<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MEEMIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MICHIGAN 6331 38-3436541
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
691 NORTH SQUIRREL ROAD, SUITE 200
AUBURN HILLS, MICHIGAN 48321
(248) 377-8582
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------------
R. KEVIN CLINTON
PRESIDENT
691 NORTH SQUIRREL ROAD, SUITE 200
AUBURN HILLS, MICHIGAN 48321
(248) 377-8582
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
ANN D. FILLINGHAM, ESQ.
Dykema Gossett PLLC
800 Michigan National Tower
Lansing, Michigan 48933
(517) 374-9171
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value............... 6,600,000 $10.00 $66,000,000 $18,348.00
</TABLE>
(1) Includes an aggregate of 2,302,209 shares which Professionals Group, Inc.
will receive from the Company pursuant to conversion of an existing surplus
note. See "THE DEMUTUALIZATION--Conversion of the Surplus Note."
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
MEEMIC HOLDINGS, INC.
UP TO 4,297,791 SHARES OF COMMON STOCK
[LOGO]
--------------------------------
MINIMUM INDIVIDUAL SUBSCRIPTION--100 SHARES ($1,000.00)
Michigan Educational Employees Mutual Insurance Company ("MEEMIC") is a
Michigan mutual insurance corporation, with offices at 691 North Squirrel Road,
Suite 200, Auburn Hills, Michigan 48326, telephone (888) 4-MEEMIC. It is
proposing to convert from a Michigan mutual insurance company to a Michigan
stock insurance company, and become a wholly-owned subsidiary of MEEMIC
Holdings, Inc., a Michigan business corporation. As part of this demutualization
plan, MEEMIC is providing nontransferable subscription rights to named insureds
under policies of insurance issued by MEEMIC and in force on the close of
business on June 24, 1998 and to the officers and directors of MEEMIC.
These subscription rights entitle you to purchase common stock of MEEMIC
Holdings, Inc. MEEMIC Holdings, Inc. is offering up to 4,297,791 shares of
common stock for sale in the subscription offering to eligible policyholders,
officers and directors. Of the 4,297,791 shares being offered in the
subscription offering, 429,779 shares are reserved for sale to eligible officers
and directors at the public offering price. The common stock is being offered as
part of a Plan of Conversion which was approved by the Board of Directors of
MEEMIC and the Michigan Insurance Bureau, but remains subject to approval by the
eligible policyholders of MEEMIC at the policyholder meeting currently scheduled
for January 29, 1999. MEEMIC Holdings, Inc. and MEEMIC established a Stock
Offering Information Line to answer questions about the subscription offering.
To access this Stock Offering Information Line, call (888) 4-MEEMIC.
In addition to the subscription offering, the plan also provides for the
conversion of a certain surplus note into 2,302,209 shares of common stock of
MEEMIC Holdings, Inc, and permits the sale of up to 2,483,247 additional shares
of MEEMIC Holdings, Inc., after the completion of the demutualization.
MEEMIC Holdings, Inc. has applied to have the common stock approved for
quotation on the NASDAQ National Market under the symbol " ."
------------------------
THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 12.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C>
- - Price Per Share: $10.00
- - Number of Shares in the Subscription Offering 3,097,791 to 4,297,791
(Minimum/Maximum):
- - Underwriting Discounts and Commissions: $0.00
- - Estimated Subscription Offering and Conversion Expenses: $1,500,000
- - Donation to MEEMIC Foundation $500,000
- - Net Proceeds to MEEMIC Holdings, Inc. $28,977,910 to
$40,977,910
- - Net Proceeds to MEEMIC Holdings, Inc. per share $9.35 to $9.53
</TABLE>
FOR NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS SUCH
COMMISSIONER RULED UPON THE ACCURACY OR THE ADEQUACY OF THE PROSPECTUS.
STATE INSURANCE HOLDING COMPANY LAWS AND REGULATIONS APPLICABLE TO MEEMIC IN
GENERAL PROVIDE THAT NO PERSON MAY ACQUIRE CONTROL OF MEEMIC HOLDINGS, INC., AND
THUS INDIRECT CONTROL OF MEEMIC, UNLESS SUCH PERSON HAS PROVIDED CERTAIN
REQUIRED INFORMATION TO, AND SUCH ACQUISITION IS APPROVED (OR NOT DISAPPROVED)
BY, THE MICHIGAN INSURANCE BUREAU. GENERALLY, ANY PERSON ACQUIRING BENEFICIAL
OWNERSHIP OF 10% OR MORE OF THE OUTSTANDING SHARES OF MEEMIC HOLDINGS, INC.
SHALL BE DETERMINED TO HAVE ACQUIRED CONTROL OF MEEMIC HOLDINGS, INC. UNLESS THE
MICHIGAN INSURANCE BUREAU DETERMINES OTHERWISE.
The subscription offering will commence on January 1, 1999 and will continue
until February 19, 1999. You have no right to withdraw your investment. Proceeds
of the subscription offering will be held in trust in a noninterest-bearing
escrow account with Mellon Bank, N.A. under the terms of a Subscription Agent
and Escrow Agreement dated , 1998 with ChaseMellon Shareholder
Services, L.L.C., pending policyholder approval of the Plan. If the Plan is not
approved by the policyholders of MEEMIC, the escrowed proceeds will be promptly
refunded. MEEMIC may reject a subscription for any reason or for no reason and
may terminate the subscription offering at any time. See "PLAN OF DISTRIBUTION".
THE DATE OF THIS PROSPECTUS IS JANUARY 1, 1999
<PAGE>
PROSPECTUS
MEEMIC HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................ 1
THE COMPANIES................... 1
MEEMIC........................ 1
MEEMIC Holdings, Inc.......... 1
Professionals Group, Inc. and
ProNational Insurance
Company..................... 1
THE DEMUTUALIZATION............. 1
Structure of the
Demutualization............. 1
Reasons for the
Demutualization............. 2
Background and Actions of the
Independent Committee and
the Board................... 2
THE SUBSCRIPTION OFFERING....... 3
General Provisions............ 3
Impoundment of Proceeds....... 3
Determination of Stock Price
and Offering Amount......... 4
Minimum and Maximum Purchases
by Eligible Policyholders... 5
Subscription Rights........... 5
Non-transferability of
Subscription Rights......... 5
How to Purchase Common
Stocks...................... 5
Termination of Subscription
Offering.................... 5
Purchase of Common Stock by
Management.................. 5
THE COMMON STOCK................ 6
Market for the Common Stock... 6
Dividends..................... 6
Risk Factors.................. 6
CERTAIN FORWARD-LOOKING
INFORMATION..................... 7
THE DEMUTUALIZATION............... 7
Plan of Demutualization......... 7
Impoundment of Proceeds......... 7
Background...................... 8
Actions of the Independent
Committee and the Board....... 8
Interpretation and Amendment of
the Plan...................... 9
Subscription Rights............. 10
Stock Price and Number of Shares
to be Issued.................. 10
The Standby Purchase and Option
Agreement..................... 11
<CAPTION>
PAGE
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<S> <C>
Conversion of the Surplus
Note.......................... 11
Management Purchases............ 11
RISK FACTORS...................... 12
Possible Adverse Impact of Broad
Valuation Range and its Use to
Determine the Number of Shares
of Common Stock Sold.......... 12
Absence of Prior Public
Market........................ 12
Additional Authorized Securities
Could be Issued............... 12
Dilutive Effect of Standby
Purchase and Option Agreement
and Stock Compensation Plan... 12
Change of Board of Directors of
MEEMIC........................ 13
Professionals as Majority
Shareholder................... 13
Competition..................... 13
Regulation...................... 13
MEEMIC Holdings, Inc. Structure
is Dependent on Results and
Operations of MEEMIC.......... 14
Concentration of Earnings....... 14
Geographic Concentration........ 14
Adequacy of Loss Reserves....... 15
Cyclicality of the Property and
Casualty Insurance Industry... 15
Reinsurance..................... 15
Possible Adverse Impact of
Change in A.M. Best Rating.... 15
Insurance Company Insolvency
Law........................... 16
Michigan No-Fault Insurance Laws
and the Michigan Insurance
Act........................... 16
THE COMPANIES..................... 16
MEEMIC.......................... 16
MEEMIC Holdings, Inc............ 16
Professionals Group, Inc........ 16
ProNational Insurance Company... 17
PLAN OF DISTRIBUTION.............. 17
Plan of Distribution............ 17
The Subscription Offering
Period........................ 18
Impoundment of Proceeds......... 18
How to Purchase Shares of Common
Stock......................... 18
Delivery of Certificates........ 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Minimum and Maximum Purchases
for Eligible Policyholders.... 18
Rules for Oversubscription...... 19
USE OF PROCEEDS................... 20
CAPITALIZATION.................... 21
PRO FORMA DATA.................... 22
SELECTED HISTORICAL FINANCIAL AND
OPERATING DATA.................. 28
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....... 30
Overview........................ 30
Financial Condition............. 30
Reinsurance..................... 31
Results of Operations--Six
Months Ended June 30, 1998
Compared to Six Months Ended
June 30, 1997................. 31
Results of Operations--Year
Ended December 31, 1997
Compared to Year Ended
December 31, 1996............. 32
Results of Operations--Year
Ended December 31, 1996
Compared to Year Ended
December 31, 1995............. 33
Liquidity and Capital
Resources..................... 34
Effects of Inflation............ 35
Effects of New Accounting
Pronouncements................ 35
Year 2000 Compliance............ 35
MARKET FOR THE COMMON STOCK....... 36
DIVIDEND POLICY................... 36
INSURANCE REGULATORY MATTERS...... 36
General......................... 36
Insurance Company Dividends..... 37
Michigan No-Fault Automobile
Insurance..................... 37
Michigan Essential Insurance
Act........................... 37
BUSINESS OF MEEMIC................ 38
Strategy........................ 38
Products........................ 39
Homeowners Policy............... 40
Personal Automobile............. 40
Marketing....................... 40
Underwriting.................... 40
Claims.......................... 41
<CAPTION>
PAGE
----
<S> <C>
Reinsurance Ceded............... 41
Loss and LAE Reserves........... 43
Investments..................... 45
A.M. Best Rating................ 47
Competition..................... 47
Regulation...................... 47
Litigation...................... 49
Employees....................... 49
MANAGEMENT........................ 50
Directors....................... 50
Executive Officers.............. 52
Management Remuneration......... 53
Incentive Plan.................. 54
Employee Contracts.............. 54
The Stock Compensation Plan..... 54
Compensation Committee
Interlocks and Insider
Participation................. 55
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN SECURITY-HOLDERS.... 55
Indemnification and Limitation
of Liability Matters.......... 56
Interest of Management and
Others in Certain
Transactions.................. 56
The Standby Purchase and Option
Agreement with
Professionals................. 57
Transactions with Former
Directors..................... 58
DESCRIPTION OF COMMON STOCK....... 58
General......................... 58
Limitation on Resales........... 58
CERTAIN RESTRICTIONS ON
ACQUISITION OF AND BUSINESS
COMBINATIONS BY MEEMIC HOLDINGS,
INC............................. 59
General......................... 59
Protection of Minority
Interests..................... 60
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.................. 62
General......................... 62
Material Tax Effects to MEEMIC
Holdings, Inc................. 62
Subscription Rights............. 62
LEGAL MATTERS..................... 63
EXPERTS........................... 63
AVAILABLE INFORMATION............. 64
FINANCIAL STATEMENTS.............. F-1
GLOSSARY OF INSURANCE TERMS....... G-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
DOCUMENT, INCLUDING INFORMATION CONTAINED UNDER THE CAPTION "RISK FACTORS."
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. TO UNDERSTAND THE OFFERING FULLY YOU SHOULD CAREFULLY READ
THIS ENTIRE DOCUMENT, INCLUDING ITS APPENDICES.
THE COMPANIES
MEEMIC
Michigan Educational Employees Mutual Insurance Company ("MEEMIC") was
incorporated under the laws of Michigan on August 10, 1949 and began business
April 7, 1950. MEEMIC offers personal lines insurance primarily to educational
employees and their immediate families in the State of Michigan. Full coverage
private passenger automobile is the dominant line of business representing
approximately 90% of all business written. In 1992, MEEMIC entered Michigan's
homeowners market which currently represents the remainder of its direct
writings. All business is produced through MEEMIC Insurance Services
Corporation, d/b/a the Michigan Educators Insurance Agency ("MEIA"). Most of the
approximately 90 sales representatives of MEIA are members of the educational
community and therefore engage in peer selling. As of June 30, 1998, MEEMIC had
in excess of 108,000 policies in force. MEEMIC had total consolidated assets of
$208 million and $151 million as of December 31, 1997 and 1996, respectively.
The principal executive offices of MEEMIC are located at 691 North Squirrel
Road, Suite 200, Auburn Hills, Michigan 48326, telephone (888) 4-MEEMIC. For
additional information on MEEMIC, see "THE COMPANIES--MEEMIC."
MEEMIC HOLDINGS, INC.
MEEMIC Holdings, Inc. was formed as a Michigan business corporation in
October, 1998 to be the holding company for MEEMIC after the demutualization.
Before the demutualization, MEEMIC Holdings, Inc. will not engage in any
significant operations. After the demutualization, MEEMIC will become a
wholly-owned subsidiary of MEEMIC Holdings, Inc. The primary assets of MEEMIC
Holdings, Inc. will be the outstanding capital stock of MEEMIC and a portion of
the net proceeds of the subscription offering. The principal executive offices
of MEEMIC Holdings, Inc. are located at 691 North Squirrel Road, Suite 200,
Auburn Hills, Michigan 48326, telephone (888) 4-MEEMIC.
PROFESSIONALS GROUP, INC. AND PRONATIONAL INSURANCE COMPANY
Professionals Group, Inc. (NASDAQ symbol "PICM"), along with its
wholly-owned subsidiary, ProNational Insurance Company (collectively,
"Professionals") will own a significant portion of the shares of common stock of
MEEMIC Holdings, Inc. after the demutualization, arising from conversion of an
existing surplus note, a standby purchase agreement and other arrangements, and
will have the option to purchase additional shares in the future. See "THE
DEMUTUALIZATION--The Standby Purchase and Option Agreement" and "THE
DEMUTUALIZATION--Conversion of the Surplus Note." See "THE
COMPANIES--Professionals Group, Inc." and "THE COMPANIES--ProNational Insurance
Company" for additional information.
THE DEMUTUALIZATION
STRUCTURE OF THE DEMUTUALIZATION
The Board of Directors of MEEMIC adopted its Plan of Conversion on June 24,
1998. Under the Plan of Conversion, MEEMIC will convert from a Michigan
domiciled mutual insurance company to a Michigan domiciled stock insurance
company. A number of different transactions will occur simultaneously with this
conversion. First, MEEMIC will issue shares of its capital stock to MEEMIC
Holdings, Inc.
1
<PAGE>
in exchange for a portion of the net proceeds from the subscription offering.
See "PLAN OF DISTRIBUTION." Second, MEEMIC Holdings, Inc. will issue the common
stock sold in the subscription offering to eligible policyholders, officers and
directors. See "THE PLAN OF DISTRIBUTION." Third, MEEMIC Holdings, Inc. may
issue common stock to Professionals under the terms of a Standby Purchase and
Option Agreement. Under this agreement, if not all of the shares in the
subscription offering are sold, Professionals will purchase unsold shares up to
the minimum of the subscription offering range and may purchase unsold shares up
to the maximum of the subscription offering range. See "THE DEMUTUALIZATION--The
Standby Purchase and Option Agreement." Fourth, MEEMIC Holdings, Inc. will issue
common stock to Professionals in exchange for its interest in a certain surplus
note. See "THE DEMUTUALIZATION--Conversion of the Surplus Note." The
demutualization will be accounted for as a simultaneous reorganization,
recapitalization and share offering which will not change the historical
accounting basis of MEEMIC's financial statements.
REASONS FOR THE DEMUTUALIZATION
MEEMIC's mission is to build satisfied and loyal customers within the
community of educational employees and their families. Its vision is to become
the company of choice for insurance services through convenience, unparalleled
service and value. It is the desire of the Board of Directors of MEEMIC and
MEEMIC Holdings, Inc. to raise capital, convert MEEMIC into a stock insurance
company, and to issue the stock of MEEMIC Holdings, Inc. in order to:
- continue providing competitive rates to policyholders in a market
dominated by large national carriers,
- enhance customer service and improve efficiency through continued
enhancement of MEEMIC's management information systems,
- provide for growth and expansion including new product lines to our
policyholders,
- increase MEEMIC's statutory surplus by an estimated $15-$27 million to
support current and future writings, improve its A.M. Best financial
rating, and provide additional security to policyholders,
- provide for capital to retire the $21.5 million Surplus Note and
Management Services Agreement with Professionals, as described under "THE
DEMUTUALIZATION--Background,"
- pay the remaining sums due under the terms of the Agency purchase
agreement, as described under "THE DEMUTUALIZATION--Background,"
- provide financial participation to the policyholders in the success of
MEEMIC Holdings, Inc. and MEEMIC,
- create opportunities for financial participation by all parties to create
incentives to maximize performance of MEEMIC Holdings, Inc. and MEEMIC,
and
- permit MEEMIC Holdings, Inc. to better access capital markets in the
future.
In addition, the Board of Directors of MEEMIC and MEEMIC Holdings, Inc.
desire to reorganize MEEMIC as a wholly-owned subsidiary of MEEMIC Holdings,
Inc. to enhance and improve operational flexibility, diversification of business
opportunities and financial capability for business and regulatory purposes,
enabling MEEMIC to compete more effectively with other insurance companies.
BACKGROUND AND ACTIONS OF THE INDEPENDENT COMMITTEE AND THE BOARD
You should read the section entitled "THE DEMUTUALIZATION--Background" and
"THE DEMUTUALIZATION--Actions of the Independent Committee and the Board" for
information regarding some of the recent history that MEEMIC considers relevant
to its decision to consider demutualization and the actions that it took with
respect to consideration and adoption of the Plan of Conversion.
2
<PAGE>
THE SUBSCRIPTION OFFERING
<TABLE>
<S> <C>
GENERAL PROVISIONS
Common Stock Offered:........ 3,097,791 to 4,297,791 shares.
Common Stock to be
outstanding upon
Demutualization(1)......... 5,400,000 to 6,600,000 shares.
Voting Rights:............... Each share of Common Stock will be entitled to one vote.
Subscription Minimum:........ The minimum purchase is 100 shares ($1,000.00). Fractional
shares will not be sold.
Subscription Maximum:........ The maximum purchase is 10,744 shares for each qualifying
insurance policy held by an eligible policyholder. The
maximum purchase is 107,444 shares for each eligible officer
and director, up to 429,779 shares in total for officers and
directors as a group. Fractional shares will not be sold.
Use of Proceeds:............. Money collected by means of the subscription offering will
be used as capital of MEEMIC for growth and operational
purposes and to fund an increase in MEEMIC's surplus. See
"USE OF PROCEEDS."
Dividend Policy:............. MEEMIC has no present intention to pay dividends.
Proposed NASDAQ National
Market Symbol:............. " ".
Risk Factors:................ Investment in the common stock involves a high degree of
risk. See "RISK FACTORS."
</TABLE>
- ------------------------
(1) Assumes that the minimum of the subscription offering range is met either
through the subscription offering or under the terms of the Standby Purchase
and Option Agreement. Excludes any shares which Professionals has the
option, but not the obligation, to purchase under the terms of the Standby
Purchase and Option Agreement. See "THE DEMUTUALIZATION--The Standby
Purchase and Option Agreement." Also includes 2,302,209 shares issued in
connection with conversion of a surplus note. See "THE
DEMUTUALIZATION--Conversion of the Surplus Note." Excludes any shares which
may be issued pursuant to the Stock Compensation Plan.
IMPOUNDMENT OF PROCEEDS
Until the eligible policyholders vote on the Plan of Conversion, all of the
proceeds of the subscription offering will be escrowed in a noninterest-bearing
escrow account with Mellon Bank, N.A., a national banking association, under the
terms of a Subscription Agent and Escrow Agreement dated , 1998
between MEEMIC Holdings, Inc., MEEMIC, and ChaseMellon Shareholder Services,
L.L.C. (the "Escrow Agent"). The Escrow Agent's address and telephone number
are: ChaseMellon Shareholder Services, L.L.C., 450 West 33rd Street, 10th Floor,
New York, NY 10001, Telephone (212) 273-8006.
All proceeds of the issue will be held by the Escrow Agent for the benefit
of investors in an escrow account during the offering period. In the event the
Plan of Conversion is approved by the eligible policyholders, all money in the
escrow account will be released to MEEMIC Holdings, Inc. In the event the Plan
of Conversion is not approved by the eligible policyholders, the Escrow Agent
will return to you your subscription amount.
3
<PAGE>
DETERMINATION OF STOCK PRICE AND OFFERING AMOUNT
THE ESTIMATED VALUATION RANGE. Michigan law requires that the subscription
offering range be consistent with an independent appraisal of the estimated pro
forma market value of MEEMIC Holdings, Inc. following the demutualization of
MEEMIC. This amount may be discounted by an amount that the appraiser deems
necessary to attract full subscription for the shares. On June 24, 1998, MEEMIC,
through its Board of Directors, obtained such an appraisal. The appraisal was
conducted by ABN AMRO Incorporated ("ABN AMRO"), an independent investment
banking firm expert in the insurance industry and mutual insurance company
conversions. The appraisal estimated the pro forma market value of MEEMIC
Holdings, Inc. following demutualization to be $60,000,000. The appraisal
assumed consummation of the transactions contemplated by the Plan of Conversion.
The appraisal was discounted, as permitted by Michigan law, by an amount ABN
AMRO deemed necessary to attract full subscription for the subscription offering
under the provisions of the Plan of Conversion. The appraisal was based upon a
combination of valuation methods including discounted cash flow analysis, an
analysis of comparable publicly traded companies and an analysis of comparable
demutualization transactions. The appraisal is intended to be an estimate of the
pro forma market value of MEEMIC Holdings, Inc. It is not a recommendation of
any kind as to the advisability of purchasing the common stock and you must not
interpret it as a recommendation of any kind as to the advisability of
purchasing the common stock.
A valuation range was established by MEEMIC after consultation with ABN
AMRO, at $54,000,000 to $66,000,000 (the "Estimated Valuation Range"). This
Estimated Valuation Range extends ten percent (10%) below and ten percent (10%)
above the estimated pro forma market value of MEEMIC Holdings, Inc. The
Estimated Valuation Range is intended to establish a range within which the
demutualization will be consummated, so long as MEEMIC Holdings, Inc. raises
capital equal to such an amount through a combination of the subscription
offering and conversion of the surplus note.
THE SUBSCRIPTION OFFERING RANGE. The Estimated Valuation Range is from
$54,000,000 to $66,000,000. Under the Plan of Conversion, the minimum and
maximum number of shares being offered to eligible policyholders, officers and
directors is equal to (a) the Estimated Valuation Range minimum and maximum
amount divided by the public offering price of $10.00 per share (5,400,000 to
6,600,000) less (b) the number of shares to be issued to Professionals in
exchange for its interest in its surplus note (2,302,209 shares). See "THE
DEMUTUALIZATION--Conversion of the Surplus Note." Accordingly, the minimum to
maximum number of shares being offered to eligible policyholders, officers and
directors is equal to 3,097,791 to 4,297,791 shares. The actual number of shares
sold in the subscription offering may be a number between 3,097,791 and
4,297,791 shares.
MEEMIC Holdings, Inc. is reserving 429,779 shares of common stock of the
subscription offering for purchase by eligible officers and directors of MEEMIC
at the public offering price of $10.00 per share. If not all of these shares are
sold to eligible officers and directors, these shares will be available for sale
to eligible policyholders.
THE PURCHASE PRICE. MEEMIC Holdings, Inc. will offer the shares at the
public offering price of $10.00 per share.
ISSUANCE OF ADDITIONAL SHARES. As described in greater detail under "THE
DEMUTUALIZATION-- The Standby Purchase and Option Agreement" and
"MANAGEMENT--The Stock Compensation Plan," additional shares of common stock may
be issued by MEEMIC Holdings, Inc. following the Demutualization.
4
<PAGE>
MINIMUM AND MAXIMUM PURCHASES BY ELIGIBLE POLICYHOLDERS
The minimum number of shares you may buy is 100. If you are an eligible
policyholder, the maximum number of shares you may buy is 10,744 for each
qualifying policy you hold. Fractional shares will not be sold. Shares not sold
in the subscription offering, up to the subscription offering range minimum,
will be purchased by Professionals, and additional shares not sold in the
subscription offering, up to the subscription offering range maximum, may be
purchased by Professionals. See "THE DEMUTUALIZATION--The Standby Purchase and
Option Agreement."
SUBSCRIPTION RIGHTS
MEEMIC Holdings, Inc. is making this offering to eligible policyholders,
officers and directors of MEEMIC by means of nontransferable subscription
rights. A subscription right is a right to purchase common stock of MEEMIC
Holdings, Inc. in the demutualization. The Plan of Conversion allocates
subscription rights to named insureds under policies of insurance issued by
MEEMIC and in force on the close of business on June 24, 1998 and to the
officers and directors of MEEMIC.
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS
You may not transfer, or enter into any agreement to transfer, your
subscription rights. Any transfer of subscription rights is prohibited by law.
If you violate this prohibition, you will lose your right to purchase common
stock.
HOW TO PURCHASE COMMON STOCK
MEEMIC Holdings, Inc. and MEEMIC established a Stock Offering Information
Line to answer questions about the subscription offering. To access this Stock
Offering Information Line, call (888) 4-MEEMIC.
You may subscribe for common stock in this offering by delivering (by mail
or in person) a properly executed and completed Order Form, together with full
payment (in cash, check or money order payable to "Chase Mellon Shareholder
Services, L.L.P., as Escrow Agent") for all shares ordered, to Chase Mellon
Shareholder Services, L.L.C., 450 West 33rd Street, 10th Floor, New York, NY
10001 no later than February 19, 1999. In the event of an oversubscription,
certain subscriptions may be reduced as described in greater detail elsewhere in
this document.
ALL SUBSCRIPTION RIGHTS UNDER THE PLAN OF CONVERSION WILL EXPIRE ON THE
EXPIRATION DATE OF THE SUBSCRIPTION OFFERING. ONCE TENDERED, ORDERS TO PURCHASE
SHARES CANNOT BE REVOKED ABSENT EXIGENT CIRCUMSTANCES. FOR ADDITIONAL
INFORMATION, SEE "THE DEMUTUALIZATION--HOW TO PURCHASE STOCK."
TERMINATION OF SUBSCRIPTION OFFERING
The subscription offering will terminate at 5:00 p.m., on February 19, 1999.
PURCHASE OF COMMON STOCK BY MANAGEMENT
The directors and officers of MEEMIC, together with their associates, may
purchase, in the aggregate, approximately ten percent (10%) shares of the common
stock in this offering. This equals 7.2% of the shares of common stock issued in
the demutualization, assuming completion of the subscription offering at the
midpoint of the subscription offering range. See "THE
DEMUTUALIZATION--Management Purchases."
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THE COMMON STOCK
MARKET FOR THE COMMON STOCK
MEEMIC Holdings, Inc. has applied to have the common stock quoted on the
NASDAQ NMS under the symbol " " upon completion of the
demutualization. MEEMIC Holdings, Inc. engaged three firms to act as market
makers in the common stock upon completion of the Demutualization, subject to
market conditions and compliance with applicable laws and regulatory
requirements. Prior to the subscription offering, there was no public market for
the common stock and an active and liquid market for the common stock may not
develop in the foreseeable future. Even if a market develops, shareholders may
not be able to sell their shares at or above the public offering price after
completion of the demutualization. See "MARKET FOR THE COMMON STOCK."
DIVIDENDS
Declaration of dividends by the Board of Directors of MEEMIC Holdings, Inc.
will depend on a number of factors, including the requirements of applicable law
and the determination by the Board of Directors of MEEMIC Holdings, Inc. that
the net income, capital and financial condition of MEEMIC Holdings, Inc. and
MEEMIC, industry trends, general economic conditions and other factors justify
the payment of dividends. In addition, the payment of dividends from MEEMIC to
MEEMIC Holdings, Inc. and from MEEMIC Holdings, Inc. to the shareholders is
subject to a number of regulatory conditions. MEEMIC Holdings, Inc. presently
does not intend to pay dividends. See "DIVIDEND POLICY" and "INSURANCE
REGULATORY MATTERS."
RISK FACTORS
Before you decide to purchase common stock in this offering, you should read
the "RISK FACTORS" section on pages 12 to 16 of this document.
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CERTAIN FORWARD-LOOKING INFORMATION
This document contains forward-looking statements which involve risks and
uncertainties. MEEMIC Holdings, Inc. and MEEMIC have identified certain
important factors in addition to those discussed which could cause actual
results to differ materially from any such results discussed in the
forward-looking information. All these factors are difficult to predict and many
are beyond the control of MEEMIC Holdings, Inc. and MEEMIC. These important
factors may include:
- future economic conditions in the regional and national markets in which
the companies compete;
- financial market conditions, including, but not limited to, changes in
interest rates;
- inflation;
- estimates of loss reserves and trends in losses and loss adjustment
expenses;
- changing competition;
- the ability to carry out business plans;
- the ability to enter new markets successfully and capitalize on growth
opportunities; and
- adverse changes in applicable laws, regulations or rules governing
insurance holding companies and insurance companies, and environmental,
tax or accounting matters.
THE DEMUTUALIZATION
PLAN OF DEMUTUALIZATION
MEEMIC proposes to convert from a Michigan domiciled mutual property and
casualty insurance company to a Michigan domiciled stock property and casualty
insurance company (the "Company") pursuant to Chapter 59 of the Michigan
Insurance Code, MCL 500.5901, ET SEQ. (the "Act"), and MEEMIC's Plan of
Conversion (the "Plan") (this conversion being referred to herein as the
"Demutualization"). The Demutualization is subject to provisions of the Act and
the policies of the Michigan Insurance Bureau (the "Bureau"). Prior to the
commencement of the subscription offering, (the "Subscription Offering"), the
Plan has been approved:
(a) unanimously by the members of the Board of Directors of MEEMIC; and
(b) in writing by the Bureau.
IN ORDER TO BECOME EFFECTIVE, THE PLAN MUST ALSO BE APPROVED BY THE
AFFIRMATIVE VOTE OF AT LEAST TWO-THIRDS (2/3) OF THE VOTES CAST AT A MEETING OF
NAMED INSUREDS UNDER POLICIES OF INSURANCE ISSUED BY MEEMIC AND IN FORCE ON THE
CLOSE OF BUSINESS ON JUNE 24, 1998 ("ELIGIBLE POLICYHOLDERS"). A POLICYHOLDER
MEETING IS EXPECTED TO BE HELD AND THIS ISSUE VOTED UPON ON JANUARY 29, 1999
(THE "SPECIAL MEETING").
The Demutualization will be completed following the completion of the
Subscription Offering, when the amended and restated articles of incorporation
of the Company are filed with the Bureau (the "Effective Date").
IMPOUNDMENT OF PROCEEDS
Until approval of the Plan by the Eligible Policyholders, proceeds of the
subscription offering (the "Subscription Offering") will be held in a
noninterest-bearing escrow account with Mellon Bank, N.A., a national banking
association, under the terms of a Subscription Agent and Escrow Agreement dated
, 1998 (the "Escrow Agreement") between MEEMIC Holdings, Inc.,
MEEMIC, and ChaseMellon Shareholder Services, L.L.C., a New York limited
liability company (the "Escrow Agent"). If the Plan is approved by the Eligible
Policyholders, the proceeds of the Subscription Offering will be released to
MEEMIC Holdings, Inc. If the Plan is not approved by the Eligible Policyholders,
the proceeds
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of the Subscription Offering will be returned to the investors. The Escrow
Agent's address and telephone number are:
ChaseMellon Shareholder Services, L.L.C.
450 West 3rd Street, 10th Floor
New York, NY 10001
Telephone: (212) 273-8006.
BACKGROUND
On February 7, 1997, an agreement was entered into between MEEMIC,
Professionals Insurance Company Management Group, now known as Professionals
Group, Inc., and its wholly-owned subsidiary, PICOM Insurance Company, now known
as ProNational Insurance Company ("ProNational"). Professionals Group, Inc. and
ProNational are collectively referred to as "Professionals". The purpose of the
agreement was to arrange for a capital infusion into MEEMIC in order to allow
MEEMIC to expand its insurance capacity and business operations, including the
acquisition of certain assets of its exclusive sales agencies, Michigan
Educators Insurance Agency, Inc. and Michigan Educators Life Insurance Agency,
Inc. (collectively, the "Agency"). As part of the agreement, Professionals
arranged for a $21.5 million capital infusion into MEEMIC, and agreed to assist
MEEMIC to increase its insurance capacity and provide strategic consulting and
information system services pursuant to (i) a surplus note in the original
principal amount of $21.5 million issued by MEEMIC to ProNational (the "Surplus
Note"), (ii) a management services agreement under which Professionals Group,
Inc. agreed to perform certain business services for MEEMIC (the "Management
Services Agreement"), and (iii) MEEMIC's and ProNational's agreement to enter
into a quota share reinsurance agreement (the "Quota Share Agreement"). As part
of the transaction, nominees of Professionals Group, Inc. were appointed to
replace the members of the Board of Directors of MEEMIC. This transaction was
approved by the Bureau on April 4, 1997 and consummated on April 7, 1997.
MEEMIC considered the purchase of its exclusive sales agency to be
instrumental in the long-term business plan of MEEMIC. Consequently, on
September 22, 1997, MEEMIC, Professionals Group, Inc., and MEEMIC Insurance
Services Corporation, now d/b/a the Michigan Educators Insurance Agency
("MEIA"), entered into an asset purchase agreement with the Agency, pursuant to
which MEEMIC acquired certain assets of the Agency (the "Personal Lines and Life
Divisions" of the Agency), including the exclusive rights to sell and market
MEEMIC products until the year 2004, for the purpose of consolidating the
marketing operations and sales functions for insurance issued by MEEMIC.
Professionals Group, Inc. facilitated the acquisition of the Personal Lines and
Life Divisions of the Agency by providing certain capital through the Surplus
Note, and guarantees of payment obligations of MEIA. This transaction was
approved by the Bureau in a Supplemental Order on September 19, 1997 and
consummated on September 22, 1997.
ACTIONS OF THE INDEPENDENT COMMITTEE AND THE BOARD
Following consummation of the September 22, 1997 transaction, MEEMIC began
considering a demutualization of MEEMIC for the reasons set forth above under
"PROSPECTUS SUMMARY--The Demutualization." In connection with MEEMIC's
consideration of a potential demutualization and in recognition of (i) the
fiduciary obligations of each director and (ii) the dual roles of Messrs. Adamo,
Clinton and McCabe and Ms. Flood as directors or officers of both MEEMIC and
Professionals Group, Inc., the directors established a committee of
disinterested directors composed of Messrs. Hoeg and Kalinowski (the
"Committee") to (a) review whether a demutualization of MEEMIC would be fair and
equitable to the policyholders of MEEMIC from a financial point of view and
whether such a demutualization would achieve the business objectives of MEEMIC;
(b) determine the appropriate form for a
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demutualization, and the specifics of a demutualization plan; (c) review
documents prepared in connection with a proposed demutualization and other
materials deemed appropriate; (d) consult with counsel as deemed appropriate;
(e) interview, select and retain, on behalf of MEEMIC, an independent third
party to provide financial advice and develop a valuation of the pro forma
market value of the converted company as required by the Act; and (f) make a
recommendation or recommendations to the Board of Directors with respect to a
conversion plan.
In connection with the proposed conversion, ABN AMRO, an independent
investment banking firm knowledgeable of the insurance industry and experienced
in mutual insurance company conversions, was retained to serve as a financial
advisor to MEEMIC and the Committee and to determine an estimated pro forma
market value of the converted company. With the assistance of ABN AMRO, the
Committee reviewed strategic and financial alternatives to determine whether
MEEMIC should demutualize and, if it should, the form of the demutualization.
After discussions with the financial advisor, the Committee concluded, and
advised the Board, that a stock holding company, MEEMIC Holdings, Inc. should be
established, for the purpose of holding the stock of MEEMIC, and that a
subscription rights offering should be undertaken which would offer stock of
MEEMIC Holdings, Inc. to eligible policyholders and officers and directors
pursuant to a conversion plan drafted in compliance with the Act.
ABN AMRO provided the Committee and the Board of Directors with its estimate
of the pro forma market value of MEEMIC Holdings, Inc., as the parent company of
the wholly owned converted insurance company (the "Valuation Analysis"),
establishing a valuation range of $54,000,000 to $66,000,000, with a mid-point
valuation of $60,000,000.
Based on discussions with the financial advisor, management, and legal
counsel, the Committee worked with legal counsel and prepared a proposed plan of
conversion, as well as related documents. The Committee, together with legal
counsel, were responsible for the negotiation of the documents as they related
to Professionals.
The Committee advised the Board of Directors that the Committee believed
that the Valuation Analysis provides a valuation which is fair and equitable to
the policyholders of MEEMIC from a financial point of view, that the Plan
complies with the Act, that it allocates subscription rights among eligible
members in a manner which is fair and equitable to the policyholders of MEEMIC,
that it will not prejudice the interests of the policyholders, and that a
substantial reason for and the effect of the Plan is to benefit the
policyholders and raise additional capital to implement future business plans of
MEEMIC.
The Board also received a recommendation from the management of MEEMIC in
favor of the Demutualization. The Board of Directors reviewed the Committee
recommendation, the Valuation Analysis prepared by ABN AMRO and the conversion
documents, discussed and evaluated those documents, reviewed those documents
with the financial advisor and counsel, and on June 24, 1998 approved the Plan
and the transactions contemplated by such documents, and approved the Amended
and Restated Articles of Incorporation of the Company.
The Plan and related documents were filed with the Bureau on June 30, 1998.
The Plan was approved by the Bureau on September 2, 1998, and is subject to the
approval of Eligible Policyholders at the Special Meeting.
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, the Board of Directors of MEEMIC shall have
the exclusive authority to interpret and apply the provisions of the Plan to
particular facts and circumstances and to make all determinations necessary or
desirable to implement the Plan. Under the Plan, any such interpretation,
application or determination made in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose,
shall be final, conclusive and binding, upon all persons, and
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MEEMIC (or its directors, officers, employees or agents) shall not be liable to
any person, in connection with any such interpretation, application or
determination.
The Plan may only be amended by the affirmative vote of not less than
two-thirds ( 2/3) of the directors of MEEMIC then in office AND approval of such
amendment by the Bureau. The Plan may only be withdrawn or terminated by the
affirmative vote of not less than two-thirds ( 2/3) of the directors of MEEMIC
then in office AND approval of the Bureau.
SUBSCRIPTION RIGHTS
Pursuant to the Plan, nontransferable subscription rights will be provided
by MEEMIC Holdings, Inc. to Eligible Policyholders, and Officers and Directors.
Shares of common stock of MEEMIC Holdings, Inc. ("Common Stock") are being
offered pursuant to the exercise of these subscription rights. The Plan provides
that no person shall transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of subscription rights issued under
the Plan or, prior to exercise of the subscription rights, the Common Stock to
be issued upon their exercise. Persons violating such prohibition will lose
their right to purchase Common Stock.
STOCK PRICE AND NUMBER OF SHARES TO BE ISSUED
THE ESTIMATED VALUATION RANGE.
The Act requires that the subscription offering range be consistent with an
independent appraisal of the estimated pro forma market value of MEEMIC
Holdings, Inc. following the demutualization of MEEMIC. Under the Act, this
amount may be discounted by an amount that the appraiser deems necessary to
attract full subscription for the shares. On June 24, 1998, MEEMIC, through its
Board of Directors, obtained such an appraisal. The appraisal was conducted by
ABN AMRO, an independent investment banking firm knowledgeable of the insurance
industry and experienced in mutual insurance company conversions. The appraisal
estimated the pro forma market value of MEEMIC Holdings, Inc. following the
Demutualization to be $60,000,000. The appraisal assumed consummation of the
transactions contemplated by the Plan. The appraisal was discounted, as
permitted by the Act, by an amount ABN AMRO deemed necessary to attract full
subscription for the Subscription Offering under the provisions of the Plan. The
appraisal was based upon a combination of valuation methods including discounted
cash flow analysis, an analysis of comparable publicly traded companies and an
analysis of comparable demutualization transactions. The appraisal is intended
to be an estimate of the pro forma market value of MEEMIC Holdings, Inc. It is
not a recommendation of any kind as to the advisability of purchasing the Common
Stock and you must not interpret it as a recommendation of any kind as to the
advisability of purchasing the Common Stock.
A valuation range was established by MEEMIC after consultation with ABN AMRO
at $54,000,000 to $66,000,000. This Estimated Valuation Range extends ten
percent (10%) below and ten percent (10%) above the estimated pro forma market
value of MEEMIC Holdings, Inc. The Estimated Valuation Range is intended to
establish a range within which the Demutualization will be consummated, so long
as MEEMIC Holdings, Inc. raises capital equal to such amount through a
combination of the Subscription Offering and conversion of the Surplus Note.
THE SUBSCRIPTION OFFERING RANGE. The Estimated Valuation Range is from
$54,000,000 to $66,000,000. Under the Plan of Conversion, the minimum and
maximum number of shares being offered to eligible policyholders, officers and
directors is equal to (a) the Estimated Valuation Range minimum and maximum
amount divided by the purchase price of $10.00 per share (5,400,000 to
6,600,000) less (b) the number of shares to be issued to Professionals in
exchange for its interest in its surplus note (2,302,309 shares). See "THE
DEMUTUALIZATION--Conversion of the Surplus Note." Accordingly, the minimum to
maximum number of shares being offered to eligible policyholders, officers and
directors is equal to
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3,097,791 to 4,297,791 shares (the "Subscription Offering Range"). The actual
number of shares sold in the Subscription Offering may be a number between
3,097,791 and 4,297,791 shares.
THE PURCHASE PRICE. MEEMIC Holdings, Inc. will offer the shares at the
public offering price of $10.00 per share.
ISSUANCE OF ADDITIONAL SHARES. As described in greater detail under "THE
DEMUTUALIZATION-- The Standby Purchase and Option Agreement" and
"MANAGEMENT--The Stock Compensation Plan," additional shares of Common Stock may
be issued by MEEMIC Holdings, Inc. following the Demutualization.
THE STANDBY PURCHASE AND OPTION AGREEMENT
Pursuant to the Plan and a Standby Purchase and Option Agreement dated
, 1998 executed by and between MEEMIC Holdings, Inc. and
Professionals (the "Standby Purchase and Option Agreement"), Professionals will
purchase any shares of Common Stock not sold in the Subscription Offering up to
the minimum of the Subscription Offering Range at a purchase price of $10.00 per
share and has the option, but not the obligation, to purchase shares of Common
Stock not sold in the Subscription Offering up to the maximum of the
Subscription Offering Range at a purchase price of $10.00 per share.
In addition, under the Standby Purchase and Option Agreement, Professionals
also has the right, but not the obligation to purchase up to the number of
shares of Common Stock necessary to assure that, upon exercise of such option,
Professionals will own 51% of the outstanding shares of Common Stock of MEEMIC
Holdings, Inc. For additional information regarding this option, including the
formula for calculation of the exercise price, see "SECURITY OWNERSHIP OF
MANAGEMENT, AND CERTAIN SECURITY HOLDERS--The Standby Purchase and Option
Agreement with Professionals."
CONVERSION OF THE SURPLUS NOTE
Pursuant to the Plan, Professionals will also receive the number of shares
of Common Stock necessary to convert the $21,500,000 Surplus Note into Common
Stock of MEEMIC Holdings, Inc. No new capital will be paid by Professionals in
connection with the conversion of the Surplus Note. The Surplus Note will be
convertible into 2,302,209 shares of Common Stock; the number of shares equal to
the outstanding balance (principal and accrued but unpaid interest) of the
Surplus Note as of November 1, 1998, divided by the public offering price of
$10.00, rounded upward to the nearest whole share. Any difference will be paid
in cash. The conversion of the Surplus Note will occur on the Effective Date of
the Demutualization.
MANAGEMENT PURCHASES
The Act permits officers and directors of demutualizing companies to receive
subscription rights from 15% to 25% of the shares offered in a subscription
offering, depending upon the amount of assets of the company. Although the Act
would permit MEEMIC to provide subscription rights to officers and directors
which would result in those individuals holding between 22.9% and 23.1% of the
total shares issued by MEEMIC Holdings, Inc. in connection with the
Demutualization, MEEMIC's Plan limits Officers and Directors to purchasing a
maximum of 10% of the Subscription Offering in the aggregate.
429,779 shares of Common Stock contained in the Subscription Offering are
reserved for sale to eligible officers and directors of MEEMIC ("Officers and
Directors") at a purchase price of $10.00 per share. Under the Plan, an Officer
or Director is not entitled to subscribe for fewer than 100 shares, or greater
than 107,444 shares. In the event that all of the shares of Common Stock
reserved for sale to Officers and Directors are not subscribed for and sold,
such shares shall be available for sale to Eligible Policyholders.
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RISK FACTORS
Before you invest in the Common Stock of MEEMIC Holdings, Inc., you should
carefully consider the following risk factors, together with the other
information in this document.
POSSIBLE ADVERSE IMPACT OF BROAD VALUATION RANGE AND ITS USE TO DETERMINE THE
NUMBER OF SHARES OF COMMON STOCK SOLD
Based upon the Appraisal, the Demutualization can be completed and MEEMIC
Holdings, Inc. can sell between 3,097,791 and 4,297,791 shares of Common Stock
in the Subscription Offering. There is a difference of approximately $12,000,000
between the minimum and the maximum of the Subscription Offering Range. As a
result, the percentage interest in MEEMIC Holdings, Inc. that a subscriber for a
fixed number of shares of Common Stock will have is approximately 18% smaller if
4,297,791 shares are sold than if 3,097,791 shares are sold.
ABSENCE OF PRIOR PUBLIC MARKET
MEEMIC Holdings, Inc. has never issued capital stock so there is no
established market for the Common Stock. An active or liquid trading market for
the Common Stock may not develop or continue after the Subscription Offering.
The initial public offering price has been determined by MEEMIC and may not be
indicative of the market price for the Common Stock after the Subscription
Offering. If you purchase Common Stock, you may not be able to sell the Common
Stock at or above the public offering price after the Subscription Offering.
ADDITIONAL AUTHORIZED SECURITIES COULD BE ISSUED
MEEMIC Holdings, Inc. is authorized to issue 10 million shares of Common
Stock. On the Effective Date of Demutualization, MEEMIC Holdings, Inc. will have
up to 6.6 million shares of Common Stock issued and outstanding. Uncommitted
authorized but unissued shares of Common Stock may be issued from time to time.
You may or may not be given the opportunity to vote on this issuance, depending
on the nature of such transactions, applicable law, the rules and policies of
any stock exchange upon which the Common Stock is listed, and the judgment of
MEEMIC Holdings, Inc.'s Board of Directors.
The availability of authorized but unissued shares of Common Stock provides
MEEMIC Holdings, Inc. and MEEMIC with the flexibility to take advantage of
opportunities to issue such stock to obtain capital, to make acquisitions or for
other purposes (including, without limitation, the issuance of additional shares
of Common Stock through stock splits and stock dividends in appropriate
circumstances.) There are, at present, no plans to issue additional shares of
Common Stock except pursuant to the Standby Purchase and Option Agreement and
the Stock Compensation Plan. However, it is possible that, depending on factors
then considered relevant by MEEMIC Holdings, Inc. and MEEMIC, that MEEMIC
Holdings, Inc. may, at any time in the future, issue additional shares of Common
Stock in a public offering or private transaction. MEEMIC Holdings, Inc.'s
shareholders will not have preemptive rights to subscribe for newly issued
shares. See "DESCRIPTION OF THE COMMON STOCK." If a substantial amount of
authorized but unissued Common Stock is issued, your ownership percentage would
be reduced. In addition, the prevailing market price for the stock could
decline. This could impair MEEMIC Holdings, Inc.'s future ability to obtain
capital through a future offering of equity securities.
DILUTIVE EFFECT OF STANDBY PURCHASE AND OPTION AGREEMENT AND STOCK COMPENSATION
PLAN
In addition to the Subscription Offering, MEEMIC Holdings, Inc. has reserved
2,483,247 shares of Common Stock for issuance under the Standby Purchase and
Option Agreement with Professionals (See "SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN SECURITY-HOLDERS--Standby Purchase and Option Agreement with
Professionals") and 300,000 shares of Common Stock for issuance under the Stock
Compensation Plan. See "MANAGEMENT--The Stock Compensation Plan." To date,
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MEEMIC Holdings, Inc. has not issued any options to purchase Common Stock under
the Stock Compensation Plan, but it plans to issue options on the Effective
Date. MEEMIC Holdings, Inc. intends to file a registration statement on Form S-8
with the Securities and Exchange Commission following the completion of the
Demutualization to register the shares of Common Stock that may be issued under
the Stock Compensation Plan. If a substantial amount of additional Common Stock
is issued under these arrangements from authorized but unissued stock, your
ownership percentage would be diluted. In addition, the prevailing market price
for the stock could decline. This could impair MEEMIC Holdings, Inc.'s future
ability to obtain capital through a future offering of equity securities.
CHANGE OF BOARD OF DIRECTORS OF MEEMIC
MEEMIC has recently undergone a significant change in the makeup of its
Board of Directors. As a result of the April 7, 1997 transaction, Messrs. Adamo,
Clinton, Hoeg, Kalinowski, McCabe and Ms. Flood were placed on the Board of
Directors of MEEMIC. Mr. McCabe passed away in September 1998. On October 7,
1998, the Board of Directors of MEEMIC appointed James O. Wood to fill the
vacant Board seat. As noted below under "SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN SECURITY-HOLDERS," as a result of the Surplus Note transaction,
Professionals Group, Inc. is currently deemed to be a controlling person of
MEEMIC under Michigan insurance law.
PROFESSIONALS AS MAJORITY SHAREHOLDER
Professionals may be a majority shareholder in MEEMIC Holdings, Inc. As a
majority shareholder, Professionals will have significant control of the future
actions of MEEMIC Holdings, Inc. and MEEMIC. As a shareholder, you will have a
vote on certain affairs of MEEMIC Holdings, Inc. but may not, in most cases,
have the ability to control the action of MEEMIC Holdings, Inc. by such vote.
See "CERTAIN RESTRICTIONS ON ACQUISITION OF AND BUSINESS COMBINATIONS BY MEEMIC
HOLDINGS, INC."
COMPETITION
The insurance industry segment in which MEEMIC is involved is highly
competitive. MEEMIC has numerous Michigan based competitors, and competitors
from other states for its insurance products, including major property and
casualty insurance companies. Some of these competitors may have substantially
greater financial, technical and operating resources than MEEMIC. MEEMIC's
competitors may develop products or marketing techniques that are more effective
than any which have been or are being developed by MEEMIC. While it is
anticipated that MEEMIC's product lines will be successful, the rates or
products offered by competitors may render MEEMIC uncompetitive or MEEMIC may
not be successful in establishing or maintaining its market competitiveness.
REGULATION
Insurance companies and insurance holding companies operating in Michigan
are subject to supervision and regulation by the Michigan Insurance Bureau. Such
supervision and regulation relates to numerous aspects of its business and
financial condition. These include establishment of premium rates, establishment
of standards of solvency, licensing of MEEMIC and its agents, regulation of the
nature and amount of MEEMIC's investments, regulation of the provisions which
MEEMIC must make for current losses and future liabilities, and approval of
MEEMIC's policy forms. These regulations are primarily intended to protect
policyholders, not stockholders.
RISK-BASED CAPITAL REQUIREMENTS. In addition to state-imposed insurance
laws and regulations, MEEMIC is subject to statutory accounting principles and
the reporting format of the National Association of Insurance Commissioners (the
"NAIC"). The NAIC has adopted a risk-based capital formula to establish minimum
capital and surplus requirements for property and casualty insurance companies.
The risk-based capital formula is based principally on underwriting risk (loss
and loss adjustment expense
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("LAE") reserve risk and premium risk), asset risk and reinsurance credit risk.
At December 31, 1997, the statutory surplus of MEEMIC exceeded the minimum
capital and surplus requirements established under NAIC's current property and
casualty risk-based capital formula. See "INSURANCE REGULATORY MATTERS." If
MEEMIC's statutory surplus were to drop below the minimum capital and surplus
requirements, it could have a material adverse impact on MEEMIC Holdings, Inc.
and MEEMIC.
NAIC-IRIS RATIOS. The NAIC's 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 insurers operating in
their respective states. IRIS identifies 11 industry ratios and specifies "usual
values" for each ratio. Departure from the usual values on four or more ratios
generally leads to inquiries from individual state insurance commissioners. In
1997, 1996 and 1995, MEEMIC did not have any ratios which varied from the "usual
value" range. If MEEMIC's ratios were to depart from these "usual values," it
could have a material adverse impact on MEEMIC Holdings, Inc. and MEEMIC.
MEEMIC HOLDINGS, INC. STRUCTURE IS DEPENDENT ON RESULTS AND OPERATIONS OF MEEMIC
MEEMIC Holdings, Inc. is a legal entity separate and distinct from MEEMIC.
As a holding company with no significant operations of its own, the principal
sources of its funds are dividends and other distributions from MEEMIC,
borrowings and sales of equity. The right of MEEMIC Holdings, Inc., and
consequently its shareholders, to participate in any distribution of assets of
MEEMIC is subject to prior claims of policyholders, creditors and preferred
shareholders, if any, of MEEMIC (except to the extent claims of MEEMIC Holdings,
Inc. in its capacity as a creditor are recognized) and to certain regulatory
restrictions. Consequently, MEEMIC Holdings, Inc.'s ability to fund its
operations and to pay debts, expenses and cash dividends to its shareholders may
be limited. See "INSURANCE REGULATORY MATTERS."
CONCENTRATION OF EARNINGS
One hundred percent of MEEMIC's business is currently in personal lines
insurance. Accordingly, MEEMIC's earnings could be adversely affected by
regulatory or competitive changes affecting rates or other aspects of the
personal lines insurance business.
GEOGRAPHIC CONCENTRATION
MEEMIC currently operates only in the State of Michigan. Because MEEMIC
conducts business only in the State of Michigan, its revenues and profitability
are subject to prevailing economic, regulatory, demographic and other conditions
in Michigan, as well as the impact of catastrophe and natural peril losses in
Michigan.
14
<PAGE>
ADEQUACY OF LOSS RESERVES
MEEMIC has maintained and intends to maintain capital and surplus as
required by the Bureau. MEEMIC maintains reserves to cover its estimated
ultimate liability losses and loss adjustment expenses for both reported and
unreported claims incurred. Management believes these reserves are adequate.
Reserves are and will be annually certified by a qualified actuary as required
for its statutory filings. Nevertheless, establishment of appropriate reserves
is an inherently uncertain process and there can be no assurance that ultimate
losses will not exceed loss reserves. In addition, a risk of loss of current
period income exists if adjustments in aggregate reserves are made, as such
adjustments are reflected in the operating results of the period during which
such adjustments are made.
CYCLICALITY OF THE PROPERTY AND CASUALTY INSURANCE INDUSTRY
The property and casualty insurance industry is highly cyclical. The
industry's profitability can be affected significantly by
- price competition,
- regulatory changes,
- volatile weather and other catastrophic conditions,
- legal developments affecting insurer liability and the size of jury
awards, and
- fluctuations in interest rates and other investment factors.
The industry's profitability can also be affected significantly by
investment returns and other general economic conditions and trends, such as
inflationary pressure that may affect the adequacy of reserves.
REINSURANCE
MEEMIC's operations rely in part on the use of reinsurance arrangements to
limit and manage the amount of risk retained, to stabilize underwriting results
and increase underwriting capacity. The availability and cost of reinsurance are
subject to prevailing market conditions and may vary significantly over time.
Reinsurance may not continue to be available to MEEMIC in the future at
commercially reasonable rates. While MEEMIC seeks to obtain reinsurance with
coverage limits it believes are appropriate for the risk exposures assumed, the
losses experienced by MEEMIC may not be within applicable coverage limits.
MEEMIC is also subject to credit risk with respect to its reinsurers because the
ceding of risk to reinsurers does not relieve MEEMIC of its liability to
insureds. The insolvency or inability of any reinsurer to meet its obligations
may have a material adverse effect on the business and results of operations of
MEEMIC. See "BUSINESS OF MEEMIC--Reinsurance Ceded" for additional information
on MEEMIC's reinsurance practices.
POSSIBLE ADVERSE IMPACT OF CHANGE IN A.M. BEST RATING
Ratings assigned by A.M. Best Company, Inc. ("A.M. Best") are an important
factor influencing the competitive position of insurance companies. A.M. Best
ratings are based upon factors of concern to policyholders and are not directed
toward the protection of investors. As such, MEEMIC's A.M. Best rating should
not be relied upon as a basis for an investment decision to purchase Common
Stock.
MEEMIC currently has an A.M. Best rating of A- (Excellent). See "BUSINESS OF
MEEMIC-- A.M. Best Rating." This rating could change. An adverse change in
MEEMIC's A.M. Best rating could have an adverse impact on MEEMIC Holdings, Inc.
and MEEMIC.
15
<PAGE>
INSURANCE COMPANY INSOLVENCY LAW
In the event of a default on MEEMIC's debt or the insolvency, liquidation or
other reorganization of MEEMIC, the creditors and stockholders of MEEMIC
Holdings, Inc. will have no right to proceed against the assets of MEEMIC or to
cause its liquidation under federal or state bankruptcy laws. Insurance
companies are not subject to such insolvency laws, but are instead governed by
state insurance laws relating to liquidation and rehabilitation due to
insolvency or impaired financial condition. Therefore, if MEEMIC were to be
liquidated or the subject of rehabilitation proceedings, such liquidation or
rehabilitation proceedings would be conducted by the Michigan Insurance
Commissioner as the receiver with respect to all of MEEMIC's assets and
business. Under the Michigan Insurance Code (the "Insurance Code"), all
creditors of MEEMIC, including policyholders, would be entitled to payment in
full from such assets before the shareholders of MEEMIC Holdings, Inc. would be
entitled to receive any distribution therefrom.
MICHIGAN NO-FAULT AUTOMOBILE INSURANCE LAWS AND THE MICHIGAN ESSENTIAL INSURANCE
ACT
Michigan's no-fault law and the Michigan Essential Insurance Act have been
and continue to be the subject of review and proposals for modification by the
Bureau, state legislators and insurers. MEEMIC Holdings, Inc. and MEEMIC cannot
predict whether any such modifications will occur and what effect such
modifications would have on MEEMIC's business, but such effect could be
materially adverse.
THE COMPANIES
MEEMIC
Michigan Educational Employees Mutual Insurance Company was incorporated
under the laws of Michigan on August 10, 1949 and began business April 7, 1950.
MEEMIC offers personal lines insurance primarily to educational employees and
their immediate families in the State of Michigan. Full coverage private
passenger automobile is the dominant line of business representing approximately
90% of all business written. In 1992, MEEMIC entered Michigan's homeowners
market which currently represents the remainder of its direct writings. All
business is produced through MEIA. Most of the approximately 90 sales
representatives of MEIA are members of the educational community and therefore
are engaged in peer selling. As of June 30, 1998, MEEMIC had in excess of
108,000 policies in force. MEEMIC had total consolidated assets of $208 million
and $151 million as of December 31, 1997 and 1996, respectively.
The principal executive offices of MEEMIC are located at 691 North Squirrel
Road, Suite 200, Auburn Hills, Michigan 48326, telephone (888) 4-MEEMIC.
MEEMIC HOLDINGS, INC.
MEEMIC Holdings, Inc. was formed as a Michigan business corporation in
October, 1998 to be the holding company for MEEMIC after the Demutualization.
Before the Demutualization, MEEMIC Holdings, Inc. will not engage in any
significant operations. After the Demutualization, MEEMIC will become a
wholly-owned subsidiary of MEEMIC Holdings, Inc. The primary assets of MEEMIC
Holdings, Inc. will be the outstanding capital stock of MEEMIC and a portion of
the net proceeds of the Offering. The principal executive offices of MEEMIC
Holdings, Inc. are located at 691 North Squirrel Road, Suite 200, Auburn Hills,
Michigan 48326, telephone (888) 4-MEEMIC.
PROFESSIONALS GROUP, INC.
Professionals Group, Inc., formerly known as Professionals Insurance Company
Management Group, is a Michigan business corporation that was incorporated under
the laws of the State of Michigan on January 31, 1996 for the purpose of serving
as the holding company for ProNational and other subsidiaries. Professionals
Group, Inc., which conducts its activities through subsidiaries, had
consolidated assets of
16
<PAGE>
$848 million and $775 million at December 31, 1997 and 1996, respectively, after
giving effect to the pooling of interest merger with Physicians Protective Trust
Fund. The principal executive offices for Professionals Group, Inc. are located
at 2600 Professionals Drive, Okemos, Michigan 48864, and its telephone number is
(517) 349-6500.
The principal operating subsidiary of Professionals Group, Inc. is
ProNational Insurance Company.
Professionals Group, Inc. is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance with these requirements, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information concerning Professionals Group, Inc. can be inspected and copied at
the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the public reference facilities
maintained by the Commission at its regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials can
be obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a website that contains all information filed
electronically by Professionals Group, Inc. The address of the Commission's
website is (http://www.sec.gov).
PRONATIONAL INSURANCE COMPANY
ProNational Insurance Company is a wholly-owned subsidiary of Professionals
Group, Inc. and a stock insurance company incorporated under the Insurance Code
in 1980. ProNational began operations on June 27, 1980 as Physicians Insurance
Company of Michigan by assuming the assets and liabilities of the Brown McNeely
Insurance Fund. (The Brown-McNeely Fund was created by the State of Michigan in
1975 to provide doctors with an effective and reliable source of medical
malpractice insurance.) The name of Physicians Insurance Company of Michigan was
changed in August 18, 1994 to PICOM Insurance Company and on July 1, 1998 to
ProNational Insurance Company. ProNational actively sells medical professional
liability insurance in Michigan, Florida, Illinois, Indiana, Ohio and
Pennsylvania and is licensed in six additional states. ProNational began
insuring physicians and physician clinics upon its organization in 1980 and
began insuring dentists in 1983. Coverages for hospitals and other health care
institutions were added in 1993 and coverages for professional liability to
lawyers and law firms were added in 1994. ProNational became a quota share
reinsurer for MEEMIC effective July 1, 1997.
ProNational has also grown through acquisition and merger. In 1995,
ProNational acquired the rights to renew the Illinois book of business of a
physician controlled insurer in that state. In 1986, ProNational acquired the
attorney-in-fact of an Indiana reciprocal that specialized in medical
malpractice insurance and renewed the business through ProNational. On July 1,
1998, Physicians Protective Trust Fund of Coral Gables, Florida merged into
ProNational thus providing ProNational with regional diversification and a
larger insured base. As of July 1, 1998, ProNational had an annualized earned
medical malpractice premiums of $119.5 million and annualized assumed earned
reinsurance premiums of $45.0 million.
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION
The 4,297,791 shares of Common Stock being offered in the Subscription
Offering are being offered through MEEMIC Holdings, Inc. to Eligible
Policyholders of MEEMIC Holdings, Inc. and to Officers and Directors of MEEMIC.
In addition, it is anticipated that the Surplus Note will be converted by
Professionals into 2,309,209 shares of Common Stock of MEEMIC Holdings, Inc. No
compensation for selling the Common Stock will be paid to any officer, director
or employee of MEEMIC Holdings, Inc. or MEEMIC for any sales of the Common
Stock. The Subscripiton Offering is not underwritten, and no brokers, dealers,
or sales persons have been employed by MEEMIC Holdings, Inc. or MEEMIC in
connection with the sale of Common Stock contemplated by this Prospectus.
17
<PAGE>
THE SUBSCRIPTION OFFERING PERIOD
The subscription offering period commences January 1, 1999, and will
continue until February 19, 1999.
IMPOUNDMENT OF PROCEEDS
Proceeds of the Subscription Offering will be held in escrow by the Escrow
Agent pending the vote of the Eligible Policyholders on the Plan. Pursuant to
the Escrow Agreement, in the event the Plan is approved, proceeds of the
Subscription Offering will be released to MEEMIC Holdings, Inc. In the event the
Plan is disapproved, the subscriptions of each investor will be returned to the
investors.
HOW TO PURCHASE SHARES OF COMMON STOCK
Any Eligible Policyholder, Officer or Director who desires to subscribe for
Shares in the Subscription Offering may do so by delivering (by mail or in
person) a properly executed and completed Order Form, together with full payment
(in cash, check or money order payable to "ChaseMellon Shareholder Services,
L.L.C., as Escrow Agent") for all shares of Common Stock for which the
subscription is made, to ChaseMellon Shareholder Services, L.L.C., 450 West 33rd
Street, 10th Floor, New York, NY 10001. As described above, subscriptions will
be held in a separate escrow account pending the vote of Eligible Policyholders
with respect to the Demutualization.
In the event an Order Form (i) is not delivered and is returned to the
sender by the United States Postal Service or MEEMIC Holdings, Inc. is unable to
locate the addressee, (ii) is not returned or is received after the termination
date of the Subscription Offering, (iii) is defectively completed or executed,
or (iv) is not accompanied by payment in full for the shares of Common Stock
subscribed for, the subscription rights of the Eligible Policyholder, Officer or
Director to whom such rights have been granted will not be honored.
Alternatively, MEEMIC Holdings, Inc. may (but will not be required to) waive any
irregularity relating to any Order Form or require the submission of a corrected
Order Form or the remittance of full payment for the shares of Common Stock
subscribed for by such date as MEEMIC Holdings, Inc. may specify.
ONCE TENDERED, ORDERS TO PURCHASE SHARES CANNOT BE REVOKED ABSENT EXIGENT
CIRCUMSTANCES. IF AN ELIGIBLE POLICYHOLDER BELIEVES SUCH EXIGENT CIRCUMSTANCES
EXIST, THE ELIGIBLE POLICYHOLDER MUST REQUEST A WAIVER FROM MEEMIC HOLDINGS,
INC. IN WRITING WHICH DESCRIBES THE CIRCUMSTANCES UPON WHICH THE REQUEST FOR THE
WAIVER IS BASED.
DELIVERY OF CERTIFICATES
Certificates representing shares of the Common Stock will be delivered to
subscribers promptly after completion of the Subscription Offering. Until
certificates for the Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the shares of Common Stock for which they
have subscribed, even though trading of the Common Stock will have commenced.
MINIMUM AND MAXIMUM PURCHASES FOR ELIGIBLE POLICYHOLDERS
The minimum number of shares you may buy is 100. If you are an Eligible
Policyholder, the maximum number of shares you may buy is 10,744 for each
qualifying policy you hold. Fractional shares will not be sold. Shares not sold
in the Subscription Offering, up to the Subscription Offering Minimum, will be
purchased by Professionals, and additional shares up to the Subscription
Offering Maximum may be purchased by Professionals. See "THE
DEMUTUALIZATION--The Standby Purchase and Option Agreement."
18
<PAGE>
RULES FOR OVERSUBSCRIPTION
In the event of an oversubscription by either Eligible Policyholders
(Subscription Category No. 1) or Officers and Directors (Subscription Category
No. 2), Common Stock will be allocated among participants within each category,
by reducing the subscriptions of certain participants according to the following
methodology:
(i) MEEMIC Holdings, Inc. will determine the number of shares of Common
Stock by which Subscription Category No. 1 and/or Subscription Category No.
2 is oversubscribed.
(ii) MEEMIC Holdings, Inc. will reduce the maximum subscription(s) in
each category on a pro-rata basis among the participants with the largest
subscriptions to the level at which an oversubscription no longer exists, as
rounded to the nearest whole share.
(iii) MEEMIC Holdings will repeat the methodology set forth in (ii)
above, for so many iterations as shall be necessary to eliminate
oversubscriptions within each subscription category.
19
<PAGE>
USE OF PROCEEDS
The amount of proceeds available to MEEMIC Holdings, Inc. from the sale of
Common Stock will depend upon the total number of shares of Common Stock
actually sold in the Subscription Offering, sold under the Standby Purchase and
Option Agreement and issued pursuant to conversion of the Surplus Note, as well
as the actual expenses of the Demutualization. The exact number of shares of
Common Stock of MEEMIC Holdings, Inc. to be issued pursuant to the Standby
Purchase Agreement will vary depending on the response to the Subscription
Offering. See "THE DEMUTUALIZATION--The Standby Purchase and Option Agreement"
and "THE DEMUTUALIZATION--Conversion of the Surplus Note."
After payment of the contemplated donation to the MEEMIC Foundation, MEEMIC
Holdings, Inc. intends to exchange all of the net proceeds from the Subscription
Offering except approximately $3 million for all of the capital stock of MEEMIC
to be issued in the Demutualization. The net proceeds retained by MEEMIC
Holdings, Inc. will be available for a variety of corporate purposes, including
additional capital contributions, future acquisitions and diversification of
business.
MEEMIC Holdings, Inc. intends to donate $0.5 million of the net proceeds
from the Subscription Offering to the MEEMIC Foundation. The Board of Directors
of MEEMIC established the MEEMIC Foundation on March 9, 1992. The purpose of the
MEEMIC Foundation is to support individuals and organizations dedicated to the
educational profession. MEEMIC has historically supported the MEEMIC Foundation
that currently offers scholarships to children of educational employees.
The net proceeds used to effect the exchange of the stock of MEEMIC will
become part of its capital, thereby expanding underwriting capacity and
permitting diversification of its business. MEEMIC will use a portion of these
proceeds to make the payments to Agency Shareholders which will become due as a
result of the Demutualization and under the terms of the Agency Purchase
Agreement as described under "THE DEMUTUALIZATION." See also "PRO FORMA DATA."
Any payment of dividends to MEEMIC Holdings, Inc. will be limited by regulatory
restrictions on capital distributions by MEEMIC. See "INSURANCE REGULATORY
MATTERS."
The net proceeds from the sale of Common Stock in the Subscription Offering
will depend upon the total number of shares actually sold and the actual
expenses of the Demutualization, and cannot be determined until the
Demutualization is completed. Set forth below are the estimated net proceeds to
MEEMIC Holdings, Inc., assuming the sale of Common Stock at the minimum,
midpoint and maximum of the Subscription Offering Range. The following
information includes estimated expenses of approximately $1.5 million. Actual
expenses may vary.
<TABLE>
<CAPTION>
MINIMUM OF MIDPOINT OF MAXIMUM OF
3,097,791 3,697,791 4,297,791
SHARES AT SHARES AT SHARES AT
$10.00 PER $10.00 PER $10.00 PER
SHARE SHARE SHARE
--------------- --------------- ---------------
<S> <C> <C> <C>
Gross proceeds of Subscription Offering....................... $ 30,977,910 $ 36,977,910 $ 42,977,910
Less Underwriting Discounts and Commissions................. -- -- --
Less Offering and Conversion Expenses....................... 1,500,000 1,500,000 1,500,000
Less Donation to MEEMIC Foundation.......................... 500,000 500,000 500,000
--------------- --------------- ---------------
Net Proceeds to MEEMIC Holdings, Inc.......................... $ 28,977,910 $ 34,977,910 $ 40,977,910
--------------- --------------- ---------------
Net Proceeds to MEEMIC Holdings, Inc. per share............... $ 9.35 $ 9.46 $ 9.53
</TABLE>
MEEMIC Holdings, Inc. expects that the net proceeds from the sale of shares
of Common Stock will be sufficient to satisfy the working capital of MEEMIC
Holdings, Inc. and MEEMIC for 60 months. If less than all of the Common Stock
offered is purchased pursuant to the Subscription Offering, an amount of shares
equal to the Common Stock not subscribed for in the Subscription Offering up to
the minimum of the Subscription Offering Range will be purchased by
Professionals and an amount of shares equal to the Common Stock not subscribed
for in this Offering up to the maximum of the Subscription Offering Range may be
purchased by Professionals pursuant to the Standby Purchase and Option Agreement
(see "THE DEMUTUALIZATION--The Standby Purchase and Option Agreement").
20
<PAGE>
CAPITALIZATION
The following table sets forth information regarding the historical
capitalization of MEEMIC at June 30, 1998 and the pro forma consolidated
capitalization of MEEMIC Holdings, Inc. giving effect to the sale of Common
Stock at the minimum, midpoint and maximum of the Subscription Offering Range
based upon the assumptions set forth under "USE OF PROCEEDS." For additional
financial information, see the Consolidated Financial Statements and related
Notes appearing elsewhere in this document.
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED CAPITALIZATION OF
MEEMIC HOLDINGS, INC. (IN THOUSANDS)
BASED ON THE SALE OF
HISTORICAL -------------------------------------------------
CONSOLIDATED 3,097,791 3,697,791 4,297,791
CAPITALIZATION SHARES AT SHARES AT SHARES AT
OF MEEMIC AT $10.00 PER $10.00 PER $10.00 PER
JUNE 30, 1998 SHARE SHARE SHARE
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Surplus Note(1).............................. $ 21,500 -- -- --
Shareholders' equity(3)(4):
Common stock, no par value per share:
authorized--10,000,000 shares; shares to
be outstanding--as shown................. -- $ 52,000 $ 58,000 $ 64,000
Retained earnings--unrestricted............ 45,395 48,895 48,895 48,895
Unrealized gains........................... 1,327 1,327 1,327 1,327
------- --------------- --------------- ---------------
Total shareholders' equity(2)........ $ 46,722 $ 102,222 $ 108,222 $ 114,222
------- --------------- --------------- ---------------
------- --------------- --------------- ---------------
</TABLE>
- ------------------------
(1) This Surplus Note is expected, as part of a series of transactions, to be
assigned to MEEMIC Holdings, Inc. in exchange for 2,302,209 shares of Common
Stock upon completion of the Demutualization.
(2) Pro forma shareholders' equity is not intended to represent the Fair Market
Value of the Common Stock, the net Fair Market Value of MEEMIC Holdings,
Inc.'s assets and liabilities or the amounts, if any, that would be
available for distribution to shareholders in the event of liquidation. Such
pro forma data may be materially affected by a change in the number of
shares to be sold in the Demutualization and by other factors.
(3) Does not reflect additional shares of Common Stock which could be purchased
by Professionals after the Effective Date of Demutualization pursuant to the
Standby Purchase and Option Agreement. See "THE DEMUTUALIZATION--The Standby
Purchase and Option Agreement" and "RISK FACTORS--Dilutive Effect of Standby
Purchase and Option Agreement and Stock Compensation Plan."
(4) Does not reflect additional shares of Common Stock that could be purchased
pursuant to the Stock Compensation Plan, under which directors, officers and
other employees of MEEMIC and MEEMIC Holdings, Inc. would be granted options
to purchase an aggregate amount of Common Stock equal to 300,000 shares at
an exercise price equal to $10.00 per share. See "MANAGEMENT--The Stock
Compensation Plan" and "RISK FACTORS--Dilutive Effect of Standby Purchase
and Option Agreement and Stock Compensation Plan."
21
<PAGE>
PRO FORMA DATA
On the Effective Date of the Demutualization, MEEMIC will become a
wholly-owned subsidiary of MEEMIC Holdings, Inc. Since MEEMIC Holdings, Inc. is
not currently an active entity and will be the parent of MEEMIC, the following
pro forma data is also representative of MEEMIC Holdings, Inc.
The following pro forma consolidated balance sheets as of June 30, 1998,
gives effect to the Demutualization as if it had occurred as of June 30, 1998
and assumes that 3,097,791 shares of Common Stock (the minimum number of such
shares required to be sold) are sold in the Subscription Offering. The following
pro forma consolidated statements of income for the year ended December 31, 1997
and the six months ended June 30, 1998 present consolidated operating results
for MEEMIC as if the Demutualization and acquisition of the Personal Lines and
Life Divisions of the Agency had occurred as of January 1, 1997.
On September 22, 1997, MEEMIC acquired the assets of the Personal Lines and
Life Divisions of the Agency. This purchase was a significant acquisition that
requires pro forma disclosure as if it took place on January 1, 1997, to reflect
a full year of activity with this transaction.
Pursuant to the Plan, (i) MEEMIC will convert from a Michigan domiciled
mutual insurance company to a Michigan domiciled stock insurance company and
simultaneously issue shares of its capital stock to MEEMIC Holdings, Inc. in
exchange for a portion of the net proceeds of the Subscription Offering and (ii)
Common Stock of MEEMIC Holdings, Inc. will be sold in the Subscription Offering
and pursuant to the conversion of the Surplus Note. The Demutualization will be
accounted for as a simultaneous reorganization, recapitalization and share
offering which will not change the historical accounting basis of MEEMIC
financial statements. According to the Plan, the shares not purchased by
Eligible Policyholders, Officers and Directors in the Subscription Offering will
be purchased by Professionals pursuant to a Standby Purchase and Option
Agreement to the minimum of the Subscription Offering Range and Professionals
may purchase any such shares to the maximum of the Offering Range.
The unaudited pro forma information does not purport to represent what
financial position or results of operations actually would have been had the
Demutualization and acquisition occurred on the dates indicated, or to project
financial position or results of operations for any future date or period. The
pro forma adjustments are based on available information and certain assumptions
that MEEMIC and MEEMIC Holdings, Inc. believe are reasonable in the
circumstances. The unaudited pro forma consolidated financial information should
be read in conjunction with the accompanying notes thereto, and the other
financial information pertaining to MEEMIC included elsewhere in this document.
The pro forma adjustments and pro forma consolidated amounts are provided
for information purposes only. The financial statements of MEEMIC Holdings, Inc.
and MEEMIC will reflect the effects of the Demutualization and acquisition only
from the dates such events occur.
22
<PAGE>
MEEMIC HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS ADJUSTED FOR
MEEMIC FOR OFFERING OFFERING
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at fair
value......................................... $113,892,769 $113,892,769
Short-term investments, at cost, which
approximates fair value....................... 1,896,943 1,896,943
------------ ------------
Total investments........................... 115,789,712 115,789,712
Cash.............................................. 5,600,913 $ 28,977,910(a) 18,194,673
615,850(b)
(17,000,000(c)
Premiums due from policyholders................... 4,073,791 4,073,791
Amounts due from reinsurers....................... 46,751,408 46,751,408
Accrued investment income......................... 1,562,540 1,562,540
Deferred federal income taxes..................... 3,330,113 (1,190,000)(c) 2,140,113
Property and equipment, at cost, net of
accumulated depreciation........................ 2,035,288 2,035,288
Deferred policy acquisition....................... 669,040 669,040
Federal income taxes recoverable.................. 407,397 407,397
Intangible assets, net of amortization............ 40,730,524 40,730,524
Other assets...................................... 520,124 520,124
------------ ------------- ------------
Total assets.................................. $221,470,850 $ 11,403,760 $232,874,610
------------ ------------- ------------
------------ ------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loss and loss adjustment expense reserves....... $ 92,345,562 $ 92,345,562
Unearned premiums............................... 30,617,018 30,617,018
Surplus note.................................... 21,500,000 $ (21,500,000)(b)
Payable--related to acquisition................. 20,500,000 (20,500,000)(c)
Accrued expenses and other liabilities.......... 9,786,325 (906,240)(b) 8,880,085
------------ ------------- ------------
Total liabilities............................. 174,748,905 (42,906,240) 131,842,665
------------ ------------- ------------
Shareholders' equity:
Common stock.................................... 28,977,910(a) 52,000,000
23,022,090(b)
Retained earnings............................... 45,394,834 2,310,000(c) 47,704,834
Net unrealized appreciation on investments, net
of deferred federal income tax expense of
$683,664...................................... 1,327,111 1,327,111
------------ ------------- ------------
Total shareholders' equity...................... 46,721,945 54,310,000 101,031,945
------------ ------------- ------------
Total liabilities and shareholders' equity...... $221,470,850 $ 11,403,760 $232,874,610
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
23
<PAGE>
MEEMIC HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS ADJUSTED FOR
MEEMIC FOR OFFERING FOR OFFERING
------------- ------------- -------------
<S> <C> <C> <C>
Revenues and other income:
Net premiums earned........................................... $ 31,486,807 $ 31,486,807
Net investment income......................................... 3,464,096 3,464,096
Net realized investment gains on fixed maturities............. 361 361
Other income.................................................. 976,130 976,130
------------- -------------
Total revenues and other income............................. 35,927,394 35,927,394
------------- -------------
Expenses:
Losses and loss adjustment expenses, net...................... 21,920,341 21,920,341
Policy acquisition and other underwriting expenses............ 7,028,697 7,028,697
Interest expense.............................................. 906,240 $ (906,240 (f)
Amortization expense.......................................... 1,478,790 1,478,790
Other expense................................................. 28,792 28,792
------------- ------------- -------------
Total expenses.............................................. 31,362,860 (906,240) 30,456,620
------------- ------------- -------------
Income from operations before federal income taxes.......... 4,564,534 906,240 5,470,774
Federal income taxes............................................ 1,179,195 308,122(g) 1,487,317
------------- ------------- -------------
Net income before extraordinary item........................ $ 3,385,339 $ 598,118 $ 3,983,457
------------- ------------- -------------
------------- ------------- -------------
Earnings per share data (h):
Net income per share of common stock.......................... $ 0.74
-------------
-------------
Weighted average number of shares of common stock
outstanding................................................. 5,400,000
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
24
<PAGE>
MEEMIC HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA COMPANY
ADJUSTMENTS COMPANY PRO FORMA ADJUSTED FOR
HISTORICAL FOR ADJUSTED FOR ADJUSTMENTS ACQUISITION
MEEMIC ACQUISITION ACQUISITION FOR OFFERING AND OFFERING
------------ -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues and other income:
Net premiums earned............... $ 67,830,283 $ 67,830,283 $ 67,830,283
Net investment income............. 6,676,783 6,676,783 6,676,783
Net realized investment gains on
fixed maturities................ 32,214 32,214 32,214
Other income...................... 840,725 $ 10,320,639(a) 2,057,547 2,057,547
(9,103,817)(b)
------------ -------------- -------------- ------------
Total revenues and other
income........................ 75,380,005 1,216,822 76,596,827 76,596,827
------------ -------------- -------------- ------------
Expenses:
Losses and loss adjustment
expenses, net................... 47,301,864 47,301,864 47,301,864
Policy acquisition and other (9,103,817)(b)
underwriting expenses........... 16,690,094 8,341,525(a) 15,927,802 15,927,802
Interest expense.................. 1,341,835 485,665(c) 1,827,500 $ (1,827,500 (f) 0
Amortization expense.............. 714,395 2,209,852(d) 2,924,247 2,924,247
Other expense..................... 30,417 30,417 30,417
------------ -------------- -------------- ------------ ------------
Total expenses.................. 66,078,605 1,933,225 68,011,830 (1,827,500) 66,184,330
------------ -------------- -------------- ------------ ------------
Income from operations before
federal income taxes.......... 9,301,400 (716,403) 8,584,997 1,827,500 10,412,497
Federal income taxes................ 2,672,239 (243,577)(e) 2,428,662 621,350(g) 3,050,012
------------ -------------- -------------- ------------ ------------
Net income before extraordinary
item.......................... $ 6,629,161 $ (472,826) $ 6,156,335 $ 1,206,150 $ 7,362,485
------------ -------------- -------------- ------------ ------------
------------ -------------- -------------- ------------ ------------
Earnings per share data (h):
Net income per share of common
stock......................... $ 1.36
------------
------------
Weighted average number of
shares of common stock
outstanding................... 5,400,000
------------
------------
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
25
<PAGE>
MEEMIC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BALANCE SHEET:
The accompanying unaudited pro forma balance sheet as of June 30, 1998 has
been prepared as if the following transactions had been consummated as of June
30, 1998:
(a) Sale of 3,097,791 (minimum) shares of Common Stock in the Subscription
Offering at $10 per share:
<TABLE>
<S> <C>
Proceeds from the Subscription Offering........................ $30,977,910
Less, estimated Subscription Offering and Demutualization
expenses..................................................... (1,500,000)
Less, Donation to MEEMIC Foundation............................ (500,000)
----------
Net proceeds $28,977,910
----------
----------
</TABLE>
(b) Conversion of $21,500,000 ProNational Surplus Note plus accrued interest of
$1,522,090 from January 1, 1998 to November 1, 1998 into 2,302,209 shares of
Common Stock at $10 per share. The $615,850 represents interest to be
accrued from July 1, 1998 through November 1, 1998. Had the conversion
occurred at June 30, 1998 ProNational would have paid MEEMIC $615,850 in
cash as part of the conversion. As a result, the $615,850 is presented as a
cash contribution on the June 30, 1998 pro forma balance sheet.
<TABLE>
<S> <C>
Surplus Note................................................... $21,500,000
Accrued interest through June 30, 1998......................... 906,240
Interest to be accrued from July 1, 1998 to November 1, 1998... 615,850
----------
$23,022,090
----------
----------
</TABLE>
(c) Use of a portion of net proceeds to retire the Payable Related to
Acquisition to former Agency shareholders. The former Agency shareholders
will elect to exercise an accelerated payment option on the Payable Related
to Acquisition. The accelerated payment option will result in an additional
$2 million bonus payable, before applying a 7 percent discount to the entire
unpaid purchase price at time of option. The discount for early
extinguishment of debt will result in extraordinary income of $3,500,000
before federal income taxes of $1,190,000, or $2,310,000 additional income
after federal taxes.
<TABLE>
<S> <C>
Balance of Payable Related to Acquisition...................... $20,500,000
Discount, net of bonus, related to option exercised............ 3,500,000
----------
Proceeds utilized for accelerated retirement................... $17,000,000
----------
----------
</TABLE>
(d) The pro forma balance sheet does not reflect the issuance of up to 300,000
share awards that would be available under the Stock Compensation Plan. The
Stock Compensation Plan will replace the existing Amended and Restated
Michigan Educational Employees Mutual Insurance Company Incentive Plan.
Expenses incurred under the Stock Compensation Plan are expected to be
comparable to the current incentive plan.
(e) The unaudited pro forma consolidated balance sheet, as prepared, gives
effect to the sale of Common Stock at the minimum of the Subscription
Offering Range based upon the assumptions set forth under
26
<PAGE>
MEEMIC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
1. BALANCE SHEET: (CONTINUED)
USE OF PROCEEDS. The following table provides a comparison between the sale
of Common Stock at the minimum and maximum of the Subscription Offering
Range.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
------------- -------------
<S> <C> <C>
Net proceeds from Demutualization.............................. $ 28,977,910 $ 40,977,910
Conversion of ProNational Surplus Note......................... 23,022,090 23,022,090
</TABLE>
2. STATEMENTS OF OPERATIONS:
The accompanying unaudited pro forma statements of operations for the six
months ended June 30, 1998 and for the year ended December 31, 1997 present
results as if the acquisition of certain assets of the Agency, the issuance of
the Surplus Note and the transactions described in Note 1 of the Notes to
Unaudited Pro Forma Financial Statements had been consummated on January 1,
1997. On September 22, 1997, MEEMIC's wholly owned subsidiary, MEEMIC Insurance
Services Corporation, purchased the assets of the Personal Lines and Life
Divisions of Michigan Educators Insurance Agency, Inc. (including all rights to
distribute MEEMIC insurance products) for a purchase price equal to 3.75 percent
of all premiums written through the Agency through July 14, 2004, subject to a
guaranteed minimum payment of $43 million. Under certain conditions, this
guaranteed minimum payment may be accelerated. The accelerated payment option
would result in an additional $2 million bonus payable before applying a 7
percent discount to the entire unpaid purchase price at time of option. The
initial payment of $22.5 million was paid at closing.
(a) Reflect revenues and expenses from 1/1/97 to 9/21/97 of the Personal Lines
and Life Divisions of the Agency (the period prior to its acquisition by
MEEMIC).
(b) Eliminate intercompany revenues and expenses.
(c) Increase interest expense related to the Surplus Note, which was issued in
order to provide MEEMIC with the capital to acquire the Personal Lines and
Life Divisions of the Agency, at a rate of 8.5 percent annually from 1/1/97
to 4/7/97, (the period prior to the note issuance).
(d) Increase amortization expense for the period 1/1/97 to 9/21/97 to reflect a
full year of amortizing goodwill that resulted from MEEMIC's acquisition of
the Personal Lines and Life Divisions of the Agency on 9/22/97.
(e) Decrease income taxes to reflect the impact of items (a) through (d) above
at the statutory rate of 34 percent.
(f) Eliminate interest expense on the Surplus Note exchanged for shares of
Common Stock.
(g) Increase income taxes to reflect the impact of item (f) above at the
statutory rate of 34 percent.
(h) Pro forma earnings per share is computed by dividing pro forma net income by
the weighted average number of Common Stock shares outstanding during the
period. The pro forma weighted average Common Stock outstanding is at the
minimum number of shares to be issued in the Demutualization and consists of
the following, as if they had been outstanding since January 1, 1997:
<TABLE>
<S> <C>
Minimum Shares sold in the Subscription Offering................. 3,097,791
Shares converted for Surplus Note................................ 2,302,209
---------
Weighted average Common Stock outstanding........................ 5,400,000
---------
---------
</TABLE>
27
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial data for
MEEMIC prior to the Demutualization at and for the periods indicated and should
be read in conjunction with the Consolidated Financial Statements, and
accompanying notes and other financial information included elsewhere in this
document as well as "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS." See Note 13 in "Notes to Consolidated Financial
Statements" for a discussion of the principal differences between generally
accepted accounting principles ("GAAP") and statutory accounting practices, and
for a reconciliation of consolidated net income and equity, as reported in
conformity with GAAP, with statutory net income and statutory surplus, as
determined in accordance with statutory accounting practices, as prescribed or
permitted by the Michigan Insurance Bureau. The consolidated statement of income
data for the six months ended June 30, 1998 and 1997 and the consolidated
balance sheet data at June 30, 1998 are derived from the unaudited consolidated
financial statements of MEEMIC. MEEMIC believes that such unaudited financial
data fairly reflect the consolidated results of operations and the consolidated
financial condition of MEEMIC for such periods. For a presentation of the pro
forma effect of the Subscription Offering and related transactions on MEEMIC,
see "PRO FORMA DATA."
28
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE DATA:
Direct premiums written.................... $ 55,431 $ 52,069 $ 106,350 $ 104,993 $ 98,917 $ 91,147 $ 80,387
Net premiums written....................... 32,668 37,110 75,000 64,286 56,919 52,478 57,265
Net premiums earned........................ 31,487 37,624 67,830 62,497 55,981 53,389 54,007
Net investment income...................... 3,464 3,147 6,677 5,150 4,488 3,875 3,408
Net realized investment gains.............. 23 32 37 28 3 39
Other income............................... 976 289 841 589 588 488 513
--------- --------- --------- --------- --------- --------- ---------
Total revenues......................... 35,927 41,083 75,380 68,272 61,084 57,755 57,966
LOSSES AND EXPENSES:
Losses and loss adjustment expenses...... 21,920 26,878 47,302 44,872 38,815 41,300 36,586
Policy acquisition and other underwriting
expenses............................... 7,029 9,415 16,690 16,074 16,248 16,769 16,298
Interest expense......................... 906 421 1,342
Amortization expense..................... 1,479 714
Other expense............................ 29 5 30 11 9 29
--------- --------- --------- --------- --------- --------- ---------
Total expenses......................... 31,363 36,719 66,079 60,957 55,072 58,098 52,884
Income from operations before federal
income taxes............................. 4,564 4,364 9,301 7,315 6,012 (343) 5,082
Federal income taxes....................... 1,179 1,252 2,672 2,064 1,558 (675) 1,551
--------- --------- --------- --------- --------- --------- ---------
Net income................................. $ 3,385 $ 3,112 $ 6,629 $ 5,251 $ 4,454 $ 332 $ 3,531
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
SELECTED BALANCE SHEET DATA:
Total investments........................ $ 115,790 $ 121,693 $ 111,543 $ 90,896 $ 73,371 $ 64,358 $ 60,360
Total assets............................. 221,471 182,537 208,019 150,703 132,471 121,949 109,478
Total liabilities........................ 174,749 143,408 164,738 114,701 101,299 97,603 82,544
Total policyholders' surplus............. 46,722 39,129 43,281 36,002 31,172 24,346 26,934
GAAP RATIOS:
Loss and loss adjustment expenses
ratio(1)............................... 69.6% 71.4% 69.7% 71.8% 69.3% 77.4% 67.7%
Policy acquisition and other underwriting
expense ratio(2)....................... 22.3% 25.0% 24.6% 25.7% 29.0% 31.4% 30.2%
Combined ratio(3)........................ 91.9% 96.4% 94.3% 97.5% 98.3% 108.8% 97.9%
STATUTORY DATA (AT PERIOD END):
Combined ratio(4)........................ 95.3% 96.2% 95.3% 97.5% 97.6% 108.0% 99.3%
Industry combined ratio(5)............... 100.3% 104.3% 105.2% 109.5% 104.2%
Statutory surplus(6)..................... $ 37,055 $ 52,386 $ 34,513 $ 29,141 $ 24,407 $ 20,145 $ 20,002
Ratio of statutory net written premiums
to statutory surplus(7)................ 1.76 1.42 2.17 2.21 2.33 2.61 2.86
PRO FORMA DATA(8):
Net income............................... $ 3,983 $ 7,362
Net income per share of common stock..... $ 0.74 $ 1.36
Weighted average number of shares of
common stock outstanding............... 5,400,000 5,400,000
</TABLE>
- ------------------------
(1) Calculated by dividing losses and loss adjustment expenses by net premiums
earned.
(2) Calculated by dividing other underwriting expenses by net premiums earned.
(3) The sum of the GAAP Loss and Loss Adjustment Expense Ratio and the Total
Underwriting Expense Ratio.
(4) The sum of the Statutory Loss and Loss Adjustment Expense Ratio and the
Total Underwriting Expense Ratio.
(5) As reported by A.M. Best Company, Inc., an independent insurance rating
organization, Best's Aggregate & Averages-- Property--Casualty, (Priv. Pass.
Automobile and Homeowners Quantitative Analysis Report). Data unavailable
for the periods ended June 30, 1998 and 1997.
(6) Statutory surplus at June 30, 1998 and 1997 and at December 31, 1997
includes the $21.5 million Surplus Note issued on April 7, 1997. The
statutory surplus at June 30, 1998 and December 31, 1997 excludes MEEMIC's
$22.5 million investment in subsidiary, MEEMIC Insurance Services
Corporation that was acquired on September 22, 1997 and is a non-admitted
asset for statutory reporting purposes.
(7) Annualized for the periods ended June 30, 1998 and 1997.
(8) Information excerpted from unauditied Pro Forma Consolidated Statements of
Income for the six months ended June 30, 1998 and the year ended December
31, 1997, which give effect to the Demutualization and the acquisition of
the Personal Lines and Life Divisions of the Agency as if they had occurred
on January 1, 1997. The weighted average number of shares outstanding is
assumed to be unchanged during the period and at the minimum number of
shares to be issued in the Demutualization. See "PRO FORMA DATA."
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MEEMIC Holdings, Inc. was formed to be the holding company for MEEMIC after
the Demutualization. Before the Demutualization, MEEMIC Holdings, Inc. will not
engage in any significant operations and is therefore not in the following
discussion. On the Effective Date of the Demutualization, MEEMIC will become a
wholly-owned subsidiary of MEEMIC Holdings, Inc.
The following discussion provides additional information regarding MEEMIC's
consolidated financial condition and results of operations for the six months
ended June 30, 1998 and June 30, 1997 and for the three years ended December 31,
1997, 1996 and 1995. This discussion should be read in conjunction with the
consolidated financial statements of MEEMIC, and notes thereto, which appear
elsewhere in the Prospectus.
OVERVIEW
MEEMIC, a company founded by teachers, writes full coverage private
passenger automobile and homeowners insurance primarily to educational employees
and their immediate families in the state of Michigan. MEEMIC sells its
insurance contracts through over 90 sales representatives associated with MEEMIC
Insurance Services Corporation, a wholly owned agency subsidiary, which is the
exclusive distributor of MEEMIC's products. As of June 30, 1998, MEEMIC had over
108,000 policies in force, representing 151,852 insured vehicles and 27,127
homeowner units.
FINANCIAL CONDITION
MEEMIC's total assets increased to $221.5 million at June 30, 1998 as
compared to $208.0 million at December 31, 1997 and $150.7 million at December
31, 1996. The substantial increase in 1997 is the result of the $21,500,000
capital infusion from Professionals which was used to purchase certain assets of
the Agency (including all rights to distribute MEEMIC insurance products) for a
purchase price equal to 3.75 percent of all premiums written through the Agency
through July 14, 2004, subject to a guaranteed minimum payment of $43 million.
The majority of MEEMIC's assets consist of bonds, some preferred stocks,
cash and short-term investments, that in total were $121,390,625 at June 30,
1998, $113,747,580 at December 31, 1997 and $93,074,657 at December 31, 1996.
MEEMIC primarily invests in high quality bonds with the objective of providing
stable income while maintaining liquidity at appropriate levels for MEEMIC's
current and long-term requirements. The portfolio consists primarily of
government bonds, municipal bonds, collateralized mortgage obligations, and
investment grade corporate bonds. The modified duration of investments has
remained relatively constant at approximately three years. As of June 30, 1998,
and at December 31, 1997 and 1996 the portfolio had an average Standard & Poor's
security quality rating of AA (Excellent), and there were no securities in
default concerning the timely payment of interest and principal. MEEMIC's gross
unrealized gains and gross unrealized losses in investments in securities were
$2,084,134 and $73,359 at June 30, 1998, respectively, were $1,995,059 and
$67,669, respectively, at December 31, 1997, and were $1,245,740 and $304,558,
respectively, at December 31, 1996. Such changes in MEEMIC's gross unrealized
gains and losses are a result of fluctuating bond market values due to
volatility of interest rates in the marketplace.
MEEMIC is continuing to improve its rate adequacy review and loss estimation
process by implementing new actuarial system software to interface with MEEMIC's
new policy and claims system. These revisions along with the restructuring of
territories for rating purposes will more precisely enable MEEMIC to
competitively price products for the risks it insures. MEEMIC's recorded
estimates of loss and loss adjustment expenses reserves totaled $92.3 million at
June 30, 1998, compared to $84.9 million at December 31, 1997 and $80.3 million
at December 31, 1996. The 8.7 percent ($7.4 million) increase in reserves for
six months ended 1998, the 5.7 percent ($4.6 million) increase in reserves for
1997, and the 12.9 percent ($9.2 million) increase in reserves for 1996 are
attributable to general allowances for growth
30
<PAGE>
in the number of insured vehicles and homeowner policies in force. Uncertainties
inherent in the loss estimation process will invariably cause differences in
actual ultimate liabilities from estimates. Aggregate loss reserves at December
31, 1997 and 1996 have been certified by an independent actuarial firm and are
believed to be a reasonable provision for all unpaid loss and loss expense
obligations of MEEMIC under the terms of its policies and agreements.
At June 30, 1998 unearned premiums were $30.6 million, compared to $29.4
million at December 31, 1997 and compared to $28.8 million at December 31, 1996.
The increase in unearned premiums at June 30, 1998 compared to December 31, 1997
of 4.1 percent is comparable to the growth in premiums written. However, the
increase of 2.1 percent in unearned premiums for 1997 is greater than the
increase of 1.3 percent in premiums written for 1997, as a result of ceding
premium on the new quota share reinsurance contract with ProNational on an
earned basis as opposed to a written basis.
Other liabilities at June 30, 1998 were $51.8 million and at the end of 1997
and 1996 were $50.4 million and $5.5 million, respectively. While $42 million of
the increase in 1997 is due to the Surplus Note and the outstanding payable
related to purchasing the assets of the Personal Lines and Life Divisions of the
Agency, changes in other liability account balances are primarily due to the
timing of Company payments for state association assessments, payroll and
retirement plan contributions. Additionally, the liabilities at June 30, 1998
and December 31, 1997, include $906,240 and $1,341,835, respectively, for
interest on MEEMIC's $21.5 million surplus note and management fees of $498,630
and $504,109, respectively, due to Professionals.
REINSURANCE
MEEMIC's risks of loss are prudently managed by various quota share and
excess of loss reinsurance contracts that combine auto liability and homeowners.
MEEMIC's largest net insured amount on any risk is $150,000. Individual property
risks in excess of $150,000 are covered on an excess basis up to $1,000,000 per
risk. Casualty risks that are in excess of $150,000 are covered on an excess of
loss basis, up to $3,000,000 per occurrence. Catastrophe reinsurance provides
additional coverage for automobile physical damage and homeowners property
damage in four layers, with total reinsurance protection of $13,500,000 in
excess of the first $500,000 loss, and each layer subject to a retention of 5
percent. MEEMIC also has a 40 percent quota share reinsurance agreement in place
for all net retained lines with ProNational. The other principal reinsurers are
American Re-Insurance Company, Continental Casualty Company, Dorinco Reinsurance
Company and Lloyd's Syndicates. Additionally, the Michigan Catastrophic Claims
Association provides unlimited coverage in excess of $250,000 per occurrence for
personal injury losses.
