reserves held at settlement. Case reserves are eliminated
upon settlement of related claims. Actual settlement amounts above or below case
reserves are then regularly evaluated to determine whether estimated ultimate
losses by accident year, including IBNR reserves, should be adjusted. Changes to
aggregate reserves reported in the financial statements are made based upon the
extent and nature of these variances over the long claim development period
together with changes in estimates of the total number of claims to be settled.
As a final test of management's determination as to whether it believes that
aggregate reserves reported in the financial statements are adequate and
appropriate, management considers the detailed analysis performed by the
actuarial staff of its independent auditors in connection with the audit of the
Company's financial statements.
Recorded loss and LAE reserves represent management's best estimate of the
remaining costs of settling all incurred claims. 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.
Activity in the liability for unpaid losses and loss adjustment expenses gross
of reinsurance is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance as of January 1, gross of reinsurance
recoverable................................... $ 951,659 $876,721 $795,449
Incurred related to:
Current year............................... 254,570 214,413 189,163
Prior years................................ 16,514 3,822 205
---------- -------- --------
Total incurred.................................. 271,084 218,235 189,368
Paid related to: ---------- -------- --------
Current year............................... 4,622 1,343 6,879
Prior years................................ 164,524 141,954 101,217
---------- -------- --------
Total paid...................................... 169,146 143,297 108,096
---------- -------- --------
Balance at end of period, gross of reinsurance
recoverable................................... 1,053,597 951,659 876,721
Reinsurance recoverable......................... 406,409 325,795 270,731
========== ======== ========
Balance at end of period, net of reinsurance.... $ 647,188 $625,864 $605,990
========== ======== ========
</TABLE>
The aggregate reserves reported in the financial statements represent
management's best estimate of the remaining costs of settling all incurred
claims. The Company increased prior year gross reserves by $16.5 million, $3.8
million and $0.2 million during 1999, 1998 and 1997, respectively.
Notwithstanding management's analysis and determination in setting its best
estimate of aggregate reserves reported in the financial statements, which may
or may not require adjustments to aggregate prior year reserves, management
regularly evaluates, and adjusts when appropriate, its estimates of accident
year ultimate losses and LAE (i) as part of its pricing analyses, (ii) as part
of its evaluation of the effectiveness of its reinsurance programs and (iii) for
reporting to regulatory authorities such as the Internal Revenue Service and the
state insurance departments. Accordingly, reserves established for losses and
LAE on individual accident years may experience greater volatility than
aggregate reserves reported in the Company's financial statements. Individual
accident year reserves cover a smaller amount of business over a shorter period
of time than do the aggregate reserves, which are an accumulation of reserves
pertaining to all accident years. Estimated ultimate losses and LAE associated
with individual accident years were adjusted in 1999, 1998 and 1997. The
following table presents the estimated ultimate losses and LAE gross of
reinsurance (including changes in such estimates) by accident year:
10
<PAGE> 12
Accident Year Development
(in thousands)
<TABLE>
<CAPTION>
Changes in Estimated
Ultimate Losses and LAE
Estimated Ultimate for the Year Ended
Losses and LAE as of December 31, December 31,
---------------------------------------------------- --------------------------------------
Accident Year 1996 1997 1998 1999 1997 1998 1999
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1989 and Prior $ 871,866 $ 864,796 $ 866,162 $ 862,755 $ (7,070) $ 1,366 $ (3,407)
1990 116,637 119,545 119,428 119,855 2,908 (117) 427
1991 119,310 121,531 121,454 110,419 2,221 (77) (11,035)
1992 114,116 113,610 112,404 112,488 (506) (1,206) 84
1993 137,279 140,304 121,990 118,450 3,025 (18,314) (3,540)
1994 150,519 150,613 154,063 144,513 94 3,450 (9,550)
1995 161,301 156,099 165,973 169,024 (5,202) 9,874 3,051
1996 167,406 172,141 174,681 178,048 4,735 2,540 3,367
1997 189,163 195,469 213,762 6,306 18,293
1998 214,413 233,237 18,824
1999 254,570
---------- ---------- --------- ---------- ---------- ------- ---------
Total Estimated Ultimate Losses
and LAE $1,838,434 $2,027,802 $2,246,037 $2,517,121 $ 205 $ 3,822 $ 16,514
---------- ---------- ---------- ---------- ========== ========= =========
Less: Total Paid Loss and LAE $1,042,985 $1,151,081 $1,294,378 $1,463,524
---------- ---------- ---------- ----------
Gross Loss and LAE Reserves as
of December 31 $ 795,449 $ 876,721 $ 951,659 $1,053,597
========== =========== ========== ==========
</TABLE>
The accident year reserve development detailed in the above table is indicative
of the potential volatility of accident year reserve estimates. Management
believes that the level of volatility experienced and reflected therein, which
ranged up to plus or minus 10% of estimated accident year ultimate losses at
December 31, 1999, is not unreasonable for the medical malpractice line of
business.
Specific factors noted in management's actuarial analyses that gave rise to the
accident year development in 1999 included the following. Reserves held on
accident years 1989 and prior were decreased to reflect reduced reserve
development on case reserves from that previously projected. Reserves on
accident years 1991, 1993 and 1994 were substantially reduced, reflecting lower
than previously projected loss frequencies and severities. Accident year 1994
reserves were adjusted for the first time from initial pricing-based estimates.
With six years of loss experience, management believes there is now sufficient
actuarial confidence to adjust these very slowly developing reserves held on the
occurrence-like PPP book. Reserves held on accident years 1995 and 1996 were
increased to reflect higher loss expectations for the occurrence Pennsylvania
physician and claims made hospital books of business. Additional reserves were
recorded for accident year 1997 to reflect greater loss expectations for the
Pennsylvania physicians, hospital and expansion state physician books of
business. Reserves held on accident year 1998 were increased to reflect higher
than anticipated claim frequencies, primarily on the expansion state physician
book of business.
Specific factors noted in management's actuarial analyses that gave rise to
accident year development in 1998 and 1997 included the following. During 1998:
reserves on 1989 and prior accident years were increased modestly to recognize
slower than previously projected development of the occurrence-like reserves;
reserves for accident years 1990 through 1992 were reduced, reflecting generally
lower frequencies and severities than previously projected; reserves for
accident year 1993 were adjusted for the first time from initial pricing-based
estimates in 1998; reserves held on accident years 1994 through 1996 were
increased, primarily relating to the claims made hospital book; and reserves for
accident year 1997 were increased, primarily reflecting higher claim frequencies
on claims made business written in certain states than previously projected.
During 1997: reserves held on accident years 1989 and prior were reduced,
primarily as the result of lower loss costs associated with improvements in the
internal claims settlement process; reserves held on accident years 1990 and
1991 were increased, reflecting higher than anticipated claims frequencies
relating primarily to insured physicians practicing obstetrics and gynecology
and internal medicine specialties; and reserves held on accident years 1995 and
1996 were adjusted, largely as the result of development on a specific medical
professional liability program with a large hospital group and development on
the claims made hospital book of business.
As previously discussed, approximately 80% of the Company's December 31, 1999
gross loss and LAE reserves are related to occurrence or occurrence-like
policies, which is down from 87% at December 31, 1998 and 93% at December 31,
1997. Management initially establishes its best estimate of reserves based on
the underlying pricing assumptions and adjusts those estimates over time as
significant developments in the legal environment or significant changes in
expected patterns of claim
11
<PAGE> 13
frequency and/or severity become apparent. However, the Company is continuing to
expand its operations into a number of states, and the Company expects that the
majority of the policies issued in such states will be on a claims made basis.
As a result, the Company believes that as claims made reserves continue to
comprise a greater percentage of aggregate reserves it is likely that more
frequent adjustments to aggregate reserves recorded in the financial statements
will become necessary because the reporting period for claims made policies is
shorter, which facilitates the ability of the Company to more quickly determine
ultimate losses.
On a net of reinsurance basis, the activity in the liability for unpaid losses
and LAE is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance as of January 1, net of
reinsurance recoverable .................... $ 625,864 $ 605,990 $ 573,700
Net reserves acquired in acquisition
of the Underwriter .......................... 8,286
Incurred related to:
Current year ............................ 189,000 157,952 120,496
Prior years ............................. (14,014) (2,084) 0
----------- ----------- -----------
Total incurred ............................... 174,986 155,868 120,496
----------- ----------- -----------
Paid related to:
Current year ............................ 4,589 1,328 3,930
Prior years ............................. 157,359 134,666 84,276
----------- ----------- -----------
Total paid ................................... 161,948 135,994 88,206
----------- ----------- -----------
Balance at end of period, net of
reinsurance recoverable .................... 647,188 625,864 605,990
Reinsurance recoverable ...................... 406,409 325,795 270,731
----------- ----------- -----------
Balance at end of period, gross of reinsurance $ 1,053,597 $ 951,659 $ 876,721
----------- ----------- -----------
</TABLE>
Net loss and LAE reserves reported in accordance with statutory accounting
principles were $103.3 million and $167.8 million lower than the net loss and
LAE reserves displayed above at December 31, 1998 and 1997, respectively. The
differences relate to a 1992 contract accounted for using deposit accounting for
GAAP reporting. The Company commuted this contract on September 30, 1999, and
there was no difference at December 31, 1999 between net loss and LAE reserves
reported on a GAAP basis and those reported in accordance with statutory
accounting principles.
The following tables reflect the development of reserves for unpaid losses and
LAE, including reserves on assumed reinsurance, for the periods indicated at the
end of that year and each subsequent year. The first line shows the reserves as
originally reported at the end of the stated year. Reserves at each calendar
year-end include the estimated unpaid liabilities for that report or accident
year and for all prior report or accident years. The section under the caption
"Liability reestimated as of" shows the originally reported reserves as adjusted
as of the end of each subsequent year to reflect the cumulative amounts paid and
all other facts and circumstances discovered during each year. The line
"Cumulative redundancy (deficiency)" reflects the difference between the latest
reestimated reserves and the reserves as originally established. The section
under the caption "Cumulative amount of liability paid through" shows the
cumulative amounts paid through each subsequent year on those claims for which
reserves were carried as of each specific year end.
The tables reflect the effect of all changes in amounts of prior periods. For
example, if a loss determined in 1995 to be $100,000 was first reserved in 1989
at $150,000, the $50,000 redundancy (original estimate minus actual loss) would
be included in the cumulative redundancy in each of the years 1989 through 1994
shown below. The tables present development data by calendar year and do not
relate the data to the year in which the claim was reported or the incident
actually occurred. Conditions and trends that have affected the development of
these reserves in the past will not necessarily recur in the future.
12
<PAGE> 14
TABLE I. LOSS AND LAE RESERVES DEVELOPMENT - GROSS
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOSS AND LAE RESERVES $502,928 $554,076 $593,828 $629,064 $667,200 $688,455 $748,660 $795,449 $876,721 $951,659
LIABILITY REESTIMATED
AS OF:
One year later 516,113 541,778 583,133 616,042 623,988 688,455 748,660 795,654 880,543 968,173
Two years later 503,199 529,531 570,108 572,831 623,986 688,450 744,130 793,170 878,233
Three years later 495,663 516,501 532,877 572,831 623,989 689,122 739,106 772,567
Four years later 482,667 487,918 532,878 572,871 624,567 674,224 715,136
Five years later 463,784 487,921 540,067 570,424 606,219 647,203
Six years later 463,788 490,398 538,126 570,390 588,748
Seven years later 456,563 486,236 539,298 556,459
Eight years later 449,493 487,485 525,283
Nine years later 450,859 484,505
Ten years later 447,452
CUMULATIVE REDUNDANCY
(DEFICIENCY) 55,476 69,571 68,545 72,605 78,452 41,252 33,524 22,882 (1,512) (16,514)
</TABLE>
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID
THROUGH:
One year later $ 80,959 $ 67,483 $ 79,239 $ 83,837 $ 83,522 $ 98,053 $116,532 $101,217 $141,954 $164,524
Two years later 146,137 144,987 161,532 165,737 179,714 212,284 214,484 231,755 298,785
Three years later 218,676 221,931 238,998 256,860 284,828 293,323 332,920 373,232
Four years later 286,181 288,463 318,934 348,868 343,563 407,357 452,055
Five years later 335,723 339,121 389,638 395,242 436,921 492,388
Six years later 370,225 390,991 413,413 462,920 486,861
Seven years later 391,596 401,626 459,668 493,034
Eight years later 396,442 437,768 479,717
Nine years later 414,288 451,889
Ten years later 423,657
</TABLE>
The Company experienced favorable development on gross financial statement
reserves held at each year-end in the table except 1997 and 1998, largely in
reserves first recorded in 1994 and prior years. The Company believes that this
favorable development has resulted from (i) the disciplined approach to
establishing reserves for medical malpractice insurance losses and LAE; and (ii)
the improvements made to the internal claims settlement process. These internal
claims settlement process improvements resulted from: key staffing additions,
including a new Vice President of Claims, in 1990; the building of a detailed
claims database over a 20-year period, which enables the Company's claims
professionals to better evaluate and resolve claims; the addition of staff
counsel in 1993 to defend certain malpractice cases and to control legal costs;
and the expansion and enhancement of the risk management department in 1993 to
provide support to insureds in controlling and reducing their exposure to
claims. It is not possible to quantify the impact that these changes have had on
development of loss reserves. Most of the favorable reserve development
evidenced in the table was recognized during 1993 ($13.0 million) and 1994
($43.2 million). Favorable development was recognized at that time because major
trends in loss experience were first credibly apparent then. The loss experience
in the early 1990's, to some extent resulting from the then recently introduced
internal changes discussed above, suggested that the very conservative reserving
posture maintained by the Company since its inception during the medical
malpractice crisis of the late 1970's was no longer appropriate. Earlier
projections of loss frequencies and severities no longer appeared likely, and
financial statement loss and LAE reserves were adjusted accordingly. Financial
statement loss and LAE reserves established since 1994 have been set based upon
this new understanding. Development of reserves since 1994 has primarily
consisted of: favorable adjustments pertaining to specific accident years on the
occurrence-like PPP policy book; adverse development on the Pennsylvania
physicians book; adverse development on hospital claims made reserves; and
adverse development on claims made policies written in certain expansion states.
13
<PAGE> 15
TABLE II. LOSS AND LAE RESERVES DEVELOPMENT - NET
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOSS AND LAE
RESERVES-GROSS $502,928 $554,076 $593,828 $629,064 $667,200 $688,455 $748,660 $795,449 $876,721 $951,659
REINSURANCE RECOVER-
ABLE ON UNPAID LOSSES 400 1,025 8,265 3,037 62,682 112,917 165,729 221,749 270,731 325,795
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
502,528 553,051 585,563 626,027 604,518 575,538 582,931 573,700 605,990 625,864
LIABILITY REESTIMATED
AS OF:
One year later 513,096 534,087 581,453 600,655 559,518 575,538 582,931 573,700 603,906 611,850
Two year later 494,044 527,847 560,688 555,656 559,518 575,538 582,931 573,321 603,809
Three years later 491,987 512,867 521,671 555,656 559,518 575,538 580,883 588,477
Four years later 477,053 482,498 521,828 555,655 559,518 575,124 579,766
Five years later 456,696 482,658 529,008 555,656 559,133 566,608
Six years later 457,795 485,125 525,111 555,484 548,242
Seven year later 450,860 479,007 524,574 541,142
Eight years later 443,028 478,072 510,517
Nine years later 442,210 475,050
Ten years later 438,761
CUMULATIVE REDUNDANCY
(DEFICIENCY) 63,767 78,001 75,046 84,885 56,276 8,930 3,165 (14,777) 2,181 14,014
</TABLE>
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID
THROUGH:
One year later $ 78,967 $ 67,479 $ 79,239 $ 83,212 $ 82,572 $ 97,496 $116,194 $ 84,276 $134,666 $157,359
Two years later 144,141 144,983 161,532 164,469 178,357 211,426 197,370 214,404 284,887
Three years later 216,680 221,927 238,998 255,586 283,370 278,571 315,743 365,517
Four years later 284,185 288,459 318,928 347,493 328,836 392,522 437,779
Five years later 333,727 339,111 389,579 381,408 422,194 478,731
Six years later 368,223 390,928 401,000 449,086 473,702
Seven years later 389,541 394,999 447,255 479,987
Eight years later 390,579 431,141 468,091
Nine years later 408,425 446,049
Ten years later 418,581
</TABLE>
The aggregate excess reinsurance contracts, in place since 1993, provide
coverage above aggregate retentions for losses and ALAE occurring in 1993 and
after, other than losses and ALAE retained by Lawrenceville Property and
Casualty Company ("LP&C") and losses and ALAE retained by MIIX or reinsured
under other insignificant reinsurance contracts. LP&C's retention is $200,000
per loss. The aggregate reinsurance contracts, therefore, have the effect of
holding underwriting year net incurred losses and ALAE, other than losses and
ALAE retained by LP&C and other losses and ALAE not subject to the aggregate
excess reinsurance contracts, at a constant level as long as such losses and
ALAE ceded under the aggregate excess reinsurance contracts remain within the
coverage limits. Ceded losses and ALAE have remained within coverage limits in
each year since 1993. The adjustment to net reserves in 1999 relates to losses
and LAE not covered by the aggregate reinsurance contracts, including,
primarily, losses and ALAE for accident years 1992 and prior, losses and ALAE
for accident years 1997 and 1998 retained by LP&C, and ULAE.
General liability incurred losses have been less than 3.0% 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.
REINSURANCE
Reinsurance Ceded. The Company follows customary industry practice by reinsuring
some of its business. The Company typically cedes to reinsurers a portion of its
risks and pays a fee based upon premiums received on all policies so subject to
such reinsurance. Insurance is ceded principally to reduce net liability on
individual risks and to provide aggregate loss and LAE protection. Although
reinsurance does not legally discharge the ceding insurer from its primary
liability for the full extent of the policies reinsured, it does make the
reinsurer liable to the insurer to the extent of the reinsurance ceded. The
Company reviews its reinsurance needs annually and makes changes in its
reinsurance arrangements as necessary. 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.
14
<PAGE> 16
The Company reinsures its risks primarily under two reinsurance contracts, the
Specific Contract and the Aggregate Contract. During 1999, the Company's
retention for casualty business under the Specific Contract was $10 million per
loss. For medical professional liability and commercial general liability
business, coverage was provided up to $65 million per loss above the retention.
For other casualty business, coverage was provided up to $15 million per loss
above the retention. Property coverage was 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. The Company retains an 8% co-participation in
covered losses. The Company has maintained specific excess of loss reinsurance
coverage generally similar to that just described for several years.
The Aggregate Contract in 1999 provided 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 on an underwriting year basis as a 75% loss and ALAE ratio. Reinsurers
provide coverage for an additional 75% loss and ALAE ratio, with an aggregate
annual limit of $200 million. The Company has maintained aggregate excess of
loss coverage generally similar to that just described since 1993. See "Business
- -- Loss and LAE Reserves -- Table II -- Loss and LAE Reserves Development --
Net."
Each of the aggregate excess reinsurance contracts contains an adjustable
premium provision that may result in changes to ceded premium and related funds
held charges, based on loss experience under the contract. During 1999, combined
ceded losses under the aggregate excess reinsurance contracts were increased by
a net amount of $15.3 million, resulting in net additional premium charges of
$10.1 million and net additional funds held charges of $0.2 million. During
1998, combined ceded losses under the aggregate excess reinsurance contracts
were increased by a net amount of $0.3 million, resulting in net additional
premium charges of $3.3 million and net reduction in funds held charges of $1.9
million. No adjustments to ceded losses under the aggregate excess reinsurance
contracts were made during 1997. Each of the aggregate excess reinsurance
contracts also contains a profit sharing provision whereby a significant portion
of any favorable gross loss and ALAE reserve development may ultimately be
returned to the Company once all subject losses and ALAE have been paid or the
contract has been commuted. Profit sharing would be recorded by the Company
after the funds withheld balance related to an aggregate excess reinsurance
contract exceeds the related ceded reserves, after any adjustments under the
adjustable premium provisions. Profit sharing would then be recorded as an
offset to funds held charges and to the funds withheld liability. There was no
accrual of profit sharing at December 31, 1999, 1998 or 1997.
The major elements of ceded reinsurance activity are summarized in the following
table:
<TABLE>
<CAPTION>
For the year ended December 31,
-----------------------------------------
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Ceded premiums earned ...... $47,961 $36,105 $42,337
Ceded Losses and LAE ....... 96,777 62,367 68,872
Funds held charges ......... 14,338 13,420 13,361
</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 for unpaid losses, prepaid
reinsurance premiums and other amounts as of December 31, 1999, and collateral
held by the Company primarily in the form of funds withheld and letters of
credit as of December 31, 1999. No other single reinsurer's percentage
participation in 1999 exceeded 5% of the total reinsurance recoverable at
December 31, 1999.
<TABLE>
<CAPTION>
At December 31, 1999
---------------------------------
Total Amounts Total Amount of
Reinsurer Recoverable Collateral Held
------------- ---------------
(In Thousands)
<S> <C> <C>
Hannover Reinsurance (Ireland) Ltd............................. $ 177,128 $ 174,170
Eisen und Stahl Reinsurance (Ireland) Ltd...................... 41,022 41,382
Scandinavian Reinsurance Company Ltd........................... 51,804 56,562
London Life and Casualty Reinsurance Corporation............... 64,420 65,646
Underwriters Reinsurance Company (Barbados).................... 62,588 60,283
</TABLE>
15
<PAGE> 17
The Company analyzes the credit quality of its reinsurers and relies on its
brokers and intermediaries to assist it in such analysis. To date, the Company
has not experienced any material difficulties in collecting reinsurance
recoverables. No assurance can be given, however, regarding the future ability
of any of the Company's reinsurers to meet their obligations.
Reinsurance Assumed. The Company assumed reinsurance under various contracts
with assumed written premiums of $12.7 million, $1.5 million and $4.6 million in
1999, 1998 and 1997, respectively. In 1999, $12.5 million of the assumed written
premiums related to an excess of loss contract providing medical professional
liability coverage on an institutional account. In 1998, the assumed written
premiums primarily related to medical professional liability coverage provided
to AMM under a quota share contract and two excess of loss contracts. In 1997,
$10.9 million of assumed written premium related to a novation agreement
pertaining to certain policies written for a large hospital group during 1989
through 1997. Existing ceded reinsurance agreements with the hospital group's
captive insurer covering the novated business remain in effect following the
novation. Other assumed written premiums in 1997 related primarily to the
reinsurance contract with AMM as well as a quota share reinsurance contract with
a large reinsurer covering casualty facultative business.
The Company believes that as more managed care organizations and integrated
health care delivery systems retain a larger part of their exposure directly or
through captive arrangements, they will need to obtain excess insurance or
reinsurance for the potentially larger losses, and the Company believes that it
is prepared to meet this need through assumed reinsurance arrangements.
INVESTMENT PORTFOLIO
An important component of the operating results of the Company has been the
return on its invested assets. Such investments are made by investment managers
and internal management under policies established at the direction of the
Company's Board of Directors. 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 risks of the portfolio. The Company
currently uses two outside investment managers for fixed maturity securities. At
December 31, 1999 and 1998, the average credit quality of the fixed income
portfolio was AA-.
The following table sets forth the composition of the investment portfolio of
the Company at the dates indicated. All of the fixed maturity investments are
held as available-for-sale.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------- ---------------------------
Cost or Cost or
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies.................................. $ 107,044 $ 101,493 $ 119,083 $ 123,264
Obligations of states and political
subdivisions.............................. 162,078 155,193 176,798 185,216
Foreign securities - U.S. dollar
denominated............................... 35,619 34,145 15,694 15,128
Corporate securities........................ 350,897 332,141 322,477 324,330
Mortgage-backed and other asset-backed
securities................................ 476,293 454,834 407,140 409,801
---------- ---------- ---------- ----------
Total Fixed Maturity Investments............ 1,131,931 1,077,806 1,041,192 1,057,739
Equity Investments.......................... 13,169 12,394 3,159 3,159
Short Term.................................. 92,743 92,743 104,800 104,800
---------- ---------- ---------- ----------
Total investments........................ $1,237,843 $1,182,943 $1,149,151 $1,165,698
========== ========== ========== ==========
</TABLE>
The investment portfolio of fixed maturity investments consists primarily of
intermediate-term, investment-grade securities along with a modest allocation to
below investment-grade (i.e. high yield) fixed maturity investments 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 fixed maturity investments at December 31, 1999:
16
<PAGE> 18
<TABLE>
<CAPTION>
Percentage of
S&P Rating of Investment (1) Amortized Cost Fair Value Fair Value
- -------------------------------------------- -------------- ----------- -------------
(in thousands)
<S> <C> <C> <C>
AAA (including U.S. Government and Agencies) $ 619,073 $ 593,966 55.1%
AA ......................................... 83,558 78,617 7.3%
A .......................................... 242,543 227,136 21.1%
BBB ........................................ 123,737 120,057 11.1%
Other Ratings (below investment grade) ..... 63,020 58,030 5.4%
Not Rated .................................. 0 0 0.0
---------- ---------- ------
Total ................................... $1,131,931 $1,077,806 100.0%
========== ========== ======
</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.
The following table sets forth certain information concerning the maturities of
fixed maturity investments in the investment portfolio as of December 31, 1999
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 .............................. $ 21,394 $ 21,374 2.0%
Due after one year through five years ............. $ 103,736 $ 100,527 9.3%
Due after five years through ten years ............ $ 225,811 $ 214,376 20.0%
Due after ten years ............................... $ 304,698 $ 286,695 26.5%
Mortgage-backed and other asset-backed securities . $ 476,292 $ 454,834 42.2%
---------- ---------- ------
Total .................................... $1,131,931 $1,077,806 100.0%
========== ========== ======
</TABLE>
The average effective maturity and the effective duration of the securities in
the fixed maturity portfolio (excluding short-term investments) as of December
31, 1999, was 7.90 years and 5.57 years, respectively.
The mortgage-backed portfolio represents approximately 28% of the total fixed
income portfolio, and is allocated equally across "standard" and "more complex"
securities, while the asset-backed portfolio represents approximately 14% of the
total fixed income portfolio.
Standard mortgage-backed securities are issued on and collateralized by an
underlying pool of single-family home mortgages. Principal and interest payments
from the underlying pool are distributed pro rata to the security holders. More
complex mortgage-backed security structures prioritize the distribution of
interest and principal payments to different classes of securities which are
backed by the same underlying collateral mortgages.
COMPETITION
The physician professional liability insurance market in the United States is
highly competitive. According to A.M. Best, in 1998 there were 279 companies
nationally that wrote medical professional liability insurance. In New Jersey,
where approximately 53% of the Company's 1999 premiums were written for the year
ended December 31, 1999, the Company's principal competitor is Princeton
Insurance Companies. In New Jersey and other states, the Company's principal
competitors include CNA Insurance Group, PHICO Insurance Company and St. Paul
Companies. Substantially all of 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 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.
The Company believes that several insurance companies possessing greater
financial resources than the Company are writing medical malpractice insurance
in New Jersey and Pennsylvania that provides the same coverage as the Company's
products at prices much lower than the Company's
17
<PAGE> 19
prices. This price competition could have a material adverse effect on the
Company's financial condition and results of operations. The Company believes
that the principal competitive factors, in addition to pricing, include
financial stability and A.M. Best ratings, breadth and flexibility of coverage,
and the quality and level of services provided.
The hospital professional liability insurance market is also extremely
competitive. Most of the Company's principal insurance company competitors for
physicians and medical groups also now actively compete in the hospital
professional liability insurance market. Moreover, the Company's primary
competitor in New Jersey was founded to provide professional liability coverage
to hospitals, while the Company traditionally served the individual physician
market. The Company also believes that the number of health care entities that
insure their affiliated physicians through self-insurance may rise.
The Company plans to compete by diversifying its products, expanding
geographically, extending its distribution channels, and differentiating itself
through superior claims, risk management, and customer services. All markets in
which the Company now writes insurance and in which it expects to enter have
certain competitors with substantially greater financial and operating resources
than the Company.
REGULATION
MIIX, LP&C and MIIX New York are each subject to supervisory regulation by their
respective states of incorporation, commonly called the state of domicile.
Lawrenceville Re., Ltd. (Lawrenceville Re) is subject to laws governed by the
Bermuda Registrar of Companies. MIIX is domiciled in New Jersey, LP&C is
domiciled in Virginia, MIIX New York is domiciled in New York and Lawrenceville
Re is domiciled in Bermuda. Therefore, the laws and regulations of these states,
and those of Bermuda, 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.
Holding Company Regulation. As part of a holding company system, MIIX, 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, Virginia and/or New York
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 lesser, require prior approval. In New York,
such transactions which within any 12 month period aggregate to more than 1% of
the insurance company's admitted assets as of the end of such company's last
fiscal year require the prior approval of the New York Insurance Department.
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
18
<PAGE> 20
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 to pay dividends to The
MIIX Group. Without prior notice to and approval of the Commissioner, MIIX 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, excluding realized capital
gains, of the preceding calendar year or 10% of statutory surplus as of the
preceding December 31. The law further requires that an insurer's statutory
surplus following a dividend or other distribution be reasonable in relation to
its outstanding liabilities and adequate to meet its financial needs. New Jersey
permits the payment of dividends only out of statutory earned (unassigned)
surplus unless the payment out of other funds is approved by the Commissioner.
In addition, a New Jersey insurance company is required to give the New Jersey
Department notice of any dividend after declaration, but prior to payment.
The other United States domiciled Insurance Subsidiaries will be subject to
similar provisions and restrictions under the Holding Company Acts of other
states. Lawrenceville Re is subject to restrictions imposed by the Bermuda
Registrar of Companies.
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 32 states and the District of Columbia. In one such state, the
license currently does not include the authority to write medical malpractice
insurance. The extent of regulation varies by state, but such regulation usually
includes: (i) regulating premium rates and policy forms; (ii) setting minimum
capital and surplus requirements; (iii) regulating guaranty fund assessments;
(iv) licensing companies and agents; (v) approving accounting methods and
methods of setting statutory loss and expense reserves; (vi) setting
requirements for and limiting the types and amounts of investments; (vii)
establishing requirements for the filing of annual statements and other
financial reports; (viii) conducting periodic statutory examinations of the
affairs of insurance companies; (ix) approving proposed changes of control; and
(x) limiting the amounts of dividends that may be paid without prior regulatory
approval. Such regulation and supervision are primarily for the benefit and
protection of policyholders and not for the benefit of investors.
Insurance Guaranty Associations. Most states, including New Jersey, Virginia and
New York 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 MIIX and
LP&C are respectively domiciled, and Texas, Pennsylvania, Maryland and Kentucky,
states in which the Company has significant business, permit a maximum
assessment of 2%. Ohio permits a maximum assessment of 1.5%. New York requires
contributions of 1/2 of 1% of annual premiums written during the preceding year
until such time that the fund reaches a minimum amount set by New York.
Contributions can be increased if the fund falls below the minimum. New York law
does not establish a maximum assessment amount. 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, 1996 financial statements,
was completed on November 24, 1999, and a report was issued on December 1, 1999.
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. LP&C is
19
<PAGE> 21
currently scheduled to commence its latest periodic examination in April, 2000.
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, 1999, MIIX's
RBC was 2.45 times greater than the threshold requiring the least regulatory
attention. At December 31, 1999 LP&C's RBC was 11.09 times greater than the
threshold requiring the least regulatory attention. MIIX New York did not write
any premium during 1999, and therefore the RBC ratio is not meaningful for that
period.
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
1999 MIIX's ratios were all within the usual range. In 1998 the Exchange had one
ratio (change in net writings) slightly outside the usual range as a result of
growth in business presented by opportunities in a dynamic marketplace. In 1999,
LP&C had two ratios (two-year overall operating ratio and change in
policyholders' surplus) outside the usual range, in 1998 LP&C had two ratios
(change in net writings and two-year overall operating ratio) and in 1997 LP&C
had two ratios (change in net writings and change in surplus). These ratios
reflect the increase in premiums written during the early years of operation,
capital contributions by MIIX and the high cost of expanding LP&C's business, as
LP&C was acquired in 1996 and had no business at that time. IRIS ratio results
for MIIX New York are not applicable due to no business written in this company
in 1999.
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 1999.
Prior Approval of Rates and Policies. Pursuant to the New Jersey Insurance Code,
a domestic insurer must submit policies and endorsements to the Commissioner for
prior approval, but rating plans and rates are not subject to review until 30
days after use. Virginia law requires LP&C to submit rating plans, rates,
policies, and endorsements to regulators for prior approval. The possibility
exists that the Company may be unable to implement desired rates, policies,
endorsements, forms, or manuals if such items are not approved by the applicable
regulatory authorities. In the past, substantially 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." Unlike most other states, New
York's Insurance Department sets the rates for medical malpractice coverage on
an annual basis.
20
<PAGE> 22
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. The Company believes that 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 generally 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 Company principally writes 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 and/or
the National Practitioner 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 Practitioner 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 $400,000 per claim for physicians and hospitals and $1.2
million and $2.0 million aggregate per year for physicians and hospitals,
respectively. The Cat Fund coverage is limited to $800,000 per claim and $2.4
million in the aggregate. Similarly, effective July 1, 1999 physicians in
Indiana are required to purchase insurance limits of $250,000 per claim and
$750,000 in the aggregate. Effective July 1, 1999 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 occurring
after June 30, 1999 causing injury or death is $1.25 million in Indiana.
A.M. BEST RATINGS
In 1999, A.M. Best, which rates insurance companies based on factors of concern
to policyholders, rated the Company "A (Excellent)" for the fifth consecutive
year and reaffirmed the rating in November of 1999. 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.
EMPLOYEES
The Company employs approximately 235 persons. None of the Company's employees
are covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.
ITEM 2. PROPERTIES
The Company leases 49,000 square feet of space from the Medical Society of New
Jersey in Lawrenceville, New Jersey, where its home office and Mid-Atlantic
Region office are located. The Company also leases 28,000 square feet of space
in a second Lawrenceville office building, where its claim department and a
subsidiary are
21
<PAGE> 23
based. The Company's regional office facilities are located in rented office
space in Indianapolis (5,000 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.
ITEM 3. LEGAL PROCEEDINGS
ACTIONS OPPOSING THE PLAN OF REORGANIZATION
Prior to the reorganization of the Company, three physician members of the
Exchange (the "appellants") filed an appeal in the New Jersey Superior Court,
Appellate Division, challenging the Commissioner of Banking and Insurance's
Order approving the Plan of Reorganization. The principal arguments raised by
the appellants were that: (1) the pro rata, three-year look-back allocation of
stock was unfair to long-time members; (2) the Commissioner lacked statutory
authority to approve the reorganization because there is no statute specifically
authorizing the conversion of a reciprocal exchange to a stock company; and (3)
there was insufficient advance notice of the public hearing on the Plan. During
the pendency of the appeal, the appellants made a total of six applications to
the New Jersey Department of Banking and Insurance, the New Jersey Superior
Court, Appellate Division and the New Jersey Supreme Court seeking to stay the
reorganization and/or the initial public offering of MIIX Group stock. All of
these applications were denied. On February 14, 2000, the New Jersey Superior
Court, Appellate Division issued an Opinion that rejected the appellants'
challenge to the Commissioner's Order approving the Plan of Reorganization. The
appellants have filed a petition for review of the Appellate Division decision
with the New Jersey Supreme Court. The Company plans to vigorously oppose the
petition.
In January 1999, five physician members of the Exchange filed a putative class
action against the Exchange, Underwriter, MIIX Group, certain of their officers
and the board of the Exchange. Other parties were subsequently added as
defendants in the action. Among other things, plaintiffs sought to force the
Exchange to declare a dividend from surplus and reserves, challenge various
components of the reorganization including, but not limited to, the stock
allocation formula contained in the Plan of Reorganization and the valuation of
Underwriter, challenge the composition of the Board of Directors of MIIX Group
as excessive, challenge key executive compensation and benefit packages as
excessive, challenge the proposed IPO share price of MIIX Group stock as
inadequate, challenge the MIIX Prospectus as misleading and to recover
unspecified monetary damages. While the action was pending, the plaintiffs also
sought on numerous occasions to stay the members' vote on the Plan of
Reorganization and the IPO of MIIX Group stock. All of those applications were
denied. In August 1999, the trial court dismissed all of plaintiffs' claims on
the grounds that the court lacked jurisdiction to hear them because they were
part of the appeal of the Commissioner's Order and/or because they failed to
state a legal claim. Plaintiffs have filed a Notice of Appeal with the New
Jersey Superior Court, Appellate Division seeking review of the trial court's
orders dismissing the Complaint and denying plaintiffs' applications for
injunctive relief. The Company plans to vigorously oppose the appeal.
The Company may be a party to litigation from time to time in the ordinary
course of business. Management believes that the Company is not currently a
party to any litigation which may have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock became publicly tradeable on the NYSE on July 30,
1999 under the symbol of "MHU." The following table shows the price ranges per
share in each quarter since that date:
22
<PAGE> 24
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1999
----
Third Quarter (since July 31) $18.31 $14.19
Fourth Quarter $17.00 $11.69
2000
----
First Quarter (January 1-March 22) $14.125 $11.00
</TABLE>
On March 22, 2000, the closing price of the Company's stock was $12.125.
STOCKHOLDERS OF RECORD
The approximate number of shareholders of record of the Company's Common Stock
as of March 22, 2000 was 7,537. That number excludes the beneficial owners of
shares held "in street" names or held through participants in depositories.
DIVIDENDS
The MIIX Group, Incorporated's Board of Director's (the "Board") declared a cash
dividend of $.05 per share on its common stock each quarter of 1999, since July
30, 1999. On February 16, 2000, the Board declared a $.05 quarterly dividend
payable on March 31, 2000 to shareholders of record on March 15, 2000. The
Company expects to continue the payment of quarterly dividends to its
shareholders. The continued payment and amount of cash dividends will depend
upon, among other factors, the Company's operating results, overall financial
condition, capital requirements and general business conditions.
The MIIX Group, Incorporated is a holding company largely dependent upon
dividends from its subsidiaries to pay dividends to its shareholders. The
insurance company subsidiaries are subject to state laws and regulations that
restrict their ability to pay dividends. MIIX Insurance Company, The MIIX
Group's principal insurance subsidiary, may pay dividends to the MIIX Group in
any year, without regulatory approval, to the extent such dividends do not
exceed the greater of statutory net income, excluding realized capital gains, of
the preceding calendar year or 10% of statutory surplus at the end of the
preceding year. In 1999 the MIIX Insurance Company could have paid dividends to
the MIIX Group of approximately $25.3 million without the prior approval of the
New Jersey Insurance Commissioner. See Note 9 of the Notes to Consolidated
Financial Statements and "Business Regulation Regulation of Dividends from
Insurance Subsidiaries."
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and operating
data for the Company. The income statement data set forth below for each of the
five years in the period ended December 31, 1999 and the balance sheet data as
of December 31, 1999, 1998, 1997 and 1996 are derived from the consolidated
financial statements of the Company audited by Ernst & Young LLP, independent
auditors. The balance sheet data as of December 31, 1995 is derived from
unaudited consolidated financial statements of the Company which management
believes incorporate all of the adjustments necessary for the fair presentation
of the financial condition as of such date. All selected financial data are
presented in accordance with GAAP, except for the item entitled "statutory
surplus," which is presented in accordance with Statutory Accounting Principles
("SAP"). The statutory surplus amounts are derived from the audited statutory
financial statements of the Company and, in the opinion of management, fairly
reflect the specified data for the periods presented. The information set forth
below should be read in conjunction with, and is qualified by reference to, the
Company's financial statements and related notes thereto included elsewhere
herein.
23
<PAGE> 25
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
For the Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total premiums written ............. $ 257,100 $ 231,858 $ 177,908 $ 146,768 $ 138,066
========= ========== =========== ========== ===========
Net premiums earned ............... $ 187,845 $ 162,501 $ 123,330 $ 107,887 $ 105,256
Net investment income ............. 75,661 65,107 53,892 49,135 51,896
Realized investment gains (losses) (6,770) 36,390 10,296 5,832 13,149
Other revenue ..................... 8,323 891 2,884 3,164 2,807
--------- ---------- ---------- ---------- -----------
Total revenues ................ 265,059 264,889 190,402 166,018 173,108
--------- ---------- ---------- ---------- -----------
Losses and loss adjustment expenses .. 174,986 155,868 120,496 110,593 107,889
Underwriting expenses ................ 42,618 42,063 25,415 17,553 14,743
Funds held charges ................... 14,338 13,420 13,361 10,273 6,996
Other expenses ....................... 3,333 0 0 0 0
Restructuring charge ................. 2,409 0 0 0 0
Impairment of capitalized system
development costs .................. 0 12,656 0 0 0
---------- ----------- ----------- ----------- -----------
Total expenses ................ 237,684 224,007 159,272 138,419 129,628
---------- ----------- ----------- ----------- -----------
Income before income taxes ........... 27,375 40,882 31,130 27,599 43,480
Income tax expense ................... 6,617 11,154 2,006 10,004 11,402
---------- ----------- ----------- ----------- -----------
Net income .................... $ 20,758 $ 29,728 $ 29,124 $ 17,595 $ 32,078
========== =========== =========== =========== ===========
BALANCE SHEET DATA (AT END OF PERIOD):
Total investments ................. $1,182,943 $ 1,165,698 $ 1,026,971 $ 916,330 $ 895,146
Total assets ...................... 1,837,158 1,674,262 1,446,559 1,295,441 1,173,681
Total liabilities ................. 1,518,454 1,351,419 1,136,585 1,033,129 919,050
Total stockholders' equity ........ 318,704 322,843 309,974 262,312 254,631
ADDITIONAL DATA:
GAAP ratios:
Loss ratio ........................ 93.1% 95.9% 97.7% 102.5% 102.5%
Expense ratio ..................... 22.7% 25.9% 20.6% 16.3% 14.0%
----------- ----------- ----------- ----------- -----------
Combined ratio .................... 115.8% 121.8% 118.3% 118.8% 116.5%
=========== =========== =========== =========== ===========
Statutory surplus .................... $ 268,445 $ 253,166 $ 242,395 $ 208,478 $ 184,651
=========== =========== =========== =========== ===========
Basic earnings per share (1).......... $ 1.54 $ 2.47 $ 2.42 $ 1.46 $ 2.67
=========== ========== =========== =========== ===========
Diluted earnings per share (1) ....... $ 1.53 $ 2.47 $ 2.42 $ 1.46 $ 2.67
=========== ========== =========== =========== ===========
Dividend per share ................... $ .10 $ 0 $ 0 $ 0 $ 0
=========== ========== =========== =========== ===========
Book value per share (1).............. $ 20.94 $ 26.90 $ 25.78 $ 21.81 $ 15.36
=========== ========== =========== =========== ===========
</TABLE>
(1) Basic earnings per share of common stock for the year ended December 31,
1999 is computed using the weighted average number of common shares
outstanding during the year of 13,497,110. Diluted earnings per share of
common stock for the year ended December 31, 1999 is computed using the
weighted average number of common shares outstanding during the year of
13,534,052. Basic and diluted earnings per share for the years ended
December 31, 1998 and prior gives effect to the issuance of approximately
12,025,000 shares of Common Stock to Distributees in the Company's
reorganization consummated on August 4, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto appearing elsewhere in this
Annual Report. The consolidated financial statements for 1999 include the
accounts and operations of The MIIX Group, Incorporated ("The MIIX Group") and
its wholly-owned subsidiaries, including, since August 4, 1999, New Jersey State
Medical Underwriters, Inc. and its wholly-owned subsidiaries ("the
Underwriter"). The consolidated financial statements for 1999 prior to August 4,
1999, and for 1998 and 1997, include the accounts and operations of the former
parent company Medical Inter-Insurance Exchange (the "Exchange") and its
wholly-owned subsidiaries.
OVERVIEW
REORGANIZATION AND INITIAL PUBLIC OFFERING
On August 4, 1999, the reorganization of the Exchange was consummated. The
reorganization was conducted according to a Plan of Reorganization adopted by
the Board of Governors of the Exchange on October 15, 1997 and approved by
members of the Exchange at a special meeting held on March 17, 1999 and by the
Commissioner of the New Jersey Department of Banking and Insurance ("the
Commissioner"). The Plan of Reorganization included several key components,
including: formation of The MIIX Group to be the ultimate parent company for the
Company; the transfer of assets and liabilities held by the Exchange to an
affiliated stock insurance company, MIIX Insurance Company, formed for that
purpose; acquisition of the Underwriter; distribution of shares of The MIIX
Group common stock and/or cash to current and former members of the Exchange
("distributees") as defined in the Plan
24
<PAGE> 26
of Reorganization; and dissolution of the Exchange. In connection with the
reorganization, 11,854,033 shares of The MIIX Group common stock were issued to
distributees and 814,815 shares were issued to the Medical Society of New
Jersey, plus $100,000 in cash, in exchange for all common stock of the
Underwriter.
The Plan has been challenged in two court actions. On February 14, 2000, the
Appellate Division of the Superior Court of New Jersey affirmed the
Commissioner's order approving the Plan of Reorganization, rejecting all of
appellants' contentions, in response to an appeal filed by three individual
insureds challenging the Commissioner's order. Appellants are now seeking review
of the Appellate Court's decision by the New Jersey Supreme Court. A second
court action challenging certain aspects of the Plan of Reorganization and
seeking damages and injunctive relief that was filed by five individual insureds
in January 1999 was dismissed by the trial court in August 1999 and is now on
appeal. The Company intends to continue vigorously defending against these
actions.
The MIIX Group sold three million shares of its common stock in an underwritten
public offering ("the Offering") that closed on August 4, 1999. On August 11,
1999 an additional 450,000 shares were sold to underwriters of the Offering
pursuant to an over-allotment option in the Offering underwriting agreement. The
net proceeds of the Offering of approximately $37.3 million consisted of gross
proceeds of $46.5 million less reorganization and offering costs of $9.2 million
and have been used for general corporate purposes, including payment of
dividends and the repurchase of shares under a stock buyback program. During
August 1999, the Company approved a stock repurchase program authorizing the
purchase of up to one million shares of common stock in the open market. During
November 1999, the program was amended, authorizing the purchase of up to an
additional two million shares. Through December 31, 1999, 1,236,809 shares had
been repurchased at a total cost of $19.2 million.
GENERAL
The medical malpractice industry is cyclical in nature. Many factors influence
the financial results of the medical malpractice 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 investments and
perceived premium rate adequacy.
Management periodically reviews the Company's guidelines for premiums,
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
losses, LAE and other actuarially significant data. The process may result in
changes in rates for certain exposure classes.
LOSS AND LAE RESERVES
The determination of loss and loss adjustment expense ("LAE") reserves involves
the 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.
Management relies primarily on such historical 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 have been
and may continue to be revised. The Company increased prior year gross reserves
by $16.5 million and $3.8 million in 1999 and 1998 respectively. No adjustments
to prior year gross reserves were made during 1997.
The Company offered traditional occurrence coverage from 1977 through 1986 and
has offered a form of occurrence-like coverage, "modified claims made," from
1987 to the present. Occurrence and modified claims made coverages have
constituted the majority of the Company's business throughout its history. In
recent years, however, the Company has increased its claims made business.
Development of losses and LAE is longer and slower for occurrence business than
claims made business.
25
<PAGE> 27
Management believes the extent and, particularly, the frequency of reserve
adjustments may increase in the future in response to the Company's expansion
into new states and the increasing proportion of claims made insurance coverage
being provided in those new markets. There are significant uncertainties in
estimating losses and LAE in the casualty insurance business and these
uncertainties are increased in periods when a company is expanding into new
markets with new distribution channels. In addition, the shorter reporting
period for claims made policies should allow the Company to more quickly
determine ultimate losses on this business. Gross loss and LAE reserves on
claims made policies amounted to $185.5 million, or 17.6% of total gross loss
and LAE reserves at December 31, 1999, compared to gross loss and LAE reserves
on claims made policies of $104.8 million, or 11.0% of total gross loss and LAE
reserves at December 31, 1998.
Reserves for incurred but not reported claims ("IBNR reserves") have
consistently represented the majority of total loss and LAE reserves held by the
Company. At December 31, 1999 and 1998, gross IBNR reserves composed 60.8% and
65.6%, respectively, of total gross loss and LAE reserves. The decrease in the
proportion of IBNR in 1999 is primarily the result of additional claims made
basis reserves, which develop more quickly from IBNR reserves into reported case
reserves than the Company's occurrence basis loss and LAE reserves.
REINSURANCE
The Company reinsures its risks primarily under two reinsurance contracts, a
specific excess of loss contract ("Specific Contract") and an aggregate excess
of loss contract ("Aggregate Contract"). During 1999, the Company's retention
for casualty business under the Specific Contract was $10 million per loss. For
medical professional liability and commercial general liability business,
coverage was provided up to $65 million per loss above the retention. For other
casualty business, coverage was provided up to $15 million per loss above the
retention. Property coverage was also provided under the Specific Contract in
the amount of $14.5 million in excess of a Company retention of $500,000 per
policy. The Company retains an 8% co-participation in covered losses. The
Company has maintained specific excess of loss reinsurance coverage generally
similar to that described for several years.
The Aggregate Contract in 1999 provided 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 $200 million. The Company has
maintained aggregate excess of loss coverage generally similar to that described
since 1993.
The Company's aggregate reinsurance contracts are maintained on a funds withheld
basis whereby the Company holds the ceded premiums in a funds withheld account
for the purpose of paying losses and related loss adjustment expenses. Interest
charges are credited on funds withheld at predetermined contractual rates.
UNDERWRITING EXPENSES
The Company's expansion into new states has increased certain underwriting
expenses. The Company believes that its plan of expansion through broker and
agent distribution channels will increase its marketing expenses, but it also
believes that these relationships will reduce the need to make other significant
distribution and administrative expenditures. Commissions for policies sold
through brokers and agents 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 may increase.
CAUTIONARY STATEMENT
Statements in this Annual Report that are not strictly historical constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements. In addition to specific uncertainties and other
factors mentioned elsewhere in this report, these uncertainties and other
factors include, but are not limited to: (i) the Company having sufficient
liquidity and
26
<PAGE> 28
working capital; (ii) the Company's ability to achieve consistent profitable
growth; (iii) the Company's ability to diversify its product lines; (iv) the
continued adequacy of the Company's loss and loss adjustment expense reserves;
and (v) the Company's avoidance of any material loss on collection of
reinsurance recoverables. The words "believe," "expect," "anticipate,"
"project," and similar expressions identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET PREMIUMS EARNED Net premiums earned increased $25.3 million, or 15.6%, to
$187.8 million in 1999 from $162.5 million in 1998, composed of increased direct
and assumed premiums earned, offset somewhat by an increase in ceded earned
premiums. Direct and assumed premiums earned increased $37.2 million, or 18.7%,
to $235.8 million in 1999 from $198.6 million in 1998. This increase was
composed of an increase in direct premiums earned of $27.3 million resulting
from an increase in direct premiums written during the second half of 1998 and
during 1999 and an increase in assumed premiums earned of $9.9 million,
principally due to a large assumed excess of loss reinsurance contract written
on an institutional account. Ceded earned premiums increased $11.9 million, or
32.8%, to $48.0 million in 1999 from $36.1 million in 1998, primarily resulting
from additional ceded losses under aggregate reinsurance contracts during 1999.
NET INVESTMENT INCOME Net investment income increased $10.6 million, or 16.2%,
to $75.7 million in 1999 from $65.1 million in 1998. Average invested assets
during 1999 increased to approximately $1.2 billion in 1999 from $1.1 billion in
1998. The average pre-tax yield on the investment portfolio increased to 6.22%
in 1999 from 5.88% in 1998 primarily as the result of changes in asset
allocation with an increased concentration in higher pre-tax yielding
securities, including disposition of the Company's equity portfolio with
reinvestment of the proceeds in fixed maturity securities, in an increasing
market yield environment.
REALIZED INVESTMENT GAINS AND LOSSES Net realized investment losses were $6.8
million in 1999 compared to net realized investment gains of $36.4 million in
1998. In 1999, the net losses were primarily due to sales of fixed-maturity
investments to reposition the investment portfolio in an increasing market yield
portfolio. In 1998 the net gains were primarily composed of $38.4 million on the
disposition of the Company's equity portfolio, partially offset by a $14.0
million loss realized on the expiration of an equity collar position on July 13,
1998. The remaining net realized gains in 1998 of $12.0 million resulted from
sale of fixed-maturity investments in a generally falling market yield
environment.
OTHER REVENUE Other revenue increased $7.4 million to $8.3 million in 1999 from
$.9 million in 1998. The increase in 1999 consists primarily of $3.4 million of
revenues associated with the leasing, brokerage and other businesses acquired by
the Company in the acquisition of the Underwriter on August 4, 1999, a gain of
$3.5 million resulting from common stock received during 1999 in the
demutualization of Manulife Financial Corp., and a $1.0 million death benefit
received during 1999 from a corporate owned life insurance policy.
LOSS AND LOSS ADJUSTMENT EXPENSES (LAE) Losses and LAE increased $19.1 million,
or 12.3%, to $175.0 million in 1999 from $155.9 million in 1998. Losses and LAE
were net of ceded losses and LAE of $96.1 million in 1999 and $62.4 million in
1998. The ratio of net losses and LAE to net premiums earned improved to 93.1%
in 1999 from 95.9% in 1998. This improvement is principally attributable to a
reduction in the gross loss and LAE ratio on the Company's physician occurrence
business written in 1999, combined with an increasing portion of the Company's
business being written on a claims made basis which is expected to result in a
lower ultimate loss and LAE ratio. Changes in loss and LAE reserves held on
prior accident years also impacted the ratio of net losses and LAE to net
premiums earned in 1999 and 1998. During 1999, gross loss and LAE reserves were
increased by $16.5 million, ceded loss and LAE reserves were increased by $30.5
million, and ceded earned premiums associated with the adjustments to ceded loss
and LAE reserves were increased by $10.6 million. During 1998, gross loss and
LAE reserves were increased by $3.8 million, ceded loss and LAE reserves were
increased by $5.9 million, and ceded earned premiums associated with the
adjustments to ceded loss and LAE reserves were increased by $3.3 million.
27
<PAGE> 29
UNDERWRITING EXPENSES Underwriting expenses increased $.5 million, or 1.3%, to
$42.6 million in 1999 from $42.1 million in 1998. The increase in expenses was
attributable to the costs of acquiring new business, primarily through a broker
distribution network, and to the increased infrastructure costs necessary to
service the increased volume of business activity in 1999. The ratio of
underwriting expenses to net premiums earned, however, declined to 22.7% in 1999
from 25.9% in 1998. This improvement was primarily the result of greater
economies of scale present with the larger premium in 1999 combined with the
impact of the Company's cost reduction efforts, including the restructuring
undertaken in June 1999.
FUNDS HELD CHARGES Funds held charges increased $.9 million, or 6.8%, to $14.3
million in 1999 from $13.4 million in 1998. Funds held charges relate to the
Company's ceded aggregate reinsurance contracts, for which balances due to
reinsurers are withheld as collateral for losses and loss adjustment expenses
ceded under the contracts. The increase in funds held charges in 1999 was
primarily due to the increase in reinsurance recoverable on unpaid losses ceded
under the contracts during 1999.
OTHER EXPENSES Other expenses amounted to $3.3 million in 1999 and primarily
consisted of the costs associated with the leasing, brokerage and other
businesses acquired by the Company in the acquisition of the Underwriter on
August 4, 1999.
RESTRUCTURING CHARGE The Company undertook a restructuring during the second
quarter of 1999 and on June 23, 1999 announced the reduction of regional and
home office staff and the closing of the regional offices in Boston and Atlanta
to centralize their functions at the Company's home office. The Company
recognized a pre-tax charge of $2.4 million related to this restructuring. All
actions contemplated by the charge were taken in June 1999 and no adjustments to
the restructuring charge reserve were recorded during the balance of 1999.
IMPAIRMENT OF CAPITALIZED SYSTEM DEVELOPMENT COSTS During 1998, management
replaced its policy administration system and accordingly recognized a $12.7
million pre-tax charge representing the net book value of capitalized costs
associated with the old computer system which is no longer being used for the
Company's operations.
INCOME TAXES Income taxes decreased $4.5 million, or 40.7%, to $6.6 million in
1999 from $11.1 million in 1998. The effective tax rate decreased to 24.2% in
1999 from 27.3% in 1998, due primarily to the significant realized investment
gains in 1998.
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET PREMIUMS EARNED Net premiums earned increased $39.2 million, or 31.8%, to
$162.5 million in 1998 from $123.3 million in 1997, composed of increased direct
and assumed premiums earned and a decrease in ceded earned premiums. Direct and
assumed premiums earned increased $33.0 million, or 19.9%, to $198.6 million in
1998 from $165.6 million in 1997. This increase consisted of additional direct
premiums earned of $45.5 million in 1998, primarily representing additional
business written during the latter half of 1997 and during 1998 in expansion
states for the Company, offset by a decrease in assumed premiums earned of $12.5
million in 1998, primarily due to a large assumed reinsurance contract written
on an institutional group in 1997 and not repeated in 1998. Ceded earned
premiums decreased $6.2 million in 1998 compared to 1997 largely due to ceded
reinsurance premiums associated with this large assumed reinsurance contract in
1997 and not repeated in 1998.
NET INVESTMENT INCOME Net investment income increased $11.2 million, or 20.8%,
to $65.1 million in 1998 from $53.9 million in 1997. Average invested assets
during 1998 increased to approximately $1.1 billion during 1998 from $1.0
billion in 1997. The average pre-tax yield on the investment portfolio increased
to 5.88% in 1998 from 5.61% in 1997 primarily as the result of changes in asset
allocation with an increased concentration in higher pre-tax yielding securities
and a corresponding decrease in government and tax-exempt security holdings.
REALIZED INVESTMENT GAINS Net realized investment gains increased $26.1 million
to $36.4 million in 1998 from $10.3 million in 1997. In 1998 the net gains were
primarily composed of $38.4 million in net gains on the disposition of the
Company's equity portfolio, partially offset by a $14.0 million loss realized on
the expiration of an equity collar position on July 13, 1998. The remaining net
28
<PAGE> 30
realized gains in 1998 of $12.0 million resulted from sale of fixed-maturity
investments in a generally falling market yield environment. In 1997 the net
gains consisted of net trading gains of $8.7 million from the equity portfolio
and $1.6 million from sale of fixed-maturity investments.
OTHER REVENUE Other revenue decreased $2.0 million, or 69.1%, to $.9 million in
1998 from $2.9 million in 1997 and was primarily composed of finance charge
income associated with the Company's financing of policyholder premiums, which
declined as the Company outsourced its installment payment plans in the second
quarter of 1998.
LOSS AND LOSS ADJUSTMENT EXPENSES (LAE) Losses and LAE increased $35.4 million,
or 29.4%, to $155.9 million in 1998 from $120.5 million in 1997. Losses and LAE
were net of ceded losses and LAE of $62.4 million in 1998 and $68.9 million in
1997. The ratio of net losses and LAE to net premiums earned decreased to 95.9%
in 1998 from 97.7% in 1997. This decrease is principally attributable to an
increasing portion of the Company's business being written on a claims made
basis which is expected to result in a lower ultimate loss and LAE ratio.
Changes in loss and LAE reserves held on prior accident years also impacted the
ratio of net losses and LAE to net premiums earned in 1998. During 1998, gross
loss and LAE reserves were increased by $3.8 million, ceded loss and LAE
reserves were increased by $5.9 million, and ceded earned premiums were
increased as the result of the additional ceded losses and LAE by $3.3 million.
No adjustments to loss and LAE reserves held on prior accident years were made
during 1997.
UNDERWRITING EXPENSES Underwriting expenses increased $16.6 million, or 65.5%,
to $42.1 million in 1998 from $25.4 million in 1997. The increase in expenses
was attributable to the costs of acquiring new business, primarily through a
broker distribution network, and to increased infrastructure costs necessary to
service the increased volume of business activity. The ratio of underwriting
expenses to net premiums earned increased to 25.9% in 1998 from 20.6% in 1997.
FUNDS HELD CHARGES Funds held charges of $13.4 million in 1998 remained
unchanged from 1997. Funds held charges relate to the Company's ceded aggregate
reinsurance contracts, for which balances due to reinsurers are withheld as
collateral for losses and loss adjustment expenses ceded under the contracts.
Funds held charges remained flat in 1998 compared to 1997 as the result of an
increase in interest accrued on funds held of $1.9 million consistent with the
change in the funds held balances, offset by an adjustment to funds held
interest of $1.9 million associated with adjustments to ceded losses and premium
under the aggregate reinsurance contracts during 1998.
IMPAIRMENT OF CAPITALIZED SYSTEM DEVELOPMENT COSTS During 1998, management
replaced its policy administration system and accordingly recognized a $12.7
million pre-tax charge representing the net book value of capitalized costs
associated with the old computer system which is no longer being used for the
Company's operations.
INCOME TAXES Income taxes increased $9.2 million to $11.2 million in 1998 from
$2.0 million in 1997. The effective tax rate increased to 27.3% in 1998 from
6.4% in 1997, due primarily to the significant realized gains in 1998 and
release of a $4.2 million provision for tax contingencies in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The MIIX Group is a holding company whose assets primarily consist of all of the
capital stock of its subsidiaries. Its principal sources of funds are dividends
and other permissible payments from its subsidiaries and the issuance of debt
and equity securities. The insurance company subsidiaries are restricted by
state regulation in the amount of dividends they can pay in relation to surplus
and net income without the consent of the applicable state regulatory authority,
principally the New Jersey Department of Banking and Insurance. MIIX Insurance
Company, The MIIX Group's principal insurance subsidiary, may pay dividends to
The MIIX Group in any year, without regulatory approval, to the extent such
dividends do not exceed the greater of statutory net income (excluding realized
capital gains) of the preceding calendar year or 10% of statutory surplus at the
end of the preceding year. The MIIX Group expects that these current limitations
imposed on MIIX Insurance Company should not affect its ability to declare and
pay dividends sufficient to support The MIIX Group's initial dividend policy.
Applicable regulations further require 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
29
<PAGE> 31
payment of dividends only out of statutory earned (unassigned) surplus unless
the payment out of other funds is approved by the Commissioner. The other
insurance subsidiaries are subject to similar provisions and restrictions. No
significant amounts are currently available for payment of dividends by
insurance subsidiaries other than MIIX Insurance Company without prior approval
of the applicable state insurance department or Bermuda Registrar of Companies.
The primary sources of the Company's liquidity are insurance and assumed
reinsurance premiums collected, net investment income, proceeds from the
maturity or sale of invested assets, recoveries from reinsurance and revenues
from non-insurance operations. Funds are used to pay losses and LAE, operating
expenses, reinsurance premiums and taxes. The Company's net cash flow from
operating activities was $107.4 million in 1999 compared to $92.7 million in
1998 and $64.6 million in 1997. The rise in positive cash flow during this
period resulted from increases in collected premiums in excess of increases in
paid losses and LAE and in paid underwriting expenses. 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 Company invests its positive cash flow from operating activities primarily
in fixed maturity securities. The Company's current investment strategy seeks to
maximize after-tax income through a high quality, diversified,
duration-sensitive, taxable bond and tax-preferred municipal bond portfolio,
while maintaining an adequate level of liquidity. The Company currently plans to
continue this strategy.
The Company held collateral of $271.6 million and $228.1 million at December 31,
1999 and 1998 respectively, in the form of funds held, for recoverable amounts
on ceded unpaid losses and LAE under certain reinsurance contracts. Under the
contracts, reinsurers may require that a trust fund be established to hold the
collateral should one or more triggering events occur, such as a downgrade in
the Company's A.M. Best rating to B+ or lower, or a reduction in statutory
capital and surplus to less than $60 million. Otherwise no restrictions are
placed on investments held in support of the funds held. In accordance with the
provisions of the reinsurance contracts, the funds held are credited with
interest at contractual rates ranging from 7.5% to 8.6%, which is recorded as an
expense in the year incurred.
Cash dividends paid to stockholders were $0.10 per share in 1999. The Company
expects to pay dividends in the future. However, payment of dividends is subject
to approval by the Board of Directors, earnings and the financial condition of
the Company.
Based on historical trends, market conditions and its business plans, the
Company believes that its sources of funds will be sufficient to meet its
liquidity needs over the next 18 months and beyond. However, because economic,
market and regulatory conditions may change, there can be no assurance that the
Company's funds will be sufficient to meet these liquidity needs.
During August 1999, the Company approved a stock repurchase program authorizing
the purchase of up to 1,000,000 shares of its common stock in the open market.
During November 1999, the program was amended, authorizing the purchase of up to
an additional 2,000,000 shares. Through December 31, 1999, 1,236,809 shares had
been repurchased at a total cost of $19.2 million.
YEAR 2000
Because certain computer software programs have historically been designed to
use a two-digit code to identify the year for date-sensitive material, such
programs may not properly recognize post twentieth century dates. This could
result in system failures and improper information processing that could disrupt
the Company's business operations.
The Company began evaluating this issue in 1996 in connection with an overall
evaluation of the Company's systems and during 1997 assigned a project manager
to study the Company's information systems and computers to determine whether
they would appropriately handle post-1999 date codes. The identification of
compliance issues included the Company's internal systems and processes, as well
as exposure from service providers, brokers and other external business
partners. Software applications, hardware and information technology ("I/T")
infrastructure and non I/T systems such as the Company's telephone, security and
heating and ventilating
30
<PAGE> 32
systems were reviewed and those requiring upgrading or replacement to improve
computing capabilities and to ensure Year 2000 compliance were identified. In
this process the Company determined that its claims administration systems was
not Year 2000 compliant and a replacement system that the vendor represented to
be Year 2000 compliant was purchased and is now in operation. The Company also
upgraded its telephone system to make it Year 2000 compliant.
Management completed the development of alternative Year 2000 contingency plans
during 1999. Such plans would most likely involve the assignment of internal and
external resources to process business manually during the period of any
non-compliance. The plans remain available should Year 2000 difficulties develop
at some point in the future.
The Company completed its Year 2000 review, identification and remediation
process during 1999, at a total cost of less than $500,000. No Year 2000
difficulties related to internal systems or the systems of service providers and
other external business partners were encountered in January 2000. The Company,
however, may still be adversely impacted to the extent Year 2000 difficulties
result in claims being made against the Company's insureds. The Company's
liability for such claims, if any, is not clearly established. To date, the
Company is unaware of any such claims.
MARKET RISK OF FINANCIAL INSTRUMENTS
Market risk represents the potential for loss due to adverse changes in the fair
value of financial instruments. The market risk associated with the financial
instruments of the Company relates to the investment portfolio, which exposes
the Company to risks related to unforeseen changes in interest rates, credit
quality, prepayments and valuations. Analytical tools and monitoring systems are
in place to continually assess and react to each of these elements of market
risk.
Interest rate risk is considered by management to be the most significant market
risk element currently facing the Company. Interest rate risk is the price
sensitivity of a fixed maturity security to changes in interest rates. The
Company views these potential changes in price within the overall context of
assets and liability management. To reduce the Company's interest rate risk,
duration targets are set for the fixed income portfolio after consideration of
the duration of associated liabilities, primarily losses and LAE reserves, and
other factors.
The tables below provide, as of December 31, 1999 and 1998, information about
the Company's fixed maturity investments, which are sensitive to changes in
interest rates, showing principal amounts and the average yield applicable
thereto by expected maturity date and type of investment. The expected
maturities displayed have been compiled based upon the earlier of the investment
call date or the maturity date or, for mortgage-backed securities, expected
payment patterns based on statistical analysis and management's judgment. Actual
cash flows could differ, perhaps significantly, from the expected amounts.
At December 31, 1999:
<TABLE>
<CAPTION>
Expected Maturity Date
--------------------------------------------------------------------------------- Total
(in thousands) Principal
2000 2001 2002 2003 2004 Thereafter Amounts Fair Value
---------- ---------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government & Agency $ 5,010 $ 3,651 $ 3,220 $ 5,915 $ 415 $ 109,284 $ 127,495 $ 116,175
- - Average Yield ... 4.68% 6.07% 5.67% 6.27% 6.71% 6.22% 6.22%
Corporate ......... $ 17,402 $ 19,451 $ 30,125 $ 30,725 $ 48,145 $ 231,037 $ 376,885 $ 351,603
- - Average Yield ... 6.39% 6.40% 6.67% 7.19% 6.99% 7.36% 7.15%
Mortgage-Backed ... $ 9,234 $ 10,198 $ 20,738 $ 12,943 $ 20,067 $ 247,582 $ 320,762 $ 302,470
- - Average Yield ... 7.33% 6.48% 6.76% 6.74% 6.75% 6.80% 6.80%
Asset-Backed ...... $ 5,069 $ 13,383 $ 11,930 $ 15,578 $ 29,090 $ 84,611 $ 159,661 $ 152,365
Average Yield .... 7.20% 6.90% 6.06% 7.39% 4.65% 7.88% 7.01%
Municipal ......... $ 0 $ 4,080 $ 0 $ 0 $ 0 $ 160,420 $ 164,500 $ 155,193
- - Average Yield ... 0.00% 5.17% 0.00% 0.00% 0.00% 5.24% 5.24%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTALS ............ $ 36,715 $ 50,763 $ 66,013 $ 65,161 $ 97,717 $ 832,934 $1,149,303 $1,077,806
</TABLE>
31
<PAGE> 33
At December 31, 1998:
<TABLE>
<CAPTION>
Expected Maturity Date
----------------------
Total
(in thousands) Principal
1999 2000 2001 2002 2003 Thereafter Amounts Fair Value
---- ---- ---- ---- ---- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government & Agency $ 430 $ 1,710 $ 2,651 $ 5,769 $ 415 $ 136,570 $ 147,545 $ 138,392
- - Average Yield ... 5.94% 6.12% 6.18% 4.51% 6.64% 5.65% 5.62%
Corporate ......... $ 14,300 $ 30,960 $ 23,450 $ 4,500 $ 28,745 $ 226,299 $ 328,254 $ 324,330
- - Average Yield ... 5.87% 6.22% 6.60% 6.47% 6.25% 7.12% 6.85%
Mortgage-Backed ... $ 10,313 $ 20,343 $ 9,780 $ 25,176 $ 32,072 $ 188,001 $ 285,685 $ 288,151
- - Average Yield ... 6.34% 7.03% 7.16% 6.68% 6.45% 6.52% 6.58%
Asset-Backed ...... $ 11,301 $ 0 $ 14,299 $ 13,500 $ 5,500 $ 75,336 $ 119,936 $ 121,650
Average Yield .... 5.78% 0.00% 6.69% 6.98% 7.47% 7.09% 6.93%
Municipal ......... $ 0 $ 0 $ 11,480 $ 2,225 $ 10,490 $ 147,165 $ 171,360 $ 185,216
- - Average Yield ... 0.00% 0.00% 5.07% 5.90% 5.21% 5.18% 5.18%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTALS ............ $ 36,344 $ 53,013 $ 61,660 $ 51,170 $ 77,222 $ 773,371 $1,052,780 $1,057,739
</TABLE>
At December 31, 1999, the Company had net after-tax unrealized losses on its
fixed maturity investment portfolio of $38.8 million, which included a deferred
tax valuation allowance of $3.6 million. The net after-tax unrealized losses of
$38.8 million on the fixed maturity portfolio represented 10.8% of total
stockholders' equity gross of net after-tax unrealized losses on investments.
The net unrealized losses were the result of the rise in market interest rates
during 1999. The unrealized losses at December 31, 1999 do not significantly
impact the Company's ability to meet all regulatory capital requirements.
Management does not expect that significant unrealized losses will be realized
on the fixed maturity portfolio given the credit quality of the portfolio at
December 31, 1999, the Company's positive operating cash flows, and the
Company's policy of matching asset and liability maturities. Asset and liability
matching is an important part of the Company's portfolio management process. The
Company utilizes financial modeling and scenario analysis to closely monitor the
effective modified duration of both assets and liabilities in order to minimize
any mismatching. The goal of effective asset/liability management is to allow
payment of claims and operating expenses from operating funds without disrupting
the Company's long-term investment strategy.
In addition to interest rate risk, fixed maturity securities like those
comprising the Company's investment portfolio involve other risks such as
default or credit risk. The Company manages this risk by limiting the amount of
higher risk corporate obligations (determined by credit rating assigned by
private rating agencies) in which it invests.
Mortgage-backed and asset-backed securities involve similar risks associated
with fixed maturity investments: interest rate risk, reinvestment rate risk, and
default or credit risk. In addition, mortgage-backed and asset-backed securities
also possess prepayment risk, which is the risk that a security's originally
scheduled interest and principal payments will differ considerably due to
changes in the level of interest rates. The Company purchases mortgage-backed
and asset-backed securities structured to enhance credit quality and/or provide
prepayment stability.
Short term investments are composed of highly rated money market instruments.
The Company also holds a portfolio of equity investments. At December 31, 1999,
the cost and fair value of equity investments was $12.4 million and $13.2
million respectively. At December 31, 1998, the cost and fair value of equity
investments was $3.2 million. A 10% decline in value of the equity investments
at December 31, 1999 would result in after-tax accumulated unrealized losses on
equity investments of $1.3 million, or .6% of total stockholders' equity gross
of net after-tax unrealized losses on investments.
EFFECTS OF INFLATION
The Company considers the effects of inflation in pricing insurance coverages
provided and in reserving for losses and LAE. There may be long periods between
the sale of insurance coverage and the reporting of losses, particularly with
respect to coverage provided by the Company on occurrence-basis policies.
Further, there are typically significant periods of time between reporting and
settlement of losses. The actual effects of inflation on the Company's operating
results cannot be accurately known until losses are reported and ultimately
settled. Management
32
<PAGE> 34
believes that the Company's pricing and loss and LAE reserving processes
adequately incorporate the effects of inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are included in Item
7 under "Management's Discussion And Analysis of Financial Condition And Results
of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in the accompanying Index to
Financial Statements and Schedule on page F-1 are filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the individuals who
currently serve as directors and executive officers of The MIIX Group. The MIIX
Group has seven executive officers, Messrs. Mr. Koreyva, Ms. Costante, Mr. Grab,
Mr. Hudson, Ms. Kramer, Mr. Redman and Mr. Smereck.
<TABLE>
<CAPTION>
Name Position Class
- ---- -------- -----
<S> <C> <C>
Kenneth Koreyva President, Chief Executive Officer and Director I
Patricia A. Costante Senior Vice President N/A
Edward M. Grab Senior Vice President N/A
Joseph J. Hudson Executive Vice President N/A
Lisa Kramer Executive Vice President N/A
Thomas M. Redman Senior Vice President, Chief Financial Officer N/A
and Treasurer
Daniel G. Smereck Senior Vice President N/A
Angelo S. Agro, M.D. Director I
Harry M. Carnes, M.D. Director II
Paul J. Hirsch, M.D. Director III
Vincent A. Maressa, Esq. Director II
Robert S. Maurer, D.O. Director II
A. Richard Miskoff, D.O. Director III
Charles J. Moloney, M.D. Director II
Eileen Marie Moynihan, M.D. Director III
Fred M. Palace, M.D. Director II
Carl Restivo, Jr., M.D. Director I
Gabriel F. Sciallis, M.D. Director III
Martin L. Sorger, M.D. Director III
Bessie M. Sullivan, M.D. Director II
</TABLE>
The MIIX Group's Certificate of Incorporation provides for a Board of Directors
consisting of at least nine but not more than thirty-five directors. The Board
of Directors currently consists of fourteen members divided into three classes,
with the members of each class elected for a term of three years. Consistent
with the Company's desire to reduce the size of the Board of Directors,
effective the date of this year's annual meeting the Board of Directors will be
reduced to eleven members. The terms of the Class 11, Class 111 and Class 1
Directors are scheduled to expire in 2000, 2001 and 2002, respectively.
Information regarding Directors of the Company is incorporated by reference to
the section entitled "Election of Directors" in the Company's definitive proxy
statement to be filed with the SEC in connection with the Annual Meeting of
Shareholders to be held May 5, 2000 (the "Proxy Statement"). Information
regarding Executive Officers is set forth below.
33
<PAGE> 35
Kenneth Koreyva, (44) Director since 1999. Mr. Koreyva became President and
Chief Executive Officer of the Company in 1999. He served as Executive Vice
President and Chief Financial Officer from 1998 to 1999 and as Vice President
from 1991 to 1998. He is a member of the American Institute of Certified Public
Accountants.
Patricia A. Costante, (43) became Senior Vice President in 2000 and has been
Executive Vice President of MIIX Healthcare Group, Inc. since 1996. Ms. Costante
was President of Costante Associates, Inc. from 1993 to 1996. Ms. Costante is an
adjunct faculty member at the Graduate School of Social Work, Rutgers--The State
University of New Jersey.
Edward M. Grab, (44) became Senior Vice President in 2000. He joined the Company
as Vice President of Underwriting and Chief Actuary in 1999. Prior to joining
the Company, Mr. Grab was Vice President and Actuary for Zurich Financial
Services Group from 1996 to 1999. He was Assistant Vice President for Selective
Insurance Group from 1986 to 1996. Mr. Grab is a Fellow of the Casualty
Actuarial Society.