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1997
Net income for the six months ended June 30, 1998 was $3,385,339 compared to
$3,112,285 for the six months ended June 30, 1997. MEEMIC's income from
operations of $4,564,534 and combined ratio of 91.9 percent for the first six
months ended June 30, 1998, were consistent with the income from operations of
$4,363,842 and combined ratio of 96.4 percent for the first six months ended
1997. These positive results are despite a severe storm occurring on May 31,
1998 that approximated $1,275,000 in direct losses, $540,000 in net losses after
reinsurance and 1,218 reported claims. The favorable combined ratio is
attributable to: (i) continued overall favorable claims experience with
reductions in claim frequency that more than offset increases in claim severity
for 1998 compared to 1997, and (ii) reduced reinsurance rates from the 1998
contracts.
Net investment income before interest expense was $3,464,096 and $3,146,817
for the first six months ended June 30, 1998 and 1997, respectively. Gross
realized gains and losses were $477 and $116 for June 30, 1998 and were $23,627
and $764 for June 30, 1997, respectively. The increase in net investment income
was due principally to increases in invested assets because of positive cash
flows from operations. The annualized total rate of return, which includes both
income and changes in market value of securities, was 6.07 percent for six
months ended 1998 and was 5.49 percent for six months ended 1997.
31
<PAGE>
Overall premiums have increased due to policyholder growth. Direct auto
premiums increased 5.5 percent over second quarter 1997, and were $51,088,669 at
June 30, 1998 compared to $48,425,122 at June 30, 1997. Direct homeowner
premiums increased 19.2 percent over second quarter 1997, and were $4,342,573 at
June 30, 1998 compared to $3,643,810 at June 30, 1997. At June 30, 1998, MEEMIC
had 151,852 insured vehicles and 27,127 homeowner policies in force. Net
premiums earned for the six months ended June 30, 1998 were $31,486,807 compared
to $37,623,582 for the six months ended June 30, 1997. The decrease in net
premiums earned was due to the change in quota share reinsurance contracts
whereby MEEMIC ceded more premiums in 1998 than the premiums ceded in 1997. The
favorable second quarter results for 1998 are similar to 1997 despite additional
expenses in 1998 of approximately $1.7 million for interest on a surplus note,
management fees to Professionals and inclusion of Agency personnel that are now
employees of MEEMIC.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
Net income for 1997 was $6,629,161 compared to $5,250,901 for 1996. MEEMIC's
surplus increased by over 20 percent to $43,281,572 at December 31, 1997. In
1996 MEEMIC's policyholder surplus increased by over 15 percent to $36,001,514
at December 31, 1996. MEEMIC's profitability for 1997 was primarily the result
of more favorable claims experience and reduced rates from the 1997 reinsurance
contracts.
MEEMIC's combined ratio improved for the third consecutive year and was 94.3
percent for 1997 compared to 97.5 percent for 1996. MEEMIC's income from
operations was $9,301,400 for 1997 compared to $7,315,206 for 1996, and the
after tax return on equity was 18.4 percent in 1997 compared to 16.8 percent in
1996. Overall, MEEMIC's loss ratio for 1997 was 58.7 percent compared to 62.5
percent for 1996. The 1997 auto liability loss ratio improved to 52.4 percent
from 59.0 percent in 1996 due to decreases in both claim frequency and severity.
The 1997 auto physical damage loss ratio also improved, to 59.8 percent from
64.8 percent in 1996, and is due to: (i) a reduction in claim frequency that
offset an increase in claim severity for 1997 compared to 1996 and (ii) the
effects on physical damage premium rate adjustments. The homeowner loss ratio
increased to 83.7 percent in 1997 from 67.6 percent in 1996. The increase in
loss ratio was due to a severe storm in Michigan that occurred in July 1997.
MEEMIC continued to reduce expenses and improve operational efficiencies in
1997. For the sixth consecutive year, MEEMIC's other underwriting expenses ratio
has declined, and was 24.6 percent in 1997 compared to 25.7 percent in 1996.
This decline in 1997 occurred despite various additional expenses related to the
Agency asset acquisition, management fees paid to Professionals and new computer
systems that aggregated $2 million.
Net investment income before interest expense was $6,676,783 for 1997
compared to $5,150,035 for 1996. Gross realized gains and losses were $33,026
and $812 for 1997 and were $37,085 and $370 for 1996, respectively. The increase
in net investment income was due principally to increases in invested assets
because of positive cash flows from operations. During 1997, MEEMIC had interest
expense of $1,341,835 from the $21,500,000 Surplus Note that was issued to
ProNational at an annual rate of 8.5 percent. This note, dated April 7, 1997,
allowed MEEMIC to obtain capital needed to purchase assets of the Agency
(including all rights to distribute MEEMIC insurance products) (1996 did not
have any interest expense). The annualized total rate of return, which includes
both income and changes in market value of securities, was 6.89 percent for 1997
and 4.75 percent for 1996.
MEEMIC's premium growth for 1997 was steady. Total direct premiums written
increased to $106,349,578 in 1997 from $104,992,855 in 1996. The 1.3 percent
increase in 1997 direct premiums written was distorted by the inclusion of the
Michigan Catastrophic Claims Association ("MCCA") assessments, which decreased
by 79.4 percent during 1997. Written premiums excluding the MCCA assessments
increased 9.9 percent over 1996, and was due primarily to an increase of 3.4
percent in the number of insured vehicles, a rate increase in auto physical
damage premiums, a 14 percent increase in homeowner policies in force, and a 4.5
percent homeowner rate increase that went into effect January 1, 1997. With the
32
<PAGE>
continued growth in MEEMIC's homeowners, MEEMIC's product mix in terms of
premiums written by line was 7.4 percent homeowners and 92.6 percent personal
automobile as of December 31, 1997. Net premiums written in 1997 increased to
$75,000,234 or 16.7 percent from 1996. MEEMIC's net premiums written increased
substantially more in 1997 than the direct premiums written as a result of the
reduction in the MCCA statutory assessment and more favorable reinsurance rates
in 1997. Net premiums earned increased 8.5 percent in 1997 to $67,830,284 and
lagged increases in net premiums written due to the business growth and
differences in when revisions for quota share reinsurance and rate adjustments
became effective, versus when they were earned for accounting purposes.
Direct premiums written during 1997 for automobile coverage were $98,471,060
compared to 1996 direct premiums written of $98,425,097. This apparent lack of
change in auto direct premiums written was actually comprised of an increase in
the number of insured vehicles from 139,809 to 144,530, which was offset by a
decrease in the MCCA premium assessments.
MEEMIC's homeowner business continued to steadily grow since it was first
introduced in 1992. Direct premiums written during 1997 for homeowners increased
20 percent to $7,878,518, and the number of homeowner policies in force at
December 31, 1997, increased 14 percent to 25,080.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
Net income for 1996 was $5,250,901 compared to $4,454,177 for 1995. MEEMIC's
surplus increased by over 15 percent to $36,001,514 at December 31, 1996. In
1995 MEEMIC's policyholder surplus increased by over 28 percent to $31,172,169
at December 31, 1995.
With combined ratios of 97.5 percent in 1996 and 98.3 in percent in 1995,
MEEMIC's income from operations was $7,315,206 for 1996 compared to $6,012,116
for 1995. The after tax return on equity was 16.8 percent in 1996 and 18.3
percent in 1995. MEEMIC's profitability for both 1996 and 1995 was attributable
to the continued expenditure reductions and general economies of scale in
expenses relative to increased earned premiums. Favorable underwriting results
were also a result of improved product pricing methods in 1996. Although general
weather conditions in 1996 were more severe, MEEMIC's consistent underwriting
and claims practices resulted in stable claim frequency and severity loss
experience for both 1996 and 1995. Overall, MEEMIC's loss ratio for 1996 was
62.45 percent compared to 59.19 percent for 1995. The auto liability and
physical damage loss ratios remained relatively unchanged at 58.96 percent and
64.84 percent respectively, compared to 57.25 percent and 63.35 percent,
respectively for 1995. The 1996 homeowner loss ratio increased to 67.64 percent
from 47.13 percent in 1995.
MEEMIC continued to improve operational efficiencies. For the fifth
consecutive year, MEEMIC's other underwriting expenses ratio declined, and was
25.7 percent in 1996, compared to 29.0 percent in 1995.
Net investment income was $5,150,035 for 1996 compared to $4,488,017 for
1995. Gross realized gains and losses were $37,085 and $370 for 1996 and were
$28,486 and $799 for 1995, respectively. The increase in net investment income
was due principally to increases in invested assets because of positive cash
flows from operations. The annualized total rate of return, which includes both
income and changes in market value of securities, was 4.75 percent for 1996 and
12.16 percent for 1995.
1996 was the first year in MEEMIC's history where premiums exceeded $100
million. Total direct premiums written increased 6.1 percent in 1996 to
$104,992,854, and increased 8.5 percent in 1995 to $98,917,063. Net premiums
written in 1996 increased to $64,285,553, or 12.9 percent from 1995, while the
direct premiums written increased 6.1 percent in 1996. MEEMIC's net premiums
written for 1996 increased twice as fast as the direct premiums written for 1996
due to the decrease in auto physical damage quota share reinsurance to 65
percent in 1996 from 70 percent in 1995, and more favorable reinsurance rates in
1996. Net premiums written in 1995 increased to $56,918,690, similar to the 8.5
percent increase in 1995 direct premiums written. Net premiums earned increased
11.6 percent in 1996 to $62,496,887 and increased 4.9 percent in 1995 to
$55,980,673. Net premiums earned have lagged increases in net premiums
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<PAGE>
written due to the general business growth and differences in when revisions for
quota share reinsurance and rate adjustments became effective, versus when they
were earned for accounting purposes.
Direct premiums written during 1996 for automobile coverage increased 5.1
percent to $98,425,097. This 5.1 percent increase in direct premiums written was
attributable to an increase in the number of insured vehicles from 137,212 to
141,130 and from minor inflationary rate adjustments. Direct premiums written
during 1995 for automobile coverage increased 7.5 percent, from $87,064,526 to
$93,611,207. This 7.5 percent increase in direct premiums written was
attributable to (i) a 6.4 percent increase from 1995 and 1994 premium rate
adjustments; and (ii) a 1.1 percent increase in the number of insured vehicles
from 135,747 to 137,212.
Direct premiums written during 1996 for homeowners increased 23.8 percent to
$6,567,758, and the number of homeowner policies in force at December 31, 1996
increased 19.3 percent to 22,007. Direct premiums written during 1995 for
homeowners increased 30 percent, from $4,082,755 to $5,305,847, and the number
of homeowner policies in force at December 31, 1995, increased 23.6 percent,
from 14,925 to 18,447.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow and liquidity are managed in order to meet anticipated short-term
and long-term payment obligations, and to maximize opportunities to earn
interest on those funds not immediately required.
MEEMIC's primary sources of cash are from premiums, investment income and
proceeds from maturities of portfolio investments. The principal uses of cash
are for payments of claims, commissions, taxes, operating expenses and purchases
of investments.
On February 7, 1997, MEEMIC entered into an agreement with Professionals for
the purpose of arranging for a capital infusion into MEEMIC and to provide
MEEMIC with a means to expand its insurance capacity and operations. On April 7,
1997, MEEMIC issued the Surplus Note to ProNational for $21.5 million, with
interest payable annually at a rate of 8.5%. The entire principal and any
accrued unpaid interest is due on April 7, 2009. However, any repayment is
subject to written authorization by the Bureau and approval by the MEEMIC Board
of Directors. MEEMIC considered the purchase of its exclusive sales agency as a
long-term beneficial opportunity to consolidate marketing operations and sales
functions for insurance issued by MEEMIC.
On September 22, 1997, MEEMIC completed its acquisition of certain assets of
the Agency through MEEMIC's newly formed wholly-owned subsidiary. The $21.5
million proceeds of the Surplus Note purchased by ProNational, an additional $1
million in MEEMIC cash, plus any amounts to be paid on an earned-out basis from
current commission levels were used for the acquisition. ProNational has elected
to exchange the $21.5 million Surplus Note and accrued but unpaid interest as of
November 1, 1998 for 2,302,209 shares of Common Stock of MEEMIC Holdings, Inc.
upon completion of the Demutualization of MEEMIC. MEEMIC is currently pursuing
Demutualization to provide a source of capital for growth and expansion of its
current auto and homeowner products, as well as provide capacity for new product
lines. The increased capital resources from Demutualization will also allow
MEEMIC to retire liabilities under the terms of the Agency purchase agreement
and improve operational flexibility and financial capabilities for business and
regulatory purposes.
Cash provided by operations for the six months ended June 30, 1998 and 1997
was $8,126,284 and $7,771,937, respectively, and for the year 1997 was
$21,644,969 compared to $18,037,485 in 1996. The $3.6 million increase in 1997
is due to the increase in net premiums written, which was partially reduced by
additional federal income taxes required to be paid in 1997, and approximately
$1 million from operations of the new MEIA insurance agency subsidiary. Cash
provided by operations during 1996 increased $11.4 million from 1995 due to
increases in net premiums written and the reduction in federal income taxes
required to be paid in 1996.
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<PAGE>
Cash provided by operations and deemed available for investment was employed
in full compliance with MEEMIC's written statement of investment policy.
Likewise, proceeds from matured and called investments of $5,862,315 for the
first six months of 1998, $15,355,796 for the year 1997 and $8,934,651 for 1996
were reinvested in similar high quality investments. During the first six months
of 1998 and 1997, and for the years 1997 and 1996, MEEMIC did not sell any of
its long-term fixed maturity securities.
EFFECTS OF INFLATION
The effects of inflation on MEEMIC are considered in estimating reserves for
unpaid losses and loss adjustment expenses, and in the premium rate-making
process. The actual effects of inflation on MEEMIC's results of operations
cannot be accurately known until the ultimate settlement of claims. However,
based upon the actual results reported to date, it is management's opinion that
MEEMIC's loss reserves, including reserves for losses that have been incurred
but not yet reported, make adequate provision for the effects of inflation.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 131 "Disclosures About Segments of
an Enterprise and Related Information," which is effective for fiscal year
beginning after December 15, 1997. This standard requires that an enterprise
report financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. MEEMIC is not
required to report pursuant to SFAS No. 131 until December 31, 1998 and has not
determined what effects the adoption of SFAS No. 131 will have on its
consolidated results of operations or financial condition.
YEAR 2000 COMPLIANCE
MEEMIC has completed an assessment of its computer programs and personal
computer software and has determined that all significant systems are Year 2000
compliant. To date, MEEMIC has incurred approximately $2 million and purchased a
new computer system for business processing, enhanced its telephone system,
installed new forms processing software and equipment and upgraded its financial
reporting systems, that improve operating efficiencies and are Year 2000
compliant. The purchase of these new systems has not required MEEMIC to incur
specific Year 2000 remediation expenses. Additionally, MEEMIC has conducted Year
2000 investigation and testing with its major third party vendors' software and
hardware and determined Year 2000 compliance. MEEMIC is also in the process of
assessing Year 2000 readiness of the leased premise that MEEMIC occupies. In the
event that such premise is not Year 2000 compliant, MEEMIC will activate its
offsite disaster recovery location, which has been determined Year 2000
compliant. While MEEMIC believes that Year 2000 compliance issues have been
reasonably addressed, both internally and externally, no assurances can be given
that all entities for which MEEMIC engages business activity will be Year 2000
compliant.
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<PAGE>
MARKET FOR THE COMMON STOCK
MEEMIC Holdings, Inc. has never issued any capital stock. Consequently,
there is no established market for the Common Stock. MEEMIC Holdings, Inc. has
applied to have the Common Stock approved for quotation on the NASDAQ NMS under
the symbol " " upon completion of the Demutualization.
MEEMIC Holdings, Inc. has engaged three firms to act as market makers in the
Common Stock upon completion of the Demutualization, subject to market
conditions and compliance with applicable laws and regulatory requirements. The
development of a public market having the desirable characteristics of depth,
liquidity and orderliness, however, depends upon the presence in the marketplace
of a sufficient number of willing buyers and sellers at any given time, over
which neither MEEMIC Holdings, Inc. nor any market maker has any control.
Accordingly, there can be no assurance that an established and liquid market for
the Common Stock will develop, or if one develops, that it will continue.
Furthermore, there can be no assurance that purchasers will be able to resell
their shares of Common Stock at or above the Purchase Price after the
Demutualization.
DIVIDEND POLICY
MEEMIC Holdings, Inc. may pay cash dividends on the Stock at times
determined by the Board of Directors and when legally allowed. Payment of
dividends by MEEMIC Holdings, Inc. may be contingent on the receipt of dividends
from MEEMIC. The payment of dividends by MEEMIC is subject to limitations
imposed by the Michigan Insurance Code (the "Insurance Code"). See "INSURANCE
REGULATORY MATTERS--Dividends." It is not anticipated that MEEMIC Holdings, Inc.
will pay any cash dividends in the foreseeable future. See "DESCRIPTION OF
COMMON STOCK."
INSURANCE REGULATORY MATTERS
GENERAL
Michigan insurance companies are subject to supervision and regulation by
the Bureau. Such supervision and regulation relates to numerous aspects of an
insurance company's business and financial condition. The primary purpose of
such supervision and regulation is the protection of policyholders rather than
investors or shareholders of an insurer. The authority of the Bureau includes
the establishment of standards of solvency which must be met and maintained by
insurers, the licensing to do business of insurers and agents, the nature of and
limitations on investments by insurers, reviewing certain premium rates for
various lines of insurance, the provisions which insurers must make for current
losses and future liabilities and the approval of policy forms. The Bureau also
conducts periodic examinations of the affairs of insurance companies and
requires the filing of annual and other reports relating to the financial
condition of insurance companies doing business in the State of Michigan.
The Insurance Code requires prior notice and approval of changes in control
of a domestic insurer or its holding company and of material intercorporate
transfers of assets within the holding company structure. Under the Insurance
Code, no person, corporation or other entity may acquire "control" of MEEMIC
Holdings, Inc., unless such person, corporation or entity has obtained prior
approval of the Michigan Insurance Commissioner for such acquisition or an
exemption from this requirement. A complete definition of "control" is contained
in the Insurance Code. This definition includes, but is not limited to, the
possession or the contingent or noncontingent right to acquire possession,
direct or indirect, or the power to direct any person acquiring, directly or
indirectly, 10% or more of the voting securities of a Michigan insurance company
or its parent company. To obtain approval of any such change in control, the
proposed acquiror must file an application with the Michigan Insurance
Commissioner containing certain information regarding the identity and
background of the acquiror and its affiliates, the sources and amount of funds
to be used to effect the acquisition and other matters. Acquisition of "control"
of MEEMIC and MEEMIC Holdings, Inc. by Professionals has been approved by the
Bureau.
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<PAGE>
INSURANCE COMPANY DIVIDENDS
The payment of dividends by MEEMIC to MEEMIC Holdings, Inc. is subject to
limitations imposed by the Insurance Code. Under the Insurance Code, cash
dividends may be paid by MEEMIC only from earnings and policyholders' surplus.
In addition, an insurer subject to the Michigan insurance holding company law
may not pay an "extraordinary dividend or distribution" to its stockholders
without the prior approval of the Michigan Insurance Commissioner. Currently, an
extraordinary dividend or distribution is defined as any dividend or
distribution of cash or other property, whose fair market value together with
that of other dividends or distributions made within the preceding 12 months,
exceeds the greater of 10% of the insurer's surplus as regards policyholders as
of December 31 of the preceding year, or the net income, not including realized
capital gains, for the 12 month period ending December 31 of the immediately
preceding year, but shall not include pro-rata distributions of any class of the
insurer's own securities.
MICHIGAN NO-FAULT AUTOMOBILE INSURANCE
Under a pure no-fault automobile insurance system, responsibility for an
automobile accident is not at issue. Each insured's own insurance company pays
for his or her medical expenses and lost wages, regardless of who caused the
accident, and the individuals relinquish the right to sue to recover damages.
The objective of such a system is to eliminate the delays and costs of court
disputes associated with the tort system, encourage prompt payment of
compensation and return a larger percentage of insurance premium dollars to
accident victims. No state has yet adopted a pure no-fault system.
Michigan's modified no-fault system, originally enacted in 1973, permits
lawsuits over automobile accidents only under certain conditions. For example, a
suit for damages is permitted under Michigan's no-fault law when an injured
person has suffered death, permanent serious disfigurement or serious impairment
of body function. Damages are assessed on the basis of comparative fault, except
that damages shall not be assessed in favor of a party more than 50% at fault.
The law is not based on a monetary threshold.
Michigan's no-fault law also requires insurers to provide unlimited medical
coverage to automobile accident victims. The cost of providing such unlimited
medical coverage has somewhat offset the savings typically associated with a
non-monetary threshold. In response, the Michigan Catastrophic Claims
Association (the "MCCA") was established to spread the costs of medical coverage
to all insureds. The MCCA essentially acts as a reinsurer for all Michigan
automobile insurers, reimbursing for amounts paid on personal injury protection
claims in excess of $250,000. Participation is required for all Michigan
licensed automobile and motorcycle insurers.
MICHIGAN ESSENTIAL INSURANCE ACT
The Michigan Legislature determined in the late 1970s that automobile and
homeowner insurance was "essential" for citizens of Michigan. Thus, the Michigan
Essential Insurance Act ("EIA"), which took full effect in 1981 was adopted.
The EIA requires an insurer to insure every applicant for automobile
insurance who meets certain minimum requirements and the insurer's underwriting
rules. The underwriting rules must be applied uniformly to all applicants and
insureds. Each insurer must file its underwriting rules with the Michigan
Insurance Commissioner. In addition, the EIA also limits rating criteria that
insurers may employ, requires insurers to develop a "secondary" or merit rating
plan under which premium surcharges are levied on poor drivers, establishes a
joint underwriting association to provide insurance to individuals who cannot
obtain coverage in the insurance market and regulates certain other types of
coverages and informational requirements. MEEMIC is currently exempt from the
provisions of the EIA.
THE EIA HAS BEEN AND CONTINUES TO BE THE SUBJECT OF REVIEW AND PROPOSALS FOR
MODIFICATION BY THE BUREAU, STATE LEGISLATORS AND INSURERS. MEEMIC AND MEEMIC
HOLDINGS, INC. CANNOT PREDICT WHETHER ANY SUCH MODIFICATIONS WILL OCCUR AND WHAT
EFFECT SUCH MODIFICATIONS WOULD HAVE ON MEEMIC'S BUSINESS. MOREOVER, MEEMIC AND
MEEMIC HOLDINGS, INC. CANNOT PREDICT WHETHER MEEMIC'S EXEMPTION FROM THE EIA
WILL BE CONTINUED.
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<PAGE>
BUSINESS OF MEEMIC
STRATEGY
MEEMIC's principal future strategies are to:
(i) Respond to the needs of its policyholders by increasing its product
line.
(ii) Increase its presence in under-served areas of the state of
Michigan.
(iii) Diversify geographically by entering other states, either through
licensing of MEEMIC in other jurisdictions or acquisition.
(iv) Lower the expense ratio and maintain a high level of customer
service through continued enhancement of MEEMIC's information and processing
systems.
Management has started the process of implementing these strategies and
views the Demutualization as a critical component of its strategic plan. The
additional capital generated by the Demutualization will permit MEEMIC to
accelerate putting these strategies into place.
EXPAND PRODUCT OFFERINGS. MEEMIC recognizes that the educational community
has insurance needs beyond personal automobile and homeowners. The corporate
vision is to become the company of choice to the educational community for
insurance services. MEEMIC expects to increase premium volume and retention
through the addition of products providing coverage for such lines as
recreational vehicles and personal umbrellas.
MEEMIC has recently formed a Product Development Department and hired a
Product Manager to assess the risks associated with new lines, accurately price
new products to compensate for risk assumed and facilitate the implementation of
a new line within MEEMIC and with the sales force. MEEMIC believes that by
meeting the policyholders' need for a variety of products, the sales force will
be able to increase premium volume on the current product line as well as
through sales of new products.
INCREASED PRESENCE IN UNDER-SERVED AREAS OF MICHIGAN. With the acquisition
of the Agency, in 1997, MEEMIC has positioned itself to control the sales and
marketing of its products. It has started programs to better equip the sales
force with the tools they need to service current policyholders and attract new
policyholders to MEEMIC.
Even though MEIA has approximately 90 sales representatives throughout the
state, there are still many school districts without MEEMIC representation.
MEEMIC has started an aggressive campaign to appoint new producers and sub
producers to improve penetration of MEEMIC products. A field marketing employee
and a marketing trainer were added at the end of 1997 to give support to current
sales representatives and help in making new sales representatives productive as
quickly as possible.
GEOGRAPHIC EXPANSION. MEEMIC's goal is to achieve geographic
diversification of risk outside of the state of Michigan in states which have
different exposure to loss and regulatory environments that do not present undue
regulatory interference. MEEMIC intends to achieve this goal through internal
growth but it will examine opportunities for acquisition. These expansion
efforts are not expected to begin for at least two years.
EXPANDED SERVICE CAPABILITIES. Retention of MEEMIC policyholders has always
been strong. Approximately 95% of policyholders continue after the first term,
87% continue after five years and some policyholders that started with MEEMIC in
its first year of business are still on the books after 48 years. However,
MEEMIC knows that it cannot continue with these retention rates in today's
environment without enhancing its strong commitment to customer service. In 1998
it implemented a Customer Service Department that is designed to receive and
quickly resolve inquiries from policyholders. In addition, it will provide
MEEMIC access to policyholder feedback on how MEEMIC can better serve its
customers in the future.
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<PAGE>
MEEMIC also recognized several years ago that it could not expand without
upgrading its information and processing system. To date it has replaced the
policy processing and claims systems and added a document management system.
Currently underway are upgrades to the financial information systems, an agency
system that provides a single entry, multiple company interface for the sales
representatives and upgrades to the telephone systems to bring greater
efficiencies to MEEMIC's Customer Service Center.
Goals of these new systems center on faster service to policyholders through
reduced turnaround time on all transactions, expanded billing options, reduction
in paper handling and improved internal reporting. Streamlining operations
through the use of technology will also help in improving on MEEMIC's expense
ratio. These are ongoing projects and capital raised through the conversion will
be used to continue improving operations and service to insureds.
PRODUCTS
MEEMIC offers full coverage private passenger automobile and homeowners
insurance primarily for educational employees and their immediate families in
the state of Michigan. Full coverage private passenger automobile is the
dominant line, representing approximately 90% of direct premiums written, with
homeowners coverages representing the balance. The following table sets forth
the direct premiums written, net premiums earned, net loss ratios, expense
ratios and combined ratios by product line for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------------------------- ----------------------------------------------------------
% OF % OF % OF % OF
1998 TOTAL 1997 TOTAL 1997 TOTAL 1996 TOTAL 1995
---------- --------- ---------- --------- ----------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Direct Premiums
Written:
Homeowner......... $4,342,573 7.8% $3,643,810 7.0% $ 7,878,519 7.4% $ 6,567,757 6.3% $5,305,847
Personal
Automobile...... 51,088,669 92.2% 48,425,122 93.0% 98,471,060 92.6% 98,425,097 93.7% 93,611,216
---------- --------- ---------- --------- ----------- --------- ----------- --------- ----------
TOTAL........... $55,431,242 100.0% $52,068,932 100.0% $106,349,579 100.0% $104,992,854 100.0% $98,917,063
---------- --------- ---------- --------- ----------- --------- ----------- --------- ----------
---------- --------- ---------- --------- ----------- --------- ----------- --------- ----------
Net Premiums Earned:
Homeowner......... $2,190,183 7.0% $3,059,757 8.1% $ 5,129,706 7.6% $ 5,366,784 8.6% $4,148,209
Personal
Automobile...... 29,296,624 93.0% 34,563,822 91.9% 62,700,577 92.4% 57,130,103 91.4% 51,832,464
---------- --------- ---------- --------- ----------- --------- ----------- --------- ----------
TOTAL........... $31,486,807 100.0% $37,623,579 100.0% $67,830,283 100.0% $62,496,887 100.0% $55,980,673
---------- --------- ---------- --------- ----------- --------- ----------- --------- ----------
---------- --------- ---------- --------- ----------- --------- ----------- --------- ----------
Net Loss Ratios(1):
Homeowner......... 105.1% 124.6% 92.9% 78.3% 50.2%
Personal
Automobile...... 67.0% 66.7% 62.7% 71.2% 70.9%
TOTAL........... 69.6% 71.4% 69.7% 71.8% 69.3%
Expense Ratios(2):
Homeowner......... 33.3% 36.9% 36.8% 33.6% 34.8%
Personal
Automobile...... 21.5% 24.1% 23.7% 24.9% 28.5%
TOTAL........... 22.3% 25.0% 24.6% 25.7% 29.0%
Combined Ratios(3):
Homeowner......... 138.4% 161.5% 129.7% 111.9% 85.0%
Personal
Automobile...... 88.5% 90.8% 86.4% 96.1% 99.4%
TOTAL........... 91.9% 96.4% 94.3% 97.5% 98.3%
<CAPTION>
% OF
TOTAL
---------
<S> <C>
Direct Premiums
Written:
Homeowner......... 5.4%
Personal
Automobile...... 94.6%
---------
TOTAL........... 100.0%
---------
---------
Net Premiums Earned:
Homeowner......... 7.4%
Personal
Automobile...... 92.6%
---------
TOTAL........... 100.0%
---------
---------
Net Loss Ratios(1):
Homeowner.........
Personal
Automobile......
TOTAL...........
Expense Ratios(2):
Homeowner.........
Personal
Automobile......
TOTAL...........
Combined Ratios(3):
Homeowner.........
Personal
Automobile......
TOTAL...........
</TABLE>
- ------------------------
(1) Calculated by dividing losses and loss adjustment expenses by net premiums
earned.
(2) Calculated by dividing other underwriting expenses by net premiums earned.
(3) The sum of the Net Loss Ratio and the Expense Ratio.
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<PAGE>
HOMEOWNERS POLICY
MEEMIC entered the homeowners market in Michigan in 1992 with a multi-peril
policy for homeowners, condominium owners and renters. The homeowners policy, in
addition to the insured's primary residence, provides optional coverage for
seasonal homes, dwellings under construction and some forms of watercraft. As of
June 30, 1998, MEEMIC had 27,127 homeowner policies in force.
PERSONAL AUTOMOBILE
MEEMIC's personal automobile policy provides insureds with protection
against claims resulting from bodily injury and property liability and
automobile physical damage. When sold in conjunction with a homeowners policy,
MEEMIC provides a multi-policy discount. As of June 30, 1998, MEEMIC had 81,088
personal automobile policies in force.
MARKETING
MEEMIC markets its products through over 90 captive sales representatives
associated with MEIA, a wholly-owned insurance agency, which is the exclusive
distributor of MEEMIC products. The representatives are unique in that most of
them also belong to the educational community and hence engage in peer selling.
Although approximately 90% of the business produced by MEIA is underwritten
by MEEMIC, MEIA represents, and receives sales commissions from, other multiple
insurance carriers which write in the state of Michigan. In general, these
carriers offer products that MEEMIC does not currently offer, or insure a class
of business that does not meet MEEMIC's underwriting guidelines. By offering
complementary insurance products through other companies, MEEMIC's policyholders
have the convenience of being able to purchase a full range of insurance
products through a single agent. It also provides MEEMIC with a base of
potential policyholders who currently may not meet the underwriting guidelines
of MEEMIC, but may do so in the future, or, have a need for products that MEEMIC
may offer in the future.
MEIA conducts quarterly meetings with its sales representatives, establishes
benchmarks and goals, conducts technical training and sponsors continuing
education programs. The agency representatives provide an important source of
information to MEEMIC about the marketplace and needs of its customers. This
information is used to develop new products and new product features. The agency
recruits and trains new sales representatives to work in underserviced areas of
the state. The agency also eliminates agents whose production does not meet
minimum standards. MEEMIC pays a fixed commission to its wholly-owned agency,
MEIA, who in turn pays its sales representatives a fixed base commission with
some opportunity for a contingent bonus, based upon the agent's production.
As of June 30, 1998, one sales representative accounted for over 5.4% of
direct premiums written by MEEMIC, with no other sales representative accounting
for more than 5% of direct premiums written. The top 10 representatives
accounted for 35% of direct premiums written.
MEEMIC provides personal computer software that allows sales representatives
to quote rates for homeowners and personal auto insurance. In addition, MEEMIC
has established a home page on the internet for the public that is periodically
updated with pertinent information on MEEMIC, its products, and how to locate a
sales representative. Information contained on MEEMIC's home page is not part of
this Prospectus, and the Subscription Offering is being made only on the basis
of information contained in this Prospectus.
UNDERWRITING
MEEMIC relies on information provided by representatives of MEEMIC's
exclusive agency, MEIA, in underwriting risks. Agency representatives have the
authority to bind coverage for a thirty-day period. The majority of the
representatives are involved with the educational community in a teaching
capacity
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<PAGE>
which results in "peer to peer" selling of MEEMIC's insurance products. This
enhances the representatives' ability to act as field underwriters and
pre-screen applicants.
MEEMIC evaluates and accepts risks based on consistently applied
underwriting guidelines. MEEMIC's processing system provides edits for some of
these guidelines and underwriting supervisors regularly audit the work of
individual underwriters to ensure adherence to standards. MEEMIC's 22
underwriters monitor insureds' deviations from the underwriting guidelines to
assist in decisions related to cancellation and non-renewal.
CLAIMS
The claims philosophy at MEEMIC emphasizes timely investigation, evaluation
and fair settlement while controlling claims expense and maintaining adequate
reserves. A staff of 64 experienced individuals provide prompt service with a
caring attitude to insureds and claimants alike. Their commitment to quality
service has proven to be a strong marketing tool for agency representatives.
While the claims operation is centralized in Auburn Hills, Michigan, several
multi-line resident adjusters are located in cities around Michigan. MEEMIC has
also established a network of automobile glass and body shops that provide
damage appraisals and repairs according to established company guidelines.
Independent adjusters are used when claim volume rises. A reinspection audit
program ensures that repairs are completed timely, economically and to the
satisfaction of the insured.
Assignment of claim files and claim settlement authority is established
based on level of experience. Audits of liability claim files are conducted
regularly by Claims Department managers and reinsurers. Less than 1% of all
claims result in litigation. The majority of litigation is handled by MEEMIC's
in-house legal counsel and monitored by the Claims Department.
REINSURANCE CEDED
In accordance with insurance industry practice, MEEMIC reinsures a portion
of its exposure and pays to the reinsurers a portion of the premiums received on
all policies reinsured. Insurance is ceded principally to reduce net liability
on individual risks, to mitigate the effect of individual loss occurrences
(including catastrophic losses), to stabilize underwriting results and to
increase MEEMIC's underwriting capacity.
Reinsurance can be classified as quota share reinsurance or excess of loss
reinsurance. Under quota share reinsurance, the ceding company cedes a
percentage of its insurance liability to the reinsurer in exchange for a like
percentage of premiums less a ceding commission, and in turn will recover from
the reinsurer the reinsurer's share of all losses and loss adjustment expenses
incurred on those risks. Under excess of loss reinsurance, an insurer limits its
liability to all or a particular portion of the amount in excess of a
predetermined deductible or retention. Regardless of type, reinsurance does not
legally discharge the ceding insurer from primary liability for the full amount
due under the reinsured policies. However, the assuming reinsurer is obligated
to reimburse the ceding company to the extent of the coverage ceded.
MEEMIC determines the amount and scope of reinsurance coverage to purchase
each year based upon an evaluation of the risks accepted, consultations with
reinsurance brokers and a review of market conditions, including the
availability and pricing of reinsurance. For the year ended December 31, 1997,
MEEMIC ceded to reinsurers $37.9 million of earned premiums. For the six months
ended June 30, 1998, MEEMIC ceded earned premiums of $22.8 million.
MEEMIC's reinsurance arrangements are generally renegotiated annually.
Coverages described herein are in place for the 1998 calendar year.
MEEMIC's largest net insured amount on any risk is $150,000. Individual
property risks in excess of $150,000 are covered on an excess of loss basis up
to $1,000,000 per risk. Casualty risks that are in excess of
41
<PAGE>
$150,000 are covered on an excess of loss basis, up to $3,000,000 per
occurrence. Additionally, the MCCA provides unlimited coverage in excess of
$250,000 per occurrence for personal injury losses.
Catastrophic reinsurance protects the ceding insurer from significant
aggregate loss exposure arising from a single event such as windstorm, hail,
tornado, hurricane, earthquake, riot, blizzard, freezing temperatures or other
extraordinary events. MEEMIC has purchased catastrophe reinsurance for
automobile physical damage and homeowners property damage in four layers up to
$13,500,000 in excess of $500,000 with each layer subject to a retention of 5%.
Effective July 1, 1997, MEEMIC and ProNational Insurance Company
(ProNational) entered into a quota share reinsurance treaty. Under the terms of
the treaty, MEEMIC retains 60% and cedes 40% of its liability remaining after
cessions of excess and catastrophic risks through other reinsurance contracts.
The result of the new quota share treaty is a pro rata sharing of risk (60% of
losses and loss adjustment expenses are borne by MEEMIC and 40% by ProNational
with both MEEMIC and ProNational benefiting from other excess and catastrophe
reinsurance). This treaty protects MEEMIC'S surplus from high frequency and low
severity type losses. MEEMIC pays ProNational a reinsurance premium equal to 40%
of premiums collected net of other reinsurance costs. Reinsurance premiums due
ProNational on the quota share treaty are reduced by a ceding allowance equal to
actual expenses of MEEMIC, or approximately 30% of the reinsurance premium. This
reinsurance treaty is designed to stabilize underwriting results, and may not be
canceled while the Surplus Note is outstanding.
Quota share reinsurance may be used to moderate the adverse impact of
underwriting losses to the ceding company but also decreases underwriting
profits which would otherwise be retained by the ceding company. The quota share
reinsurance treaty entered into by MEEMIC with ProNational has had, and will
have, a material effect on the financial condition and results of operations of
MEEMIC during the term of the reinsurance treaty.
The insolvency or inability of any reinsurer to meet its obligations to
MEEMIC could have a material adverse effect on the results of operations or
financial condition of the Company.
The following table identifies MEEMIC's principal reinsurers, their
percentage participation in MEEMIC's aggregate reinsured risk based upon
premiums paid by MEEMIC during the first six months of 1998 and their respective
A. M. Best ratings as of June 30, 1998. No other single reinsurer's percentage
participation in the first six months of 1998 exceeded 3% of total ceded
reinsurance premiums:
<TABLE>
<CAPTION>
AMOUNTS
CEDED DUE
FROM % OF
A.M. BEST PREMIUMS 1998 TOTAL CEDED 1998 TOTAL CEDED
RATING REINSURERS PREMIUMS WRITTEN PREMIUMS WRITTEN
--------- ----------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
MCCA................................. -- $ 35,426 $ 204 0.9%
ProNational.......................... A- 4,995 20,886 91.7
American Re.......................... A++ 3,857 884 3.9
CNA.................................. A 1,617 421 1.8
Dorinco Re........................... A 255 147 0.7
Other................................ 601 222 1.0
----------- ------- --------
$ 46,751 $ 22,764 100.0%
----------- ------- --------
----------- ------- --------
</TABLE>
MEEMIC, through its reinsurance intermediary, annually reviews the financial
stability of all of its reinsurers. This review includes a ratings analysis of
each reinsurer participating in a reinsurance contract. On the basis of such
review, as of June 30, 1998, December 31, 1997 and 1996, MEEMIC concluded that
there was no material exposure to uncollectible reinsurance balances payable to
MEEMIC by its reinsurers. MEEMIC has not experienced any material difficulties
in collecting amounts due from reinsurers and believes (i) that its reinsurance
is maintained with financially stable reinsurers and (ii) that any reinsurance
42
<PAGE>
security maintained is adequate to protect its interests. However, the inability
of MEEMIC to collect on its aggregate reinsurance recoverables, or the inability
of MEEMIC's reinsurers to make payments under the terms of reinsurance treaties
(due to insolvency or otherwise), could have a material adverse effect on
MEEMIC's future results of operations and financial condition.
LOSS AND LAE RESERVES
MEEMIC is required by applicable insurance laws and regulations to maintain
reserves for payment of losses and LAE for both reported claims and for claims
incurred but not reported ("IBNR"), arising from policies that have been issued.
These laws and regulations require that provision be made for the ultimate cost
of those claims without regard to how long it takes to settle them or the time
value of money. The determination of reserves involves actuarial and statistical
projections of what MEEMIC expects to be the cost of the ultimate settlement and
administration of such claims based on facts and circumstances then known,
estimates of future trends in claims severity, and other variable factors such
as inflation and changing judicial theories of liability.
The estimation of ultimate liability for losses and LAE is an inherently
uncertain process and does not represent an exact calculation of that liability.
MEEMIC's current reserve policy recognizes this uncertainty by maintaining
reserves at a level providing for the possibility of adverse development
relative to the estimation process. MEEMIC does not discount its reserves to
recognize the time value of money.
When a claim is reported to MEEMIC, claims personnel establish a "case
reserve" for the estimated amount of the ultimate payment. This estimate
reflects an informed judgment based upon general insurance reserving practices
and on the experience and knowledge of the estimator regarding the nature and
value of the specific claim, the severity of injury or damage, and the policy
provisions relating to the type of loss. Case reserves are periodically adjusted
by the claims staff as more information becomes available.
MEEMIC maintains IBNR reserves to provide for future reporting of already
incurred claims and developments on reported claims. The IBNR reserve is
determined by estimating MEEMIC's ultimate liability for both reported and IBNR
claims and then subtracting the case reserves for reported claims.
Each quarter, MEEMIC computes its estimated ultimate liability using
principles and procedures applicable to the lines of business written. Such
reserves are also considered annually by MEEMIC's independent auditors in
connection with their audit of MEEMIC's combined financial statements. However,
because the establishment of loss reserves is an inherently uncertain process,
there can be no assurance that ultimate losses will not exceed MEEMIC's loss
reserves. Adjustments in aggregate reserves, if any, are reflected in the
operating results of the period during which such adjustments are made. As
required by insurance regulatory authorities, MEEMIC receives a statement of
opinion by its appointed actuary concerning the adequacy of statutory reserves.
The results of these actuarial studies have consistently indicated that reserves
are adequate.
43
<PAGE>
The following table provides a reconciliation of beginning and ending loss
and LAE reserve balances of MEEMIC for the years ended December 31, 1997, 1996
and 1995, as prepared in accordance with GAAP.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of year...................... $ 80,352,682 $ 71,114,057 $ 69,006,939
Less reinsurance balance recoverable.......... 44,657,000 41,544,000 42,905,000
------------- ------------- -------------
Net balance, beginning of year.......... 35,695,682 29,570,057 26,101,939
Incurred related to:
Current year.................................. 54,053,427 47,600,725 38,217,150
Prior years................................... (6,751,563) (2,728,718) 597,756
------------- ------------- -------------
Total incurred.......................... 47,301,864 44,872,007 38,814,906
Paid related to:
Current year.................................. 30,176,142 25,981,678 21,642,166
Prior years................................... 14,805,826 12,764,704 13,704,622
------------- ------------- -------------
Total paid.............................. 44,981,968 38,746,382 35,346,788
------------- ------------- -------------
Net balance, end of year........................ 38,015,578 35,695,682 29,570,057
Plus reinsurance balances recoverable........... 46,905,000 44,657,000 41,544,000
------------- ------------- -------------
Balance, end of year.................... $ 84,920,578 $ 80,352,682 $ 71,114,057
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The following table shows the development of the net liability for unpaid
losses and LAE from 1988 through 1997 for MEEMIC. The top line of the table
shows the original estimated liabilities at the balance sheet date, including
losses incurred but not yet reported. The upper portion of the table shows the
cumulative amounts subsequently paid as of successive years with respect to the
liability. The lower portion of the table shows the re-estimated amount of the
previously recorded liability based on experience as of the end of each
succeeding year. The estimates change as claims settle and more information
becomes known about the ultimate frequency and severity of claims for individual
years. The redundancy (DEFICIENCY) exists when the re-estimated liability at
each December 31 is less (greater) than the prior liability estimate. The
"cumulative redundancy" (DEFICIENCY) depicted in the table, for any particular
calendar year, represents the aggregate change in the initial estimates over all
subsequent calendar years.
44
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss & LAE Reserves as originally
reported................................. $ 19,003 $ 21,186 $ 24,455 $ 30,715 $ 53,771 $ 58,802 $ 69,007 $ 71,114
Less reinsurance recoverable............... 5,385 8,530 9,406 15,895 37,434 39,658 42,905 41,544
--------- --------- --------- --------- --------- --------- --------- ---------
Net Liability--end of year................. $ 13,618 $ 12,656 $ 15,049 $ 14,820 $ 16,337 $ 19,144 $ 26,102 $ 29,570
Cumulative net paid as of:
End of Year................................ 4,980 6,139 8,078 9,510 6,881 11,811 13,705 12,765
Two Years Later............................ 7,628 9,428 12,460 11,333 13,184 17,814 19,047 19,012
Three Years Later.......................... 9,442 10,986 14,116 15,315 15,343 19,830 21,833
Four Years Later........................... 9,951 11,575 15,331 15,981 16,310 20,608
Five Years Later........................... 10,155 11,991 15,462 16,295 16,721
Six Years Later............................ 10,484 12,145 15,624 16,486
Seven Years Later.......................... 10,614 12,253 15,764
Eight Years Later.......................... 10,702 12,363
Nine Years Later........................... 10,764
Re-estimated net liability as of:
End of Year................................ 11,190 12,738 14,889 17,745 15,220 22,785 26,700 26,843
Two Years Later............................ 11,160 12,117 16,759 14,750 17,996 23,138 25,353 25,166
Three Years Later.......................... 10,987 12,626 15,563 17,131 18,548 22,180 24,547
Four Years Later........................... 10,934 12,161 16,101 18,258 17,602 21,837
Five Years Later........................... 10,485 12,454 17,076 17,057 17,561
Six Years Later............................ 10,900 13,432 16,099 17,153
Seven Years Later.......................... 11,649 12,567 16,228
Eight Years Later.......................... 10,927 12,744
Nine Years Later........................... 11,008
Net Cumulative (deficiency) redundancy..... 2,610 (88) (1,179) (2,333) (1,224) (2,693) 1,555 4,404
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Loss & LAE Reserves as originally
reported................................. $ 80,353 $ 84,921
Less reinsurance recoverable............... 44,657 46,905
--------- ---------
Net Liability--end of year................. $ 35,696 $ 38,016
Cumulative net paid as of:
End of Year................................ 14,806
Two Years Later............................
Three Years Later..........................
Four Years Later...........................
Five Years Later...........................
Six Years Later............................
Seven Years Later..........................
Eight Years Later..........................
Nine Years Later...........................
Re-estimated net liability as of:
End of Year................................ 28,944
Two Years Later............................
Three Years Later..........................
Four Years Later...........................
Five Years Later...........................
Six Years Later............................
Seven Years Later..........................
Eight Years Later..........................
Nine Years Later...........................
Net Cumulative (deficiency) redundancy..... 6,752
</TABLE>
In evaluating the information in the table above, it should be noted that
each column includes the effects of changes in amounts for prior periods. The
table does not present accident year or policy year development data. Conditions
and trends that have affected the development of liabilities in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.
As shown in the reserve development table, reserves established at year end
1988 and 1994-1996 developed positively, or lower than expected. Reserves
established at year end 1989-1993 developed adversely, or higher than expected.
During calendar year 1994, MEEMIC began to state reserves on a more conservative
basis by increasing IBNR reserves by $3.6 million and providing for the
possibility of adverse development, which occurred during the years 1989-1993.
INVESTMENTS
All of MEEMIC's investment securities are classified as available for sale
in accordance with SFAS No. 115.
An important component of the operating results of MEEMIC has been the
return on invested assets. MEEMIC's investment objective is to maximize current
yield while maintaining safety of capital together with adequate liquidity for
its insurance operations. As of June 30, 1998, 99.1% of MEEMIC's investment
portfolio consisted of investment grade fixed income securities and short-term
investments. Approximately 65.3% of MEEMIC's fixed income portfolio were rated
AAA as of June 30, 1998, and the portfolio had an average credit quality rating
of AA. MEEMIC's investments are managed by an outside investment advisor.
45
<PAGE>
The following table sets forth certain information concerning MEEMIC's
investments. All figures are shown in thousands.
<TABLE>
<CAPTION>
AT JUNE 30, 1998 AT DEC. 31, 1997 AT DEC. 31, 1996
---------------------- ---------------------- --------------------
MARKET MARKET MARKET
COST(2) VALUE COST(2) VALUE COST(2) VALUE
---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed income securities(1)
United States government and government
agencies and authorities............... $ 18,580 $ 18,680 $ 18,067 $ 18,158 $ 8,072 $ 18,111
Obligations of states, municipalities and
political subdivisions................... 45,864 46,962 42,441 43,623 36,680 37,468
Corporate obligations...................... 16,127 16,487 16,127 16,448 13,655 13,828
Collateralized mortgage obligations........ 20,489 20,817 20,261 20,524 13,296 13,191
Asset backed securities.................... 8,999 9,073 8,997 9,027 3,995 4,012
---------- ---------- ---------- ---------- --------- ---------
Total fixed income securities:........... 110,059 112,019 105,893 107,780 85,698 86,610
Preferred Stock............................ 1,823 1,874 1,827 1,869 2,365 2,393
---------- ---------- ---------- ---------- --------- ---------
Total.................................... $ 111,882 $ 113,893 $ 107,720 $ 109,649 $ 88,063 $ 89,003
---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- --------- ---------
</TABLE>
- ------------------------
(1) In the financial statements of MEEMIC, investments are carried at fair value
as established by quoted market prices on secondary markets.
(2) Original cost of equity securities; original cost of fixed income securities
adjusted for amortization of premium and accretion of discount.
The table below sets forth the maturity profile of MEEMIC's combined fixed
maturity investments as of June 30, 1998 (substituting average life for
mortgage-backed securities). All figures are shown in thousands.
<TABLE>
<CAPTION>
AMORTIZED
COST MARKET VALUE(1) PERCENTAGES(2)
---------- --------------- ---------------
<S> <C> <C> <C>
1 year or less....................................................... $ 3,569 $ 3,576 3.1%
More than 1 year through 5 years..................................... 41,940 42,675 37.5
More than 5 years through 10 years................................... 32,246 32,962 28.9
More than 10 years................................................... 4,639 4,790 4.2
Collateralized and asset backed securities(3)........................ 29,488 29,890 26.3
---------- --------------- -----
$ 111,882 $ 113,893 100.0%
---------- --------------- -----
---------- --------------- -----
</TABLE>
- ------------------------
(1) Fixed maturities are carried at market value in the consolidated financial
statements of MEEMIC.
(2) Represents percent of market value for classification as a percent of total
for each portfolio.
(3) Collateralized and asset backed securities consist of mortgage pass-through
holdings and securities backed by credit card receivables, auto loans and
home equity loans. These securities follow a structured principal repayment
schedule and are of high credit quality rated "AA" or better by Standard &
Poor's. These securities are presented separately in the maturity schedule
due to the inherent risk associated with prepayment.
The average duration of MEEMIC's fixed maturity investments, excluding
collateralized and asset backed securities which are subject to paydown, as of
June 30, 1998, was approximately 2.72 years. As a result, the market value of
MEEMIC's investments may fluctuate significantly in response to changes in
interest rates. In addition, MEEMIC may experience investment losses to the
extent its liquidity needs require the disposition of fixed maturity securities
in unfavorable interest rate environments.
46
<PAGE>
MEEMIC's net investment income and the annualized total rate of return which
includes both income and changes in the market value of securities, for the six
months ended June 30, 1998 and 1997, and the three years ended December 31,
1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net investment income...................... $ 3,464,096 $ 3,146,817 $ 6,676,783 $ 5,150,035 $ 4,488,017
Annualized total rate of return............ 6.07% 5.49% 6.89% 4.75% 12.16%
</TABLE>
A. M. BEST RATING
A. M. Best Company, which rates insurance companies based on factors of
concern to policyholders, currently assigns an "A-" (Excellent) rating (its
fourth highest rating category out of 15 categories) to MEEMIC. A. M. Best
assigns "A" or "A-" ratings to companies which, in its opinion, have
demonstrated excellent overall performance when compared to the standards
established by A. M. Best. Companies rated "A" and "A-" 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
MEEMIC's profitability, leverage and liquidity, as well as MEEMIC's book of
business, the adequacy and soundness of it reinsurance, the quality and
estimated market value of its assets, the adequacy of its loss reserves, the
adequacy of its surplus, its capital structure, the experience and competency of
its management and its market presence. No assurance can be given that A. M.
Best will not reduce MEEMIC's current rating in the future. See "Investment
Considerations--A. M. Best Rating."
COMPETITION
The property and casualty insurance market is highly competitive. MEEMIC
competes with stock insurance companies, mutual companies, and other
underwriting organizations. Certain of these competitors have substantially
greater financial, technical and operating resources than MEEMIC. MEEMIC's
ability to compete successfully in their principal markets is dependent upon a
number of factors, many of which (including market and competitive conditions)
are outside MEEMIC's control. Many of the lines of insurance written by MEEMIC
are subject to significant price competition. In addition to price, competition
in the lines of business written by MEEMIC is based on quality of the products,
quality and speed of service (including claims service), financial strength,
ratings, distribution systems and technical expertise.
REGULATION
Insurance companies are subject to supervision and regulation in the states
in which they transact business. Such supervision and regulation relates to
numerous aspects of an insurance company's business and financial condition. The
primary purpose of such supervision and regulation is the protection of
policyholders. The extent of such regulation varies, but generally derives from
state statutes which delegate regulatory, supervisory and administrative
authority to state insurance departments. Accordingly, the authority of the
state insurance departments includes the establishment of standards of solvency
which must be met and maintained by insurers, the licensing to do business of
insurers and agents, the nature of and limitations on investments, premium rates
for property and casualty insurance, the provisions which insurers must make for
current losses and future liabilities, the deposit of securities for the benefit
of policyholders, the approval of policy forms, notice requirements for the
cancellation of policies and the approval of certain changes in control. State
insurance departments also conduct periodic examinations of the affairs of
insurance companies and require the filing of annual and other reports relating
to the financial condition of insurance companies.
Examinations are regularly conducted by the Bureau every three to five
years. The Bureau's last examination of MEEMIC was as of December 31, 1993.
These examinations did not result in any adjustments to the financial position
of MEEMIC. In addition, there were no substantive qualitative
47
<PAGE>
matters indicated in the examination reports that had a material adverse impact
on the operations of MEEMIC.
In addition to state-imposed insurance laws and regulations, the NAIC has
adopted risk-based capital ("RBC") requirements that require insurance companies
to calculate and report information under a risk-based formula that attempts to
measure statutory capital and surplus needs based on the risks in a company's
mix of products and investment portfolio. Under the formula, a company first
determines its Authorized Control Level risk-based capital ("ACL") by taking
into account (i) the risk with respect to the insurer's assets; (ii) the risk of
adverse insurance experience with respect to the insurer's liabilities and
obligations, (iii) the interest rate risk with respect to the insurer's
business; and (iv) all other business risks and such other relevant risks as are
set forth in the RBC instructions. A company's "Total Adjusted Capital" is the
sum of statutory capital and surplus and such other items as the RBC
instructions may provide. The formula is designed to allow state insurance
regulators to identify potential weakly capitalized companies.
The requirements provide for four different levels of regulatory attention.
The "Company Action Level" is triggered if a company's Total Adjusted Capital is
less than 2.0 times its ACL but greater than or equal to 1.5 times its ACL. At
the Company Action Level, a company must submit a comprehensive plan to the
regulatory authority which discusses proposed corrective actions to improve the
capital position. The "Regulatory Action Level" is triggered if a company's
Total Adjusted Capital is less than 1.5 times but greater than or equal to 1.0
times its ACL. At the Regulatory Action Level, the regulatory authority will
perform a special examination of a company and issue an order specifying
corrective actions that must be followed. The "Authorized Control Level" is
triggered if a company's Total Adjusted Capital is less than 1.0 times but
greater than or equal to 0.7 times its ACL, and the regulatory authority may
take action it deems necessary, including placing a company under regulatory
control. The "Mandatory Control Level" is triggered if a company's Total
Adjusted Capital is less than 0.7 times its ACL, and the regulatory authority is
mandated to place a company under its control. MEEMIC has never failed to exceed
the required levels of capital. There can be no assurance that the capital
requirements applicable to the business of MEEMIC will not increase in the
future.
The NAIC has also developed a set of eleven financial ratios, referred to as
the Insurance Regulatory Information System (IRIS), for use by state insurance
regulators in monitoring the financial condition of insurance companies. The
NAIC has established an acceptable range of values for each of the eleven IRIS
financial ratios. Generally, an insurance company will become the subject of
increased scrutiny when four or more of its IRIS ratio results fall outside the
range deemed acceptable by the NAIC. The nature of increased regulatory scrutiny
resulting from IRIS ratio results outside the acceptable range is subject to the
judgment of the applicable state insurance department, but generally will result
in accelerated review of annual and quarterly filings. Depending on the nature
and severity of the underlying cause of the IRIS ratio results being outside the
acceptable range, increased regulatory scrutiny could range from increased but
informal regulatory oversight to placing a company under regulatory control.
During the last three years, MEEMIC reported no results outside the
acceptable range for any IRIS tests.
The State of Michigan has a guaranty fund law under which insurers doing
business in Michigan can be assessed on the basis of premiums written by the
insurer in order to fund policyholder liabilities of insolvent insurance
companies. Under this law in general, an insurer is subject to assessment,
depending upon its market share of a given line of business, to assist in the
payment of policyholder claims against insolvent insurers. MEEMIC makes accruals
for its portion of assessments related to such insolvency when notified of
assessments by the guaranty associations.
Most states have enacted legislation that regulates insurance holding
company systems. Each insurance company in a holding company system is required
to register with the insurance supervisory agency of its state of domicile and
furnish information concerning the operations of companies within the holding
company system that may materially affect the operations, management or
financial condition of the
48
<PAGE>
insurers within the system. Pursuant to these laws, the respective insurance
departments may examine MEEMIC, MEEMIC Holdings, Inc. and their respective
insurance subsidiaries at any time, require disclosure of material transactions
by MEEMIC and MEEMIC Holdings, Inc. and require prior approval of certain
transactions, such as "extraordinary dividends" from MEEMIC to MEEMIC Holdings,
Inc. Under Michigan law, the maximum dividend that may be paid by MEEMIC to
MEEMIC Holdings, Inc. during any twelve-month period after notice to, but
without prior approval of, the Bureau cannot exceed the greater of 10% of
MEEMIC's statutory surplus as reported on the most recent annual statement filed
with the Bureau, or the net income of MEEMIC for the period covered by such
annual statement. As of December 31, 1997, amounts available for payment of
dividends in 1998 without the prior approval of the Bureau would have been
approximately $6.3 million.
All transactions within the holding company system affecting MEEMIC, MEEMIC
Holding, Inc. and their respective subsidiaries must be fair and equitable.
Approval of the applicable insurance commissioner is required prior to
consummation of transactions affecting the control of an insurer. In some
states, including Michigan, the acquisition of 10% or more of the outstanding
capital stock of an insurer or its holding company is presumed to be a change in
control, and is subject to regulatory approval.
LITIGATION
MEEMIC Holdings, Inc. is not currently subject to any material litigation.
As a personal lines insurer, MEEMIC has many routine matters in current
litigation. It is not anticipated that these routine cases will have a material
adverse effect on the financial condition and results of operations of MEEMIC.
EMPLOYEES
As of June 30, 1998, the total number of employees of MEEMIC was 209. None
of the employees are covered by a collective bargaining unit and MEEMIC believes
that employee relations are good.
49
<PAGE>
MANAGEMENT
DIRECTORS
Set forth below is certain information about the directors of MEEMIC
Holdings, Inc. and MEEMIC.
<TABLE>
<CAPTION>
NAME AGE (AT 9/30/98) TERM ENDING*
- ------------------------------------------------ ---------------- ------------
<S> <C> <C>
Victor T. Adamo................................. 50 2000
R. Kevin Clinton................................ 43 2000
Annette E. Flood................................ 39 2001
Thomas E. Hoeg.................................. 44 1999
Lynn M. Kalinowski.............................. 46 2001
James O. Wood................................... 56 1999
</TABLE>
- ------------------------
* Each of these individuals except James Wood has been a director of MEEMIC
since 1997. Mr. Wood became a director of MEEMIC in October 1998. Each of
these individuals has been a director of MEEMIC Holdings, Inc. since October
21, 1998.
The initial Board of Directors of MEEMIC Holdings, Inc. was appointed.
According to the Bylaws of MEEMIC Holdings, Inc., directors shall be elected at
each annual meeting of the shareholders, each to hold office until the next
annual meeting of shareholders and until a successor is elected and qualified,
or until he resigns or is removed. The Board of Directors of MEEMIC Holdings,
Inc. serves without compensation, but may (i) be reimbursed for actual
reasonable expenses incurred in connection with their duties, and (ii) receive
awards pursuant to MEEMIC Holdings, Inc.'s stock compensation plan (see
"MANAGEMENT--The Stock Compensation Plan").
The members of the Board of Directors of MEEMIC before the Demutualization
will continue to serve as members of the Board of Directors of MEEMIC after the
Demutualization until the end of their respective terms. Under the Amended and
Restated Articles of Incorporation of MEEMIC, Directors shall be elected
annually at the annual meeting of shareholders, shall be elected by a majority
vote of the stockholders represented, and shall hold office for a period of one
(1) year and shall continue to serve until their successors are duly elected and
qualified. No Board fees are provided for Directors employed by MEEMIC,
Professionals Group, Inc., or its subsidiaries. All other Directors are paid an
annual $10,000 retainer plus $1,000 per meeting and out-of-pocket expenses.
Additionally, Board members may receive (i) awards pursuant to MEEMIC's
stock compensation plan and (ii) incentive plan awards based upon company
performance (see "MANAGEMENT--Incentive Plan"). For 1997, all Board members,
except Mr. Wood (a newly appointed Board member), were granted awards under
MEEMIC's incentive plan with individual estimated future payouts upon vesting of
approximately $48,000 (see "MANAGEMENT--The Stock Compensation Plan and
"MANAGEMENT-- Incentive Plan").
VICTOR T. ADAMO, ESQ., has been a director of MEEMIC and Chairman of the
Board of Directors since May 1997. Mr. Adamo is the Chief Executive Officer and
a director of Professionals Group, Inc., positions he has held since 1996 and a
director of ProNational, where he has held various positions since 1985. Prior
to joining ProNational, Mr. Adamo was in private legal practice from 1975 to
1985 and represented ProNational in corporate legal matters. Mr. Adamo is a
graduate of The University of Michigan and New York University School of Law and
is a Chartered Property Casualty Underwriter ("CPCU").
R. KEVIN CLINTON, FCAS, MAAA, has been the President and a director of
MEEMIC since May 1997. Mr. Clinton has been a Vice President and Chief Financial
Officer of Professionals since 1996 and a director of Professionals, Group, Inc.
since September 1997. Mr. Clinton served as a Vice President, Treasurer and
Actuary of ProNational from 1990 through June 1997. Prior to becoming an officer
of ProNational, Mr. Clinton was ProNational's consulting actuary from 1986 to
1990. He formerly served as the Actuary for the Michigan Insurance Bureau and in
the actuarial department of Michigan Mutual
50
<PAGE>
Insurance Company. Mr. Clinton is a Fellow of the Casualty Actuarial Society and
a Member of the American Academy of Actuaries. Mr. Clinton is a graduate of The
University of Michigan where he received a bachelor's degree in business
administration and a master's degree in actuarial science.
ANNETTE E. FLOOD, ESQ., R.N., has been a director of MEEMIC since May 1997.
She has been the Secretary of Professionals since 1996. Ms. Flood is Vice
President, Corporate Secretary and Legal Counsel of ProNational. Prior to
joining ProNational in 1992, Ms. Flood was employed by Lansing General Hospital,
Lansing, Michigan, from 1986 to 1992, most recently in the capacity of Vice
President, Legal Services and Quality Management. Prior to joining the Lansing
General Hospital Staff, Ms. Flood was an attorney in the litigation section of
the law firm of Dykema Gossett PLLC, Lansing, Michigan. Ms. Flood has a B.A.
degree in nursing from The University of Michigan and a law degree from Wayne
State University Law School.
THOMAS E. HOEG, has been a Director of MEEMIC since May 1997. Mr. Hoeg is
the Executive Vice President and Chief Operating Officer of Amerisure Companies.
Prior to joining Amerisure, he was a partner in the Lansing law firm of Foster,
Swift, Collins & Smith and was President of the Michigan Insurance Federation
and a Board member of the Michigan Automobile Insurance Placement Facility. Mr.
Hoeg is a graduate of Northwestern University and the University of Illinois
College of Law.
LYNN M. KALINOWSKI, has been a director of MEEMIC since May 1997 and is the
Executive Vice President for the Company. Prior to joining MEEMIC in 1993, Mr.
Kalinowski was the President of Southern Michigan Mutual Insurance Company and
previously served as Director of Financial Analysis for the Michigan Insurance
Bureau.
JAMES O. WOOD, FCAS, MAAA, has been a director of MEEMIC since October 1998.
Mr. Wood became an independent consulting actuary on April 1, 1997, when he
retired from Tillinghast-Towers Perrin. He has continued to work with several
Tillinghast clients as an independent contractor for Tillinghast. From 1979 to
1997, Mr. Wood was a Principal and Consulting Actuary of Tillinghast-Towers
Perrin whereby he served as one of four managing principals for fifteen of his
twenty-one plus years with Tillinghast. He provided ratemaking, reserving and
financial planning advice to a majority of the medical malpractice insurers
formed during the 1970s. Mr. Wood was chairman of the American Academy of
Actuaries Task Force on Self-Insured Trusts and published the Task Force's
professional guidelines for actuaries involved in self-insurance assignments.
Prior to joining Tillingast, Mr. Wood was with the Aetna Life & Casualty Company
as the actuarial officer in charge of commercial lines rates. Mr. Wood is a
Fellow of the Casualty Actuarial Society and a Member of the American Academy of
Actuaries. Mr. Wood is a graduate of Memphis State University and holds a
Bachelor of Science in mathematics and a Master of Science in mathematical
statistics.
51
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information about the executive officers of
MEEMIC Holdings, Inc. and MEEMIC.
<TABLE>
<CAPTION>
POSITION WITH
NAME AGE MEEMIC HOLDINGS, INC. POSITION WITH MEEMIC
- ----------------------- --- ------------------------ ------------------------
<S> <C> <C> <C>
R. Kevin Clinton....... 43 President and Chief President and Chief
Executive Officer Executive Officer
Harold F. Eppley....... 50 -- Vice President--Claims
Annette E. Flood....... 39 Secretary Secretary
H. Robert Haverland.... 55 -- Vice President--Sales
and Marketing
Lynn M. Kalinowski..... 46 -- Executive Vice President
M. Kay Rickenbaugh..... 53 -- Senior Vice President,
Chief Operating Officer
and Assistant
Secretary
William P. Sabados..... 48 -- Vice President and Chief
Information Officer
Christine C. Schmitt... 41 Treasurer and Chief Senior Vice President,
Financial Officer Treasurer and Chief
Financial Officer
Judith P. Walczak...... 59 -- Vice
President--Underwriting
</TABLE>
The executive officers of MEEMIC Holdings, Inc. and MEEMIC serve at the
pleasure of the Board and are elected or appointed by the respective Board of
Directors at each of its annual meetings following the annual meeting of
shareholders.
For information with respect to Messrs. Clinton and Kalinowski and Ms.
Flood, see "MANAGEMENT--Directors" above.
HAROLD F. EPPLEY, is Vice President of Claims of MEEMIC. Mr. Eppley has been
an officer of the Company since 1994. Mr. Eppley was previously a Branch Claims
Manager of Citizens Insurance Company of America for five years and was in
various positions within the Claims Department at Amerisure Company for 18
years.
H. ROBERT HAVERLAND, is Vice President of Marketing of MEEMIC and President
of MEEMIC Insurance Services Corporation since October 1997. From 1985 to 1997,
Mr. Haverland was Vice President of Marketing of Michigan Educators Insurance
Agency, Inc., certain assets of which MEEMIC purchased in September 1997. Prior
to 1985, Mr. Haverland operated his own insurance agency and represented other
insurance companies as their agent.
M. KAY RICKENBAUGH, is Senior Vice President and Chief Operating Officer of
MEEMIC, joining the Company in 1995. Prior to joining MEEMIC, Ms. Rickenbaugh
was Executive Vice President of Tennessee Insurance Company, Vice President of
Permanent General Companies and an officer of Progressive Casualty Insurance
Company. Ms. Rickenbaugh is a graduate of Case Western Reserve University and is
a Certified Public Accountant and a Certified Employee Benefit Specialist.
WILLIAM P. SABADOS, is Vice President and Chief Information Officer of
MEEMIC, joining the Company as an officer in 1997. Mr. Sabados is also Chief
Information Officer of Professionals and ProNational. From 1987 to 1997, he was
Vice President of Information Systems for the Investor Insurance Group and has
been active in the insurance field for over 20 years.
CHRISTINE C. SCHMITT, is Senior Vice President and Chief Financial Officer
of MEEMIC, joining the Company in 1993. Prior to joining MEEMIC, Ms. Schmitt was
Director of Finance of the Hayman
52
<PAGE>
Company, a property management company. Ms. Schmitt is a Certified Public
Accountant with thirteen years experience with the public accounting firm of
Coopers & Lybrand L.L.P. She is a graduate of Wayne State University with a B.S.
degree in accounting.
JUDITH P. WALCZAK, joined MEEMIC in 1966 as an automobile insurance
underwriter. She has served as Vice President of Underwriting since 1988 and
oversees both the automobile and homeowners underwriting departments.
MANAGEMENT REMUNERATION
The executive officers of MEEMIC Holdings, Inc. have received no
compensation from MEEMIC Holdings, Inc. since its formation. The following table
sets forth information regarding the compensation of MEEMIC's Chief Executive
Officer and the four most highly compensated executive officers of MEEMIC for
the last three completed fiscal years whose salary and bonus exceeded $100,000
in 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------- ------------------------
------------------------------------- RESTRICTED INCENTIVE
OTHER ANNUAL STOCK OPTIONS/ PLAN ALL OTHER
SALARY BONUS(3) COMPENSATION AWARDS SARS PAYOUT COMPENSATION(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($) ($)
- -------------------------------- ---- -------- ------- ------------ ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Kevin Clinton*(1) ........... 1997 -- -- -- -- -- -- $ 0
President and Chief Executive 1996 -- -- -- -- -- -- $ 0
Officer 1995 -- -- -- -- -- -- $ 0
Lynn M. Kalinowski ............. 1997 $167,218 $37,600 -- -- -- -- $26,221
Executive Vice President 1996 $160,248 $50,000 -- -- -- $47,098 $21,868
1995 $159,008 $30,000 -- -- -- -- $34,439
M. Kay Rickenbaugh ............. 1997 $136,256 $45,693 -- -- -- -- $20,780
Senior Vice President and 1996 $133,900 $40,000 -- -- -- $47,098 $17,452
Chief Operating Officer 1995 $121,934 $30,000 -- -- -- -- $64,493
Christine C. Schmitt ........... 1997 $101,228 $32,640 -- -- -- -- $16,947
Senior Vice President, 1996 $ 97,335 $40,000 -- -- -- $47,098 $11,710
Treasurer and Chief Financial 1995 $ 95,130 $30,000 -- -- -- -- $18,626
Officer
William P. Sabados*(2) ......... 1997 $ 13,790 -- -- -- -- -- $ 5,000
Vice President and Chief 1996 -- -- -- -- -- -- $ 0
Information Officer 1995 -- -- -- -- -- -- $ 0
</TABLE>
- ------------------------------
(1) Mr. Clinton's compensation as an officer of MEEMIC is paid by ProNational, a
wholly-owned subsidiary of Professionals Group, Inc., pursuant to the
Management Services Agreement with Professionals Group, Inc. As noted below,
Professionals Group, Inc. is subject to the informational requirements of
the Securities Exchange Act of 1934, and information regarding executive
officer remuneration by Professionals Group, Inc. is publicly available. See
"THE COMPANIES--Professionals Group, Inc." It is anticipated that in
connection with the Demutualization, the Management Services Agreement will
be terminated. MEEMIC Holdings, Inc. and MEEMIC have not yet established
compensation levels for Mr. Clinton on a going-forward basis.
(2) Mr. Sabados' compensation as an officer of MEEMIC is paid by ProNational, a
wholly-owned subsidiary of Professionals Group, Inc., pursuant to a
management services agreement with Professionals Group, Inc. During 1997,
Mr. Sabados received salary of $77,001, a bonus of $30,000 and other
compensation of $17,055 from ProNational for his services as an officer of
MEEMIC and Professionals, which is not pro-rated among entities (in addition
to the amounts listed above).
(3) Incentive Plan awards have also been made to each of the listed individuals
pursuant to MEEMIC's Incentive Plan. The amounts of such awards are set
forth in the table under the heading "MANAGEMENT--Incentive Plan."
(4) Amounts shown for 1997, 1996 and 1995 consist of contributions under the
MEEMIC Retirement and Savings Plan and the MEEMIC Supplemental Retirement
Plan for the benefit of Mr. Kalinowski, Ms. Rickenbaugh and Ms. Schmitt,
except that in 1995 relocation benefits of $45,247 were received by Ms.
Rickenbaugh and in 1997 relocation benefits of $22,055 were received
($17,055 from ProNational and $5,000 from MEEMIC) by Mr. Sabados.
53
<PAGE>
INCENTIVE PLAN
The executive officers of MEEMIC Holdings, Inc. have not yet been awarded
any compensation pursuant to the Company's incentive plan (the "Incentive
Plan"). MEEMIC's Incentive Plan, however, provides for incentive awards to be
granted to certain managers and officers in the discretion of the Board based on
individual and company performance. Incentive awards granted vest five years
after being awarded, with certain exceptions for death, disability and other
limited circumstances. The maximum amount of an Incentive Plan award by MEEMIC
cannot exceed $200,000 per participant per year. The valuation of incentive
payout is based on growth in MEEMIC's surplus assets over a five year vesting
period and then valued at one of five different award levels as determined for
each participant by the Board of Directors.
The following table sets forth the Incentive Plan awards made by MEEMIC to
its Chief Executive Officer and the four most highly compensated officers during
the 1997 fiscal year.
<TABLE>
<CAPTION>
INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
----------------------------------------------------
PERFORMANCE OR ESTIMATED FUTURE
UNIT VALUATION OTHER PERIOD PAYOUTS UNDER
AWARD LEVEL UNTIL MATURATION NON-STOCK
NAME GRANTED OR PAYOUT PRICE-BASED PLAN
- --------------------------- -------------- ----------------- ----------------
<S> <C> <C> <C>
R. Kevin Clinton........... $ 300 December 31, 2001 $ 116,000
Lynn M. Kalinowski......... $ 125 December 31, 2001 $ 48,000
M. Kay Rickenbaugh......... $ 125 December 31, 2001 $ 48,000
Christine C. Schmitt....... $ 125 December 31, 2001 $ 48,000
William P. Sabados......... $ 125 December 31, 2001 $ 48,000
</TABLE>
EMPLOYEE CONTRACTS
MEEMIC Holdings, Inc. does not currently have any employment contracts,
termination agreements or change in control agreements with any executive
officers. MEEMIC, however, has a severance/benefits agreement with Mr.
Kalinowski providing generally for a severance payment in the event of
termination of employment or in the event of a change of control of MEEMIC. Mr.
Kalinowski's agreement provides for a severance payment primarily consisting of
a lump sum payment equal to a maximum amount of 24 times his average monthly
income for the previous year. Mr. Kalinowski's agreement is effective for so
long as he is employed by MEEMIC.
THE STOCK COMPENSATION PLAN
On October , 1998, MEEMIC Holdings, Inc.'s Board of Directors adopted the
Stock Compensation Plan (the "Stock Compensation Plan"). On October , 1998,
the Stock Compensation Plan was approved on by the sole shareholder of MEEMIC
Holdings, Inc.
The Purpose of the Stock Compensation Plan is to provide additional
incentive to Officers, Directors and employees of MEEMIC Holdings, Inc. and
MEEMIC by facilitating their purchase of stock in MEEMIC Holdings, Inc. Pursuant
to the Stock Compensation Plan, 300,000 shares are being reserved for future
issuance by MEEMIC Holdings, Inc., in the form of newly-issued or treasury
shares, upon exercise of stock options ("Options" or "Awards"). If Awards should
expire, become unexercisable or be forfeited for any reason without having been
exercised or without becoming vested in full, the shares of Common Stock subject
to such Awards would, unless the Stock Compensation Plan shall have been
terminated, be available for the grant of additional Awards under the Stock
Compensation Plan.
54
<PAGE>
The Stock Compensation Plan may be administered by either (i) the Board of
Directors of MEEMIC Holdings, Inc. or (ii) a committee of at least two directors
of MEEMIC Holdings, Inc. who are designated by the Board of Directors and who
are "non-employee directors" within the meaning of the federal securities laws
(the "Compensation Committee"). It is contemplated that the Board of Directors
of MEEMIC Holdings, Inc. will initially administer the Stock Compensation Plan.
On the Effective Date of the Demutualization, it is contemplated that options to
purchase up to 175,000 shares of Common Stock at $10.00 per share may be awarded
to the officers identified in the table on page 53 as a class, and options to
purchase up to 175,000 shares of Common Stock at $10.00 per share may be awarded
to the other eligible directors and managers of MEEMIC Holdings, Inc. (not to
exceed 300,000 shares in the aggregate). The amount of individual awards within
these classes has not yet been determined.
Options granted under the Stock Compensation Plan may constitute both
incentive stock options (options that afford favorable tax treatment to
recipients upon compliance with certain restrictions pursuant to Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and that do not
result in tax deductions to MEEMIC Holdings, Inc. unless participants fail to
comply with Section 422 of the Code) ("ISOs")) and options that do not so
qualify ("Non-ISOs"). The exercise price for initial Options granted under the
Stock Compensation Plan will be the price at which the Common Stock is sold in
the Subscription Offering. Options granted at the time of the implementation of
the Stock Compensation Plan are expected to vest and become exercisable over a
five year period after the date such options are granted, at the rate of twenty
percent per year.
MEEMIC Holdings, Inc. will receive no monetary consideration for the
granting of Awards under the Stock Compensation Plan, and will receive no
monetary consideration other than the Option exercise price for each share
issued to optionees upon the exercise of Options. The Option exercise price may
be paid in cash or Common Stock. The exercise Options will be subject to such
terms and conditions established by the Compensation Committee as are set forth
in a written agreement between the Compensation Committee and the optionee (to
be entered into at the time an Award is granted).
Although Directors and Officers of MEEMIC Holdings, Inc. generally would be
prohibited under the federal securities laws from profiting from certain
purchases and sales of shares of Common Stock within any six-month period, they
generally will not be prohibited by such laws from exercising options and
immediately selling the shares they receive. As a result, MEEMIC Holdings,
Inc.'s Directors and Officers generally will be permitted to benefit in the
event the market price for the shares exceeds the exercise price of their
Options, without being subject to loss in the event the market price falls below
the exercise prices.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither MEEMIC nor MEEMIC Holdings, Inc. has a compensation committee.
Rather, decisions pertaining to the compensation of executive officers are made
solely by each company's respective Board of Directors. Decisions regarding
compensation are made by the Board of Directors after receiving input regarding
individual performance from various sources within the company, and through
reviewing salary survey information for the insurance industry.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN SECURITY-HOLDERS
On October , 1998 MEEMIC Holdings, Inc. issued one share of Common Stock
of MEEMIC Holdings, Inc. to R. Kevin Clinton for $10.00. No stock of MEEMIC
Holdings, Inc. or MEEMIC is owned by any other officer or director as of the
date hereof. After the Subscription Offering, it is expected that Officers and
Directors will own shares of MEEMIC Holdings, Inc. pursuant to exercise of their
subscription rights (see "THE DEMUTUALIZATION--Proposed Management Purchases")
and/or granted under the Stock Compensation Plan (see "MANAGEMENT--The Stock
Compensation Plan.")
55
<PAGE>
INDEMNIFICATION AND LIMITATION OF LIABILITY MATTERS
MEEMIC Holdings, Inc.'s Bylaws require MEEMIC Holdings, Inc. to indemnify
its directors, officers, employees and agents to the fullest extent permitted by
law, for expenses, judgments, penalties, fines and amounts paid in settlement in
connection with any pending, threatened or completed action, suit or proceeding
(other than by or in the right of MEEMIC Holdings, Inc.), to which any such
person was made a party by reason of the fact that he or she was acting in such
capacity for MEEMIC Holdings, Inc. or was serving as such for another
corporation or enterprise at MEEMIC Holdings, Inc.'s request. Such
indemnification will be provided if such persons acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
MEEMIC Holdings, Inc. or its shareholders, or in respect to a criminal
proceeding, had no reasonable cause to believe such conduct was unlawful. In
actions by or in the right of MEEMIC Holdings, Inc., indemnification is limited
to expenses, including attorney fees, and amounts paid in settlement, if the
officer or director acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of MEEMIC Holdings, Inc.,
or its shareholders.
The Michigan Business Corporation Act permits Michigan insurance
corporations to limit the personal liability of directors for a breach of their
fiduciary duty. MEEMIC Holdings, Inc.'s Articles of Incorporation limit
liability to the maximum extent permitted by law. MEEMIC Holdings, Inc.'s
Articles of Incorporation provide that a director of MEEMIC Holdings, Inc. shall
not be personally liable to MEEMIC Holdings, Inc. or its shareholders for
monetary damages for breach of the director's fiduciary duty. However, they do
not eliminate or limit the liability of a director for any of the following (i)
the amount of a financial benefit received by a director to which he or she is
not entitled; (ii) intentional infliction of harm on the corporation or its
shareholders; (iii) a violation of Section 551 of the Michigan Business
Corporation Act; or (iv) an intentional criminal act. As a result of the
inclusion of such a provision, shareholders of MEEMIC Holdings, Inc. may be
unable to recover monetary damages against directors for actions taken by them
which constitute negligence or gross negligence or which are in violation of
their fiduciary duties, although it may be possible to obtain injunctive or
other equitable relief with respect to such actions. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of MEEMIC Holdings, Inc. pursuant to
the foregoing provisions, or otherwise, MEEMIC Holdings, Inc. has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
As noted above, Professionals entered into a Surplus Note transaction with
MEEMIC on April 7, 1997. It is pursuant to this transaction that MEEMIC obtained
$21,500,000 in additional capital for which it issued the Surplus Note, and that
Messrs. Adamo, Clinton, Hoeg, Kalinowski, McCabe and Ms. Flood were placed on
the Board of Directors of MEEMIC at that time.
On April 7, 1997, MEEMIC and Professionals Group, Inc. entered into the
Management Services Agreement with Professionals to undertake the oversight
and/or performance of certain duties with respect to MEEMIC's insurance
operations. Under the Management Services Agreement, Professionals provides
information system services for MEEMIC and also provides strategic consulting
services and advice as requested by the MEEMIC Board of Directors with respect
to matters pertaining to MEEMIC and its insurance operations.
Professionals is currently compensated for its services under the Management
Services Agreement by a fee of $2.10 per month for each policy in force on the
first day of the month, up to a maximum of $2,100,000 per year, plus reasonable
out-of-pocket expenses. The Management Services Agreement has a ten year term
which expires on April 7, 2007, but may be terminated on 120 days written notice
if the
56
<PAGE>
Surplus Note is repaid. Following the repayment of the Surplus Note upon the
Demutualization, MEEMIC intends to terminate the Management Services Agreement.
MEEMIC also has a Quota Share Reinsurance Agreement with ProNational,
effective as of July 1, 1997. Under the terms of the Quota Share Reinsurance
Agreement, MEEMIC cedes a 40 percent quota share of its net liability resulting
from losses occurring under policies written or renewed during the term of the
agreement to ProNational. By ceding its "net liability," MEEMIC cedes the 40
percent of its actual losses incurred under its policies after reducing such
losses by any other applicable reinsurance recoverables. As compensation for
accepting these losses, MEEMIC pays ProNational 40 percent of its net written
premiums on the policies ceded to ProNational less a ceding commission equal to
MEEMIC's actual underwriting expense ratio. The Quota Share Reinsurance
Agreement will remain continuously in force until terminated by at least 45 days
written notice, and may not be terminated at any time before repayment of the
Surplus Note. MEEMIC does not intend to terminate the Quota Share Reinsurance
Agreement in connection with the Demutualization. For further information
regarding MEEMIC's reinsurance, See "BUSINESS OF MEEMIC--Reinsurance Ceded."
THE STANDBY PURCHASE AND OPTION AGREEMENT WITH PROFESSIONALS
Under the terms of the Standby Purchase and Option Agreement, Professionals
has the right, but not the obligation, to purchase, commencing on the Effective
Date and continuing for a one year period, up to the number of shares of Common
Stock necessary to assure that, upon exercise of such option, Professionals owns
51% of the outstanding shares of Common Stock of MEEMIC Holdings, Inc.,
determined pursuant to the following formula: (i) .51 multiplied by the number
of outstanding shares of MEEMIC Holdings, Inc. as of the date Professionals
gives notice of the intent to exercise the option; plus (ii) 153,000; less (iii)
the number of shares issued in exchange for the Surplus Note; less (iv) the
number of shares (if any) purchased by Professionals pursuant to its obligation
to purchase shares not sold in the Subscription Offering up to the Subscription
Offering Range minimum; less (v) any other shares owned by Professionals (if
any) at the time Professionals gives notice of intent to exercise the option;
(vi) all then divided by .49. Under the terms of the Standby Purchase and Option
Agreement, the price of the shares purchased shall be determined as follows:
(a) If the option is exercised by Professionals within the first 90
calendar days immediately following the Effective Date of the
Demutualization, Professionals shall purchase each share at $14.00. 120
calendar days after the Effective Date, the price per share purchased
pursuant to the option shall be adjusted to be the larger of (i) the average
of the fair market value per share over the 20 calendar day period
commencing 70 calendar days after the Effective Date or (ii) $14.00.
(b) If the option is exercised by Professionals after the first 90
calendar days immediately following the Effective Date of the
Demutualization, Professionals shall purchase each share at a price equal to
the larger of (i) the average of the fair market value per share over the 20
calendar day period immediately preceding the exercise date, or (ii) $14.00.
57
<PAGE>
TRANSACTIONS WITH FORMER DIRECTORS
Certain former board members of MEEMIC who resigned in connection with the
September 1997 series of transactions with Professionals, received compensation
or deferred compensation for certain services and, among other things, an
agreement not to compete. The compensation awarded by MEEMIC to former directors
is set forth in the following table:
<TABLE>
<CAPTION>
COMPENSATION PAID OR DEFERRED
NAME OF FORMER DIRECTOR TO FORMER DIRECTOR
- ------------------------------------------------- -----------------------------
<S> <C>
Wallace Culton................................... $116,626
Douglas Goulait.................................. $112,963
Carol Sue Hurand-Tulor........................... $112,500
George Orleman................................... $115,350
Donald B. Weatherspoon........................... $115,000
Richard Herbel................................... $112,500
</TABLE>
DESCRIPTION OF COMMON STOCK
GENERAL
In the Subscription Offering MEEMIC Holdings, Inc. is offering for sale up
to 4,297,791 shares of no par value Common Stock at a price per share of $10.00.
MEEMIC Holdings, Inc. has authorized 10 million shares of Common Stock. Owners
of the Common Stock are entitled to such dividends as may be declared by the
Board of Directors out of the assets legally available for that purpose, and are
entitled to one vote per share on all matters submitted to a vote of the
shareholders of MEEMIC Holdings, Inc. The holders of shares of Common Stock do
not have cumulative voting rights and therefore the holders of more than fifty
(50%) percent of the shares voting for the election of Directors can elect all
of the Directors and the remaining holders will not be able to elect any
Directors. The holders of MEEMIC Holdings, Inc.'s Common Stock have no
preemptive rights or other rights to subscribe for additional shares of Common
Stock. There are no conversion rights, redemption rights or sinking fund
provisions with respect to the Common Stock. On liquidation, dissolution or
winding up of MEEMIC Holdings, Inc., the holders of Common Stock are entitled to
receive pro rata the net assets of MEEMIC Holdings, Inc. remaining after the
payment of all creditors and the holders of any senior securities.
The Common Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. ChaseMellon Shareholder
Services, L.L.C. will act as Transfer Agent and Registrar for the Stock.
LIMITATION ON RESALES
The Common Stock issued in the Demutualization to Eligible Policyholders and
Officers and Directors will be freely transferable under the Securities Act of
1933, as amended (the "1933 Act"); provided, however, that shares issued to
Officers and Directors would be restricted as to transfer for a period of one
year from the Effective Date pursuant to the provisions of the Act. Shares of
Common Stock issued to Officers and Directors will bear a legend giving
appropriate notice of these restrictions and MEEMIC Holdings, Inc. will give
instructions to the transfer agent for the Common Stock with respect to these
transfer restrictions. Any shares issued to Officers and Directors as a stock
dividend, stock split or otherwise with respect to restricted stock shall be
subject to the same restriction.
58
<PAGE>
CERTAIN RESTRICTIONS ON ACQUISITION OF AND BUSINESS
COMBINATIONS BY MEEMIC HOLDINGS, INC.
GENERAL
Michigan law contains certain provisions applicable to MEEMIC Holdings, Inc.
that may, in conjunction with certain provisions of the Articles of
Incorporation of MEEMIC Holdings, Inc., have the effect of impeding a change of
control of MEEMIC Holdings, Inc., other than certain permitted transactions with
Professionals. With respect to these transactions, minority shareholder
protection provisions are included in the Articles of Incorporation of MEEMIC
Holdings, Inc. These provisions may have the effect of discouraging a future
takeover attempt which individual shareholders may deem to be in their best
interests or in which shareholders may receive a substantial premium for their
shares over the then current market price. As a result, shareholders who desire
to participate in such a transaction may not have an opportunity to do so.
The following discussion includes a general summary of certain provisions of
the Articles of Incorporation of MEEMIC Holdings, Inc. relating to these
provisions. The following descriptions are necessarily general and reference
should be made to the Michigan Business Corporation Act and the Articles of
Incorporation of MEEMIC Holdings, Inc.
Chapter 7A of the Michigan Business Corporation Act, as amended ("Chapter
7A") contains provisions which generally require that business combinations (as
defined therein) between a Michigan corporation which is subject to Chapter 7A
and a beneficial owner of 10% or more of the voting power of such corporation
(an "Interested Shareholder") generally requires an advisory statement from the
board of directors and approval by the affirmative vote of both (i) not less
than 90% of the votes of each class of stock entitled to be cast by the
shareholders of the corporation and (ii) not less than 2/3 of the votes of each
class of stock entitled to be cast by the shareholders of the corporation other
than voting shares beneficially owned by the interested shareholder party to the
business combination. Such requirements will not apply if: (i) the corporation's
board of directors approves the transaction prior to the time the 10% owner
becomes such; or (ii) the transaction satisfies certain fairness standards,
certain other conditions are met and the 10% owner has been such for at least
five years. MEEMIC Holdings, Inc. has taken action to opt-in to the provisions
of Chapter 7A subject to the exemptions described below.
Chapter 7B of the Michigan Business Corporation Act, as amended ("Chapter
7B") contains provisions which generally provide that shares of stock acquired
in control share acquisitions ("Contract Shares") are entitled to voting rights
only after such rights are granted by resolution approved by (i) a majority of
the votes cast by the holders of each class of stock entitled to be cast, and
(ii) a majority of the votes cast by the holders of each class of stock entitled
to be cast, excluding all interested shares (as defined in Chapter 7B). Control
Shares are shares that, when added to shares previously owned by a shareholder,
increase such shareholder's ownership of voting stock to 20% or more, 33 1/3% or
more or a majority of the outstanding voting power of the company. If a
company's articles of incorporation or bylaws so provide, Control Shares
acquired in a Control Share acquisition with respect to which no acquiring
person statement has been filed may be redeemed at "fair value" by the
corporation at any time during the period ending 60 days after the last Control
Share acquisition. In addition, if a company's articles of incorporation or
bylaws so provide, Control Shares may be redeemed at fair value after an
acquiring person statement has been filed and after the meeting at which the
voting rights of the Control Shares are submitted to shareholders if the Control
Shares are not accorded full voting rights. In the event Control Shares acquired
in a Control Share acquisition are accorded full voting rights and the acquiring
person has acquired a majority of all voting power of the corporation, the
shareholders of the corporation, other than the acquiring person, have
dissenters' rights. Fair value means a value not less than the highest price
paid per share by the acquiring person in the Control Share acquisition.
Both the Plan and the Standby Purchase and Option Agreement contemplate a
number of transactions between MEEMIC Holdings, Inc. and Professionals, which
would otherwise be affected by the
59
<PAGE>
provisions of Chapter 7A and Chapter 7B. Therefore, as required by the Articles
of Incorporation of MEEMIC Holdings, Inc., the Board of Directors of MEEMIC
Holdings, Inc. adopted an irrevocable resolution (the "Irrevocable Resolution")
providing (i) that Chapter 7A shall not apply to either (A) any of the
transactions contemplated by the Plan and the Standby Purchase and Option
Agreement (all of such transactions being the "MEEMIC Transactions"), or (B) any
business combination (as defined in Chapter 7A) of MEEMIC Holdings, Inc., or any
subsidiary of MEEMIC Holdings, Inc., with Professionals or any direct or
indirect wholly-owned subsidiary of Professionals (any such business combination
being a "Professionals Group Combination"), and (ii) that the MEEMIC
Transactions and any and each Professionals Group Combination shall be exempt
from Chapter 7A.
The Articles of Incorporation of MEEMIC Holdings, Inc. provide that Chapter
7B shall not apply to any control share acquisitions of shares of the
corporation (including, without limitation, the MEEMIC Transactions and any and
each Professionals Group Combination).
PROTECTION OF MINORITY INTERESTS
Notwithstanding the foregoing, the Articles of Incorporation of MEEMIC
Holdings, Inc. further provide that after the Demutualization until the earlier
of (a) the date which is twelve months following the date on which Professionals
ceases to be the beneficial owner (as defined in Chapter 7A), directly or
indirectly, of 50% or more of the outstanding voting shares (as defined in
Chapter 7A) of MEEMIC Holdings, Inc.; or (b) the date on which MEEMIC Holdings,
Inc. ceases to have a class of equity securities subject to section 12 or
section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the following provisions of this Section 2 shall apply:
(i) Membership of the Board of Directors shall include at least two
persons ("Independent Directors"), each of whom meets the requirements of an
independent director under the rules of the NASDAQ Stock Market or of any
securities exchange on which its securities are traded, and who is not, and
during the three years prior to his or her election or appointment to the
Board of Directors has not been, any of the following:
(x) an officer or director of Professionals;
(y) engaged in any transaction or series of transactions that would
be or would have been required to be disclosed by MEEMIC Holdings, Inc in
a filing under the Securities Act of 1933, as amended, or the Exchange
Act pursuant to Item 404 of Securities and Exchange Commission Regulation
S-K; or
(z) an affiliate (as defined in Chapter 7A), executive officer,
director, general partner, person performing similar functions to an
executive officer, director or general partner or member of the immediate
family of any person that had the status or engaged in a transaction
described in subparagraphs (x) or (y).
(ii) Approval of a Professionals Group Combination which has either a
reasonable likelihood or a purpose of producing, either directly or
indirectly, any of the effects described in subparagraph (iii) below, shall
require, in addition to any requirement of law or of the Articles of
Incorporation, satisfaction of all of the following conditions:
(x) the Professionals Group Combination shall be on terms determined
by a majority of the Independent Directors (or, if there are fewer than
three Independent Directors, by all of the Independent Directors), after
hearing advice from an investment banking firm of recognized regional or
national standing, to be (1) fair to the shareholders of MEEMIC Holdings,
Inc. (other than Professionals, its affiliates or associates (as defined
in Chapter 7A) (the "Minority Shareholders"); and (2) otherwise in the
best interests of MEEMIC Holdings, Inc. and the Minority Shareholders;
and
60
<PAGE>
(y) the Professionals Group Combination shall, in addition to any
vote required by law or the Articles of Incorporation, be approved by the
affirmative vote of not less than a majority of the outstanding shares of
each class of voting shares entitled to be cast by the Minority
Shareholders.
(iii) The effects referred to in subparagraph (ii) above are:
(x) causing any class of equity securities (as defined in Chapter
7A) of MEEMIC Holdings, Inc. which is subject to section 12(g) or section
15(d) of the Exchange Act to be held of record by fewer than 300 persons;
or
(y) causing any class of equity securities of MEEMIC Holdings, Inc.
which is either listed on a national securities exchange or authorized to
be quoted on an inter-dealer quotation system of a registered national
securities association to be neither listed on any national securities
exchange nor authorized to be quoted on an inter-dealer quotation system
of any registered national securities association.
(iv) The foregoing provisions do not apply to or prohibit any of the
MEEMIC Transactions or purchases of any equity securities of MEEMIC
Holdings, Inc. by Professionals, or any direct or indirect subsidiary (as
defined in Chapter 7A) of Professionals, that are effected on a national
securities exchange, or an inter-dealer quotation system of a registered
national securities association.
The foregoing provisions of the Articles of Incorporation of MEEMIC
Holdings, Inc. may not be amended or repealed except upon (x) the affirmative
vote of not less than three-quarters of the shares of capital stock of the
corporation issued and outstanding entitled to vote thereon and (y) the
affirmative vote of not less than a majority of the outstanding shares of the
capital stock of the corporation issued and outstanding of each class entitled
to be cast by the Minority Shareholders.
61
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion is a summary of certain federal income tax
considerations relevant to the Demutualization, the Subscription Offering and
Eligible Policyholders. This summary does not purport to be a complete analysis
of all the potential tax effects thereof. The discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury regulations, and Internal Revenue Service ("IRS") rulings and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes could be
retroactively applied in a manner that could adversely affect MEEMIC Holdings,
Inc., the Eligible Policyholder or a holder of the Common Stock. No information
or discussion is provided herein with respect to foreign, state or local tax
laws or estate and gift tax considerations, or non-income tax issues. This
information is directed only to investors who will hold the Common Stock as a
"capital asset" within the meaning of Section 1221 of the Code.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE TAX CONSEQUENCES OF RECEIVING AND EXERCISING SUBSCRIPTION RIGHTS,
OF HOLDING COMMON STOCK AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE DEMUTUALIZATION.
MATERIAL TAX EFFECTS TO MEEMIC HOLDINGS, INC.
MEEMIC has obtained an opinion from PricewaterhouseCoopers LLP (the "Tax
Opinion") concerning the material tax effects of the Demutualization and the
Subscription Offering to Eligible Policyholders, and certain other participants
in the Subscription Offering. The Tax Opinion states, among other things, that
the Demutualization of MEEMIC from a mutual to stock form of corporation should
constitute a reorganization within the meaning of Section 368(a)(1)(E) of the
Code, and as such, no gain or loss should be recognized by MEEMIC as a result of
the Demutualization. The Tax Opinion further states that (i) MEEMIC Holdings,
Inc. should recognize no gain or loss on its granting of subscription rights to
Eligible Policyholders, and should recognize no gain or loss on the lapse of a
subscription right; (ii) no gain or loss should be recognized by MEEMIC
Holdings, Inc. on the receipt of cash or other property in exchange for its
stock, (iii) MEEMIC Holdings, Inc. should have a basis in the stock of MEEMIC
equal to the amount paid therefor, (iv) MEEMIC should recognize no gain or loss
on receipt of property in exchange for its stock, and (v) that MEEMIC should
recognize discharge of indebtedness income on the exchange of the Surplus Note
for shares of Common Stock to the extent that the fair market value of such
Common Stock is less than the adjusted issue price of the Surplus Note.
The Tax Opinion and the position of MEEMIC Holdings, Inc. is based upon
various published and unpublished rulings of the IRS involving the conversion of
certain mutual insurance and savings and loan companies to stock companies,
which rulings are not binding precedent and which are subject to change at any
time by legislative, judicial or administrative action. Any such changes could
be retroactively applied in a manner that could adversely affect MEEMIC
Holdings, Inc., the Eligible Policyholders, or a holder of Common Stock.
SUBSCRIPTION RIGHTS
Generally, the federal income tax consequences of the receipt, exercise and
lapse of subscription rights are uncertain. They present novel issues of tax law
which are not addressed by any direct authorities. The Tax Opinion provides that
(i) the Eligible Policyholders should be treated as transferring their voting
rights and rights to share in any liquidation surplus of MEEMIC to MEEMIC
Holdings, Inc. in exchange for the subscription rights, and that therefore, an
Eligible Policyholder should recognize gain or loss to the extent that the fair
market value of the subscription rights received, if any, differs from the basis
of such Eligible Policyholder in the rights surrendered therefor, (ii) an
Eligible Policyholder who acquires
62
<PAGE>
Common Stock by exercising a subscription right should have a basis in such
Common Stock equal to the amount of cash paid therefor plus the basis in the
subscription right, if any, and (iii) that the applicable holding period should
commence on the day the subscription right is exercised.