Joseph J. Hudson, (59) became Executive Vice President in 1998. Mr. Hudson
served as Vice President of Marketing and Business Development from 1994 to
1998. 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.
Lisa Kramer, (54) became Executive Vice President in 1999. Ms. Kramer served as
Vice President Claims from 1990 to 1999. She is a member of the American Bar
Association, the International Association of Defense Counsel and the
Philadelphia Bar Association.
Thomas M. Redman, (42) became Senior Vice President and Chief Financial Officer
in 1999. Mr. Redman has served in several capacities with the Company, including
Vice President Finance of MIIX Insurance Company, since 1997. Before joining
MIIX, Mr. Redman held a number of corporate finance positions with John Hancock
Property and Casualty Insurance Companies from 1985 to 1993 culminating in the
positions of Senior Vice President and Chief Financial Officer of John Hancock
Management Company and President of John Hancock Insurance Company of Bermuda,
Ltd. From 1993 to 1996, Mr. Redman attended Harvard Law School and received a
J.D. degree in 1996.
Daniel G. Smereck, (30) became Senior Vice President in 1999. Mr. Smereck has
served in various capacities with the Company, including President of MIIX
Insurance Company and Vice President of Asset Management from October 1996 to
1999. Prior to joining the company, he completed his Masters Degree in Finance
from Boston College from 1995 to 1996 and worked as an Investment Consultant
with Fidelity Financial Group from 1994 to 1995. He is a member of the American
Management Association and is an adjunct faculty member for The College of New
Jersey's Finance Department.
Vincent A. Maressa, Esq., (57) Chairman of the Board of Directors since 1997.
Mr. Maressa has been Chairman of the Board of Directors of the New Jersey State
Medical Underwriters, Inc. (the "Underwriter"), now a subsidiary of the Company,
since 1990 and a member of the Board of Directors of the Underwriter 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 Mercer County Bar Association.
Angelo S. Agro, M.D., (51) Director since 1997. Dr. Agro has been a member of
the Board of Directors of the Underwriter 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.
Harry M. Carnes, M.D., (67) Director since 1997. Dr. Carnes became a member of
the Board of Directors of the Underwriter in 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 County Medical Society, and the
Medical Society of New Jersey. He is Chairman of the New Jersey Medical
Political Action Committee and a delegate to the American Medical Association.
Paul J. Hirsch, M.D., (62) Vice Chairman of the Board of Directors since 1997.
Dr. Hirsch has been Vice Chairman of the Board of Directors of the Underwriter
since 1990. He has been a board-certified physician in Bridgewater, New Jersey,
for more
34
<PAGE> 36
than five years with BioSport Orthopaedics and 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 Board of Trustees for Raritan Valley
Community College, Somerset IPA 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 and Editor in Chief of New Jersey Medicine.
Robert S. Maurer, D.O., (67) Director since 1997. Dr. Maurer has been a member
of the Board of Directors of the Underwriter 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., (58) Director since 1997. Dr. Miskoff became a member
of the Board of Governors of the Exchange in 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. He is President of the Middlesex County Medical
Society of Osteopathic Physicians.
Charles J. Moloney, M.D., (65) Director since 1997. Dr. Moloney became Assistant
Secretary 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., (47) Director since 1997. Dr. Moynihan became a
member of the Board of Governors of the Exchange in 1995. She has been a
board-certified rheumatologist in Woodbury, New Jersey for more than five years.
In 1999, Dr. Moynihan joined Empire-New Jersey as Medical Director. From 1988
until 1999 she was the Medical Director of the Eastern District Office for XACT
Medicare (Highmark, Inc.). 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., (64) Director since 1997. Dr. Palace has been a member of
the Board of Directors of the Underwriter 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.
Carl Restivo, Jr., M.D., (54) Director since 1997. Dr. Restivo has been a member
of the Board of Directors of the Underwriter 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.
Gabriel F. Sciallis, M.D., (55) Director since 1997. Dr. Sciallis became
Assistant Secretary of the Board of Governors of the Exchange in 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.
Martin L. Sorger, M.D., (65) Director since 1997. Dr. Sorger became a member of
the Board of Governors of the Exchange in 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
American Academy of Orthopedic Surgeons, the American Medical Association, the
American College of Surgeons and a former member of its Board of Councilors, and
a former member of the Alumni Council of the Columbia Medical School. He is a
member of the executive committee of the New Jersey Orthopedic Society and a
past president.
Bessie M. Sullivan, M.D., (58) Director since 1997. Dr. Sullivan became a member
of the Board of Governors of the Exchange in 1992. She has been a
board-certified
35
<PAGE> 37
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, a member and Secretary of the
New Jersey Medical Society and a member of the Executive Committee of the Union
County Medical Society.
<TABLE>
<CAPTION>
Committee Memberships and Number of Meetings Held in 1999
---------------------------------------------------------
Name Audit Compensation Executive Nominating
---- ----- ------------ --------- ----------
<S> <C> <C> <C> <C>
Angelo S. Agro, M.D. X(1) X
Harry M. Carnes, M.D. X
Paul J. Hirsch, M.D. X(1) X X
Kenneth Koreyva X
Vincent A. Maressa, Esq. X X(1)
Eileen Marie Moynihan, M.D. X
Carl Restivo, Jr., M.D. X X
Martin Sorger, M.D. X X(1)
Bessie M. Sullivan, M.D. X X
Number of Meetings in 1999 2 3 2 1
</TABLE>
(1) Chairman of Committee.
Executive Committee. The Executive Committee has the authority to exercise all
powers of the Board of Directors between meetings of the Board, except in cases
where action of the entire Board is required by the Company's Amended and
Restated Certificate of Incorporation, the By-Laws or applicable law. The
Executive Committee consists of four members, one of whom is required to be the
Chairman of the Board of Directors.
Audit Committee. The primary function of the Audit Committee is to assist the
Board of Directors in fulfilling its financial oversight responsibilities. In
this capacity, the Audit Committee reviews the financial reports and other
financial information provided by the Company to certain third parties;
evaluates the Company's systems of internal controls regarding financial and
accounting matters; evaluates the Company's financial reporting activities and
the accounting standards and principles adopted by the Company; evaluates and
monitors the Company's auditing, accounting and financial reporting processes
generally; meets with the Company's independent auditors and recommends to the
Board the independent auditors to be engaged by the Company. The Audit Committee
currently consists of three members.
Compensation Committee. The Compensation Committee establishes remuneration
levels for the Board of Directors, the Chief Executive Officer and, in
consultation with the Chief Executive Officer, approves remuneration levels for
the top five executives and other executive officers of the Company. The
Compensation Committee also determines the terms of the more significant
employee benefit programs and administers executive compensation programs,
including the Company's bonus plans, equity-based programs and deferred
compensation plans. The Chief Executive Officer of the Company, in consultation
with other executives, establishes remuneration levels for other employees of
the Company. The Compensation Committee currently has five members.
Nominating Committee. The Nominating Committee nominates candidates for election
to the Board of Directors of the Company. The Nominating Committee currently has
four members.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act generally requires the Company's executive
officers and directors, and persons who own more than ten percent of the Common
Stock, to file reports of beneficial ownership and changes in beneficial
ownership with the Securities and Exchange Commission ("SEC"). The Company
became subject to the requirements of Section 16(a) on February 3, 1999.
Regulations promulgated by the SEC require the Company to disclose in this
Report on Form 10-K any reporting violations with respect to the 1999 fiscal
year, which came to the Company's attention based on a review of the applicable
filings required by the SEC to report such status as an officer or director or
such changes in beneficial ownership as submitted to the Company. Based solely
on review of such forms received by it,
36
<PAGE> 38
Harry M. Carnes, M.D. and Thomas M. Redman are the only reporting persons to
have made late filings under Section 16(a). Dr. Carnes filed a Form 5 on
February 11, 2000, to report an acquisition of shares of the Company's Common
Stock in December 1999, which should have been reported on a Form 4 by January
10, 2000. Mr. Redman filed an amended Form 3 on March 17, 2000, which should
have been reported on the original Form 3 filed on November 10, 1999. These
statements are based solely on a review of the copies of such reports furnished
to the Company by its officers, directors and security holders and their written
representations that such reports accurately reflect all reportable transactions
and holdings.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Security Ownership of Certain Beneficial Owners and
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) and (d)
The required schedules as identified on the Index to Financial
Statements on page F-1 of the 10-K 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.
(a) (3) and (c) The following exhibits are filed herewith unless otherwise
indicated:
Exhibit
Number Description
2.1 Plan of Reorganization of Medical Inter-Insurance Exchange
(incorporated by reference to the exhibit filed with the registrant's
registration statement on Form S-1 (Reg. No. 333-59371)).
2.2 Stock Purchase Agreement between The Medical Society of New Jersey and
the MIIX Group, Incorporated (incorporated by reference to the exhibit
filed with the registrant's registration statement on Form S-1 (Reg.
No. 333-59371)).
2.3 Amendment No. 1 to Stock Purchase Agreement between The Medical Society
of New Jersey and the MIIX Group, Incorporated, dated as of September
20, 1998 (incorporated by reference to the exhibit filed with the
registrant's registration statement on Form S-1 (Reg. No. 333-59371)).
2.4 Amendment No. 2 to Stock Purchase Agreement between The Medical Society
of New Jersey and The MIIX Group, Incorporated, dated as of December
21, 1998 (incorporated by reference to the exhibit filed with the
registrant's registration statement on Form S-1 (Reg. No. 333-59371)).
2.5 Resolution of the Medical Inter-Insurance Exchange of New Jersey Board
of Governors amending the Plan of Reorganization (incorporated by
reference to the exhibit filed with the registrant's registration
statement on Form S-1 (Reg. No. 333-59371)).
37
<PAGE> 39
3.1 Restated Certificate of Incorporation of the MIIX Group, Incorporated
(incorporated by reference to the exhibit filed with the registrant's
registration statement on Form S-1 (Reg. No. 333-59371)).
3.2 Bylaws of The MIIX Group, Incorporated (incorporated by reference to
the exhibit filed with the registrant's registration statement on Form
S-1 (Reg. No. 333-59371)).
10.1 Lease Between the Medical Society of New Jersey and New Jersey State
Medical Underwriters, Inc. dated June 29, 1981 (incorporated by
reference to the exhibit filed with the registrant's registration
statement on Form S-1 (Reg. No. 333-59371)).
10.2 Extension of Lease between the Medical Society of New Jersey and New
Jersey State Medical Underwriters, dated July 7, 1999.
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 (incorporated by reference to the exhibit filed with the
registrant's registration statement on Form S-1 (Reg. No. 333-59371)).
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 (incorporated by reference to the exhibit filed with the
registrant's registration statement on Form S-1 (Reg. No. 333-59371)).
10.5 Specific Excess Reinsurance Contract, effective January 1, 1997,
between Medical Inter-Insurance Exchange of New Jersey and American
Re-Insurance Company (incorporated by reference to the exhibit filed
with the registrant's registration statement on Form S-1 (Reg. No.
333-59371)).
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. (incorporated by reference to the exhibit filed with the
registrant's registration statement on Form S-1 (Reg. No. 333-59371)).
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 (incorporated by reference to the exhibit filed with the
registrant's registration statement on Form S-1 (Reg. No. 333-59371)).
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. (incorporated by reference to the exhibit
filed with the registrant's registration statement on Form S-1 (Reg.
No. 333-59371)).
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
(incorporated by reference to the exhibit filed with the registrant's
registration statement on Form S-1 (Reg. No.
333-59371)).
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.
(incorporated by
38
<PAGE> 40
reference to the exhibit filed with the registrant's registration
statement on Form S-1 (Reg. No. 333-59371)).
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. (incorporated by reference to the exhibit filed with the
registrant's registration statement on Form S-1 (Reg. No. 333-59371)).
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. (incorporated by reference to the exhibit filed with the
registrant's registration statement on Form S-1 (Reg. No. 333-59371)).
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. (incorporated by reference
to the exhibit filed with the registrant's registration statement on
Form S-1 (Reg. No. 333-59371)).
10.14 Amended and Restated 1998 Long Term Incentive Equity Plan of The MIIX
Group, Incorporated.
10.15* Employment Agreement among The MIIX Group, Incorporated, New Jersey
State Medical Underwriters, Inc. and Kenneth Koreyva.
10.16* Employment Agreement among The MIIX Group, Incorporated, New Jersey
State Medical Underwriters, Inc. and Patricia A. Costante.
10.17* Employment Agreement among The MIIX Group, Incorporated, New Jersey
State Medical Underwriters, Inc. and Edward M. Grab.
10.18* Employment Agreement among The MIIX Group, Incorporated, New Jersey
State Medical Underwriters, Inc. and Joseph J. Hudson.
10.19* Employment Agreement among The MIIX Group, Incorporated, New Jersey
State Medical Underwriters, Inc. and Lisa Kramer.
10.20* Employment Agreement among The MIIX Group, Incorporated, New Jersey
State Medical Underwriters, Inc. and Thomas M. Redman.
10.21* Employment Agreement among The MIIX Group, Incorporated, New Jersey
State Medical Underwriters, Inc. and Daniel G. Smereck.
10.22* Form of Stock Purchase and Loan Agreement by and between The MIIX
Group, Incorporated and Daniel Goldberg (incorporated by reference to
the exhibit filed with the registrant's registration statement on Form
S-1 (Reg. No. 333-59371)).
10.23* Form of Stock Purchase and Loan Agreement by and between The MIIX
Group, Incorporated and Kenneth Koreyva.
10.24* Form of Stock Purchase and Loan Agreement by and between The MIIX
Group, Incorporated and Patricia A. Costante.
10.25* Form of Stock Purchase and Loan Agreement by and between The MIIX
Group, Incorporated and Edward M. Grab.
10.26* Form of Stock Purchase and Loan Agreement by and between The MIIX
Group, Incorporated and Joseph Hudson (incorporated by reference to the
exhibit filed with the registrant's registration statement on Form S-1
(Reg. No. 333-59371)).
10.27* Form of Stock Purchase and Loan Agreement by and between The MIIX
Group, Incorporated and Lisa Kramer.
39
<PAGE> 41
10.28* Form of Stock Purchase and Loan Agreement by and between The MIIX
Group, Incorporated and Thomas M. Redman.
10.29* Form of Stock Purchase and Loan Agreement by and between The MIIX
Group, Incorporated and Daniel G. Smereck (incorporated by reference to
the exhibit filed with the registrant's registration statement on Form
S-1 (Reg. No. 333-59371)).
10.30* Non-Qualified Deferred Compensation Agreement entered into and
effective December 15, 1999 by and between New Jersey State Medical
Underwriters, Inc. and Kenneth M. Koreyva.
10.31* Non-Qualified Deferred Compensation Agreement entered into and
effective December 15, 1999, by and between The MIIX Group,
Incorporated, New Jersey State Medical Underwriters, Inc. and Patricia
A. Costante.
10.32* Non-Qualified Deferred Compensation Agreement entered into and
effective December 15, 1999, by and between The MIIX Group,
Incorporated, New Jersey State Medical Underwriters, Inc. and Edward M.
Grab.
10.33* Non-Qualified Deferred Compensation Agreement entered into and
effective December 15, 1999, by and between The MIIX Group,
Incorporated, New Jersey State Medical Underwriters, Inc. and Joseph J.
Hudson.
10.34* Non-Qualified Deferred Compensation Agreement entered into and
effective December 15, 1999, by and between The MIIX Group,
Incorporated, New Jersey State Medical Underwriters, Inc. and Lisa
Kramer.
10.35* Non-Qualified Deferred Compensation Agreement entered into and
effective December 15, 1999, by and between The MIIX Group,
Incorporated, New Jersey State Medical Underwriters, Inc. and Thomas M.
Redman.
10.36* Non-Qualified Deferred Compensation Agreement entered into and
effective December 15, 1999, by and between The MIIX Group,
Incorporated, New Jersey State Medical Underwriters, Inc. and Daniel G.
Smereck.
40
<PAGE> 42
10.41 Addendum No. 2 to the Combined Quota Share, Aggregate and Specific
Excess of Loss Reinsurance Treaty, effective November 1, 1998, 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 Casualty
Reinsurance Corporation; Lawrenceville Re, Ltd.; and European
Reinsurance Company of Zurich (incorporated by reference to the exhibit
filed with the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 as filed with the Securities and
Exchange Commission on November 15, 1999 (file no. 001-14593)).
10.42 Addendum No. 3 to the Combined Quota Share, Aggregate and Specific
Excess of Loss Reinsurance Treaty, effective January 1, 1999, among
Medical Inter-Insurance Exchange of New Jersey and Hannover Reinsurance
(Ireland) Ltd; E&S Reinsurance (Ireland) Ltd.; Underwriters Reinsurance
Company (Barbados) Inc.; and European Reinsurance Company of
Zurich(incorporated by reference to the exhibit filed with the
registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 as filed with the Securities and Exchange Commission
on November 15, 1999 (file no. 001-14593)).
10.43 Addendum No. 4 to the Combined Quota Share, Aggregate and Specific
Excess of Loss Reinsurance Treaty, effective January 1, 1999, among
Medical Inter-Insurance Exchange of New Jersey and Hannover Reinsurance
(Ireland) Ltd; E&S Reinsurance (Ireland) Ltd.; Underwriters Reinsurance
Company (Barbados) Inc.; and European Reinsurance Company of
Zurich(incorporated by reference to the exhibit filed with the
registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 as filed with the Securities and Exchange Commission
on November 15, 1999 (file no. 001-14593)).
10.44 Excess Cession and Event Reinsurance Contract, effective January 1,
1999, among Medical Inter-Insurance Exchange and Hannover
Ruckversicherungs-Aktiengesellschaft; and Swiss Reinsurance Company
(incorporated by reference to the exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
as filed with the Securities and Exchange Commission on November 15,
1999 (file no. 001-14593)).
10.45 Excess Cession and Event Reinsurance Contract, effective January 1,
1999, between Medical Inter-Insurance Exchange and American
Re-Insurance Company (incorporated by reference to the exhibit filed
with the registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 as filed with the Securities and Exchange
Commission on November 15, 1999 (file no. 001-14593)).
10.46 Draft Endorsement No. 1, effective January 1, 2000, to the Excess
Cession and Event Reinsurance Contract between Medical Inter-Insurance
Exchange and Hannover Ruckversicherungs-Aktiengesellschaft.
10.47 Draft Endorsement No. 1, effective January 1, 2000, to the Excess
Cession and Event Reinsurance Contract between Medical Inter-Insurance
Exchange and Swiss Reinsurance Company.
10.48 Draft Endorsement No. 1, effective January 1, 2000, to the Excess
Cession and Event Reinsurance Contract between Medical Inter-Insurance
Exchange and American Re-insurance Company.
10.49 Draft Combined Quota Share and Aggregate Reinsurance Treaty, effective
November 1, 1999 between MIIX Insurance Company and Hannover
Reinsurance (Ireland) Ltd.
10.50 Draft Combined Quota Share and Aggregate Reinsurance Treaty, effective
November 1, 1999 between MIIX Insurance Company and E+S Reinsurance
(Ireland) Ltd.
10.51 Draft Combined Quota Share and Aggregate Reinsurance Treaty, effective
November 1, 1999 between MIIX Insurance Company and Swiss Reinsurance
Company.
11 No statement re computation of per share earnings is required to be
filed because the computations can be clearly determined from the
materials contained herein.
41
<PAGE> 43
21.1 Subsidiaries of The MIIX Group, Incorporated (incorporated by reference
to the exhibit filed with the registrant's registration statement on
Form S-1 (Reg. No. 333-59371)).
27.1 Financial Data Schedules.
* Represents a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
During the quarter ended December 31, 1999, a Current Report on
Form 8-K dated December 16, 1999 was filed by the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
THE MIIX GROUP, INCORPORATED
By: /s/ KENNETH KOREYVA
---------------------------------------
Kenneth Koreyva
President and Chief Executive Officer
March 22, 2000
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Vincent A. Maressa, Esq. 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 each amendment to this Report on Form 10-K and to file the same with
exhibits thereto and other documents in connection therewith 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 Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ KENNETH KOREYVA President, Chief Executive
- --------------------------- Officer and Director
Kenneth Koreyva (principal executive officer) March 22, 2000
/s/ THOMAS REDMAN Senior Vice President and
- ---------------------------- Chief Financial Officer
Thomas Redman (principal financial and
accounting officer) March 22, 2000
/s/ ANGELO S. AGRO Director
- ----------------------------
Angelo S. Agro, M.D. March 22, 2000
/s/ HARRY M. CARNES Director
- ----------------------------
Harry M. Carnes, M.D. March 22, 2000
</TABLE>
42
<PAGE> 44
<TABLE>
<S> <C> <C>
/s/ PAUL J. HIRSCH Director
- ----------------------------
Paul J. Hirsch, M.D. March 22, 2000
/s/ VINCENT A. MARESSA Director
- ----------------------------
Vincent A. Maressa, Esq. March 22, 2000
/s/ ROBERT S. MAURER Director
- ----------------------------
Robert S. Maurer, D.O. March 22, 2000
/s/ A. RICHARD MISKOFF Director
- ----------------------------
A. Richard Miskoff, D.O. March 22, 2000
/s/ CHARLES J. MOLONEY Director
- ----------------------------
Charles J. Moloney, M.D. March 22, 2000
/s/ EILEEN MARIE MOYNIHAN Director
- ----------------------------
Eileen Marie Moynihan, M.D. March 22, 2000
/s/ CARL RESTIVO, JR. Director
- ----------------------------
Carl Restivo, Jr., M.D. March 22, 2000
/s/ GABRIEL F. SCIALLIS Director
- ----------------------------
Gabriel F. Sciallis, M.D. March 22, 2000
/s/ MARTIN L. SORGER Director
- ----------------------------
Martin L. Sorger, M.D. March 22, 2000
/s/ BESSIE M. SULLIVAN Director
- ----------------------------
Bessie M. Sullivan, M.D. March 22, 2000
</TABLE>
43
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors................................................................F- 2
Consolidated Balance Sheets as of December 31, 1999 and 1998..................................F- 3
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997............................................................F- 4
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1999.....................................................................F- 5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997...........................................................F- 6
Notes to Consolidated Financial Statements....................................................F- 7
Schedule I -- Summary of Investments -- Other than
Investments in Related Parties..............................................................F-22
Schedule II - - Condensed Financial Information of Registrant................................F-23
</TABLE>
(ALL OTHER SCHEDULES FOR WHICH PROVISION IS MADE IN THE APPLICABLE ACCOUNTING
REGULATION OF THE SECURITIES AND EXCHANGE COMMISSION ARE OMITTED FOR THE REASON
THAT THEY ARE NOT APPLICABLE OR THE INFORMATION IS OTHERWISE CONTAINED IN THE
FINANCIAL STATEMENTS).
F-1
<PAGE> 46
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The MIIX Group, Incorporated
We have audited the accompanying consolidated balance sheets of The MIIX Group,
Incorporated and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
MIIX Group, Incorporated and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole present fairly, in all material respects,
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 22, 2000
F-2
<PAGE> 47
THE MIIX GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Securities available-for-sale:
Fixed-maturity investments, at fair value (amortized cost:
1999 -- $1,131,931; 1998 -- $1,041,192)................ $1,077,806 $1,057,739
Equity investments, at fair value (cost: 1999 -- $13,169;
1998 -- $3,159).... ................................... 12,394 3,159
Short-term investments, at cost which approximates fair
value.................................................. 92,743 104,800
---------- ----------
Total investments................................. 1,182,943 1,165,698
Cash........................................................ 2,574 1,408
Accrued investment income................................... 14,319 13,563
Premium receivable, net..................................... 17,920 23,876
Reinsurance recoverable on unpaid losses.................... 406,409 325,795
Prepaid reinsurance premiums................................ 27,646 26,921
Reinsurance recoverable on paid losses, net................. 236 724
Deferred policy acquisition costs........................... 3,165 2,810
Due from Attorney-in-Fact................................... 0 3,949
Deferred income taxes....................................... 69,733 34,731
Net investment in direct financing leases................... 25,522 0
Other assets................................................ 86,691 74,787
---------- ----------
Total assets...................................... $1,837,158 $1,674,262
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses.................. $1,053,597 $ 951,659
Unearned premiums........................................... 75,433 54,139
Premium deposits............................................ 27,913 28,392
Funds held under reinsurance treaties....................... 271,637 228,148
Payable for securities...................................... 205 34,115
Notes payable and other borrowings.......................... 16,461 0
Other liabilities........................................... 73,208 54,966
---------- ----------
Total liabilities................................. $1,518,454 $1,351,419
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 50,000,000 shares
authorized, no shares issued and outstanding............. $ 0 $ 0
Common stock, $.01 par value, 100,000,000 shares
authorized, 16,469,939 shares issued, 15,258,567
shares outstanding....................................... 165 0
Additional paid-in capital.................................. 52,942 0
Retained earnings........................................... 328,897 312,087
Treasury stock, at cost (1999 - 1,236,809 shares)........... (19,249) 0
Stock purchase loans and unearned stock compensation........ (4,934) 0
Accumulated other comprehensive income (loss)............... (39,117) 10,756
---------- ----------
Total stockholders' equity............................ $ 318,704 $ 322,843
---------- ----------
Total liabilities and stockholders' equity............ $1,837,158 $1,674,262
========== ==========
</TABLE>
See accompanying notes
F-3
<PAGE> 48
THE MIIX GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Net premiums earned........................................ $187,845 $162,501 $123,330
Net investment income...................................... 75,661 65,107 53,892
Realized investment gains (losses)......................... (6,770) 36,390 10,296
Other revenue.............................................. 8,323 891 2,884
-------- -------- --------
Total revenues................................... 265,059 264,889 190,402
EXPENSES
Losses and loss adjustment expenses........................ 174,986 155,868 120,496
Underwriting expenses...................................... 42,618 42,063 25,415
Funds held charges......................................... 14,338 13,420 13,361
Other expenses............................................. 3,333 0 0
Restructuring charge....................................... 2,409 0 0
Impairment of capitalized system development costs......... 0 12,656 0
-------- -------- --------
Total expenses................................... 237,684 224,007 159,272
Income before income taxes................................. 27,375 40,882 31,130
Provision for income taxes................................. 6,617 11,154 2,006
-------- -------- --------
Net income................................................. $ 20,758 $ 29,728 $ 29,124
======== ======== ========
Basic earnings per share of common stock (see Note 16)..... $1.54 $2.47 $2.42
===== ===== =====
Diluted earnings per share of common stock (see Note 16)... $1.53 $2.47 $2.42
===== ===== =====
Dividend per share of common stock......................... $0.10 $ 0 $ 0
===== ===== =====
</TABLE>
See accompanying notes
F-4
<PAGE> 49
THE MIIX GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 31, 1999
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Number
of
Shares Additional
Out- Common Paid-In Retained
standing Stock Capital Earnings
-------- ----- ------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997....... 0 $ 0 $ 0 $253,235
Net income..................... 29,124
Other comprehensive income,
net of tax:
Unrealized appreciation on
securities available-for-
sale, net of deferred taxes
---------- ------ ------- --------
Balance at December 31, 1997..... 0 0 0 282,359
Net income..................... 29,728
Other comprehensive income,
net of tax:
Unrealized depreciation on
securities available-for-
sale, net of deferred taxes
---------- ------ ------- --------
Balance at December 31, 1998..... 0 0 0 312,087
Net income..................... 20,758
Other comprehensive income,
net of tax:
Unrealized depreciation on
securities available-for-
sale, net of deferred taxes
Shares issued to distributees.. 11,854,033 119 (119)
Proceeds from initial public
offering, net of offering and
reorganization costs........ 3,450,000 35 37,315
Acquisition of Underwriter..... 814,815 8 10,992
Shares issued for execution of
stock purchase and loan
agreements.................. 351,091 3 4,635
Purchase of treasury stock..... (1,236,809)
Cash dividends to stockholders. (1,560)
Cash issued to distributees, in
lieu of common stock........ (2,269)
Restricted stock grants and
unearned stock compensation. 25,437
---------- ------ ------- --------
Balance at December 31, 1999..... 15,258,567 $ 165 $52,942 $328,897
========== ====== ======= ========
<CAPTION>
Stock
Purchase
Loans Accumulated
and Other
Unearned Comprehensive Total
Treasury Stock Income Stockholders'
Stock Compensation (Loss) Equity
----- ------------ ------ ------
<S> <C> <C> <C> <C>
Balance at January 1, 1997....... $ 0 $ 0 $ 9,077 $262,312
Net income..................... 29,124
Other comprehensive income,
net of tax:
Unrealized appreciation on
securities available-for-
sale, net of deferred taxes 18,538 18,538
-------- ------- -------- --------
Balance at December 31, 1997..... 0 0 27,615 309,974
Net income..................... 29,728
Other comprehensive income,
net of tax:
Unrealized depreciation on
securities available-for-
sale, net of deferred taxes (16,859) (16,859)
-------- ------- -------- --------
Balance at December 31, 1998..... 0 0 10,756 322,843
Net income..................... 20,758
Other comprehensive income,
net of tax:
Unrealized depreciation on
securities available-for-
sale, net of deferred taxes (49,873) (49,873)
Shares issued to distributees.. 0
Proceeds from initial public
offering, net of offering and
reorganization costs........ 37,350
Acquisition of Underwriter..... 11,000
Shares issued for execution of
stock purchase and loan
agreements.................. (4,728) (90)
Purchase of treasury stock..... (19,249) (19,249)
Cash dividends to stockholders. (1,560)
Cash issued to distributees, in
lieu of common stock........ (2,269)
Restricted stock grants and
unearned stock compensation. (206) (206)
-------- ------- -------- --------
Balance at December 31, 1999..... $(19,249) $(4,934) $(39,117) $318,704
======== ======= ======== ========
</TABLE>
See accompanying notes
F-5
<PAGE> 50
THE MIIX GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 20,758 $ 29,728 $ 29,124
Adjustments to reconcile net income to net cash
provided by operating activities (net of balances
acquired):
Unpaid losses and loss adjustment expenses......... 73,653 74,938 81,272
Unearned premiums.................................. 21,272 33,253 12,588
Premium deposits................................... (479) 7,368 (16,224)
Premium receivable, net............................ 5,956 (19,059) (271)
Reinsurance balances, net.......................... (37,362) (14,645) (14,649)
Deferred policy acquisition costs.................. (355) (2,710) 351
Realized (gains) losses............................ 6,770 (36,390) (10,296)
Depreciation, accretion and amortization........... (2,662) (980) (1,029)
Deferred income taxes ............................. (10,110) (7,957) (1,417)
Due from Attorney-in-Fact.......................... (594) (3,258) (3,687)
Impairment of capitalized system development costs. 0 12,656 0
Accrued investment income.......................... (708) (3,239) (142)
Net investment in direct financing leases.......... 961 0 0
Other assets....................................... 25,582 3,158 (8,526)
Other liabilities.................................. 4,743 19,831 (2,461)
--------- --------- ---------
Net cash provided by operating activities.............. 107,425 92,694 64,633
========= ========= =========
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed-maturity investment sales.......... 856,302 664,988 228,005
Proceeds from fixed-maturity investments matured,
called, or prepaid................................... 97,278 112,473 120,034
Proceeds from equity investment sales.................. 1,553 105,789 24,249
Cost of investments acquired........................... (1,055,237) (976,889) (444,168)
Purchase of Underwriter (net of cash acquired)......... (198) 0 0
Realized loss on equity collar termination............. 0 (14,000) 0
Change in short-term investments, net.................. 13,079 (19,655) 1,085
Net receivable/payable for securities.................. (30,496) 31,131 (430)
--------- -------- --------
Net cash used in investing activities.................. (117,719) (96,163) (71,225)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering, net of
offering and reorganization costs..................... 37,350 0 0
Net proceeds from notes payable and other borrowings.... (2,804) 0 0
Purchase of treasury stock.............................. (19,249) 0 0
Cash dividends to stockholders.......................... (1,560) 0 0
Cash in lieu of stock paid to distributees.............. (2,269) 0 0
Subordinated loan certificates redeemed................. (8) 0 0
------- ------- -------
Net cash provided by financing activities............... 11,460 0 0
Net change in cash...................................... 1,166 (3,469) (6,592)
Cash at beginning of year............................... 1,408 4,877 11,469
------- ------- -------
Cash at end of year..................................... $ 2,574 $ 1,408 $ 4,877
========= ========= =========
</TABLE>
See accompanying notes
F-6
<PAGE> 51
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND RELATED MATTERS
The accompanying consolidated financial statements include the accounts and
operations of The MIIX Group, Incorporated (the "MIIX Group") and its
wholly-owned subsidiaries, MIIX Insurance Company ("MIIX"), which assumed all of
the residual assets and liabilities and ongoing business of Medical
Inter-Insurance Exchange of New Jersey (the "Exchange") in the reorganization of
the Exchange, Lawrenceville Holdings, Inc. ("LHI"), Lawrenceville Property and
Casualty Company ("LP&C"), MIIX Insurance Company of New York ("MIIX New York")
and, from August 4, 1999, New Jersey State Medical Underwriters, Inc. and its
wholly-owned subsidiaries (the "Underwriter"), collectively (the "Company").
On August 4, 1999, the reorganization of the Exchange was consummated according
to a Plan of Reorganization adopted by the Board of Governors of the Exchange on
October 15, 1997 and approved by members of the Exchange at a special meeting
held on March 17, 1999 and by the Commissioner of the New Jersey Department of
Banking and Insurance ("the Commissioner"). The Plan of Reorganization included
several key components, including: formation of The MIIX Group to be the
ultimate parent company for the Company; the transfer of assets and liabilities
held by the Exchange to MIIX, formed for that purpose; acquisition of the
Underwriter; distribution of shares of The MIIX Group common stock and/or cash
to current and former members of the Exchange ("distributees") as defined in the
Plan of Reorganization; and dissolution of the Exchange. In connection with the
reorganization, 11,854,033 shares of The MIIX Group common stock were issued to
distributees and 814,815 shares were issued to the Medical Society of New Jersey
plus $100,000 in cash in exchange for all common stock of the Underwriter. The
reorganization was accounted for at historical cost as the transfers of assets
and liabilities described above were between entities under common control. The
acquisition of the Underwriter was accounted for using the purchase method and
gave rise to $7.8 million of goodwill.
The MIIX Group sold three million shares of its common stock in an underwritten
public offering ("the Offering") that closed on August 4, 1999. Of the offered
shares, 90,000 were reserved for sale and subsequently sold at the Offering
Price ($13.50 per share), to officers and employees of the Company. On August
11, 1999, an additional 450,000 shares were sold to underwriters of the Offering
pursuant to an over-allotment option contained in the Offering underwriting
agreement. The net proceeds of the Offering were approximately $37.3 million,
consisting of gross proceeds of $46.5 million less reorganization and offering
costs of $9.2 million.
During August 1999, The MIIX Group approved a stock repurchase program
authorizing the purchase of up to one million shares of its common stock in the
open market. During November 1999, the program was amended, authorizing the
purchase of up to an additional two million shares. Through December 31, 1999,
1,236,809 shares had been repurchased at a total cost of $19.2 million.
The Company provides a wide range of insurance products to the medical
profession and health care institutions. The primary business of the Company is
medical professional liability insurance and it issues claims made, modified
claims made with prepaid extended reporting endorsements, and occurrence basis
policies. Seventy-four percent and 73% of the Company's direct premiums during
1999 and 1998, respectively, were written in two states.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
("GAAP") which differs from statutory accounting practices prescribed or
permitted by regulatory authorities (see Note 9). The significant accounting
policies followed by the Company that materially affect financial reporting are
summarized below:
F-7
<PAGE> 52
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts and
operations of The MIIX Group and its wholly-owned subsidiaries, MIIX and, from
August 4, 1999, the Underwriter. MIIX owns 100% of LHI, a property and casualty
insurance holding company, which owns 100% of LP&C and MIIX New York. The
Underwriter's principal wholly-owned subsidiaries include Medical Brokers, Inc.,
an insurance agency, Pegasus Advisors, Inc., a reinsurance intermediary,
Hamilton National Leasing Corporation, a leasing company, MIIX Healthcare Group,
a healthcare consulting firm, and Lawrenceville Re. Ltd., a Bermuda-domiciled
reinsurance company. All significant intercompany transactions and balances have
been eliminated in the consolidation.
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 values.
The Company has no securities classified as "trading" or "held-to-maturity."
Investments are recorded at the trade date.
Changes in fair values of available-for-sale securities, after adjustment of
deferred income taxes, are reported as unrealized appreciation or depreciation
directly in equity as a component of other comprehensive 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 periodically, the effective yield is
recalculated to reflect actual payments to date and anticipated future payments.
The net investment in the security is adjusted through net investment income to
the amount that would have existed had the new effective yield been applied
since the acquisition of the security.
Premiums and discounts on investments (other than loan-backed bonds) are
amortized/accreted 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.
Premium Receivable
Premium receivable is net of an allowance for doubtful accounts as of December
31, 1999 and 1998 of $781,207 and $455,000, respectively. Amounts charged to
expense in 1999, 1998 and 1997 were $17,000, ($172,000) and $627,000,
respectively.
Reinsurance Recoverable on Paid Losses
Reinsurance recoverable on paid losses at both December 31, 1999 and 1998 is net
of an allowance of $1,300,000.
Deferred Policy Acquisition Costs
Policy acquisition costs, (primarily commissions, premium taxes and other
selling expenses) which vary with and are directly related to the production of
business, are capitalized and amortized over the effective period of the related
policies. Anticipated investment income is considered in determining if premium
deficiencies exist.
F-8
<PAGE> 53
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
Intangible assets consist primarily of goodwill, resulting from the acquisition
of subsidiaries. Goodwill is amortized over 15 years.
Software Development Costs
Costs incurred in the development of software used for Company operations are
capitalized and amortized over a useful life ranging from three to five years.
Losses and Loss Adjustment Expenses
Estimates for unpaid losses and loss adjustment expenses are based on the
Company's evaluation of reported claims and actuarial analyses of the Company's
operations since its inception, including assumptions regarding expected
ultimate losses and reporting patterns, and estimates of future trends in claim
severity and frequency. The Company's philosophy is to have a disciplined
process consistently applied in setting and adjusting loss and LAE reserves.
Although variability is inherent in such estimates, recorded loss and LAE
reserves represent management's best estimate of the remaining costs of settling
all incurred claims. Changes in the Company's estimate of ultimate claim costs
are recognized in the period in which the Company's estimate of those ultimate
costs is changed. These estimates are reviewed regularly and any adjustments to
prior year reserves are reflected in current year operating results.
The Company offered pure occurrence coverage from 1977 through 1986 and a form
of occurrence coverage, "modified claims made" from 1987 to the present through
its Permanent Protection Plan ("PPP") policy. The PPP policy provides coverage
for claims reported during the policy period as well as, under the extended
reporting endorsement, claims reported after the termination of the policy (for
any reason), and thus is reserved on an occurrence basis. The Company also
offers traditional claims-made and occurrence coverages, which are reserved on a
claims-made or occurrence basis, as appropriate.
Premiums
Premiums are recorded as earned over the period the policies to which they apply
are in force. 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.
All reinsurance contracts are accounted for in accordance with the provisions of
SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts", which provides the criteria for determining whether
the contracts should be accounted for utilizing reinsurance accounting or
deposit accounting. Reinsurance contracts that do not satisfy certain
requirements of SFAS No. 113 are accounted for using the deposit method.
Recorded deposits are initially established based on the consideration paid less
any fees which are expensed in accordance with the contract terms. Subsequent
adjustments to the deposit are measured based on the present value of the
expected future cash flows arising from the contract.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, 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. A
valuation allowance is established for any portion of a deferred tax asset that
management believes will not be realized.
F-9
<PAGE> 54
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassification
Certain prior year amounts have been reclassified to be comparable to the 1999
presentation.
Cash Flow Reporting
For purposes of reporting cash flows, cash consists of amounts held at banks,
cash in money market accounts and time deposits with original maturities of
three months or less.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees and
board members with an exercise price equal to the fair value of the shares at
the date of grant. The Company accounts for stock option grants in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations because the Company believes the
alternative fair value accounting provided for under SFAS Statement No. 123,
"Accounting for Stock-Based Compensation," requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the dates of grant, no
compensation expense is recognized.
Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with SFAS No.
128. Earnings per share through August 4, 1999 and for the periods ended
December 31, 1998 and 1997 gives effect to the reorganization and allocation of
approximately 12,025,000 shares of common stock distributed to the Exchange's
members on August 4, 1999.
Segment Information
The Company's operations are classified into one reportable segment: providing
professional liability and related insurance coverages to the healthcare
industry. In connection therewith the Company generally offers three products,
occurrence policies, claims made policies with prepaid tail coverage and claims
made policies in each of its markets. The Company distributes its products both
directly to the insureds and through intermediaries.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 2000. Adoption of this
statement is not expected to have a significant impact on the Company's
financial position or results of operations.
3. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:
F-10
<PAGE> 55
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverable of
$325.8 million, $270.7 million, and $221.7 million,
respectively............................................. $ 625,864 $605,990 $573,700
Net reserves acquired in acquisition of the Underwriter.... 8,286 0 0
Incurred related to:
Current year............................................. 189,000 157,952 120,496
Prior years.............................................. (14,014) (2,084) 0
-------- -------- -------
Total incurred............................................. 174,986 155,868 120,496
Paid related to:
Current year............................................. 4,589 1,328 3,930
Prior years.............................................. 157,359 134,666 84,276
-------- -------- --------
Total paid................................................. 161,948 135,994 88,206
-------- -------- --------
Balance as of December 31, net of reinsurance
recoverable.............................................. 647,188 625,864 605,990
Reinsurance recoverable.................................... 406,409 325,795 270,731
--------- -------- --------
Balance, gross of reinsurance.............................. $1,053,597 $951,659 $876,721
========== ======== ========
</TABLE>
The Company increased prior year gross reserves in the amounts of $16.5 million,
$3.8 million and $0.2 million during 1999, 1998 and 1997, respectively. At
December 31, 1999, 1998 and 1997, reserves for gross losses and loss adjustment
expenses on incurred but not reported claims amounted to $640.1 million, $623.8
million, and $591.2 million, respectively, of which $444.7 million, $436.3
million and $430.3 million related to prior years.
Loss and loss adjustment expense reserve estimates have been reviewed regularly
and adjusted where judged prudent to do so. Medical malpractice business,
particularly occurrence or occurrence-like coverage, has a very long development
period. Cases may take years to be reported, and, as a rule, take several years
to adjust, settle or litigate. In addition, general long term trends impacting
ultimate reserve values such as changes in liability standards and expanding
views of contract interpretation increase the uncertainty. While certain
individual cases were settled during 1999, 1998 and 1997 at values more or less
than specific case reserve amounts established in prior years, there were no
overall indications that prior established best estimates, including the
significant portion of reserves for incurred but not reported claims, should be
adjusted beyond the amounts recorded.
The Company maintains aggregate excess reinsurance contracts that provide
coverage, above aggregate retentions for most losses and allocated loss
adjustment expenses. The aggregate excess reinsurance contracts, therefore, have
the effect of holding net incurred losses and allocated loss adjustment expenses
on subject business at a constant level as long as losses and allocated loss
adjustment expenses remain within the coverage limits, which occurred for the
years ended December 31, 1999, 1998 and 1997. The adjustments to net reserves in
1999 and 1998 generally resulted from favorable development of older accident
year gross occurrence and modified claims made gross reserves, which are not
covered by aggregate reinsurance contracts, offset by unfavorable development on
recent accident year gross claims made reserves, which are largely covered by
aggregate reinsurance contracts.
4. RELATED PARTY TRANSACTIONS
The Company held a note receivable of $2.6 million and $2.8 million, included in
other assets, at December 31, 1999 and 1998, 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. In addition, the Company made contributions to
the Medical Society of New Jersey in 1999, 1998 and 1997.
Management services agreements between the Company's insurance subsidiaries and
the Underwriter provide, among other things, that the Underwriter is responsible
for
F-11
<PAGE> 56
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the administration and management of the Company's insurance operations. In
exchange for the services provided, fees are paid to the Underwriter which equal
the actual direct expenses incurred by the Underwriter in performing the
services. Expenses incurred by the Underwriter and reimbursed by the Company's
insurance subsidiaries through August 4, 1999, the date the Company purchased
the Underwriter, amounted to $18.7 million in 1999, $30.6 million in 1998 and
$22.7 million in 1997.
5. INVESTMENTS
The Company's investment strategy focuses primarily on the purchase of
intermediate-term, investment-grade securities along with a modest allocation to
below investment-grade (i.e., high yield) fixed maturity investments not to
exceed 7.5% of invested assets. At December 31, 1999 and 1998, the average
credit quality of the fixed income portfolio was AA-. The portfolio does not
include any investments in real estate.
The actual or amortized cost and estimated market value of the Company's
available-for-sale securities as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------- MARKET
COST GAINS LOSSES VALUE
---------- ------- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 107,044 $ 98 $ 5,649 $ 101,493
Obligations of states and political
subdivisions.................................. 162,078 102 6,987 155,193
Foreign securities -- U.S. dollar denominated... 35,619 547 2,021 34,145
Corporate securities............................ 350,897 752 19,508 332,141
Mortgage-backed and other asset-backed
securities.................................... 476,293 111 21,570 454,834
---------- ------- ------- ----------
Total fixed maturity investments................ 1,131,931 1,610 55,735 1,077,806
Equity investments.............................. 13,169 259 1,034 12,394
---------- ------- ------- ----------
Total investments..................... $1,145,100 $ 1,869 $56,769 $1,090,200
========== ======= ======= ==========
1998
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 119,083 $ 4,451 $ 270 $ 123,264
Obligations of states and political
subdivisions.................................. 176,798 8,420 2 185,216
Foreign securities -- U.S. dollar denominated... 15,694 352 918 15,128
Corporate securities............................ 322,477 6,874 5,021 324,330
Mortgage-backed and other asset-backed
securities.................................... 407,140 4,415 1,754 409,801
---------- ------- ------- ----------
Total fixed maturity investments................ 1,041,192 24,512 7,965 1,057,739
Equity investments.............................. 3,159 -- -- 3,159
---------- ------- ------- ----------
Total investments..................... $1,044,351 $24,512 $ 7,965 $1,060,898
========== ======= ======= ==========
</TABLE>
The fair values for fixed maturity investments are based on quoted market
prices, where available. For fixed maturity investments 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 and quantitative estimates of management for non-traded securities.
The amortized cost and estimated fair value of fixed maturity investments at
December 31, 1999 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.
F-12
<PAGE> 57
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less..................................... $ 21,394 $ 21,374
Due after one year through five years....................... 103,736 100,527
Due after five years through ten years...................... 225,811 214,376
Due after ten years......................................... 304,698 286,695
Mortgage-backed and other asset-backed securities........... 476,292 454,834
---------- ----------
Total............................................. $1,131,931 $1,077,806
========== ==========
</TABLE>
Major categories of the Company's net investment income are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity investments............................ $69,845 $59,037 $49,241
Equity investments.................................... 436 878 1,678
Short-term investments................................ 6,472 7,376 4,925
Other................................................. 503 361 775
------- ------- -------
Subtotal.................................... 77,256 67,652 56,619
Investment expenses................................... 1,595 2,545 2,727
------- ------- -------
Net investment income................................. $75,661 $65,107 $53,892
======= ======= =======
</TABLE>
Realized gains and losses from sales of investments are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity investments
Gross realized gains................................ $ 4,950 $13,084 $ 2,803
Gross realized losses............................... (11,358) 1,052 1,158
------- ------- -------
Net realized gains on fixed maturity investments...... (6,408) 12,032 1,645
Equity investments
Gross realized gains................................ 138 38,823 8,719
Gross realized losses............................... (500) 465 68
------- ------- -------
Net realized gains (losses) on equity investments..... (362) 38,358 8,651
------- ------- -------
Net realized losses on equity collar investments...... 0 14,000 0
------- ------- -------
Net realized gains (losses) on investments............ $(6,770) $36,390 $10,296
======= ======= =======
</TABLE>
The net realized gains on equity investments for the year ended December 31,
1998 resulted from the Company's decision to liquidate substantially all of its
equity investments during the third quarter of 1998.
The change in the Company's unrealized appreciation (depreciation) on fixed
maturity investments was $(70,672), $(3,377) and $17,856 for the years ended
December 31, 1999, 1998 and 1997, respectively. The corresponding amounts for
equity investments were $(775), $(22,560) and $10,664.
At December 31, 1999 and 1998, investments in fixed maturity investments with a
carrying amount of approximately $10.4 million and $10.1 million, respectively,
were on deposit with state insurance departments to satisfy regulatory
requirements.
F-13
<PAGE> 58
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. REINSURANCE
Certain premiums, losses and loss adjustment expenses are ceded to other
insurance companies under various reinsurance agreements in-force during 1999,
1998 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, and contain
the following significant terms:
<TABLE>
<CAPTION>
COVERAGE COVERAGE
CONTRACT TYPE RETENTION LIMIT OTHER
<S> <C> <C> <C> <C> <C>
1999 Specific Excess Per loss $10 million $65 million No aggregate deductible
1999 Aggregate Excess Aggregate 75% loss and 75% loss and Aggregate limit
ALAE ratio ALAE ratio
1998 Specific Excess Per loss $2-$3 million $48 million Aggregate deductible
1998 Aggregate Excess Aggregate 75% loss and 75% loss and Aggregate limit
ALAE ratio ALAE ratio
1997 Specific Excess Per loss $2-$3 million $38 million Aggregate deductible
1997 Aggregate Excess Aggregate 75% loss and 75% loss and Aggregate limit
ALAE ratio ALAE ratio
</TABLE>
In addition, in 1992, the Company entered into a combined aggregate and specific
excess of loss contract covering losses and ALAE which occurred on or before
December 31, 1992. This contract was accounted for using deposit accounting on a
GAAP basis. On September 30, 1999 the Company commuted this contract at no gain
or loss. At December 31, 1998 the net deposit related to this contract was $0.
The effect of assumed and ceded reinsurance on premiums is summarized in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Direct............... $244,426 $222,898 $230,314 $195,591 $162,430 $150,099
Assumed.............. 12,674 12,909 1,543 3,015 15,478 15,568
Ceded................ (53,682) (47,962) (37,685) (36,105) (44,522) (42,337)
-------- -------- -------- -------- -------- --------
Net premiums......... $203,418 $187,845 $194,172 $162,501 $133,386 $123,330
======== ======== ======== ======== ======== ========
</TABLE>
During 1999, 1998 and 1997, approximately $96.1 million, $62.4 million, and
$68.9 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, 1999 and 1998, the Company
held collateral under related reinsurance agreements for all unpaid losses and
loss adjustment expenses ceded in the form of funds withheld of $271.6 million
and $228.1 million and letters of credit of $178.7 million and $143.0 million,
respectively.
In accordance with the provisions of the reinsurance contracts, the funds
withheld are credited with interest at contractual rates ranging from 7.5% to
8.6%, which is recorded as a period expense in the year incurred. There are
currently no restrictions on investments held in support of funds withheld.
7. RETIREMENT PLANS
Costs associated with the Company's retirement plans in 1997 through August 4,
1999 were charged to the Company by the Underwriter as part of its management
fee.
The Company has a contributory 401(k) Retirement Savings Plan which covers
substantially all employees. The Company currently contributes 50% of the first
6% of compensation contributed by participants. Employer contributions for the
years ended December 31, 1999, 1998 and 1997 totaled $344,852, $278,359 and
$258,324, respectively.
F-14
<PAGE> 59
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also provides a noncontributory defined benefit pension plan
covering substantially all its employees.
The net periodic pension expense consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................... $ 789 $ 702 $ 560
Interest cost......................................... 568 508 416
Actual return on plan assets.......................... 675 701 (1,158)
Amortization of:
Transition obligation (asset)...................... (22) (22) (22)
Actuarial loss..................................... (126) (197) 239
------- ------ ------
Net periodic pension expense.......................... $1,884 $1,692 $ 35
====== ====== ======
The following table sets forth the funding status of the plan:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Change in Benefit Obligation
Net benefit obligation at beginning of year........... $ 9,427 $ 6,737
Service cost.......................................... 789 702
Interest cost......................................... 568 508
Actuarial loss........................................ (2,872) 1,540
Gross benefits paid................................... (89) (60)
------- -------
Net benefit obligation at end of year................. $ 7,823 $ 9,427
------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year........ $ 9,858 $ 8,718
Actual return on plan assets.......................... 675 700
Employer contributions................................ 363 500
Gross benefits paid................................... (89) (60)
------- -------
Fair value of plan assets at end of year.............. $10,807 $ 9,858
------- -------
Funded status (underfunded)........................... $ 2,984 $ 431
Unrecognized actuarial (gain) loss.................... (3,963) (1,434)
Unrecognized net transition obligation (asset)........ (90) (112)
------- -------
Prepaid (accrued) pension expense..................... $(1,069) $(1,115)
======= ========
Amounts recognized in the statement of
financial position consists of
Accrued benefit liability.......................... $(1,069) $(1,115)
-------- -------
Prepaid (accrued) pension expense...................... $(1,069) $(1,115)
======== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted-average assumptions
Discount rate........................................ 8.00% 6.50% 7.25%
Expected return on plan assets....................... 9.00% 9.00% 8.00%
Rate of compensation increase........................ 4.00% 5.00% 5.00%
</TABLE>
F-15
<PAGE> 60
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK
In 1997, the Company implemented an "equity collar" (collar) around the
Company's equity securities of $81.6 million. An "equity collar" is an option
position created with the simultaneous purchase and sale of an equal number of
put and call options which serves as a hedge transaction, the purpose of which
is to reduce equity market volatility and to protect surplus from significant
declines in the market value of the Company's equity securities. This resulting
option position establishes both a ceiling and a floor with respect to the
financial performance of the underlying asset, upon which the "equity collar" is
established, for a specified time period. The collar transaction was executed on
July 8, 1997 and expired on January 2, 1998. The collar was constructed using
European-style S&P 500 options and as of December 31, 1997, the collar had no
unrealized gain or loss. A "European-style" option is an option contract that
may be exercised only upon expiration of the contract. To minimize loss exposure
due to credit risk, the Company utilizes intermediaries with a Standard and
Poor's rating of "AA" or better.
In 1998, another equity collar was implemented with a notional value of $85
million around the equity portfolio. Again, 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. The collar transaction was
executed on January 13, 1998 and expired on July 13, 1998, and resulted in a net
realized loss to the Company of $14 million. This loss offset gains on the
related hedged equity securities liquidated in the third quarter of 1998.
Since the expiration of the equity collar mentioned above, the Company has not
held any other derivative investments.
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.
The Company leases office space and office equipment. Rent expense for 1999,
1998 and 1997 was $2,162,120, $1,799,749 and $1,415,473, respectively, including
rent paid to the Medical Society of New Jersey of $772,173 in 1999, 1998 and
1997. Minimum future rental obligations for leases currently in effect are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 2,050,753
2001 1,642,276
2002 1,272,078
2003 1,042,340
2004 873,755
Thereafter 772,173
-----------
$ 7,653,375
===========
</TABLE>
The Company currently purchases annuities without recourse on a competitive
basis to fund settlements of indemnity losses. The nature and terms of the
annuities vary according to settlements. The current value of annuities
purchased in prior years from other insurance companies, but with recourse to
the Company, and reflected as an other asset and an other liability in the
consolidated balance sheets, totaled $19.9 million and $19.3 million as of
December 31, 1999 and 1998, respectively. The Company becomes liable only in the
event that an insurance company cannot meet its obligations under existing
agreements and state guarantee funds are not available. To minimize its exposure
to such losses, the Company only utilizes insurance companies with an A.M.
Best rating of "A+" or better.
Legal proceedings beyond the ordinary course of business at December 31, 1999
included an appeal filed by three individual insureds of the order issued by the
Commissioner of the New Jersey Department of Banking and Insurance approving the
Company's Plan of Reorganization. On February 14, 2000, the Appellate Division
of the Superior Court of New Jersey affirmed the Commissioner's order approving
the Plan of Reorganization, rejecting all of appellants' contentions. Appellants
are now seeking review of the Appellate Court's decision by the New Jersey
Supreme Court. A second court action challenging certain aspects of the Plan of
Reorganization and seeking damages and injunctive relief that was filed by five
individual insureds in January 1999 was dismissed by the trial court in August
1999
F-16
<PAGE> 61
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and is now on appeal. The Company intends to continue vigorously defending
against these actions.
9. STATUTORY ACCOUNTING PRACTICES
MIIX, domiciled in New Jersey, LP&C, domiciled in Virginia, MIIX New York,
domiciled in New York, and Lawrenceville Re. Ltd., 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,
the Virginia Department of Insurance, the New York State Insurance Department
and the Bermuda Register 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 (the "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 adopted codified statutory accounting
principles "Codification," which is effective for the reporting periods
beginning after January 1, 2001. Codification constitutes the only source of
prescribed statutory accounting practices in the United States. Management
believes that the impact of codification will not be material to the statutory
basis financial statements of MIIX, LP&C and MIIX New York. Combined
policyholders' surplus and net income, as reported to the domiciliary insurance
departments in accordance with its prescribed or permitted statutory accounting
practices for these companies, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income for the year.................. $ 8,812 $ 29,631 $ 30,302
Statutory surplus at year-end...................... $268,445 $253,166 $242,395
</TABLE>
The maximum amount of dividends that domestic insurance companies in New Jersey
can pay without prior approval of the New Jersey insurance commissioner is
subject to restrictions. No dividends were paid or declared in 1999, 1998 or
1997. In 1999, MIIX could have paid dividends to The MIIX Group, Incorporated,
of approximately $25.3 million without the prior approval of the New Jersey
Insurance Commissioner. The other insurance subsidiaries are subject to similar
provisions and restrictions. No significant amounts are currently available for
payment of dividends by insurance subsidiaries other than MIIX without prior
approval of the applicable state insurance department or Bermuda Registrar of
Companies.
10. RESTRUCTURING CHARGE
The Company undertook a restructuring during the second quarter of 1999 and on
June 23 announced the reduction of regional and home office staff and the
closing of regional offices in Boston and Atlanta to centralize their functions
at the Company's home office. The Company recognized a pre-tax charge in the
second quarter of 1999 related to this restructuring of $2.4 million.
11. INCOME TAXES
For federal income tax purposes, the Company files a consolidated return with
its subsidiaries.
The components of the income tax provision in the accompanying statements of
income are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense............................ $16,690 $19,111 $ 3,423
Deferred income tax benefit........................... (10,073) (7,957) (1,417)
------- ------- -------
Total income tax expense.............................. $ 6,617 $11,154 $ 2,006
======= ======= =======
</TABLE>
F-17
<PAGE> 62
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax computed at the federal statutory tax rate to
total income tax expense is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax at 35%............................. $ 9,581 $14,309 $10,896
Increase (decrease) in taxes resulting from:
Tax-exempt interest................................. (2,431) (2,810) (3,583)
Provision for (reversal of) tax contingencies and
other tax matters................................ 0 0 (4,217)
Other............................................... (533) (345) (1,090)
------- ------- -------
Total income taxes.......................... $ 6,617 $11,154 $ 2,006
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Discounting of loss reserves.............................. $47,747 $37,181
Unearned premium reserve.................................. 5,539 3,893
Unrealized losses on investments.......................... 19,395 0
Other..................................................... 2,953 1,362
------- -------
Total deferred tax assets......................... $75,634 $42,436
------- -------
Less Valuation allowance................................. 3,612 0
------- -------
Deferred tax asset after valuation allowance..... $72,022 $42,436
Deferred tax liabilities:
Unrealized gains on investments........................... $ 0 $ 5,791
Other..................................................... 2,289 1,914
------- -------
Total deferred tax liabilities.................... $ 2,289 $ 7,705
------- -------
Net deferred tax assets........................... $69,733 $34,731
======= =======
</TABLE>
Based on the anticipated realizability of the deferred tax asset relating to
unrealized losses on the available-for-sale securities, the Company established
a $3.6 million valuation allowance at December 31, 1999. 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, 1999 and 1998, the Company had income taxes payable included in
other liabilities of $12.8 million and $4.5 million, respectively.
The amount of income taxes paid in 1999, 1998 and 1997 was $8.9 million, $17.4
million and $6.0 million, respectively.
As a result of developments during 1996 related to Internal Revenue Service
examinations, the Company established a provision for tax contingencies of $5.2
million. During 1997, the Company reached favorable resolutions and was able to
release $4.2 million of that amount. The federal income tax returns of the
Company have been examined by the Internal Revenue Service through the years
1994. Management believes the Company has adequately provided for any remaining
tax contingencies.
F-18
<PAGE> 63
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. IMPAIRMENT OF CAPITALIZED SYSTEM DEVELOPMENT COSTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" requires recognition of impairment losses
for long-lived assets whenever events or changes in circumstances result in the
carrying amount of an asset to exceed the sum of the expected future cash flow
associated with the asset. During 1998, management replaced its policy
administration system, and accordingly, recognized a $12.7 million pre-tax
charge which represented the net book value of capitalized system development
costs associated with the old computer system at the time of disposal.
13. DEFERRED POLICY ACQUISITION COSTS
The following represents the components of deferred policy acquisition costs and
the amounts that were charged to expense for the year ended December 31, 1999,
1998, and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period....................... $ 2,810 $ 100 $ 451
Cost deferred during the period...................... 13,565 14,648 4,379
Amortization expense................................. (13,210) (11,938) (4,730)
-------- ------- -------
Balance at end of period............................. $ 3,165 $ 2,810 $ 100
======== ======= =======
</TABLE>
14. COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the years ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income.................................................. $ 20,758 $29,728 $29,124
Other comprehensive income:
Unrealized holding appreciation (depreciation) arising
during period (net of tax of $(23,944), $3,659, and
$13,586, respectively).................................. (54,273) 6,795 25,230
Reclassification adjustment for (gains) losses realized
in net income (net of tax of $2,370, $(12,736) and
$(3,604), respectively)................................ 4,400 (23,654) (6,692)
------- ------- -------
Net unrealized appreciation (depreciation) arising during
the period at December 31, (net of tax of $(21,574),
($9,078), and $9,982, respectively)..................... $(49,873) $(16,859) $18,538
-------- ------- -------
Comprehensive income........................................ $(29,115) $ 12,869 $47,662
======== ======= =======
</TABLE>
15. STOCK BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations. The Company's policy regarding stock options is to issue
options with an exercise price equal to the market price on the date of grant.
Under APB 25 no compensation expense is recognized given the Company's policy.
Certain executive officers, board members and employees have been granted a
total of 609,000 options to purchase shares of The MIIX Group common stock with
exercise prices ranging from $11.90625 to $16.0625, of which 152,250 options
were immediately exercisable, and 157,500 options were subsequently cancelled.
During 1999, no options were exercised. Pursuant to stock purchase and loan
agreements, The MIIX Group loaned certain officers of the Company approximately
$4,640,000, which the officers used to purchase unregistered shares of The MIIX
Group common stock at the Offering Price. On September 15, 1999, 45,515
restricted shares of The MIIX Group common stock, having a per share market
value of $16.0625, were granted to certain officers and board members, of which
12,597 shares were immediately vested, and 20,078 shares were subsequently
forfeited.
F-19
<PAGE> 64
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's pro forma information using the Black-Scholes valuation model
follows:
<TABLE>
<CAPTION>
1999
-------
<S> <C>
Estimated weighted average of the fair value of options granted $3.77
Pro forma net income (in thousands) $19,821
Pro forma earnings per share - Basic $1.47
- Diluted $1.46
</TABLE>
For pro forma disclosure purposes, the fair value of stock options was estimated
at each date of grant using a Black-Scholes option pricing model using the
following assumptions: Risk-free interest rates ranging from 5.8% to 6.4%;
dividend yields ranging from 1.48% to 1.68%; volatility factors of the expected
market price of the Company's common stock ranging from 33.3% to 38.2%; and a
three-years weighted average expected life of the options.
In management's opinion, existing stock option valuation models do not provide
an entirely reliable measure of the fair value of non-transferable employee
stock options with vesting restrictions.
16. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with SFAS
Statement No. 128, "Earnings per Share." Earnings per share for the year ended
December 31, 1999 is computed using the weighted-average number of common shares
outstanding during this period of 13,497,110. Earnings per share for the period
ended December 31, 1998 gives effect to the reorganization and the allocation of
approximately 12,025,000 shares of common stock distributed to the Exchange's
members on August 4, 1999.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Numerator:
Net income............................................... $20,758 $29,728 $29,124
Numerator for:
Basic earnings per share of common stock.................. 20,758 29,728 29,124
Diluted earnings per share of common stock................ 20,758 29,728 29,124
Denominator:
Denominator for basic earnings per share of
common stock - weighted-average shares outstanding........ 13,497 12,025 12,025
-------- ------- -------
Effect of dilutive securities:
Stock options........................................... 37 0 0
-------- ------- -------
Denominator for diluted earnings per share of
common stock adjusted - weighted-average shares
outstanding............................................. 13,534 12,025 12,025
Basic earnings per share of common stock.................... $ 1.54 $ 2.47 $ 2.42
======== ======= =======
Diluted earnings per share of common stock.................. $ 1.53 $ 2.47 $ 2.42
======== ======= =======
</TABLE>
F-20
<PAGE> 65
THE MIIX GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of unaudited quarterly results of operations for 1999
and 1998:
<TABLE>
<CAPTION>
1999
-----------------------------------------
1ST 2ND 3RD 4TH
-------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total written premiums............................. $141,619 $ 12,617 $ 69,503 $33,361
Net premiums earned................................ 45,581 45,906 58,798 37,560
Net investment income.............................. 17,387 18,348 19,479 20,447
Realized investment losses......................... (504) (2,928) (1,668) (1,670)
Losses and loss adjustment expenses................ 43,043 43,176 54,318 34,449
Restructuring charge............................... 0 2,409 0 0
Net income......................................... $ 4,606 $ 2,894 $ 6,442 $ 6,816
Basic earnings per share........................... $ 0.38 $ 0.24 $ 0.44 $ 0.44
======== ======= ======= =======
Diluted earnings per share of common stock......... $ 0.38 $ 0.24 $ 0.44 $ 0.44
======== ======= ======= =======
Dividend per share of common stock................. $ 0 $ 0 $ 0.05 $ 0.05
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------
1ST 2ND 3RD 4TH
-------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total written premiums............................. $146,680 $18,045 $42,393 $24,739
Net premiums earned................................ 35,817 38,563 40,286 47,835
Net investment income.............................. 14,803 16,051 16,769 17,484
Realized investment gains.......................... 1,441 2,805 29,317 2,827
Losses and loss adjustment expenses................ 36,050 36,902 40,098 42,818
Impairment of capitalized system development
costs............................................ 0 12,656 0 0
Net income (loss).................................. $ 3,461 $(1,530) $21,497 $ 6,300
Basic earnings (loss) per share) .................. $ 0.29 $ (0.13) $ 1.79 $ 0.52
======== ======= ======= =======
Diluted earnings (loss) per share of common stock.. $ 0.29 $ (0.13) $ 1.79 $ 0.52
======== ======= ======= =======
</TABLE>
F-21
<PAGE> 66
SCHEDULE I
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMORTIZED AMOUNT ON
COST FAIR VALUE BALANCE SHEET
---------- ---------- -------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and government agencies
and authorities.................................. $ 107,044 $ 101,493 $ 101,493
States, municipalities and political subdivisions... 162,078 155,193 155,193
Public utilities.................................... 35,246 33,723 33,723
Foreign securities--U.S. dollar denominated......... 35,619 34,145 34,145
All other corporate bonds........................... 791,944 753,252 753,252
---------- ---------- ----------
Total fixed maturities........................... $1,131,931 $1,077,806 $1,077,806
---------- ---------- ----------
Equity securities:
Common stock:
Banks, trust and insurance companies............. 13,169 12,394 12,394
---------- ---------- ----------
Total equity securities.......................... $ 13,169 $ 12,394 $ 12,394
---------- ---------- ----------
Short-term investments................................ $ 92,743 $ 92,743 $ 92,743
---------- ---------- ----------
Total investments..................................... $1,237,843 $1,182,943 $1,182,943
========== ========== ==========
</TABLE>
F-22
<PAGE> 67
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
The MIIX Group, Incorporated
Condensed Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Assets:
Investments
Equity investments at fair value
(cost: 1999 -- $5,819; 1998 -- $0)...................... $ 4,869 $ 0
Short-term investments.................................... 11,850 0
Investment in subsidiaries................................ 303,167 10,238
-------- --------
Total Investments................................. $319,886 $ 10,238
Other assets.............................................. 609 0
------- --------
Total Assets...................................... $320,495 $ 10,238
======== ========
Liabilities:
Due to affiliates......................................... $ 362 $ 0
Other liabilities......................................... 1,429 0
-------- --------
Total Liabilities................................. $ 1,791 $ 0
-------- --------
Stockholders' Equity:
Preferred stock
($.01 par value, 50,000,000 shares authorized,
no shares issued and outstanding)...................... $ 0 $ 0
Common stock
($.01 par per share, 100,000,000 shares authorized,
16,469,939 shares issued, 15,258,567 outstanding)...... 165 0
Additional paid in capital................................ 52,942 10,000
Retained earnings......................................... 328,897 0
Treasury stock, at cost (1999 -- 1,236,809 shares)........ (19,249) 0
Stock purchase loans and unearned stock compensation...... (4,934) 0
Accumulated other comprehensive income.................... (39,117) 238
-------- --------
Total Stockholder's Equity........................ $318,704 $ 10,238
-------- --------
Total Liabilities and Stockholder's Equity........ $320,495 $ 10,238
======== ========
</TABLE>
F-23
<PAGE> 68
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)
The MIIX Group, Incorporated
Condensed Statements of Operations
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net investment income............................. $ 711 $ 0
Realized investment gains (losses) ............... 138 0
Other expenses.................................... (852) 0
-------- --------
Earnings before federal income taxes and equity
in income of subsidiaries....................... (3) 0
Federal income taxes.............................. (11) 0
-------- --------
Earnings before equity in income of subsidiaries.. 8 0
Equity in income of subsidiaries.................. 20,750 191
-------- --------
Net income................................ $ 20,758 $ 191
======== ========
</TABLE>
F-24
<PAGE> 69
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)
The MIIX Group, Incorporated
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................. $ 20,758 $ 191
Adjustments to reconcile net income to net cash provided by operating
activities:
Realized investment (gains) losses......................................... (138) 0
Change in payable to subsidiaries.......................................... 362 0
Net change in other assets and liabilities................................. 857 0
Equity in undistributed income of subsidiaries............................. (20,750) (191)
-------- -------
Net cash provided by operating activities.................................. 1,089 0
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed maturity investment sales.............................. 2,915 0
Proceeds from equity sales................................................. 1,553 0
Cost of investments acquired............................................. (10,148) 0
Purchase of subsidiary..................................................... (100) 0
Change in short-term investments, net...................................... (11,850) 0
-------- ------
Net cash provided by investing activities.................................. (17,630) 0
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering, net of
offering and reorganization costs....................................... 37,350 0
Purchase of treasury stock................................................. (19,249) 0
Cash dividends to stockholders............................................. (1,560) 0
Capital contribution from the Exchange..................................... 0 10,000
Capital contribution to MIIX Insurance..................................... 0 (10,000)
-------- -------
Net cash provided by (used in) financing activities........................ 16,541 0
Net change in cash......................................................... 0 0
Cash at beginning of period................................................ 0 0
Cash at end of period...................................................... 0 0
======== ========
$ 0 $ 0
======== ========
</TABLE>
F-25
<PAGE> 70
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
The MIIX Group, Incorporated
Notes to Condensed Financial Statements
December 31, 1999
1. REORGANIZATION
On August 4, 1999 the Exchange consummated its Plan of Reorganization whereby
the Exchange reorganized from a reciprocal insurer to a stock insurance company
(MIIX) and became a wholly owned subsidiary of The MIIX Group.
The MIIX Group has no historic operation and was organized in October 1997 as
part of the Exchange's plan to reorganize its corporate structure. The Plan of
Reorganization included several key components, including: formation of the MIIX
Group to be the ultimate parent for the reorganized Company; the transfer of
assets and liabilities held by the Exchange to MIIX, formed for that purpose;
acquisition of the Underwriter; distribution of shares of The MIIX Group common
stock and/or cash to current and former members of the Exchange ("distributees")
as defined in the Plan of Reorganization; and dissolution of the Exchange.
2. BASIS OF PRESENTATION
In The MIIX Group's financial statements, investment in subsidiaries is stated
at cost plus equity in undistributed earnings of subsidiaries since date of
acquisition. The MIIX Group, Incorporated's financial statements should be read
in conjunction with the consolidated financial statements.
F-26
<PAGE> 1
EXHIBIT 10.2
Two Princess Road
Lawrenceville, NJ 08648-2302 [MEDICAL SOCIETY OF NEW JERSEY LOGO]
609 896-1766
Fax 609 896-1368
http://www.msnj.org
July 7, 1999
Daniel Goldberg, President & CEO
The MIIX Group
Two Princess Road
Lawrenceville, NJ 08648
Re: NJSMU Lease
Dear Dan:
This will confirm an extension of the rental agreement between the New Jersey
State Medical Underwriters (NJSMU) and the Medical Society of New Jersey (MSNJ)
regarding leased space. Effective June 1, 1999, the triple net payment per
square foot for office space and warehouse space is $16.20 and $7.00,
respectively.
The terms of this new lease will remain in effect for a period of one year
until May 31, 2000. The space utilized by NJSMU and rental payment is computed
as follows:
<TABLE>
<CAPTION>
Lease Space
-----------
Total
First Floor Sq. Ft. Sq. Ft.
- ----------- ------- -------
<S> <C> <C>
Office Area 14,353
House of Delegates 6,468 20,821
------
Second Floor
- ------------
Office Area 25,740
------
Total Office Area 46,561
Warehouse Area 2,555
------
Total Leased Space 49,116
</TABLE>
<TABLE>
<CAPTION>
Rental Amount
-------------
<S> <C> <C>
46,561 sq. ft. x $16.20 per sq. ft. = $754,288.20
2,555 sq. ft. x $7.00 per sq. ft. = 17,885.00
-----------
Total Annual Rental Payment $772,173.20
</TABLE>
<PAGE> 2
-2-
The total amount of leased space covered under the rental agreement is 49,116
square feet resulting in a monthly rental payment of $64,347.77. All other
aspects of the basic lease remain unchanged.
Please indicate your recognition of this change by signing below.
Sincerely,
/s/ Vincent Maressa
-----------------------
Vincent A. Maressa
Executive Director/
General Counsel
Accepted NJSMU Accepted MSNJ
By /s/ Daniel Goldberg By /s/ Vincent Maressa
---------------------- ----------------------
Daniel Goldberg Vincent A. Maressa
President Executive Director/
General Counsel
PDW:cpd
(Lease MIIX)
cc: Paul D. Weber
<PAGE> 1
EXHIBIT 10.14
THE MIIX GROUP, INCORPORATED
AMENDED AND RESTATED 1998 LONG TERM INCENTIVE EQUITY PLAN
<PAGE> 2
1. PURPOSE OF THE PLAN
The purpose of the Plan is to promote the long term financial
success of The MIIX Group, Incorporated, its Subsidiaries and Affiliates, and to
materially increase shareholder value by: (i) providing performance related
incentives that motivate superior performance on the part of the Company's
directors, officers and employees; (ii) providing the Company's directors,
officers and employees with the opportunity to acquire an ownership interest in
the Company, and to thereby acquire a greater stake in the Company and a closer
identity with it; and (iii) enabling the Company to attract and retain the
services of an outstanding management team upon whose judgment, interest and
special effort the successful conduct of the Company's operations is largely
dependent.
2. DEFINITIONS
2.1. "Act" means the Securities Exchange Act of 1934, as amended.
2.2. "Affiliate" means any entity other than the Subsidiaries in
which the Company has a substantial direct or indirect equity interest, as
determined by the Board.
2.3. "Award" means an award of Options, SARs, Performance Shares,
Restricted Stock, Dividend Equivalents or any combination thereof.
2.4. "Award Share" means any share of Common Stock purchased upon
the exercise an Option or SAR, or issued pursuant to an Award of Restricted
Stock or a Performance Share.
2.5. "Board" means the Board of Directors of the Company.
2.6. "Cause" means conduct on the part of a Participant that
involves (i) a willful failure to perform the Participant's duties, (ii)
engaging in serious misconduct that is injurious to the Company, or (iii) the
Participant's conviction of or a plea of guilty or nolo contendre to a felony or
other crime involving moral turpitude.
2.7. "Change of Control" shall mean, following the effective date
of this Plan, the occurrence of any of the following events:
2.7.1. the acquisition in one or more transactions by any "Person" (as
such term is used for purposes of Section 13(d) or Section 14(d) of the Act) but
excluding, for this purpose, the Company or its Subsidiaries or any employee
benefit plan of the Company or its Subsidiaries, of "Beneficial Ownership"
(within the meaning of Rule 13d-3 under the Act) of thirty-five percent (35%) or
more of the combined voting power of the Company's then outstanding voting
securities (the "Voting Securities");
2.7.2. the individuals who, as of the effective date of the Plan,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that if the election, or
nomination for election by the Company's shareholders, of any new director was
approved by a vote of at least a majority of the Incumbent Board, such new
director shall be considered as a member of the Incumbent Board, and provided
<PAGE> 3
further that any reductions in the size of the Board that are instituted
voluntarily by the Incumbent Board shall not constitute a Change of Control, and
after any such reduction the "Incumbent Board" shall mean the Board as so
reduced;
2.7.3. a merger or consolidation involving the Company if the
shareholders of the Company, immediately before such merger or consolidation, do
not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty-five percent (65%) of the combined voting power
of the outstanding Voting Securities of the corporation resulting from such
merger or consolidation or a complete liquidation or dissolution of the Company
or a sale or other disposition of all or substantially all of the assets of the
Company; or
2.7.4. acceptance by shareholders of the Company of shares in a share
exchange if the shareholders of the Company, immediately before such share
exchange, do not own, directly or indirectly, immediately following such share
exchange, more than sixty-five percent (65%) of the combined voting power of the
outstanding Voting Securities of the corporation resulting from such share
exchange.
2.8. "Code" means the Internal Revenue Code of 1986, as amended.
2.9. "Committee" shall mean (i) the Board or (ii) a committee or
subcommittee of the Board appointed by the Board from among its members to
administer the Plan under Section 4. The Committee may be the Board's
Compensation Committee. Unless the Board determines otherwise, the Committee
shall be comprised of not less than two members who shall each qualify as (i) a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) (or any successor
rule) under the Act, and (ii) an Outside Director.
2.10. "Common Stock" means the common stock of the Company, par
value $.01 per share, or such other class or kind of shares or other securities
resulting from the application of Section 11.
2.11. "Company" means The MIIX Group, Incorporated, a Delaware
corporation, or any successor corporation.
2.12. "Disability" or "Disabled" means (i) in the case of an
Employee who is a Participant, such Employee's qualifying for and receiving
payments under the applicable long term disability plan of the Company or any
Subsidiary or Affiliate and (ii) in the case of an Outside Director who is a
Participant, the individual's inability to perform his or her services as a
Director under standards established and administered by the Committee.
2.13. "Dividend Equivalent" means the right, awarded under Section 6
or Section 9, to receive the equivalent value (in cash or in Common Stock) of
dividends paid on Common Stock.
2.14. "Employee" means an officer or other key employee of the
Company, a Subsidiary or an Affiliate, including any member of the Board who is
such an employee.
2.15. "Fair Market Value" means, on any given date:
2
<PAGE> 4
2.15.1. if the Common Stock is listed on the New York
Stock Exchange ("NYSE"), another national securities exchange or other market
system, the mean between the highest and lowest prices of actual sales of the
Common Stock on the principal exchange on which it is traded on such date, or if
no sale was made on such date on such principal exchange, on the last preceding
day on which the Common Stock was traded;
2.15.2. if the Common Stock is not then listed on the
NYSE, another national securities exchange or other market system, the book
value ascribed to the shares of Common Stock, as determined in accordance with
generally accepted accounting principles; or
2.15.3. any other value as otherwise determined in good
faith by the Board or a committee thereof.
2.16. "Incentive Stock Option" means an Option which meets the
requirements of Section 422 of the Code and which is designated as an Incentive
Stock Option by the Committee.
2.17. "Non-Qualified Stock Option" means an Option not intended to be
an Incentive Stock Option, and designated as a Non-Qualified Option by the
Committee.
2.18. "Option" means the right, granted from time to time under Section
6 of the Plan, to purchase Common Stock for a specified period of time at a
stated price. An Option may be an Incentive Stock Option or a Non-Qualified
Stock Option.
2.19. "Outside Director" means a member of the Board who is neither an
officer nor an employee of the Company. For purposes of this Section, an
employee is an individual whose wages are subject to the withholding of federal
income tax under Section 3401 of the Code, and an officer is an individual
elected or appointed by the Board or chosen in such other manner as may be
prescribed in the By-laws of the Company to serve as such, other than a
non-executive officer (such as the Board Chairman).
2.20. "Participant" means any Employee or Outside Director designated
by the Committee to participate in the Plan.
2.21. "Performance Award" means the conditional grant to a Participant
of the right to receive, at the end of the Performance Period, either (i) Common
Stock, (ii) cash equal to the Fair Market Value of the Common Stock at the end
of the Performance Period, or (iii) a combination of (i) and (ii) as specified
in the Award and provided that the terms, conditions and objectives specified in
the Award are satisfied.
2.22. "Performance Goal" means a goal that has been established by the
Committee and that must be met by the end of a Performance Period (but that is
substantially uncertain to be met before the grant). The Committee shall have
sole discretion to determine the specific targets within each category of
Performance Goals, and whether such Performance Goals have been achieved. With
respect to any Section 162(m) Participant, such Performance Goals shall include,
among other things: (i) the price of Common Stock, (ii) the market share of the
Company, its Subsidiaries or Affiliates (or any business unit thereof), (iii)
sales by the Company, its Subsidiaries or Affiliates (or any business unit
thereof), (iv) earnings per share of Common
3
<PAGE> 5
Stock, (v) return on equity of the Company, or (vi) costs of the Company, its
Subsidiaries or Affiliates (or any business unit thereof).
2.23. "Performance Period" means the time period during which and the
conditions under which, the receipt of Performance Shares shall be earned under
the Plan.
2.24. "Plan" means The MIIX Group, Incorporated 1998 Long Term
Incentive Equity Plan herein set forth, as amended from time to time.
2.25. "Restricted Stock" means Common Stock awarded by the Committee
under Section 8 of the Plan.
2.26. "Restriction Period" means the period during which Restricted
Stock awarded under the Plan is subject to forfeiture.
2.27. "Retirement" means, with respect to an Employee, retirement from
the active employment of the Company, a Subsidiary or an Affiliate on or after
(i) the Employee's 65th birthday or (ii) the Employee's 55th birthday if the
Employee has completed 10 years of service with the Company, its Subsidiaries
and/or its Affiliates, or any predecessor corporation. With respect to an
Outside Director, retirement means termination of services as a director of the
Board.
2.28. "SAR" means the right to receive, in cash or in Common Stock, as
determined by the Committee, the increase in the Fair Market Value of the Common
Stock underlying the SAR from the date of grant to the date of exercise.
2.29. "Section 162(m) Participant" means any key employee designated by
the Committee as a key employee whose compensation for the fiscal year in which
the key employee is so designated or a future fiscal year may be subject to the
limit on deductible compensation imposed by Section 162(m) of the Internal
Revenue Code of 1986, as amended.
2.30. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company (or any subsequent
parent of the Company) if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
2.31. "Ten Percent Shareholder" means a person who on any given date
owns, either directly or indirectly (taking into account the attribution rules
contained in section 424(d) of the Code), stock possessing more than 10 percent
of the total combined voting power of all classes of stock of the Company or any
Subsidiary.
3. ELIGIBILITY AND PARTICIPATION
3.1 Any Employee who is nominated by the Chief Executive Officer of the
Company and all Outside Directors shall be eligible to participate in the Plan
and receive Awards.
4
<PAGE> 6
3.2 Participants shall consist of such Employees and Outside Directors
as the Committee, in its sole discretion, designates to receive awards under the
Plan. Designation of an Employee or Outside Director as a Participant in a
particular year does not require the Committee to designate such person to
receive an Award in any other year, or, if designated, to receive the same type
or amount of Award as granted to the Participant in any other year.
4. ADMINISTRATION
4.1. Members of the Committee shall be appointed by and hold office at
the pleasure of the Board. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board. In exigent circumstances, pending action by the Board, members of
the Committee may be appointed by the Chairman of the Board.
4.2. The Plan shall be administered by the Committee, which shall have
full power to interpret and administer the Plan, and full authority to act in
selecting the eligible Employees and Outside Directors to whom Awards may be
granted, in determining the times at which such Awards may be granted, in
determining the time and the manner in which Options may be exercised, in
determining the type and amount of Awards that may be granted, in determining
the terms and conditions of Awards that may be granted under the Plan and the
terms of agreements which will be entered into with Participants (which terms
shall not be inconsistent with the terms of the Plan). The Committee also shall
have the power to establish different terms and conditions with respect to (i)
the various types of Awards granted under the Plan, (ii) the granting of the
same type of Award to different Participants (regardless of whether the Awards
are granted at the same time or at different times), and (iii) the establishment
of different Performance Goals for different Participants.
4.3. The Committee's powers shall include, but not be limited to, the
power to determine whether, to what extent and under what circumstances an
Option may be exchanged for cash, Common Stock or some combination thereof; to
determine whether, to what extent and under what circumstances an Award is made
and operates on a tandem basis with other Awards made hereunder; to determine
whether, to what extent and under what circumstances Common Stock or cash
payable with respect to an Award shall be deferred, either automatically or at
the election of the Participant (including the power to add deemed earnings to
any such deferral); and to determine the effect, if any, of a Change of Control
of the Company upon outstanding Awards; and to grant Awards (other than
Incentive Stock Options) that are transferable by the Participant.
4.4. The Committee shall have the power to adopt regulations for
carrying out the Plan and to make changes in such regulations as it shall, from
time to time, deem advisable. The Committee shall have the power unilaterally
and without approval of a Participant to amend an existing Award in order to
carry out the purposes of the Plan so long as such an amendment does not take
away any benefit granted to a Participant by the Award and as long as the
amended Award comports with the terms of the Plan. The Committee shall have the
full and final authority in its sole discretion to interpret the provisions of
the Plan and to decide all questions of fact arising in the application of the
Plan's provisions, and to make all determinations necessary or advisable for the
administration of the Plan. Any interpretation by the Committee of the terms
5
<PAGE> 7
and provisions of the Plan and the administration thereof, and all action taken
by the Committee, shall be final, binding, and conclusive for all purposes and
upon all Participants.
4.5. The Committee may condition the grant of any Award or the lapse of
any Restriction Period or Performance Period, or any combination thereof, upon
the Participant's or Company's achievement of a Performance Goal that is
established by the Committee before the grant of the Award. Before granting an
Award or permitting the lapse of any Restriction Period or Performance Period
subject to this Section, the Committee shall certify that an individual has
satisfied the applicable Performance Goal.
4.6. Members of the Committee shall receive such compensation for their
services as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the Plan
shall be paid by the Company. The Committee may, with the approval of the Board,
employ attorneys, consultants, accountants and other service providers. The
Committee, the Board, the Company and the Company's officers shall be entitled
to rely upon the advice and opinions of any such person. No member of the
Committee or the Board shall be personally liable for any action, determination
or interpretation made with respect to the Plan and all members of the Committee
and the Board shall be fully protected by the Company in respect of any such
action, determination or interpretation in the manner provided in the Company's
By-laws.
4.7. The Committee shall maintain a written record of its proceedings.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts unanimously approved in writing, shall be the acts of the Committee.
5. SHARES OF STOCK SUBJECT TO THE PLAN
5.1. Subject to adjustment as provided in Section 11, the total number
of shares of Common Stock available for Awards under the Plan shall be 2,250,000
shares.
5.2. The Committee may also grant Awards payable in cash. The payment
of Awards in cash shall not reduce the total number of shares of Common Stock
available for Awards under the Plan.
5.3. The maximum number of shares of Common Stock that may be awarded
to any Employee or Outside Director under the Plan during any calendar year
shall not exceed 250,000 (the "Individual Limit"). Subject to Section 5.4 and
Section 11, any Award that is canceled or repriced by the Committee shall count
against the Individual Limit.
5.4. Any shares issued by the Company through the assumption or
substitution of outstanding grants from an acquired company shall not (i) reduce
the shares available for Awards under the Plan, or (ii) be counted against the
Individual Limit. Any shares issued hereunder may consist, in whole or in part,
of authorized and unissued shares or treasury shares. If any shares subject to
any Award granted hereunder are forfeited or such Award otherwise terminates
without the issuance of such shares or the payment of other consideration in
lieu of such shares, the shares subject to such Award, to the extent of any such
forfeiture or termination, shall again be available for Awards under the Plan.
6
<PAGE> 8
6. OPTIONS
The grant of Options shall be subject to the following terms
and conditions:
6.1. Option Grants: With respect to Employees who become Participants,
the Committee may grant such Participants Incentive Stock Options, Non-Qualified
Stock Options or a combination of both. With respect to Outside Directors who
become Participants, the Committee may grant such Participants only
Non-Qualified Stock Options. Any Option granted under the Plan shall be
evidenced by an agreement executed by the Company and the Participant, which
agreement shall conform to the requirements of the Plan and may contain such
other provisions not inconsistent with the terms of the Plan as the Committee
shall deem advisable. Such agreements shall state whether the Option is an
Incentive Stock Option or Non-Qualified Stock Option.
6.2. Number of Shares: Subject to the Individual Limit, the Committee
shall specify the number of shares of Common Stock subject to each Option.
6.3. Option Price: The price per share at which Common Stock may be
purchased upon exercise of an Option shall not be less than the Fair Market
Value of a share of Common Stock on the date of grant. In the case of any
Incentive Stock Option granted to a Ten Percent Shareholder, the option price
per share shall not be less than 110% of the Fair Market Value of a share of
Common Stock on the date of grant.
6.4. Dividend Equivalents: Notwithstanding any provision of the Plan to
the contrary, a Participant who has been granted an Option pursuant to this
Section 6 may, at the discretion of the Committee, be credited as of dividend
payment dates, during the period beginning with the date of grant of the Option
and ending with the date such Option is exercised or expires, with Dividend
Equivalents with respect to the Common Stock underlying the Option. Such
Dividend Equivalents shall be credited to an account established on behalf of
the Participant by the Company. The Dividend Equivalents credited under this
Section 6.4 shall be converted to cash or additional shares of Common Stock
under such formula, at such time, and subject to such limitations as may be
determined by the Committee.
6.5. Term of Option and Vesting: The Committee shall specify when an
Option may be exercisable and the terms and conditions applicable thereto. The
term of an Option shall in no event be greater than 10 years (five years in the
case of an Incentive Stock Option granted to a Ten Percent Shareholder). Options
granted under the Plan may be subject to a vesting schedule set forth in the
applicable stock option agreement. The restrictions and conditions with respect
to the time and method of vesting of Options shall be as prescribed by the
Committee.
6.6. Incentive Stock Options: Each provision of the Plan and each
agreement relating to an Incentive Stock Option shall be construed and
interpreted in a manner consistent with the requirements of Section 422 of the
Code. In no event may a Participant be granted an Incentive Stock Option which
does not comply with the grant and vesting limitations prescribed by Section 422
of the Code. Without limiting the foregoing, the aggregate Fair Market Value
(determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option may first become exerciseable by a
Participant in any one calendar year under the
7
<PAGE> 9
Plan shall not exceed $100,000. Notwithstanding any provision of this Plan to
the contrary, Incentive Stock Options may not be granted to Employees of
Affiliates.
6.7. Restrictions on Transferability: No Incentive Stock Option shall
be transferable other than by will or the laws of descent and distribution and,
during the lifetime of the Participant, shall be exercisable only by the
Participant. Upon the death of a Participant, the person to whom the rights have
passed by will or by the laws of descent and distribution may exercise an
Incentive Stock Option only in accordance with this Section 6.
6.8. Exercise of Option and Payment of Option Price: The Committee
shall establish the time and the manner in which an Option may be exercised. The
option price of the shares of Common Stock received upon the exercise of an
Option shall be paid in full in cash at the time of the exercise or, with the
consent of the Committee, in whole or in part in Common Stock valued at Fair
Market Value on the date of exercise. The option price may also be paid in full
by the delivery of a properly executed exercise notice, together with
irrevocable instructions to a Company-designated broker to promptly deliver to
the Company the amount of sale or loan proceeds required to pay the exercised
price. With the consent of the Committee, payment upon the exercise of a
Non-Qualified Option may be made in whole or in part by Restricted Stock (based
on the fair market value of the Restricted Stock on the date the Option is
exercised, as determined by the Committee). In such case the Common Stock to
which the Option relates shall be subject to the same forfeiture restrictions
originally imposed on the Restricted Stock exchanged therefor.
6.9. Termination by Death or Disability: If a Participant's employment
with the Company, a Subsidiary or Affiliate, or, in the case of a Participant
who is an Outside Director, his or her service on the Board, terminates by
reason of death or as a result of the Participant's Disability, any unexercised
Option granted to the Participant may thereafter be exercised (to the extent
such Option was exercisable at the time of the Participant's death or Disability
or may thereafter become exercisable) by, where appropriate, the Participant or
the Participant's transferee, for a period of up to five years (as specified by
the Committee), (but only three months in the case of an Incentive Stock Option
which shall be extended to 12 months in cases involving the Participant's
Disability), from the date of death or termination of employment due to
Disability or until the expiration of the stated term of the Option, whichever
period is shorter.
6.10. Termination by Reason of Retirement: If a Participant's
employment by the Company, a Subsidiary or Affiliate or, in the case of an
Outside Director, his or her service on the Board, terminates by reason of
Retirement, any unexercised Option granted to the Participant may thereafter be
exercised (to the extent such Option was exercisable at the time of the
Participant's Retirement or may thereafter become exercisable) by the
Participant (or, where appropriate, the Participant's transferee), for a period
of up to five years (as specified by the Committee), (but only three months in
the case of an Incentive Stock Option), from the date of the Participant's
Retirement or until the expiration of the stated term of the Option, whichever
period is shorter.
6.11. Termination for Cause: If a Participant's employment with the
Company, a Subsidiary or Affiliate terminates for Cause, any Options granted to
the Participant and which
8
<PAGE> 10
are unexercised shall terminate on the date of such termination of employment,
or notice of such termination of employment, if earlier.
6.12. Other Termination: If a Participant's employment by the Company,
a Subsidiary or Affiliate, or, in the case of a Participant who is an Outside
Director, his or her service on the Board, terminates for any reason other than
Death, Disability, Retirement or for Cause, any unexercised Option granted to
the Participant may thereafter be exercised (to the extent such Option was
exercisable at the time of the Participant's termination or may thereafter
become exercisable) by the Participant (or, where appropriate, the Participant's
transferee) for a period of up to three months (as specified by the Committee)
from the date of termination of employment, or until the expiration of the
stated term of the Option, whichever period is shorter.
7. STOCK APPRECIATION RIGHTS
The grant of SARs shall be subject to the following terms and
conditions:
7.1. Grant of SARs: Any SAR granted under the Plan shall be evidenced
by an agreement executed by the Company and the Participant, which agreement
shall conform to the requirements of the Plan and may contain such other
provisions not inconsistent with the terms of the Plan as the Committee shall
deem advisable. All SARs granted under the Plan must be granted in tandem with
all or a portion of a related Option. A SAR may be granted either at the time of
the grant of the Option or at a time thereafter during the term of the Option
and shall be exercisable only to the extent that the related Option is
exercisable. The base price of a SAR shall be the option price under the related
Option.
7.2. Exercise of a SAR: An SAR shall entitle the Participant to
surrender unexercised the Option (or any portion of such Option) to which the
SAR relates and to receive a payment equal to the excess of the Fair Market
Value of the shares of Common Stock covered by the SAR on the date of exercise
over the base price of the SAR. Such payment may be in cash, in shares of Common
Stock, in shares of Restricted Stock, or any combination thereof, as the
Committee shall determine. Upon exercise of a SAR or lapse thereof, the related
Option shall be canceled automatically to the extent of the number of shares of
Common Stock covered by such exercise, and such shares shall no longer be
available for purchase under the Option. Conversely, if the related Option is
exercised as to some or all of the shares of Common Stock covered by the grant,
the related SAR, if any, shall be canceled automatically to the extent of the
number of shares of Common Stock covered by the Option exercise.
7.3. Other Applicable Provisions: SARs shall be subject to the same
terms and conditions applicable to Options as stated in sections 6.5, 6.9, 6.10,
6.11 and 6.12.
8. RESTRICTED STOCK
An Award of Restricted Stock is a grant by the Company of a
specified number of shares of Common Stock to the Participant, which shares are
subject to forfeiture upon the happening of specified events or upon the
Participant's and/or Company's failure to achieve Performance Goals established
by the Committee. A grant of Restricted Stock shall be subject to the following
terms and conditions:
9
<PAGE> 11
8.1. Grant of Restricted Stock Award. Any Restricted Stock granted
under the Plan shall be evidenced by an agreement executed by the Company and
the Participant, which agreement shall conform to the requirements of the Plan,
and shall specify (i) the number of shares of Common Stock subject to the Award,
(ii) the Restriction Period applicable to each Award, (iii) the events that will
give rise to a forfeiture of the Award, (iv) the Performance Goals, if any, that
must be achieved in order for the restriction to be removed from the Award, (v)
the extent to which the Participant's right to receive Common Stock under the
Award will lapse if the Performance Goals, if any, are not met, and (vi) whether
the Restricted Stock is subject to a vesting schedule. The agreement may contain
such other provisions not inconsistent with the terms of the Plan as the
Committee shall deem advisable.
8.2. Delivery of Restricted Stock. Upon determination of the number of
shares of Restricted Stock to be granted to the Participant, the Committee shall
direct that a certificate or certificates representing the number of shares of
Common Stock be issued to the Participant with the Participant designated as the
registered owner. The certificate(s) representing such shares shall be legended
as to restrictions on the sale, transfer, assignment, or pledge of the
Restricted Stock during the Restriction Period and deposited by the Participant,
together with a stock power endorsed in blank, with the Company.
8.3. Dividend and Voting Rights. During the Restriction Period the
Participant shall have all of the rights of a shareholder, including the right
to vote the shares of Restricted Stock and receive dividends and other
distributions, provided that distributions in the form of Common Stock shall be
subject to the same restrictions as the underlying Restricted Stock.
8.4. Receipt of Common Stock. At the end of the Restriction Period, the
Committee shall determine, in light of the terms and conditions set forth in the
Restricted Stock agreement, the number of shares of Restricted Stock with
respect to which the restrictions imposed hereunder shall lapse. The Restricted
Stock with respect to which the restrictions shall lapse shall be converted to
unrestricted Common Stock by the removal of the restrictive legends from the
Restricted Stock. Thereafter, Common Stock equal to the number of shares of the
Restricted Stock with respect to which the restrictions hereunder shall lapse
shall be delivered to the Participant (or, where appropriate, the Participant's
legal representative). The Committee may, in its sole discretion, modify or
accelerate the vesting and delivery of shares of Restricted Stock.
8.5. Termination By Reason of Death, Disability or Retirement. Unless
otherwise determined by the Committee at the time of grant, if a Participant's
employment with the Company, a Subsidiary, or Affiliate or, in the case of an
Outside Director, his or her service on the Board, terminates by reason of the
Participant's death, Disability or Retirement, the vested portion of the
Restricted Stock, if any, shall become non-forfeitable. The non-vested portion
of the Restricted Stock shall be forfeited as of the date of such termination of
employment.
8.6. Other Termination, Including For Cause. Unless otherwise
determined by the Committee at the time of grant, if a Participant's employment
with the Company, a Subsidiary or Affiliate or, in the case of an Outside
Director, his or her service on the Board, terminates for any reason other than
for death, Disability, or Retirement, but including for Cause, any Restricted
Stock with respect to which the Restriction Period has not expired shall be
forfeited.
10
<PAGE> 12
9. PERFORMANCE AWARD
9.1. Grant of Performance Award. Any Performance Award granted under
the Plan shall be evidenced by an agreement executed by the Company and the
Participant, which agreement shall conform to the requirements of the Plan and
shall specify (i) the number of shares of Common Stock subject to the Award,
(ii) the Performance Period applicable to each Award, (iii) the Performance
Goals that must be achieved in order for the Participant to be entitled to the
Award, (iv) the extent to which the Participant's right to receive the Award
will lapse if the Performance Goals are not met, and (v) whether the Performance
Award is subject to a vesting schedule. The agreement may contain such other
provisions not inconsistent with the terms of the Plan as the Committee shall
deem advisable.
9.2. Dividend and Voting Rights. Except as otherwise provided in
Section 9.3, during the Performance Period the Participant shall have no right
to receive dividends from and to vote the shares of Performance Shares.
9.3. Dividend Equivalents. Notwithstanding any provision of the Plan to
the contrary, a Participant who has been granted a Performance Award pursuant to
this Section 9 may, at the discretion of the Committee, be credited as of
dividend payment dates during the Performance Period with Dividend Equivalents
with respect to the Common Stock, if any, underlying the Performance Award. Such
Dividend Equivalents shall be credited to an account established on behalf of
the Participant by the Company. The Dividend Equivalents credited under this
Section 9.3 shall be converted to cash or additional shares of Common Stock
under such formula, at such time, and subject to such limitations as may be
determined by the Committee.
9.4. Receipt of Common Stock. As soon as practicable after the
Performance Period, the Committee shall determine the extent to which the
Performance Award have been earned on the basis of the Company's or
Participant's performance in relation to the Performance Goals set forth in the
Performance Award agreement. Once the Performance Award to which the Participant
is entitled has been determined, the Performance Award shall be paid to the
Participant (or, where appropriate, the Participant's legal representative). If
the Participant or the Company fails to achieve the Performance Goals specified
in the Performance Award agreement, all or a portion of the Performance Award
shall be forfeited.
9.5. Termination By Reason of Death, Disability or Retirement. Unless
otherwise determined by the Committee at the time of grant, if a Participant's
employment with the Company, a Subsidiary, or Affiliate or, in the case of an
Outside Director, his or her service on the Board, terminates by reason of the
Participant's death, Disability or Retirement, the vested portion of a
Performance Award, if any, shall become non-forfeitable. The non-vested portion
of the Performance Award shall be forfeited as of the date of such termination
of employment.
9.6. Other Termination, Including For Cause. Unless otherwise
determined by the Committee at the time of grant, if a Participant's employment
with the Company, a Subsidiary or Affiliate or, in the case of an Outside
Director, his or her service on the Board, terminates for any reason other than
for death, Disability, or Retirement, but including for Cause, any Performance
Award with respect to which the Performance Period has not expired shall be
forfeited.
11
<PAGE> 13
10. DEFERRAL ELECTION
10.1. Election to Defer. Notwithstanding any provision of the Plan to
the contrary, any Participant may elect, with the concurrence of the Committee
and consistent with any rules and regulations established by the Committee, to
defer the receipt of unrestricted Common Stock that the Participant would
otherwise receive pursuant to Section 8 or Section 9, provided that such
election is made no later than the date that is twelve (12) months prior to the
date such Common Stock would otherwise be received.
10.2. Deferral Restrictions. Deferrals will only be allowed while the
Participant is an Employee of the Company, a Subsidiary or an Affiliate, or an
Outside Director. Any election to defer the receipt of Common Stock shall be
irrevocable as long as the Participant remains an Employee.
10.3. Normal Distribution. Shares of Common Stock, the receipt of which
is deferred pursuant to this Section 10 shall be distributed upon the
Participant's termination of employment.
10.4. Accelerated Distribution. The Committee may, in its sole
discretion, allow for the early payment of the unrestricted Common Stock
deferred pursuant to this Section 10 in the event of an "unforeseeable
emergency" of the Participant. An "unforeseeable emergency" is defined as a
unanticipated emergency caused by an event beyond the control of the
Participant, that would result in severe financial hardship if the distribution
were not permitted. Such distributions shall be limited to the amount necessary
to sufficiently address the financial hardship. Additionally, the Committee may
distribute the unrestricted Common Stock deferred by all Participants pursuant
this Section 10 if the Committee determines, in its discretion, that the
continued deferral of Common Stock hereunder is no longer in the best interest
of the Company.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, stock
split, spin-off, split-off, split-up, stock dividend, issuance of stock rights,
combination of shares, merger, consolidation or any other change in the
corporate structure of the Company affecting Common Stock, or any distribution
to shareholders other than a cash dividend, the Committee shall make appropriate
adjustment in the number and kind of shares authorized for use under the Plan
and any adjustments to outstanding Awards as it determines appropriate. The
adjustments to outstanding Awards shall include, but not be limited to, the
respective prices, limitations, and/or performance criteria applicable to the
outstanding Awards. No fractional shares of Common Stock shall be issued
pursuant to such an adjustment. The Fair Market Value of any fractional shares
resulting from adjustments pursuant to this Section shall, where appropriate, be
paid in cash to the Participant. The determinations and adjustments made by the
Committee pursuant to this Section 11 shall be conclusive.
12. CHANGE OF CONTROL OF THE COMPANY
12.1. Accelerated Vesting and Payment. Upon a Change of Control of the
Company, all Options that are unexercised and outstanding may, at the discretion
of the Board, (i) become immediately and fully exercisable, or (ii) be canceled
in exchange for a cash payment in an amount equal to the excess, if any, of the
Fair Market Value of the Common Stock underlying
12
<PAGE> 14
the Option as of the date of the Change of Control over the exercise price of
such Option. In addition, all Restricted Stock and Performance Awards that are
outstanding on the date of the Change of Control shall become nonforfeitable and
immediately payable in cash.
12.2. Alternative Awards. Upon a Change of Control, in lieu of the
accelerated exercisability and payment of Awards described in Section 12.1, at
the discretion of the Board the Awards that are outstanding as of the date of a
Change of Control, shall be assumed by the successor corporation, and shall be
substituted with awards involving the common stock of the successor corporation.
Provided, however, that the substitution of Awards described under this Section
12.2 shall occur only if (i) the common stock of the successor corporation is
traded on an established stock exchange or exchanges, or will be so traded
within 60 days of the Change of Control and (ii) the terms and conditions of the
substituted awards are no less favorable than the Awards granted by the Company.
13. EFFECTIVE DATE, TERMINATION AND AMENDMENT
The Plan shall become effective on July 13, 1998, subject to
shareholder approval. Options granted under the Plan prior to such shareholder
approval shall expressly not be exercisable prior to such approval. The Plan
shall remain in full force and effect until the earlier of 10 years from the
date of its adoption by the Board, or the date it is terminated by the Board.
The Board or the Committee shall have the power to amend, suspend or terminate
the Plan at any time, provided that no such amendment shall be made without
shareholder approval which shall (i) increase (except as provided in Section 11)
the total number of shares available for issuance pursuant to the Plan; (ii)
change the class of Employees eligible to be Participants; (iii) modify the
Individual Limit (except as provided Section 11) or the categories of
Performance Goals set forth in Section 2.24; (iv) change the provisions of this
Section 13; or (v) violate the requirements of Section 162(m) of the Code.
Termination of the Plan pursuant to this Section 13 shall not affect Awards
outstanding under the Plan at the time of termination.
14. TRANSFERABILITY
Except as provided below, Awards may not be pledged, assigned
or transferred for any reason during the Participant's lifetime, and any attempt
to do so shall be void and the relevant Award shall be forfeited. The Committee
may grant Awards (except Incentive Stock Options) that are transferable by the
Participant during his lifetime, but such Awards shall be transferable only to
the extent specifically provided in the agreement entered into with the
Participant. The transferee of the Participant shall, in all cases, be subject
to the provisions of the agreement between the Company and the Participant. The
rights of the transferee shall be no greater than the rights that would be
acquired by the Participant's estate if the Participant were to die prior to the
transfer of the Award.
15. GENERAL PROVISIONS
15.1. No Employment Rights. Nothing contained in the Plan, or any Award
granted pursuant to the Plan, shall confer upon any Employee any right with
respect to continuance of employment by the Company, a Subsidiary or Affiliate,
nor interfere in any way with the right of
13
<PAGE> 15
the Company, a Subsidiary or Affiliate to terminate the employment of any
Employee at any time.
15.2. Transfer of Employment. For purposes of this Plan, transfer of
employment between the Company and its Subsidiaries and Affiliates shall not be
deemed termination of employment.
15.3. Payment of Taxes. The Company shall have the power to withhold,
or require a Participant to remit to the Company, all taxes required to be paid
in connection with any Award, the exercise thereof and the transfer of shares of
Common Stock pursuant to this Plan. The Company's power to withhold a portion of
the cash or Common Stock received pursuant to an Award, or require that the
Participant remit the applicable taxes shall extend to all applicable federal,
state, local or foreign withholding taxes. In the case of the payment of Awards
in the form of Common Stock or cash, or the exercise of Options or SARs, the
Company shall have the right to retain the shares of Common Stock or cash to be
paid pursuant to the Award, or the exercise of the Option or the SAR, until the
Committee determines that the applicable withholding taxes have been satisfied.
Agreements evidencing such Awards shall contain appropriate provisions to effect
withholding in this manner.
15.4. Participation of Foreign Nationals. Without amending the Plan,
Awards may be granted to Employees who are foreign nationals or employed outside
the United States or both, on such terms and conditions different from those
specified in the Plan as may, in the judgment of the Committee, be necessary or
desirable to further the purpose of the Plan.
15.5. Restrictions on Shares. The Award Shares shall be subject to
restrictions on transfer pursuant to applicable securities laws and such other
agreements as the Committee shall deem appropriate and shall bear a legend
subjecting the Award Shares to those restrictions on transfer in accordance with
the applicable Award. The certificates shall also bear a legend referring to any
restrictions on transfer arising hereunder or under any other applicable law,
regulation or agreement.
15.6. Requirements of Law. The Plan and each Award under the Plan shall
be subject to the requirement that if at any time the Committee shall determine
that (a) the listing, registration or qualification of the Award Shares upon any
securities exchange or under any state or federal law, (b) the consent or
approval of any government regulatory body or (c) an agreement by the recipient
of an Award with respect to the disposition of the Award Shares is necessary or
desirable as a condition of, or in connection with, the Plan or the granting of
such Award or the issue or purchase of the Award Shares thereunder, the Award
may not be consummated in whole or in part until such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
15.7. Amending of Awards. The Committee may amend any outstanding
Awards to the extent it deems appropriate. Such amendment may be made by the
Committee without the consent of the Participant, except in the case of
amendments adverse to the Participant, in which case the Participant's consent
is required to any such amendment.
14
<PAGE> 16
15.8. No Limit on Compensation. Nothing contained in the Plan, or any
Award granted pursuant to the Plan, shall be construed to limit the right of the
Company to establish other plans or to pay compensation to its Employees and
Outside Directors or, in cash or property, or in any manner which is not
expressly authorized under the Plan.
15.9. No Shareholder Rights. The Participant shall have no rights as a
shareholder with respect to shares of Common Stock subject to an Award unless
and until legended certificates for the Award Shares are issued.
15.10. No Fractional Shares. An Option may be exercised only for a
whole number of shares of Common Stock.
15.11. Headings. Sections headings are included only for ease of
reference. Headings are not intended to constitute substantive provisions of the
Plan and shall not be used to interpret the scope of this Plan or the rights or
obligations of the Company in any way.
15.12. Governing Law. To the extent that Federal laws do not otherwise
control, the Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of the State of New Jersey and construed
accordingly.
To record the adoption of the Amended and Restated Plan, The MIIX Group,
Incorporated has caused its authorized officers to affix its corporate name and
seal this ______ day of _________, 1999.
[CORPORATE SEAL] THE MIIX GROUP, INCORPORATED
Attest:
___________________________________ ___________________________________
Vincent Maressa, Chairman
15
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 15, 1999,
among THE MIIX GROUP, INCORPORATED, a Delaware corporation ("MIIX Group"), NEW
JERSEY STATE MEDICAL UNDERWRITERS, INC., a New Jersey corporation
("Underwriter"), each having offices at Two Princess Road, Lawrenceville, New
Jersey (together, the "Company") and KENNETH KOREYVA (the "Employee"), residing
at 650 Leslie Lane, Yardley, Pennsylvania 19067.
WITNESSETH:
WHEREAS, MIIX Group is the parent company of Underwriter owning all of
the issued and outstanding common stock of Underwriter; and
WHEREAS, the Company deems it to be in its best interest to secure and
retain for the Company the services of the Employee and the Employee desires to
work for the Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and intending to be legally bound hereby, the
parties hereto agree, as follows:
1. POSITION AND DUTIES. The Employee is engaged hereunder as President
and Chief Executive Officer of MIIX Group and agrees to perform the duties and
services incident to that position, or such other or further duties and services
of a similar nature as may be
<PAGE> 2
required of him by the Board of Directors of MIIX Group. The Employee agrees
that, if requested, he shall serve as an officer of the Company and/or of any
affiliate, without additional compensation. The Employee shall have the power
and authority as shall reasonably be required to enable him to perform his
duties under this Agreement in an efficient manner. The Employee agrees to
perform the duties and responsibilities called for hereunder to the best of his
ability and to devote his full time, energies and skills to such duties and to
the promotion of the business and interests of the Company and any affiliate.
The Employee may participate in charitable and similar activities, may be a
director of a company that does not compete with the Company or any affiliate
(which shall not include a "competitor" as defined by Section 5.1 of this
Agreement) and may have business interests in passive investments which, from
time to time, may require portions of his time, but such activities shall be
performed in a manner consistent with his obligations hereunder.
2. COMPENSATION AND OTHER BENEFITS.
2.1. BASE SALARY. The Company shall pay to the Employee for
the performance of his duties hereunder, an initial base salary of $340,000 per
annum (the "Base Salary"), payable in accordance with the Company's normal
payroll practices. Thereafter, the amount of the Base Salary may be reviewed and
adjusted as appropriate by the Board of Directors of MIIX Group in accordance
with executive compensation review practices.
2.2. BONUS. The Employee shall be eligible to receive an
annual bonus pursuant to MIIX Group's Cash Incentive Plan, or similar plans
which may be in effect from time to time, at the discretion of the Board of
Directors of MIIX Group, based on the
- 2 -
<PAGE> 3
Company's and the Employee's achievement of goals and objectives established by
the Board on an annual basis. The Board shall use its reasonable judgment in
determining whether such goals and objectives have been met and the amount, if
any, of the bonus to be paid to the Employee. The Employee has been a
participant in the Cash Incentive Plan for the entire 1999 calendar year and
shall receive an annual bonus for 1999 pursuant to the terms of the Cash
Incentive Plan as approved by the Board of Directors of MIIX Group. It is
anticipated that any bonus will be paid on or before March 31 of the succeeding
year.
2.3. STOCK OPTIONS. The Employee shall be entitled to
participate in MIIX Group's Long Term Incentive Equity Plan, or similar plans
which may be in effect from time to time for executives of the Company. The
Employee is hereby granted, effective December 15, a Non-Qualified Stock Option,
as defined in the Long Term Incentive Equity Plan, to purchase 40,000 shares of
common stock of MIIX Group pursuant to and which shall vest in accordance with
the terms of the Long Term Incentive Equity Plan Non-Qualified Stock Option
Agreement, a copy of which is attached as Exhibit A (the "Stock Option
Agreement"). The Employee shall be entitled to receive dividend equivalents on
such option shares as dividends are declared and paid on the common stock of
MIIX Group, provided, however, that any such dividend equivalents, and the
interest earned thereon, shall be forfeited as to any unvested option shares
that are forfeited by the Employee pursuant to the terms of the Long Term
Incentive Equity Plan. The Employee and MIIX Group shall, simultaneous with the
execution of this Agreement, execute the Stock Option Agreement. The grant of
any additional options to purchase shares of common stock of MIIX Group under
the Long Term
- 3 -
<PAGE> 4
Incentive Equity Plan shall be at the sole discretion of the Board of Directors
of MIIX Group and shall be based on the achievement of performance goals
established by the Board.
2.4. STOCK PURCHASE AND LOAN. The Employee is currently a
participant in MIIX Group's Stock Purchase and Loan Program. The Employee shall,
pursuant to the Stock Purchase and Loan Program, purchase an additional $195,000
of MIIX Group common stock, rounded to the nearest whole share, as of the date
of this Agreement and MIIX Group shall loan to the Employee the funds necessary
to do so. The Employee and MIIX Group shall, simultaneous with the execution of
this Agreement, execute the Stock Purchase and Loan Agreement, a copy of which
is attached hereto as Exhibit B.
2.5. DEFERRED COMPENSATION. The Employee shall be eligible to
participate in the Company's Deferred Compensation Plan, or similar plans which
may be in effect from time to time, by which the Employee is permitted to defer
compensation and receive benefits in a future year in accordance with the terms
of the Deferred Compensation Plan. The Employee and the Company shall,
simultaneous with the execution of this Agreement, execute the Deferred
Compensation Plan, a copy of which is attached hereto as Exhibit C.
2.6. EMPLOYEE BENEFITS. During the term of this Agreement, the
Employee shall be entitled to participate in all of the benefit programs
provided to similar employees of the Company, including, without limitation, all
medical, disability, dental and life insurance benefits, retirement programs,
incentive compensation plans, automobile expense reimbursement programs and
other employee benefit programs now in existence or hereafter
- 4 -
<PAGE> 5
adopted by the Company, as such plans, programs, practices or policies may be in
effect from time to time.
2.7. VACATION. In addition to such holidays, sick leave and
other time off as are established by the policies of the Company, the Employee
shall be entitled to four weeks of vacation in accordance with the Company's
vacation policy for executives, as in effect from time to time, during which his
compensation shall be paid, provided, however, that the Employee may not take
more than two consecutive weeks of vacation without the prior approval of the
Board of Directors of MIIX Group. Unused vacation time can be carried over only
in accordance with Company policy up to a maximum of three weeks.
2.8. REIMBURSEMENT OF EXPENSES. The Company shall reimburse
the Employee for all reasonable expenses incurred by the Employee in connection
with his employment hereunder, provided, however, that such expenses were
incurred in conformance with the policies of the Company, as established from
time to time, and the Employee submits detailed vouchers and other records
reasonably required by the Company in support of the amount and nature of such
expenses.
2.9. TAXES AND WITHHOLDING. All compensation payable and other
benefits provided under this Agreement shall be subject to customary withholding
for income, F.I.C.A. and other employment taxes.
2.10. PHYSICAL EXAMINATION. The Employee shall submit to a
physical examination by a qualified physician on an annual basis which shall be
paid for by the Company and the results of such examination shall be made
available to the Company.
- 5 -
<PAGE> 6
3. TERMINATION OF EMPLOYMENT.
3.1. DEATH OF THE EMPLOYEE. The Employee's employment under
this Agreement shall terminate immediately upon the Employee's death and the
Employee's estate (or his beneficiary as may be appropriate) shall be entitled
to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused accrued vacation time (up to a maximum of
three weeks) through the date of his death, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the date of his death under any employee
benefit plan of MIIX Group or its affiliates in which the Employee
participates.
3.2. DISABILITY OF EMPLOYEE. If the Employee, in the
reasonable opinion of the Company, is unable to perform his duties under this
Agreement by reason of incapacity, either physical or mental, as determined in
accordance with the MIIX Group of Companies Long Term Disability Group Benefit
Plan (the "LTD Plan"), or similar plan which may be in effect from time to time,
the Company shall have the right to terminate the Employee's employment upon
written notice to the Employee, whereupon such termination shall be effective as
of the date specified in such notice (the "Termination Date") and the Company
shall have no further obligations under this Agreement, except the obligation to
pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
- 6 -
<PAGE> 7
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other applicable severance payments provided
for in Section 4 hereof, and
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
If the Company determines not to terminate the Employee's employment in
the event of a disability as allowed under this Section 3.2, the Company shall
continue to pay Base Salary to the Employee for a period of up to ninety days,
and shall pay the difference between Base Salary and benefits paid to the
Employee under the LTD Plan for a period of up to six months thereafter, paid in
accordance with the Company's normal payroll practices, while the Employee is
not working. If the Employee, in the reasonable opinion of the Company, remains
disabled at the end of such nine month period, his employment shall be deemed
terminated and he shall receive the benefits provided for in this Section 3.2.
3.3. TERMINATION FOR CAUSE.
1. For purposes of this Agreement, "for cause" shall mean the
termination of the Employee's employment with the Company as a result of any of
the following:
- 7 -
<PAGE> 8
(1) the willful engaging by the Employee in conduct
which is materially injurious to or contrary to the best interests of
the Company, monetarily or otherwise;
(2) the willful failure by the Employee to perform
such duties as may be delegated or assigned to the Employee by the
Board of Directors of MIIX Group;
(3) the willful failure by the Employee to follow the
directives or instructions of the Board of Directors of MIIX Group;
(4) the repeated and consistent failure of the
Employee to be present at work and devote his full time best efforts to
the performance of his duties under this Agreement, except as set forth
above in connection with the Employee's disability;
(5) gross negligence in the performance of his duties
on behalf of the Company;
(6) the Employee's conviction of, or plea of no
contest to, a felony or any crime involving moral turpitude; or
(7) the commission by the Employee of an act, or the
omission of an act, that would constitute a material breach of this
Agreement.
2. The Employee's employment under this Agreement shall terminate
immediately upon written notice from the Company that the Company is terminating
the Employee for cause. Upon the Company's termination of the Employee for
cause, the Company shall be required to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
- 8 -
<PAGE> 9
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates.
3.4. TERMINATION WITHOUT CAUSE. The Company may terminate the
Employee's employment without cause under this Agreement at any time upon
written notice to the Employee specifying the date of termination. In the event
of a termination without cause, the Company shall make payments to the Employee
in accordance with Section 4 below.
3.5. TERMINATION FOLLOWING A CHANGE IN CONTROL.
1. In the event that the Company terminates the Employee's employment
during the six month period following a Change in Control (as hereinafter
defined), the Employee shall be entitled to receive:
(1) the accrued and unpaid balance of his Base
Salary,
(2) Base Salary for the 36 month period following the
Termination Date, paid, at the option of the Company, in accordance
with the Company's normal payroll practices or in a lump sum,
(3) unreimbursed expenses,
- 9 -
<PAGE> 10
(4) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under the terms of
any employee benefit plan of the Company or its affiliates in which the
Employee participates, and
(6) for the 36 month period following the Termination
Date, coverage for the Employee and his dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates. The Company shall also be responsible
for any tax penalty which may be imposed upon the Employee in
connection with the payments to be made under this Section 3.5.
2. For purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:
(1) the acquisition in one or more transactions by any
"Person" (as such term is used for purposes of Section 13(d) or Section 14(d) of
the Securities Exchange Act of 1934, as amended) but excluding, for this
purpose, MIIX Group or its affiliates or any employee benefit plan of MIIX Group
or its affiliates, of "Beneficial Ownership" (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of thirty-five percent
(35%) or more of the combined voting power of MIIX Group's then outstanding
voting securities.
(2) the individuals who, as of the date hereof, constitute the
Board of Directors of MIIX Group (the "Incumbent Board") cease for any reason to
constitute at least
- 10 -
<PAGE> 11
a majority of the Board; provided, however, that if the election, or nomination
for election by MIIX Group's shareholders, of any new director was approved by a
vote of at least a majority of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board, and provided further that any
reductions in the size of the Board that are instituted voluntarily by the
Incumbent Board shall not constitute a Change in Control, and after any such
reduction the "Incumbent Board" shall mean the Board as so reduced;
(3) a merger or consolidation involving MIIX Group if the
shareholders of MIIX Group, immediately before such merger or consolidation, do
not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
merger or consolidation or a complete liquidation or dissolution of MIIX Group
or a sale or other disposition of all or substantially all of the assets of MIIX
Group; or
(4) the acceptance by the shareholders of MIIX Group of shares
in a share exchange if the shareholders of MIIX Group, immediately before such
share exchange, do not own, directly or indirectly, immediately following such
share exchange, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
share exchange.
3.6. TERMINATION BY THE EMPLOYEE. The Employee may terminate
his employment under this Agreement at any time upon not less than thirty days
prior written notice to the Company. The Company may, however, elect to
accelerate the date of
- 11 -
<PAGE> 12
termination. In the event of such a termination, the Company shall be required
to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
4. SEVERANCE.
4.1. PAYMENTS BY THE COMPANY. In the event that the Company
terminates the Employee's employment without cause, or in the event that the
Company determines to terminate the Employee's employment under Section 3.2
hereof, the Employee shall be entitled to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the
Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates,
- 12 -
<PAGE> 13
(5) for the 24 month period following the Termination
Date, coverage for the Employee and his dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates, and
(6) Base Salary, paid in accordance with the
Company's normal payroll practices, commencing on the Termination Date
and ending on the earlier of: (1) 24 months from the Termination Date
or (2) the date on which the Employee obtains full-time employment with
any third party or as an independent consultant, whichever is earlier.
Except during any period of disability as described in Section 3.2, the
Employee shall have a duty to undertake to secure new employment immediately
upon termination of employment with the Company. The Employee shall immediately
notify the Company in writing of such employment and any payments received by
the Employee pursuant to this Section 4.1 subsequent to the commencement of such
employment shall be promptly remitted to the Company. Notwithstanding the
foregoing, in the event that the Employee obtains full-time employment with any
third party or as an independent consultant at an annual amount lower than his
Base Salary at the Company on the date of his termination, the Company shall pay
to the Employee an amount equal to such difference from the date on which the
Employee obtains such full-time employment for a period not to exceed 24 months
from the Termination Date.
4.2. RESIGNATIONS FROM POSITIONS. The Employee specifically
agrees that upon his termination of employment with the Company, whether
voluntary or involuntary, his
- 13 -
<PAGE> 14
position as an officer or as a member of the Board of Directors of MIIX Group,
MIIX Insurance Company, Underwriter or any affiliate shall cease and this
Agreement shall constitute notice of the Employee's resignation in such regard.
5. NON-COMPETITION.
5.1. DEFINITION OF "COMPETITOR". For purposes of this
Agreement, "competitor" shall mean any company engaged in or about to be engaged
in the business of selling or marketing a product or service in the medical
professional liability insurance business which is similar to any product or
service sold or marketed or about to be sold or marketed by the Company or any
affiliate and the successors thereof, respectively.
5.2. TERM OF NON-COMPETITION. The Employee agrees that for so
long as he is employed by the Company and for a period of one year after the
termination thereof, whether voluntary or involuntary, he will not, directly or
indirectly, whether for compensation or not, own, manage, operate, join, control
or participate in, or be connected as a stockholder, officer, employee, partner,
creditor, guarantor, consultant, advisor or otherwise, with a competitor that is
engaged in or about to be engaged in business in any geographic area where the
Company or any affiliate are doing business. The foregoing shall not be
construed, however, as preventing the Employee from investing his assets in such
form or manner as will not require services on the part of the Employee in the
operations of the businesses in which such investments are made and provided
that any such business is publicly-owned and the interest of the Employee
therein is solely that of a passive investor owning not more than five (5%)
percent of the outstanding equity securities of any such business.
- 14 -
<PAGE> 15
5.3. SOLICITATION OF COMPANY CLIENTS. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, call upon or solicit insurance business or consulting business from
any person or entity who is or was a client of the Company or any affiliate at
any time within a period of twelve months immediately prior to the Termination
Date, or any broker, agent or consultant of such person or entity, without the
express written consent of the Company.
5.4. SOLICITATION OF COMPANY EMPLOYEES. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, hire, retain or engage as a director, officer, employee, agent,
consultant, advisor or in any other capacity any person or persons who are
employed by the Company or any affiliate or who were at any time within a period
of six months immediately prior to the Termination Date employed by the Company
or any affiliate or otherwise interfere with the relationship between such
persons and the Company or its affiliates, without the express written consent
of the Company.
5.5. REMEDIES. The parties acknowledge and agree that the
Employee's services hereunder are special, unique, unusual and extraordinary,
giving them peculiar value, the loss of which cannot be reasonably or adequately
compensated solely by damages, and in the event that the Employee breaches any
provision of this Section 5, the Company shall be entitled to equitable relief
by way of injunction or otherwise. In the event that the period of time or
geographic area herein specified should be adjudged unreasonable in any court
- 15 -
<PAGE> 16
proceeding, then the period of time shall be reduced by such number of months or
the geographic area shall be reduced by elimination of such portion thereof as
deemed unreasonable, so that this Agreement may be enforced during such period
of time and in such geographic area as is adjudged to be reasonable. In the
event that the Employee breaches any of the provisions of this Section 5, the
Company also shall be entitled to cease all payments and benefits under the
terms of this Agreement and to pursue all remedies which the Company might have
including, but not limited to, those contained in this Agreement.
6. CONFIDENTIALITY.
6.1. DEFINITION OF "CONFIDENTIAL INFORMATION". For the
purposes of this Agreement, "Confidential Information" shall mean all
information about the Company or any affiliate relating to any of their products
or services or any phase of their operations, including, without limitation,
business plans and strategies, trade secrets, marketing and distribution
information, business results, underwriting information and methods, identities
of insureds and claims defense and recovery methods and procedures not generally
known through legitimate means to any of its competitors, with which the
Employee becomes acquainted during the term of his employment.
6.2. CONFIDENTIAL TREATMENT. During the time of employment, or
at any time thereafter, the Employee shall not disclose or make available to any
person or entity any Confidential Information without the express prior written
authorization of the Company. All records, files, materials and Confidential
Information obtained by the Employee in the course of his employment with the
Company are confidential and proprietary and shall remain the
- 16 -
<PAGE> 17
exclusive property of the Company or its affiliates, as the case may be. Upon
the termination of the Employee's employment with the Company or any affiliate,
or at any time upon the request of the Company, the Employee (or his heirs or
personal representatives, as applicable) shall deliver to the Company (1) all
documents and materials containing Confidential Information relating to the
business or affairs of the Company or its affiliates, or their customers or
clients, and (2) all other documents, materials and other property belonging to
the Company or its affiliates, or their customers or clients that are in the
possession or under the control of the Employee.
6.3. REMEDIES. The parties acknowledge and agree that
Confidential Information is vital to the operations of the Company and its
affiliates and that the loss suffered by breach of any of the provisions of this
Section 6 cannot be reasonably or adequately compensated for by damages, and in
the event that the Employee breaches this Section, the Company shall be entitled
to equitable relief by way of injunction or otherwise. In the event that the
Employee breaches any of the provisions of this Section 6, the Company also
shall be entitled to cease all payments and benefits under the terms of this
Agreement and shall be entitled to pursue all remedies which the Company might
have including, but not limited to, those contained in this Agreement.
7. SEVERABILITY. The terms of this Agreement and each Paragraph and
Section hereof shall be considered severable and the invalidity or
unenforceability of any part thereof shall not affect the validity or
enforceability of the remaining portions or provisions hereof.
- 17 -
<PAGE> 18
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and delivered by mail or overnight
delivery service, to his residence, in the case of the Employee or to its
principal office in the case of the Company.
9. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon its successors and
assigns. Neither this Agreement nor any rights or interests herein or created
hereby may be assigned or otherwise transferred voluntarily or involuntarily by
the Employee.
10. WAIVER. The waiver by the Company or the Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
11. APPLICABLE LAW. This Agreement shall be interpreted and construed
under the laws of the State of New Jersey without reference to principles of
conflicts of laws.
12. JURISDICTION. Employee and the Company agree to submit to the
jurisdiction of the federal and state courts in New Jersey for purposes of the
enforcement of or any dispute concerning this Agreement and that any proceeding
to enforce or involving any dispute concerning this Agreement shall be brought
exclusively in the federal or state courts in New Jersey.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous agreements with respect to the subject matter hereof. This
Agreement may not be changed,
- 18 -
<PAGE> 19
altered or amended except by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE MIIX GROUP, INCORPORATED
By:__________________________________
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:__________________________________
_____________________________________
KENNETH KOREYVA
- 19 -
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of March 1, 2000,
among THE MIIX GROUP, INCORPORATED, a Delaware corporation ("MIIX Group"), NEW
JERSEY STATE MEDICAL UNDERWRITERS, INC., a New Jersey corporation
("Underwriter"), each having offices at Two Princess Road, Lawrenceville, New
Jersey (together, the "Company") and PATRICIA A. COSTANTE (the "Employee"),
residing at Six Registry Drive, Lawrenceville, New Jersey 08648.
WITNESSETH:
WHEREAS, MIIX Group is the parent company of Underwriter owning all of
the issued and outstanding common stock of Underwriter; and
WHEREAS, the Company deems it to be in its best interest to secure and
retain for the Company the services of the Employee and the Employee desires to
work for the Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and intending to be legally bound hereby, the
parties hereto agree, as follows:
1. POSITION AND DUTIES. The Employee is engaged hereunder as Senior
Vice President of MIIX Group and agrees to perform the duties and services
incident to that position, or such other or further duties and services of a
similar nature as may be required of her by the Chief Executive Officer of MIIX
Group. The Employee agrees that, if
<PAGE> 2
requested, she shall serve as an officer of the Company and/or of any affiliate,
without additional compensation. The Employee shall have the power and authority
as shall reasonably be required to enable her to perform her duties under this
Agreement in an efficient manner. The Employee agrees to perform the duties and
responsibilities called for hereunder to the best of her ability and to devote
her full time, energies and skills to such duties and to the promotion of the
business and interests of the Company and any affiliate. The Employee may
participate in charitable and similar activities, may be a director of a company
that does not compete with the Company or any affiliate (which shall not include
a "competitor" as defined by Section 5.1 of this Agreement) and may have
business interests in passive investments which, from time to time, may require
portions of her time, but such activities shall be performed in a manner
consistent with her obligations hereunder.
2. COMPENSATION AND OTHER BENEFITS.
2.1. BASE SALARY. The Company shall pay to the Employee for
the performance of her duties hereunder, an initial base salary of $220,000 per
annum (the "Base Salary"), payable in accordance with the Company's normal
payroll practices. Thereafter, the amount of the Base Salary may be reviewed and
adjusted as appropriate by the Board of Directors of MIIX Group, taking into
account the recommendation of the Chief Executive Officer, in accordance with
executive compensation review practices.
2.2. BONUS. Effective as of the date of this Agreement, the
Employee shall be eligible to receive an annual bonus pursuant to MIIX Group's
Cash Incentive Plan, or similar plans which may be in effect from time to time,
at the discretion of the Board of Directors of MIIX Group, based on the
Company's and the Employee's achievement of goals
-2-
<PAGE> 3
and objectives established by the Board on an annual basis. The Board shall use
its reasonable judgment in determining whether such goals and objectives have
been met and the amount, if any, of the bonus to be paid to the Employee. It is
anticipated that any bonus will be paid on or before March 31 of the succeeding
year.
2.3. STOCK OPTIONS. The Employee shall be entitled to
participate in MIIX Group's Long Term Incentive Equity Plan, or similar plans
which may be in effect from time to time for executives of the Company. The
Employee is hereby granted, effective March 1, 2000, a Non-Qualified Stock
Option, as defined in the Long Term Incentive Equity Plan, to purchase 18,000
shares of common stock of MIIX Group pursuant to and which shall vest in
accordance with the terms of the Long Term Incentive Equity Plan Non-Qualified
Stock Option Agreement, a copy of which is attached as Exhibit A (the "Stock
Option Agreement). The Employee shall be entitled to receive dividend
equivalents on such option shares as dividends are declared and paid on the
common stock of MIIX Group, provided, however, that any such dividend
equivalents, and the interest earned thereon, shall be forfeited as to any
unvested option shares that are forfeited by the Employee pursuant to the terms
of the Long Term Incentive Equity Plan. The Employee and MIIX Group shall,
simultaneous with the execution of this Agreement, execute the Stock Option
Agreement. The grant of any additional options to purchase shares of common
stock of MIIX Group under the Long Term Incentive Equity Plan shall be at the
sole discretion of the Board of Directors of MIIX Group and shall be based on
the achievement of performance goals established by the Board.
2.4. STOCK PURCHASE AND LOAN. The Employee shall participate
in MIIX Group's Stock Purchase and Loan Program, by which the Employee shall
purchase $440,000
-3-
<PAGE> 4
of MIIX Group common stock, rounded to the nearest whole share, as of the date
of this Agreement and MIIX Group shall loan to the Employee the funds necessary
to do so. The Employee and MIIX Group shall, simultaneous with the execution of
this Agreement, execute the Stock Purchase and Loan Agreement, a copy of which
is attached hereto as Exhibit B.
2.5. DEFERRED COMPENSATION. The Employee shall be eligible to
participate in the Company's Deferred Compensation Plan, or similar plans which
may be in effect from time to time, by which the Employee is permitted to defer
compensation and receive benefits in a future year in accordance with the terms
of the Deferred Compensation Plan. The Employee and the Company shall,
simultaneous with the execution of this Agreement, execute the Deferred
Compensation Plan, a copy of which is attached hereto as Exhibit C.
2.6. EMPLOYEE BENEFITS. During the term of this Agreement, the
Employee shall be entitled to participate in all of the benefit programs
provided to similar employees of the Company, including, without limitation, all
medical, disability, dental and life insurance benefits, retirement programs,
incentive compensation plans, automobile expense reimbursement programs and
other employee benefit programs now in existence or hereafter adopted by the
Company, as such plans, programs, practices or policies may be in effect from
time to time.
2.7. VACATION. In addition to such holidays, sick leave and
other time off as are established by the policies of the Company, the Employee
shall be entitled to four weeks of vacation in accordance with the Company's
vacation policy for executives, as in effect from time to time, during which her
compensation shall be paid, provided, however, that the Employee may not take
more than two consecutive weeks of vacation without the prior
-4-
<PAGE> 5
approval of the Chief Executive Officer of MIIX Group. Unused vacation time can
be carried over only in accordance with Company policy up to a maximum of three
weeks.
2.8. REIMBURSEMENT OF EXPENSES. The Company shall reimburse
the Employee for all reasonable expenses incurred by the Employee in connection
with her employment hereunder, provided, however, that such expenses were
incurred in conformance with the policies of the Company, as established from
time to time, and the Employee submits detailed vouchers and other records
reasonably required by the Company in support of the amount and nature of such
expenses.
2.9. TAXES AND WITHHOLDING. All compensation payable and other
benefits provided under this Agreement shall be subject to customary withholding
for income, F.I.C.A. and other employment taxes.
2.10. PHYSICAL EXAMINATION. The Employee shall submit to a
physical examination by a qualified physician on an annual basis which shall be
paid for by the Company and the results of such examination shall be made
available to the Company.
3. TERMINATION OF EMPLOYMENT.
3.1. DEATH OF THE EMPLOYEE. The Employee's employment under
this Agreement shall terminate immediately upon the Employee's death and the
Employee's estate (or her beneficiary as may be appropriate) shall be entitled
to receive:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused accrued vacation time (up to a maximum of
three weeks) through the date of her death, and
-5-
<PAGE> 6
(4) any other benefits earned by the Employee and
vested (if applicable) as of the date of her death under any employee
benefit plan of MIIX Group or its affiliates in which the Employee
participates.
3.2. DISABILITY OF EMPLOYEE. If the Employee, in the
reasonable opinion of the Company, is unable to perform his duties under this
Agreement by reason of incapacity, either physical or mental, as determined in
accordance with the MIIX Group of Companies Long Term Disability Group Benefit
Plan (the "LTD Plan"), or similar plan which may be in effect from time to time,
the Company shall have the right to terminate the Employee's employment upon
written notice to the Employee, whereupon such termination shall be effective as
of the date specified in such notice (the "Termination Date") and the Company
shall have no further obligations under this Agreement, except the obligation to
pay to the Employee:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other applicable severance payments provided
for in Section 4 hereof, and
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
-6-
<PAGE> 7
If the Company determines not to terminate the Employee's employment in
the event of a disability as allowed under this Section 3.2, the Company shall
continue to pay Base Salary to the Employee for a period of up to ninety days,
and shall pay the difference between Base Salary and benefits paid to the
Employee under the LTD Plan for a period of up to six months thereafter, paid in
accordance with the Company's normal payroll practices, while the Employee is
not working. If the Employee, in the reasonable opinion of the Company, remains
disabled at the end of such nine month period, her employment shall be deemed
terminated and she shall receive the benefits provided for in this Section 3.2.
3.3. TERMINATION FOR CAUSE.
1. For purposes of this Agreement, "for cause" shall mean the
termination of the Employee's employment with the Company as a result of any of
the following:
(1) the willful engaging by the Employee in conduct
which is materially injurious to or contrary to the best interests of
the Company, monetarily or otherwise;
(2) the willful failure by the Employee to perform
such duties as may be delegated or assigned to the Employee by the
Chief Executive Officer of MIIX Group;
(3) the willful failure by the Employee to follow the
directives or instructions of the Chief Executive Officer of MIIX
Group;
(4) the repeated and consistent failure of the
Employee to be present at work and devote her full time best efforts to
the performance of her duties under this Agreement, except as set forth
above in connection with the Employee's disability;
-7-
<PAGE> 8
(5) gross negligence in the performance of her duties
on behalf of the Company;
(6) the Employee's conviction of, or plea of no
contest to, a felony or any crime involving moral turpitude; or
(7) the commission by the Employee of an act, or the
omission of an act, that would constitute a material breach of this
Agreement.
2. The Employee's employment under this Agreement shall terminate
immediately upon written notice from the Company that the Company is terminating
the Employee for cause. Upon the Company's termination of the Employee for
cause, the Company shall be required to pay to the Employee:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates.
3.4. TERMINATION WITHOUT CAUSE. The Company may terminate the
Employee's employment without cause under this Agreement at any time upon
written notice to the Employee specifying the date of termination. In the event
of a termination without cause, the Company shall make payments to the Employee
in accordance with Section 4 below.
-8-
<PAGE> 9
3.5. TERMINATION FOLLOWING A CHANGE IN CONTROL.
1. In the event that the Company terminates the Employee's employment
during the six month period following a Change in Control (as hereinafter
defined), the Employee shall be entitled to receive:
(1) the accrued and unpaid balance of her Base
Salary,
(2) Base Salary for the 24 month period following the
Termination Date, paid, at the option of the Company, in accordance
with the Company's normal payroll practices or in a lump sum,
(3) unreimbursed expenses,
(4) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under the terms of
any employee benefit plan of the Company or its affiliates in which the
Employee participates, and
(6) for the 24 month period following the Termination
Date, coverage for the Employee and her dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates. The Company shall also be responsible
for any tax penalty which may be imposed upon the Employee in
connection with the payments to be made under this Section 3.5.
2. For purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:
-9-
<PAGE> 10
(1) the acquisition in one or more transactions by any
"Person" (as such term is used for purposes of Section 13(d) or Section 14(d) of
the Securities Exchange Act of 1934, as amended) but excluding, for this
purpose, MIIX Group or its affiliates or any employee benefit plan of MIIX Group
or its affiliates, of "Beneficial Ownership" (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of thirty-five percent
(35%) or more of the combined voting power of MIIX Group's then outstanding
voting securities.
(2) the individuals who, as of the date hereof, constitute the
Board of Directors of MIIX Group (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that if the
election, or nomination for election by MIIX Group's shareholders, of any new
director was approved by a vote of at least a majority of the Incumbent Board,
such new director shall be considered as a member of the Incumbent Board, and
provided further that any reductions in the size of the Board that are
instituted voluntarily by the Incumbent Board shall not constitute a Change in
Control, and after any such reduction the "Incumbent Board" shall mean the Board
as so reduced;
(3) a merger or consolidation involving MIIX Group if the
shareholders of MIIX Group, immediately before such merger or consolidation, do
not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
merger or consolidation or a complete liquidation or dissolution of MIIX Group
or a sale or other disposition of all or substantially all of the assets of MIIX
Group; or
-10-
<PAGE> 11
(4) the acceptance by the shareholders of MIIX Group of shares
in a share exchange if the shareholders of MIIX Group, immediately before such
share exchange, do not own, directly or indirectly, immediately following such
share exchange, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
share exchange.
3.6. TERMINATION BY THE EMPLOYEE. The Employee may terminate
her employment under this Agreement at any time upon not less than thirty days
prior written notice to the Company. The Company may, however, elect to
accelerate the date of termination. In the event of such a termination, the
Company shall be required to pay to the Employee:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
4. SEVERANCE.
4.1. PAYMENTS BY THE COMPANY. In the event that the Company
terminates the Employee's employment without cause, or in the event that the
Company determines to terminate the Employee's employment under Section 3.2
hereof, the Employee shall be entitled to receive:
-11-
<PAGE> 12
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates,
(5) for the 12 month period following the Termination
Date, coverage for the Employee and her dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates, and
(6) Base Salary, paid in accordance with the
Company's normal payroll practices, commencing on the Termination Date
and ending on the earlier of: (1) 12 months from the Termination Date
or (2) the date on which the Employee obtains full-time employment with
any third party or as an independent consultant, whichever is earlier.
Except during any period of disability as described in Section 3.2, the
Employee shall have a duty to undertake to secure new employment immediately
upon termination of employment with the Company. The Employee shall immediately
notify the Company in writing of such employment and any payments received by
the Employee pursuant to this Section 4.1 subsequent to the commencement of such
employment shall be promptly remitted to the Company. Notwithstanding the
foregoing, in the event that the Employee obtains full-time employment with any
third party or as an independent consultant at an annual amount
-12-
<PAGE> 13
lower than her Base Salary at the Company on the date of her termination, the
Company shall pay to the Employee an amount equal to such difference from the
date on which the Employee obtains such full-time employment for a period not to
exceed 12 months from the Termination Date.
4.2. RESIGNATIONS FROM POSITIONS. The Employee specifically
agrees that upon her termination of employment with the Company, whether
voluntary or involuntary, her position as an officer or as a member of the Board
of Directors of MIIX Group, MIIX Insurance Company, Underwriter or any affiliate
shall cease and this Agreement shall constitute notice of the Employee's
resignation in such regard.
5. NON-COMPETITION.
5.1. DEFINITION OF "COMPETITOR". For purposes of this
Agreement, "competitor" shall mean any company engaged in or about to be engaged
in the business of selling or marketing a product or service in the medical
professional liability insurance business which is similar to any product or
service sold or marketed or about to be sold or marketed by the Company or any
affiliate and the successors thereof, respectively.
5.2. TERM OF NON-COMPETITION. The Employee agrees that for so
long as she is employed by the Company and for a period of one year after the
termination thereof, whether voluntary or involuntary, she will not, directly or
indirectly, whether for compensation or not, own, manage, operate, join, control
or participate in, or be connected as a stockholder, officer, employee, partner,
creditor, guarantor, consultant, advisor or otherwise, with a competitor that is
engaged in or about to be engaged in business in any geographic area where the
Company or any affiliate are doing business. The foregoing shall
-13-
<PAGE> 14
not be construed, however, as preventing the Employee from investing her assets
in such form or manner as will not require services on the part of the Employee
in the operations of the businesses in which such investments are made and
provided that any such business is publicly-owned and the interest of the
Employee therein is solely that of a passive investor owning not more than five
(5%) percent of the outstanding equity securities of any such business.
5.3. SOLICITATION OF COMPANY CLIENTS. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, call upon or solicit insurance or consulting business from any
person or entity who is or was a client of the Company or any affiliate at any
time within a period of twelve months immediately prior to the Termination Date,
or any broker, agent or consultant of such person or entity, without the express
written consent of the Company.
5.4. SOLICITATION OF COMPANY EMPLOYEES. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, hire, retain or engage as a director, officer, employee, agent,
consultant, advisor or in any other capacity any person or persons who are
employed by the Company or any affiliate or who were at any time within a period
of six months immediately prior to the Termination Date employed by the Company
or any affiliate or otherwise interfere with the relationship between such
persons and the Company or its affiliates, without the express written consent
of the Company.
-14-
<PAGE> 15
5.5. REMEDIES. The parties acknowledge and agree that the
Employee's services hereunder are special, unique, unusual and extraordinary,
giving them peculiar value, the loss of which cannot be reasonably or adequately
compensated solely by damages, and in the event that the Employee breaches any
provision of this Section 5, the Company shall be entitled to equitable relief
by way of injunction or otherwise. In the event that the period of time or
geographic area herein specified should be adjudged unreasonable in any court
proceeding, then the period of time shall be reduced by such number of months or
the geographic area shall be reduced by elimination of such portion thereof as
deemed unreasonable, so that this Agreement may be enforced during such period
of time and in such geographic area as is adjudged to be reasonable. In the
event that the Employee breaches any of the provisions of this Section 5, the
Company also shall be entitled to cease all payments and benefits under the
terms of this Agreement and to pursue all remedies which the Company might have
including, but not limited to, those contained in this Agreement.
6. CONFIDENTIALITY.
6.1. DEFINITION OF "CONFIDENTIAL INFORMATION". For the
purposes of this Agreement, "Confidential Information" shall mean all
information about the Company or any affiliate relating to any of their products
or services or any phase of their operations, including, without limitation,
business plans and strategies, trade secrets, marketing and distribution
information, business results, underwriting information and methods, identities
of insureds and claims defense and recovery methods and procedures not generally
known through legitimate means to any of its competitors, with which the
Employee becomes acquainted during the term of her employment.
-15-
<PAGE> 16
6.2. CONFIDENTIAL TREATMENT. During the time of employment, or
at any time thereafter, the Employee shall not disclose or make available to any
person or entity any Confidential Information without the express prior written
authorization of the Company. All records, files, materials and Confidential
Information obtained by the Employee in the course of her employment with the
Company are confidential and proprietary and shall remain the exclusive property
of the Company or its affiliates, as the case may be. Upon the termination of
the Employee's employment with the Company or any affiliate, or at any time upon
the request of the Company, the Employee (or her heirs or personal
representatives, as applicable) shall deliver to the Company (1) all documents
and materials containing Confidential Information relating to the business or
affairs of the Company or its affiliates, or their customers or clients, and (2)
all other documents, materials and other property belonging to the Company or
its affiliates, or their customers or clients that are in the possession or
under the control of the Employee.
6.3. REMEDIES. The parties acknowledge and agree that
Confidential Information is vital to the operations of the Company and its
affiliates and that the loss suffered by breach of any of the provisions of this
Section 6 cannot be reasonably or adequately compensated for by damages, and in
the event that the Employee breaches this Section, the Company shall be entitled
to equitable relief by way of injunction or otherwise. In the event that the
Employee breaches any of the provisions of this Section 6, the Company also
shall be entitled to cease all payments and benefits under the terms of this
Agreement and shall be entitled to pursue all remedies which the Company might
have including, but not limited to, those contained in this Agreement.
-16-
<PAGE> 17
7. SEVERABILITY. The terms of this Agreement and each Paragraph and
Section hereof shall be considered severable and the invalidity or
unenforceability of any part thereof shall not affect the validity or
enforceability of the remaining portions or provisions hereof.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and delivered by mail or overnight
delivery service, to her residence, in the case of the Employee or to its
principal office in the case of the Company.
9. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon its successors and
assigns. Neither this Agreement nor any rights or interests herein or created
hereby may be assigned or otherwise transferred voluntarily or involuntarily by
the Employee.
10. WAIVER. The waiver by the Company or the Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
11. APPLICABLE LAW. This Agreement shall be interpreted and construed
under the laws of the State of New Jersey without reference to principles of
conflicts of laws.
12. JURISDICTION. Employee and the Company agree to submit to the
jurisdiction of the federal and state courts in New Jersey for purposes of the
enforcement of or any dispute concerning this Agreement and that any proceeding
to enforce or involving any dispute concerning this Agreement shall be brought
exclusively in the federal or state courts in New Jersey.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous
-17-
<PAGE> 18
agreements with respect to the subject matter hereof. This Agreement may not be
changed, altered or amended except by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE MIIX GROUP, INCORPORATED
By:
----------------------------------
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:
----------------------------------
-------------------------------------
PATRICIA A. COSTANTE
-18-
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of March 1, 2000,
among THE MIIX GROUP, INCORPORATED, a Delaware corporation ("MIIX Group"), NEW
JERSEY STATE MEDICAL UNDERWRITERS, INC., a New Jersey corporation
("Underwriter"), each having offices at Two Princess Road, Lawrenceville, New
Jersey (together, the "Company") and EDWARD M. GRAB (the "Employee"), residing
at 2020 Freeland Road, Freeland, Maryland 21053.
WITNESSETH:
WHEREAS, MIIX Group is the parent company of Underwriter owning all of
the issued and outstanding common stock of Underwriter; and
WHEREAS, the Company deems it to be in its best interest to secure and
retain for the Company the services of the Employee and the Employee desires to
work for the Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and intending to be legally bound hereby, the
parties hereto agree, as follows:
1. POSITION AND DUTIES. The Employee is engaged hereunder as Senior
Vice President of MIIX Group and agrees to perform the duties and services
incident to that position, or such other or further duties and services of a
similar nature as may be required
<PAGE> 2
of him by the Chief Executive Officer of MIIX Group. The Employee agrees that,
if requested, he shall serve as an officer of the Company and/or of any
affiliate, without additional compensation. The Employee shall have the power
and authority as shall reasonably be required to enable him to perform his
duties under this Agreement in an efficient manner. The Employee agrees to
perform the duties and responsibilities called for hereunder to the best of his
ability and to devote his full time, energies and skills to such duties and to
the promotion of the business and interests of the Company and any affiliate.
The Employee may participate in charitable and similar activities, may be a
director of a company that does not compete with the Company or any affiliate
(which shall not include a "competitor" as defined by Section 5.1 of this
Agreement) and may have business interests in passive investments which, from
time to time, may require portions of his time, but such activities shall be
performed in a manner consistent with his obligations hereunder.