The Tax Opinion and the position of MEEMIC Holdings, Inc. is based upon
various published and unpublished rulings of the IRS involving the conversion of
certain mutual insurance and savings and loan companies to stock companies,
which rulings are not binding precedent and which are subject to change at any
time by legislative, judicial or administrative action. Any such changes could
be retroactively applied in a manner that could adversely affect MEEMIC
Holdings, Inc., the Eligible Policyholders, or a holder of Common Stock.
In the opinion of ABN AMRO, the subscription rights do not have any fair
market value, inasmuch as such rights are nontransferable, personal rights of
short duration, that are provided to Eligible Policyholders and other
participants in the Subscription Offering without charge, and afford the holder
only the right to purchase shares of Common Stock in the Subscription Offering
at a price equal to its estimated fair market value. Nevertheless, Eligible
Policyholders are encouraged to consult with their tax advisors about the tax
consequences of the Demutualization and the Subscription Offering.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT PURPORT TO
CONSIDER ALL ASPECTS OF FEDERAL INCOME TAXATION WHICH MAY BE RELEVANT TO EACH
ELIGIBLE POLICYHOLDER THAT MAY BE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE.
DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH ELIGIBLE POLICYHOLDER,
OFFICER AND DIRECTOR IS URGED TO CONSULT HIS OR HER TAX AND FINANCIAL ADVISOR AS
TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER OWN
PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING THE RECEIPT AND EXERCISE OF
SUBSCRIPTION RIGHTS, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE DEMUTUALIZATION.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock being offered hereby
will be passed on for MEEMIC Holdings, Inc. by Dykema Gossett PLLC, Detroit and
Lansing, Michigan. Donald S. Young, a member of Dykema Gossett PLLC, sits on the
Board of Directors of Professionals Group, Inc.
EXPERTS
The consolidated financial statements of MEEMIC as of December 31, 1997,
1996 and 1995, and the consolidated statements of income, policyholders' surplus
and cash flows for each of the years in the three year period ended December 31,
1997 and the financial statements of the Personal Lines and Life Divisions of
Michigan Educators Insurance Agency, Inc. as of December 31, 1996, and the
statement of earnings, divisional deficit and cash flows for the year then
ended, have been included in this Prospectus in reliance upon the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing. PricewaterhouseCoopers LLP has
further consented to the publication in this Prospectus of the summary of its
Tax Opinion and to the use of its name and statements with respect to it
appearing in this Prospectus.
ABN AMRO has consented to the publication in this Prospectus as to the
Appraisal, the estimated proforma market value of MEEMIC Holdings, Inc., and the
value of the subscription rights to purchase Common Stock, and to the use of its
name and statements with respect to it appearing in this Prospectus.
63
<PAGE>
AVAILABLE INFORMATION
MEEMIC Holdings, Inc. intends to furnish its stockholders with annual
reports containing audited consolidated financial statements reported upon by
its independent auditors and quarterly reports containing unaudited consolidated
financial information for each of the first three quarters of each fiscal year.
MEEMIC Holdings, Inc. has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement (together with all amendments,
exhibits, schedules and supplements thereto, the "Registration Statement"), on
Form S-1 (Registration No. ) under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the shares of Common Stock to be issued
in the Subscription Offering. As permitted by the rules and regulations of the
Commission, this Prospectus, which constitutes a part of the Registration
Statement, does not contain all information set forth in the Registration
Statement. For further information, please refer to the Registration Statement,
including the exhibits. The Registration Statement, including exhibits and
schedules thereto, can be inspected and copied at the Commission's Public
Reference Room, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the public reference facilities maintained by the Commission
at its regional offices located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such materials can be obtained from the
Commission at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a website that contains all information filed electronically by MEEMIC
Holdings, Inc. The address of the Commission's website is (http://www.sec.gov).
Statements contained in this Prospectus relating to the contents of any contract
or other document referred to herein are not necessarily complete and reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document, each such statement being
qualified by such reference.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE COMPANY AND SUBSIDIARY
REPORT OF INDEPENDENT ACCOUNTANTS.......................................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(December 31, 1997, 1996 and 1995)..................................................................... F-3
CONSOLIDATED STATEMENTS OF INCOME
(For the years ended December 31, 1997, 1996 and 1995)................................................. F-4
CONSOLIDATED STATEMENTS OF POLICYHOLDERS' SURPLUS
(For the years ended December 31, 1997, 1996 and 1995)................................................. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the years ended December 31, 1997, 1996 and 1995)................................................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... F-7
FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEET (Unaudited)
(June 30, 1998)........................................................................................ F-21
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(For the six months ended June 30, 1998 and 1997)...................................................... F-22
CONSOLIDATED STATEMENT OF POLICYHOLDERS' SURPLUS (Unaudited)
(For the six months ended June 30, 1998)............................................................... F-23
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(For the six months ended June 30, 1998 and 1997)...................................................... F-24
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)........................................... F-25
PERSONAL LINES AND LIFE DIVISIONS OF MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
REPORT OF INDEPENDENT ACCOUNTANTS.......................................................................... F-26
FINANCIAL STATEMENTS
BALANCE SHEET
(December 31, 1996 and September 22, 1997 (date of acquisition)) (Unaudited)........................... F-27
STATEMENT OF EARNINGS
(For the year ended December 31, 1996 and the period from January 1, 1997 to September 22, 1997 (date
of acquisition)) (Unaudited)........................................................................... F-28
STATEMENT OF DIVISIONAL DEFICIT
(For the year ended December 31, 1996 and the period from January 1, 1997 to September 22, 1997 (date
of acquisition)) (Unaudited)........................................................................... F-29
STATEMENT OF CASH FLOWS
(For the year ended December 31, 1996 and the period from January 1, 1997 to September 22, 1997 (date
of acquisition)) (Unaudited)........................................................................... F-30
NOTES TO FINANCIAL STATEMENTS............................................................................ F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Michigan Educational Employees Mutual
Insurance Company:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and policyholders' surplus and of cash flows
present fairly, in all material respects, the financial position of Michigan
Educational Employees Mutual Insurance Company and Subsidiary (the "Company") at
December 31, 1997, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Grand Rapids, Michigan
July 2, 1998
F-2
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities available for sale, at fair value............ $ 109,648,780 $ 89,003,591 $ 71,475,323
Short-term investments, at cost, which approximates fair
value....................................................... 1,894,475 1,892,731 1,895,852
-------------- -------------- --------------
Total investments........................................... 111,543,255 90,896,322 73,371,175
Cash............................................................ 2,204,325 2,178,335 3,330,677
Premiums due from policyholders................................. 3,599,622 3,178,342 2,840,383
Amounts due from reinsurers (Note 5)............................ 40,495,449 40,043,053 40,266,172
Accrued investment income....................................... 1,486,324 1,337,445 1,056,346
Prepaid reinsurance premiums.................................... 6,591,000 5,964,000
Deferred federal income taxes (Note 6).......................... 2,737,658 2,745,208 2,092,348
Property and equipment, at cost, net of accumulated depreciation
(Note 7)...................................................... 1,834,697 1,452,275 1,026,702
Deferred policy acquisition costs (Note 8)...................... 1,604,449 1,981,254 1,997,363
Federal income taxes recoverable................................ 286,534
Intangible assets, net of amortization.......................... 42,149,314
Other assets.................................................... 364,080 299,627 239,863
-------------- -------------- --------------
$ 208,019,173 $ 150,702,861 $ 132,471,563
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND POLICYHOLDERS' SURPLUS
Liabilities:
Loss and loss adjustment expense reserves (Note 9)............ $ 84,920,578 $ 80,352,682 $ 71,114,057
Unearned premiums............................................. 29,436,092 28,857,142 26,441,476
Surplus note (Note 10)........................................ 21,500,000
Payable related to acquisition (Note 4)....................... 20,500,000
Accrued expenses and other liabilities........................ 8,088,328 4,598,920 3,743,861
Federal income taxes payable.................................. 292,603 892,603
-------------- -------------- --------------
Total liabilities............................................... 164,737,601 114,701,347 101,299,394
-------------- -------------- --------------
Policyholders' surplus (Note 13):
Unassigned surplus............................................ 42,009,495 35,380,334 30,129,433
Net unrealized appreciation on investments, net of deferred
federal income tax expense of $655,313, $320,002 and
$537,167 in 1997, 1996 and 1995, respectively............... 1,272,077 621,180 1,042,736
-------------- -------------- --------------
Total policyholders' surplus................................ 43,281,572 36,001,514 31,172,169
-------------- -------------- --------------
Total liabilities and policyholders' equity................. $ 208,019,173 $ 150,702,861 $ 132,471,563
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Revenues and other income:
Premiums written............................................... $ 106,349,578 $ 104,992,855 $ 98,917,063
Premiums ceded................................................. (31,349,345) (40,707,302) (41,998,373)
-------------- -------------- -------------
Net premiums written (Note 5)................................ 75,000,233 64,285,553 56,918,690
Increase in unearned premiums, net of prepaid reinsurance
premiums..................................................... (7,169,950) (1,788,666) (938,017)
-------------- -------------- -------------
Net premiums earned.......................................... 67,830,283 62,496,887 55,980,673
Net investment income (Note 3)................................. 6,676,783 5,150,035 4,488,017
Net realized investment gains on fixed maturities.............. 32,214 36,715 27,687
Other income................................................... 840,725 588,729 587,693
-------------- -------------- -------------
Total revenues and other income.............................. 75,380,005 68,272,366 61,084,070
-------------- -------------- -------------
Expenses:
Losses and loss adjustment expenses, net (Note 9).............. 47,301,864 44,872,007 38,814,906
Policy acquisition and other underwriting expenses............. 16,690,094 16,074,362 16,247,798
Interest expense............................................... 1,341,835
Amortization expense........................................... 714,395
Other expense.................................................. 30,417 10,791 9,250
-------------- -------------- -------------
Total expenses............................................... 66,078,605 60,957,160 55,071,954
-------------- -------------- -------------
Income from operations before federal income taxes........... 9,301,400 7,315,206 6,012,116
Federal income taxes (Note 6).................................... 2,672,239 2,064,305 1,557,939
-------------- -------------- -------------
Net income (Note 13)......................................... $ 6,629,161 $ 5,250,901 $ 4,454,177
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF POLICYHOLDERS' SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
ON INVESTMENTS
NET OF
DEFERRED TOTAL
UNASSIGNED FEDERAL INCOME POLICYHOLDERS'
SURPLUS TAX EFFECT SURPLUS
------------- -------------- -------------
<S> <C> <C> <C>
Balances, January 1, 1995.......................................... $ 25,675,256 $ (1,329,357) $24,345,899
Net income......................................................... 4,454,177 4,454,177
Net appreciation on investment securities.......................... 2,372,093 2,372,093
------------- -------------- -------------
Balances, December 31, 1995........................................ 30,129,433 1,042,736 31,172,169
Net income......................................................... 5,250,901 5,250,901
Net depreciation on investment securities.......................... (421,556) (421,556)
------------- -------------- -------------
Balances, December 31, 1996........................................ 35,380,334 621,180 36,001,514
Net income......................................................... 6,629,161 6,629,161
Net appreciation on investment securities.......................... 650,897 650,897
------------- -------------- -------------
Balances, December 31, 1997........................................ $ 42,009,495 $ 1,272,077 $43,281,572
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 6,629,161 $ 5,250,901 $ 4,454,177
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 1,359,541 540,268 506,170
Realized gains on investments................................... (32,214) (36,715) (27,687)
Net accretion of discount on investments........................ 99,191 96,833 152,055
Deferred federal income taxes................................... (327,761) (435,695) (742,061)
Changes in assets and liabilities:
Premiums due from policyholders............................... (421,280) (337,959) (39,522)
Amounts due from reinsurers................................... (452,396) 223,119 (1,029,048)
Accrued investment income..................................... (148,879) (281,099) (121,389)
Prepaid reinsurance premiums.................................. 6,591,000 (627,000) (509,000)
Deferred policy acquisition costs............................. 376,805 16,109 414,106
Other assets.................................................. (64,453) (59,764) (23,257)
Loss and loss adjustment expense reserves..................... 4,567,896 9,238,625 2,107,118
Unearned premiums............................................. 578,950 2,415,666 1,447,017
Accrued expenses and other liabilities........................ 3,489,408 855,059 142,577
Federal income taxes payable.................................. (600,000) 1,179,137 (100,000)
------------- ------------- -------------
Net cash provided by operating activities................... 21,644,969 18,037,485 6,631,256
------------- ------------- -------------
Cash flows from investing activities:
Purchases of short-term investments............................... (1,894,475) (1,892,731) (1,895,852)
Proceeds from sale or maturity of short-term investments.......... 1,892,731 1,895,852 1,903,255
Proceeds from maturity of securities available for sale........... 15,355,796 8,934,651 6,661,231
Purchases of securities available for sale........................ (35,081,754) (27,161,758) (12,212,032)
Proceeds from sales of property and equipment..................... 107,532
Purchases of property and equipment............................... (1,135,100) (965,841) (319,772)
Cash paid for acquired company, net............................... (22,363,709)
------------- ------------- -------------
Net cash used in investing activities....................... (43,118,979) (19,189,827) (5,863,170)
------------- ------------- -------------
Cash flows from financing activities, issuance of surplus note...... 21,500,000
------------- ------------- -------------
Net increase (decrease) in cash..................................... 25,990 (1,152,342) 768,086
Cash, beginning of year............................................. 2,178,335 3,330,677 2,562,591
------------- ------------- -------------
Cash, end of year................................................... $ 2,204,325 $ 2,178,335 $ 3,330,677
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosure of cash flow information, federal income
taxes paid........................................................ $ 3,200,000 $ 1,320,863 $ 2,400,000
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosure of noncash transaction:
In connection with the acquisition entered into during 1997, the
Company assumed a liability for the deferred portion of the
purchase price equal to $20,500,000 as described in Note 4.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Michigan Educational Employees Mutual Insurance Company and Subsidiary (the
"Company") is a Michigan-licensed property and casualty mutual insurance company
that writes full coverage private passenger automobile protection and homeowner
insurance products for educational employees and their immediate families
exclusively in the State of Michigan. In September 1997, the Company began
selling its insurance contracts through its wholly owned subsidiary, MEEMIC
Insurance Services Corp., d/b/a MEIA Insurance Agency, which is the exclusive
distributor of the Company's products. Prior to that, the Company's products
were sold by Michigan Educators Insurance Agency, Inc. (see Note 4).
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets and revenues and expenses for
the periods then ended. Actual results may differ from those estimates.
The most significant estimates that are susceptible to significant change in
the near term relate to the determination of the loss and loss adjustment
expense reserves. Although considerable variability is inherent in these
estimates, management believes that the reserves are adequate. The estimates are
reviewed regularly and adjusted as necessary. Such adjustments are reflected in
current operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. BASIS OF PRESENTATION: The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary,
and have been prepared in accordance with generally accepted accounting
principles ("GAAP"), which vary in certain respects from statutory accounting
practices followed in reporting to insurance regulatory authorities (see Note 13
for the effect of such differences). All material intercompany balances and
transactions have been eliminated.
b. INVESTMENTS: At December 31, 1997, 1996 and 1995, all of the Company's
securities are classified as available-for-sale and are those securities that
would be available to be sold in response to the Company's liquidity needs,
changes in market interest rates and asset-liability management strategies,
among others.
Available-for-sale securities are recorded at fair value, with unrealized
gains and losses, net of the related income tax effect, excluded from income and
reported as a separate component of policyholders' surplus.
A decline in the fair value of an available-for-sale security below cost
that is deemed other than temporary results in a charge to income, resulting in
the establishment of a new cost basis for the security. All declines in fair
values of the Company's investment securities in 1997, 1996 or 1995 were deemed
to be temporary.
Short-term investments, which consist principally of U. S. government
securities, are stated at cost, which approximates fair value.
Premiums and discounts are amortized or accreted, respectively, over the
life of the related debt security as an adjustment to yield using the
yield-to-maturity method. Dividends and interest income are recognized when
earned. Realized gains and losses are included in earnings and are derived using
the specific-identification method for determining the cost of securities sold.
F-7
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
c. REVENUE RECOGNITION: Insurance premium income is recognized on a daily
pro rata basis over the respective terms of the policies in-force and unearned
premiums represent the portion of premiums written which is applicable to the
unexpired terms of the policies in-force.
Reinsurance arrangements are prospective contracts for which prepaid
reinsurance premiums are amortized ratably over the related policy terms based
on the estimated ultimate amounts to be paid. Changes in estimated outcomes are
recognized currently.
d. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES: Loss and loss adjustment
expense reserves represent the accumulation of individual case estimates for
reported losses and loss adjustment expenses, bulk adjustments to case estimates
and actuarial estimates for incurred but not reported losses and loss adjustment
expenses, based upon the Company's actual experience, assumptions and
projections as to claims frequency, severity, inflationary trends and settlement
payments. The reserve for loss and loss adjustment expenses is intended to cover
the ultimate net cost of all losses and loss adjustment expenses incurred but
unsettled through the balance sheet date reduced for anticipated salvage and
subrogation. Anticipated salvage and subrogation approximated $985,000, $949,000
and $1,185,000 at December 31, 1997, 1996 and 1995, respectively. The reserve is
stated gross of reinsurance ceded.
e. PROPERTY, EQUIPMENT AND DEPRECIATION: Property and equipment are
recorded at cost, net of accumulated depreciation. Depreciation is computed
either on the straight-line or accelerated methods over periods ranging from
three to seven years. Maintenance, repairs and minor renewals are charged to
expense as incurred.
Upon sale or retirement, the cost and related accumulated depreciation of
assets disposed of are removed from the accounts; any resulting gain or loss is
reflected in income.
f. DEFERRED POLICY ACQUISITION COSTS: Policy acquisition costs,
specifically commissions, are deferred, subject to ultimate recoverability from
future income, including investment income and amortized to expense over the
period in which the related premiums are earned.
g. FEDERAL INCOME TAXES: Deferred federal income tax assets and
liabilities are recognized for the expected future tax consequences attributable
to differences between the financial statement carrying amount of assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
h. INTANGIBLES: Intangibles primarily consist of the excess of cost over
fair market value of net tangible assets of an acquired business. Intangible
assets, including noncompete agreements, are amortized on a straight-line basis
over periods ranging from 5 to 15 years. Accumulated amortization totaled
$714,395 at December 31, 1997.
The carrying value of intangibles is periodically reviewed to determine if
any impairment has occurred. The Company measures the potential impairment of
recorded goodwill based on the estimated undiscounted cash flows of the entity
acquired over the remaining amortization period.
i. SURPLUS DISTRIBUTIONS: Policyholder dividends, if any, are subject to
the limitations contained in the Michigan Insurance Code.
F-8
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS:
A summary of amortized cost, gross unrealized gains and losses and estimated
fair value of investments in securities as of December 31, 1997, 1996 and 1995,
follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Fixed maturities available for sale:
U. S. Treasury securities and obligations of U.
S. government corporations and agencies........ $ 18,067,473 $ 104,699 $ 14,412 $ 18,157,760
Debt securities issued by states of the United
States and political subdivisions of the
states......................................... 42,440,721 1,205,075 22,952 43,622,844
Corporate debt securities........................ 16,127,289 328,035 7,279 16,448,045
Mortgage-backed securities:
Government..................................... 20,261,324 281,976 18,990 20,524,310
Other.......................................... 4,024,503 13,097 4,037,600
Other asset-backed securities.................... 4,972,723 16,837 4,989,560
Redeemable preferred stocks...................... 1,827,357 45,340 4,036 1,868,661
-------------- ------------ ------------- --------------
Total.......................................... $ 107,721,390 $ 1,995,059 $ 67,669 $ 109,648,780
-------------- ------------ ------------- --------------
-------------- ------------ ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Fixed maturities available for sale:
U. S. Treasury securities and obligations of U.
S. government corporations and agencies........ $ 18,071,633 $ 106,736 $ 67,734 $ 18,110,635
Debt securities issued by states of the United
States and political subdivisions of the
states......................................... 36,680,107 792,926 4,790 37,468,243
Corporate debt securities........................ 13,654,662 234,887 61,275 13,828,274
Mortgage-backed securities....................... 13,296,398 47,764 153,134 13,191,028
Other asset-backed securities.................... 3,995,039 17,381 4,012,420
Redeemable preferred stocks...................... 2,364,570 46,046 17,625 2,392,991
-------------- ------------ ------------- --------------
Total.......................................... $ 88,062,409 $ 1,245,740 $ 304,558 $ 89,003,591
-------------- ------------ ------------- --------------
-------------- ------------ ------------- --------------
</TABLE>
F-9
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS: (CONTINUED)
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Fixed maturities available for sale:
U. S. Treasury securities and obligations of U.
S. government corporations and agencies........ $ 17,093,792 $ 348,311 $ 2,103 $ 17,440,000
Debt securities issued by states of the United
States and political subdivisions of the
states......................................... 27,096,417 861,083 27,957,500
Corporate debt securities........................ 9,019,237 313,671 11,723 9,321,185
Mortgage-backed securities:...................... 12,243,009 12,243,009
Other asset-backed securities.................... 2,057,602 2,057,602
Redeemable preferred stocks...................... 2,385,363 89,414 18,750 2,456,027
-------------- ------------ ------------- --------------
Total.......................................... $ 69,895,420 $ 1,612,479 $ 32,576 $ 71,475,323
-------------- ------------ ------------- --------------
-------------- ------------ ------------- --------------
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December
31, 1997, by contractual maturity, are shown below. Expected maturities on
certain corporate and mortgage-backed securities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less...................................... $ 7,606,616 $ 7,615,879
Due after one year through five years........................ 38,935,938 39,627,494
Due after five years through ten years....................... 25,490,684 26,233,510
Due after ten years.......................................... 4,602,245 4,751,766
-------------- --------------
76,635,483 78,228,649
Mortgage-backed securities:
Government................................................. 20,261,324 20,524,310
Other...................................................... 4,024,503 4,037,600
Other asset-backed securities................................ 4,972,723 4,989,560
Redeemable preferred stocks.................................. 1,827,357 1,868,661
-------------- --------------
Total.................................................... $ 107,721,390 $ 109,648,780
-------------- --------------
-------------- --------------
</TABLE>
F-10
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS: (CONTINUED)
In 1997, 1996 and 1995, the Company did not have any voluntary sales of
fixed maturity securities. A summary of the sources of net investment income
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Fixed maturities.................................... $ 5,794,546 $ 4,852,615 $ 4,324,439
Short-term investments and cash..................... 976,416 440,345 381,431
Other investment assets............................. 195,245 58,536
------------ ------------ ------------
Total investment income......................... 6,966,207 5,351,496 4,705,870
Less investment expenses............................ 289,424 201,461 217,853
------------ ------------ ------------
Net investment income........................... $ 6,676,783 $ 5,150,035 $ 4,488,017
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Increases (decreases) in net unrealized gains (losses) of fixed maturities
were $986,208, ($638,721) and $3,594,081 at December 31, 1997, 1996 and 1995,
respectively.
At December 31, 1997, U. S. Treasury notes and certificates of deposit with
a carrying value of $520,000 were on deposit with regulatory authorities, as
required by law.
4. RELATED PARTY TRANSACTIONS:
Effective April 7, 1997, Professionals Insurance Company Management Group
("Professionals Group"), which is the parent of PICOM Insurance Company
("PICOM") signed a definitive agreement with the Company whereby:
- Nominees of Professionals Group were elected to all six positions on the
MEEMIC Board of Directors;
- PICOM purchased a $21.5 million surplus note from MEEMIC (Note 10);
- Effective July 1, 1997 PICOM began reinsuring 40 percent of MEEMIC's net
retained premiums on a quota share basis (Note 5).
In 1997, Professionals Group also provided MEEMIC with information system
services and certain consulting services under a Management Services Agreement.
For 1997, fees for such services totaling $1,005,480 were included in other
underwriting expenses.
On September 22, 1997, the Company's wholly owned subsidiary MEIA Insurance
Agency purchased the assets of the Personal Lines and Life Divisions of Michigan
Educators Insurance Agency, Inc. (including all rights to distribute MEEMIC
insurance products) for a purchase price equal to 3.75 percent of all premiums
written through MEIA Insurance Agency through July 14, 2004, payable annually,
subject to a guaranteed minimum payment of $43 million. Under certain
conditions, this guaranteed minimum payment may be accelerated. The initial
payment of $22.5 million was paid at closing. In the event MEIA is unable to
meet this commitment, MEEMIC has guaranteed payment of the next $3 million and
Professionals Group has guaranteed payment of the final $17.5 million.
F-11
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS: (CONTINUED)
The following table sets forth the unaudited pro forma results of operations
for the year ended December 31, 1997 as if the acquisition had been consummated
as of January 1, 1996. The unaudited pro forma results of operations data
consists of the historical results of the Company and the Personal Lines and
Life Divisions of Michigan Educators Insurance Agency, Inc. as adjusted to give
effect to (1) amortization of intangible assets and (2) an increase in interest
expense attributable to financing of the acquisition. This pro forma information
does not purport to be indicative of what results would have been had the
acquisition been made as of that date or of results which may occur in the
future.
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Revenues and other income:
Net premiums earned.......................................... $ 67,830,283 $ 62,496,887
Net investment income........................................ 6,676,783 5,150,035
Net realized investment gains on fixed maturities............ 32,214 36,715
Other income................................................. 2,057,547 1,847,596
------------- -------------
Total revenues and other income............................ 76,596,827 69,531,233
------------- -------------
Expenses:
Losses and loss adjustment expenses, net..................... 47,301,864 44,872,007
Policy acquisition and other underwriting expenses........... 15,927,802 13,650,853
Interest expense............................................. 1,827,500 1,886,036
Amortization expense......................................... 2,924,247 2,924,247
Other expense................................................ 30,417 10,905
------------- -------------
Total expenses............................................. 68,011,830 63,344,048
------------- -------------
Income from operations before federal income taxes......... 8,584,997 6,187,185
Federal income taxes........................................... 2,428,662 1,680,778
------------- -------------
Net income................................................. $ 6,156,335 $ 4,506,407
------------- -------------
------------- -------------
</TABLE>
5. REINSURANCE:
In the normal course of business, the Company seeks to reduce the loss that
may arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Amounts receivable from reinsurers are estimated in a
manner consistent with the claim liability associated with the reinsured policy.
Although reinsurance agreements contractually obligate the Company's reinsurers
to reimburse the Company for their proportionate share of losses, they do not
discharge the primary liability of the Company. The Company remains liable for
the ceded amount of reserves for unpaid losses and loss adjustment expenses and
unearned premiums in the event the assuming insurance organizations are unable
to meet their contractual obligations.
The Company has various excess of loss and quota share reinsurance
agreements. As of December 31, 1997, MEEMIC's maximum current net retention,
subject to certain adjustments of risk on any single coverage per claim after
reinsurance is $150,000.
F-12
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REINSURANCE: (CONTINUED)
The Company continually reviews its reinsurers, considering a number of
factors, the most critical of which is their financial stability. Based on these
reviews, the Company evaluates its position with reinsurers with respect to
existing and future reinsurance.
At December 31, 1997, amounts due from reinsurers were as follows:
<TABLE>
<CAPTION>
AMOUNTS
DUE FROM
REINSURERS
-------------
<S> <C>
Michigan Catastrophic Claims Association....................................... $ 33,995,000
American Reinsurance Company................................................... 5,503,000
PICOM Insurance Company........................................................ 3,304,000
Continental Casualty Company................................................... 2,258,000
Other.......................................................................... (4,564,551)
-------------
$ 40,495,449
-------------
-------------
</TABLE>
Amounts due from reinsurers consisted of amounts related to:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Paid losses and loss adjustment expenses........ $ 429,449 $ 458,053 $ 1,093,172
Unpaid losses and loss adjustment expenses...... 46,905,000 44,657,000 41,544,000
Premiums ceded payable.......................... (6,839,000) (5,072,000) (2,371,000)
------------- ------------- -------------
$ 40,495,449 $ 40,043,053 $ 40,266,172
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Premiums earned and losses and loss adjustment expenses are net of the
following reinsurance ceded amounts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Premiums earned................................. $ 37,939,925 $ 40,080,646 $ 41,489,384
Losses and loss adjustment expenses............. 22,741,000 23,227,000 18,439,000
</TABLE>
Effective July 1, 1997, the Company entered into a coinsurance treaty with
PICOM to cede 40 percent of its net retained premiums on a quota share basis. A
summary of reinsurance amounts, which are included above, that were ceded to
PICOM for 1997 follows:
<TABLE>
<S> <C>
Earned premiums................................................ $20,115,000
Unearned premiums..............................................
Losses and loss adjustment expenses incurred................... 7,272,000
</TABLE>
F-13
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FEDERAL INCOME TAXES:
Income tax expense is computed under the liability method, whereby deferred
income taxes reflect the estimated future tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and those for income tax purposes. A valuation allowance is then
required to be established to reduce a deferred tax asset if it is "more likely
than not" that the related tax benefits will not be realized.
The provision for federal income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current............................................. $ 3,000,000 $ 2,500,000 $ 2,300,000
Deferred............................................ (327,761) (435,695) (742,061)
------------ ------------ ------------
$ 2,672,239 $ 2,064,305 $ 1,557,939
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Actual federal income taxes vary from amounts computed by applying the
current federal income tax rate of 34 percent to income or loss before federal
income taxes. For the years ended December 31, 1997, 1996 and 1995, the reasons
for these differences, and the tax effects thereof, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Expected tax expense................................ $ 3,162,476 $ 2,487,170 $ 2,044,119
Dividends received deduction........................ (34,566) (23,222) (17,855)
Tax-exempt interest................................. (596,986) (485,978) (435,687)
Other, net.......................................... 141,315 86,335 (32,638)
------------ ------------ ------------
Actual tax expense.................................. $ 2,672,239 $ 2,064,305 $ 1,557,939
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-14
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FEDERAL INCOME TAXES: (CONTINUED)
The tax effects of temporary differences that give rise to deferred income
tax assets and deferred federal income tax liabilities follow:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves......... $ 1,326,019 $ 1,832,807 $ 1,602,530
Unearned premium reserves......................... 2,001,654 1,514,099 1,392,468
Accruals for fringe benefits...................... 456,481 248,157 234,891
Advanced premiums................................. 105,654 91,376 82,845
Other, net........................................ 108,398 80,183 30,680
------------ ------------ ------------
Total deferred federal income tax assets........ 3,998,206 3,766,622 3,343,414
------------ ------------ ------------
Deferred federal income tax liabilities arising
from:
Deferred policy acquisition costs................. 545,513 673,626 679,103
Unrealized gains on investments................... 655,313 320,002 537,167
Salvage and subrogation recoverable............... 25,118 24,199 30,222
Other............................................. 34,604 3,587 4,574
------------ ------------ ------------
Total deferred federal income tax liabilities... 1,260,548 1,021,414 1,251,066
------------ ------------ ------------
Net deferred federal income taxes............... $ 2,737,658 $ 2,745,208 $ 2,092,348
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In assessing the reliability of deferred federal income tax assets,
management considers whether it is more likely than not that some portion of the
deferred federal income tax assets will not be realized. Because of the
carryforward provisions of the Internal Revenue Code, the expectation that
temporary differences will reverse during periods in which taxable income is
generated, and the Company's operating results for 1997, 1996 and 1995,
management believes it is more likely than not that the Company will fully
realize the net deferred federal income tax assets. Accordingly, no valuation
allowance has been established.
7. PROPERTY AND EQUIPMENT:
At December 31, 1997, 1996 and 1995, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Data processing equipment, including software....... $ 2,734,598 $ 2,029,844 $ 1,166,184
Furniture, fixtures and equipment................... 2,086,340 1,940,189 2,115,052
------------ ------------ ------------
4,820,938 3,970,033 3,281,236
Accumulated depreciation............................ 2,986,241 2,517,758 2,254,534
------------ ------------ ------------
Total property and equipment.................... $ 1,834,697 $ 1,452,275 $ 1,026,702
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-15
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEFERRED POLICY ACQUISITION COSTS:
Changes in deferred policy acquisition costs are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net asset balance, beginning of year............ $ 1,981,254 $ 1,997,363 $ 2,411,469
------------- ------------- -------------
Amounts deferred:
Commissions to agents......................... $ 12,702,913 $ 12,468,244 $ 11,693,812
Ceding commission income...................... 8,614,936 6,748,078 6,141,990
------------- ------------- -------------
Net amounts deferred........................ 4,087,977 5,720,166 5,551,822
Net amortization................................ 4,464,782 5,736,275 5,965,928
------------- ------------- -------------
Net asset balance, end of year.................. $ 1,604,449 $ 1,981,254 $ 1,997,363
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
9. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES:
Activity in loss and loss adjustment expense reserves is summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of year...................... $ 80,352,682 $ 71,114,057 $ 69,006,939
Less reinsurance balance recoverable.......... 44,657,000 41,544,000 42,905,000
------------- ------------- -------------
Net balance, beginning of year.............. 35,695,682 29,570,057 26,101,939
Incurred related to:
Current year.................................. 54,053,427 47,600,725 38,217,150
Prior years................................... (6,751,563) (2,728,718) 597,756
------------- ------------- -------------
Total incurred.............................. 47,301,864 44,872,007 38,814,906
Paid related to:
Current year.................................. 30,176,142 25,981,678 21,642,166
Prior years................................... 14,805,826 12,764,704 13,704,622
------------- ------------- -------------
Total paid.................................. 44,981,968 38,746,382 35,346,788
------------- ------------- -------------
Net balance, end of year........................ 38,015,578 35,695,682 29,570,057
Plus reinsurance balances recoverable........... 46,905,000 44,657,000 41,544,000
------------- ------------- -------------
Balance, end of year........................ $ 84,920,578 $ 80,352,682 $ 71,114,057
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
As a result of recent favorable development in estimates of prior years'
reserves on auto liability business, the provision for losses and loss
adjustment expenses in 1997 and 1996 decreased by $6,751,563 and $2,728,718,
respectively. The provision for losses and loss adjustment expenses in 1995
increased by $597,756 due to adversities experienced in earlier accident year
reportings.
F-16
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SURPLUS NOTE:
On April 7, 1997, PICOM Insurance Company purchased a $21,500,000 surplus
note from the Company. Interest is payable annually at a rate of 8.5 percent.
The entire principal and any accrued unpaid interest is due on April 7, 2009.
However, repayment of any principal or interest is subject to written
authorization by the Commissioner of Insurance of the State of Michigan and
approval by the Company's Board of Directors. At December 31, 1997, this note
had an outstanding balance of $21,500,000 with accrued interest of $1,341,835.
On May 26, 1998, the accrued interest for 1997 of $1,341,835 was paid to PICOM
following the State and Board's approval.
11. EMPLOYEE BENEFIT PLANS:
The Company has a qualified defined contribution 401(k) plan which covers
substantially all of its employees. The Company matches 50 percent of employees'
contributions up to a maximum rate of 2.5 percent of eligible compensation. In
addition, the Company is required to make an elective contribution on behalf of
each participant in an amount determined annually by the Company's Board of
Directors. However, such elective contribution for a year may, at the discretion
of the Company, be omitted in a year in which a net loss is experienced. The
charge to income under this plan was $477,068, $282,578 and $311,966 for 1997,
1996 and 1995, respectively.
The Company also has a qualified defined contribution money purchase plan,
covering substantially all employees, in which the Company is required to make a
contribution on behalf of each participant in an amount equal to 3 percent of
eligible compensation. The charge to income under this plan was $169,964 in
1997, $120,611 in 1996 and $124,644 in 1995.
Effective January 1, 1997, the Company established a short-term incentive
plan covering all full time permanent employees hired before March 1 for each
plan year. Incentive payouts are based on achievement of corporate and
individual goals and are calculated as a percentage of base compensation. The
charge to income under this plan for 1997 was approximately $500,000.
12. LEASE AGREEMENTS:
The Company is obligated under an operating lease for office space.
At December 31, 1997, future minimum lease payments are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 778,000
1999............................................................ 778,000
2000............................................................ 778,000
2001............................................................ 778,000
2002 and thereafter............................................. 3,780,000
---------
$6,892,000
---------
---------
</TABLE>
The base rate will increase annually at the start of each new lease year by
the percentage increase in the CPI-U (Common Price Index for all urban
consumers).
Rental expense was $981,159, $974,880 and $960,822 in 1997, 1996 and 1995,
respectively.
F-17
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STATUTORY INSURANCE ACCOUNTING PRACTICES:
MEEMIC is required to file financial statements prepared in accordance with
statutory insurance accounting practices (SAP) prescribed or permitted by the
Michigan Insurance Bureau. The Company does not utilize any permitted accounting
practices.
Accounting practices used to prepare statutory-basis financial statements
differ in some respects from GAAP. A reconciliation of statutory capital and
surplus at December 31, 1997, 1996 and 1995, and statutory net income for the
years ended December 31, 1997, 1996 and 1995, as filed with the Michigan
Insurance Bureau, to the amounts shown in the accompanying financial statements
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Statutory capital and surplus................... $ 34,512,849 $ 29,141,218 $ 24,406,931
Net unrealized appreciation on securities
available for sale............................ 1,927,390 941,182 1,579,903
Deferred policy acquisition costs capitalized
for GAAP...................................... 1,604,449 1,981,254 1,997,363
Deferred federal income taxes recorded for
GAAP.......................................... 2,737,658 2,745,208 2,092,348
Assets nonadmitted for SAP...................... 23,999,226 1,192,652 1,095,624
Surplus note.................................... (21,500,000)
------------- ------------- -------------
Total policyholders' surplus per
accompanying balance sheets............... $ 43,281,572 $ 36,001,514 $ 31,172,169
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory net income................................ $ 6,315,333 $ 4,816,465 $ 4,125,938
Deferred federal income tax expense recorded for
GAAP.............................................. 327,761 435,695 742,061
Deferred policy acquisition costs capitalized for
GAAP.............................................. (376,805) (16,109) (414,106)
Equity in net income of subsidiary unconsolidated
for statutory reporting........................... 361,622
Other............................................... 1,250 14,850 284
------------ ------------ ------------
Net income per accompanying consolidated
statements of income.......................... $ 6,629,161 $ 5,250,901 $ 4,454,177
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Certain regulations that affect MEEMIC and the insurance industry are
promulgated by the National Association of Insurance Commissioners ("NAIC"),
which is an association of state insurance commissioners, regulators and support
staff that acts as a coordinating body for the state insurance regulatory
process. The NAIC has established risk-based capital ("RBC") requirements to
assist regulators in monitoring the financial strength and stability of property
and casualty insurers. Under the NAIC requirements, each insurer must maintain
its total capital and surplus above a calculated minimum threshold or take
corrective measures to achieve that threshold. MEEMIC has calculated its RBC
level based on these requirements
F-18
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STATUTORY INSURANCE ACCOUNTING PRACTICES: (CONTINUED)
and has determined that it passed the RBC test and has capital and surplus in
excess of the minimum threshold.
14. CONTINGENCIES:
The Company participates in the guarantee association of the State of
Michigan. Assessments to date are not significant; however, the ultimate
liability for future assessments is not known. Accordingly, the Company is
unable to predict whether such future assessments will materially affect the
financial condition of the Company.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate the value. In situations where quoted market prices are not available,
fair values are to be based on estimates using present value or other valuation
techniques. SFAS No. 107 excludes certain insurance-related assets and
liabilities and all nonfinancial instruments from its disclosure requirements.
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- -------------------------- --------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investments......................... $ 111,543,225 $ 111,543,225 $ 90,896,322 $ 90,896,322 $ 73,371,175 $ 73,371,175
Cash................................ 2,204,325 2,204,325 2,178,335 2,178,335 3,330,677 3,330,677
Premiums due from policyholders..... 3,599,622 3,599,622 3,178,342 3,178,342 2,840,383 2,840,383
Amounts due from reinsurers......... 40,495,449 40,495,449 40,043,053 40,043,053 40,266,172 40,266,172
Accrued investment income........... 1,486,324 1,486,324 1,337,445 1,337,445 1,056,346 1,056,346
Surplus note........................ 21,500,000 21,500,000
Payable related to acquisition...... 20,500,000 17,000,000
</TABLE>
The difference between the carrying value and fair value of payable to
related to acquisition is due to the accelerated payment option available to the
Company (see Note 4). Because the interest rate on the surplus note approximates
current rates, and because of the short-term nature of the premiums due from
policyholders, amounts due from reinsurers and accrued interest income, the fair
value of these items approximate their carrying value.
16. SUBSEQUENT EVENT--DEMUTUALIZATION:
On June 25, 1998, the Board of Directors approved a plan of conversion for
changing the corporate form of the Company from the mutual form to the stock
form (demutualization). Under the plan, eligible policyholders and other
targeted groups will have the opportunity to acquire stock in a newly formed
holding company, MEEMIC Holdings, Inc.
MEEMIC Holdings, Inc. will in turn acquire all of the newly issued stock of
the Company upon conversion. Prior to the conversion, MEEMIC Holdings, Inc. will
not engage in any significant operations and will have no assets or liabilities.
The demutualization plan is subject to approval from the Michigan Insurance
Bureau and ultimately receipt of sufficient stock subscriptions to effect the
transaction. The
F-19
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENT--DEMUTUALIZATION: (CONTINUED)
Company has received a tax opinion regarding the tax treatment of the
demutualization as a tax-free reorganization. In the event that the plan is
executed, the converted company will be subject to certain insurance laws and
regulations specific to stock insurance companies as well as regulations of the
Securities and Exchange Commission. Limitations on the payment of dividends and
Insurance Holding Company regulations are among the types of regulatory
requirements with which MEEMIC Holdings, Inc. will have to comply.
F-20
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments:
Fixed maturities available for sale, at fair value........ $113,892,769
Short-term investments, at cost, which approximates fair
value................................................... 1,896,943
------------
Total investments....................................... 115,789,712
Cash........................................................ 5,600,913
Premiums due from policyholders............................. 4,073,791
Amounts due from reinsurers................................. 46,751,408
Accrued investment income................................... 1,562,540
Deferred federal income taxes............................... 3,330,113
Property and equipment, at cost, net of accumulated
depreciation.............................................. 2,035,288
Deferred policy acquisition................................. 669,040
Federal income taxes recoverable............................ 407,397
Intangible assets, net of amortization...................... 40,730,524
Other assets................................................ 520,124
------------
Total assets............................................ $221,470,850
------------
------------
LIABILITIES AND POLICYHOLDERS' SURPLUS
Liabilities:
Loss and loss adjustment expense reserves................. $ 92,345,562
Unearned premiums......................................... 30,617,018
Surplus note.............................................. 21,500,000
Payable related to acquisition............................ 20,500,000
Accrued expenses and other liabilities.................... 9,786,325
------------
Total liabilities....................................... 174,748,905
Policyholders' surplus
Unassigned surplus........................................ 45,394,834
Accumulated other comprehensive income, net of deferred
federal income tax expense of $683,664.................. 1,327,111
------------
Total policyholders' surplus............................ 46,721,945
------------
Total liabilities and policyholders' equity............. $221,470,850
------------
------------
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-21
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenues and other income:
Premiums written................................................................. $ 55,431,242 $ 52,068,932
Premiums ceded................................................................... 22,763,509 14,958,777
------------- -------------
Net premiums written........................................................... 32,667,733 37,110,155
Increase (decrease) in unearned premiums, net of prepaid reinsurance premiums.... 1,180,926 (513,427)
------------- -------------
Net premiums earned............................................................ 31,486,807 37,623,582
Net investment income............................................................ 3,464,096 3,146,817
Net realized investment gains on fixed maturities................................ 361 22,863
Other income..................................................................... 976,130 289,536
------------- -------------
Total revenues and other income................................................ 35,927,394 41,082,798
------------- -------------
Expenses:
Losses and loss adjustment expenses, net......................................... 21,920,341 26,877,885
Policy acquisition and other underwriting expenses............................... 7,028,697 9,415,363
Interest expense................................................................. 906,240 420,575
Amortization expense............................................................. 1,478,790 --
Other expense.................................................................... 28,792 5,133
------------- -------------
Total expenses................................................................. 31,362,860 36,718,956
------------- -------------
Income from operations before federal income taxes............................. 4,564,534 4,363,842
Federal income taxes............................................................... 1,179,195 1,251,557
------------- -------------
Net income..................................................................... $ 3,385,339 $ 3,112,285
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-22
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF POLICYHOLDERS' SURPLUS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON INVESTMENTS
NET OF
DEFERRED TOTAL
UNASSIGNED FEDERAL INCOME POLICYHOLDERS'
SURPLUS TAX EFFECT SURPLUS
------------- -------------- -------------
<S> <C> <C> <C>
Balances, January 1, 1998.......................................... $ 42,009,495 $ 1,272,077 $43,281,572
Net income......................................................... 3,385,339 3,385,339
Accumulated other comprehensive income............................. 55,034 55,034
------------- -------------- -------------
Balances, June 30, 1998............................................ $ 45,394,834 $ 1,327,111 $46,721,945
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-23
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................................... $ 3,385,339 $ 3,112,285
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization................................................. 1,756,819 318,000
Realized gains on investments................................................. (361) (22,863)
Net accretion of discount on investments...................................... 28,365 63,303
Deferred federal income taxes................................................. (620,804) (48,148)
Changes in assets and liabilities:
Premiums due from policyholders............................................. (474,169) (2,504,457)
Amounts due from reinsurers................................................. (6,255,959) (6,998,601)
Accrued investment income................................................... (76,216) (62,830)
Prepaid reinsurance premiums................................................ -- 6,591,000
Deferred policy acquisition costs........................................... 935,409 97,288
Other assets................................................................ (156,046) 20,146
Loss and loss adjustment expense reserves................................... 7,424,984 6,762,485
Unearned premiums........................................................... 1,180,926 (561,498)
Accrued expenses and other liabilities...................................... 1,697,997 1,805,827
Federal income taxes payable................................................ (700,000) (800,000)
-------------- --------------
Net cash provided by operating activities................................. 8,126,284 7,771,937
-------------- --------------
Cash flows from investing activities:
Proceeds from sale or maturity of short-term investments........................ 1,894,475 1,892,731
Purchases of short-term investments............................................. (1,896,943) (24,178,116)
Proceeds from maturity of securities available for sale......................... 5,862,315 2,292,598
Purchases of securities available for sale...................................... (10,050,923) (9,914,526)
Proceeds from sales of property and equipment................................... 41,756 32,678
Purchases of property and equipment............................................. (580,376) (667,983)
Net cash used in investing activities..................................... (4,729,696) (30,542,618)
-------------- --------------
Cash flows from financing activities, issuance of surplus note.................... -- 21,500,000
-------------- --------------
Net increase (decrease) in cash................................................... 3,396,588 (1,270,681)
Cash, beginning of period......................................................... 2,204,325 2,178,335
-------------- --------------
Cash, end of period............................................................... $ 5,600,913 $ 907,654
-------------- --------------
-------------- --------------
Supplemental disclosure of cash flow information:
Interest paid................................................................... $ 1,341,835 --
-------------- --------------
-------------- --------------
Federal income taxes paid....................................................... $ 2,000,000 $ 2,100,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-24
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE
COMPANY AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. UNAUDITED INTERIM FINANCIAL INFORMATION: The balance sheet as of June
30, 1998 and the statements of operations and cash flows for the six months
ended June 30, 1998 and 1997 have not been audited. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been reflected herein. Results of
operations for interim periods are not necessarily indicative of results
expected for the full year.
2. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income." This standard
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of SFAS No. 130 had no impact on the
Company's results of operations or policyholders' equity. SFAS No. 130 requires
unrealized gains or losses on the Company's available-for-sale securities, which
prior to adoption were reported separately in policyholders' equity, to be
included in other comprehensive income. Prior period financial statements have
been reclassified to conform to the requirements of SFAS No. 130.
The components of comprehensive income, net of tax, for the six month
periods ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net income........................................................ $ 3,385,339 $ 3,112,285
Unrealized gains on investments, net of tax....................... 55,034 15,030
------------ ------------
Comprehensive income.......................................... $ 3,440,373 $ 3,127,315
------------ ------------
------------ ------------
</TABLE>
Accumulated other comprehensive income, net of tax, included in
policyholders' equity consists exclusively of unrealized gains on investments.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Michigan Educational Employees Mutual
Insurance Company:
In our opinion, the accompanying divisional balance sheet and the related
divisional statements of earnings and divisional deficit and of cash flows
present fairly, in all material respects, the financial position of the Personal
Lines and Life Divisions of Michigan Educators Insurance Agency, Inc. at
December 31, 1996, and the results of their operations and their cash flows for
the one-year period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Grand Rapids, Michigan
July 2, 1998
F-26
<PAGE>
PERSONAL LINES AND LIFE DIVISIONS OF
MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND SEPTEMBER 22, 1997 (DATE OF ACQUISITION) (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 22, ------------
1997
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 586,429 $ 264
Receivables:
Commissions..................................................................... 322,693 89,356
Other........................................................................... 3,565 3,758
Prepaid expenses.................................................................. -- 9,717
------------- ------------
Total current assets............................................................ 912,687 103,095
Property and equipment:
Furniture and fixtures............................................................ 541,663 541,663
Computer equipment................................................................ 369,688 369,688
Software.......................................................................... 94,776 94,776
Leasehold improvements............................................................ 334,892 334,892
------------- ------------
1,341,019 1,341,019
Less accumulated depreciation..................................................... 967,458 884,654
------------- ------------
Property and equipment, net..................................................... 373,561 456,365
Other assets........................................................................ -- 20,000
------------- ------------
Total assets.................................................................... $ 1,286,248 $ 579,460
------------- ------------
------------- ------------
LIABILITIES AND DIVISIONAL DEFICIT
Current liabilities:
Commissions payable............................................................... $ 1,099,653 $ 523,136
Accounts payable and accrued liabilities.......................................... 273,158 972,633
------------- ------------
Total current liabilities....................................................... 1,372,811 1,495,769
Divisional deficit.................................................................. (86,563) (916,309)
------------- ------------
Total liabilities and divisional deficit........................................ $ 1,286,248 $ 579,460
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of the divisional financial
statements.
F-27
<PAGE>
PERSONAL LINES AND LIFE DIVISIONS OF
MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM JANUARY 1, 1997 TO
SEPTEMBER 22, 1997 (DATE OF ACQUISITION) (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1996
FOR THE PERIOD -------------
FROM JANUARY 1,
1997 TO
SEPTEMBER 22,
1997 (DATE OF
ACQUISITION)
---------------
(UNAUDITED)
<S> <C> <C>
Commission revenue................................................................ $ 10,320,639 $ 13,727,111
Operating expenses................................................................ 8,341,525 10,828,592
--------------- -------------
Operating income.............................................................. 1,979,114 2,898,519
Other expense:
Interest expense................................................................ -- 58,536
Loss on sales of property and equipment......................................... -- 114
--------------- -------------
Total other expenses.......................................................... -- 58,650
--------------- -------------
Net income.................................................................... $ 1,979,114 $ 2,839,869
--------------- -------------
--------------- -------------
</TABLE>
The accompanying notes are an integral part of the divisional financial
statements.
F-28
<PAGE>
PERSONAL LINES AND LIFE DIVISIONS OF
MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
STATEMENT OF DIVISIONAL DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM JANUARY 1, 1997 TO
SEPTEMBER 22, 1997 (DATE OF ACQUISITION) (UNAUDITED)
<TABLE>
<S> <C>
Balance, January 1, 1996....................................................... $ 74,588
Net income..................................................................... 2,839,869
Distributions of divisional equity............................................. (3,830,766)
-----------
Balance, December 31, 1996..................................................... (916,309)
Net income..................................................................... 1,979,114
Distributions of divisional equity............................................. (1,149,368)
-----------
Balance, September 22, 1997 (unaudited)........................................ $ (86,563)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the divisional financial
statements.
F-29
<PAGE>
PERSONAL LINES AND LIFE DIVISIONS OF
MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM JANUARY 1, 1997 TO
SEPTEMBER 22, 1997 (DATE OF ACQUISITION) (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1996
FOR THE PERIOD ------------
FROM JANUARY 1,
1997 TO
SEPTEMBER 22,
1997 (DATE OF
ACQUISITION)
---------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 1,979,114 $2,839,869
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 82,804 120,956
Loss on sales of property and equipment........................................ -- 114
Changes in operating assets and liabilities which increase (decrease) cash
flows:
Receivables:
Commissions................................................................ (233,337) (62,921)
Other...................................................................... 193 (5,228)
Prepaid expenses............................................................. 9,717 (9,717)
Other assets................................................................. 20,000 --
Commissions payable.......................................................... 576,517 70,753
Accounts payable and accrued liabilities..................................... (699,475) 928,027
--------------- ------------
Net cash provided by operating activities.................................. 1,735,533 3,881,853
--------------- ------------
Cash flows from investing activities:
Purchases of property and equipment.............................................. -- (66,486)
Proceeds from sales of property and equipment.................................... -- 3,185
--------------- ------------
Net cash used in investing activities...................................... -- (63,301)
--------------- ------------
Cash flows from financing activities:
Distributions of divisions' equity............................................... (1,149,368) (3,830,766)
Payments of capital lease obligations............................................ -- (41,832)
--------------- ------------
Net cash used in financing activities...................................... (1,149,368) (3,872,598)
--------------- ------------
Net decrease in cash............................................................... 586,165 (54,046)
Cash, beginning of period.......................................................... 264 54,310
--------------- ------------
Cash, end of period................................................................ $ 586,429 $ 264
--------------- ------------
--------------- ------------
Supplemental disclosure of cash flow information, interest paid.................... -- $ 58,536
--------------- ------------
--------------- ------------
</TABLE>
The accompanying notes are an integral part of the divisional financial
statements.
F-30
<PAGE>
PERSONAL LINES AND LIFE DIVISIONS OF
MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. BASIS OF PRESENTATION: On September 22, 1997, the Michigan Educators
Insurance Agency, Inc. (including Michigan Educators Life Insurance Agency,
Inc.) (the "Company") sold substantially all of its assets (including all rights
to distribute Michigan Educational Employee Mutual Insurance Company ("MEEMIC")
insurance products) to MEIA Insurance Agency, a wholly owned subsidiary of
MEEMIC for a purchase price equal to 3.75 percent of all premiums written
through MEIA Insurance Agency through July 14, 2004, subject to a guaranteed
minimum payment of $43 million. The initial payment of $22.5 million was paid at
closing. MEEMIC has guaranteed payment of the next $3 million and Professionals
Insurance Company Management Group has guaranteed payment of the final $17.5
million.
Accordingly, the accompanying financial statements represent the personal
lines and life divisions of the Company which were sold to MEEMIC. The Company
is an independent insurance agency selling primarily private automobile and
homeowners insurance to members of the Michigan educational community. The
majority of sales are for and commission revenue from one insurance company.
These financial statements include all costs of doing business of the
Company except those specifically identified by management as not relating to
the personal lines and life divisions. Management believes that these costs,
while reasonable, may not necessarily be indicative of costs that would have
been incurred had the divisions operated as a stand-alone entity.
b. PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
The Company uses accelerated methods for depreciation of assets. Costs of
maintenance and repairs are charged to expense when incurred. Upon retirement or
disposal of properties, the cost and accumulated depreciation are removed from
the accounts, and any gain or loss is included in income.
c. REVENUE RECOGNITION: Commissions are recognized as policies become
effective.
d. INCOME TAXES: The Company has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. Under these provisions, the
Company pays no corporate federal income taxes. Instead, stockholders pay
individual federal income taxes on their allocated shares of the Company's
taxable income. Accordingly, there is no provision for income taxes included in
the division's accompanying statement of earnings.
e. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of the assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statement, and the reported amounts of revenue and expenses during
the period. Actual results could differ from those estimates.
f. UNAUDITED INTERIM FINANCIAL INFORMATION: The balance sheet as of
September 22, 1997 and the statements of operations and cash flows for the
period from January 1, 1997 to September 22, 1997 have not been audited. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been reflected herein. Results
of operations for interim periods are not necessarily indicative of results
expected for the full year.
2. LEASES:
The Company's corporate offices are leased from a partnership in which
certain Company stockholders are partners. Under this operating lease, which
expires in 2006, the Company is responsible for
F-31
<PAGE>
PERSONAL LINES AND LIFE DIVISIONS OF
MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. LEASES: (CONTINUED)
insurance, utilities, maintenance, and real estate taxes. At December 31, 1996,
future minimum lease payments are as follows:
<TABLE>
<S> <C>
1997............................................................ $ 181,100
1998............................................................ 181,100
1999............................................................ 181,100
2000............................................................ 181,100
2001 and thereafter............................................. 1,026,200
---------
$1,750,600
---------
---------
</TABLE>
Expenses incurred related to this lease were approximately $170,000 for the
year ended December 31, 1996. These leases were assumed by MEEMIC in connection
with the sale of the assets as described in Note 1.
3. EMPLOYEE SAVINGS PLAN:
The Company has an employee savings plan 401(k) plan covering substantially
all employees. As defined by the plan, the Company may contribute a percentage
of employee compensation and/or match employee contributions. Employer
contributions begin to vest in the third year of service and are fully vested
after five years. The charge to income under this plan in 1996 was approximately
$90,000.
F-32
<PAGE>
GLOSSARY OF SELECTED INSURANCE TERMS
The following insurance terms, when used in this Prospectus, have the
meanings ascribed to them below.
A.M. BEST RATINGS. A.M. Best Ratings are divided into "Secure" and
"Vulnerable" rating groups as follows: Secure Ratings: A++, A+ (Superior); A, A-
(Excellent); and B++, B+ (Very Good). Vulnerable Ratings: B, B- (Adequate); C++,
C+ (Fair); C, C- (Marginal); D (Very Vulnerable); E (Under State Supervision);
and F (In Liquidation).
CEDE. To transfer to another insurer (the reinsurer) all or part of the
insurance risk underwritten by an insurer.
COMBINED RATIO. The sum of the expense ratio and the loss and LAE ratio. A
combined ratio under 100% generally indicates an underwriting profit and a
combined ratio over 100% generally indicates an underwriting loss.
DIRECT WRITTEN PREMIUMS. Total premiums written by an insurer other than
premiums for reinsurance assumed by an insurer.
EARNED PREMIUM. The prorated portion of an insurance premium which is no
longer considered prepaid as a result of the elapsed time the insurance policy
has been in force. For example, after three months, $6,000 of a prepaid $24,000
annual premium is considered earned premium.
EXCESS OF LOSS REINSURANCE. A form of reinsurance in which the insurer
cedes to a reinsurer, and such reinsurer assumes, all or a portion of losses in
excess of a specified retention level up to a predetermined limit.
EXPENSE RATIO. The ratio of underwriting expenses to net premiums earned.
INCURRED BUT NOT REPORTED (IBNR). The liability for future payments on
losses which have occurred but have not yet been reported.
LIQUIDITY. The ability to convert financial holdings into cash in a timely
manner without the loss of principal.
LOSS ADJUSTMENT EXPENSES (LAE). The expense of settling claims, including
legal and other fees.
LOSS AND LAE RATIO. The ratio of incurred losses and loss adjustment
expenses to premiums earned.
MICHIGAN CATASTROPHIC CLAIMS ASSOCIATION. A reinsurance association created
by the Michigan Legislature that has State-mandated participation for all
companies writing automobile insurance in Michigan.
NAIC. The National Association of Insurance Commissioners, an association
of the chief insurance supervisory official of each state, territory and insular
possession of the United States.
NET EARNED PREMIUMS. The portion of written premiums that is recognized for
accounting purposes as revenue during a period.
NET WRITTEN PREMIUMS. Premiums retained by an insurer after deducting
premiums on business ceded to others.
QUOTA SHARE REINSURANCE. A form of treaty or facultative reinsurance in
which the insurer cedes and reinsurer assumes an agreed-upon percentage of
risks. Also known as proportional reinsurance.
G-1
<PAGE>
REINSURANCE. A procedure whereby an insurer remits or cedes a portion of
the premium to a reinsurer as payment to the reinsurer for assuming a portion of
the risk or liability under the policy. Reinsurance can be effected by
"treaties" under which all risks of a defined category, amount and type for a
primary insurer are covered, or on a "facultative" basis under which risks are
covered on an individual, contract-by contract basis.
RESERVES. Liability established by an insurer to reflect the estimated cost
of claim payments and related expenses that the insurer will ultimately be
required to pay with respect to the insurance it has underwritten.
RESERVE REDUNDANCY. The amount by which the reserves currently established
by an insurer exceed the currently estimated cost of claim payments and related
expenses that the insurer will ultimately be required to pay.
STANDARD & POOR'S RATINGS. Standard & Poor's Claims-Paying Ability Ratings
are divided into "Secure Range" and "Vulnerable Range" groupings as follows.
Secure Range: AAA (Superior); AA (Excellent); A (Good); and BBB (Adequate).
Vulnerable Range: BB (May be Adequate); B (Vulnerable); CCC (Extremely
Vulnerable); and R (Regulatory Action).
STATUTORY ACCOUNTING PRACTICES. Those principles required by state law
which must be followed by insurers in submitting their financial statements to
state insurance departments.
STATUTORY SURPLUS. The amount remaining after all liabilities of an
insurance company are subtracted from all of its admitted assets, applying
statutory accounting principles.
SURPLUS. The amount by which a company's assets exceed its liabilities.
UNEARNED PREMIUM. The proration portion of an insurance premium considered
to be a prepayment. For example, after three months, $18,000 of a prepaid
$24,000 annual premium is still considered unearned premium.
G-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE SUBSCRIPTION OFFERING
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION WHICH IS NOT CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MEEMIC HOLDINGS, INC. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY COMMON STOCK HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
-------
------------------------
-------
UP TO 4,297,791 SHARES
[LOGO]
MEEMIC HOLDINGS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JANUARY 1, 1999
-------
------------------------
-------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OF MEEMIC HOLDINGS, INC.,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered under this registration statement. Except for the Securities and
Exchange Commission and Nasdaq fees, all expenses have been estimated and are
subject to future contingencies.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 18,348.00
Nasdaq and Entry Listing Fee.................................. 66,875.00
Printing, mailing and engraving expenses*..................... 275,000.00
Legal fees and expenses*...................................... 300,000.00
Appraisal fees and expenses*.................................. 250,000.00
Accounting fees and expenses*................................. 250,000.00
Blue Sky fees and expenses*................................... 15,000.00
Transfer agent and registrar fees and expenses*............... 310,000.00
Miscellaneous*................................................ 14,777.00
------------
Total*.................................................... $1,500,000.00
------------
------------
</TABLE>
- ------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 561 through 571 of the Michigan Business Corporation Act (the
"MBCA") govern the indemnification of officers, directors and other persons. In
this regard, the MBCA provides for indemnification of directors and officers
acting in good faith and in a manner they reasonably believe to be in, or not
opposed to, the best interest of MEEMIC Holdings, Inc. or its shareholders (and,
with respect to a criminal proceeding, if they have no reasonable cause to
believe their conduct to be unlawful). Such indemnification may be made against
(a) expenses (including attorneys' fees), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit or proceeding (other than an
action by, or in the right of, MEEMIC Holdings, Inc.) arising by reason of the
fact that they were serving as a director, officer, employee or agent of MEEMIC
Holdings, Inc. (or some other entity at MEEMIC Holdings, Inc.'s request), and
(b) expenses (including attorneys' fees) and amounts paid in settlement actually
and reasonably incurred in connection with a threatened, pending or completed
action or suit by, or in the right of, MEEMIC Holdings, Inc., unless the
director or officer is found liable to MEEMIC Holdings, Inc. and an appropriate
court does not determine that he or she is nevertheless fairly and reasonably
entitled to indemnification. The MBCA requires indemnification for expenses to
the extent that a director or officer is successful in defending against any
such action, suit or proceeding, and otherwise requires in general that the
indemnification provided for in (a) and (b) above be made only on a
determination by a majority vote of a quorum of the Board of Directors comprised
of members who were not parties to or threatened to be made parties to such
action. In certain circumstances, the MBCA further permits advances to cover
such expenses before a final determination that indemnification is permissible,
upon receipt of (i) a written affirmation by the director or officer of his or
her good faith belief that he or she has met the applicable standard of conduct
set forth in the MBCA, and (ii) a written undertaking by or on behalf of the
director or officer to repay such amounts unless it shall ultimately be
determined that he or she is entitled to indemnification and a determination
that the facts then known to those making the advance would not preclude
indemnification. MEEMIC Holdings, Inc.'s Articles of Incorporation provide the
same indemnification rights as the MBCA.
II-1
<PAGE>
Subject to the exceptions recited in the following sentence, MEEMIC
Holdings, Inc.'s Articles of Incorporation provide that no director shall be
personally liable to MEEMIC Holdings, Inc. or its shareholders for damages for
any action taken or any failure to take action. Such exculpatory language does
not, however, eliminate or limit the liability of a director for (a) the amount
of a financial benefit received by a director to which he or she is not
entitled, (b) intentional infliction of harm on the corporation or its
shareholders, (c) certain other violations of the Michigan Business Corporation
Act, or (d) an intentional violation of criminal law.
The MBCA permits MEEMIC Holdings, Inc. to purchase insurance on behalf of
its directors and officers against liabilities arising out of their positions
with MEEMIC Holdings, Inc., whether or not such liabilities would be within the
indemnification provisions of the MBCA. Under an insurance policy maintained by
MEEMIC Holdings, Inc. and MEEMIC, the directors and officers of MEEMIC Holdings,
Inc. are insured, within the limits and subject to the limitations of the
policy, against certain expenses in connection with the defense of certain
claims, actions, suits or proceedings, and certain liabilities which might be
imposed as a result of such claims, actions, suits or proceedings, which may be
brought against them by reason of being or having served as directors and
officers of MEEMIC Holdings, Inc. of certain other entities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to officers and directors pursuant to the foregoing provisions,
MEEMIC Holdings, Inc. has been informed that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
As referenced in the Prospectus, in October, 1998, the Company sold one
share of stock to Kevin R. Clinton for $10.00. The Company has not otherwise
sold any securities within the last three years which were not registered under
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 Plan of Conversion dated June 24, 1998
2.2 Standby Purchase and Option Agreement dated , 1998
3.1 Articles of Incorporation--MEEMIC Holdings, Inc.
3.2 Bylaws--MEEMIC Holdings, Inc.
4.1 See Articles of Incorporation, filed as Exhibit 3.1
4.2 Specimen Stock Certificate representing the Common Stock
5.1. Opinion of Dykema Gossett PLLC regarding the validity of the securities
being registered
10.1 Agreement between MEEMIC, Professionals Insurance Company Management Group
and PICOM Insurance Company dated February 7, 1997
10.2 Surplus Note of MEEMIC dated April 7, 1997
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.3 Management Services Agreement between MEEMIC, Professionals Insurance
Company Management Group dated April 7, 1997, along with First Amendment
to the Management Services Agreement dated October 15, 1997
10.4 Quota Share Reinsurance Contract between MEEMIC and PICOM Insurance
Company effective July 1, 1997
10.5 Asset Purchase Agreement between MEEMIC Insurance Services Corporation,
Michigan Educators Insurance Agency, Inc. and Michigan Educators Life
Insurance Agency, Inc. dated September 22, 1997
10.6 Inter-Creditor Agreement between MEEMIC Insurance Services Corporation,
MEEMIC and Professionals Insurance Company Management Group dated
September 22, 1997
10.7 Agreement of Guaranty between MEEMIC, Michigan Educators Insurance Agency,
Inc. and Michigan Educators Life Insurance Agency, Inc. dated September
22, 1997
10.8 Assignment of Lease from Michigan Educators Insurance Agency, Inc. to
MEEMIC dated September 22, 1997, along with the Lease Agreement dated
June 28, 1991, as amended by the Lease Agreement dated July 1, 1995 and
as amended by the Addendum to Lease dated March 12, 1996
10.9. MEEMIC Incentive Plan dated January 7, 1997
10.10 MEEMIC Amended and Restated Incentive Plan dated as of December 31, 1997
10.11 MEEMIC Holdings, Inc. Stock Compensation Plan dated October , 1998
10.12 Severance/Benefits Agreement with Lynn M. Kalinowski dated August 10, 1993
21.1 Subsidiaries of the Registrant
23.1 Consent of ABN AMRO Incorporated
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Dykema Gossett PLLC (contained in the opinion filed as Exhibit
5)
24.1 Powers of Attorney (included on page II-7)
27.1 Financial Data Schedule
99.1 Stock Order Form*
99.2 Question and Answer Brochure*
99.3 Letter to Prospective Purchasers*
</TABLE>
- ------------------------
* To be filed by amendment
(b) Financial Statement Schedules: All financial statement schedules have
been omitted because they are not required or because the required information
is given in the Consolidated Financial Statements or Notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) Rule 415 Offering: The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Request for acceleration of effective date: Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
described in Item 14 above, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Auburn Hills,
State of Michigan on October 30, 1998.
<TABLE>
<S> <C> <C>
MEEMIC HOLDINGS, INC.
By: /s/ R. KEVIN CLINTON
-----------------------------------------
R. Kevin Clinton
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each of the undersigned whose signature appears below hereby constitutes and
appoints R. Kevin Clinton, Annette E. Flood, Christine C. Schmitt and each of
them acting alone, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or any
other Registration Statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as full to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their or his or her substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities indicated
on October 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>
/s/ R. KEVIN CLINTON
------------------------------------------- President and Chief Executive Officer
R. Kevin Clinton and a Director
/s/ ANNETTE E. FLOOD
------------------------------------------- Secretary
Annette E. Flood
/s/ CHRISTINE C. SCHMITT
------------------------------------------- Treasurer and Chief Financial Officer
Christine C. Schmitt
/s/ VICTOR T. ADAMO
------------------------------------------- Director
Victor T. Adamo
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>
/s/ THOMAS E. HOEG
------------------------------------------- Director
Thomas E. Hoeg
/s/ LYNN M. KALINOWSKI
------------------------------------------- Director
Lynn M. Kalinowski
/s/ JAMES O. WOOD
------------------------------------------- Director
James O. Wood
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------
<C> <S> <C>
2.1 Plan of Conversion dated June 24, 1998
2.2 Standby Purchase and Option Agreement dated , 1998
3.1 Articles of Incorporation--MEEMIC Holdings, Inc.
3.2 Bylaws--MEEMIC Holdings, Inc.
4.1 See Articles of Incorporation, filed as Exhibit 3.1
4.2 Specimen Stock Certificate representing the Common Stock
5.1. Opinion of Dykema Gossett PLLC regarding the validity of the
securities being registered
10.1 Agreement between MEEMIC, Professionals Insurance Company Management
Group and PICOM Insurance Company dated February 7, 1997
10.2 Surplus Note of MEEMIC dated April 7, 1997
10.3 Management Services Agreement between MEEMIC, Professionals
Insurance Company Management Group dated April 7, 1997, along with
First Amendment to the Management Services Agreement dated October
15, 1997
10.4 Quota Share Reinsurance Contract between MEEMIC and PICOM Insurance
Company effective July 1, 1997
10.5 Asset Purchase Agreement between MEEMIC Insurance Services
Corporation, Michigan Educators Insurance Agency, Inc. and
Michigan Educators Life Insurance Agency, Inc. dated September 22,
1997
10.6 Inter-Creditor Agreement between MEEMIC Insurance Services
Corporation, MEEMIC and Professionals Insurance Company Management
Group dated September 22, 1997
10.7 Agreement of Guaranty between MEEMIC, Michigan Educators Insurance
Agency, Inc. and Michigan Educators Life Insurance Agency, Inc.
dated September 22, 1997
10.8 Assignment of Lease from Michigan Educators Insurance Agency, Inc.
to MEEMIC dated September 22, 1997, along with the Lease Agreement
dated June 28, 1991, as amended by the Lease Agreement dated July
1, 1995 and as amended by the Addendum to Lease dated March 12,
1996
10.9. MEEMIC Incentive Plan dated January 7, 1997
10.10 MEEMIC Amended and Restated Incentive Plan dated as of December 31,
1997
10.11 MEEMIC Holdings, Inc. Stock Compensation Plan dated October , 1998
10.12 Severance/Benefits Agreement with Lynn M. Kalinowski dated August
10, 1993
21.1 Subsidiaries of the Registrant
23.1 Consent of ABN AMRO Incorporated
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Dykema Gossett PLLC (contained in the opinion filed as
Exhibit 5)
24.1 Powers of Attorney (included on page II-7)
27.1 Financial Data Schedule
99.1 Stock Order Form*
99.2 Question and Answer Brochure*
99.3 Letter to Prospective Purchasers*
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY
PLAN OF CONVERSION
DATED: JUNE 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I GENERAL PROVISIONS
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II THE PLAN
Section 2.1 Approval of Plan . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Reasons for Proposed Conversion. . . . . . . . . . . . . . 6
ARTICLE III REQUIREMENTS FOR CONVERSION APPROVAL
Section 3.1 Application to the Bureau. . . . . . . . . . . . . . . . . 8
Section 3.2 Notice to Eligible Policyholders . . . . . . . . . . . . . 8
Section 3.3 Articles of Incorporation. . . . . . . . . . . . . . . . . 8
Section 3.4 The Special Meeting of Policyholders . . . . . . . . . . . 9
ARTICLE IV THE CONVERSION
Section 4.1 Purchase Price and Determination of the Number of
Subscription Shares to be Offered . . . . . . . . . . 9
Section 4.2 Number of Subscription Shares to be Sold . . . . . . . . .10
Section 4.3 Effective Date of Conversion . . . . . . . . . . . . . . .11
Section 4.4 Status of Policies in Force on the Effective Date. . . . .11
Section 4.5 Notice to Non-eligible Policyholders . . . . . . . . . . .11
ARTICLE V THE SUBSCRIPTION OFFERING
Section 5.1 Allocation of Subscription Rights. . . . . . . . . . . . .12
Section 5.2 Subscription Rights. . . . . . . . . . . . . . . . . . . .12
Section 5.3 Limitations Upon Purchases of Subscription Shares. . . . .12
Section 5.4 Timing of Subscription Offering and Compliance
with Applicable Securities Laws . . . . . . . . . . .14
Section 5.5 Offering Documents . . . . . . . . . . . . . . . . . . . .14
Section 5.6 Mailing of Offering Materials and Collection of
Subscriptions . . . . . . . . . . . . . . . . . . . .14
ARTICLE VI THE STANDBY PURCHASE AND OPTION AGREEMENT
Section 6.1 The Standby Purchase and Option Agreement. . . . . . . . .15
ARTICLE VII ADDITIONAL RELATED TRANSACTIONS
Section 7.1 Conversion of the Surplus Note . . . . . . . . . . . . . .17
Section 7.2 The Stock Compensation Plan. . . . . . . . . . . . . . . .17
<PAGE>
<CAPTION>
Page
----
ARTICLE VIII SALE AND TRANSFER REQUIREMENTS AND RESTRICTIONS
Section 8.1 Method of Payment for Subscription Shares. . . . . . . . .17
Section 8.2 Undelivered, Defective or Late Order Forms,
Insufficient Payment. . . . . . . . . . . . . . . . .17
Section 8.3 Sales of Subscription Shares to Persons Who Reside
in Certain Jurisdictions. . . . . . . . . . . . . . .18
Section 8.4 Restrictions on Transfer of Shares . . . . . . . . . . . .18
Section 8.5 Purchases of Shares by Officers and
Associates Following Conversion. . . . . . . . . . . . . .19
ARTICLE IX INTERPRETATION, AMENDMENT AND TERMINATION OF THE PLAN
Section 9.1 Interpretation of the Plan . . . . . . . . . . . . . . . .19
Section 9.2 Amendment. . . . . . . . . . . . . . . . . . . . . . . . .19
Section 9.3 Termination. . . . . . . . . . . . . . . . . . . . . . . .19
</TABLE>
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY
PLAN OF CONVERSION
This Plan of Conversion is effective June 24, 1998, having been duly
adopted by the Board of Directors pursuant to Chapter 59 of the Michigan
Insurance Code.
ARTICLE I
GENERAL PROVISIONS
SECTION 1.1 DEFINITIONS. The following terms shall have the
following meanings when used in this document:
"ACT" means Chapter 59 of the Michigan Insurance Code, MCL 500.5901,
ET SEQ., as amended, which provides for the conversion of a domestic
mutual insurer to a domestic stock insurer.
"ACTING IN CONCERT" means (i) knowing participation in a joint
activity or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement; or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a
common purpose pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise. A person
who acts in concert with another person ("other party") shall also be
deemed to be acting in concert with any person who is also acting in
concert with that other party. Notwithstanding anything to the contrary
express or implied in the Plan, the Standby Purchase and Option Agreement
or the Act, for purposes of this Plan, and with respect to the Conversion,
no Designated Person shall be acting in concert with, or be deemed to be
acting in concert with, any Person or any "other party."
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as
amended. Notwithstanding anything to the contrary express or implied in
the Plan, the Standby Purchase and Option Agreement or the Act, for
purposes of this Plan, and with respect to the Conversion, no Designated
Person shall be an Affiliate, or be deemed to be an Affiliate, of any
other Designated Person.
"APPLICATION" means the application for approval of the Conversion to
be filed by MEEMIC with the Bureau as contemplated in Section 3.1 of the
Plan.
"APPRAISAL" means the Independent Appraiser's evaluation of the
consolidated, Pro Forma Market Value of MEEMIC Holdings.
"ASSOCIATE" when used to indicate a relationship with any Person, means:
(i) any Person (other than MEEMIC or MEEMIC Holdings, a majority-owned
subsidiary of MEEMIC or
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MEEMIC Holdings, or any other Person that is a member of the same
consolidated group as MEEMIC or MEEMIC Holdings under generally accepted
accounting principles) of which such Person is an officer or partner or is,
directly or indirectly the beneficial owner of 10% or more of any class of
equity securities: (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee
or in a similar fiduciary capacity; and (iii) any relative or spouse of such
Person, or any relative of such spouse, who has the same home as such person.
Notwithstanding anything to the contrary express or implied in the Plan, the
Standby Purchase and Option Agreement or the Act, for purposes of this Plan,
and with respect to the Conversion, no Designated Person shall be an
Associate, or be deemed to be an Associate, of any other Designated Person.
"BUREAU" means the Insurance Bureau of the Michigan Department of
Consumer and Industry Services.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONVERSION" means: (i) the conversion of MEEMIC to, and the
amendment of the Articles of Incorporation of MEEMIC to conform to the
requirements of, a Michigan domiciled stock property and casualty
insurance company under the laws of the State of Michigan, (ii) the
establishment of MEEMIC Holdings as a Michigan business corporation under
the Michigan Business Corporation Act, as amended, (iii) the issuance of
100% of the authorized capital stock of the Converted Company to MEEMIC
Holdings, (iv) the offer and sale of Shares of MEEMIC Holdings in the
Subscription Offering and the Standby Offering, and otherwise, and (v) the
conversion of the Surplus Note, all in accordance with the terms of the
Plan.
"CONVERTED COMPANY" means MEEMIC, following its conversion to a
Michigan stock property and casualty insurance company from a Michigan
mutual property and casualty insurance company pursuant to the Plan.
"DESIGNATED PERSON" means each of MEEMIC, MEEMIC Holdings, the
Converted Company, Professionals Group, Inc., PICOM, each subsidiary of
MEEMIC, MEEMIC Holdings, the Converted Company, Professionals Group, Inc.
or PICOM, and each officer and each director of each of the foregoing
entities.
"DOLLARS" and the sign "$" mean the currency of the United States of
America as at the time of payment is legal tender for the payment of
public and private debts.
"EFFECTIVE DATE" means the date the Conversion of MEEMIC is
completed, and the amended and restated Articles of Incorporation for the
Converted Company are filed with the Bureau.
"ELIGIBILITY RECORD DATE" means the close of business on June 24,
1998, the effective date of the adoption of the Plan by the Board of
Directors of MEEMIC.
"ELIGIBLE POLICYHOLDER" means a Person who, on the Eligibility Record
Date, is a named
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insured under a Qualifying Policy issued by MEEMIC; provided however, that
if the Qualifying Policy lists more than one named insured, all persons
identified on the Qualifying Policy as a named insured shall jointly
constitute one Eligible Policyholder with respect to such Qualifying
Policy. Notwithstanding anything to the contrary express or implied in
the Plan or the articles of incorporation or bylaws of MEEMIC, (i) no
Qualifying Policy shall have more than one Eligible Policyholder, and (ii)
with respect to each Qualifying Policy for which there is more than one
named insured, the act of any one of such named insureds shall constitute
the act of the Eligible Policyholder for such Qualifying Policy and all of
the named insureds for such Qualifying Policy shall be bound by such act.
"INDEPENDENT APPRAISER" means a person independent of MEEMIC,
experienced and expert in the area of corporate appraisals, chosen and
retained by MEEMIC to prepare an appraisal of the Pro Forma Market Value
of MEEMIC Holdings.
"MEEMIC" means Michigan Educational Employees Mutual Insurance
Company.
"MEEMIC HOLDINGS" means MEEMIC Holdings, Inc., a Michigan business
corporation to be established under the laws of Michigan in connection
with the Conversion, of which the Converted Company shall be a 100%
wholly-owned subsidiary.
"OFFERING" means the offering of Shares in the Subscription Offering
or in the Standby Offering.
"OFFERING MAXIMUM" means the Valuation Range Maximum less the product
of (i) the number of Shares to be issued to the Surplus Note holder
pursuant to Section 7.1 of the Plan multiplied by (ii) the Purchase Price.
"OFFERING MINIMUM" means the Valuation Range Minimum less the product
of (i) the number of Shares to be issued to the Surplus Note holder
pursuant to Section 7.1 of the Plan multiplied by (ii) the Purchase Price.
"OFFERING RANGE" means any Dollar amount between the Offering Maximum
and the Offering Minimum.
"OFFICER" means an executive Officer or director of MEEMIC or MEEMIC
Holdings, including the Chairman of the Board, other members of the board
of directors, President, Vice Presidents, Secretary and Treasurer.
"ORDER FORM" means the order form or forms to be used by Participants
to purchase Subscription Shares pursuant to the Plan.
"PARTICIPANT" means Eligible Policyholders and Officers.
"PERSON" means any individual, corporation, partnership, association,
limited liability company, trust or other entity.
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"PLAN" means this Plan of Conversion, as it may from time to time be
amended, and pursuant to which the Conversion shall be consummated.
"PICOM" means PICOM Insurance Company, a Michigan domiciled domestic
stock insurer, a wholly-owned subsidiary of Professionals Group, Inc.
"PROFESSIONALS" means Professionals Group, Inc. (formerly known as
Professionals Insurance Company Management Group) and PICOM.
"PRO FORMA MARKET VALUE" means the Independent Appraiser's evaluation
of the consolidated, pro forma market value of MEEMIC Holdings upon
conversion, as discounted to attract full subscription for the
Subscription Shares, as indicated by the Independent Appraiser.
"PURCHASE PRICE" means the uniform price per share at which the
Shares will be offered and sold, which price shall be determined by MEEMIC
and MEEMIC Holdings in accordance with Section 4.1 of the Plan.
"QUALIFYING POLICY" means a policy of insurance issued by MEEMIC and
in force as of the close of business on the Eligibility Record Date.
"REGISTRATION STATEMENT" means the Registration Statement and any
amendments thereto filed by MEEMIC Holdings with the SEC pursuant to the
Securities Act of 1933, as amended, to register the Shares to be offered
in the Subscription Offering or otherwise pursuant to the Plan.
"SALE" or "SELL" mean every contract to sell or otherwise dispose of
a security or an interest in a security for value, but such terms do not
include an exchange of securities in connection with a merger or
acquisition approved by the Bureau.
"SEC" means the Securities and Exchange Commission.
"SHARES" means authorized shares of common stock, no par value per
share, of MEEMIC Holdings.
"SPECIAL MEETING" means the Special Meeting of Eligible Policyholders
to be called by MEEMIC for the purpose of submitting the Plan to its
Eligible Policyholders for approval.
"STANDBY OFFERING" means the offer and sale of Subscription Shares to
Professionals pursuant to the Standby Purchase and Option Agreement as
contemplated under Section 6.1 of the Plan.
"STANDBY PURCHASE AND OPTION AGREEMENT" means the Standby Purchase
and Option Agreement to be entered into among MEEMIC Holdings and
Professionals.
"STOCK COMPENSATION PLAN" means the Stock Compensation Plan as
described in
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Section 7.2 of the Plan, pursuant to which additional incentives may be
provided to Officers and employees of MEEMIC and MEEMIC Holdings to
facilitate their purchase of stock in MEEMIC Holdings.
"SUBSCRIPTION OFFERING" means the offering of Subscription Shares to
Participants pursuant to the Plan.
"SUBSCRIPTION OFFERING PROSPECTUS" means the final prospectus
relating to the Registration Statement and filed with the SEC pursuant to
the federal securities laws, and to be used in connection with the
Subscription Offering.
"SUBSCRIPTION PARTICIPANTS" means those Participants that irrevocably
elect to exercise their Subscription Rights.
"SUBSCRIPTION RIGHTS" means the non-transferable, non-negotiable,
personal rights of Participants to subscribe to purchase Subscription
Shares at the Purchase Price.
"SUBSCRIPTION SHARES" means those Shares initially offered to
Participants pursuant to the Subscription Offering at the Purchase Price,
and subsequently offered, in certain circumstances, to Professionals
pursuant to the Standby Purchase and Option Agreement.
"SURPLUS NOTE" means the Surplus Note dated April 7, 1997 issued by
MEEMIC to PICOM in the principal amount of $21,500,000.
"VALUATION RANGE" means the Independent Appraiser's estimated range
of the consolidated Pro Forma Market Value of MEEMIC Holdings as provided
in Section 4.1 of the Plan.
"VALUATION RANGE MAXIMUM" means that valuation which is ten percent
(10%) above the midpoint of the Valuation Range as provided in Section 4.1
of the Plan.
"VALUATION RANGE MINIMUM" means that valuation which is ten percent
(10%) below the midpoint of the Valuation Range as provided in Section 4.1
of the Plan.
SECTION 1.2 HEADINGS. The section headings contained in this Plan
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Plan.
ARTICLE II
THE PLAN
SECTION 2.1. APPROVAL OF PLAN. Under the Plan, MEEMIC will convert
from a Michigan domiciled mutual property and casualty insurance company
to a Michigan domiciled stock property and casualty insurance company
pursuant to the Act, and become a wholly-owned subsidiary of MEEMIC
Holdings. The Conversion is subject to the provisions of the Act, the
approval of the Bureau, and the terms of this Plan. The Plan must be
approved:
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(a) by the affirmative vote of at least two-thirds (2/3) of the
members of the Board of Directors of MEEMIC;
(b) in writing by the Bureau prior to the date of the Special
Meeting; and
(c) by the affirmative vote of at least two-thirds (2/3) of the
votes cast at the Special Meeting of Eligible Policyholders of
MEEMIC.
Pursuant to the Plan, Subscription Shares will be offered at the
Purchase Price in the Subscription Offering to Participants pursuant to
the exercise of nontransferable Subscription Rights granted to them. The
number of Subscription Shares to be issued in the Subscription Offering
will be based upon an independent appraisal of MEEMIC Holdings and will
reflect the estimated Pro Forma Market Value of MEEMIC Holdings, as
described in greater detail herein. In addition, Shares will be used to
pay the amount of principal and interest due on the Surplus Note on the
Effective Date.
The Conversion is contingent upon MEEMIC receiving a legal opinion or
an opinion from its accountants, or a ruling from the Internal Revenue
Service substantially to the effect that the Plan should not or will not
result in certain adverse federal or state income tax consequences to
MEEMIC, MEEMIC Holdings or Eligible Policyholders, including but not
limited to, an opinion that the Plan should not or will not result in a
taxable re-organization of MEEMIC under the Code.
SECTION 2.2 REASONS FOR PROPOSED CONVERSION. On February 7, 1997,
subject to the approval of the Bureau, an agreement was entered into
between MEEMIC, Professionals Insurance Company Management Group, and
PICOM. The purpose of the agreement was to arrange for a capital infusion
into MEEMIC in order to allow MEEMIC to obtain capital and expand its
insurance capacity and business operations, including the acquisition of
its exclusive sales agency. As part of the agreement, Professionals
arranged for a capital infusion into MEEMIC, and agreed to assist MEEMIC
to increase its insurance capacity and provide strategic consulting and
information system services pursuant to (i) a surplus note issued by PICOM
to MEEMIC, (ii) a management services agreement under which Professionals
assumed responsibility for certain business operations of MEEMIC, and
(iii) MEEMIC's agreement to enter into a quota share reinsurance agreement
with PICOM. As part of the transaction, nominees of Professionals
Insurance Company Management Group were appointed to replace the members
of MEEMIC's Board of Directors at the time.
On February 25, 1997, Professionals Insurance Company Management
Group made a Form A filing with the Bureau seeking approval for
Professionals to acquire control of MEEMIC as defined in the Michigan
Insurance Code. As part of that filing, the Bureau reviewed and approved
the arrangements set forth above. In addition, the Form A filing advised
the Bureau that Professionals Insurance Company Management Group
contemplated that MEEMIC would, at a future date, be converted to a stock
company with the support and participation of Professionals, subject to
the appropriate approvals being obtained. In an Order Approving
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Acquisition dated April 4, 1997, the Bureau approved Professionals
Insurance Company Management Group's acquisition of control of MEEMIC.
Subsequently, on September 22, 1997, MEEMIC, Professionals, and
MEEMIC Insurance Services Corporation (a wholly owned subsidiary of
MEEMIC) entered into an asset purchase agreement with its exclusive
agents, Michigan Educators Insurance Agency, Inc. and Michigan Educators
Life Insurance Agency, Inc. (collectively, the "Agency"). As part of this
transaction, MEEMIC Insurance Services Corporation agreed to purchase the
agency contract rights to sell MEEMIC products, and certain related assets
of the Agency for the purpose of consolidating the marketing operations
and sales for insurance issued by MEEMIC. Professionals Insurance Company
Management Group and PICOM facilitated the acquisition of the Agency by
providing certain capital through the Surplus Note, and guaranties of
payment obligations of MEEMIC Insurance Services Corporation. This
transaction was approved by the Bureau in a Supplemental Order on
September 19, 1997.
MEEMIC has found the relationship with Professionals Insurance
Company Management Group to be beneficial in furthering MEEMIC's corporate
goals. MEEMIC now desires to pursue its Conversion with the support and
assistance of Professionals. Professionals has agreed to assist in the
Conversion process by converting the Surplus Note, thus canceling the
related principal and interest payment obligations of MEEMIC.
Professionals has also agreed to serve as the Standby purchaser so as to
assure that the Subscription Offering is completed without underwriting
fees and charges to MEEMIC. MEEMIC has agreed to grant to Professionals
the right to purchase such additional Shares following the Subscription
Offering as may be required to obtain a fifty one percent (51%) ownership
position in MEEMIC, as set forth in greater detail herein, thereby
maintaining the strong and beneficial relationship between the companies
and without creating a change of control for regulatory purposes.
It is the desire of the Board of Directors of MEEMIC to convert
MEEMIC to a stock insurance company and to issue the stock of MEEMIC
Holdings in order to: (i) increase MEEMIC's statutory surplus to support
current and future writings and provide additional security to
policyholders, (ii) support future product lines and geographic
diversification, growth and expansion, (iii) provide MEEMIC with the
ability to improve operational flexibility by providing MEEMIC with
increased options for addressing the Surplus Note and related agreements,
(iv) provide financial participation to the policyholders in the success
of MEEMIC, and (v) create opportunities for financial participation by all
parties to create incentives to maximize performance of MEEMIC. It is the
further desire of the Board of Directors of MEEMIC to reorganize the
Converted Company as a wholly-owned subsidiary of MEEMIC Holdings in order
to enhance and improve operational flexibility, diversification of
business opportunities and financial capability for business and
regulatory purposes, thus enabling the Converted Company to compete more
effectively with other insurance companies.
ARTICLE III
REQUIREMENTS FOR CONVERSION APPROVAL
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SECTION 3.1 APPLICATION TO THE BUREAU. Within 90 days after
adoption of the Plan by the Board of Directors of MEEMIC and prior to
submission of the Plan to the Eligible Policyholders for approval at the
Special Meeting, MEEMIC shall file the Application with the Bureau. The
Application shall contain the following documents and information:
(a) The Plan;
(b) The independent evaluation of Pro Forma Market Value of
MEEMIC Holdings required by Section 4.1 of the Plan,
(c) The form of notice required by Section 3.2 of the Plan;
(d) The form of proxy to be solicited from Eligible
Policyholders pursuant to Section 3.4 of the Plan;
(e) The form of notice required by the Act and pursuant to
Section 4.5 to persons whose policies are issued after adoption of
the Plan but before the Effective Date;
(f) The proposed amended Articles of Incorporation and bylaws
of the Converted Company; and
(g) A business plan for the Converted Company that describes
anticipated changes in the post conversion business of the Converted
Company and the Converted Company's plan to deploy the capital
acquired in the conversion.
(h) Such other necessary or appropriate documents relating to
the Plan.
SECTION 3.2 NOTICE TO ELIGIBLE POLICYHOLDERS. Following the filing
of the Application and at least 21 days before the date fixed for the
Special Meeting described in Section 3.4 of the Plan, MEEMIC shall send a
notice by first class mail to each Eligible Policyholder, which notice
shall:
(a) briefly but fairly describe the Plan; and
(b) inform such Eligible Policyholder of the right of such
Eligible Policyholder to vote upon the Plan.
Such notice may be given by mailing one notice per Qualifying Policy to
the address of the holder(s) of the Qualifying Policy as such address
appears on the records of MEEMIC; provided, however, that separate notices
to each named insured on a Qualifying Policy shall not be required.
SECTION 3.3 ARTICLES OF INCORPORATION. As part of the Conversion,
Articles of Incorporation will be adopted by MEEMIC to authorize MEEMIC to
operate as a Michigan stock insurance company. Eligible Policyholders of
MEEMIC must approve revised Articles of
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Incorporation by the affirmative vote of at least two thirds (2/3) of the
votes cast at the Special Meeting described in Section 3.4 of the Plan.
The amendment of the existing Articles of Incorporation of MEEMIC shall
occur on the Effective Date. The Articles of Incorporation and bylaws of
the Converted Company shall be filed with the Bureau following the Special
Meeting.
SECTION 3.4 THE SPECIAL MEETING. Subsequent to the approval of the
Plan by the Bureau, the Special Meeting shall be scheduled for
consideration of the Plan in accordance with MEEMIC's bylaws and
applicable law. An affirmative vote of not less than two-thirds of the
Eligible Policyholders voting in person or by proxy at the Special Meeting
shall be required for approval of the Plan. Each Eligible Policyholder
shall be entitled to one vote per Qualifying Policy. Voting may be in
person or by proxy.
Notice of the Special Meeting shall be given by MEEMIC by means of a
notice of special meeting, proxy statement, and form of proxy authorized
for use by the Bureau and mailed to the address of the holder(s) of each
Qualifying Policy as such address appears on the records of MEEMIC at
least 21 days prior to the Special Meeting; provided, however, that
separate notices to each named insured for each Qualifying Policy shall
not be required. MEEMIC may in its discretion include with this mailing a
Subscription Offering Prospectus as provided in Section 5.5 of the Plan.
MEEMIC shall notify the Bureau of the vote of the Eligible
Policyholders taken at the Special Meeting. In addition, MEEMIC will file
with the Bureau the minutes of the Special Meeting at which the Plan was
approved.
ARTICLE IV
THE CONVERSION
SECTION 4.1 PURCHASE PRICE AND DETERMINATION OF THE NUMBER OF
SUBSCRIPTION SHARES TO BE OFFERED. The total number of Subscription
Shares (or a range thereof) of MEEMIC Holdings to be issued and sold in
the Conversion shall be determined as follows:
(a) INDEPENDENT APPRAISER. The Independent Appraiser will be
retained by MEEMIC to prepare an appraisal of the Pro Forma Market Value
of the Converted Company. The Independent Appraiser will establish a
valuation range consisting of a midpoint valuation, a valuation ten
percent (10%) above the midpoint valuation and a valuation ten percent
(10%) below the midpoint valuation. The valuation of the Independent
Appraiser will be based upon the currently available information
concerning the financial condition of MEEMIC, a comparison of MEEMIC with
comparable publicly held insurance companies and such other factors as the
Independent Appraiser may deem to be relevant and as are not inconsistent
with the provisions of the Act, including (as required by the Act) that
value which the Independent Appraiser estimates to be necessary to attract
a full subscription for the Shares to be offered in the Offering. The
valuation of the Independent Appraiser will be submitted to the Bureau as
part of the Application to be filed by MEEMIC for approval of the
Conversion pursuant to Section 3.1 of the Plan. The
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Company may, with permission of the Bureau, adjust the valuation, the
Valuation Range Minimum and the Valuation Maximum if MEEMIC shall
determine that a material change in financial condition of MEEMIC or other
factors considered by the Independent Appraiser require an update of the
appraisal.
(b) PURCHASE PRICE. The Purchase Price at which the Subscription
Shares will be offered and sold will be uniform as to Participants in the
Subscription Offering and will be established by MEEMIC and MEEMIC
Holdings at a reasonable amount.
(c) NUMBER OF SUBSCRIPTION SHARES TO BE OFFERED. The number of
Subscription Shares to be offered in the Offering shall be equal to the
Valuation Range Maximum divided by the Purchase Price, less the number of
Shares to be issued to the Surplus Note holder pursuant to Section 7.1 of
the Plan (assuming for this purpose, an Effective Date of November 1,
1998).
SECTION 4.2 NUMBER OF SUBSCRIPTION SHARES TO BE SOLD.
(a) RESPONSE TO SUBSCRIPTION OFFERING MEETS OR EXCEEDS OFFERING
MAXIMUM. If the number of Subscription Shares subscribed for by
Participants in the Subscription Offering multiplied by the Purchase Price
is equal to or greater than the Offering Maximum, then the Conversion
shall be promptly consummated. On the Effective Date, MEEMIC Holdings
shall issue Subscription Shares to the Subscribing Participants. The
number of Subscription Shares issued under this Section 4.2(a) may not
exceed the maximum number of Subscription Shares offered in the
Subscription Offering. In the event of an oversubscription in the
Subscription Offering, Subscription Shares shall be allocated among the
Subscribing Participants as provided in Section 5.3(d) of the Plan. No
fractional Shares shall be issued.
(b) RESPONSE TO SUBSCRIPTION OFFERING WITHIN OFFERING RANGE. If,
upon conclusion of the Subscription Offering, the number of Subscription
Shares subscribed for by Participants in the Subscription Offering
multiplied by the Purchase Price is within the Offering Range then the
Conversion shall be promptly consummated. To the extent that Subscription
Shares remain unsold after the subscriptions of all Participants in the
Subscription Offering have been satisfied in full, Professionals may elect
to purchase Subscription Shares pursuant to the Standby Purchase and
Option Agreement. The number of Subscription Shares issued under this
Section 4.2(b) may not exceed the maximum number of Subscription Shares
offered in the Subscription Offering. On the Effective Date, MEEMIC
Holdings shall issue to Subscribing Participants Subscription Shares in an
amount sufficient to satisfy the subscriptions of such Participants in
full and shall issue to Professionals Subscription Shares in an amount
determined by the Standby Purchase and Option Agreement and Professionals'
elections thereunder. No fractional Shares shall be issued.
(c) RESPONSE TO SUBSCRIPTION OFFERING DOES NOT MEET OFFERING
MINIMUM. If the number of Subscription Shares subscribed for by
Participants in the Subscription Offering multiplied by the Purchase Price
is less than the Offering Minimum, then in such event, pursuant to the
Standby Purchase Agreement, Professionals shall be required to purchase
the number of Subscription Shares necessary to meet the Offering Minimum
and may elect to purchase additional Subscription Shares up to but not
exceeding the Offering Maximum. If the aggregate
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number of Subscription Shares subscribed for in the Subscription Offering
and the Standby Offering, multiplied by the Purchase Price is equal to or
greater than the Offering Minimum, then the Conversion shall be
consummated promptly. On the Effective Date, MEEMIC Holdings shall issue
to Subscribing Participants Subscription Shares in an amount sufficient to
satisfy the subscriptions of such Participants in full and shall issue to
Professionals Subscription Shares in an amount determined by the Standby
Purchase and Option Agreement and Professionals' elections thereunder. No
fractional Shares shall be issued.
(d) RESPONSE TO SUBSCRIPTION OFFERING AND STANDBY OFFERING DOES NOT
MEET OFFERING MINIMUM. In the unanticipated event that the aggregate
number of Subscription Shares subscribed for in the Subscription Offering
and in the Standby Offering multiplied by the Purchase Price is less than
the Offering Minimum, then in such event MEEMIC and MEEMIC Holdings, in
consultation with the Bureau, may cancel the Offering and terminate the
Plan, establish a new Valuation Range, extend, reopen or hold a new
Offering or take such other action as may be authorized by the Bureau.
SECTION 4.3 EFFECTIVE DATE OF CONVERSION. The Conversion shall be
consummated on the Effective Date. On the Effective Date, MEEMIC shall
become a Michigan domiciled stock insurance company and will issue
1,500,000 shares of its common stock to MEEMIC Holdings at a par value of
one dollar ($1.00) per share, and Shares of MEEMIC Holdings will be issued
and sold to the Participants and, if applicable, to Professionals pursuant
to the Standby Offering.