2. COMPENSATION AND OTHER BENEFITS.
2.1. BASE SALARY. The Company shall pay to the Employee for
the performance of his duties hereunder, an initial base salary of $165,000 per
annum (the "Base Salary"), payable in accordance with the Company's normal
payroll practices. Thereafter, the amount of the Base Salary may be reviewed and
adjusted as appropriate by the Board of Directors of MIIX Group, taking into
account the recommendation of the Chief Executive Officer, in accordance with
executive compensation review practices.
2.2. BONUS. The Employee shall be eligible to receive an
annual bonus pursuant to MIIX Group's Cash Incentive Plan, or similar plans
which may be in effect from
-2-
<PAGE> 3
time to time, at the discretion of the Board of Directors of MIIX Group, based
on the Company's and the Employee's achievement of goals and objectives
established by the Board on an annual basis. The Board shall use its reasonable
judgment in determining whether such goals and objectives have been met and the
amount, if any, of the bonus to be paid to the Employee. It is anticipated that
any bonus will be paid on or before March 31 of the succeeding year.
2.3. STOCK OPTIONS. The Employee shall be entitled to
participate in MIIX Group's Long Term Incentive Equity Plan, or similar plans
which may be in effect from time to time for executives of the Company. The
Employee is hereby granted, effective March 1, 2000, a Non-Qualified Stock
Option, as defined in the Long Term Incentive Equity Plan, to purchase 20,000
shares of common stock of MIIX Group pursuant to and which shall vest in
accordance with the terms of the Long Term Incentive Equity Plan Non-Qualified
Stock Option Agreement, a copy of which is attached as Exhibit A (the "Stock
Option Agreement"). The Employee shall be entitled to receive dividend
equivalents on such option shares as dividends are declared and paid on the
common stock of MIIX Group, provided, however, that any such dividend
equivalents, and the interest earned thereon, shall be forfeited as to any
unvested option shares that are forfeited by the Employee pursuant to the terms
of the Long Term Incentive Equity Plan. The Employee and MIIX Group shall,
simultaneous with the execution of this Agreement, execute the Stock Option
Agreement. The grant of any additional options to purchase shares of common
stock of MIIX Group under the Long Term
-3-
<PAGE> 4
Incentive Equity Plan shall be at the sole discretion of the Board of Directors
of MIIX Group and shall be based on the achievement of performance goals
established by the Board.
2.4. STOCK PURCHASE AND LOAN. The Employee shall participate
in MIIX Group's Stock Purchase and Loan Program, by which the Employee shall
purchase $330,000 of MIIX Group common stock, rounded to the nearest whole
share, as of the date of this Agreement and MIIX Group shall loan to the
Employee the funds necessary to do so. The Employee and MIIX Group shall,
simultaneous with the execution of this Agreement, execute the Stock Purchase
and Loan Agreement, a copy of which is attached hereto as Exhibit B.
2.5. DEFERRED COMPENSATION. The Employee shall be eligible to
participate in the Company's Deferred Compensation Plan, or similar plans which
may be in effect from time to time, by which the Employee is permitted to defer
compensation and receive benefits in a future year in accordance with the terms
of the Deferred Compensation Plan. The Employee and the Company shall,
simultaneous with the execution of this Agreement, execute the Deferred
Compensation Plan, a copy of which is attached hereto as Exhibit C.
2.6. EMPLOYEE BENEFITS. During the term of this Agreement, the
Employee shall be entitled to participate in all of the benefit programs
provided to similar employees of the Company, including, without limitation, all
medical, disability, dental and life insurance benefits, retirement programs,
incentive compensation plans, automobile expense reimbursement programs and
other employee benefit programs now in existence or hereafter adopted by the
Company, as such plans, programs, practices or policies may be in effect from
time to time.
-4-
<PAGE> 5
2.7. VACATION. In addition to such holidays, sick leave and
other time off as are established by the policies of the Company, the Employee
shall be entitled to four weeks of vacation in accordance with the Company's
vacation policy for executives, as in effect from time to time, during which his
compensation shall be paid, provided, however, that the Employee may not take
more than two consecutive weeks of vacation without the prior approval of the
Chief Executive Officer of MIIX Group. Unused vacation time can be carried over
only in accordance with Company policy up to a maximum of three weeks.
2.8. REIMBURSEMENT OF EXPENSES. The Company shall reimburse
the Employee for all reasonable expenses incurred by the Employee in connection
with his employment hereunder, provided, however, that such expenses were
incurred in conformance with the policies of the Company, as established from
time to time, and the Employee submits detailed vouchers and other records
reasonably required by the Company in support of the amount and nature of such
expenses.
2.9. TAXES AND WITHHOLDING. All compensation payable and other
benefits provided under this Agreement shall be subject to customary withholding
for income, F.I.C.A. and other employment taxes.
2.10. PHYSICAL EXAMINATION. The Employee shall submit to a
physical examination by a qualified physician on an annual basis which shall be
paid for by the Company and the results of such examination shall be made
available to the Company.
-5-
<PAGE> 6
3. TERMINATION OF EMPLOYMENT.
3.1. DEATH OF THE EMPLOYEE. The Employee's employment under
this Agreement shall terminate immediately upon the Employee's death and the
Employee's estate (or his beneficiary as may be appropriate) shall be entitled
to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused accrued vacation time (up to a maximum of
three weeks) through the date of his death, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the date of his death under any employee
benefit plan of MIIX Group or its affiliates in which the Employee
participates.
3.2. DISABILITY OF EMPLOYEE. If the Employee, in the
reasonable opinion of the Company, is unable to perform his duties under this
Agreement by reason of incapacity, either physical or mental, as determined in
accordance with the MIIX Group of Companies Long Term Disability Group Benefit
Plan (the "LTD Plan"), or similar plan which may be in effect from time to time,
the Company shall have the right to terminate the Employee's employment upon
written notice to the Employee, whereupon such termination shall be effective as
of the date specified in such notice (the "Termination Date") and the Company
shall have no further obligations under this Agreement, except the obligation to
pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
-6-
<PAGE> 7
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other applicable severance payments provided
for in Section 4 hereof, and
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
If the Company determines not to terminate the Employee's employment in
the event of a disability as allowed under this Section 3.2, the Company shall
continue to pay Base Salary to the Employee for a period of up to ninety days,
and shall pay the difference between Base Salary and benefits paid to the
Employee under the LTD Plan for a period of up to six months thereafter, paid in
accordance with the Company's normal payroll practices, while the Employee is
not working. If the Employee, in the reasonable opinion of the Company, remains
disabled at the end of such nine month period, his employment shall be deemed
terminated and he shall receive the benefits provided for in this Section 3.2.
3.3. TERMINATION FOR CAUSE.
1. For purposes of this Agreement, "for cause" shall mean the
termination of the Employee's employment with the Company as a result of any of
the following:
-7-
<PAGE> 8
(1) the willful engaging by the Employee in conduct
which is materially injurious to or contrary to the best interests of
the Company, monetarily or otherwise;
(2) the willful failure by the Employee to perform
such duties as may be delegated or assigned to the Employee by the
Chief Executive Officer of MIIX Group;
(3) the willful failure by the Employee to follow the
directives or instructions of the Chief Executive Officer of MIIX
Group;
(4) the repeated and consistent failure of the
Employee to be present at work and devote his full time best efforts to
the performance of his duties under this Agreement, except as set forth
above in connection with the Employee's disability;
(5) gross negligence in the performance of his duties
on behalf of the Company;
(6) the Employee's conviction of, or plea of no
contest to, a felony or any crime involving moral turpitude; or
(7) the commission by the Employee of an act, or the
omission of an act, that would constitute a material breach of this
Agreement.
2. The Employee's employment under this Agreement shall terminate
immediately upon written notice from the Company that the Company is terminating
the Employee for cause. Upon the Company's termination of the Employee for
cause, the Company shall be required to pay to the Employee:
-8-
<PAGE> 9
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates.
3.4. TERMINATION WITHOUT CAUSE. The Company may terminate the
Employee's employment without cause under this Agreement at any time upon
written notice to the Employee specifying the date of termination. In the event
of a termination without cause, the Company shall make payments to the Employee
in accordance with Section 4 below.
3.5. TERMINATION FOLLOWING A CHANGE IN CONTROL.
1. In the event that the Company terminates the Employee's employment
during the six month period following a Change in Control (as hereinafter
defined), the Employee shall be entitled to receive:
(1) the accrued and unpaid balance of his Base
Salary,
(2) Base Salary for the 24 month period following the
Termination Date, paid, at the option of the Company, in accordance
with the Company's normal payroll practices or in a lump sum,
(3) unreimbursed expenses,
-9-
<PAGE> 10
(4) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under the terms of
any employee benefit plan of the Company or its affiliates in which the
Employee participates, and
(6) for the 24 month period following the Termination
Date, coverage for the Employee and his dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates.
The Company shall also be responsible for any tax penalty which may be
imposed upon the Employee in connection with the payments to be made under this
Section 3.5.
2. For purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:
(1) the acquisition in one or more transactions by any
"Person" (as such term is used for purposes of Section 13(d) or Section 14(d) of
the Securities Exchange Act of 1934, as amended) but excluding, for this
purpose, MIIX Group or its affiliates or any employee benefit plan of MIIX Group
or its affiliates, of "Beneficial Ownership" (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of thirty-five percent
(35%) or more of the combined voting power of MIIX Group's then outstanding
voting securities.
(2) the individuals who, as of the date hereof, constitute the
Board of Directors of MIIX Group (the "Incumbent Board") cease for any reason to
constitute at least
-10-
<PAGE> 11
a majority of the Board; provided, however, that if the election, or nomination
for election by MIIX Group's shareholders, of any new director was approved by a
vote of at least a majority of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board, and provided further that any
reductions in the size of the Board that are instituted voluntarily by the
Incumbent Board shall not constitute a Change in Control, and after any such
reduction the "Incumbent Board" shall mean the Board as so reduced;
(3) a merger or consolidation involving MIIX Group if the
shareholders of MIIX Group, immediately before such merger or consolidation, do
not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
merger or consolidation or a complete liquidation or dissolution of MIIX Group
or a sale or other disposition of all or substantially all of the assets of MIIX
Group; or
(4) the acceptance by the shareholders of MIIX Group of shares
in a share exchange if the shareholders of MIIX Group, immediately before such
share exchange, do not own, directly or indirectly, immediately following such
share exchange, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
share exchange.
3.6. TERMINATION BY THE EMPLOYEE. The Employee may terminate
his employment under this Agreement at any time upon not less than thirty days
prior written notice to the Company. The Company may, however, elect to
accelerate the date of
-11-
<PAGE> 12
termination. In the event of such a termination, the Company shall be required
to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
4. SEVERANCE.
4.1. PAYMENTS BY THE COMPANY. In the event that the Company
terminates the Employee's employment without cause, or in the event that the
Company determines to terminate the Employee's employment under Section 3.2
hereof, the Employee shall be entitled to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates,
-12-
<PAGE> 13
(5) for the 12 month period following the Termination
Date, coverage for the Employee and his dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates, and
(6) Base Salary, paid in accordance with the
Company's normal payroll practices, commencing on the Termination Date
and ending on the earlier of: (1) 12 months from the Termination Date
or (2) the date on which the Employee obtains full-time employment with
any third party or as an independent consultant, whichever is earlier.
Except during any period of disability as described in Section 3.2, the
Employee shall have a duty to undertake to secure new employment immediately
upon termination of employment with the Company. The Employee shall immediately
notify the Company in writing of such employment and any payments received by
the Employee pursuant to this Section 4.1 subsequent to the commencement of such
employment shall be promptly remitted to the Company. Notwithstanding the
foregoing, in the event that the Employee obtains full-time employment with any
third party or as an independent consultant at an annual amount lower than his
Base Salary at the Company on the date of his termination, the Company shall pay
to the Employee an amount equal to such difference from the date on which the
Employee obtains such full-time employment for a period not to exceed 12 months
from the Termination Date.
4.2. RESIGNATIONS FROM POSITIONS. The Employee specifically
agrees that upon his termination of employment with the Company, whether
voluntary or involuntary, his
-13-
<PAGE> 14
position as an officer or as a member of the Board of Directors of MIIX Group,
MIIX Insurance Company, Underwriter or any affiliate shall cease and this
Agreement shall constitute notice of the Employee's resignation in such regard.
5. NON-COMPETITION.
5.1. DEFINITION OF "COMPETITOR". For purposes of this
Agreement, "competitor" shall mean any company engaged in or about to be engaged
in the business of selling or marketing a product or service in the medical
professional liability insurance business which is similar to any product or
service sold or marketed or about to be sold or marketed by the Company or any
affiliate and the successors thereof, respectively.
5.2. TERM OF NON-COMPETITION. The Employee agrees that for so
long as he is employed by the Company and for a period of one year after the
termination thereof, whether voluntary or involuntary, he will not, directly or
indirectly, whether for compensation or not, own, manage, operate, join, control
or participate in, or be connected as a stockholder, officer, employee, partner,
creditor, guarantor, consultant, advisor or otherwise, with a competitor that is
engaged in or about to be engaged in business in any geographic area where the
Company or any affiliate are doing business. The foregoing shall not be
construed, however, as preventing the Employee from investing his assets in such
form or manner as will not require services on the part of the Employee in the
operations of the businesses in which such investments are made and provided
that any such business is publicly-owned and the interest of the Employee
therein is solely that of a passive investor owning not more than five (5%)
percent of the outstanding equity securities of any such business.
-14-
<PAGE> 15
5.3. SOLICITATION OF COMPANY CLIENTS. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, call upon or solicit insurance or consulting business from any
person or entity who is or was a client of the Company or any affiliate at any
time within a period of twelve months immediately prior to the Termination Date,
or any broker, agent or consultant of such person or entity, without the express
written consent of the Company.
5.4. SOLICITATION OF COMPANY EMPLOYEES. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, hire, retain or engage as a director, officer, employee, agent,
consultant, advisor or in any other capacity any person or persons who are
employed by the Company or any affiliate or who were at any time within a period
of six months immediately prior to the Termination Date employed by the Company
or any affiliate or otherwise interfere with the relationship between such
persons and the Company or its affiliates, without the express written consent
of the Company.
5.5. REMEDIES. The parties acknowledge and agree that the
Employee's services hereunder are special, unique, unusual and extraordinary,
giving them peculiar value, the loss of which cannot be reasonably or adequately
compensated solely by damages, and in the event that the Employee breaches any
provision of this Section 5, the Company shall be entitled to equitable relief
by way of injunction or otherwise. In the event that the period of time or
geographic area herein specified should be adjudged unreasonable in any court
-15-
<PAGE> 16
proceeding, then the period of time shall be reduced by such number of months or
the geographic area shall be reduced by elimination of such portion thereof as
deemed unreasonable, so that this Agreement may be enforced during such period
of time and in such geographic area as is adjudged to be reasonable. In the
event that the Employee breaches any of the provisions of this Section 5, the
Company also shall be entitled to cease all payments and benefits under the
terms of this Agreement and to pursue all remedies which the Company might have
including, but not limited to, those contained in this Agreement.
6. CONFIDENTIALITY.
6.1. DEFINITION OF "CONFIDENTIAL INFORMATION". For the
purposes of this Agreement, "Confidential Information" shall mean all
information about the Company or any affiliate relating to any of their products
or services or any phase of their operations, including, without limitation,
business plans and strategies, trade secrets, marketing and distribution
information, business results, underwriting information and methods, identities
of insureds and claims defense and recovery methods and procedures not generally
known through legitimate means to any of its competitors, with which the
Employee becomes acquainted during the term of his employment.
6.2. CONFIDENTIAL TREATMENT. During the time of employment, or
at any time thereafter, the Employee shall not disclose or make available to any
person or entity any Confidential Information without the express prior written
authorization of the Company. All records, files, materials and Confidential
Information obtained by the Employee in the course of his employment with the
Company are confidential and proprietary and shall remain the
-16-
<PAGE> 17
exclusive property of the Company or its affiliates, as the case may be. Upon
the termination of the Employee's employment with the Company or any affiliate,
or at any time upon the request of the Company, the Employee (or his heirs or
personal representatives, as applicable) shall deliver to the Company (1) all
documents and materials containing Confidential Information relating to the
business or affairs of the Company or its affiliates, or their customers or
clients, and (2) all other documents, materials and other property belonging to
the Company or its affiliates, or their customers or clients that are in the
possession or under the control of the Employee.
6.3. REMEDIES. The parties acknowledge and agree that
Confidential Information is vital to the operations of the Company and its
affiliates and that the loss suffered by breach of any of the provisions of this
Section 6 cannot be reasonably or adequately compensated for by damages, and in
the event that the Employee breaches this Section, the Company shall be entitled
to equitable relief by way of injunction or otherwise. In the event that the
Employee breaches any of the provisions of this Section 6, the Company also
shall be entitled to cease all payments and benefits under the terms of this
Agreement and shall be entitled to pursue all remedies which the Company might
have including, but not limited to, those contained in this Agreement.
7. SEVERABILITY. The terms of this Agreement and each Paragraph and
Section hereof shall be considered severable and the invalidity or
unenforceability of any part thereof shall not affect the validity or
enforceability of the remaining portions or provisions hereof.
-17-
<PAGE> 18
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and delivered by mail or overnight
delivery service, to his residence, in the case of the Employee or to its
principal office in the case of the Company.
9. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon its successors and
assigns. Neither this Agreement nor any rights or interests herein or created
hereby may be assigned or otherwise transferred voluntarily or involuntarily by
the Employee.
10. WAIVER. The waiver by the Company or the Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
11. APPLICABLE LAW. This Agreement shall be interpreted and construed
under the laws of the State of New Jersey without reference to principles of
conflicts of laws.
12. JURISDICTION. Employee and the Company agree to submit to the
jurisdiction of the federal and state courts in New Jersey for purposes of the
enforcement of or any dispute concerning this Agreement and that any proceeding
to enforce or involving any dispute concerning this Agreement shall be brought
exclusively in the federal or state courts in New Jersey.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous agreements with respect to the subject matter hereof. This
Agreement may not be changed, altered or amended except by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
-18-
<PAGE> 19
modification, extension or discharge is sought.
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE MIIX GROUP, INCORPORATED
By:
----------------------------------
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:
----------------------------------
-------------------------------------
EDWARD M. GRAB
-19-
<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 15, 1999,
among THE MIIX GROUP, INCORPORATED, a Delaware corporation ("MIIX Group"), NEW
JERSEY STATE MEDICAL UNDERWRITERS, INC., a New Jersey corporation
("Underwriter"), each having offices at Two Princess Road, Lawrenceville, New
Jersey (together, the "Company") and JOSEPH J. HUDSON (the "Employee"), residing
at 13 Pointe View Drive, Medford, New Jersey 08055.
WITNESSETH:
WHEREAS, MIIX Group is the parent company of Underwriter owning all of
the issued and outstanding common stock of Underwriter; and
WHEREAS, the Company deems it to be in its best interest to secure and
retain for the Company the services of the Employee and the Employee desires to
work for the Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and intending to be legally bound hereby, the
parties hereto agree, as follows:
1. POSITION AND DUTIES. The Employee is engaged hereunder as Executive
Vice President of MIIX Group and agrees to perform the duties and services
incident to that position, or such other or further duties and services of a
similar nature as may be required
<PAGE> 2
of him by the Chief Executive Officer of MIIX Group. The Employee agrees that,
if requested, he shall serve as an officer of the Company and/or of any
affiliate, without additional compensation. The Employee shall have the power
and authority as shall reasonably be required to enable him to perform his
duties under this Agreement in an efficient manner. The Employee agrees to
perform the duties and responsibilities called for hereunder to the best of his
ability and to devote his full time, energies and skills to such duties and to
the promotion of the business and interests of the Company and any affiliate.
The Employee may participate in charitable and similar activities, may be a
director of a company that does not compete with the Company or any affiliate
(which shall not include a "competitor" as defined by Section 5.1 of this
Agreement) and may have business interests in passive investments which, from
time to time, may require portions of his time, but such activities shall be
performed in a manner consistent with his obligations hereunder.
2. COMPENSATION AND OTHER BENEFITS.
2.1. BASE SALARY. The Company shall pay to the Employee for
the performance of his duties hereunder, an initial base salary of $250,000 per
annum (the "Base Salary"), payable in accordance with the Company's normal
payroll practices. Thereafter, the amount of the Base Salary may be reviewed and
adjusted as appropriate by the Board of Directors of MIIX Group, taking into
account the recommendation of the Chief Executive Officer, in accordance with
executive compensation review practices.
2.2. BONUS. The Employee shall be eligible to receive an
annual bonus pursuant to MIIX Group's Cash Incentive Plan, or similar plans
which may be in effect from
-2-
<PAGE> 3
time to time, at the discretion of the Board of Directors of MIIX Group, based
on the Company's and the Employee's achievement of goals and objectives
established by the Board on an annual basis. The Board shall use its reasonable
judgment in determining whether such goals and objectives have been met and the
amount, if any, of the bonus to be paid to the Employee. The Employee has been a
participant in the Cash Incentive Plan for the entire 1999 calendar year and
shall receive an annual bonus for 1999 pursuant to the terms of the Cash
Incentive Plan as approved by the Board of Directors of MIIX Group. It is
anticipated that any bonus will be paid on or before March 31 of the succeeding
year.
2.3. STOCK OPTIONS. The Employee shall be entitled to
participate in MIIX Group's Long Term Incentive Equity Plan, or similar plans
which may be in effect from time to time for executives of the Company. The
grant of any options to purchase shares of common stock of MIIX Group under the
Long Term Incentive Equity Plan shall be at the sole discretion of the Board of
Directors of MIIX Group and shall be based on the achievement of performance
goals established by the Board.
2.4. DEFERRED COMPENSATION. The Employee shall be eligible to
participate in the Company's Deferred Compensation Plan, or similar plans which
may be in effect from time to time, by which the Employee is permitted to defer
compensation and receive benefits in a future year in accordance with the terms
of the Deferred Compensation Plan. The Employee and the Company shall,
simultaneous with the execution of this Agreement, execute the Deferred
Compensation Plan, a copy of which is attached hereto as Exhibit A.
-3-
<PAGE> 4
2.5. EMPLOYEE BENEFITS. During the term of this Agreement, the
Employee shall be entitled to participate in all of the benefit programs
provided to similar employees of the Company, including, without limitation, all
medical, disability, dental and life insurance benefits, retirement programs,
incentive compensation plans, automobile expense reimbursement programs and
other employee benefit programs now in existence or hereafter adopted by the
Company, as such plans, programs, practices or policies may be in effect from
time to time.
2.6. VACATION. In addition to such holidays, sick leave and
other time off as are established by the policies of the Company, the Employee
shall be entitled to four weeks of vacation in accordance with the Company's
vacation policy for executives, as in effect from time to time, during which his
compensation shall be paid, provided, however, that the Employee may not take
more than two consecutive weeks of vacation without the prior approval of the
Chief Executive Officer of MIIX Group. Unused vacation time can be carried over
only in accordance with Company policy up to a maximum of three weeks.
2.7. REIMBURSEMENT OF EXPENSES. The Company shall reimburse
the Employee for all reasonable expenses incurred by the Employee in connection
with his employment hereunder, provided, however, that such expenses were
incurred in conformance with the policies of the Company, as established from
time to time, and the Employee submits detailed vouchers and other records
reasonably required by the Company in support of the amount and nature of such
expenses.
-4-
<PAGE> 5
2.8. TAXES AND WITHHOLDING. All compensation payable and other
benefits provided under this Agreement shall be subject to customary withholding
for income, F.I.C.A. and other employment taxes.
2.9. PHYSICAL EXAMINATION. The Employee shall submit to a
physical examination by a qualified physician on an annual basis which shall be
paid for by the Company and the results of such examination shall be made
available to the Company.
3. TERMINATION OF EMPLOYMENT.
3.1. DEATH OF THE EMPLOYEE. The Employee's employment under
this Agreement shall terminate immediately upon the Employee's death and the
Employee's estate (or his beneficiary as may be appropriate) shall be entitled
to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused accrued vacation time (up to a maximum of
three weeks) through the date of his death, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the date of his death under any employee
benefit plan of MIIX Group or its affiliates in which the Employee
participates.
3.2. DISABILITY OF EMPLOYEE. If the Employee, in the
reasonable opinion of the Company, is unable to perform his duties under this
Agreement by reason of incapacity, either physical or mental, as determined in
accordance with the MIIX Group of Companies Long Term Disability Group Benefit
Plan (the "LTD Plan"), or similar plan which may be in
-5-
<PAGE> 6
effect from time to time, the Company shall have the right to terminate the
Employee's employment upon written notice to the Employee, whereupon such
termination shall be effective as of the date specified in such notice (the
"Termination Date") and the Company shall have no further obligations under this
Agreement, except the obligation to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other applicable severance payments provided
for in Section 4 hereof, and
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
If the Company determines not to terminate the Employee's employment in
the event of a disability as allowed under this Section 3.2, the Company shall
continue to pay Base Salary to the Employee for a period of up to ninety days,
and shall pay the difference between Base Salary and benefits paid to the
Employee under the LTD Plan for a period of up to six months thereafter, paid in
accordance with the Company's normal payroll practices, while the Employee is
not working. If the Employee, in the reasonable opinion of the Company,
-6-
<PAGE> 7
remains disabled at the end of such nine month period, his employment shall be
deemed terminated and he shall receive the benefits provided for in this Section
3.2.
3.3. TERMINATION FOR CAUSE.
1. For purposes of this Agreement, "for cause" shall mean the
termination of the Employee's employment with the Company as a result of any of
the following:
(1) the willful engaging by the Employee in conduct
which is materially injurious to or contrary to the best interests of
the Company, monetarily or otherwise;
(2) the willful failure by the Employee to perform
such duties as may be delegated or assigned to the Employee by the
Chief Executive Officer of MIIX Group;
(3) the willful failure by the Employee to follow the
directives or instructions of the Chief Executive Officer of MIIX
Group;
(4) the repeated and consistent failure of the
Employee to be present at work and devote his full time best efforts to
the performance of his duties under this Agreement, except as set forth
above in connection with the Employee's disability;
(5) gross negligence in the performance of his duties
on behalf of the Company;
(6) the Employee's conviction of, or plea of no
contest to, a felony or any crime involving moral turpitude; or
-7-
<PAGE> 8
(7) the commission by the Employee of an act, or the
omission of an act, that would constitute a material breach of this
Agreement.
2. The Employee's employment under this Agreement shall terminate
immediately upon written notice from the Company that the Company is terminating
the Employee for cause. Upon the Company's termination of the Employee for
cause, the Company shall be required to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates.
3.4. TERMINATION WITHOUT CAUSE. The Company may terminate the
Employee's employment without cause under this Agreement at any time upon
written notice to the Employee specifying the date of termination. In the event
of a termination without cause, the Company shall make payments to the Employee
in accordance with Section 4 below.
3.5. TERMINATION FOLLOWING A CHANGE IN CONTROL.
-8-
<PAGE> 9
1. In the event that the Company terminates the Employee's employment
during the six month period following a Change in Control (as hereinafter
defined), the Employee shall be entitled to receive:
(1) the accrued and unpaid balance of his Base
Salary,
(2) Base Salary for the 24 month period following the
Termination Date, paid, at the option of the Company, in accordance
with the Company's normal payroll practices or in a lump sum,
(3) unreimbursed expenses,
(4) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under the terms of
any employee benefit plan of the Company or its affiliates in which the
Employee participates, and
(6) for the 24 month period following the Termination
Date, coverage for the Employee and his dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates.
The Company shall also be responsible for any tax penalty which may be
imposed upon the Employee in connection with the payments to be made under this
Section 3.5.
2. For purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:
-9-
<PAGE> 10
(1) the acquisition in one or more transactions by any
"Person" (as such term is used for purposes of Section 13(d) or Section 14(d) of
the Securities Exchange Act of 1934, as amended) but excluding, for this
purpose, MIIX Group or its affiliates or any employee benefit plan of MIIX Group
or its affiliates, of "Beneficial Ownership" (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of thirty-five percent
(35%) or more of the combined voting power of MIIX Group's then outstanding
voting securities.
(2) the individuals who, as of the date hereof, constitute the
Board of Directors of MIIX Group (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that if the
election, or nomination for election by MIIX Group's shareholders, of any new
director was approved by a vote of at least a majority of the Incumbent Board,
such new director shall be considered as a member of the Incumbent Board, and
provided further that any reductions in the size of the Board that are
instituted voluntarily by the Incumbent Board shall not constitute a Change in
Control, and after any such reduction the "Incumbent Board" shall mean the Board
as so reduced;
(3) a merger or consolidation involving MIIX Group if the
shareholders of MIIX Group, immediately before such merger or consolidation, do
not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
merger or consolidation or a complete liquidation or dissolution of MIIX Group
or a sale or other disposition of all or substantially all of the assets of MIIX
Group; or
-10-
<PAGE> 11
(4) the acceptance by the shareholders of MIIX Group of shares
in a share exchange if the shareholders of MIIX Group, immediately before such
share exchange, do not own, directly or indirectly, immediately following such
share exchange, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
share exchange.
3.6. TERMINATION BY THE EMPLOYEE. The Employee may terminate
his employment under this Agreement at any time upon not less than thirty days
prior written notice to the Company. The Company may, however, elect to
accelerate the date of termination. In the event of such a termination, the
Company shall be required to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
-11-
<PAGE> 12
4. SEVERANCE.
4.1. PAYMENTS BY THE COMPANY. In the event that the Company
terminates the Employee's employment without cause, or in the event that the
Company determines to terminate the Employee's employment under Section 3.2
hereof, the Employee shall be entitled to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates,
(5) for the 12 month period following the Termination
Date, coverage for the Employee and his dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates, and
(6) Base Salary, paid in accordance with the
Company's normal payroll practices, commencing on the Termination Date
and ending on the earlier of: (1) 12 months from the Termination Date
or (2) the date on which the Employee obtains full-time employment with
any third party or as an independent consultant, whichever is earlier.
-12-
<PAGE> 13
Except during any period of disability as described in Section 3.2, the
Employee shall have a duty to undertake to secure new employment immediately
upon termination of employment with the Company. The Employee shall immediately
notify the Company in writing of such employment and any payments received by
the Employee pursuant to this Section 4.1 subsequent to the commencement of such
employment shall be promptly remitted to the Company. Notwithstanding the
foregoing, in the event that the Employee obtains full-time employment with any
third party or as an independent consultant at an annual amount lower than his
Base Salary at the Company on the date of his termination, the Company shall pay
to the Employee an amount equal to such difference from the date on which the
Employee obtains such full-time employment for a period not to exceed 12 months
from the Termination Date.
4.2. RESIGNATIONS FROM POSITIONS. The Employee specifically
agrees that upon his termination of employment with the Company, whether
voluntary or involuntary, his position as an officer or as a member of the Board
of Directors of MIIX Group, MIIX Insurance Company, Underwriter or any affiliate
shall cease and this Agreement shall constitute notice of the Employee's
resignation in such regard.
-13-
<PAGE> 14
5. NON-COMPETITION.
5.1. DEFINITION OF "COMPETITOR". For purposes of this
Agreement, "competitor" shall mean any company engaged in or about to be engaged
in the business of selling or marketing a product or service in the medical
professional liability insurance business which is similar to any product or
service sold or marketed or about to be sold or marketed by the Company or any
affiliate and the successors thereof, respectively.
5.2. TERM OF NON-COMPETITION. The Employee agrees that for so
long as he is employed by the Company and for a period of one year after the
termination thereof, whether voluntary or involuntary, he will not, directly or
indirectly, whether for compensation or not, own, manage, operate, join, control
or participate in, or be connected as a stockholder, officer, employee, partner,
creditor, guarantor, consultant, advisor or otherwise, with a competitor that is
engaged in or about to be engaged in business in any geographic area where the
Company or any affiliate are doing business. The foregoing shall not be
construed, however, as preventing the Employee from investing his assets in such
form or manner as will not require services on the part of the Employee in the
operations of the businesses in which such investments are made and provided
that any such business is publicly-owned and the interest of the Employee
therein is solely that of a passive investor owning not more than five (5%)
percent of the outstanding equity securities of any such business.
5.3. SOLICITATION OF COMPANY CLIENTS. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, call upon or solicit
-14-
<PAGE> 15
insurance or consulting business from any person or entity who is or was a
client of the Company or any affiliate at any time within a period of twelve
months immediately prior to the Termination Date, or any broker, agent or
consultant of such person or entity, without the express written consent of the
Company.
5.4. SOLICITATION OF COMPANY EMPLOYEES. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, hire, retain or engage as a director, officer, employee, agent,
consultant, advisor or in any other capacity any person or persons who are
employed by the Company or any affiliate or who were at any time within a period
of six months immediately prior to the Termination Date employed by the Company
or any affiliate or otherwise interfere with the relationship between such
persons and the Company or its affiliates, without the express written consent
of the Company.
5.5. REMEDIES. The parties acknowledge and agree that the
Employee's services hereunder are special, unique, unusual and extraordinary,
giving them peculiar value, the loss of which cannot be reasonably or adequately
compensated solely by damages, and in the event that the Employee breaches any
provision of this Section 5, the Company shall be entitled to equitable relief
by way of injunction or otherwise. In the event that the period of time or
geographic area herein specified should be adjudged unreasonable in any court
proceeding, then the period of time shall be reduced by such number of months or
the geographic area shall be reduced by elimination of such portion thereof as
deemed unreasonable, so that this Agreement may be enforced during such period
of time and in such
-15-
<PAGE> 16
geographic area as is adjudged to be reasonable. In the event that the Employee
breaches any of the provisions of this Section 5, the Company also shall be
entitled to cease all payments and benefits under the terms of this Agreement
and to pursue all remedies which the Company might have including, but not
limited to, those contained in this Agreement.
6. CONFIDENTIALITY.
6.1. DEFINITION OF "CONFIDENTIAL INFORMATION". For the
purposes of this Agreement, "Confidential Information" shall mean all
information about the Company or any affiliate relating to any of their products
or services or any phase of their operations, including, without limitation,
business plans and strategies, trade secrets, marketing and distribution
information, business results, underwriting information and methods, identities
of insureds and claims defense and recovery methods and procedures not generally
known through legitimate means to any of its competitors, with which the
Employee becomes acquainted during the term of his employment.
6.2. CONFIDENTIAL TREATMENT. During the time of employment, or
at any time thereafter, the Employee shall not disclose or make available to any
person or entity any Confidential Information without the express prior written
authorization of the Company. All records, files, materials and Confidential
Information obtained by the Employee in the course of his employment with the
Company are confidential and proprietary and shall remain the exclusive property
of the Company or its affiliates, as the case may be. Upon the termination of
the Employee's employment with the Company or any affiliate, or at any time upon
the request of the Company, the Employee (or his heirs or personal
representatives, as applicable)
-16-
<PAGE> 17
shall deliver to the Company (1) all documents and materials containing
Confidential Information relating to the business or affairs of the Company or
its affiliates, or their customers or clients, and (2) all other documents,
materials and other property belonging to the Company or its affiliates, or
their customers or clients that are in the possession or under the control of
the Employee.
6.3. REMEDIES. The parties acknowledge and agree that
Confidential Information is vital to the operations of the Company and its
affiliates and that the loss suffered by breach of any of the provisions of this
Section 6 cannot be reasonably or adequately compensated for by damages, and in
the event that the Employee breaches this Section, the Company shall be entitled
to equitable relief by way of injunction or otherwise. In the event that the
Employee breaches any of the provisions of this Section 6, the Company also
shall be entitled to cease all payments and benefits under the terms of this
Agreement and shall be entitled to pursue all remedies which the Company might
have including, but not limited to, those contained in this Agreement.
7. SEVERABILITY. The terms of this Agreement and each Paragraph and
Section hereof shall be considered severable and the invalidity or
unenforceability of any part thereof shall not affect the validity or
enforceability of the remaining portions or provisions hereof.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and delivered by mail or overnight
delivery service, to his residence, in the case of the Employee or to its
principal office in the case of the Company.
-17-
<PAGE> 18
9. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon its successors and
assigns. Neither this Agreement nor any rights or interests herein or created
hereby may be assigned or otherwise transferred voluntarily or involuntarily by
the Employee.
10. WAIVER. The waiver by the Company or the Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
11. APPLICABLE LAW. This Agreement shall be interpreted and construed
under the laws of the State of New Jersey without reference to principles of
conflicts of laws.
12. JURISDICTION. Employee and the Company agree to submit to the
jurisdiction of the federal and state courts in New Jersey for purposes of the
enforcement of or any dispute concerning this Agreement and that any proceeding
to enforce or involving any dispute concerning this Agreement shall be brought
exclusively in the federal or state courts in New Jersey.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous agreements with respect to the subject matter hereof. This
Agreement may not be changed, altered or amended except by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
-18-
<PAGE> 19
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE MIIX GROUP, INCORPORATED
By:__________________________________
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:__________________________________
_____________________________________
JOSEPH J. HUDSON
-19-
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 15, 1999,
among THE MIIX GROUP, INCORPORATED, a Delaware corporation ("MIIX Group"), NEW
JERSEY STATE MEDICAL UNDERWRITERS, INC., a New Jersey corporation
("Underwriter"), each having offices at Two Princess Road, Lawrenceville, New
Jersey (together, the "Company") and LISA KRAMER (the "Employee"), residing at
18 Colts Neck Drive, Newtown, Pennsylvania 18940.
WITNESSETH:
WHEREAS, MIIX Group is the parent company of Underwriter owning all of
the issued and outstanding common stock of Underwriter; and
WHEREAS, the Company deems it to be in its best interest to secure and
retain for the Company the services of the Employee and the Employee desires to
work for the Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and intending to be legally bound hereby, the
parties hereto agree, as follows:
1. POSITION AND DUTIES. The Employee is engaged hereunder as Executive
Vice President of MIIX Group and agrees to perform the duties and services
incident to that position, or such other or further duties and services of a
similar nature as may be required of her by the Chief Executive Officer of MIIX
Group. The Employee agrees that, if
<PAGE> 2
requested, she shall serve as an officer of the Company and/or of any affiliate,
without additional compensation. The Employee shall have the power and authority
as shall reasonably be required to enable her to perform her duties under this
Agreement in an efficient manner. The Employee agrees to perform the duties and
responsibilities called for hereunder to the best of her ability and to devote
her full time, energies and skills to such duties and to the promotion of the
business and interests of the Company and any affiliate. The Employee may
participate in charitable and similar activities, may be a director of a company
that does not compete with the Company or any affiliate (which shall not include
a "competitor" as defined by Section 5.1 of this Agreement) and may have
business interests in passive investments which, from time to time, may require
portions of her time, but such activities shall be performed in a manner
consistent with her obligations hereunder.
2. COMPENSATION AND OTHER BENEFITS.
2.1. BASE SALARY. The Company shall pay to the Employee for
the performance of her duties hereunder, an initial base salary of $250,000 per
annum (the "Base Salary"), payable in accordance with the Company's normal
payroll practices. Thereafter, the amount of the Base Salary may be reviewed and
adjusted as appropriate by the Board of Directors of MIIX Group, taking into
account the recommendation of the Chief Executive Officer, in accordance with
executive compensation review practices.
2.2. BONUS. Effective as of the date of this Agreement, the
Employee shall be eligible to receive an annual bonus pursuant to MIIX Group's
Cash Incentive Plan, or similar plans which may be in effect from time to time,
at the discretion of the Board of Directors of MIIX Group, based on the
Company's and the Employee's achievement of goals
-2-
<PAGE> 3
and objectives established by the Board on an annual basis. The Board shall use
its reasonable judgment in determining whether such goals and objectives have
been met and the amount, if any, of the bonus to be paid to the Employee. The
Employee shall receive a prorated bonus pursuant to the terms of the Cash
Incentive Plan for the period December 15, 1999 through December 31, 1999 as
approved by the Board of Directors of MIIX Group. The Employee may be paid a
discretionary bonus outside of the Cash Incentive Plan for the period January 1,
1999 through December 15, 1999. It is anticipated that any bonus will be paid on
or before March 31 of the succeeding year.
2.3. STOCK OPTIONS. The Employee shall be entitled to
participate in MIIX Group's Long Term Incentive Equity Plan, or similar plans
which may be in effect from time to time for executives of the Company. The
Employee is hereby granted, effective December 15, 1999, a Non-Qualified Stock
Option, as defined in the Long Term Incentive Equity Plan, to purchase 40,000
shares of common stock of MIIX Group pursuant to and which shall vest in
accordance with the terms of the Long Term Incentive Equity Plan Non-Qualified
Stock Option Agreement, a copy of which is attached as Exhibit A (the "Stock
Option Agreement). The Employee shall be entitled to receive dividend
equivalents on such option shares as dividends are declared and paid on the
common stock of MIIX Group, provided, however, that any such dividend
equivalents, and the interest earned thereon, shall be forfeited as to any
unvested option shares that are forfeited by the Employee pursuant to the terms
of the Long Term Incentive Equity Plan. The Employee and MIIX Group shall,
simultaneous with the execution of this Agreement, execute the Stock Option
Agreement. The grant of any additional options to purchase shares of common
stock of MIIX Group under the
-3-
<PAGE> 4
Long Term Incentive Equity Plan shall be at the sole discretion of the Board of
Directors of MIIX Group and shall be based on the achievement of performance
goals established by the Board.
2.4. STOCK PURCHASE AND LOAN. The Employee shall participate
in MIIX Group's Stock Purchase and Loan Program, by which the Employee shall
purchase $500,000 of MIIX Group common stock, rounded to the nearest whole
share, as of the date of this Agreement and MIIX Group shall loan to the
Employee the funds necessary to do so. The Employee and MIIX Group shall,
simultaneous with the execution of this Agreement, execute the Stock Purchase
and Loan Agreement, a copy of which is attached hereto as Exhibit B.
2.5. DEFERRED COMPENSATION. The Employee shall be eligible to
participate in the Company's Deferred Compensation Plan, or similar plans which
may be in effect from time to time, by which the Employee is permitted to defer
compensation and receive benefits in a future year in accordance with the terms
of the Deferred Compensation Plan. The Employee and the Company shall,
simultaneous with the execution of this Agreement, execute the Deferred
Compensation Plan, a copy of which is attached hereto as Exhibit C.
2.6. EMPLOYEE BENEFITS. During the term of this Agreement, the
Employee shall be entitled to participate in all of the benefit programs
provided to similar employees of the Company, including, without limitation, all
medical, disability, dental and life insurance benefits, retirement programs,
incentive compensation plans, automobile expense reimbursement programs and
other employee benefit programs now in existence or hereafter adopted by the
Company, as such plans, programs, practices or policies may be in effect from
time to time.
-4-
<PAGE> 5
2.7. VACATION. In addition to such holidays, sick leave and
other time off as are established by the policies of the Company, the Employee
shall be entitled to four weeks of vacation in accordance with the Company's
vacation policy for executives, as in effect from time to time, during which her
compensation shall be paid, provided, however, that the Employee may not take
more than two consecutive weeks of vacation without the prior approval of the
Chief Executive Officer of MIIX Group. Unused vacation time can be carried over
only in accordance with Company policy up to a maximum of three weeks.
2.8. REIMBURSEMENT OF EXPENSES. The Company shall reimburse
the Employee for all reasonable expenses incurred by the Employee in connection
with her employment hereunder, provided, however, that such expenses were
incurred in conformance with the policies of the Company, as established from
time to time, and the Employee submits detailed vouchers and other records
reasonably required by the Company in support of the amount and nature of such
expenses.
2.9. TAXES AND WITHHOLDING. All compensation payable and other
benefits provided under this Agreement shall be subject to customary withholding
for income, F.I.C.A. and other employment taxes.
2.10. PHYSICAL EXAMINATION. The Employee shall submit to a
physical examination by a qualified physician on an annual basis which shall be
paid for by the Company and the results of such examination shall be made
available to the Company.
-5-
<PAGE> 6
3. TERMINATION OF EMPLOYMENT.
3.1. DEATH OF THE EMPLOYEE. The Employee's employment under
this Agreement shall terminate immediately upon the Employee's death and the
Employee's estate (or her beneficiary as may be appropriate) shall be entitled
to receive:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused accrued vacation time (up to a maximum of
three weeks) through the date of her death, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the date of her death under any employee
benefit plan of MIIX Group or its affiliates in which the Employee
participates.
3.2. DISABILITY OF EMPLOYEE. If the Employee, in the
reasonable opinion of the Company, is unable to perform his duties under this
Agreement by reason of incapacity, either physical or mental, as determined in
accordance with the MIIX Group of Companies Long Term Disability Group Benefit
Plan (the "LTD Plan"), or similar plan which may be in effect from time to time,
the Company shall have the right to terminate the Employee's employment upon
written notice to the Employee, whereupon such termination shall be effective as
of the date specified in such notice (the "Termination Date") and the Company
shall have no further obligations under this Agreement, except the obligation to
pay to the Employee:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
-6-
<PAGE> 7
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other applicable severance payments provided
for in Section 4 hereof, and
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
If the Company determines not to terminate the Employee's employment in
the event of a disability as allowed under this Section 3.2, the Company shall
continue to pay Base Salary to the Employee for a period of up to ninety days,
and shall pay the difference between Base Salary and benefits paid to the
Employee under the LTD Plan for a period of up to six months thereafter, paid in
accordance with the Company's normal payroll practices, while the Employee is
not working. If the Employee, in the reasonable opinion of the Company, remains
disabled at the end of such nine month period, her employment shall be deemed
terminated and she shall receive the benefits provided for in this Section 3.2.
3.3. TERMINATION FOR CAUSE.
1. For purposes of this Agreement, "for cause" shall mean the
termination of the Employee's employment with the Company as a result of any of
the following:
(1) the willful engaging by the Employee in conduct
which is materially injurious to or contrary to the best interests of
the Company, monetarily or otherwise;
-7-
<PAGE> 8
(2) the willful failure by the Employee to perform
such duties as may be delegated or assigned to the Employee by the
Chief Executive Officer of MIIX Group;
(3) the willful failure by the Employee to follow the
directives or instructions of the Chief Executive Officer of MIIX
Group;
(4) the repeated and consistent failure of the
Employee to be present at work and devote her full time best efforts to
the performance of her duties under this Agreement, except as set forth
above in connection with the Employee's disability;
(5) gross negligence in the performance of her duties
on behalf of the Company;
(6) the Employee's conviction of, or plea of no
contest to, a felony or any crime involving moral turpitude; or
(7) the commission by the Employee of an act, or the
omission of an act, that would constitute a material breach of this
Agreement.
2. The Employee's employment under this Agreement shall terminate
immediately upon written notice from the Company that the Company is terminating
the Employee for cause. Upon the Company's termination of the Employee for
cause, the Company shall be required to pay to the Employee:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date, and
-8-
<PAGE> 9
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates.
3.4. TERMINATION WITHOUT CAUSE. The Company may terminate the
Employee's employment without cause under this Agreement at any time upon
written notice to the Employee specifying the date of termination. In the event
of a termination without cause, the Company shall make payments to the Employee
in accordance with Section 4 below.
3.5. TERMINATION FOLLOWING A CHANGE IN CONTROL.
1. In the event that the Company terminates the Employee's employment
during the six month period following a Change in Control (as hereinafter
defined), the Employee shall be entitled to receive:
(1) the accrued and unpaid balance of her Base
Salary,
(2) Base Salary for the 24 month period following the
Termination Date, paid, at the option of the Company, in accordance
with the Company's normal payroll practices or in a lump sum,
(3) unreimbursed expenses,
(4) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under the terms of
any employee benefit plan of the Company or its affiliates in which the
Employee participates, and
-9-
<PAGE> 10
(6) for the 24 month period following the Termination
Date, coverage for the Employee and her dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates.
The Company shall also be responsible for any tax penalty which may be
imposed upon the Employee in connection with the payments to be made under this
Section 3.5.
2. For purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:
(1) the acquisition in one or more transactions by any
"Person" (as such term is used for purposes of Section 13(d) or Section 14(d) of
the Securities Exchange Act of 1934, as amended) but excluding, for this
purpose, MIIX Group or its affiliates or any employee benefit plan of MIIX Group
or its affiliates, of "Beneficial Ownership" (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of thirty-five percent
(35%) or more of the combined voting power of MIIX Group's then outstanding
voting securities.
(2) the individuals who, as of the date hereof, constitute the
Board of Directors of MIIX Group (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that if the
election, or nomination for election by MIIX Group's shareholders, of any new
director was approved by a vote of at least a majority of the Incumbent Board,
such new director shall be considered as a member of the Incumbent Board, and
provided further that any reductions in the size of the Board that are
instituted voluntarily by the Incumbent Board shall not constitute a Change in
Control, and after any such reduction the "Incumbent Board" shall mean the Board
as so reduced;
-10-
<PAGE> 11
(3) a merger or consolidation involving MIIX Group if the
shareholders of MIIX Group, immediately before such merger or consolidation, do
not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
merger or consolidation or a complete liquidation or dissolution of MIIX Group
or a sale or other disposition of all or substantially all of the assets of MIIX
Group; or
(4) the acceptance by the shareholders of MIIX Group of shares
in a share exchange if the shareholders of MIIX Group, immediately before such
share exchange, do not own, directly or indirectly, immediately following such
share exchange, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
share exchange.
3.6. TERMINATION BY THE EMPLOYEE. The Employee may terminate
her employment under this Agreement at any time upon not less than thirty days
prior written notice to the Company. The Company may, however, elect to
accelerate the date of termination. In the event of such a termination, the
Company shall be required to pay to the Employee:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
-11-
<PAGE> 12
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or its affiliates in which the Employee
participates.
4. SEVERANCE.
4.1. PAYMENTS BY THE COMPANY. In the event that the Company
terminates the Employee's employment without cause, or in the event that the
Company determines to terminate the Employee's employment under Section 3.2
hereof, the Employee shall be entitled to receive:
(1) the balance of her accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any employee
benefit plan of the Company or any affiliate in which the Employee
participates,
(5) for the 12 month period following the Termination
Date, coverage for the Employee and her dependents (if applicable)
under the standard health and life benefits plans of the Company in
which the Employee participates, and
(6) Base Salary, paid in accordance with the
Company's normal payroll practices, commencing on the Termination Date
and ending on the earlier of: (1) 12 months from the Termination Date
or (2) the date on which the Employee
-12-
<PAGE> 13
obtains full-time employment with any third party or as an independent
consultant, whichever is earlier.
Except during any period of disability as described in Section 3.2, the
Employee shall have a duty to undertake to secure new employment immediately
upon termination of employment with the Company. The Employee shall immediately
notify the Company in writing of such employment and any payments received by
the Employee pursuant to this Section 4.1 subsequent to the commencement of such
employment shall be promptly remitted to the Company. Notwithstanding the
foregoing, in the event that the Employee obtains full-time employment with any
third party or as an independent consultant at an annual amount lower than her
Base Salary at the Company on the date of her termination, the Company shall pay
to the Employee an amount equal to such difference from the date on which the
Employee obtains such full-time employment for a period not to exceed 12 months
from the Termination Date.
4.2. RESIGNATIONS FROM POSITIONS. The Employee specifically
agrees that upon her termination of employment with the Company, whether
voluntary or involuntary, her position as an officer or as a member of the Board
of Directors of MIIX Group, MIIX Insurance Company, Underwriter or any affiliate
shall cease and this Agreement shall constitute notice of the Employee's
resignation in such regard.
-13-
<PAGE> 14
5. NON-COMPETITION.
5.1. DEFINITION OF "COMPETITOR". For purposes of this
Agreement, "competitor" shall mean any company engaged in or about to be engaged
in the business of selling or marketing a product or service in the medical
professional liability insurance business which is similar to any product or
service sold or marketed or about to be sold or marketed by the Company or any
affiliate and the successors thereof, respectively.
5.2. TERM OF NON-COMPETITION. The Employee agrees that for so
long as she is employed by the Company and for a period of one year after the
termination thereof, whether voluntary or involuntary, she will not, directly or
indirectly, whether for compensation or not, own, manage, operate, join, control
or participate in, or be connected as a stockholder, officer, employee, partner,
creditor, guarantor, consultant, advisor or otherwise, with a competitor that is
engaged in or about to be engaged in business in any geographic area where the
Company or any affiliate are doing business. The foregoing shall not be
construed, however, as preventing the Employee from investing her assets in such
form or manner as will not require services on the part of the Employee in the
operations of the businesses in which such investments are made and provided
that any such business is publicly-owned and the interest of the Employee
therein is solely that of a passive investor owning not more than five (5%)
percent of the outstanding equity securities of any such business.
5.3. SOLICITATION OF COMPANY CLIENTS. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, call upon or solicit
-14-
<PAGE> 15
insurance or consulting business from any person or entity who is or was a
client of the Company or any affiliate at any time within a period of twelve
months immediately prior to the Termination Date, or any broker, agent or
consultant of such person or entity, without the express written consent of the
Company.
5.4. SOLICITATION OF COMPANY EMPLOYEES. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, hire, retain or engage as a director, officer, employee, agent,
consultant, advisor or in any other capacity any person or persons who are
employed by the Company or any affiliate or who were at any time within a period
of six months immediately prior to the Termination Date employed by the Company
or any affiliate or otherwise interfere with the relationship between such
persons and the Company or its affiliates, without the express written consent
of the Company.
5.5. REMEDIES. The parties acknowledge and agree that the
Employee's services hereunder are special, unique, unusual and extraordinary,
giving them peculiar value, the loss of which cannot be reasonably or adequately
compensated solely by damages, and in the event that the Employee breaches any
provision of this Section 5, the Company shall be entitled to equitable relief
by way of injunction or otherwise. In the event that the period of time or
geographic area herein specified should be adjudged unreasonable in any court
proceeding, then the period of time shall be reduced by such number of months or
the geographic area shall be reduced by elimination of such portion thereof as
deemed unreasonable, so that this Agreement may be enforced during such period
of time and in such geographic area as is adjudged to be reasonable. In the
event that the Employee breaches any
-15-
<PAGE> 16
of the provisions of this Section 5, the Company also shall be entitled to cease
all payments and benefits under the terms of this Agreement and to pursue all
remedies which the Company might have including, but not limited to, those
contained in this Agreement.
6. CONFIDENTIALITY.
6.1. DEFINITION OF "CONFIDENTIAL INFORMATION". For the
purposes of this Agreement, "Confidential Information" shall mean all
information about the Company or any affiliate relating to any of their products
or services or any phase of their operations, including, without limitation,
business plans and strategies, trade secrets, marketing and distribution
information, business results, underwriting information and methods, identities
of insureds and claims defense and recovery methods and procedures not generally
known through legitimate means to any of its competitors, with which the
Employee becomes acquainted during the term of her employment.
6.2. CONFIDENTIAL TREATMENT. During the time of employment, or
at any time thereafter, the Employee shall not disclose or make available to any
person or entity any Confidential Information without the express prior written
authorization of the Company. All records, files, materials and Confidential
Information obtained by the Employee in the course of her employment with the
Company are confidential and proprietary and shall remain the exclusive property
of the Company or its affiliates, as the case may be. Upon the termination of
the Employee's employment with the Company or any affiliate, or at any time upon
the request of the Company, the Employee (or her heirs or personal
representatives, as applicable) shall deliver to the Company (1) all documents
and materials containing Confidential Information relating to the business or
affairs of the Company or its affiliates, or their
-16-
<PAGE> 17
customers or clients, and (2) all other documents, materials and other property
belonging to the Company or its affiliates, or their customers or clients that
are in the possession or under the control of the Employee.
6.3. REMEDIES. The parties acknowledge and agree that
Confidential Information is vital to the operations of the Company and its
affiliates and that the loss suffered by breach of any of the provisions of this
Section 6 cannot be reasonably or adequately compensated for by damages, and in
the event that the Employee breaches this Section, the Company shall be entitled
to equitable relief by way of injunction or otherwise. In the event that the
Employee breaches any of the provisions of this Section 6, the Company also
shall be entitled to cease all payments and benefits under the terms of this
Agreement and shall be entitled to pursue all remedies which the Company might
have including, but not limited to, those contained in this Agreement.
7. SEVERABILITY. The terms of this Agreement and each Paragraph and
Section hereof shall be considered severable and the invalidity or
unenforceability of any part thereof shall not affect the validity or
enforceability of the remaining portions or provisions hereof.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and delivered by mail or overnight
delivery service, to her residence, in the case of the Employee or to its
principal office in the case of the Company.
9. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon its successors and
assigns. Neither this Agreement nor any rights or interests herein or created
hereby may be assigned or otherwise transferred voluntarily or involuntarily by
the Employee.
-17-
<PAGE> 18
10. WAIVER. The waiver by the Company or the Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
11. APPLICABLE LAW. This Agreement shall be interpreted and construed
under the laws of the State of New Jersey without reference to principles of
conflicts of laws.
12. JURISDICTION. Employee and the Company agree to submit to the
jurisdiction of the federal and state courts in New Jersey for purposes of the
enforcement of or any dispute concerning this Agreement and that any proceeding
to enforce or involving any dispute concerning this Agreement shall be brought
exclusively in the federal or state courts in New Jersey.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous agreements with respect to the subject matter hereof. This
Agreement may not be changed, altered or amended except by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE MIIX GROUP, INCORPORATED
By:__________________________________
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:__________________________________
_____________________________________
LISA KRAMER
-19-
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 15, 1999,
among THE MIIX GROUP, INCORPORATED, a Delaware corporation ("MIIX Group"), NEW
JERSEY STATE MEDICAL UNDERWRITERS, INC., a New Jersey corporation
("Underwriter"), each having offices at Two Princess Road, Lawrenceville, New
Jersey (together, the "Company") and THOMAS M. REDMAN, JR. (the "Employee"),
residing at 26 Elm Ridge Road, Pennington, New Jersey 08543.
WITNESSETH:
WHEREAS, MIIX Group is the parent company of Underwriter owning all of
the issued and outstanding common stock of Underwriter; and
WHEREAS, the Company deems it to be in its best interest to secure and
retain for the Company the services of the Employee and the Employee desires to
work for the Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and intending to be legally bound hereby, the
parties hereto agree, as follows:
1. POSITION AND DUTIES. The Employee is engaged hereunder as Senior
Vice President and Chief Financial Officer of MIIX Group and agrees to perform
the duties and services incident to that position, or such other or further
duties and services of a similar
<PAGE> 2
nature as may be required of him by the Chief Executive Officer of MIIX Group.
The Employee agrees that, if requested, he shall serve as an officer of the
Company and/or of any affiliate, without additional compensation. The Employee
shall have the power and authority as shall reasonably be required to enable him
to perform his duties under this Agreement in an efficient manner. The Employee
agrees to perform the duties and responsibilities called for hereunder to the
best of his ability and to devote his full time, energies and skills to such
duties and to the promotion of the business and interests of the Company and any
affiliate. The Employee may participate in charitable and similar activities,
may be a director of a company that does not compete with the Company or any
affiliate (which shall not include a "competitor" as defined by Section 5.1 of
this Agreement) and may have business interests in passive investments which,
from time to time, may require portions of his time, but such activities shall
be performed in a manner consistent with his obligations hereunder.
2. COMPENSATION AND OTHER BENEFITS.
2.1. BASE SALARY. The Company shall pay to the Employee for the
performance of his duties hereunder, an initial base salary of $225,000 per
annum (the "Base Salary"), payable in accordance with the Company's normal
payroll practices. Thereafter, the amount of the Base Salary may be reviewed and
adjusted as appropriate by the Board of Directors of MIIX Group, taking into
account the recommendation of the Chief Executive Officer, in accordance with
executive compensation review practices.
2.2. BONUS. The Employee shall be eligible to receive an annual bonus
pursuant to MIIX Group's Cash Incentive Plan, or similar plans which may be in
effect from
-2-
<PAGE> 3
time to time, at the discretion of the Board of Directors of MIIX Group, based
on the Company's and the Employee's achievement of goals and objectives
established by the Board on an annual basis. The Board shall use its reasonable
judgment in determining whether such goals and objectives have been met and the
amount, if any, of the bonus to be paid to the Employee. The Employee has been a
participant in the Cash Incentive Plan since September 15, 1999 and shall
receive a prorated bonus pursuant to the terms of the Cash Incentive Plan for
the period September 15, 1999 through December 31, 1999 as approved by the Board
of Directors of MIIX Group. The Employee may be paid a discretionary bonus
outside of the Cash Incentive Plan for the period January 1, 1999 through
September 14, 1999. It is anticipated that any bonus will be paid on or before
March 31 of the succeeding year.
2.3. STOCK OPTIONS. The Employee shall be entitled to participate in
MIIX Group's Long Term Incentive Equity Plan, or similar plans which may be in
effect from time to time for executives of the Company. The Employee is hereby
granted, effective December 15, 1999, a Non-Qualified Stock Option, as defined
in the Long Term Incentive Equity Plan, to purchase 10,000 shares of common
stock of MIIX Group pursuant to and which shall vest in accordance with the
terms of the Long Term Incentive Equity Plan Non-Qualified Stock Option
Agreement, a copy of which is attached as Exhibit A (the "Stock Option
Agreement"). The Employee shall be entitled to receive dividend equivalents on
such option shares as dividends are declared and paid on the common stock of
MIIX Group, provided, however, that any such dividend equivalents, and the
interest earned thereon, shall
-3-
<PAGE> 4
be forfeited as to any unvested option shares that are forfeited by the Employee
pursuant to the terms of the Long Term Incentive Equity Plan. The Employee and
MIIX Group shall, simultaneous with the execution of this Agreement, execute the
Stock Option Agreement. The grant of any additional options to purchase shares
of common stock of MIIX Group under the Long Term Incentive Equity Plan shall be
at the sole discretion of the Board of Directors of MIIX Group and shall be
based on the achievement of performance goals established by the Board.
2.4. STOCK PURCHASE AND LOAN. The Employee is currently a participant
in MIIX Group's Stock Purchase and Loan Program. The Employee shall, pursuant to
the Stock Purchase and Loan Program, purchase an additional $50,000 of MIIX
Group common stock, rounded to the nearest whole share, as of the date of this
Agreement and MIIX Group shall loan to the Employee the funds necessary to do
so. The Employee and MIIX Group shall, simultaneous with the execution of this
Agreement, execute the Stock Purchase and Loan Agreement, a copy of which is
attached hereto as Exhibit B.
2.5. DEFERRED COMPENSATION. The Employee shall be eligible to
participate in the Company's Deferred Compensation Plan, or similar plans which
may be in effect from time to time, by which the Employee is permitted to defer
compensation and receive benefits in a future year in accordance with the terms
of the Deferred Compensation Plan. The Employee and the Company shall,
simultaneous with the execution of this Agreement, execute the Deferred
Compensation Plan, a copy of which is attached hereto as Exhibit C.
-4-
<PAGE> 5
2.6. EMPLOYEE BENEFITS. During the term of this Agreement, the Employee
shall be entitled to participate in all of the benefit programs provided to
similar employees of the Company, including, without limitation, all medical,
disability, dental and life insurance benefits, retirement programs, incentive
compensation plans, automobile expense reimbursement programs and other employee
benefit programs now in existence or hereafter adopted by the Company, as such
plans, programs, practices or policies may be in effect from time to time.
2.7. VACATION. In addition to such holidays, sick leave and other time
off as are established by the policies of the Company, the Employee shall be
entitled to four weeks of vacation in accordance with the Company's vacation
policy for executives, as in effect from time to time, during which his
compensation shall be paid, provided, however, that the Employee may not take
more than two consecutive weeks of vacation without the prior approval of the
Chief Executive Officer of MIIX Group. Unused vacation time can be carried over
only in accordance with Company policy up to a maximum of three weeks.
2.8. REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all reasonable expenses incurred by the Employee in connection with
his employment hereunder, provided, however, that such expenses were incurred in
conformance with the policies of the Company, as established from time to time,
and the Employee submits detailed vouchers and other records reasonably required
by the Company in support of the amount and nature of such expenses.
-5-
<PAGE> 6
2.9. TAXES AND WITHHOLDING. All compensation payable and other benefits
provided under this Agreement shall be subject to customary withholding for
income, F.I.C.A. and other employment taxes.
2.10. PHYSICAL EXAMINATION. The Employee shall submit to a physical
examination by a qualified physician on an annual basis which shall be paid for
by the Company and the results of such examination shall be made available to
the Company.
3. TERMINATION OF EMPLOYMENT.
3.1. DEATH OF THE EMPLOYEE. The Employee's employment under this
Agreement shall terminate immediately upon the Employee's death and the
Employee's estate (or his beneficiary as may be appropriate) shall be entitled
to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused accrued vacation time (up to a maximum of
three weeks) through the date of his death, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the date of his death under any
employee benefit plan of MIIX Group or its affiliates in which
the Employee participates.
3.2. DISABILITY OF EMPLOYEE. If the Employee, in the reasonable opinion
of the Company, is unable to perform his duties under this Agreement by reason
of incapacity, either physical or mental, as determined in accordance with the
MIIX Group of Companies Long Term Disability Group Benefit Plan (the "LTD
Plan"), or similar plan which may be in
-6-
<PAGE> 7
effect from time to time, the Company shall have the right to terminate the
Employee's employment upon written notice to the Employee, whereupon such
termination shall be effective as of the date specified in such notice (the
"Termination Date") and the Company shall have no further obligations under this
Agreement, except the obligation to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other applicable severance payments provided
for in Section 4 hereof, and
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any
employee benefit plan of the Company or its affiliates in
which the Employee participates.
If the Company determines not to terminate the Employee's employment in
the event of a disability as allowed under this Section 3.2, the Company shall
continue to pay Base Salary to the Employee for a period of up to ninety days,
and shall pay the difference between Base Salary and benefits paid to the
Employee under the LTD Plan for a period of up to six months thereafter, paid in
accordance with the Company's normal payroll practices, while the Employee is
not working. If the Employee, in the reasonable opinion of the Company,
-7-
<PAGE> 8
remains disabled at the end of such nine month period, his employment shall be
deemed terminated and he shall receive the benefits provided for in this Section
3.2.
3.3. TERMINATION FOR CAUSE.
1. For purposes of this Agreement, "for cause" shall mean the
termination of the Employee's employment with the Company as a result of any of
the following:
(1) the willful engaging by the Employee in conduct which is
materially injurious to or contrary to the best interests of the
Company, monetarily or otherwise;
(2) the willful failure by the Employee to perform such duties
as may be delegated or assigned to the Employee by the Chief Executive
Officer of MIIX Group;
(3) the willful failure by the Employee to follow the
directives or instructions of the Chief Executive Officer of MIIX
Group;
(4) the repeated and consistent failure of the Employee to be
present at work and devote his full time best efforts to the
performance of his duties under this Agreement, except as set forth
above in connection with the Employee's disability;
(5) gross negligence in the performance of his duties on
behalf of the Company;
(6) the Employee's conviction of, or plea of no contest to, a
felony or any crime involving moral turpitude; or
-8-
<PAGE> 9
(7) the commission by the Employee of an act, or the omission
of an act, that would constitute a material breach of this Agreement.
2. The Employee's employment under this Agreement shall terminate
immediately upon written notice from the Company that the Company is terminating
the Employee for cause. Upon the Company's termination of the Employee for
cause, the Company shall be required to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any
employee benefit plan of the Company or any affiliate in which
the Employee participates.
3.4. TERMINATION WITHOUT CAUSE. The Company may terminate the
Employee's employment without cause under this Agreement at any time upon
written notice to the Employee specifying the date of termination. In the event
of a termination without cause, the Company shall make payments to the Employee
in accordance with Section 4 below.
3.5. TERMINATION FOLLOWING A CHANGE IN CONTROL.
-9-
<PAGE> 10
1. In the event that the Company terminates the Employee's employment
during the six month period following a Change in Control (as hereinafter
defined), the Employee shall be entitled to receive:
(1) the accrued and unpaid balance of his Base Salary,
(2) Base Salary for the 24 month period following the
Termination Date, paid, at the option of the Company, in accordance
with the Company's normal payroll practices or in a lump sum,
(3) unreimbursed expenses,
(4) unused, accrued vacation time (up to a maximum of three
weeks) through the Termination Date,
(5) any other benefits earned by the Employee and vested (if
applicable) as of the Termination Date under the terms of any employee
benefit plan of the Company or its affiliates in which the Employee
participates, and
(6) for the 24 month period following the Termination Date,
coverage for the Employee and his dependents (if applicable) under the
standard health and life benefits plans of the Company in which the
Employee participates. The Company shall also be responsible for any
tax penalty which may be imposed upon the Employee in connection with
the payments to be made under this Section 3.5.
2. For purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:
-10-
<PAGE> 11
(1) the acquisition in one or more transactions by any "Person" (as
such term is used for purposes of Section 13(d) or Section 14(d) of the
Securities Exchange Act of 1934, as amended) but excluding, for this purpose,
MIIX Group or its affiliates or any employee benefit plan of MIIX Group or its
affiliates, of "Beneficial Ownership" (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of thirty-five percent (35%) or
more of the combined voting power of MIIX Group's then outstanding voting
securities.
(2) the individuals who, as of the date hereof, constitute the Board of
Directors of MIIX Group (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that if the
election, or nomination for election by MIIX Group's shareholders, of any new
director was approved by a vote of at least a majority of the Incumbent Board,
such new director shall be considered as a member of the Incumbent Board, and
provided further that any reductions in the size of the Board that are
instituted voluntarily by the Incumbent Board shall not constitute a Change in
Control, and after any such reduction the "Incumbent Board" shall mean the Board
as so reduced;
(3) a merger or consolidation involving MIIX Group if the shareholders
of MIIX Group, immediately before such merger or consolidation, do not own,
directly or indirectly, immediately following such merger or consolidation, more
than sixty-five percent (65%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such merger or consolidation
or a complete liquidation or dissolution of MIIX Group or a sale or other
disposition of all or substantially all of the assets of MIIX Group; or
-11-
<PAGE> 12
(4) the acceptance by the shareholders of MIIX Group of shares in a
share exchange if the shareholders of MIIX Group, immediately before such share
exchange, do not own, directly or indirectly, immediately following such share
exchange, more than sixty-five percent (65%) of the combined voting power of the
outstanding voting securities of the corporation resulting from such share
exchange.
3.6. TERMINATION BY THE EMPLOYEE. The Employee may terminate his
employment under this Agreement at any time upon not less than thirty days prior
written notice to the Company. The Company may, however, elect to accelerate the
date of termination. In the event of such a termination, the Company shall be
required to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any
employee benefit plan of the Company or its affiliates in
which the Employee participates.
-12-
<PAGE> 13
4. SEVERANCE.
4.1. PAYMENTS BY THE COMPANY. In the event that the Company terminates
the Employee's employment without cause, or in the event that the Company
determines to terminate the Employee's employment under Section 3.2 hereof, the
Employee shall be entitled to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any
employee benefit plan of the Company or any affiliate in which
the Employee participates,
(5) for the 12 month period following the Termination
Date, coverage for the Employee and his dependents (if
applicable) under the standard health and life benefits plans
of the Company in which the Employee participates, and
(6) Base Salary, paid in accordance with the
Company's normal payroll practices, commencing on the
Termination Date and ending on the earlier of: (1) 12 months
from the Termination Date or (2) the date on which the
Employee obtains full-time employment with any third party or
as an independent consultant, whichever is earlier.
-13-
<PAGE> 14
Except during any period of disability as described in Section 3.2, the
Employee shall have a duty to undertake to secure new employment immediately
upon termination of employment with the Company. The Employee shall immediately
notify the Company in writing of such employment and any payments received by
the Employee pursuant to this Section 4.1 subsequent to the commencement of such
employment shall be promptly remitted to the Company. Notwithstanding the
foregoing, in the event that the Employee obtains full-time employment with any
third party or as an independent consultant at an annual amount lower than his
Base Salary at the Company on the date of his termination, the Company shall pay
to the Employee an amount equal to such difference from the date on which the
Employee obtains such full-time employment for a period not to exceed 12 months
from the Termination Date.
4.2. RESIGNATIONS FROM POSITIONS. The Employee specifically agrees that
upon his termination of employment with the Company, whether voluntary or
involuntary, his position as an officer or as a member of the Board of Directors
of MIIX Group, MIIX Insurance Company, Underwriter or any affiliate shall cease
and this Agreement shall constitute notice of the Employee's resignation in such
regard.
-14-
<PAGE> 15
5. NON-COMPETITION.
5.1. DEFINITION OF "COMPETITOR". For purposes of this Agreement,
"competitor" shall mean any company engaged in or about to be engaged in the
business of selling or marketing a product or service in the medical
professional liability insurance business which is similar to any product or
service sold or marketed or about to be sold or marketed by the Company or any
affiliate and the successors thereof, respectively.
5.2. TERM OF NON-COMPETITION. The Employee agrees that for so long as
he is employed by the Company and for a period of one year after the termination
thereof, whether voluntary or involuntary, he will not, directly or indirectly,
whether for compensation or not, own, manage, operate, join, control or
participate in, or be connected as a stockholder, officer, employee, partner,
creditor, guarantor, consultant, advisor or otherwise, with a competitor that is
engaged in or about to be engaged in business in any geographic area where the
Company or any affiliate are doing business. The foregoing shall not be
construed, however, as preventing the Employee from investing his assets in such
form or manner as will not require services on the part of the Employee in the
operations of the businesses in which such investments are made and provided
that any such business is publicly-owned and the interest of the Employee
therein is solely that of a passive investor owning not more than five (5%)
percent of the outstanding equity securities of any such business.
5.3. SOLICITATION OF COMPANY CLIENTS. For the period of one year after
the termination of the Employee's employment with the Company or any affiliate,
whether voluntary or involuntary, the Employee shall not, directly or
indirectly, call upon or solicit
-15-
<PAGE> 16
insurance or consulting business from any person or entity who is or was a
client of the Company or any affiliate at any time within a period of twelve
months immediately prior to the Termination Date, or any broker, agent or
consultant of such person or entity, without the express written consent of the
Company.
5.4. SOLICITATION OF COMPANY EMPLOYEES. For the period of one year
after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, hire, retain or engage as a director, officer, employee, agent,
consultant, advisor or in any other capacity any person or persons who are
employed by the Company or any affiliate or who were at any time within a period
of six months immediately prior to the Termination Date employed by the Company
or any affiliate or otherwise interfere with the relationship between such
persons and the Company or its affiliates, without the express written consent
of the Company.
5.5. REMEDIES. The parties acknowledge and agree that the Employee's
services hereunder are special, unique, unusual and extraordinary, giving them
peculiar value, the loss of which cannot be reasonably or adequately compensated
solely by damages, and in the event that the Employee breaches any provision of
this Section 5, the Company shall be entitled to equitable relief by way of
injunction or otherwise. In the event that the period of time or geographic area
herein specified should be adjudged unreasonable in any court proceeding, then
the period of time shall be reduced by such number of months or the geographic
area shall be reduced by elimination of such portion thereof as deemed
unreasonable, so that this Agreement may be enforced during such period of time
and in such
-16-
<PAGE> 17
geographic area as is adjudged to be reasonable. In the event that the Employee
breaches any of the provisions of this Section 5, the Company also shall be
entitled to cease all payments and benefits under the terms of this Agreement
and to pursue all remedies which the Company might have including, but not
limited to, those contained in this Agreement.
6. CONFIDENTIALITY.
6.1. DEFINITION OF "CONFIDENTIAL INFORMATION". For the purposes of this
Agreement, "Confidential Information" shall mean all information about the
Company or any affiliate relating to any of their products or services or any
phase of their operations, including, without limitation, business plans and
strategies, trade secrets, marketing and distribution information, business
results, underwriting information and methods, identities of insureds and claims
defense and recovery methods and procedures not generally known through
legitimate means to any of its competitors, with which the Employee becomes
acquainted during the term of his employment.
6.2. CONFIDENTIAL TREATMENT. During the time of employment, or at any
time thereafter, the Employee shall not disclose or make available to any person
or entity any Confidential Information without the express prior written
authorization of the Company. All records, files, materials and Confidential
Information obtained by the Employee in the course of his employment with the
Company are confidential and proprietary and shall remain the exclusive property
of the Company or its affiliates, as the case may be. Upon the termination of
the Employee's employment with the Company or any affiliate, or at any time upon
the request of the Company, the Employee (or his heirs or personal
representatives, as applicable)
-17-
<PAGE> 18
shall deliver to the Company (1) all documents and materials containing
Confidential Information relating to the business or affairs of the Company or
its affiliates, or their customers or clients, and (2) all other documents,
materials and other property belonging to the Company or its affiliates, or
their customers or clients that are in the possession or under the control of
the Employee.
6.3. REMEDIES. The parties acknowledge and agree that Confidential
Information is vital to the operations of the Company and its affiliates and
that the loss suffered by breach of any of the provisions of this Section 6
cannot be reasonably or adequately compensated for by damages, and in the event
that the Employee breaches this Section, the Company shall be entitled to
equitable relief by way of injunction or otherwise. In the event that the
Employee breaches any of the provisions of this Section 6, the Company also
shall be entitled to cease all payments and benefits under the terms of this
Agreement and shall be entitled to pursue all remedies which the Company might
have including, but not limited to, those contained in this Agreement.