SECTION 4.4 STATUS OF POLICIES IN FORCE ON THE EFFECTIVE DATE. Each
policy of insurance issued by MEEMIC and in force on the Effective Date
shall remain in force as a policy issued by the Converted Company in
accordance with the terms of such policy, except that, from and after the
Effective Date: (i) all voting rights (if any) of the holder of such
policy shall be extinguished, and (ii) all rights (if any) of the holder
of such policy to share in the surplus of MEEMIC or the Converted Company
shall be extinguished, including but not limited to the ability to share
in the surplus upon liquidation.
SECTION 4.5 NOTICE TO NON-ELIGIBLE POLICYHOLDERS. The holder(s) of
each policy whose policy was issued subsequent to the Eligibility Record
Date but prior to the Effective Date shall be given written notice of the
Plan in a form approved by the Bureau, no later than forty-five (45) days
after the Effective Date. The notice shall be sent to the address of the
holder(s) as it appears on the records of MEEMIC; provided, however, that
separate notices to each named insured on each policy shall not be
required. The notice shall:
A. include the description of the Plan provided the Eligible
Policyholders pursuant to the Section 3.2 of the Plan; and
B. advise the named insured of his or her right to cancel the
policy and to receive a pro rata refund of unearned premiums.
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ARTICLE V
THE SUBSCRIPTION OFFERING
SECTION 5.1. ALLOCATION OF SUBSCRIPTION RIGHTS. Subscription Rights
to purchase Subscription Shares at the Purchase Price will be distributed
to the Participants. Participants will receive, without payment,
Subscription Rights to purchase in the aggregate, Subscription Shares
equal to the Offering Maximum divided by the Purchase Price.
The maximum number of Shares which may be purchased by Participants
in the aggregate shall be equal to the Offering Maximum divided by the
Purchase Price.
SECTION 5.2 SUBSCRIPTION RIGHTS. Subscription Rights are
nontransferable, nonnegotiable personal rights to subscribe for and
purchase Subscription Shares at the Purchase Price. Subscription Rights
will be distributed, without payment, to each Participant as described in
Section 5.5 and Section 8.2. The receipt of Subscription Rights by a
Participant will permit (but will not require) the Participant to
subscribe to purchase Subscription Shares at the Purchase Price in the
Subscription Offering.
The exercise of Subscription Rights is irrevocable and an executed
Order Form may not be modified, amended or rescinded; provided, however,
that upon request of a Participant and evidence of exigent circumstances,
MEEMIC and MEEMIC Holdings will waive the irrevocable nature of the
subscription. In a circumstance where a waiver is granted, MEEMIC and
MEEMIC Holdings will direct the return of the payment for the Subscription
Shares subscribed for to the Participant. Conversely, the failure of a
Participant to timely deliver a duly executed Order Form, together with
full payment for the Shares subscribed for, will be deemed to constitute
an irrevocable waiver and release by the Participant of all rights to
subscribe for and purchase of Subscription Shares in the Subscription
Offering.
SECTION 5.3 LIMITATIONS UPON PURCHASES OF SUBSCRIPTION SHARES.
The following additional limitations and exceptions shall apply to all
purchases of Subscription Shares:
(a) SUBSCRIPTION CATEGORY NO. 1: ELIGIBLE POLICYHOLDERS. There is
reserved in the aggregate for Eligible Policyholders an amount of
Subscription Shares equal to ninety percent (90%) of the Subscription
Shares offered in the Subscription Offering. For purposes of Subscription
Category No. 1, Eligible Policyholders shall not include the Officers. In
the event less than all of the Subscription Shares reserved for Officers
under Section 5.3(b), are subscribed for by Officers, such Subscription
Shares shall also be available to Eligible Policyholders. Individual
purchases by Eligible Policyholders shall be subject to the following
additional limitations:
(i) MINIMUM PURCHASES. No Eligible Policyholder may purchase
fewer than 100 Subscription Shares, unless such minimum amount is
reduced pursuant to the oversubscription provisions of Section
5.3(d).
(ii) MAXIMUM PURCHASES. Each Eligible Policyholder may
purchase, for each
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Qualifying Policy held by the Eligible Policyholder, a maximum of one
quarter of one percent (0.25%) of the number of Subscription Shares
offered in the Subscription Offering. For purposes of determining
whether the maximum purchase amount has been reached, the purchase of
each Eligible Policyholder shall be aggregated with purchases by such
person's Affiliates and Associates, or by a group of persons Acting
in Concert, and the maximum shall be applied to such aggregated
amount.
(b) SUBSCRIPTION CATEGORY NO. 2: OFFICERS. There is reserved in the
aggregate for Officers, together with their Associates, an amount of
Subscription Shares equal to ten percent (10%) of the Subscription Shares
offered in the Subscription Offering. In the event not all of these
reserved Subscription Shares are subscribed for by Officers, such
Subscription Shares shall be available to Eligible Policyholders under
Section 5.3(a). Individual purchases by Officers shall be subject to the
following additional limitations:
(i) MINIMUM PURCHASES. No individual Officer (together with
his or her Associates) may purchase fewer than 100 Subscription
Shares, unless such minimum amount is reduced pursuant to the
oversubscription provisions of Section 5.3(d).
(ii) MAXIMUM PURCHASES. Purchases of Subscription Shares in the
Offering by any individual Officer, when aggregated with purchases by
his or her Associates, shall not exceed two and one half percent
(2.5%) of the number of Subscription Shares offered in the
Subscription Offering.
(c) NO PURCHASES BY ESOP. No Employee Stock Purchase Plan has been
established by MEEMIC or MEEMIC Holdings which would be permitted to
purchase Subscription Shares.
(d) RULES FOR OVERSUBSCRIPTIONS. In the event of an
oversubscription in either Subscription Category No. 1 or Subscription
Category No. 2, Subscription Shares will be allocated among Participants
within each category, by reducing the subscriptions of certain
Participants according to the following methodology:
(i) MEEMIC Holdings will determine the number of Subscription
Shares by which Subscription Category No. 1 and/or Subscription
Category No. 2 is oversubscribed.
(ii) MEEMIC Holdings will identify the Participant or
Participants which have subscribed for the largest and second largest
number of Subscription Shares in each category, and reduce the number
of shares subscribed for by the Participant with the largest
subscription (or on a pro-rata basis among the Participants with the
largest subscriptions) to the number of Subscription Shares which
have been subscribed for by the Participant or Participants with the
second largest subscription(s), but in no event reducing
subscriptions by an aggregate amount in excess of the number of
Subscription Shares identified in 5.3(d)(i) above, as rounded to the
nearest whole Share(s).
(iii) MEEMIC Holdings will repeat the methodology set forth in
Section 5.3(e)(ii) above, for so many iterations as shall be
necessary to eliminate oversubscriptions within each subscription
category.
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(e) By purchasing Subscription Shares, each person purchasing
Subscription Shares shall be deemed to confirm that such purchase does not
conflict with the purchase limitations under the Plan or otherwise imposed
by law. In the event that such purchase limitations are violated by any
Participant (including any Associate or Affiliate of such person or person
otherwise Acting in Concert with such Participant), MEEMIC Holdings shall
have the right to purchase from such Participant at the Purchase Price all
Subscription Shares acquired by such Participant in excess of any such
purchase limitation or, if such excess shall have been sold by such
Participant, to receive the difference between the Purchase Price paid for
such excess Shares and the proceeds received by such Participant from the
sale of such excess Shares. This right of MEEMIC Holdings to purchase
such excess Shares shall be assignable by MEEMIC Holdings.
SECTION 5.4 TIMING OF SUBSCRIPTION OFFERING AND COMPLIANCE WITH
APPLICABLE SECURITIES LAWS. MEEMIC Holdings shall make all filings with
the SEC and take all actions necessary to register its Shares under the
Securities Act of 1933, as amended.
MEEMIC intends to submit the Plan to Eligible Policyholders for
approval prior to the commencement of the Subscription Offering. If,
however, MEEMIC elects to commence the Subscription Offering concurrently
with or during the proxy solicitation of Eligible Policyholders, and
closes the Subscription Offering before the Special Meeting, the offer and
sale of the Converted Company Capital Stock shall be conditioned upon
approval of the Plan by the Eligible Policyholders.
MEEMIC and MEEMIC Holdings shall not distribute the Subscription
Offering Prospectus until its Registration Statement has been declared
effective by the SEC. MEEMIC and MEEMIC Holdings shall not distribute any
Order Form to any Participant until the Registration Statement has been
filed with the SEC.
SECTION 5.5 OFFERING DOCUMENTS. Within 5 business days after the
SEC has declared the Registration Statement effective, the Subscription
Offering shall be commenced. MEEMIC and MEEMIC Holdings shall mail to the
address of each holder(s) of a Qualifying Policy as such address appears
on the records of MEEMIC a written notice of the commencement of the
Subscription Offering. The notice shall state that MEEMIC and MEEMIC
Holdings are not required to furnish a Subscription Offering Prospectus
unless an Eligible Policyholder returns by a reasonable date certain an
accompanying postage-paid, written communication requesting the receipt of
the Subscription Offering Prospectus and an Order Form. MEEMIC will also
make such postage-paid communications available to Eligible Policyholders
at each MEEMIC insurance agency location. Such notice may be given by
mailing one notice to the address of the holder(s) of each Qualifying
Policy as such address appears on the records of MEEMIC; provided,
however, that separate notices to each named insured in each Qualifying
Policy shall not be required.
SECTION 5.6 MAILING OF OFFERING MATERIALS AND COLLECTION OF
SUBSCRIPTIONS. After approval of the Plan by the Bureau and the
compliance with all SEC requirements, MEEMIC and MEEMIC Holdings shall
distribute the Subscription Prospectus, Order Forms and related documents
for the purchase of Shares in accordance with Section 5.5.
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The recipient of an Order Form will be instructed to (i) review the
Subscription Offering Prospectus and, in the event such Participant elects
to purchase any of the Shares offered in the Subscription Offering, (ii)
properly complete, execute and return the Order Form to MEEMIC or its
designee not more than 45 days from commencement of the Subscription
Offering unless such date is extended. Self-addressed, postage paid
return envelopes shall accompany the Order Forms when mailed.
Following the 45 day offering period described in the preceding
paragraph, MEEMIC shall have an additional 45 day period to deliver the
Subscription Shares as set forth in this Plan.
ARTICLE VI
THE STANDBY PURCHASE AND OPTION AGREEMENT
SECTION 6.1 THE STANDBY PURCHASE AND OPTION AGREEMENT. To the
extent that fewer than the maximum number of Subscription Shares permitted
to be sold to Eligible Policyholders are purchased in the Subscription
Offering, Subscription Shares shall be sold in a private placement to
Professionals pursuant to the Standby Purchase and Option Agreement. The
Standby Purchase and Option Agreement provides that Professionals shall be
required to purchase any Subscription Shares necessary to be sold to reach
the Offering Minimum and provides that Professionals may purchase
additional Subscription Shares, not to exceed the Offering Maximum. The
Board of Directors of MEEMIC has determined that an underwritten public
offering is not a viable alternative for the disposal of Subscription
Shares not sold through the Subscription Offering due to (a) the costs and
expenses associated with such a public offering, (b) the small number of
shares anticipated to be available for a public offering following the
Subscription Offering, and (c) the uncertainty of the ability to sell all
such Subscription Shares in a public offering versus the firm commitment
and certainty of such sale pursuant to the Standby Purchase and Option
Agreement. By entering into the Standby Purchase and Option Agreement,
MEEMIC will have assurances that the Conversion will be completed.
In addition to the Subscription Shares to be issued pursuant to the
Offering on the Effective Date, Professionals shall have the right to
purchase additional Shares subsequent to the Effective Date pursuant to
the Standby Purchase and Option Agreement. Under the terms of the Standby
Purchase and Option Agreement, Professionals has the option, but not the
obligation, to purchase, commencing on the Effective Date and continuing
for a one year period, the number of Shares equal to the following:
(i) .51 multiplied by the number of outstanding Shares of MEEMIC
Holdings as of the date Professionals gives notice of the intent
to exercise the option; plus (ii) 153,000; less (iii) the number
of Shares issued to PICOM pursuant to Section 7.1 of the Plan;
less (iv) the number of Shares (if any) purchased by
Professionals in the Standby Offering; less (v) any other Shares
owned by Professionals (if any) at the time Professionals gives
notice of intent to exercise the option;
15
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The sum of (i) through (v) above shall then be divided by .49.
The intent of the foregoing paragraph is to provide an option to
Professionals to obtain a 51% ownership interest in MEEMIC Holdings.
The price of the Shares purchased pursuant to the foregoing formula
shall be determined as follows:
(a) If the option is exercised by Professionals within the first 90
calendar days immediately following the Effective Date, Professionals
shall purchase each Share at 140% of the Purchase Price. 120 calendar
days after the Effective Date, the price per Share purchased pursuant to
the option shall be adjusted to be the larger of (i) the average of the
fair market value per Share over the twenty calendar day period commencing
70 calendar days after the Effective Date or (ii) 140% of the Purchase
Price.
(b) If the option is exercised by Professionals after the first 90
calendar days immediately following the Effective Date, Professionals
shall purchase each Share at a price equal to the larger of (i) the
average of the fair market value per Share over the 20 calendar day period
immediately preceding the exercise date, or (ii) 140% of the Purchase
Price.
For purposes of the Standby Purchase and Option Agreement, Section
7.1, and otherwise, Professionals shall be permitted to acquire more than
five percent (5%) of the Shares, notwithstanding the limitations set forth
in Section 5909(1) of the Act.
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ARTICLE VII
ADDITIONAL RELATED TRANSACTIONS
SECTION 7.1 CONVERSION OF THE SURPLUS NOTE. On the Effective Date,
the aggregate of all sums due and owing on the Surplus Note as of November
1, 1998 (the "Conversion Amount"), including principal and interest, shall
be converted into that number of Shares determined by dividing the
Conversion Amount by the Purchase Price, rounded upward to the nearest
whole Share. In addition to the foregoing, all interest which accrues on
or after November 1, 1998 and prior to the Effective Date (if any) shall
be calculated as set forth in the Surplus Note and shall be paid by MEEMIC
to PICOM in cash on the Effective Date. Upon such conversion of the
Surplus Note, the Surplus Note shall be deemed to have been paid in full.
The issuance of Shares upon conversion of the Surplus Note shall be in
addition to the issuance of Subscription Shares to be offered to
Participants in the Offering.
SECTION 7.2 THE STOCK COMPENSATION PLAN. It is the intention of
MEEMIC Holdings to adopt a Stock Compensation Plan, which plan shall be
subject to approval by the shareholder(s) of MEEMIC Holdings. The Stock
Compensation Plan, among other things, will authorize the Board of
Directors of MEEMIC Holdings to grant to Officers, and employees of MEEMIC
Holdings and MEEMIC options to purchase up to a maximum of 300,000 Shares
in the aggregate, which options shall be exercisable at the Purchase
Price. Shares issued pursuant to the exercise of options could be from
treasury stock or newly issued shares. Upon approval by the Bureau of
this Plan, Shares issued pursuant to the Stock Compensation Plan may be
issued for services rendered to MEEMIC and/or MEEMIC Holdings in aiding,
promoting, or assisting in the Conversion. Following the consummation of
the Conversion, the Stock Compensation Plan will replace the existing
Amended and Restated Michigan Educational Employees Mutual Insurance
Company Incentive Plan, and therefore, there will be no future awards by
MEEMIC under that plan.
ARTICLE VIII
SALE AND TRANSFER
REQUIREMENTS AND RESTRICTIONS
SECTION 8.1 METHOD OF PAYMENT FOR SUBSCRIPTION SHARES. Payment for
all Subscription Shares subscribed for in the Subscription Offering must
be received in full by MEEMIC or its designee, together with properly
completed and executed Order Forms, on or prior to the expiration date
specified on the Order Form, unless such date is extended by MEEMIC.
Payment for all Subscription Shares by Participants may be made in cash
(if delivered in person) or by check or money order.
SECTION 8.2 UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS, INSUFFICIENT
PAYMENT. In the event that an Order Form is: (i) not delivered to the
addressee and is returned to MEEMIC by the United States Postal Service
(or MEEMIC is unable to locate the addressee); (ii) not received by MEEMIC
or its designee, or is received by MEEMIC or its designee after the date
specified
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<PAGE>
thereon; (iii) defectively completed or executed, or (iv) not accompanied
by payment in full for the Subscription Shares subscribed for, the
Subscription Rights of the Participant to whom such rights have been
granted will not be honored and such Participant will be treated as having
failed to return the completed Order Form within the time period specified
therein. In the event that the payment for Subscription Shares tendered
in connection with any Subscription Rights is dishonored, in whole or in
part, by any Person, then such Subscription Rights shall not be honored
and the Person to whom such Subscription Rights were granted shall be
treated as having failed to timely exercise such Subscription Rights.
Alternatively, MEEMIC may (but will not be required to) waive any
irregularity relating to any Order Form or require the submission of a
corrected Order Form or the remittance of full payment for the
Subscription Shares subscribed for by such date as MEEMIC may specify.
Subscription orders, once tendered, may not be revoked; provided, however,
that upon request of a Participant and evidence of exigent circumstances,
MEEMIC and MEEMIC Holdings will waive the irrevocable nature of the
subscription. In a circumstance where a waiver is granted, MEEMIC and
MEEMIC Holdings will direct the return of the payment for the Subscription
Shares subscribed for to the Participant. MEEMIC's interpretations of the
terms and conditions of this Plan and determinations with respect to the
acceptability of the Order Forms will be final, conclusive and binding
upon all persons and MEEMIC (and the directors, officers, employees and
agents of MEEMIC) shall not be liable to any person in connection with any
such interpretation or determination.
SECTION 8.3 SALES OF SUBSCRIPTION SHARES TO PERSONS WHO RESIDE IN
CERTAIN JURISDICTIONS. MEEMIC will make reasonable efforts to comply
with the securities laws of all states in the United States in which
Persons entitled to subscribe for Subscription Shares pursuant to the Plan
reside. However, MEEMIC shall not be required to offer or sell
Subscription Shares to any Person who resides in a foreign country or in
any State in which such an offer would violate the State's law. No
payment will be made to any Person in lieu of the granting of Subscription
Rights to any such person. All of the Participants are believed to reside
in the State of Michigan.
SECTION 8.4 RESTRICTIONS ON TRANSFER OF SHARES. Shares purchased by
Persons other than Officers may be transferred without restriction under
the Plan. Shares purchased by Officers may not be sold for a period of
one (1) year from the Effective Date, provided that a sale by a personal
representative of a deceased Officer shall not be considered a sale by
such Officer.
The certificates representing Shares issued to Officers shall bear
the following legend:
The shares of stock evidenced by this Certificate are
restricted as to transfer for a period of one (1) year
from the date of this Certificate pursuant to the
provisions of Chapter 59 of the Michigan Insurance
Code (the "Code") and may not be sold prior thereto
without an opinion of counsel for MEEMIC and MEEMIC
Holdings that such sale is permissible under the
provisions of the Code.
In addition, MEEMIC Holdings shall give appropriate instructions to
its transfer agent with respect to the foregoing restrictions. Any Shares
subsequently issued pursuant to a stock
18
<PAGE>
dividend, stock split or otherwise, with respect to restricted Shares
shall be subject to the same holding period restrictions as are then
applicable to such restricted Shares.
SECTION 8.5 PURCHASES OF SHARES BY OFFICERS AND ASSOCIATES FOLLOWING
CONVERSION. Without the prior approval of the Bureau, Officers and their
Associates shall be prohibited for a period of three (3) years following
the effective date of the Conversion from purchasing outstanding Shares,
except through a broker-dealer. This Section 8.5 does not prohibit
Officers from purchasing stock through Subscription Rights received
pursuant to this Plan or pursuant to awards made under the Stock
Compensation Plan.
Stock options for Shares shall not be made available to Officers for
a period of two (2) years following the Effective Date if the aggregate
holdings of all such Officers exceed or would exceed fifteen percent (15%)
of the Shares issued by MEEMIC Holdings. Notwithstanding the restriction,
purchases may also be made within the three year period for the account of
an Officer pursuant to a Tax-Qualified Employee Stock Benefit Plan subject
to the ten percent (10%) limitation imposed by Section 500.5913 of the
Act.
ARTICLE IX
INTERPRETATION, AMENDMENT AND
TERMINATION OF THE PLAN
SECTION 9.1 INTERPRETATION OF THE PLAN.
(a) The Board of Directors of MEEMIC shall have the exclusive
authority to interpret and apply the provisions of the Plan to particular
facts and circumstances and to make all determinations necessary or
desirable to implement the Plan. Any such interpretation, application or
determination made in good faith and on the basis of such information and
assistance as was then reasonably available for such purpose, shall be
final, conclusive and binding, upon all persons and MEEMIC (or its
directors, officers, employees or agents) shall not be liable to any
person, in connection with any such interpretation, application or
determination.
(b) This Plan shall be governed and construed in accordance with the
domestic laws of the State of Michigan and federal law.
SECTION 9.2 AMENDMENT. The Plan may be amended at any time before
it is approved by the Bureau by the affirmative vote of not less than
two-thirds (2/3) of the directors of MEEMIC then in office. Once the Plan
has been approved by the Bureau, the Plan may only be amended by the
affirmative vote of not less than two-thirds (2/3) of the directors of
MEEMIC then in office AND approval of such amendment by the Bureau.
SECTION 9.3 TERMINATION. The Plan may be withdrawn or terminated at
any time before it is approved by the Bureau by an affirmative vote of not
less than two-thirds (2/3) of the directors of MEEMIC then in office.
Once the Plan has been approved by the Bureau, the Plan may only be
withdrawn or terminated by the affirmative vote of not less than
two-thirds (2/3) of
19
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the directors of MEEMIC then in office AND approval of the Bureau.
20
<PAGE>
STANDBY PURCHASE AND OPTION AGREEMENT
This Standby Purchase and Option Agreement (the "Agreement") is entered
into as of ______ ___, 1998, by and between MEEMIC Holdings, Inc., a Michigan
corporation ("MEEMIC Holdings"), PICOM Insurance Company, a Michigan domiciled
stock insurance company ("PICOM") and Professionals Group, Inc., a Michigan
corporation ("Professionals").
RECITALS
WHEREAS, on June 24, 1998, the Board of Directors of MEEMIC approved a Plan
of Conversion that contemplates the offering of stock in MEEMIC Holdings to
Eligible Policyholders of MEEMIC in accordance with the terms of the Plan of
Conversion;
WHEREAS, on June 24, 1998, MEEMIC filed the Plan of Conversion with the
Michigan Insurance Bureau for approval;
WHEREAS, before proceeding with the Offering contemplated by the Plan of
Conversion the parties desire to commit to writing the obligation of the
Purchaser to purchase Shares of MEEMIC Holdings in certain circumstances as set
forth in this Agreement; and
WHEREAS, pursuant to the Plan of Conversion and in connection with the
transactions contemplated by the Plan of Conversion, MEEMIC Holdings desires to
grant to the Purchaser, and the Purchaser desires to obtain from MEEMIC
Holdings, an option to purchase certain additional Shares of stock of MEEMIC
Holdings upon certain terms and conditions set forth in greater detail below.
NOW, THEREFORE, in consideration of the terms and conditions set forth in
this Agreement, the receipt and sufficiency of which is hereby acknowledged,
MEEMIC Holdings, PICOM and Professionals agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS INCORPORATED BY REFERENCE. The terms set forth in
this Section 1.1 are defined in the Plan of Conversion for MEEMIC, as approved
by the Board of Directors of MEEMIC on June 24, 1998. The parties agree that
for purposes of this Agreement, the terms set forth below, whenever initially
capitalized, shall have the meaning set forth in such Plan of Conversion.
MEEMIC Holdings, PICOM and Professionals acknowledge receiving a copy of such
Plan of Conversion.
<PAGE>
EFFECTIVE DATE;
ELIGIBLE POLICYHOLDERS;
MEEMIC;
OFFERING;
OFFERING MAXIMUM;
OFFERING MINIMUM;
PURCHASE PRICE;
SHARES; and
SUBSCRIPTION OFFERING.
SECTION 1.2 ADDITIONAL DEFINED TERMS. In addition to the defined terms
set forth in Section 1.1, the terms set forth below, whenever initially
capitalized, shall have the meaning set forth in this Section:
"ADJUSTED PURCHASE PRICE" has the meaning set forth in Section 3.1 of this
Agreement.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"CLOSING" has the meaning set forth in Section 4.1 of this Agreement.
"FAIR MARKET VALUE" means with respect to a Share on a given date: (a) if
the Shares are listed for trading on a national securities exchange (including,
for this purpose, the National Market System of the Nasdaq stock market (the
"National Market System") on such date, the daily closing price per share of the
Shares on such exchange (or, if there is more than one, the principal such
exchange); (b) if the Shares are not listed for trading on any securities
exchange (including the National Market System) on such date but are reported by
Nasdaq, and the market information concerning the Shares is published on a
regular basis in THE NEW YORK TIMES, THE WALL STREET JOURNAL, or Detroit News,
the average of the bid and asked price per share of the Shares as so published;
or (c) if (a) is inapplicable and market information concerning the Shares is
not regularly published as described in (b), the average of the daily bid and
asked price per share of the Shares in the over-the-counter market as reported
by Nasdaq (or, if Nasdaq does not report such prices for the Shares, another
generally accepted reporting service).
"INITIAL PRICE FOR THE OPTION SHARES" has the meaning set forth in Section
3.1 of this Agreement.
"ISSUANCE DATE FOR OPTION SHARES" has the meaning set forth in Section 3.2
of this
<PAGE>
Agreement.
"MEEMIC HOLDINGS" has the meaning set forth in the first paragraph of this
Agreement.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"OPTION SHARES" means the Shares of MEEMIC Holdings which the Purchaser has
the right to Purchase pursuant to Article III of this Agreement.
"PICOM" has the meaning set forth in the first paragraph of this Agreement.
"PLAN OF CONVERSION" means the Plan of Conversion for MEEMIC, as approved
by the Board of Directors of MEEMIC on June __, 1998.
"PROFESSIONALS" has the meaning set forth in the first paragraph of this
Agreement.
"PURCHASER" means PICOM and Professionals.
"SUBSCRIPTION AMOUNT" means the dollar amount equal to the number of Shares
purchased in the Subscription Offering times the Purchase Price.
SECTION 1.3 CAPTIONS. The captions and headings used in this Agreement
are for convenience only and shall not be used in construing the provisions of
this Agreement.
SECTION 1.4 NUMBER AND GENDER. The use of any gender in this Agreement
shall be deemed to be or include the other genders, including neuter, and the
use of the singular shall be deemed to include the plural (and vice versa)
wherever applicable.
ARTICLE II
REQUIREMENT TO PURCHASE STOCK AND
OPTION TO PURCHASE STOCK
SECTION 2.1 REQUIREMENT TO PURCHASE STOCK. Subject only to the
preconditions to Closing set forth in Article IV of this Agreement, the
Purchaser hereby unconditionally obligates itself to subscribe for, acquire and
purchase the number of Shares which, when multiplied by the Purchase Price,
equals:
The positive difference, if any, remaining after the Subscription
Amount is subtracted from the Offering Minimum.
SECTION 2.2 RIGHT TO PURCHASE STOCK. Subject only to the preconditions to
Closing set forth in Article IV of this Agreement, MEEMIC Holdings hereby grants
to the Purchaser the right to subscribe for, acquire and purchase the number of
Shares which, when multiplied by the
<PAGE>
Purchase Price, equals:
The positive difference, if any, remaining after the greater of (i)
the Subscription Amount or (ii) the Offering Minimum is subtracted
from the Offering Maximum.
SECTION 2.3 DETERMINATION OF SUBSCRIPTION AMOUNT. (a) MEEMIC Holdings
agrees to provide written notice to the Purchaser of the Subscription Amount
within five (5) business days after the end of the period in which Participants
are allowed to purchase Shares in the Subscription Offering. In the event that
the Purchaser shall be required to purchase Shares pursuant to Section 2.1 of
this Agreement, the notice from MEEMIC Holdings to the Purchaser shall specify
the number of Shares that the Purchaser is required to purchase and the
calculations in support thereof. In the event that the Purchaser shall have the
right to purchase Shares pursuant to Section 2.2 of this Agreement, the notice
from MEEMIC Holdings to the Purchaser shall specify the number of Shares that
the Purchaser has the right to purchase pursuant to Section 2.2 and the
calculations in support thereof.
(b) The Purchaser shall have five (5) business days after it receives the
notice described in (a) above to notify MEEMIC Holdings of the number of Shares,
if any, it desires to purchase pursuant to Section 2.2 of this Agreement. Any
such notice from the Purchaser to MEEMIC Holdings shall be irrevocable after it
is delivered and after it is delivered MEEMIC Holdings shall be obligated to
deliver the Shares specified in such notice to the Purchaser in accordance with
the terms of this Agreement.
SECTION 2.4 TERMS OF PURCHASE PRICE. The price that the Purchaser shall
pay for any Shares purchased pursuant to Sections 2.1 or 2.2 of this Agreement
shall be the Purchase Price.
SECTION 2.5 FRACTIONAL SHARES. Sections 2.1 and 2.2 of this Agreement
shall not be construed as requiring or allowing the Purchaser to purchase any
fractional Shares. In the event that the calculations set forth in Sections 2.1
and 2.2 of this Agreement would otherwise provide for the purchase of fractional
Shares, then the number of Shares that the Purchaser would be required or
allowed to purchase shall be rounded up to the next whole number.
ARTICLE III
OPTION TO PURCHASE ADDITIONAL STOCK OF MEEMIC HOLDINGS
SECTION 3.1 BASIC TERMS. The Purchaser shall have the irrevocable right,
subject to the terms and conditions of this Article III, to purchase from MEEMIC
Holdings and MEEMIC Holdings agrees to sell to the Purchaser the number of
Option Shares specified below, at the price as established below.
<PAGE>
Number of Option Shares: (i) .51 multiplied by the number of
outstanding Shares of MEEMIC Holdings as of
the date the Purchaser gives notice of its
intent to exercise its option to purchase the
Option Shares; plus (ii) 153,000; less (iii)
the number of Shares issued to PICOM pursuant
to Section 7.1 of the Plan of Conversion;
less (iv) the number of Shares, if any,
purchased pursuant to Sections 2.1 and 2.2 of
this Agreement; less (v) any other Shares
other than those identified in (iii) and (iv)
above and owned by the Purchaser at the time
the Purchaser gives notice of its intent to
exercise its option to purchase the Option
Shares.
the sum of (i) through (v) above shall then
be divided by .49.
Price for the
Option Shares: (a) In the event that the Purchaser gives
MEEMIC Holdings notice within the first 90
calendar days on or after the Effective Date
of the Purchaser's intent to purchase the
Option Shares, then on the Issuance Date of
the Option Shares the Purchaser shall pay an
initial price (the "Initial Price for the
Option Shares") in an amount equal to (i)
the number of Option Shares, times (ii) 140%
of the Purchase Price. 120 calendar days
after the Effective Date MEEMIC Holdings
shall calculate an adjusted purchase price
for the Option Shares (the "Adjusted Purchase
Price") which shall be the amount equal to
(i) the number of Option Shares, times (ii)
the greater of (x) the average of the Fair
Market Value of the Shares for the 20
calendar day period commencing 71 calendar
days after the Effective Date, or (y) 140% of
the Purchase Price. After MEEMIC Holdings
calculates the Adjusted Purchase Price,
MEEMIC Holdings shall provide the Purchaser
with notice of the Adjusted Purchase Price,
then the Purchser shall immediately pay to
MEEMIC Holdings the difference between the
Initial Price for the Option Shares and the
Adjusted Purchase Price, if any.
(b) In the event that the Purchaser gives
MEEMIC Holdings notice after the first 90
calendar days on or after the Effective Date,
but prior to the expiration of the one year
period
<PAGE>
commencing on the Effective Date, of the
Purchaser's intent to purchase the Option
Shares, then on the Issuance Date of the
Option Shares the Purchaser shall pay an
amount equal to (i) the number of Option
Shares, times (ii) the greater of (x) the
average of the Fair Market Value of the
Shares for the 20 calendar day period
immediately preceding the Purchaser's notice
to MEEMIC Holdings of its intent to purchase
the Option Shares, or (y) 140% of the
Purchase Price.
SECTION 3.2. METHOD OF EXERCISE; FRACTIONAL SHARES. The right to purchase
the Option Shares pursuant to this Article is exercisable at the option of the
Purchaser only in whole and only during the one year period commencing on the
Effective Date. The right to purchase the Option Shares shall be exercisable
only after the Purchaser shall have satisfied its obligations under Section 2.1
of this Agreement. The Purchaser shall be required to provide MEEMIC Holdings
with written notice of its irrevocable election to purchase the Option Shares
pursuant to Section 3.1. After such notice is provided to MEEMIC Holdings, the
Purchaser and MEEMIC Holdings shall mutually agree upon a date, which date shall
be not later than twenty (20) calendar days after such notice is provided to
MEEMIC Holdings, for the issuance of the Option Shares to the Purchaser (the
"Issuance Date for Option Shares"). On the Issuance Date for Option Shares, the
Option Shares shall be issued to the Purchaser and the Purchaser shall pay for
the Option Shares as determined by Section 3.1 of this Agreement.
SECTION 3.3. ADJUSTMENT OF SHARES PURCHASABLE. The number of Shares
purchasable pursuant to Section 3.1 and the price for such Shares are subject to
adjustment from time to time as specified in Section 3.5 of this Agreement.
SECTION 3.4. LIMITED RIGHTS OF OWNER. The options conferred by Article
III of this Agreement do not entitle the Purchaser to any voting rights or other
rights as a stockholder of MEEMIC Holdings, or to any other rights whatsoever
except the rights herein expressed. No dividends are payable or will accrue on
the Shares purchasable under Section 3.1 of this Agreement until, and then only
to the extent that, any such Shares are deemed to have been issued to the
Purchaser pursuant to this Agreement. Upon the giving by the Purchaser to
MEEMIC Holdings of the written notice of exercise of the option set forth in
Article III of this Agreement and the tender of the applicable price for such
Shares in immediately available federal funds, the Purchaser shall be deemed to
be the holder of record of the Shares issuable upon such exercise,
notwithstanding that the stock transfer books of MEEMIC Holdings shall then be
closed or that certificates representing such Shares shall not then be actually
delivered to Purchaser.
SECTION 3.5. EFFECT OF STOCK SPLIT, ETC. If MEEMIC Holdings, by stock
dividend, split, reverse split, reclassification of shares, or otherwise,
changes the number or type of outstanding Shares, then the applicable price in
effect pursuant to this Article III, and the number of Shares purchasable under
this Article III, immediately prior to the date upon which the change becomes
effective, shall be proportionately adjusted (the price to the nearest cent) in
such manner as shall fully preserve the economic benefits provided to Purchaser
under this Agreement.
<PAGE>
SECTION 3.6. EFFECT OF MERGER, ETC. If MEEMIC Holdings consolidates with
or merges into another corporation or entity, the Purchaser shall thereafter be
entitled on exercise to purchase, with respect to each Share purchasable
hereunder immediately before the consolidation or merger becomes effective, the
securities or other consideration to which a holder of one Share is entitled to
in the consolidation or merger without any change in or payment in addition to
the price in effect immediately prior to the merger or consolidation. MEEMIC
Holdings shall not consolidate or merge unless, prior to consummation, the
successor company (if other than, MEEMIC Holdings) assumes the obligations of
this paragraph by written instrument executed and delivered to the Purchaser. A
sale or lease of all or substantially all the assets of MEEMIC Holdings for a
consideration (apart from the assumption of obligations) consisting primarily of
securities is a consolidation or merger for the foregoing purposes.
SECTION 3.7. NOTICE OF ADJUSTMENT. On the happening of an event requiring
an adjustment of the price or the Shares purchasable pursuant to this Article
III, MEEMIC Holdings shall forthwith give written notice to the Purchaser of
such event.
SECTION 3.8. NOTICE AND EFFECT OF DISSOLUTION, ETC. In the case that a
voluntary or involuntary dissolution, liquidation, or winding up of MEEMIC
Holdings (other than in connection with a consolidation or merger covered by
Section 3.6 hereof) is at any time proposed, MEEMIC Holdings shall give at least
30 days' prior written notice to the Purchaser. Such notice shall contain: (a)
the date on which the transaction is to take place; (b) the record date (which
shall be no sooner than 45 days after the giving of the notice) as of which
holders of the Shares will be entitled to receive distributions as a result of
the transaction; (c) a brief description of the transaction; (d) a brief
description of the distributions to be made to holders of the Shares as a result
of the transaction; and (e) an estimate of the fair value of the distributions.
ARTICLE IV
CLOSING AND PRECONDITIONS TO CLOSING
SECTION 4.1 CLOSING. The issuance and purchase of the Shares pursuant to
Sections 2.1 and 2.2 of this Agreement and the execution and delivery of all
certificates and documents contemplated by this Agreement (the "Closing") shall
be consummated on the Effective Date, provided that all of the preconditions to
Closing set forth in this Agreement have been satisfied.
SECTION 4.2 PRECONDITIONS TO CLOSING. The issuance and purchase of the
Shares contemplated by Article II of this Agreement shall only be consummated on
the Effective Date if all of the following conditions have been satisfied:
(i) The Michigan Insurance Bureau issues an Order approving
the Plan of Conversion and such Order has not been revoked;
<PAGE>
(ii) The Plan of Conversion is approved by the affirmative vote
of at least two-thirds (2/3) of the votes cast at the special meeting
of Eligible Policyholders of MEEMIC and becomes effective in
accordance with its terms;
(iii) All consents, approvals, authorizations, licenses and
orders of any governmental authority necessary in connection with the
issuance of the Shares are received; and
(iv) The Subscription Offering contemplated by the Plan of
Conversion is completed.
SECTION 4.3 DELIVERIES AT CLOSING. At the Closing, the parties shall
deliver the following:
(i) The Purchaser shall deliver the applicable Purchase Price
per Share for the Shares to MEEMIC Holdings, in immediately available
federal funds; and
(ii) MEEMIC Holdings shall deliver to the Purchaser stock
certificates registered in the name of PICOM or Professionals, as
directed by the Purchaser, evidencing the Shares issued and purchased
pursuant to this Agreement and such Shares shall be fully paid and
non-assessable.
SECTION 4.4. CLOSING FOR PURCHASE OF SHARES PURCHASED PURSUANT TO ARTICLE
III. On the Issuance Date for Option Shares, the parties shall deliver the
following:
(i) The Purchaser shall deliver the applicable price for the
Option Shares to MEEMIC Holdings, in immediately available federal
funds; and
(ii) MEEMIC Holdings shall deliver to the Purchaser stock
certificates registered in the name of PICOM or Professionals, as
directed by the Purchaser, evidencing the Option Shares issued and
purchased pursuant to Article III hereof and such Option Shares shall
be fully paid and non-assessable.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 REPRESENTATIONS AND WARRANTIES OF MEEMIC HOLDINGS. MEEMIC
Holdings hereby represents and warrants to Professionals and PICOM, jointly and
severally, as follows:
a. ORGANIZATION AND EXISTENCE. MEEMIC Holdings is a Michigan
corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan with all requisite corporate power and corporate
authority to carry on its business as it is now being conducted.
<PAGE>
b. AUTHORIZATION. MEEMIC Holdings has the requisite power and
authority to allow it to execute, deliver and perform this Agreement, and has
taken all necessary corporate action to issue, and shall reserve for issuance,
the maximum number of Shares issuable under Articles II and III of this
Agreement. The execution, delivery and performance of this Agreement have been
duly, validly and effectively authorized by all requisite action of MEEMIC
Holdings' Board of Directors, and no other proceedings on the part of MEEMIC
Holdings are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby.
c. EXECUTION AND DELIVERY; VALID AND BINDING. This Agreement has
been duly executed and delivered by MEEMIC Holdings and constitutes the valid
and binding obligations of MEEMIC Holdings, enforceable against it in accordance
with its terms.
d. NO DEFAULTS, VIOLATIONS OR CONFLICTS. MEEMIC Holdings is not
in violation of any term or provision of the Plan of Conversion, this Agreement,
its Articles of Incorporation or By-Laws which would prevent it from fulfilling
its obligations under this Agreement.
e. NO VIOLATIONS OF LAW. The execution, delivery and performance
of the terms of this Agreement and the Plan of Conversion by MEEMIC Holdings (i)
requires no action by or in respect of, or filing with, any governmental body
other than the Michigan Insurance Bureau, or agency or official of the United
States or any political subdivision thereof, except for such notices,
Registration Statements, or reports as may be required to be filed with the
Securities and Exchange Commission under the Securities Exchange Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and any applicable State blue
sky laws, and (ii) will not violate any statute or any order, rule or regulation
of any court or government agency or body in the United States or any political
subdivision thereof having jurisdiction over MEEMIC Holdings, which violation
could have a material adverse effect on the financial condition of MEEMIC
Holdings or the ability of MEEMIC Holdings to perform its obligation under this
Agreement or the Plan of Conversion.
f. DELIVERY OF THE SHARES. Delivery by MEEMIC Holdings of the
Shares to PICOM or Professionals, as set forth in this Agreement, will transfer
to PICOM or Professionals valid title to such Shares, free and clear of all
liens, encumbrances, restrictions and claims of any kind, and such Shares are
not subject to any preemptive rights. MEEMIC Holdings shall at all times
reserve and hold available sufficient Shares to satisfy all rights of the
Purchaser under this Agreement.
SECTION 5.2 REPRESENTATIONS AND WARRANTIES OF PICOM. PICOM hereby
represents and warrants to MEEMIC Holdings as follows:
a. ORGANIZATION AND EXISTENCE. PICOM is a Michigan domiciled
stock insurance company, duly organized, validly existing and with all requisite
power and authority to carry on its business as it is now being conducted.
b. AUTHORIZATION. PICOM has the requisite power and authority
to allow it to execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement have been duly, validly and
effectively authorized by all requisite action of PICOM's Board of Directors,
and no other proceedings on the part of PICOM are necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby.
<PAGE>
c. EXECUTION AND DELIVERY; VALID AND BINDING. This Agreement has
been duly executed and delivered by PICOM and constitutes the valid and binding
obligations of PICOM, enforceable against PICOM in accordance with its terms.
d. NO DEFAULTS, VIOLATIONS OR CONFLICTS. PICOM is not in violation
of any term or provision of its Articles of Incorporation or By-Laws, which
would prevent it from fulfilling its obligations under this Agreement.
e. NO VIOLATIONS, ETC. The execution, delivery and performance of
the terms of this Agreement by PICOM (i) requires no action by or in respect of,
or filing with, any governmental body other than the Michigan Insurance Bureau,
or agency or official of the United States or any political subdivision thereof,
except for such notices, Registration Statements, or reports as may be required
to be filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and any applicable State blue sky laws, and (ii) will not violate any statute or
any order, rule or regulation of any court or government agency or body in the
United States or any political subdivision thereof having jurisdiction over
PICOM, which violation could have a material adverse effect on the ability of
PICOM to perform any obligations under this Agreement.
f. SECURITIES LAW REPRESENTATIONS AND WARRANTIES.
(i) SOPHISTICATION AND BACKGROUND. PICOM is an "accredited investor" as
that term is defined by Rule 501(a) promulgated by the Securities
and Exchange Commission. PICOM has such knowledge and experience in
financial, tax and business matters to enable it to utilize the
information made available to it to evaluate the merits and risks of
the prospective investment and to make an informed investment
decision with respect to the prospective investment.
(ii) AVAILABILITY OF INFORMATION. PICOM understands that MEEMIC Holdings
has agreed to make all documents, records and books pertaining to
the Shares and its business and affairs available for inspection by
it and/or PICOM's advisors.
(iii) RISK OF INVESTMENT. PICOM recognizes that the purchase of stock in
any corporation involves substantial risks, that no assurance or
guarantee has or can be given that a shareholder in the MEEMIC
Holdings will receive a return on the investment or realize a profit
on such investment, and that it may not be able to sell the Shares.
SECTION 5.3 REPRESENTATIONS AND WARRANTIES OF PROFESSIONALS.
Professionals hereby represents and warrants to MEEMIC Holdings as follows:
a. ORGANIZATION AND EXISTENCE. Professionals is a Michigan
corporation,
<PAGE>
duly organized, validly existing and in good standing under the laws of the
State of Michigan with all requisite power and authority to carry on its
business as it is now being conducted in good standing under the laws of the
State of Michigan.
b. AUTHORIZATION. Professionals has the requisite power and
authority to allow it to execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement have been duly, validly
and effectively authorized by all requisite action of Professionals' Board of
Directors, and no other proceedings on the part of Professionals are necessary
to authorize this Agreement or the consummation of the transactions contemplated
hereby.
c. EXECUTION AND DELIVERY; VALID AND BINDING. This Agreement has
been duly executed and delivered by Professionals and constitutes the valid and
binding obligations of Professionals, enforceable against Professionals in
accordance with its terms.
d. NO DEFAULTS, VIOLATIONS OR CONFLICTS. Professionals is not in
violation of any term or provision of its Articles of Incorporation or By-Laws
which would prevent it from fulfilling its obligations under this Agreement.
e. NO VIOLATIONS, ETC. The execution, delivery and performance of
the terms of this Agreement by Professionals (i) requires no action by or in
respect of, or filing with, any governmental body other than the Michigan
Insurance Bureau, or agency or official of the United States or any political
subdivision thereof, except for such notices, Registration Statements, or
reports as may be required to be filed with the Securities and Exchange
Commission under the Securities Exchange Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and any applicable State blue sky laws, and (ii) will
not violate any statute or any order, rule or regulation of any court or
government agency or body in the United States or any political subdivision
thereof having jurisdiction over Professionals, which violation could have a
material adverse effect on the ability of Professionals to perform any
obligations under this Agreement.
f. SECURITIES LAW REPRESENTATIONS AND WARRANTIES.
(i) SOPHISTICATION AND BACKGROUND. Professionals is an "accredited
investor" as that term is defined by Rule 501(a) promulgated by the
Securities and Exchange Commission. Professionals has such
knowledge and experience in financial, tax and business matters to
enable it to utilize the information made available to it to
evaluate the merits and risks of the prospective investment and to
make an informed investment decision with respect to the prospective
investment.
(ii) AVAILABILITY OF INFORMATION. Professionals understands that MEEMIC
Holdings has agreed to make all documents, records and books
pertaining to the Shares and its business and affairs available for
inspection by it and/or Professionals's advisors.
(iii) RISK OF INVESTMENT. Professionals recognizes that the purchase of
stock in any corporation involves substantial risks, that no
assurance or guarantee has or can be
<PAGE>
given that a shareholder in the MEEMIC Holdings will receive a
return on the investment or realize a profit on such investment, and
that it may not be able to sell the Shares.
SECTION 5.4 LEGAL FEES, COSTS AND EXPENSES. Each party hereto shall bear
its own legal fees and expenses, and other costs and expenses incurred by such
party in connection with the transactions contemplated by this Agreement.
ARTICLE VI
REGISTRATION RIGHTS
SECTION 6.1 REGISTRATION RIGHTS. If MEEMIC Holdings is not permitted by
the Securities and Exchange Commission to include the Shares identified in
Sections 2.1, 2.2 and 3.1 of this Agreement in the Registration Statement
relating to the Plan of Conversion, then Purchaser shall have the right,
commencing on the date that MEEMIC Holdings is first eligible to use a
Registration Statement on Form S-3 for secondary offerings of securities by
selling shareholders, to demand (a "demand right") that MEEMIC Holdings register
such Shares as promptly as practicable, but in any event not less than 90 days
after the date of such demand. If, prior to making any such demand, MEEMIC
Holdings proposes to register a primary distribution of Shares to the public
under the Securities Act of 1933, as amended (other than pursuant to Form S-4 or
Form S-8), the Purchaser shall have the right (a "piggy back right") to include
the Shares identified in Sections 2.1, 2.2 and 3.1 of this Agreement in such
registration. MEEMIC Holdings and the Purchaser agree that the terms,
conditions, rights and obligations of the parties in the event of a demand or
piggy-back registration will be those customary in similar situations; that
MEEMIC Holdings shall bear all registration costs (other than the costs of
counsel for the Purchaser and any underwriting commissions or discounts relating
to the sale of the Note Shares); and that the Purchaser's piggy back right
shalll be subject to the discretion of the managing underwriter to determine the
number of Shares that may be included, if the registration statement relates to
an underwriten offering.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION. This Agreement and the obligations of the
parties hereto may be terminated at any time only (a) by mutual consent of the
parties hereto, (b) by PICOM if any material representation or warranty in this
Agreement by MEEMIC Holdings proves to be untrue at the time it was made or
becomes untrue and such untrue statement is unable to be remedied, (c) by
Professionals if any material representation or warranty in this Agreement by
MEEMIC Holdings proves to be untrue at the time it was made or becomes untrue
and such untrue statement is unable to be remedied, (d) by MEEMIC Holdings if
any material representation or warranty in this Agreement by either PICOM or
Professionals proves to be untrue at the time it was made or becomes untrue and
such untrue statement is unable to be remedied, or (e) by any party hereto if
required by law or if the preconditions to Closing established in this Agreement
fail to be satisfied.
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 JOINT AND SEVERAL OBLIGATIONS OF THE PURCHASER AND RIGHTS OF
THE PURCHASER. The obligations of the Purchaser under this Agreement shall be
the joint and several obligations of PICOM and Professionals. The rights of the
Purchaser to purchase Shares pursuant to this Agreement shall be a right that
may be exercised by either PICOM or Professionals, or alternatively by both
PICOM and Professionals in such proportions, not to exceed the total number of
Shares that may be purchased by Purchaser hereunder, as may be specified in
written instructions to MEEMIC Holdings from both PICOM and Professionals.
SECTION 8.2 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Michigan.
SECTION 8.3 ENTIRE AGREEMENT/AMENDMENT. This Agreement constitutes the
entire agreement and understanding between the parties and cannot be amended,
waived or modified unless the parties so agree in writing.
SECTION 8.4 ASSIGNMENT. None of the parties may assign any rights or
obligations under this Agreement without first obtaining the written consent of
the other parties hereto.
SECTION 8.5 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
SECTION 8.6 NOTICES. All notices and statements to be given under this
Agreement shall be given in writing, delivered by hand, facsimile, overnight
express or similar service (fees prepaid), or first class United States
registered or certified mail with return receipt requested (postage prepaid), to
the following addresses (which may be changed by written notice):
PICOM: President
PICOM
2600 Professionals Drive
Box 150
Okemos, MI 48805-0150
Telephone No.: (800) 292-1036
Facsimile No.: (517) 347-6321
Professionals: President
Professionals
2600 Professionals Drive
Box 150
Okemos, MI 48805-0150
Telephone No.: (800) 292-1036
Facsimile No.: (517) 347-6321
<PAGE>
Purchaser: President
PICOM
2600 Professionals Drive
Box 150
Okemos, MI 48805-0150
Telephone No.: (800) 292-1036
Facsimile No.: (517) 347-6321
-and-
President
Professionals
2600 Professionals Drive
Box 150
Okemos, MI 48805-0150
Telephone No.: (800) 292-1036
Facsimile No.: (517) 347-6321
MEEMIC Holdings: President
MEEMIC Holdings
691 N. Squirrel Road
Suite 200
P.O. Box 21709
Auburn Hills, MI 48321
Telephone No.: (248) 377-8500
Facsimile No.: (248) 377-8555
All written notices and statements shall be deemed given, delivered, received
and effective upon personal delivery, the same day of sending by facsimile, one
calendar day after sending by overnight express or similar service, or three
calendar days after mailing by first class United States mail.
SECTION 8.7 SEVERABILITY. If any provision of this Agreement shall be or
become in violation of any local, state or federal law, said provision shall be
considered null and void, and all other provisions shall remain in full force
and effect. Each of the parties expressly releases each of the other parties
from any liability in the event such party cannot fulfill any obligation under
this Agreement as a result of any provisions of local, state or federal law
governing such provisions.
SECTION 8.8 NO THIRD PARTY RIGHTS. This Agreement is made for the sole
benefit of the MEEMIC Holdings, Professionals and PICOM. Except as otherwise
expressly provided, nothing in this Agreement shall create or be deemed to
create a relationship between the parties hereto, or any of them, and any third
person in the nature of a third party beneficiary, equitable lien or fiduciary
relationship.
SECTION 8.9 NO WAIVER. Failure on the part of any party to complain of
any action or non-action of another other party hereto shall not be deemed to
be a waiver of any rights under this Agreement. No waiver of any of the
provisions of this Agreement shall be deemed to be a waiver of any other
provisions of this Agreement, and a waiver at any time of any provisions of
<PAGE>
this Agreement shall not be construed as a waiver at any subsequent time of
the same provisions.
SECTION 8.10 INJUNCTIVE RELIEF. The parties acknowledge that damages may
be an inadequate remedy for a breach of this Agreement by any party hereto and
that the obligations of the parties hereto shall be enforceable by any other
party hereto through injunctive or other equitable relief in addition to any
other remedies to which such party may be entitled.
SECTION 8.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts. Each counterpart so executed shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
SECTION 8.12 CONSTRUCTION. The parties each acknowledge that all the terms
and conditions in this Agreement have been the subject of active and complete
negotiation between the parties and represent the parties' agreement based upon
all relevant considerations. The parties agree that the terms and conditions of
this Agreement shall not be construed in favor of or against any party by reason
of the extent to which any party or its professional advisors participated in
the preparation hereof or thereof.
SECTION 8.13 FURTHER ASSURANCES. The parties agree to do such further
acts and things and to execute and deliver such additional documents,
assignments, agreements, certificates, powers and instruments as may be
reasonably required to carry into effect the purposes of this Agreement.
SECTION 8.14 FORBEARANCES. During the period from the date of this
Agreement to the earlier of (i) the Issuance Date of Option Shares or (ii) the
termination of this Agreement, except as expressly contemplated or permitted by
this Agreement or the Plan of Conversion, MEEMIC Holdings shall not, and MEEMIC
Holdings shall not permit MEEMIC or any subsidiary of MEEMIC Holdings or MEEMIC
to, without the prior written consent of the Purchaser:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money in excess of $5,000,000 or
assume, guarantee, endorse or otherwise become obligated for, any indebtedness
in excess of $5,000,000;
(b) adjust, split, combine, reclassify, any capital stock, or pay
dividends or distributions in excess of $5,000,000 with respect to the capital
stock;
(c) issue additional capital stock except as contemplated by the Plan of
Conversion;
(d) enter into an agreement to consolidate with or merge into any
Person;
(e) sell or transfer all or substantially all of its assets to any
Person; or
(f) amend the Plan of Conversion or its Articles of Incorporation, or
its Bylaws, except as contemplated by this Agreement or the Plan of Conversion.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date written on the first page of
this Agreement.
MEEMIC HOLDINGS, INC.
By:
-----------------------------
Its: ----------------------
PICOM INSURANCE COMPANY
By:
-----------------------------
Its: ----------------------
PROFESSIONALS GROUP, INC.
By:
-----------------------------
Its: ----------------------
<PAGE>
- -------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU
- -------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
- -----------------------------
- -------------------------------------------------------------------------------
Name
Ann D. Fillingham
- -----------------------------------------------
Address
800 Michigan National Tower
- -----------------------------------------------
City State Zip Code
Lansing Michigan 48933 EFFECTIVE DATE:
- -------------------------------------------------------------------------------
^ DOCUMENT WILL BE RETURNED TO THE NAME AND ADDRESS YOU ENTER ABOVE ^
ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT CORPORATIONS
OF
MEEMIC HOLDINGS, INC.
These articles of incorporation are signed by the incorporator to form a
profit corporation under the Michigan Business Corporation Act (1972 PA 284, as
amended).
ARTICLE I
The name of the corporation is MEEMIC HOLDINGS, INC.
ARTICLE II
The corporation is organized to engage in any activity within the purposes
for which corporations may be organized under the Michigan Business Corporation
Act.
<PAGE>
ARTICLE III
The total authorized capital stock is:
(1) Common shares: 10 million shares
(2) A Statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows: None.
ARTICLE IV
The address of the initial registered office is 691 N. Squirrel Road, Suite
200, Auburn Hills, Michigan 48326.
The name of the initial resident agent at the registered office is R. Kevin
Clinton.
ARTICLE V
The name and address of the incorporator is as follows:
<TABLE>
<CAPTION>
Name Residence or Business Address
----- -----------------------------
<S> <C>
Ann D. Fillingham 800 Michigan National Tower
Lansing, Michigan 48933
</TABLE>
ARTICLE VI
When a compromise or arrangement or a plan of reorganization of this
corporation is proposed between this corporation and its creditors or any class
of them or between this corporation and its shareholders or any class of them, a
court of equity jurisdiction within the state, on application of this
corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a majority in number
representing 3/4 in value of the creditors or class of creditors, or of the
shareholders or class of shareholders to be affected by the proposed compromise
or arrangement or a reorganization, agree to a compromise or arrangement or a
reorganization of this corporation as a consequence of the compromise or
arrangement, the compromise or arrangement or the reorganization, if sanctioned
by the court to which the application has been made, shall be binding on all the
creditors or class of creditors, or on all the shareholders or class of
shareholders and also on this corporation.
<PAGE>
ARTICLE VII
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for money damages for any action taken or any
failure to take any action as a director, except liability for any of the
following: (i) the amount of a financial benefit received by a director to
which he or she is not entitled; (ii) intentional infliction of harm on the
Corporation or its shareholders; (iii) a violation of Section 551 of the
Michigan Business Corporation Act; or (iv) an intentional criminal act. If the
Michigan Business Corporation Act hereafter is amended to authorize the further
elimination or limitation of the liability of directors, the liability of a
director of the Corporation, in addition to the limitation on personal liability
contained herein, shall be limited to the fullest extent permitted by the
amended Michigan Business Corporation Act. No amendment or repeal of this
Article VII shall apply to or have any effect on the liability or alleged
liability of any director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE VIII
SECTION 1. Pursuant to Section 782 of the Michigan Business Corporation
Act, as amended, at the initial meeting of the initial Board of Directors of the
Corporation, the Board of Directors shall adopt an irrevocable resolution (the
"Irrevocable Resolution") providing (i) that Chapter 7A of the Michigan Business
Corporation Act, as amended (including, without limitation, the requirements of
Section 782 thereof) ("Chapter 7A") shall not apply to either (A) any of the
transactions contemplated by the Plan of Conversion of Michigan Educational
Employees Mutual Insurance Company and the Standby Purchase and Option Agreement
among Professionals Group, Inc. ("Professionals Group"), a Michigan business
corporation, PICOM Insurance Company, a Michigan stock insurance company
("PICOM"), and the Corporation that is referenced in such Plan of Conversion
(all of such transactions being the "MEEMIC Transactions"), or (B) any business
combination (as defined in Section 776(5) of Chapter 7A) of the Corporation (or
any subsidiary of the Corporation) with Professionals Group, or PICOM, or any
direct or indirect wholly-owned subsidiary of Professionals Group or PICOM, or
any combination of Professionals Group, PICOM and any such wholly-owned
subsidiary of Professionals Group or PICOM (any such business combination being
a "Professionals Group/PICOM Business Combination"), and (ii) that the MEEMIC
Transactions and any and each Professionals Group/PICOM Business Combination
shall be exempt from Chapter 7A.
From and after the adoption of the Irrevocable Resolution (i) Chapter 7A
shall not apply to either (A) any of the MEEMIC Transactions or (B) any
Professionals Group/PICOM Business Combination, and (ii) the MEEMIC Transactions
and any and each Professionals Group/PICOM Business Combination shall be exempt
from Chapter 7A.
Chapter 7B of the Michigan Business Corporation Act, as amended, shall not
apply to any control share acquisitions of shares of the corporation (including,
without limitation, the MEEMIC Transactions and any and each Professionals
Group/PICOM Business Combination).
<PAGE>
SECTION 2. Notwithstanding the foregoing, from and after the date that
is one day prior to the date that Michigan Educational Employees Mutual
Insurance Company is converted from a Michigan mutual property and casualty
company to a Michigan stock property and casualty corporation until the earlier
of (a) the date which is twelve months following the date on which Professionals
Group ceases to be the beneficial owner (as defined in Section 776(4) of Chapter
7A), directly or indirectly, of 50% or more of the outstanding voting shares (as
defined in Section 779(2) of Chapter 7A) of the Corporation; or (b) the date on
which the Corporation ceases to have a class of equity securities subject to
section 12 or section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the following provisions of this Section 2 shall apply:
(i) Membership of the Company's Board of Directors shall include at
least two persons ("Independent Directors"), each of whom meets the
requirements of an independent director under the rules of the Nasdaq
Stock Market or of any securities exchange on which the Corporation's
securities are traded, and who is not, and during the three years
prior to his or her election or appointment to the Board of Directors
has not been, any of the following:
(x) an officer or director of Professionals Group, PICOM, or
any direct or indirect subsidiary (as defined in Section 778(4)
of Chapter 7A) of Professionals Group or PICOM;
(y) engaged in any transaction or series of transactions that
would be or would have been required to be disclosed by the
Company in a filing under the Securities Act of 1933, as
amended, or the Exchange Act pursuant to Item 404 of Securities
and Exchange Commission Regulation S-K; or
(z) an affiliate (as defined in Section 776(1) of Chapter 7A),
executive officer, director, general partner, person performing
similar functions to an executive officer, director or general
partner or member of the immediate family of any person that
had the status or engaged in a transaction described in
subparagraphs (x) or (y).
(ii) Approval of a Professionals Group/PICOM Business Combination
which has either a reasonable likelihood or a purpose of producing,
either directly or indirectly, any of the effects described in
subparagraph (iii) below, shall require, in addition to any
requirement of law or of these Articles of Incorporation applicable
thereto, satisfaction of all of the following conditions:
(x) the Professionals Group/PICOM Business Combination shall
be on terms determined by a majority of the Independent
Directors (or, if there are fewer than three Independent
Directors, by all of the Independent Directors), after hearing
advice from an investment banking firms of recognized regional
or
<PAGE>
national standing, to be (1) fair to the shareholders of the
Corporation (other than Professionals Group, its affiliates or
associates (as defined in Section 776(3) of Chapter 7A)) (the
"Minority Shareholders"); and (2) otherwise in the best
interests of the Corporation and the Minority Shareholders; and
(y) the Professionals Group/PICOM Business Combination shall,
in addition to any vote required by law or these Articles of
Incorporation applicable thereto, be approved by the
affirmative vote of not less than a majority of the outstanding
shares of each class of voting shares entitled to be cast by
the Minority Shareholders.
(iii) The effects referred to in subparagraph (ii) above are:
(x) causing any class of equity securities (as defined in
Section 778(1) of Chapter 7A) of the Corporation which is
subject to section 12(g) or section 15(d) of the Exchange Act
to be held of record by fewer than 300 persons; or
(y) causing any class of equity securities of the Corporation
which is either listed on a national securities exchange or
authorized to be quoted on an inter-dealer quotation system of
a registered national securities association to be neither
listed on any national securities exchange nor authorized to be
quoted on an inter-dealer quotation system of any registered
national securities association.
(iv) For purposes of subparagraph (iii) above and the determination
of whether any class of equity securities (as defined in Section
778(1) of Chapter 7A) of the Corporation which is subject to Section
12(g) or Section 15(d) of the Exchange Act is or will be held of
record by fewer than 300 persons, such record ownership shall be
determined in accordance with Securities and Exchange Commission Rule
12g5-1.
(v) Notwithstanding anything to the contrary express or implied in
this Article VIII, this Section 2 shall not apply to or prohibit any
of the MEEMIC Transactions or purchases of any equities securities of
the Corporation by Professionals Group or PICOM, or any direct or
indirect subsidiary (as defined in Section 778(4) of Chapter 7A) of
Professionals Group or PICOM, that are effected on a national
securities exchange, or an inter-dealer quotation system of a
registered national securities association.
SECTION 3. Notwithstanding anything to the contrary contained in any
resolution of the Board of Directors or the shareholders of the Corporation
adopted subsequent to the adoption of the Irrevocable Resolution, or in these
Articles of Incorporation, or in the Bylaws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, in
these Articles of Incorporation, or in the Bylaws of the corporation: (i) this
Article VIII shall
<PAGE>
not be amended, altered, changed, added to or repealed, in any respect, nor
shall any provision which will either have the effect of modifying or permitting
circumvention of this Article VIII be adopted and added to these Articles of
Incorporation, except upon (x) the affirmative vote of not less than
three-quarters of the shares of capital stock of the corporation issued and
outstanding entitled to vote thereon and, in the case of any matter on which the
holders of shares of any class or series of such capital stock shall be entitled
to vote as a class or series, upon the affirmative vote of not less than
three-quarters of the shares of capital stock of each such class or each such
series, as the case may be, and (y) the affirmative vote of not less than a
majority of the outstanding shares of the capital stock of the Corporation
issued and outstanding of each class entitled to be cast by the Minority
Shareholders; and (ii) the Irrevocable Resolution shall not be amended, altered,
changed, added to, repealed, or revoked, in any respect by the Board of
Directors or the shareholders of the Corporation or otherwise.
SECTION 4. Each and every paragraph, sentence, term and provision of this
Article shall be considered severable in that, in the event a court finds any
paragraph, sentence, term or provision to be invalid or unenforceable, the
validity and enforceability, operation, or effect of the remaining paragraphs,
sentences, terms, or provisions shall not be effected, and this Article shall be
construed in all respects as if the invalid or unenforceable matter had been
omitted.
ARTICLE IX
These Articles of Incorporation are hereby signed by the incorporator on
this 20th day of October, 1998.
/s/ Ann D. Fillingham
----------------------------------------
Ann D. Fillingham, Incorporator
<PAGE>
BYLAWS
OF
MEEMIC HOLDINGS, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The initial registered office shall be in
Auburn Hills, County of Oakland, State of Michigan.
SECTION 2. OTHER OFFICES. The corporation may also have offices at such
other places both in and outside the State of Michigan as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders of the
corporation shall be held at the registered office or such other place, either
within or without the State of Michigan, as may be determined from time to time
by the board of directors.
SECTION 2. ANNUAL MEETING OF SHAREHOLDERS. The first annual meeting of
shareholders for election of directors and for such other business as may
properly come before the meeting shall be held at least one business day prior
to the date that the corporation acquires record and beneficial ownership of all
of the then issued and outstanding shares of MEEMIC Insurance Company, a
Michigan stock insurance company. Commencing with the first full calendar year
following the date of the corporation's first annual meeting of shareholders,
the annual meeting of shareholders for election of directors and for such other
business as may properly come before the meeting shall be held on the second
Wednesday of June, if not a legal holiday, and if a legal holiday, then on the
next business day following, at 10:00 a.m., local time, or at such other date
and/or time as shall be determined from time to time by the board of directors,
unless such action is taken by written consent as provided in Section 12 of this
Article 11. If the annual meeting is not held on the date designated therefor,
the board shall cause the meeting to be held as soon thereafter as convenient.
SECTION 3. ORDER OF BUSINESS AT ANNUAL MEETING. The order of business at
the annual meeting of the shareholders shall be as follows:
(a) Reading of notice and proof of mailing,
(b) Reports of Officers,
(c) Election of Directors,
(d) Transaction of other business mentioned in the notice,
(e) Adjournment,
<PAGE>
provided that the presiding officer may vary the order of business at his
or her discretion.
SECTION 4. NOTICE OF MEETING OF SHAREHOLDERS. Except as otherwise provided
in the Michigan Business Corporation Act, as amended (herein called the "Act"),
written notice of the time, place and purposes of a meeting of shareholders
shall be given not less than 10 nor more than 60 days before the date of the
meeting, either personally or by mail, to each shareholder of record entitled to
vote at the meeting. If a meeting is adjourned to another time or place, it is
not necessary to give notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken and at the adjourned meeting only business is transacted as
might have been transacted at the original meeting. If after the adjournment
the board of directors fixes a new record date for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record on
the new record date entitled to vote at the meeting.
SECTION 5. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The officer or agent
having charge of the stock transfer books for shares of the corporation shall
make and certify a complete list of the shareholders entitled to vote at a
shareholders' meeting or any adjournment thereof, the list shall:
(a) Be arranged alphabetically within each class and series, with the
address of, and the number of shares held by, each shareholder.
(b) Be produced at the time and place of the meeting.
(c) Be subject to inspection by any shareholder during the whole time of
the meeting.
(d) Be prima facie evidence as to who are the shareholders entitled to
examine the list or to vote at the meeting.
SECTION 6. SPECIAL MEETING OF SHAREHOLDERS. Unless otherwise provided in
the articles of incorporation, a special meeting of shareholders may be called
at any time by the chairman of the board of the corporation, or the president of
the corporation, or by a majority of the members of the board of directors then
in office, or by shareholders owning, in the aggregate, not less than one-fourth
of all the shares entitled to vote at such special meeting. The method by which
such meeting may be called is as follows: Upon receipt of a specification in
writing setting forth the date and objects of such proposed special meeting,
signed by the chairman of the board, or the president of the corporation, or by
a majority of the members of the board of directors then in office, or by
shareholders as above provided, the secretary of the corporation shall prepare,
sign and mail the notices requisite to such meeting.
SECTION 7. QUORUM OF SHAREHOLDERS. Unless a greater or lesser quorum is
provided in the articles of incorporation or in the Act, the holders of
shares of capital stock of the corporation entitled to cast at least
one-third of the votes at a meeting of the shareholders of the corporation
shall constitute a quorum at such meeting. The shareholders present in
person or by proxy at the meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum. Whether or not a quorum is present, the meeting may be
adjourned by a vote of the shares present.
<PAGE>
SECTION 8. VOTE OF SHAREHOLDERS. Each outstanding share is entitled to one
(1) vote on each matter submitted to a vote, unless otherwise provided in the
articles of incorporation. A vote may be cast either orally or in writing. If
an action, other than the election of directors, is to be taken by vote of the
shareholders, it shall be authorized by a majority of the votes cast by the
holders of shares entitled to vote on the action, unless a greater vote is
required by the articles of incorporation or the Act. Except as otherwise
provided in the articles of incorporation, directors shall be elected by a
plurality of the votes cast at an election.
SECTION 9. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS. For the purpose
of determining shareholders entitled to notice of and to vote at a meeting of
shareholders or an adjournment of a meeting, the board of directors may fix a
record date, which shall not precede the date on which the resolution fixing the
record date is adopted by the board. The date shall not be more than 60 nor
less than 10 days before the date of the meeting. If a record date is not
fixed, the record date for determination of shareholders entitled to notice of
or to vote at a meeting of shareholders shall be the close of business on the
day next preceding the day on which notice is given, or if no notice is given,
the day next preceding the day on which the meeting is held. When a
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders has been made as provided in this Section 9, the
determination applies to any adjournment of the meeting, unless the board of
directors fixes a new record date under this Section 9 for the adjourned
meeting. For the purpose of determining shareholders entitled to express
consent to or to dissent from a proposal without a meeting, the board of
directors may fix a record date, which shall not precede the date on which the
resolution fixing the record date is adopted by the board and shall not be more
than 10 days after the board resolution. If a record date is not fixed and
prior action by the board of directors is required with respect to the corporate
action to be taken without a meeting, the record date shall be the close of
business on the day on which the resolution of the board is adopted. If a
record date is not fixed and prior action by the board of directors is not
required, the record date shall be the first date on which a signed written
consent is delivered to the corporation as provided in Section 12 of this
Article II. For the purpose of determining shareholders entitled to receive
payment of a share dividend or distribution, or allotment of a right, or for the
purpose of any other action, the board of directors may fix a record date, which
shall not precede the date on which the resolution fixing the record date is
adopted by the board. The date shall not be more than 60 days before the
payment of the share dividend or distribution or allotment of a right or other
action. If a record date is not fixed, the record date shall be the close of
business on the day on which the resolution of the board of directors relating
to the corporate action is adopted.
SECTION 10. PROXIES. A shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
one or more other persons to act for him or her by proxy. A proxy shall be
signed by the shareholder or his or her authorized agent or representative.
SECTION 11. INSPECTORS OF ELECTION. The board of directors, in advance of
a shareholders' meeting, may appoint one or more inspectors of election to act
at the meeting or any adjournment thereof. If inspectors are not so appointed,
the person Presiding at a
<PAGE>
shareholders' meeting may, and on request of a shareholder entitled to vote
thereat shall, appoint one or more inspectors. In case a person appointed fails
to appear or act, the vacancy may be filled by appointment made by the board of
directors in advance of the meeting or at the meeting by the person presiding
thereat. The inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine challenges and questions arising in
connection with the right to vote, count and tabulate votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or a shareholder entitled to vote thereat, the
inspectors shall make and execute a written report to the person presiding at
the meeting of any of the facts found by them and matters determined by them.
The report is prima facie evidence of the facts stated and of the vote as
certified by the inspectors.
SECTION 12. ACTION BY WRITTEN CONSENT. Any action required or permitted
by the Act, the articles of incorporation or these bylaws to be taken at an
annual meeting or special meeting of shareholders may be taken without a
meeting, without prior notice and without a vote, if before or after the action
all the shareholders entitled to vote consent in writing. The written consents
shall bear the date of signature of each shareholder who signs the consent and
shall be delivered to the corporations registered office, its principal place of
business, or an officer or agent of the corporation having custody of the
minutes of the proceedings of its shareholders. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting shall be given to all shareholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM OF DIRECTORS; VACANCIES. The business and
affairs of the corporation shall be managed by or under the direction of a board
of directors, the composition of which shall meet the requirements of the
articles of incorporation. Such board of directors shall consist of one
director until that date that is one day prior to the date that Michigan
Educational Employees Mutual Insurance Company is converted from a Michigan
mutual property and casualty insurance company to a Michigan stock property and
casualty insurance corporation (the "Reformation Date"). From and after the
Reformation Date, the board of directors of the corporation shall consist of not
less than six (6) nor more than ten (10) directors, with the board of directors
of the corporation elected on the Reformation Date consisting of such number of
directors as is equal to the number of directors elected to the board of
directors on the Reformation Date, PROVIDED, HOWEVER, that the exact number of
directors shall be determined from time to time solely by a resolution adopted
by an affirmative vote of a majority of the board of directors of the
corporation then in office. The shareholders may also increase or decrease the
number of directors at any meeting of the shareholders or by a written consent
in lieu thereof. Either the shareholders or the board of directors may fill the
vacancy caused by an increase in the number of directors. At the first annual
meeting of shareholders and
<PAGE>
at each annual meeting thereafter, the shareholders shall elect directors to
hold office until the succeeding annual meeting, except in the case of
classification of directors as permitted by the Act. A director shall hold
office for the term for which he or she is elected and until his or her
successor is elected and qualified, or until his or her resignation or removal.
Directors need not be shareholders and may serve continuous terms.
If because of death, resignation, or other cause, the corporation has no
directors in office, an officer, a shareholder, a personal representative,
administrator, trustee, or guardian of a shareholder, or other fiduciary
entrusted with like responsibility for the person or estate of a shareholder,
may call a special meeting of shareholders in accordance with the articles of
incorporation or these bylaws.
SECTION 2. REMOVAL. The shareholders may remove one or more directors with
or without cause unless the articles of incorporation provide that directors may
be removed only for cause. The vote for removal shall be by a majority of
shares entitled to vote at an election of directors.
SECTION 3. RESIGNATION. A director may resign by written notice to the
corporation. The resignation is effective upon its receipt by the corporation
or a later time as set forth in the notice of resignation.
SECTION 4. POWERS. The business and affairs of the corporation shall be
managed by its board of directors except as otherwise provided in the Act or in
the articles of incorporation.
SECTION 5. LOCATION OF MEETINGS. Regular or special meetings of the board
of directors may be held either in or outside the State of Michigan.
SECTION 6. ORGANIZATION MEETING OF BOARD. The first meeting of each newly
elected board of directors shall be held at the place of holding the annual
meeting of shareholders, and immediately following the same, for the purpose of
electing officers and transacting any other business properly brought before it,
provided that the organization meeting in any year may be held at a different
time and place than that herein provided by a consent of a majority of the
directors of such new board. No notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the meeting, provided
a quorum shall be present, unless said meeting is not held at the place of
holding and immediately following the annual meeting of shareholders.
SECTION 7. REGULAR MEETING OF BOARD. Any regular meeting of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board.
SECTION 8. SPECIAL MEETING OF BOARD. Any special meeting of the board of
directors may be called by the chief executive officer, or by a majority of the
persons then comprising the board of directors, at any time by means of notice
of the time and place thereof to each director, given not less than 24 hours
before the time such special meeting is to be held.
<PAGE>
SECTION 9. COMMITTEES OF DIRECTORS. The board of directors may designate
one or more committees, each committee to consist of one or more of the
directors of the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace an absent or disqualified
member at a meeting of the committee. In the absence or disqualification of a
member of a committee, the members thereof present at a meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors
creating such committee, may exercise all the powers and authority of the board
of directors in the management of the business and affairs of the corporation.
A committee does not have the power or authority to amend the articles of
incorporation, adopt an agreement of merger or share exchange, recommend to the
shareholders the sale, lease or exchange of all or substantially au of the
corporation's property and assets, recommend to the shareholders a dissolution
of the corporation or a revocation of a dissolution, amend the bylaws of the
corporation or fill vacancies in the board of directors; and, unless the
resolution of the board of directors creating such committee, the articles of
incorporation or bylaws expressly so provide, a committee does not have the
power or authority to declare a distribution, dividend or to authorize the
issuance of stock. Any such committee, and each member thereof, shall serve at
the pleasure of the board of directors.
SECTION 10. QUORUM AND REQUIRED VOTE OF BOARD AND CONFEREES. At all
meetings of the board of directors, or of a committee thereof, a majority of the
members of the board then in office, or of the members of a committee of the
board of directors, constitutes a quorum for transaction of business, unless the
articles of incorporation, these bylaws, or in the case of a committee, the
board resolution establishing the committee, provide for a larger or smaller
number. The vote of the majority of members present at a meeting at which a
quorum is present constitutes the action of the board of directors or of the
committee unless the vote of a larger number is required by the Act, the
articles of incorporation, or these bylaws, or in the case of a committee, the
board resolution establishing the committee. Amendment of these bylaws by the
board of directors requires the vote of not less than a majority of the members
of the board then in office. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
SECTION 11. ACTION BY WRITTEN CONSENT. Action required or permitted to be
taken under authorization voted at a meeting of the board of directors or a
committee of the board of directors, may be taken without a meeting if, before
or after the action, all members of the board then in office or of the committee
consent to the action in writing. The written consents shall be filed with the
minutes of the proceedings of the board of directors or committee. The consent
has the same effect as a vote of the board of directors or committee for all
purposes.
SECTION 12. COMPENSATION OF DIRECTORS. The board of directors, by
affirmative vote of a majority of directors in office and irrespective of any
personal interest of any of them, may establish reasonable compensation of
directors for services to the corporation as directors or officers, but approval
of the shareholders is required if the articles of
<PAGE>
incorporation, these bylaws or any provisions of the Act so provide. No such
compensation shall preclude any director from serving the corporation in any
other capacity and receiving additional compensation for such service.
SECTION 13. PARTICIPATION IN MEETING BY TELEPHONE. By oral or written
permission of a majority of the board of directors, a member of the board of
directors or of a committee designated by the board may participate in a meeting
by means of conference telephone or similar communications equipment through
which all persons participating in the meeting can Communicate with the other
participants. Participation in a meeting pursuant to this Section constitutes
presence in person at the meeting.
ARTICLE IV
NOTICES
SECTION 1. NOTICE. Whenever any notice or communication is required to be
given to any director or shareholder under any provision of the Act, or of the
articles of incorporation or of these bylaws, it shall be given in writing,
except as otherwise provided in the Act. All such notices and communications
shall be given to such director or shareholder either personally or by mail
(registered, certified or other first class mail, with postage pre-paid),
addressed to such person at the address designated by him or her for that
purpose or, if none is designated, at his or her last known address. Written
notice to any director may also be delivered at his or her office on the
corporation's premises, if any, or by overnight carrier, telegram, telex,
telecopy, radiogram, cable-gram, facsimile, computer transmission or similar
form of communication, addressed to the address referred to in the preceding
sentence. Notices given Pursuant to this Section 1 shall be deemed to be given
when dispatched, or, if mailed, when deposited in a post office or official
depository under the exclusive care and custody of the United States postal
service. Notices given by overnight carrier shall be deemed "dispatched" at
9:00 a.m. on the day the overnight carrier is reasonably requested to deliver
the notice. The corporation shall have no duty to change the written address
of any director or shareholder unless the secretary of the corporation
receives written notice of such address change. Neither the business to be
transacted at, nor the purpose of, a regular or special meeting of the board
of directors need be specified in the notice of the meeting.
SECTION 2. WAIVER OF NOTICE. When, under the Act or the articles of
incorporation or these bylaws, or by the terms of an agreement or instrument, a
corporation or the board of directors or any committee thereof may take action
after notice to any person or after lapse of a prescribed period of time, the
action may be taken without notice and without lapse of the period of time, if
at any time before or after the action is completed the person entitled to
notice or to participate in the action to be taken or, in case of a shareholder,
by his or her attorney-in-fact, submits a signed waiver of such requirements.
Neither the business to be transacted at, nor the purpose of, a regular or
special meeting of the board of directors need be specified in the waiver of
notice of the meeting. Attendance of a person at a meeting of shareholders
constitutes a waiver of objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the
<PAGE>
meeting and a waiver of objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented. A director's attendance at or participation in a meeting, waives any
required notice to him or her of the meeting unless he or she at the beginning
of the meeting, or upon his or her arrival, objects to the meeting or the
transacting of business at the meeting and does not thereafter vote for or
assent to any action taken at the meeting.
ARTICLE V
OFFICERS
SECTION 1. SELECTION. The board of directors, at its first meeting and at
its organization meeting following the annual meeting of shareholders, shall
elect or appoint a chairman of the board. Such number of vice chairmen as the
board of directors of the corporation may determine, a president, such number
and designation of vice presidents as the board of directors of the corporation
may determine, a secretary, and a treasurer. The board of directors of the
corporation may also elect or appoint such other officers, employees and agents
as it shall deem necessary who shad hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board of directors. Two or more offices may be held by the same
person but an officer shall not execute, acknowledge or verify an instrument in
more than one capacity if the instrument is required by law or the articles or
bylaws to be executed, acknowledged or verified by two or more officers.
SECTION 2. COMPENSATION. The board of directors of the corporation, by the
affirmative vote of a majority of the directors then in office, and irrespective
of any personal interest of any of them, shall have authority to establish
reasonable salary, compensation and benefits, which may include pension,
disability and death benefits, for services rendered to the corporation by an
officer, employee or agent of the corporation. The salaries of all officers,
employees and agents of the corporation shall be fixed by the board of
directors; PROVIDED, HOWEVER, that the board of directors may delegate to any
committee of the board of directors of the corporation, or any officer or
officers of the corporation, the power to fix the compensation of any officer,
employee or agent of the corporation.
SECTION 3. TERM, REMOVAL AND VACANCIES. Each officer of the corporation
shall hold office for the term for which he or she is elected or appointed and
until his or her successor is elected or appointed and qualified, or until his
or her resignation or removal. An officer elected or appointed by the board of
directors may be removed by the board with or without cause at any time. Such
removal shad be effected by written notice to such officer. An officer may
resign by written notice to the corporation. The resignation is effective upon
its receipt by the corporation or at a subsequent tune specified in the notice
of resignation. Any vacancy occurring in any office of the corporation shall be
filled by the board of directors.
SECTION 4. CHIEF EXECUTIVE OFFICER. The president shall be the chief
executive officer of the corporation and shad be responsible to the board of
directors for the general
<PAGE>
supervision and management of the business and affairs of the corporation and
shall see that all orders and resolutions of the board of directors are carried
into effect. During the absence or disability of the president, or while that
office is vacant, the chairman of the board shall exercise all of the powers and
discharge all of the duties of the chief executive officer.
SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS. If the board of
directors elects or appoints a chairman of the board, he or she shall be
elected or appointed by, and from among the membership of, the board of
directors. He or she shall preside at all meetings of the shareholders, of
the board of directors and of any executive committee. He or she shall
perform such other duties and functions as shall be assigned to him or her
from time to time by the board of directors. He or she shall be, ex officio,
a member of all standing committees. Except where by law the signature of the
president of the corporation is required, the chairman of the board of
directors shall possess the same power and authority to sign all
certificates, contracts, instruments, papers and documents of every
conceivable kind and character whatsoever in the name of and on behalf of the
corporation which may be authorized by the board of directors.
SECTION 6. VICE CHAIRMAN OF THE BOARD. In the absence of the chairman of
the board, or while that office is vacant, such vice chairman of the board, in
the order specified by the board of directors, shall perform the duties and
possess and exercise the powers of the chairman of the board and shall have such
other powers and duties as the board of directors may from time to time
determine.
SECTION 7. PRESIDENT. During the absence or disability of the chairman of
the board and all vice-chairmen of the board, if any, or while those offices are
vacant, the president shall preside over all meetings of the board of directors,
of the shareholders and of any executive committee, and shall perform all of the
duties and functions, and when so acting shall have all powers and authority, of
the chairman of the board. He or she shall be, ex officio, a member of all
standing committees. The president shall be the chief executive officer of the
corporation and shall, in general, perform all duties incident to the office of
president and such other duties as may be prescribed by the board of directors.
SECTION 8. VICE PRESIDENTS. The board of directors may elect or appoint
one or more vice presidents. The board of directors may designate one or more
vice presidents as executive or senior vice presidents and may grant vice
presidents such other designations or titles as the board of directors deems
necessary or appropriate. In the absence or disability of the president, the
chairman of the board, and any vice chairman of the board, or while all of those
offices are vacant, the duties and powers of the president shall descend to the
vice presidents in such order as is specified by the board of directors. The
vice presidents shall perform such other duties as may be delegated to them by
the board of directors, any executive committee, the chairman of the board or
the president.
SECTION 9. SECRETARY. The secretary shall have charge of such books,
documents and papers as the board of directors may determine and shall keep, or
cause to be kept, a record containing the names of all persons who are
shareholders of the corporation, showing the place of residence, and such books
shall be open for inspection as prescribed by law. He or she shall,
<PAGE>
in general, perform all the duties incident to the office of the secretary
subject to the control of the board of directors. The secretary shall attend
all meetings of the shareholders, and of the board of directors and of any
executive committee, and shall preserve in the books of the corporation true
minutes of the proceedings of all such meetings. He or she shall safely keep in
his or her custody the seal of the corporation, if any, and shall have authority
to affix the same to all instruments where its use is required or permitted. He
or she shall give all notice required by the Act, these bylaws or resolution.
He or she shall perform such other duties as may be delegated to him or her by
the board of directors, any executive committee, the chairman of the board or
the president.
SECTION 10. TREASURER. Subject to the control of the board of
directors of the corporation, the treasurer shall have custody of all
corporate funds, property and securities and shall keep in books belonging to
the corporation full and accurate accounts of all receipts and disbursements.
When necessary or proper, he or she may endorse on behalf of the corporation
for collection, checks, notes and other obligations, and shall deposit the
same, as well as all other moneys, securities and valuable effects in the
name of, and to the credit of, the corporation and in such depositories as
may be designated for that purpose by the board of directors. He or she
shall make, such disbursements as may be necessary or proper to be made on
behalf of the corporation taking, proper vouchers for such disbursements. He
or she shall keep and maintain or supervise the maintenance of adequate books
and records for the purpose of keeping and maintaining an accurate account of
all the moneys and obligations received and paid or incurred for or on
account of the corporation, which books shall be open at all reasonable times
for inspection by any director for any reasonable purpose and at all
reasonable times at the office of the corporation. If required by the board
of directors, he or she shall keep in force a bond in form, amount and with a
surety or sureties satisfactory to the board of directors, conditioned for
faithful performance of the duties of his or her office, and for restoration
to the corporation in case of his or her death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and property of
whatever kind in his or her possession or under his or her control belonging
to the corporation. He or she shall, in general, perform all the duties
incident to the office of treasurer, subject to the control of the board of
directors. He or she shall perform such other duties as may be delegated to
him or her by the board of directors, the chairman of the board or the
president.
SECTION 11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The board of
directors may elect one or more assistant secretaries and assistant treasurers.
The assistant secretary, or if there be more than one, the assistant secretaries
in the order determined by the board of directors, shall, in the absence or
disability of the secretary, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe. The assistant treasurer, or
if there shall be more than one, the assistant treasurers in the order
determined by the board of directors, shall, in the absence or disability of the
treasurer, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe. The assistant secretaries and assistant
treasurers, in general, shall perform such duties as shall be assigned to them
by the secretary or by the treasurer, respectively, or by the board of
directors, the chairman of the board or the
<PAGE>
president.
SECTION 12. DELEGATION OF AUTHORITY AND DUTIES BY BOARD OF DIRECTORS. All
officers, employees and agents shall, in addition to the authority conferred,
or duties imposed, on them by these bylaws, have such authority and perform
such duties in the management of the corporation as may be determined by
resolution of the board of directors not inconsistent with these bylaws.
SECTION 13. BOND OF OFFICERS AND EMPLOYEES. Any officer or employee of
the corporation handling funds or negotiable instruments or any other property
of the corporation shall furnish such bond or shall be covered by a blanket bond
in such amounts and with such surety and sureties as may be required by the
board of directors. The premium of any such bond shall be paid by the
corporation.
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS: CLAIMS BY THIRD
PARTIES. The corporation shall, to the fullest extent authorized or permitted
by the Act or other applicable law, as the same presently exist or may hereafter
be amended, but, in the case of any such amendment, only to the extent such
amendment permits the corporation to provide broader indemnification rights than
before such amendment, indemnify any person (an "Indemnitee") who was or is a
party or is threatened to be made a party to a threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal, other than an action by or in the
light of the corporation, by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or not, against
expenses, including attorneys' fees, judgments, penalties, fines, and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with the action, suit, or proceeding, if the Indemnitee acted in good faith and
in a manner he or she reasonably believed to be, in or not opposed to the best
interests of the corporation or its shareholders, and with respect to a criminal
action or proceeding, if the Indemnitee had no reasonable cause to believe his
or her conduct was unlawful. The termination of an action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contenders or
its equivalent, does not, of itself, create a presumption that the Indemnitee
did not act in good faith and in a manner which he or she reasonably believed to
be in or not opposed to the best interests of the corporation or its
shareholders, and, with respect to a criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
SECTION 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS: CLAIMS BROUGHT BY OR
IN THE RIGHT OF THE CORPORATION. The corporation shall, to the fullest extent
authorized or permitted by the Act or other applicable law, as the same
presently exist or may hereafter be amended, but, in the case of any such
amendment, only to the extent
<PAGE>
such amendment permits the corporation to provide broader indemnification rights
than before such amendment, indemnify an Indemnitee who was or is a party or is
threatened to be made a party to a threatened, pending, or completed action or
suit by or in the right of the corporation to procure a in its favor by reason
of the fact that he or she is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other enterprise,
whether for profit or not, against expenses, including attorneys' fees, and
amounts paid in settlement actually and reasonably incurred by the Indemnitee in
connection with the action or suit, if the Indemnitee acted in good faith and in
a manner the Indemnitee reasonably believed to be in or not opposed to the best
interests of the corporation or its shareholders. Indemnification shall not be
made under this Section for a claim, issue, or matter in which the Indemnitee
has been found liable to the corporation except to the extent authorized in
Section 6 of this Article.
SECTION 3. ACTIONS BROUGHT BY THE INDEMNITEE. Notwithstanding the
provisions of Sections 1 and 2 of this Article, the corporation shall not be
required to indemnify an Indemnitee in connection with an action, suit,
proceeding or claim (or part thereof) brought or made by such Indemnitee except
as otherwise provided herein with respect to the enforcement of this Article,
unless such action, suit, proceeding or claim (or part thereof) was authorized
by the board of directors of the corporation.
SECTION 4. APPROVAL OF INDEMNIFICATION. An indemnification under Sections
I or 2 of this Article, unless ordered by the court, shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the Indemnitee is proper in the circumstances because such
Indemnitee has met the applicable standard of conduct set forth in Sections 1 or
2 of this Article, as the case may be, and upon an evaluation of the
reasonableness of expenses and amounts paid in settlement. This determination
and evaluation shall be made in any of the following ways:
(a) By a majority vote of a quorum of the board of directors consisting of
director's who are not parties or threatened to be made parties to the
action, suit, or proceeding.
(b) If a quorum cannot be obtained in subsection (a), by majority vote of
a committee duly designated by the board of directors and consisting
solely of two (2) or more directors not at the time parties or
threatened to be made parties to the action, suit or proceeding,
(c) By independent legal counsel in a written opinion, which counsel shall
be selected in one (1) of the following ways:
(i) By the board of directors or its committee in the manner
prescribed in subsection (a) or (b).
(ii) If a quorum of the board of directors cannot be obtained under
subsection (a) and a committee cannot be designated under
subsection (b), by the board of directors.
<PAGE>
(d) By all independent directors (if any directors have been designated as
such by the board of directors or shareholders of the corporation) who
are not parties or threatened to be made parties to the action, suit,
or proceeding,
(e) By the shareholders, but shares held by directors, officers,
employees, or agents who are parties or threatened to be made parties
to the action, suit, or proceeding may not be voted,
in the designation of a committee under subsection (b) or in the selection of
independent legal counsel under subsection (c)(h), all directors may
participate.
SECTION 5. ADVANCEMENT OF EXPENSES. The corporation may pay or reimburse
the reasonable expenses incurred by an Indemnitee who is a party or threatened
to be made a party to an action, suit, or proceeding in advance of final
disposition of the proceeding if all of the following apply:
(a) The Indemnitee furnishes the corporation a written affirmation of his
or her good faith belief that he or she has met the applicable
standard of conduct set forth in Sections 1 and 2 of this Article.
(b) The Indemnitee furnishes the corporation a written undertaking,
executed personally or on his or her behalf, to repay the advance if
it is ultimately determined that he or she did not meet the standard
of conduct.
(c) A determination is made that the facts then known to those making the
determination would not preclude indemnification under the Act,
The undertaking required by subsection (b) must be an undivided general
obligation of the Indemnitee but need not be secured. Determinations and
evaluations of payments or reimbursements under this Section shall be made in
the manner specified in Section 4 of this Article.
SECTION 6. COURT APPROVAL. An Indemnitee who is a party or threatened to
be made a party to an action, suit, or proceeding may apply for indemnification
to the court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court after giving any notice
it considers necessary may order indemnification if it determines that the
Indemnitee is fairly and reasonably entitled to indemnification in view of all
the relevant circumstances, whether or not he or she met the applicable standard
of conduct set forth in Sections 1 and 2 of this Article or was adjudged liable
as described in Section 2 of this Article, but if he or she was adjudged liable,
his or her indemnification is limited to reasonable expenses incurred.
SECTION 7. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled to
indemnification under Sections 1 or 2 of this Article for a portion of expenses,
including reasonable attorneys' fees, judgments, penalties, fines, and amounts
paid in settlement, but not for the total amount, the corporation shall
indemnify the Indemnitee for the portion of the expenses, judgments, penalties,
fines, or amounts paid in settlement for which the Indemnitee is entitled to be
indemnified.
<PAGE>
SECTION 8. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Any person who is not
covered by the foregoing provisions of this Article and who is or was an
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture trust or
other enterprise, whether for profit or not, may be indemnified to the fullest
extent authorized or permitted by the Act or other applicable law, as the same
exists or may hereafter be amended, but, in the case of any such amendment, only
to the extent such amendment permits the corporation to provide broader
indemnification rights than before such amendment, but in any event only to the
extent authorized at any time or from time to time by the board of directors.
SECTION 9. OTHER RIGHTS OF INDEMNIFICATION. The indemnification or
advancement of expenses provided under Sections 1 through 8 of this Article is
not exclusive of other rights to which a person seeking indemnification or
advancement of expenses may be entitled under the articles of incorporation,
bylaws, or a contractual agreement. The total amount of expenses advanced or
indemnified from all sources combined shall not exceed the amount of actual
expenses incurred by the person seeking indemnification or advancement of
expenses. The indemnification provided for in Sections 1 through 8 of this
Article continues as to a person who ceases to be a director, officer, employee,
or agent and shall inure to the benefit of the heirs, personal representatives,
and administrators of the person.
SECTION 10. DEFINITIONS. "Other enterprises" shall include employee
benefit plans; "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and "serving at the request of the
corporation" shall include any service as a director, officer, employee, or
agent of the corporation which imposes duties on, or involves services by, the
director, officer, employee or agent with respect to an employee benefit plan,
its participants or its beneficiaries; and a person who acted in good faith and
in a manner he or she reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be considered
to have acted in a manner "not opposed to the best interests of the corporation
or its shareholders" as referred to in Sections 1 and 2 of this Article.
SECTION 11. LIABILITY INSURANCE. The corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity or arising out of his or her status as such,
whether or not the corporation would have power to indemnify him or her against
liability under the pertinent provisions of the Act.
SECTION 12. ENFORCEMENT. If a claim under this Article is not paid in
full by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim, and, if
successful in whole or in part, the claimant shall be entitled to be
<PAGE>
paid also the expense of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the Act for the corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board of
directors, a committee thereof, independent legal counsel, or its shareholders)
to have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because such
claimant has met the applicable standard of conduct set forth in the Act nor an
actual determination by the corporation (including its board of directors, a
committee thereof, independent legal counsel or its shareholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
SECTION 13. CONTRACT WITH THE CORPORATION. The right to indemnification
conferred in this Article shall be deemed to be a contract right between the
corporation and each director or officer who serves in any such capacity at any
time while this Article is in effect, and any repeal or modification of this
Article shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts.
SECTION 14. APPLICATION TO RESULTING OR SURVIVING CORPORATION OR
CONSTITUENT CORPORATION. The definition for "corporation" found in Section 569
of the Act, as the same exists or may hereafter be amended is, and shall be,
specifically excluded from application to this Article. The indemnification and
other obligations set forth in this Article of the corporation shall be binding
upon any resulting or surviving corporation after any merger or consolidation
with the corporation. Notwithstanding anything to the contrary contained herein
or in Section 569 of the Act, no person shall be entitled to the indemnification
and other rights set forth in this Article for acting as a director or officer
of another corporation prior to such other corporation entering into a merger or
consolidation with the corporation.
SECTION 15. SEVERABILITY. Each and every paragraph, sentence, term and
provision of this Article shall be considered severable in that, in the event a
court finds any paragraph, sentence, term or provision to be invalid or
unenforceable, the validity and enforceability, operation, or effect of the
remaining paragraphs, sentences, terms, or provisions shall not be affected, and
this Article shall be construed in all respects as if the invalid or
unenforceable matter had been omitted.
ARTICLE VII
STOCK AND TRANSFERS
SECTION 1. SHARE CERTIFICATES: REQUIRED SIGNATURES. The shares of the
corporation shall be represented by certificates which shall be signed by the
chairman of the board of directors, vice chairman of the board of directors,
president or a vice president and
<PAGE>
which also may be signed by another officer of the corporation. The certificate
may be sealed with the seal of the corporation or a facsimile of the seal. The
signatures of the officers may be facsimiles if the certificate is countersigned
by a transfer agent or registered by a registrar other than the corporation
itself or its employee. If an officer who has signed or whose facsimile
signature has been placed upon a certificate ceases to be an officer before the
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were the officer at the date of issue.
SECTION 2. SHARE CERTIFICATES: REQUIRED PROVISIONS. A certificate
representing shares of the corporation shall state upon its face all of the
following:
(a) That the corporation is formed under the laws of this state.
(b) The name of the person to whom issued.
(c) The number and class of shares, and the designation of the series, if
any, which the certificate represents.
A certificate representing shares issued by a corporation which is authorized to
issue shares of more than one (1) class shall set forth on its face or back or
state on its face or back that the corporation will furnish to a shareholder
upon request and without charge a full statement of the designation, relative
rights, preferences and limitations of the shares of each class authorized to be
issued, and if the corporation is authorized to issue any class of shares in
series, the designation, relative rights, preferences and limitations of each
series so far as the same have been prescribed and the authority of the board to
designate and prescribe the relative rights, preferences and limitations of
other series.
SECTION 3. REPLACEMENT OF LOST OR DESTROYED SHARE CERTIFICATES. The
corporation may issue a new certificate for shares or fractional shams in place
of a certificate theretofore issued by it, alleged to have been lost or
destroyed, and the board of directors may require the owner of the lost or
destroyed certificate, or his or her legal representative, to give the
corporation a bond sufficient to indemnify the corporation against any claim
that may be made against it on account of the alleged lost or destroyed
certificate or the issuance of such new certificate.
SECTION 4. REGISTERED SHAREHOLDERS. The corporation shall have the right
to treat the registered holder of any share as the absolute owner thereof, and
sha-U not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the corporation shall
have express or other notice thereof, save as may be otherwise provided by the
statutes of Michigan.
SECTION 5. TRANSFER AGENT AND REGISTRAR. The board of directors may
appoint a transfer agent and a registrar in the registration of transfers of its
securities.
SECTION 6. REGULATIONS. The board of directors shall have power and
authority to make all such rules and regulations as the board shall deem
expedient regulating the issue, transfer and registration of certificates for
shares in this corporation.
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DISTRIBUTIONS IN CASH OR PROPERTY. The board of directors may
authorize and the corporation may make distributions to its shareholders subject
to restriction by the articles of incorporation and/or unless otherwise limited
by the articles of incorporation, these bylaws or the Act.