7. SEVERABILITY. The terms of this Agreement and each Paragraph and
Section hereof shall be considered severable and the invalidity or
unenforceability of any part thereof shall not affect the validity or
enforceability of the remaining portions or provisions hereof.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and delivered by mail or overnight
delivery service, to his residence, in the case of the Employee or to its
principal office in the case of the Company.
-18-
<PAGE> 19
9. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon its successors and
assigns. Neither this Agreement nor any rights or interests herein or created
hereby may be assigned or otherwise transferred voluntarily or involuntarily by
the Employee.
10. WAIVER. The waiver by the Company or the Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
11. APPLICABLE LAW. This Agreement shall be interpreted and construed
under the laws of the State of New Jersey without reference to principles of
conflicts of laws.
12. JURISDICTION. Employee and the Company agree to submit to the
jurisdiction of the federal and state courts in New Jersey for purposes of the
enforcement of or any dispute concerning this Agreement and that any proceeding
to enforce or involving any dispute concerning this Agreement shall be brought
exclusively in the federal or state courts in New Jersey.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous agreements with respect to the subject matter hereof. This
Agreement may not be changed, altered or amended except by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
-19-
<PAGE> 20
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE MIIX GROUP, INCORPORATED
By:__________________________________
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:__________________________________
THOMAS M. REDMAN, JR.
-20-
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 15, 1999,
among THE MIIX GROUP, INCORPORATED, a Delaware corporation ("MIIX Group"), NEW
JERSEY STATE MEDICAL UNDERWRITERS, INC., a New Jersey corporation
("Underwriter"), each having offices at Two Princess Road, Lawrenceville, New
Jersey (together, the "Company") and DANIEL G. SMERECK (the "Employee"),
residing at 405 Sawyers Lane, Newton, Pennsylvania 18940.
WITNESSETH:
WHEREAS, MIIX Group is the parent company of Underwriter owning all of
the issued and outstanding common stock of Underwriter; and
WHEREAS, the Company deems it to be in its best interest to secure and
retain for the Company the services of the Employee and the Employee desires to
work for the Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and intending to be legally bound hereby, the
parties hereto agree, as follows:
1. POSITION AND DUTIES. The Employee is engaged hereunder as Senior
Vice President of MIIX Group and agrees to perform the duties and services
incident to that position, or such other or further duties and services of a
similar nature as may be required
<PAGE> 2
of him by the Chief Executive Officer of MIIX Group. The Employee agrees that,
if requested, he shall serve as an officer of the Company and/or of any
affiliate, without additional compensation. The Employee shall have the power
and authority as shall reasonably be required to enable him to perform his
duties under this Agreement in an efficient manner. The Employee agrees to
perform the duties and responsibilities called for hereunder to the best of his
ability and to devote his full time, energies and skills to such duties and to
the promotion of the business and interests of the Company and any affiliate.
The Employee may participate in charitable and similar activities, may be a
director of a company that does not compete with the Company or any affiliate
(which shall not include a "competitor" as defined by Section 5.1 of this
Agreement) and may have business interests in passive investments which, from
time to time, may require portions of his time, but such activities shall be
performed in a manner consistent with his obligations hereunder.
2. COMPENSATION AND OTHER BENEFITS.
2.1. BASE SALARY. The Company shall pay to the Employee for
the performance of his duties hereunder, an initial base salary of $225,000 per
annum (the "Base Salary"), payable in accordance with the Company's normal
payroll practices. Thereafter, the amount of the Base Salary may be reviewed and
adjusted as appropriate by the Board of Directors of MIIX Group, taking into
account the recommendation of the Chief Executive Officer, in accordance with
executive compensation review practices.
2.2. BONUS. The Employee shall be eligible to receive an
annual bonus pursuant to MIIX Group's Cash Incentive Plan, or similar plans
which may be in effect from
-2-
<PAGE> 3
time to time, at the discretion of the Board of Directors of MIIX Group, based
on the Company's and the Employee's achievement of goals and objectives
established by the Board on an annual basis. The Board shall use its reasonable
judgment in determining whether such goals and objectives have been met and the
amount, if any, of the bonus to be paid to the Employee. The Employee has been a
participant in the Cash Incentive Plan since September 15, 1999 and shall
receive a prorated bonus pursuant to the terms of the Cash Incentive Plan for
the period September 15, 1999 through December 31, 1999 as approved by the Board
of Directors of MIIX Group. The Employee may be paid a discretionary bonus
outside of the Cash Incentive Plan for the period January 1, 1999 through
September 14, 1999. It is anticipated that any bonus will be paid on or before
March 31 of the succeeding year.
2.3. STOCK OPTIONS. The Employee shall be entitled to
participate in MIIX Group's Long Term Incentive Equity Plan, or similar plans
which may be in effect from time to time for executives of the Company. The
Employee is hereby granted, effective December 15, 1999, a Non-Qualified Stock
Option, as defined in the Long Term Incentive Equity Plan, to purchase 15,000
shares of common stock of MIIX Group pursuant to and which shall vest in
accordance with the terms of the Long Term Incentive Equity Plan Non-Qualified
Stock Option Agreement, a copy of which is attached as Exhibit A (the "Stock
Option Agreement"). The Employee shall be entitled to receive dividend
equivalents on such option shares as dividends are declared and paid on the
common stock of MIIX Group, provided, however, that any such dividend
equivalents, and the interest earned thereon, shall be forfeited as to any
unvested option shares that are forfeited by the Employee pursuant to
-3-
<PAGE> 4
the terms of the Long Term Incentive Equity Plan. The Employee and MIIX Group
shall, simultaneous with the execution of this Agreement, execute the Stock
Option Agreement. The grant of any additional options to purchase shares of
common stock of MIIX Group under the Long Term Incentive Equity Plan shall be at
the sole discretion of the Board of Directors of MIIX Group and shall be based
on the achievement of performance goals established by the Board.
2.4. DEFERRED COMPENSATION. The Employee shall be eligible to
participate in the Company's Deferred Compensation Plan, or similar plans which
may be in effect from time to time, by which the Employee is permitted to defer
compensation and receive benefits in a future year in accordance with the terms
of the Deferred Compensation Plan. The Employee and the Company shall,
simultaneous with the execution of this Agreement, execute the Deferred
Compensation Plan, a copy of which is attached hereto as Exhibit B.
2.5. EMPLOYEE BENEFITS. During the term of this Agreement, the
Employee shall be entitled to participate in all of the benefit programs
provided to similar employees of the Company, including, without limitation, all
medical, disability, dental and life insurance benefits, retirement programs,
incentive compensation plans, automobile expense reimbursement programs and
other employee benefit programs now in existence or hereafter adopted by the
Company, as such plans, programs, practices or policies may be in effect from
time to time.
2.6. VACATION. In addition to such holidays, sick leave and
other time off as are established by the policies of the Company, the Employee
shall be entitled to four weeks
-4-
<PAGE> 5
of vacation in accordance with the Company's vacation policy for executives, as
in effect from time to time, during which his compensation shall be paid,
provided, however, that the Employee may not take more than two consecutive
weeks of vacation without the prior approval of the Chief Executive Officer of
MIIX Group. Unused vacation time can be carried over only in accordance with
Company policy up to a maximum of three weeks.
2.7. REIMBURSEMENT OF EXPENSES. The Company shall reimburse
the Employee for all reasonable expenses incurred by the Employee in connection
with his employment hereunder, provided, however, that such expenses were
incurred in conformance with the policies of the Company, as established from
time to time, and the Employee submits detailed vouchers and other records
reasonably required by the Company in support of the amount and nature of such
expenses.
2.8. TAXES AND WITHHOLDING. All compensation payable and other
benefits provided under this Agreement shall be subject to customary withholding
for income, F.I.C.A. and other employment taxes.
2.9. PHYSICAL EXAMINATION. The Employee shall submit to a
physical examination by a qualified physician on an annual basis which shall be
paid for by the Company and the results of such examination shall be made
available to the Company.
3. TERMINATION OF EMPLOYMENT.
3.1. DEATH OF THE EMPLOYEE. The Employee's employment under
this Agreement shall terminate immediately upon the Employee's death and the
Employee's estate (or his beneficiary as may be appropriate) shall be entitled
to receive:
-5-
<PAGE> 6
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused accrued vacation time (up to a maximum of
three weeks) through the date of his death, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the date of his death under any
employee benefit plan of MIIX Group or its affiliates in which
the Employee participates.
3.2. DISABILITY OF EMPLOYEE. If the Employee, in the
reasonable opinion of the Company, is unable to perform his duties under this
Agreement by reason of incapacity, either physical or mental, as determined in
accordance with the MIIX Group of Companies Long Term Disability Group Benefit
Plan (the "LTD Plan"), or similar plan which may be in effect from time to time,
the Company shall have the right to terminate the Employee's employment upon
written notice to the Employee, whereupon such termination shall be effective as
of the date specified in such notice (the "Termination Date") and the Company
shall have no further obligations under this Agreement, except the obligation to
pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
-6-
<PAGE> 7
(4) any other applicable severance payments provided
for in Section 4 hereof, and
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any
employee benefit plan of the Company or its affiliates in
which the Employee participates.
If the Company determines not to terminate the Employee's employment in
the event of a disability as allowed under this Section 3.2, the Company shall
continue to pay Base Salary to the Employee for a period of up to ninety days,
and shall pay the difference between Base Salary and benefits paid to the
Employee under the LTD Plan for a period of up to six months thereafter, paid in
accordance with the Company's normal payroll practices, while the Employee is
not working. If the Employee, in the reasonable opinion of the Company, remains
disabled at the end of such nine month period, his employment shall be deemed
terminated and he shall receive the benefits provided for in this Section 3.2.
3.3. TERMINATION FOR CAUSE.
1. For purposes of this Agreement, "for cause" shall mean the
termination of the Employee's employment with the Company as a result of any of
the following:
(1) the willful engaging by the Employee in conduct
which is materially injurious to or contrary to the best
interests of the Company, monetarily or otherwise;
-7-
<PAGE> 8
(2) the willful failure by the Employee to perform
such duties as may be delegated or assigned to the Employee by
the Chief Executive Officer of MIIX Group;
(3) the willful failure by the Employee to follow the
directives or instructions of the Chief Executive Officer of
MIIX Group;
(4) the repeated and consistent failure of the
Employee to be present at work and devote his full time best
efforts to the performance of his duties under this Agreement,
except as set forth above in connection with the Employee's
disability;
(5) gross negligence in the performance of his duties
on behalf of the Company;
(6) the Employee's conviction of, or plea of no
contest to, a felony or any crime involving moral turpitude;
or
(7) the commission by the Employee of an act, or the
omission of an act, that would constitute a material breach of
this Agreement.
2. The Employee's employment under this Agreement shall terminate
immediately upon written notice from the Company that the Company is terminating
the Employee for cause. Upon the Company's termination of the Employee for
cause, the Company shall be required to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
-8-
<PAGE> 9
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date, and
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any
employee benefit plan of the Company or any affiliate in which
the Employee participates.
3.4. TERMINATION WITHOUT CAUSE. The Company may terminate the
Employee's employment without cause under this Agreement at any time upon
written notice to the Employee specifying the date of termination. In the event
of a termination without cause, the Company shall make payments to the Employee
in accordance with Section 4 below.
3.5. TERMINATION FOLLOWING A CHANGE IN CONTROL.
1. In the event that the Company terminates the Employee's employment
during the six month period following a Change in Control (as hereinafter
defined), the Employee shall be entitled to receive:
(1) the accrued and unpaid balance of his Base
Salary,
(2) Base Salary for the 24 month period following the
Termination Date, paid, at the option of the Company, in
accordance with the Company's normal payroll practices or in a
lump sum,
(3) unreimbursed expenses,
(4) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
-9-
<PAGE> 10
(5) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under the
terms of any employee benefit plan of the Company or its
affiliates in which the Employee participates, and
(6) for the 24 month period following the Termination
Date, coverage for the Employee and his dependents (if
applicable) under the standard health and life benefits plans
of the Company in which the Employee participates.
The Company shall also be responsible for any tax penalty which may be
imposed upon the Employee in connection with the payments to be made under this
Section 3.5.
2. For purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:
(1) the acquisition in one or more transactions by any "Person" (as
such term is used for purposes of Section 13(d) or Section 14(d) of the
Securities Exchange Act of 1934, as amended) but excluding, for this purpose,
MIIX Group or its affiliates or any employee benefit plan of MIIX Group or its
affiliates, of "Beneficial Ownership" (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of thirty-five percent (35%) or
more of the combined voting power of MIIX Group's then outstanding voting
securities.
(2) the individuals who, as of the date hereof, constitute the Board of
Directors of MIIX Group (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that if the
election, or nomination for election by MIIX Group's shareholders, of any new
director was approved by a vote of at least a
-10-
<PAGE> 11
majority of the Incumbent Board, such new director shall be considered as a
member of the Incumbent Board, and provided further that any reductions in the
size of the Board that are instituted voluntarily by the Incumbent Board shall
not constitute a Change in Control, and after any such reduction the "Incumbent
Board" shall mean the Board as so reduced;
(3) a merger or consolidation involving MIIX Group if the
shareholders of MIIX Group, immediately before such merger or consolidation, do
not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
merger or consolidation or a complete liquidation or dissolution of MIIX Group
or a sale or other disposition of all or substantially all of the assets of MIIX
Group; or
(4) the acceptance by the shareholders of MIIX Group of shares
in a share exchange if the shareholders of MIIX Group, immediately before such
share exchange, do not own, directly or indirectly, immediately following such
share exchange, more than sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
share exchange.
3.6. TERMINATION BY THE EMPLOYEE. The Employee may terminate
his employment under this Agreement at any time upon not less than thirty days
prior written notice to the Company. The Company may, however, elect to
accelerate the date of termination. In the event of such a termination, the
Company shall be required to pay to the Employee:
(1) the balance of his accrued and unpaid Base
Salary,
-11-
<PAGE> 12
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any
employee benefit plan of the Company or its affiliates in
which the Employee participates.
4. SEVERANCE.
4.1. PAYMENTS BY THE COMPANY. In the event that the Company
terminates the Employee's employment without cause, or in the event that the
Company determines to terminate the Employee's employment under Section 3.2
hereof, the Employee shall be entitled to receive:
(1) the balance of his accrued and unpaid Base
Salary,
(2) unreimbursed expenses,
(3) unused, accrued vacation time (up to a maximum of
three weeks) through the Termination Date,
(4) any other benefits earned by the Employee and
vested (if applicable) as of the Termination Date under any
employee benefit plan of the Company or any affiliate in which
the Employee participates,
(5) for the 12 month period following the Termination
Date, coverage for the Employee and his dependents (if
applicable) under the standard health and life benefits plans
of the Company in which the Employee participates, and
-12-
<PAGE> 13
(6) Base Salary, paid in accordance with the
Company's normal payroll practices, commencing on the
Termination Date and ending on the earlier of: (1) 12 months
from the Termination Date or (2) the date on which the
Employee obtains full-time employment with any third party or
as an independent consultant, whichever is earlier.
Except during any period of disability as described in Section 3.2, the
Employee shall have a duty to undertake to secure new employment immediately
upon termination of employment with the Company. The Employee shall immediately
notify the Company in writing of such employment and any payments received by
the Employee pursuant to this Section 4.1 subsequent to the commencement of such
employment shall be promptly remitted to the Company. Notwithstanding the
foregoing, in the event that the Employee obtains full-time employment with any
third party or as an independent consultant at an annual amount lower than his
Base Salary at the Company on the date of his termination, the Company shall pay
to the Employee an amount equal to such difference from the date on which the
Employee obtains such full-time employment for a period not to exceed 12 months
from the Termination Date.
4.2. RESIGNATIONS FROM POSITIONS. The Employee specifically
agrees that upon his termination of employment with the Company, whether
voluntary or involuntary, his position as an officer or as a member of the Board
of Directors of MIIX Group, MIIX Insurance Company, Underwriter or any affiliate
shall cease and this Agreement shall constitute notice of the Employee's
resignation in such regard.
-13-
<PAGE> 14
5. NON-COMPETITION.
5.1. DEFINITION OF "COMPETITOR". For purposes of this
Agreement, "competitor" shall mean any company engaged in or about to be engaged
in the business of selling or marketing a product or service in the medical
professional liability insurance business which is similar to any product or
service sold or marketed or about to be sold or marketed by the Company or any
affiliate and the successors thereof, respectively.
5.2. TERM OF NON-COMPETITION. The Employee agrees that for so
long as he is employed by the Company and for a period of one year after the
termination thereof, whether voluntary or involuntary, he will not, directly or
indirectly, whether for compensation or not, own, manage, operate, join, control
or participate in, or be connected as a stockholder, officer, employee, partner,
creditor, guarantor, consultant, advisor or otherwise, with a competitor that is
engaged in or about to be engaged in business in any geographic area where the
Company or any affiliate are doing business. The foregoing shall not be
construed, however, as preventing the Employee from investing his assets in such
form or manner as will not require services on the part of the Employee in the
operations of the businesses in which such investments are made and provided
that any such business is publicly-owned and the interest of the Employee
therein is solely that of a passive investor owning not more than five (5%)
percent of the outstanding equity securities of any such business.
5.3. SOLICITATION OF COMPANY CLIENTS. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, call upon or solicit
-14-
<PAGE> 15
insurance or consulting business from any person or entity who is or was a
client of the Company or any affiliate at any time within a period of twelve
months immediately prior to the Termination Date, or any broker, agent or
consultant of such person or entity, without the express written consent of the
Company.
5.4. SOLICITATION OF COMPANY EMPLOYEES. For the period of one
year after the termination of the Employee's employment with the Company or any
affiliate, whether voluntary or involuntary, the Employee shall not, directly or
indirectly, hire, retain or engage as a director, officer, employee, agent,
consultant, advisor or in any other capacity any person or persons who are
employed by the Company or any affiliate or who were at any time within a period
of six months immediately prior to the Termination Date employed by the Company
or any affiliate or otherwise interfere with the relationship between such
persons and the Company or its affiliates, without the express written consent
of the Company.
5.5. REMEDIES. The parties acknowledge and agree that the
Employee's services hereunder are special, unique, unusual and extraordinary,
giving them peculiar value, the loss of which cannot be reasonably or adequately
compensated solely by damages, and in the event that the Employee breaches any
provision of this Section 5, the Company shall be entitled to equitable relief
by way of injunction or otherwise. In the event that the period of time or
geographic area herein specified should be adjudged unreasonable in any court
proceeding, then the period of time shall be reduced by such number of months or
the geographic area shall be reduced by elimination of such portion thereof as
deemed unreasonable, so that this Agreement may be enforced during such period
of time and in such
-15-
<PAGE> 16
geographic area as is adjudged to be reasonable. In the event that the Employee
breaches any of the provisions of this Section 5, the Company also shall be
entitled to cease all payments and benefits under the terms of this Agreement
and to pursue all remedies which the Company might have including, but not
limited to, those contained in this Agreement.
6. CONFIDENTIALITY.
6.1. DEFINITION OF "CONFIDENTIAL INFORMATION". For the
purposes of this Agreement, "Confidential Information" shall mean all
information about the Company or any affiliate relating to any of their products
or services or any phase of their operations, including, without limitation,
business plans and strategies, trade secrets, marketing and distribution
information, business results, underwriting information and methods, identities
of insureds and claims defense and recovery methods and procedures not generally
known through legitimate means to any of its competitors, with which the
Employee becomes acquainted during the term of his employment.
6.2. CONFIDENTIAL TREATMENT. During the time of employment, or
at any time thereafter, the Employee shall not disclose or make available to any
person or entity any Confidential Information without the express prior written
authorization of the Company. All records, files, materials and Confidential
Information obtained by the Employee in the course of his employment with the
Company are confidential and proprietary and shall remain the exclusive property
of the Company or its affiliates, as the case may be. Upon the termination of
the Employee's employment with the Company or any affiliate, or at any time upon
the request of the Company, the Employee (or his heirs or personal
representatives, as applicable)
-16-
<PAGE> 17
shall deliver to the Company (1) all documents and materials containing
Confidential Information relating to the business or affairs of the Company or
its affiliates, or their customers or clients, and (2) all other documents,
materials and other property belonging to the Company or its affiliates, or
their customers or clients that are in the possession or under the control of
the Employee.
6.3. REMEDIES. The parties acknowledge and agree that
Confidential Information is vital to the operations of the Company and its
affiliates and that the loss suffered by breach of any of the provisions of this
Section 6 cannot be reasonably or adequately compensated for by damages, and in
the event that the Employee breaches this Section, the Company shall be entitled
to equitable relief by way of injunction or otherwise. In the event that the
Employee breaches any of the provisions of this Section 6, the Company also
shall be entitled to cease all payments and benefits under the terms of this
Agreement and shall be entitled to pursue all remedies which the Company might
have including, but not limited to, those contained in this Agreement.
7. SEVERABILITY. The terms of this Agreement and each Paragraph and
Section hereof shall be considered severable and the invalidity or
unenforceability of any part thereof shall not affect the validity or
enforceability of the remaining portions or provisions hereof.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and delivered by mail or overnight
delivery service, to his residence, in the case of the Employee or to its
principal office in the case of the Company.
-17-
<PAGE> 18
9. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon its successors and
assigns. Neither this Agreement nor any rights or interests herein or created
hereby may be assigned or otherwise transferred voluntarily or involuntarily by
the Employee.
10. WAIVER. The waiver by the Company or the Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
11. APPLICABLE LAW. This Agreement shall be interpreted and construed
under the laws of the State of New Jersey without reference to principles of
conflicts of laws.
12. JURISDICTION. Employee and the Company agree to submit to the
jurisdiction of the federal and state courts in New Jersey for purposes of the
enforcement of or any dispute concerning this Agreement and that any proceeding
to enforce or involving any dispute concerning this Agreement shall be brought
exclusively in the federal or state courts in New Jersey.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous agreements with respect to the subject matter hereof. This
Agreement may not be changed, altered or amended except by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
-18-
<PAGE> 19
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE MIIX GROUP, INCORPORATED
By:__________________________________
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:__________________________________
___________________________________
DANIEL G. SMERECK
-19-
<PAGE> 1
EXHIBIT 10.23
STOCK PURCHASE AND LOAN AGREEMENT
BY AND BETWEEN
THE MIIX GROUP INCORPORATED
AND
KENNETH KOREYVA
DATED: DECEMBER 15, 1999
<PAGE> 2
STOCK PURCHASE AND LOAN AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT (the "Agreement"), made
as of this 15th day of December, 1999, by and between THE MIIX GROUP,
INCORPORATED, a Delaware corporation (the "Company"), and KENNETH KOREYVA (the
"Executive").
BACKGROUND
WHEREAS, the Company desires to ensure that key members of its
senior management share with its stockholders the common goal of achieving
long-term growth in the market value of the Company which equals or exceeds the
growth of competitive companies in the insurance industry; and
WHEREAS, to achieve this objective, the Company requires that
the Executive purchase that number of shares of common stock of the Company (the
"Purchased Shares") having an aggregate purchase price of $195,000, rounded to
the nearest whole share, based on the average daily trading price per share of
the common stock on December 15, 1999 (the "Purchase Price"); and
WHEREAS, the Company intends to make a loan to the Executive
in an amount equal to the Purchase Price, and Executive intends to secure such
loan with a pledge of the Purchased Shares;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
TERMS
1. Loan.
1.1. Loan. Subject to the terms and conditions hereof, the Company
shall lend to the Executive the aggregate principal amount of $195,000 (the
"Loan").
1.2. Purpose of Loan. The Executive shall use the proceeds of the Loan
solely for the purpose of purchasing the Purchased Shares pursuant to Section 2
hereof.
1.3. Promissory Note. The obligation of the Executive to repay the Loan
shall be evidenced by the Executive's promissory note, substantially in the form
attached
<PAGE> 3
hereto as Exhibit A (the "Note"), in the original principal amount of $195,000.
The Note shall be dated December 15, 1999, the date of the purchase of the
Purchased Shares, shall mature and become due and payable on the Maturity Date
(hereinafter defined) and shall bear interest as set forth in Section 1.4(b).
1.4. Principal Payments; Maturity; Interest Rate.
(1) Principal Payments. Unless sooner accelerated as provided
herein, the principal amount of the Loan shall be due and payable in full on
December 15, 2004, the fifth anniversary date of the Note (the "Maturity Date").
Notwithstanding the collateral pledged to the Company pursuant to Section 3
hereof, Executive shall have personal liability for the full payment of the
Loan, together with accrued interest thereon.
(2) Interest Rate and Payment. The principal amount of the
Loan shall bear interest from the date of the Note until the Maturity Date
(unless otherwise accelerated as provided herein) at a rate per annum equal to
the minimum interest rate necessary to avoid income imputation under the
Internal Revenue Code as of the date of the Note. Interest shall be due and
payable on the Maturity Date.
1.5. Voluntary Prepayments. The Executive shall have the right to
prepay the Loan in whole or in part from time to time, without penalty or
premium.
1.6. Mandatory Prepayments. In the event that Executive sells any of
the Purchased Shares during the term of the Loan, the Executive shall, within
five (5) days of such sale, make a mandatory prepayment of the Loan in an amount
equal to the product of the number of Purchased Shares sold and the Purchase
Price. In the event that such sale is made on an installment basis, Executive
shall make a mandatory prepayment as and when proceeds of the sale are received
by the Executive.
1.7. Events of Default. Each of the following shall constitute an event
of default (each, an "Event of Default") under this Agreement:
(1) the failure of the Executive to pay when due any principal
or interest or other amount due hereunder or under the Note.
(2) any warranty or representation made by the Executive in
this Agreement shall prove to have been false or incorrect on the date as of
which made.
(3) the termination of Executive's employment with the Company
for any reason.
2
<PAGE> 4
(4) the occurrence of any of the following with respect to the
Executive:
(1) he shall apply for or consent to the
appointment of a receiver, custodian,
trustee or liquidator of all or a
substantial part of his property;
(2) he shall make a general assignment for the
benefit of his creditors;
(3) he shall commence a voluntary case under the
Federal Bankruptcy Code; or
(4) he shall file a petition to take advantage
of any other law providing for the relief of
debtors.
1.8. Remedies Upon Default. Upon the occurrence and during the
continuance of an Event of Default, all indebtedness, obligations and
liabilities of the Executive arising hereunder shall, at the option of the
Company, become immediately due and payable. The Company may, in addition to all
other remedies available to it, exercise a right of setoff against the Pledged
Collateral (as defined below).
1.9. Extension of Payment Date. Notwithstanding anything in
Section 1.7(c) hereof to the contrary, in the event that Executive's employment
with the Company is terminated and such termination arises from the death,
disability or retirement of the Executive or is without Cause, then, at the
option of the Executive and upon delivery of written notice to that effect, the
obligation to repay the Loan in full, together with accrued interest thereon,
may be extended to the second anniversary date of such termination or retirement
or the Maturity Date, whichever is earlier. For purposes of this Section, the
term "Cause" shall have the meaning assigned to it in that certain Employment
Agreement dated of even date herewith among the Executive, the Company and New
Jersey State Medical Underwriters, Inc.
2. Purchase and Sale of Common Stock.
2.1. Sale and Purchase. The Company shall issue and sell to
the Executive, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, and Executive shall purchase, the
Purchased Shares for the Purchase Price.
3
<PAGE> 5
2.2. Payment of Purchase Price. Upon payment in full of the
Purchase Price, receipt of which shall be deemed acknowledged by the Company on
December 15, 1999, the Company shall deliver to Executive a stock certificate,
registered in the name of Executive, representing the Purchased Shares.
2.3. Lock-up. The Executive agrees that, for a one (1) year
period following the date of the issuance of the Purchased Shares, the Executive
shall not sell, transfer or otherwise dispose of any of the Purchased Shares
without the written consent of the Company.
3. Collateral.
3.1. Pledged Collateral. As security for the performance of
this Agreement and for the prompt and complete payment of the Loan, together
with accrued interest thereon, when due (whether at the Maturity Date, by
acceleration or otherwise), the Executive hereby grants to the Company the
following property (collectively, the "Pledged Collateral"):
(1) the Purchased Shares and the certificates or
instruments representing such stock and all dividends, interest, cash,
instruments, and other property from time to time received, receivable, or
otherwise distributed or distributable in respect of or in exchange for any or
all of such stock;
(2) all proceeds of the foregoing.
3.2. Delivery of Purchased Shares. Promptly after his receipt
of stock certificates representing the Purchased Shares, the Executive shall
deliver to the Company such stock certificates, together with stock powers duly
executed in blank by the Executive.
3.3. Voting Rights, Dividends, Etc.
(1) The Executive shall be entitled to exercise any
and all of Executive's voting and other consensual rights pertaining to the
Pledged Collateral or any part thereof for any purpose not inconsistent with the
terms of this Agreement; and notwithstanding Section 3.1 but subject to Section
3.3(c) shall be entitled to receive and retain free and clear of the security
interest of Company hereunder, any and all of such dividends, interest and other
distributions permitted to all other holders of the Company's Common Stock.
4
<PAGE> 6
(2) The Company shall execute and deliver (or cause
to be executed and delivered) to the Executive all such proxies and other
instruments as Executive may reasonably request for the purpose of enabling the
Executive to exercise the voting and other rights that he is entitled to
exercise pursuant to paragraph (a) above and to receive the dividends, interest
and other distributions that he is authorized to receive and retain pursuant to
paragraph (a) above.
(3) Upon the occurrence and during the continuance of
an Event of Default (i) all rights of the Executive to exercise the voting and
other consensual rights that he would otherwise be entitled to exercise pursuant
to Section 3.3(a) hereof and to receive the dividends, interest and other
distributions that he would otherwise be authorized to receive and retain
pursuant to Section 3.3(a) hereof shall cease, and all such rights shall
thereupon become vested in Company which shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive such dividends,
interest, and other distributions; and all dividends, interest and other
distributions which are received by Executive contrary to the provisions of this
paragraph shall be received in trust for the benefit of Company, shall be
segregated from other funds of Executive, and shall be forthwith paid over to
Company in the same form as so received (with any necessary endorsement).
3.4. Further Assurances. Executive agrees that at any time and
from time to time, at the expense of Executive, Executive will promptly execute
and deliver all further instruments and documents, and take all further action
that may be necessary, or that Company may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable Company to exercise and enforce the rights and remedies
hereunder with respect to any of the Pledged Collateral.
3.5. Transfers and Liens. Executive will not (i) grant any
option with respect to any of the Pledged Collateral, or (ii) create or permit
to exist any lien, security interest, or other charge or encumbrance upon or
with respect to any of the Pledged Collateral.
3.6. Company Appointed Attorney-in-Fact. Executive hereby
appoints Company as Executive's attorney-in-fact, with full authority in the
place and stead of Executive and in the name of Executive, from time to time in
Company's discretion to take any action and to execute any instrument which
Company may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, upon the occurrence and during the
continuance of an Event of Default to receive, endorse, and collect all
instruments made payable to Executive representing any dividend, interest, or
other distribution in respect of the Pledged Collateral or any part thereof and
to give full
5
<PAGE> 7
discharge for the same. Company shall not, in its capacity as such
attorney-in-fact, be liable for any acts or omissions, nor for any error of
judgment or mistake of fact or law, but only for bad faith, willful misconduct
or gross negligence. This power, being coupled with an interest, is irrevocable
until all obligations under the Note have been fully satisfied.
3.7. Company's Duties. The powers conferred on the Company
hereunder are solely to protect its interests in the Pledged Collateral and
shall not impose any duty to exercise any such powers. Except for the safe
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, Company shall not have any duty as to
any Pledged Collateral or as to the taking of any necessary steps to preserve
rights against any parties or any other rights pertaining to any Pledged
Collateral. Without limiting the generality of the foregoing, Company shall not
have any responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders, or other matters relating to any
Pledged Collateral, whether or not Company has or is deemed to have knowledge of
such matters.
3.8. Prepayments. In the event of any prepayment, whether
voluntary or mandatory, the Company shall release from the Pledged Collateral,
and deliver to the Executive, stock certificates evidencing that number of
Purchased Shares which have an aggregate fair market value equal to the amount
of the prepayment. In no event, however, shall the remaining Pledged Collateral
have a fair market value less than the unpaid principal balance of the Loan and
accrued interest thereon.
3.9. Transfer of Title. After the occurrence and during the
continuance of an Event of Default, Company shall have the right, at any time in
its discretion without further notice to Executive, to transfer to or to
register in the name of Company or its nominees, any or all of the Pledged
Collateral. In addition, upon the occurrence and during the continuance of an
Event of Default, Company shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations.
3.10. Termination. The provisions of this Section 3 shall
terminate upon payment in full of the Loan, together with accrued interest
thereon, at which time the Company shall promptly deliver to Executive stock
certificates evidencing the Purchased Shares remaining in its possession.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Executive as follows:
6
<PAGE> 8
4.1. Organization. The Company (a) is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and (b) has all requisite corporate power and authority to execute,
deliver and perform this Agreement.
4.2. Authorization of Agreement.
(1) The execution, delivery and performance by the
Company of this Agreement has been duly authorized by all requisite corporate
action by the Company, and this Agreement constitutes the valid and binding
obligation of the Company.
(2) The issuance, sale and delivery of the Purchased
Shares have been duly authorized by all requisite corporate action of the
Company, and when issued, sold and delivered in accordance with this Agreement,
the Purchased Shares will be validly issued and outstanding, fully paid and
non-assessable, and not subject to preemptive or any other similar rights of the
stockholders of the Company or others.
4.3. SEC Registration Statement. The Company has made
available to the Executive, in the form filed with the SEC and as amended prior
to the date hereof, the Form S-1 Registration Statement (Registration No.
333-59371) (the "Registration Statement"). The Registration Statement complies
as to form in all material respects with the requirements of the Securities Act
of 1933 (the "Securities Act") and the rules and regulations thereunder, and did
not, on the date when it was declared effective, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements made therein in light of the
circumstances under which they were made not misleading.
5. Representations of the Executive. The Executive represents, warrants
and covenants to the Company that:
(1) Executive has the full power and authority and
has full legal right to execute and deliver this Agreement and the Note, to
perform, observe and comply with all of his agreements and obligations under
each of this Agreement and the Note and to obtain the proceeds of the Loan
contemplated by this Agreement;
(2) Executive has duly executed and delivered this
Agreement and this Agreement constitutes the valid and binding obligation of
Executive, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, moratorium or similar laws
affecting creditors' rights or by general principles of equity;
7
<PAGE> 9
(3) Executive is acquiring the Purchased Shares for
his own account, for investment and not with a view to the distribution thereof
within the meaning of the Securities Act;
(4) Executive understands that the Purchased Shares
have not been and shall not be registered under the Securities Act, by reason of
their issuance by the Company in a transaction exempt from the registration
requirements of the Securities Act; and any subsequent disposition thereof must
be registered under the Securities Act or must be exempt from registration;
(5) Executive understands that: (i) the exemption
from registration afforded by Rule 144 (the provisions of which are known to
him) promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if and when applicable, Rule 144 may only afford the basis
for sales in limited amounts; and (ii) the Company is under no obligation to
register the Purchased Shares on behalf of the Executive or to assist the
Executive in complying with any exemption from registration;
(6) he is an accredited investor as defined in Rule
501(a) promulgated under the Securities Act.
6. Certain Restrictions.
6.1. Legend. The certificate for the Purchased Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION EXCEPT UPON
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, WHICH
OPINION SHALL BE REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO
8
<PAGE> 10
THE CONDITIONS SET FORTH IN THAT CERTAIN STOCK PURCHASE AND
LOAN AGREEMENT BY AND BETWEEN THE COMPANY AND KENNETH
KOREYVA."
6.2. Opinion. Company agrees to reimburse Executive for the
cost of obtaining any opinion required by the above legend.
7. Miscellaneous.
7.1. Amendments, Indulgences, Etc. No amendment or waiver of
any provision of this Agreement nor consent to any departure by Executive
herefrom shall in any event be effective unless the same shall be in writing and
signed by Company, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. No failure
or delay on the part of Company in the exercise of any right, power, or remedy
under this Agreement shall constitute a waiver thereof, or prevent the exercise
thereof in that or any other instance.
7.2. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and, if to Executive,
mailed or telefaxed or delivered to them at the addresses therefor shown at the
time in Company's records, and, if to Company, mailed or delivered to it at Two
Princess Road, Lawrenceville, New Jersey 08648.
7.3. Continuing Security Interest. This Agreement creates a
continuing security interest in the Pledged Collateral and shall be binding upon
Executive, and his heirs, executors, administrators, successors, and assigns and
inure to the benefit of Company and its successors, transferees and assigns. The
execution and delivery of this Agreement shall in no manner impair or affect any
other security (by endorsement or otherwise) for the payment or performance of
the Note and no security taken hereafter as security for payment or performance
of the Note shall impair in any manner or affect this Agreement or the security
interest granted hereby, all such present and future additional security to be
considered as cumulative security. Any of the Pledged Collateral may be released
from this Agreement without altering, varying, or diminishing in any way this
Agreement or the security interest granted hereby as to the Pledged Collateral
not expressly released, and this Agreement and such security interest shall
continue in full force and effect as to all of the Pledged Collateral not
expressly released.
7.4. Governing Law, Consent to Jurisdiction, Etc. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New Jersey
9
<PAGE> 11
applicable to contracts made and wholly performed within New Jersey. Executive
consents to the jurisdiction of the courts of New Jersey and of the courts of
the United States sitting in New Jersey in any litigation concerning this
Agreement, and Executive waives any objection based on venue or inconvenient
forum. Unless otherwise defined herein, terms defined in the Uniform Commercial
Code as in effect on the date hereof are used herein as therein defined as of
such date.
7.5. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
7.6. Severability. The provisions of this Agreement are
independent of and separable from each other, and no such provision, shall be
altered or rendered invalid or unenforceable by virtue of the fact that for any
reason any other such provision may be invalid or unenforceable in whole or in
part.
7.7. Headings. The section headings of this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.
7.8. Entire Agreement. This Agreement sets forth all of the
promises, covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written.
IN WITNESS WHEREOF, the undersigned, intending to be legally
bound hereby, have executed this Agreement as of the date first above written.
THE MIIX GROUP, INCORPORATED
By:_______________________________
________________________________
KENNETH KOREYVA
10
<PAGE> 12
Exhibit A
PROMISSORY NOTE
$195,000 Lawrenceville, New Jersey
December 15, 1999
The Undersigned, for value received and intending to be
legally bound, promises to pay to the order of THE MIIX GROUP, INCORPORATED (the
"Lender"), as and when due as set forth in the Stock Purchase and Loan Agreement
dated the date hereof between the Undersigned and Lender (as such agreement may
be amended, restated, modified or supplemented from time to time, the "Loan
Agreement"), the principal sum of $190,000. Capitalized terms used herein and
not otherwise defined shall have the meanings given such terms in the Loan
Agreement.
The undersigned further promises to pay to the order of Lender
interest on the unpaid principal amount of the Loan from the date hereof until
such amounts have been repaid in full. Interest shall be at the annual rate of
6.02 percent (6.02%) and shall be due and payable on the Maturity Date (unless
accelerated sooner under the terms of the Loan Agreement).
This is the Note mentioned in, and is entitled to the benefits
of, the Loan Agreement.
This Note may be prepaid at any time, in whole or in part,
without premium or penalty. All payments in respect of this Note shall be
applied first to accrued interest and then to principal outstanding hereunder.
Mandatory prepayments shall be required from time to time pursuant to Section
1.6 of the Loan Agreement.
This Note shall be deemed to be a contract made under the laws
of the State of New Jersey and shall be construed in accordance with the laws of
said state without giving effect to principles of conflicts of law.
This Note shall be binding upon the undersigned and his heirs,
executors, administrators, transferees and assigns and the terms hereof shall
inure to the benefit of lender and its successors and assigns, including
subsequent holders hereof.
The undersigned hereby waives presentment, demand for payment,
notice of dishonor or acceleration, protest and notice of protest, and any and
all other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note except any notice expressly
required in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned executes this Note as of
the day and year first above written.
----------------------------------
KENNETH KOREYVA
<PAGE> 1
EXHIBIT 10.24
STOCK PURCHASE AND LOAN AGREEMENT
BY AND BETWEEN
THE MIIX GROUP INCORPORATED
AND
PATRICIA A. COSTANTE
DATED: MARCH 1, 2000
<PAGE> 2
STOCK PURCHASE AND LOAN AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT (the "Agreement"), made as of
this 1st day of March, 2000, by and between THE MIIX GROUP, INCORPORATED, a
Delaware corporation (the "Company"), and PATRICIA A. COSTANTE (the
"Executive").
BACKGROUND
WHEREAS, the Company desires to ensure that key members of its
senior management share with its stockholders the common goal of achieving
long-term growth in the market value of the Company which equals or exceeds the
growth of competitive companies in the insurance industry; and
WHEREAS, to achieve this objective, the Company requires that the
Executive purchase that number of shares of common stock of the Company (the
"Purchased Shares") having an aggregate purchase price of $440,000 rounded to
the nearest whole share, based on the average daily trading price per share of
the common stock on March 1, 2000 (the "Purchase Price"); and
WHEREAS, the Company intends to make a loan to the Executive in an
amount equal to the Purchase Price, and Executive intends to secure such loan
with a pledge of the Purchased Shares;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
TERMS
1. Loan.
1.1. Loan. Subject to the terms and conditions hereof, the Company
shall lend to the Executive the aggregate principal amount of $440,000 (the
"Loan").
1.2. Purpose of Loan. The Executive shall use the proceeds of the
Loan solely for the purpose of purchasing the Purchased Shares pursuant to
Section 2 hereof.
1.3. Promissory Note. The obligation of the Executive to repay the
Loan shall be evidenced by the Executive's promissory note, substantially in the
form attached
<PAGE> 3
hereto as Exhibit A (the "Note"), in the original principal amount of $440,000.
The Note shall be dated March 1, 2000, the date of the purchase of the Purchased
Shares, shall mature and become due and payable on the Maturity Date
(hereinafter defined) and shall bear interest as set forth in Section 1.4(b).
1.4. Principal Payments; Maturity; Interest Rate.
(1) Principal Payments. Unless sooner accelerated as provided
herein, the principal amount of the Loan shall be due and payable in full on
March 1, 2005, the fifth anniversary date of the Note (the "Maturity Date").
Notwithstanding the collateral pledged to the Company pursuant to Section 3
hereof, Executive shall have personal liability for the full payment of the
Loan, together with accrued interest thereon.
(2) Interest Rate and Payment. The principal amount of the
Loan shall bear interest from the date of the Note until the Maturity Date
(unless otherwise accelerated as provided herein) at a rate per annum equal to
the minimum interest rate necessary to avoid income imputation under the
Internal Revenue Code as of the date of the Note. Interest shall be due and
payable on the Maturity Date.
1.5. Voluntary Prepayments. The Executive shall have the right to
prepay the Loan in whole or in part from time to time, without penalty or
premium.
1.6. Mandatory Prepayments. In the event that Executive sells any of
the Purchased Shares during the term of the Loan, the Executive shall, within
five (5) days of such sale, make a mandatory prepayment of the Loan in an amount
equal to the product of the number of Purchased Shares sold and the Purchase
Price. In the event that such sale is made on an installment basis, Executive
shall make a mandatory prepayment as and when proceeds of the sale are received
by the Executive.
1.7. Events of Default. Each of the following shall constitute an
event of default (each, an "Event of Default") under this Agreement:
(1) the failure of the Executive to pay when due any principal
or interest or other amount due hereunder or under the Note.
(2) any warranty or representation made by the Executive in
this Agreement shall prove to have been false or incorrect on the date as of
which made.
(3) the termination of Executive's employment with the Company
for any reason.
2
<PAGE> 4
(4) the occurrence of any of the following with respect to the
Executive:
(1) she shall apply for or consent to the appointment
of a receiver, custodian, trustee or liquidator of
all or a substantial part of her property;
(2) she shall make a general assignment for the
benefit of her creditors;
(3) she shall commence a voluntary case under the
Federal Bankruptcy Code; or
(4) she shall file a petition to take advantage of any
other law providing for the relief of debtors.
1.8. Remedies Upon Default. Upon the occurrence and during the
continuance of an Event of Default, all indebtedness, obligations and
liabilities of the Executive arising hereunder shall, at the option of the
Company, become immediately due and payable. The Company may, in addition to all
other remedies available to it, exercise a right of setoff against the Pledged
Collateral (as defined below).
1.9. Extension of Payment Date. Notwithstanding anything in Section
1.7(c) hereof to the contrary, in the event that Executive's employment with the
Company is terminated and such termination arises from the death, disability or
retirement of the Executive or is without Cause, then, at the option of the
Executive and upon delivery of written notice to that effect, the obligation to
repay the Loan in full, together with accrued interest thereon, may be extended
to the second anniversary date of such termination or retirement or the Maturity
Date, whichever is earlier. For purposes of this Section, the term "Cause" shall
have the meaning assigned to it in that certain Employment Agreement dated of
even date herewith among the Executive, the Company and New Jersey State Medical
Underwriters, Inc.
2. Purchase and Sale of Common Stock.
2.1. Sale and Purchase. The Company shall issue and sell to the
Executive, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, and Executive shall purchase, the
Purchased Shares for the Purchase Price.
3
<PAGE> 5
2.2. Payment of Purchase Price. Upon payment in full of the Purchase
Price, receipt of which shall be deemed acknowledged by the Company on March 1,
2000, the Company shall deliver to Executive a stock certificate, registered in
the name of Executive, representing the Purchased Shares.
2.3. Lock-up. The Executive agrees that, for a one (1) year period
following the date of the issuance of the Purchased Shares, the Executive shall
not sell, transfer or otherwise dispose of any of the Purchased Shares without
the written consent of the Company.
3. Collateral.
3.1. Pledged Collateral. As security for the performance of this
Agreement and for the prompt and complete payment of the Loan, together with
accrued interest thereon, when due (whether at the Maturity Date, by
acceleration or otherwise), the Executive hereby grants to the Company the
following property (collectively, the "Pledged Collateral"):
(1) the Purchased Shares and the certificates or instruments
representing such stock and all dividends, interest, cash, instruments, and
other property from time to time received, receivable, or otherwise distributed
or distributable in respect of or in exchange for any or all of such stock;
(2) all proceeds of the foregoing.
3.2. Delivery of Purchased Shares. Promptly after his receipt of
stock certificates representing the Purchased Shares, the Executive shall
deliver to the Company such stock certificates, together with stock powers duly
executed in blank by the Executive.
3.3. Voting Rights, Dividends, Etc.
(1) The Executive shall be entitled to exercise any and all of
Executive's voting and other consensual rights pertaining to the Pledged
Collateral or any part thereof for any purpose not inconsistent with the terms
of this Agreement; and notwithstanding Section 3.1 but subject to Section 3.3(c)
shall be entitled to receive and retain free and clear of the security interest
of Company hereunder, any and all of such dividends, interest and other
distributions permitted to all other holders of the Company's Common Stock.
4
<PAGE> 6
(2) The Company shall execute and deliver (or cause to be
executed and delivered) to the Executive all such proxies and other instruments
as Executive may reasonably request for the purpose of enabling the Executive to
exercise the voting and other rights that she is entitled to exercise pursuant
to paragraph (a) above and to receive the dividends, interest and other
distributions that she is authorized to receive and retain pursuant to paragraph
(a) above.
(3) Upon the occurrence and during the continuance of an Event
of Default (i) all rights of the Executive to exercise the voting and other
consensual rights that she would otherwise be entitled to exercise pursuant to
Section 3.3(a) hereof and to receive the dividends, interest and other
distributions that she would otherwise be authorized to receive and retain
pursuant to Section 3.3(a) hereof shall cease, and all such rights shall
thereupon become vested in Company which shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive such dividends,
interest, and other distributions; and all dividends, interest and other
distributions which are received by Executive contrary to the provisions of this
paragraph shall be received in trust for the benefit of Company, shall be
segregated from other funds of Executive, and shall be forthwith paid over to
Company in the same form as so received (with any necessary endorsement).
3.4. Further Assurances. Executive agrees that at any time and from
time to time, at the expense of Executive, Executive will promptly execute and
deliver all further instruments and documents, and take all further action that
may be necessary, or that Company may reasonably request, in order to perfect
and protect any security interest granted or purported to be granted hereby or
to enable Company to exercise and enforce the rights and remedies hereunder with
respect to any of the Pledged Collateral.
3.5. Transfers and Liens. Executive will not (i) grant any option
with respect to any of the Pledged Collateral, or (ii) create or permit to exist
any lien, security interest, or other charge or encumbrance upon or with respect
to any of the Pledged Collateral.
3.6. Company Appointed Attorney-in-Fact. Executive hereby appoints
Company as Executive's attorney-in-fact, with full authority in the place and
stead of Executive and in the name of Executive, from time to time in Company's
discretion to take any action and to execute any instrument which Company may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, upon the occurrence and during the continuance of
an Event of Default to receive, endorse, and collect all instruments made
payable to Executive representing any dividend, interest, or other distribution
in respect of the Pledged Collateral or any part thereof and to give full
5
<PAGE> 7
discharge for the same. Company shall not, in its capacity as such
attorney-in-fact, be liable for any acts or omissions, nor for any error of
judgment or mistake of fact or law, but only for bad faith, willful misconduct
or gross negligence. This power, being coupled with an interest, is irrevocable
until all obligations under the Note have been fully satisfied.
3.7. Company's Duties. The powers conferred on the Company hereunder
are solely to protect its interests in the Pledged Collateral and shall not
impose any duty to exercise any such powers. Except for the safe custody of any
Pledged Collateral in its possession and the accounting for moneys actually
received by it hereunder, Company shall not have any duty as to any Pledged
Collateral or as to the taking of any necessary steps to preserve rights against
any parties or any other rights pertaining to any Pledged Collateral. Without
limiting the generality of the foregoing, Company shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders, or other matters relating to any
Pledged Collateral, whether or not Company has or is deemed to have knowledge of
such matters.
3.8. Prepayments. In the event of any prepayment, whether voluntary
or mandatory, the Company shall release from the Pledged Collateral, and deliver
to the Executive, stock certificates evidencing that number of Purchased Shares
which have an aggregate fair market value equal to the amount of the prepayment.
In no event, however, shall the remaining Pledged Collateral have a fair market
value less than the unpaid principal balance of the Loan and accrued interest
thereon.
3.9. Transfer of Title. After the occurrence and during the
continuance of an Event of Default, Company shall have the right, at any time in
its discretion without further notice to Executive, to transfer to or to
register in the name of Company or its nominees, any or all of the Pledged
Collateral. In addition, upon the occurrence and during the continuance of an
Event of Default, Company shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations.
3.10. Termination. The provisions of this Section 3 shall terminate
upon payment in full of the Loan, together with accrued interest thereon, at
which time the Company shall promptly deliver to Executive stock certificates
evidencing the Purchased Shares remaining in its possession.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Executive as follows:
6
<PAGE> 8
4.1. Organization. The Company (a) is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and (b) has all requisite corporate power and authority to execute,
deliver and perform this Agreement.
4.2. Authorization of Agreement.
(1) The execution, delivery and performance by the Company of
this Agreement has been duly authorized by all requisite corporate action by the
Company, and this Agreement constitutes the valid and binding obligation of the
Company.
(2) The issuance, sale and delivery of the Purchased Shares
have been duly authorized by all requisite corporate action of the Company, and
when issued, sold and delivered in accordance with this Agreement, the Purchased
Shares will be validly issued and outstanding, fully paid and non-assessable,
and not subject to preemptive or any other similar rights of the stockholders of
the Company or others.
4.3. SEC Registration Statement. The Company has made available to
the Executive, in the form filed with the SEC and as amended prior to the date
hereof, the Form S-1 Registration Statement (Registration No. 333-59371) (the
"Registration Statement"). The Registration Statement complies as to form in all
material respects with the requirements of the Securities Act of 1933 (the
"Securities Act") and the rules and regulations thereunder, and did not, on the
date when it was declared effective, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein in light of the circumstances under
which they were made not misleading.
5. Representations of the Executive. The Executive represents, warrants
and covenants to the Company that:
(1) Executive has the full power and authority and has full
legal right to execute and deliver this Agreement and the Note, to perform,
observe and comply with all of her agreements and obligations under each of this
Agreement and the Note and to obtain the proceeds of the Loan contemplated by
this Agreement;
(2) Executive has duly executed and delivered this Agreement
and this Agreement constitutes the valid and binding obligation of Executive,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, moratorium or similar laws affecting creditors' rights or
by general principles of equity;
7
<PAGE> 9
(3) Executive is acquiring the Purchased Shares for her own
account, for investment and not with a view to the distribution thereof within
the meaning of the Securities Act;
(4) Executive understands that the Purchased Shares have not
been and shall not be registered under the Securities Act, by reason of their
issuance by the Company in a transaction exempt from the registration
requirements of the Securities Act; and any subsequent disposition thereof must
be registered under the Securities Act or must be exempt from registration;
(5) Executive understands that: (i) the exemption from
registration afforded by Rule 144 (the provisions of which are known to her)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if and when applicable, Rule 144 may only afford the basis
for sales in limited amounts; and (ii) the Company is under no obligation to
register the Purchased Shares on behalf of the Executive or to assist the
Executive in complying with any exemption from registration;
(6) she is an accredited investor as defined in Rule 501(a)
promulgated under the Securities Act.
6. Certain Restrictions.
6.1. Legend. The certificate for the Purchased Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO
8
<PAGE> 10
THE CONDITIONS SET FORTH IN THAT CERTAIN STOCK PURCHASE AND LOAN
AGREEMENT BY AND BETWEEN THE COMPANY AND PATRICIA A. COSTANTE
6.2. Opinion. Company agrees to reimburse Executive for the
cost of obtaining any opinion required by the above legend.
7. Miscellaneous.
7.1. Amendments, Indulgences, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by Executive herefrom
shall in any event be effective unless the same shall be in writing and signed
by Company, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure or
delay on the part of Company in the exercise of any right, power, or remedy
under this Agreement shall constitute a waiver thereof, or prevent the exercise
thereof in that or any other instance.
7.2. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and, if to Executive, mailed or
telefaxed or delivered to them at the addresses therefor shown at the time in
Company's records, and, if to Company, mailed or delivered to it at Two Princess
Road, Lawrenceville, New Jersey 08648.
7.3. Continuing Security Interest. This Agreement creates a
continuing security interest in the Pledged Collateral and shall be binding upon
Executive, and her heirs, executors, administrators, successors, and assigns and
inure to the benefit of Company and its successors, transferees and assigns. The
execution and delivery of this Agreement shall in no manner impair or affect any
other security (by endorsement or otherwise) for the payment or performance of
the Note and no security taken hereafter as security for payment or performance
of the Note shall impair in any manner or affect this Agreement or the security
interest granted hereby, all such present and future additional security to be
considered as cumulative security. Any of the Pledged Collateral may be released
from this Agreement without altering, varying, or diminishing in any way this
Agreement or the security interest granted hereby as to the Pledged Collateral
not expressly released, and this Agreement and such security interest shall
continue in full force and effect as to all of the Pledged Collateral not
expressly released.
7.4. Governing Law, Consent to Jurisdiction, Etc. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New Jersey
9
<PAGE> 11
applicable to contracts made and wholly performed within New Jersey. Executive
consents to the jurisdiction of the courts of New Jersey and of the courts of
the United States sitting in New Jersey in any litigation concerning this
Agreement, and Executive waives any objection based on venue or inconvenient
forum. Unless otherwise defined herein, terms defined in the Uniform Commercial
Code as in effect on the date hereof are used herein as therein defined as of
such date.
7.5. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.6. Severability. The provisions of this Agreement are independent
of and separable from each other, and no such provision, shall be altered or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other such provision may be invalid or unenforceable in whole or in part.
7.7. Headings. The section headings of this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.
7.8. Entire Agreement. This Agreement sets forth all of the
promises, covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have executed this Agreement as of the date first above written.
THE MIIX GROUP, INCORPORATED
By:_______________________________
__________________________________
PATRICIA A. COSTANTE
10
<PAGE> 12
Exhibit A
PROMISSORY NOTE
Lawrenceville, New Jersey
$440,000 March 1, 2000
The Undersigned, for value received and intending to be legally
bound, promises to pay to the order of THE MIIX GROUP, INCORPORATED (the
"Lender"), as and when due as set forth in the Stock Purchase and Loan Agreement
dated the date hereof between the Undersigned and Lender (as such agreement may
be amended, restated, modified or supplemented from time to time, the "Loan
Agreement"), the principal sum of $440,000. Capitalized terms used herein and
not otherwise defined shall have the meanings given such terms in the Loan
Agreement.
The undersigned further promises to pay to the order of Lender
interest on the unpaid principal amount of the Loan from the date hereof until
such amounts have been repaid in full. Interest shall be at the annual rate of
____ percent (____%) and shall be due and payable on the Maturity Date (unless
accelerated sooner under the terms of the Loan Agreement).
This is the Note mentioned in, and is entitled to the benefits of,
the Loan Agreement.
This Note may be prepaid at any time, in whole or in part, without
premium or penalty. All payments in respect of this Note shall be applied first
to accrued interest and then to principal outstanding hereunder. Mandatory
prepayments shall be required from time to time pursuant to Section 1.6 of the
Loan Agreement.
This Note shall be deemed to be a contract made under the laws of
the State of New Jersey and shall be construed in accordance with the laws of
said state without giving effect to principles of conflicts of law.
This Note shall be binding upon the undersigned and her heirs,
executors, administrators, transferees and assigns and the terms hereof shall
inure to the benefit of lender and its successors and assigns, including
subsequent holders hereof.
The undersigned hereby waives presentment, demand for payment,
notice of dishonor or acceleration, protest and notice of protest, and any and
all other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note except any notice expressly
required in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned executes this Note on the day
and year first above written.
----------------------------------
PATRICIA A. COSTANTE
<PAGE> 1
EXHIBIT 10.25
STOCK PURCHASE AND LOAN AGREEMENT
BY AND BETWEEN
THE MIIX GROUP INCORPORATED
AND
EDWARD M. GRAB
DATED: MARCH 1, 2000
<PAGE> 2
STOCK PURCHASE AND LOAN AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT (the "Agreement"), made as of
this 1st day of March, 2000, by and between THE MIIX GROUP, INCORPORATED, a
Delaware corporation (the "Company"), and EDWARD M. GRAB (the "Executive").
BACKGROUND
WHEREAS, the Company desires to ensure that key members of its
senior management share with its stockholders the common goal of achieving
long-term growth in the market value of the Company which equals or exceeds the
growth of competitive companies in the insurance industry; and
WHEREAS, to achieve this objective, the Company requires that the
Executive purchase that number of shares of common stock of the Company (the
"Purchased Shares") having an aggregate purchase price of $330,000, rounded to
the nearest whole share, based on the average daily trading price per share of
the common stock on March 1, 2000 (the "Purchase Price"); and
WHEREAS, the Company intends to make a loan to the Executive in an
amount equal to the Purchase Price, and Executive intends to secure such loan
with a pledge of the Purchased Shares;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
TERMS
1. Loan.
1.1. Loan. Subject to the terms and conditions hereof, the Company
shall lend to the Executive the aggregate principal amount of $330,000 (the
"Loan").
1.2. Purpose of Loan. The Executive shall use the proceeds of the
Loan solely for the purpose of purchasing the Purchased Shares pursuant to
Section 2 hereof.
1.3. Promissory Note. The obligation of the Executive to repay the
Loan shall be evidenced by the Executive's promissory note, substantially in the
form attached
<PAGE> 3
hereto as Exhibit A (the "Note"), in the original principal amount of $330,000.
The Note shall be dated March 1, 2000, the date of the purchase of the Purchased
Shares, shall mature and become due and payable on the Maturity Date
(hereinafter defined) and shall bear interest as set forth in Section 1.4(b).
1.4. Principal Payments; Maturity; Interest Rate.
(1) Principal Payments. Unless sooner accelerated as provided
herein, the principal amount of the Loan shall be due and payable in full on
March 1, 2005, the fifth anniversary date of the Note (the "Maturity Date").
Notwithstanding the collateral pledged to the Company pursuant to Section 3
hereof, Executive shall have personal liability for the full payment of the
Loan, together with accrued interest thereon.
(2) Interest Rate and Payment. The principal amount of the
Loan shall bear interest from the date of the Note until the Maturity Date
(unless otherwise accelerated as provided herein) at a rate per annum equal to
the minimum interest rate necessary to avoid income imputation under the
Internal Revenue Code as of the date of the Note. Interest shall be due and
payable on the Maturity Date.
1.5. Voluntary Prepayments. The Executive shall have the right to
prepay the Loan in whole or in part from time to time, without penalty or
premium.
1.6. Mandatory Prepayments. In the event that Executive sells any of
the Purchased Shares during the term of the Loan, the Executive shall, within
five (5) days of such sale, make a mandatory prepayment of the Loan in an amount
equal to the product of the number of Purchased Shares sold and the Purchase
Price. In the event that such sale is made on an installment basis, Executive
shall make a mandatory prepayment as and when proceeds of the sale are received
by the Executive.
1.7. Events of Default. Each of the following shall constitute an
event of default (each, an "Event of Default") under this Agreement:
(1) the failure of the Executive to pay when due any principal
or interest or other amount due hereunder or under the Note.
(2) any warranty or representation made by the Executive in
this Agreement shall prove to have been false or incorrect on the date as of
which made.
(3) the termination of Executive's employment with the Company
for any reason.
2
<PAGE> 4
(4) the occurrence of any of the following with respect to the
Executive:
(1) he shall apply for or consent to the appointment
of a receiver, custodian, trustee or liquidator of
all or a substantial part of his property;
(2) he shall make a general assignment for the benefit
of his creditors;
(3) he shall commence a voluntary case under the
Federal Bankruptcy Code; or
(4) he shall file a petition to take advantage of any
other law providing for the relief of debtors.
1.8. Remedies Upon Default. Upon the occurrence and during the
continuance of an Event of Default, all indebtedness, obligations and
liabilities of the Executive arising hereunder shall, at the option of the
Company, become immediately due and payable. The Company may, in addition to all
other remedies available to it, exercise a right of setoff against the Pledged
Collateral (as defined below).
1.9. Extension of Payment Date. Notwithstanding anything in Section
1.7(c) hereof to the contrary, in the event that Executive's employment with the
Company is terminated and such termination arises from the death, disability or
retirement of the Executive or is without Cause, then, at the option of the
Executive and upon delivery of written notice to that effect, the obligation to
repay the Loan in full, together with accrued interest thereon, may be extended
to the second anniversary date of such termination or retirement or the Maturity
Date, whichever is earlier. For purposes of this Section, the term "Cause" shall
have the meaning assigned to it in that certain Employment Agreement dated of
even date herewith among the Executive, the Company and New Jersey State Medical
Underwriters, Inc.
2. Purchase and Sale of Common Stock.
2.1. Sale and Purchase. The Company shall issue and sell to the
Executive, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, and Executive shall purchase, the
Purchased Shares for the Purchase Price.
3
<PAGE> 5
2.2. Payment of Purchase Price. Upon payment in full of the Purchase
Price, receipt of which shall be deemed acknowledged by the Company on March 1,
2000, the Company shall deliver to Executive a stock certificate, registered in
the name of Executive, representing the Purchased Shares.
2.3. Lock-up. The Executive agrees that, for a one (1) year period
following the date of the issuance of the Purchased Shares, the Executive shall
not sell, transfer or otherwise dispose of any of the Purchased Shares without
the written consent of the Company.
3. Collateral.
3.1. Pledged Collateral. As security for the performance of this
Agreement and for the prompt and complete payment of the Loan, together with
accrued interest thereon, when due (whether at the Maturity Date, by
acceleration or otherwise), the Executive hereby grants to the Company the
following property (collectively, the "Pledged Collateral"):
(1) the Purchased Shares and the certificates or instruments
representing such stock and all dividends, interest, cash, instruments, and
other property from time to time received, receivable, or otherwise distributed
or distributable in respect of or in exchange for any or all of such stock;
(2) all proceeds of the foregoing.
3.2. Delivery of Purchased Shares. Promptly after his receipt of
stock certificates representing the Purchased Shares, the Executive shall
deliver to the Company such stock certificates, together with stock powers duly
executed in blank by the Executive.
3.3. Voting Rights, Dividends, Etc.
(1) The Executive shall be entitled to exercise any and all of
Executive's voting and other consensual rights pertaining to the Pledged
Collateral or any part thereof for any purpose not inconsistent with the terms
of this Agreement; and notwithstanding Section 3.1 but subject to Section 3.3(c)
shall be entitled to receive and retain free and clear of the security interest
of Company hereunder, any and all of such dividends, interest and other
distributions permitted to all other holders of the Company's Common Stock.
4
<PAGE> 6
(2) The Company shall execute and deliver (or cause to be
executed and delivered) to the Executive all such proxies and other instruments
as Executive may reasonably request for the purpose of enabling the Executive to
exercise the voting and other rights that he is entitled to exercise pursuant to
paragraph (a) above and to receive the dividends, interest and other
distributions that he is authorized to receive and retain pursuant to paragraph
(a) above.
(3) Upon the occurrence and during the continuance of an Event
of Default (i) all rights of the Executive to exercise the voting and other
consensual rights that he would otherwise be entitled to exercise pursuant to
Section 3.3(a) hereof and to receive the dividends, interest and other
distributions that he would otherwise be authorized to receive and retain
pursuant to Section 3.3(a) hereof shall cease, and all such rights shall
thereupon become vested in Company which shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive such dividends,
interest, and other distributions; and all dividends, interest and other
distributions which are received by Executive contrary to the provisions of this
paragraph shall be received in trust for the benefit of Company, shall be
segregated from other funds of Executive, and shall be forthwith paid over to
Company in the same form as so received (with any necessary endorsement).
3.4. Further Assurances. Executive agrees that at any time and from
time to time, at the expense of Executive, Executive will promptly execute and
deliver all further instruments and documents, and take all further action that
may be necessary, or that Company may reasonably request, in order to perfect
and protect any security interest granted or purported to be granted hereby or
to enable Company to exercise and enforce the rights and remedies hereunder with
respect to any of the Pledged Collateral.
3.5. Transfers and Liens. Executive will not (i) grant any option
with respect to any of the Pledged Collateral, or (ii) create or permit to exist
any lien, security interest, or other charge or encumbrance upon or with respect
to any of the Pledged Collateral.
3.6. Company Appointed Attorney-in-Fact. Executive hereby appoints
Company as Executive's attorney-in-fact, with full authority in the place and
stead of Executive and in the name of Executive, from time to time in Company's
discretion to take any action and to execute any instrument which Company may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, upon the occurrence and during the continuance of
an Event of Default to receive, endorse, and collect all instruments made
payable to Executive representing any dividend, interest, or other distribution
in respect of the Pledged Collateral or any part thereof and to give full
5
<PAGE> 7
discharge for the same. Company shall not, in its capacity as such
attorney-in-fact, be liable for any acts or omissions, nor for any error of
judgment or mistake of fact or law, but only for bad faith, willful misconduct
or gross negligence. This power, being coupled with an interest, is irrevocable
until all obligations under the Note have been fully satisfied.
3.7. Company's Duties. The powers conferred on the Company hereunder
are solely to protect its interests in the Pledged Collateral and shall not
impose any duty to exercise any such powers. Except for the safe custody of any
Pledged Collateral in its possession and the accounting for moneys actually
received by it hereunder, Company shall not have any duty as to any Pledged
Collateral or as to the taking of any necessary steps to preserve rights against
any parties or any other rights pertaining to any Pledged Collateral. Without
limiting the generality of the foregoing, Company shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders, or other matters relating to any
Pledged Collateral, whether or not Company has or is deemed to have knowledge of
such matters.
3.8. Prepayments. In the event of any prepayment, whether voluntary
or mandatory, the Company shall release from the Pledged Collateral, and deliver
to the Executive, stock certificates evidencing that number of Purchased Shares
which have an aggregate fair market value equal to the amount of the prepayment.
In no event, however, shall the remaining Pledged Collateral have a fair market
value less than the unpaid principal balance of the Loan and accrued interest
thereon.
3.9. Transfer of Title. After the occurrence and during the
continuance of an Event of Default, Company shall have the right, at any time in
its discretion without further notice to Executive, to transfer to or to
register in the name of Company or its nominees, any or all of the Pledged
Collateral. In addition, upon the occurrence and during the continuance of an
Event of Default, Company shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations.
3.10. Termination. The provisions of this Section 3 shall terminate
upon payment in full of the Loan, together with accrued interest thereon, at
which time the Company shall promptly deliver to Executive stock certificates
evidencing the Purchased Shares remaining in its possession.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Executive as follows:
6
<PAGE> 8
4.1. Organization. The Company (a) is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and (b) has all requisite corporate power and authority to execute,
deliver and perform this Agreement.
4.2. Authorization of Agreement.
(1) The execution, delivery and performance by the Company of
this Agreement has been duly authorized by all requisite corporate action by the
Company, and this Agreement constitutes the valid and binding obligation of the
Company.
(2) The issuance, sale and delivery of the Purchased Shares
have been duly authorized by all requisite corporate action of the Company, and
when issued, sold and delivered in accordance with this Agreement, the Purchased
Shares will be validly issued and outstanding, fully paid and non-assessable,
and not subject to preemptive or any other similar rights of the stockholders of
the Company or others.
4.3. SEC Registration Statement. The Company has made available to
the Executive, in the form filed with the SEC and as amended prior to the date
hereof, the Form S-1 Registration Statement (Registration No. 333-59371) (the
"Registration Statement"). The Registration Statement complies as to form in all
material respects with the requirements of the Securities Act of 1933 (the
"Securities Act") and the rules and regulations thereunder, and did not, on the
date when it was declared effective, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein in light of the circumstances under
which they were made not misleading.
5. Representations of the Executive. The Executive represents, warrants
and covenants to the Company that:
(1) Executive has the full power and authority and has full
legal right to execute and deliver this Agreement and the Note, to perform,
observe and comply with all of his agreements and obligations under each of this
Agreement and the Note and to obtain the proceeds of the Loan contemplated by
this Agreement;
(2) Executive has duly executed and delivered this Agreement
and this Agreement constitutes the valid and binding obligation of Executive,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, moratorium or similar laws affecting creditors' rights or
by general principles of equity;
7
<PAGE> 9
(3) Executive is acquiring the Purchased Shares for his own
account, for investment and not with a view to the distribution thereof within
the meaning of the Securities Act;
(4) Executive understands that the Purchased Shares have not
been and shall not be registered under the Securities Act, by reason of their
issuance by the Company in a transaction exempt from the registration
requirements of the Securities Act; and any subsequent disposition thereof must
be registered under the Securities Act or must be exempt from registration;
(5) Executive understands that: (i) the exemption from
registration afforded by Rule 144 (the provisions of which are known to him)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if and when applicable, Rule 144 may only afford the basis
for sales in limited amounts; and (ii) the Company is under no obligation to
register the Purchased Shares on behalf of the Executive or to assist the
Executive in complying with any exemption from registration;
(6) he is an accredited investor as defined in Rule 501(a)
promulgated under the Securities Act.
6. Certain Restrictions.
6.1. Legend. The certificate for the Purchased Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO
8
<PAGE> 10
THE CONDITIONS SET FORTH IN THAT CERTAIN STOCK PURCHASE AND LOAN
AGREEMENT BY AND BETWEEN THE COMPANY AND EDWARD M. GRAB
6.2. Opinion. Company agrees to reimburse Executive for the
cost of obtaining any opinion required by the above legend.
7. Miscellaneous.
7.1. Amendments, Indulgences, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by Executive herefrom
shall in any event be effective unless the same shall be in writing and signed
by Company, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure or
delay on the part of Company in the exercise of any right, power, or remedy
under this Agreement shall constitute a waiver thereof, or prevent the exercise
thereof in that or any other instance.
7.2. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and, if to Executive, mailed or
telefaxed or delivered to them at the addresses therefor shown at the time in
Company's records, and, if to Company, mailed or delivered to it at Two Princess
Road, Lawrenceville, New Jersey 08648.
7.3. Continuing Security Interest. This Agreement creates a
continuing security interest in the Pledged Collateral and shall be binding upon
Executive, and his heirs, executors, administrators, successors, and assigns and
inure to the benefit of Company and its successors, transferees and assigns. The
execution and delivery of this Agreement shall in no manner impair or affect any
other security (by endorsement or otherwise) for the payment or performance of
the Note and no security taken hereafter as security for payment or performance
of the Note shall impair in any manner or affect this Agreement or the security
interest granted hereby, all such present and future additional security to be
considered as cumulative security. Any of the Pledged Collateral may be released
from this Agreement without altering, varying, or diminishing in any way this
Agreement or the security interest granted hereby as to the Pledged Collateral
not expressly released, and this Agreement and such security interest shall
continue in full force and effect as to all of the Pledged Collateral not
expressly released.
7.4. Governing Law, Consent to Jurisdiction, Etc. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New Jersey applicable to contracts made and wholly performed within New Jersey.
Executive consents
9
<PAGE> 11
to the jurisdiction of the courts of New Jersey and of the courts of the United
States sitting in New Jersey in any litigation concerning this Agreement, and
Executive waives any objection based on venue or inconvenient forum. Unless
otherwise defined herein, terms defined in the Uniform Commercial Code as in
effect on the date hereof are used herein as therein defined as of such date.
7.5. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.6. Severability. The provisions of this Agreement are independent
of and separable from each other, and no such provision, shall be altered or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other such provision may be invalid or unenforceable in whole or in part.
7.7. Headings. The section headings of this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.
7.8. Entire Agreement. This Agreement sets forth all of the
promises, covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have executed this Agreement as of the date first above written.
THE MIIX GROUP, INCORPORATED
By:_______________________________
__________________________________
EDWARD M. GRAB
10
<PAGE> 12
Exhibit A
PROMISSORY NOTE
Lawrenceville, New Jersey
$330,000 March 1, 2000
The Undersigned, for value received and intending to be legally
bound, promises to pay to the order of THE MIIX GROUP, INCORPORATED (the
"Lender"), as and when due as set forth in the Stock Purchase and Loan Agreement
dated the date hereof between the Undersigned and Lender (as such agreement may
be amended, restated, modified or supplemented from time to time, the "Loan
Agreement"), the principal sum of $330,000. Capitalized terms used herein and
not otherwise defined shall have the meanings given such terms in the Loan
Agreement.
The undersigned further promises to pay to the order of Lender
interest on the unpaid principal amount of the Loan from the date hereof until
such amounts have been repaid in full. Interest shall be at the annual rate of
____ percent (____%) and shall be due and payable on the Maturity Date (unless
accelerated sooner under the terms of the Loan Agreement).
This is the Note mentioned in, and is entitled to the benefits of,
the Loan Agreement.
This Note may be prepaid at any time, in whole or in part, without
premium or penalty. All payments in respect of this Note shall be applied first
to accrued interest and then to principal outstanding hereunder. Mandatory
prepayments shall be required from time to time pursuant to Section 1.6 of the
Loan Agreement.
This Note shall be deemed to be a contract made under the laws of
the State of New Jersey and shall be construed in accordance with the laws of
said state without giving effect to principles of conflicts of law.
This Note shall be binding upon the undersigned and his heirs,
executors, administrators, transferees and assigns and the terms hereof shall
inure to the benefit of lender and its successors and assigns, including
subsequent holders hereof.
The undersigned hereby waives presentment, demand for payment,
notice of dishonor or acceleration, protest and notice of protest, and any and
all other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note except any notice expressly
required in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned executes this Note on the day
and year first above written.
----------------------------------
EDWARD M. GRAB
<PAGE> 1
EXHIBIT 10.27
STOCK PURCHASE AND LOAN AGREEMENT
BY AND BETWEEN
THE MIIX GROUP INCORPORATED
AND
LISA KRAMER
DATED: DECEMBER 15, 1999
<PAGE> 2
STOCK PURCHASE AND LOAN AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT (the "Agreement"), made as of
this 15th day of December, 1999, by and between THE MIIX GROUP, INCORPORATED, a
Delaware corporation (the "Company"), and LISA KRAMER (the "Executive").
BACKGROUND
WHEREAS, the Company desires to ensure that key members of its
senior management share with its stockholders the common goal of achieving
long-term growth in the market value of the Company which equals or exceeds the
growth of competitive companies in the insurance industry; and
WHEREAS, to achieve this objective, the Company requires that the
Executive purchase that number of shares of common stock of the Company (the
"Purchased Shares") having an aggregate purchase price of $500,000 rounded to
the nearest whole share, based on the average daily trading price per share of
the common stock on December 15, 1999 (the "Purchase Price"); and
WHEREAS, the Company intends to make a loan to the Executive in an
amount equal to the Purchase Price, and Executive intends to secure such loan
with a pledge of the Purchased Shares;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
TERMS
1. Loan.
1.1. Loan. Subject to the terms and conditions hereof, the Company
shall lend to the Executive the aggregate principal amount of $500,000 (the
"Loan").