SECTION 2. RESERVES. The board of directors shall have power and authority
to set apart such reserve or reserves, for any proper purpose, as the board in
its discretion shall approve, and the board shall have the power and authority
to abolish any reserve created by the board.
SECTION 3. VOTING SECURITIES. Unless otherwise directed by the board of
directors, the chairman of the board or president, or in the case of their
absence or inability to act, the vice presidents, in order of their seniority,
shall have full power and authority on behalf of the corporation to attend and
to act and to vote, or to execute in the name or on behalf of the corporation a
consent in writing in lieu of a meeting of shareholders or a proxy authorizing
an agent or attorney-in-fact for the corporation to attend and vote at any
meetings of security holders of corporations in which the corporation may hold
securities, and at such meetings he or she or his or her duly authorized agent
or attorney-in-fact shall possess and may exercise any and all rights and powers
incident to the ownership of such securities and which, as the owner thereof,
the corporation might have possessed and exercised if present. The board of
directors by resolution from time to time may confer the power upon any other
person or persons.
SECTION 4. CHECKS. All checks, drafts and orders for the payment of money
shall be signed in the name of the corporation in such manner and by such
officer or officers or such other person or persons as the board of directors
shall from time to time designate for that purpose.
SECTION 5. CONTRACTS, CONVEYANCES, ETC. When the execution of any
contract, conveyance or other instrument has been authorized without
specification of the executing officers, the chairman of the board, president or
any vice president, and the secretary or assistant secretary, may execute the
same in the name and on behalf of this corporation and may affix the corporate
seal thereto. The board of directors shall have power to designate the officers
and agents who shall have authority to execute any instrument on behalf of this
corporation.
SECTION 6. CORPORATE BOOKS AND RECORDS. The corporation shall keep books
and records of account and minutes of the proceedings of its shareholders, board
of directors and executive committees, if any. The books, records and minutes
may be kept outside this state, The corporation shall keep at its registered
<PAGE>
office, or at the office of its transfer agent in or outside the State of
Michigan, records containing the names and addresses of all shareholders, the
number, class and series of shares held by each and the dates when they
respectively became holders of record. Any of the books, records or minutes
may be in written form or in any other form capable of being converted into
written form within a reasonable time. The corporation shall convert into
written form without charge any record not in written form, unless otherwise
requested by a person entitled to inspect the records.
SECTION 7. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
SECTION 8. SEAL. If the corporation has a corporate seal, it shall have
inscribed thereon the name of the corporation and the words "Corporate Seal" and
"Michigan." The seal may be used by causing it or a facsimile to be affixed,
impressed or reproduced in any other manner.
ARTICLE IX
AMENDMENTS
SECTION 1. The shareholders or the board of directors may amend or repeal
the bylaws or adopt new bylaws unless the articles of incorporation provide that
the power to adopt new bylaws is reserved exclusively to the shareholders or
that these bylaws or any particular bylaw shall not be altered or repealed by
the board of directors. Such action may be taken by written consent or at any
meeting of shareholders or the board of directors; provided that if notice of
any such meeting is required by these bylaws, it shall contain notice of the
proposed amendment, repeal or new bylaws. Amendment of these bylaws by the
board of directors requires the vote of not less than a majority of the members
of the board then in office.
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF
MICHIGAN
-------------
- -------- --------
NUMBER SHARES
XXX XXX
- -------- --------
- --------------------------------------------------------------------------------
MEEMIC HOLDINGS, INC.
- --------------------------------------------------------------------------------
AUTHORIZED CAPITAL 10,000,000 SHARES NO PAR VALUE
---------- -------
THIS CERTIFIES THAT XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX IS THE OWNER OF
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX FULL PAID AND NON-ASSESSABLE
SHARES OF THE CAPITAL STOCK OF MEEMIC HOLDINGS, INC. TRANSFERABLE ON THE BOOKS
OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF
THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED
BY ITS DULY AUTHORIZED OFFICERS AND SEALED WITH THE SEAL OF THE CORPORATION,
THIS XXXXXXXXXXXXXXXX DAY OF XXXXXXXXXXXXXX A.D. 19XXXX
----------------- -------------- ----
- ----------------------------------- -----------------------------
SECRETARY PRESIDENT
<PAGE>
FOR VALUE RECEIVED, ________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
________________________________________________________________________________
_________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT _______________________________________________________ ATTORNEY TO
TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES.
DATED _______________ 19______
IN PRESENCE OF
- -------------------------------- -----------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
---------------------------
THIS SPACE IS NOT TO BE
COVERED IN ANY WAY
---------------------------
<PAGE>
EXHIBIT 5.1
[FORM OF OPINION RE LEGALITY]
__________, ______
MEEMIC Holdings, Inc.
691 North Squirrel Road, Suite 200
Auburn Hills, MI 48326
Re: REGISTRATION STATEMENT ON FORM S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for MEEMIC Holdings, Inc., a Michigan corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
of a Registration Statement on Form 1-A (the "Registration Statement") relating
to the offering by the Company of up to ________ shares of the Company's common
stock ("Common Stock").
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinions expressed below.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is in good standing under
the laws of the State of Michigan.
2. The shares of Common Stock to which the Registration Statement relates
will be, when issued in the manner specified in the Registration Statement,
legally issued, fully paid and non-assessable.
<PAGE>
MEEMIC Holdings, Inc.
_____________, _______
Page 2
We consent to the filing of this opinion as an exhibit to the Registration
Statement. We further consent to the reference to our firm under the heading
"Legal Matters" in the Registration Statement. In giving such consent, we do
not concede that we are experts within the meaning of the Act or the rules or
regulations thereunder or that this consent is required by Section 7 of the Act.
Very truly yours,
DYKEMA GOSSETT PLLC
Ann D. Fillingham
<PAGE>
AGREEMENT
This Agreement is made this 7th day of February, 1997, by and between
Professionals Insurance Company Management Group ("Professionals"), PICOM
Insurance Company ("PICOM") and the Michigan Educational Employees Mutual
Insurance Company ("MEEMIC").
WHEREAS, Professionals is an insurance holding company, owning 100% of the
shares of PICOM;
WHEREAS, PICOM is a Michigan stock insurance company, authorized to write
property and casualty insurance coverages;
WHEREAS, MEEMIC is a Michigan mutual insurance company, authorized to write
property and casualty insurance coverages;
WHEREAS, MEEMIC desires to obtain capital and to expand its insurance
capacity and business operations;
WHEREAS, Professionals is willing to arrange for a capital infusion to
MEEMIC, assist MEEMIC to increase its insurance capacity and provide strategic
consulting and information system services in exchange for (i) a surplus note;
(ii) an agreement under which Professionals will assume, pursuant to a
management services agreement, responsibility for the certain business
operations of MEEMIC; and (iii) MEEMIC's agreement to enter into a quota share
reinsurance agreement with PICOM;
WHEREAS, PICOM is willing to enter into a quota share reinsurance agreement
with MEEMIC; and
WHEREAS, the Board of Directors of each of the parties to this Agreement
have the authority to authorize and have authorized the execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of these premises and the mutual
conditions and agreements contained herein, the undersigned hereby agree as
follows:
<PAGE>
1. SURPLUS NOTE. Subject to the terms of this Agreement and at the
Closing (as defined below), Professionals, its subsidiary, PICOM, or a new
subsidiary of Professionals will contribute $21,000,000 to MEEMIC in exchange
for a surplus note (the "Surplus Note"). The Surplus Note shall bear interest
at 8.5% per annum. Subject to applicable laws and regulatory authority,
interest shall be paid quarterly on the Surplus Note until the twelfth
anniversary of the Surplus Note at which time the entire principal shall be
repaid. The terms and conditions on repayment of the Surplus Note shall be
subject to prior written approval of the Michigan Insurance Commissioner (the
"Commissioner"). The Surplus Note shall be in substantially the form and
substance of the accompanying Exhibit A.
2. MANAGEMENT SERVICES AGREEMENT. Subject to the terms of this Agreement
and at the Closing, Professionals and MEEMIC shall enter into a ten (10) year
management services agreement (the "Management Services Agreement"), subject to
the Commissioner's approval, under which Professionals shall perform all of
MEEMIC's information systems services and such other strategic consulting and
assistance as reasonably directed by MEEMIC's Board of Directors from time to
time. The Management Services Agreement shall be in substantially the form and
substance of the accompanying Exhibit B.
3. REINSURANCE AGREEMENT. Subject to the terms of this Agreement and at
the Closing, MEEMIC shall enter into a quota share reinsurance contract (the
"Reinsurance Agreement") with PICOM pursuant to which a percentage of the net
retained premiums and losses of MEEMIC shall be ceded to PICOM on a quota share
basis. The Reinsurance Agreement shall provide that the ceding commission paid
to MEEMIC is equal to actual unallocated loss adjustment and other underwriting
expense ratios, i.e., MEEMIC and PICOM would have identical loss and expense
ratios on the subject premium. The Reinsurance Agreement shall be in
substantially the form and substance of the accompanying Exhibit C.
4. PURCHASE OF INFORMATION SYSTEM HARDWARE AND RIGHTS TO
HARDWARE/SOFTWARE. Professionals shall purchase at MEEMIC's book value as of
the date of
<PAGE>
Closing (which is not estimated to be in excess of $1.5 million) any information
system hardware including, but not limited to, computers, computer terminals,
monitors, and proprietary software that MEEMIC owns and currently utilizes in
the performance of its information system functions. As additional
consideration, MEEMIC shall also assign any leases for information system
hardware or licenses for software that MEEMIC currently utilizes in the
performance of its information system functions, to the extent MEEMIC has, after
the exercise of its reasonable best efforts, been able to obtain the consents
required, if any, for such assignments.
5. MEEMIC DIRECTORS.
(i). RESIGNATION OF CURRENT DIRECTORS. Effective on the issuance
of the Surplus Note, all existing directors of MEEMIC shall resign and
Professionals shall be given de facto authority to nominate new directors of
MEEMIC and direct the implementation of proxy rights conferred by MEEMIC's
policyholders, in such a fashion as is permitted by law and applicable MEEMIC
corporate documents. If requested by Professionals, and subject to the terms of
MEEMIC's By-laws, the existing directors of MEEMIC shall elect the nominees of
Professionals as their successors on the MEEMIC board in a manner that will
assure the continuity of functions of the MEEMIC Board. The new MEEMIC Board
shall honor the terms of the severance agreements with former MEEMIC directors,
as such terms shall ultimately be negotiated pursuant to the provisions of
Section 5(iii) of this Agreement.
(ii). STRATEGIC CONSULTING AGREEMENTS. Professionals agrees to
retain each current director of MEEMIC as an independent contractor of
Professionals for a period of three (3) years to serve on an advisory board and
provide strategic consulting services. Each director shall be offered a
consulting agreement (the "Consulting Agreement") in substantially the form and
substance of the accompanying Exhibit D.
(iii). SEVERANCE PACKAGES. In exchange for relinquishment of rights
of future compensation and a three (3) year covenant not to compete, MEEMIC
desires to provide each of its current directors with a severance package,
pursuant to a severance agreement (the "Severance Agreement") in substantially
the form and substance of the accompanying Exhibit E, subject to
<PAGE>
the Commissioner's approval and receipt of a fairness opinion from an
independent third party generally accepted in the industry to be qualified to
issue such an opinion as to fairness; provided, however, that the amount and
structure of such severance packages finally entered into between MEEMIC and its
directors may be upon such other terms and in such other amounts as shall
ultimately be deemed acceptable by such third party opinion provider.
6. THE CLOSING. The execution and delivery of all agreements, documents,
certificates, resolutions, assignments and opinions contemplated by this
Agreement (the "Closing") shall take place on March 1, 1997, or as soon
thereafter as all required regulatory approvals are received and other
preconditions to Closing have been satisfied, which later date shall not be
after December 31, 1997, unless extended in writing by all parties to this
Agreement.
7. CLOSING CONTINGENCIES. The obligation of any party to close on this
Agreement is contingent upon (i) Professionals obtaining (or waiving) a
commitment to borrow $21,000,000 from a commercial financial institution, which
it shall pursue in good faith and with due diligence, (ii) all necessary
regulatory approvals being obtained to effectuate the transaction, (iii) the
material representations and warranties of the parties contained in this
Agreement and any ancillary documents executed coincident herewith being true
and correct as of the Closing as if the same were made at Closing, with each
party delivering at Closing a certificate signed by a duly authorized officer to
that effect, (iv) the parties receiving the closing documents identified in
Section 8 of this Agreement,(v) receipt by MEEMIC of the $21,000,000, plus the
amounts specified in Section 4 of this Agreement in immediately available funds
on the date of Closing, and (vi) receipt by MEEMIC of the fairness opinion
required by the MEEMIC Board of Directors' Resolution of February 6, 1997, a
copy of which is attached as Exhibit F.
8. CLOSING DOCUMENTS. At Closing, the parties shall deliver:
(i) the Surplus Note;
(ii) the Management Services Agreement, and the related
license agreement for MEEMIC service marks and trademarks;
(iii) the Reinsurance Agreement;
<PAGE>
(iv) a bill of sale (the "Bill of Sale") in form and
content acceptable to the parties evidencing transfer of title of the
information system hardware and the proprietary software owned by
MEEMIC identified in Section 4 of this Agreement;
(v) an assignment of third party agreements, and an
assignment and license of information system intellectual property by
MEEMIC to Professionals (the "Assignments") acceptable to the parties
evidencing transfer of the information system hardware leases and
software rights identified in Section 4 of this Agreement to the
extent MEEMIC has, after the exercise of its reasonable best efforts,
been able to obtain the consents required, if any, for such
assignments;
(vi) closing certificates of each party pursuant to
Section 7 of this Agreement;
(vii) corporate documents for each of the parties,
including for each party (a) a copy of the resolutions of the board of
directors, duly certified, authorizing the transactions contemplated
by this Agreement (b) the duly certified articles of incorporation,
and (c) the duly certified bylaws; and
(viii) opinions of counsel to each party, which shall
address that (a) the party is duly incorporated, validly existing and
in good standing, (b) the party has the full power to execute, deliver
and perform the Closing Documents (as defined below), and each other
document or certificate delivered in connection with the transactions
contemplated in this Agreement, (c) the execution, delivery and
performance by the party of its obligations under this Agreement, the
Closing Documents and the documents and certificates related thereto
have been duly authorized and do not and will not contravene or
conflict with any provision of law, articles of incorporation or
bylaws, (d) the Agreement, the Closing Documents and each of the
documents and certificates delivered hereunder have
<PAGE>
been duly executed and delivered and constitute the legal, valid and
binding obligations of the party, enforceable in accordance with their
respective terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, moratorium, receivership, and other laws
affecting creditors' rights and by general principles of equity, and
(e) no further approval, registration, authorization, consent or other
order pursuant to federal or state law is required on behalf of the
party to permit it to consummate the transactions contemplated by this
Agreement and the Closing Documents.
For purposes of this section, Closing Documents shall mean (i) the Surplus Note,
(ii) the Management Services Agreement and related license agreement for MEEMIC
service marks and trademarks, (iii) the Reinsurance Agreement, (iv) the Bill of
Sale, and (v) the Assignments.
9. COURSE OF BUSINESS REPRESENTATIONS OF PARTIES. MEEMIC, Professionals
and PICOM represent that their respective businesses have been conducted in the
normal and ordinary course of business from the date of their respective last
audited financial statement to the date of the execution of this Agreement, and
shall continue to be so conducted at all times prior to the Closing.
MEEMIC shall not contract for or make any acquisitions of any other company
or business prior to the Closing, without the written consent of Professionals.
MEEMIC shall be relieved from closing on this Agreement should
Professionals or PICOM experience a change of control before the contingencies
set forth in Section 7 are fulfilled. For purposes of this Agreement, a "change
in control" is deemed to have occurred if (i) any person or entity becomes the
beneficial owner, directly or indirectly, of securities of Professionals or
PICOM representing more than 51% of the combined voting power of then
outstanding securities of Professionals or PICOM, as applicable; or (ii) prior
to Closing, the shareholders of Professionals or PICOM approve (a) a plan of
complete liquidation; or (b) an agreement for the sale or disposition of all or
substantially all of the assets of Professionals or PICOM, as applicable, or (c)
the sale or reinsurance of all or substantially all of the insurance
<PAGE>
business of PICOM so as to cause PICOM to cease to function on a going forward
basis as a property and casualty insurance company; or (d) a merger,
consolidation, or reorganization of Professionals or PICOM with or involving any
other corporation, other than a merger, consolidation, or reorganization that
would result in the voting securities of Professionals or PICOM outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of such surviving
entity at least 51% of the combined voting power of the voting securities of
Professionals or PICOM, as applicable (or such surviving entity) outstanding
immediately after such merger, consolidation, or reorganization. Prior to the
Closing, Professionals or PICOM, as applicable, shall promptly notify MEEMIC of
any such "change in control."
10. CONTINUED DUE DILIGENCE. Professionals and PICOM, on the one hand,
and MEEMIC, on the other hand, desire to have an opportunity to continue to
conduct an investigation of the business and operations of each other in order
to determine to each party's satisfaction and the satisfaction of each party's
independent auditors, among other things, (i) the financial soundness of each
party, including the adequacy of reserves for losses and loss adjustment
expenses, and (ii) the experience and ability of Professionals to perform the
services identified in the Management Services Agreement. Accordingly,
following the execution of this Agreement until Closing, Professionals, PICOM
and MEEMIC and their representatives shall have reasonable access, subject to
the Confidentiality and Non-Disclosure Agreement dated November 7, 1996, as
amended, to the other party's books, records and accounts as they shall
reasonably request and as shall be necessary in order to conduct such
investigations. Professionals, PICOM, and MEEMIC shall also consent to the
review by the other party hereto of the reports and papers of their respective
independent auditors prior to the consummation of the Agreement. All such
books, accounts, records and reports reviewed during an investigation by either
party shall be returned to the respective party upon the earliest of (i) request
of the party, or (ii) within ten (10) days following the Closing.
11. MEEMIC'S COVENANT NOT TO PURSUE CHANGE OF CONTROL. Prior to Closing
<PAGE>
MEEMIC and its employees, agents or representatives will not engage in
discussions with any third party regarding a possible change of control in
MEEMIC or any other extraordinary transaction or agreement which could lead to
the transfer of a significant portion of MEEMIC.
12. CONFIDENTIAL INFORMATION. Professionals, PICOM, and MEEMIC , and each
of their respective representatives, shall not, without prior written approval
of the appropriate party, disclose any confidential information obtained during
the course of the investigation regarding or the preparation of the Agreement to
any third party or parties unless the same is required by law or regulatory
authority or such information as already in the public domain not by a failure
of a party to comply with the understandings set forth in this Agreement, except
to its own agents, including auditors and attorneys, which disclosure to agents
shall be subject to the restrictions of this Agreement. Professionals and PICOM
agree that all confidential information pertaining to MEEMIC shall be used by
Professionals and PICOM solely in the performance of their separate obligations
pursuant to this Agreement, the Management Services Agreement and the other
agreements contemplated herein.
13. PUBLIC DISCLOSURE OF AGREEMENT. No party shall make any press
release, formal announcement or public disclosure concerning the Agreement
unless the other parties shall have previously approved the language of such
release, announcement or disclosure, except as may otherwise be required by law,
in which case advance notice of such release, announcement or disclosure will be
given to the other party.
14. REPRESENTATION AND WARRANTIES.
(i). REPRESENTATIONS AND WARRANTIES OF PROFESSIONALS.
Professionals hereby represents and warrants to MEEMIC as follows:
(a) ORGANIZATION AND POWER. Professionals is an insurance
holding company, duly organized, validly existing and in good standing
under the laws of the State of Michigan. It has the full power and
authority to enter into and carry out the terms of this Agreement, and
the agreements contemplated hereby.
(b) AUTHORIZATION, VALIDITY, ENFORCEABILITY. The execution,
delivery
<PAGE>
and performance of this Agreement by Professionals has been duly and
validly authorized by all necessary corporate action and does not and
will not conflict with, or result in a breach or violation of,
Professionals' articles of incorporation or bylaws, any material
agreement to which Professionals is a party or by which it or its
assets are bound or any law or order of a court or administrative
agency having jurisdiction over Professionals. This Agreement is the
legally binding obligation of Professionals, enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
moratorium or other laws, in effect now or in the future, that affect
the enforcement of creditors' rights generally and general principles
of equity.
(c) GOVERNMENTAL APPROVAL OF TRANSACTIONS. Except for
approval of the Michigan Insurance Bureau and any filing required
under the federal Hart-Scott-Rodino Antitrust Improvement Act of 1978,
no authorization of any federal or state governmental authority or
court having jurisdiction over Professionals or its assets is required
by Professionals for, or the absences of which would adversely affect,
the execution, delivery, and performance of this Agreement or the
consummation of the transactions contemplated by this Agreement.
(d) ACTIONS, SUITS, PROCEEDINGS. There are no administrative
or court actions, suits or proceedings of any kind now pending or, to
the best of Professionals' knowledge after due inquiry, threatened
that, if adversely decided, would have a material adverse effect on
Professionals' ability to carry out the terms of this Agreement.
(ii). REPRESENTATIONS AND WARRANTIES OF PICOM. PICOM hereby
represents and warrants to MEEMIC as follows:
(a) ORGANIZATION AND POWER. PICOM is a Michigan insurance
company, duly organized, validly existing and in good standing under
the laws of
<PAGE>
the State of Michigan. It has the full power and authority to enter
into and carry out the terms of this Agreement, and the agreements
contemplated hereby.
(b) AUTHORIZATION, VALIDITY, ENFORCEABILITY. The execution,
delivery and performance of this Agreement by PICOM has been duly and
validly authorized by all necessary corporate action and does not and
will not conflict with, or result in a breach or violation of, PICOM's
articles of incorporation or bylaws, any material agreement to which
PICOM's is a party or by which it or its assets are bound or any law
or order of a court or administrative agency having jurisdiction over
PICOM. This Agreement is the legally binding obligation of PICOM,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, moratorium or other laws, in effect now or in
the future, that affect the enforcement of creditors' rights generally
and general principles of equity.
(c) GOVERNMENTAL APPROVAL OF TRANSACTIONS. Except for
approval of the Michigan Insurance Bureau, no authorization of any
federal or state governmental authority or court having jurisdiction
over PICOM or its assets is required by PICOM for, or the absences of
which would adversely affect, the execution, delivery, and performance
of this Agreement or the consummation of the transactions contemplated
by this Agreement.
(d) ACTIONS, SUITS, PROCEEDINGS. There are no administrative
or court actions, suits or proceedings of any kind now pending or, to
the best of PICOM's knowledge after due inquiry, threatened that, if
adversely decided, would have a material adverse effect on PICOM's
ability to carry out the terms of this Agreement.
(iii). REPRESENTATIONS AND WARRANTIES OF MEEMIC. MEEMIC hereby
represents and warrants to Professionals and PICOM as follows:
(a) ORGANIZATION AND POWER. MEEMIC is a Michigan mutual
<PAGE>
insurance company, duly organized, validly existing and in good
standing under the laws of the State of Michigan. It has the full
power and authority to enter into and carry out the terms of this
Agreement, and the agreements contemplated hereby.
(b) AUTHORIZATION, VALIDITY, ENFORCEABILITY. The execution,
delivery and performance of this Agreement by MEEMIC has been duly and
validly authorized by all necessary corporate action and does not and
will not conflict with, or result in a breach or violation of,
MEEMIC's articles of incorporation or bylaws, any material agreement
to which MEEMIC is a party or by which it or its assets are bound or
any law or order of a court or administrative agency having
jurisdiction over MEEMIC. This Agreement is the legally binding
obligation of MEEMIC, enforceable in accordance with its terms, except
as may be limited by bankruptcy, insolvency, moratorium or other laws,
in effect now or in the future, that affect the enforcement of
creditors' rights generally and general principles of equity.
(c) GOVERNMENTAL APPROVAL OF TRANSACTIONS. Except for
approval of the Michigan Insurance Bureau and any filing required
under the federal Hart-Scott-Rodino Antitrust Improvement Act of 1978,
no authorization of any federal or state governmental authority or
court having jurisdiction over MEEMIC or its assets is required by
MEEMIC for, or the absences of which would adversely affect, the
execution, delivery, and performance of this Agreement or the
consummation of the transactions contemplated by this Agreement.
(d) ACTIONS, SUITS, PROCEEDINGS. There are no administrative
or court actions, suits or proceedings of any kind now pending or, to
the best of MEEMIC's knowledge after due inquiry, threatened that, if
adversely decided, would have a material adverse effect on MEEMIC's
ability to carry out the terms of this Agreement.
<PAGE>
15. TERMINATION. This Agreement and the obligations of the parties may be
terminated at any time prior to Closing (a) by mutual consent of the parties (b)
by Professionals and PICOM if any material representation or warranty in this
Agreement or any ancillary documents executed coincident herewith by MEEMIC
proves to be untrue at the time it was made or becomes untrue prior to Closing,
(c) by MEEMIC if any material representation or warranty in this Agreement or
any ancillary documents executed coincident herewith by PICOM or Professionals
proves to be untrue at the time it was made or becomes untrue prior to Closing,
(d) by any party if the preconditions to Closing established in Section 7 of
this Agreement fail to occur, (e) by any party if Closing does not occur by
December 31, 1997, unless such date is extended upon mutual agreement of the
parties, or (f) by MEEMIC, if Professionals or PICOM experiences a change of
control (as defined in Section 9 of this Agreement) prior to the Closing.
16. GENERAL PROVISIONS.
(i). SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns provided
that neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned, by operation of law or otherwise, by any party hereto
without the prior written consent of the other parties hereto. If any party is
so permitted to assign any of its rights or obligations under this Agreement,
such assignment (unless otherwise agreed to by the other party) shall not in any
manner affect or impair such assigning party's obligations under this Agreement.
(ii). ENTIRE AGREEMENT; AMENDMENT. This Agreement, including
Exhibits referenced herein, embody the entire agreement and understanding of the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements between the parties or any of their Affiliates with respect to the
subject matter of this Agreement; provided, however, that ancillary documents
executed by any party hereto may expressly provide they are in addition to
(though they may not be in contravention of) this Agreement. This Agreement may
be amended, modified or supplemented in any manner and at any time only by a
written instrument executed
<PAGE>
by Professionals, PICOM and MEEMIC. No waiver by any party of any term or
condition hereof, or the breach of any covenant, agreement, warranty,
representation or provision contained herein, in any one or more instances,
shall be made to be construed as a further continuing waiver of any such term,
condition or breach or a waiver of any other term, condition or breach.
(iii). COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall together constitute one and the same instrument
and shall become effective when one or more counterparts have been signed by
Professionals, PICOM, and MEEMIC and delivered to each of the parties.
(iv). HEADINGS; REFERENCES, INTERPRETATION. The Article and Section
headings in this Agreement are for convenience of reference only and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof.
(v). GOVERNING LAW. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the internal
laws, and not the laws pertaining to conflicts or choice of laws, of the State
of Michigan.
(vi). SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect.
(vii). BROKERAGE. All negotiations relative to this Agreement and
the transactions contemplated by this Agreement have been carried on by the
parties to this Agreement directly without the intervention of any other person
in such negotiations, and the consummation of the transactions under this
Agreement, will not result in any liability by any party for any finder's fee,
brokerage commission or other similar fee. Each party shall indemnify the other
party and hold it harmless from and against any claim for brokerage or finders'
fees or other commissions resulting from actions of the indemnifying party which
are not in accordance with the preceding sentence.
(viii). NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
express or implied, is intended to or shall (a) confer on any person or entity
other than the parties hereto and their respective successors or permitted
assigns any rights (including third party beneficiary
<PAGE>
rights), remedies, obligations or liabilities of any nature whatsoever under or
by reason of this Agreement, or (b) constitute the parties hereto as partners or
as participants in a joint venture. This Agreement shall not provide third
parties with any remedy, claim, liability, reimbursement, cause of action or
other right in excess of those existing without reference to the terms of this
Agreement.
(ix). ACKNOWLEDGMENT. The parties each acknowledge that all the
terms and conditions in this Agreement and the Related Agreements have been the
subject of active and complete negotiation between the parties and represent the
parties' agreement based upon all relevant considerations. The parties agree
that the terms and conditions of this Agreement shall not be construed in favor
of or against any party by reason of the extent to which any party or its
professional advisors participated in the preparation hereof or thereof.
(x). FURTHER ASSURANCES. The parties agree to do such further acts
and things and to execute and deliver such additional documents, assignments,
agreements, certificates, powers and instruments as may be reasonably required
to carry into effect the purposes of this Agreement.
(xi). LEGAL FEES, COSTS AND EXPENSES. Each party hereto shall bear
its own counsel's fees and expenses, costs and other expenses incurred by such
party in connection with this transaction; provided, however, that the
prevailing party shall be entitled to reimbursement of its reasonable counsel's
fees, costs and expenses in connection with the enforcement of its rights under
or under any agreement or instrument contemplated hereunder.
IN WITNESS WHEREOF, the undersigned execute and deliver this Agreement as
of the date first written above.
PROFESSIONALS INSURANCE
COMPANY MANAGEMENT GROUP
By: /s/ Victor T. Adamo
-------------------------------
Victor T. Adamo
Its: President
PICOM INSURANCE COMPANY
<PAGE>
By: /s/ Victor T. Adamo
-------------------------------
Victor T. Adamo
Its: President
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY
By: /s/ Lynn M. Kalinowski
-------------------------------
Lynn M. Kalinowski
Its: President and Chief Executive
Officer
<PAGE>
SURPLUS NOTE
"BY ACCEPTANCE AND AS A PART OF THE CONSIDERATION FOR THE ISSUANCE HEREOF,
THE PAYEE EXPRESSLY ACKNOWLEDGES THAT IT HAS BEEN INFORMED AND HAS KNOWLEDGE
THAT THIS SURPLUS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND THAT THE COMPANY HAS ISSUED
THIS SURPLUS NOTE PURSUANT TO EXEMPTIONS FROM REGISTRATION AVAILABLE UNDER SUCH
ACTS OR LAWS. THE PAYEE FURTHER EXPRESSLY ACKNOWLEDGES AND AGREES THAT IT IS
NOT ACQUIRING THIS SURPLUS NOTE WITH A VIEW TOWARD A PUBLIC DISTRIBUTION THEREOF
AND THAT THIS SURPLUS NOTE MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT HERETO OR AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
OTHER APPLICABLE SECURITIES LAWS."
SURPLUS NOTE
$21,500,000 April 7, 1997
Michigan Educational Employees Mutual Insurance Company ("MEEMIC"), a
mutual property and casualty insurance company, organized and existing under
provisions of the Michigan Insurance Code, as amended, and having its principal
offices at Auburn Hills, Michigan, for value received hereby promises to pay
PICOM Insurance Company the principal sum of Twenty-One Million Five Hundred
Thousand and No/100 Dollars ($21,500,000) together with interest on the unpaid
principal sum, subject to the following terms and conditions and the applicable
provisions of the Michigan Insurance Code, as amended, and the Rules and
Regulations of the Michigan Insurance Bureau.
Interest payable on this Note shall be calculated and accrued quarterly on
the unpaid principal sum at an annualized rate of 8.5%. The quarterly interest
calculation date shall be the first day of each January, April, July, and
October until such time as the entire principal sum is repaid.
Interest only shall be paid annually on this Note, on the first day of
February until the twelfth anniversary of this Surplus Note at which time, the
entire principal and any accrued but unpaid interest shall be paid. Any
interest accrued on the principal sum which is not paid by MEEMIC on the date or
dates specified herein shall automatically be deferred and carried forward,
subject to the terms, conditions and limitations contained herein, and paid by
MEEMIC on the next succeeding date on which interest is payable hereunder;
provided, however, that in no event shall additional interest accrue on any
interest payment that is deferred and carried forward by MEEMIC as provided
herein. The obligation of MEEMIC to pay the principal sum and interest
<PAGE>
thereon is subject to the following terms, conditions and limitations:
1. Notwithstanding any other provision of this Note, no part of the
principal sum or interest accrued thereon shall be paid or payable except after
(a) prior written authorization for such payment by the Commissioner of
Insurance of the State of Michigan (the "Commissioner") pursuant to the
applicable terms of the Michigan Insurance Code, as amended, has been received
by MEEMIC; (b) MEEMIC's Board of Directors shall have approved such payment; and
(c) MEEMIC has adequate surplus earnings available for such payment. Surplus
earnings shall mean the portion of surplus generated from operations, provided,
however, that if Professionals obtains additional capital for MEEMIC through
another source, such capital may be used to repay this Surplus Note, subject to
the Commissioner's approval.
2. No part of the principal sum or interest accrued thereon shall be paid
or payable on demand of Professionals or otherwise, or be carried, considered or
reported as a legal liability of MEEMIC on its financial statements filed with
the Commissioner, provided, however, that if Professionals' nominees to MEEMIC's
Board of Directors at any time do not constitute a majority, upon ten (10) days
notice by Professionals, and subject to the Commissioner's approval, the entire
principal and interest then accrued shall be due and payable. The outstanding
principal sum and all accrued interest thereon remaining unpaid from time to
time shall be carried, considered and reported in all financial statements
published by MEEMIC or filed with the Commissioner or with any other state in
which the Company shall be qualified to do business as a special surplus account
subject to the Rules and Regulations of the Michigan Insurance Bureau.
3. Repayment of the principal sum and payment of interest accrued thereon
shall be and is hereby subordinated to the prior payment of, or provision for,
all general liabilities of MEEMIC and the claims of policyholders and creditors
of MEEMIC, other than: (i) future Surplus Notes, or similarly subordinated
obligations with which this Surplus Note shall rank PARI PASSU; and (ii) any
other indebtedness of MEEMIC which, by its own terms, is expressly subordinate
to this Surplus Note.
4. In the event that MEEMIC is demutualized while any sums are due on
this Surplus Note, subject to the rights of MEEMIC's members under Chapter 59 of
the Insurance Code, MCL 500.5901, ET SEQ., and subject to the approval of the
Commissioner, in lieu of repayment of the Note, Professionals may be issued, at
Professionals' option, stock in the stock company successor to MEEMIC that has a
value equal to the amount of principal and interest due on this Surplus Note at
the time of demutualization.
5. This Note shall inure to the benefit of, and be binding upon, the
respective successors, nominees or assigns of the parties hereto; provided,
however, that no assignment of any rights or delegation of any obligations
provided for herein shall be made by any party hereto without the express prior
written consent of the other party and the Commissioner.
<PAGE>
6. All payments hereunder shall be credited first to accrued but unpaid
interest, if any, and the balance of such payment shall be credited to the
principal sum.
7. No recourse shall be had for the payment of the principal sum or
interest thereon under this Note or for any claim based hereon or otherwise in
respect hereof, against any officer, director, employee or agent, past, present
or future, of MEEMIC or of any affiliate, predecessor or successor corporation,
either directly or through the Company or otherwise whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof
expressly waived and released.
8. This Note is issued and delivered in the State of Michigan, and its
terms and provisions hall be interpreted, construed, enforced and observed in
accordance with the laws thereof.
9. The terms hereof may be amended, modified and altered from time to
time by the prior written mutual agreement of the parties, subject to written
approval of the Commissioner.
IN WITNESS WHEREOF, Michigan Educational Employees Mutual Insurance Company
has caused this Surplus Note to be signed in its corporate name by its President
and its corporate seal to be hereunto affixed and attested to by its Secretary
pursuant to authorization by a duly adopted resolution of the Board of Directors
of MEEMIC, all as of the day and year first above written.
Michigan Educational Employees Mutual Insurance
Company
By: /s/ Lynn M. Kalinowski
---------------------------------------------
Lynn M. Kalinowski
Its: President
(SEAL)
Attest:
/s/ M. Kay Rickenbaugh
- ----------------------------------
Secretary
<PAGE>
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement ("Agreement") is made this 7th day of
April, 1997 between Michigan Educational Employees Mutual Insurance Company,
("MEEMIC"), a Michigan mutual insurance corporation, with its principal office
in Auburn Hills, Michigan, and Professionals Insurance Company Management Group
("Professionals"), a Michigan Corporation, having its principal office in
Okemos, Michigan.
RECITALS
WHEREAS, MEEMIC desires to obtain the services of a management firm in
the conduct of MEEMIC's insurance business and to provide certain strategic
consulting services;
WHEREAS, MEEMIC is organized under the Michigan Insurance Code of 1956,
as amended, being Act 218 of the Public Acts of 1956 (the "Code"), and is
subject to on-going regulation by the Michigan Insurance Bureau;
WHEREAS, Professionals is willing to undertake, pursuant to the terms of
this Agreement, the oversight and/or performance of certain duties with respect
to MEEMIC's insurance operations;
NOW, THEREFORE, in consideration of these premises and the terms and
conditions set forth herein, MEEMIC and Professionals agree as follows:
ARTICLE I - APPOINTMENT OF MANAGER AND TERM
1.01 INITIAL TERM.
MEEMIC and Professionals agree that Professionals shall perform the
services for MEEMIC as described in this Agreement in the manner provided in
this Agreement. This Agreement shall be in force for a period of ten (10) years
commencing on the later of (i) the date upon which this Agreement has been
executed on behalf of both MEEMIC and Professionals or (ii) the date upon which
this Agreement is approved by the Michigan Commissioner of Insurance.
Notwithstanding the preceding sentence, if the Surplus Note to be issued to
Professionals is repaid before the end of any term of this Agreement, MEEMIC may
terminate this Agreement on 120 days' written notice.
1.02 SUBSEQUENT TERMS.
Unless written notice of intent to terminate this Agreement is provided
at least 120 days prior to the expiration of the initial or any renewal term of
this Agreement, the Agreement shall be automatically extended for another one
year term.
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ARTICLE 2 - DUTIES
2.01 INFORMATION SYSTEM AND MANAGEMENT SERVICES.
A. INFORMATION SYSTEM SERVICES. Professionals shall provide or cause to
be provided all Information System Services required for daily, monthly,
quarterly and yearly processing and reporting of MEEMIC's business on a timely
and accurate basis. "Information System Services" shall include but not be
limited to underwriting, billing, claims, legal, reinsurance and accounting
processing and reporting transactions on the WINS, FormsMaker and Freedom
software systems along with providing in useable format all reporting and
analysis data required for underwriting, claims, legal, billing, marketing,
actuarial, accounting, and investments, as described in Exhibit A, and in
accordance with the specifications and performance standards set forth in
Exhibit A. Professionals shall provide all development, installation, testing
and support required for these systems in addition to development, installation,
testing and support of all enhancements to the systems deemed necessary by
MEEMIC. All enhancements or modifications will be provided according to
specifications and timetable defined by MEEMIC. If necessary, Professionals
shall provide any additional systems necessary to meet MEEMIC's processing needs
and specifications.
Professionals shall also provide required enhancements, upgrades and/or
additions to hardware as may be requested by MEEMIC from time to time to process
transactions more efficiently and expand MEEMIC's operational capabilities.
B. CONSULTING AND OTHER SERVICES. Professionals shall provide strategic
consulting services and advice ("Consulting Services") as requested from
time-to-time by the MEEMIC Board of Directors with respect to matters pertaining
to MEEMIC and its insurance operations, including, but not limited to,
preparation of business plans, obtaining certificates of authority to transact
business in other states, seeking capital for MEEMIC's growth, accounting,
actuarial services, investment management, underwriting, assisting in the
arrangement of appropriate insurances for MEEMIC's business operations, claims
administration, and human resource issues.
C. LICENSES. Professionals warrants and represents that it is in
possession of and shall maintain any software licenses or approvals necessary
for it to lawfully conduct its duties under this Agreement.
ARTICLE 3 - COMPENSATION
3.01 AMOUNT. Professionals shall be paid the fee set forth in Section 3.03
of this Agreement and shall also be reimbursed for reasonable out-of-pocket
expenses reasonably incurred on behalf of MEEMIC, as described in Sections 3.02
of this Agreement, in carrying out its responsibilities under this Agreement.
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<PAGE>
3.02 EXPENSES. Professionals shall be reimbursed for all reasonable
out-of-pocket expenses reasonably incurred, including the costs of third-parties
retained to perform services for MEEMIC covered by this Agreement and a
reasonable allocation of labor costs for Professionals' employees, which
Professionals incurs in the performance of its duties for MEEMIC under this
Agreement as approved by MEEMIC's Board of Directors. MEEMIC shall be
responsible for all expenses which it incurs. Professionals shall not allocate
any of its general overhead expenses as reimbursable expenses under this Section
3.02.
3.03 MANAGEMENT FEE.
A. In addition to reimbursement for out-of-pocket expenses, Professionals
shall receive a fee of $2.00 per month for each MEEMIC policy in force on the
first day of the month, as determined by MEEMIC's books and records. This fee
shall increase each year on the anniversary of the effective date of this
Agreement by 10 cents per policy per month. The fee payable to Professionals
shall not exceed $2,000,000 per annum, which shall increase by 5% each year on
the anniversary of the effective date of this Agreement, in addition to
out-of-pocket expenses.
B. Notwithstanding subparagraph 3.03.A, until such time as MEEMIC, with the
assistance of Professionals, is able to consolidate and directly control sales
operations, the management fee shall be reduced to $1.00 per policy per month.
The reduced fee shall increase each year on the anniversary of the effective
date of this Agreement, by 5 cents per policy per month. The reduced fee shall
not exceed $1,000,000 per annum, which shall increase by 2 1/2% each year on the
anniversary of the effective date of this Agreement, in addition to
out-of-pocket expenses.
3.04 MANNER AND INTERVAL OF PAYMENT. The amounts to be paid as provided
above in Section 3.01 shall be calculated by MEEMIC as of the end of each
calendar month and shall be paid, together with all reimbursable out-of-pocket
expenses billed by Professionals by the fifteenth day of the month, by MEEMIC to
Professionals by the fifteenth day of the succeeding calendar month or, if the
fifteenth day falls on a Saturday, Sunday, or holiday, the next day on which
MEEMIC is open for business.
ARTICLE 4 - CONTROL BY THE COMPANY
4.01 GENERAL RIGHT OF CONTROL. Professionals shall perform its obligations
under this Agreement as reasonably directed by the Board of Directors of MEEMIC
from time-to-time. MEEMIC shall generally retain and exercise management
responsibility in connection with its business. By way of illustration and not
limitation, MEEMIC shall continue to be generally responsible for (a) the
establishment of general guidelines for coverage, handling or payment of claims,
(b) determining appropriate amounts of insurance and reinsurance for MEEMIC's
business, (c) direction of any MEEMIC litigation, and (d) strategic planning.
4.02 THIRD-PARTIES. In performing its duties under this Agreement,
Professionals may deliver services through Professionals, through a subsidiary
of Professionals, by supervising direct
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<PAGE>
employees of MEEMIC, through third party subcontractors, or any combination
thereof. Professionals shall not engage or employ a third-party for any single
contract in conjunction with providing Information System Services expected to
involve the payment of $50,000 or more to such third-party within any given
twelve month period without prior written approval by MEEMIC's Board of
Directors of the party to be engaged and the terms and conditions of the
engagement. Further, Professionals may not dismiss, discharge, or terminate any
of the third parties who are approved by MEEMIC to perform any of the duties
which Professionals assumed under this Agreement, without the prior written
approval of MEEMIC. Any third-party servicer shall provide services of the same
or higher quality as those provided by Professionals, and Professionals shall,
regardless of the employment of third party subcontractors, remain responsible
to MEEMIC for the quality of services rendered under this Agreement.
4.03 EMPLOYEES OR AGENT OF THE MANAGER. If MEEMIC shall disapprove of the
use of certain employees or agents of Professionals to perform any of the duties
of Professionals under this Agreement, MEEMIC shall notify Professionals in
writing of the disapproval and Professionals shall within thirty (30) days of
the receipt of such notice remove the given employee or agent from performing
the duties of Professionals under this Agreement.
ARTICLE 5 - INDEMNIFICATION
5.01 INDEMNIFICATION OF THE MANAGER BY THE COMPANY. MEEMIC shall defend and
indemnify Professionals for any and all expenses reasonably incurred by
Professionals and for liabilities imposed upon Professionals in connection with
or arising out of any action, suit, or proceeding, civil or criminal, or threat
thereof, in which Professionals is involved solely by reason of Professionals
having performed services for MEEMIC in the manner provided under this
Agreement, unless such expenses and/or liabilities result by reason of
Professionals having performed services for MEEMIC under this Agreement contrary
to the standard of care stated in Section 7.01 of this Agreement or having
failed to perform services required under this Agreement contrary to the
standard of care stated in Section 7.01. This Section 5.01 shall not obligate
MEEMIC to indemnify Professionals in any circumstances other than as stated
above. This section shall survive the termination of this Agreement.
5.02 INDEMNIFICATION OF THE COMPANY BY THE MANAGER. Professionals shall
defend and indemnify MEEMIC for any and all expenses reasonably incurred by
MEEMIC and for liabilities imposed upon MEEMIC in connection with or arising out
of any action, suit or proceeding, criminal or civil, or threat thereof by
reason of Professionals having performed services for MEEMIC under this
Agreement contrary to the standard of care stated in Section 7.01 of this
Agreement or having failed to perform services required under this Agreement
contrary to the standard of care stated in Section 7.01. This Section 5.02 shall
not obligate Professionals to indemnify MEEMIC in any circumstances other than
as stated above. This section shall survive the termination of this Agreement.
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<PAGE>
ARTICLE 6 - OWNERSHIP OF DATA
All data residing on Professionals systems related to MEEMIC shall be
the property of MEEMIC, shall be available for inspection and audit by MEEMIC or
its representatives at any time during this Agreement, and shall be retained in
a mutually agreed upon media and for such a period of time as required by
MEEMIC's record retention policies. Upon the termination of this Agreement,
Professionals shall not use any records, information or intellectual property
obtained through the performance of this Agreement to compete with MEEMIC except
for that information which is public record. Additionally, upon termination of
this Agreement, Professionals shall return to MEEMIC all MEEMIC-related data
residing with Professionals by a media mutually agreed upon.
ARTICLE 7 - GENERAL REQUIREMENTS OF THE MANAGER
7.01 MANAGER'S STANDARD OF CARE. Professionals is responsible to perform or
cause to be performed the duties assumed under this Agreement in accordance with
the standards set forth in the Code as they relate to MEEMIC's business and, to
the extent not inconsistent with the Code, in accordance with standard
procedures for the performance of such duties which exist in the insurance
industry.
7.02 CONFIDENTIAL NATURE OF INFORMATION. During the course of this Agreement
and afterward, Professionals agrees that it will treat as confidential all
documents, materials and other information it obtains about MEEMIC during the
course of this Agreement, except for that information which is public record,
and shall return all documents accumulated by Professionals in the course of its
services under this Agreement which it possesses upon the termination of this
Agreement except as is provided in Article 6.
7.03 CONTINUING COVENANT OF THE MANAGER. As a material inducement to MEEMIC
to enter into this Agreement, Professionals promises to MEEMIC that it will
maintain or, if needed, add sufficient personnel with the required expertise and
capabilities to fulfill its responsibilities under this Agreement and will
maintain, or, if needed, add the equipment and other capital needed to meet the
duties it assumes under this Agreement.
7.04 USE OF NAME. Professionals in the conduct of its duties shall use the
name, logos, trademarks, service marks, or other names or marks of MEEMIC
according to the direction of MEEMIC and any applicable licensing arrangements.
7.05 DEALING WITH THIRD PARTIES. Professionals, as authorized by the Board
of Directors of MEEMIC, may act for, bind, make commitments, and represent
MEEMIC to any third party, in the ordinary course of business and in fulfillment
of its obligations under this Agreement, except as expressly limited by the
terms of this Agreement.
5
<PAGE>
ARTICLE 8 - DEFAULT AND REMEDIES
8.01 DEFAULT BY THE MANAGER. Professionals shall be in default if any of the
following shall occur:
A. Professionals shall perform any act contrary to this Agreement;
B. Professionals shall fail to perform any obligation required in this
Agreement;
C. Professionals shall dissolve, terminate its existence, become insolvent,
have its business fail, or make an assignment for the benefit of creditors of or
by Professionals or commence any proceedings under any State or Federal
bankruptcy or insolvency laws or laws for the relief of debtors, or if a
receiver, trustee. court-appointee, sequestrator or other party is appointed
over all or any part of the property of Professionals;
The above conditions shall be collectively referred to as the "Manager's
Default".
8.02 REMEDIES OF THE COMPANY UPON MANAGER'S DEFAULT. Upon the occurrence of
one or more event of Manager's Default, MEEMIC may send a written notice to
Professionals, stating with reasonable specificity the circumstance constituting
the Manger's Default and stating the requested action to be taken to cure such
default. If forty-five (45) days have passed from the date of the notice
without the Manager's Default being cured, this Agreement may be terminated upon
written notice by MEEMIC. Manager's Default shall not be the basis for
termination of this Agreement unless it is a material breach of Professionals'
duties and obligations under this Agreement. Upon the termination of this
Agreement based on a material breach of this Agreement by Professionals,
Professionals shall, at MEEMIC's request, assign to MEEMIC all software licenses
relative to software used in MEEMIC's information processing and obtain One and
a Half Million ($1,500,000) Dollars in liquidated damages. In the event MEEMIC
has provided a written notice to Professionals of a Manager's Default, and in
MEEMIC's sole discretion determines to employ a substitute servicer to provide
the services contemplated by this Agreement, Professionals' compensation under
this Agreement shall be reduced by the amount(s) paid to the substitute servicer
during the term of the Manager's Default.
8.03 DEFAULT BY THE COMPANY. MEEMIC shall be in default if any of the
following shall occur:
A. MEEMIC shall perform any act contrary to this Agreement, or
B. MEEMIC shall fall to perform any obligation required in this Agreement.
The above conditions shall be collectively referred to as the "Company's
Default".
8.04 REMEDIES OF THE MANAGER UPON COMPANY'S DEFAULT. Upon the occurrence of
one or more event of the Company's Default, Professionals may send a written
notice to MEEMIC stating with
6
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reasonable specificity the circumstance constituting Company's Default and
stating the requested action to be taken to cure such default. After forty-five
(45) days have passed from the date of the notice without the Company's Default
being cured, this Agreement may be terminated upon written notice by
Professionals. Company's Default shall not be the basis for termination of this
Agreement unless it is a material breach of MEEMIC's duties and obligations
under this Agreement. Upon a material breach of this Agreement by MEEMIC,
Professionals may elect to continue this Agreement and seek actual damages under
Section 8.05 or to terminate the Agreement, assign all software licenses
relative to MEEMIC's information processing to MEEMIC and obtain Two Million
($2,000,000) Dollars multiplied by the remaining years on the term of this
Agreement in liquidated damages. If this Agreement terminates more than three
months after any anniversary effective date, for purposes of calculating
liquidated damages, such partial year will be considered a complete year for
purposes of liquidated damages.
8.05 ARBITRATION.
A. ALL DISPUTES SUBJECT TO ARBITRATION. MEEMIC and Professionals agree to
submit to arbitration any dispute which arises under this Agreement and which
the parties are unable to resolve between themselves. Issues that are subject
to arbitration include, but are not limited to, the following:
1. Whether there has been a breach of the standard of care assumed
by Professionals under Section 7.01;
2. Whether an event of Manager's Default is material such that it
is sufficient to terminate this Agreement under Section 8.02;
3. Whether an event of Company's Default is material such that it
is sufficient to terminate this Agreement under Section 8.04.
4. Whether an event of Manager's Default or Company's Default has
occurred and, if so, the amount of damages due to the other party as a
consequence of the event of default.
B. ARBITRATION PROCEDURE. Either party to this Agreement may demand
arbitration by sending a written notice of demand to the American Arbitration
Association ("AAA") 1 Town Square, Suite 1600, Southfield, Michigan 48076-3728,
or such address in Michigan to which the AAA may move, with a copy of the demand
to the other party in accord with Section 9.02 of this Agreement. Three
disinterested arbitrators currently serving in a senior management capacity of
an insurance company shall be chosen. One shall be selected by Professionals,
one shall be selected by MEEMIC, and the third shall be chosen by the two
arbitrators selected by the parties. If the two arbitrators cannot agree upon a
third arbitrator within one week after both have agreed to serve, the third
arbitrator shall be chosen by the AAA. Should either party fail to select its
arbitrator within 21 days of the service of the written demand for arbitration,
the AAA shall select an arbitrator for the party failing to make a timely
selection of arbitrator. The arbitrators shall keep a stenographic record of
their proceedings. Decisions must be made by a majority and shall be fully
explained in writing. Judgment may be
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entered on any arbitration decision in any court of competent jurisdiction.
Each party shall bear its own fees and costs, and the parties shall split the
costs of the arbitrators.
ARTICLE 9 - MISCELLANEOUS
9.01 CHOICE OF LAW. This Agreement, and any dispute arising hereunder, shall
be construed and enforced in accordance with the laws of the State of Michigan.
9.02 NOTICES. All notices and other communications relating to this
Agreement shall be deemed given when personally delivered or on the third
succeeding business day after being mailed by registered or certified mail,
return receipt requested, to the appropriate party at its address below or at
such other address as shall be specified by notice given hereunder.
MEEMIC: Chairman of the Board of Directors
691 N. Squirrel Rd, Suite 200
Auburn Hills, MI 48326
with copy to: President of MEEMIC
691 N. Squirrel Rd, Suite 200
Auburn Hills, MI 48326
Professionals: President of Professionals
4295 Okemos Road
Box 2510
Okemos, MI 48805-9510
with copy to: Corporate Secretary
4295 Okemos Road
Box 2510
Okemos, MI 48805-9510
9.03 BENEFIT. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, representatives, successors
and assigns.
9.04 AMENDMENT. This Agreement may not be amended, altered or modified
except in writing signed by the party against whom enforcement or any waiver,
change, discharge, alteration or modification is sought.
9.05 INVALIDITY. The invalidity of any provision of this Agreement shall not
affect the validity of the remainder of any such provision or the remaining
provisions of this Agreement.
9.06 INTERPRETATION. This Agreement is the result of negotiations between the
parties and is not to be construed more or less favorably to either party on the
basis that one party drafted the
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Agreement. This Agreement shall be given a reasonable construction given the
language actually used and its purpose.
9.07 PARAGRAPH HEADINGS. The article, section and paragraph headings included
in this Agreement have been used solely for convenience and shall not be used in
conjunction with the interpretation of this Agreement. References to articles,
sections and paragraphs shall refer to such provisions in this Agreement unless
otherwise stated.
9.08 WAIVER. The failure of either party at any time to require performance
by the other party of any provision of this Agreement shall not be deemed a
continuing waiver of that provision or a waiver of any other provision of this
Agreement. and shall in no way affect the full right to require such performance
from the other party at any time thereafter.
9.09 ASSIGNMENT. No party may assign its rights under this Agreement without
the prior written consent of the other party.
9.10 COUNTERPARTS. If photocopies or duplicates of the original of this
Agreement are signed by the parties then each such originally signed document
shall be deemed to be an original of this Agreement.
9.11 EFFECTIVE DATE. This Agreement is effective as of the Effective Date
provided in Section 6.01 of this Agreement.
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY
By: /s/ Lynn M. Kalinowski
-------------------------------------
Lynn M. Kalinowski, President
PROFESSIONALS INSURANCE
COMPANY MANAGEMENT GROUP
By: /s/ Victor T. Adamo
-------------------------------------
Victor T. Adamo, President
9
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Exhibit A
Detailed Description of Information System Services
1. Professionals will provide direction and support through a Chief Information
Officer to MEEMIC's Information Systems staff and assist and provide guidance to
them to include but not limited to:
- - Operating Professionals systems and hardware in order to meet the Standards
as established,
- - Operating MEEMIC's systems and hardware in order to meet MEEMIC user
business needs,
- - Establishing connectivity required in MEEMIC's operations including but not
limited to Agency interfaces, network interfaces, Dateq and Ivans/Advantis,
- - Developing new software owned by MEEMIC or Professionals or enhancements to
current software owned by MEEMIC or Professionals,
- - Providing the managerial and administrative function required for an
efficiently run department with highly motivated employees,
- - Providing MEEMIC with information related to new technology that could
improve and/or enhance MEEMIC's systems,
- - Providing MEEMIC with guidance in the telephony operations.
The CIO will be present at MEEMIC's site for not less than three business days
per week.
2. MEEMIC will retain the right to approve any proposed candidate for the
position of CIO and can request a change of individuals serving in that capacity
at any time. This request will not be unreasonably denied by Professionals.
3. MEEMIC information systems personnel will not be denied access to any
systems or hardware licensed to Professionals but used in the course of MEEMIC
business operations without the consent of MEEMIC senior management.
4. Professionals will continue product support and maintenance of all software
and hardware used in MEEMIC's business operations. At such time as it may deem
such product support and/or maintenance unnecessary it may be terminated only
upon written consent by MEEMIC senior management.
<PAGE>
5. MEEMIC retains the right to negotiate final payment terms on all hardware
and software licenses not yet fully paid at the date of signing of this
agreement.
6. Business operations requirements are as follows:
UNDERWRITING:
To include providing software technology for production of personal auto,
homeowners declaration pages and certificates of insurance for new, endorsed and
renewal business, endorsement forms, cancellation notices and reinstatement
notices and all other underwriting documents required to do business in the
states in which MEEMIC operates.
To include software technology to provide all necessary daily, monthly,
quarterly and year-end reports deemed necessary by MEEMIC to report on business
underwritten including reports detailing premiums, policy count, transaction
count, cancellation count, renewal count, non renew count and all other
underwriting statistics captured in the database software as may be required.
To provide software technology for all adhoc underwriting inquiries deemed
necessary by MEEMIC.
To include all information systems hardware and/or support necessary for the
production of the business including terminals, personal computers, data lines,
processing server and printers.
To include all necessary controls and reports as deemed appropriate by MEEMIC to
confirm the accuracy and integrity of the data produced and stored on the
software systems and hardware in place.
Standards
---------
Declaration Pages Next Day
Duplicate Declaration Pages Same Day
All notices and endorsement
forms Next Day
Homeowner Declaration pages
required for closings Same Day
Daily Reports Next Day
<PAGE>
Monthly Reports Day after Month-End
Quarterly Reports Two Days after Quarter-End
Year-End Reports Five Days after Year-End
CLAIMS:
To include providing software technology for recording, tracking, reserving,
adjusting, pending, paying and closing of all claims and claims expense and
recording and tracking of all law suits filed against MEEMIC and/or its
policyholders.
To include providing software technology for the issuance of daily, monthly,
quarterly and year-end claims reports, claims checks, and claim notices required
in all states in which MEEMIC operates.
To include software technology to provide for all adhoc claims inquiries deemed
necessary by MEEMIC.
To provide all information system hardware and/or support necessary for the
adjudication of claims, tracking of reinsurance and lawsuit management including
terminals, personal computers, data lines, printers and processing server.
To provide all necessary controls and reports as deemed appropriate by MEEMIC to
confirm the accuracy and integrity of the data produced and stored on the
software systems and hardware in place.
Standards
---------
Claims Checks Next Day
Claims Notices, Letters, Face
Sheets Next Day
Reports Same as Underwriting
BILLING:
To include providing software technology for production of personal auto and
homeowners billing invoices, payment reminders and premium checks and all other
billing documents required to do business in the states in which MEEMIC
operates.
<PAGE>
To include providing software technology to apply and record credit card
transactions, cash received, and complete electronic funds transfers and account
for all payments and related earned and unearned premium in accordance with
MEEMIC's accounting practices and procedures.
To include software technology to provide all necessary daily, monthly,
quarterly and year-end reports deemed necessary by MEEMIC to report on business
billed, cash received and premium owing including reports detailing premiums,
bill count, transaction count, cancellation count, renewal count, non renew
count and all other billing statistics captured in the database software as may
be required.
To provide software technology for all adhoc billing inquiries deemed necessary
by MEEMIC.
To include all information systems hardware and/or support necessary for the
production of the business including terminals, personal computers, data lines,
processing server and printers.
To provide all necessary controls and reports as deemed appropriate by MEEMIC to
confirm the accuracy and integrity of the data produced and stored on the
software systems and hardware in place.
Standards
---------
Checks As Defined by System Tables
Billing Invoices (New &
Renewal Business Same Day as declaration Page is Generated
All Other Billing Invoices,
Notices, Cancellation &
Reinstatement Notices As Defined by System Tables
Reports Same as Underwriting
REINSURANCE ACCOUNTING:
To include providing software technology for production and support of financial
and reinsurance reports, checks, commission reports, tax filings, statistical
bureau reporting, regulatory agency reporting and all other accounting and
reinsurance notices.
<PAGE>
To include software technology to provide all necessary daily, monthly,
quarterly and year-end reports deemed necessary by MEEMIC to report on business
statistics captured in the database software as may be required.
To provide software technology for all adhoc accounting inquiries deemed
necessary by MEEMIC.
To include all information systems hardware and/or support for hardware
necessary for the production of the business including terminals, personal
computers, data lines, networks, processing server and printers.
To provide all necessary controls and reports as deemed appropriate by MEEMIC to
confirm the accuracy and integrity of the data produced and stored on the
software systems and hardware in place.
Standards
---------
Checks Next Day
Reports Same as Underwriting
Regulatory Filings No later than 10 Days Prior to Filing Deadline
ACTUARIAL/MARKETING:
To include software technology and/or support to provide all necessary daily,
monthly, quarterly, year-end and adhoc inquiries and reports deemed necessary by
MEEMIC to report on any business statistics captured in the database software as
may be required.
To include all information systems hardware and/or support for hardware
necessary for the production of the business, particularly product pricing, rate
reviews and loss reserving, including terminals, personal computers, data lines,
networks, processing server and printers.
Standards
---------
Reports Same as Underwriting
Adhoc Queries As Mutually Agreed
<PAGE>
EXPENSES
All expenses, as incurred by Professionals, for hardware, software and other
out-of-pocket expenses should be reimbursed to Professionals by MEEMIC as set
forth in Paragraph 3.02 of the Management Services Agreement.
<PAGE>
QUOTA SHARE REINSURANCE CONTRACT
EFFECTIVE JULY 1, 1997
issued to
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE COMPANY
AUBURN HILLS, MICHIGAN
(hereinafter called the "Reassured")
by
PICOM INSURANCE COMPANY
OKEMOS MICHIGAN
(hereinafter called, the "Reinsurer")
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE COMPANY
QUOTA SHARE REINSURANCE CONTRACT
EFFECTIVE JULY 1, 1997, 12:01 A.M. EASTERN STANDARD TIME
INDEX
<TABLE>
<CAPTION>
ARTICLE SUBJECT PAGE
- ------- ------- ----
<S> <C> <C>
PREAMBLE 1
1. TERM 1
2. BUSINESS COVERED 1
3. TERRITORY 2
4. QUOTA SHARE PARTICIPATION 2
5. PREMIUM AND COMMISSION 2
6. ORIGINAL CONDITIONS 2
7. ACCOUNTS AND REMITTANCES 2
8. DEFINITION OF EXTRA CONTRACTUAL OBLIGATIONS 3
9. ERRORS AND OMISSIONS 4
10. CURRENCY 4
11. TAXES 4
12. RESERVES 4
13. ARBITRATION 6
14. SERVICE OF SUIT 7
15. OFFSET 7
16. INSOLVENCY 7
17. ACCESS TO RECORDS 7
</TABLE>
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE COMPANY
QUOTA SHARE REINSURANCE CONTRACT
PREAMBLE
The Reassured shall cede and the Reinsurer shall accept a 40% quota
share of the Reassured's net liability resulting from losses occurring under
policies written or renewed during the term of this Contract, subject to the
following conditions:
ARTICLE 1 - TERM
A. This Contract shall be in effect and cover losses occurring under
policies written or renewed on or after 12:01 a.m. Eastern Standard Time, July
1, 1997 and shall remain continuously in force until terminated by either the
Reinsurer or the Reassured by at least 45 days prior written notification to
the other party. Notwithstanding the preceding sentence, Reassured may not
terminate this Contract if it is obligated to Reinsurer (or any parent or
affiliate of Reinsurer) pursuant to any Surplus Note issued by the Reassured
unless Reinsurer shall become insolvent or is placed in receivership or
conservatorship or declared unsuitable to serve as a reinsurer by the Michigan
Commissioner of Insurance.
B. At the termination of this Contract, covered policies in force at
that date shall be run off until the cancellation, natural expiry, or first
anniversary date of such policies, whichever occurs first. In the alternative
the Reassured may elect to relieve the Reinsurer for liability for losses
occurring after the date of termination in which event the Reinsurer shall
return its share of the unearned premium ceded hereunder minus the ceding
commission allowed.
ARTICLE 2 - BUSINESS COVERED
A. This Contract shall reinsure all policies of insurance written or
renewed by the Reassured during the term of this Contract covering business
classified by the Reassured as Private Passenger Automobile including Auto
Physical Damage, Bodily Injury Liability, Property Damage Liability, Uninsured
and Underinsured Motorists Liability, Medical Payments, Personal Injury
Protection including Property Protection.
Insurance and other "No Fault" coverages written in compliance with the "No
Fault" laws of any state howsoever deemed, and Death, Disability or
Dismemberment Benefits; Personal Lines Multiple Peril including Homeowners
Multiple Peril, Condominium Owners Multiple Peril, Renters Multiple Peril; and
any other business that may be written by the Reassured.
<PAGE>
ARTICLE 3 - TERRITORY
A. This Contract shall cover losses as per the original policy.
ARTICLE 4 - QUOTA SHARE PARTICIPATION
A. The Reassured shall cede and the Reinsurer shall accept 40% of the
Reassured's net liability on risks under all policies covered hereunder. The
quota share percentage may be modified upon the mutual consent of the Reassured
and the Reinsurer.
B. "Net Liability" shall mean the actual loss incurred by the Reassured
under policies covered hereunder after reduction in such loss due to any other
reinsurance recoveries applicable to the business covered hereunder. Such loss
shall include all sums paid in settlement of claims and suits and satisfaction
of judgements, allocated loss adjustment expenses and Extra Contractual
Obligations (as more fully defined and limited in Article 8 hereof).
ARTICLE 5 - PREMIUM AND COMMISSION
A. The Reassured shall pay to the Reinsurer a quota share percentage,
equal to the quota share participation in Article 4(A), of the Net Written
Premiums on policies ceded hereunder (i.e., premiums written by the Reassured
after deductions of any other ceded reinsurance premium applicable to the
business covered hereunder) less a ceding commission equal to Reinsured's
actual other underwriting expense ratio.
ARTICLE 6 - ORIGINAL CONDITIONS
All amounts ceded hereunder shall be subject to the same gross rates and
to the same clauses, conditions, and modifications of the Reassured's policies
and the Reinsurer shall pay losses as may be paid thereon and shall follow the
settlements of the Reassured, subject always to the limits, terms, and
conditions of this Contract.
ARTICLE 7 - ACCOUNTS AND REMITTANCES
A. Within 30 days following the end of each calendar quarter the
Reassured shall render to the Reinsurer an account showing its Net Written
Premium for the calendar quarter, being Net Written Premium, less
cancellations, return premiums and the commission allowed hereunder.
B. Within 30 days following the end of each calendar quarter the
Reassured shall furnish the Reinsurer a statement showing the unearned premium
ceded hereunder as of the end of the calendar quarter.
<PAGE>
C. Within 30 days following the end of each calendar quarter the
Reassured shall provide the Reinsurer with a claims bordereau containing a
listing of all loss and loss adjustment expenses paid during the calendar
quarter and all loss and loss adjustment expenses outstanding as of the end of
the calendar quarter for all claims and loss amounts covered hereunder.
D. Should the calculation of quarterly premiums due to the Reinsurer as
calculated under Paragraph A of this Article and quarterly paid losses due from
the Reinsurer result in a net amount due from the Reassured to the Reinsurer,
the Reassured shall remit the net amount due with the quarterly account. Should
the same calculation result in a net amount due from the Reinsurer to the
Reassured, the Reinsurer shall remit the net amount due promptly upon receipt
of the quarterly account.
ARTICLE 8 - DEFINITION OF EXTRA CONTRACTUAL OBLIGATIONS
A. Extra Contractual Obligations losses shall mean those liabilities
within the limit stated in paragraph B of this Article (whether they constitute
compensatory, incidental, exemplary or punitive damages) not covered under any
other provision of this Contract and which arise from the handling of any claim
on business covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Reassured to settle within the
policy limit or by reason of alleged or actual negligence, fraud or bad faith
in rejecting an offer of settlement, in the preparation of the defense or in
the trial of any action against its insured or reassured or in the preparation
or prosecution of an appeal consequent upon such action.
B. Notwithstanding any other provision of this Contract, the amount of
Extra Contractual Obligations included in the Reassured's net liability subject
to this Contract as respects any one policy, any one loss occurrence, when
added to the contractual loss out of which the Extra Contractual Obligation
arose shall in no event exceed the limit of the Reassured's policy out of which
the Extra Contractual Obligation arose.
C. The date on which any Extra Contractual Obligations is incurred by
the Reassured shall be deemed, in all circumstances, to be the date of the
original accident, casualty, disaster, or loss occurrence. Any loss under this
Article shall be deemed to be part of the original accident, casualty,
disaster, or loss occurrence which gave rise to the claim by the insured under
the original policy.
D. 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 Reassured 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.
<PAGE>
ARTICLE 9 - ERRORS AND OMISSIONS
A. Inadvertent delays, errors or omissions made in connection with this
Contract shall not relieve either party from any liability which would have
attached had such delay, error or omission not occurred, provided always that
such delay, error or omission shall be rectified as soon as possible after
discovery by the applicable party's Home Office.
ARTICLE 10 - CURRENCY
A. Whenever the word "Dollars" or the "$" sign appears in this Contract,
they shall be construed to mean United States Dollars and all transactions
under this Contract shall be in United States Dollars.
ARTICLE 11 - TAXES
A. In consideration of the terms under which this Contract is issued,
the Reassured undertakes not to claim any deduction of the premium hereon when
making tax returns, other than income or profits tax returns, to any state or
territory of the United States of America or to the District of Columbia.
ARTICLE 12 - RESERVES
A. If a jurisdiction of the United States will not permit the Reassured,
in the statements required to be filed with its regulatory authority(ies), to
receive full credit as admitted reinsurance for any Reinsurer's share of
obligations, the Reassured shall forward to such Reinsurer a statement of the
Reinsurer's share of such obligations. Upon receipt of such statement the
Reinsurer shall promptly apply for, and provide the Reassured with, a "clean,"
unconditional and irrevocable Letter of Credit in the amount specified in the
statement submitted, with terms and bank acceptable to the regulatory
authority(ies) having jurisdiction over the Reassured.
B. "Obligations," as used in this Article, shall mean the sum of losses
paid and allocated loss adjustment expenses paid by the Reassured but not yet
recovered from the Reinsurer, plus reserves for reported losses, allocated loss
adjustment expenses and losses incurred but not reported.
C. The Reinsurer hereby agrees that the Letter of Credit will provide
for automatic extension of the Letter of Credit without amendment for one year
from the date of expiration of said Letter or any future expiration date unless
thirty (30) days prior to any expiration the issuing bank shall notify the
Reassured by registered mail that the issuing bank elects not to consider the
Letter of Credit renewed for any additional period. An issuing bank, not a
"qualified bank" as defined by Regulation No. 133 promulgated by the Insurance
Department of the State of New York, shall provide sixty (60) days notice to
the Reassured prior to any expiration.
<PAGE>
D. Notwithstanding any other provision of this Contract, the Reassured
or any successor by operation of law of the Reassured including, without
limitation, any liquidator, rehabilitator, receiver or conservator of the
Reassured may draw upon such credit, without diminution because of the
insolvency of any party hereto, at any time and undertakes to use and apply
such credit for one or more of the following purposes only:
1. To pay the Reinsurer's share or to reimburse the Reassured for the
Reinsurer's share of any obligations, as stipulated in the statement submitted
by the Reassured to the Reinsurer, which is due to the Reassured and not
otherwise paid by the Reinsurer.
2. In the event the Reassured has received effective notice of
non-renewal of the Letter of Credit and the Reinsurer's liability remains
unliquidated and undischarged thirty (30) days prior to the expiry date of the
Letter of Credit, to withdraw the balance of the Letter of Credit and place
such sums in an interest bearing trust account to secure the continuing
liabilities of the Reinsurer under this Contract until a renewal Letter of
Credit acceptable to the regulatory authority(ies) having jurisdiction over the
Reassured, or a substitute in lieu thereof acceptable to the regulatory
authority(ies) having jurisdiction over the Reassured, has been received by the
Reassured. The Reassured shall provide to the Reinsurer payment of any
interest thereon accruing from such account.
3. To make refund of any sum which is in excess of the actual amount
required for Sections 1. and 2. of this paragraph.
E. At annual intervals or more frequently as determined by the
Reassured, but never more frequently than quarterly, the Reassured shall
prepare a specific statement, for the sole purpose of amending the Letter of
Credit, of the Reinsurer's share of any obligations. If the statement shows
that the Reinsurer's share of obligations exceeds the balance of credit as of
the statement date, the Reinsurer shall, within thirty (30) days after receipt
of notice of such excess, secure delivery to the Reassured of an amendment of
the Letter of Credit increasing the amount of credit by the amount of such
difference. If the statement shows, however, that the Reinsurer's share of
obligations is less than the balance of credit as of the statement date, the
Reassured shall, within thirty (30) days after receipt of written request from
the Reinsurer, release such excess credit by agreeing to secure an amendment to
the Letter of Credit reducing the amount of credit available by the amount of
such excess credit.
F. The bank shall have no responsibility whatsoever in connection with
the propriety of withdrawals made by the Reassured or the disposition of funds
withdrawn, except to assure that withdrawals are made only upon the order of
properly authorized representatives of the Reassured. The Reassured shall
incur no obligation to the bank in acting upon the credit, other than as
appears in the express terms thereof.
ARTICLE 13 - ARBITRATION
<PAGE>
A. Any dispute or other matter in question between the Reassured and the
Reinsurer arising out of, or relating to, the formation, interpretation,
performance, or breach of this Contract, whether such dispute arises before or
after termination of this Contract, shall be settled by arbitration.
Arbitration shall be initiated by the delivery of a written notice of demand
for arbitration by one party to the other within a reasonable time after the
dispute has arisen.
B. Each party shall appoint an individual as arbitrator and the two so
appointed shall then appoint a third arbitrator. If either party refuses or
neglects to appoint an arbitrator within sixty (60) days, the other party may
appoint the second arbitrator. If the two arbitrators do not agree on a third
arbitrator within sixty (60) days of their appointment, each of the
arbitrators shall nominate three individuals. Each arbitrator shall then
decline two of the nominations presented by the other arbitrator. The third
arbitrator shall then be chosen from the remaining two nominations by drawing
lots. The arbitrators shall be active or retired officers of insurance or
reinsurance companies or Lloyd's London Underwriters; the arbitrators shall not
have a personal or financial interest in the result of the arbitration.
C. The arbitration hearings shall be held in Oakland County, Michigan,
or such other place as may be mutually agreed. Each party shall submit its
case to the arbitrators within sixty (60) days of the selection of the third
arbitrator or within such longer period as may be agreed by the arbitrators.
The arbitrators shall not be obliged to follow judicial formalities or the
rules of evidence except to the extent required by governing law, that is, the
state law of the situs of the arbitration as herein agreed; they shall make
their decisions according to the practice of the reinsurance business. The
decision rendered by a majority of the arbitrators shall be final and binding
on both parties. Such decision shall be a condition precedent to any right of
legal action arising out of the arbitrated dispute which either party may have
against the other. Judgment upon the award rendered may be entered in any
court having jurisdiction thereof.
D. Each party shall pay the fee and expenses of its own arbitrator and
one-half of the fee and expenses of the third arbitrator. All other expenses
of the arbitration shall be equally divided between the parties.
E. Except as provided above, arbitration shall be based, insofar as
applicable, upon the procedures of the American Arbitration Association.
ARTICLE 14 - SERVICE OF SUIT
In the event that service of process cannot be made directly on the
Reinsurer after reasonable effort, pursuant to any statute of any state,
territory or district of the United States which makes provision therefore, the
Reinsurer hereon hereby designates the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute, or his
successor or successors in office, as their true and lawful attorney upon whom
may be served any lawful process in any action, suit or proceeding instituted
by or on behalf of the Reassured or any beneficiary hereunder arising out of
this Contract of
<PAGE>
reinsurance, and hereby designate the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.
ARTICLE 15 - OFFSET
A. Each party hereto shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account
of premiums or on account of losses or otherwise, due from such party to
another party hereto under this Contract, and may offset the same against any
balance or balances due to the former from the latter under this Contract.
ARTICLE 16 - INSOLVENCY
A. In the event of the insolvency of the Reassured, this reinsurance
shall be payable directly to the Reassured, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the
Reassured without diminution because of the insolvency of the Reassured or
because the liquidator, receiver, conservator statutory successor of the
Reassured has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor of
the Reassured shall give written notice to the Reinsurer of the pendency of a
claim against the Reassured indicating the policy insured which claim would
involve a possible liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or liquidation proceeding or
in the receivership, and that during the pendency of such claim, the Reinsurer
may investigate such claim and interpose, at their own expense, in the
proceeding where such claim is to be adjudicated, any defense or defenses that
they may deem available to the Reassured or its liquidator, receiver,
conservator or statutory successor. The expense thus incurred by the Reinsurer
shall be chargeable, subject to the approval of the court, against the
Reassured as part of the expense of conservation or liquidation to the extent
of a pro rata share of the benefit which may accrue to the Reassured solely as
a result of the defense undertaken by the Reinsurer.
ARTICLE 17 - ACCESS TO RECORDS
A. The Reassured shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer shall have the right to inspect through
their designated representatives, during the term of this Contract and
thereafter, all books, records and papers of the Reassured in connection with
any reinsurance hereunder, or the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
follows:
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY PICOM INSURANCE COMPANY
BY: /s/ Lynn M. Kalinowski BY: /s/ Victor T. Adamo
------------------------------ ------------------------------
Lynn M. Kalinowski, President Victor T. Adamo, President
DATE: April 7, 1997 DATE: April 7, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated September 22, 1997,
is made and entered into by and among Michigan Educators Insurance Agency, Inc.,
a Michigan corporation ("MEIA I"), Michigan Educators Life Insurance Agency,
Inc., a Michigan corporation ("MELA," and together with MEIA I, the "Agency"),
MEEMIC Insurance Services Corporation, a Michigan corporation ("MEIA II"), and
Professionals Insurance Company Management Group, a Michigan corporation
("Professionals").
R E C I T A L S
The Agency desires to sell and transfer to MEIA II, and MEIA II desires to
purchase and acquire from the Agency, the Assets (as defined below), pursuant to
the terms and conditions set forth in this Agreement.
Pursuant to the terms and conditions set forth in this Agreement, Mutual
(as defined below) and Professionals will guarantee certain payments to be made
by MEIA II to the Agency.
Therefore, in consideration of the representations, warranties, covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Agency, MEIA
II and Professionals, intending to be legally bound, hereby agree as follows.
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINITIONS.
(a) When used in this Agreement, the following terms shall have the
following meanings:
"Acquired Receivables" means those items described in clause (h) of
the definition of "Assets."
"Affiliate" of any Person means any Person directly or indirectly
controlling, controlled by or under common control with any such Person and any
officer, director or controlling person of such Person. A Person shall be
deemed to control another Person if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such other Person by
<PAGE>
ownership of voting securities, contract or otherwise.
"Agency" means Michigan Educators Insurance Agency, Inc. and Michigan
Educators Life Insurance Agency, Inc.
"Aggregate Payment" means, as of any applicable September 1, the sum
of: (i) $22,500,000, plus (ii) all of the Installment Payments made pursuant to
Section 2.2(b) and Section 2.12 as of such September 1 (or made subsequent to
such September 1 by reason of resolution of any Dispute Notice given pursuant to
Section 2.11), includes all Guaranteed Payments made by Mutual and Professionals
pursuant to the Mutual Guaranty and the Professionals Guaranty, respectively,
and includes all sums paid into an interest-bearing escrow pursuant to Section
13.3(b), and all amounts withheld by Professionals or MEIA II pursuant to their
right of offset under Section 12.2(d).
"Applicable Policies" means all policies of life insurance and all
policies of property and casualty insurance issued by Mutual and other insurers
in Michigan with respect to which MEIA II is or, by reason of Section 8.6,
should properly be the agent.
"Assets" means all of the assets, properties and rights of the Agency
(other than Excluded Assets), including:
(a) all contracts as described on the attached SCHEDULE 1.1(a), which
shall include all contracts from which the Agency derived
premiums in excess of $100,000 (including all contingency
commissions) in 1996, and the Insurance Agency Agreements (the
"Assumed Contracts");
(b) all of the Agency's tangible personal property (the "Tangible
Assets"), including all warranties and indemnities with respect
to the Tangible Assets;
(c) all of the Intellectual Property of the Agency;
(d) all sales literature, promotional literature and other selling
and advertising material used by the Agency and a list of all
customers and suppliers of the Agency;
(e) all books, records, ledgers and other documents pertaining to the
Assets, Assumed Liabilities and/or the operation of the Business;
(f) all assignable third party warranties and guarantees with respect
to any and all of the Assets;
(g) all franchises, approvals, permits, licenses, orders,
registrations,
<PAGE>
certificates, variances, tax abatements and other similar permits
or rights (including regulatory approvals obtained from any
Governmental Authority and all pending applications therefor)
relating to the Business (collectively, the "Permits");
(h) all accounts and notes receivable relating to the Business,
including those due from commissions and other payments due to
the Agency from Mutual with respect to policies originated on or
after the Closing Date (the "Acquired Receivables");
(i) all goodwill of the Business as a going concern; and
(j) all telephone numbers used in connection with the Business.
"Assumed Contracts" means those items described in clause (a) of the
definition of "Assets."
"Business" means the lines of business and operations as presently
conducted by the Agency, including the property and casualty insurance lines of
MEIA I and the life insurance line of MELA.
"Change of Control" means, with respect to any Person, the sale,
transfer or other disposition of substantially all of the assets of such Person
to another Person not an Affiliate of such first Person, or the merger,
consolidation, recapitalization, reorganization, or other business combination
of such Person whereby 30% or more of the combined voting power entitled to vote
generally in the election of directors (or their equivalent) of such Person are
sold or otherwise transferred to another "person" or "group" as those terms are
defined in Section 13(d) or Section 14(d) of the Securities Exchange Act of
1934, as amended, and where such person or group is not an Affiliate of such
first Person. Change of Control shall also mean the liquidation or dissolution
of such Person but shall not include the proposed merger between Professionals,
PICOM and Physicians Protective Trust Fund of Coral Gables, Florida. Change of
control shall also not include a Demutualization.
"Code" means the Internal Revenue Code of 1986, as amended.
"Cumulative Written Premiums" means, with respect to any applicable
date, the direct premiums in respect of Applicable Policies written through (or
which, by reason of Section 8.6, should properly be written through) MEIA II
plus any additional premiums arising from endorsements to Applicable Policies,
and minus any return premiums arising from any cancellations or endorsements of
Applicable Policies, all for the period commencing October 1, 1997, or the
Closing Date, whichever occurs earlier, and ending on July 13 immediately
preceding such applicable date. Cumulative Written Premiums shall also include,
with respect to each such period, an amount equal to 6.67 multiplied by actual
commissions earned by MEIA II in respect of annuity contracts
<PAGE>
written through (or which, by reason of Section 8.6, should properly be written
through) MEIA II for the same period.
"Demutualization" means a demutualization of Mutual pursuant to which
Mutual's eligible members receive subscription rights to purchase capital stock
under any of the conversion mechanisms permitted by M.C.L. 500.5905 (c)(i)
according to the provisions of the plan of conversion which is required to be
filed with the Michigan Insurance Bureau pursuant to M.C.L. 500.5905.
"Earnest Money Deposit" means the $3,000,000 deposited into the Escrow
Account by Professionals on January 10, 1997.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means: (i) the Agency's cash, cash equivalents,
refundable Taxes and accounts and notes receivable (other than the Acquired
Receivables); (ii) the Agency's interest in The Bellwether Group, L.L.C.;
(iii) the Agency's insurance policies; (iv) the Agency's corporate seal(s),
minute book(s), stock book(s) and stock ledger(s); and (v) the other assets,
properties and rights described on the attached SCHEDULE 1.1(b).
"Governmental Authority" means any foreign, federal, state, regional
or local authority, agency, body, court or instrumentality.
"Installment Payments" means the payments to be made by MEIA II
(certain of which are guaranteed by Mutual and Professionals) to the Agency
pursuant to Section 2.2(b)(i)-(iv) and to the Agency's shareholders pursuant to
Section 2.12.
"Insurance Agency Agreements" means any agreement pursuant to which
either MEIA I or MELA serves as an agent or sub-agent for an insurance company,
including any such agreement with Mutual.
"Intellectual Property" means any patent, trademark, service mark,
design, logo, trade name (including the trade names "Michigan Educators
Insurance Agency" and "Michigan Educators Life Insurance Agency"), copyright,
license, process, design, formula, computer program, trade secret, invention,
label, slogan, drawing, design, technology, research and development,
proprietary know-how and information and other intellectual property rights used
in connection with the Business by either MEIA I or MELA and all registrations
and applications for registration of the foregoing.
"IRS" means the Internal Revenue Service.
"Leased Property" means the real property located at 691 N. Squirrel
Road, Auburn Hills, Michigan (including all buildings, improvements and
structures
<PAGE>
located thereon and all appurtenances belonging thereto) of which the Agency is
the lessee.
"Letter of Intent" means the letter of intent dated December 31, 1996,
made and entered into by and between Professionals and the Agency.
"Liabilities" means any and all claims, debts, liabilities,
commitments and obligations, whether as primary obligor or guarantor or
otherwise, and whether accrued or fixed, absolute or contingent, known or
unknown, matured or unmatured, including those arising under any law, action or
governmental order or those arising under any contract, agreement, arrangement,
commitment, undertaking or otherwise.
"Lien" means any lien, easement, adverse claim, charge, encumbrance,
security interest, mortgage, lease, restriction, right of way, license,
condition, covenant or other title defect, restriction or matter of any kind
affecting title.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on (i) the condition (financial or otherwise), business,
reserves, net worth, assets, properties or operations of such Person or
(ii) such Person's ability to consummate the transactions contemplated hereby.
"MEIA I" means Michigan Educators Insurance Agency, Inc.
"MEIA II" means MEEMIC Insurance Services Corporation, a wholly-owned
subsidiary of Mutual.
"MELA" means Michigan Educators Life Insurance Agency, Inc.
"Minimum Cumulative Payment" means, with respect to September 1 of
each of 1998 through 2004, inclusive, the amount set forth next to such date in
the table below:
<TABLE>
<S> <C>
September 1, 1998 $23,500,000
September 1, 1999 24,500,000
September 1, 2000 25,500,000
September 1, 2001 28,500,000
September 1, 2002 32,500,000
September 1, 2003 37,500,000
September 1, 2004 43,000,000
</TABLE>
"Multiemployer Plan" means any multiemployer plan within the meaning
of Section 3(37) of ERISA.
"Mutual" means Michigan Educational Employees Mutual Insurance
Company, a Michigan mutual insurance company.
<PAGE>
"Net Income" means the net income of the Agency, before income taxes.
"Noncompetition Agreements" means the Noncompetition Agreements
between Professionals and the shareholders of the Agency and between
Professionals and the Agency in substantially the form attached hereto as
EXHIBIT 1.1(c).
"Permits" means those items described in clause (g) of the definition
of "Assets."
"Person" means an individual, corporation, partnership, limited
liability company, trust, organization, association, governmental agency or body
or other entity.
"PICOM" means PICOM Insurance Company, a subsidiary of Professionals.
"Present Value of the Unpaid Purchase Price" means, as of any date on
which any remittance is made pursuant to Section 2.6 (or Section 2.12(c)(v), the
present value of the Purchase Price not theretofore paid to the Agency, if any,
which for purposes of Section 2.6 and Section 2.12(c)(v) shall be established as
$45,000,000 ($43,000,000 payable pursuant to the schedule included in the
definition of Minimum Cumulative Payment and a $2,000,000 Bonus payable on
September 1, 2004) less the Aggregate Payment made to date (which shall be
subtracted from the foregoing schedule in chronological order), using a discount
rate of 7% per annum, compounded on an actual/365 day basis. For example, if a
cash-out option is exercised on October 3, 2001, and as of September 1, 2001, an
Aggregate Payment of $35,000,000 had been paid, the following schedule would be
used for purposes of a present value calculation:
<TABLE>
<S> <C> <C>
September 1, 2002 0 ($32,500,000 - $35,000,000)
September 1, 2003 $2,500,000 ($37,500,000 - $35,000,000)
September 1, 2004 $5,500,000 ($43,000,000 - $37,500,000)
September 1, 2004 $2,000,000 (Bonus)
</TABLE>
"Professionals" means Professionals Insurance Company Management
Group.
"Related Agreements" means the Escrow Agreement, the Subscription
Agreement, the Noncompetition Agreements, the Mutual Guaranty, the Professionals
Guaranty, the Releases, the Liquidating Trust Agreement, the Assignment and
Assumption Agreements and all other agreements referred to herein which are
necessary for the consummation of the transactions contemplated hereby.
"Releases" means the releases executed by the Agency, its
Affiliates and each of its directors, officers and shareholders in favor of
MEIA II, Mutual, Professionals and PICOM, and their respective Affiliates,
representatives, advisors, attorneys and accountants in substantially the
form attached hereto as EXHIBIT 1.1(d).
<PAGE>
"Scale-Up Amount" means, as of any date written notice is given to the
Agency of an early payment of the Purchase Price by MEIA II pursuant to Section
2.5, the amount set forth with respect to such date in the table below:
<TABLE>
<S> <C>
Closing Date through August 31, 2000, inclusive $1,000,000
September 1, 2000 through August 31, 2001, inclusive 1,500,000
September 1, 2001 through September 1, 2002, inclusive 2,000,000
</TABLE>
provided that, from and after a Demutualization, the Scale-Up Amount shall be
$2,000,000.
"Subscription Agreement" means the Subscription Agreement among Mutual
and MEIA II in substantially the form attached hereto as EXHIBIT 1.1(e).
"Tangible Assets" means those items described in clause (b) of the
definition of "Assets."
"Tax" and "Taxes" means all federal, state, local, foreign and other
taxes and excess profits charges or assessments caused to be paid by a
Governmental Authority which are reasonably attributable to a period prior to
the Closing Date, including, income, estimated income, business, occupation,
franchise, property, sales, use, employment, excise, premium or withholding
taxes and privilege fees, including interest, penalties, assessments, additions
and deficiencies in connection therewith which are imposed by any law or
regulation in effect on or before the Closing Date.
"To the best of the Agency's knowledge" means the actual knowledge of
John H. Mace, Jim R. Unrue, Kenneth Konieczka, Jerry Toller, Gary Vanek and all
of the Agency's directors, after reasonable inquiry.
"To the best of Professionals' knowledge" means the actual knowledge
of Victor T. Adamo, R. Kevin Clinton, Ann Flood and all of Professionals'
directors, after reasonable inquiry.
(b) When used in this Agreement, the following terms shall have the
meanings set forth in the applicable Section reference below:
"AAA" -- Section 12.2(h).
"Agency Agreements" -- Section 3.6.
"Annual Calculation Date" -- Section 2.11(a).
"Annual Installment Payment Date" -- Section 2.2(b).
"Assignment and Assumption Agreement" -- Section 2.12(b).
"Assumed Liabilities" -- Section 2.8.
"Balance Sheet" -- Section 3.5(a).
<PAGE>
"Balance Sheet Date" -- Section 3.5(a).
"Bonus" -- Section 2.4.
"Claim" -- Section 12.2(d).
"Claimant" -- Section 12.2(d).
"Closing" -- Section 6.1.
"Closing Date" -- Section 6.1.
"Dispute Notice" -- Section 2.11(a).
"Earn-out Period" -- Section 8.6.
"Employee of the Business" -- Section 3.14.
"Escrow Account" -- Section 2.9.
"Escrow Agent" -- Section 2.9.
"Escrow Agreement" -- Section 2.9.
"Guaranteed Payments" -- Section 2.3.
"Indemnitor" -- Section 12.2(d).
"Inter-Creditor Agreement" -- Section 2.3.
"Interim Financial Statements" -- Section 3.5(b).
"Interim Period" -- Section 7.1.
"Liquidating Trust Agreement" -- Section 2.12(a).
"Mutual Guaranty" -- Section 2.3.
"Notices" -- Section 13.1.
"Plans" -- Section 3.16(a).
"Professionals Guarantee" -- Section 2.3.
"Professionals' Reports" -- Section 4.4(a).
"Pro-Rata" -- Section 2.12(b).
"Purchase Price" -- Section 2.2(a).
"Releasors" -- Section 7.9(c).
"Required Licenses" -- Section 3.10.
"SEC" -- Section 4.4(a).
"Start Date" -- Section 8.4(a).
"Transitioned Employee" -- Section 8.4(a).
1.2 CERTAIN RULES OF CONSTRUCTION. For purposes of this Agreement:
(a) The words "herein," "hereof" and "hereunder," and words of
similar import, refer to this Agreement as a whole and not any particular
provision of this Agreement, and references to Articles, Sections, Exhibits
and/or Schedules, and similar references, are to Articles or Sections of, or
Exhibits or Schedules to, this Agreement unless otherwise specified.
(b) Unless the context otherwise requires: (i) the singular includes
the plural, and VICE VERSA; (ii) all definitions and references to an agreement,
instrument or document shall mean such agreement, instrument or document
together with all exhibits and schedules thereto and any and all amendments,
supplements or modifications thereto as the same may be in effect at the time
such definition or reference is applicable for any purpose; (iii) all references
to any Person shall include
<PAGE>
such Person's successors and permitted assigns; and (iv) the term "including"
means including, without limitation.
(c) Accounting terms used herein and not otherwise defined herein
shall have the meanings attributed to them under generally accepted accounting
principles.
ARTICLE II
PURCHASE, SALE AND ASSUMPTION
2.1 PURCHASE AND SALE. Subject to the terms and conditions set forth in
this Agreement, the Agency shall sell, convey and assign to MEIA II (or cause to
be sold, conveyed and assigned to MEIA II), and MEIA II shall purchase,
effective on the Closing Date, the Assets, free and clear of all Liens, for the
consideration set forth in Section 2.2.
2.2 PURCHASE PRICE; PAYMENT OF THE PURCHASE PRICE.
The consideration to be paid to the Agency for the Assets (the "Purchase Price")
shall be paid as follows, subject to adjustments as provided for in this
Article II:
(a) On the Closing Date, MEIA II shall remit the sum of $22,500,000,
less any adjustments pursuant to Section 2.13, to the Agency by wire transfer in
immediately available funds according to wire transfer instructions provided to
MEIA II by the Agency in writing prior to the Closing:
(b) On September 1 of the years 1998 through 2004, inclusive (or the
first business day thereafter which is not a bank holiday if September 1 is
either not a business day or is a bank holiday) (each such September 1, an
"Annual Installment Payment Date"), MEIA II shall remit the Installment Payment
to be made on such Annual Installment Payment Date to the Agency, the amount of
which Installment Payment shall be determined and paid as follows:
(i) on each Annual Calculation Date, MEIA II shall compare
3.75% of the Cumulative Written Premiums to the Minimum Cumulative
Payment with respect to the September 1 next succeeding such Annual
Calculation Date;
(ii) if 3.75% of Cumulative Written Premiums is less than the
applicable Minimum Cumulative Payment, MEIA II shall remit to the
Agency an amount, which amount (including any Guaranteed Payments)
shall equal (A) the Minimum Cumulative Payment applicable for that
<PAGE>
year less (B) the Aggregate Payment to date (each such remittance to
be an "Installment Payment");
(iii) if 3.75% of Cumulative Written Premiums is more than the
applicable Minimum Cumulative Payment, MEIA II shall remit to the
Agency an amount, which amount shall equal (A) 3.75% of Cumulative
Written Premiums less (B) the Aggregate Payment to date (each such
remittance to be an "Installment Payment"); and
(iv) remittance of Installment Payments shall be made by wire
transfer of immediately available funds according to wire transfer
instructions provided to MEIA II by the Agency in writing at least
five business days before such remittances are to be made.
2.3 GUARANTIES. Mutual shall guarantee payment of the Installment
Payments payable under Section 2.2(b)(ii) to be made on the Annual Installment
Payment Date in each of the years 1998 through 2000, inclusive, as provided in
the Agreement of Guaranty attached hereto as Exhibit 2.3(a) (the "Mutual
Guaranty"). Professionals shall guarantee payment of the Installment Payments
payable under Section 2.2(b)(ii) on the Annual Installment Payment Date in years
2001 through 2004, inclusive, and the other consideration payable to the Agency
in the years 1998 through 2004, inclusive, pursuant to Sections 2.4, 2.5, 2.6
and 2.7 as provided in the Agreement of Guaranty attached hereto as EXHIBIT
2.3(b) (the "Professionals Guaranty"). Payments made to the Agency pursuant to
the Mutual Guaranty and/or the Professionals Guaranty (regardless of whether
such remittances are made to the Agency by Mutual, Professionals or MEIA II)
shall be referred to as "Guaranteed Payments." Neither Mutual nor Professionals
shall have any obligation to make MEIA II's Installment Payments except as set
forth in the Mutual Guaranty and the Professionals Guaranty, respectively. As
among one another, MEIA II, Mutual and Professionals shall remit and reimburse
Guaranty Payments as provided in the Inter-Creditor Agreement attached hereto as
EXHIBIT 2.3(c) (the "Inter-Creditor Agreement").
2.4 BONUS. On September 1, 2004 (or the first business day thereafter
which is not a bank holiday if September 1 is either not a business day or is a
bank holiday), Professionals shall pay to the Agency a bonus (the "Bonus") equal
to $2,000,000 less, on a dollar for dollar basis, the amount by which 3.75% of
Cumulative Written Premiums, as of such September 1, is less than or greater
than $43,000,000; PROVIDED that the Bonus cannot be less than zero. Such Bonus
shall be remitted to the Agency by wire transfer of immediately available funds
according to wire transfer instructions provided by the Agency in writing to
Professionals at least five business days before such remittance is to be made.
2.5 EARLY PAYMENT OF PURCHASE PRICE. At any time on or prior to September
1, 2002, upon 30 days prior written notice to the Agency, MEIA II may pay to the
<PAGE>
Agency, or Professionals may cause MEIA II to pay to the Agency, an amount
equal to the excess, if any, of $43,000,000, plus the Scale-Up Amount, over the
Aggregate Payment as of the September 1 immediately preceding such date. Any
such amount shall be payable as provided in Section 2.12 of this Agreement.
Such early payment of Purchase Price shall be remitted to the Agency by wire
transfer of immediately available funds according to wire transfer instructions
provided in writing by the Agency to MEIA II at least five business days before
such remittance is to be made. Receipt of the consideration contemplated by
this section shall extinguish the right to receive any further payments pursuant
to this Article II.
2.6 CASH-OUT OPTION. Within two years of the closing of a Demutualization
and upon 30 days' prior written notice to MEIA II, the Agency may cause MEIA II
to remit to the Agency an amount equal to the Present Value of the Unpaid
Purchase Price. Any such remittance shall be made by wire transfer of
immediately available funds according to wire transfer instructions provided in
writing to MEIA II by the Agency, at least five business days before such
payment is to be made. Receipt of the consideration contemplated by this
section shall extinguish the right to receive any further payments pursuant to
this Article II.
2.7 CASH-OUT REQUIREMENT. Upon the occurrence of a Change of Control with
respect to (a) Professionals, (b) Mutual (other than a Demutualization and other
than any Change of Control immediately following which Mutual is an Affiliate of
Professionals), (c) any Affiliate of Professionals which "controls," as such
term is defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended, Mutual (other than any Change of Control immediately following which
Mutual is an Affiliate of Professionals) or (d) MEIA II (other than any Change
of Control immediately following which MEIA II is an Affiliate of
Professionals), MEIA II shall remit to the Agency an amount equal to the excess,
if any, of $45,000,000 over the Aggregate Payment made to date. Any such
remittance shall be made by MEIA II to the Agency by wire transfer of
immediately available funds according to wire transfer instructions provided to
MEIA II by the Agency in writing at least five business days before such
remittance is to be made. Receipt of the consideration contemplated by this
Section shall extinguish the right to receive any further payments pursuant to
this Article II.
2.8 LIABILITIES. Except for obligations under the Assumed Contracts, the
Agency's obligations to its solicitors as described on the attached
Schedule 2.8(a) and all of the Agency's accrued charges for employee benefits,
but only to the extent described and for the amounts set forth on the attached
Schedule 2.8(b) (which Schedule shall be updated as of the Closing Date at
Closing) (collectively, the "Assumed Liabilities"), MEIA II is not assuming, and
shall not be liable for, any of the Agency's Liabilities or Taxes of any nature
or kind whatsoever, whether existing now or as of the Closing Date or
thereafter. All of such Liabilities or Taxes, including any obligations to
former officers, directors or shareholders and any employee salaries and benefit
costs incurred or accrued prior to the Closing, shall be solely those of the
Agency. At or prior to the Closing, the Agency shall repay any sums it owes to
Mutual.
<PAGE>
2.9 ESTABLISHMENT OF ESCROW ACCOUNT. On January 10, 1997, Professionals
deposited the Earnest Money Deposit into an account (the "Escrow Account") with
Capital National Bank (the "Escrow Agent") pursuant to an agreement in the form
attached hereto as EXHIBIT 2.9 (the "Escrow Agreement"). At the Closing, the
Agency and PICOM shall deliver to the Escrow Agent executed instructions
authorizing the Escrow Agent to disburse the Earnest Money Deposit (including
all interest accrued thereon) to PICOM. In the event the Closing does not occur
prior to December 31, 1997, the Escrow Agent shall make disbursements from the
Escrow Account in accordance with the Escrow Agreement.
2.10 ALLOCATION OF PURCHASE PRICE. The consideration contemplated by
Section 2.2 shall be allocated for all purposes (including for financial
accounting and tax reporting) as set forth on the attached Schedule 2.10.
MEIA II and the Agency will file their respective tax returns and forms in a
manner that is consistent with such allocation. MEIA I, MELA, MEIA II and
Professionals acknowledge that, notwithstanding the manner in which such
consideration is allocated as set forth on Schedule 2.10 or otherwise, no
additional consideration will be paid for the Assets.
2.11 CALCULATION OF CUMULATIVE WRITTEN PREMIUMS.
(a) On or before August 15 of each year in which Installment Payments
are to be made (or the first business day thereafter if August 15 is not a
business day) (the "Annual Calculation Date"), MEIA II shall calculate the
Cumulative Written Premiums, in accordance with generally accepted accounting
principles (though "GAAP" financial statements need not be prepared)
consistently applied. With respect to any applicable year, MEIA II shall
assume, for purposes of such calculation, that 50% of the premiums in respect of
Applicable Policies for July relate to the first 13 calendar days of such July
and 50% relate to in the last 18 days of such July. MEIA II shall provide to
the Agency a copy of its calculation of Cumulative Written Premiums, together
with its calculation of the Installment Payment, if any, to be made to the
Agency on the Annual Installment Payment Date next succeeding such Annual
Calculation Date, certified by an executive officer of MEIA II as being true and
correct. The Agency shall have until the October 14 next succeeding such Annual
Calculation Date to notify MEIA II in writing of any objections thereto,
reasonably and sufficiently describing the basis for any such objections (a
"Dispute Notice").
(b) In the event a Dispute Notice is received by MEIA II on or prior
to the date an Installment Payment is to be made, MEIA II shall only be
obligated to pay that portion of such Installment Payment that is not the
subject of such Dispute Notice. Likewise, Mutual and Professionals shall only
be obligated to pay that portion of such Installment Payment that is not the
subject of such Dispute Notice under the terms of the Mutual Guaranty and the
Professionals Guaranty, respectively, until resolution of such Dispute Notice.
In the event a Dispute Notice is received by MEIA II, MEIA II shall ensure that
Mutual (in the years 1998 to 2000, inclusive) and Professionals (in the
<PAGE>
years 2001 to 2004, inclusive) each promptly receive a copy of the Dispute
Notice.
(c) MEIA II and the Agency shall each use reasonable efforts to
resolve any objections set forth in the Dispute Notice. If MEIA II and the
Agency shall be unable to resolve any objections set forth in the Dispute
Notice within 15 days following receipt thereof by MEIA II, the Agency and MEIA
II shall promptly select a "Big 6" independent auditing firm, which shall not be
the general auditor of any of the Agency or MEIA II, Mutual and Professionals,
to resolve any objections set forth in the Dispute Notice. If the Agency and
MEIA II are unable to promptly agree on the selection of any such firm, such
firm shall be selected by lot. The resolution of the Dispute Notice by such
firm shall be conclusive and binding on MEIA II and the Agency.
(d) If, in its resolution, the auditing firm concludes that the
Cumulative Written Premiums exceed the amount calculated and certified by MEIA
II, MEIA II shall pay all fees and expenses of such firm. If, in its
resolution, the auditing firm concludes that the Cumulative Written Premiums are
less than or equal to the amount calculated and certified by MEIA II, the Agency
shall pay all fees and expenses of such firm.
(e) If the Installment Payment to be made on any such Annual
Installment Payment Date, as finally determined (whether by mutual agreement or
by an independent auditing firm) shall be greater than the Installment Payment
made on such Annual Installment Payment Date, MEIA II shall promptly pay to the
Agency such excess, plus interest thereon at a rate of 7% per annum from such
Annual Installment Payment Date until the date payment thereof shall be made.
If the Installment Payment to be made on any Annual Installment Payment Date, as
finally determined (whether by mutual agreement or by an independent auditing
firm), shall be less than the Installment Payment made on such Annual
Installment Payment Date, the Agency shall promptly pay to MEIA II such
deficiency plus interest thereon at a rate of 7% per annum from such Annual
Installment Payment Date until the date payment thereof shall be made.
(f) MEIA II shall make available to the Agency and its agents and
representatives and any independent auditing firm selected to resolve any
objections set forth in the Dispute Notice, at reasonable times and upon
reasonable notice, the workpapers and other supporting documentation used by
MEIA II in preparation of the foregoing calculations.
2.12 ASSIGNMENT OF RIGHTS TO INSTALLMENT PAYMENTS.
(a) Not later than the first anniversary of the Closing Date, MEIA I
and MELA shall concurrently (and not other than concurrently) assign to a
liquidating trust created pursuant to a Liquidating Trust Agreement in
substantially the form attached hereto as EXHIBIT 2.12(a) (the "Liquidating
Trust Agreement"), among other things, all of: (i) the consideration delivered
pursuant to Section 2.2(a) (or any portion thereof remaining after payment of
any of the expenses and/or liabilities of the Agency); (ii)
<PAGE>
their respective rights in and to the Installment Payments to be made pursuant
to Section 2.2(b);(iii) the other consideration contemplated by Sections 2.4,
2.5, 2.6 and 2.7, and (iv) the rights of the Agency with respect to the
guarantee given by Professionals in favor of the Agency under the Professionals
Guaranty and the guarantee given by Mutual in favor of the Agency under the
Mutual Guaranty; PROVIDED that such consideration and rights shall be assigned
subject to (and not other than subject to), among other things, the obligations
of MEIA I, MELA and their respective successors and assigns set forth in this
Agreement, including but not limited to Sections 7.4, 7.9, 7.10 and 12.2.
Except as contemplated by this Section 2.12(a), the Agency shall not distribute
any of such consideration or rights, or any earnings thereon, any accretions
therein, any proceeds thereof or any substitutions therefor, to any of the
Agency's shareholders or any other Person prior to the eighth anniversary of the
Closing Date other than in such amounts and at such times as the Agency shall in
good faith determine to be necessary to satisfy any federal, state or local tax
liability of any of the Agency's shareholders directly related to any election
by the Agency to be treated as an S corporation (as defined in Section 1361(a)
of the Code).
Pursuant to the terms of the Liquidating Trust Agreement, the Trust (as
defined by the Liquidating Trust Agreement) may thereafter assign its assets,
and rights to the shareholders of the Agency on a pro-rata basis as described
therein in accordance with the terms of an Assignment and Assumption Agreement
in substantially the form attached hereto as EXHIBIT 2.12(b). The Trust may
only exercise such assignment and assumption option with the same effective date
for at least 22 shareholders unless otherwise approved in writing by MEIA II
and Professionals. Such assignment and assumptions shall only become effective
with respect to MEIA II upon thirty days prior written notice thereof,
accompanied by fully completed and executed copies of the applicable Assignment
and Assumption Agreements for each shareholder.
(b) "Pro-Rata" means, with respect to each shareholder of MEIA I and
MELA as of the date of the assignment and assumption, such shareholder's
percentage ownership of the common stock of MEIA I and MELA held or owned of
record by all shareholders of MEIA I and MELA as of such date, which figure
shall be included in the Assignment and Assumption Agreement provided to MEIA
II. MEIA I and MELA each agree that such percentage ownership shall be
determined as the undivided percentage interest of such shareholder as set forth
in SCHEDULE 2.03 of the Liquidating Trust Agreement.
(c) In the event of an assignment and assumption by the Trust to the
shareholders pursuant to Section 2.12(a), the provisions of Section 2.2(b), 2.3,
2.4, 2.5, 2.6, 2.7 and 2.11 shall be modified as follows; provided, however,
that if following any such assignment and assumption any shareholder(s) have not
fully completed and executed the Assignment and Assumption Agreement, such
shareholder's Pro-Rata share, as determined below, shall continue to be paid to
the Trust until such time as the fully completed and executed Assignment and
Assumption Agreement(s) are received by MEIA II.
<PAGE>
(i) Section 2.2(b) shall read in its entirety as follows:
(i) Until such time as any of the shareholders of the Agency
exercises his or her individual cash out option as provided in Section
2.6 (as restated by Section 2.12(c)(v)), on September 1 of the years
1998 through 2004, inclusive (or the first business day thereafter
which is not a bank holiday if September 1 is either not a business
day or is a bank holiday) (each such September 1, an "Annual
Installment Payment Date"), MEIA II shall remit the Installment
Payments to be made to the Agency's shareholders, the amount of which
Installment Payments shall be determined and paid as follows:
(A) On each Annual Calculation Date, MEIA II shall compare
3.75% of the Cumulative Written Premiums to the Minimum
Cumulative Payment with respect to the September 1 next
succeeding such Annual Calculation Date.
(B) If 3.75% of Cumulative Written Premiums is less than the
applicable Minimum Cumulative Payment, MEIA II shall
remit to the shareholders on a Pro-Rata basis an amount,
which amount (including Guaranteed Payments) shall equal
(i) the Minimum Cumulative Payment applicable for that
year less (ii) the Aggregate Payment to date (each such
remittance to be an "Installment Payment").
(C) If 3.75% of Cumulative Written Premiums is more than the
applicable Minimum Cumulative Payment, MEIA II shall
remit to the shareholders on a Pro-Rata basis an amount,
which amount (including Guaranteed Payments) shall equal
(i) 3.75% of Cumulative Written Premiums less (ii) the
Aggregate Payment to date (each such remittance to be an
"Installment Payment").
(D) Remittances of Installment Payments shall be made on a
Pro-Rata basis by wire transfer of immediately available
funds according to wire transfer instructions provided to
MEIA II by the shareholders in writing at least ten (10)
business days before such remittances are to be made.
(ii) Upon the exercise by a shareholder or shareholders of his
or her individual cash out option as provided in Section 2.6 (as
restated by Section 2.12(c)(v)), on September 1 of the years 1998
through 2004, inclusive (or the first business day thereafter which is
not a bank holiday if September 1 is either not a business day or is a
bank holiday) (each such September 1, an "Annual Installment Payment
Date"), MEIA II shall remit the Installment Payments to be
<PAGE>
made to the Agency's shareholders, the amount of which Installment
Payments shall be determined and paid as follows:
(A) On each Annual Calculation Date, MEIA II shall compare
the Pro-Rata portion of 3.75% of the Cumulative Written
Premiums for each shareholder who has not exercised his
or her individual cash-out option under Section 2.6 (as
restated by Section 2.12(c)(v)) to the Pro-Rata portion
of the Minimum Cumulative Payment for each such
shareholder with respect to the September 1 next
succeeding such Annual Calculation Date.
(B) If the Pro-Rata portion of 3.75% of Cumulative Written
Premiums for each shareholder who has not exercised his
or her individual cash-out option under Section 2.6 (as
restated by Section 2.12(c)(v)) is less than such
shareholder's Pro Rata portion of the applicable Minimum
Cumulative Payment, MEIA II shall remit to each such
shareholder an amount, which amount (including Guaranteed
Payments) shall equal (i) the Pro-Rata portion Minimum
Cumulative Payment applicable for that year for such
shareholder less (ii) the Pro-Rata portion of the
Aggregate Payment (excluding any bonus paid to
shareholders exercising their individual cash out option
under Section 2.6 (as restated by Section 2.12(c)(v)) to
date (each such remittance to be an "Installment
Payment").
(C) If the Pro-Rata portion of 3.75% of Cumulative Written
Premiums for each shareholder who has not exercised his
or her individual cash-out option under Section 2.6 (as
restated by Section 2.12(c)(v)) is more than the
applicable Minimum Cumulative Payment, MEIA II shall
remit to each such shareholder an amount, which amount
(including Guaranteed Payments) shall equal (i) the
Pro-Rata portion of 3.75% of Cumulative Written Premiums
less (ii) the Pro-Rata portion of the Aggregate Payment
(excluding any bonus paid to shareholders exercising
their individual cash out option under Section 2.6 (as
restated by Section 2.12(c)(v)) to date; provided,
however, that MEIA II shall only be obligated to make
such payment from funds available after satisfaction of
its obligations to Mutual and/or Professionals under the
terms of the Inter-Creditor Agreement, as executed on the
Closing Date and without regard to any subsequent
modification or amendment thereto (each such remittance
to be an "Installment Payment").
(D) Remittances of Installment Payments shall be made by wire
transfer of immediately available funds according to wire
transfer
<PAGE>
instructions provided to MEIA II by the shareholders in
writing at least ten (10) business days before such
remittances are to be made.
(ii) Section 2.3 shall read in its entirety as follows:
GUARANTIES. Mutual shall guarantee payment of the Installment
Payments payable under Section 2.2(b)(i)(B) and Section 2.2(b)(ii)(B)
(as such provisions are restated by Section 2.12(c)(i)) to be made on
the Annual Installment Payment Date in each of the years 1998 through
2000, inclusive as provided in the Agreement of Guaranty attached
hereto as EXHIBIT 2.3(a) (the "Mutual Guaranty"). Professionals shall
guarantee payment of the Installment Payments payable under Section
2.2(b)(i)(B) and Section 2.2(b)(ii)(B) (as such provisions are
restated by Section 2.12(c)(i)) to be made on the Annual Installment
Payment Date in each of the years 2001 through 2004, inclusive, and
the other consideration to be paid to the Agency's shareholders in the
years 1998 through 2004, inclusive, pursuant to Sections 2.4, 2.5, 2.6
and 2.7 (as such provisions are restated by Sections 2.12(c)(iii),
(iv), (v) and (vi)), as provided in the Agreement of Guaranty attached
hereto as EXHIBIT 2.3(b) (the "Professionals Guaranty"). Payments
made to the shareholders pursuant to the Mutual Guaranty and/or the
Professionals Guaranty (regardless of whether such remittances are
made to the shareholders by Mutual, Professionals or MEIA II) shall be
referred to as "Guaranteed Payments." Neither Mutual nor
Professionals shall have any obligation to make MEIA II's Installment
Payments except as set forth in the Mutual Guaranty and the
Professionals Guaranty, respectively. As among one another, MEIA II,
Mutual and Professionals shall remit and reimburse Guaranteed Payments
as provided in the Inter-Creditor Agreement attached hereto as EXHIBIT
2.3(c) (the "Inter-Creditor Agreement").
(iii) Section 2.4 shall read in its entirety as follows:
BONUS. On September 1, 2004 (or the first business day thereafter
which is not a bank holiday if September 1 is either not a business
day or is a bank holiday), Professionals shall pay to each shareholder
of the Agency who has not exercised his or her cash out option
pursuant to Section 2.6 (as restated by Section 2.12(c)(v)) a bonus
(the "Bonus") equal to the shareholder's Pro-Rata share of $2,000,000
less, on a dollar for dollar basis, the amount by which 3.75% of
Cumulative Written Premiums, as of such September 1 is less than or
greater than $43,000,000,
<PAGE>
PROVIDED that the Bonus cannot be less than zero. Remittance of each
shareholder's Bonus shall be made by wire transfer of immediately
available funds according to wire transfer instructions provided to
MEIA II by the shareholders in writing at least ten (10) business days
before such remittances are to be made.
(iv) Section 2.5 shall read in its entirety as follows:
EARLY PAYMENT OF PURCHASE PRICE. At any time on or prior to September
1, 2002, upon 30 days' prior written notice to each of the Agency's
shareholders (at the address provided by the shareholder in his or her
Assignment and Assumption Agreement, which address may be amended by
prior written notice to the Agency pursuant to the Section 13.1) who
has not exercised his or her cash-out option pursuant to Section 2.6
(as restated by Section 2.12(c)(v)) MEIA II may pay to each such
shareholder, or Professionals may cause MEIA II to pay to each such
shareholder, an amount equal to such shareholder's Pro-Rata portion of
$43,000,000 plus such shareholder's Pro-Rata portion of the Scale-Up
Amount, if any, over such shareholder's Pro-Rata portion of the
Aggregate Payment (excluding any bonus paid to shareholders
exercising their individual cash-out option under Section 2.6 (as
restated by Section 2.12(c)(v)) as of the September 1 immediately
preceding such date. Remittance of such amounts shall be made by wire
transfer of immediately available funds according to wire transfer
instructions provided to MEIA II by the shareholders in writing at
least ten (10) business days before such remittances are to be made.
Receipt of the consideration contemplated by this Section shall
extinguish the right to receive any further payments pursuant to this
Article II.
(v) Section 2.6 shall read in its entirety as follows:
CASH-OUT OPTION. Within two years of the closing of a
Demutualization, and upon 30 days' prior written notice to MEIA II,
each shareholder of the Agency who has not exercised his or her
cash out option pursuant to Section 2.6 (as restated by Section
2.12(c)(v)) may cause MEIA II to remit to such shareholder an
amount equal to such shareholder's Pro-Rata share of the Present
Value of the Unpaid Purchase Price. Remittance of such amounts
shall be made by wire transfer of immediately available funds
according to wire transfer instructions provided to MEIA II by the
shareholders in writing at least ten (10) business days before such
remittances are to be made. Receipt of the consideration
contemplated by this Section shall extinguish the right to receive
any further payments pursuant to this Article II.
<PAGE>
(vi) Section 2.7 shall read in its entirety as follows:
CASH-OUT REQUIREMENT. Upon the occurrence of a Change of Control with
respect to (a) Professionals, (b) Mutual (other than a Demutualization
and other than any Change of Control immediately following which
Mutual is an Affiliate of Professionals), (c) any Affiliate of
Professionals which "controls," as such term is defined in Section
13(d) of the Securities Exchange Act of 1934, as amended, Mutual
(other than any Change of Control immediately following which Mutual
is an Affiliate of Professionals), or (d) MEIA II (other than any
Change of Control immediately following which MEIA II is an Affiliate
of Professionals), MEIA II shall remit to each shareholder of the
Agency who has not exercised his or her cash-out option pursuant to
Section 2.6 (as restated by Section 2.12(c)(v)), an amount equal to
the excess, if any, of such shareholder's Pro-Rata portion of
$45,000,000 over such shareholder's Pro-Rata portion of the Aggregate
Payment (excluding any bonus paid to shareholders exercising their
individual cash-out options under Section 2.6 (as restated by Section
2.12(c)(v)) as of the September 1 immediately preceding the date of
such occurrence. Remittance of such amounts shall be made by wire
transfer of immediately available funds according to wire transfer
instructions provided to MEIA II by the shareholders in writing at
least ten (10) business days before such remittances are to be made.
Receipt of the consideration contemplated by this Section shall
extinguish the right to receive any further payments pursuant to this
Article II.
(vii) Section 2.11 shall read in its entirety as follows:
CALCULATION OF CUMULATIVE WRITTEN PREMIUMS.
(a) On or before August 15 of each year in which Installment
Payments are to be made (or the first business day
thereafter if August 15 is not a business day (the
"Annual Calculation Date"), MEIA II shall calculate the
Cumulative Written Premiums in accordance with generally
accepted accounting principles consistently applied
(though "GAAP" financial statements need not be prepared
for this purpose). With respect to any applicable year,
MEIA II shall assume, for purposes of such calculation,
that 50% of the premiums in respect of Applicable
Policies for July relate to
<PAGE>
the first 13 calendar days of such July and 50% relate to
the last 18 days of such July. MEIA II shall provide
each of the Agency's shareholders (at the address
provided by the shareholder in his or her Assignment and
Assumption Agreement, which address may be amended by
prior written notice to the Agency pursuant to the
Section 13.1) who has not exercised his or her cash-out
option pursuant to Section 2.6 (as restated by Section
2.12(c)(v)) a copy of its calculation of Cumulative
Written Premiums and each such shareholder's Pro-Rata
share of the Installment Payment, if any, to be made to
such shareholder on the Annual Installment Payment Date
next succeeding such Annual Calculation Date, certified
by an executive officer of MEIA II as being true and
correct.
Until the October 14 next succeeding such Annual
Calculation Date, the shareholders who have not exercised
their cash-out options pursuant to Section 2.6 (as
restated by Section 2.12(c)(v)) may collectively and by
majority decision (according to their respective Pro-Rata
shares) notify MEIA II in writing of any objections to
the Cumulative Written Premiums calculation, reasonably
and sufficiently describing the basis for any such
objections (a "Dispute Notice"). In addition, until the
October 14 next succeeding such Annual Calculation Date,
each such shareholder may notify MEIA II in writing of
any objections to the calculation of his or her
individual Installment Payment (also a "Dispute Notice");
provided, however, that such shareholder is not entitled
to dispute on an individual basis either (i) the
Cumulative Written Premiums calculation, (ii) the
Aggregate Payment calculation, or (iii) the Pro-Rata
figure used in determining the individual Installment
Payment.
(b) In the event a Dispute Notice is received by MEIA II on
or prior to the date an Installment Payment is to be
made, MEIA II shall only be obligated to pay that portion
of such Installment Payment that is not the subject of
such Dispute Notice. Likewise, Mutual and Professionals
shall only be obligated to pay that portion of such
Installment Payment that is not the subject of such
Dispute Notice under the terms of the Mutual Guaranty and
the Professionals Guaranty, respectively, until
resolution of such Dispute Notices. In the event a
Dispute Notice is received by MEIA II, MEIA II shall
ensure that Mutual (in the years 1998 through 2000,
inclusive) and Professionals (in the years 2001 through
2004, inclusive) each promptly receive a copy of the
Dispute Notice.
(c) MEIA II and the disputing shareholder(s) shall each use
reasonable
<PAGE>
efforts to resolve any objections set forth in the
Dispute Notice. If MEIA II and the disputing
shareholder(s) shall be unable to resolve any objections
set forth in the Dispute Notice within 15 days following
receipt thereof by MEIA II, the Agency and MEIA II shall
promptly select a "Big 6" independent auditing firm,
which shall not be the general auditor of MEIA II,
Mutual, Professionals or such shareholder to resolve any
objections set forth in the Dispute Notice. If the
disputing shareholder(s) and MEIA II are unable to
promptly agree on the selection of any such firm, such
firm shall be selected by lot. The resolution of the
Dispute Notice by such firm shall be conclusive and
binding on MEIA II and the shareholders.
(d) If, in its resolution, the auditing firm concludes that
the Cumulative Written Premiums exceed the amount
calculated and certified by MEIA II, MEIA II shall pay
all fees and expenses of such firm. If, in its
resolution, the auditing firm concludes that the
Cumulative Written Premiums are less than or equal to the
amount calculated and certified by MEIA II, the disputing
shareholders shall pay all fees and expenses of such
firm.
(e) If the Installment Payment to be made on any such Annual
Installment Payment Date, as finally determined (whether
by mutual agreement or by an independent auditing firm)
shall be greater than the Installment Payment made on
such Annual Installment Payment Date, MEIA II shall
promptly pay to such shareholder(s) the applicable
excess, plus interest thereon at a rate of 7% per annum
from such Annual Installment Payment Date until the date
payment thereof shall be made. If the Installment
Payment to be made on any Annual Installment Payment Date
as finally determined (whether by mutual agreement or by
an independent auditing firm) shall be less than the
Installment Payment made on such Annual Installment
Payment Date, the shareholders shall promptly pay to MEIA
II the deficiency, plus interest thereon at a rate of 7%
per annum from such Annual Installment Payment Date until
the date payment thereof shall be made.
(f) MEIA II shall make available to the disputing
shareholder(s) and his or her agents and representatives
and any independent auditing firm selected to resolve any
objections set forth in the Dispute Notice, at reasonable
times and upon reasonable notice, the workpapers and
other supporting documentation used by MEIA II in
preparation of the foregoing calculations.
<PAGE>
(vii) The terms of this Section 2.12 shall not provide any shareholder
with the right to bring any independent claims against MEIA II, Professionals
and/or Mutual arising out of or in any way related to its or their failure to
deliver any of the Installment Payments or other consideration contemplated by
Sections 2.4, 2.5, 2.6 and 2.7 (in each case as modified by this Section 2.12),
whether such claims shall be made under this Asset Purchase Agreement, the
Professionals Guaranty or the Mutual Guaranty, it being understood that such
claims are retained by the Trustee pursuant to the terms of the Liquidating
Trust Agreement.
2.13 PREPAIDS AND OTHER ADJUSTMENTS. All accrued or prepaid charges for
utilities, property taxes, special assessments and other obligations under
Assumed Contracts shall be prorated, as of the Closing Date, at Closing. In
addition, at Closing, the Agency shall provide to MEIA II and Professionals a
schedule of prorations, certified as being true and correct, disclosing all
current employee salaries, benefits, sick-pay and vacation costs, payroll taxes,
rents and operating expenses, commissions due to solicitors and all other
expenses related to current operations, which as of the Closing Date shall have
been accrued by the Agency but not paid. All of such items shall be prorated,
as of the Closing Date, at Closing. At Closing, the Agency will also provide
to MEIA II and Professionals an updated Schedule 2.8(b), certified as being true
and correct, disclosing all amounts accrued by the Agency through the Closing
Date for employee benefits. The Purchase Price shall be reduced by (i) the
aggregate amount of such accruals, and (ii) the amount of any outstanding loans
or other evidences of indebtedness owed by the Agency to Mutual, repayment of
which is required by Section 2.8, and (iii) if the Closing shall occur on or
after October 2, 1997, an amount equal to 3.75% of Cumulative Written Premiums,
if any, for the period of October 1, 1997 to and including the Closing Date.
Any item not disclosed on such certified schedules shall remain a Liability
solely of the Agency.
2.14 INTEREST ON INSTALLMENT PAYMENTS. The Agency and MEIA II acknowledge
that this Agreement does not provide for the payment of any interest on any of
the Installment Payments, but that the provisions of Code Section 1274 may
require interest to be imputed with respect to the Installment Payments.
Accordingly, if and to the extent that Code Section 1274 requires interest to be
so imputed, such interest shall be imputed at the lowest applicable Federal rate
allowed under Code Section 1274. The Agency and MEIA II acknowledge and agree
that even if interest is imputed under Code Section 1274, no additional
consideration will be paid by MEIA II for the Assets pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE AGENCY
Each of MEIA I and MELA represents and warrants to MEIA II and
Professionals that, as of the date hereof and as of the Closing Date:
<PAGE>
3.1 ORGANIZATION. Each of MEIA I and MELA is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan and each has all requisite corporate power to enter into this
Agreement, to perform each of the other agreements contained herein and to own,
lease and operate its properties and assets and carry on its business as
currently operated. Each of MEIA I and MELA is in good standing in every
jurisdiction where the nature of the business conducted by it or the properties
owned, leased or operated by it requires qualification or licensure.
3.2 AUTHORITY. The execution and delivery of this Agreement and each of
the Related Agreements to which either MEIA I or MELA is a party, and the
consummation of the transactions contemplated hereby or thereby, have been duly
and validly authorized by the Board of Directors of each of MEIA I and MELA and
all other necessary corporate action on the part of either MEIA I or MELA or
their respective Affiliates, and the agreements of each of MEIA I and MELA
contained herein constitute valid and legally binding obligations enforceable in
accordance with their terms.
3.3 THE AGENCY'S REQUISITE CONSENTS; NONVIOLATION. The execution and
delivery of this Agreement and each of the Related Agreements to which either
MEIA I or MELA is a party, and the consummation of the transactions contemplated
hereby and thereby in compliance with the terms hereof and thereof, by the
Agency, do and will not, (a) except for the consent of the Michigan Commissioner
of Insurance and as otherwise described on the attached SCHEDULE 3.3, require
the consent, license, permit, waiver, approval, authorization or other action
of, by or with respect to, any Person or Governmental Authority, the absence of
which would have a Material Adverse Effect on the Business or MEIA I's or MELA's
ability to perform its obligations hereunder, (b) violate or conflict with the
provisions of the Articles of Incorporation or Bylaws of either MEIA I or MELA,
(c) constitute a default under, violate, conflict with or result in the
termination of any Assumed Contract, judgment, order, injunction or decree to
which either MEIA I or MELA is a party, or by which either is bound or to which
either MEIA I or MELA, or any of their respective properties, is subject (except
where such default, violation, conflict or termination would not have a Material
Adverse Effect on either MEIA I or MELA or on the ability of MEIA I, MELA, MEIA
II or Professionals to consummate the transactions contemplated hereby or on the
ability of MEIA II to own and operate the Business and Assets from and after the
Closing), other than as described on the attached SCHEDULE 3.3(d) result in
the creation or imposition of any Lien on the Assets or in any Person (other
than MEIA II) obtaining the right to acquire any of the properties, rights or
assets used in the Business or (e) upon the obtaining of any required
governmental approvals, conflict with or violate any applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over either MEIA I or MELA or any
of their respective assets or properties (except where such conflict or
violation would not have a Material Adverse Effect on MEIA I or MELA or on the
ability of MEIA I, MELA, MEIA II and Professionals to consummate the
transactions contemplated hereby or on the ability of MEIA II to own and operate
the Business and Assets from and after Closing).
<PAGE>
3.4 ASSETS.
(a) TITLE TO ASSETS. Either MEIA I or MELA, as the case may be, has
good and marketable title to the Assets free and clear of any imperfection of
title or Lien of any kind or nature, except (i) for Liens for current taxes not
yet due and payable, (ii) such imperfections of title as do not materially
detract from or interfere with the present use of the Assets subject to or
affected thereby, or otherwise materially impair the use of the Assets, and
(iii) as described on the attached SCHEDULE 3.4(a).
(b) SUFFICIENCY OF ASSETS. The Assets, taken as a whole, constitute
all the material properties, assets and rights used primarily in the operation
of the Business. The Assets, together with the licenses, services and
arrangements provided pursuant to this Agreement comprise all tangible and
intangible rights, assets and services the use of which is necessary for the
continued conduct of the Business by MEIA II as now being conducted by MEIA I or
MELA.
(c) CONDITION OF ASSETS. The Tangible Assets are in good operating
condition and repair (reasonable wear and tear excepted) and are free from any
material defect.
(d) LEASED PROPERTY. The attached SCHEDULE 3.4(d) identifies the
Leased Property, all other real property leased or under option to be leased by
the Agency and specifies the name of the lessor thereof, the lease term and the
basic annual rent. No other real property is used in the conduct of the
Business and neither MEIA I nor MELA leases any real property as lessor or owns
any real property. Either MEIA I or MELA has a valid, enforceable leasehold
estate in the Leased Property, free and clear of any Lien. Each of MEIA I and
MELA enjoys peaceful and undisturbed possession of all of the property described
on the attached SCHEDULE 3.4(d). There are no subleases in effect with respect
to the Leased Property nor condemnation proceedings pending or, to the best of
the Agency's knowledge, threatened with respect to the Leased Property. Neither
the operations of MEIA I and MELA on any of such real property, nor such real
property, including improvements thereon, violates any applicable building code,
zoning requirement or classification, or pollution control ordinance or statute
relating to the particular property or to such operations, and such
non-violation is not dependent, in any instance, on so-called non-conforming use
exceptions.
3.5 FINANCIAL STATEMENTS.
(a) Each of MEIA I and MELA has delivered to MEIA II and
Professionals true and correct copies of: (i) the audited and unaudited
combined financial statements of each of MEIA I and MELA (including balance
sheets, statements of operations, stockholders' equity and cash flows and all
notes and schedules thereto, if any) as of and for the years ended December 31,
1995, prepared on the basis of
<PAGE>
generally accepted accounting principles, including a report thereon by KMPG
Peat Marwick, LLP, and (ii) combined unaudited financial statements of each of
MEIA I and MELA, prepared on the basis of generally accepted accounting
principles, including a balance sheet (the "Balance Sheet") and statements of
operations and stockholders' equity, all as of December 31, 1996 (the "Balance
Sheet Date") and December 31, 1994, as reviewed by KMPG Peat Marwick, LLP.
(b) Promptly following the end of January 1997 and each subsequent
monthly accounting period completed prior to the Closing Date, each of MEIA I
and MELA will cause to be delivered to Professionals and MEIA II updated
financial statements prepared in a manner consistent with the unaudited
financial statements delivered pursuant to Section 3.5(a)(ii) (collectively, the
"Interim Financial Statements"), with respect to such accounting period prepared
in the ordinary course of business consistent with past practices.
(c) As of their respective dates, the statements delivered under
Section 3.5(a) and all Interim Financial Statements to be delivered under
Section 3.5(b), (1) do (and, with respect to Interim Financial Statements to be
delivered between this date and the Closing Date, will) not contain any untrue
statement of a material fact or omit a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading, (2) fairly present
(or, if applicable, will fairly present) the financial position of each of
MEIA I and MELA as of the dates indicated therein and the results of its
operations for the periods covered thereby, in each case in accordance with
generally accepted accounting principles consistently applied during the periods
involved (subject, with respect to Interim Financial Statements, to normal
recurring year-end adjustments), and (3) are in accordance with the books and
records of each of MEIA I and MELA.
(d) The Balance Sheet reflects all of the assets and properties, real
and personal, used by MEIA I and MELA in their respective businesses, or
otherwise held by either MEIA I or MELA, except for (a) property acquired or
disposed of in the ordinary and usual course of business since the Balance Sheet
Date and (b) property not required under generally accepted accounting
principles to be reflected thereon.
(e) Except as described on the attached SCHEDULE 3.5(e), at the
Balance Sheet Date and on the date of any balance sheet delivered with Interim
Financial Statements between this date and the Closing Date, neither MEIA I nor
MELA had or will have any material liabilities or obligations of any nature,
absolute, contingent or otherwise, not fully or properly reflected or reserved
against in such balance sheet, required to be disclosed on a balance sheet
prepared in conformity with generally accepted accounting principles, and not
otherwise paid in full by MEIA I or MELA.
3.6 CONTRACTS.
<PAGE>
(a) The attached SCHEDULE 3.6 lists all outstanding contracts, leases
and commitments (except for insurance policies issued outside of the ordinary
course of business, which are listed on SCHEDULE 3.13), whether written or oral,
to which either MEIA I or MELA is a party or any of their respective properties
are subject (the "Agency Agreements"), including, for illustrative purposes
only, the following:
(i) any contract, lease or commitment or series of related
contracts, leases or commitments, obligated to make
aggregate payments in excess of $20,000;
(ii) management or employment contracts (other than oral
agreements for employment at will), consulting contracts,
collective bargaining contracts or other agreements with
any labor union or termination and severance agreements;
(iii) notes, mortgages, deeds of trust, loan agreements,
security agreements, guaranties, debentures, indentures,
credit agreements, warehousing agreements, repurchase
agreements and other evidence of indebtedness, other than
endorsements for collection or deposit in the ordinary
course of business;
(iv) pension, retirement, profit-sharing, deferred
compensation, bonus, incentive, life insurance,
hospitalization or other employee benefit plans or
arrangements (including any contracts or agreements with
trustees, insurance companies or others relating to any
such employee benefit plan or arrangement);
(v) stock option, stock purchase, warrant, repurchase or
other contracts or agreements with any employee or
officer of the Agency relating to the shares of capital
stock of either MEIA I or MELA;
(vi) contracts or agreements with reinsurers, managing general
agents, managing general underwriters, general agents,
underwriters, agents, investment bankers, investment
advisers, custodians, brokers or sales representatives;
(vii) contracts or agreements with any director or officer of
either MEIA I or MELA or with any Person affiliated or
associated with such director or officer;
(viii) powers of attorney or similar authorizations granted to
any third party by either MEIA I or MELA;
<PAGE>
(ix) contracts or agreements containing covenants limiting the
freedom of either MEIA I or MELA to compete in any line
of business or with respect to any particular product or
service or with any Person;
(x) requirements contracts or similar agreements in which
either of MEIA I or MELA is the purchaser or the seller;
(xi) license or sublicense agreements relating to any
Intellectual Property; and
(xii) contracts with associations with which either of MEIA I
or MELA maintains an affinity group or similar customer
relationship, including contracts with any Person that
services the accounts of, or otherwise relates to, any
such associates or group.
(b) Each of MEIA I and MELA has made available to representatives of
MEIA II and Professionals, for its review and examination, all of the Agency
Agreements and has provided true and correct copies thereof upon request.
3.7 NO DEFAULT. Each Assumed Contract is valid, in full force and effect
and enforceable in accordance with its terms, except to the extent that its
enforceability may be limited by applicable insolvency, bankruptcy or similar
laws affecting the enforcement of creditors' rights generally or by general
equitable principles. There has not occurred any default or any event which,
with notice or lapse of time or both, would become a default under any of the
Assumed Contracts resulting from any act or omission by either MEIA I or MELA or
any other party thereto prior to the Closing Date, nor (ii) has there been any
claim of any breach or default under any of the Assumed Contracts by MEIA I,
MELA or any other party thereto, nor (iii) has any party made a request, claim
or demand for funds in excess of the contract price described in any Assumed
Contract. There are no investigations or audits pending or, to the best of the
Agency's knowledge, threatened, involving any of the Assumed Contracts, which
would reasonably be expect to have a Material Adverse Effect on the operations
of the Business. Except as described on the attached SCHEDULE 3.7, within the
last twelve (12) months, neither MEIA I nor MELA has received any written notice
that any Person is cancelling, modifying or terminating or intends to cancel,
modify or terminate any of the Assumed Contracts.
3.8 LITIGATION. Except as described on the attached SCHEDULE 3.8, there
is no pending or, to the best of the Agency's knowledge, threatened litigation
or judicial, administrative or arbitration claim, action or proceeding which
would, individually or in the aggregate, reasonably be expected (a) to preclude
MEIA I or MELA from consummating the transactions contemplated by this Agreement
or from performing any
<PAGE>
of its obligations under this Agreement or any of the Related Agreements, or
(b) to result in a Material Adverse Effect on any Asset or the financial
condition or operations of the Business, nor are there any judgments, orders,
injunctions or decrees currently in effect and involving or affecting any Asset
or the Business, or which would, individually or in the aggregate, reasonably be
expected to result in any such preclusion or effect described in clauses (a) and
(b).
3.9 INTELLECTUAL PROPERTY. The attached SCHEDULE 3.9 is a true and
complete list of all Intellectual Property owned or used by the Agency in the
Business. The Agency owns or possesses adequate licenses or other rights to
transfer such Intellectual Property to MEIA II, and the Intellectual Property is
sufficient to conduct the Business as the Business has been and is now being
conducted. The operations of the Agency do not conflict with or infringe, and
no one has asserted to the Agency that such operations conflict with or
infringe, any Intellectual Property owned, possessed or used by any third party.
To the best of the Agency's knowledge, there are no third parties whose
operations conflict with or infringe, nor has anyone asserted that such
operations conflict with or infringe, any Intellectual Property owned, possessed
or used by the Agency. There are no facts or alleged facts which would
reasonably serve as a basis of any claim that the Agency does not have the
unrestricted right to use, free of any rights or claims of others, all
Intellectual Property in the development, provision, use, sale or other
disposition of any or all products or services presently being, or contemplated
to be, used, furnished or sold in the Business.
3.10 LICENSES AND PERMITS.
(a) Each of MEIA I and MELA has obtained, and is in compliance in all
material respects with, all necessary licenses, permits, consents, approvals,
orders, certificates, authorizations, declarations and filings required by all
federal, state, local and other Governmental Authorities and all courts and
other tribunals for the conduct of the Business and operations of the Agency as
now conducted (collectively, the "Required Licenses"), and there are no
proceedings pending or, to the best of the Agency's knowledge, threatened which
may result in the revocation, cancellation or suspension, or any adverse
modification, of any such Required License nor are there any facts known to the
Agency which may give rise to such proceedings. The attached SCHEDULE 3.10
contains a correct and complete list of all Required Licenses and the
jurisdictions for which they are issued and a correct and complete list of all
states in which either MEIA I or MELA currently has pending an application to
transact any line of business. Except as described on the attached
SCHEDULE 3.10, all of the Required Licenses shall remain in full force and
effect notwithstanding the consummation of the transactions contemplated
hereunder.
(b) All material reports and applications required to be filed with
any Governmental Authority have been filed and are true and complete in all
material respects and accurately present the information contained therein.
Neither the sale of the Assets hereunder nor any change which occurs as a result
thereof will, when
<PAGE>
reflected in appropriate amendments to such reports or applications, have a
Material Adverse Effect upon any matters (including rate approvals) which are
the subject of such reports or applications.
3.11 COMPLIANCE WITH LAWS. There is no past or present violation by either
MEIA I or MELA of any federal, state, local or foreign law, ordinance, rule or
regulation applicable to the Business or any of the Assets (including any law,
regulation, order or requirement relating to securities, properties, business,
products, advertising, or sales practices, civil rights or antitrust), nor, to
the best of the Agency's knowledge, is there any allegation of any such
violation, where such violation would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Business.
3.12 EVENTS SINCE THE BALANCE SHEET DATE. Since the Balance Sheet Date,
except as described in the attached SCHEDULE 3.12 or as consented to in writing
by MEIA II, each of MEIA I and MELA has conducted business only in the ordinary
and usual course and, without limiting the generality of the foregoing:
(a) Neither MEIA I nor MELA has sustained any damage, destruction or
loss (including by reason of revocation of license, certificate of authority or
right to do business, total or partial termination, suspension, default or
modification of contracts, governmental restriction, regulation, investigation
or inquiry), regardless of whether covered by insurance, which, individually or
in the aggregate, have had or would reasonably be expected to have a Material
Adverse Effect on either MEIA I or MELA.
(b) There have been no changes, events or conditions which,
individually or in the aggregate, have had or would reasonably be expected to
have a Material Adverse Effect on either MEIA or MELA.
(c) Neither MEIA I nor MELA has incurred additional debt for borrowed
money or incurred any other obligations or liability (fixed, contingent or
otherwise), regardless of whether required to be reflected on a balance sheet
prepared in accordance with generally accepted accounting principles, except in
the ordinary course of its business and consistent with past practices.
(d) Neither MEIA I nor MELA has paid or prepaid any obligation or
liability (fixed, contingent or otherwise), or discharged or satisfied any Lien
or encumbrance, or settled any liability, claim, dispute, proceeding, suit or
appeal, pending or, to the best of the Agency's knowledge, threatened against it
or any of its assets or properties, except for current liabilities included in
the Balance Sheet and current liabilities incurred since the Balance Sheet Date
in the ordinary course of business of either MEIA I or MELA.
(e) Neither MEIA I nor MELA has authorized, declared, paid or
effected any dividend, payment or other distributions on or with respect to any
share of its capital stock.
<PAGE>
(f) Neither MEIA I nor MELA has purchased, redeemed or otherwise
acquired or committed itself to acquire, directly or indirectly, any of its
shares.
(g) Neither MEIA I nor MELA has mortgaged, pledged, otherwise
encumbered or subjected to Lien any of its assets or properties, tangible or
intangible.
(h) Neither MEIA I nor MELA has sold, leased or otherwise disposed of
any asset or property, tangible or intangible, except in the ordinary course of
its business, and in each case for a consideration at least equal to the fair
value of such asset or property, nor has MEIA I or MELA leased or licensed to
others (including officers and directors) any asset or property or discontinued
any product or service line or the sale or other disposition of any of its
products or services.
(i) Neither MEIA I nor MELA has purchased or otherwise acquired any
debt or equity securities of any corporation, partnership, joint venture, firm
or other entity.
(j) Neither MEIA I nor MELA has made any expenditure for the
purchase, acquisition, construction or improvement of a capital asset other than
expenditures made in the ordinary course of business consistent with past
practice and which expenditures have not, in the aggregate, exceeded $20,000.
(k) Except as described on the attached SCHEDULE 3.12, neither MEIA I
nor MELA has entered into any transactions or contract, except in the ordinary
course of its business consistent with past practice, nor has either MEIA I or
MELA waived any right of substantial value or cancelled any debts or claims or
voluntarily suffered any extraordinary losses.
(l) Neither MEIA I nor MELA has sold, assigned, transferred, licensed
or otherwise conveyed any Intellectual Property.
(m) Neither MEIA I nor MELA has effected any amendment or supplement
to, or extension of, any employee profit-sharing, stock option, stock purchase,
pension, bonus, incentive, retirement, medical reimbursement, life insurance,
deferred compensation or other employee benefit plan or arrangement.
(n) Neither MEIA I nor MELA has paid to or for the benefit of its
directors, officers, employees or shareholders any compensation of any kind
other than wages, salaries, bonuses and benefits at times and rates in effect
prior to the Balance Sheet Date, other than scheduled increases and increases in
the ordinary course of business consistent with past practice, and any and all
accrued compensation payable under any profit-sharing plan in respect to any
period prior to the Balance Sheet Date (which has not been reflected as a
liability of the company on the balance sheet included in the Interim Financial
Statements) will be paid by either MEIA I or MELA.
<PAGE>
(o) Neither MEIA I nor MELA has effected any amendment or
modification to its charter documents, bylaws or other governing documents.
(p) Neither MEIA I nor MELA has made any change in accounting methods
or principles used for financial, tax or regulatory reporting purposes.
(q) Neither MEIA I nor MELA has entered into any agreement or
commitment, whether in writing or otherwise, to take any action described in
this Section 3.12.
(r) There have been no claims incurred or reported to either MEIA I
or MELA which, individually or in the aggregate, have or would be reasonably
expected to have a Material Adverse Effect on either MEIA I or MELA.
3.13 INSURANCE.
(a) The attached SCHEDULE 3.13 is (i) a full and complete list of all
policies of insurance to which either MEIA I or MELA is a party or is a
beneficiary or named insured and both MEIA I and MELA have in full force and
effect, with all premiums due thereon paid, the policies of insurance set forth
therein and (ii) a true and complete list of all insurance policies to which
other parties are a party or a beneficiary which relate to the properties,
assets or operations of either MEIA I or MELA and the names of such other
parties. No notice of cancellation or termination has been received with
respect to any insurance policy described in this Section 3.13. Both MEIA I and
MELA carry insurance, with solvent insurers, in amounts and types of coverage
which are customary in the industry and against risks and losses which are
usually insured against by persons holding or operating similar properties and
similar businesses, including errors and omissions insurance. No material
claims have been asserted under any of such insurance policies or relating to
the properties, assets or operations of either MEIA I or MELA since January 1,
1996. MEIA I and MELA agree to tail-out their respective errors and omissions
insurance for a period of one year from Closing and furnish MEIA II with
satisfactory evidence of such action on or before the Closing Date.
(b) MEIA I and MELA have furnished to MEIA II and Professionals true
and correct copies of all policies of reinsurance to which each of MEIA I and
MELA is a party or a beneficiary or a named insured, all of which are listed on
the attached SCHEDULE 3.13. Such reinsurance contracts (i) were purchased for
the benefit of either MEIA I or MELA, and (ii) will be retained through the
Closing Date.
3.14 EMPLOYEES. The attached SCHEDULE 3.14 is a true and complete list of
all employees of MEIA I and MELA employed primarily, either as full time or part
time employees, in connection with the Business (collectively, the "Employees of
the Business"; each an "Employee of the Business") and the compensation paid to
each such Employee of the Business during the last calendar year. Except as
described on
<PAGE>
the attached SCHEDULE 3.14, none of such Employees of the Business has any
written employment agreement. Except as described on SCHEDULE 3.14 and pursuant
to this Agreement, none of the Employees of the Business is subject to any
covenant not to compete, confidentiality agreement or other contract or
commitment with or owing to either MEIA I or MELA that limits or restrains any
Employee of the Business from engaging in or competing in any products or lines
of business with any Person.
3.15 COLLECTIVE BARGAINING AGREEMENTS. Neither MEIA I nor MELA is a party
to or subject to any collective bargaining agreement with any labor union.
There are no labor controversies pending or, to the best of the Agency's
knowledge, threatened against either MEIA I or MELA which would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
either MEIA I or MELA. Neither MEIA I nor MELA has experienced any strikes,
shutdowns, slowdowns or work stoppages since January 1, 1996.
3.16 EMPLOYEE BENEFIT PLANS.
(a) PLANS. The attached SCHEDULE 3.16 lists all employee benefit
plans or arrangements currently in effect and which are applicable to the
current or former employees of the Business, including pension or thrift plans,
individual or supplemental pension or accrued compensation arrangements,
contributions to hospitalization or other health or life insurance programs,
incentive plans, bonus arrangements and vacation, sick leave, disability and
severance and termination arrangements or policies and workers' compensation
policies (collectively, the "Plans").
(b) COMPLIANCE WITH ERISA. MEIA I, MELA and the Plans are in
compliance in all material respects with those provisions of ERISA and the Code
which are applicable to the Plans. No transaction proscribed by Section 406 of
ERISA or Section 4975 of the Code, and no reportable event as described in
Section 4043(b) of ERISA, has occurred with respect to any Plan. Neither MEIA I
nor MELA is an employer with respect to any multiemployer plan as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
(c) COMPLIANCE WITH LAWS. Each of MEIA I and MELA is, with respect
to the operation of its portion of the Business, in compliance in all material
respects with all applicable laws, rules and regulations relating to the
employment of labor, including those related to wages, hours, collective
bargaining and discrimination.
3.17 ENVIRONMENTAL CONDITION. To the best of the Agency's knowledge:
(a) the operations of the Business as presently conducted comply in
all material respects with applicable environmental laws, rules or regulations;
(b) MEIA I or MELA, as appropriate, has obtained with respect to the
Business all Required Licenses required under applicable environmental laws,
rules or
<PAGE>
regulations;
(c) the Business is not subject to any judicial or administrative
proceeding alleging violation of any applicable environmental law, rule or
regulation, and no such proceeding has been threatened, which if determined
adversely to either MEIA I or MELA would reasonably be expected to have a
Material Adverse Effect on the Business;
(d) neither MEIA I nor MELA has received any written notice that it
is a potentially responsible party or any request for information from any
governmental authority with respect to any site that is the subject of an
investigation, removal or remedial activity under any environmental law, rule or
regulation; and
(e) since January 1, 1995, there has been no release of any hazardous
material, and there has been no contamination by any hazardous material which
has occurred on or about the Leased Property which is required to be remediated
by either MEIA I or MELA or any Affiliate of either under any applicable
environmental law, rule or regulation.
3.18 COMMISSIONS AND/OR PREMIUMS RECEIVABLE. All of the commissions and/or
premiums receivable shown on the Balance Sheet or the Interim Financial
Statements, as applicable, or thereafter acquired arose under validly issued
policies of insurance in the ordinary course of the business consistent with
past practice of MEIA I and MELA. The values at which commissions and/or
premiums receivable are carried on the Balance Sheet and Interim Financial
Statements are consistent with their respective past practices and in accordance
with generally accepted accounting principles applied on a consistent basis.
3.19 GUARANTEES. Except as described on the attached SCHEDULE 3.19, none
of the obligations or liabilities of MEIA I and MELA is guaranteed by any
Person. Neither MEIA I nor MELA has guaranteed, nor is otherwise contingently
obligated for, any indebtedness of any third party.
3.20 CERTAIN ADVANCES. Except as described on the attached SCHEDULE 3.20,
there are no receivables of either MEIA I or MELA owing by directors, officers,
employees, consultants or shareholders of either MEIA I or MELA, or owing by any
Affiliate of any director or officer of either MEIA I or MELA, other than
advances in the ordinary course of business consistent with past practice to
officers and employees for reimbursable business expenses.
3.21 TAX STATUS OF MEIA I AND MELA.
(a) Except as described on the attached SCHEDULE 3.21, all Tax
returns and reports relating to either MEIA I or MELA required to be filed prior
to the Closing Date have been or will be duly and timely filed with the
appropriate taxing authorities, all
<PAGE>
such Tax returns are or will be true and correct in all material respects and
all Taxes relating to either MEIA I or MELA which are due to, or claimed to be
due from them by, any taxing authority, any Affiliate or former Affiliate of
either MEIA I or MELA, have been paid. The financial statements of each of
MEIA I and MELA delivered under, and to be delivered under, Section 3.5 includes
or will include adequate provision through and including the period covered by
such financial statements for all Taxes, if any, which relate to the business,
operations, properties and assets of either MEIA I or MELA conducted and held
through the Closing Date which are not yet due and owing, or which are due and
owing but have not yet been paid, to the appropriate taxing authority or to any
Affiliate or former Affiliate of either MEIA I or MELA. Except as described on
the attached SCHEDULE 3.21, there is currently no audit or examination of, or
action or proceeding relating to, any Tax return of either MEIA I or MELA or
which includes either MEIA I or MELA presently in progress or of which either
MEIA I or MELA has received notice. Except as described on the attached
SCHEDULE 3.21, there are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax return which include
either MEIA I or MELA.
(b) Except as described on the attached SCHEDULE 3.21, no claim for
assessment or collection of Taxes has been asserted against either MEIA I or
MELA, nor, to the best of the Agency's knowledge, is there any reasonable basis
for any such claim. The federal income Tax returns of, or including, MEIA I
have never been audited or examined by the IRS. The federal income Tax returns
of, or including, MELA have never been audited or examined by the IRS. Except
as described on the attached SCHEDULE 3.21, no material issue has been raised by
any state, local or foreign taxing authority in connection with an audit or
examination of the Tax returns, business or properties of either MEIA I or MELA
which has not been settled or resolved. Both MEIA I and MELA have paid all
taxes owed by them in respect of, or of which either is required to withhold
from, amounts owing to employees, creditors or other third parties. Neither
MEIA I or MELA, nor any of their respective assets or properties, is subject to
any pending property tax reassessments. Neither MEIA I nor MELA is a party to
any tax sharing or similar arrangement, written or otherwise.
3.22 RELATED PARTIES. Except as described on SCHEDULE 3.22, no officer or
director of either MEIA I or MELA, or any Affiliate of any such Person, has,
either directly or indirectly, (a) an interest in any corporation, partnership,
firm or other Person which furnishes or sells services or products which are
similar to those furnished or sold by either MEIA I or MELA, or (b) a beneficial
interest, or alleges a claim of beneficial interest, in any contract or
agreement to which either MEIA I or MELA may be bound, other than the lease
relating to the Leased Property. No Assumed Contract provides for any payment
by either MEIA I or MELA to any Affiliate of either MEIA I or MELA, other than
the lease relating to the Leased Property.
3.23 UNDERLYING DOCUMENTS. Any underlying documents listed or described in
the Schedules referred to in this Agreement have heretofore been furnished to
Professionals and MEIA II or their respective advisors or representatives. All
such
<PAGE>
documents furnished to Professionals and MEIA II are true and complete copies,
and there are no amendments or modifications thereto, except as expressly noted
in the Schedules in which such documents are incorporated. The minute books of
each of MEIA I and MELA contain full, complete and accurate records of all
meetings and other corporate action taken by the directors and shareholders of
MEIA I and MELA, respectively.
3.24 ABSENCE OF REGULATORY ACTIONS. Neither the Agency nor any of its
Affiliates is a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of any Governmental Authority, nor has it been advised by any
Governmental Authority that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of undertaking, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
3.25 DISCLOSURE OF MATERIAL FACTS. Each of MEIA I and MELA has disclosed
to Professionals and MEIA II all material facts relating to the condition
(financial or otherwise), business, net worth, assets, properties, operations or
future prospects of MEIA I and MELA, respectively. The representations and
warranties contained in this Article III and in the Schedules hereto, and any
other documents or information furnished to Professionals or MEIA II by or on
behalf of either MEIA I or MELA, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PROFESSIONALS
Professionals represents and warrants to the Agency that:
4.1 ORGANIZATION. Professionals is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan and has
all requisite corporate power to enter into this Agreement, to perform each of
the other agreements contained herein and to own, lease and operate its
properties and assets and carry on its business as currently operated.
Professionals is in good standing in every jurisdiction where the nature of the
business conducted by it or the properties owned, leased or operated by it
requires qualification or licensure.
4.2 AUTHORITY. The execution and delivery of this Agreement and each of
the Related Agreements to which it is a party, and the consummation of the
transactions
<PAGE>
contemplated hereby and thereby, have been duly and validly authorized by the
Board of Directors of Professionals and all other necessary corporate action on
the part of Professionals or its Affiliates, and the agreements of Professionals
contained herein constitute valid and legally binding obligations enforceable in
accordance with their terms.
4.3 REQUISITE CONSENTS OF PROFESSIONALS; NONVIOLATION. The execution and
delivery of this Agreement and each of the Related Agreements to which it is a
party, and the consummation of the transactions contemplated hereby and thereby
in compliance with the terms hereof and thereof, by Professionals, do and will
not, (a) except for the consent of the Michigan Commissioner of Insurance,
require the consent, license, permit, waiver, approval, authorization or other
action of, by or with respect to, any person or Governmental Authority, the
absence of which would have a Material Adverse Effect on Professionals or
Professionals' ability to perform its obligations hereunder, (b) violate or
conflict with the provisions of the Articles of Incorporation or Bylaws of
Professionals, or (c) constitute a default under, violate, conflict with or
result in the termination of any judgment, order, injunction or decree to which
Professionals is a party, or by which Professionals is bound or to which
Professionals, or any of its properties, is subject (except where such default,
violation, conflict or termination would not have a Material Adverse Effect on
Professionals or on the ability of Professionals to consummate the transactions
contemplated hereby).
4.4 REPORTS.
(a) As of their respective dates, neither Professionals' Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, nor any other
document filed by Professionals subsequent to December 31, 1996, under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act, each in the form
(including exhibits) filed with the Securities Exchange Commission (the "SEC")
(collectively, the "Professionals' Reports"), contained or will contain any
untrue statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading and the Professionals' Reports complied in all material respects with
the requirements of the Securities Exchange Act of 1934, as amended. Each of
the consolidated balance sheets contained or incorporated by reference in the
Professionals' Reports (including in each case any related notes and schedules)
fairly presented in all material respects the financial position of the entity
or entities to which it relates as of its date and each of the consolidated
statements of income, consolidated statements of stockholders' equity and
consolidated statements of cash flows contained or incorporated by reference in
the Professionals' Reports (including in each case any related notes and
schedules) fairly presented in all material respects the results of operations,
stockholders' equity and cash flows, as the case may be, of the entity or
entities to which it relates for the periods set forth therein (subject, in the
case of unaudited interim statements, to normal year-end audit adjustments that
are not material in amount or effect), in each case in accordance with generally
accepted
<PAGE>
accounting principles consistently applied during the periods involved, except
as may be noted therein.
(b) Professionals and each of its subsidiaries have each timely filed
all reports, registrations and statements, together with any amendments required
to be made with respect thereto, that they were required to file since December
31, 1993 with the SEC and have paid all fees and assessments due and payable in
connection therewith.
4.5 LITIGATION. There is no pending or, to the best of Professionals'
knowledge, threatened litigation or judicial, administrative or arbitration
claim, action or proceeding which would, individually or in the aggregate,
reasonably be expected (a) to preclude Professionals from consummating the
transactions contemplated by this Agreement or from performing any of its
obligations under this Agreement or any of the Related Agreements, or (b) to
result in a Material Adverse Effect on the business, properties, assets,
financial condition or operations of Professionals or any of its Affiliates, nor
are there any judgments, orders, injunctions or decrees currently in effect and
involving Professionals or any of its Affiliates, which would, individually or
in the aggregate, reasonably be expected to result in any such preclusion or
effect described clauses (a) and (b).
4.6 KNOWLEDGE AS TO CONDITIONS. As of the date hereof, Professionals
knows of no reason why the approvals and consents of Governmental Authorities
referred to in Section 11.1(e) should not be obtained.
4.7 ABSENCE OF REGULATORY ACTIONS. Neither Professionals nor any of
its Affiliates is a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of any Governmental Authority, nor has it been advised by any
Governmental Authority that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of undertaking, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
4.8 MATERIAL ADVERSE CHANGE. Since the latest filing by Professionals
with the SEC and as of the Closing Date, there has been no material adverse
change in the business, liabilities, assets, operations or financial condition
of Professionals.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF MEIA II
<PAGE>
MEIA II represents and warrants to the Agency that:
5.1 ORGANIZATION. MEIA II is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan and has
all requisite corporate power to enter into this Agreement, to perform each of
the other agreements contained herein and to own, lease and operate its
properties and assets and carry on its business as currently operated. MEIA II
is in good standing in every jurisdiction where the nature of the business
conducted by it or the properties owned, leased or operated by it requires
qualification or licensure.
5.2 AUTHORITY. The execution and delivery of this Agreement and each of
the Related Agreements to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Board of Directors of MEIA II and all other necessary
corporate action on the part of MEIA II or its Affiliates, and the agreements of
MEIA II contained herein constitute valid and legally binding obligations
enforceable in accordance with their terms.
5.3 REQUISITE CONSENTS OF MEIA II; NONVIOLATION. The execution and
delivery of this Agreement and each of the Related Agreements to which it is a
party, and the consummation of the transactions contemplated hereby and thereby
in compliance with the terms hereof and thereof, by MEIA II, do and will not,
(a) except for the consent of the Michigan Commissioner of Insurance, require
the consent, license, permit, waiver, approval, authorization or other action
of, by or with respect to, any person or Governmental Authority, the absence of
which would have a Material Adverse Effect on MEIA II or MEIA II's ability to
perform its obligations hereunder, (b) violate or conflict with the provisions
of the Articles of Incorporation or Bylaws of MEIA II, or (c) constitute a
default under, violate, conflict with or result in the termination of any
judgment, order, injunction or decree to which MEIA II is a party, or by which
MEIA II is bound or to which MEIA II, or any of its properties, is subject
(except where such default, violation, conflict or termination would not have a
Material Adverse Effect on MEIA II or on the ability of MEIA II to consummate
the transactions contemplated hereby).
5.4 LITIGATION. There is no pending or, to the best of MEIA II's
knowledge, threatened litigation or judicial, administrative or arbitration
claim, action or proceeding which would, individually or in the aggregate,
reasonably be expected (a) to preclude MEIA II from consummating the
transactions contemplated by this Agreement or from performing any of its
obligations under this Agreement or any of the Related Agreements, or (b) to
result in a Material Adverse Effect on the business, properties, assets,
financial condition or operations of MEIA II or any of its Affiliates, nor
are there any judgments, orders, injunctions or decrees currently in effect
and involving MEIA II or any of its Affiliates, which would, individually or
in the aggregate, reasonably be expected to result in any such preclusion or
effect described clauses (a) and (b).
<PAGE>
5.5 KNOWLEDGE AS TO CONDITIONS. As of the date hereof, MEIA II knows of
no reason why the approvals and consents of Governmental Authorities referred to
in Section 11.1(e) should not be obtained.
5.6 ABSENCE OF REGULATORY ACTIONS. Neither MEIA II nor any of its
Affiliates is a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of any Governmental Authority, nor has it been advised by any
Governmental Authority that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of undertaking, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
ARTICLE VI
CLOSING
6.1 CLOSING. If the conditions to the obligations of MEIA I, MELA, MEIA
II and Professionals enumerated in Article XI are satisfied, consummation of the
transactions contemplated hereby (the "Closing") shall take place on a mutually
agreeable date within two business days after all necessary regulatory approvals
and Agency shareholder approvals have been obtained, at the offices of Dykema
Gossett PLLC, 1577 North Woodward Avenue, Suite 300, Bloomfield, Michigan, or on
such other date as the conditions precedent are satisfied (the "Closing Date").
MEIA I, MELA, MEIA II and Professionals shall use reasonable efforts to cause
the Closing Date to be September 22, 1997. The transfers and deliveries
described in Article XI shall be mutually interdependent and regarded as
occurring simultaneously; and no such transfer or delivery shall become
effective until all the other transfers and deliveries provided for in
Article XI have also been consummated. The transfers and deliveries herein
contemplated shall be deemed to have occurred and the Closing shall be effective
as of the close of business on the Closing Date.
6.2 DELIVERIES AT CLOSING. The following documents shall be delivered at
Closing:
(a) a Warranty Bill of Sale and Assignment executed by MEIA I, MELA
and MEIA II in substantially the form attached hereto as EXHIBIT 6.2(a);
(b) an Assignment of Lease by MEIA I and MELA in favor of MEIA II in
substantially the form attached hereto as EXHIBIT 6.2(b);
(c) a Consent and Estoppel executed by the landlord of the Leased
<PAGE>
Property in substantially the form attached hereto as EXHIBIT 6.2(c);
(d) a legal opinion of Howard & Howard Attorneys, P.C., counsel to
the Agency, in substantially the form attached hereto as EXHIBIT 6.2(d);
(e) an Officers' Certificate executed by the Chief Executive Officer
and Secretary of each of MEIA I and MELA in substantially the form attached
hereto as EXHIBIT 6.2(e);
(f) a legal opinion of Honigman Miller Schwartz and Cohn, counsel to
Professionals, in substantially the form attached hereto as EXHIBIT 6.2(f);
(g) a legal opinion of Dykema Gossett PLLC, counsel to MEIA II, in
substantially the form attached hereto as EXHIBIT 6.2(g);
(h) an Officers' Certificate executed by the Chief Executive Officer
and Secretary of Professionals in substantially the form attached hereto as
EXHIBIT 6.2(h);
(i) an Officers' Certificate executed by the Chief Executive Officer
and Secretary of MEIA II in substantially the form attached hereto as EXHIBIT
6.2(i);
(j) the Subscription Agreement executed by Mutual and MEIA II in
substantially the form attached hereto as EXHIBIT 1.1(e);
(k) the Noncompetition Agreements executed by Professionals, each of
the shareholders of the Agency and the Agency in substantially the form attached
hereto as EXHIBIT 1.1(c);
(l) the Releases executed by the Agency, its Affiliates and each of
its directors, officers and shareholders in favor of MEIA II, Mutual,
Professionals, PICOM and their respective Affiliates, representatives, advisors,
attorneys and accountants in substantially the form attached hereto as EXHIBIT
1.1(d);
(m) the Mutual Guaranty executed by Mutual in substantially the form
attached hereto as EXHIBIT 2.3(a);
(n) the Professionals Guaranty executed by Professionals in
substantially the form attached hereto as EXHIBIT 2.3(b);
(o) the Inter-Creditor Agreement executed by Mutual, MEIA II and
Professionals in substantially the form attached hereto as EXHIBIT 2.3(c);
(p) the books and records of the Agency (other than those included in
the Excluded Assets), including executed originals of all Assumed Contracts; and
(q) the Liquidating Trust Agreement executed by MEIA I, MELA and
<PAGE>
the Initial Trustee defined therein, in substantially the form attached hereto
as EXHIBIT 2.12(a);
ARTICLE VII
THE AGENCY'S COVENANTS
The Agency covenants that:
7.1 CONDUCT OF BUSINESS. With respect to the Business, from the date of
this Agreement until the earlier of the Closing or any termination of this
Agreement pursuant to the provisions hereof (the "Interim Period"), the Agency
shall (except to the extent Professionals and MEIA II shall have given its prior
written consent to do otherwise);
(a) conduct, carry on and use its reasonable efforts to maintain and
preserve the Business intact; use its reasonable efforts to maintain and
preserve its relationship with and the goodwill of agents, solicitors,
suppliers, customers and others having business relations with the Business; and
maintain the Assets, as well as the books of account, records and files related
to the conduct of the Business and the Employees of the Business, all in the
ordinary course of business and consistent with past practice;
(b) promptly inform Professionals and MEIA II in writing of any
specific event or circumstance of which it becomes aware that has or is likely
to have a Material Adverse Effect on the Assets or the current or future
earnings of the Business or which constitutes a breach of any representations or
warranties set forth in Article III;
(c) not, without the prior written consent of Professionals and
MEIA II:
(i) change or modify in any manner its existing credit,
collection and payment policies, procedures and practices
with respect to accounts receivable and accounts payable,
respectively, including accelerating collections of
receivables, failing to make or delaying making
collections of receivables (whether or not past due),
accelerating payment of payables or failing to pay or
delaying payment of payables;
(ii) (A) enter into any contract or commitment which would
become an Assumed Contract, (B) enter into any contract
or commitment with respect to the licensing or
disposition of any Intellectual Property or (C) incur
any liability, absolute or contingent, waive any right
or enter into any other transaction (except in the
ordinary course of business consistent with past
practice) which would reasonably be expected to have a
Material Adverse Effect on the Business or the Assets;
<PAGE>
(iii) make any material changes in compensation or benefits or
grant any material new compensation or benefits payable
to or in respect of any Employee of the Business; or
(iv) take or omit to take any action which if taken or omitted
prior to the date hereof would constitute or result in a
breach of any representations or warranties set forth in
Article III.
7.2 INVESTIGATION AND ACCESS TO INFORMATION BEFORE AND AFTER CLOSING.
During the Interim Period and after the Closing, the Agency shall, and shall use
its reasonable efforts to cause its counsel and independent public accountants
to, afford to Professionals and MEIA II and their employees, agents and
representatives, including their respective counsel and independent public
accountants, reasonable access, during normal business hours, to the premises of
the Business and to all the Assumed Contracts, and to all books, records, files,
documents or other assets related to the Business in either MEIA I's or MELA's
possession or under either MEIA I's or MELA's control as may be reasonably
requested by Professionals or MEIA II. After the Closing, Professionals and
MEIA II shall have the right, at its cost and expense, to copy such books,
records, files and documents related to the Business which remain in the
MEIA I's or MELA's possession or under MEIA I's or MELA's control after the
Closing as may be reasonably useful to Professionals or MEIA II in connection
with preparing tax returns or the investigation or defense of claims.
7.3 CLOSING. The Agency will, to the extent within its control, use its
reasonable efforts to cause the conditions specified in Article XI to be
satisfied by the Closing Date.
7.4 COOPERATION BY THE AGENCY. The Agency shall not interfere in any
attempts by Professionals to cause a Demutualization and shall use reasonable
efforts to assist Professionals in obtaining any agreements necessary from
Mutual's directors and policyholders to achieve such Demutualization. The
Agency shall not attempt to cause a Change of Control of Professionals, Mutual,
any Affiliate of Professionals which "controls," as such term is defined by
Section 13(d) of the Securities Exchange Act of 1934, as amended, Mutual, or
MEIA II.
7.5 AMENDMENT OF SCHEDULES. From time to time prior to the Closing Date,
the Agency shall supplement or amend in writing (referring specifically to this
Section) the Schedules delivered in connection herewith with respect to any fact
or circumstance arising from and after the execution of this Agreement to the
Closing Date (but not with respect to any fact or circumstance existing, whether
known or unknown by the Agency, on or prior to the date of this Agreement) of
which the Agency becomes aware, which, if existing, occurring or known at the
date of this Agreement, would have been required to
<PAGE>
be set forth or described in any such Schedule or which is necessary to correct
any information in any such Schedule which has been rendered inaccurate thereby.
Acceptance of any such amendment or supplement by Professionals or MEIA II shall
not constitute a waiver of rights by either Professionals or MEIA II with
respect to any right or claim Professionals or MEIA II might have or have had on
account of any matter so disclosed on such amendment or supplement.
7.6 CORPORATE NAME CHANGE. Immediately following the Closing, each of
MEIA I and MELA shall file a Certificate of Amendment to Articles of
Incorporation with the Michigan Department of Consumer and Industry Services
changing its corporate name to a name that is substantially dissimilar to
"Michigan Educators Insurance Agency," "MEIA," "Michigan Educators Life
Insurance Agency" or "MELA."
7.7 MERGER OF 401(k) PLAN. On or before the Closing Date, the Agency (i)
shall, in cooperation with Mutual, take all action necessary to merge the
Agency's Michigan Educators Insurance Agency, Inc. Retirement and Savings Plan
with Mutual's Michigan Educational Employees Mutual Insurance Company Retirement
and Savings Plan, carrying over for each plan participant vested and unvested
contributions and qualifying years of service, (ii) will ensure that all
contributions to such plans which would have been made in the ordinary course
are made, (iii) will make a contribution to such plans on a pro-rata basis for
the Agency's current fiscal year, and (iv) will cooperate with Mutual with
respect to the foregoing.
7.8 TAIL COVERAGE. On or before the Closing Date, the Agency shall take
all actions necessary to maintain errors and omissions insurance coverage for
the Agency from and after the Closing Date until the first anniversary thereof.
7.9 RELEASE.
(a) To the extent permitted by law, the Agency, on behalf of itself
and its directors, shareholders, officers, employees, Affiliates,
representatives, advisors, attorneys, accountants, successors and assigns, and
each of the Agency's shareholders (pursuant to this Section 7.9 and by
acceptance, directly or indirectly of the consideration to be paid under Article
II), ("Releasors") hereby fully and forever release, absolve, remise, acquit
and discharge Mutual, Professionals, MEIA II, PICOM and their respective
directors, officers, employees, Affiliates, representatives, advisors,
attorneys, accountants, fairness opinion providers including but not limited to
Russell Miller, Inc., and successors and assigns, from any and all matter of
action, claims, demands, actions, causes of actions, obligations, suits, debts,
choses in action, damages and liabilities of any nature whatsoever, at law or in
equity, whether known or not now known, suspected or claimed, which Releasors
ever had, or now have, with respect to and arising out of or from, or in
connection with, the Letter of Intent, or otherwise, provided that the parties
remain obligated to perform their respective obligations under this Agreement.
<PAGE>
(b) Releasors will not commence any action, suit or other proceeding,
at law or in equity, on account of any right, claim, action or cause of action
which now exists or which may hereinafter accrue in its favor upon the basis of
facts, whether known or unknown, existing as of the date of this Agreement and
which have been released and discharged pursuant to Section 7.9(a), and if
Releasors or its shareholders, officers, directors, representatives, employees,
attorneys, successors or assigns, files such an action, suit or proceeding, or
asserts any related claim, against any person released in Section 7.9(a),
Releasor will indemnify and hold harmless such person from any liability,
damages, costs or expenses arising out of any such action, suit, proceeding or
claim, including but not limited to fees and costs incurred by any person
released in Section 7.9(a) in the defense of such action, suit, proceeding or
claim.
7.10 NONCOMPETITION. Except as otherwise provided in the Noncompetition
Agreement executed and delivered pursuant to Section 6.2 with respect to such
Person, the Agency and each of its shareholders (pursuant to this Section 7.10
and by acceptance, directly or indirectly of the consideration to be paid under
Article II), agree not to compete with Mutual or MEIA II or otherwise sell
insurance to educators as a target market through the fifth anniversary of the
Closing; PROVIDED, HOWEVER, that this covenant shall not preclude any Agency
shareholder from selling insurance through MEIA II or any policy offered by
Mutual.
ARTICLE VIII
PROFESSIONALS' AND MEIA II'S COVENANTS
Professionals and MEIA II covenant that:
8.1 CLOSING. Each of Professionals and MEIA II will, to the extent within
its control, use its best reasonable efforts to cause the conditions specified
in Article XI to be satisfied by the Closing Date.
8.2 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Professionals and MEIA II
shall, as soon as practicable, make any filings and applications required to be
filed in order to obtain all approvals, consents and waivers contained in
Section 11.1(e).
8.3 THE AGENCY'S ACCESS TO INFORMATION AFTER THE CLOSING. Until the fifth
anniversary of the Closing Date, MEIA II will retain the books and records
pertaining to the Business prior to the Closing Date. If MEIA II wishes to
dispose of such books and records after such date, then it shall first give 90
days' notice to the Agency and the Agency shall have the right, upon notice to
MEIA II within such 90-day period, to require MEIA II to retain such books and
records (at the Agency's cost) for such additional period as the Agency
reasonably requests or, at MEIA II's option, MEIA II may deliver possession of
such books and records to the Agency, at the Agency's cost.
<PAGE>
8.4 LABOR MATTERS.
(a) TRANSITIONED EMPLOYEES. Prior to the Closing Date, Mutual or
MEIA II shall extend an offer of employment, effective as of the Closing Date,
to all Employees of the Business, with an employment start date (the "Start
Date") which is 12:01 a.m. on the day immediately following the Closing Date,
unless the Employee of the Business is a salaried employee then on an approved
leave pursuant to any of MEIA I's or MELA's leaves policies, in which event the
Start Date for such Employee of the Business shall be the date the Employee of
the Business returns to work but in any event not later than 180 days after the
Closing Date. Mutual or MEIA II shall be responsible for managing and
implementing the transfer to Mutual or MEIA II of those Employees of the
Business who accept Mutual's or MEIA II's offer of employment (collectively, the
"Transitioned Employees"; each, a "Transitioned Employee").
(b) HIRING REQUIREMENTS. Mutual or MEIA II shall hire each Employee
of the Business who (i) is employed by either MEIA I or MELA in connection with
the operations of the Business as of the Closing Date; and (ii) does not decline
the offer of employment from Mutual or MEIA II.
(c) TERMS OF EMPLOYMENT. Mutual's or MEIA II's offer of employment
to the Employees of the Business shall include the following:
(i) POSITIONS. Mutual or MEIA II shall offer employment to
each Employee of the Business. Such offer shall be subject to the employee's
agreement that his or her employment is "at-will," and thereby terminable at any
time, with or without cause, at the sole and exclusive discretion of Mutual or
MEIA II, and, further, subject to such other policies, rules, regulations, terms
and conditions as Mutual or MEIA II may adopt from time to time.
(ii) SALARY AND BENEFITS. Each offer of employment from
Mutual or MEIA II shall include a salary that is equal to that which the
employee earned as an employee of either MEIA I or MELA, as of the date of this
Agreement, and benefits comparable to those provided similarly compensated (or
classified) employees of Mutual or MEIA II. Mutual and MEIA II reserve the
right to change an employee's salary or benefits at any time and for any reason
subsequent to the employee's initial hire.
(d) WORKER'S COMPENSATION CLAIMS. MEIA I and MELA shall each be
responsible for any unpaid workers' compensation claims of the Transitioned
Employees to the extent such claims arise out of events occurring on or prior to
the Start Date, whether or not reported prior to the Start Date. Mutual or MEIA
II shall be responsible for any workers' compensation claims of the Transitioned
Employees to the extent such claims arise out of events occurring on and after
the Start Date. With regard to workers' compensation claims of Transitioned
Employees which arise out of events occurring both prior to the Start Date and
on and after the Start Date, MEIA I,
<PAGE>
MELA, MEIA II and Professionals shall use their best efforts to allocate the
portion of any such claim arising prior to the Start Date, which portion shall
be the responsibility of MEIA I and MELA, and the portion of any such claim
arising on and after the Start Date, which portion shall be the responsibility
of Mutual or MEIA II.
(e) NO ASSUMPTION OF OBLIGATIONS. Except to the extent there is an
adjustment of the Purchase Price pursuant to Section 2.13, neither Mutual nor
MEIA II shall assume any obligations of either MEIA I or MELA for employee
salaries, benefits, or other costs, debts and liabilities of any nature
whatsoever accrued through the Closing Date.
8.5 CHANGE OF CONTROL. Except as otherwise precluded by applicable
securities laws, at least five business days before the occurrence of any Change
of Control with respect to Professionals, Mutual, or MEIA II or an Affiliate
that "controls" Mutual (as that term is defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) (other than as permitted under
Section 2.7), Professionals shall notify the Agency in writing of such
occurrence. At least five business days before the occurrence of a
Demutualization of Mutual, Mutual shall notify the Agency in writing of such
occurrence.
8.6 CONDUCT OF BUSINESS. From and after the Closing Date until September
1, 2004 (such period being referred to in this Section 8.6 as the "Earn-out
Period"), Professionals and MEIA II will each in good faith use its best efforts
to cause MEIA II to:
(a) Conduct the Business in a manner that, subject to sound business
practices, is reasonably likely to preserve and increase the premiums in respect
of policies of insurance written through MEIA II during the Earn-out Period;
(b) Ensure that MEIA II maintains its role as exclusive agent of
Mutual with respect to the sale and marketing of insurance products that target
educators, including teachers, administrators or other employees of public and
private school systems (including colleges and universities), in Michigan during
the Earn-out Period; and
(c) Ensure that no Affiliate of either Professionals or MEIA II
engages, directly or indirectly, in selling or marketing any insurance product
that targets educators, including teachers, administrators or other employees of
public and private school systems (including colleges and universities), in
Michigan during the Earn-out Period; provided, however, that nothing in this
Section 8.6 shall prohibit Professionals from continuing to sell or market
professional liability insurance to lawyers or health care professionals.
ARTICLE IX
<PAGE>
ADDITIONAL COVENANTS
9.1 COOPERATION. MEIA I, MELA, MEIA II and Professionals will cooperate
with each other in obtaining any necessary consents to the consummation of the
transactions contemplated hereby.
9.2 TAX COVENANTS.
(a) MEIA I and MELA will be responsible for the preparation and
filing of all federal and state income and franchise Tax returns, and all other
Tax returns required to be filed by either MEIA I or MELA, relating to the
Business or the Assets for all periods ending on or before the Closing Date.
MEIA I and/or MELA shall make all payments required with respect to any such Tax
return as shown thereon.
(b) MEIA II will be responsible for the preparation and filing of all
other Tax returns relating to the Business or the Assets.
(c) Federal and state income and franchise Taxes imposed on or in
respect of the Business for any taxable period that includes the Closing Date
shall be allocated to and paid by (i) MEIA I and MELA for the period up to and
including the Closing Date, and (ii) MEIA II for the period subsequent to the
Closing Date. For purposes of this Agreement, Taxes for the period up to and
including the Closing Date and for the period subsequent to the Closing Date
shall be apportioned on a per diem basis in the case of any such Taxes not
measured or measurable in whole or in part with reference to net or gross
income, sales or receipts, capital expenses or compensation expenses, and all
other such Taxes shall be determined on the basis of any interim closing of the
books of the Business as of the Closing Date.
(d) MEIA I, MELA, MEIA II and Professionals shall provide reasonable
cooperation to each other in connection with (i) the preparation or filing of
any Tax return, Tax election, Tax consent or certification or any claim for a
Tax refund, (ii) any determination of liability for Taxes and (iii) any audit,
examination or other proceeding in respect of Taxes related to the Assets or the
Business.
ARTICLE X
TERMINATION
10.1 TERMINATION. Subject to Section 10.2, this Agreement and the
transactions contemplated hereby may be terminated at any time prior to the
Closing Date:
(a) MUTUAL CONSENT. By mutual written consent of MEIA I, MELA,
Professionals and MEIA II;
<PAGE>
(b) MISREPRESENTATION OR BREACH. By MEIA I and MELA on one hand or
Professionals and MEIA II on the other hand, if there has been a material
misrepresentation or breach of warranty or covenant herein or in any signed
writing delivered pursuant hereto on the part of the other party(ies);
(c) COURT ORDER. By MEIA I and MELA on one hand or Professionals and
MEIA II on the other hand, if any non-appealable final order, decree or judgment
of any court or governmental body having competent jurisdiction has been entered
against MEIA I, MELA, Professionals or MEIA II or their respective Affiliates
restraining, prohibiting, declaring illegal or awarding substantial damages in
connection with the transactions contemplated hereby; and
(d) FAILURE TO SATISFY CONDITIONS. By MEIA I and MELA, if all of the
conditions set forth in Article XI shall not have been satisfied or waived on or
before December 31, 1997, other than through failure of MEIA I and MELA to fully
comply with their respective obligations hereunder; or by Professionals and
MEIA II, if all of the conditions set forth in Article XI shall not have been
satisfied or waived on or before December 31, 1997, other than through failure
of Professionals and MEIA II to fully comply with their respective obligations
hereunder.
10.2 LIMITATION ON RIGHT TO TERMINATE; RIGHT TO PROCEED.
(a) LIMITATION. No person shall be allowed to exercise any right of
termination pursuant to Section 10.1 if the event giving rise to the termination
right shall be due to the willful failure of such Person seeking to terminate
this Agreement to perform or observe in any material respect any of the
covenants or agreements set forth herein to be performed or observed by such
Person.
(b) WAIVER. Notwithstanding anything in this Agreement to the
contrary, if any condition specified in Article XI has not been satisfied,
MEIA I and MELA, in the case of the conditions specified in Section 11.2, and
Professionals and MEIA II, in the case of the conditions specified in Section
11.1, in addition to any other rights which may be available thereto, shall have
the right to waive such condition and to require the other Person(s) to proceed
with the Closing. Any such waiver shall be incorporated in a written instrument
executed by the Person(s) so granting such waiver.
ARTICLE XI
CONDITIONS
11.1 CONDITIONS TO OBLIGATIONS OF MEIA II AND PROFESSIONALS. The
obligation of MEIA II and Professionals to consummate the transactions
contemplated by this Agreement and the other Related Agreements is subject to
the satisfaction on or prior to the Closing Date of the following conditions:
<PAGE>
(a) PERFORMANCE. Each agreement and obligation of MEIA I and MELA to
be performed or complied with on or before the Closing Date pursuant hereto
shall have been duly performed and complied with in all material respects.
(b) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of MEIA I, MELA and any Affiliate of either MEIA I or MELA
contained in this Agreement, including all Exhibits or Schedules hereto or in
the Related Agreements and in any other writing signed by either MEIA I or MELA
delivered pursuant hereto or thereto or in connection herewith or therewith
shall be true and complete in all material respects on and as of the Closing
Date with the same effect as though made on and as of such date.
(c) NO VIOLATION OF STATUTES, ORDERS, ETC. There shall be no legal
requirements which make it illegal for MEIA II and Professionals to consummate
the transactions contemplated hereby or which enjoin Professionals or MEIA II
from consummating the transactions contemplated hereby.
(d) LEGAL ACTIONS. No legal action or proceeding shall have been
instituted or threatened in writing by any Person (i) naming MEIA II,
Professionals, Mutual or PICOM, or any of their respective Affiliates,
representatives, advisors, attorneys or accountants, which action or proceeding
relates to this Agreement, the Letter of Intent or the consummation of
transactions contemplated by the Letter of Intent or this Agreement, or
(ii) seeking to restrain or prohibit, or questioning the validity or legality
of, the consummation of the transactions contemplated by this Agreement or
seeking material damages or other remedies which would have a Material Adverse
Effect on the Assets or the Business or on MEIA II or Professionals or any of
their respective Affiliates.
(e) CONSENTS AND APPROVALS. All consents and approvals with regard
to the Assumed Contracts shall have been obtained, except for any consents or
approvals not obtained by the Closing Date that have been expressly waived in
writing by Professionals and MEIA II and any such consents and approvals with
regard to the Assumed Contracts with insurance companies other than Mutual, the
receipt of which is hereby waived by Professionals and MEIA II. In addition,
all necessary consents and approvals from Governmental Authorities, including
approval by the Michigan Commissioner of Insurance, shall have been obtained by
the Closing Date.
(f) CERTIFICATE. Each of MEIA I and MELA shall have delivered to
Professionals and MEIA II an Officers' Certificate, dated as of the Closing
Date, in substantially the form attached hereto as EXHIBIT 6.2(e), executed on
their behalf by the Chief Executive Officer and Secretary of each of MEIA I and
MELA, certifying (i) that the representations and warranties of MEIA I and MELA
contained in this Agreement are true and complete in all material respects as of
the Closing Date with the same effect as though made on and as of the Closing
Date, and (ii) that each of MEIA I and
<PAGE>
MELA has in all material respects performed and complied with all of the
covenants in this Agreement to be performed and complied with by it on or prior
to the Closing Date.
(g) RELATED AGREEMENTS. Each of MEIA I and MELA shall have executed
and delivered to Professionals and MEIA II the Related Agreements to which it is
a party.
(h) NONCOMPETITION AGREEMENTS. Professionals and MEIA II shall have
received executed copies of the Noncompetition Agreements from each of the
Agency's shareholders.
(i) RELEASES. MEIA II, Mutual, Professionals and PICOM shall have
received executed copies of the Releases from the Agency and each of the
Agency's Affiliates, directors, officers and shareholders.
11.2 CONDITIONS TO OBLIGATIONS OF THE AGENCY. The obligation of the Agency
to consummate the transactions contemplated by this Agreement and the other
Related Agreements is subject to the satisfaction on or prior to the Closing
Date of the following conditions:
(a) PERFORMANCE. Each agreement and obligation of Professionals or
MEIA II to be performed or complied with on or before the Closing Date pursuant
hereto shall have been duly performed and complied with in all material
respects.
(b) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of MEIA II and Professionals contained in this Agreement,
including the Exhibits and Schedules hereto, or in the Related Agreements and in
any other writing signed by either MEIA II and Professionals delivered pursuant
hereto or thereto or in connection herewith or therewith shall be true and
complete in all material respects on and as of the Closing Date with the same
effect as though made on and as of such date.
(c) NO VIOLATION OF STATUTES, ORDERS, ETC. There shall be no legal
requirements which make it illegal for MEIA I or MELA to consummate the
transactions contemplated hereby or which enjoin either MEIA or MELA from
consummating the transactions contemplated hereby.
(d) LEGAL ACTIONS. No legal action or proceeding shall have been
instituted or threatened in writing by any Person (excluding any action or
proceeding instituted or threatened by any party to this Agreement) seeking to
restrain or prohibit, or questioning the validity or legality of, the
consummation of the transactions contemplated by this Agreement or seeking
material damages, or other remedies which would have a Material Adverse Effect
on MEIA II or Professionals or on MEIA I or MELA or any of their respective
Affiliates.
<PAGE>
(e) PROFESSIONALS' CERTIFICATE. Professionals shall have delivered
to the Agency an Officers' Certificate, dated as of the Closing Date, executed
on behalf of Professionals by the Chief Executive Officer and Secretary of
Professionals, certifying (i) that the representations and warranties of
Professionals contained in this Agreement are true and complete in all material
respects as of the Closing Date with the same effect as though made on and as of
the Closing Date, and (ii) that Professionals has in all material respects
performed and complied with all of the covenants in this Agreement to be
performed and complied with by it on or prior to the Closing Date.
(f) MEIA II'S CERTIFICATE. MEIA II shall have delivered to the
Agency an Officers' Certificate, dated as of the Closing Date, executed on
behalf of MEIA II by the Chief Executive Officer and Secretary of MEIA II,
certifying (i) that the representations and warranties of MEIA II contained in
this Agreement are true and complete in all material respects as of the Closing
Date with the same effect as though made on and as of the Closing Date, and
(ii) that MEIA II has in all material respects performed and complied with all
of the covenants in this Agreement to be performed and complied with by it on or
prior to the Closing Date.
(g) RELATED AGREEMENTS. Each of MEIA II and Professionals shall have
executed and delivered to the Agency the Related Agreements to which it is a
party.
ARTICLE XII
SURVIVAL; INDEMNIFICATION
12.1 SURVIVAL; EXCLUSION OF OTHER REPRESENTATIONS.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Subject to the time
limitations set forth in Section 12.2(e), all representations and warranties
made by MEIA I, MELA, MEIA II or Professionals in this Agreement, including the
Exhibits and Schedules, or in any Related Agreement shall survive the Closing.
(b) EXCLUSION OF OTHER REPRESENTATIONS. Each of MEIA I, MELA,
MEIA II and Professionals acknowledges that it has sufficient knowledge and
expertise in business and financial matters to evaluate the merits and risks
associated with the transactions contemplated by this Agreement. Each of MEIA
I, MELA, MEIA II and Professionals has made its decision to enter into this
Agreement and to consummate the transactions provided for herein without relying
upon any express or implied representations, warranties, commitments or
undertakings of any other Person, or such other Person's directors, officers,
employees, agents, representatives or affiliates, except as expressly set forth
in this Agreement, including the Exhibits and Schedules, and in the Related
Agreements.
12.2 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE AGENCY. If the Closing is consummated,
<PAGE>
the Agency and its successors and assigns shall indemnify and defend and hold
Professionals and MEIA II and their respective directors, officers and other
Affiliates harmless against and with respect to, and shall reimburse
Professionals and MEIA II and their respective directors, officers and other
Affiliates for, any and all damages reasonably and proximately incurred by any
of the foregoing as a result of any of the following:
(i) any inaccuracy or misrepresentation in or breach of any
representation or warranty of MEIA I or MELA in this
Agreement or any of the Related Agreements;
(ii) the breach or failure by either MEIA I or MELA to perform
any of its covenants or agreements under this Agreement
or any of the Related Agreements;
(iii) the operation or ownership of the Business or the Assets
prior to the Closing Date; and
(iv) any Excluded Asset or any Liability (except for Assumed
Liabilities); provided, however, that such Liabilities
shall include any breaches of an Assumed Liability that
occurred prior to Closing.
(b) INDEMNIFICATION BY PROFESSIONALS. If the Closing is consummated,
Professionals shall indemnify and defend and hold MEIA I and MELA and their
respective directors, officers, shareholders and other Affiliates harmless
against and with respect to, and shall reimburse MEIA I and MELA and their
respective directors, officers, shareholders and other Affiliates for, any and
all damages reasonably and proximately incurred by any of the foregoing as a
result of the following:
(i) any inaccuracy or misrepresentation in or breach of any
representation or warranty of Professionals in this
Agreement or any of the Related Agreements; and
(ii) the breach or failure by Professionals to perform any of
its covenants or agreements under this Agreement or any
of the Related Agreements.
(c) INDEMNIFICATION BY MEIA II. If the Closing is consummated,
MEIA II shall indemnify and defend and hold MEIA I and MELA and their respective
directors, officers, shareholders and other Affiliates harmless against and with
respect to, and shall reimburse MEIA I and MELA and their respective directors,
officers, shareholders and other Affiliates for, any and all damages reasonably
and proximately incurred by any of the foregoing as a result of the following:
<PAGE>
(i) any inaccuracy or misrepresentation in or breach of any
representation or warranty of MEIA II in this Agreement
or any of the Related Agreements;
(ii) the breach or failure by MEIA II to perform any of its
covenants or agreements under this Agreement or any of
the Related Agreements;
(iii) the operation or ownership of the Business or the Assets
from and after the Closing Date, excluding any liability
arising from any act or omission, fact or circumstance in
existence or having occurred prior to the Closing Date;
and
(iv) any Assumed Contract or other Assumed Liability.
(d) PROCEDURE FOR INDEMNIFICATION. The procedure for indemnification
shall be as follows:
(i) The Person claiming indemnification ("Claimant") shall,
within thirty (30) days after its discovery of any claim
for which indemnification will be sought as provided in
this Agreement (the "Claim"), give notice to the Person
from whom indemnification is sought ("Indemnitor") of its
Claim, specifying in reasonable detail the factual basis
for the Claim and, to the extent known, the amount of the
Claim. Notwithstanding the foregoing, the failure by
Claimant to provide notice of any Claim within the period
specified, or any delay in providing such notice, shall
not affect or impair the obligations of Indemnitor
hereunder, except and only to the extent that Indemnitor
has been adversely affected by such failure or delay.
(ii) With respect to Claims between MEIA I, MELA, MEIA II and
Professionals, following receipt of notice from Claimant
of a Claim, Indemnitor shall have thirty (30) days to
make any investigation of the Claim that Indemnitor deems
necessary or desirable. For purposes of this
investigation, Claimant shall make available to
Indemnitor and its authorized representatives the
information relied upon by Claimant to substantiate the
Claim. If Claimant and Indemnitor cannot agree as to the
validity and amount of the Claim within the
thirty (30)-day period (or any mutually agreed upon
extension thereof), Claimant shall submit the claim to
arbitration as provided in Section 12.2(h).
<PAGE>
(iii) With respect to any Claim by a third party as to which
Claimant is entitled to indemnification hereunder,
Indemnitor shall have the right, exercisable by written
notice to Claimant within thirty (30) days after receipt
of written notice from Claimant of the commencement or
assertion of any such Claim, at its own expense to
participate in or assume control of the defense of the
Claim, and Claimant shall cooperate fully with
Indemnitor, subject to reimbursement for actual
out-of-pocket expenses incurred by Claimant as the result
of a request by Indemnitor. If Indemnitor does not elect
to assume control or otherwise participate in the defense
of any third-party Claim within thirty (30) days of its
receipt of notice of the Claim (or any extended period
mutually agreed upon by the parties), Claimant shall
(upon further written notice to Indemnitor) have the
right to undertake the defense, compromise or settlement
of the Claim for the account of Indemnitor subject to the
right of Indemnitor, at its expense, to assume the
defense of the Claim at any time prior to final
settlement, compromise or determination thereof. In no
event shall Indemnitor be liable or otherwise have any
obligation with respect to any settlement, compromise or
determination of any Claim agreed to by Claimant without
the prior written consent of Indemnitor (which consent
shall not be unreasonably withheld). Notwithstanding the
foregoing, Indemnitor shall not settle or compromise any
Claim without the prior written consent of Claimant
(which consent shall not be unreasonably withheld).
(iv) MEIA I, MELA, MEIA II and Professionals shall cooperate
in defending any third-party Claim, and the defending
Person(s) shall have reasonable access to the books,
records and personnel which are pertinent to the defense
and which are in control of the other Person(s). MEIA I,
MELA, MEIA II and Professionals shall furnish such
records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and
appeals, as may be reasonably requested by the other
Person(s) in connection with defending any third-party
Claim.
(v) Notwithstanding anything contained in this Agreement to
the contrary, if the Agency shall owe Professionals or
MEIA II any amount during the period MEIA II (or
Professionals or Mutual, as guarantors) shall owe a
portion of the Purchase Price payable to the Agency
pursuant to Section 2.2(b)
<PAGE>
hereof, Professionals, Mutual or MEIA II shall be
entitled to set-off against its payment obligation the
amount then owed by the Agency to Professionals, Mutual
or MEIA II; PROVIDED that no such set-off shall be taken
unless Professionals, Mutual or MEIA II shall have given
to the Agency 30 days' prior written notice of its intent
to exercise its right of set-off under this Section 12.2
and the basis thereof. If Professionals or MEIA II shall
have asserted a claim for indemnification pursuant to
this Article XII, then either Professionals or MEIA II
will direct that the amount subject to such claim will be
held in an interest-bearing escrow pending the resolution
of such claim. Any such escrowed amount will be counted
against any payment obligation then owed by
Professionals, Mutual and/or MEIA II to the Agency.
(e) TIME LIMITATIONS. Indemnitor will have no liability to Claimant
under or in connection with a breach of any of the representations and
warranties made or to be performed by Indemnitor contained in this Agreement
unless written notice asserting a Claim based thereon is given to Indemnitor not
later than eight (8) years following the date of this Agreement; provided that,
notwithstanding the foregoing, Indemnitor will have no liability to Claimant
under or in connection with (a) a breach of any representation, warranty,
covenant or agreement made or to be performed by Indemnitor contained in this
Agreement related to any Taxes or Employee Benefit Plans, including those
representations and warranties set forth in Section 3.16, Section 3.21 and
Section 4.5 (as it relates to Taxes or Employee Benefit Plans) unless written
notice asserting a Claim based thereon is given to Indemnitor prior to the later
of (i) 90 days after the date upon which the liability to which any such Claim
may relate is barred by all applicable statutes of limitation and (ii) 90 days
after the date upon which any claim for refund or credit related to such Claim
is barred by all applicable statutes of limitation; (b) a breach of any
representation, warranty, covenant or agreement made or to be performed by
Indemnitor contained in this Agreement related to any environmental matters,
including those representations and warranties set forth in Section 3.17 and
Section 4.5 (as it relates to environmental matters) unless written notice
asserting a Claim is given to Indemnitor prior to the tenth anniversary of the
Closing Date, and (c) those representations and warranties set forth in Section
3.1, Section 3.2, Section 3.3, Section 3.4, Section 4.1, Section 4.2, Section
4.3, Section 5.1, Section 5.2 or Section 5.3 which may be asserted at any time.
(f) TAX EFFECT AND INSURANCE. The liability of Indemnitor with
respect to any Claim shall be reduced by the tax benefit actually realized and
any insurance proceeds received by Claimant as a result of any losses upon which
such Claim is based and shall include any tax detriment actually suffered by
Claimant as a result of such losses.
(g) SUBROGATION. Upon payment in full of any Claim, whether
<PAGE>
such payment is effected by set-off or otherwise, or payment of any judgment or
settlement with respect to a third-party Claim, Indemnitor shall be subrogated
to the extent of such payment and to the extent permitted by applicable law to
the rights of Claimant against any Person with respect to the subject matter of
such Claim or third party Claim.
(h) ARBITRATION. All disputes arising under this Article XII (other
than claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA").
Arbitration shall be by three arbitrators. Each of the Agency, on the one
hand, and Professionals and MEIA II together, on the other hand, shall select a
single arbitrator and file with the AAA a notice of appointment. The two
arbitrators so chosen shall select a third arbitrator who shall act as chairman
of the arbitrations. If either the Agency, on the one hand, or Professionals
and MEIA II together, on the other hand, should abstain from selecting an
arbitrator within ten (10) business days, or should the two arbitrators selected
above fail to select a third arbitrator within ten (10) business days, then at
the request of either the Agency, on the one hand, or Professionals and MEIA II
together, on the other hand, the President of the AAA shall select an
arbitrator, to fill the vacant position within ten (10) business days of such
request. Arbitration shall be held in such place in Ingham County, Michigan, as
may be specified by the arbitrator (or any place agreed to by Indemnitor,
Claimant and the arbitrator). The decision of the arbitrator shall be final and
binding as to any matters submitted under this Article XII; PROVIDED, HOWEVER,
that, if necessary, such decision and satisfaction procedure may be enforced by
either Indemnitor or Claimant in any court of record having jurisdiction over
the subject matter or over any of MEIA I, MELA, MEIA II or Professionals. All
costs and expenses incurred in connection with any such arbitration proceeding
(including reasonable attorneys' fees) shall be borne by the Person(s) against
which the decision is rendered, or, if no decision is rendered, such costs and
expenses shall be borne equally by Indemnitor and Claimant. If the arbitrator's
decision is a compromise, the determination of which Person(s) shall bear the
costs and expenses incurred in connection with any such arbitration proceeding
shall be made by the arbitrator on the basis of the arbitrator's assessment of
the relative merits of the positions of Indemnitor and Claimant.