1.2. Purpose of Loan. The Executive shall use the proceeds of the
Loan solely for the purpose of purchasing the Purchased Shares pursuant to
Section 2 hereof.
1.3. Promissory Note. The obligation of the Executive to repay the
Loan shall be evidenced by the Executive's promissory note, substantially in the
form attached
<PAGE> 3
hereto as Exhibit A (the "Note"), in the original principal amount of $500,000.
The Note shall be dated December 15, 1999, the date of the purchase of the
Purchased Shares, shall mature and become due and payable on the Maturity Date
(hereinafter defined) and shall bear interest as set forth in Section 1.4(b).
1.4. Principal Payments; Maturity; Interest Rate.
(1) Principal Payments. Unless sooner accelerated as provided
herein, the principal amount of the Loan shall be due and payable in full on
December 15, 2004, the fifth anniversary date of the Note (the "Maturity Date").
Notwithstanding the collateral pledged to the Company pursuant to Section 3
hereof, Executive shall have personal liability for the full payment of the
Loan, together with accrued interest thereon.
(2) Interest Rate and Payment. The principal amount of the
Loan shall bear interest from the date of the Note until the Maturity Date
(unless otherwise accelerated as provided herein) at a rate per annum equal to
the minimum interest rate necessary to avoid income imputation under the
Internal Revenue Code as of the date of the Note. Interest shall be due and
payable on the Maturity Date.
1.5. Voluntary Prepayments. The Executive shall have the right to
prepay the Loan in whole or in part from time to time, without penalty or
premium.
1.6. Mandatory Prepayments. In the event that Executive sells any of
the Purchased Shares during the term of the Loan, the Executive shall, within
five (5) days of such sale, make a mandatory prepayment of the Loan in an amount
equal to the product of the number of Purchased Shares sold and the Purchase
Price. In the event that such sale is made on an installment basis, Executive
shall make a mandatory prepayment as and when proceeds of the sale are received
by the Executive.
1.7. Events of Default. Each of the following shall constitute an
event of default (each, an "Event of Default") under this Agreement:
(1) the failure of the Executive to pay when due any principal
or interest or other amount due hereunder or under the Note.
(2) any warranty or representation made by the Executive in
this Agreement shall prove to have been false or incorrect on the date as of
which made.
(3) the termination of Executive's employment with the Company
for any reason.
2
<PAGE> 4
(4) the occurrence of any of the following with respect to the
Executive:
(1) she shall apply for or consent to the appointment
of a receiver, custodian, trustee or liquidator of
all or a substantial part of her property;
(2) she shall make a general assignment for the
benefit of her creditors;
(3) she shall commence a voluntary case under the
Federal Bankruptcy Code; or
(4) she shall file a petition to take advantage of any
other law providing for the relief of debtors.
1.8. Remedies Upon Default. Upon the occurrence and during the
continuance of an Event of Default, all indebtedness, obligations and
liabilities of the Executive arising hereunder shall, at the option of the
Company, become immediately due and payable. The Company may, in addition to all
other remedies available to it, exercise a right of setoff against the Pledged
Collateral (as defined below).
1.9. Extension of Payment Date. Notwithstanding anything in Section
1.7(c) hereof to the contrary, in the event that Executive's employment with the
Company is terminated and such termination arises from the death, disability or
retirement of the Executive or is without Cause, then, at the option of the
Executive and upon delivery of written notice to that effect, the obligation to
repay the Loan in full, together with accrued interest thereon, may be extended
to the second anniversary date of such termination or retirement or the Maturity
Date, whichever is earlier. For purposes of this Section, the term "Cause" shall
have the meaning assigned to it in that certain Employment Agreement dated of
even date herewith among the Executive, the Company and New Jersey State Medical
Underwriters, Inc.
2. Purchase and Sale of Common Stock.
2.1. Sale and Purchase. The Company shall issue and sell to the
Executive, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, and Executive shall purchase, the
Purchased Shares for the Purchase Price.
3
<PAGE> 5
2.2. Payment of Purchase Price. Upon payment in full of the Purchase
Price, receipt of which shall be deemed acknowledged by the Company on December
15, 1999, the Company shall deliver to Executive a stock certificate, registered
in the name of Executive, representing the Purchased Shares.
2.3. Lock-up. The Executive agrees that, for a one (1) year period
following the date of the issuance of the Purchased Shares, the Executive shall
not sell, transfer or otherwise dispose of any of the Purchased Shares without
the written consent of the Company.
3. Collateral.
3.1. Pledged Collateral. As security for the performance of this
Agreement and for the prompt and complete payment of the Loan, together with
accrued interest thereon, when due (whether at the Maturity Date, by
acceleration or otherwise), the Executive hereby grants to the Company the
following property (collectively, the "Pledged Collateral"):
(1) the Purchased Shares and the certificates or instruments
representing such stock and all dividends, interest, cash, instruments, and
other property from time to time received, receivable, or otherwise distributed
or distributable in respect of or in exchange for any or all of such stock;
(2) all proceeds of the foregoing.
3.2. Delivery of Purchased Shares. Promptly after his receipt of
stock certificates representing the Purchased Shares, the Executive shall
deliver to the Company such stock certificates, together with stock powers duly
executed in blank by the Executive.
3.3. Voting Rights, Dividends, Etc.
(1) The Executive shall be entitled to exercise any and all of
Executive's voting and other consensual rights pertaining to the Pledged
Collateral or any part thereof for any purpose not inconsistent with the terms
of this Agreement; and notwithstanding Section 3.1 but subject to Section 3.3(c)
shall be entitled to receive and retain free and clear of the security interest
of Company hereunder, any and all of such dividends, interest and other
distributions permitted to all other holders of the Company's Common Stock.
4
<PAGE> 6
(2) The Company shall execute and deliver (or cause to be
executed and delivered) to the Executive all such proxies and other instruments
as Executive may reasonably request for the purpose of enabling the Executive to
exercise the voting and other rights that she is entitled to exercise pursuant
to paragraph (a) above and to receive the dividends, interest and other
distributions that she is authorized to receive and retain pursuant to paragraph
(a) above.
(3) Upon the occurrence and during the continuance of an Event
of Default (i) all rights of the Executive to exercise the voting and other
consensual rights that she would otherwise be entitled to exercise pursuant to
Section 3.3(a) hereof and to receive the dividends, interest and other
distributions that she would otherwise be authorized to receive and retain
pursuant to Section 3.3(a) hereof shall cease, and all such rights shall
thereupon become vested in Company which shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive such dividends,
interest, and other distributions; and all dividends, interest and other
distributions which are received by Executive contrary to the provisions of this
paragraph shall be received in trust for the benefit of Company, shall be
segregated from other funds of Executive, and shall be forthwith paid over to
Company in the same form as so received (with any necessary endorsement).
3.4. Further Assurances. Executive agrees that at any time and from
time to time, at the expense of Executive, Executive will promptly execute and
deliver all further instruments and documents, and take all further action that
may be necessary, or that Company may reasonably request, in order to perfect
and protect any security interest granted or purported to be granted hereby or
to enable Company to exercise and enforce the rights and remedies hereunder with
respect to any of the Pledged Collateral.
3.5. Transfers and Liens. Executive will not (i) grant any option
with respect to any of the Pledged Collateral, or (ii) create or permit to exist
any lien, security interest, or other charge or encumbrance upon or with respect
to any of the Pledged Collateral.
3.6. Company Appointed Attorney-in-Fact. Executive hereby appoints
Company as Executive's attorney-in-fact, with full authority in the place and
stead of Executive and in the name of Executive, from time to time in Company's
discretion to take any action and to execute any instrument which Company may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, upon the occurrence and during the continuance of
an Event of Default to receive, endorse, and collect all instruments made
payable to Executive representing any dividend, interest, or other distribution
in respect of the Pledged Collateral or any part thereof and to give full
5
<PAGE> 7
discharge for the same. Company shall not, in its capacity as such
attorney-in-fact, be liable for any acts or omissions, nor for any error of
judgment or mistake of fact or law, but only for bad faith, willful misconduct
or gross negligence. This power, being coupled with an interest, is irrevocable
until all obligations under the Note have been fully satisfied.
3.7. Company's Duties. The powers conferred on the Company hereunder
are solely to protect its interests in the Pledged Collateral and shall not
impose any duty to exercise any such powers. Except for the safe custody of any
Pledged Collateral in its possession and the accounting for moneys actually
received by it hereunder, Company shall not have any duty as to any Pledged
Collateral or as to the taking of any necessary steps to preserve rights against
any parties or any other rights pertaining to any Pledged Collateral. Without
limiting the generality of the foregoing, Company shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders, or other matters relating to any
Pledged Collateral, whether or not Company has or is deemed to have knowledge of
such matters.
3.8. Prepayments. In the event of any prepayment, whether voluntary
or mandatory, the Company shall release from the Pledged Collateral, and deliver
to the Executive, stock certificates evidencing that number of Purchased Shares
which have an aggregate fair market value equal to the amount of the prepayment.
In no event, however, shall the remaining Pledged Collateral have a fair market
value less than the unpaid principal balance of the Loan and accrued interest
thereon.
3.9. Transfer of Title. After the occurrence and during the
continuance of an Event of Default, Company shall have the right, at any time in
its discretion without further notice to Executive, to transfer to or to
register in the name of Company or its nominees, any or all of the Pledged
Collateral. In addition, upon the occurrence and during the continuance of an
Event of Default, Company shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations.
3.10. Termination. The provisions of this Section 3 shall terminate
upon payment in full of the Loan, together with accrued interest thereon, at
which time the Company shall promptly deliver to Executive stock certificates
evidencing the Purchased Shares remaining in its possession.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Executive as follows:
6
<PAGE> 8
4.1. Organization. The Company (a) is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and (b) has all requisite corporate power and authority to execute,
deliver and perform this Agreement.
4.2. Authorization of Agreement.
(1) The execution, delivery and performance by the Company of
this Agreement has been duly authorized by all requisite corporate action by the
Company, and this Agreement constitutes the valid and binding obligation of the
Company.
(2) The issuance, sale and delivery of the Purchased Shares
have been duly authorized by all requisite corporate action of the Company, and
when issued, sold and delivered in accordance with this Agreement, the Purchased
Shares will be validly issued and outstanding, fully paid and non-assessable,
and not subject to preemptive or any other similar rights of the stockholders of
the Company or others.
4.3. SEC Registration Statement. The Company has made available to
the Executive, in the form filed with the SEC and as amended prior to the date
hereof, the Form S-1 Registration Statement (Registration No. 333-59371) (the
"Registration Statement"). The Registration Statement complies as to form in all
material respects with the requirements of the Securities Act of 1933 (the
"Securities Act") and the rules and regulations thereunder, and did not, on the
date when it was declared effective, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein in light of the circumstances under
which they were made not misleading.
5. Representations of the Executive. The Executive represents, warrants
and covenants to the Company that:
(1) Executive has the full power and authority and has full
legal right to execute and deliver this Agreement and the Note, to perform,
observe and comply with all of her agreements and obligations under each of this
Agreement and the Note and to obtain the proceeds of the Loan contemplated by
this Agreement;
(2) Executive has duly executed and delivered this Agreement
and this Agreement constitutes the valid and binding obligation of Executive,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, moratorium or similar laws affecting creditors' rights or
by general principles of equity;
7
<PAGE> 9
(3) Executive is acquiring the Purchased Shares for her own
account, for investment and not with a view to the distribution thereof within
the meaning of the Securities Act;
(4) Executive understands that the Purchased Shares have not
been and shall not be registered under the Securities Act, by reason of their
issuance by the Company in a transaction exempt from the registration
requirements of the Securities Act; and any subsequent disposition thereof must
be registered under the Securities Act or must be exempt from registration;
(5) Executive understands that: (i) the exemption from
registration afforded by Rule 144 (the provisions of which are known to her)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if and when applicable, Rule 144 may only afford the basis
for sales in limited amounts; and (ii) the Company is under no obligation to
register the Purchased Shares on behalf of the Executive or to assist the
Executive in complying with any exemption from registration;
(6) she is an accredited investor as defined in Rule 501(a)
promulgated under the Securities Act.
6. Certain Restrictions.
6.1. Legend. The certificate for the Purchased Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO
8
<PAGE> 10
THE CONDITIONS SET FORTH IN THAT CERTAIN STOCK PURCHASE AND LOAN
AGREEMENT BY AND BETWEEN THE COMPANY AND LISA KRAMER.
6.2. Opinion. Company agrees to reimburse Executive for the
cost of obtaining any opinion required by the above legend.
7. Miscellaneous.
7.1. Amendments, Indulgences, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by Executive herefrom
shall in any event be effective unless the same shall be in writing and signed
by Company, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure or
delay on the part of Company in the exercise of any right, power, or remedy
under this Agreement shall constitute a waiver thereof, or prevent the exercise
thereof in that or any other instance.
7.2. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and, if to Executive, mailed or
telefaxed or delivered to them at the addresses therefor shown at the time in
Company's records, and, if to Company, mailed or delivered to it at Two Princess
Road, Lawrenceville, New Jersey 08648.
7.3. Continuing Security Interest. This Agreement creates a
continuing security interest in the Pledged Collateral and shall be binding upon
Executive, and her heirs, executors, administrators, successors, and assigns and
inure to the benefit of Company and its successors, transferees and assigns. The
execution and delivery of this Agreement shall in no manner impair or affect any
other security (by endorsement or otherwise) for the payment or performance of
the Note and no security taken hereafter as security for payment or performance
of the Note shall impair in any manner or affect this Agreement or the security
interest granted hereby, all such present and future additional security to be
considered as cumulative security. Any of the Pledged Collateral may be released
from this Agreement without altering, varying, or diminishing in any way this
Agreement or the security interest granted hereby as to the Pledged Collateral
not expressly released, and this Agreement and such security interest shall
continue in full force and effect as to all of the Pledged Collateral not
expressly released.
7.4. Governing Law, Consent to Jurisdiction, Etc. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New Jersey applicable to contracts made and wholly performed within New Jersey.
Executive consents
9
<PAGE> 11
to the jurisdiction of the courts of New Jersey and of the courts of the United
States sitting in New Jersey in any litigation concerning this Agreement, and
Executive waives any objection based on venue or inconvenient forum. Unless
otherwise defined herein, terms defined in the Uniform Commercial Code as in
effect on the date hereof are used herein as therein defined as of such date.
7.5. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.6. Severability. The provisions of this Agreement are independent
of and separable from each other, and no such provision, shall be altered or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other such provision may be invalid or unenforceable in whole or in part.
7.7. Headings. The section headings of this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.
7.8. Entire Agreement. This Agreement sets forth all of the
promises, covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have executed this Agreement as of the date first above written.
THE MIIX GROUP, INCORPORATED
By:_______________________________
__________________________________
LISA KRAMER
10
<PAGE> 12
Exhibit A
PROMISSORY NOTE
Lawrenceville, New Jersey
$500,000 December 15, 1999
The Undersigned, for value received and intending to be legally
bound, promises to pay to the order of THE MIIX GROUP, INCORPORATED (the
"Lender"), as and when due as set forth in the Stock Purchase and Loan Agreement
dated the date hereof between the Undersigned and Lender (as such agreement may
be amended, restated, modified or supplemented from time to time, the "Loan
Agreement"), the principal sum of $500,000. Capitalized terms used herein and
not otherwise defined shall have the meanings given such terms in the Loan
Agreement.
The undersigned further promises to pay to the order of Lender
interest on the unpaid principal amount of the Loan from the date hereof until
such amounts have been repaid in full. Interest shall be at the annual rate of
6.02 percent (6.02%) and shall be due and payable on the Maturity Date (unless
accelerated sooner under the terms of the Loan Agreement).
This is the Note mentioned in, and is entitled to the benefits of,
the Loan Agreement.
This Note may be prepaid at any time, in whole or in part, without
premium or penalty. All payments in respect of this Note shall be applied first
to accrued interest and then to principal outstanding hereunder. Mandatory
prepayments shall be required from time to time pursuant to Section 1.6 of the
Loan Agreement.
This Note shall be deemed to be a contract made under the laws of
the State of New Jersey and shall be construed in accordance with the laws of
said state without giving effect to principles of conflicts of law.
This Note shall be binding upon the undersigned and her heirs,
executors, administrators, transferees and assigns and the terms hereof shall
inure to the benefit of lender and its successors and assigns, including
subsequent holders hereof.
The undersigned hereby waives presentment, demand for payment,
notice of dishonor or acceleration, protest and notice of protest, and any and
all other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note except any notice expressly
required in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned executes this Note on the day
and year first above written.
----------------------------------
LISA KRAMER
<PAGE> 1
EXHIBIT 10.28
STOCK PURCHASE AND LOAN AGREEMENT
BY AND BETWEEN
THE MIIX GROUP INCORPORATED
AND
THOMAS M. REDMAN, JR.
DATED: DECEMBER 15, 1999
<PAGE> 2
STOCK PURCHASE AND LOAN AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT (the "Agreement"), made as of
this 15th day of December, 1999, by and between THE MIIX GROUP, INCORPORATED, a
Delaware corporation (the "Company"), and THOMAS M. REDMAN, JR. (the
"Executive").
BACKGROUND
WHEREAS, the Company desires to ensure that key members of its
senior management share with its stockholders the common goal of achieving
long-term growth in the market value of the Company which equals or exceeds the
growth of competitive companies in the insurance industry; and
WHEREAS, to achieve this objective, the Company requires that the
Executive purchase that number of shares of common stock of the Company (the
"Purchased Shares") having an aggregate purchase price of $50,000, rounded to
the nearest whole share, based on the average daily trading price per share of
the common stock on December 15, 1999 (the "Purchase Price"); and
WHEREAS, the Company intends to make a loan to the Executive in an
amount equal to the Purchase Price, and Executive intends to secure such loan
with a pledge of the Purchased Shares;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
TERMS
1. Loan.
1.1. Loan. Subject to the terms and conditions hereof, the Company
shall lend to the Executive the aggregate principal amount of $50,000 (the
"Loan").
1.2. Purpose of Loan. The Executive shall use the proceeds of the
Loan solely for the purpose of purchasing the Purchased Shares pursuant to
Section 2 hereof.
1.3. Promissory Note. The obligation of the Executive to repay the
Loan shall be evidenced by the Executive's promissory note, substantially in the
form attached
<PAGE> 3
hereto as Exhibit A (the "Note"), in the original principal amount of $50,000.
The Note shall be dated December 15, 1999, the date of the purchase of the
Purchased Shares, shall mature and become due and payable on the Maturity Date
(hereinafter defined) and shall bear interest as set forth in Section 1.4(b).
1.4. Principal Payments; Maturity; Interest Rate.
(1) Principal Payments. Unless sooner accelerated as provided
herein, the principal amount of the Loan shall be due and payable in full on
December 15, 2004, the fifth anniversary date of the Note (the "Maturity Date").
Notwithstanding the collateral pledged to the Company pursuant to Section 3
hereof, Executive shall have personal liability for the full payment of the
Loan, together with accrued interest thereon.
(2) Interest Rate and Payment. The principal amount of the
Loan shall bear interest from the date of the Note until the Maturity Date
(unless otherwise accelerated as provided herein) at a rate per annum equal to
the minimum interest rate necessary to avoid income imputation under the
Internal Revenue Code as of the date of the Note. Interest shall be due and
payable on the Maturity Date.
1.5. Voluntary Prepayments. The Executive shall have the right to
prepay the Loan in whole or in part from time to time, without penalty or
premium.
1.6. Mandatory Prepayments. In the event that Executive sells any of
the Purchased Shares during the term of the Loan, the Executive shall, within
five (5) days of such sale, make a mandatory prepayment of the Loan in an amount
equal to the product of the number of Purchased Shares sold and the Purchase
Price. In the event that such sale is made on an installment basis, Executive
shall make a mandatory prepayment as and when proceeds of the sale are received
by the Executive.
1.7. Events of Default. Each of the following shall constitute an
event of default (each, an "Event of Default") under this Agreement:
(1) the failure of the Executive to pay when due any principal
or interest or other amount due hereunder or under the Note.
(2) any warranty or representation made by the Executive in
this Agreement shall prove to have been false or incorrect on the date as of
which made.
(3) the termination of Executive's employment with the Company
for any reason.
2
<PAGE> 4
(4) the occurrence of any of the following with respect to the
Executive:
(1) he shall apply for or consent to the appointment
of a receiver, custodian, trustee or liquidator of
all or a substantial part of his property;
(2) he shall make a general assignment for the benefit
of his creditors;
(3) he shall commence a voluntary case under the
Federal Bankruptcy Code; or
(4) he shall file a petition to take advantage of any
other law providing for the relief of debtors.
1.8. Remedies Upon Default. Upon the occurrence and during the
continuance of an Event of Default, all indebtedness, obligations and
liabilities of the Executive arising hereunder shall, at the option of the
Company, become immediately due and payable. The Company may, in addition to all
other remedies available to it, exercise a right of setoff against the Pledged
Collateral (as defined below).
1.9. Extension of Payment Date. Notwithstanding anything in Section
1.7(c) hereof to the contrary, in the event that Executive's employment with the
Company is terminated and such termination arises from the death, disability or
retirement of the Executive or is without Cause, then, at the option of the
Executive and upon delivery of written notice to that effect, the obligation to
repay the Loan in full, together with accrued interest thereon, may be extended
to the second anniversary date of such termination or retirement or the Maturity
Date, whichever is earlier. For purposes of this Section, the term "Cause" shall
have the meaning assigned to it in that certain Employment Agreement dated of
even date herewith among the Executive, the Company and New Jersey State Medical
Underwriters, Inc.
2. Purchase and Sale of Common Stock.
2.1. Sale and Purchase. The Company shall issue and sell to the
Executive, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, and Executive shall purchase, the
Purchased Shares for the Purchase Price.
3
<PAGE> 5
2.2. Payment of Purchase Price. Upon payment in full of the Purchase
Price, receipt of which shall be deemed acknowledged by the Company on December
15, 1999, the Company shall deliver to Executive a stock certificate, registered
in the name of Executive, representing the Purchased Shares.
2.3. Lock-up. The Executive agrees that, for a one (1) year period
following the date of the issuance of the Purchased Shares, the Executive shall
not sell, transfer or otherwise dispose of any of the Purchased Shares without
the written consent of the Company.
3. Collateral.
3.1. Pledged Collateral. As security for the performance of this
Agreement and for the prompt and complete payment of the Loan, together with
accrued interest thereon, when due (whether at the Maturity Date, by
acceleration or otherwise), the Executive hereby grants to the Company the
following property (collectively, the "Pledged Collateral"):
(1) the Purchased Shares and the certificates or instruments
representing such stock and all dividends, interest, cash, instruments, and
other property from time to time received, receivable, or otherwise distributed
or distributable in respect of or in exchange for any or all of such stock;
(2) all proceeds of the foregoing.
3.2. Delivery of Purchased Shares. Promptly after his receipt of
stock certificates representing the Purchased Shares, the Executive shall
deliver to the Company such stock certificates, together with stock powers duly
executed in blank by the Executive.
3.3. Voting Rights, Dividends, Etc.
(1) The Executive shall be entitled to exercise any and all of
Executive's voting and other consensual rights pertaining to the Pledged
Collateral or any part thereof for any purpose not inconsistent with the terms
of this Agreement; and notwithstanding Section 3.1 but subject to Section 3.3(c)
shall be entitled to receive and retain free and clear of the security interest
of Company hereunder, any and all of such dividends, interest and other
distributions permitted to all other holders of the Company's Common Stock.
4
<PAGE> 6
(2) The Company shall execute and deliver (or cause to be
executed and delivered) to the Executive all such proxies and other instruments
as Executive may reasonably request for the purpose of enabling the Executive to
exercise the voting and other rights that he is entitled to exercise pursuant to
paragraph (a) above and to receive the dividends, interest and other
distributions that he is authorized to receive and retain pursuant to paragraph
(a) above.
(3) Upon the occurrence and during the continuance of an Event
of Default (i) all rights of the Executive to exercise the voting and other
consensual rights that he would otherwise be entitled to exercise pursuant to
Section 3.3(a) hereof and to receive the dividends, interest and other
distributions that he would otherwise be authorized to receive and retain
pursuant to Section 3.3(a) hereof shall cease, and all such rights shall
thereupon become vested in Company which shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive such dividends,
interest, and other distributions; and all dividends, interest and other
distributions which are received by Executive contrary to the provisions of this
paragraph shall be received in trust for the benefit of Company, shall be
segregated from other funds of Executive, and shall be forthwith paid over to
Company in the same form as so received (with any necessary endorsement).
3.4. Further Assurances. Executive agrees that at any time and from
time to time, at the expense of Executive, Executive will promptly execute and
deliver all further instruments and documents, and take all further action that
may be necessary, or that Company may reasonably request, in order to perfect
and protect any security interest granted or purported to be granted hereby or
to enable Company to exercise and enforce the rights and remedies hereunder with
respect to any of the Pledged Collateral.
3.5. Transfers and Liens. Executive will not (i) grant any option
with respect to any of the Pledged Collateral, or (ii) create or permit to exist
any lien, security interest, or other charge or encumbrance upon or with respect
to any of the Pledged Collateral.
3.6. Company Appointed Attorney-in-Fact. Executive hereby appoints
Company as Executive's attorney-in-fact, with full authority in the place and
stead of Executive and in the name of Executive, from time to time in Company's
discretion to take any action and to execute any instrument which Company may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, upon the occurrence and during the continuance of
an Event of Default to receive, endorse, and collect all instruments made
payable to Executive representing any dividend, interest, or other distribution
in respect of the Pledged Collateral or any part thereof and to give full
5
<PAGE> 7
discharge for the same. Company shall not, in its capacity as such
attorney-in-fact, be liable for any acts or omissions, nor for any error of
judgment or mistake of fact or law, but only for bad faith, willful misconduct
or gross negligence. This power, being coupled with an interest, is irrevocable
until all obligations under the Note have been fully satisfied.
3.7. Company's Duties. The powers conferred on the Company hereunder
are solely to protect its interests in the Pledged Collateral and shall not
impose any duty to exercise any such powers. Except for the safe custody of any
Pledged Collateral in its possession and the accounting for moneys actually
received by it hereunder, Company shall not have any duty as to any Pledged
Collateral or as to the taking of any necessary steps to preserve rights against
any parties or any other rights pertaining to any Pledged Collateral. Without
limiting the generality of the foregoing, Company shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders, or other matters relating to any
Pledged Collateral, whether or not Company has or is deemed to have knowledge of
such matters.
3.8. Prepayments. In the event of any prepayment, whether voluntary
or mandatory, the Company shall release from the Pledged Collateral, and deliver
to the Executive, stock certificates evidencing that number of Purchased Shares
which have an aggregate fair market value equal to the amount of the prepayment.
In no event, however, shall the remaining Pledged Collateral have a fair market
value less than the unpaid principal balance of the Loan and accrued interest
thereon.
3.9. Transfer of Title. After the occurrence and during the
continuance of an Event of Default, Company shall have the right, at any time in
its discretion without further notice to Executive, to transfer to or to
register in the name of Company or its nominees, any or all of the Pledged
Collateral. In addition, upon the occurrence and during the continuance of an
Event of Default, Company shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations.
3.10. Termination. The provisions of this Section 3 shall terminate
upon payment in full of the Loan, together with accrued interest thereon, at
which time the Company shall promptly deliver to Executive stock certificates
evidencing the Purchased Shares remaining in its possession.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Executive as follows:
6
<PAGE> 8
4.1. Organization. The Company (a) is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and (b) has all requisite corporate power and authority to execute,
deliver and perform this Agreement.
4.2. Authorization of Agreement.
(1) The execution, delivery and performance by the Company of
this Agreement has been duly authorized by all requisite corporate action by the
Company, and this Agreement constitutes the valid and binding obligation of the
Company.
(2) The issuance, sale and delivery of the Purchased Shares
have been duly authorized by all requisite corporate action of the Company, and
when issued, sold and delivered in accordance with this Agreement, the Purchased
Shares will be validly issued and outstanding, fully paid and non-assessable,
and not subject to preemptive or any other similar rights of the stockholders of
the Company or others.
4.3. SEC Registration Statement. The Company has made available to
the Executive, in the form filed with the SEC and as amended prior to the date
hereof, the Form S-1 Registration Statement (Registration No. 333-59371) (the
"Registration Statement"). The Registration Statement complies as to form in all
material respects with the requirements of the Securities Act of 1933 (the
"Securities Act") and the rules and regulations thereunder, and did not, on the
date when it was declared effective, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein in light of the circumstances under
which they were made not misleading.
5. Representations of the Executive. The Executive represents, warrants
and covenants to the Company that:
(1) Executive has the full power and authority and has full
legal right to execute and deliver this Agreement and the Note, to perform,
observe and comply with all of his agreements and obligations under each of this
Agreement and the Note and to obtain the proceeds of the Loan contemplated by
this Agreement;
(2) Executive has duly executed and delivered this Agreement
and this Agreement constitutes the valid and binding obligation of Executive,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, moratorium or similar laws affecting creditors' rights or
by general principles of equity;
7
<PAGE> 9
(3) Executive is acquiring the Purchased Shares for his own
account, for investment and not with a view to the distribution thereof within
the meaning of the Securities Act;
(4) Executive understands that the Purchased Shares have not
been and shall not be registered under the Securities Act, by reason of their
issuance by the Company in a transaction exempt from the registration
requirements of the Securities Act; and any subsequent disposition thereof must
be registered under the Securities Act or must be exempt from registration;
(5) Executive understands that: (i) the exemption from
registration afforded by Rule 144 (the provisions of which are known to him)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if and when applicable, Rule 144 may only afford the basis
for sales in limited amounts; and (ii) the Company is under no obligation to
register the Purchased Shares on behalf of the Executive or to assist the
Executive in complying with any exemption from registration;
(6) he is an accredited investor as defined in Rule 501(a)
promulgated under the Securities Act.
6. Certain Restrictions.
6.1. Legend. The certificate for the Purchased Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO
8
<PAGE> 10
THE CONDITIONS SET FORTH IN THAT CERTAIN STOCK PURCHASE AND LOAN
AGREEMENT BY AND BETWEEN THE COMPANY AND THOMAS M. REDMAN, JR.
6.2. Opinion. Company agrees to reimburse Executive for the
cost of obtaining any opinion required by the above legend.
7. Miscellaneous.
7.1. Amendments, Indulgences, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by Executive herefrom
shall in any event be effective unless the same shall be in writing and signed
by Company, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure or
delay on the part of Company in the exercise of any right, power, or remedy
under this Agreement shall constitute a waiver thereof, or prevent the exercise
thereof in that or any other instance.
7.2. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and, if to Executive, mailed or
telefaxed or delivered to them at the addresses therefor shown at the time in
Company's records, and, if to Company, mailed or delivered to it at Two Princess
Road, Lawrenceville, New Jersey 08648.
7.3. Continuing Security Interest. This Agreement creates a
continuing security interest in the Pledged Collateral and shall be binding upon
Executive, and his heirs, executors, administrators, successors, and assigns and
inure to the benefit of Company and its successors, transferees and assigns. The
execution and delivery of this Agreement shall in no manner impair or affect any
other security (by endorsement or otherwise) for the payment or performance of
the Note and no security taken hereafter as security for payment or performance
of the Note shall impair in any manner or affect this Agreement or the security
interest granted hereby, all such present and future additional security to be
considered as cumulative security. Any of the Pledged Collateral may be released
from this Agreement without altering, varying, or diminishing in any way this
Agreement or the security interest granted hereby as to the Pledged Collateral
not expressly released, and this Agreement and such security interest shall
continue in full force and effect as to all of the Pledged Collateral not
expressly released.
7.4. Governing Law, Consent to Jurisdiction, Etc. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New Jersey
9
<PAGE> 11
applicable to contracts made and wholly performed within New Jersey. Executive
consents to the jurisdiction of the courts of New Jersey and of the courts of
the United States sitting in New Jersey in any litigation concerning this
Agreement, and Executive waives any objection based on venue or inconvenient
forum. Unless otherwise defined herein, terms defined in the Uniform Commercial
Code as in effect on the date hereof are used herein as therein defined as of
such date.
7.5. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.6. Severability. The provisions of this Agreement are independent
of and separable from each other, and no such provision, shall be altered or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other such provision may be invalid or unenforceable in whole or in part.
7.7. Headings. The section headings of this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.
7.8. Entire Agreement. This Agreement sets forth all of the
promises, covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have executed this Agreement as of the date first above written.
THE MIIX GROUP, INCORPORATED
By:_______________________________
__________________________________
THOMAS M. REDMAN, JR.
10
<PAGE> 12
Exhibit A
PROMISSORY NOTE
Lawrenceville, New Jersey
$50,000 December 15, 1999
The Undersigned, for value received and intending to be legally
bound, promises to pay to the order of THE MIIX GROUP, INCORPORATED (the
"Lender"), as and when due as set forth in the Stock Purchase and Loan Agreement
dated the date hereof between the Undersigned and Lender (as such agreement may
be amended, restated, modified or supplemented from time to time, the "Loan
Agreement"), the principal sum of $50,000. Capitalized terms used herein and not
otherwise defined shall have the meanings given such terms in the Loan
Agreement.
The undersigned further promises to pay to the order of Lender
interest on the unpaid principal amount of the Loan from the date hereof until
such amounts have been repaid in full. Interest shall be at the annual rate of
6.02 percent (6.02%) and shall be due and payable on the Maturity Date (unless
accelerated sooner under the terms of the Loan Agreement).
This is the Note mentioned in, and is entitled to the benefits of,
the Loan Agreement.
This Note may be prepaid at any time, in whole or in part, without
premium or penalty. All payments in respect of this Note shall be applied first
to accrued interest and then to principal outstanding hereunder. Mandatory
prepayments shall be required from time to time pursuant to Section 1.6 of the
Loan Agreement.
This Note shall be deemed to be a contract made under the laws of
the State of New Jersey and shall be construed in accordance with the laws of
said state without giving effect to principles of conflicts of law.
This Note shall be binding upon the undersigned and his heirs,
executors, administrators, transferees and assigns and the terms hereof shall
inure to the benefit of lender and its successors and assigns, including
subsequent holders hereof.
The undersigned hereby waives presentment, demand for payment,
notice of dishonor or acceleration, protest and notice of protest, and any and
all other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note except any notice expressly
required in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned executes this Note on the day
and year first above written.
----------------------------------
THOMAS M. REDMAN, JR.
<PAGE> 1
EXHIBIT 10.30
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
The Non-Qualified Deferred Compensation Agreement ("Agreement" or "Plan") is
entered into and effective December 15, 1999 ("Effective Date"), by and between
The MIIX Group, Incorporated, New Jersey State Medical Underwriters, Inc.
("Employer" or "Company") and Kenneth Koreyva (hereinafter sometimes referred to
as "Employee" or "Participant").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1.1. ESTABLISHMENT OF PLAN. Employer hereby establishes this Deferred
Compensation Plan which shall become effective as of the date selected by
Employer. The Plan shall be maintained for the exclusive benefit of
Employee.
1.2. NATURE OF PLAN. The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded plan of
deferred compensation for purposes of the Internal Revenue Code of 1986,
as amended, and regulations thereunder, and the Employee Retirement Income
Security Act of 1974.
1.3. PURPOSE OF PLAN. The purpose of this Plan is to enable Employee to enhance
his financial security by permitting him to enter into this agreement with
Employer to defer his compensation and receive benefits in a future year.
1.4. APPLICABLE COMPENSATION. Elections to defer compensation shall be made
with respect to compensation not yet earned. In the case of bonuses or
other nonperiodic payments, such compensation shall be treated as
earned no earlier than the day on which the amount payable has been
determined. In the case of periodic payments such as salary, such
compensation shall be treated as earned no earlier than the day prior
to the day on which the service period giving rise to the salary has
commenced. In the case of Dividend Equivalents (awarded pursuant to
The MIIX Group, Incorporated Long Term Incentive Equity Plan) converted
into cash, such compensation shall be treated as earned no earlier than
the day prior to the day on which such Dividend Equivalents are
credited to the account maintained on behalf of the Participant under
Sections 6.4 and 9.3 of the Equity Plan.
<PAGE> 2
1.5. DEFERRAL OF COMPENSATION. Employee shall make an irrevocable election
to defer compensation to be paid by Employer by the signing of an
Election to Defer in the form approved by Employer. Deferrals under
such elections shall be effective on the date the Election to Defer is
properly completed by Employee and accepted by Employer. Employer
shall acknowledge receipt of Employee's deferral election by signing
the Election to Defer and returning it to Employee within 14 days of
receipt.
1.6. EARNINGS. Interest shall be credited monthly by Employer on amounts
deferred under this Plan at a rate of return equal to the aggregate
investment portfolio yield for The MIIX Group, Incorporated or, if
applicable, the return directly associated with any specific investment
alternatives chosen by Employee and approved by Employer, including,
but not limited to, any income (loss) and realized and unrealized gains
(losses). Employee may change selected investment alternatives on a
prospective basis only.
1.7. COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to Participant
under the Plan shall commence no earlier than December 15, 2004,
provided, however, that distribution shall be accelerated in the event
Employee separates from service of Employer for any reason prior to
December 15, 2004. In such event, Plan benefits shall commence within
60 days after such separation from service. Notwithstanding the
foregoing, if Participant dies prior to the time his benefits under
this Plan have been distributed in full, any remaining portion of
benefits yet to be distributed under this Plan shall be distributed as
soon as administratively practicable to Participant's estate or such
other beneficiary as designated by Participant on a Beneficiary
Designation Form.
1.8. MANNER OF PAYMENT. Distributions shall be made in cash by Employer except
to the extent that Participant elects to receive payment in the form of
property that was designated as an investment alternative as provided in
Section 1.6 of this Agreement. In such case, any cash due shall be reduced
by the fair market value of such in kind payment at the time of the
distribution.
1.9. PLAN ADMINISTRATION. The Company shall be responsible for the
administration of the Plan, including any associated costs.
1.10. OWNERSHIP OF ASSETS. All amounts of compensation deferred under the Plan,
all property and rights purchased with such amounts, and all income
attributable to such amounts, property, or rights shall remain (until made
available to Participant) solely the property and rights of the Company
(without being restricted to the
2
<PAGE> 3
provisions of benefits under the Plan) and shall be subject to the claims
of the Company's general creditors.
1.11. LIMITATION OF RIGHTS / EMPLOYMENT RELATIONSHIP. Neither the establishment
of this Plan nor any modification thereof, nor the creation of any fund or
account, nor the payment of any benefits, shall be construed as giving
Participant or any other person any legal or equitable right against
Employer except as provided in the Plan.
1.12. LIMITATION OF ASSIGNMENT. Benefits under the Plan may not be assigned,
sold, transferred, or encumbered, and any attempt to do so shall be void.
Participant's interest in benefits under the Plan shall not be subjected
to debts or liabilities of any kind and shall not be subject to
attachment, garnishment, or other legal process.
1.13. REPRESENTATIONS. Employer does not represent or guarantee that any
particular federal or state income, payroll, personal property, or other
tax consequence will result from participation in this Plan. Participant
should consult with professional tax advisors to determine the tax
consequences of his participation.
1.14. APPLICABLE LAW. This Plan shall be construed in accordance with applicable
federal law and, to the extent otherwise applicable, the law of the State
of New Jersey.
1.15. RESPONSIBILITY FOR TAXES. Participant is responsible for all federal,
state, and other taxes assessed on amounts deferred under this Plan.
Employer shall have the right to withhold or reduce Plan benefits to
satisfy such withholding obligations, as it may deem necessary to ensure
proper withholding procedures.
1.16. ESTABLISHMENT OF TRUST. In the event of a Change in Control as defined in
Paragraph 1.19, the Employer shall immediately establish the Employee's
Trust (the "Trust") and contribute assets to such Trust in an amount equal
to the Employer's obligations to the Participant under this Plan
determined as of the date of the Change in Control. Prior to such a Change
in Control, the Employer may, at its option and in its sole discretion,
establish such a Trust. Such Trust shall be established in accordance with
the Internal Revenue Service model trust agreement as set forth in Revenue
Procedure 92-64.
1.17. EFFECT OF THE TRUST. The provisions of the Plan shall govern the rights of
the Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Participant and the
creditors of the Employer to the assets transferred to the Trust. The
Employer shall at all times remain liable to carry out its obligations
under the Plan. The Employee's obligations under the Plan
3
<PAGE> 4
may be satisfied with Trust assets distributed pursuant to the terms of
the Trust, and any such distribution shall reduce the Employee's
obligation under the Plan.
1.18. PRIOR PLANS AND AGREEMENTS. This Plan supercedes all prior plans and
agreements between the Company and the Employee with respect to deferred
compensation and all sums and investments held under such other plans and
agreements shall be transferred to this Plan and administered under its
terms.
1.19. DEFINITIONS. For purposes of Paragraph 1.16, the following capitalized
words shall have the meanings set forth below:
19.1.1. "CHANGE IN CONTROL" shall be as defined in Section 3.5 of
the Employment Agreement dated as of December 15, 1999
among the MIIX Group, Incorporated, New Jersey State
Medical Underwriters, Inc. and Kenneth Koreyva.
IN WITNESS WHEREOF, the parties have executed this Agreement on one or more
counterparts which, taken together, shall constitute one Agreement, which
Agreement shall be effective as of the date recited above.
THE MIIX GROUP, INCORPORATED
By:________________________________ ____________________________
Date
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:________________________________ ____________________________
Date
___________________________________ ____________________________
KENNETH KOREYVA Date
4
<PAGE> 5
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
INVESTMENT ELECTION FORM
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999 ("Plan"), I hereby revoke
any prior investment designations for the amounts credited to my account balance
under the Plan, and I hereby elect the following investments for amounts
credited to my account. This election is to be effective at the earliest date
permissible under and subject to all of the terms of, the Plan:
Investment Options Percentage of Plan Account:
<TABLE>
<S> <C>
1. Specified Investments* $________________
2. Unspecified** 100%
3. ______________________________________ _________________
4. ______________________________________ _________________
5. ______________________________________ _________________
Total ______________________________________ $________________
</TABLE>
* Specify Investment:__________________________________________________
** Therefore earning interest in an amount equal to the consolidated aggregate
investment portfolio yield for The MIIX Group, Incorporated.
Participant's Signature:___________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved:__________________________________________________________________
By:________________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 6
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
ELECTION TO DEFER
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999, I hereby elect to defer
the following amounts or percentages of compensation:
Salary: Commencing on _________________________________________________
In the amount of _________________________________________________
Bonus: That will be determined on _______________________________________
In the amount of _________________________________________________
Stock Option
Dividend Equivalents: Commencing on ________________________________________
Participant's
Signature:____________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved: The MIIX Group, Incorporated
By:_______________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved: New Jersey State Medical Underwriters, Inc.
By:_______________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 1
EXHIBIT 10.31
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
The Non-Qualified Deferred Compensation Agreement ("Agreement" or "Plan") is
entered into and effective March 1, 2000 ("Effective Date"), by and between The
MIIX Group, Incorporated, New Jersey State Medical Underwriters, Inc.
("Employer" or "Company") and Patricia A. Costante (hereinafter sometimes
referred to as "Employee" or "Participant").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1.1. ESTABLISHMENT OF PLAN. Employer hereby establishes this Deferred
Compensation Plan which shall become effective as of the date selected
by Employer. The Plan shall be maintained for the exclusive benefit of
Employee.
1.2. NATURE OF PLAN. The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded plan of
deferred compensation for purposes of the Internal Revenue Code of
1986, as amended, and regulations thereunder, and the Employee
Retirement Income Security Act of 1974.
1.3. PURPOSE OF PLAN. The purpose of this Plan is to enable Employee to
enhance her financial security by permitting her to enter into this
agreement with Employer to defer her compensation and receive benefits
in a future year.
1.4. APPLICABLE COMPENSATION. Elections to defer compensation shall be made
with respect to compensation not yet earned. In the case of bonuses or
other nonperiodic payments, such compensation shall be treated as
earned no earlier than the day on which the amount payable has been
determined. In the case of periodic payments such as salary, such
compensation shall be treated as earned no earlier than the day prior
to the day on which the service period giving rise to the salary has
commenced. In the case of Dividend Equivalents (awarded pursuant to The
MIIX Group, Incorporated Long Term Incentive Equity Plan) converted
into cash, such compensation shall be treated as earned no earlier than
the day prior to the day on
<PAGE> 2
which such Dividend Equivalents are credited to the account maintained
on behalf of the Participant under Sections 6.4 and 9.3 of the Equity
Plan.
1.5. DEFERRAL OF COMPENSATION. Employee shall make an irrevocable election
to defer compensation to be paid by Employer by the signing of an
Election to Defer in the form approved by Employer. Deferrals under
such elections shall be effective on the date the Election to Defer is
properly completed by Employee and accepted by Employer. Employer shall
acknowledge receipt of Employee's deferral election by signing the
Election to Defer and returning it to Employee within 14 days of
receipt.
1.6. EARNINGS. Interest shall be credited monthly by Employer on amounts
deferred under this Plan at a rate of return equal to the aggregate
investment portfolio yield for The MIIX Group, Incorporated or, if
applicable, the return directly associated with any specific investment
alternatives chosen by Employee and approved by Employer, including,
but not limited to, any income (loss) and realized and unrealized gains
(losses). Employee may change selected investment alternatives on a
prospective basis only.
1.7. COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to Participant
under the Plan shall commence no earlier than March 1, 2005, provided,
however, that distribution shall be accelerated in the event Employee
separates from service of Employer for any reason prior to March 1,
2005. In such event, Plan benefits shall commence within 60 days after
such separation from service. Notwithstanding the foregoing, if
Participant dies prior to the time her benefits under this Plan have
been distributed in full, any remaining portion of benefits yet to be
distributed under this Plan shall be distributed as soon as
administratively practicable to Participant's estate or such other
beneficiary as designated by Participant on a Beneficiary Designation
Form.
1.8. MANNER OF PAYMENT. Distributions shall be made in cash by Employer
except to the extent that Participant elects to receive payment in the
form of property that was designated as an investment alternative as
provided in Section 1.6 of this Agreement. In such case, any cash due
shall be reduced by the fair market value of such in kind payment at
the time of the distribution.
1.9. PLAN ADMINISTRATION. The Company shall be responsible for the
administration of the Plan, including any associated costs.
1.10. OWNERSHIP OF ASSETS. All amounts of compensation deferred under the
Plan, all property and rights purchased with such amounts, and all
income attributable to
<PAGE> 3
such amounts, property, or rights shall remain (until made available to
Participant) solely the property and rights of the Company (without
being restricted to the provisions of benefits under the Plan) and
shall be subject to the claims of the Company's general creditors.
1.11. LIMITATION OF RIGHTS / EMPLOYMENT RELATIONSHIP. Neither the
establishment of this Plan nor any modification thereof, nor the
creation of any fund or account, nor the payment of any benefits, shall
be construed as giving Participant or any other person any legal or
equitable right against Employer except as provided in the Plan.
1.12. LIMITATION OF ASSIGNMENT. Benefits under the Plan may not be assigned,
sold, transferred, or encumbered, and any attempt to do so shall be
void. Participant's interest in benefits under the Plan shall not be
subjected to debts or liabilities of any kind and shall not be subject
to attachment, garnishment, or other legal process.
1.13. REPRESENTATIONS. Employer does not represent or guarantee that any
particular federal or state income, payroll, personal property, or
other tax consequence will result from participation in this Plan.
Participant should consult with professional tax advisors to determine
the tax consequences of her participation.
1.14. APPLICABLE LAW. This Plan shall be construed in accordance with
applicable federal law and, to the extent otherwise applicable, the law
of the State of New Jersey.
1.15. RESPONSIBILITY FOR TAXES. Participant is responsible for all federal,
state, and other taxes assessed on amounts deferred under this Plan.
Employer shall have the right to withhold or reduce Plan benefits to
satisfy such withholding obligations, as it may deem necessary to
ensure proper withholding procedures.
1.16. ESTABLISHMENT OF TRUST. In the event of a Change in Control as defined
in Paragraph 1.19, the Employer shall immediately establish the
Employee's Trust (the "Trust") and contribute assets to such Trust in
an amount equal to the Employer's obligations to the Participant under
this Plan determined as of the date of the Change in Control. Prior to
such a Change in Control, the Employer may, at its option and in its
sole discretion, establish such a Trust. Such Trust shall be
established in accordance with the Internal Revenue Service model trust
agreement as set forth in Revenue Procedure 92-64.
1.17. EFFECT OF THE TRUST. The provisions of the Plan shall govern the rights
of the Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Participant and
the creditors of the Employer to the assets transferred to the Trust.
The Employer shall at all times remain liable to
3
<PAGE> 4
carry out its obligations under the Plan. The Employee's obligations
under the Plan may be satisfied with Trust assets distributed pursuant
to the terms of the Trust, and any such distribution shall reduce the
Employee's obligation under the Plan.
1.18. PRIOR PLANS AND AGREEMENTS. This Plan supercedes all prior plans and
agreements between the Company and the Employee with respect to
deferred compensation and all sums and investments held under such
other plans and agreements shall be transferred to this Plan and
administered under its terms.
1.19. DEFINITIONS. For purposes of Paragraph 1.16, the following capitalized
words shall have the meanings set forth below:
19.1.1. "CHANGE IN CONTROL" shall be as defined in Section 3.5 of the
Employment Agreement dated as of March 1, 2000 among the MIIX
Group, Incorporated, New Jersey State Medical Underwriters,
Inc. and Patricia A. Costante.
IN WITNESS WHEREOF, the parties have executed this Agreement on one or more
counterparts which, taken together, shall constitute one Agreement, which
Agreement shall be effective as of the date recited above.
THE MIIX GROUP, INCORPORATED
By:________________________________ ____________________________
Date
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:________________________________ ____________________________
Date
___________________________________ ____________________________
PATRICIA A. COSTANTE Date
4
<PAGE> 5
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
INVESTMENT ELECTION FORM
--------------------------------------------------------------------------
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective March 1, 2000 ("Plan"), I hereby revoke any
prior investment designations for the amounts credited to my account balance
under the Plan, and I hereby elect the following investments for amounts
credited to my account. This election is to be effective at the earliest date
permissible under and subject to all of the terms of, the Plan:
Investment Options Percentage of Plan Account:
<TABLE>
<S> <C> <C> <C>
1. Specified Investments* $________________
2. Unspecified** 100%
3. ______________________________________ _________________
4. ______________________________________ _________________
5. ______________________________________ _________________
Total ______________________________________ $________________
</TABLE>
* Specify Investment:__________________________________________________
** Therefore earning interest in an amount equal to the consolidated aggregate
investment portfolio yield for The MIIX Group, Incorporated.
Participant's Signature:_______________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved:__________________________________________________________________
By:________________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 6
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
ELECTION TO DEFER
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective March 1, 2000, I hereby elect to defer the
following amounts or percentages of compensation:
Salary: Commencing on _________________________________________________
In the amount of ______________________________________________
Bonus: That will be determined on ____________________________________
In the amount of ______________________________________________
Stock Option
Dividend Equivalents: Commencing on _______________________________
Participant's Signature:________________________________________________
Print Name:_____________________________________________________________
Date:___________________________________________________________________
Approved: The MIIX Group, Incorporated
By:_____________________________________________________________________
Print Name:_____________________________________________________________
Date:___________________________________________________________________
Approved: New Jersey State Medical Underwriters, Inc.
By:_____________________________________________________________________
Print Name:_____________________________________________________________
Date:___________________________________________________________________
<PAGE> 1
EXHIBIT 10.32
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
The Non-Qualified Deferred Compensation Agreement ("Agreement" or "Plan") is
entered into and effective March 1, 2000 ("Effective Date"), by and between The
MIIX Group, Incorporated, New Jersey State Medical Underwriters, Inc.
("Employer" or "Company") and Edward M. Grab (hereinafter sometimes referred to
as "Employee" or "Participant").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1.1. ESTABLISHMENT OF PLAN. Employer hereby establishes this Deferred
Compensation Plan which shall become effective as of the date selected
by Employer. The Plan shall be maintained for the exclusive benefit of
Employee.
1.2. NATURE OF PLAN. The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded plan of
deferred compensation for purposes of the Internal Revenue Code of
1986, as amended, and regulations thereunder, and the Employee
Retirement Income Security Act of 1974.
1.3. PURPOSE OF PLAN. The purpose of this Plan is to enable Employee to
enhance his financial security by permitting him to enter into this
agreement with Employer to defer his compensation and receive benefits
in a future year.
1.4. APPLICABLE COMPENSATION. Elections to defer compensation shall be made
with respect to compensation not yet earned. In the case of bonuses or
other nonperiodic payments, such compensation shall be treated as
earned no earlier than the day on which the amount payable has been
determined. In the case of periodic payments such as salary, such
compensation shall be treated as earned no earlier than the day prior
to the day on which the service period giving rise to the salary has
commenced. In the case of Dividend Equivalents (awarded pursuant to The
MIIX Group, Incorporated Long Term Incentive Equity Plan) converted
into cash, such compensation shall be treated as earned no earlier than
the day prior to the day on
<PAGE> 2
which such Dividend Equivalents are credited to the account maintained
on behalf of the Participant under Sections 6.4 and 9.3 of the Equity
Plan.
1.5. DEFERRAL OF COMPENSATION. Employee shall make an irrevocable election
to defer compensation to be paid by Employer by the signing of an
Election to Defer in the form approved by Employer. Deferrals under
such elections shall be effective on the date the Election to Defer is
properly completed by Employee and accepted by Employer. Employer shall
acknowledge receipt of Employee's deferral election by signing the
Election to Defer and returning it to Employee within 14 days of
receipt.
1.6. EARNINGS. Interest shall be credited monthly by Employer on amounts
deferred under this Plan at a rate of return equal to the aggregate
investment portfolio yield for The MIIX Group, Incorporated or, if
applicable, the return directly associated with any specific investment
alternatives chosen by Employee and approved by Employer, including,
but not limited to, any income (loss) and realized and unrealized gains
(losses). Employee may change selected investment alternatives on a
prospective basis only.
1.7. COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to Participant
under the Plan shall commence no earlier than March 1, 2005, provided,
however, that distribution shall be accelerated in the event Employee
separates from service of Employer for any reason prior to March 1,
2005. In such event, Plan benefits shall commence within 60 days after
such separation from service. Notwithstanding the foregoing, if
Participant dies prior to the time his/her benefits under this Plan
have been distributed in full, any remaining portion of benefits yet to
be distributed under this Plan shall be distributed as soon as
administratively practicable to Participant's estate or such other
beneficiary as designated by Participant on a Beneficiary Designation
Form.
1.8. MANNER OF PAYMENT. Distributions shall be made in cash by Employer
except to the extent that Participant elects to receive payment in the
form of property that was designated as an investment alternative as
provided in Section 1.6 of this Agreement. In such case, any cash due
shall be reduced by the fair market value of such in kind payment at
the time of the distribution.
1.9. PLAN ADMINISTRATION. The Company shall be responsible for the
administration of the Plan, including any associated costs.
1.10. OWNERSHIP OF ASSETS. All amounts of compensation deferred under the
Plan, all property and rights purchased with such amounts, and all
income attributable to
2
<PAGE> 3
such amounts, property, or rights shall remain (until made available to
Participant) solely the property and rights of the Company (without
being restricted to the provisions of benefits under the Plan) and
shall be subject to the claims of the Company's general creditors.
1.11. LIMITATION OF RIGHTS / EMPLOYMENT RELATIONSHIP. Neither the
establishment of this Plan nor any modification thereof, nor the
creation of any fund or account, nor the payment of any benefits, shall
be construed as giving Participant or any other person any legal or
equitable right against Employer except as provided in the Plan.
1.12. LIMITATION OF ASSIGNMENT. Benefits under the Plan may not be assigned,
sold, transferred, or encumbered, and any attempt to do so shall be
void. Participant's interest in benefits under the Plan shall not be
subjected to debts or liabilities of any kind and shall not be subject
to attachment, garnishment, or other legal process.
1.13. REPRESENTATIONS. Employer does not represent or guarantee that any
particular federal or state income, payroll, personal property, or
other tax consequence will result from participation in this Plan.
Participant should consult with professional tax advisors to determine
the tax consequences of his/her participation.
1.14. APPLICABLE LAW. This Plan shall be construed in accordance with
applicable federal law and, to the extent otherwise applicable, the law
of the State of New Jersey.
1.15. RESPONSIBILITY FOR TAXES. Participant is responsible for all federal,
state, and other taxes assessed on amounts deferred under this Plan.
Employer shall have the right to withhold or reduce Plan benefits to
satisfy such withholding obligations, as it may deem necessary to
ensure proper withholding procedures.
1.16. ESTABLISHMENT OF TRUST. In the event of a Change in Control as defined
in Paragraph 1.19, the Employer shall immediately establish the
Employee's Trust (the "Trust") and contribute assets to such Trust in
an amount equal to the Employer's obligations to the Participant under
this Plan determined as of the date of the Change in Control. Prior to
such a Change in Control, the Employer may, at its option and in its
sole discretion, establish such a Trust. Such Trust shall be
established in accordance with the Internal Revenue Service model trust
agreement as set forth in Revenue Procedure 92-64.
1.17. EFFECT OF THE TRUST. The provisions of the Plan shall govern the rights
of the Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Participant and
the creditors of the Employer to the assets transferred to the Trust.
The Employer shall at all times remain liable to
3
<PAGE> 4
carry out its obligations under the Plan. The Employee's obligations
under the Plan may be satisfied with Trust assets distributed pursuant
to the terms of the Trust, and any such distribution shall reduce the
Employee's obligation under the Plan.
1.18. PRIOR PLANS AND AGREEMENTS. This Plan supercedes all prior plans and
agreements between the Company and the Employee with respect to
deferred compensation and all sums and investments held under such
other plans and agreements shall be transferred to this Plan and
administered under its terms.
1.19. DEFINITIONS. For purposes of Paragraph 1.16, the following capitalized
words shall have the meanings set forth below:
19.1.1. "CHANGE IN CONTROL" shall be as defined in Section 3.5 of the
Employment Agreement dated as of March 1, 2000 among the MIIX
Group, Incorporated, New Jersey State Medical Underwriters,
Inc. and Edward M. Grab.
IN WITNESS WHEREOF, the parties have executed this Agreement on one or more
counterparts which, taken together, shall constitute one Agreement, which
Agreement shall be effective as of the date recited above.
THE MIIX GROUP, INCORPORATED
By:________________________________ ____________________________
Date
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:________________________________ ____________________________
Date
___________________________________ ____________________________
EDWARD M. GRAB Date
4
<PAGE> 5
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
INVESTMENT ELECTION FORM
- --------------------------------------------------------------------------
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective March 1, 2000 ("Plan"), I hereby revoke any
prior investment designations for the amounts credited to my account balance
under the Plan, and I hereby elect the following investments for amounts
credited to my account. This election is to be effective at the earliest date
permissible under and subject to all of the terms of, the Plan:
Investment Options Percentage of Plan Account:
<TABLE>
<S> <C> <C> <C>
1. Specified Investments* $________________
2. Unspecified** 100%
3. ______________________________________ ________________
4. ______________________________________ ________________
5. ______________________________________ ________________
Total ______________________________________ $________________
</TABLE>
* Specify Investment:__________________________________________________
** Therefore earning interest in an amount equal to the consolidated aggregate
investment portfolio yield for The MIIX Group, Incorporated.
Participant's Signature:___________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved:__________________________________________________________________
By:________________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 6
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
ELECTION TO DEFER
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective March 1, 2000, I hereby elect to defer the
following amounts or percentages of compensation:
Salary: Commencing on _________________________________________________
In the amount of ______________________________________________
Bonus: That will be determined on ____________________________________
In the amount of ______________________________________________
Stock Option
Dividend Equivalents: Commencing on _______________________________
Participant's Signature:________________________________________________
Print Name:_____________________________________________________________
Date:___________________________________________________________________
Approved: The MIIX Group, Incorporated
By:_____________________________________________________________________
Print Name:_____________________________________________________________
Date:___________________________________________________________________
Approved: New Jersey State Medical Underwriters, Inc.
By:_____________________________________________________________________
Print Name:_____________________________________________________________
Date:___________________________________________________________________
<PAGE> 1
EXHIBIT 10.33
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
The Non-Qualified Deferred Compensation Agreement ("Agreement" or "Plan") is
entered into and effective December 15, 1999 ("Effective Date"), by and between
The MIIX Group, Incorporated, New Jersey State Medical Underwriters, Inc.
("Employer" or "Company") and Joseph J. Hudson (hereinafter sometimes referred
to as "Employee" or "Participant").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1.1. ESTABLISHMENT OF PLAN. Employer hereby establishes this Deferred
Compensation Plan which shall become effective as of the date selected by
Employer. The Plan shall be maintained for the exclusive benefit of
Employee.
1.2. NATURE OF PLAN. The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded plan of
deferred compensation for purposes of the Internal Revenue Code of 1986,
as amended, and regulations thereunder, and the Employee Retirement Income
Security Act of 1974.
1.3. PURPOSE OF PLAN. The purpose of this Plan is to enable Employee to enhance
his financial security by permitting him to enter into this agreement with
Employer to defer his compensation and receive benefits in a future year.
1.4. APPLICABLE COMPENSATION. Elections to defer compensation shall be made
with respect to compensation not yet earned. In the case of bonuses or
other nonperiodic payments, such compensation shall be treated as earned
no earlier than the day on which the amount payable has been determined.
In the case of periodic payments such as salary, such compensation shall
be treated as earned no earlier than the day prior to the day on which the
service period giving rise to the salary has commenced. In the case of
Dividend Equivalents (awarded pursuant to The MIIX Group, Incorporated
Long Term Incentive Equity Plan) converted into cash, such compensation
shall be treated as earned no earlier than the day prior to the day on
which such Dividend Equivalents are credited to the account maintained on
behalf of the Participant under Sections 6.4 and 9.3 of the Equity Plan.
<PAGE> 2
1.5. DEFERRAL OF COMPENSATION. Employee shall make an irrevocable election to
defer compensation to be paid by Employer by the signing of an Election to
Defer in the form approved by Employer. Deferrals under such elections
shall be effective on the date the Election to Defer is properly completed
by Employee and accepted by Employer. Employer shall acknowledge receipt
of Employee's deferral election by signing the Election to Defer and
returning it to Employee within 14 days of receipt.
1.6. EARNINGS. Interest shall be credited monthly by Employer on amounts
deferred under this Plan at a rate of return equal to the aggregate
investment portfolio yield for the MIIX Group, Incorporated or, if
applicable, the return directly associated with any specific investment
alternatives chosen by Employee and approved by Employer, including, but
not limited to, any income (loss) and realized and unrealized gains
(losses). Employee may change selected investment alternatives on a
prospective basis only.
1.7. COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to Participant
under the Plan shall commence no earlier than December 15, 2004, provided,
however, that distribution shall be accelerated in the event Employee
separates from service of Employer for any reason prior to December 15,
2004. In such event, Plan benefits shall commence within 60 days after
such separation from service. Notwithstanding the foregoing, if
Participant dies prior to the time his benefits under this Plan have been
distributed in full, any remaining portion of benefits yet to be
distributed under this Plan shall be distributed as soon as
administratively practicable to Participant's estate or such other
beneficiary as designated by Participant on a Beneficiary Designation
Form.
1.8. MANNER OF PAYMENT. Distributions shall be made in cash by Employer except
to the extent that Participant elects to receive payment in the form of
property that was designated as an investment alternative as provided in
Section 1.6 of this Agreement. In such case, any cash due shall be reduced
by the fair market value of such in kind payment at the time of the
distribution.
1.9. PLAN ADMINISTRATION. The Company shall be responsible for the
administration of the Plan, including any associated costs.
1.10. OWNERSHIP OF ASSETS. All amounts of compensation deferred under the Plan,
all property and rights purchased with such amounts, and all income
attributable to such amounts, property, or rights shall remain (until made
available to Participant) solely the property and rights of the Company
(without being restricted to the provisions of benefits under the Plan)
and shall be subject to the claims of the Company's general creditors.
2
<PAGE> 3
1.11. LIMITATION OF RIGHTS/EMPLOYMENT RELATIONSHIP. Neither the establishment of
this Plan nor any modification thereof, nor the creation of any fund or
account, nor the payment of any benefits, shall be construed as giving
Participant or any other person any legal or equitable right against
Employer except as provided in the Plan.
1.12. LIMITATION OF ASSIGNMENT. Benefits under the Plan may not be assigned,
sold, transferred, or encumbered, and any attempt to do so shall be void.
Participant's interest in benefits under the Plan shall not be subjected
to debts or liabilities of any kind and shall not be subject to
attachment, garnishment, or other legal process.
1.13. REPRESENTATIONS. Employer does not represent or guarantee that any
particular federal or state income, personal property, or other tax
consequence will result from participation in this Plan. Participant
should consult with professional tax advisors to determine the tax
consequences of his participation.
1.14. APPLICABLE LAW. This Plan shall be construed in accordance with applicable
federal law and, to the extent otherwise applicable, the law of the State
of New Jersey.
1.15. RESPONSIBILITY FOR TAXES. Participant is responsible for all federal,
state, and other taxes assessed on amounts deferred under this Plan.
Employer shall have the right to withhold or reduce Plan benefits to
satisfy such withholding obligations, as it may deem necessary to ensure
proper withholding procedures.
1.16. ESTABLISHMENT OF TRUST. In the event of a Change in Control as defined in
Paragraph 1.19, the Employer shall immediately establish the Employee's
Trust (the "Trust") and contribute assets to such Trust in an amount equal
to the Employer's obligations to the Participant under this Plan
determined as of the date of the Change in Control. Prior to such a change
in control, the Employer may, at its option and in its sole discretion,
establish such a Trust. Such Trust shall be established in accordance with
the Internal Revenue Service model trust agreement as set forth in Revenue
Procedure 92-64.
1.17. EFFECT OF THE TRUST. The provisions of the Plan shall govern the rights of
the Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Participant and the
creditors of the Employer to the assets transferred to the Trust. The
Employer shall at all times remain liable to carry out its obligations
under the Plan. The Employee's obligations under the Plan may be satisfied
with Trust assets distributed pursuant to the terms of the Trust, and any
such distribution shall reduce the Employee's obligation under the Plan.
3
<PAGE> 4
1.18 PRIOR PLANS AND AGREEMENTS. This Plan supercedes all prior plans and
agreements between the Company and the Employee with respect to deferred
compensation and all sums and investments held under such other plans and
agreements shall be transferred to this Plan and administered under its
terms.
1.19 DEFINITIONS. For purposes of Paragraph 1.16, the following capitalized
words shall have the meanings set forth below:
19.1.1 "CHANGE IN CONTROL" shall be as defined in Section 3.5 of the
Employment Agreement dated as of December 15, 1999 among the MIIX
Group, Incorporated, New Jersey State Medical Underwriters, Inc.
and Joseph Hudson.
IN WITNESS WHEREOF, the parties have executed this Agreement on one or more
counterparts which, taken together, shall constitute one Agreement, which
Agreement shall be effective as of the date recited above.
THE MIIX GROUP, INCORPORATED
By: ________________________________ ______________________________
Date
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By: ________________________________ ______________________________
Date
____________________________________ ______________________________
JOSEPH J. HUDSON Date
4
<PAGE> 5
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
Deferred Compensation Plan
INVESTMENT ELECTION FORM
________________________________________________________________________________
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999 ("Plan"), I hereby
revoke any prior investment designations for the amounts credited to my account
balance under the Plan, and I hereby elect the following investments for amounts
credited to my account. This election is to be effective at the earliest date
permissible under and subject to all of the terms of, the Plan:
Investment Options Percentage of Plan Account:
1. Specified Investments* $__________
2. Unspecified** 100%
3. ____________________________ ___________
4. ____________________________ ___________
5. ____________________________ ___________
Total ____________________________ $__________
*Specify Investment: ___________________________________________________________
**Therefore earning interest in an amount equal to the consolidated aggregate
investment portfolio yield for The MIIX Group, Incorporated.
Participant's Signature:________________________________________________________
Print Name:_____________________________________________________________________
Date:___________________________________________________________________________
Approved:_______________________________________________________________________
By:_____________________________________________________________________________
Print Name:_____________________________________________________________________
Date:___________________________________________________________________________
<PAGE> 6
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
ELECTION TO DEFER
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999, I hereby elect to defer
the following amounts or percentages of compensation:
Salary: Commencing on_________________________________________________________
In the amount of______________________________________________________
Bonus: That will be determined on____________________________________________
In the amount of______________________________________________________
Stock Option
Dividend Equivalents: Commencing on__________________________________________
Participant's Signature:________________________________________________________
Print Name:_____________________________________________________________________
Date:___________________________________________________________________________
Approved: The MIIX Group, Incorporated
By:_____________________________________________________________________________
Print Name:_____________________________________________________________________
Date:___________________________________________________________________________
Approved: New Jersey State Medical Underwriters, Inc.
By:_____________________________________________________________________________
Print Name:_____________________________________________________________________
Date:___________________________________________________________________________
<PAGE> 1
EXHIBIT 10.34
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
The Non-Qualified Deferred Compensation Agreement ("Agreement" or "Plan") is
entered into and effective December 15, 1999 ("Effective Date"), by and between
The MIIX Group, Incorporated, New Jersey State Medical Underwriters, Inc.
("Employer" or "Company") and Lisa Kramer (hereinafter sometimes referred to as
"Employee" or "Participant").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1.1. ESTABLISHMENT OF PLAN. Employer hereby establishes this Deferred
Compensation Plan which shall become effective as of the date selected
by Employer. The Plan shall be maintained for the exclusive benefit of
Employee.
1.2. NATURE OF PLAN. The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded plan of
deferred compensation for purposes of the Internal Revenue Code of
1986, as amended, and regulations thereunder, and the Employee
Retirement Income Security Act of 1974.
1.3. PURPOSE OF PLAN. The purpose of this Plan is to enable Employee to
enhance her financial security by permitting her to enter into this
agreement with Employer to defer her compensation and receive benefits
in a future year.
1.4. APPLICABLE COMPENSATION. Elections to defer compensation shall be made
with respect to compensation not yet earned. In the case of bonuses or
other nonperiodic payments, such compensation shall be treated as
earned no earlier than the day on which the amount payable has been
determined. In the case of periodic payments such as salary, such
compensation shall be treated as earned no earlier than the day prior
to the day on which the service period giving rise to the salary has
commenced. In the case of Dividend Equivalents (awarded pursuant to The
MIIX Group, Incorporated Long Term Incentive Equity Plan) converted
into cash, such compensation shall be treated as earned no earlier than
the day prior to the day on which such Dividend Equivalents are
credited to the account maintained on behalf of the Participant under
Sections 6.4 and 9.3 of the Equity Plan.
<PAGE> 2
1.5. DEFERRAL OF COMPENSATION. Employee shall make an irrevocable election
to defer compensation to be paid by Employer by the signing of an
Election to Defer in the form approved by Employer. Deferrals under
such elections shall be effective on the date the Election to Defer is
properly completed by Employee and accepted by Employer. Employer shall
acknowledge receipt of Employee's deferral election by signing the
Election to Defer and returning it to Employee within 14 days of
receipt.
1.6. EARNINGS. Interest shall be credited monthly by Employer on amounts
deferred under this Plan at a rate of return equal to the aggregate
investment portfolio yield for The MIIX Group, Incorporated or, if
applicable, the return directly associated with any specific investment
alternatives chosen by Employee and approved by Employer, including,
but not limited to, any income (loss) and realized and unrealized gains
(losses). Employee may change selected investment alternatives on a
prospective basis only.
1.7. COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to Participant
under the Plan shall commence no earlier than December 15, 2004,
provided, however, that distribution shall be accelerated in the event
Employee separates from service of Employer for any reason prior to
December 15, 2004. In such event, Plan benefits shall commence within
60 days after such separation from service. Notwithstanding the
foregoing, if Participant dies prior to the time her benefits under
this Plan have been distributed in full, any remaining portion of
benefits yet to be distributed under this Plan shall be distributed as
soon as administratively practicable to Participant's estate or such
other beneficiary as designated by Participant on a Beneficiary
Designation Form.
1.8. MANNER OF PAYMENT. Distributions shall be made in cash by Employer
except to the extent that Participant elects to receive payment in the
form of property that was designated as an investment alternative as
provided in Section 1.6 of this Agreement. In such case, any cash due
shall be reduced by the fair market value of such in kind payment at
the time of the distribution.
1.9. PLAN ADMINISTRATION. The Company shall be responsible for the
administration of the Plan, including any associated costs.
1.10. OWNERSHIP OF ASSETS. All amounts of compensation deferred under the
Plan, all property and rights purchased with such amounts, and all
income attributable to such amounts, property, or rights shall remain
(until made available to Participant) solely the property and rights of
the Company (without being restricted to the
2
<PAGE> 3
provisions of benefits under the Plan) and shall be subject to the
claims of the Company's general creditors.
1.11. LIMITATION OF RIGHTS / EMPLOYMENT RELATIONSHIP. Neither the
establishment of this Plan nor any modification thereof, nor the
creation of any fund or account, nor the payment of any benefits, shall
be construed as giving Participant or any other person any legal or
equitable right against Employer except as provided in the Plan.
1.12. LIMITATION OF ASSIGNMENT. Benefits under the Plan may not be assigned,
sold, transferred, or encumbered, and any attempt to do so shall be
void. Participant's interest in benefits under the Plan shall not be
subjected to debts or liabilities of any kind and shall not be subject
to attachment, garnishment, or other legal process.
1.13. REPRESENTATIONS. Employer does not represent or guarantee that any
particular federal or state income, payroll, personal property, or
other tax consequence will result from participation in this Plan.
Participant should consult with professional tax advisors to determine
the tax consequences of her participation.
1.14. APPLICABLE LAW. This Plan shall be construed in accordance with
applicable federal law and, to the extent otherwise applicable, the law
of the State of New Jersey.
1.15. RESPONSIBILITY FOR TAXES. Participant is responsible for all federal,
state, and other taxes assessed on amounts deferred under this Plan.
Employer shall have the right to withhold or reduce Plan benefits to
satisfy such withholding obligations, as it may deem necessary to
ensure proper withholding procedures.
1.16. ESTABLISHMENT OF TRUST. In the event of a Change in Control as defined
in Paragraph 1.19, the Employer shall immediately establish the
Employee's Trust (the "Trust") and contribute assets to such Trust in
an amount equal to the Employer's obligations to the Participant under
this Plan determined as of the date of the Change in Control. Prior to
such a Change in Control, the Employer may, at its option and in its
sole discretion, establish such a Trust. Such Trust shall be
established in accordance with the Internal Revenue Service model trust
agreement as set forth in Revenue Procedure 92-64.
1.17. EFFECT OF THE TRUST. The provisions of the Plan shall govern the rights
of the Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Participant and
the creditors of the Employer to the assets transferred to the Trust.
The Employer shall at all times remain liable to carry out its
obligations under the Plan. The Employee's obligations under the Plan
3
<PAGE> 4
may be satisfied with Trust assets distributed pursuant to the terms of
the Trust, and any such distribution shall reduce the Employee's
obligation under the Plan.
1.18. PRIOR PLANS AND AGREEMENTS. This Plan supercedes all prior plans and
agreements between the Company and the Employee with respect to
deferred compensation and all sums and investments held under such
other plans and agreements shall be transferred to this Plan and
administered under its terms.
1.19. DEFINITIONS. For purposes of Paragraph 1.16, the following capitalized
words shall have the meanings set forth below:
19.1.1. "CHANGE IN CONTROL" shall be as defined in Section 3.5 of the
Employment Agreement dated as of December 15, 1999 among the
MIIX Group, Incorporated, New Jersey State Medical
Underwriters, Inc. and Lisa Kramer.
IN WITNESS WHEREOF, the parties have executed this Agreement on one or more
counterparts which, taken together, shall constitute one Agreement, which
Agreement shall be effective as of the date recited above.
THE MIIX GROUP, INCORPORATED
By:________________________________ ____________________________
Date
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:________________________________ ____________________________
Date
___________________________________ ____________________________
LISA KRAMER Date
4
<PAGE> 5
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
INVESTMENT ELECTION FORM
________________________________________________________________________________
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999 ("Plan"), I hereby revoke
any prior investment designations for the amounts credited to my account balance
under the Plan, and I hereby elect the following investments for amounts
credited to my account. This election is to be effective at the earliest date
permissible under and subject to all of the terms of, the Plan:
Investment Options Percentage of Plan Account:
1. Specified Investments* $________________
2. Unspecified** 100%
3. ______________________________________ _________________
4. ______________________________________ _________________
5. ______________________________________ _________________
Total ______________________________________ $________________
* Specify Investment:__________________________________________________
** Therefore earning interest in an amount equal to the consolidated aggregate
investment portfolio yield for The MIIX Group, Incorporated.
Participant's Signature:_______________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved:__________________________________________________________________
By:________________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 6
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
ELECTION TO DEFER
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999, I hereby elect to defer
the following amounts or percentages of compensation:
Salary: Commencing on _________________________________________________
In the amount of _________________________________________________
Bonus: That will be determined on ________________________________________
In the amount of _________________________________________________
Stock Option
Dividend Equivalents: Commencing on _____________________________________
Participant's Signature:_______________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved: The MIIX Group, Incorporated
________________________________
By:_______________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved: New Jersey State Medical Underwriters, Inc.
___________________________________________
By:_______________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 1
Exhibit 10.35
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
The Non-Qualified Deferred Compensation Agreement ("Agreement" or "Plan") is
entered into and effective December 15, 1999 ("Effective Date"), by and between
The MIIX Group, Incorporated, New Jersey State Medical Underwriters, Inc.
("Employer" or "Company") and Thomas M. Redman, Jr. (hereinafter sometimes
referred to as "Employee" or "Participant").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1.1. ESTABLISHMENT OF PLAN. Employer hereby establishes this Deferred
Compensation Plan which shall become effective as of the date selected
by Employer. The Plan shall be maintained for the exclusive benefit of
Employee.
1.2. NATURE OF PLAN. The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded plan of
deferred compensation for purposes of the Internal Revenue Code of
1986, as amended, and regulations thereunder, and the Employee
Retirement Income Security Act of 1974.
1.3. PURPOSE OF PLAN. The purpose of this Plan is to enable Employee to
enhance his financial security by permitting him to enter into this
agreement with Employer to defer his compensation and receive benefits
in a future year.
1.4. APPLICABLE COMPENSATION. Elections to defer compensation shall be made
with respect to compensation not yet earned. In the case of bonuses or
other nonperiodic payments, such compensation shall be treated as
earned no earlier than the day on which the amount payable has been
determined. In the case of periodic payments such as salary, such
compensation shall be treated as earned no earlier than the day prior
to the day on which the service period giving rise to the salary has
commenced. In the case of Dividend Equivalents (awarded pursuant to The
MIIX Group, Incorporated Long Term Incentive Equity Plan) converted
into cash, such compensation shall be treated as earned no earlier than
the day prior to the day on which such Dividend Equivalents are
credited to the account maintained on behalf of the Participant under
Sections 6.4 and 9.3 of the Equity Plan.
<PAGE> 2
1.5. DEFERRAL OF COMPENSATION. Employee shall make an irrevocable election
to defer compensation to be paid by Employer by the signing of an
Election to Defer in the form approved by Employer. Deferrals under
such elections shall be effective on the date the Election to Defer is
properly completed by Employee and accepted by Employer. Employer shall
acknowledge receipt of Employee's deferral election by signing the
Election to Defer and returning it to Employee within 14 days of
receipt.
1.6. EARNINGS. Interest shall be credited monthly by Employer on amounts
deferred under this Plan at a rate of return equal to the aggregate
investment portfolio yield for The MIIX Group, Incorporated or, if
applicable, the return directly associated with any specific investment
alternatives chosen by Employee and approved by Employer, including,
but not limited to, any income (loss) and realized and unrealized gains
(losses). Employee may change selected investment alternatives on a
prospective basis only.
1.7. COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to Participant
under the Plan shall commence no earlier than December 15, 2004,
provided, however, that distribution shall be accelerated in the event
Employee separates from service of Employer for any reason prior to
December 15, 2004. In such event, Plan benefits shall commence within
60 days after such separation from service. Notwithstanding the
foregoing, if Participant dies prior to the time his/her benefits under
this Plan have been distributed in full, any remaining portion of
benefits yet to be distributed under this Plan shall be distributed as
soon as administratively practicable to Participant's estate or such
other beneficiary as designated by Participant on a Beneficiary
Designation Form.
1.8. MANNER OF PAYMENT. Distributions shall be made in cash by Employer
except to the extent that Participant elects to receive payment in the
form of property that was designated as an investment alternative as
provided in Section 1.6 of this Agreement. In such case, any cash due
shall be reduced by the fair market value of such in kind payment at
the time of the distribution.
1.9. PLAN ADMINISTRATION. The Company shall be responsible for the
administration of the Plan, including any associated costs.
1.10. OWNERSHIP OF ASSETS. All amounts of compensation deferred under the
Plan, all property and rights purchased with such amounts, and all
income attributable to such amounts, property, or rights shall remain
(until made available to Participant) solely the property and rights of
the Company (without being restricted to the
2
<PAGE> 3
provisions of benefits under the Plan) and shall be subject to the
claims of the Company's general creditors.
1.11. LIMITATION OF RIGHTS / EMPLOYMENT RELATIONSHIP. Neither the
establishment of this Plan nor any modification thereof, nor the
creation of any fund or account, nor the payment of any benefits, shall
be construed as giving Participant or any other person any legal or
equitable right against Employer except as provided in the Plan.
1.12. LIMITATION OF ASSIGNMENT. Benefits under the Plan may not be assigned,
sold, transferred, or encumbered, and any attempt to do so shall be
void. Participant's interest in benefits under the Plan shall not be
subjected to debts or liabilities of any kind and shall not be subject
to attachment, garnishment, or other legal process.
1.13. REPRESENTATIONS. Employer does not represent or guarantee that any
particular federal or state income, payroll, personal property, or
other tax consequence will result from participation in this Plan.
Participant should consult with professional tax advisors to determine
the tax consequences of his/her participation.
1.14. APPLICABLE LAW. This Plan shall be construed in accordance with
applicable federal law and, to the extent otherwise applicable, the law
of the State of New Jersey.
1.15. RESPONSIBILITY FOR TAXES. Participant is responsible for all federal,
state, and other taxes assessed on amounts deferred under this Plan.
Employer shall have the right to withhold or reduce Plan benefits to
satisfy such withholding obligations, as it may deem necessary to
ensure proper withholding procedures.
1.16. ESTABLISHMENT OF TRUST. In the event of a Change in Control as defined
in Paragraph 1.19, the Employer shall immediately establish the
Employee's Trust (the "Trust") and contribute assets to such Trust in
an amount equal to the Employer's obligations to the Participant under
this Plan determined as of the date of the Change in Control. Prior to
such a Change in Control, the Employer may, at its option and in its
sole discretion, establish such a Trust. Such Trust shall be
established in accordance with the Internal Revenue Service model trust
agreement as set forth in Revenue Procedure 92-64.
1.17. EFFECT OF THE TRUST. The provisions of the Plan shall govern the rights
of the Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Participant and
the creditors of the Employer to the assets transferred to the Trust.
The Employer shall at all times remain liable to carry out its
obligations under the Plan. The Employee's obligations under the Plan
3
<PAGE> 4
may be satisfied with Trust assets distributed pursuant to the terms of
the Trust, and any such distribution shall reduce the Employee's
obligation under the Plan.
1.18. PRIOR PLANS AND AGREEMENTS. This Plan supercedes all prior plans and
agreements between the Company and the Employee with respect to
deferred compensation and all sums and investments held under such
other plans and agreements shall be transferred to this Plan and
administered under its terms.
1.19. DEFINITIONS. For purposes of Paragraph 1.16, the following capitalized
words shall have the meanings set forth below:
19.1.1. "CHANGE IN CONTROL" shall be as defined in Section 3.5 of the
Employment Agreement dated as of December 15, 1999 among the
MIIX Group, Incorporated, New Jersey State Medical
Underwriters, Inc. and Thomas M. Redman, Jr.
IN WITNESS WHEREOF, the parties have executed this Agreement on one or more
counterparts which, taken together, shall constitute one Agreement, which
Agreement shall be effective as of the date recited above.
THE MIIX GROUP, INCORPORATED
By:________________________________ ____________________________
Date
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:________________________________ ____________________________
Date
____________________________________ _____________________________
THOMAS M. REDMAN, JR. Date
4
<PAGE> 5
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
INVESTMENT ELECTION FORM
________________________________________________________________________________
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999 ("Plan"), I hereby revoke
any prior investment designations for the amounts credited to my account balance
under the Plan, and I hereby elect the following investments for amounts
credited to my account. This election is to be effective at the earliest date
permissible under and subject to all of the terms of, the Plan:
Investment Options Percentage of Plan Account:
1. Specified Investments* $________________
2. Unspecified** 100%
3. ______________________________________ _________________
4. ______________________________________ _________________
5. ______________________________________ _________________
Total ______________________________________ $________________
* Specify Investment:__________________________________________________
** Therefore earning interest in an amount equal to the consolidated aggregate
investment portfolio yield for The MIIX Group, Incorporated.
Participant's Signature:_______________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved:__________________________________________________________________
By:________________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 6
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
ELECTION TO DEFER
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999, I hereby elect to defer
the following amounts or percentages of compensation:
Salary: Commencing on _________________________________________________
In the amount of _________________________________________________
Bonus: That will be determined on ________________________________________
In the amount of _________________________________________________
Stock Option
Dividend Equivalents: Commencing on _____________________________________
Participant's Signature:_______________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved: The MIIX Group, Incorporated
_____________________________________
By:_______________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved: New Jersey State Medical Underwriters, Inc.
____________________________________________
By:_______________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 1
EXHIBIT 10.36
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
The Non-Qualified Deferred Compensation Agreement ("Agreement" or "Plan") is
entered into and effective December 15, 1999 ("Effective Date"), by and between
The MIIX Group, Incorporated, New Jersey State Medical Underwriters, Inc.
("Employer" or "Company") and Daniel G. Smereck (hereinafter sometimes referred
to as "Employee" or "Participant").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1.1. ESTABLISHMENT OF PLAN. Employer hereby establishes this Deferred
Compensation Plan which shall become effective as of the date selected
by Employer. The Plan shall be maintained for the exclusive benefit of
Employee.
1.2. NATURE OF PLAN. The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded plan of
deferred compensation for purposes of the Internal Revenue Code of
1986, as amended, and regulations thereunder, and the Employee
Retirement Income Security Act of 1974.
1.3. PURPOSE OF PLAN. The purpose of this Plan is to enable Employee to
enhance his financial security by permitting him to enter into this
agreement with Employer to defer his compensation and receive benefits
in a future year.
1.4. APPLICABLE COMPENSATION. Elections to defer compensation shall be made
with respect to compensation not yet earned. In the case of bonuses or
other nonperiodic payments, such compensation shall be treated as
earned no earlier than the day on which the amount payable has been
determined. In the case of periodic payments such as salary, such
compensation shall be treated as earned no earlier than the day prior
to the day on which the service period giving rise to the salary has
commenced. In the case of Dividend Equivalents (awarded pursuant to The
MIIX Group, Incorporated Long Term Incentive Equity Plan) converted
into cash, such compensation shall be treated as earned no earlier than
the day prior to the day on which such Dividend Equivalents are
credited to the account maintained on behalf of the Participant under
Sections 6.4 and 9.3 of the Equity Plan.
<PAGE> 2
1.5. DEFERRAL OF COMPENSATION. Employee shall make an irrevocable election
to defer compensation to be paid by Employer by the signing of an
Election to Defer in the form approved by Employer. Deferrals under
such elections shall be effective on the date the Election to Defer is
properly completed by Employee and accepted by Employer. Employer shall
acknowledge receipt of Employee's deferral election by signing the
Election to Defer and returning it to Employee within 14 days of
receipt.
1.6. EARNINGS. Interest shall be credited monthly by Employer on amounts
deferred under this Plan at a rate of return equal to the aggregate
investment portfolio yield for The MIIX Group, Incorporated or, if
applicable, the return directly associated with any specific investment
alternatives chosen by Employee and approved by Employer, including,
but not limited to, any income (loss) and realized and unrealized gains
(losses). Employee may change selected investment alternatives on a
prospective basis only.
1.7. COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to Participant
under the Plan shall commence no earlier than December 15, 2004,
provided, however, that distribution shall be accelerated in the event
Employee separates from service of Employer for any reason prior to
December 15, 2004. In such event, Plan benefits shall commence within
60 days after such separation from service. Notwithstanding the
foregoing, if Participant dies prior to the time his benefits under
this Plan have been distributed in full, any remaining portion of
benefits yet to be distributed under this Plan shall be distributed as
soon as administratively practicable to Participant's estate or such
other beneficiary as designated by Participant on a Beneficiary
Designation Form.
1.8. MANNER OF PAYMENT. Distributions shall be made in cash by Employer
except to the extent that Participant elects to receive payment in the
form of property that was designated as an investment alternative as
provided in Section 1.6 of this Agreement. In such case, any cash due
shall be reduced by the fair market value of such in kind payment at
the time of the distribution.
1.9. PLAN ADMINISTRATION. The Company shall be responsible for the
administration of the Plan, including any associated costs.
1.10. OWNERSHIP OF ASSETS. All amounts of compensation deferred under the
Plan, all property and rights purchased with such amounts, and all
income attributable to such amounts, property, or rights shall remain
(until made available to Participant) solely the property and rights of
the Company (without being restricted to the
2
<PAGE> 3
provisions of benefits under the Plan) and shall be subject to the
claims of the Company's general creditors.
1.11. LIMITATION OF RIGHTS / EMPLOYMENT RELATIONSHIP. Neither the
establishment of this Plan nor any modification thereof, nor the
creation of any fund or account, nor the payment of any benefits, shall
be construed as giving Participant or any other person any legal or
equitable right against Employer except as provided in the Plan.
1.12. LIMITATION OF ASSIGNMENT. Benefits under the Plan may not be assigned,
sold, transferred, or encumbered, and any attempt to do so shall be
void. Participant's interest in benefits under the Plan shall not be
subjected to debts or liabilities of any kind and shall not be subject
to attachment, garnishment, or other legal process.
1.13. REPRESENTATIONS. Employer does not represent or guarantee that any
particular federal or state income, payroll, personal property, or
other tax consequence will result from participation in this Plan.
Participant should consult with professional tax advisors to determine
the tax consequences of his/her participation.
1.14. APPLICABLE LAW. This Plan shall be construed in accordance with
applicable federal law and, to the extent otherwise applicable, the law
of the State of New Jersey.
1.15. RESPONSIBILITY FOR TAXES. Participant is responsible for all federal,
state, and other taxes assessed on amounts deferred under this Plan.
Employer shall have the right to withhold or reduce Plan benefits to
satisfy such withholding obligations, as it may deem necessary to
ensure proper withholding procedures.
1.16. ESTABLISHMENT OF TRUST. In the event of a Change in Control as defined
in Paragraph 1.19, the Employer shall immediately establish the
Employee's Trust (the "Trust") and contribute assets to such Trust in
an amount equal to the Employer's obligations to the Participant under
this Plan determined as of the date of the Change in Control. Prior to
such a Change in Control, the Employer may, at its option and in its
sole discretion, establish such a Trust. Such Trust shall be
established in accordance with the Internal Revenue Service model trust
agreement as set forth in Revenue Procedure 92-64.
1.17. EFFECT OF THE TRUST. The provisions of the Plan shall govern the rights
of the Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Participant and
the creditors of the Employer to the assets transferred to the Trust.
The Employer shall at all times remain liable to carry out its
obligations under the Plan. The Employee's obligations under the Plan
3
<PAGE> 4
may be satisfied with Trust assets distributed pursuant to the terms of
the Trust, and any such distribution shall reduce the Employee's
obligation under the Plan.
1.18. PRIOR PLANS AND AGREEMENTS. This Plan supercedes all prior plans and
agreements between the Company and the Employee with respect to
deferred compensation and all sums and investments held under such
other plans and agreements shall be transferred to this Plan and
administered under its terms.
1.19. DEFINITIONS. For purposes of Paragraph 1.16, the following capitalized
words shall have the meanings set forth below:
19.1.1. "CHANGE IN CONTROL" shall be as defined in Section 3.5 of the
Employment Agreement dated as of December 15, 1999 among the
MIIX Group, Incorporated, New Jersey State Medical
Underwriters, Inc. and Daniel G. Smereck.
IN WITNESS WHEREOF, the parties have executed this Agreement on one or more
counterparts which, taken together, shall constitute one Agreement, which
Agreement shall be effective as of the date recited above.
THE MIIX GROUP, INCORPORATED
By:________________________________ ____________________________
Date
NEW JERSEY STATE MEDICAL
UNDERWRITERS, INC.
By:________________________________ ____________________________
Date
____________________________________ _____________________________
DANIEL G. SMERECK Date
4
<PAGE> 5
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
INVESTMENT ELECTION FORM
_______________________________________________________________________________
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999 ("Plan"), I hereby revoke
any prior investment designations for the amounts credited to my account balance
under the Plan, and I hereby elect the following investments for amounts
credited to my account. This election is to be effective at the earliest date
permissible under and subject to all of the terms of, the Plan:
Investment Options Percentage of Plan Account:
1. Specified Investments* $________________
2. Unspecified** 100%
3. ______________________________________ _________________
4. ______________________________________ _________________
5. ______________________________________ _________________
Total ______________________________________ $________________
* Specify Investment:__________________________________________________
** Therefore earning interest in an amount equal to the consolidated aggregate
investment portfolio yield for The MIIX Group, Incorporated.
Participant's Signature:_______________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved:__________________________________________________________________
By:________________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 6
THE MIIX GROUP, INCORPORATED AND
NEW JERSEY STATE MEDICAL UNDERWRITERS, INC.
DEFERRED COMPENSATION PLAN
ELECTION TO DEFER
Pursuant to the terms of the Non-Qualified Deferred Compensation Agreement
entered into between me, The MIIX Group, Incorporated, and New Jersey State
Medical Underwriters, Inc. effective December 15, 1999, I hereby elect to defer
the following amounts or percentages of compensation:
Salary: Commencing on _________________________________________________
In the amount of _________________________________________________
Bonus: That will be determined on ________________________________________
In the amount of _________________________________________________
Stock Option
Dividend Equivalents: Commencing on _____________________________________
Participant's Signature:_______________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved: The MIIX Group, Incorporated
_____________________________
By:_______________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
Approved: New Jersey State Medical Underwriters, Inc.
_____________________________________________
By:_______________________________________________________________________
Print Name:________________________________________________________________
Date:______________________________________________________________________
<PAGE> 1
EXHIBIT 10.46
ATTACHING TO AND FORMING PART OF POLICY NO. 901/LK9905081
ISSUED BY: HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
TO: MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
ENDORSEMENT NO. 1 EFFECTIVE: 1ST JANUARY, 2000
___________________ ____________________________
It is hereby understood and agreed that with effect from 1st January, 2000 this
Contract is amended as follows:
i) Article IV B. Limit Excess of Retention is amended to read:
Limit Excess of Retention:
i) In respect of Medical and Dental Practitioner Liability, Umbrella
Liability, Hospital and other Healthcare Institution Professional
Liability and Commercial Liability Business:
Reinsurers shall be liable for 90% of $25,000,000 of Ultimate Net Loss
as respects each original policy, or, where applicable, each and every
Event, plus Pro rata Loss Adjustment Expenses.
ii) In respect of Directors and Officers Liability, Fiduciary Liability,
Managed Care Errors and Omissions Liability, Employment Practice
Liability, and Miscellaneous Professional Indemnity (including but not
limited to Lawyers Professional, Notary Public and Electronic Data
Processors Business -- coverage subject to agreement by Reinsurers):
Reinsurers shall be liable for 90% of $15,000,000 of Ultimate Net Loss
as respects each original policy, or, where applicable, each and every
Event, plus Pro rata Loss Adjustment Expenses.
ii) Article VIII: Premium is amended to read:
The Company shall pay the Reinsurers a Minimum and Deposit Premium which is
to be agreed upon receipt and review of (a) schedule of accounts ceded
under the contract for the period: 12 months at 1st January, 1999 and (b)
I.L.F. allocations for the reduced limit of $25,000,000 and shall be
payable quarterly as follows:-
31st March, 30th June, 30th September and 31st December.
The Minimum Premium shall be adjusted upwards at 90% of the net ceded
premium within 45 days of 31st December.
iii) This Contract reinsures 10% part of the 90% of the Limit of Liability
expressed hereunder.
ALL OTHER TERMS AND CONDITIONS OF THIS CONTRACT REMAIN UNALTERED.
<PAGE> 1
EXHIBIT 10.47
ATTACHING TO AND FORMING PART OF POLICY NO. 901/LK9905081
ISSUED BY: SWISS REINSURANCE COMPANY
TO: MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
ENDORSEMENT NO. 1 EFFECTIVE: 1ST JANUARY, 2000
It is hereby understood and agreed that with effect from 1st January, 2000 this
Contract is amended as follows:
i) Article IV B. Limit Excess of Retention is amended to read:
Limit Excess of Retention:
i) In respect of Medical and Dental Practitioner Liability, Umbrella
Liability, Hospital and other Healthcare Institution Professional
Liability and Commercial Liability Business:
Reinsurers shall be liable for 90% of $25,000,000 of Ultimate Net Loss as
respects each original policy, or, where applicable, each and every
Event, plus Pro rata Loss Adjustment Expenses.
ii)In respect of Directors and Officers Liability, Fiduciary Liability,
Managed Care Errors and Omissions Liability, Employment Practice
Liability, and Miscellaneous Professional Indemnity (including but not
limited to Lawyers Professional, Notary Public and Electronic Data
Processors Business -- coverage subject to agreement by Reinsurers):
Reinsurers shall be liable for 90% of $15,000,000 of Ultimate Net Loss as
respects each original policy, or, where applicable, each and every
Event, plus Pro rata Loss Adjustment Expenses.
ii) Article VIII: Premium is amended to read:
The Company shall pay the Reinsurers a Minimum and Deposit Premium which is
to be agreed upon receipt and review of (a) schedule of accounts ceded under
the contract for the period: 12 months at 1st January, 1999 and (b) I.L.F.
allocations for the reduced limit of $25,000,000 and shall be payable
quarterly as follows:-
31st March, 30th June, 30th September and 31st December.
The Minimum Premium shall be adjusted upwards at 90% of the net ceded
premium within 45 days of 31st December.
iii) This Contract reinsures 80% part of the 90% of the Limit of Liability
expressed hereunder.
ALL OTHER TERMS AND CONDITIONS OF THIS CONTRACT REMAIN UNALTERED.
<PAGE> 1
EXHIBIT 10.48
ATTACHING TO AND FORMING PART OF POLICY NO. 901/LK9905081
ISSUED BY: AMERICAN RE-INSURANCE COMPANY
TO: MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
ENDORSEMENT NO. 1 EFFECTIVE: 1ST JANUARY, 2000
It is hereby understood and agreed that with effect from 1st January, 2000 this
Contract is Cancelled.
ALL OTHER TERMS AND CONDITIONS OF THIS CONTRACT REMAIN UNALTERED.
<PAGE> 1
EXHIBIT 10.49
MIIX INSURANCE COMPANY
COMBINED QUOTA SHARE AND AGGREGATE REINSURANCE
TREATY NO. 901/LK9905942
EFFECTIVE NOVEMBER 1, 1999
<TABLE>
<CAPTION>
ARTICLE SUMMARY PAGE
- ------- ------- ----
<S> <C> <C>
1 Business Covered 2
2 Commencement And Termination 3
3 Territory And Inuring Reinsurance 3
4 Exclusions 3
5 Coverages And Aggregate Limits 4
6 Definitions 5
7 Net Retained Liability 7
8 Section A Advance And Actual Consideration, 7
Section B Actual Consideration, Additional Coverage Consideration
And Ceding Commission, And Reinsurers' Expense Charge
9 Offset And Security 11
10 Reports And Loss Settlements 11
11 Funds Withheld Account And Interest Credit 12
12 Liability Of The Reinsurer And Currency 13
13 Commutation 14
14 Excess Of Original Policy Limits 14
15 Extra Contractual Obligations 14
16 Errors And Omissions 15
17 Access To Records 15
18 Actuarial Review 16
19 Loss Reserve And Advance Premium Funding 16
20 Funds Withheld Trust Account 16
21 Insolvency 17
22 Arbitration 17
23 Changes In Administrative Practices 18
24 Taxes 19
25 Service Of Suit 19
26 No Assignment 19
27 Intermediary 20
</TABLE>
<PAGE> 2
COMBINED QUOTA SHARE AND AGGREGATE REINSURANCE
TREATY NO. 901/LK9905492
(hereinafter referred to as "Treaty")
between
HANNOVER REINSURANCE (IRELAND) LIMITED
(hereinafter referred to as "Reinsurers")
and
MIIX INSURANCE COMPANY
LAWRENCEVILLE, NEW JERSEY
(hereinafter referred to as "Ceding Company")
ARTICLE 1: BUSINESS COVERED
This Treaty shall indemnify the Ceding Company with respect to Ultimate Net
Losses which may accrue to the Ceding Company under any and all Policies subject
to the Terms and Conditions of this Treaty.
As respects all coverages hereon, the Reinsurers shall provide coverage on a
risks attaching basis for each Coverage Year in respect of all of the Ceding
Company's Policies underwritten during each respective Coverage Year. Premiums
received in advance of each Coverage Year are deemed to be part of the Subject
Net Written Premium for that Coverage Year. Coverage shall in all cases follow
the underlying basis of coverage of the original Policies written by the Ceding
Company. For all purposes, the "Permanent Protection Policies (PPP)" written by
the Ceding Company shall in all cases be deemed to cover on a losses occurring
during basis of underlying coverage. Reinsurers shall be subject to all of the
conditions of the PPP including policy limits and the aggregate limit formula
under the extended reporting coverage therein.
Reinsurers shall remain liable for all losses covered as detailed above during
the Term until all such losses are paid or this Treaty is commuted.
2
<PAGE> 3
ARTICLE 2: COMMENCEMENT AND TERMINATION
This Treaty is effective November 1, 1999 and shall remain continuously in
effect thereafter unless terminated. Either party may terminate this Treaty at
any November 1st by giving the other party not less than 90 (ninety) days prior
written notice by certified mail. Unless otherwise mutually agreed, reinsurance
hereunder on Business Covered in force at the effective date of termination
shall remain in full force and effect until expiration, cancellation or next
anniversary of such business, whichever first occurs, but in no event beyond 12
months following the effective date of termination plus any extension of
coverage for extended reporting provided under the original policies of the
Ceding Company.
Should this Treaty expire while a loss is in progress, the Reinsurers shall be
responsible for the loss in progress in the same manner and to the same extent
they would have been responsible had the Treaty expired the day following the
conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Treaty will cover Policies written within the United States of America. All
other Reinsurance Agreements that inure to the benefit of this Treaty shall be
deemed in place until all liability of the Reinsurers hereon is finalized by
payment of all losses or commutation.
ARTICLE 4: EXCLUSIONS
This Treaty shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause attached hereto;
C. Business assumed from Pools, Syndicates, and Associations;
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - USA, except that provisions of this clause
shall not apply to liability arising out of the practice of Nuclear
Medicine and activities relating to Nuclear Medicine by the original
insured;
E. War Risks, in accordance with the North America War Exclusion Clause
attached hereto;
F. Unallocated Loss Adjustment Expenses as described in ARTICLE 6:
DEFINITIONS, D;
G. Underlying Provider Stop Loss Policies written by the Ceding Company.
3
<PAGE> 4
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS
SECTION A - 75% QUOTA SHARE COVERAGE
Reinsurers shall indemnify the Ceding Company for 75% (seventy-five percent)
quota share of Ultimate Net Loss arising from covered losses for each applicable
Coverage Year during the Term of this Treaty subject to the Section A Aggregate
Limit hereon. This quota share shall be in respect of the Business Covered
exposure period related to Section A Advance Consideration only.
This Section A Quota Share Coverage can be converted to Section B Aggregate
Excess of Loss Coverage during the first quarter retroactive to January 1st of
any applicable Coverage Year. This conversion is at the mutual agreement of the
Ceding Company and the Reinsurers and is subject to the following conditions not
being present prior to the conversion date:
1. The Ceding Company's A.M. Best Rating falls below B+; and
2. The Ceding Company's surplus drops below $60,000,000 (sixty million
dollars).
If both of these conditions are present during the first quarter, then the
Section A Quota Share Coverage cannot be converted into the Section B Aggregate
Excess of Loss Coverage for the applicable Coverage Year.
If Section A is not converted to Section B, the Ceding Company shall track the
advance premium by policy to the coverage time afforded by the advance premium
under each policy. Section A shall cover the Ceding Company on the basis of the
coverage of the underlying original Policies during such advance premium
coverage time.
The Aggregate Limit for each Section A Coverage Year shall equal 167% (one
hundred sixty-seven percent) of Section A Advance Consideration. If Section A is
converted to Section B, the Aggregate Limit for Section A shall be $0 (zero
dollars) for the respective Coverage Year.
SECTION B - AGGREGATE EXCESS OF LOSS COVERAGE
Should the Ceding Company's Loss Ratio exceed 75% (seventy-five percent)
(hereinafter called the Retention), the Reinsurers shall be liable for 100% (one
hundred percent) of the paid amount of Ultimate Net Losses in excess of the
Retention subject to a maximum Aggregate Limit of 75% (seventy-five percent) of
SNWP. This aggregate excess coverage shall cover the Ceding Company on the basis
of the coverage of the original Policies. If the Section A Quota Share Coverage
is converted to this Section B Aggregate Excess of Loss Coverage, then this
Section B shall also cover the Ceding Company's original Policies pertaining to
advance premium deposits received through December 31st preceding the respective
Coverage Year. If Section A is not converted to Section B, Section B shall not
cover the original policies during the coverage time pertaining to advance
premium deposits received through December 31st preceding the respective
Coverage Year.
If the amount of the Funds Withheld Account balance falls below $500,000 (five
hundred thousand dollars) on a specific Coverage Year the Reinsurers may
unilaterally and individually, for their respective interests, offer at any
time, for such Coverage Year, and the Ceding Company will accept, Additional
Section B Coverage up to 8% (eight percent) of cumulative SNWP excess of 150%
(one hundred and fifty percent) of cumulative SNWP in respect of
4
<PAGE> 5
covered losses. In no event shall Reinsurers be liable for more than
$200,000,000 (two hundred million dollars) in the aggregate for Section B for
each Coverage Year. The $200,000,000 (two hundred million dollars) aggregate
limit for each Coverage Year shall be subject to the sub condition that no more
than $20,000,000 (twenty million dollars) in all (inclusive of Loss Adjustment
Expenses) shall be recoverable from Reinsurers in respect of losses emanating
from a loss layer of $7,000,000 (seven million dollars) each and every loss
(inclusive of Loss Adjustment Expenses) excess of $3,000,000 (three million
dollars) each and every loss (inclusive of Loss Adjustment Expenses).
If SNWP exceeds $300,000,000 (three hundred million dollars) in a particular
individual Coverage Year, then the Ceding Company shall participate in this
particular individual Coverage Year with the Reinsurers in losses otherwise
recoverable in the proportion calculated as follows:
Ceding Company's Share: Amount of SNWP in excess of $300,000,000
-----------------------------------------------
SNWP
This proportion may be adjusted based on mutual consent of the Ceding Company
and Reinsurers for Coverage Years 2000 and thereafter.
ARTICLE 6: DEFINITIONS
A. "Cumulative Subject Net Written Premiums" (SNWP) shall mean for the
respective Coverage Year, the cumulative Net Written and Assumed Written
Premium Income less cancellations and returns and less premiums paid for
all other reinsurances for the Coverage Year, except for the
Non-Traditional Reinsurance Agreements which shall be disregarded for the
calculation of SNWP.
If the Section A Quota Share Coverage is converted to the Section B
Aggregate Excess of Loss Coverage, SNWP shall include all direct advance
premium for the Coverage Year. If the Section A Quota Share Coverage is
not converted to Section B Aggregate Excess of Loss Coverage, SNWP shall
exclude the SNWP related to all the direct advance premium for the
respective Coverage Year. Direct advance premium refers to all actual
amounts collected by Ceding Company from its insureds in advance of the
respective Coverage Year.
B. "Non-Traditional Reinsurance Agreements" shall mean any reinsurance
agreement which allows for Profit Sharing (or any other form of
contractual adjustment) exceeding 25% (twenty-five percent) of initial
reinsurance premium paid.
C. The term "Ultimate Net Loss" means the actual loss including any and all
vicarious liability, arising from a Loss Occurrence as covered in
accordance with ARTICLE 1: BUSINESS COVERED, including pro rata Loss
Adjustments Expense, Loss in Excess of Policy Limits and Extra
Contractual Obligations, and including losses incurred but not yet
reported, all paid, payable or to be paid by the Ceding Company after
making deductions for all recoveries, salvages, subrogations and all
claims on inuring reinsurance, whether such reinsurance is collectible or
not; provided, that in the event of the insolvency of the Ceding Company,
payment by the Reinsurers shall be made in accordance with the provisions
of the ARTICLE 21: INSOLVENCY. Nothing herein shall be construed to mean
that losses
5
<PAGE> 6
under this Treaty are not recoverable until the Ceding Company's
Ultimate Net Loss has been ascertained.
D. "Loss Adjustment Expense" means all costs and expense allocable to a
specific claim or claims that are incurred by the Ceding Company in the
investigation, appraisal, adjustment, settlement, litigation, defense
or appeal of a specific claim, including court costs and costs of
supersedes and appeal bonds, and including a) pre-judgment interest,
unless included as part of the award or judgement; b) post - judgment
interest; and c) legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto. Loss Adjustment
Expense does not include Unallocated Loss Adjustment Expense.
Unallocated Loss Adjustment Expense includes, but is not limited to
salaries and expenses of employees, and office and other overheads.
E. "Policies" means any and all original policies, contracts, and binders
of insurance or reinsurance underwritten by the Ceding Company, issued
in the states of New Jersey and Pennsylvania to individual and/or
groups of physicians and/or dentists and classified under the listing
below:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage) *
Directors and Officers Liability
All Property and other Coverages as provided in conjunction with
Professional Liability
Coverages
Property Highly Protected Risk Assumed
Medical Office Policy Coverages
Other Health Care Institution Liability
Professional Premises Liability
Commercial General Liability
Excess Umbrella Liability
Errors and Omissions Liability
"Policies" shall also mean assumed reinsurance from Lawrenceville Re,
Ltd of Bermuda (Lawrenceville Re), and Lawrenceville Property and
Casualty Insurance Company (LP&C), in respect of assumed reinsurance
underwritten by Lawrenceville Re and original policies contracts, and
binders of insurance or reinsurance underwritten by LP&C and classified
also as:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage)(*)
but only to the extent the underlying business is issued in the states
of New Jersey and Pennsylvania to individual and/or groups of
physicians and/or dentists.
* POLICIES SHALL ONLY INCLUDE HIV COVERAGE TO INSURED MEDICAL AND
DENTAL PRACTITIONERS OF THE CEDING COMPANY. COVERAGES FOR OTHERS FOR
HIV SHALL ONLY BE AVAILABLE UPON REINSURERS' APPROVAL
F. "Loss Ratio" means the ratio of Ultimate Net Losses incurred divided by
Cumulative Subject Net Written Premium as of the date of calculation.
6
<PAGE> 7
G. "Ceded Loss Ratio" means the ratio of ceded Ultimate Net Losses
incurred divided by Cumulative Subject Net Written Premium as of the
date of calculation for the respective Coverage Year.
H. "Loss Occurrence" means Loss Occurrence or medical incident, or
otherwise the event giving rise to coverage, all as defined and
provided within the underlying Policies underwritten by the Ceding
Company.
I. "Coverage Year" means each separate period beginning January 1st and
ending December 31st for the Term of this Treaty.
J. "Term" means the period November 1st, 1999 through December 31st, 2000
and each and every Coverage Year thereafter that this Treaty is in
effect. There will be no coverage for policies with advance premium
payment on or after November 1st termination in respect of the
subsequent Coverage Year.
ARTICLE 7: NET RETAINED LIABILITY
This Treaty applies only to that portion of any Loss Occurrence or claim first
made which the Ceding Company retains net for its own account. All other
Reinsurance Agreements shall inure to the benefit of this Treaty and be deemed
in place until all liability hereon is finalized.
The Ceding Company warrants that the maximum Net Retained Liability is as
follows:
<TABLE>
<CAPTION>
POLICIES CLASSIFIED AS: MAXIMUM NET RETAINED LIABILITY
<S> <C>
Property insurance:
Medical Office Policy $ 2,000,000 any one policy
Other Property Coverage $ 500,000 each and every loss
All Other Policies $ 10,000,000 each and every loss
</TABLE>
The above figures pertain to indemnity only. Therefore, Net Retained Liability
would be increased in respect of pro rata Loss Adjustment Expenses. The Ceding
Company must obtain special acceptance from Reinsurers prior to exceeding the
above maximum Net Retained Liability.
Further more it is warranted that less than 5% (five percent) of the Ceding
Company's SNWP or $7,000,000 (seven million dollars), whichever the greater,
will originate from assumed reinsurance business other than from Lawrenceville
Re and LP&C.
ARTICLE 8: SECTION A ADVANCE AND ACTUAL CONSIDERATION, SECTION B
ACTUAL CONSIDERATION, ADDITIONAL COVERAGE CONSIDERATION
AND CEDING COMMISSION, AND REINSURERS' EXPENSE CHARGE
SECTION A
As consideration for Section A for each Coverage Year, the Ceding Company shall
pay the Reinsurers annually 75% (seventy-five percent) of all direct advance
premium deposits received through December 31st of a respective Coverage Year.
Such Consideration shall be credited to
7
<PAGE> 8
the Funds Withheld Account on the November 1st preceding the respective Coverage
Year. Section A Advance Consideration shall be provisionally based upon the
direct advance premium deposit estimated and reported by the Ceding Company on
or before December 15th preceding each Coverage Year. The Ceding Company shall
recalculate a final amount within 45 (forty-five) days subsequent to January 1st
of the respective Coverage Year. Any additional amount due shall be credited to
the Funds Withheld Account on the November 1st preceding the respective Coverage
Year. Any return amount due shall be debited to the Funds Withheld Account on
the November 1st preceding the respective Coverage Year.
THE PREMIUM IN RESPECT OF SECTION A MAY BE CONVERTED TO SECTION B, SUBJECT TO
THE TERMS OF THE CONTRACT.
SECTION B
Commencing with the calendar quarter ending December 31st of each Coverage Year
and each subsequent quarter end, the Ceding Company shall calculate the required
Section B Actual Consideration within 45 (forty-five) days of each calendar
quarter end. Actual Consideration shall be based upon the result of dividing
ceded Section B Ultimate Net Losses by SNWP as of each calculation date
(hereinafter called the Ceded Loss Ratio) for the respective Coverage Year.
The Actual Consideration for Section B shall be based upon the percentage of
SNWP corresponding to the Ceded Loss Ratio as determined per the table and
narrative below for the respective Coverage Year.
<TABLE>
<CAPTION>
ACTUAL CONSIDERATION ACTUAL CONSIDERATION
CEDED LOSS SECTION B CEDED LOSS SECTION B
RATIO (% OF SNWP) RATIO (% OF SNWP)
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
0 0% 49 25.80%
1-22 10% 50 26.40%
23 10.60% 51 27.00%
24 11.40% 52 27.60%
25 11.80% 53 28.20%
26 12.40% 54 28.80%
27 13.00% 55 29.45%
28 13.50% 56 30.10%
29 14.00% 57 30.75%
30 14.50% 58 31.40%
31 15.00% 59 32.05%
32 15.60% 60 32.70%
33 16.20% 61 32.70%
34 16.80% 62 32.70%
35 17.40% 63 32.70%
36 18.00% 64 32.70%
37 18.60% 65 32.70%
38 19.20% 66 32.70%
39 19.80% 67 32.70%
40 20.40% 68 32.70%
41 21.00% 69 32.70%
42 21.60% 70 32.70%
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
43 22.20% 71 32.70%
44 22.80% 72 32.70%
45 23.40% 73 32.70%
46 24.00% 74 32.70%
47 24.60% 75 32.70%
48 25.20%
</TABLE>
If Ceded Loss Ratios are between the above table loss ratios, the Actual
Consideration percentage of SNWP shall be pro-rated between the table Ceded Loss
Ratio values.
The Actual Consideration for each Coverage Year shall be equal to the cumulative
SNWP for each Coverage Year multiplied by the percentage determined by the above
narrative and table calculations.
For each Coverage Year, the Ceding Company shall credit the Funds Withheld
Account for this Actual Consideration less all prior payment of both Section A
Actual Consideration, if applicable, and Section B Actual Consideration
adjustments to date to Reinsurers providing that Section A is converted to
Section B. If the sum of the prior payments of Section B Actual Consideration
adjustments and Section A Actual Consideration exceed the Section B Actual
Consideration amount due, the Ceding Company shall debit the Funds Withheld
Account for such return Section B Actual Consideration adjustment. If, however,
Section A Quota Share is not converted to Section B, then Section A Actual
Consideration shall not be subtracted from Actual Consideration.
For each individual Coverage Year, all Section A Actual Consideration and
Section B Actual Consideration less Reinsurers' Expense Charge shall be withheld
by the Ceding Company in the Funds Withheld Account for the benefit of
Reinsurers.
All Actual Consideration adjustments and Advance Consideration shall be deemed
to be credited or (debited) from the Funds Withheld Account as of November 1st
of the preceding Coverage Year for Interest Credit purposes hereon. Therefore,
any adjustments to increase Actual Consideration shall result in an Interest
Credit from November 1st of the preceding Coverage Year to date for such
adjustment. Any adjustments to decrease the Actual Consideration shall result in
a reduction of Interest Credit from November 1st of the preceding Coverage Year
to date for such adjustment.
Additional Coverage Consideration
If Reinsurers offer Additional Section B Coverage, the Reinsurers shall be
entitled to an Additional Coverage Consideration equivalent to 60% of the
Additional Coverage provided. The Additional Coverage Consideration shall be
withheld by the Company and credited to the Funds Withheld Account as of the
November 1st preceding each Coverage Year for all purposes hereon including
Investment Credit. No Reinsurers' Expense Charge shall be due on such Additional
Coverage Consideration.
CEDING COMMISSION
Reinsurers shall allow a Ceding Commission of $1,200,000 (one million, two
hundred thousand dollars) to be due to the Ceding Company on November 1st of the
preceding Coverage Year. There shall be no increase or decrease to this amount
based upon loss experience under this
9
<PAGE> 10
Treaty. The Ceding Company shall debit the Funds Withheld Account as of November
1st of the preceding Coverage Year for all Ceding Commissions.
REINSURERS' EXPENSE CHARGE
The Ceding Company shall pay Reinsurers for each Coverage Year a Reinsurers'
Expense Charge equal to X%, as detailed in the table below subject to a minimum
amount of $1,575,000 (one million, five hundred and seventy-five thousand
dollars) inclusive of intermediary commission, by direct payment to Reinsurers
hereon.
For each Coverage Year, the provisional Reinsurers' Expense Charge shall be
$1,575,000 (one million, five hundred and seventy-five thousand dollars) as
respects Section A Advance Consideration for purposes of calculation and payment
upon consummation of this Treaty and on or about November 1st prior to each
renewal Coverage Year. The Reinsurers' Expense Charge on both the Section A
Actual Consideration and Section B Actual Consideration adjustments shall be
determined, redetermined and paid annually within 60 (sixty) days in arrears of
each calendar year end. Payments shall be made by direct payment from the debtor
to creditor party at such times.
There shall be no interest paid to Reinsurers on Reinsurers' Expenses Charge
paid or refund of interest on Reinsurers' Expense Charge which is refunded under
this Treaty, upon return Actual Consideration adjustments, if any.
X% for both Section A and B shall be based upon Coverage Year Ceded Loss Ratio
bands as follows:
<TABLE>
<CAPTION>
Ceded Loss Ratio X%
---------------- --
<S> <C> <C>
0% up to and including 23% 6.0
above 23% up to and including 29% 7.0
above 29% up to and including 34% 8.0
above 34% up to and including 40% 9.0
above 40% up to and including 60% 8.0
above 60% up to and including 65% 7.0
above 65% up to and including 72% 6.0
above 72% 5.0
</TABLE>
For purposes of Interest Credit hereon, all Reinsurers' Expense Charge
shall be deemed debited or credited as applicable from the Funds Withheld
Account as of November 1st of the preceding Coverage Year.
Intermediary commission is equivalent to 1% part of X%, subject to a
minimum amount of $225,000 (two hundred and twenty-five thousand dollars)
and a maximum amount of $300,000 (three hundred thousand dollars).
10
<PAGE> 11
ARTICLE 9: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of Consideration or losses and
allocated Loss Adjustment Expenses or otherwise, due from such party to
another party under this Treaty, against any amounts, whether on account
of Consideration or losses and allocated Loss Adjustment Expenses or
otherwise due from the latter party to the former party. The party
asserting the right of offset may exercise this right, whether as
assuming Reinsurers or Ceding Company in this Treaty.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Treaty to
receive Consideration or loss payments at any time from such other party
("Collateral"), to secure its Consideration or loss obligations to such
other party at any time under this Treaty ("Secured Obligations"). If at
any time a party is in default under any Secured Obligation or shall be
subject to any liquidation, rehabilitation, reorganization or
conservation proceeding, each other party shall be entitled in its
discretion, to apply or to withhold for the purpose of applying in due
course, any Collateral assigned and pledged to it by the former party and
otherwise to realize upon such Collateral as security for such Secured
Obligations.
C. The security interest described herein, and the term "Collateral", shall
apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall be
deemed evidenced only by the counterpart of this Treaty delivered to such
party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Treaty.
ARTICLE 10: REPORTS AND LOSS SETTLEMENTS
A. Within 60 (sixty) days following the end of each calendar quarter, the
Ceding Company will report in writing to the Reinsurers for each Coverage
Year:
1. SNWP for the quarter and cumulative SNWP.
2. All Consideration calculations as necessary.
3. Summary of subject Ultimate Net Losses paid during the period and
inception to date.
4. Summary of Ultimate Net Losses outstanding including a report of
incurred but not reported amounts.
5. The amount of Ultimate Net Losses ceded to this Treaty for the
period and inception to date indicating amounts due and
outstanding.
11
<PAGE> 12
6. Individual claim information (claim managers report) for all
individual claims in excess of $2,000,000 (two million dollars)
indemnity from ground up and for claims in excess of $750,000
(seven hundred and fifty thousand dollars) upon Reinsurers'
specific request.
7. Any other information needed by the Reinsurers to evaluate this
Treaty which is reasonably available to the Ceding Company.
8. A report detailing the activity and balance within the Funds
Withheld Account.
B. 1. Loss Settlements
Following each quarterly report, the Reinsurers shall pay all
cumulative Ultimate Net Losses Paid in respect of Business Covered
by the Ceding Company on and after January 1st of each respective
Coverage Year in excess of the Ceding Company's Retention subject
to the Aggregate Limits hereon. Payment shall be made at 90
(ninety) days following each calendar quarter end, if paid by
Reinsurers from other funds of the Reinsurers. Loss Settlements
shall be first paid by deduction from the Funds Withheld Account,
this account shall be debited at 90 (ninety) days following each
calendar quarter. Loss reimbursement at any calendar quarter for
each Coverage Year shall be equal to the amount of such cumulative
Ultimate Net Losses Paid at each date in excess of the Retention
less net loss reimbursements previously made by the Reinsurers,
subject to the Aggregate Limits in accordance with ARTICLE 5:
COVERAGES AND AGGREGATE LIMITS.
2. Order of Settlements
All loss payments, including all Commutation payments, if any,
above will be firstly made by deduction from the Consideration and
then from the Interest Credit components of the Funds Withheld
Account by the Ceding Company until depleted. Thereafter,
Reinsurers shall pay from other funds of Reinsurers subject to all
of the terms hereon.
ARTICLE 11: FUNDS WITHHELD ACCOUNT AND INTEREST CREDIT
FUNDS WITHHELD ACCOUNT
For purposes of this Article, the Ceding Company shall maintain a cumulative
Funds Withheld Account separately for each individual Coverage Year comprised of
the following Coverage Year amounts:
1. The Funds Withheld Account at October 30th preceding the Coverage Year
shall be equal to zero.
2. The Funds Withheld Account at each subsequent calendar quarter end shall
be equal to:
a. The Funds Withheld Account at the end of such prior calendar
quarter; plus
b. Any amounts credited or debited during the quarter for the
following:
Section A Advance and Actual Consideration, Section B Actual
Consideration including adjustments, Additional Coverage
Consideration, if any; less
12
<PAGE> 13
c. Reinsurers' Expense Charge, if any; less
d. Ceding Commissions; less
e. Ceded Ultimate Net Losses paid under this Treaty for the prior
calendar quarter from the Funds Withheld Account (including
Commutation payments); plus
f. Interest Credit.
The Ceding Company shall report balances quarterly to the Reinsurers as soon as
practicable but no later than 75 (seventy-five) days in arrears of each calendar
quarter end.
The Reinsurers shall not transfer or assign their rights to the Funds Withheld
Account hereon unless this Treaty is surrendered and a new Treaty is issued.
Under any and all circumstances, the Ceding Company must make a book entry of a
transfer or assignment in order for such transfer or assignment to be valid.
Upon finalization of the payment of all losses recoverable hereon and/or
Commutation for any Coverage Year, if any, the Reinsurers will pay to the Ceding
Company the entire amount of the remaining Funds Withheld Account balance, if
any, received by the Reinsurers.
Interest Credit
For each Coverage Year, the Ceding Company shall credit the Funds Withheld
Account monthly at each month end with interest calculated by applying a monthly
rate equal to one-twelfth (1/12th) of the percentage stipulated below multiplied
by the actual daily average Funds Withheld Account balance for the respective
calendar month where the percentage equals:
7.254% if the 12 month U.S. Treasury Bill rate is 7.254% or less:
or
7.254 + 50% of the amount by which the 12 month U.S. Treasury Bill rate is
greater than 7.254%.
The 12 month U.S. Treasury bill rate to be used each year is the rate in effect
on the first business day of each year as reported in the Wall Street Journal on
the second business day of each year.
Interest Credit shall continue even in the event of the Ceding Company's
insolvency.
All Reinsurers' Expense Charges shall be deemed debited from the Funds Withheld
Account as of the November 1st preceding the applicable Coverage Year.
ARTICLE 12: LIABILITY OF THE REINSURER AND CURRENCY
A. The liability of the Reinsurer shall follow that of the Ceding Company in
every case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Ceding Company's
policies and any endorsements thereon. However, in no event shall this be
construed in any way to provide coverage outside the terms and conditions
set forth in this Treaty.
13
<PAGE> 14
B. Nothing herein shall in any manner create any obligation or establish any
rights against the Reinsurer in favor of any third party or any persons
not parties to this Treaty.
C. All of the provisions of this Treaty involving dollar amounts are
expressed in terms or United States Dollars and all Consideration and
loss and allocated Loss Adjustment Expense payments hereunder shall be
made in United States Dollars.
ARTICLE 13: COMMUTATION
The Ceding Company shall have the sole option, effective at any calendar year
end on or after December 31st of each Coverage Year to commute all ceded
liability outstanding hereunder in respect of a specific Coverage Year. At
Commutation, the Funds Withheld Account shall be dissolved and the Ceding
Company shall pay the entire amount of the respective Coverage Year Funds
Withheld Account to the Reinsurers hereon. The Ceding Company may offset the
payment of the Funds Withheld Account against the Commutation payment required
at such time
Said payment shall constitute a full and final settlement of all terms of this
Treaty in respect of the specific Coverage Year; the Ceding Company will execute
a hold harmless agreement so stating and the Reinsurers will be thereby released
from all current and future liability hereunder for such Coverage Year.
ARTICLE 14: EXCESS OF ORIGINAL POLICY LIMITS
This Treaty shall protect the Ceding Company, within the limits hereof, for loss
in excess of its original policy, such loss in excess of the limit having been
incurred because of failure by it to settle within the policy limit or by reason
of alleged or actual negligence, fraud, or bad faith in rejecting an offer of
settlement or in the preparation of an appeal consequent upon such action.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the Ceding Company would have been contractually liable to pay had it not
been for the limit of the original policy.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the Ceding
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 15: EXTRA CONTRACTUAL OBLIGATIONS
This Treaty shall protect the Ceding Company for any Extra Contractual
Obligations within the limits hereof. The term "Extra Contractual Obligations"
is defined as those liabilities not covered under any other provision of this
Treaty and which arise from the handling of any claim on business covered
hereunder, such liabilities arising because of, but not limited to, the
following:
14
<PAGE> 15
failure by the Ceding Company to settle within the policy limit, or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in the trial of any action
against its insured or reinsured or in the preparation or prosecution of an
appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Ceding
Company shall be deemed, in all circumstances to be the date of the original
Loss Occurrence.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the Ceding
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 16: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
ARTICLE 17: ACCESS TO RECORDS
The Ceding Company shall place at the disposal of the Reinsurers at all times,
and the Reinsurers shall have the right to inspect, through its authorized
representatives, all books, records and papers of the Ceding Company in
connection with any reinsurance hereunder, or claims in connection herewith.
The Reinsurers agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Treaty except under the
following circumstances and then only as necessary:
A. When disclosure of such information is required in the normal course of
Reinsurers' business; or
B. With the prior written consent of the Ceding Company; or
C. When Reinsurers are required by a subpoena or court order to disclose
such information. The Reinsurers shall promptly notify the Ceding Company
of any attempt by a third party to obtain from it any such confidential
information.
Reinsurers will provide the Ceding Company or its designated representative with
such information as Reinsurers and Ceding Company may agree is necessary to the
Ceding Company's handling of the business reinsured herein.
The obligations contained in this provision shall survive termination of this
Treaty.
15
<PAGE> 16
ARTICLE 18: ACTUARIAL REVIEW
Should the Reinsurers desire at any time to review the loss reserves established
by the Ceding Company as respects Ultimate Net Losses, the Reinsurers shall
select an independent actuarial firm acceptable to the Ceding Company to perform
a reserve analysis. The costs of any reserve analysis performed under this
Article will be borne by the Reinsurers hereon. Such a review shall be subject
to the provisions of ARTICLE 17: ACCESS TO RECORDS.
ARTICLE 19: LOSS RESERVE AND ADVANCE PREMIUM FUNDING
The Reinsurers will maintain appropriate reserves with respect to their share of
the Advance Premium and loss reserves ceded and required under the terms of this
Treaty which are reported by the Ceding Company on the Business Covered of this
Treaty.
During the Term of this Treaty the Reinsurers agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the Ceding Company
issued by a bank acceptable to the Ceding Company adjusted to at all times be
equal to the ceded cumulative Ultimate Net Losses outstanding and Advance
Premium ceded hereunder less the Funds Withheld Account balance at such dates.
Such Letter of Credit shall be in the form, amount and with an acceptable NAIC
bank required to allow the Ceding Company to take Full Statutory Credit for
amounts recoverable under this Treaty.
The Ceding Company also agrees to not make drawings upon the Letter of Credit
provided by the Reinsurers for any purpose other than to reimburse the Ceding
Company for loss settlements due under this Treaty for which one or more of the
Reinsurers are in default by more than seven days and provided that the Ceding
Company shall give the Reinsurers three days written notice prior to making any
drawings.
The Ceding Company shall reimburse the Reinsurers for annual security cost equal
to 0.50% (zero point five percent) of the amount of the Letter of Credit issued
or maintained hereon as of each December 31st. The Reinsurers shall request such
reimbursement whereupon the Ceding Company shall make payment by direct wire
transfer to the Reinsurers. All such amounts shall not be deducted from the
Funds Withheld Account.
ARTICLE 20: FUNDS WITHHELD TRUST ACCOUNT
In the event that the Ceding Company experiences any one of the following
circumstances, the Reinsurers may require a Trust Fund, with an independent
bank, to be established for the purposes of collateralizing the Funds Withheld
Account hereon:
1. The Ceding Company's A.M. Best's Rating is downgraded below B+; or
16
<PAGE> 17
2. The Ceding Company's combined statutory capital and surplus falls
below $60,000,000 (sixty million dollars); or
3. The Ceding Company is acquired or becomes controlled or
amalgamated with or has its shares purchased for the purpose of
gaining control by any other party.
The Ceding Company shall fully and promptly comply with such request from the
Reinsurers. The Ceding Company shall transfer marketable assets with a market
value equal to the required Funds Withheld Account balance within 30 (thirty)
days from the Reinsurers' request to do so. The Ceding Company shall also
transfer additional assets to the Trust Fund, if needed, to maintain the Trust
Fund balance to be equal to the Funds Withheld requirement at each calendar
quarter end including the requisite Interest Credit required hereon.
ARTICLE 21: INSOLVENCY
A. In the event of the insolvency of the Ceding Company, the reinsurance
under this Treaty shall be payable by the Reinsurers (on the basis of the
liability of the Ceding Company) to the Ceding Company or to its
liquidator, receiver or statutory successor.
B. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Ceding Company shall give written notice to
the Reinsurers of the pendency of a claim against the insolvent Ceding
Company on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the Reinsurers may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to
be adjudicated, any defense or defenses which it may deem available to
the Ceding Company or its liquidator or receiver or statutory successor.
Accidental failure to give such notice shall not excuse the obligation
unless Reinsurers are substantially prejudiced by the failure to give
such notice. The expense thus incurred by the Reinsurers shall be
chargeable, subject to court approval, against the insolvent Ceding
Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Ceding Company
solely as a result of the defense undertaken by the Reinsurers.
C. Should the Ceding Company go into liquidation or should a receiver be
appointed, the Reinsurers shall be entitled to deduct from any sums which
may be or may become due to the Ceding Company under this Treaty any sums
which are due to the Reinsurers by the Ceding Company under this Treaty
and which are payable at a fixed or stated date, as well as any other
sums due the Reinsurers which are permitted to be offset under applicable
law.
ARTICLE 22: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with respect
to this Treaty, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration. One Arbiter
shall be chosen by the Ceding Company, the other by the Reinsurers, and
the Umpire shall be chosen by the two Arbiters before they enter upon
arbitration, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance
17
<PAGE> 18
companies. In the event that either party should fail to chose an Arbiter
within 30 (thirty) days following a written request by the other party to
do so, the requesting party may choose two Arbiters who shall in turn
choose an Umpire before entering upon arbitration. If the two Arbiters
fail to agree upon the selection of an Umpire within 30 (thirty) days
following their appointment, each Arbiter shall nominate three candidates
within 10 (ten) days thereafter, two of whom the other shall decline, and
the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 (thirty) days
following the date of appointment of the Umpire. The Arbiters shall
consider this Treaty as an honorable engagement rather than merely as a
legal obligation and they are relieved of all judicial formalities and
may abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to
agree, they shall call in the Umpire and the decision of the majority
shall be final and binding upon both parties. The decision shall be made
in writing and will state the factual and legal basis supporting such
decision. Judgment upon the final decision of the Arbiters may be entered
in any court of competent jurisdiction.
C. If more than one Reinsurer is involved in the same dispute, all such
Reinsurers shall constitute and act as one party for the purposes of this
Article and communications shall be made by the Ceding Company to each of
the Reinsurers constituting one party provided, however, that nothing
herein shall impair the rights of such Reinsurers to assert several,
rather than joint, defenses or claims, nor be construed as changing the
liability of the Reinsurers participating under the terms of this Treaty
from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party,
as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
ARTICLE 23: CHANGES IN ADMINISTRATIVE PRACTICE
If any intentional or unintentional change in the Ceding Company's processing or
payment of claims materially increases the Reinsurers' economic loss under this
Treaty from what the economic loss would have if there had been no such change,
the Reinsurers shall prepare, and the Ceding Company shall accept, an adjustment
of the portion of claims which is reimbursable, or any adjustments which will
make the Reinsurers' risk position equivalent to that which would have been
obtained under this Treaty if there had been no such change. The Reinsurers
shall have the right to use auditing techniques, sampling techniques, or to
otherwise investigate the nature and effect of any such change in administrative
practices or of any possible compensatory adjustment therefor. Any dispute with
respect to such adjustment shall be resolved by arbitration as provided in
ARTICLE 22: ARBITRATION.
18
<PAGE> 19
ARTICLE 24: TAXES
The Ceding Company is solely liable for any Federal Excise Tax (FET) applicable
to this Treaty. Any FET to be paid shall be paid directly by the Ceding Company
to the taxing authorities and is in addition to the Consideration. No deduction
shall be made from the Funds Withheld Account.
ARTICLE 25: SERVICE OF SUIT
It is agreed that in the event of the failure of Reinsurers hereon to pay any
amount claimed to be due hereunder, Reinsurers hereon, at the request of the
Ceding Company will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the Reinsurers to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Treaty shall be governed by the laws of
the State of New Jersey.
It is further agreed that service of process in such suit may be made upon
, United States of America and that in any suit instituted against any one of
them upon this Treaty, Reinsurers will abide by the final decision of such Court
or any Appellate Court in the event of an appeal.
The above named are authorised and directed to accept service of process on
behalf of Reinsurers in any suit and/or upon the request of the Ceding Company
to give a written undertaking to the Ceding Company that they will enter a
general appearance upon Reinsurers' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, Reinsurers hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor of successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
Ceding Company or any beneficiary hereunder arising out of this Treaty, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
ARTICLE 26: NO ASSIGNMENT
The Ceding Company and the Reinsurers hereon hereby agree that neither party
shall have the right to assign its respective interests and liabilities,
including the Funds Withheld Account, under this Treaty.
Notwithstanding the above, this Article shall not restrict the Ceding Company
from making investments it deems appropriate.
19
<PAGE> 20
ARTICLE 27: INTERMEDIARY
JLT Risk Solutions Ltd, 6 Crutched Friars, London EC3N 2PH is hereby recognised
as the intermediary negotiating this Treaty for all business hereunder and
through whom all communications relating hereto (including but not limited to
notices, statements and reports) shall be transmitted to both parties, it is
understood, as regards remittances due either party hereunder, that payment by
the Ceding Company to the Intermediary, shall constitute payment to the
Reinsurers but payment by the Reinsurer to the Intermediary shall only
constitute payment to the Ceding Company to the extent such payments are
actually received by the Ceding Company. Notwithstanding the foregoing, it is
agreed that all payments will be direct from the Reinsurer to the Ceding
Company, or from the Ceding Company to the Reinsurer as appropriate.
SIGNED IN LAWRENCEVILLE, NEW JERSEY, THIS DAY OF , 2000 FOR AND ON
BEHALF OF MIIX INSURANCE COMPANY.
BY:
TITLE:
SIGNED IN , THIS DAY OF , 2000 FOR AND ON BEHALF OF
HANNOVER REINSURANCE IRELAND LIMITED.
BY:
TITLE:
20
<PAGE> 21
HANNOVER REINSURANCE (IRELAND) LIMITED TREATY
THE CEDING COMPANY IS REQUESTED TO READ THIS TREATY CAREFULLY. IF IT IS BELIEVED
TO BE INCORRECT THE TREATY SHOULD BE IMMEDIATELY RETURNED, WITH AN EXPLANATION,
TO THE PERSON OR ENTITY DESIGNATED ON THE BACK PAGE OF THIS TREATY.
IN CONSIDERATION of the Ceding Company named in the Schedule having paid the
premium specified in the said Schedule to Hannover Reinsurance (Ireland)
Limited, (hereinafter referred to as "Reinsurers"), whose duly authorized
representative has hereunto subscribed his name.
REINSURERS HEREBY AGREE to reinsure the Ceding Company against loss as more
fully set forth in this Treaty and the attachments hereto during the Period of
Reinsurance stated in the said Schedule, or during any subsequent period as may
be mutually agreed upon between the Ceding Company and Reinsurers.
PROVIDED that the liability of Reinsurers subscribing to this Treaty shall not
exceed their proportion of the limits of liability expressed in the said
Schedule or such other limits of liability as may be substituted therefor by
Addendum hereon or attached hereto signed by or on behalf of Reinsurers.
If Reinsurers shall make any claim under this Treaty with knowledge that the
same is false or fraudulent as regards amount or otherwise, this Treaty shall
become null and void forthwith and any and all claims hereunder shall be
forfeited and of no force and effect.
IN WITNESS HEREOF I, being a representative of Reinsurers and duly authorised by
the said Reinsurers to sign this Treaty on their behalf, have hereunto
subscribed my name.
Dated this day of , Two Thousand.
<PAGE> 22
Policy Number: 901/LK9905492 Reinsurers reference:
THE SCHEDULE
COMPANY: MIIX INSURANCE COMPANY
ADDRESS: Two Princess Road, Lawrenceville, New Jersey, United
States of America.
PERIOD
OF REINSURANCE: Effective November 1, 1999 covering on a risks
attaching basis for Business Covered and
continuous thereafter unless terminated.
LIMIT OF LIABILITY: All as more fully set forth in the attached wording.
This Policy reinsures 60% of the Limit of Liability expressed in the attached
wording.
INTEREST: All as more fully set forth in the attached wording.
PREMIUM: All as more fully set forth in the attached wording
SEVERAL LIABILITY NOTICE
The subscribing Reinsurers' obligation under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing Reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for
any reason does not satisfy all or part of its obligations.
<PAGE> 23
IN ALL COMMUNICATIONS PLEASE QUOTE
THE FOLLOWING REFERENCE
901/LK9905492
REINSURANCE
TREATY
THE COMPANY IS REQUESTED TO READ THIS TREATY CAREFULLY.
IF IT IS BELIEVED TO BE INCORRECT THE TREATY SHOULD BE
IMMEDIATELY RETURNED, WITH AN EXPLANATION TO:
JLT Risk Solutions Limited
6 Crutched Friars,
London,
EC3N 2PH.
<PAGE> 1
EXHIBIT 10.50
MIIX INSURANCE COMPANY
COMBINED QUOTA SHARE AND AGGREGATE REINSURANCE
TREATY NO. 901/LK9905942
EFFECTIVE NOVEMBER 1, 1999
<TABLE>
<CAPTION>
ARTICLE SUMMARY PAGE
------- ------- ----
<S> <C> <C>
1 Business Covered 2
2 Commencement And Termination 3
3 Territory And Inuring Reinsurance 3
4 Exclusions 3
5 Coverages And Aggregate Limits 4
6 Definitions 5
7 Net Retained Liability 7
8 Section A Advance And Actual Consideration, 7
Section B Actual Consideration, Additional Coverage Consideration
And Ceding Commission, And Reinsurers' Expense Charge
9 Offset And Security 11
10 Reports And Loss Settlements 11
11 Funds Withheld Account And Interest Credit 12
12 Liability Of The Reinsurer And Currency 13
13 Commutation 14
14 Excess Of Original Policy Limits 14
15 Extra Contractual Obligations 14
16 Errors And Omissions 15
17 Access To Records 15
18 Actuarial Review 16
19 Loss Reserve And Advance Premium Funding 16
20 Funds Withheld Trust Account 16
21 Insolvency 17
22 Arbitration 17
23 Changes In Administrative Practices 18
24 Taxes 19
25 Service Of Suit 19
26 No Assignment 19
27 Intermediary 20
</TABLE>
<PAGE> 2
COMBINED QUOTA SHARE AND AGGREGATE REINSURANCE
TREATY NO. 901/LK9905492
(hereinafter referred to as "Treaty")
between
E+S REINSURANCE (IRELAND) LIMITED
(hereinafter referred to as "Reinsurers")
and
MIIX INSURANCE COMPANY
LAWRENCEVILLE, NEW JERSEY
(hereinafter referred to as "Ceding Company")
ARTICLE 1: BUSINESS COVERED
This Treaty shall indemnify the Ceding Company with respect to Ultimate Net
Losses which may accrue to the Ceding Company under any and all Policies subject
to the Terms and Conditions of this Treaty.
As respects all coverages hereon, the Reinsurers shall provide coverage on a
risks attaching basis for each Coverage Year in respect of all of the Ceding
Company's Policies underwritten during each respective Coverage Year. Premiums
received in advance of each Coverage Year are deemed to be part of the Subject
Net Written Premium for that Coverage Year. Coverage shall in all cases follow
the underlying basis of coverage of the original Policies written by the Ceding
Company. For all purposes, the "Permanent Protection Policies (PPP)" written by
the Ceding Company shall in all cases be deemed to cover on a losses occurring
during basis of underlying coverage. Reinsurers shall be subject to all of the
conditions of the PPP including policy limits and the aggregate limit formula
under the extended reporting coverage therein.
Reinsurers shall remain liable for all losses covered as detailed above during
the Term until all such losses are paid or this Treaty is commuted.
2
<PAGE> 3
ARTICLE 2: COMMENCEMENT AND TERMINATION
This Treaty is effective November 1, 1999 and shall remain continuously in
effect thereafter unless terminated. Either party may terminate this Treaty at
any November 1st by giving the other party not less than 90 (ninety) days prior
written notice by certified mail. Unless otherwise mutually agreed, reinsurance
hereunder on Business Covered in force at the effective date of termination
shall remain in full force and effect until expiration, cancellation or next
anniversary of such business, whichever first occurs, but in no event beyond 12
months following the effective date of termination plus any extension of
coverage for extended reporting provided under the original policies of the
Ceding Company.
Should this Treaty expire while a loss is in progress, the Reinsurers shall be
responsible for the loss in progress in the same manner and to the same extent
they would have been responsible had the Treaty expired the day following the
conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Treaty will cover Policies written within the United States of America. All
other Reinsurance Agreements that inure to the benefit of this Treaty shall be
deemed in place until all liability of the Reinsurers hereon is finalized by
payment of all losses or commutation.
ARTICLE 4: EXCLUSIONS
This Treaty shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause attached hereto;
C. Business assumed from Pools, Syndicates, and Associations;
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - USA, except that provisions of this clause shall
not apply to liability arising out of the practice of Nuclear Medicine
and activities relating to Nuclear Medicine by the original insured;
E. War Risks, in accordance with the North America War Exclusion Clause
attached hereto;
F. Unallocated Loss Adjustment Expenses as described in ARTICLE 6:
DEFINITIONS, D;
G. Underlying Provider Stop Loss Policies written by the Ceding Company.
3
<PAGE> 4
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS
SECTION A - 75% QUOTA SHARE COVERAGE
Reinsurers shall indemnify the Ceding Company for 75% (seventy-five percent)
quota share of Ultimate Net Loss arising from covered losses for each applicable
Coverage Year during the Term of this Treaty subject to the Section A Aggregate
Limit hereon. This quota share shall be in respect of the Business Covered
exposure period related to Section A Advance Consideration only.
This Section A Quota Share Coverage can be converted to Section B Aggregate
Excess of Loss Coverage during the first quarter retroactive to January 1st of
any applicable Coverage Year. This conversion is at the mutual agreement of the
Ceding Company and the Reinsurers and is subject to the following conditions not
being present prior to the conversion date:
1. The Ceding Company's A.M. Best Rating falls below B+; and
2. The Ceding Company's surplus drops below $60,000,000 (sixty million
dollars).
If both of these conditions are present during the first quarter, then the
Section A Quota Share Coverage cannot be converted into the Section B Aggregate
Excess of Loss Coverage for the applicable Coverage Year.
If Section A is not converted to Section B, the Ceding Company shall track the
advance premium by policy to the coverage time afforded by the advance premium
under each policy. Section A shall cover the Ceding Company on the basis of the
coverage of the underlying original Policies during such advance premium
coverage time.
The Aggregate Limit for each Section A Coverage Year shall equal 167% (one
hundred sixty-seven percent) of Section A Advance Consideration. If Section A is
converted to Section B, the Aggregate Limit for Section A shall be $0 (zero
dollars) for the respective Coverage Year.
SECTION B - AGGREGATE EXCESS OF LOSS COVERAGE
Should the Ceding Company's Loss Ratio exceed 75% (seventy-five percent)
(hereinafter called the Retention), the Reinsurers shall be liable for 100% (one
hundred percent) of the paid amount of Ultimate Net Losses in excess of the
Retention subject to a maximum Aggregate Limit of 75% (seventy-five percent) of
SNWP. This aggregate excess coverage shall cover the Ceding Company on the basis
of the coverage of the original Policies. If the Section A Quota Share Coverage
is converted to this Section B Aggregate Excess of Loss Coverage, then this
Section B shall also cover the Ceding Company's original Policies pertaining to
advance premium deposits received through December 31st preceding the respective
Coverage Year. If Section A is not converted to Section B, Section B shall not
cover the original policies during the coverage time pertaining to advance
premium deposits received through December 31st preceding the respective
Coverage Year.
If the amount of the Funds Withheld Account balance falls below $500,000 (five
hundred thousand dollars) on a specific Coverage Year the Reinsurers may
unilaterally and individually, for their respective interests, offer at any
time, for such Coverage Year, and the Ceding Company will accept, Additional
Section B Coverage up to 8% (eight percent) of cumulative SNWP excess of 150%
(one hundred and fifty percent) of cumulative SNWP in respect of
4
<PAGE> 5
covered losses. In no event shall Reinsurers be liable for more than
$200,000,000 (two hundred million dollars) in the aggregate for Section B for
each Coverage Year. The $200,000,000 (two hundred million dollars) aggregate
limit for each Coverage Year shall be subject to the sub condition that no more
than $20,000,000 (twenty million dollars) in all (inclusive of Loss Adjustment
Expenses) shall be recoverable from Reinsurers in respect of losses emanating
from a loss layer of $7,000,000 (seven million dollars) each and every loss
(inclusive of Loss Adjustment Expenses) excess of $3,000,000 (three million
dollars) each and every loss (inclusive of Loss Adjustment Expenses).
If SNWP exceeds $300,000,000 (three hundred million dollars) in a particular
individual Coverage Year, then the Ceding Company shall participate in this
particular individual Coverage Year with the Reinsurers in losses otherwise
recoverable in the proportion calculated as follows:
Ceding Company's Share: Amount of SNWP in excess of $300,000,000
-----------------------------------------------
SNWP
This proportion may be adjusted based on mutual consent of the Ceding Company
and Reinsurers for Coverage Years 2000 and thereafter.
ARTICLE 6: DEFINITIONS
A. "Cumulative Subject Net Written Premiums" (SNWP) shall mean for the
respective Coverage Year, the cumulative Net Written and Assumed Written
Premium Income less cancellations and returns and less premiums paid for
all other reinsurances for the Coverage Year, except for the
Non-Traditional Reinsurance Agreements which shall be disregarded for the
calculation of SNWP.
If the Section A Quota Share Coverage is converted to the Section B
Aggregate Excess of Loss Coverage, SNWP shall include all direct advance
premium for the Coverage Year. If the Section A Quota Share Coverage is
not converted to Section B Aggregate Excess of Loss Coverage, SNWP shall
exclude the SNWP related to all the direct advance premium for the
respective Coverage Year. Direct advance premium refers to all actual
amounts collected by Ceding Company from its insureds in advance of the
respective Coverage Year.
B. "Non-Traditional Reinsurance Agreements" shall mean any reinsurance
agreement which allows for Profit Sharing (or any other form of
contractual adjustment) exceeding 25% (twenty-five percent) of initial
reinsurance premium paid.
C. The term "Ultimate Net Loss" means the actual loss including any and all
vicarious liability, arising from a Loss Occurrence as covered in
accordance with ARTICLE 1: BUSINESS COVERED, including pro rata Loss
Adjustments Expense, Loss in Excess of Policy Limits and Extra
Contractual Obligations, and including losses incurred but not yet
reported, all paid, payable or to be paid by the Ceding Company after
making deductions for all recoveries, salvages, subrogations and all
claims on inuring reinsurance, whether such reinsurance is collectible or
not; provided, that in the event of the insolvency of the Ceding Company,
payment by the Reinsurers shall be made in accordance with the provisions
of the ARTICLE 21: INSOLVENCY. Nothing herein shall be construed to mean
that losses
5
<PAGE> 6
under this Treaty are not recoverable until the Ceding Company's Ultimate
Net Loss has been ascertained.
D. "Loss Adjustment Expense" means all costs and expense allocable to a
specific claim or claims that are incurred by the Ceding Company in the
investigation, appraisal, adjustment, settlement, litigation, defense or
appeal of a specific claim, including court costs and costs of
supersedes and appeal bonds, and including a) pre-judgment interest,
unless included as part of the award or judgement; b) post-judgment
interest; and c) legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto. Loss Adjustment
Expense does not include Unallocated Loss Adjustment Expense. Unallocated
Loss Adjustment Expense includes, but is not limited to salaries and
expenses of employees, and office and other overheads.
E. "Policies" means any and all original policies, contracts, and binders of
insurance or reinsurance underwritten by the Ceding Company, issued in
the states of New Jersey and Pennsylvania to individual and/or groups of
physicians and/or dentists and classified under the listing below:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage) *
Directors and Officers Liability
All Property and other Coverages as provided in conjunction with
Professional Liability Coverages
Property Highly Protected Risk Assumed
Medical Office Policy Coverages
Other Health Care Institution Liability
Professional Premises Liability
Commercial General Liability
Excess Umbrella Liability
Errors and Omissions Liability
"Policies" shall also mean assumed reinsurance from Lawrenceville Re,
Ltd of Bermuda (Lawrenceville Re), and Lawrenceville Property and
Casualty Insurance Company (LP&C), in respect of assumed reinsurance
underwritten by Lawrenceville Re and original policies contracts, and
binders of insurance or reinsurance underwritten by LP&C and classified
also as:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage) *
but only to the extent the underlying business is issued in the states of
New Jersey and Pennsylvania to individual and/or groups of physicians
and/or dentists.