(i) If the Closing is consummated, the indemnification provided in
this Section 12.2 shall be the sole and exclusive legal remedy for any
inaccuracy or misrepresentation in or breach of any representation or warranty
made by MEIA I, MELA, Professionals or MEIA II or in any of the Related
Agreements and no such Person shall seek any other legal remedy (whether under
federal or state securities laws or otherwise) which might otherwise be
available to such Person; PROVIDED, HOWEVER, that nothing in this Section 12.2
shall preclude any Person from seeking any legal remedy available to such Person
for any inaccuracy or breach which constitutes fraud on the part of any other
Person; and PROVIDED FURTHER, HOWEVER, that nothing in this Section 12.2 shall
preclude any Person from seeking any equitable remedy available to such Person
for any such inaccuracy or breach or for any failure by any
<PAGE>
other Person to comply with any of the covenants or agreements of such other
Person contained herein or in any of the Related Agreements to be performed or
complied with after the Closing.
ARTICLE XIII
MISCELLANEOUS
13.1 NOTICES. All notices, demands, requests, consents, approvals or other
communications (collectively, "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and shall be personally served or deposited in the United States mail, first
class, registered or certified, return receipt requested, postage prepaid,
addressed as set forth below, or such other address or to such other Person as
any of MEIA I, MELA, MEIA II or Professionals shall have specified most recently
by written notice in accordance with this Section 13.1. Notice shall be deemed
given on the date of service if personally served. Notice mailed as provided
herein shall be deemed given on the third business day following the date so
mailed. Notice given by telex, telecopy or other means of telecommunications
shall be deemed to have been given at the time of receipt thereof by the Person
to whom such notice is addressed; PROVIDED, HOWEVER, that any Notice given by
telex, telecopy or other means of telecommunications and received after the
receiving Person's normal business hours shall be deemed received by such Person
on the immediately succeeding business day.
To the Agency:
Michigan Educators Insurance Agency, Inc.
691 N. Squirrel Road, Suite 100
Auburn Hills, Michigan 48326
Attn.: John H. Mace, Chairman
Telecopy No.: (248) 377-1456
Telephone No.: (248) 373-0200
With a copy to:
Howard & Howard Attorneys, P.C.
1400 N. Woodward Avenue, Suite 250
Bloomfield Hills, Michigan 48304
Attn.: Donald F. Tucker, Esq.
Telecopy No.: (810) 645-1568
Telephone No.: (810) 645-1483
To MEIA II:
MEEMIC Insurance Services Corporation
691 N. Squirrel Rd., Suite 200
Auburn Hills, Michigan 48326
Attn.: R. Kevin Clinton, President
<PAGE>
Telecopy No.: (248) 377-8518
Telephone No.: (248) 377-8582
With a copy to:
Dykema Gossett PLLC
800 Michigan National Tower
Lansing, Michigan 48933-1707
Attn.: Lori M. Silsbury
Telecopy No.: 517-374-9191
Telephone No.: 517-374-9150
To Professionals:
Professionals Insurance Company Management Group
4295 Okemos Road
Box 2510
Attn.: Victor T. Adamo
Telecopy No.: 517-349-8977
Telephone No.: 517-349-6500
With a copy to:
Honigman Miller Schwartz and Cohn
222 North Washington Square, Suite 400
Lansing, Michigan 48933-1800
Attn.: Timothy Sawyer Knowlton
Telecopy No.: 517-484-8286
Telephone No.: 517-484-8282
13.2 EXPENSES. Whether or not the transactions contemplated herein shall
be consummated, all legal and other costs and expenses incurred in connection
herewith and the transactions contemplated hereby shall be paid by the party
incurring such expenses. The provisions of this Section 13.2 shall survive any
termination of this Agreement.
13.3 SUCCESSORS AND ASSIGNS.
(a) GENERAL. This Agreement and all of the provisions hereof shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided that, except as provided
in Section 2.12(a), neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned, by operation of law or otherwise, by any
party hereto without the prior written consent of the other party(ies) hereto.
If any party is so permitted to assign any of its rights or obligations under
this Agreement or any other Related Agreement, such
<PAGE>
assignment (unless otherwise agreed to by the other party(ies)) shall not in any
manner affect or impair such assigning party's obligations under this Agreement
and the other Related Agreements to which it is a party.
(b) RIGHT OF SUSPENSION. (i) From and after the date of any
assignment and assumption contemplated by Section 3.03(a) of the Liquidating
Trust Agreement, in the event that any shareholder of MEIA I or MELA shall
breach any of the obligations of MEIA I, MELA or their respective successors or
assigns set forth in this Agreement, including but not limited to, Sections 7.4,
7.9, 7.10 and 12.2 or any of the terms of the Noncompetition Agreement or
Release to which such shareholder is a party, MEIA II, Mutual and Professionals
shall be entitled to suspend their respective obligations to such shareholder
with respect to the Installment Payments to be made pursuant to Section 2.2(b)
and the other consideration contemplated by Sections 2.3, 2.4, 2.5, 2.6, 2.7 and
2.12(c) pending resolution of such breach; (ii) from and after the date of any
assignment and assumption contemplated by Section 3.03(a) of the Liquidating
Trust Agreement, for any shareholder which has not executed its assignment and
assumption, in the event that any shareholder of MEIA I or MELA shall breach any
of the obligations of MEIA I, MELA or their respective successors or assigns set
forth in this Agreement, including but not limited to, Sections 7.4, 7.9, 7.10
and 12.2 or any of the terms of the Noncompetition Agreement or Release to which
such shareholder is a party, MEIA II, Mutual and Professionals shall be entitled
to suspend their respective obligations to the Agency (or the Trust as defined
under the Liquidating Trust Agreement as its successor or assign) with respect
to the Installment Payments to be made pursuant to Section 2.2(b) and the other
consideration contemplated by Sections 2.3, 2.4, 2.5, 2.6, 2.7 and 2.12(c)
pending resolution of such breach; PROVIDED, that no such suspension shall occur
unless MEIA II or Professionals, as the case may be, shall have given to such
shareholder 30 days' prior written notice of its intent to exercise its right of
suspension under this Section 13.3(b) and the basis thereof, and, PROVIDED,
FURTHER, that any such Installment Payment to be made or other consideration to
be delivered shall be held in an interest-bearing escrow pending resolution of
such breach. Notwithstanding anything in this Agreement to the contrary, from
and after the date on which any of MEIA II, Mutual and Professionals has
exercised its right of suspension with respect to any shareholder under this
Section 13.3(b), such shareholder shall be entitled to exercise his or her
cash-out option pursuant to Section 2.6 (as restated by Section 2.12(c)(v)), but
the proceeds of any such cash-out option shall be held in an interest-bearing
escrow pending resolution of such breach.
(c) DISPUTES REGARDING SUSPENSION. In the event of any dispute with
respect to the exercise of any right of suspension under Section 13.3(b), the
same shall be resolved consistent with the provisions of Section 12.2(h).
13.4 PUBLIC ANNOUNCEMENTS. Neither MEIA I, MELA, MEIA II, Professionals,
their respective Affiliates nor the agents and representatives of MEIA I, MELA,
MEIA II, Professionals or their respective Affiliates will make any press
release or public announcement concerning the existence of this Agreement or the
transactions
<PAGE>
contemplated hereby, except to the extent legally required to do so after
consultation with such other Person(s) or with the prior consent of such other
Person(s); PROVIDED, HOWEVER, that nothing in this Agreement shall require any
Person to consult with or obtain the consent of any other Person(s) if such
disclosure is required by applicable securities laws.
13.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the Schedules
and Exhibits and the Related Agreements, and the Memorandum of Understanding
dated the date hereof, embody the entire agreement and understanding of MEIA I,
MELA, Professionals and MEIA II with respect to the subject matter hereof and
supersede all prior agreements between MEIA I, MELA, Professionals and MEIA II
or any of their Affiliates with respect to the subject matter of this Agreement,
including the Letter of Intent (it being understood and acknowledged by each of
MEIA I, MELA and Professionals that, upon execution of this Agreement, the
Letter of Intent shall be terminated and the respective rights and obligations
of MEIA I, MELA and Professionals under the Letter of Intent shall be
extinguished). This Agreement may be amended, modified or supplemented in any
manner and at any time only by a written instrument executed by MEIA I and MELA,
Professionals and MEIA II. No waiver by any of MEIA I, MELA, Professionals or
MEIA II of any term or condition hereof, or the breach of any covenant,
agreement, warranty, representation or provision contained herein, in any one or
more instances, shall be made to be or construed as a further continuing waiver
of any such term, condition or breach or a waiver of any other term, condition
or breach.
13.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall together constitute one and the same instrument
and shall become effective when one or more counterparts have been signed by
MEIA II and Professionals and delivered to MEIA I and MELA and one or more
counterparts have been signed by MEIA I and MELA and delivered to MEIA II and
Professionals.
13.7 HEADINGS; REFERENCES; INTERPRETATION. The Article and Section
headings in this Agreement are for convenience of reference only and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof. Any reference to a Schedule or an Exhibit shall be deemed to refer to
the applicable Schedule or Exhibit attached hereto, all of such Schedules and
Exhibits being incorporated herein by this reference.
13.8 GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Michigan,
and applicable controlling United States federal law.
13.9 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated
<PAGE>
hereby is not affected in any adverse manner to any of MEIA I, MELA,
Professionals and MEIA II. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, MEIA I, MELA,
Professionals and MEIA II shall negotiate in good faith to modify this Agreement
to effect their original intent as closely as possible in an acceptable manner
so that the transactions contemplated hereby are fulfilled to the extent
possible.
13.10 FURTHER ASSURANCES. MEIA I, MELA, Professionals and MEIA II will
each promptly prepare, execute and deliver to such other Person(s) such lists,
instruments and documents and cooperate with such other Person(s) in such other
respects as the requesting Person(s) may, from time to time, before or after the
Closing, reasonably request to carry out the transactions contemplated by this
Agreement.
13.11 BROKERAGE. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by MEIA I,
MELA, Professionals and MEIA II directly without the intervention of any Person.
Such negotiations, and the consummation of the transactions under this
Agreement, will not result in any liability by any of MEIA I, MELA,
Professionals and MEIA II for any finder's fee, brokerage commission or other
similar fee. Each of MEIA I, MELA, Professionals and MEIA II shall indemnify
such other Person(s) and hold it (or them) harmless from and against any claim
for brokerage or finders' fees or other commissions resulting from actions of
the indemnifying party which are not in accordance with the preceding sentence.
13.12 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express
or implied, is intended to or shall (i) confer on any Person other than MEIA I,
MELA, Professionals and MEIA II and their respective successors or permitted
assigns any rights (including third party beneficiary rights), remedies,
obligations or liabilities of any nature whatsoever under or by reason of this
Agreement, or (ii) constitute MEIA I, MELA, Professionals and MEIA II as
partners or as participants in a joint venture. This Agreement shall not
provide third parties with any remedy, claim, liability, reimbursement, cause of
action or other right in excess of those existing without reference to the terms
of this Agreement.
13.13 ACKNOWLEDGMENT. MEIA I, MELA, Professionals and MEIA II each
acknowledge that all the terms and conditions in this Agreement and the Related
Agreements have been the subject of active and complete negotiation between them
and represent their agreement based upon all relevant considerations. The terms
and conditions of this Agreement and the Related Agreements shall not be
construed in favor of or against any of MEIA I, MELA, Professionals and MEIA II
by reason of the extent to which any such Person or its professional advisors
participated in the preparation hereof or thereof.
IN WITNESS WHEREOF, the undersigned execute and deliver this Agreement as
of the date first written above.
<PAGE>
MICHIGAN EDUCATORS INSURANCE
AGENCY, INC.
By: /s/ John H. Mace
--------------------------------
John H. Mace
Chairman of the Board
MICHIGAN EDUCATORS LIFE
INSURANCE AGENCY, INC.
By: /s/ John H. Mace
--------------------------------
John H. Mace
Chairman of the Board
MEEMIC INSURANCE SERVICES
CORPORATION
By: /s/ R. Kevin Clinton
--------------------------------
R. Kevin Clinton, President
PROFESSIONALS INSURANCE
COMPANY MANAGEMENT GROUP
By: /s/ Victor T. Adamo
--------------------------------
Victor T. Adamo, President
The undersigned hereby agrees to execute and deliver, and to perform its
obligations under, Article II, the Mutual Guaranty (Exhibit 2.3(a)), the
Subscription Agreement (Exhibit 1.1(e)), Section 8.4 and Section 8.5 and
executes the Agreement solely for such purposes.
<PAGE>
MICHIGAN EDUCATIONAL
EMPLOYEES MUTUAL INSURANCE
COMPANY
By: /s/ R. Kevin Clinton
--------------------------------
R. Kevin Clinton, President
<PAGE>
SCHEDULES
Schedule 1.1(a) -- Contracts
Schedule 1.1(b) -- Excluded Assets
Schedule 2.8(a) -- Obligations to Solicitors
Schedule 2.8(b) -- Assumed Liabilities
Schedule 2.10 -- Allocation of Purchase Price
Schedule 3.3 -- The Agency's Requisite Consents; Nonviolation
Schedule 3.4(a) -- Title to Assets
Schedule 3.4(d) -- Leased Property
Schedule 3.5(e) -- Undisclosed Liabilities or Obligations
Schedule 3.6 -- Contracts and Leases
Schedule 3.7 -- Defaults
Schedule 3.8 -- Litigation
Schedule 3.9 -- Intellectual Property
Schedule 3.10 -- Licenses and Permits
Schedule 3.12 -- Events Since the Balance Sheet Date
Schedule 3.13 -- Insurance
Schedule 3.14 -- Employees of the Business
Schedule 3.16 -- Employee Benefit Plans
Schedule 3.19 -- Guarantees
Schedule 3.20 -- Certain Advances
Schedule 3.21 -- Tax Status of MEIA I and MELA
Schedule 3.22 -- Related Party Transactions
EXHIBITS
Exhibit 1.1(c) -- Noncompetition Agreement
Exhibit 1.1(d) -- Release
Exhibit 1.1(e) -- Subscription Agreement
Exhibit 2.3(a) -- Mutual Guaranty
Exhibit 2.3(b) -- Professionals Guaranty
Exhibit 2.3(c) -- Inter-Creditor Agreement
Exhibit 2.9 -- Escrow Agreement
Exhibit 2.12(a) -- Liquidating Trust Agreement
Exhibit 2.12(b) -- Assignment and Assumption Agreement
Exhibit 6.2(a) -- Warranty Bill of Sale and Assignment
Exhibit 6.2(b) -- Assignment of Lease
Exhibit 6.2(c) -- Consent and Estoppel
Exhibit 6.2(d) -- Opinion of Howard & Howard
Exhibit 6.2(e) -- Officers' Certificate of MEIA I and MELA
Exhibit 6.2(f) -- Opinion of Honigman Miller Schwartz and Cohn
Exhibit 6.2(g) -- Opinion of Dykema Gossett PLLC
Exhibit 6.2(h) -- Officers' Certificate of Professionals
Exhibit 6.2(i) -- Officers' Certificate of MEIA II
<PAGE>
INTER-CREDITOR AGREEMENT
THIS INTER-CREDITOR AGREEMENT (the "Agreement") dated September 22, 1997 is
by and among MEEMIC Insurance Services Corporation, a Michigan corporation
("MEIA II"), Michigan Educational Employees Mutual Insurance Company, a Michigan
mutual insurance company ("MEEMIC") and Professionals Insurance Company
Management Group, a Michigan corporation ("Professionals").
RECITALS
MEIA II, MEEMIC and Professionals have entered into an Asset Purchase
Agreement with Michigan Educators Insurance Agency, Inc., a Michigan corporation
("MEIA I") and Michigan Educators Life Insurance Agency, Inc., a Michigan
corporation ("MELA", and collectively with MEIA I, the "Agency") dated September
22, 1997 (the "Asset Purchase Agreement"). Capitalized terms not otherwise
defined in this Agreement shall have the meanings ascribed to them in the Asset
Purchase Agreement.
Pursuant to the terms of the Asset Purchase Agreement, (i) the Agency
agrees to sell certain assets of the Agency to MEIA II, and MEIA II agrees to
purchase such assets for consideration to be paid in the years 1997 through
2004, inclusive and (ii) MEEMIC and Professionals agree to guarantee certain
payments to the Agency, as more specifically set forth in the Agreement of
Guaranty between MEIA I, MELA and MEEMIC dated the date hereof (the "MEEMIC
Guaranty") and the Agreement of Guaranty between MEIA I, MELA and Professionals
dated the date hereof (the "Professionals Guaranty" and collectively with the
MEEMIC Guaranty, the "Guaranties"). Under the MEEMIC Guaranty and the
Professionals Guaranty, respectively, MEEMIC and Professionals have the option
to make their respective guaranteed payments directly to the Agency (a "Direct
Guaranteed Payment"), or to provide MEIA II with sufficient funds to make these
guarantee payments on behalf of MEEMIC or Professionals, respectively (an
"Indirect Guaranteed Payment").
MEIA II, MEEMIC and Professionals desire to (i) establish a mechanism for
making guaranteed payments under the Guaranties, (ii) establish a mechanism for
the reimbursement by MEIA II of guaranteed payments made under the Guaranties
under certain conditions, (iii) establish a mechanism for resolving any disputes
about the amount of any payments to be made under the Guaranties, and (iv)
memorialize the understanding of the parties to this Agreement as to the
respective obligations of the parties to this Agreement regarding guarantee
payments under the Guaranties.
Therefore, the parties to this Agreement agree as follows:
<PAGE>
ARTICLE I
GUARANTY PAYMENT MECHANISMS
1.1 UTILIZATION OF INDIRECT GUARANTEED PAYMENT MECHANISM. The parties to
this Agreement understand and agree that unless prior written notice is given to
MEIA II (at least five business days in advance unless circumstances exist that
reasonably make such advance notice unreasonable), both MEEMIC and Professionals
intend to use the Indirect Guaranteed Payment mechanism to make any guaranteed
payments under their respective Guaranties. MEIA II agrees to utilize any such
funds received to make the necessary payment to the Agency pursuant to the terms
of the Asset Purchase Agreement. MEEMIC and Professionals understand and
acknowledge that payment of funds to MEIA II pursuant to the Indirect Guaranteed
Payment mechanism may not relieve them of their respective obligations under the
Guaranties in the event that for whatever reason, the necessary payment to the
Agency pursuant to the terms of the Asset Purchase Agreement is not made by MEIA
II.
ARTICLE II
GUARANTEED PAYMENT OBLIGATIONS AND REIMBURSEMENT
2.1 CALCULATION. On or before August 15 of the years 1998 to 2004,
inclusive (or the first business day thereafter which is not a bank holiday if
September 1 is either not a business day or is a bank holiday) MEIA II shall
make the payment calculations required under Section 2.11(a) of the Asset
Purchase Agreement (as adjusted by Section 2.12(c) of the Asset Purchase
Agreement if applicable) to determine the amount that is due and owing to the
Agency. In addition, on each such date, MEIA II shall compare (a) 3.75% of
Cumulative Written Premiums PLUS ANY PRIOR AND UNREIMBURSED GUARANTEED PAYMENTS
(AS DEFINED BELOW) to (b) the Aggregate Payment paid and payable to the Agency
through that year pursuant to Section 2.2(b) of the Asset Purchase Agreement.
2.2 MEEMIC GUARANTY AND MEIA II REIMBURSEMENT OBLIGATIONS.
(a) In the years 1998 through 2000, inclusive, if the amount under
Section 2.1(a) of this Agreement is less than the amount under
Section 2.1(b) of this Agreement, MEEMIC shall be obligated to MEIA II
and the Agency in the amount of the difference, (a "MEEMIC Guaranteed
Payment"), which shall be remitted to the Agency in accordance with
the payment mechanism selected by the parties pursuant to Article I of
this Agreement.
(b) In the years 1998 through 2004, inclusive, if the amount under Section
2.1(a) of this Agreement is greater than the amount under Section
<PAGE>
2.1(b) of this Agreement, MEIA II shall promptly remit the amount of
the difference to MEEMIC in a mutually acceptable fashion, but only
to the extent of the aggregate balance of all prior and unreimbursed
MEEMIC Guaranteed Payments. This reimbursed portion shall no longer
be considered a prior and unreimbursed Guaranteed Payment for
purposes of the formula set forth in Section 2.1 of this Agreement.
2.3 PROFESSIONALS GUARANTY, ADDITIONAL OBLIGATIONS OF PROFESSIONALS, AND
MEIA II REIMBURSEMENT OBLIGATIONS.
(a) In the years 2001 through 2004, inclusive, if the amount under
Section 2.1(a) is less than the amount under Section 2.1(b),
Professionals shall be obligated to MEIA II and the Agency in the
amount of the difference, (a "Professionals Guaranteed Payment"),
which shall be remitted to the Agency in accordance with the payment
mechanism selected by the parties pursuant to Article I of this
Agreement.
(b) In addition, if MEIA II is obligated to make payments to the Agency or
its shareholders pursuant to Section 2.4, 2.5, 2.6 or 2.7 of the Asset
Purchase Agreement, Professionals shall be obligated to MEIA II in the
amount of such payment (an "Additional Professionals Payment
Obligation"), which shall be remitted to the Agency or its
shareholders in accordance with the payment mechanism selected by the
parties pursuant to Article I of this Agreement. From and after the
date of any such payment by Professionals, Professionals shall be
entitled to reimbursement for such payment by an assumption of the
Agency's rights (or in the event of a partial shareholder cash-out,
the Pro-Rata share of the Agency's rights applicable to such
shareholder) to receive 3.75% of Cumulative Written Premium as
provided in the Asset Purchase Agreement.
(c) In the years 2001 through 2004, inclusive, if the amount under Section
2.1(a) of this Agreement is greater than the amount under Section
2.1(b) of this Agreement, and if all prior MEEMIC Guaranteed Payments
shall have been reimbursed in accordance with Section 2.2(b) of this
Agreement, MEIA II shall promptly remit the amount of the difference,
after reimbursement of all prior MEEMIC Guaranteed Payments, to
Professionals in a mutually acceptable fashion. This reimbursed
portion shall no longer be considered a prior and unreimbursed
Guaranteed Payment for purposes of the formula set forth in Section
2.1.
(d) In the event a Demutualization of MEIA II occurs in which MEIA II is
not demutualized into Professionals, MEEMIC will remit the amount of
all Professionals Guaranteed Payments and Additional Professionals
Payment Obligations within thirty days of payment thereof. This
reimbursed portion shall no longer be considered a prior and
<PAGE>
unreimbursed Guaranteed Payment for purposes of the formula set forth
in Section 2.1.
ARTICLE III
DISPUTES REGARDING AMOUNT OF GUARANTEED PAYMENTS
3.1 CALCULATION OF CUMULATIVE WRITTEN PREMIUMS. MEIA II shall provide
MEEMIC and Professionals with a written copy of MEIA II's calculation of
Cumulative Written Premiums, made pursuant to Section 2.11 of the Asset Purchase
Agreement.
3.2 DISPUTE NOTICE. MEEMIC (in the years 1998 to 2000, inclusive) and
Professionals (in the years 2001 to 2004, inclusive) shall each have until
October 14 of each year (or the first business day thereafter if October 14 is
not a business day) to notify MEIA II in writing of any objections thereto,
reasonably and sufficiently describing the basis for any such objections (a
"Dispute Notice").
3.3 GUARANTEED PAYMENT OBLIGATION. MEEMIC and Professionals understand
and agree that (i) even if MEEMIC and/or Professionals have filed a dispute
Notice pursuant to Section 3.2, their obligations to make any Guaranteed
Payments pursuant to MEIA II's calculation of Cumulative Written Premiums is not
affected by such Dispute Notice and that (ii) their obligations to make any
Guaranteed Payments pursuant to MEIA II"s calculation are only affected in the
event MEIA II's calculation is disputed by the Agency pursuant to Section 2.11
of the Asset Purchase Agreement, and then only as provided in Section 2.11(b) of
the Asset Purchase Agreement.
3.4 DISPUTE RESOLUTION. MEIA II, MEEMIC and Professionals shall each use
reasonable efforts to resolve any objections set forth in a Dispute Notice filed
under this Agreement. If the parties are unable to resolve any objections set
forth in a Dispute Notice filed under this Agreement, they agree to have an
independent auditing firm to resolve any such objections pursuant to the
procedures established in Section 2.11 of the Asset Purchase Agreement. In the
event that it is determined, as between MEEMIC, Professionals and MEIA II, that
either MEEMIC or Professionals has made a larger Guaranteed Payment than
appropriate, MEIA II agrees to promptly reimburse MEEMIC or Professionals as
applicable, in a mutually acceptable fashion. Any such reimbursed amount shall
continue to be considered a prior and unreimbursed Guaranteed Payment for
purposes of the formula set forth in Section 2.1 of this Agreement, since
resolution of the dispute did not modify the amount of Guaranteed Payment paid
or payable to the Agency pursuant to the terms of the Asset Purchase Agreement.
3.5 EARLY PAYMENT. In the event either MEIA II or Professionals wishes to
<PAGE>
exercise the option of early payment of purchase price pursuant to Section 2.5
of the Asset Purchase Agreement, such party will notify the other in writing no
later than 10 business days prior to the proposed date of prepayment. Prior to
any prepayment of the purchase price by either MEIA II or Professionals, both
MEIA II and Professionals must consent in writing to such action.
ARTICLE IV
RESPECTIVE OBLIGATIONS OF THE PARTIES
4.1 LIMITED RECOURSE. MEEMIC and Professionals shall each have recourse
against MEIA II with respect to any payments made by them pursuant to their
respective Guaranties only to the extent such recourse is established by Article
II of this Agreement. The Guaranties are otherwise non-recourse against MEIA
II.
4.2 SET OFF RIGHTS. In the event that Professionals is obligated to make
a Professionals Guaranteed Payment or an Additional Professionals Payment
Obligation but fails to timely do so, MEIA II shall have the right, but not the
obligation, to seek payment thereof from MEEMIC, which shall have the right, but
not the obligation, after provision of written notice of default and the
expiration of a fifteen calendar day cure period, to set off such amounts
against amounts owed by MEEMIC to PICOM Insurance Company under a certain
Surplus Note dated April 7, 1997. Professionals agrees that any such set-off
would entitle PICOM Insurance Company to seek payment from Professionals for
such set-off amounts, PICOM Insurance Company being explicitly designated hereby
as a third party beneficiary of this Agreement for the sole purpose of providing
it with such rights. The parties understand and agree that any such set off
will require the consent of the Michigan Insurance Bureau under applicable law.
ARTICLE V
MISCELLANEOUS
5.1 NOTICES. All notices, demands, requests, consents, approvals or other
communications (collectively, "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and shall be personally served or deposited in the United States mail, first
class, registered or certified, return receipt requested, postage prepaid,
addressed as set forth below, or such other address or to such other person as
any party hereto shall have specified most recently by written notice in
accordance with this Section 5.1. Notice shall be deemed given on the date of
service if personally served. Notice mailed as provided herein shall be deemed
given on the third Business Day following the date so mailed.
<PAGE>
Notice given by telex, telecopy or other means of telecommunications shall be
deemed to have been given at the time of receipt thereof by the party to whom
such notice is addressed; provided, however, that any Notice given by telex,
telecopy or other means of telecommunications and received after the receiving
party's normal business hours shall be deemed received by such party on the
immediately succeeding business day.
To MEIA II:
MEEMIC Insurance Services Corporation
691 North Squirrel Road, Suite 200
P.O. Box 21709
Auburn Hills, MI 48321-7019
Attn.: R. Kevin Clinton, President
Telecopy No.: 248/377-8518
Telephone No.: 248/377-8582
To MEEMIC:
Michigan Educational Employees Mutual Insurance Company
691 North Squirrel Road, Suite 200
P.O. Box 21709
Auburn Hills, MI 48321-7019
Attn.: R. Kevin Clinton, President
Telecopy No.: 248/377-8518
Telephone No.: 248/377-8582
To Professionals:
Professionals Insurance Company Management Group
4295 Okemos Road
Box 2510
Attn.: Victor T. Adamo
Telecopy No.: 517/349-8977
Telephone No.: 517/349-6500
5.2 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns; provided that
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned, by operation of law or otherwise, by any party hereto without
the prior written consent of the other party(ies) hereto. If any party is so
permitted to assign any of its rights or obligations under this Agreement, such
assignment (unless otherwise agreed to by the other party(ies)) shall not in any
manner affect or impair such assigning party's obligations under this Agreement.
<PAGE>
5.3 HEADINGS; REFERENCES; INTERPRETATION. The Article and Section
headings in this Agreement are for convenience of reference only and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof.
5.4 GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Michigan,
and applicable controlling United States federal law.
5.5 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
adverse manner to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement to effect the original
intent of the parties as closely as possible in an acceptable manner so that the
transactions contemplated hereby are fulfilled to the extent possible.
5.6 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or
implied, is intended to or shall (i) confer on any person or entity other than
the parties hereto and their respective successors or permitted assigns any
rights (including third party beneficiary rights), remedies, obligations or
liabilities of any nature whatsoever under or by reason of this Agreement,
except as set forth in Section 5.2 of this Agreement, or (ii) constitute the
parties hereto as partners or as participants in a joint venture. This
Agreement shall not provide third parties with any remedy, claim, liability,
reimbursement, cause of action or other right in excess of those existing
without reference to the terms of this Agreement, except as set forth in Section
5.2 of this Agreement.
5.7 ACKNOWLEDGMENT. The parties each acknowledge that all the terms and
conditions in this Agreement have been the subject of active and complete
negotiation between the parties and represent the parties' agreement based upon
all relevant considerations. The parties agree that the terms and conditions of
this Agreement shall not be construed in favor of or against any party by reason
of the extent to which any party or its professional advisors participated in
the preparation hereof or thereof.
IN WITNESS WHEREOF, the undersigned execute and deliver this Agreement as
of the date first written above.
MEEMIC INSURANCE SERVICES
CORPORATION
<PAGE>
By: /s/ R. Kevin Clinton
-----------------------------------
R. Kevin Clinton, President
MICHIGAN EDUCATIONAL
EMPLOYEES MUTUAL
INSURANCE COMPANY
By: /s/ R. Kevin Clinton
-----------------------------------
R. Kevin Clinton, President
PROFESSIONALS INSURANCE
COMPANY MANAGEMENT GROUP
By: /s/ Victor T. Adamo
-----------------------------------
Victor T. Adamo, President
<PAGE>
AGREEMENT OF GUARANTY
BETWEEN
MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
AND
MICHIGAN EDUCATORS LIFE INSURANCE AGENCY, INC.
AND
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY
------------------------
Dated as of
September 22, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Other Definitional Provisions . . . . . . . . . . . . . . . . 2
ARTICLE II - GUARANTY. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . 3
2.3. Obligation Primary. . . . . . . . . . . . . . . . . . . . . . 3
2.4. Waiver of Rights. . . . . . . . . . . . . . . . . . . . . . . 3
2.5. Reinstatement of Guaranty . . . . . . . . . . . . . . . . . . 4
2.6. Limitation of Guaranty. . . . . . . . . . . . . . . . . . . . 4
2.7. Waiver of Defenses. . . . . . . . . . . . . . . . . . . . . . 4
2.8. Reasonableness of Waivers . . . . . . . . . . . . . . . . . . 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF MUTUAL . . . . . . . . . 5
3.1. Organization. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3. Requisite Consents of Mutual; Nonviolation. . . . . . . . . . 5
ARTICLE IV - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 5
4.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3. Successors and Assigns. . . . . . . . . . . . . . . . . . . . 7
4.4. Entire Agreement; Amendment . . . . . . . . . . . . . . . . . 7
4.5. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6. Headings; References; Interpretation. . . . . . . . . . . . . 7
4.7. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 8
4.8. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 8
4.9. No Third Party Beneficiaries. . . . . . . . . . . . . . . . . 8
4.10. Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . . 8
4.11. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
i
<PAGE>
AGREEMENT OF GUARANTY
This Agreement of Guaranty (this "Agreement") is made and entered
into as of September 22, 1997, by and between Michigan Educators Insurance
Agency, Inc., a Michigan corporation ("MEIA I"), Michigan Educators Life
Insurance Agency, Inc., a Michigan corporation ("MEIA," and together with
MEIA I, the "Agency"), and Michigan Educational Employees Mutual Insurance
Company, a Michigan corporation ("Mutual").
WHEREAS, MEEMIC Insurance Services Corporation, a Michigan corporation
and wholly-owned subsidiary of Mutual ("MEIA II"), and Professionals Insurance
Company Management Group have made and entered into a certain Asset Purchase
Agreement with the Agency (the "Asset Purchase Agreement") as of September 22,
1997; and
WHEREAS, in order to induce the Agency to make and enter into the
Asset Purchase Agreement, Mutual has agreed to unconditionally guarantee that
certain of the Installment Payments (as hereinafter defined) will be promptly
paid in full on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, the representations
and warranties and covenants and agreements set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Agency and Mutual, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS.
(a) Capitalized terms used herein and not otherwise defined
shall have the meanings assigned thereto in the Asset Purchase Agreement.
(b) The following terms, as used herein, have the following
respective meanings:
"AGREEMENT" means this Agreement of Guaranty, as amended,
modified or supplemented from time to time hereafter in accordance with the
terms hereof.
"AGENCY" has the meaning assigned to such term in the preambles
of this Agreement.
"GUARANTEED PAYMENTS" has the meaning assigned to such term in
Section 2.1.
"MEIA I" has the meaning assigned to such term in the
introductory paragraph of this Agreement.
<PAGE>
"MEIA II" has the meaning assigned to such term in the introductory
paragraph of this Agreement.
"MELA" has the meaning assigned to such term in the introductory
paragraph of this Agreement.
"Mutual" has the meaning assigned to such term in the introductory
paragraph of this Agreement.
1.2. OTHER DEFINITIONAL PROVISIONS. References to "Articles,"
"Sections," "Subsections," "Clauses," "Exhibits" and "Schedules," if any,
shall be to Articles, Sections, Subsections, Clauses, Exhibits and Schedules,
respectively, of this Agreement unless otherwise specifically provided. Any
of the terms defined in this Agreement, unless the context otherwise
requires, may be used in the singular or the plural depending on the
reference. In this Agreement, "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement as a whole and not merely to the
specific Article, Section, Subsection or Clause in which the respective word
appears; words importing any gender include the other genders; references to
"writing" include printing, typing, lithography and other means of
reproducing words in a tangible visible form; the words "including,"
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to agreements and other contractual instruments shall
be deemed to include subsequent amendments, assignments, and other
modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement;
references to Persons include their respective permitted successors and
assigns or, in the case of governmental Persons, Persons succeeding to the
relevant functions of such Persons; and all references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations.
ARTICLE II
GUARANTY
2.1. GUARANTY. Subject to the terms and conditions hereof, and to
induce the Agency to make and enter into the Asset Purchase Agreement, Mutual
hereby unconditionally guarantees to the Agency the full, prompt and faithful
payment of, on each Applicable Installment Payment Date in 1998 through 2000,
inclusive, the excess, if any, of the Minimum Cumulative Payment with respect
to such Annual Installment Payment Date over the Aggregate Payment as of the
immediately preceding Annual Installment Payment Date (such excess being
referred to herein as the "Guaranteed Payments"), in accordance with the
terms and provisions of the Asset Purchase Agreement, and, in case of any
extension(s) of time of payment, in whole or in part, thereof, according to
such extension(s) (it being understood and acknowledged that, pursuant to
the Inter-Creditor Agreement and as between one another, Mutual has the
option of remitting the Guaranteed Payments to MEIA II for remittance by MEIA
II to the Agency,
2
<PAGE>
PROVIDED that the remittance of any Guaranteed Payments to MEIA II shall not in
any way relieve Mutual of its obligation hereunder to the Agency unless and
until such Guaranteed Payments have been delivered to the Agency free and clear
of any lien, adverse claim, charge, encumbrance or condition of any kind
(whether arising under any bankruptcy law or otherwise).
2.2. WAIVER OF NOTICE. Mutual hereby waives notice of acceptance
of this Agreement and any notice of demand, any presentment for payment and
any and all notice of protest, default, non-payment or dishonor in respect
of any of the Guaranteed Payments. No extension of time or other indulgence
granted by the Agency of MEIA II shall release or affect the obligation of
Mutual hereunder, and no omission or delay on the Agency's part in exercising
any right hereunder or in taking any action to collect or enforce payment of
any obligation guaranteed hereby will be a waiver of any such right or
release or affect the guaranty obligation of Mutual hereunder.
2.3. OBLIGATION PRIMARY. The guaranty obligation of Mutual
hereunder is a primary and unconditional obligation which shall be
enforceable before or after proceeding against MEIA II and shall be effective
regardless of the solvency or insolvency of MEIA II or Mutual. In the event
any security shall later be held by the Agency for the payment of any of the
Guaranteed Payments, whether from MEIA II, any guarantor or otherwise, and
whether in the nature of a security interest, pledge, lien, assignment, set
off, suretyship, guaranty, indemnity, insurance or otherwise, such security
shall not affect in any manner the unconditional obligation of Mutual under
this Agreement (it being understood and acknowledged that, as of the date
hereof, no security has been given for the performance of Mutual's
obligations under this Agreement). The Agency may, without notice to or the
consent of Mutual, release any collateral securing any of the Guaranteed
Payments without diminishing the obligation of Mutual hereunder, and the
Agency shall have no duty to: marshal any security; sue or otherwise attempt
to collect from MEIA II or any other Person any of the Guaranteed Payments;
initiate any proceeding with respect to any collateral securing any of the
Guaranteed Payments or any other property; or take any other action of any
kind prior to demanding payment from Mutual hereunder. The Agency has no
obligation to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of the Guaranteed
Payments, and Mutual is not relying upon any asset(s) in which the Agency has
or may have a lien or security interest for payment of the Guaranteed
Payments.
2.4. WAIVER OF RIGHTS.
(a) Mutual waives any and all rights to be subrogated to the
position of the Agency or to have the benefit of any lien, security interest
or other guaranty now or later held by the Agency for the Guaranteed Payments
or to enforce any remedy which the Agency now or later has against MEIA II or
any other Person. Mutual shall have no right of reimbursement, indemnity,
contribution or other right of recourse to or with respect to MEIA II or any
other Person, EXCEPT as provided in the Inter-Creditor Agreement (it being
understood and acknowledged that, without the prior written consent of to
Agency, Mutual and MEIA II shall not amend, modify or supplement the
Inter-Creditor Agreement). The Agency has no duty to
3
<PAGE>
enforce or protect any rights which Mutual may have against MEIA II or any other
Person and Mutual assumes full responsibility for enforcing and protecting such
rights.
(b) Notwithstanding anything in this Agreement or otherwise to the
contrary, if Mutual is or becomes an "insider" or "affiliate" (as defined in
Section 101 of the Federal Bankruptcy Code, as it may be amended) with
respect to MEIA II, Mutual irrevocably and absolutely waives any and all
rights of subrogation, contribution, indemnification, recourse, reimbursement
and any similar rights against MEIA II (or any other guarantor) with respect
to this Agreement, whether such rights arise under an express or implied
contract or by operation of law. It is the intention of the Agency and
Mutual that Mutual shall not be (or be deemed to be) a "creditor" (as defined
in Section 101 of the Federal Bankruptcy Code, as it may be amended) of MEIA
II (or any other guarantor) by reason of the existence of this Agreement in
the event that MEIA II becomes a debtor in any proceeding under the Federal
Bankruptcy Code. Mutual warrants and agrees that none of the Agency's rights,
remedies or interests shall be directly or indirectly impaired because of the
status of Mutual as an "insider" or "affiliate" of MEIA II, and Mutual shall
take any action, and shall execute any document, which the Agency may request
in order to effectuate this warranty to the Agency.
2.5. REINSTATEMENT OF GUARANTY. Notwithstanding any prior
revocation, termination, surrender or discharge of this Agreement (or of any
lien, pledge or security interest securing this Agreement), in whole or in
part, the effectiveness of this Agreement, and of all liens, pledges and
security interests securing this Agreement, shall automatically continue or
be reinstated, as the case may be, in the event that any payment received or
credit given by MEIA II in respect of the Guaranteed Payments is returned,
disgorged or rescinded as a preference, impermissible set off, fraudulent
conveyance, diversion of trust funds or otherwise under any applicable state
or federal law, including laws pertaining to bankruptcy or insolvency, in
which case this Agreement, and all liens, pledges and security interests
securing this Agreement, shall be enforceable against Mutual as if the
returned, disgorged or rescinded payment or credit had not been received (or
given) by the Agency, and whether or not the Agency relied upon such payment
or credit or changed its position as a consequence of it.
2.6. LIMITATION OF GUARANTY. Notwithstanding anything in this
Agreement or otherwise to the contrary, the guaranty obligation of Mutual
hereunder shall not exceed Three Million and No/100 Dollars ($3,000,000.00)
in the aggregate PLUS any costs and expenses (including reasonable attorneys'
fees and expenses of investigation) incurred by the Agency in enforcing,
collecting or defending any suit seeking to set aside, avoid or recover the
guaranty obligation of Mutual hereunder.
2.7. WAIVER OF DEFENSES. Mutual hereby waives all defenses which
may be asserted against the Agency with respect to this Agreement on the
basis of suretyship, impairment of collateral, failure of consideration,
breach of warranty, fraud, payment, any statute of fraud, bankruptcy, lack of
legal capacity, any statute of limitations, lender liability, accord and
satisfaction or usury and acknowledges that, as of the date hereof, no such
defense exists.
4
<PAGE>
2.8. REASONABLENESS OF WAIVERS. Mutual acknowledges that the
waivers set forth herein are made with its full knowledge of their
significance and consequences and that, under the circumstances giving rise
to this Agreement, such waivers are reasonable and not contrary to public
policy or law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MUTUAL
Mutual represents and warrants to the Agency that:
3.1. ORGANIZATION. Mutual is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan and has
all requisite corporate power to enter into this Agreement, to perform each
of the other agreements contained herein and to own, lease and operate its
properties and assets and carry on its business as currently operated.
Mutual is in good standing in every jurisdiction where the nature of the
business conducted by it or the properties owned, leased or operated by it
requires qualification or licensure.
3.2. AUTHORITY. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby and all other necessary
corporate action on the part of Mutual or its Affiliates, and the agreements
of Mutual contained herein constitute valid and legally binding obligations
enforceable in accordance with their terms.
3.3. REQUISITE CONSENTS OF MUTUAL; NONVIOLATION. The execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby in compliance with the terms hereof, by Mutual, do and
will not, (a) except for the consent of the Michigan Commissioner of
Insurance, require the consent, license, permit, waiver, approval,
authorization or other action of, by or with respect to, any person or
Governmental Authority, the absence of which would have a Material Adverse
Effect on Mutual or Mutual's ability to perform its obligations hereunder,
(b) violate or conflict with the provisions of the Articles of Incorporation
or Bylaws of Mutual, or (c) constitute a default under, violate, conflict with
or result in the termination of any judgment, order, injunction or decree to
which Mutual is a party, or by which Mutual is bound or to which Mutual, or
any of its properties, is subject (except where such default, violation,
conflict or termination would not have a Material Adverse Effect on Mutual or
on the ability of Mutual to consummate the transaction contemplated hereby).
ARTICLE IV
MISCELLANEOUS
4.1. NOTICES. All notices, demands, requests, consents, approvals
or other communications (collectively, "Notices") required or permitted to be
given hereunder or which are given with respect to this Agreement shall be in
writing and shall be personally served or deposited in the United States
mail, first class, registered or certified, return receipt requested,
5
<PAGE>
postage prepaid, addressed as set forth below, or such other address or to
such other Person as any of MEIA I, MELA or Mutual shall have specified most
recently by written notice in accordance with this Section 3.1. Notice shall
be deemed given on the date of service if personally served. Notice mailed
as provided herein shall be deemed given on the third business day following
the date so mailed. Notice given by telex, telecopy or other means of
telecommunications shall be deemed to have been given at the time of receipt
thereof by the Person to whom such notice is addressed; PROVIDED, HOWEVER,
that any Notice given by telex, telecopy or other means of telecommunications
and received after the receiving Person's normal business hours shall be
deemed received by such Person on the immediately succeeding business day.
To the Agency:
Michigan Educators Insurance Agency, Inc.
691 N. Squirrel Road, Suite 100
Auburn Hills, Michigan 48321
Attn.: John H. Mace, Chairman
Telecopy No.: (810) 377-1456
Telephone No.: (810) 373-0200
With a copy to:
Howard & Howard Attorneys, P.C.
1400 N. Woodward Avenue, Suite 250
Bloomfield Hills, Michigan 48304
Attn.: Donald F. Tucker, Esq.
Telecopy No.: (810) 645-1568
Telephone No.: (810) 645-1483
To Mutual:
Michigan Educational Employees Mutual Insurance Company
691 N. Squirrel Road, Suite 200
Auburn Hills, Michigan 48326
Attn.: R. Kevin Clinton
Telecopy No.: (248) 377-8518
Telephone No.: (248) 377-8582
6
<PAGE>
With a copy to:
Dykema Gossett PLLC
800 Michigan National Tower
Lansing, Michigan 48933-1707
Attn.: Lori M. Silsbury
Telecopy No.: 517-374-9191
Telephone No.: 517-374-9150
4.2. EXPENSES. Whether or not the transactions contemplated herein shall
be consummated, all legal and other costs and expenses incurred in connection
herewith and the transactions contemplated hereby shall be paid by the Person
incurring such expenses. The provisions of this Section 3.2 shall survive
any termination of this Agreement.
4.3. SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and shall inure to the benefit of MEIA I, MELA
and Mutual and their respective successors and permitted assigns, PROVIDED
that, except as contemplated by Section 2.12(a) of the Asset Purchase
Agreement, neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned, by operation of law or otherwise, by
any such Person(s) without the prior written consent of such other Person(s).
If any such Person is so permitted to assign any of its rights or
obligations under this Agreement, such assignment (unless otherwise agreed to
by such other Person(s)) shall not in any manner affect or impair such
assigning Person's obligations under this Agreement.
4.4. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the
Asset Purchase Agreement and the Related Agreements, embodies the entire
agreement and understanding of MEIA I, MELA and Mutual with respect to the
subject matter hereof and supersedes all prior agreements between MEIA I,
MELA and Mutual or any of their Affiliates with respect to the subject matter
of this Agreement. This Agreement may be amended, modified or supplemented in
any manner and at any time only by a written instrument executed by MEIA I,
MELA and Mutual. No waiver by any of MEIA I, MELA and Mutual of any term or
condition hereof, or the breach of any covenant, agreement, warranty,
representation or provision contained herein, in any one or more instances,
shall be made to be or construed as a further continuing waiver of any such
term, condition or breach or a waiver of any other term, condition or breach.
4.5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall together constitute one and the same
instrument and shall become effective when one or more counterparts have been
signed by Mutual and delivered to MEIA I and MELA and one or more
counterparts have been signed by MEIA I and MELA and delivered to Mutual.
4.6. HEADINGS; REFERENCES; INTERPRETATION. The Article and Section
headings in this Agreement are for convenience of reference only and shall
not be deemed to alter or affect the meaning or interpretation of any
provisions hereof.
7
<PAGE>
4.7. GOVERNING LAW. This Agreement shall be governed by, interpreted
under and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Michigan,
and applicable controlling United States federal law.
4.8. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any adverse manner to
any of MEIA I, MELA and Mutual. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, MEIA I, MELA and
Mutual shall negotiate in good faith to modify this Agreement to effect their
original intent as closely as possible in an acceptable manner so that the
transactions contemplated hereby are fulfilled to the extent possible.
4.9. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
express or implied, is intended to or shall (i) confer on any Person other
than MEIA I, MELA and Mutual and their respective successors or permitted
assigns any rights (including third party beneficiary rights), remedies,
obligations or liabilities of any nature whatsoever under or by reason of
this Agreement, or (ii) constitute MEIA I, MELA and Mutual as partners or as
participants in a joint venture. This Agreement shall not provide third
parties with any remedy, claim, liability, reimbursement, cause of action or
other right in excess of those existing without reference to the terms of
this Agreement.
4.10. ACKNOWLEDGMENT. MEIA I, MELA and Mutual each acknowledge that
all the terms and conditions in this Agreement have been the subject of active
and complete negotiation between them and represent their agreement based upon
all relevant considerations. The terms and conditions of this Agreement shall
not be construed in favor of or against any of MEIA I, MELA and Mutual by reason
of the extent to which any such Person or its professional advisors participated
in the preparation hereof or thereof.
4.11. INDEMNIFICATION.
(a) INDEMNIFICATION BY MUTUAL. If the Closing is consummated,
Mutual shall indemnify and defend and hold the Agency and the directors,
officers, shareholders and other Affiliates thereof harmless against and with
respect to, and shall reimburse the directors, officers, shareholders and other
Affiliates thereof for, any and all damages reasonably and proximately incurred
by any of the foregoing as a result of the following:
(i) any inaccuracy or misrepresentation in or breach of
any representation or warranty of Mutual in this
Agreement, the Asset Purchase Agreement or any of
the Related Agreements; and
8
<PAGE>
(ii) the breach or failure by Mutual to perform any of
its covenants or agreements under this Agreement,
the Asset Purchase Agreement or any of the Related
Agreements.
(b) PROCEDURE FOR INDEMNIFICATION. The procedure for
indemnification shall be as follows:
(i) The Person claiming indemnification ("Claimant")
shall, within thirty (30) days after its discovery
of any claim for which indemnification will be
sought as provided in this Agreement (the "Claim"),
give notice to the Person from whom indemnification
is sought ("Indemnitor") of this Claim, specifying
in reasonable detail the factual basis for the Claim
and, to the extent known, the amount of the Claim.
Notwithstanding the foregoing, the failure by
Claimant to provide notice of any Claim within the
period specified, or any delay in providing such
notice, shall not affect or impair the obligations
of Indemnitor hereunder, except and only to the
extent that Indemnitor has been adversely affected
by such failure or delay.
(ii) With respect to Claims between the Agency and
Mutual, following receipt of notice from Claimant of
a Claim, Indemnitor shall have thirty (30) days to
make any investigation of the Claim that Indemnitor
deems necessary or desirable. For purposes of this
investigation, Claimant shall make available to
Indemnitor and its authorized representatives the
information relied upon by Claimant to substantiate
the Claim. If Claimant and Indemnitor cannot agree
as to the validity and amount of the Claim within
the thirty (30)-day period (or any mutually agreed
upon extension thereof), Claimant shall submit the
claim to arbitration as provided in Section 411(f).
(iii) With respect to any Claim by a third party as to
which Claimant is entitled to indemnification
hereunder, Indemnitor shall have the right,
exercisable by written notice to Claimant within
thirty (30) days after receipt of written notice
from Claimant of the commencement or assertion of
any such Claim, at its own expense to participate in
or assume control of the defense of the Claim, and
Claimant shall cooperate fully with Indemnitor,
subject to reimbursement for actual out-of-pocket
expenses incurred by Claimant as a result of a
request by Indemnitor. If Indemnitor does not elect
to assume control or otherwise participate in the
defense of any third-party Claim within thirty (30)
days of its receipt of notice of the Claim (or any
extended period mutually
9
<PAGE>
agreed upon by the parties), Claimant shall (upon
further written notice to Indemnitor) have the right
to undertake the defense, compromise or settlement
of the Claim for the account of Indemnitor subject
to the right of Indemnitor, at its expense, to
assume the defense of the Claim at any time prior to
final settlement, compromise or determination
thereof. In no event shall Indemnitor be liable or
otherwise have any obligation with respect to any
settlement, compromise or determination of any Claim
agreed to by Claimant without the prior written
consent of Indemnitor (which consent shall not be
unreasonably withheld). Notwithstanding the
foregoing, Indemnitor shall not settle or compromise
any Claim without the prior written consent of
Claimant (which consent shall not be unreasonably
withheld).
(c) TIME LIMITATIONS. Indemnitor will have no liability to
Claimant under or in connection with a breach of any of the representations and
warranties made or to be performed by Indemnitor contained in this Agreement
unless written notice asserting a Claim based thereon is given to Indemnitor not
later than eight (8) years following the date of this Agreement.
(d) TAX EFFECT AND INSURANCE. The liability of Indemnitor with
respect to any Claim shall be reduced by the tax benefit actually realized and
any insurance proceeds received by Claimant as a result of any losses upon which
such Claim is based and shall include any tax detriment actually suffered by
Claimant as a result of such losses.
(e) SUBROGATION. Upon payment in full of any Claim, whether
such payment is effected by set-off or otherwise, or payment of any judgment or
settlement with respect to a third-party Claim, Indemnitor shall be subrogated
to the extent of such payment and to the extent permitted by applicable law to
the rights of Claimant against any Person with respect to the subject matter of
such Claim or third party Claim.
(f) ARBITRATION. All disputes arising under this Section 4.11
(other than claims in equity) shall be resolved by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). Arbitration shall be by three arbitrators. Each of the Agency and
Mutual shall select a single arbitrator and file with the AAA a notice of
appointment. The two arbitrators so chosen shall select a third arbitrator who
shall act as chairman of the arbitrations. If wither the Agency or Mutual shall
abstain from selecting an arbitrator within ten (10) business days, or should
the two arbitrators selected above fail to select a third arbitrator within ten
(10) business days, then at the request of either the Agency or Mutual the
President of the AAA shall select an arbitrator to fill the vacant position
within ten (10) business days of such request. Arbitration shall be held in
such place in Ingham County, Michigan, as may be specified by the arbitrator (or
any place agreed to by Indemnitor, Claimant and the arbitrator). The decision
of the arbitrator shall be final and binding as to any matters submitted under
this Section 4.11; PROVIDED, HOWEVER, that, if necessary, such decision and
10
<PAGE>
satisfaction procedure may be enforced by either Indemnitor or Claimant in any
court of record having jurisdiction over the subject matter or over either the
Agency or Mutual. All costs and expenses incurred in connection with any such
arbitration proceeding (including reasonable attorneys' fees) shall be borne by
the Person(s) against which the decision is rendered, or, if no decision is
rendered, such costs and expenses (excluding attorneys' fees) shall be borne
equally by Indemnitor and Claimant and Indemnitor and Claimant shall each bear
its own attorneys' fees. If the arbitrator's decision is a compromise, the
determination of which Person(s) shall bear the costs and expenses (including
reasonable attorneys' fees) incurred in connection with any such arbitration
proceeding shall be made by the arbitrator on the basis of the arbitrator's
assessment of the relative merits of the positions of Indemnitor and Claimant.
(g) If the Closing is consummated, the indemnification provided in
this Section 4.11 shall be the sole and exclusive legal remedy for any
inaccuracy or misrepresentation in or breach of any representation or warranty
made by the Agency or Mutual in this Agreement, the Asset Purchase Agreement or
any of the Related Agreements and no such Person shall seek any other legal
remedy (whether under federal or state securities laws or otherwise) which might
otherwise be available to such Person; PROVIDED, HOWEVER, that nothing in this
Section 4.11 shall preclude any Person from seeking any legal remedy available
to such Person for any inaccuracy or breach which constitutes fraud on the part
of any other Person; and PROVIDED FURTHER, HOWEVER, that nothing in this Section
4.11 shall preclude any Person from seeking any equitable remedy available to
such Person for any such inaccuracy or breach or for any failure by any other
Person to comply with any of the covenants and agreements of such Person
contained herein or in any of the Related Agreements to be performed or
complied with after the Closing.
IN WITNESS WHEREOF, the undersigned execute and deliver this Agreement as
of the date first written above.
MICHIGAN EDUCATORS INSURANCE
AGENCY, INC.
By: /s/ John H. Mace
-------------------------------
John H. Mace
Title: Chairman of the Board
MICHIGAN EDUCATORS LIFE
INSURANCE AGENCY, INC.
By: /s/ John H. Mace
-------------------------------
John H. Mace
Title: Chairman of the Board
11
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY
By: /s/ R. Kevin Clinton
-------------------------------
R. Kevin Clinton
Title: President
12
<PAGE>
ASSIGNMENT OF LEASE
KNOW ALL MEN BY THESE PRESENTS, that for the sum of One ($1.00) Dollar and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the undersigned, Michigan Educators Insurance Agency, Inc.,
a Michigan corporation ("Assignor"), hereby assigns, transfers and sets unto
MEEMIC Insurance Services Corporation, a Michigan corporation ("Assignee"), all
of its right, title and interest as Lessee in and to that certain Lease
Agreement dated June 28, 1991, as amended by the Lease Agreement dated July 1,
1995 and as amended by the Addendum to Lease dated March 12, 1996 (the "Lease"),
between Assignor and Auburn Real Estate Ventures Limited Partnership as Lessor,
relating to certain property commonly known as 691 N. Squirrel Road, Auburn
Hills, Michigan 48326 and located in Oakland County, Michigan (the "Premises").
By this Assignment, Assignor also assigns, transfer and sets unto Assignee all
of Assignor's right, title and interest in and to the Premises.
Assignor represents and warrants that the Lease is in full force and effect
and that attached hereto is a true and complete copy of the Lease as in effect
on the date hereof; that Assignor is the sole and absolute owner of the entire
interest of Lessee under the Lease; that Assignor has the full right and power
to assign the same subject to the consent of the Lessor (which consent has been
obtained); and that there has been no default in any of the conditions,
covenants and other provisions thereof on the part of Assignor to be kept and
performed.
Notwithstanding the foregoing Assignment of Lease, the undersigned Assignor
has performed all of its obligations under the Lease up to the date hereof, and
shall indemnify and hold Assignee hereunder harmless from and against any
liability or obligation under the Lease which shall have accrued prior to the
date hereof.
Assignee does hereby assume and agree to perform all of the obligations of
the Lessee under the Lease which shall accrue from and after the date hereof,
and Assignee shall indemnify and hold Assignor harmless from and against any
obligations thereunder accruing from and after the date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of September, 1997.
WITNESS MICHIGAN EDUCATORS INSURANCE
AGENCY, INC.
/s/ Kerry Kammer BY: /s/ John H. Mace
- ---------------------------------- ------------------------------------
JOHN H. MACE
CHAIRMAN
"ASSIGNOR"
/s/ Jerry M. Toler
- -----------------------------------
(SIGNATURES CONTINUED ON NEXT PAGE)
<PAGE>
MEEMIC INSURANCE SERVICES
CORPORATION
/s/ Kerry Kammer BY: /s/ John H. Mace
- ---------------------------------- ------------------------------------
JOHN H. MACE
CHAIRMAN
"ASSIGNEE"
/s/ Jerry M. Toler
- ----------------------------------
STATE OF MICHIGAN )
)SS:
COUNTY OF OAKLAND )
---------
The foregoing instrument was acknowledged before me this 22nd day of
September, 1997, by John H. Mace, as Chairman of Michigan Educators Insurance
Agency, Inc., a Michigan corporation.
BETTY J. VERNON /s/ Betty J. Vernon
Notary Public, Eaton County, MI ---------------------------------------
My Commission Expires July 14, 2000 Notary Public, _____________County, MI
Acting in Oakland County
My Commission Expires:__________________
STATE OF MICHIGAN )
)SS:
COUNTY OF OAKLAND )
--------------
The foregoing instrument was acknowledged before me this 22nd day of
September, 1997, by John H. Mace, as Chairman of MEEMIC Insurance Services
Corporation, a Michigan corporation.
BETTY J. VERNON /s/ Betty J. Vernon
Notary Public, Eaton County, MI ---------------------------------------
My Commission Expires July 14, 2000 Notary Public, _____________County, MI
Acting in Oakland County
My Commission Expires:__________________
This instrument was prepared by:
Lisa M. Waits
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, MI 48226
(313) 257-7405
-2-
<PAGE>
[LOGO] Michigan Educators Insurance Agency Inc. EXHIBIT A
Michigan Educators Life Agency Inc.
BUILDING LEASE - INCLUDING
BASEMENT STORAGE
<PAGE>
ADDENDUM TO LEASE
DATED MARCH 12, 1996
---------------------
THIS AGREEMENT, made this 12 Day of March, 1996, by and between Auburn Real
Estate Ventures, whose address is 999 Haynes, Suite 350, Birmingham, MI 48009
(hereinafter referred to as the "Landlord"), and Michigan Educators Insurance
Agency, a Michigan Corporation, whose address is 691 N. Squirrel Rd., Auburn
Hills, MI 48326, (hereinafter referred to as the "Tenant").
W I T N E S S E T H:
WHEREAS, on June 28, 1991, the parties hereto entered into a Lease agreement
(hereinafter referred to as the "Lease") for the purpose of Landlord leasing to
Tenant approximately 16,000 square feet for a period of five (5) years in the
Concorde Centre, located at 691 N. Squirrel Rd., Auburn Hills, MI 48326; and
WHEREAS, on July 1, 1995, the parties agreed to amend Lease Agreement for
the purpose of renewing the lease for a period of five (5) years under the same
terms and conditions as the original Lease dated June 28, 1991. In addition,
Tenant now leases 12,073.39 square feet only.
WHEREAS, on March 12, 1996, the parties hereto agreed to amend the Lease
(hereinafter referred to as the "Amendment") for the purpose of extending the
Lease for an additional five (5) years, until August 31, 2006.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
hereinafter set forth, the parties hereto agree as follows:
1. The new base rent, which is effective on September 1, 2001 and continuous
until August 31, 2006 is as follows:
<TABLE>
<CAPTION>
Year Rental Rate/Sq. Ft. Annual Rent Monthly Installments
- ---- ------------------- ------------ --------------------
<S> <C> <C> <C>
2001-2006 $ 15.00 NNN* $ 181,095.00 $15,091.25
</TABLE>
* NNN is equal to Net Net Net. Tenant will pay all operating/Tax expenses
attributable to each Net as additional rent.
2. Base Rent will increase annually at the start of each new Lease year
beginning August 31, 2002, by the percentage increase in the CPI-U for all
Items (consumer's price index for all urban consumers as published by the
U.S. Department of Labor Bureau of Labor statistics) for the immediate
preceding year.
3. Tenant and Landlord hereby ratify the Lease and all of the terms,
conditions, covenants and provisions including rental options therein as in
full force and effect, except as stated hereinabove.
<PAGE>
IN WITNESS THEREOF, Landlord and Tenant have executed this Lease Addendum
agreement as of the day and date first written above.
WITNESS: AUBURN REAL ESTATE VENTURES:
A MICHIGAN LIMITED PARTNERSHIP
BY:
- -------------------------- ------------------------------------------
STEPHAN M. MAZUR
ITS:
- -------------------------- -----------------------------------------
PROPERTY MANAGER
MICHIGAN EDUCATORS INSURANCE AGENCY
A MICHIGAN CORPORATION
/s/ Carolyn Shaw BY: /s/
- -------------------------- ------------------------------------------
ITS: President
- -------------------------- -----------------------------------------
<PAGE>
LEASE AGREEMENT
This agreement, made this 20th day of July, 1995, by and between Auburn Real
Estate Ventures, whose address is 363 W. Big Beaver, Suite 100, Troy, MI
48084 (hereinafter referred to as the "Landlord") and Michigan Educators
Insurance Agency Inc., (a Michigan Corporation), whose address is 691 N.
Squirrel Rd., Suite 100, Auburn Hills, MI 48326 (hereinafter referred to as
the "Tenant").
Now, therefore, in consideration of the mutual covenants and undertakings
hereinafter set forth, the Landlord hereto agree's to lease tenant approximately
430 square feet of storage space for 1 year from the date hereof. There will
be a monthly charge of the following:
<TABLE>
<CAPTION>
Month Rate Annually Monthly
- ----- ----- --------- --------
<S> <C> <C> <C>
1-12 $8.00 $3,440.00 $286.66
</TABLE>
Tenant shall be responsible for maintaining, at their sole cost and expense, the
appearance of their designated storage area in such a way that is acceptable to
Landlord. Tenant shall also be responsible for securing their area. Under no
circumstances is the Landlord responsible for anything broken, lost, or stolen.
IN WITNESS THEREOF, Landlord and Tenant have executed this Lease addendum
agreement as of the day and date first written above.
WITNESS: AUBURN REAL ESTATE VENTURES:
/s/ BY: /s/
- -------------------------- ------------------------------------------
ITS: Landlord
- -------------------------- -----------------------------------------
"LANDLORD"
MICHIGAN EDUCATORS INSURANCE AGENCY INC.
/s/ BY: /s/
- -------------------------- ------------------------------------------
ITS:
- -------------------------- -----------------------------------------
"TENANT"
<PAGE>
LEASE AGREEMENT
between
AUBURN VENTURES LIMITED PARTNERSHIP
and
MICHIGAN EDUCATORS INSURANCE AGENCY, INC.
dated
JUNE 28, 1991
<PAGE>
INDEX TO LEASE AGREEMENT
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<S> <C>
1. PREMISES . . . . . . . . . . . . . . . . . . . 1
2. TERM . . . . . . . . . . . . . . . . . . . . 1
3. TENANT IMPROVEMENTS . . . . . . . . . . . . . . . 2
4. RENT . . . . . . . . . . . . . . . . . . . . 2
5. SERVICES . . . . . . . . . . . . . . . . . . . 2
6. INJURIES TO PERSON AND PROPERTY . . . . . . . . . . . 2
7. ALTERATIONS . . . . . . . . . . . . . . . . . . 3
8. INSURANCE AND INDEMNIFICATION . . . . . . . . . . . . 3
9. CARE OF PREMISES . . . . . . . . . . . . . . . . 5
10. PAYMENT FOR SERVICES RENDERED BY LANDLORD . . . . . . . . 6
11. UTILITIES; SERVICES . . . . . . . . . . . . . . . 6
12. USE OF PREMISES. . . . . . . . . . . . . . . . . 7
13. DAMAGE. . . . . . . . . . . . . . . . . . . . 7
14. MOVE-IN . . . . . . . . . . . . . . . . . . . 7
15. ACCESS TO PREMISES. . . . . . . . . . . . . . . . 8
16. EMINENT DOMAIN . . . . . . . . . . . . . . . . . 8
17. ASSIGNMENT OR SUBLETTING. . . . . . . . . . . . . . 8
18. SURRENDER. . . . . . . . . . . . . . . . . . . 9
19. BREACH; INSOLVENCY; RE-ENTRY . . . . . . . . . . . . 9
20. BANKRUPTCY OR INSOLVENCY. . . . . . . . . . . . . . 11
21. LANDLORD'S RIGHT TO CURE DEFAULTS. . . . . . . . . . . 15
22. REMOVAL OF TENANT'S PROPERTY UPON TERMINATION. . . . . . . 15
23. SECURITY . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<TABLE>
<S> <C>
24. HOLDING OVER. . . . . . . . . . . . . . . . . . 16
25. SUBORDINATION . . . . . . . . . . . . . . . . . 16
26. ADDITIONAL RENT . . . . . . . . . . . . . . . . 17
27. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . 20
28. SECURITY DEPOSIT . . . . . . . . . . . . . . . . 20
29. NO REPRESENTATIONS BY LANDLORD. . . . . . . . . . . . 21
30. ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . 21
31. GENERAL . . . . . . . . . . . . . . . . . . . 21
32. BILLS AND NOTICES . . . . . . . . . . . . . . . . 22
33. RULES AND REGULATIONS. . . . . . . . . . . . . . . 22
34. NAME OF BUILDING . . . . . . . . . . . . . . . . 22
35. PREVENTING REMOTE VESTING . . . . . . . . . . . . . 22
36. DEFINITION OF LANDLORD, LANDLORD'S LIABILITY . . . . . . . 22
37. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . 23
38. CHANGES TO LEASE REQUIRED BY LENDER . . . . . . . . . . 23
39. MORTGAGE PROTECTION CLAUSE . . . . . . . . . . . . . 23
</TABLE>
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<PAGE>
LEASE AGREEMENT
This Lease Agreement made this 28th day of June, 1991, by and between
AUBURN REAL ESTATE VENTURES LIMITED PARTNERSHIP, a Michigan limited
partnership, of 691 North Squirrel, Auburn Hills, Michigan 48057 ("Landlord")
and Michigan Educators Insurance Agency, Inc. a Michigan corporation, of 691
North Squirrel, Auburn Hills, Michigan 48057 ("Tenant").
The parties hereto, in consideration of the leasing by Landlord to
Tenant and the taking by Tenant from Landlord of the Premises hereinafter
described and in further consideration of the obligations of each party to
the other party undertaken, covenant and agree as follows:
1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby takes
from Landlord the premises situated in the City of Auburn Hills, Oakland
County, Michigan, described as consisting of approximately 16,000 square
feet within the building known as The Concorde Centre, as more particularly
described in Exhibit A, together with all easements, rights of ingress and
egress, parking areas and facilities and all appurtenances and fixtures
belonging to or appertaining to said premises ("Premises"). The Premises is
outlined in red on Exhibit B.
2. TERM.
A. The term of this Lease shall commence on September 1, 1991,
provided the Premises are Ready for Occupancy (as hereinafter defined), or
on such earlier date on which Tenant takes possession of the Premises or,
if the Premises are not Ready for Occupancy, on the date first set forth in
this sentence, then on the date Landlord tenders possession of the Premises
to Tenant, Ready for Occupancy. The term "Commencement Date," as used in
this Lease, shall mean the date on which the term commences. The term shall
end and the Expiration Date shall be five (5) years from the Commencement
Date. The Premises will be conclusively deemed "Ready for Occupancy" as
soon as the work to be done under paragraph 3 has been substantially
completed, and the Premises may be occupied. The Premises will not be
considered unready or incomplete if only minor or insubstantial details of
construction or decoration, or mechanical adjustments, remain to be done
in the Premises or the common areas of the Building, or if the delay in
availability of the Premises for Tenant's occupancy is caused in whole or
in part by Tenant.
B. Promptly following commencement of the term, the Commencement
Date shall be confirmed by the parties initialling the Commencement Date
and Expiration Date set forth on Exhibit C, but failure of Tenant to
acknowledge the Commencement Date shall not affect any obligation of
Tenant
<PAGE>
hereunder or Landlord's determination of the Commencement Date pursuant
to this paragraph 2.
C. If for any reason Landlord cannot deliver possession of the
Premises to Tenant on or before the date first set forth in 2.A above,
Landlord shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Tenant
hereunder.
3. TENANT IMPROVEMENTS. The parties will sign within thirty (30) days
from the date hereof, outline specifications for certain improvements to the
Premises ("Tenant Improvements"), which specifications shall be attached
hereto as Exhibit D and by this reference are incorporated herein. Unless
otherwise stated in Exhibit D, all Tenant Improvements shall be undertaken by
Landlord or contractors of Landlord's selection. The cost of Tenant
Improvements shall be borne by Landlord and Tenant as set forth on Exhibit D.
4. RENT. Tenant shall pay to Landlord as the "Base Rent" for the
Premises during the term hereof the sum of Two Hundred Forty Thousand
Dollars ($240,000) per year payable in monthly installments of Twenty
Thousand Dollars ($20,000) each. Each monthly installment shall be paid in
advance on the first day of each and every month (the "Rent Day") during
the term, at the office of Landlord at the above address, or at such other
place as Landlord may designate from time to time in writing. The first
installment of one month's rent shall be due and payable at the
Commencement Date. If Tenant shall fail to pay the Base Rent or any
additional rent within five (5) days after the same shall be due, in
addition to such other remedies and impositions as may be provided for
elsewhere in this Lease, the amount unpaid shall be subject to a late
payment charge, as additional rent, of Thirty ($30.00) Dollars in each
instance to cover Landlord's additional administrative costs. Wherever in
this Lease Tenant is to pay any amount to Landlord, whether designated
"additional rent," "rent" or otherwise, such amount, together with any
interest added pursuant to paragraph 18, shall be deemed rent for all
purposes under this Lease.
5. SERVICES. Landlord agrees to provide the services set forth in
Exhibit E.
6. INJURIES TO PERSON AND PROPERTY. Landlord shall not be liable to
Tenant for injury to person or property arising out of the acts, omissions
or neglect of Tenant, its servants, agents, employees, visitors or
licensees, or any other occupant of or visitor to the Building or the
Premises, or of any person in or about the Building or the Premises, or of
owners or occupants of or persons on or about surrounding properties; nor
for injury to person or property arising out of patent or latent defects,
structural or otherwise, in the Building or any appurtenance
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<PAGE>
thereof, or arising out of the condition of the Building, or by or from the
bursting, stoppage or leaking of or from any pipes or drains, or from the
malfunctioning of any utility, facility or installation; or for any damage or
loss of property from any cause other than the gross negligence or willful
act of Landlord.
Tenant shall indemnify and hold harmless the Landlord from any liability
for damages to any person or property in, on or about the Premises from any
cause whatsoever.
All property kept, stored or maintained by Tenant in and about the
Premises shall be kept, stored or maintained at the sole risk of Tenant, and
Landlord shall not be responsible for any property entrusted to employees of
Landlord.
7. ALTERATIONS. Tenant will make no alterations in or additions or
improvements to the Premises without first obtaining the written consent
of Landlord, and then only between such hours and by such contractors and
mechanics as may be then employed by Landlord (except with respect to
movable furniture and trade fixtures, which work may be done by such
contractors and mechanics as may be approved by Landlord in writing). All
alterations, additions, improvements and replacements made or provided by
either party upon the Premises, except movable furniture and trade
fixtures provided at Tenant's expense, shall be the property of Landlord,
and shall remain upon and be surrendered with the Premises upon
termination, without molestation or injury. Tenant shall keep the Premises
free of liens of any sort arising out of or in connection with the work
done upon or in the Premises by Tenant or pursuant to its authority. All
costs and expenses in connection with any work done and materials supplied
under this paragraph shall be borne solely by Tenant.
8. INSURANCE AND INDEMNIFICATION. With respect to the insurance, it is
agreed:
A. BUILDING AND REAL ESTATE POLICY.
(1) GENERAL. Landlord, at Tenant's expense, will obtain and
maintain at all times until termination of this Lease and surrender
of the Premises to Landlord, a policy of insurance related to the
Building and Real Estate (each defined herein as in Section 26.A(1))
and providing the insurance protection to Landlord. Said policy is
hereinafter referred to as the "Building and Real Estate Policy."
Landlord will retain in its possession the original policy and all
endorsements, renewal certificates and new policies, if any, issued
during the Term, but will provide Tenant upon request certificates
evidencing the existence of the policy.
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<PAGE>
(2) LIABILITY COVERAGE UNDER PREMISES POLICY. The liability
coverage under the Building and Real Estate Policy will name Landlord
(and if so desired by Landlord, then Landlord's mortgagee also) only,
as insured party(ies), and will provide comprehensive general public
liability insurance coverage against claims for or arising out of
bodily injury, death or property damage, occurring in, on or about the
Building and Real Estate or property in, on or about the streets,
sidewalks or properties adjacent to the Building and Real Estate. The
policy shall have a combined bodily injury and property damage limit
of not less than Two Million ($2,000,000.00) Dollars per
occurrence, and an aggregate limit of not less than Two
Million ($2,000,000.00) Dollars and thereafter in such reasonably
appropriate increased amounts as may be determined by Landlord;
provided, however, that the amount of coverage will not be increased
more frequently than at one (1) year intervals.
(3) PROPERTY COVERAGE UNDER BUILDING AND REAL ESTATE POLICY.
The Building and Real Estate Policy will insure Landlord's interest
in the Building (but not any personal property, fixtures or
equipment of Tenant), for full replacement cost against loss by
fire, with extended coverage, vandalism, malicious mischief,
sprinkler leakage and causes of loss - special form. Landlord or,
if requested by Landlord, Landlord's mortgagee(s), shall be loss
payee in form satisfactory to Landlord. The initial amount of this
property damage insurance for the Building will be Ten Million
($10,000,000) Dollars, but such amounts may be increased upon
notice to Tenant on the recommendation or requirement of Landlord
or Landlord's mortgagee, in order to reflect increases in the
replacement cost of the Building.
(4) LOSS OF RENTS COVERAGE UNDER BUILDING AND REAL ESTATE
POLICY. The Building and Real Estate Policy also will provide loss
of rents coverage sufficient, as reasonably determined by Landlord,
to cover the net rental and all other charges which are the
obligation of Tenant under this Lease for a twelve (12) month
period from the date of any loss or casualty.
B. INDEMNITY AND TENANT INSURANCE. The Tenant agrees to indemnify
and hold harmless the Landlord from any liability for damages to any person
or property in, on or about the Premises, Building or Real Estate from any
cause whatsoever, and in addition to the above, and not by way of
substitution therefor, Tenant shall obtain, at its own expense, a policy
(the "Tenant Policy") having both (i) general public liability insurance
coverage, including blanket contractual coverage
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<PAGE>
(including contractual indemnity coverage), and (ii) full replacement cost
coverage against loss by fire, with extended coverage, vandalism, malicious
mischief, sprinkler leakage and causes of loss - special form, covering
Tenant's personal property, fixtures and equipment on or about the
Premises, Building or Real Estate. Tenant shall cause Landlord (and if so
requested by Landlord, then also Landlord's mortgagee) to be a certificate
holder for the Tenant Policy. The Tenant shall also cause Landlord to be an
additional insured in regards to the general liability insurance coverage
of the Tenant's Policy only (with Tenant being the insured without Landlord
as to all other provisions of the Tenant Policy). The Tenant Policy shall
have the same limits of coverage as set forth in subparagraph 8.A(2) as the
same may be changed or amended from time to time. Such policy shall be
issued by an insurance company having an A.M. Best Company rating of not
less than "A." The policy procured by Tenant under this subparagraph 8.B
must provide for at least thirty (30) days' written notice to Landlord of
any cancellation, except in the event of nonpayment, in which case the
notice of cancellation will be delivered by Tenant to Landlord at least ten
(10) days prior to the effective date thereof, effective for not less than
one (1) year. Tenant will deliver certificates of renewal for such policies
to Landlord at least thirty (30) days prior to the expiration dates
thereof. In the event Tenant fails to keep the Tenant Policy in force,
Landlord may at Tenant's expense secure such insurance and the premium
therefor shall be paid as additional rent by Tenant within five (5) days
after being billed therefor.
9. CARE OF PREMISES. Except as otherwise provided in this Lease,
Landlord shall make all necessary repairs and replacements to the Building, the
Premises and the common areas, structural or otherwise, and to the heating,
plumbing, air conditioning and electrical systems located therein, including all
such repairs and replacements required due to fire, casualty or other act of
God. Tenant, at its sole cost and expense, shall keep the Premises at all times
in good condition (except for reasonable wear and tear), and in a sanitary and
safe condition in accordance with all directions, rules and regulations of the
health officer, fire marshall, building inspector or other proper officers of
any governmental agencies having jurisdiction, and Tenant shall comply with all
requirements of law, ordinance or otherwise, pertaining to or affecting the
Premises. Tenant shall bear the full cost of the repair (or replacement as
needed) of all damage to the Premises or to the Building or its fixtures and
equipment caused by the act, neglect or default of Tenant, its servants,
employees, agents, visitors or licensees. Landlord may, at its option, either
authorize Tenant and its contractors (who shall receive Landlord's approval
prior to the commencement of any work) to undertake such repair or replacement,
or cause such repair or replacement to be undertaken by Landlord's own
employees, agents or contractors for
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<PAGE>
the account of Tenant. If Tenant, having been authorized to do so, fails
to immediately commence and expeditiously carry out such repairs and/or
replacements itself, Landlord may do so at Tenant's expense and the cost
thereof shall be paid by Tenant as additional rent to Landlord within five
(5) days after being billed therefor. Tenant shall permit no waste or
nuisance upon or damage or injury to the Premises or utilities supplied
thereto.
10. PAYMENT FOR SERVICES RENDERED BY LANDLORD. In the event that Landlord
at any time shall, at the request of Tenant or on Tenant's behalf, either
perform or cause to be performed, itself or by its agents, employees or
contractors, any work in connection with the Premises, or shall supply or cause
to be supplied any materials to the Premises, whether pursuant to paragraph 7 or
otherwise, and the cost of such services, work or materials is to be borne by
Tenant under the terms of this Lease or otherwise, Landlord shall invoice Tenant
for such cost, which sum shall be payable by Tenant within five (5) days after
being billed therefor.
11. UTILITIES; SERVICES.
A. Heating, ventilation and air conditioning shall be furnished
as required to provide reasonably comfortable temperatures during
business hours. Landlord shall not be liable to Tenant, nor shall rent
be abated for failure or delay in furnishing water, heat, air
conditioning, electric current, janitorial or maintenance service when
such failure or delay is occasioned by repairs or improvements to the
Premises or the Building, or by any strike, lockout, labor controversy,
accident or casualty, or by any statute, rule, regulation or ordinance
of any governmental body, or by any cause beyond the reasonable control
of Landlord. Such failure or delay shall not be deemed an act of
eviction against Tenant nor shall such failure or delay in any way
operate as a release from the prompt and punctual performance of
Tenant's covenants, agreements, stipulations or other obligations under
this Lease.
B. In the event the loss of any utility or service arises by
reason of necessary repairs, improvements or causes within the
reasonable control of Landlord, Landlord shall within a reasonable time
restore the utility or service, and upon Landlord's failure to restore
such utility or service within a reasonable time, Tenant's sole and
exclusive remedy for any interruption of its use of the Premises caused
thereby shall be an abatement of rent until such utility or service is
restored; provided, however, in no event shall Tenant have the right to
an abatement of rent unless the loss of a utility or service continues
for at least ten (10) days.
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<PAGE>
12. USE OF PREMISES. The Premises shall be used for the purpose of
general offices of Tenant and for such other or added purposes as may receive
the prior written approval of Landlord, but in no event shall Tenant use or
permit the use of any part of the Premises in violation of any laws, ordinances,
rules or regulations of any municipal, county, state or federal body. Tenant
shall not conduct Tenant's business or profession in any manner prohibited by
any code or principles of such business or profession, and in no event in any
manner prohibited by law. Without permission of Landlord, no vending machines
may be installed in or about the Premises except by Landlord. Tenant shall not
place a load upon any floor of the Premises exceeding the floor load per square
foot area which such floor was designed to carry and which is allowed by law.
Landlord reserves the right to prescribe the weight and position of all
equipment, furniture, file cabinets and other heavy objects which must be placed
so as to distribute the weight. Business machines and mechanical equipment
shall be placed and maintained by Tenant at Tenant's expense in settings
sufficient in Landlord's judgment to absorb and prevent vibration, noise and
annoyance.
13. DAMAGE. If any part of the Premises is damaged by fire or other
casualty, Landlord shall, unless it elects to terminate this Lease as provided
herein, proceed with reasonable speed to repair the damage and, if such damage
renders the Premises untenantable and was not caused by any act, neglect or
default of Tenant, its servants, agents, employees, visitors or licensees, there
shall be an equitable abatement of rent for the period during which, and to the
extent that, the Premises are untenantable. Landlord shall have the right to
elect to demolish, rebuild or reconstruct the Building if the Building is
damaged by fire or other casualty, and if Landlord so elects, whether or not the
Premises have been damaged, this Lease may be terminated by Landlord upon
written notice to Tenant and the rent shall thereupon be adjusted to the date of
the fire or other casualty. If repair of the Premises is delayed by Tenant's
failure to adjust its own insurance claim, there shall be no abatement for the
period of such delay. Repairs by Landlord of any damage shall not constitute a
waiver of any claim which Landlord or its insurer may make against Tenant, its
servants, agents, employees, visitors or licensees by reason of such damage.
14. MOVE IN. All activities of Tenant in connection with either its move
into the Premises at the commencement of this Lease or its move out of the
Premises at any time (whether or not upon the termination hereof) shall be
subject to the following:
A. All furniture, equipment and all other items of personal
property being moved or transferred shall enter and leave the Building
solely through such entrance as may be designated from time to time by
Landlord for such purposes;
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<PAGE>
B. Tenant shall be responsible for the active supervision
(on-site) of all workmen and others performing the move, and shall
indemnify and hold harmless Landlord against and from all liability for
damage to property (whether belonging to Landlord, other tenants or any
other person) and injuries to persons in connection with the move and
the actions or failure to act of or by those performing the move;
C. Tenant shall be responsible for any damage to the Building,
the common areas thereof, the Premises or the premises and property of
other tenants caused by or incurred in connection with the move or the
activities connected therewith. Landlord shall perform such
inspection(s) as Landlord in its sole discretion shall determine to be
appropriate, and shall deliver to Tenant an invoice for the repair of
all such damage or the replacement, if necessary, of damaged items, if
any. All determinations of the extent of damage and the costs of repair
or replacement shall be made by Landlord in its sole discretion. The
invoiced sums shall constitute amounts included within the payable under
paragraph 10 above.
15. ACCESS TO PREMISES. Tenant shall permit Landlord and its agents
access to the Premises at all reasonable hours for the purpose of examining the
Premises, erecting and maintaining pipes and conduits in and through the
Premises, and making any repairs, alterations or additions which the Landlord
may deem necessary for the safety, preservation or improvement of the Premises
or the Building and Landlord shall be allowed to take all material into and upon
the Premises that may be required therefor and to perform such acts without
the same constituting an eviction of Tenant in whole or in part and the rent
reserved shall in no wise abate while said repairs, alterations, improvements
or additions are being made. Nothing herein contained shall be deemed to
impose upon Landlord any obligation for the care, supervision or repair of
the Building or the Premises which is not elsewhere specifically set forth in
the Lease.
16. EMINENT DOMAIN. If the Premises are taken by any public authority
under power of eminent domain, the term of this Lease shall cease as of the day
possession shall be taken by such authority and Tenant shall be entitled to a
pro rata refund of any rent paid in advance. All damages awarded for such
taking shall belong to and be the property of Landlord, irrespective of the
basis upon which they are awarded, except that Landlord shall not be entitled to
any portion of the award made to Tenant for removal and reinstallation of
fixtures, or moving expenses.
17. ASSIGNMENT OR SUBLETTING. Tenant agrees not to assign or in any
manner transfer this Lease or any estate or interest therein without the
previous written consent of Landlord, and not to sublet the Premises or any part
or parts thereof or allow anyone to use or
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<PAGE>
to come in with, through or under it without like consent. Said consent shall
not be unreasonably withheld. One such consent shall not be deemed to be a
consent to any subsequent assignment, subletting, occupation or use by any other
person, and no consent shall be deemed to relieve Tenant of any obligations
under this Lease unless expressly provided in such consent. The acceptance of
rent from any assignee, subtenant or occupant shall not constitute a release of
Tenant from the further performance of the covenants of Tenant contained in this
Lease. The sale or sales aggregating fifty (50%) percent or more of the capital
stock of Tenant (if Tenant be a non-public corporation) or the sale or sales
aggregating fifty (50%) percent or more of the partnership interests in Tenant
(if Tenant be a partnership) shall be deemed to be an assignment of this Lease.
Notwithstanding the foregoing provisions, Tenant may assign this Lease or sublet
the Premises or any portion thereof, without Landlord's consent, to any
corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from the merger or consolidation with
Tenant, or to any person or entity which acquires all the assets of Tenant as a
going concern of the business that is being conducted on the Premises, provided
that said assignee assumes, in full, the obligations of Tenant under this Lease.
18. SURRENDER. At the expiration of the term of this Lease, or upon the
sooner termination thereof, Tenant shall surrender the Premises broom clean and
in as good condition and repair as they were at the time Tenant took possession,
reasonable wear and tear excepted, and shall promptly upon surrender deliver all
keys and building security cards for the Premises to Landlord at the place then
fixed for payment of rent.
19. BREACH; INSOLVENCY; RE-ENTRY.
A. If any rent payable by Tenant to Landlord (including but not
limited to Base Rent and additional rental payable under paragraphs 8,
9, 10, 14, 21 and 26) shall be and remain unpaid for more than five (5)
days after written notice that the same is due and payable, or if Tenant
shall violate or default in the performance of any of the other terms,
provisions, covenants, agreements, stipulations, rules or conditions
herein, and such violation or default shall continue for a period of
thirty (30) days after written notice of such violation or default, or
if Tenant shall permit this Lease to be taken under any writ of
execution, or shall abandon the Premises, then, in addition to and not
as a limitation on or in lieu of such other or additional remedies as
may be available to Landlord by law, Landlord shall have the right to
declare this Lease forfeited and the term ended, or to re-enter the
Premises and remove all persons and chattels therefrom, or to exercise
all such remedies, and Landlord shall not be liable for damages to
person or property
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<PAGE>
by reason of any such re-entry or forfeiture. Tenant, by the execution of
this Lease, waives notice of re-entry by Landlord. In the event of such
re-entry by Landlord without declaration of forfeiture, the liability of
Tenant for the rent provided herein shall not be relinquished or
extinguished for the balance of the term of this Lease, and any rentals
prepaid may be retained by Landlord and applied against the costs of
re-entry, or as liquidated damages, or both; Tenant will pay, in addition
to the rentals and other sums agreed to be paid hereunder, reasonable
attorneys' fees, costs and expenses in any suit or action instituted by
Landlord to enforce the provisions of this Lease or the collection of the
rentals due Landlord hereunder.
B. In the event of declaration of forfeiture at or after the time of
re-entry, Landlord may re-let the Premises or any part thereof for a term
or terms and at a rent which may be less than or exceed the balance of the
term of and the rent reserved under this Lease, the rent for which the
Premises are so re-let being prima facie the fair and reasonable rental
value thereof and, in the event of such declaration, Tenant shall pay to
Landlord as liquidated damages for Tenant's default hereunder, at
Landlord's option:
(1) Any deficiency between the total rent reserved hereunder and
the net amount, if any, of the rents collected on account of any lease
or leases of the Premises for what would otherwise have constituted
the balance of the term of this Lease; in computing such liquidated
damages, there shall be added to such deficiency any expenses which
Landlord may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage fees and expenses, advertising
and for keeping the Premises in good order or for preparing the same
for re-letting, and any such liquidated damages shall be paid in
monthly installments by Tenant on the Rent Day, and any suit brought
to collect the deficiency for any month shall not prejudice the right
of the Landlord to collect the deficiency for any subsequent month by
a similar proceeding; or
(2) In a lump sum, the worth at the time of such declaration of
any deficiency between (a) the total rent reserved hereunder, and (b)
the fair and reasonable rental value of the Premises net of reasonably
foreseeable expenses of re-letting.
C. Landlord shall in no event, whether or not forfeiture has been
declared, be responsible in any way whatsoever for failure to re-let the
Premises or, in the event that the Premises are re-let, for failure to
collect the rent thereof under such re-letting. The failure of Landlord to
re-
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let the Premises or any part thereof shall not release or affect Tenant's
ability for rent or damages.
D. Notwithstanding any of the foregoing, any and all indebtedness
owing by Tenant to Landlord pursuant to the terms of this Lease which
remains unpaid for a period of five (5 days after it first becomes due and
payable shall bear interest from and after the elapse of such five-day
period at a rate which shall be the greater of eleven (11%) percent per
annum of four (4%) percent per annum over the prime interest rate charged
from time to time by Manufacturers National Bank of Detroit to its best
commercial customers, but not in excess of the maximum rate permitted by
law.
20. BANKRUPTCY OR INSOLVENCY.
A. CONDITIONS TO THE ASSUMPTION AND ASSIGNMENT OF THE LEASE UNDER
CHAPTER 7 OF THE BANKRUPTCY CODE. In the event that Tenant shall become a
debtor under Chapter 7 of the Bankruptcy Code and the Trustee or Tenant
shall elect to assume this lease for the purpose of assigning the same or
otherwise, such election and assignment may only be made if all of the
terms and conditions of paragraph 19.02 and paragraph 19.04 hereof are
satisfied. If such Trustee shall fail to elect or assume this Lease within
sixty (60) days after the filing of the Petition, this Lease shall be
deemed to have been rejected. Landlord shall be thereupon immediately
entitled to possession of the leased premises without further obligations
to the Tenant or Trustee, and this Lease shall be canceled, but Landlord's
right to be compensated for damages in such liquidation proceeding shall
survive.
B. CONDITIONS TO THE ASSUMPTION OF THE LEASE IN BANKRUPTCY
PROCEEDINGS. In the event that a Petition for reorganization or adjustment
of debts is filed concerning Tenant under Chapter 11 or 13 of the
Bankruptcy Code, or a proceeding is filed under Chapter 7 of the Bankruptcy
Code and is transferred to Chapter 11 or 13, the Trustee or the Tenant, as
Debtor-In-Possession, must elect to assume this Lease within 75 days from
the date of the filing of the Petition under Chapter 11 or 13, or the
Trustee or Debtor-In-Possession shall be deemed to have rejected this
Lease. No election by the Trustee or Debtor-In-Possession to assume this
Lease, whether under Chapter 7, 11 or 13, shall be effective unless each
of the following conditions, which Landlord and Tenant acknowledge are
commercially reasonable in the context of a bankruptcy proceeding of
Tenant, have been satisfied, and Landlord has so acknowledged in writing:
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(1) The Trustee or the Debtor-In-Possession has cured, or has
provided Landlord adequate assurance (as defined below) that:
(a) Within ten (10) days from the date of such assumption the
Trustee will cure all monetary defaults under this Lease; and
(b) Within thirty (30) days from the date of such assumption the
Trustee will cure all non-monetary defaults under this Lease.
(2) The Trustee or the Debtor-In-Possession has compensated, or
has provided to Landlord adequate assurance (as defined below) that
within ten (10) days from the date of assumption Landlord will be
compensated for any pecuniary loss incurred by Landlord arising from
the default of the Tenant, the Trustee, or the Debtor-In-Possession
as recited in Landlord's written statement of pecuniary loss sent to
the Trustee or Debtor-In-Possession.
(3) The Trustee or the Debtor-In-Possession has provided
Landlord with adequate assurance of the future performance of each of
the Tenant's, Trustee's or Debtor-In-Possession's obligations under
this Lease, provided, however, that:
(a) The Trustee or Debtor-In-Possession shall also deposit with
Landlord, as security for the timely payment of rent, an amount
equal to three (3) months' rent and other monetary charges
accruing under this Lease; and
(b) The Trustee or Debtor-In-Possession shall also pay in
advance the monthly installments of Additional Rent required
under paragraph 25.
(c) The obligations imposed upon the Trustee or Debtor-In-
Possession shall continue with respect to Tenant or any assignee
of the Lease after the completion of bankruptcy proceedings.
(4) The assumption of the Lease will not breach any provision
in any other lease, mortgage, financing agreement or other agreement
by which Landlord is bound relating to the Building.
(5) For purposes of this section, Landlord and Tenant acknowledge
that, in the context of a bankruptcy proceeding of Tenant, at a
minimum "adequate assurance" shall mean:
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(a) The Trustee or the Debtor-In-Possession has and will
continue to have sufficient unencumbered assets after the payment
of all secured obligations and administrative expenses to assure
Landlord that the Trustee or Debtor-In-Possession will have
sufficient funds to fulfill the obligations of Tenant under this
Lease; and
(b) The Bankruptcy Court shall have entered an Order segregating
sufficient cash payable to Landlord and/or the Trustee or
Debtor-In-Possession shall have granted a valid and perfected
first lien and security interest and/or mortgage in property of
the Tenant, Trustee or Debtor-In-Possession, acceptable as to
value and kind to Landlord, to secure to Landlord the obligation
of the Trustee or Debtor-In-Possession to cure the monetary
and/or non-monetary defaults under this Lease within the time
periods set forth above.
C. LANDLORD'S OPTION TO TERMINATE UPON SUBSEQUENT BANKRUPTCY
PROCEEDINGS OF TENANT. In the event that this Lease is assumed by a
Trustee appointed for Tenant or by Tenant as Debtor-In-Possession under the
provisions of paragraph B hereof and thereafter Tenant is liquidated or
files a subsequent Petition for reorganization or adjustment of debts under
Chapters 11 or 13 of the Bankruptcy Code, then, and in either of such
events, Landlord may, at its option, terminate this Lease and all rights of
Tenant hereunder, by giving Tenant written notice of its election to so
terminate, no later than thirty (30) days after the occurrence of either of
such events.
D. CONDITIONS TO THE ASSIGNMENT OF THE LEASE IN BANKRUPTCY
PROCEEDINGS.
(1) If the Trustee or Debtor-In-Possession has assumed the Lease
pursuant to the terms and provisions of paragraphs A or B herein, for
the purpose of assigning (or elects to assign) the Tenant's interest
under this Lease or the estate created thereby, to any other person,
such interest or estate may be so assigned only if Landlord shall
acknowledge in writing that the intended assignee has provided
adequate assurance as defined in this paragraph D of future
performance of all of the terms, covenants and conditions of this
Lease to be performed by Tenant.
(2) For purposes of this Section, Landlord and Tenant
acknowledge that, in the context of a bankruptcy proceeding of Tenant,
at a minimum "adequate assurance of future performance" shall mean
that each of the following
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conditions have been satisfied, and Landlord has so acknowledged in
writing:
(a) The assignee has submitted a current financial statement
audited by a Certified Public Accountant which shows a net worth
and working capital in amounts determined by Landlord to be
sufficient to assure the future performance by such assignee of
the Tenant's obligations under this Lease;
(b) The assignee, if requested by Landlord, shall have obtained
guarantees in form and substance satisfactory to Landlord from
one or more persons who satisfy Landlord's standards of credit
worthiness; and
(c) The Landlord has obtained all consents or waivers from any
third party required under any lease, mortgage, financing
arrangement or other agreement by which Landlord is bound to
permit Landlord to consent to such assignment.
E. USE AND OCCUPANCY CHARGES. When, pursuant to the Bankruptcy
Code, the Trustee or Debtor-In-Possession shall be obligated to pay
reasonable use and occupancy charges for the use of the leased premises or
any portion thereof, such charges shall not be less than the Base Rent and
other monetary obligations of Tenant for the payment of additional rent
hereunder.
F. TENANT'S INTEREST NOT TRANSFERABLE BY VIRTUE OF STATE
INSOLVENCY LAW WITHOUT LANDLORD'S CONSENT. Neither Tenant's interest in
the Lease, nor any lesser interest of Tenant herein, nor any estate of
Tenant hereby created, shall pass to any trustee, receiver, assignee for
the benefit of creditors, or any other person or entity, or otherwise by
operation of law under the laws of any state having jurisdiction of the
person or property of the Tenant (hereinafter referred to as the "state
law") unless Landlord shall consent to such transfer in writing. No
acceptance by Landlord of rent or any other payments from any such
trustee, receiver assignee, person or other entity shall be deemed to
have waived, nor shall it waive the need to obtain Landlord's consent or
Landlord's right to terminate this Lease for any transfer of Tenant's
interest under this Lease without such consent.
G. LANDLORD'S OPTION TO TERMINATE UPON INSOLVENCY OF TENANT OR
GUARANTOR UNDER STATE INSOLVENCY LAW OR UPON INSOLVENCY OF GUARANTOR UNDER
FEDERAL BANKRUPTCY ACT. In the event the estate of Tenant created hereby
shall be taken in execution or by other process of law, or if Tenant or any
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guarantor of Tenant's obligations hereunder (hereinafter referred to as the
"guarantor") shall be adjudicated insolvent pursuant to the provisions of
any present or future insolvency law under state law, or if any proceedings
are filed by or against the guarantor under the Bankruptcy Code, or any
similar provisions of any future federal bankruptcy law, or if a Receiver
or Trustee of the property of Tenant or the guarantor shall be appointed
under state law by reason of Tenant's or the guarantor's insolvency or
inability to pay its debts as they become due or otherwise, or if any
assignment shall be made of Tenant's or the guarantor's property for the
benefit of creditors under state law; then and in such event Landlord may,
at its option, terminate this Lease and all rights of Tenant hereunder by
giving Tenant written notice of the election to so terminate within thirty
(30) days after the occurrence of such event.
21. LANDLORD'S RIGHT TO CURE DEFAULTS. If Tenant defaults in the
performance of any provision of the Lease, Landlord shall have the right to cure
such default for the account of Tenant, upon ten (10) days' prior written notice
to Tenant, and Tenant shall within five (5) days after being billed therefor
reimburse Landlord for any expenditure made by Landlord in order to cure such
default.
22. REMOVAL OF TENANT'S PROPERTY UPON TERMINATION. If Tenant shall fail
to remove all of Tenant's property or property of others in Tenant's possession
from the Premises upon termination of this Lease for any cause whatsoever,
Landlord may at its option remove the same in any manner that it chooses and
store such property without liability to Tenant for loss thereof, and Tenant
agrees to pay Landlord on demand any and all expenses incurred in such removal,
including court costs and attorneys' fees and storage charges on such property
for any length of time such property shall be in Landlord's possession. Tenant
shall indemnify and hold Landlord harmless for any claim by third parties with
respect to property owned or claimed by them, left in the Premises by Tenant,
and removed by Landlord pursuant to this paragraph. Under no circumstances
shall Landlord be obligated to retain any property left on the Premises or in
Landlord's possession longer than two (2) months after termination of this
Lease, for whatever cause, and Landlord may thereafter dispose of such property
in any manner it deems fair, including public or private sale or by destruction,
discard or abandonment and the proceeds of any such sale shall be applied
against any sums due Landlord under this Lease.