* POLICIES SHALL ONLY INCLUDE HIV COVERAGE TO INSURED MEDICAL AND DENTAL
PRACTITIONERS OF THE CEDING COMPANY. COVERAGES FOR OTHERS FOR HIV SHALL
ONLY BE AVAILABLE UPON REINSURERS' APPROVAL
F. "Loss Ratio" means the ratio of Ultimate Net Losses incurred divided by
Cumulative Subject Net Written Premium as of the date of calculation.
6
<PAGE> 7
G. "Ceded Loss Ratio" means the ratio of ceded Ultimate Net Losses incurred
divided by Cumulative Subject Net Written Premium as of the date of
calculation for the respective Coverage Year.
H. "Loss Occurrence" means Loss Occurrence or medical incident, or otherwise
the event giving rise to coverage, all as defined and provided within the
underlying Policies underwritten by the Ceding Company.
I. "Coverage Year" means each separate period beginning January 1st and
ending December 31st for the Term of this Treaty.
J. "Term" means the period November 1st, 1999 through December 31st, 2000
and each and every Coverage Year thereafter that this Treaty is in
effect. There will be no coverage for policies with advance premium
payment on or after November 1st termination in respect of the subsequent
Coverage Year.
ARTICLE 7: NET RETAINED LIABILITY
This Treaty applies only to that portion of any Loss Occurrence or claim first
made which the Ceding Company retains net for its own account. All other
Reinsurance Agreements shall inure to the benefit of this Treaty and be deemed
in place until all liability hereon is finalized.
The Ceding Company warrants that the maximum Net Retained Liability is as
follows:
<TABLE>
<CAPTION>
POLICIES CLASSIFIED AS: MAXIMUM NET RETAINED LIABILITY
<S> <C> <C>
Property insurance:
Medical Office Policy $ 2,000,000 any one policy
Other Property Coverage $ 500,000 each and every loss
All Other Policies $ 10,000,000 each and every loss
</TABLE>
The above figures pertain to indemnity only. Therefore, Net Retained Liability
would be increased in respect of pro rata Loss Adjustment Expenses. The Ceding
Company must obtain special acceptance from Reinsurers prior to exceeding the
above maximum Net Retained Liability.
Further more it is warranted that less than 5% (five percent) of the Ceding
Company's SNWP or $7,000,000 (seven million dollars), whichever the greater,
will originate from assumed reinsurance business other than from Lawrenceville
Re and LP&C.
ARTICLE 8: SECTION A ADVANCE AND ACTUAL CONSIDERATION, SECTION B
ACTUAL CONSIDERATION, ADDITIONAL COVERAGE CONSIDERATION AND CEDING
COMMISSION, AND REINSURERS' EXPENSE CHARGE
SECTION A
As consideration for Section A for each Coverage Year, the Ceding Company shall
pay the Reinsurers annually 75% (seventy-five percent) of all direct advance
premium deposits received through December 31st of a respective Coverage Year.
Such Consideration shall be credited to
7
<PAGE> 8
the Funds Withheld Account on the November 1st preceding the respective Coverage
Year. Section A Advance Consideration shall be provisionally based upon the
direct advance premium deposit estimated and reported by the Ceding Company on
or before December 15th preceding each Coverage Year. The Ceding Company shall
recalculate a final amount within 45 (forty-five) days subsequent to January 1st
of the respective Coverage Year. Any additional amount due shall be credited to
the Funds Withheld Account on the November 1st preceding the respective Coverage
Year. Any return amount due shall be debited to the Funds Withheld Account on
the November 1st preceding the respective Coverage Year.
THE PREMIUM IN RESPECT OF SECTION A MAY BE CONVERTED TO SECTION B, SUBJECT TO
THE TERMS OF THE CONTRACT.
SECTION B
Commencing with the calendar quarter ending December 31st of each Coverage Year
and each subsequent quarter end, the Ceding Company shall calculate the required
Section B Actual Consideration within 45 (forty-five) days of each calendar
quarter end. Actual Consideration shall be based upon the result of dividing
ceded Section B Ultimate Net Losses by SNWP as of each calculation date
(hereinafter called the Ceded Loss Ratio) for the respective Coverage Year.
The Actual Consideration for Section B shall be based upon the percentage of
SNWP corresponding to the Ceded Loss Ratio as determined per the table and
narrative below for the respective Coverage Year.
<TABLE>
<CAPTION>
ACTUAL CONSIDERATION ACTUAL CONSIDERATION
CEDED LOSS SECTION B CEDED LOSS SECTION B
RATIO (% OF SNWP) RATIO (% OF SNWP)
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
0 0% 49 25.80%
1-22 10% 50 26.40%
23 10.60% 51 27.00%
24 11.40% 52 27.60%
25 11.80% 53 28.20%
26 12.40% 54 28.80%
27 13.00% 55 29.45%
28 13.50% 56 30.10%
29 14.00% 57 30.75%
30 14.50% 58 31.40%
31 15.00% 59 32.05%
32 15.60% 60 32.70%
33 16.20% 61 32.70%
34 16.80% 62 32.70%
35 17.40% 63 32.70%
36 18.00% 64 32.70%
37 18.60% 65 32.70%
38 19.20% 66 32.70%
39 19.80% 67 32.70%
40 20.40% 68 32.70%
41 21.00% 69 32.70%
42 21.60% 70 32.70%
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
43 22.20% 71 32.70%
44 22.80% 72 32.70%
45 23.40% 73 32.70%
46 24.00% 74 32.70%
47 24.60% 75 32.70%
48 25.20%
</TABLE>
If Ceded Loss Ratios are between the above table loss ratios, the Actual
Consideration percentage of SNWP shall be pro-rated between the table Ceded Loss
Ratio values.
The Actual Consideration for each Coverage Year shall be equal to the cumulative
SNWP for each Coverage Year multiplied by the percentage determined by the above
narrative and table calculations.
For each Coverage Year, the Ceding Company shall credit the Funds Withheld
Account for this Actual Consideration less all prior payment of both Section A
Actual Consideration, if applicable, and Section B Actual Consideration
adjustments to date to Reinsurers providing that Section A is converted to
Section B. If the sum of the prior payments of Section B Actual Consideration
adjustments and Section A Actual Consideration exceed the Section B Actual
Consideration amount due, the Ceding Company shall debit the Funds Withheld
Account for such return Section B Actual Consideration adjustment. If, however,
Section A Quota Share is not converted to Section B, then Section A Actual
Consideration shall not be subtracted from Actual Consideration.
For each individual Coverage Year, all Section A Actual Consideration and
Section B Actual Consideration less Reinsurers' Expense Charge shall be withheld
by the Ceding Company in the Funds Withheld Account for the benefit of
Reinsurers.
All Actual Consideration adjustments and Advance Consideration shall be deemed
to be credited or (debited) from the Funds Withheld Account as of November 1st
of the preceding Coverage Year for Interest Credit purposes hereon. Therefore,
any adjustments to increase Actual Consideration shall result in an Interest
Credit from November 1st of the preceding Coverage Year to date for such
adjustment. Any adjustments to decrease the Actual Consideration shall result in
a reduction of Interest Credit from November 1st of the preceding Coverage Year
to date for such adjustment.
Additional Coverage Consideration
If Reinsurers offer Additional Section B Coverage, the Reinsurers shall be
entitled to an Additional Coverage Consideration equivalent to 60% of the
Additional Coverage provided. The Additional Coverage Consideration shall be
withheld by the Company and credited to the Funds Withheld Account as of the
November 1st preceding each Coverage Year for all purposes hereon including
Investment Credit. No Reinsurers' Expense Charge shall be due on such Additional
Coverage Consideration.
CEDING COMMISSION
Reinsurers shall allow a Ceding Commission of $1,200,000 (one million, two
hundred thousand dollars) to be due to the Ceding Company on November 1st of the
preceding Coverage Year. There shall be no increase or decrease to this amount
based upon loss experience under this
9
<PAGE> 10
Treaty. The Ceding Company shall debit the Funds Withheld Account as of November
1st of the preceding Coverage Year for all Ceding Commissions.
REINSURERS' EXPENSE CHARGE
The Ceding Company shall pay Reinsurers for each Coverage Year a Reinsurers'
Expense Charge equal to X%, as detailed in the table below subject to a minimum
amount of $1,575,000 (one million, five hundred and seventy-five thousand
dollars) inclusive of intermediary commission, by direct payment to Reinsurers
hereon.
For each Coverage Year, the provisional Reinsurers' Expense Charge shall be
$1,575,000 (one million, five hundred and seventy-five thousand dollars) as
respects Section A Advance Consideration for purposes of calculation and payment
upon consummation of this Treaty and on or about November 1st prior to each
renewal Coverage Year. The Reinsurers' Expense Charge on both the Section A
Actual Consideration and Section B Actual Consideration adjustments shall be
determined, redetermined and paid annually within 60 (sixty) days in arrears of
each calendar year end. Payments shall be made by direct payment from the debtor
to creditor party at such times.
There shall be no interest paid to Reinsurers on Reinsurers' Expenses Charge
paid or refund of interest on Reinsurers' Expense Charge which is refunded under
this Treaty, upon return Actual Consideration adjustments, if any.
X% for both Section A and B shall be based upon Coverage Year Ceded Loss Ratio
bands as follows:
<TABLE>
<CAPTION>
Ceded Loss Ratio X%
---------------- --
<S> <C> <C>
0% up to and including 23% 6.0
above 23% up to and including 29% 7.0
above 29% up to and including 34% 8.0
above 34% up to and including 40% 9.0
above 40% up to and including 60% 8.0
above 60% up to and including 65% 7.0
above 65% up to and including 72% 6.0
above 72% 5.0
</TABLE>
For purposes of Interest Credit hereon, all Reinsurers' Expense Charge
shall be deemed debited or credited as applicable from the Funds Withheld
Account as of November 1st of the preceding Coverage Year.
Intermediary commission is equivalent to 1% part of X%, subject to a
minimum amount of $225,000 (two hundred and twenty-five thousand dollars)
and a maximum amount of $300,000 (three hundred thousand dollars).
10
<PAGE> 11
ARTICLE 9: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of Consideration or losses and
allocated Loss Adjustment Expenses or otherwise, due from such party to
another party under this Treaty, against any amounts, whether on account
of Consideration or losses and allocated Loss Adjustment Expenses or
otherwise due from the latter party to the former party. The party
asserting the right of offset may exercise this right, whether as
assuming Reinsurers or Ceding Company in this Treaty.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Treaty to
receive Consideration or loss payments at any time from such other party
("Collateral"), to secure its Consideration or loss obligations to such
other party at any time under this Treaty ("Secured Obligations"). If at
any time a party is in default under any Secured Obligation or shall be
subject to any liquidation, rehabilitation, reorganization or
conservation proceeding, each other party shall be entitled in its
discretion, to apply or to withhold for the purpose of applying in due
course, any Collateral assigned and pledged to it by the former party and
otherwise to realize upon such Collateral as security for such Secured
Obligations.
C. The security interest described herein, and the term "Collateral", shall
apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall be
deemed evidenced only by the counterpart of this Treaty delivered to such
party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Treaty.
ARTICLE 10: REPORTS AND LOSS SETTLEMENTS
A. Within 60 (sixty) days following the end of each calendar quarter, the
Ceding Company will report in writing to the Reinsurers for each Coverage
Year:
1. SNWP for the quarter and cumulative SNWP.
2. All Consideration calculations as necessary.
3. Summary of subject Ultimate Net Losses paid during the period and
inception to date.
4. Summary of Ultimate Net Losses outstanding including a report of
incurred but not reported amounts.
5. The amount of Ultimate Net Losses ceded to this Treaty for the
period and inception to date indicating amounts due and
outstanding.
11
<PAGE> 12
6. Individual claim information (claim managers report) for all
individual claims in excess of $2,000,000 (two million dollars)
indemnity from ground up and for claims in excess of $750,000
(seven hundred and fifty thousand dollars) upon Reinsurers'
specific request.
7. Any other information needed by the Reinsurers to evaluate this
Treaty which is reasonably available to the Ceding Company.
8. A report detailing the activity and balance within the Funds
Withheld Account.
B. 1. Loss Settlements
Following each quarterly report, the Reinsurers shall pay all
cumulative Ultimate Net Losses Paid in respect of Business Covered
by the Ceding Company on and after January 1st of each respective
Coverage Year in excess of the Ceding Company's Retention subject
to the Aggregate Limits hereon. Payment shall be made at 90
(ninety) days following each calendar quarter end, if paid by
Reinsurers from other funds of the Reinsurers. Loss Settlements
shall be first paid by deduction from the Funds Withheld Account,
this account shall be debited at 90 (ninety) days following each
calendar quarter. Loss reimbursement at any calendar quarter for
each Coverage Year shall be equal to the amount of such cumulative
Ultimate Net Losses Paid at each date in excess of the Retention
less net loss reimbursements previously made by the Reinsurers,
subject to the Aggregate Limits in accordance with ARTICLE 5:
COVERAGES AND AGGREGATE LIMITS.
2. Order of Settlements
All loss payments, including all Commutation payments, if any,
above will be firstly made by deduction from the Consideration and
then from the Interest Credit components of the Funds Withheld
Account by the Ceding Company until depleted. Thereafter,
Reinsurers shall pay from other funds of Reinsurers subject to all
of the terms hereon.
ARTICLE 11: FUNDS WITHHELD ACCOUNT AND INTEREST CREDIT
FUNDS WITHHELD ACCOUNT
For purposes of this Article, the Ceding Company shall maintain a cumulative
Funds Withheld Account separately for each individual Coverage Year comprised of
the following Coverage Year amounts:
1. The Funds Withheld Account at October 30th preceding the Coverage Year
shall be equal to zero.
2. The Funds Withheld Account at each subsequent calendar quarter end shall
be equal to:
a. The Funds Withheld Account at the end of such prior calendar
quarter; plus
b. Any amounts credited or debited during the quarter for the
following:
Section A Advance and Actual Consideration, Section B Actual
Consideration including adjustments, Additional Coverage
Consideration, if any; less
12
<PAGE> 13
c. Reinsurers' Expense Charge, if any; less
d. Ceding Commissions; less
e. Ceded Ultimate Net Losses paid under this Treaty for the prior
calendar quarter from the Funds Withheld Account (including
Commutation payments); plus
f. Interest Credit.
The Ceding Company shall report balances quarterly to the Reinsurers as soon as
practicable but no later than 75 (seventy-five) days in arrears of each calendar
quarter end.
The Reinsurers shall not transfer or assign their rights to the Funds Withheld
Account hereon unless this Treaty is surrendered and a new Treaty is issued.
Under any and all circumstances, the Ceding Company must make a book entry of a
transfer or assignment in order for such transfer or assignment to be valid.
Upon finalization of the payment of all losses recoverable hereon and/or
Commutation for any Coverage Year, if any, the Reinsurers will pay to the Ceding
Company the entire amount of the remaining Funds Withheld Account balance, if
any, received by the Reinsurers.
Interest Credit
For each Coverage Year, the Ceding Company shall credit the Funds Withheld
Account monthly at each month end with interest calculated by applying a monthly
rate equal to one-twelfth (1/12th) of the percentage stipulated below multiplied
by the actual daily average Funds Withheld Account balance for the respective
calendar month where the percentage equals:
7.254% if the 12 month U.S. Treasury Bill rate is 7.254% or less:
or
7.254 + 50% of the amount by which the 12 month U.S. Treasury Bill rate is
greater than 7.254%.
The 12 month U.S. Treasury bill rate to be used each year is the rate in effect
on the first business day of each year as reported in the Wall Street Journal on
the second business day of each year.
Interest Credit shall continue even in the event of the Ceding Company's
insolvency.
All Reinsurers' Expense Charges shall be deemed debited from the Funds Withheld
Account as of the November 1st preceding the applicable Coverage Year.
ARTICLE 12: LIABILITY OF THE REINSURER AND CURRENCY
A. The liability of the Reinsurer shall follow that of the Ceding Company in
every case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Ceding Company's
policies and any endorsements thereon. However, in no event shall this be
construed in any way to provide coverage outside the terms and conditions
set forth in this Treaty.
13
<PAGE> 14
B. Nothing herein shall in any manner create any obligation or establish any
rights against the Reinsurer in favor of any third party or any persons
not parties to this Treaty.
C. All of the provisions of this Treaty involving dollar amounts are
expressed in terms or United States Dollars and all Consideration and
loss and allocated Loss Adjustment Expense payments hereunder shall be
made in United States Dollars.
ARTICLE 13: COMMUTATION
The Ceding Company shall have the sole option, effective at any calendar year
end on or after December 31st of each Coverage Year to commute all ceded
liability outstanding hereunder in respect of a specific Coverage Year. At
Commutation, the Funds Withheld Account shall be dissolved and the Ceding
Company shall pay the entire amount of the respective Coverage Year Funds
Withheld Account to the Reinsurers hereon. The Ceding Company may offset the
payment of the Funds Withheld Account against the Commutation payment required
at such time
Said payment shall constitute a full and final settlement of all terms of this
Treaty in respect of the specific Coverage Year; the Ceding Company will execute
a hold harmless agreement so stating and the Reinsurers will be thereby released
from all current and future liability hereunder for such Coverage Year.
ARTICLE 14: EXCESS OF ORIGINAL POLICY LIMITS
This Treaty shall protect the Ceding Company, within the limits hereof, for loss
in excess of its original policy, such loss in excess of the limit having been
incurred because of failure by it to settle within the policy limit or by reason
of alleged or actual negligence, fraud, or bad faith in rejecting an offer of
settlement or in the preparation of an appeal consequent upon such action.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the Ceding Company would have been contractually liable to pay had it not
been for the limit of the original policy.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the Ceding
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 15: EXTRA CONTRACTUAL OBLIGATIONS
This Treaty shall protect the Ceding Company for any Extra Contractual
Obligations within the limits hereof. The term "Extra Contractual Obligations"
is defined as those liabilities not covered under any other provision of this
Treaty and which arise from the handling of any claim on business covered
hereunder, such liabilities arising because of, but not limited to, the
following:
14
<PAGE> 15
failure by the Ceding Company to settle within the policy limit, or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in the trial of any action
against its insured or reinsured or in the preparation or prosecution of an
appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Ceding
Company shall be deemed, in all circumstances to be the date of the original
Loss Occurrence.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the Ceding
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 16: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
ARTICLE 17: ACCESS TO RECORDS
The Ceding Company shall place at the disposal of the Reinsurers at all times,
and the Reinsurers shall have the right to inspect, through its authorized
representatives, all books, records and papers of the Ceding Company in
connection with any reinsurance hereunder, or claims in connection herewith.
The Reinsurers agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Treaty except under the
following circumstances and then only as necessary:
A. When disclosure of such information is required in the normal course of
Reinsurers' business; or
B. With the prior written consent of the Ceding Company; or
C. When Reinsurers are required by a subpoena or court order to disclose
such information. The Reinsurers shall promptly notify the Ceding Company
of any attempt by a third party to obtain from it any such confidential
information.
Reinsurers will provide the Ceding Company or its designated representative with
such information as Reinsurers and Ceding Company may agree is necessary to the
Ceding Company's handling of the business reinsured herein.
The obligations contained in this provision shall survive termination of this
Treaty.
15
<PAGE> 16
ARTICLE 18: ACTUARIAL REVIEW
Should the Reinsurers desire at any time to review the loss reserves established
by the Ceding Company as respects Ultimate Net Losses, the Reinsurers shall
select an independent actuarial firm acceptable to the Ceding Company to perform
a reserve analysis. The costs of any reserve analysis performed under this
Article will be borne by the Reinsurers hereon. Such a review shall be subject
to the provisions of ARTICLE 17: ACCESS TO RECORDS.
ARTICLE 19: LOSS RESERVE AND ADVANCE PREMIUM FUNDING
The Reinsurers will maintain appropriate reserves with respect to their share of
the Advance Premium and loss reserves ceded and required under the terms of this
Treaty which are reported by the Ceding Company on the Business Covered of this
Treaty.
During the Term of this Treaty the Reinsurers agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the Ceding Company
issued by a bank acceptable to the Ceding Company adjusted to at all times be
equal to the ceded cumulative Ultimate Net Losses outstanding and Advance
Premium ceded hereunder less the Funds Withheld Account balance at such dates.
Such Letter of Credit shall be in the form, amount and with an acceptable NAIC
bank required to allow the Ceding Company to take Full Statutory Credit for
amounts recoverable under this Treaty.
The Ceding Company also agrees to not make drawings upon the Letter of Credit
provided by the Reinsurers for any purpose other than to reimburse the Ceding
Company for loss settlements due under this Treaty for which one or more of the
Reinsurers are in default by more than seven days and provided that the Ceding
Company shall give the Reinsurers three days written notice prior to making any
drawings.
The Ceding Company shall reimburse the Reinsurers for annual security cost equal
to 0.50% (zero point five percent) of the amount of the Letter of Credit issued
or maintained hereon as of each December 31st. The Reinsurers shall request such
reimbursement whereupon the Ceding Company shall make payment by direct wire
transfer to the Reinsurers. All such amounts shall not be deducted from the
Funds Withheld Account.
ARTICLE 20: FUNDS WITHHELD TRUST ACCOUNT
In the event that the Ceding Company experiences any one of the following
circumstances, the Reinsurers may require a Trust Fund, with an independent
bank, to be established for the purposes of collateralizing the Funds Withheld
Account hereon:
1. The Ceding Company's A.M. Best's Rating is downgraded below B+; or
16
<PAGE> 17
2. The Ceding Company's combined statutory capital and surplus falls
below $60,000,000 (sixty million dollars); or
3. The Ceding Company is acquired or becomes controlled or
amalgamated with or has its shares purchased for the purpose of
gaining control by any other party.
The Ceding Company shall fully and promptly comply with such request from the
Reinsurers. The Ceding Company shall transfer marketable assets with a market
value equal to the required Funds Withheld Account balance within 30 (thirty)
days from the Reinsurers' request to do so. The Ceding Company shall also
transfer additional assets to the Trust Fund, if needed, to maintain the Trust
Fund balance to be equal to the Funds Withheld requirement at each calendar
quarter end including the requisite Interest Credit required hereon.
ARTICLE 21: INSOLVENCY
A. In the event of the insolvency of the Ceding Company, the reinsurance
under this Treaty shall be payable by the Reinsurers (on the basis of the
liability of the Ceding Company) to the Ceding Company or to its
liquidator, receiver or statutory successor.
B. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Ceding Company shall give written notice to
the Reinsurers of the pendency of a claim against the insolvent Ceding
Company on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the Reinsurers may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to
be adjudicated, any defense or defenses which it may deem available to
the Ceding Company or its liquidator or receiver or statutory successor.
Accidental failure to give such notice shall not excuse the obligation
unless Reinsurers are substantially prejudiced by the failure to give
such notice. The expense thus incurred by the Reinsurers shall be
chargeable, subject to court approval, against the insolvent Ceding
Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Ceding Company
solely as a result of the defense undertaken by the Reinsurers.
C. Should the Ceding Company go into liquidation or should a receiver be
appointed, the Reinsurers shall be entitled to deduct from any sums which
may be or may become due to the Ceding Company under this Treaty any sums
which are due to the Reinsurers by the Ceding Company under this Treaty
and which are payable at a fixed or stated date, as well as any other
sums due the Reinsurers which are permitted to be offset under applicable
law.
ARTICLE 22: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with respect
to this Treaty, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration. One Arbiter
shall be chosen by the Ceding Company, the other by the Reinsurers, and
the Umpire shall be chosen by the two Arbiters before they enter upon
arbitration, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance
17
<PAGE> 18
companies. In the event that either party should fail to chose an Arbiter
within 30 (thirty) days following a written request by the other party to
do so, the requesting party may choose two Arbiters who shall in turn
choose an Umpire before entering upon arbitration. If the two Arbiters
fail to agree upon the selection of an Umpire within 30 (thirty) days
following their appointment, each Arbiter shall nominate three candidates
within 10 (ten) days thereafter, two of whom the other shall decline, and
the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 (thirty) days
following the date of appointment of the Umpire. The Arbiters shall
consider this Treaty as an honorable engagement rather than merely as a
legal obligation and they are relieved of all judicial formalities and
may abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to
agree, they shall call in the Umpire and the decision of the majority
shall be final and binding upon both parties. The decision shall be made
in writing and will state the factual and legal basis supporting such
decision. Judgment upon the final decision of the Arbiters may be entered
in any court of competent jurisdiction.
C. If more than one Reinsurer is involved in the same dispute, all such
Reinsurers shall constitute and act as one party for the purposes of this
Article and communications shall be made by the Ceding Company to each of
the Reinsurers constituting one party provided, however, that nothing
herein shall impair the rights of such Reinsurers to assert several,
rather than joint, defenses or claims, nor be construed as changing the
liability of the Reinsurers participating under the terms of this Treaty
from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party,
as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
ARTICLE 23: CHANGES IN ADMINISTRATIVE PRACTICE
If any intentional or unintentional change in the Ceding Company's processing or
payment of claims materially increases the Reinsurers' economic loss under this
Treaty from what the economic loss would have if there had been no such change,
the Reinsurers shall prepare, and the Ceding Company shall accept, an adjustment
of the portion of claims which is reimbursable, or any adjustments which will
make the Reinsurers' risk position equivalent to that which would have been
obtained under this Treaty if there had been no such change. The Reinsurers
shall have the right to use auditing techniques, sampling techniques, or to
otherwise investigate the nature and effect of any such change in administrative
practices or of any possible compensatory adjustment therefor. Any dispute with
respect to such adjustment shall be resolved by arbitration as provided in
ARTICLE 22: ARBITRATION.
18
<PAGE> 19
ARTICLE 24: TAXES
The Ceding Company is solely liable for any Federal Excise Tax (FET) applicable
to this Treaty. Any FET to be paid shall be paid directly by the Ceding Company
to the taxing authorities and is in addition to the Consideration. No deduction
shall be made from the Funds Withheld Account.
ARTICLE 25: SERVICE OF SUIT
It is agreed that in the event of the failure of Reinsurers hereon to pay any
amount claimed to be due hereunder, Reinsurers hereon, at the request of the
Ceding Company will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the Reinsurers to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Treaty shall be governed by the laws of
the State of New Jersey.
It is further agreed that service of process in such suit may be made upon
, United States of America and that in any suit
instituted against any one of them upon this Treaty, Reinsurers will abide by
the final decision of such Court or any Appellate Court in the event of an
appeal.
The above named are authorised and directed to accept service of process on
behalf of Reinsurers in any suit and/or upon the request of the Ceding Company
to give a written undertaking to the Ceding Company that they will enter a
general appearance upon Reinsurers' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, Reinsurers hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor of successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
Ceding Company or any beneficiary hereunder arising out of this Treaty, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
ARTICLE 26: NO ASSIGNMENT
The Ceding Company and the Reinsurers hereon hereby agree that neither party
shall have the right to assign its respective interests and liabilities,
including the Funds Withheld Account, under this Treaty.
Notwithstanding the above, this Article shall not restrict the Ceding Company
from making investments it deems appropriate.
19
<PAGE> 20
ARTICLE 27: INTERMEDIARY
JLT Risk Solutions Ltd, 6 Crutched Friars, London EC3N 2PH is hereby recognised
as the intermediary negotiating this Treaty for all business hereunder and
through whom all communications relating hereto (including but not limited to
notices, statements and reports) shall be transmitted to both parties, it is
understood, as regards remittances due either party hereunder, that payment by
the Ceding Company to the Intermediary, shall constitute payment to the
Reinsurers but payment by the Reinsurer to the Intermediary shall only
constitute payment to the Ceding Company to the extent such payments are
actually received by the Ceding Company. Notwithstanding the foregoing, it is
agreed that all payments will be direct from the Reinsurer to the Ceding
Company, or from the Ceding Company to the Reinsurer as appropriate.
SIGNED IN LAWRENCEVILLE, NEW JERSEY, THIS DAY OF , 2000 FOR AND
ON BEHALF OF MIIX INSURANCE COMPANY.
BY:
TITLE:
SIGNED IN , THIS DAY OF , 2000 FOR AND ON BEHALF
OF E+S REINSURANCE IRELAND LIMITED.
BY:
TITLE:
20
<PAGE> 21
E+S REINSURANCE (IRELAND) LIMITED TREATY
THE CEDING COMPANY IS REQUESTED TO READ THIS TREATY CAREFULLY. IF IT IS BELIEVED
TO BE INCORRECT THE TREATY SHOULD BE IMMEDIATELY RETURNED, WITH AN EXPLANATION,
TO THE PERSON OR ENTITY DESIGNATED ON THE BACK PAGE OF THIS TREATY.
IN CONSIDERATION of the Ceding Company named in the Schedule having paid the
premium specified in the said Schedule to E+S Reinsurance (Ireland) Limited,
(hereinafter referred to as "Reinsurers"), whose duly authorised representative
has hereunto subscribed his name.
REINSURERS HEREBY AGREE to reinsure the Ceding Company against loss as more
fully set forth in this Treaty and the attachments hereto during the Period of
Reinsurance stated in the said Schedule, or during any subsequent period as may
be mutually agreed upon between the Ceding Company and Reinsurers.
PROVIDED that the liability of Reinsurers subscribing to this Treaty shall not
exceed their proportion of the limits of liability expressed in the said
Schedule or such other limits of liability as may be substituted therefor by
Addendum hereon or attached hereto signed by or on behalf of Reinsurers.
If Reinsurers shall make any claim under this Treaty with knowledge that the
same is false or fraudulent as regards amount or otherwise, this Treaty shall
become null and void forthwith and any and all claims hereunder shall be
forfeited and of no force and effect.
IN WITNESS HEREOF I, being a representative of Reinsurers and duly authorised by
the said Reinsurers to sign this Treaty on their behalf, have hereunto
subscribed my name.
Dated this day of , Two Thousand.
<PAGE> 22
Policy Number: 901/LK9905492 Reinsurers reference:
THE SCHEDULE
COMPANY: MIIX INSURANCE COMPANY
ADDRESS: Two Princess Road, Lawrenceville, New Jersey, United
States of America.
PERIOD
OF REINSURANCE: Effective November 1, 1999 covering on a risks
attaching basis for Business Covered and continuous
thereafter unless terminated.
LIMIT OF LIABILITY: All as more fully set forth in the attached wording.
This Policy reinsures 15% of the Limit of Liability expressed in the attached
wording.
INTEREST: All as more fully set forth in the attached wording.
PREMIUM: All as more fully set forth in the attached wording
SEVERAL LIABILITY NOTICE
The subscribing Reinsurers' obligation under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing Reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who
for any reason does not satisfy all or part of its obligations.
<PAGE> 23
IN ALL COMMUNICATIONS PLEASE QUOTE
THE FOLLOWING REFERENCE
901/LK9905492
REINSURANCE
TREATY
THE COMPANY IS REQUESTED TO READ THIS TREATY CAREFULLY. IF IT
IS BELIEVED TO BE INCORRECT THE TREATY SHOULD BE IMMEDIATELY
RETURNED, WITH AN EXPLANATION TO:
JLT Risk Solutions Limited
6 Crutched Friars,
London,
EC3N 2PH.
<PAGE> 1
EXHIBIT 10.51
MIIX INSURANCE COMPANY
COMBINED QUOTA SHARE AND AGGREGATE REINSURANCE
TREATY NO. 901/LK9905943
EFFECTIVE NOVEMBER 1, 1999
<TABLE>
<CAPTION>
ARTICLE SUMMARY PAGE
<S> <C> <C>
1 Business Covered 2
2 Commencement And Termination 3
3 Territory And Inuring Reinsurance 3
4 Exclusions 3
5 Coverages And Aggregate Limits 4
6 Definitions 5
7 Net Retained Liability 7
8 Section A Advance And Actual Consideration, 7
Section B Actual Consideration, Additional Coverage Consideration
And Ceding Commission, And Reinsurers' Expense Charge
9 Offset And Security 11
10 Reports And Loss Settlements 11
11 Funds Withheld Account And Interest Credit 12
12 Liability Of The Reinsurer And Currency 13
13 Commutation 14
14 Excess Of Original Policy Limits 14
15 Extra Contractual Obligations 14
16 Errors And Omissions 15
17 Access To Records 15
18 Actuarial Review 16
19 Loss Reserve And Advance Premium Funding 16
20 Funds Withheld Trust Account 16
21 Insolvency 17
22 Arbitration 17
23 Changes In Administrative Practices 18
24 Taxes 19
25 Service Of Suit 19
26 No Assignment 19
27 Intermediary 20
</TABLE>
<PAGE> 2
COMBINED QUOTA SHARE AND AGGREGATE REINSURANCE
TREATY NO. 901/LK9905493
(hereinafter referred to as "Treaty")
between
SWISS REINSURANCE COMPANY
(hereinafter referred to as "Reinsurers")
and
MIIX INSURANCE COMPANY
LAWRENCEVILLE, NEW JERSEY
(hereinafter referred to as "Ceding Company")
ARTICLE 1: BUSINESS COVERED
This Treaty shall indemnify the Ceding Company with respect to Ultimate Net
Losses which may accrue to the Ceding Company under any and all Policies subject
to the Terms and Conditions of this Treaty.
As respects all coverages hereon, the Reinsurers shall provide coverage on a
risks attaching basis for each Coverage Year in respect of all of the Ceding
Company's Policies underwritten during each respective Coverage Year. Premiums
received in advance of each Coverage Year are deemed to be part of the Subject
Net Written Premium for that Coverage Year. Coverage shall in all cases follow
the underlying basis of coverage of the original Policies written by the Ceding
Company. For all purposes, the "Permanent Protection Policies (PPP)" written by
the Ceding Company shall in all cases be deemed to cover on a losses occurring
during basis of underlying coverage. Reinsurers shall be subject to all of the
conditions of the PPP including policy limits and the aggregate limit formula
under the extended reporting coverage therein.
Reinsurers shall remain liable for all losses covered as detailed above during
the Term until all such losses are paid or this Treaty is commuted.
2
<PAGE> 3
ARTICLE 2: COMMENCEMENT AND TERMINATION
This Treaty is effective November 1, 1999 and shall remain continuously in
effect thereafter unless terminated. Either party may terminate this Treaty at
any November 1st by giving the other party not less than 90 (ninety) days prior
written notice by certified mail. Unless otherwise mutually agreed, reinsurance
hereunder on Business Covered in force at the effective date of termination
shall remain in full force and effect until expiration, cancellation or next
anniversary of such business, whichever first occurs, but in no event beyond 12
months following the effective date of termination plus any extension of
coverage for extended reporting provided under the original policies of the
Ceding Company.
Should this Treaty expire while a loss is in progress, the Reinsurers shall be
responsible for the loss in progress in the same manner and to the same extent
they would have been responsible had the Treaty expired the day following the
conclusion of the loss in progress.
ARTICLE 3: TERRITORY AND INURING REINSURANCE
This Treaty will cover Policies written within the United States of America. All
other Reinsurance Agreements that inure to the benefit of this Treaty shall be
deemed in place until all liability of the Reinsurers hereon is finalized by
payment of all losses or commutation.
ARTICLE 4: EXCLUSIONS
This Treaty shall not apply to and specifically excludes:
A. Workers' Compensation Insurance;
B. Insolvency funds, in accordance with the Insolvency Funds Exclusion
Clause attached hereto;
C. Business assumed from Pools, Syndicates, and Associations;
D. Business excluded by the attached Nuclear Incident Exclusion Clause -
Liability Reinsurance - USA, except that provisions of this clause
shall not apply to liability arising out of the practice of Nuclear
Medicine and activities relating to Nuclear Medicine by the original
insured;
E. War Risks, in accordance with the North America War Exclusion Clause
attached hereto;
F. Unallocated Loss Adjustment Expenses as described in ARTICLE 6:
DEFINITIONS, D;
G. Underlying Provider Stop Loss Policies written by the Ceding Company.
3
<PAGE> 4
ARTICLE 5: COVERAGES AND AGGREGATE LIMITS
SECTION A - 75% QUOTA SHARE COVERAGE
Reinsurers shall indemnify the Ceding Company for 75% (seventy-five percent)
quota share of Ultimate Net Loss arising from covered losses for each applicable
Coverage Year during the Term of this Treaty subject to the Section A Aggregate
Limit hereon. This quota share shall be in respect of the Business Covered
exposure period related to Section A Advance Consideration only.
This Section A Quota Share Coverage can be converted to Section B Aggregate
Excess of Loss Coverage during the first quarter retroactive to January 1st of
any applicable Coverage Year. This conversion is at the mutual agreement of the
Ceding Company and the Reinsurers and is subject to the following conditions not
being present prior to the conversion date:
1. The Ceding Company's A.M. Best Rating falls below B+; and
2. The Ceding Company's surplus drops below $60,000,000 (sixty million
dollars).
If both of these conditions are present during the first quarter, then the
Section A Quota Share Coverage cannot be converted into the Section B Aggregate
Excess of Loss Coverage for the applicable Coverage Year.
If Section A is not converted to Section B, the Ceding Company shall track the
advance premium by policy to the coverage time afforded by the advance premium
under each policy. Section A shall cover the Ceding Company on the basis of the
coverage of the underlying original Policies during such advance premium
coverage time.
The Aggregate Limit for each Section A Coverage Year shall equal 167% (one
hundred sixty-seven percent) of Section A Advance Consideration. If Section A is
converted to Section B, the Aggregate Limit for Section A shall be $0 (zero
dollars) for the respective Coverage Year.
SECTION B - AGGREGATE EXCESS OF LOSS COVERAGE
Should the Ceding Company's Loss Ratio exceed 75% (seventy-five percent)
(hereinafter called the Retention), the Reinsurers shall be liable for 100% (one
hundred percent) of the paid amount of Ultimate Net Losses in excess of the
Retention subject to a maximum Aggregate Limit of 75% (seventy-five percent) of
SNWP. This aggregate excess coverage shall cover the Ceding Company on the basis
of the coverage of the original Policies. If the Section A Quota Share Coverage
is converted to this Section B Aggregate Excess of Loss Coverage, then this
Section B shall also cover the Ceding Company's original Policies pertaining to
advance premium deposits received through December 31st preceding the respective
Coverage Year. If Section A is not converted to Section B, Section B shall not
cover the original policies during the coverage time pertaining to advance
premium deposits received through December 31st preceding the respective
Coverage Year.
If the amount of the Funds Withheld Account balance falls below $500,000 (five
hundred thousand dollars) on a specific Coverage Year the Reinsurers may
unilaterally and individually, for their respective interests, offer at any
time, for such Coverage Year, and the Ceding Company will accept, Additional
Section B Coverage up to 8% (eight percent) of cumulative SNWP excess of 150%
(one hundred and fifty percent) of cumulative SNWP in respect of
4
<PAGE> 5
covered losses. In no event shall Reinsurers be liable for more than
$200,000,000 (two hundred million dollars) in the aggregate for Section B for
each Coverage Year. The $200,000,000 (two hundred million dollars) aggregate
limit for each Coverage Year shall be subject to the sub condition that no more
than $20,000,000 (twenty million dollars) in all (inclusive of Loss Adjustment
Expenses) shall be recoverable from Reinsurers in respect of losses emanating
from a loss layer of $7,000,000 (seven million dollars) each and every loss
(inclusive of Loss Adjustment Expenses) excess of $3,000,000 (three million
dollars) each and every loss (inclusive of Loss Adjustment Expenses).
If SNWP exceeds $300,000,000 (three hundred million dollars) in a particular
individual Coverage Year, then the Ceding Company shall participate in this
particular individual Coverage Year with the Reinsurers in losses otherwise
recoverable in the proportion calculated as follows:
Ceding Company's Share: Amount of SNWP in excess of $300,000,000
----------------------------------------
SNWP
This proportion may be adjusted based on mutual consent of the Ceding Company
and Reinsurers for Coverage Years 2000 and thereafter.
ARTICLE 6: DEFINITIONS
A. "Cumulative Subject Net Written Premiums" (SNWP) shall mean for the
respective Coverage Year, the cumulative Net Written and Assumed Written
Premium Income less cancellations and returns and less premiums paid for
all other reinsurances for the Coverage Year, except for the
Non-Traditional Reinsurance Agreements which shall be disregarded for the
calculation of SNWP.
If the Section A Quota Share Coverage is converted to the Section B
Aggregate Excess of Loss Coverage, SNWP shall include all direct advance
premium for the Coverage Year. If the Section A Quota Share Coverage is
not converted to Section B Aggregate Excess of Loss Coverage, SNWP shall
exclude the SNWP related to all the direct advance premium for the
respective Coverage Year. Direct advance premium refers to all actual
amounts collected by Ceding Company from its insureds in advance of the
respective Coverage Year.
B. "Non-Traditional Reinsurance Agreements" shall mean any reinsurance
agreement which allows for Profit Sharing (or any other form of
contractual adjustment) exceeding 25% (twenty-five percent) of initial
reinsurance premium paid.
C. The term "Ultimate Net Loss" means the actual loss including any and
all vicarious liability, arising from a Loss Occurrence as covered in
accordance with ARTICLE 1: BUSINESS COVERED, including pro rata Loss
Adjustments Expense, Loss in Excess of Policy Limits and Extra
Contractual Obligations, and including losses incurred but not yet
reported, all paid, payable or to be paid by the Ceding Company after
making deductions for all recoveries, salvages, subrogations and all
claims on inuring reinsurance, whether such reinsurance is collectible
or not; provided, that in the event of the insolvency of the Ceding
Company, payment by the Reinsurers shall be made in accordance with the
provisions of the ARTICLE 21: INSOLVENCY. Nothing herein shall be
construed to mean that losses
5
<PAGE> 6
under this Treaty are not recoverable until the Ceding Company's
Ultimate Net Loss has been ascertained.
D. "Loss Adjustment Expense" means all costs and expense allocable to a
specific claim or claims that are incurred by the Ceding Company in the
investigation, appraisal, adjustment, settlement, litigation, defense
or appeal of a specific claim, including court costs and costs of
supersedes and appeal bonds, and including a) pre-judgment interest,
unless included as part of the award or judgement; b) post - judgment
interest; and c) legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto. Loss Adjustment
Expense does not include Unallocated Loss Adjustment Expense.
Unallocated Loss Adjustment Expense includes, but is not limited to
salaries and expenses of employees, and office and other overheads.
E. "Policies" means any and all original policies, contracts, and binders
of insurance or reinsurance underwritten by the Ceding Company, issued
in the states of New Jersey and Pennsylvania to individual and/or
groups of physicians and/or dentists and classified under the listing
below:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage) *
Directors and Officers Liability
All Property and other Coverages as provided in conjunction with
Professional Liability Coverages
Property Highly Protected Risk Assumed
Medical Office Policy Coverages
Other Health Care Institution Liability
Professional Premises Liability
Commercial General Liability
Excess Umbrella Liability
Errors and Omissions Liability
"Policies" shall also mean assumed reinsurance from Lawrenceville Re,
Ltd of Bermuda (Lawrenceville Re), and Lawrenceville Property and
Casualty Insurance Company (LP&C), in respect of assumed reinsurance
underwritten by Lawrenceville Re and original policies contracts, and
binders of insurance or reinsurance underwritten by LP&C and classified
also as:
Medical and Dental Practitioner Professional Liability
(including HIV Endorsement Coverage) *
but only to the extent the underlying business is issued in the states
of New Jersey and Pennsylvania to individual and/or groups of
physicians and/or dentists.
* POLICIES SHALL ONLY INCLUDE HIV COVERAGE TO INSURED MEDICAL AND
DENTAL PRACTITIONERS OF THE CEDING COMPANY. COVERAGES FOR OTHERS FOR
HIV SHALL ONLY BE AVAILABLE UPON REINSURERS' APPROVAL
F. "Loss Ratio" means the ratio of Ultimate Net Losses incurred divided by
Cumulative Subject Net Written Premium as of the date of calculation.
6
<PAGE> 7
G. "Ceded Loss Ratio" means the ratio of ceded Ultimate Net Losses
incurred divided by Cumulative Subject Net Written Premium as of the
date of calculation for the respective Coverage Year.
H. "Loss Occurrence" means Loss Occurrence or medical incident, or
otherwise the event giving rise to coverage, all as defined and
provided within the underlying Policies underwritten by the Ceding
Company.
I. "Coverage Year" means each separate period beginning January 1st and
ending December 31st for the Term of this Treaty.
J. "Term" means the period November 1st, 1999 through December 31st, 2000
and each and every Coverage Year thereafter that this Treaty is in
effect. There will be no coverage for policies with advance premium
payment on or after November 1st termination in respect of the
subsequent Coverage Year.
ARTICLE 7: NET RETAINED LIABILITY
This Treaty applies only to that portion of any Loss Occurrence or claim first
made which the Ceding Company retains net for its own account. All other
Reinsurance Agreements shall inure to the benefit of this Treaty and be deemed
in place until all liability hereon is finalized.
The Ceding Company warrants that the maximum Net Retained Liability is as
follows:
<TABLE>
<CAPTION>
POLICIES CLASSIFIED AS: MAXIMUM NET RETAINED LIABILITY
<S> <C>
Property insurance:
Medical Office Policy $ 2,000,000 any one policy
Other Property Coverage $ 500,000 each and every loss
All Other Policies $ 10,000,000 each and every loss
</TABLE>
The above figures pertain to indemnity only. Therefore, Net Retained Liability
would be increased in respect of pro rata Loss Adjustment Expenses. The Ceding
Company must obtain special acceptance from Reinsurers prior to exceeding the
above maximum Net Retained Liability.
Further more it is warranted that less than 5% (five percent) of the Ceding
Company's SNWP or $7,000,000 (seven million dollars), whichever the greater,
will originate from assumed reinsurance business other than from Lawrenceville
Re and LP&C.
ARTICLE 8: SECTION A ADVANCE AND ACTUAL CONSIDERATION, SECTION B
ACTUAL CONSIDERATION, ADDITIONAL COVERAGE CONSIDERATION AND
CEDING COMMISSION, AND REINSURERS' EXPENSE CHARGE
SECTION A
As consideration for Section A for each Coverage Year, the Ceding Company shall
pay the Reinsurers annually 75% (seventy-five percent) of all direct advance
premium deposits received through December 31st of a respective Coverage Year.
Such Consideration shall be credited to
7
<PAGE> 8
the Funds Withheld Account on the November 1st preceding the respective Coverage
Year. Section A Advance Consideration shall be provisionally based upon the
direct advance premium deposit estimated and reported by the Ceding Company on
or before December 15th preceding each Coverage Year. The Ceding Company shall
recalculate a final amount within 45 (forty-five) days subsequent to January 1st
of the respective Coverage Year. Any additional amount due shall be credited to
the Funds Withheld Account on the November 1st preceding the respective Coverage
Year. Any return amount due shall be debited to the Funds Withheld Account on
the November 1st preceding the respective Coverage Year.
THE PREMIUM IN RESPECT OF SECTION A MAY BE CONVERTED TO SECTION B, SUBJECT TO
THE TERMS OF THE CONTRACT.
SECTION B
Commencing with the calendar quarter ending December 31st of each Coverage Year
and each subsequent quarter end, the Ceding Company shall calculate the required
Section B Actual Consideration within 45 (forty-five) days of each calendar
quarter end. Actual Consideration shall be based upon the result of dividing
ceded Section B Ultimate Net Losses by SNWP as of each calculation date
(hereinafter called the Ceded Loss Ratio) for the respective Coverage Year.
The Actual Consideration for Section B shall be based upon the percentage of
SNWP corresponding to the Ceded Loss Ratio as determined per the table and
narrative below for the respective Coverage Year.
<TABLE>
<CAPTION>
CEDED LOSS ACTUAL CONSIDERATION CEDED LOSS ACTUAL CONSIDERATION
RATIO SECTION B RATIO SECTION B
(% OF SNWP) (% OF SNWP)
<S> <C> <C> <C>
0 0% 49 25.80%
1-22 10% 50 26.40%
23 10.60% 51 27.00%
24 11.40% 52 27.60%
25 11.80% 53 28.20%
26 12.40% 54 28.80%
27 13.00% 55 29.45%
28 13.50% 56 30.10%
29 14.00% 57 30.75%
30 14.50% 58 31.40%
31 15.00% 59 32.05%
32 15.60% 60 32.70%
33 16.20% 61 32.70%
34 16.80% 62 32.70%
35 17.40% 63 32.70%
36 18.00% 64 32.70%
37 18.60% 65 32.70%
38 19.20% 66 32.70%
39 19.80% 67 32.70%
40 20.40% 68 32.70%
41 21.00% 69 32.70%
42 21.60% 70 32.70%
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
43 22.20% 71 32.70%
44 22.80% 72 32.70%
45 23.40% 73 32.70%
46 24.00% 74 32.70%
47 24.60% 75 32.70%
48 25.20%
</TABLE>
If Ceded Loss Ratios are between the above table loss ratios, the Actual
Consideration percentage of SNWP shall be pro-rated between the table Ceded Loss
Ratio values.
The Actual Consideration for each Coverage Year shall be equal to the cumulative
SNWP for each Coverage Year multiplied by the percentage determined by the above
narrative and table calculations.
For each Coverage Year, the Ceding Company shall credit the Funds Withheld
Account for this Actual Consideration less all prior payment of both Section A
Actual Consideration, if applicable, and Section B Actual Consideration
adjustments to date to Reinsurers providing that Section A is converted to
Section B. If the sum of the prior payments of Section B Actual Consideration
adjustments and Section A Actual Consideration exceed the Section B Actual
Consideration amount due, the Ceding Company shall debit the Funds Withheld
Account for such return Section B Actual Consideration adjustment. If, however,
Section A Quota Share is not converted to Section B, then Section A Actual
Consideration shall not be subtracted from Actual Consideration.
For each individual Coverage Year, all Section A Actual Consideration and
Section B Actual Consideration less Reinsurers' Expense Charge shall be withheld
by the Ceding Company in the Funds Withheld Account for the benefit of
Reinsurers.
All Actual Consideration adjustments and Advance Consideration shall be deemed
to be credited or (debited) from the Funds Withheld Account as of November 1st
of the preceding Coverage Year for Interest Credit purposes hereon. Therefore,
any adjustments to increase Actual Consideration shall result in an Interest
Credit from November 1st of the preceding Coverage Year to date for such
adjustment. Any adjustments to decrease the Actual Consideration shall result in
a reduction of Interest Credit from November 1st of the preceding Coverage Year
to date for such adjustment.
Additional Coverage Consideration
If Reinsurers offer Additional Section B Coverage, the Reinsurers shall be
entitled to an Additional Coverage Consideration equivalent to 60% of the
Additional Coverage provided. The Additional Coverage Consideration shall be
withheld by the Company and credited to the Funds Withheld Account as of the
November 1st preceding each Coverage Year for all purposes hereon including
Investment Credit. No Reinsurers' Expense Charge shall be due on such Additional
Coverage Consideration.
CEDING COMMISSION
Reinsurers shall allow a Ceding Commission of $1,200,000 (one million, two
hundred thousand dollars) to be due to the Ceding Company on November 1st of the
preceding Coverage Year. There shall be no increase or decrease to this amount
based upon loss experience under this
9
<PAGE> 10
Treaty. The Ceding Company shall debit the Funds Withheld Account as of November
1st of the preceding Coverage Year for all Ceding Commissions.
REINSURERS' EXPENSE CHARGE
The Ceding Company shall pay Reinsurers for each Coverage Year a Reinsurers'
Expense Charge equal to X%, as detailed in the table below subject to a minimum
amount of $1,575,000 (one million, five hundred and seventy-five thousand
dollars) inclusive of intermediary commission, by direct payment to Reinsurers
hereon.
For each Coverage Year, the provisional Reinsurers' Expense Charge shall be
$1,575,000 (one million, five hundred and seventy-five thousand dollars) as
respects Section A Advance Consideration for purposes of calculation and payment
upon consummation of this Treaty and on or about November 1st prior to each
renewal Coverage Year. The Reinsurers' Expense Charge on both the Section A
Actual Consideration and Section B Actual Consideration adjustments shall be
determined, redetermined and paid annually within 60 (sixty) days in arrears of
each calendar year end. Payments shall be made by direct payment from the debtor
to creditor party at such times.
There shall be no interest paid to Reinsurers on Reinsurers' Expenses Charge
paid or refund of interest on Reinsurers' Expense Charge which is refunded under
this Treaty, upon return Actual Consideration adjustments, if any.
X% for both Section A and B shall be based upon Coverage Year Ceded Loss Ratio
bands as follows:
<TABLE>
<CAPTION>
Ceded Loss Ratio X%
----------------
<S> <C>
0% up to and including 23% 6.0
above 23% up to and including 29% 7.0
above 29% up to and including 34% 8.0
above 34% up to and including 40% 9.0
above 40% up to and including 60% 8.0
above 60% up to and including 65% 7.0
above 65% up to and including 72% 6.0
above 72% 5.0
</TABLE>
For purposes of Interest Credit hereon, all Reinsurers' Expense Charge
shall be deemed debited or credited as applicable from the Funds Withheld
Account as of November 1st of the preceding Coverage Year.
Intermediary commission is equivalent to 1% part of X%, subject to a
minimum amount of $225,000 (two hundred and twenty-five thousand dollars)
and a maximum amount of $300,000 (three hundred thousand dollars).
10
<PAGE> 11
ARTICLE 9: OFFSET AND SECURITY
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of Consideration or losses and
allocated Loss Adjustment Expenses or otherwise, due from such party to
another party under this Treaty, against any amounts, whether on
account of Consideration or losses and allocated Loss Adjustment
Expenses or otherwise due from the latter party to the former party.
The party asserting the right of offset may exercise this right,
whether as assuming Reinsurers or Ceding Company in this Treaty.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Treaty to
receive Consideration or loss payments at any time from such other
party ("Collateral"), to secure its Consideration or loss obligations
to such other party at any time under this Treaty ("Secured
Obligations"). If at any time a party is in default under any Secured
Obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be
entitled in its discretion, to apply or to withhold for the purpose of
applying in due course, any Collateral assigned and pledged to it by
the former party and otherwise to realize upon such Collateral as
security for such Secured Obligations.
C. The security interest described herein, and the term "Collateral",
shall apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall
be deemed evidenced only by the counterpart of this Treaty delivered to
such party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Treaty.
ARTICLE 10: REPORTS AND LOSS SETTLEMENTS
A. Within 60 (sixty) days following the end of each calendar quarter, the
Ceding Company will report in writing to the Reinsurers for each
Coverage Year:
1. SNWP for the quarter and cumulative SNWP.
2. All Consideration calculations as necessary.
3. Summary of subject Ultimate Net Losses paid during the period
and inception to date.
4. Summary of Ultimate Net Losses outstanding including a report
of incurred but not reported amounts.
5. The amount of Ultimate Net Losses ceded to this Treaty for the
period and inception to date indicating amounts due and
outstanding.
11
<PAGE> 12
6. Individual claim information (claim managers report) for all
individual claims in excess of $2,000,000 (two million
dollars) indemnity from ground up and for claims in excess of
$750,000 (seven hundred and fifty thousand dollars) upon
Reinsurers' specific request.
7. Any other information needed by the Reinsurers to evaluate
this Treaty which is reasonably available to the Ceding
Company.
8. A report detailing the activity and balance within the Funds
Withheld Account.
B. 1. Loss Settlements
Following each quarterly report, the Reinsurers shall pay all
cumulative Ultimate Net Losses Paid in respect of Business
Covered by the Ceding Company on and after January 1st of each
respective Coverage Year in excess of the Ceding Company's
Retention subject to the Aggregate Limits hereon. Payment
shall be made at 90 (ninety) days following each calendar
quarter end, if paid by Reinsurers from other funds of the
Reinsurers. Loss Settlements shall be first paid by deduction
from the Funds Withheld Account, this account shall be debited
at 90 (ninety) days following each calendar quarter. Loss
reimbursement at any calendar quarter for each Coverage Year
shall be equal to the amount of such cumulative Ultimate Net
Losses Paid at each date in excess of the Retention less net
loss reimbursements previously made by the Reinsurers, subject
to the Aggregate Limits in accordance with ARTICLE 5:
COVERAGES AND AGGREGATE LIMITS.
2. Order of Settlements
All loss payments, including all Commutation payments, if any,
above will be firstly made by deduction from the Consideration
and then from the Interest Credit components of the Funds
Withheld Account by the Ceding Company until depleted.
Thereafter, Reinsurers shall pay from other funds of
Reinsurers subject to all of the terms hereon.
ARTICLE 11: FUNDS WITHHELD ACCOUNT AND INTEREST CREDIT
FUNDS WITHHELD ACCOUNT
For purposes of this Article, the Ceding Company shall maintain a cumulative
Funds Withheld Account separately for each individual Coverage Year comprised of
the following Coverage Year amounts:
1. The Funds Withheld Account at October 30th preceding the Coverage Year
shall be equal to zero.
2. The Funds Withheld Account at each subsequent calendar quarter end
shall be equal to:
a. The Funds Withheld Account at the end of such prior calendar
quarter; plus
b. Any amounts credited or debited during the quarter for the
following:
Section A Advance and Actual Consideration, Section B Actual
Consideration including adjustments, Additional Coverage
Consideration, if any; less
12
<PAGE> 13
c. Reinsurers' Expense Charge, if any; less
d. Ceding Commissions; less
e. Ceded Ultimate Net Losses paid under this Treaty for the prior
calendar quarter from the Funds Withheld Account (including
Commutation payments); plus
f. Interest Credit.
The Ceding Company shall report balances quarterly to the Reinsurers as soon as
practicable but no later than 75 (seventy-five) days in arrears of each calendar
quarter end.
The Reinsurers shall not transfer or assign their rights to the Funds Withheld
Account hereon unless this Treaty is surrendered and a new Treaty is issued.
Under any and all circumstances, the Ceding Company must make a book entry of a
transfer or assignment in order for such transfer or assignment to be valid.
Upon finalization of the payment of all losses recoverable hereon and/or
Commutation for any Coverage Year, if any, the Reinsurers will pay to the Ceding
Company the entire amount of the remaining Funds Withheld Account balance, if
any, received by the Reinsurers.
Interest Credit
For each Coverage Year, the Ceding Company shall credit the Funds Withheld
Account monthly at each month end with interest calculated by applying a monthly
rate equal to one-twelfth (1/12th) of the percentage stipulated below multiplied
by the actual daily average Funds Withheld Account balance for the respective
calendar month where the percentage equals:
7.254% if the 12 month U.S. Treasury Bill rate is 7.254% or less:
or
7.254 + 50% of the amount by which the 12 month U.S. Treasury Bill rate is
greater than 7.254%.
The 12 month U.S. Treasury bill rate to be used each year is the rate in effect
on the first business day of each year as reported in the Wall Street Journal on
the second business day of each year.
Interest Credit shall continue even in the event of the Ceding Company's
insolvency.
All Reinsurers' Expense Charges shall be deemed debited from the Funds Withheld
Account as of the November 1st preceding the applicable Coverage Year.
ARTICLE 12: LIABILITY OF THE REINSURER AND CURRENCY
A. The liability of the Reinsurer shall follow that of the Ceding Company
in every case and be subject in all respects to all the general and
specific stipulations, clauses, waivers and modifications of the Ceding
Company's policies and any endorsements thereon. However, in no event
shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this Treaty.
13
<PAGE> 14
B. Nothing herein shall in any manner create any obligation or establish any
rights against the Reinsurer in favor of any third party or any persons
not parties to this Treaty.
C. All of the provisions of this Treaty involving dollar amounts are
expressed in terms or United States Dollars and all Consideration and
loss and allocated Loss Adjustment Expense payments hereunder shall be
made in United States Dollars.
ARTICLE 13: COMMUTATION
The Ceding Company shall have the sole option, effective at any calendar year
end on or after December 31st of each Coverage Year to commute all ceded
liability outstanding hereunder in respect of a specific Coverage Year. At
Commutation, the Funds Withheld Account shall be dissolved and the Ceding
Company shall pay the entire amount of the respective Coverage Year Funds
Withheld Account to the Reinsurers hereon. The Ceding Company may offset the
payment of the Funds Withheld Account against the Commutation payment required
at such time
Said payment shall constitute a full and final settlement of all terms of this
Treaty in respect of the specific Coverage Year; the Ceding Company will execute
a hold harmless agreement so stating and the Reinsurers will be thereby released
from all current and future liability hereunder for such Coverage Year.
ARTICLE 14: EXCESS OF ORIGINAL POLICY LIMITS
This Treaty shall protect the Ceding Company, within the limits hereof, for loss
in excess of its original policy, such loss in excess of the limit having been
incurred because of failure by it to settle within the policy limit or by reason
of alleged or actual negligence, fraud, or bad faith in rejecting an offer of
settlement or in the preparation of an appeal consequent upon such action.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the Ceding Company would have been contractually liable to pay had it not
been for the limit of the original policy.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the Ceding
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 15: EXTRA CONTRACTUAL OBLIGATIONS
This Treaty shall protect the Ceding Company for any Extra Contractual
Obligations within the limits hereof. The term "Extra Contractual Obligations"
is defined as those liabilities not covered under any other provision of this
Treaty and which arise from the handling of any claim on business covered
hereunder, such liabilities arising because of, but not limited to, the
following:
14
<PAGE> 15
failure by the Ceding Company to settle within the policy limit, or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in the trial of any action
against its insured or reinsured or in the preparation or prosecution of an
appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Ceding
Company shall be deemed, in all circumstances to be the date of the original
Loss Occurrence.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the Ceding
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 16: ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay and
notification, omission or error is rectified upon discovery.
ARTICLE 17: ACCESS TO RECORDS
The Ceding Company shall place at the disposal of the Reinsurers at all times,
and the Reinsurers shall have the right to inspect, through its authorized
representatives, all books, records and papers of the Ceding Company in
connection with any reinsurance hereunder, or claims in connection herewith.
The Reinsurers agree that they will not disclose any confidential information
obtained by it hereunder to parties not subject to this Treaty except under the
following circumstances and then only as necessary:
A. When disclosure of such information is required in the normal course of
Reinsurers' business; or
B. With the prior written consent of the Ceding Company; or
C. When Reinsurers are required by a subpoena or court order to disclose
such information. The Reinsurers shall promptly notify the Ceding
Company of any attempt by a third party to obtain from it any such
confidential information.
Reinsurers will provide the Ceding Company or its designated representative with
such information as Reinsurers and Ceding Company may agree is necessary to the
Ceding Company's handling of the business reinsured herein.
The obligations contained in this provision shall survive termination of this
Treaty.
15
<PAGE> 16
ARTICLE 18: ACTUARIAL REVIEW
Should the Reinsurers desire at any time to review the loss reserves established
by the Ceding Company as respects Ultimate Net Losses, the Reinsurers shall
select an independent actuarial firm acceptable to the Ceding Company to perform
a reserve analysis. The costs of any reserve analysis performed under this
Article will be borne by the Reinsurers hereon. Such a review shall be subject
to the provisions of ARTICLE 17: ACCESS TO RECORDS.
ARTICLE 19: LOSS RESERVE AND ADVANCE PREMIUM FUNDING
The Reinsurers will maintain appropriate reserves with respect to their share of
the Advance Premium and loss reserves ceded and required under the terms of this
Treaty which are reported by the Ceding Company on the Business Covered of this
Treaty.
During the Term of this Treaty the Reinsurers agree to provide a clean,
irrevocable and unconditional Letter of Credit in favor of the Ceding Company
issued by a bank acceptable to the Ceding Company adjusted to at all times be
equal to the ceded cumulative Ultimate Net Losses outstanding and Advance
Premium ceded hereunder less the Funds Withheld Account balance at such dates.
Such Letter of Credit shall be in the form, amount and with an acceptable NAIC
bank required to allow the Ceding Company to take Full Statutory Credit for
amounts recoverable under this Treaty.
The Ceding Company also agrees to not make drawings upon the Letter of Credit
provided by the Reinsurers for any purpose other than to reimburse the Ceding
Company for loss settlements due under this Treaty for which one or more of the
Reinsurers are in default by more than seven days and provided that the Ceding
Company shall give the Reinsurers three days written notice prior to making any
drawings.
The Ceding Company shall reimburse the Reinsurers for annual security cost equal
to 0.50% (zero point five percent) of the amount of the Letter of Credit issued
or maintained hereon as of each December 31st. The Reinsurers shall request such
reimbursement whereupon the Ceding Company shall make payment by direct wire
transfer to the Reinsurers. All such amounts shall not be deducted from the
Funds Withheld Account.
ARTICLE 20: FUNDS WITHHELD TRUST ACCOUNT
In the event that the Ceding Company experiences any one of the following
circumstances, the Reinsurers may require a Trust Fund, with an independent
bank, to be established for the purposes of collateralizing the Funds Withheld
Account hereon:
1. The Ceding Company's A.M. Best's Rating is downgraded below B+; or
16
<PAGE> 17
2. The Ceding Company's combined statutory capital and surplus falls
below $60,000,000 (sixty million dollars); or
3. The Ceding Company is acquired or becomes controlled or
amalgamated with or has its shares purchased for the purpose of
gaining control by any other party.
The Ceding Company shall fully and promptly comply with such request from the
Reinsurers. The Ceding Company shall transfer marketable assets with a market
value equal to the required Funds Withheld Account balance within 30 (thirty)
days from the Reinsurers' request to do so. The Ceding Company shall also
transfer additional assets to the Trust Fund, if needed, to maintain the Trust
Fund balance to be equal to the Funds Withheld requirement at each calendar
quarter end including the requisite Interest Credit required hereon.
ARTICLE 21: INSOLVENCY
A. In the event of the insolvency of the Ceding Company, the reinsurance
under this Treaty shall be payable by the Reinsurers (on the basis of
the liability of the Ceding Company) to the Ceding Company or to its
liquidator, receiver or statutory successor.
B. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Ceding Company shall give written notice to
the Reinsurers of the pendency of a claim against the insolvent Ceding
Company on the policy or policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during
the pendency of such claim, the Reinsurers may investigate such claim
and interpose, at its own expense, in the proceeding where such claim
is to be adjudicated, any defense or defenses which it may deem
available to the Ceding Company or its liquidator or receiver or
statutory successor. Accidental failure to give such notice shall not
excuse the obligation unless Reinsurers are substantially prejudiced by
the failure to give such notice. The expense thus incurred by the
Reinsurers shall be chargeable, subject to court approval, against the
insolvent Ceding Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the
Ceding Company solely as a result of the defense undertaken by the
Reinsurers.
C. Should the Ceding Company go into liquidation or should a receiver be
appointed, the Reinsurers shall be entitled to deduct from any sums
which may be or may become due to the Ceding Company under this Treaty
any sums which are due to the Reinsurers by the Ceding Company under
this Treaty and which are payable at a fixed or stated date, as well as
any other sums due the Reinsurers which are permitted to be offset
under applicable law.
ARTICLE 22: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereinafter arising with
respect to this Treaty, it is hereby mutually agreed that such dispute
or difference of opinion shall be submitted to arbitration. One Arbiter
shall be chosen by the Ceding Company, the other by the Reinsurers, and
the Umpire shall be chosen by the two Arbiters before they enter upon
arbitration, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance
17
<PAGE> 18
companies. In the event that either party should fail to chose an
Arbiter within 30 (thirty) days following a written request by the
other party to do so, the requesting party may choose two Arbiters who
shall in turn choose an Umpire before entering upon arbitration. If the
two Arbiters fail to agree upon the selection of an Umpire within 30
(thirty) days following their appointment, each Arbiter shall nominate
three candidates within 10 (ten) days thereafter, two of whom the other
shall decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 (thirty)
days following the date of appointment of the Umpire. The Arbiters
shall consider this Treaty as an honorable engagement rather than
merely as a legal obligation and they are relieved of all judicial
formalities and may abstain from following the strict rules of law. The
decision of the Arbiters shall be final and binding on both parties;
but failing to agree, they shall call in the Umpire and the decision of
the majority shall be final and binding upon both parties. The decision
shall be made in writing and will state the factual and legal basis
supporting such decision. Judgment upon the final decision of the
Arbiters may be entered in any court of competent jurisdiction.
C. If more than one Reinsurer is involved in the same dispute, all such
Reinsurers shall constitute and act as one party for the purposes of
this Article and communications shall be made by the Ceding Company to
each of the Reinsurers constituting one party provided, however, that
nothing herein shall impair the rights of such Reinsurers to assert
several, rather than joint, defenses or claims, nor be construed as
changing the liability of the Reinsurers participating under the terms
of this Treaty from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one
party, as above provided, the expense of the Arbiters, the Umpire and
the arbitration shall be equally divided between the two parties. Any
arbitration shall be conducted in Lawrenceville, New Jersey.
ARTICLE 23: CHANGES IN ADMINISTRATIVE PRACTICE
If any intentional or unintentional change in the Ceding Company's processing or
payment of claims materially increases the Reinsurers' economic loss under this
Treaty from what the economic loss would have if there had been no such change,
the Reinsurers shall prepare, and the Ceding Company shall accept, an adjustment
of the portion of claims which is reimbursable, or any adjustments which will
make the Reinsurers' risk position equivalent to that which would have been
obtained under this Treaty if there had been no such change. The Reinsurers
shall have the right to use auditing techniques, sampling techniques, or to
otherwise investigate the nature and effect of any such change in administrative
practices or of any possible compensatory adjustment therefor. Any dispute with
respect to such adjustment shall be resolved by arbitration as provided in
ARTICLE 22: ARBITRATION.
18
<PAGE> 19
ARTICLE 24: TAXES
The Ceding Company is solely liable for any Federal Excise Tax (FET) applicable
to this Treaty. Any FET to be paid shall be paid directly by the Ceding Company
to the taxing authorities and is in addition to the Consideration. No deduction
shall be made from the Funds Withheld Account.
ARTICLE 25: SERVICE OF SUIT
It is agreed that in the event of the failure of Reinsurers hereon to pay any
amount claimed to be due hereunder, Reinsurers hereon, at the request of the
Ceding Company will submit to the jurisdiction of a court of competent
jurisdiction within the United States. The foregoing shall not constitute a
waiver of the right of the Reinsurers to commence any suit in, or to remove,
remand or transfer any suit to any other court of competent jurisdiction in
accordance with the applicable statutes of the state or United States pertinent
thereto. It is further agreed that this Treaty shall be governed by the laws of
the State of New Jersey.
It is further agreed that service of process in such suit may be made upon,
United States of America and that in any suit instituted against any one of them
upon this Treaty, Reinsurers will abide by the final decision of such Court or
any Appellate Court in the event of an appeal.
The above named are authorised and directed to accept service of process on
behalf of Reinsurers in any suit and/or upon the request of the Ceding Company
to give a written undertaking to the Ceding Company that they will enter a
general appearance upon Reinsurers' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or District of the
United States which makes provision therefor, Reinsurers hereon hereby designate
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor of successors in
office, as their true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
Ceding Company or any beneficiary hereunder arising out of this Treaty, and
hereby designate the above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
ARTICLE 26: NO ASSIGNMENT
The Ceding Company and the Reinsurers hereon hereby agree that neither party
shall have the right to assign its respective interests and liabilities,
including the Funds Withheld Account, under this Treaty.
Notwithstanding the above, this Article shall not restrict the Ceding Company
from making investments it deems appropriate.
19
<PAGE> 20
ARTICLE 27: INTERMEDIARY
JLT Risk Solutions Ltd, 6 Crutched Friars, London EC3N 2PH is hereby recognised
as the intermediary negotiating this Treaty for all business hereunder and
through whom all communications relating hereto (including but not limited to
notices, statements and reports) shall be transmitted to both parties, it is
understood, as regards remittances due either party hereunder, that payment by
the Ceding Company to the Intermediary, shall constitute payment to the
Reinsurers but payment by the Reinsurer to the Intermediary shall only
constitute payment to the Ceding Company to the extent such payments are
actually received by the Ceding Company. Notwithstanding the foregoing, it is
agreed that all payments will be direct from the Reinsurer to the Ceding
Company, or from the Ceding Company to the Reinsurer as appropriate.
ARTICLE 28: ADDITIONAL RETENTION
Losses emanating from a loss limit of $3,000,000 (three million dollars) each
and every loss (inclusive of Loss Adjustment Expenses) excess of $1,000,000 (one
million dollars) each and every loss (inclusive of Loss Adjustment Expenses)
shall be subject to an annual aggregate retained amount of $10,000,000 (ten
million dollars) which shall not be the subject of this Treaty.
SIGNED IN LAWRENCEVILLE, NEW JERSEY, THIS DAY OF ,2000 FOR AND ON BEHALF
OF MIIX INSURANCE COMPANY.
BY:_______________________________________
TITLE:____________________________________
SIGNED IN , THIS DAY OF ,2000 FOR AND ON BEHALF OF
SWISS REINSURANCE COMPANY.
BY:_______________________________________
TITLE:____________________________________
20
<PAGE> 21
SWISS REINSURANCE COMPANY TREATY
THE CEDING COMPANY IS REQUESTED TO READ THIS TREATY CAREFULLY. IF IT IS BELIEVED
TO BE INCORRECT THE TREATY SHOULD BE IMMEDIATELY RETURNED, WITH AN EXPLANATION,
TO THE PERSON OR ENTITY DESIGNATED ON THE BACK PAGE OF THIS TREATY.
IN CONSIDERATION of the Ceding Company named in the Schedule having paid the
premium specified in the said Schedule to Swiss Reinsurance Company,
(hereinafter referred to as "Reinsurers"), whose duly authorised representative
has hereunto subscribed his name.
REINSURERS HEREBY AGREE to reinsure the Ceding Company against loss as more
fully set forth in this Treaty and the attachments hereto during the Period of
Reinsurance stated in the said Schedule, or during any subsequent period as may
be mutually agreed upon between the Ceding Company and Reinsurers.
PROVIDED that the liability of Reinsurers subscribing to this Treaty shall not
exceed their proportion of the limits of liability expressed in the said
Schedule or such other limits of liability as may be substituted therefor by
Addendum hereon or attached hereto signed by or on behalf of Reinsurers.
If Reinsurers shall make any claim under this Treaty with knowledge that the
same is false or fraudulent as regards amount or otherwise, this Treaty shall
become null and void forthwith and any and all claims hereunder shall be
forfeited and of no force and effect.
IN WITNESS HEREOF I, being a representative of Reinsurers and duly authorised by
the said Reinsurers to sign this Treaty on their behalf, have hereunto
subscribed my name.
Dated this day of , Two Thousand.
<PAGE> 22
Policy Number: 901/LK9905493 Reinsurers reference:
THE SCHEDULE
COMPANY: MIIX INSURANCE COMPANY
ADDRESS: Two Princess Road, Lawrenceville, New Jersey,
United States of America.
PERIOD
OF REINSURANCE: Effective November 1, 1999 covering on a risks
attaching basis for Business Covered and continuous
thereafter unless terminated.
LIMIT OF LIABILITY: All as more fully set forth in the attached wording.
This Policy reinsures 25% of the Limit of Liability expressed in the attached
wording.
INTEREST: All as more fully set forth in the attached wording.
PREMIUM: All as more fully set forth in the attached wording
SEVERAL LIABILITY NOTICE
The subscribing Reinsurers' obligation under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent of
their individual subscriptions. The subscribing Reinsurers are not responsible
for the subscription of any co-subscribing reinsurer who for any reason does not
satisfy all or part of its obligations.
<PAGE> 23
IN ALL COMMUNICATIONS PLEASE QUOTE
THE FOLLOWING REFERENCE
901/LK9905493
REINSURANCE
TREATY
THE COMPANY IS REQUESTED TO READ THIS TREATY CAREFULLY. IF IT
IS BELIEVED TO BE INCORRECT THE TREATY SHOULD BE IMMEDIATELY
RETURNED, WITH AN EXPLANATION TO:
JLT Risk Solutions Limited
6 Crutched Friars,
London,
EC3N 2PH.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS CONTAINED IN FORM 10-K OF WHICH THIS SCHEDULE FORMS A PART
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 1,077,806
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 12,394
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,182,943
<CASH> 2,574
<RECOVER-REINSURE> 406,409
<DEFERRED-ACQUISITION> 3,165
<TOTAL-ASSETS> 1,837,158
<POLICY-LOSSES> 1,053,597
<UNEARNED-PREMIUMS> 75,433
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 16,461
0
0
<COMMON> 165
<OTHER-SE> 318,539
<TOTAL-LIABILITY-AND-EQUITY> 1,837,158
187,845
<INVESTMENT-INCOME> 75,661
<INVESTMENT-GAINS> (6,770)
<OTHER-INCOME> 8,323
<BENEFITS> 174,986
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 42,618
<INCOME-PRETAX> 27,375
<INCOME-TAX> 6,617
<INCOME-CONTINUING> 20,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,758
<EPS-BASIC> 1.54
<EPS-DILUTED> 1.53
<RESERVE-OPEN> 625,864
<PROVISION-CURRENT> 189,000
<PROVISION-PRIOR> (14,014)
<PAYMENTS-CURRENT> 4,589
<PAYMENTS-PRIOR> 157,359
<RESERVE-CLOSE> 647,188
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