23. SECURITY. Tenant grants Landlord, as security for the rent and other
amounts payable hereunder and for the performance by Tenant of every other
obligation herein contained, a security interest and lien upon all the personal
property and fixtures, or whatever nature, which are or may be placed on the
Premises by Tenant, and a security interest under the Uniform Commercial Code in
accounts receivable and contract rights of Tenant, which lien
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and security interest may be enforced on the nonpayment of any rent or other
amount due under this Lease or the nonperformance of any obligations herein
contained, by the taking and selling of such property or any of the same at
private sale for such price as Landlord may obtain and the application of the
proceeds of such sale upon any amount due under this Lease from Tenant to
Landlord and upon the expenses incident to the removal and sale of such
property. Said lien shall be subordinate and subject to any continuing line
of credit lien which Tenant may have or may create on said personal property
and fixtures. Notice of such sale shall be served upon Tenant by posting on
the Premises or by leaving the same at or mailing the same to Tenant's
address given herein at least seven (7) days in advance of such sale.
Landlord may retain in its possession any property of Tenant after any sum
payable hereunder shall have become due and Landlord shall not be liable in
any action of claim and delivery or similar remedy because of such retention.
Tenant shall indemnify and hold harmless Landlord from damages or claims by
any third parties claiming rights in property sold or disposed of by Landlord
pursuant to this section.
24. HOLDING OVER. In the event Tenant remains in possession of the
Premises after the expiration of this Lease and without the execution of a
new lease, it shall be deemed to be occupying the Premises as a tenant from
month, subject to all conditions, provisions and obligations of this Lease
insofar as the same can be applicable to a month-to-month tenancy except that
the Base Rent shall be one hundred fifty (150%) percent of the monthly
installment amount set forth in paragraph "C" of the Summary (or in the event
of a renewal term, then as established pursuant to paragraph H of the
Summary) for the period of any such month-to-month tenancy.
25. SUBORDINATION.
A. MORTGAGES. This Lease is and shall be subject and subordinate
at all times to the lien of any institutional mortgage(s), including all
renewals, modifications, consolidation, replacements or extensions
thereof, now or hereafter placed on the Building. Institutional mortgage
shall mean a mortgage made by a bank (which term includes a federal or
state savings and loan association or any mortgage company which is a
subsidiary of a bank), trust company, insurance company, educational
institution, pension, retirement or welfare fund, charity, endowment
fund or foundation, or any other nonprofit organization, whether similar
or dissimilar to those enumerated.
B. ATTORNMENT. Tenant shall attorn to any purchaser of the
Premises at foreclosure sale or lessor of a ground lease as Landlord
under this Lease subject to all of the terms and conditions of this
Lease. Tenant shall, from time to time, within 10 days after request
by Landlord, execute and deliver
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to Landlord an attornment agreement which confirms the foregoing in
such form as Landlord may reasonably request, and Tenant hereby
irrevocably appoints Landlord to be Tenant's attorney-in-fact to
execute such instrument on behalf of Tenant in the event Tenant
shall fail to do so within said ten (10) days.
26. ADDITIONAL RENT.
A. DEFINITIONS.
(1) "Real Estate Taxes" shall mean all real estate taxes and
assessments, general and special, and all other taxes, imposts,
assessments or other charges which shall be assessed, levied or
imposed upon the Building and the Real Estate, or any part thereof
or any estate, right or interest therein, but excluding taxes based
upon the gross or net income of Landlord. The "Building" shall mean
the building of which the Premises are a part, and "Real Estate"
shall mean the land upon which the Building is situated and, as and
to the extent designated by Landlord, the parking areas, walks,
drives, plazas, landscaped areas and other common areas in the
Office Park serving the Building. The Landlord may take the benefit
of the provisions of any statute or ordinance permitting any
assessment to be paid over a period of time and the installments
of such assessment which become due and payable during the term
of this Lease, or any extension hereof, together with the interest
thereon shall be included in the calculation of Real Estate Taxes.
In the event that the United States or the city, county, state or
other political subdivision of any governmental authority having
jurisdiction thereover impose a tax, assessment or surcharge of any
kind or nature upon, against, measured by or with respect to the
rentals payable by the tenants of the Building or on the income
of Landlord derived from the Building, (including that portion of
Landlord's Michigan Single Business Tax for each calendar year
of this Lease attributable to the Building and the Real Estate,
computed as if the Building and the Real Estate were Landlord's
only business activity), or with respect to the Landlord's
ownership of the Building and the Real Estate, either by way of
substitution for all or any part of the taxes and assessments
levied or assessed against the Building and the Real Estate, or
in addition thereto, such tax, assessment or surcharge shall be
deemed a Real Estate Tax for purposes of this paragraph 26.
Costs, expenses, and attorney's fees incurred by Landlord in
connection with negotiations for reduction in the assessed
valuation of the Real Estate and the Building, and any protest
or contest of Real Estate Taxes and/or assessments, shall
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also be deemed Real Estate Taxes for purposes of this paragraph 26.
(2) "Operating Expenses" shall mean any and all expenses
(ordinary and/or extraordinary) for operation, maintenance and
administration of the Building and the Real Estate as determined
by standard accounting practices and shall include the following by
way of illustration, but not limitation: personal property taxes
(except those payable by Tenant); payments made by Landlord for
common area (including but not limited to parking lot) maintenance,
repairs, replacements and services; payments made by Landlord for
maintenance, repair, replacements and services for or in connection
with parking; water and sewer charges; charges for repair,
replacement and maintenance, including the amortization over a
reasonable period (including interest) of (1) any equipment and
facilities acquired by Landlord which reduces energy consumption,
and (2) any other capital improvement which reduces other operating
expenses, or is made by Landlord after the date of this Lease and
required under any law or regulation not applicable to the Building
at the time it was constructed; insurance premiums for the Building
and Real Estate Policy acquired by Landlord pursuant to Section 8
above as well as any other insurance reasonably required by Landlord
relating to the Premises, Building, or Real Estate; license fees;
permit and inspection fees; charges for heat, light, power and
steam or other fuels; janitorial service; labor; wages and salaries
(including employee benefits) of any building superintendent and
maintenance employees; air conditioning, heating, ventilating and
all other supplies and materials necessary for operation of the
Building equipment; depreciation of all hand tools and other movable
equipment and personal property which is or should be capitalized
on the books of Landlord and the cost of hand tools and other movable
equipment and personal property which need not be so capitalized, as
well as the cost of maintaining all such hand tools and movable
equipment, exterminating services; security services; rubbish and
snow removal; telephone; landscaping costs; and a reasonable
allowance for management expenses. Except as provided above, the
term Operating Expenses shall not include depreciation on the
Building or building equipment, capital improvement costs, mortgage
interest and principal payments, real estate brokers' commissions
paid with respect to leasing or the cost of Tenant alterations.
(3) "Tenant's Proportionate Share" shall mean the percentage
equal to the ratio that the number of Rentable
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Square Feet contained in the Premises bears to the total number of
Rentable Square Feet contained in the entire Building. For purposes
of this Lease, Rentable Square Feet shall mean the square footage of
the Premises or Building less all common areas.
(4) "Tax and Operating Expense Statements" shall mean written
statements, certified by Landlord, setting forth the total amounts of
Real Estate Taxes and Operating Expenses for each calendar year which
includes any portion of the Lease term or any renewal or extension
thereof and further setting forth Tenants Proportionate Share of such
taxes and expenses.
B. TAXES AND ASSESSMENTS BY LANDLORD. Real estate taxes and
assessments shall be paid by Landlord to appropriate governmental
authorities, and Tenant shall pay Tenants Proportionate Share of the amount
thereof to Landlord by Tenant as set forth below as an additional rent.
C. PAYMENT TO LANDLORD. At or prior to the Commencement Date,
Landlord shall estimate the Annual Tax and Operating Expenses for the
partial calendar year including the Commencement Date, and shall submit a
statement of such estimate to Tenant. Said statement shall be deemed the
Tax and Operating Expense Statement for said partial calendar year.
Landlord shall deliver to Tenant, within ninety (90) days of the close of
each calendar year (or of termination or expiration of the Lease), the Tax
and Operating Expense Statement for said period. It shall not be a
condition to Tenant's obligation to pay the amounts set forth in the Tax
and Operating Expense Statements that Landlord has not yet paid the Real
Estate Taxes. The amount so set forth is hereinafter referred to as the
"Annual Tax and Operating Expenses" for said calendar year. Tenant shall
pay to Landlord the Annual Tax and Operating Expenses, as follows:
(1) Within fifteen (15) days following delivery of such
statement, the amount of Annual Tax and Operating Expense for the
prior full or partial calendar year, less that portion thereof, if
any, already paid on a monthly basis during such prior full or partial
calendar year; and
(2) Within fifteen (15) days following delivery of such
statement, an amount equal to one hundred and ten per cent (110%) of
the Tenant's monthly PRO RATA portion of such Annual Tax and Operating
Expenses for the prior calendar year multiplied by the number of
months in the current calendar year prior to delivery of the
statement, less that portion thereof, if any, already paid on a
monthly basis; and
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(3) On the Commencement Date and on the first day of each month
thereafter, until receipt of the next year's Tax and Operating Expense
Statement, an amount equal to one hundred ten percent (110%) of the
Tenant's monthly PRO RATA portion of such Annual Tax and Operating
Expenses.
In the event that the amount theretofore paid hereunder for any calendar
year shall exceed the amount determined in Landlord's annual statement, the
excess shall be credited on the installments of additional rent next maturing.
The obligation of Tenant to pay any such Annual Tax and Operating Expenses
attributable to any portion of the term of this Lease shall survive termination
or expiration of this Lease
27. QUIET ENJOYMENT. Landlord covenants that Tenant may peaceably and
quietly enjoy the Premises, subject to the terms, provisions, covenants,
agreements, stipulations, rules or conditions of this Lease, upon Tenant's
paying the Base Rent and additional rent and observing and performing all the
terms, provisions, stipulations, rules, agreements, covenants and conditions, on
Tenant's part to be observed and performed, without molestation or hindrance by
any person holding under or through Landlord.
28. SECURITY DEPOSIT.
A. In the event Landlord has collected a Security Deposit from
Tenant, which shall be evidenced by a receipt therefor, it is agreed that:
B. The Security Deposit may be commingled with other funds of
Landlord, and Tenant shall not be entitled to any interest thereon or to
any interest earned by Landlord thereon. No successor in title to the
party which, as Landlord, collected such Security Deposit shall be liable
for the return thereof unless such successor has received such Security
Deposit.
C. In the event that Tenant defaults in respect of any of the terms,
provisions, covenants, agreements, stipulations, rules or conditions of
this Lease, Landlord may use, apply or retain the whole or any part of the
amount deposited as security hereunder for the payment of any Base Rent and
additional rent in default or for any other sum which Landlord may expend
by reason of Tenant's default, including any damages or deficiency in the
re-letting of the Premises. If Tenant shall fully comply with all the
terms, provisions, agreements, stipulations, rules, covenants and
conditions of this Lease, the security, or balance thereof, shall be
returned to Tenant without interest after the termination of
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this Lease and after the removal of Tenant and surrender of possession of
the Premises to Landlord. In the absence of evidence satisfactory to
Landlord of an assignment of the right to receive the security, or the
remaining balance thereof, Landlord may return the security to the original
Tenant regardless of one or more assignments of the Lease itself.
29. NO REPRESENTATIONS BY LANDLORD. Except as herein expressly stated,
Landlord makes no representation with respect to the Building or the Premises,
and by taking possession of the Premises Tenant shall be deemed to have accepted
the Premises in the condition then existing.
30. ESTOPPEL CERTIFICATE. Tenant from time to time shall, upon request
by Landlord, execute, acknowledge and deliver to Landlord a written statement
certifying that this Lease is unmodified and in full force and effect (or
that the same is in full force and effect as modified, listing the
instruments of modification), the dates to which rent and other charges have
been paid; that Landlord is not in default hereunder (or specifying the
nature of any default(s) Tenant claims to exist at the time of such
certification), and such other matters pertaining to this Lease and Tenant's
occupancy of the Premises as Landlord may request, it being intended that any
such statement delivered pursuant to this paragraph 30 may be relied upon by
Landlord, a prospective purchaser or mortgagee of Landlord's interest or
assignee of any mortgage upon Landlord's interest in the Building. Tenant
shall not be entitled to withhold such statement on the basis of any claimed
default by Landlord hereunder, nor on the basis of any delay in Tenant's
occupancy or possession of the Premises nor of any unfinished work on or in
connection with the Premises or the Building.
31. GENERAL. Wherever herein the singular number is used, the same
shall include the plural, and the masculine gender shall include the feminine
and neuter genders. The covenants, agreements and stipulations of the Tenant
are joint and several. One or more waivers of any covenant, term, provision,
agreement, rule, stipulation or condition by Landlord shall not be construed
as a waiver of a subsequent breach of the same, and the consent or approval
by Landlord to or of any act, neglect or default by Tenant. The topical
headings are for convenience only and do not define, limit or construe the
contents of any paragraphs or clauses. This Lease can only be modified or
amended by an agreement in writing signed by the parties hereto. All
provisions hereof shall be binding upon the heirs, executors, administrators,
personal representatives, successors and assigns of each party hereto. This
Lease shall be construed and enforced in accordance with the laws of the
State of Michigan.
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32. BILLS AND NOTICES. Bills, statements, notices or communications
which Landlord may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if in writing, delivered to Tenant
personally or sent by registered, certified or first class mail, postage
prepaid, addressed to Tenant at the address set forth on the first page of
this Lease, or at such other address as Tenant shall designate by written
notice, and the time of the rendition of such bill or statement of the
giving of such notice or communication shall be deemed to be the time when
the same is delivered to Tenant or placed in the mail as herein provided.
If Tenant is occupying the Premises, personal delivery to the Premises by
Landlord shall be deemed sufficient hereunder. Any notice by Tenant to
Landlord must be registered, certified or first class mail, postage
prepaid, to Landlord at the address set forth on the first page of this
Lease, or at such other address as Landlord shall designate by written
notice.
33. RULES AND REGULATIONS. The rules and regulations applicable to the
Premises are set forth in Exhibit F attached hereto and made a part hereof as
fully as though herein written. Tenant grants to Landlord the right to make
such changes therein from time to time as in Landlord's judgment, reasonably
exercised, may be appropriate. Tenant agrees to comply with and abide by all
such rules and regulations, including amendments thereof. Any costs incurred by
Landlord as a result of Tenant's non-compliance with these Rules and
Regulations, or any amendment thereof, shall be paid by Tenant as additional
rent within five (5) days of receipt by Tenant of Landlord's written request for
payment.
34. NAME OF BUILDING. Landlord shall have the right from time to time to
name the building and to change the name of the Building, and shall not be
responsible for costs or damages, if any, claimed by Tenant as a consequence
thereof.
35. PREVENTING REMOTE VESTING. Notwithstanding any other provisions of
this Lease, if the term of this Lease shall not commence within five (5) years
from the date hereof, this Lease shall be deemed terminated five (5) years from
the date hereof without necessity of any notice or act by Landlord or Tenant.
It is the intention of this paragraph to prevent this Lease from becoming
unenforceable by reason of any claim that this Lease might violate the rule
against perpetuities.
36. DEFINITION OF LANDLORD, LANDLORD'S LIABILITY.
A. The term "Landlord" as used in this Lease so far as covenants,
agreements, stipulations or obligations on the part of the Landlord are
concerned shall be limited to mean and include only the owner or owners of
the Building at the time in question and in the event of any transfer or
transfers of such ownership the Landlord herein named (and in case of any
subsequent transfers or conveyances the then grantor) shall be
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automatically freed and relieved from and after date of such transfer or
conveyance of all personal liability as respects the performance of any
covenants or obligations on the part of the Landlord contained in this
Lease thereafter to be performed.
B. If Landlord shall fail to perform any covenant, provision,
agreement, stipulation, term or condition of this Lease upon Landlord's
part to be performed, and if as a consequence of such default Tenant shall
recover a money judgment against Landlord, such judgment may be satisfied
only out of the proceeds of sale received upon execution of such judgment
and levied thereon against the right, title and interest of Landlord in the
Building and out of rents or other income from such property receivable by
Landlord or out of the consideration received by Landlord from the sale or
other disposition of all or any part of Landlord's right, title and
interest in such property, and Landlord shall not be liable for any
deficiency, except to the extent of any Security Deposit collected pursuant
to paragraph 27 and retained by Landlord contrary to the provisions of
paragraph 27 of this Lease.
C. In no event shall any party becoming the Landlord under this
Lease by purchase upon foreclosure, deed in lieu of foreclosure, or
otherwise, be liable to Tenant for any default occurring prior to the date
on which such party became the Landlord, and there shall be no offset
against rent for any unsatisfied liabilities or unperformed obligations of
any previous landlord.
37. ENTIRE AGREEMENT. This Lease and the Exhibits attached hereto and
forming a part hereof set forth all of the covenants, agreements, stipulations,
promises, conditions and understandings between Landlord and Tenant concerning
the Premises and the Building, and there are no covenants, agreements,
stipulations, promises, conditions or understandings, either oral or written,
between them other than herein set forth.
38. CHANGES TO LEASE REQUIRED BY LENDER. This Lease shall be subject to
modification of non-economic terms contained herein at the request of any
institutional mortgage lender furnishing construction or permanent financing to
Landlord in connection with the Building.
39. MORTGAGEE PROTECTION CLAUSE. Tenant agrees to give any mortgagees
and/or trust deed holders, by registered mail, a copy of any notice of default
served upon the Landlord, provided that prior to such notice Tenant has been
notified in writing (by way of a Notice of Assignment or Rents and Leases, or
otherwise), of the address of such mortgagees and/or trust deed holders. Tenant
further agrees that if Landlord should have failed to cure such default within
the time provided for in this Lease, then the
-23-
<PAGE>
mortgagees and/or trust deed holders shall have an additional thirty (30) days
within which to cure such default, or if such default cannot be cured within
that time, such additional time as may be necessary, if within such thirty (30)
days any mortgagee and/or trust deed holder has commenced and is diligently
pursuing the remedies necessary to cure such default (including, but not limited
to commencement of foreclosure proceedings, if necessary, to effect such cure),
in which event this lease shall not be terminated while such remedies are being
so diligently pursued.
LANDLORD:
AUBURN REAL ESTATE VENTURES
LIMITED PARTNERSHIP
By: Auburn Partners, Inc.
Its: General Partner
By
----------------------------------
Richard Mazur
Its Authorized Officer
TENANT:
MICHIGAN EDUCATORS INSURANCE
AGENCY, INC.
By: /s/
---------------------------------
Its: PRES. & CEO
---------------------------
-24-
<PAGE>
EXHIBIT A
Situated in the City of Auburn Hills, Oakland County, State of Michigan.
A part of the Northwest 1/4 of Section 25, T3N, R10E, City of Auburn
Hills, Oakland County, Michigan, being described as: Commencing at the
North 1/4 corner of said Section 25; thence along the North-South 1/4
line, South 4 degrees 29 minutes 34 seconds East, 394.08 feet; thence
South 84 degrees 32 minutes 47 seconds West, 167.02 feet to the
westerly right-of-way line of Squirrel Road and the point of
beginning, thence along said westerly right-of-way line of Squirrel
Road (said line being 167.00 feet West of and parallel to the
North-South 1/4 line of said Section 25) South 4 degrees 29 minutes 34
seconds East, 403.60 feet; thence South 82 degrees 21 minutes 06
seconds West, 574.26 feet; thence North 5 degrees 29 minutes 15
seconds West, 428.31 feet; thence North 84 degrees 46 minutes 26
seconds East, 207.98 feet, thence North 84 degrees 59 minutes 26
seconds East, 250.72 feet, thence North 84 degrees 32 minutes 47
seconds East, 122.17 feet to the point of beginning.
<PAGE>
EXHIBITS B, C, D AND E
Will be agreed upon by the
parties prior to the
Commencement Date
<PAGE>
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE COMPANY
INCENTIVE PLAN
1. PURPOSE. The purpose of the Michigan Educational Employees Mutual
Insurance Company Incentive Plan ("Plan") is to provide deferred compensation to
a select group of management employees and non-employee Directors of Michigan
Educational Employees Mutual Insurance Company ("Company"). The Plan is also
intended to benefit the Company by rewarding the performance of certain
management employees and Directors who achieve targeted long-term goals of the
Company. The amount of the deferred compensation payable under the Plan shall
be based on increases in the Company's surplus assets.
2. EFFECTIVE DATE. The effective date of the Plan shall be October 1,
1996.
3. ELIGIBILITY AND PARTICIPATION.
(a) Management employees with salary levels of 10 or above ("Eligible
Employees") shall be eligible to participate in the Plan. Non-employee members
of the Company's Board of Directors ("Directors") also shall be eligible to
participate. The names of all Eligible Employees and Directors shall be
included on a list maintained by the Board.
(b) An Eligible Employee or Director may participate in the Plan upon
the recommendation of senior management and approval by the Board.
4. ADMINISTRATION.
(a) The Board shall be the Fiduciary and Administrator of the Plan.
Subject to the provisions of the Plan, the Board shall have exclusive power to
select the individuals who are eligible to participate each year and their
respective level of participation.
(b) The Board shall have exclusive authority and discretion to
interpret the Plan, to construe any uncertain or disputed term or provision in
the Plan, to adopt rules and regulations of the Plan, to determine the
conditions subject to which any awards under the Plan may be made or payable,
and to make any other determinations that it believes necessary or advisable for
the administration of the Plan. Determinations by the Board shall be made by
<PAGE>
majority vote and shall be final and binding on all parties with respect to all
matters relating to the Plan.
5. PLAN YEAR. The Plan year shall commence on January 1 and end on
December 31 of each year. However, the first Plan year shall commence on
October 1, 1996, and end on December 31, 1996.
6. INCENTIVE AWARDS.
(a) Incentives shall not be granted to Eligible Employees and
Directors (collectively, "Participants") as the Board shall determine in its
sole discretion. In the event that the Board decides to grant Incentives for
a particular Plan year, the Board shall approve the Incentives as its fourth
quarter meeting preceeding that year. Each grant of Incentives under the
Plan to a Participant and the level of participation as of the date of the
grant shall be communicated by the Board in writing to the Participant no
later than January 31 of the following year.
(b) During the calendar year ending in December 31, 1996, the
Board may make Incentive Awards to Eligible Employees and Directors based on
their past performance. However, no more than five (5) years of past
performance may be taken into account for purposes of calculating awards for
the 1996 Plan year. In the event that the Board grants Incentives based on a
Participant's past performance, the Participant shall receive credit for
vesting purposes for no more than four years of service before January 1,
1997. Any Participant who receives Incentives for 1996 shall become vested
in the award on or after December 31, 1997, in accordance with Section 8
below.
(c) Incentives granted to a Participant shall be credited to an
Incentives Account ("Account") established and maintained in the name of the
Participant. The account of a Participant shall be the record of the Incentive
Level granted under the Plan solely for accounting purposes and shall not
require a segregation of any Company assets. Each Incentive Level shall be
valued by the Board, in the manner proved in Section 7 below.
(d) A Participant may irrevocably elect to direct the Board of
Directors to transfer the value of vested Incentives to the Michigan Educational
Employees Mutual Insurance
2
<PAGE>
Company Deferred Compensation Plan for Director Fees, Executive Bonuses and
Supplemental Retirement Savings for Executives ("Supplemental Retirement Plan")
rather than to pay the Participant the value of the Incentives after they become
vested. The Participant shall make the election by filing written notice with
the Board no later than thirty (30) days following the date on which the Board
notifies the Participant of the grant of Incentives. The value of any
Incentives transferred into the Supplemental Retirement Plan shall be credited
to a Transfer Account established in the name of the Participant and shall be
subject to the provisions of the Supplemental Retirement Plan. The
Participant's transfer election shall include a provision indicating that the
form and timing of payment from the Transfer Account shall be controlled by the
provisions applicable to the Participant's Supplemental Elective Contributions
Account under the Supplemental Retirement Plan.
7. VALUATION OF THE LONG-TERM INCENTIVE AWARDS. The maximum amount
of a Long-Term Incentive Award cannot exceed $200,000 per participant per year.
(a) AWARD LEVELS. Five (5) different levels of participation
are available for Eligible Employees. The level of participation is determined
by the Board and communicated at the time the award is made. Eligible Employees
can receive awards for any Level except as noted below.
(i) Only Senior Management can participate in Level 1
awards. This includes the positions of President, Chief Operating Officer,
Chief Financial Officer and Chief Information Officer.
(b) VALUATION OF LEVELS. Each level of participation has the
following value.
<TABLE>
<S> <C>
Level 1 = $300
Level 2 = $125
Level 3 = $ 75
Level 4 = $ 50
Level 5 = $ 25
</TABLE>
(c) VALUATION OF INCENTIVE PAYMENT. When a participant becomes
vested in a Long-Term Incentive Award, the value is determined by calculating
the number of increments of growth in the Company's Surplus Assets over the five
(5) year vesting period. For
3
<PAGE>
all years prior to year end 1997, an increment equals each $50,000 increase in
surplus. For years starting at year end 1997, an increment is measured by taking
the prior year's increment times 1.10 percent. (For example: 1996 = $50,000:
1997 = $50,000 x 1.10 percent or $55,000, 1998 = $55,000 x 1.10 percent =
$60,500; etc.)
At the time of vesting, the award calculation shall be calculated
using the following formula.
Company's Surplus at vested date of award
minus Company's Surplus at date of award
Award Value = ---------------------------------------- = Number of Increments
Increment Value at date of vesting
Number of Increments x Increment Value for Level of Award
= Long-Term Incentive Payment
8. VESTING OF INCENTIVE AWARDS.
(a) A Participant shall become vested in Long-Term Incentives granted
for a particular Plan year after completing five (5) consecutive years of
service with the Company. For purposes of the Plan, year of service shall mean
each twelve (12) month period of service coinciding with the Plan year. Each
five (5) year vesting period shall commence on January 1 of the year in which
the Participant received the Award of Incentives and shall end on the last day
of the fifth Plan year. However, for purposes of determining a Participant's
vested interest on December 31, 1997, with respect to Incentives granted for
1996, if any, the Participant must have completed five (5) consecutive years of
service during the period beginning January 1, 1993, and ending on December 31,
1997. In the event that a Participant has not completed five (5) years of
service by December 31, 1997, the Incentives shall become vested when the
Participant first completes five years of service, taking into account all years
of service after January 1, 1993.
(b) Notwithstanding the provisions of subsection (a) above and except
as provided in Section 9 below, all Long-Term Incentives granted to a
Participant shall immediately become vested upon the Participant's termination
of employment with the Company due to death, disability or retirement or upon a
change of corporate control. For purposes of this Section,
4
<PAGE>
(i) a Participant will be considered disabled if a physical
or mental condition renders the Participant unable to perform his duties or
any comparable duties for the Company and the disability is evidenced by a
certificate from a physician satisfactory to the Board;
(ii) a Participant will be considered retired if the
Participant's employment with the Company terminates on or after the date the
Participant attains age 59-1/2; and
(iii) a change of corporate control shall be deemed to have
taken place upon the occurrence of any of the events described in subsection
(c) below.
(c) Change of Corporate Control. A change of corporate control
shall be deemed to take place on the occurrence of any of the following
events:
(i) The acquisition by an entity, person or group (including
affiliates or associates of such entity, person or group) of the Company if
after the acquisition the entity, person or group is entitled to exercise
more than thirty (30%) percent of the voting rights of the Board of Directors;
(ii) The effective date of a merger or consolidation with one
(1) or more corporations as a result of which the Company is not the
surviving corporation;
(iii) The company enters into a contract that permits a
corporation or any other legal entity to control or manage all of the
Company's corporate functions;
(iv) Any person, entity, group, corporation or any other
legal entity owns ten (10%) percent or more of the Company's surplus through
surplus notes, guarantee fund certificates or other evidence of indebtedness
issued by the Company; or
(v) The election to the Board of candidates who were not
recommended for election by the Board of Directors of the Company in office
immediately before the election, if the candidates constitute a majority of
those elected in the particular election or a majority of the entire Board of
Directors after the election.
(d) In the event that a Director is not reelected to the Board,
all nonvested Incentives shall immediately become vested and payable under
Section 10 below.
5
<PAGE>
9. FORFEITURE.
(a) Notwithstanding anything in the Plan to the contrary, a
Participant shall forfeit all Incentives credited to the Participant's Account
in the event the Participant's employment with the Company is terminated for
cause. For purposes of this Section, a Participant will be considered to have
been terminated for cause if the Participant engaged in acts of insubordination,
malicious intent or any other acts or omissions constituting dishonestly,
intentional breach of fiduciary obligation or intentional wrongdoing or the
Participant is convicted of a criminal violation involving fraud or dishonesty.
Furthermore, any amounts attributable to previously vested Incentives for which
the Participant has not received full payment before the date of the involuntary
termination of employment for cause also shall be forfeited.
(b) A Participant shall forfeit all nonvested Incentives upon
voluntary termination of employment.
10. PAYMENT FOR PERFORMANCE UNITS.
(a) Unless a Participant forfeits incentives or payments under
Section 9 above, or previously elected, pursuant to Section 6, to transfer
the value of the Incentives to the Supplemental Retirement Plan, the
Participant shall be entitled to receive payment for the Incentives in the
Participant's Account following the Board's determination under subsection
(b) below as to the method and period of payment.
(b) Payment to a Participant for incentives described in subsection
(a) above shall be made in cash in a lump sum or in equal annual installments
over a period not to exceed ten (10) years. The Board shall have the sole
discretion to determine the method of payment under the Plan and the period, if
any over which the payments shall be made. Payment shall be made or commence
within ninety (90) days after the end of the Plan Year in which the Participant
becomes vested in the Award.
(c) In the event that an Eligible Employee's employment is
involuntarily terminated for any reason other than for cause or upon a
change of corporate control or a Director is not reelected to the Board and
Participant's Incentives immediately become vested under Section 8, the amount
of the Participant's payment shall be calculated taking into account
6
<PAGE>
the Company's surplus assets as of the end of the quarter coinciding with or
next following the Eligible Employee's termination of employment, the date of
the change in control, or last day of the Director's term of office. The
Participant's payment shall be made or commence within ninety (90) days after
the quarter coinciding with or next following the Participant's termination of
employment or term of office, as applicable.
(d) The Board shall have sole discretion with respect to the
application of the provisions of this Section and the exercise of discretion
shall be conclusive and binding upon the Participant, and all other persons.
11. NONTRANSFERABILITY. Incentives granted under the Plan, and any rights
and privileges pertaining thereto, may not be transferred, assigned, pledged or
hypothecated in any manner, by operation of law or otherwise, except as provided
in Section 6 (with respect to transfers to the Supplemental Retirement Plan) or
Section 12 (in the event of a Participant's death).
12. PAYMENTS TO BENEFICIARIES. In the event of a Participant's death
either before or after payments under the Plan have commenced, but before all
payments required to be made to the Participant have been made, any remaining
payments shall be made to the individual(s) and/or trusts(s) that the
Participant designates as beneficiary. In the event of the death of the
Participant's designated beneficiary after commencement of payments to the
beneficiary and before receiving all payments required to be made to the
beneficiary under the Plan, as amount equal to the remaining balance of the
Participant's Account shall be paid in a lump sum to the contingent beneficiary,
if any, named by the Participant, otherwise to the estate of the Participant.
The beneficiary designated by the Participant may be changed by the Participant
without the consent of any prior beneficiary by filing a new designation of
beneficiary with the Board before the Participant's death. If no such
beneficiary is designated, or if no designated beneficiary survives the
Participant, an amount equal to the Account in the name of the Participant shall
be paid to the Participant's estate in a lump sum.
7
<PAGE>
13. HARDSHIP WITHDRAWALS. In the event that a Participant's benefits are
payable in installments, the Participant may request a hardship withdrawal from
the vested portion of his or her Account subject to the application of uniform
rules consistently applied. Upon the written request of a Participant, the
Board may authorize the participant to receive a hardship withdrawal.
"Hardship" shall mean an unanticipated emergency situation in the Participant's
financial affairs beyond the Participant's control, including illness or an
accident involving the Participant, his or her dependents or other family
members, or other significant financial emergency as determined by the Board in
its sole discretion; provided that the amount withdrawn shall be limited to the
amount necessary to meet the emergency situation (including income taxes on the
withdrawn amount).
14. WITHHOLDING. The company shall have the right to deduct from all
amounts paid pursuant to the Plan any taxes required by law to be withheld with
respect to the award payments.
15. UNFUNDED PLAN.
(a) The Plan shall at all times be entirely unfunded for tax purposes
and for purposes of the Employee Retirement Income Security Act of 1974, as
amended. No provision shall at any time be made with respect to segregating
assets of the Company for payment of any benefits hereunder. No Participant or
other person shall have any interest in any particular assets of the Company by
reason of the right to receive a benefit under the Plan.
(b) The Company shall maintain an irrevocable grantor trust ("Trust")
to hold assets of the Company as a reserve to assist in the discharge of the
Company's obligations under the Plan. The Company may, in its sole discretion,
periodically deposit with the Trustee of the Trust amounts sufficient to provide
the benefits payable under the Plan. To the extent that any person acquires a
right to receive payments under the Plan, such right shall be no greater than
the right of any unsecured general creditor of the Company.
16. NO RIGHT TO CONTINUE AS DIRECTOR OR EMPLOYEE. Nothing included in the
Plan nor any action taken under the Plan shall be construed as a contract or
other arrangement between
8
<PAGE>
the Company and any Participant giving the Participant any right to be retained
as a Director or employee of the Company (as the case may be) for any specific
period of time.
17. RIGHT TO AMEND OR TERMINATE PLAN.
(a) The Company reserves the right to amend or terminate the Plan at
any time, by action of its Board of Directors, except that no such amendment or
termination shall adversely affect the payment of any amounts that become vested
before the date on which the Board adopts a resolution to terminate the Plan.
Written notice of any such amendment or termination shall be given to each
Participant or, if the Participant is deceased, to his or her beneficiary. Upon
termination of the Plan, the Company shall pay to each Participant, or to the
Participant's beneficiary if the Participant is deceased, an amount equal to the
vested balance of the Participant's Account. However, in the discretion of the
Board, the amount may be paid in installments over a period shorter than the
period over which payments are to be made to the Participant, including payment
in a lump sum, provided that in such event amounts payable to all Participants
and beneficiaries shall be paid over the same period and in the same manner.
(b) No Incentives shall be granted pursuant to the Plan after the
date of termination of the Plan. However, payments shall be made to Participants
with respect to Incentives granted and vested prior to the date of termination.
18. GENERAL.
(a) Titles and headings to the numbered Sections of the Plan are
included for convenience only and shall not control the meaning or
interpretation of any provision of the Plan. Wherever reasonably necessary in
the Plan, pronouns of any gender shall be deemed synonymous, as shall singular
and plural pronouns.
(b) The provisions of the Plan shall be deemed severable and in the
event any provision of the Plan is held invalid, void or unenforceable, the same
shall not affect, in any respect whatsoever, the validity of any other provision
of the Plan. Furthermore, the Board shall have the power to modify such
provision to the extent reasonably necessary to make the provision, as so
changed, both legal, valid and enforceable as well as compatible with the other
provisions of the Plan.
9
<PAGE>
(c) Any notice or filing required or permitted to be given under the
Plan shall be sufficient if in writing and hand delivered, or sent by registered
or certified mail:
(i) to the Company or the Board at the principal office of the
Company, directed to the attention of any member of the Board, and
(ii) to the Participant at his last known home address on file
with the Company's personnel office.
Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification. It shall be the Participant's responsibility to
inform the Company's personnel office, in writing, of any change in his home
address.
(d) By agreeing to participate in and receiving a copy of the Plan,
Participants shall be deemed conclusively to have accepted and consented to all
terms of the Plan and all actions or decisions made by the Company, or the Board
of Directors with regard to the Plan. Such terms and consent shall also apply
to, and be binding upon, the beneficiaries, personal representatives and other
successors in interest of each Participant.
19. APPLICABLE LAW. The Plan shall be governed and construed in
accordance with the laws of the State of Michigan, except to the extent
governed by Federal law.
The Company has caused this Plan to be executed by its duly authorized
officers on January 7, 1997, effective as of October 1, 1996.
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY
By: /s/ Lynn M. Kalinowski
----------------------------
Its: CEO & PRESIDENT
----------------------------
ATTEST:
/s/ M. Kay Rickenbaugh
- ----------------------------
10
<PAGE>
AMENDED AND RESTATED
MICHIGAN EDUCATIONAL EMPLOYEES
MUTUAL INSURANCE COMPANY
INCENTIVE PLAN
[ENGROSSED VERSION, REFLECTING ORIGINAL INCENTIVE PLAN, AS AMENDED BY THE FIRST
AMENDMENT TO INCENTIVE PLAN ADOPTED DECEMBER 31, 1997]
<PAGE>
AMENDED AND RESTATED
MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL
INSURANCE COMPANY INCENTIVE PLAN
This Amended and Restated Michigan Educational Employees Mutual Insurance
Company Incentive Plan restates the Michigan Educational Employees Mutual
Insurance Company Incentive Plan as originally adopted and as amended by the
First Amendment to the Michigan Educational Employees Mutual Insurance Company
Incentive Plan adopted December 31, 1997.
1. PURPOSE. The purpose of the Michigan Educational Employees Mutual
Insurance Company Incentive Plan ("Plan") is to provide deferred compensation to
a select group of management employees and non-employee Directors of Michigan
Educational Employees Mutual Insurance Company ("Company"). The Plan is also
intended to benefit the Company by rewarding the performance of certain
management employees and Directors who achieve targeted long-term goals of the
Company. The amount of the deferred compensation payable under the Plan shall
be based on increases in the Company's surplus assets.
2. EFFECTIVE DATE. The effective date of the Plan shall be October 1,
1996.
3. ELIGIBILITY AND PARTICIPATION.
(a) Management employees with salary levels of 10 or above and
any officer of the Company ("Eligible Employees") shall be eligible to
participate in the Plan. Directors shall also be eligible to participate. Any
Eligible Employee or Director may decline to participate in the Plan by
providing written notice of such declination to the Board within 60 days after
receiving notice of the award of Incentives as provided in Section 6(a). Once
submitted and accepted by the Board, a participation declination may not be
withdrawn or revoked. The names of all Eligible Employees and Directors shall
be included on a list maintained by the Board.
(b) An Eligible Employee or Director may participate in the Plan
upon the recommendation of the President of the Company and approval
by the Board.
4. ADMINISTRATION.
(a) The Board shall be the Fiduciary and Administrator of the Plan.
Subject to the provisions of the Plan, the Board shall have exclusive power to
select the individuals who are
<PAGE>
eligible to participate each year and their respective level of participation.
(b) The Board shall have exclusive authority and discretion to
interpret the Plan, to construe any uncertain or disputed term or provision in
the Plan, to adopt rules and regulations of the Plan, to determine the
conditions subject to which any awards under the Plan may be made or payable,
and to make any other determinations that it believes necessary or advisable for
the administration of the Plan. Determinations by the Board shall be made by
majority vote and shall be final and binding on all parties with respect to all
matters relating to the Plan.
5. PLAN YEAR. The Plan year shall commence on January 1 and end on
December 31 of each year. However, the first Plan year shall commence on
October 1, 1996, and end on December 31, 1996.
6. INCENTIVE AWARDS.
(a) Incentives shall be granted to Eligible Employees and Directors
who have not elected out of the Plan (collectively, "Participants") as the Board
shall determine in its sole discretion. In the event that the Board decides to
grant Incentives for a particular Plan year, the Board shall approve the
Incentives at its fourth quarter meeting preceding that year, or at such other
time as the Board determines appropriate. Each grant of Incentives under the
Plan to a Participant and the level of participation as of the date of the grant
shall be communicated by the Board in writing to the Participant within 120 days
of the decision by the Board to grant Incentive Awards.
(b) During the calendar year ending on December 31, 1996, the
Board may make Incentive Awards to Eligible Employees and Directors based on
their past performance. However, no more than five (5) years of past
performance may be taken into account for purposes of calculating awards for
the 1996 Plan year. In the event that the Board grants Incentives based on a
Participant's past performance, the Participant shall receive credit for
vesting purposes for no more than four years of service before January 1,
1997. Any Participant who receives Incentives for 1996 shall become vested
in the award on or after December 31, 1997, in accordance with Section 8
below.
<PAGE>
(c) Incentives granted to a Participant shall be credited to an
Incentives Account ("Account") established and maintained in the name of the
Participant. The account of a Participant shall be the record of the Incentive
Level granted under the Plan solely for accounting purposes and shall not
require a segregation of any Company assets. Each Incentive Level shall be
valued by the Board, in the manner provided in Section 7 below.
(d) A Participant may irrevocably elect to direct the Board of
Directors to transfer the value of vested Incentives to the Michigan Educational
Employees Mutual Insurance Company Deferred Compensation Plan for Director Fees,
Executive Bonuses and Supplemental Retirement Savings for Executives
("Supplemental Retirement Plan") rather than to pay the Participant the value of
the Incentives after they become vested. The Participant shall make the
election by filing written notice with the Board no later than thirty (30) days
following the date on which the Board notifies the Participant of the grant of
Incentives. The value of any Incentives transferred into the Supplemental
Retirement Plan shall be credited to a Transfer Account established in the name
of the Participant and shall be subject to the provisions of the Supplemental
Retirement Plan. The Participant's transfer election Shall include a provision
indicating that the form and timing of payment from the Transfer Account shall
be controlled by the provisions applicable to the Participant's Supplemental
Elective Contributions Account under the Supplemental Retirement Plan.
7. VALUATION OF THE LONG-TERM INCENTIVE AWARDS, The maximum amount of a
Long-Term Incentive Award cannot exceed $200,000 per participant per year.
(a) AWARD LEVELS. Five (5) different levels of participation are
available for Eligible Employees. The level of participation is determined by
the Board and communicated at the time the award is made. Eligible Employees
can receive awards for any Level except as noted below.
(i) Only Senior Management can participate in Level 1 awards.
Senior Management includes the positions of President, Executive Vice President,
Senior Vice President of Operations, Chief Financial Officer, Vice President of
Marketing and Chief
<PAGE>
Information Officer.
(b) VALUATION OF LEVELS. Each level of participation has the
following value,
Level l = $300
Level 2 = $125
Level 3 = $ 75
Level 4 = $ 50
Level 5 = $ 25
(c) VALUATION OF INCENTIVE PAYMENT. When a participant becomes
vested in a Long-Term Incentive Award, the value is determined by calculating
the number of increments of growth in the Company's Surplus Assets over the five
(5) year vesting period. For all years prior to year end 1997, an increment
equals each $50,000 increase in surplus. For years starting at year end 1997,
an increment is measured by taking the prior year's increment times 1.10
percent. (For example: 1996 = $50,000; 1997 = $50,000 x 1.10 percent or
$55,000; 1998 = $55,000 x 1.10 percent = $60,500; etc.)
At the time of vesting, the award calculation shall be calculated using the
following formula.
Company's Surplus at vested date of award
minus Company's Surplus at date of award
Award Value = ------------------------------------------ = Number of Increments
Increment Value at date of vesting
Number of Increments x Increment Value for Level
of Award = Long-Term Incentive Payment
(d) Special Valuation Rules Upon the Occurrence of a Change of
Corporate Control.
(i) A change of corporate control (a "Change of Corporate
Control") shall be deemed to take place on the occurrence of any of the
following events occurring after December 31, 1997:
(A) The acquisition by an entity, person or group
(including
<PAGE>
affiliates or associates of such entity, person or group) of the Company if
after the acquisition the entity, person or group is entitled to exercise more
than thirty (30%) percent of the voting rights of the Board of Directors;
(B) The effective date of a merger or consolidation or
other business combination with one (1) or more corporations as a result of
which the Company is not the surviving corporation or survives only as a
subsidiary corporation (i.e., another corporation retains over 50% of the voting
power of the Company entitled to vote generally in the election of directors of
the Company);
(C) The company enters into a contract that permits a
corporation or any other legal entity to control or manage all of the Company's
corporate functions;
(D) Any person, entity, group, corporation or any other
legal entity becomes the owner of ten (10%) percent or more of the Company's
surplus through surplus notes, guarantee fund certificates or other evidence of
indebtedness issued by the Company; or
(E) The election to the Board of candidates who were not
recommended for election by the Board of Directors of the Company in office
immediately before the election, if the candidates constitute a majority of
those elected in the particular election or a majority of the entire Board of
Directors after the election.
(ii) Upon the occurrence of a Change of Corporate Control,
in lieu of the award calculation set forth in Section 7(c), which provides a
formula for determining the value of a Long-Term Incentive Award as of the
vesting date, the following procedures shall be used to determine the value of a
Long-Term Incentive Award as of the effective date of a Change of Corporate
Control (the "Accelerated Value"):
(A) A projected surplus value (the "Projected Surplus
Value") as of the projected vesting date shall be determined by assuming that
the growth in the Company's surplus for each calendar year between the calendar
year preceding the effective date of a Change of Corporate Control and the
projected vesting date shall equal the average annual percentage increase in the
Company's surplus over the three complete calendar years
<PAGE>
immediately preceding the effective date of the Change of Corporate Control.
(B) The value of the Company's surplus as of the close of
the Plan year (December 31) of the award shall be subtracted from the Projected
Surplus Value, and this amount shall be divided by the appropriate increment
value (as established in Section 7(c)) to determine the number of increments.
This number of increments shall then be multiplied by the appropriate level
value (as established in Section 7(b)). This calculation will result in a
projected award value (the "Projected Award Value") as of the projected vesting
date.
(C) The Projected Award Value shall then be discounted by
25%. The Accelerated Value of the Long-Term Incentive Awards shall be the
greater of (i) the discounted Projected Award Value or (ii) an award value
calculated as of the date of the Change of Corporate Control and without benefit
of projected surplus growth between the date of the Change of Corporate Control
and the projected vesting date, which value shall be determined pursuant to the
formula contained in Section 7(c), utilizing the date of the Change of Corporate
Control as the "vested date" in the formula.
8. VESTING OF INCENTIVE AWARDS.
(a) A Participant shall become vested in Long-Term Incentives granted for
a particular Plan year after completing five (5) consecutive years of service
with the Company. For purposes of the Plan, year of service shall mean each
twelve (12) month period of service coinciding with the Plan year. Each five
(5) year vesting period shall commence on January 1 of the year in which the
Participant received the Award of Incentives and shall end on the last day of
the fifth Plan year. However, for purposes of determining a Participant's
vested interest on December 31, 1997, with respect to Incentives granted for
1996, if any, the Participant must have completed five (5) consecutive years of
service during the period beginning on January 1, 1993, and ending on December
31, 1997. In the event that a Participant has not completed five (5) years of
service by December 31, 1997, the Incentives shall become vested when the
Participant first completes five years of service, taking into account all years
of service after January 1, 1993.
<PAGE>
(b) Notwithstanding the provisions of subsection (a) above and
except as provided in Section 9 below, all Long Term Incentives granted to a
Participant shall immediately become vested upon (i) the Participant's
termination of employment with the Company due to (A) death, (B) disability or
(C)retirement or (D) involuntary termination of employment upon the occurrence
of a Change of Corporate Control and (ii) upon the occurrence of a Change of
Corporate Control (regardless of the termination of employment of the
Participant), if such Change of Corporate Control results in the resulting or
surviving corporation terminating the Plan, not assuming the Plan, or amending
the vesting provisions of the Plan. For purposes of this Section,
(i) a Participant will be disabled if a physical or mental
condition renders the Participant unable to perform his usual duties or any
comparable duties for the Company and the disability is evidenced by a
certificate from a physician satisfactory to the Board; and
(ii) a Participant will be considered retired if the
Participant's employment with the Company terminates on or after the date the
Participant attains age 59 1/2.
(c) In the event that a Director is not reelected to the Board,
all nonvested Incentives shall immediately become vested and payable under
Section 10 below.
9. FORFEITURE.
(a) Notwithstanding anything in the Plan to the Contrary, a
Participant shall forfeit all Incentives credited to the Participant's Account
in the event the Participant's employment with the Company is terminated for
cause. For purposes of this Section, a Participant will be considered to have
been terminated for cause if the Participant engaged in acts of insubordination,
malicious intent or any other acts or omissions constituting dishonesty,
intentional breach of fiduciary obligation or intentional wrongdoing or the
Participant is convicted of a criminal violation involving fraud or dishonesty.
Furthermore, any amounts attributable to previously vested Incentives for which
the Participant has not received full payment before the date of the involuntary
termination of employment for cause also shall be forfeited.
<PAGE>
(b) A Participant shall forfeit all nonvested Incentives upon voluntary
termination of employment.
10. PAYMENT FOR PERFORMANCE UNITS.
(a) Unless a Participant forfeits Incentives or payments under
Section 9 above, or previously elected, pursuant to Section 6, to transfer the
value of the Incentives to the Supplemental Retirement Plan, the Participant
shall be entitled to receive payment for the Incentives in the Participant's
Account following the Board's determination under subsection (b) below as to the
method and period of payment.
(b) Payment to a Participant for incentives described in subsection
(a) above shall be made in cash in a lump sum or in equal annual installments
over a period not to exceed ten (10) years, and/or, at the discretion of the
Board in marketable securities. The Board shall have the sole discretion to
determine the method of payment under the Plan and the period, if any over which
the payments shall be made. Payment shall be made or commence within ninety
(90) days after the end of the Plan Year in which the Participant becomes vested
in the Award.
(c) In the event that an Eligible Employee's employment is
involuntarily terminated for any reason other than for cause or upon a change of
corporate control or a Director is not reelected to the Board and Participant's
Incentives immediately become vested under Section 8, the amount of the
Participant's payment shall, be calculated taking into account the Company's
surplus assets as of the end of the quarter coinciding with or next following
the Eligible Employee's termination of employment, the date of the change in
control, or last day of the Director's term of office. The Participant's
payment shall be made or commence within ninety (90) days after the quarter
coinciding with or next following the Participant's termination of employment or
term of office, as applicable.
(d) The Board shall have sole discretion with respect to the application
of the provisions of this Section and the exercise of discretion shall be
conclusive and binding upon the Participant, and all other persons.
11. NONTRANSFERABILITY. Incentives granted under the Plan, and any rights
and
<PAGE>
privileges pertaining thereto, may not be transferred, assigned, pledged or
hypothecated in any manner, by operation of law or otherwise, except as provided
in Section 6 (with respect to transfers to the Supplemental Retirement Plan) or
Section 12 (in the event of a Participant's death).
12. PAYMENTS TO BENEFICIARIES. In the event of a Participant's death
either before or after payments under the Plan have commenced, but before all
payments required to be made to the Participant have been made, any remaining
payments shall be made to the individual(s) and/or trusts(s) that the
Participant designates as beneficiary. In the event of the death of the
Participant's designated beneficiary after commencement of payments to the
beneficiary and before receiving all payments required to be made to the
beneficiary under the Plan, as amount equal to the remaining balance of the
Participant's Account shall be paid in a lump sum to the contingent beneficiary,
if any, named by the Participant, otherwise to the estate of the Participant.
The beneficiary designated by the Participant may be changed by the Participant
without the consent of any prior beneficiary by filing a new designation of
beneficiary with the Board before the Participant's death. If no such
beneficiary is designated, or if no designated beneficiary survives the
Participant, an amount equal to the Account in the name of the Participant shall
be paid to the Participant's estate in a lump sum.
13. HARDSHIP WITHDRAWALS. In the event that a Participant's benefits are
payable in installments, the Participant may request a hardship withdrawal from
the vested portion of his or her Account subject to the application of uniform
rules consistently applied. Upon the written request of a Participant, the
Board may authorize the Participant to receive a hardship withdrawal.
"Hardship" shall mean an unanticipated emergency situation in the Participant's
financial affairs beyond the Participant's control, including illness or an
accident involving the Participant, his or her dependents or other family
members, or other significant financial emergency as determined by the Board in
its sole discretion; provided that the amount withdrawn shall be limited to the
amount necessary to meet the emergency situation (including income taxes on the
withdrawn amount).
<PAGE>
14. WITHHOLDING. The company shall have the right to deduct from all
amounts paid pursuant to the Plan any taxes required by law to be withheld with
respect to the award payments.
15. UNFUNDED PLAN.
(a) The Plan shall at all times be entirely unfunded for tax
purposes and for purposes of the Employee Retirement Income Security Act of
1974, as amended. No provision shall at any time be made with respect to
segregating assets of the Company for payment of any benefits hereunder. No
Participant or other person shall have any interest in any particular assets of
the Company by reason of the right to receive a benefit under the Plan.
(b) The Company shall maintain an irrevocable grantor trust
("Trust") to hold assets of the Company as a reserve to assist in the discharge
of the Company's obligations under the Plan. The Company may, in its sole
discretion, periodically deposit with the Trustee of the Trust amounts
sufficient to provide the benefits payable under the Plan. To the extent that
any person acquires a right to receive payments under the Plan such right shall
be no greater than the right of any unsecured general creditor of the Company.
16. NO-RIGHT TO CONTINUE AS DIRECTOR OR EMPLOYEE. Nothing included in the
Plan nor any action taken under the Plan shall be construed as a contract or
other arrangement between the Company and any Participant giving the Participant
any right to be retained as a Director or employee of the Company (as the case
may be) for any specific period of time.
17. RIGHT TO AMEND OR TERMINATE PLAN.
(a) The Company reserves the right to amend or terminate the Plan
at any time, by action of its Board of Directors, except that no such amendment
or termination shall adversely affect the payment of any amounts that become
vested before the date on which the Board adopts a resolution to terminate the
Plan. Written notice of any such amendment or termination shall be given to
each Participant or, if the Participant is deceased, to his or her beneficiary.
Upon termination of the Plan, the Company shall pay to each Participant, or to
the Participant's beneficiary if the Participant is deceased, an amount equal to
the vested balance of the Participant's Account. However, in the discretion of
the Board, the amount may be paid in
<PAGE>
installments over a period shorter than the period over which payments are to be
made to the Participant, including payment in a lump sum, provided that in such
event amounts payable to all Participants and beneficiaries shall be paid over
the same period and in the same manner.
(b) No Incentives shall be granted pursuant to the Plan after the
date of termination of the Plan. However, payments shall be made to
Participants with respect to Incentives granted and vested prior to the date of
termination.
18. GENERAL.
(a) Titles and headings to the numbered Sections of the Plan are
included for convenience only and shall not control the meaning or
interpretation of any provision of the Plan. Wherever reasonably necessary in
the Plan, pronouns of any gender shall be deemed synonymous, as shall singular
and plural pronouns.
(b) The provisions of the Plan shall be deemed severable and in the
event any provision of the Plan is held invalid, void or unenforceable, the same
shall not affect, in any respect whatsoever, the validity of any other provision
of the Plan. Furthermore, the Board shall have the power to modify such
provision to the extent reasonably necessary to make the provision, as so
changed, both legal, valid and enforceable as well as compatible with the other
provisions of the Plan.
(c) Any notice or filing required or permitted to be given under
the Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail:
(i) to the Company or the Board at the principal office of
the Company, directed to the attention of any member of the Board, and
(ii) to the Participant at his last known home address on
file with the Company's personnel office.
Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification. It shall be the Participant's responsibility to
inform the Company's personnel office, in writing, of any change
<PAGE>
in his home address.
(d) By agreeing to participate in and receiving a copy of the Plan,
Participants shall be deemed conclusively to have accepted and consented to all
terms of the Plan and all actions or decisions made by the Company, or the Board
of Directors with regard to the Plan. Such terms and consent shall also apply
to, and be binding upon, the beneficiaries, personal representatives and other
successors in interest of each Participant.
19. APPLICABLE LAW. The Plan shall be governed and construed in
accordance with the laws of the State of Michigan, except to the extent governed
by Federal law.
***
<PAGE>
MEEMIC HOLDINGS, INC.
STOCK COMPENSATION PLAN
SECTION 1. PURPOSES
The general purposes of this Stock Compensation Plan (the "Plan") are to
encourage selected employees and non-employee directors of and consultants to
MEEMIC Holdings, Inc. (the Company") and its Affiliates (as hereinafter defined)
to acquire a proprietary interest in the Company in order to create an increased
incentive to contribute to the Company's future success and prosperity, and to
enhance the ability of the Company and its Affiliates to attract and retain
exceptionally qualified individuals upon whom the sustained progress, growth,
and profitability of the Company depend, thus enhancing the value of the Company
for the benefit of its stockholders.
SECTION 2. CERTAIN ADDITIONAL DEFINITIONS
The following terms have the following respective meanings under the Plan:
"AFFILIATE" means any entity in which the Company directly or indirectly
has a significant equity interest under generally accepted accounting principles
and any other entity in which the Company has a significant direct or indirect
equity interest as determined by the Committee. Such term shall also include
any entity which, with respect to the Company, satisfies the definitions of
"parent corporation" or "subsidiary corporation" set forth in Section 424 of
the Code.
"AWARD" means any Option, Stock Appreciation Right, Restricted Stock,
Restricted Stock Unit, Performance Award, Dividend Equivalent, or Other
Stock-Based Award granted under the Plan.
"AWARD AGREEMENT" means a written agreement, contract, or other instrument
or document evidencing an Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Board acting as a whole, unless a committee of the
Company's directors is designated by the Board (and changed in the Board's
discretion at any time and from time to time) to administer the Plan and
composed of not less than two directors, each of whom is a "non-employee
director" within the meaning of Rule 16b-3, or, to the extent provided in
Section 3 of the Plan, another director or group of directors to whom authority
has been delegated pursuant to Section 3(m). The foregoing notwithstanding, the
fact that a Committee member shall fail to qualify under the above requirements
shall not invalidate any award made by the Committee, if the award is otherwise
validly made under the Plan.
"DISABILITY" means, with respect to a given Participant at a given time,
any medically determinable physical or mental impairment that the Committee, on
the basis of competent, medical evidence, reasonably determines has rendered or
will render the Participant permanently and totally
<PAGE>
disabled with the meaning of Section 422(c)(6) of the Code (or such successor
section as is in effect at the time).
"DIVIDEND EQUIVALENT" means a right granted under Section 6(f) of the Plan.
"EFFECTIVE DATE" means that date on which the Michigan Educational
Employees Mutual Insurance Company is converted from a Michigan mutual property
and casualty insurance company to a Michigan stock property and casualty
insurance company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, with respect to a Share on a given date: (a) if
the Shares are listed for trading on a national securities exchange (including,
for this purpose, the National Market System ("NMS") of the National Association
of Securities Dealers Automated Quotation System ("NASDAQ")) on such date, the
closing Share price on such exchange (or, if there in more then one, the
principal such exchange), or, for the NMS, the last sale price, on the day
immediately preceding the date as of which Fair Market Value is being
determined, or on the next preceding day on which Shares were there traded if no
Shares were traded as the immediately preceding day; (b) if the Shares are not
listed for trading on any securities exchange (including the NMS) on such date
but are reported by NASDAQ, and market information concerning the Shares is
published on a regular basis in THE DETROIT NEWS, THE NEW YORK TIMES or THE WALL
STREET JOURNAL, the average of the daily bid and low asked prices of the Shares,
as so published, on the day nearest preceding the date in question for which
such prices were published; (c) if (a) is inapplicable and market information
concerning the Shares is not regularly published as described in (b), the
average of the high bid and low asked prices of the Shares in the
over-the-counter market on the day nearest preceding the date in question as
reported by NASDAQ (or, if NASDAQ does not report such prices for the Shares,
another generally accepted reporting service); or (d) if none of the foregoing
are applicable, the fair market value of a Share as, of the date in question,
determined by the Committee.
"INCENTIVE STOCK OPTION" means an Option that meets the requirements of
Section 422 of the Code (or any successor provision in effect at a relevant
time) and that is identified as intended to be an Incentive Stock Option in the
Award Agreement evidencing the Option.
"NON-QUALIFIED STOCK OPTION" means an Option that is not an Incentive Stock
Option.
"OPTION" means an option to purchase Shares granted under Section 6(b) of
the Plan.
"OTHER STOCK-BASED AWARD" means a right granted under Section 6(g) of the
Plan.
"PARTICIPANT" means an employee or non-employee director of or consultant
to the Company or any Affiliate designated to be granted any other Award under
the Plan.
"PERFORMANCE AWARD" means a right granted under Section 6(e) of the Plan.
"PROFESSIONALS" means Professionals Group, Inc. and any of its
subsidiaries.
"RESTRICTED PERIOD" means the period of time during which an Award of
Restricted Stock or Restricted Stock Units is subject to transfer restrictions
and potential forfeiture.
"RESTRICTED STOCK" means a Share granted under Section 6(d) of the Plan.
<PAGE>
"RESTRICTED STOCK UNIT" means a right granted under Section 6(d) of the
Plan that is denominated in Shares.
"RULE 16b-3" means Securities and Exchange Commission Rule 16b-3 (or any
successor rule or regulation), as applicable with respect to the Company at a
given time.
"SECTION 16" means Section 16 of the Exchange Act and the rules and the
regulations thereunder, or any successor provision, rule, or regulation in
effect at a given time.
"SECTION 16 REPORTING PERSON" means a person who is a director or officer
of the Company for purposes of Section 16.
"SHARES" means shares of the Company's common stock, no par value per
share, or such other securities or property as may become the subject of Awards,
or become subject to Awards, pursuant to an adjustment made under Section 4 (b)
of the Plan.
"STOCK APPRECIATION RIGHT" means a right granted under Section 6(c) of the
Plan.
SECTION 3. ADMINISTRATION
The Committee shall administer the Plan. Subject to the terms and
limitations set forth in the Plan, and to applicable law, the Committee's
authority shall include without limitation the power to:
(a) designate Participants;
(b) determine the types of Awards to be granted and the times at
which Awards will be granted;
(c) determine the number of Shares to be covered by Awards and any
payments, rights, or other matters to be calculated in connection
therewith;
(d) determine the terms and conditions of Awards and amend the terms
and conditions of outstanding Awards;
(e) determine how, whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
Awards, or other securities or property, or canceled, forfeited, or
suspended;
(f) determine how, whether, to what extent, and under what
circumstances cash, Shares, other Awards, other securities or property, or
other amounts payable with respect to an Award shall be deferred, whether
automatically or at the election of the holder thereof or of the Committee;
(g) determine the methods and procedures for establishing the value
of any property (including, without limitation, Shares or other securities)
transferred, exchanged, given, or received with respect to the Plan or any
Award;
(h) prescribe and amend the forms of Award Agreements and other
instruments required under or advisable with respect to the Plan;
<PAGE>
(i) designate Options as Incentive Stock Options;
(j) interpret and administer the Plan, Award Agreements, Awards, and
any contract, document, instrument, or agreement relating thereto;
(k) establish, amend, suspend, or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the administration
of the Plan;
(l) decide all questions and settle all controversies and disputes
which may arise in connection with the Plan, Award Agreements, or Awards;
(m) delegate to one or more other directors of the Company (who need
not be "non-employee directors" within the meaning of Rule 16b-3) the
authority to designate and grant Awards to Eligible Participants, provided
such Participants are not Section 16 Reporting Persons; and
(n) make any other determination and take any other action that the
Committee deems necessary or desirable for the interpretation, application,
or administration of the Plan, Award Agreements, or Awards.
All designations, determinations, interpretations, and other decisions
under or with respect to the Plan, Award Agreements, or any Award shall be
within the sole discretion of the Committee, may be made at any time, and shall
be final, conclusive, and binding. To the extent that and for so long as the
Committee may delegate to one or more other directors its authority to designate
Participants and grant Awards as permitted by subsection (m) above, subsequent
references in the Plan to the "Committee" shall be construed to include such
other director or directors acting pursuant to such delegated authority.
SECTION 4. SHARES AVAILABLE FOR AWARDS
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section
4(b):
(i) INITIAL AUTHORIZATION. There shall be 300,000 Shares
initially available for issuance under the Plan.
(ii) ACCOUNTING FOR AWARDS. For purposes of this Section 4:
(A) if an Award (other than a Dividend Equivalent) is
denominated in Shares, the number of Shares covered by such
Award, or to which such Award relates, shall be counted on the
date of grant of such Award against the aggregate number of
Shares available for granting Awards under the Plan, to the
extent determinable on such date, and, insofar as the number of
Shares is not then determinable, under procedures adopted by the
Committee consistent with the purposes of the Plan; and
(B) Dividend Equivalents and Awards not denominated in
Shares shall be counted against the aggregate number of Shares
available for granting
<PAGE>
Awards under the Plan in such amount and at such time as the
Committee shall determine under procedures adopted by the
Committee consistent with the purposes of the Plan; PROVIDED,
HOWEVER, that Awards that operate in tandem with (whether granted
simultaneously with or at a different time from), or that are
substituted for, other Awards or restricted stock awards or stock
options granted under any other plan of the Company may be
counted or not counted under procedures adopted by the Committee
in order to avoid double counting.
(iii) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of
authorized but unissued Shares or of Shares reacquired by the Company,
including but not limited to Shares purchased on the open market.
(b) ADJUSTMENTS. Upon the occurrence after the Effective Date of any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), change in the capital or shares of capital
stock, recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or
exchange of shares or other securities of the Company, issuance of warrants
or other rights to purchase Shares or other securities of the Company, or
extraordinary transaction or event which affects the Shares, then the
Committee shall have the authority to make such adjustment, if any, in such
manner as it deems appropriate, in (i) the number and type of Shares (or
other securities or property) which thereafter may be made the subject of
Awards, (ii) outstanding Awards, including, without limitation, the number
and type of Shares (or other securities or property) subject thereto, and
(iii) the grant, purchase, or exercise price with respect to outstanding
Awards, and, if deemed appropriate, make provision for cash payments to the
holders of outstanding Awards; provided, however, that the number of Shares
subject to any Award denominated in Shares shall always be a whole number.
SECTION 5. ELIGIBILITY
(a) Any employee or non-employee director of or consultant
rendering services to the Company or any Affiliate, including any
officer or officer-director of the Company or any Affiliate, as may be
selected from time to time by the Committee or by the directors to whom
authority may be delegated pursuant to Section 3(m) hereof in its or
their discretion, is eligible to be designated a Participant with
respect to any Award, except that an Other Stock-Based Award may not be
granted to a Section 16 Reporting Person.
(b) Any Participant may decline to participate in the Plan by
providing written notice of such declination to the Committee within 120
days after receiving notice of an award granted under the Plan.
SECTION 6. AWARDS
(a) (INTENTIONALLY OMITTED.)
<PAGE>
(b) OPTIONS. The Committee is authorized to grant Options to
eligible Participants.
(i) COMMITTEE DETERMINATIONS. Subject to the terms and
limitations of the Plan, the Committee shall determine:
(A) the number of shares subject to each Option and
the exercise price per Share;
(B) the term of each Option;
(C) the time or times at which an Option may be
exercised, in whole or in part, the method or methods by which
and the form or forms (including, without limitation, cash,
Shares, other Awards, or other property, or any combination
thereof, having a fair market value on the exercise date equal to
the relevant exercise price) in which payment of the exercise
price with respect thereto may be made or deemed to have been
made; and
(D) whether the Option is intended to be an Incentive
Stock Option or a Nonqualified Stock Option. Any Option intended
to be an Incentive Stock Option shall be so designated in the
Award Agreement evidencing such Option, and the terms and
conditions of any Option intended to be Incentive Stock Option
shall be such as are determined by the Committee, after
consulting with Company counsel, to be necessary, appropriate, or
advisable to cause such Option to comply at the time of grant in
all respects with all applicable requirements of Section 422 of
the Code (or any successor thereto than in effect) and any
regulations promulgated thereunder.
The Committee may impose such additional or other conditions or
restrictions on any Option as it deems appropriate and as are not
inconsistent with the terms of the Plan.
(ii) OTHER TERMS. Unless otherwise determined by the
Committee:
(A) A Participant electing to exercise an Option shall
give written notice to the Company, as may be specified by the
Committee, of exercise of the Option and the number of Shares
elected for exercise, such notice to be accompanied by such
instruments or documents as may be required by the Committee, and
shall tender the aggregate exercise price of the Shares elected
for exercise.
(B) At the time of exercise of an Option, payment in
full in cash shall be made for all Shares then being purchased.
(C) If the employment, directorship or consulting
arrangement of a Participant terminates for any reason (including
termination by reason of the fact that an entity is no longer an
Affiliate) other than the Participant's death, the Participant
may thereafter exercise the Option as provided below, except that
the Committee may terminate the unexercised portion of the Option
concurrently with or at any time following termination of the
employment or consulting arrangement (including termination of
employment upon a change of status from
<PAGE>
employee to consultant) if it shall determine that the
Participant has engaged in any activity detrimental to the
interests of the Company or an Affiliate. If such termination is
voluntary on the part of the Participant (other than by reason of
retirement of an employee-Participant on or after normal
retirement date), the Option may be exercised only within ten
days after the date of termination. If such termination is
involuntary on the part of the Participant, if an
employee-Participant retires on or after normal retirement date,
or if the Participant's employment, directorship or consulting
relationship is terminated by reason of his Disability, the
Option may be exercised within three months after the date of
termination or retirement. For purposes of this subsection (C),
a Participant's employment or consulting arrangement shall not be
considered terminated (i) in the case of approved sick leave or
other bona fide leave of absence (not to exceed one year), (ii)
in the case of a transfer of employment or the consulting
arrangement among the Company and Affiliates, or (iii) by virtue
of a change of status from employee to consultant or from
consultant to employee, except as provided above.
(D) If a Participant dies at a time when entitled to
exercise an Option, then at any time or times within one year
after death such Option may be exercised, as to all or any of the
Shares which the Participant was entitled to purchase immediately
prior to death. The Company may decline to deliver Shares to a
designated beneficiary until it receives indemnity against claims
of third parties satisfactory to the Company. Except as so
exercised, such Option shall expire at the end of such period.
(E) An Option may be exercised only if and to the
extent such Option was exercisable at the date of termination of
employment, directorship or the consulting arrangement, and an
Option may not be exercised at any time when the Option would not
have been exercisable had the Participant's employment,
directorship or consulting arrangement continued.
(iii) RESTORATION OPTIONS. At the time of grant of an Option
(for purposes of this subsection, an "original Option") that is not
itself a Restoration Option (as hereinafter defined), or at the time a
Restoration Option arises, or at any other time while the grantee
continues to be eligible for Awards and the original Option or a
Restoration Option (either, a "predecessor Option") is outstanding,
the Committee may provide that the predecessor Option shall carry with
it a right to receive an Option (for purposes of this subsection, a
"Restoration Option") if, while still eligible to be granted an
Option, the grantee exercises the predecessor Option (or a portion
thereof) and pays some or all of the applicable exercise price in
Shares that have been owned by the grantee for at least six months
prior to exercise. In addition to being subject to any other terms
and conditions (including additional limitations on exercisability)
that the Committee deems appropriate, and except to the extent the
Committee otherwise provides with respect to a given Restoration
Option, each Restoration Option shall be subject to the following;
(A) the number of Shares subject to the Restoration
Option shall be the lesser of: (x) the number of whole Shares
delivered in exercise of the predecessor Option, and (y) the
number of Shares available for grant under the Plan at the time
the Restoration Option arises;
<PAGE>
(B) the Restoration Option automatically shall arise
and be granted (if ever) at the time of payment of the exercise
price in respect of the predecessor Option;
(C) the per Share exercise price of the Restoration
Option shall be the Fair Market Value of a Share on the date the
Restoration Option arises;
(D) the expiration date of the Restoration Option
shall be the same as that of the predecessor Option;
(E) the Restoration Option shall first become
exercisable six months after it arises; and
(F) the Restoration Option shall be a Nonqualified
Stock Option.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
Stock Appreciation Rights to eligible Participants. Subject to the terms
of the Plan, a Stock Appreciation Right granted under the Plan shall confer
on the holder thereof a right to receive, upon exercise thereof, the excess
of (i) the Fair Market Value of one Share on the date of exercise or, if
the Committee shall so determine in the case of any such right other than
one related to any Incentive Stock Option, at any time during a specified
period before or after the date of exercise over (ii) the grant price of
the right as specified by the Committee. Subject to the terms of the Plan,
the Committee shall determine the grant price, term, methods of exercise
and settlement of such Stock Appreciation Right, the effect thereon of
termination of the Participant's employment, directorship and/or consulting
relationships, and any other terms of the Stock Appreciation Right the
Committee deems appropriate; and the Committee may impose such conditions
or restrictions on the exercise of any Stock Appreciation Right as it may
deem appropriate.
(d) RESTRICTED STOCK AND RESTRICTED STOCK UNITS.
(i) GRANTS. The Committee is authorized to grant to eligible
Participants Awards of Restricted Stock, which shall consist of
Shares, and Awards of Restricted Stock Units, which shall give the
Participant the right to receive cash, Shares, other securities, other
Awards, or other property, in each case subject to the termination of
the Restricted Period for such Award determined by the Committee.
(ii) RESTRICTIONS. The Restricted Period determined by the
Committee for Restricted Stock and Restricted Stock Units may differ
among Participants, and any Restricted Period may have different
expiration dates with respect to portions of Shares or Units covered
by the same Award. During the applicable Restriction Period,
Restricted Stock Units and Restricted Stock shall be nontransferable
(except as provided in Section 6 (h) (v) of the Plan) and subject to
forfeiture as provided in subsection (iv) of this Section 6 (d).
Subject to the terms of the Plan, Awards of Restricted Stock and
Restricted Stock Units also shall be subject to such other
restrictions as the Committee may impose (including, without
limitation, limitations on the right to vote Restricted Stock or the
right to receive any dividend or other right or property), which
restrictions may lapse separately or in combination, at such time or
times, in installments or otherwise, as the Committee may determine.
Unless the Committee shall otherwise
<PAGE>
determine, any Shares or other securities distributed with respect to
Restricted Stock or which a Participant is otherwise entitled to
receive by reason of such Shares shall be subject to the restrictions
contained in the aforementioned restrictions and the provisions of the
Plan. Participants shall have all of the rights of a stockholder with
respect to Shares of Restricted Stock.
(iii) CERTIFICATES. Any Shares granted as Restricted Stock
shall be evidenced by certificates bearing such restrictive transfer
legends as the Committee determines to be advisable in order to
prevent impermissible transfer of the Shares prior to the end of the
applicable Restricted Period, and such certificates shall be retained
in the possession of the Company until the Shares no longer are
subject to forfeiture. Each Award Agreement concerning an Award of
Restricted Stock shall include the grantee's consent to transfer to
the Company of any forfeited Restricted Stock without the need for any
further consent, direction, or other action by the grantee.
(iv) FORFEITURE. Except as otherwise determined by the
Committee:
(A) If the employment, directorship or consulting
arrangement of a Participant terminates for any reason (including
termination by reason of the fact that any entity is no longer an
Affiliate), other than the Participant's death or Disability or,
in the case of an employee, retirement on or after normal
retirement date, all Shares of Restricted Stock and all
Restricted Stock Units theretofore awarded to the Participant
which are still subject to restrictions shall upon such
termination of employment, directorship or the consulting
relationship be forfeited and (in the case of Restricted Stock)
transferred back to the Company. For purposes of this subsection
(A), a Participant's employment or consulting arrangement shall
not be considered terminated (i) in the case of approved sick
leave or other bona fide leave of absence (not to exceed one
year), (ii) in the case of a transfer of employment or the
consulting arrangement among the Company and Affiliates, or (iii)
other than as provided in subsection (D) of this Section 6(d)
(iv), by virtue of a change of status from employee to consultant
or from consultant to employee.
(B) If a Participant ceases to be employed or retained
by the Company or an Affiliate by reason of death or Disability,
or if following retirement a Participant continues to have rights
under an Award of Restricted Stock or Restricted Stock Units and
thereafter dies, the Award shall fully vest and no longer be
subject to forfeiture.
(C) If an employee ceases to be employed by the
Company or an Affiliate by reason of retirement on or after
normal retirement date, the restrictions contained in the Award
of Restricted Stock shall continue to lapse in the same manner as
though employment had not terminated.
(D) However, notwithstanding the provisions of
subsections (B) and (C) above, if a Participant continues to hold
an Award of Restricted Stock or Restricted Stock Units following
termination of his employment or consulting arrangement
(including retirement and termination of employment upon a change
of status from employee to consultant), the Restricted Stock or
Restricted Stock
<PAGE>
Units which remain subject to restrictions shall nonetheless be
forfeited, and (in the case of Restricted Stock) transferred back
to the Company, if the Committee at any time thereafter
determines that the Participant has engaged in any activity
detrimental to the interests of the Company or an Affiliate.
(E) At the expiration of the Restricted Period as to
Shares covered by an Award of Restricted Stock, or as to
Restricted Stock Units to be settled in Shares, the Company shall
deliver the Shares as to which the Restricted Period has expired,
as follows:
(1) if an assignment to a trust has been made in
accordance with Section 6(h)(v)(B)(2)(c), to such trust;
or
(2) if the Restricted Period has expired by reason of
death and a beneficiary has been designated in form
approved by the Company, to the beneficiary so
designated; or
(3) in all other cases, to the Participant or the
legal representative of the Participant's estate.
(e) PERFORMANCE AWARDS. The Committee is authorized to grant
Performance Awards to eligible Participants. Subject to the terms of the
Plan, a Performance Award granted under the Plan (i) may be denominated or
payable in cash, Shares (including, without limitation, Restricted Stock),
other securities, other Awards, or other property and (ii) shall confer on
the holder thereof rights valued as determined by the Committee and payable
to, or exercisable by, the holder of the Performance Award, in whole or in
part, upon the achievement of such performance goals during such
performance period, as the Committee shall establish. Subject to the terms
of the Plan, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any Performance
Award granted, the amount of any payment or transfer to be made pursuant to
any Performance Award, and the other terms and conditions of any
Performance Award, including the effect upon such Award, of termination of
the Participant's employment, directorship and/or consulting relationships,
shall be determined by the Committee.
(f) DIVIDEND EQUIVALENTS. The Committee is authorized to grant to
eligible Participants Awards under which the holders thereof shall be
entitled to receive payments equivalent to dividends or interest with
respect to a number of Shares determined by the Committee, and the
Committee may provide that such amounts (if any) shall be deemed to have
been reinvested in additional Shares or otherwise reinvested. Subject to
the term of the Plan, such Awards may have such terms and conditions as the
Committee shall determine.
(g) OTHER STOCK-BASED AWARDS. The Committee is authorized to grant
to eligible Participants such other Awards that are denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or
related to Shares (including, without limitation, securities convertible
into Shares), as are deemed by the Committee to be consistent with the
purposes of the Plan; PROVIDED, HOWEVER, that such grants may not be made
to Section 16 Reporting Persons. Subject to the terms of the Plan, the
Committee shall determine the terms and conditions of such Other
Stock-Based Awards. Shares or other securities delivered pursuant to a
purchase right granted under this Section 6(g) shall be purchased for such
consideration, which may be paid by
<PAGE>
such method or methods and in such form or forms, including, without
limitation, cash, Shares, other securities, other Awards, other property,
or any combination of the foregoing, as the Committee shall determine.
(h) GENERAL.
(i) EFFECT OF INCENTIVE STOCK OPTION DISQUALIFICATION. If an
Option intended to be an Incentive Stock Option (or any portion of
such Option) for any reason does not qualify as an incentive stock
option under the Code, whether at the time of grant or subsequently,
such failure to qualify shall not invalidate the Option (or option
portion), and instead the nonqualified portion (or, if necessary, the
entire option) shall be deemed to have been granted as a Nonqualified
Stock Option irrespective of the manner in which it is designated in
the applicable Award Agreement.
(ii) NO CASH CONSIDERATION FOR AWARDS. Awards may be granted
for no cash consideration or for such minimal cash consideration as
may be required by applicable law.
(iii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards
may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with,or in substitution for, any other Award or
any award granted under any other plan of the Company or any
Affiliate. Awards granted in addition to or in tandem with other
Awards, or in addition to or in tandem with the awards granted under
another plan of the Company or an Affiliate, may be granted either at
the same time as or at a different time from the grant of such other
Awards or awards.
(iv) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of
the Plan and of any applicable Award Agreement, payments or transfers
to be made by the Company or an Affiliate upon the grant, exercise, or
payment of an Award may be made in such form or forms as the Committee
shall determine, including, without limitation, cash, Shares, other
securities, other Awards, or other property, or any combination
thereof, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case in accordance with
rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents in respect
of installment or deferred payments.
(v) LIMITS ON TRANSFER OF AWARDS.
(A) Except as the Committee may otherwise determine,
no Award or right under any Award may be sold, encumbered,
pledged, alienated, attached, assigned, or otherwise transferred
in any manner, and any attempt to do any of the foregoing shall
be void and unenforceable against the Company.
(B) Notwithstanding the provisions of paragraph (A)
above, except as provided in paragraph (C) below:
(1) An Option may be transferred:
<PAGE>
(a) to a beneficiary designated by the
Participant in writing on a form approved by the
Committee; or
(b) by will or the applicable laws of descent and
distribution to the personal representative, executor
or administrator of the Participant's estate.
(2) A Participant may assign or transfer rights under
an Award of Restricted Stock or Restricted Stock Units:
(a) to a beneficiary designated by the
Participant in writing on a form approved by the
Committee;
(b) by will or the applicable laws of descent and
distribution to the personal representative, executor
or administrator of the Participant's estate; or
(c) to a revocable grantor trust established by
the Participant for the sole benefit of the Participant
during the Participant's life, and under the terms of
which the Participant is and remains the sole trustee
until death or physical or mental incapacity. Such
assignment shall be effected by a written instrument in
form and content satisfactory to the Committee, and the
Participant shall deliver to the Committee a true copy
of the agreement or other document evidencing such
trust. If in the judgment of the Committee the trust
to which a Participant may attempt to assign rights
under such an Award does not meet the criteria of a
trust to which an assignment is permitted by the terms
hereof, or if, after assignment (whether because of
amendment, by operation of law, or for any other
reason) such trust no longer meets such criteria, such
attempted assignment shall be void and may be
disregarded by the Committee and the Company and all
rights to any such Awards shall revert to and remain
solely in the Participant. Notwithstanding a qualified
assignment, the Participant, and not the trust to which
rights under such an Award may be assigned, for the
purpose of determining compensation arising by reason
of the Award shall continue to be considered an
employee, director or consultant, as the case may be,
of the Company or an Affiliate but such trust and the
Participant shall be bound by all of the terms and
conditions of the Award Agreement and this Plan.
Shares issued in the name of and delivered to such
trust shall be conclusively considered issuance and
delivery to the Participant.
(3) The Committee shall not permit Section 16
Reporting Persons to transfer or assign Awards except as and
to the extent (if any) permitted under Rule 16b-3.
(C) The Committee, the Company, and its officers, agents,
and
<PAGE>
employees may rely upon any beneficiary designation,
assignment, or other instrument of transfer, copies of trust
agreements, and any other documents delivered to any of them by
or on behalf of a Participant, which they believe genuine, and
any action taken by any of them in reliance thereon shall be
conclusive and binding upon the Participant, the personal
representatives of the Participant's estate, and all persons
asserting a claim based on an Award to the Participant. The
delivery by a Participant of a beneficiary designation, or an
assignment of rights under an Award as permitted hereunder, shall
constitute the Participant's irrevocable undertaking to hold the
Committee, the Company, and its officers, agents, and employees
harmless against claims, including any cost or expense incurred
in defending against claims, of any person (including the
Participant) which may be asserted or alleged to be based on an
Award subject to a beneficiary designation or an assignment. In
addition, the Company may decline to deliver Shares to a
beneficiary until it receives indemnity against claim of third
parties satisfactory to the Company.
(vi) NO CHANGE IN CONTROL.
(A) Notwithstanding any of the provisions of this Plan or
any Award Agreement, upon a Change in Control of the
Company (as hereinafter defined) the vesting of
all rights of Participants under outstanding
Awards shall be accelerated and all restrictions
thereon shall terminate in order that Participants
may fully realize the benefits intended to be made
available under such Awards. Such acceleration
shall include, without limitation, the immediate
exercisability in full of all Options and the
termination of restrictions on Restricted Stock
and Restricted Stock Units. Further, upon such
Change in Control, in addition to the Committee's
authority set forth in Section 4(b), the
Committee, as constituted, before such Change in
Control, is authorized and has sole discretion, as
to any Award, to take any one or more of the
following actions: (i) cause any such Award then
outstanding to be assumed, or new rights
substituted therefor, by the acquiring or
surviving entity or other person giving rise to
such Change in Control; (ii) make such adjustment
to any such Award then outstanding as the
Committee deems appropriate to reflect such Change
in Control; and (iii) provide for the purchase of
any such Award, upon the Participant's request,
for an amount of cash equal to the amount that
could have been attained upon the exercise of such
Award or realization of the Participant's rights
had such Award been currently exercisable or
payable.
<PAGE>
(B) A Change in Control shall occur if, after the
Effective Date:
(1) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act and
the regulations thereunder), other than pursuant
to a transaction or agreement previously approved
by the Board (whether before, at, or after the
Effective Date and including, but not limited to,
a transaction or agreement contemplated by the
Plan of Conversion pursuant to which Michigan
Educational Employees Mutual Insurance Comany is
converted from a Michigan mutual property and
casualty insurance company to a Michigan stock
property and casualty insurance company),
directly or indirectly purchases or otherwise
becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of voting
securities representing 30 percent or more
of the combined voting power of all outstanding
voting securities of the Company;
(2) the stockholders of the Company approve (i) an
agreement to merge or consolidate the Company in
a transaction in which the Company is not the
surviving entity, (ii) an agreement to sell or
dispose of substantially all of the Company's
assets, or (iii) a plan to liquidate the Company,
unless, in the case of an event described in (i),
(ii), or (iii), the Board determines prior to the
occurrence of the event that the effects described
in Section 6(h) (vi) (A) will not apply with
respect to such event;
(3) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act and
the regulations thereunder), directly or
indirectly purchases or otherwise becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of voting securities
representing 50 percent or more of the combined
voting power of all outstanding voting securities
of Professionals; provided that Professionals is
then, directly or indirectly, the "beneficial
owner" (as defined in Rule
<PAGE>
13d-3 under the Exchange Act) of voting
securities representing 50 percent or
more of the combined voting power of all
outstanding voting securities of the
Company; or
(4) For purposes of this Section, it shall not be
considered a Change in Control in the event that
(i) the Company approves an agreement to merge
or consolidate with Professionals, even
if the Company is not the surviving entity,
(ii) enters into an agreement to sell or dispose
of substantially all of the Company's assets to
Professionals, or (iii) Professionals, directly
or indirectly, becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of
voting securities representing 30 percent or
more of the combined voting power of all
outstanding voting securities of the Company.
(vii) CASH SETTLEMENT. Notwithstanding any provision of this
Plan or of any Award Agreement to the contrary, any Award outstanding
hereunder may at any time be canceled in the Committee's sole
discretion upon payment of the value of such Award to the holder
thereof in cash or in another Award hereunder, such value to be
determined by the Committee in its sole discretion.
(viii) CERTAIN SECURITIES LAW CONSIDERATIONS. The Company
intends, as soon as possible after the Effective Time, to register
with the Securities and Exchange Commission on Form S-8 the total
number of Shares that may be acquired by Participants under the Plan.
Until such Form S-8 Registration Statement is filed and effective no
Awards shall be granted under the Plan.
(ix) AWARD AGREEMENTS. Each Award shall be evidenced by an
Award Agreement in such form as the Committee shall prescribe.
SECTION 7. AMENDMENT, SUSPENSION, OR TERMINATION; CERTAIN OTHER MATTERS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
<PAGE>
(a) AMENDMENTS, SUSPENSION, OR TERMINATION. The Board may amend,
suspend, or terminate the Plan or any portion thereof at any time, with or
without stockholder approval, and the Board or the Committee may amend any
outstanding Award; provided, however, that (i) no Plan amendment shall be
effective until approved by stockholders of the Company, insofar as
stockholder approval thereof is required in order for the Plan to continue
to satisfy the conditions of Rule 16b-3 or any applicable requirements of a
national securities exchange or the NMS or to permit the further grant of
Incentive Stock Options, and (ii) without the consent of an affected
Participant no amendment of the Plan or of any Award may impair the rights
of the Participant under any outstanding Award.
(b) ADJUSTMENTS OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee shall be authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(b) hereof or a Change in
Control as defined in Section 6 (h) (vi) hereof) affecting the Company, any
Affiliate, or the financial statements of the Company or any Affiliate, or
of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in
order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available to holders of outstanding Awards
under the Plan.
(d) CORRECTION OF DEFECTS, OMISSIONS, AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it
shall deem desirable to effectuate the Plan.
SECTION 8. MISCELLANEOUS
(a) NO RIGHTS TO AWARDS. Subject only to the express requirements of
the Plan, there is no obligation for uniformity of treatment of
Participants or holders or beneficiaries of Awards under the Plan, and no
Participant or other person shall have any claim to be granted any Award.
The terms and conditions of Awards of the same type, and the determination
of the Committee to grant a waiver or modification of the terms and
conditions of any Award, need not be the same with respect to such
Participant.
(b) WITHHOLDING. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made under
any Award or under the Plan the amount (in cash, Shares, other securities,
other Awards or other property) of withholding taxes due in respect of an
Award, its exercise, or any payment or transfer under such Award or under
the Plan and to take such other action as may be necessary in the opinion
of the Company or Affiliate to satisfy all obligations for the payment of
such taxes.
(c) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements,
including the grant of options and other stock-based awards, and such
arrangements may be either generally applicable or applicable only in
specific cases.
(d) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate. Further, the Company or an Affiliate may at
any time dismiss a Participant from employment,
<PAGE>
free from any liability, or any claim under the Plan, unless otherwise
expressly provided in the Award Agreement or another written agreement with
the Participant.
(e) GOVERNING LAW. Except to the extent, if any, preempted by
Federal law, the validity, construction, and effect of the Plan, any rules
and regulations relating to the Plan established by the Committee, and any
Award Agreement shall be determined in accordance with the laws of the
State of Michigan.
(f) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to applicable laws, or if
it cannot be so construed or deemed amended without, in the determination
of the Committee, materially altering the intent of the Plan or the Award,
such provision shall be stricken as to such jurisdiction, person or Award,
and the remainder of the Plan and any such Award shall remain in full force
and effect.
(g) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other person. To the extent that any person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any unsecured
general creditor of the Company or any Affiliate.
(h) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid
or transferred in lieu of any fractional Shares, or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(i) STOCKHOLDER STATUS. Neither the grantee of an Award, nor any
other person to whom the Award or the grantee's rights thereunder may pass,
shall be, or have any right or privileges of, a holder of Shares in respect
of any Shares issuable pursuant to or in settlement of such Award, unless
and until certificates representing such Shares have been issued in the
name of such grantee or other person.
(j) HEADINGS. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
SECTION 9. EFFECTIVENESS AND DURATION
The Plan shall be effective as of the date of its approval by the Company's
stockholder(s) and shall continue in effect thereafter until terminated by the
Board.
<PAGE>
SEVERANCE/BENEFITS AGREEMENT
Agreement made this 10th day of August, 1993, by and between MICHIGAN
EDUCATION EMPLOYEES MUTUAL INSURANCE COMPANY ("MEEMIC") and LYNN M.
KALINOWSKI ("EMPLOYEE").
WITNESSETH:
WHEREAS, EMPLOYEE is currently employed by MEEMIC as its President and
Chief Executive Officer, which employment relationship is acknowledged to be
"at will" and may be terminated for cause or without cause by either party
("Employment Relationship"); and
WHEREAS, in consideration of the continuation of the Employment
Relationship, MEEMIC and EMPLOYEE wish to establish, by this Agreement,
certain contractual provisions dealing with severance pay and employee
benefits which will be applicable in the event that the Employment
Relationship is terminated, at any time, by MEEMIC.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, EMPLOYEE and MEEMIC agree as follows:
1. APPLICABLE TERMINATION. If at any time during the Employment
Relationship MEEMIC shall elect to end the Employment Relationship
("Termination"), the terms and conditions of this Agreement shall become
applicable and shall be binding on the parties hereto.
<PAGE>
2. SEVERANCE PAY. Upon the occurrence of a Termination, MEEMIC hereby
agrees to pay to EMPLOYEE as severance pay, an amount equal to the
mathematical product of EMPLOYEE's Average Monthly Income (as defined in
Section 3) multiplied by the sum, which for purposes of this section shall
NOT exceed eighteen (18) plus one month for every year up to a maximum of
twenty-four (24) months of employment years with MEEMIC then completed by the
EMPLOYEE ("Severance Amount"). The Severance Amount shall be paid to the
EMPLOYEE by MEEMIC in a lump sum within fifteen (15) days of the effective
date of the Termination.
3. AVERAGE MONTHLY INCOME COMPUTATION.
A. The term "Average Monthly Income" shall mean EMPLOYEE's annual base
salary divided by twelve (12).
B. The term "Annual Base Salary" shall mean the EMPLOYEE's then
effective annual base compensation as approved by the Board of
Directors of MEEMIC; unless that base compensation is materially
less than the EMPLOYEE's base compensation for the fiscal year
immediately proceeding the year of the Termination, in which case
Annual Base Salary shall be the annual base compensation for that
prior fiscal year.
C. Any additional compensation will be decided by the Board of
Directors of MEEMIC.
<PAGE>
4. HEALTH AND DISABILITY COVERAGE. Upon the occurrence of a
Termination, all health and disability, provided to EMPLOYEE immediately
prior to the Termination, shall continue to be provided by MEEMIC, at its
sole expense, until EMPLOYEE has become reemployed with coverage; provided,
however, MEEMIC shall not be required to continue such coverages for more
than twelve (12) months following the effective date of the Termination. It
is expressly agreed and understood that EMPLOYEE's rights to purchase
continuation coverages under Section 601 ET SEQ. of the Employee Retirement
Income Security Act ("ERISA") shall not be abridged in any manner by the
continuation of coverages under this Agreement.
5. SUPPLEMENTAL PAYMENT. Upon the occurrence of a Termination,
if under the terms of MEEMIC's defined contribution pension plan for
Employees ("Plan"), no contribution to the Plan for the year of the
Termination is required to be made on Employee's behalf, then MEEMIC shall
make a supplemental payment to Employee, as soon as practicable following the
effective date of the Termination, in an amount determined as follows:
A. The amount that would have been contributed to the Plan by
MEEMIC on behalf of Employee shall be computed as if the
Employment Relationship had not been terminated, until that
date, under the terms of the Plan, upon which vesting of the
Employee's contribution would have occurred ("Projected Plan
Contribution").
- 3 -
<PAGE>
B. The Projected Plan Contribution shall then be multiplied by
the ratio of the number of days elapsed in the Plan year
through the effective date of the Termination and 365
("Prorated Contribution").
C. The Prorated Contribution shall then be multiplied by 1.25 to
partially compensate Employee for the federal, state and local
tax impact of the contemplated distribution. The amount so
determined shall be paid pursuant to this paragraph.
6. ACQUISITION OF EMPLOYEE AUTOMOBILE. Upon the occurrence of a
Termination, MEEMIC agrees to offer to sell to EMPLOYEE, that automobile, if
any, which MEEMIC was providing for the use of EMPLOYEE immediately prior to
the Termination, at a purchase price equal to the lesser of (i) the
depreciated value of the automobile on the books of MEEMIC or (ii) the
appraised value of the automobile determined by a mutually acceptable
appraisal method. The offer shall be made to EMPLOYEE in writing within ten
(10) days of the effective date of the Termination and EMPLOYEE shall have at
least twenty (20) days thereafter to accept or reject the offer. Failure to
accept the offer within such period shall be deemed as rejection. EMPLOYEE
shall be permitted to the reasonable use of the automobile, without payment
to MEEMIC, until the offer is rejected or deemed rejected, at which time
EMPLOYEE shall immediately return possession of the automobile to MEEMIC.
- 4 -
<PAGE>
7. ARBITRATION OF DISPUTES. Any dispute, controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
settled by arbitration in accordance with the Voluntary Labor Arbitration
Rules of the American Arbitration Association. The arbitrator shall be an
attorney admitted to practice in the State of Michigan and shall be an
individual acceptable to EMPLOYEE and MEEMIC, selected in accordance with the
procedures of the American Arbitration Association from one of its standing
panels; provided that MEEMIC and EMPLOYEE shall be entitled to agree upon an
individual selected mutually by them in lieu of an arbitrator selected from
the American Arbitration Association panel. The decision and award of the
arbitrator is intended to be final and binding and judgment thereon may be
entered in any court of competent jurisdiction. This provision is intended
to comply with the statutory arbitration procedures set forth in MCLA
Sections 600.5001 to 600.6035 and with Michigan Court Rule 3.602.
8. EFFECT ON EMPLOYMENT RELATIONSHIP. Except as specifically set
forth in this Agreement, the Employment Relationship between MEEMIC and EMPLOYEE
is in no way modified, amended or affected hereby. It is further agreed and
acknowledged that the provisions of this Agreement relate exclusively to the
Employment Relationship between MEEMIC and EMPLOYEE and are not intended in any
way to represent the establishment of any policy or standard of conduct with
regard to any other employee or relationship.
- 5 -
<PAGE>
IN WITNESS WHEREOF the parties have executed this Severance/Benefit
Agreement the day and year first above written.
MUTUAL EDUCATIONAL EMPLOYEES MUTUAL
INSURANCE COMPANY
BY: /s/ George Orleman
-------------------------------------
GEORGE ORLEMAN
Its: Chairman
/s/ Lynn M. Kalinowski
-------------------------------------
LYNN M. KALINOWSKI
- 6 -
<PAGE>
SUBSIDIARIES OF MEEMIC HOLDINGS, INC.
One the Effective Date of the Demutualization (as those terms are defined in the
Prospectus), the following companies will be subsidiaries of MEEMIC Holdings,
Inc.:
1. MEEMIC Insurance Company
MEEMIC Insurance Company will be a a Michigan stock insurance company
2. MEEMIC Insurance Services Corporation, a wholly owned subsidiary of MEEMIC
Insurance Company
MEEMIC Insurance Services Corporation is a Michigan business corporation
d/b/a MEIA Insurance Agency
d/b/a Michigan Educators Insurance Agency
d/b/a Michigan Educators Life Insurance Agency
<PAGE>
EXHIBIT 23.1
CONSENT OF ABN AMRO INCORPORATED
We hereby consent to the use of our name and to the description of our
valuation analysis, which has been approved by us, under the captions "THE
DEMUTUALIZATION -- Actions of the Independent Committee and the Board," and
"THE DEMUTUALIZATION -- Stock Price and Number of Shares Issued" and of our
name and our opinion regarding the subscription rights under the caption
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Subscription Rights" in MEEMIC
Holdings, Inc.'s Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission on November 2, 1998. By giving such
consent we do not thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "expert" as
used in, or that may come within the category of persons whose consent is
required under, Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
ABN AMRO INCORPORATED
By: /s/ Patrick T. DeLacey
-----------------------
Patrick T. DeLacey
Managing Director
Chicago, Illinois
November 2, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. ) of our reports dated July 2, 1998, on our audits of the
financial statements of Michigan Educational Employees Mutual Insurance
Company and Subsidiary and on our audit of the financial statements of the
Personal Lines and Life Divisions of Michigan Educators Insurance Agency,
Inc. We also consent to the reference to our firm and to the description of
our tax opinion under the caption "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS"
and to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Grand Rapids, Michigan
November 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL
INSURANCE COMPANY AS OF JUNE 30, 1998 AND DECEMBER 31, 1997 AND FOR THE SIX
MONTHS AND YEAR THEN ENDED, RESPECTIVELY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<DEBT-HELD-FOR-SALE> 109,648,780 113,892,769
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 111,543,255 115,789,712
<CASH> 2,204,325 5,600,913
<RECOVER-REINSURE> 429,449 552,512
<DEFERRED-ACQUISITION> 1,604,449 669,040
<TOTAL-ASSETS> 208,019,173 221,470,850
<POLICY-LOSSES> 84,920,578 92,345,562
<UNEARNED-PREMIUMS> 29,436,092 30,617,018
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 42,000,000 42,000,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 43,281,572 46,721,945
<TOTAL-LIABILITY-AND-EQUITY> 208,019,173 221,470,850
67,830,283 31,486,807
<INVESTMENT-INCOME> 6,676,783 3,464,096
<INVESTMENT-GAINS> 32,214 361
<OTHER-INCOME> 840,725 976,130
<BENEFITS> 47,301,864 21,920,341
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 18,776,741 9,442,519
<INCOME-PRETAX> 9,301,400 4,564,534
<INCOME-TAX> 2,672,239 1,179,195
<INCOME-CONTINUING> 6,629,161 3,385,339
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,629,161 3,385,339
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 80,352,682 0
<PROVISION-CURRENT> 54,053,427 0
<PROVISION-PRIOR> (6,751,563) 0
<PAYMENTS-CURRENT> 30,176,142 0
<PAYMENTS-PRIOR> 14,805,826 0
<RESERVE-CLOSE> 84,920,578 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
