<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MILWAUKEE INSURANCE GROUP, INC.
-------------------------------
(Name of Registrant as Specified in its Charter)
MILWAUKEE INSURANCE GROUP, INC.
-------------------------------
(Name of person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value per share
2) Aggregate number of securities to which transaction applies:
4,150,600 shares outstanding, plus an additional 130,348 option
shares
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$22.00 per share
4) Proposed maximum aggregate value of transaction:
$94,180,856
5) Total fee paid:
$18,836.17
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and date of its filing.
1) Amount Previously Paid: $18,836.17
2) Form, Schedule or Registration Statement No.: Preliminary proxy
statement filing
3) Filing Party: Milwaukee Insurance Group, Inc.
4) Date Filed: August 11, 1995
<PAGE>
MILWAUKEE INSURANCE GROUP, INC.
803 WEST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53233
(414) 271-0525
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the Shareholders of
Milwaukee Insurance Group, Inc. ("MIG" or the "Company"), to be held at the
main office of the Company, 803 West Michigan Street, Milwaukee, Wisconsin on
September 27, 1995, at 2:00 p.m. local time. A notice of the Special Meeting, a
proxy statement and related information about the Company and a proxy card are
enclosed. All holders of the Company's outstanding shares of Common Stock as of
August 25, 1995 (the "Record Date") will be entitled to notice of and to vote
at the Special Meeting.
At the Special Meeting, you will be asked to consider and to vote upon a
proposal to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 17, 1995, by and among the Company, Trinity
Universal Insurance Company ("Trinity"), a wholly-owned subsidiary of Unitrin,
Inc., and Trinity Acquisition Corporation, a wholly-owned subsidiary of Trinity
("Trinity Subsidiary"), pursuant to which Trinity Subsidiary will be merged
with and into the Company (the "Merger"). If the Merger Agreement is approved
and the Merger becomes effective, each outstanding share of Common Stock of the
Company (other than dissenting shares) will be converted into the right to
receive $22.00 in cash. Approval of the Merger requires the affirmative vote of
the holders of two-thirds of all outstanding shares of the Company's Common
Stock voting as a group.
Details of the proposed Merger and other important information are set forth
in the accompanying Proxy Statement which you are urged to read carefully.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed prepaid
envelope. If you attend the Special Meeting, you may revoke such proxy and vote
in person if you wish, even if you have previously returned your proxy card.
Your prompt cooperation will be greatly appreciated.
Very truly yours,
Daniel R. Doucette
President and Chief Executive
Officer
September 1, 1995
<PAGE>
MILWAUKEE INSURANCE GROUP, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS ON SEPTEMBER 27, 1995
To Shareholders of Milwaukee Insurance Group, Inc.:
A special meeting of the shareholders of Milwaukee Insurance Group, Inc.
("MIG") or the "Company"), will be held at the main office of the Company, 803
West Michigan Street, Milwaukee, Wisconsin on Wednesday, September 27, 1995 at
2:00 p.m., local time (the "Special Meeting"), to consider and act upon the
following matters:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger (the "Merger Agreement"), dated as of August 17, 1995,
by and among the Company, Trinity Universal Insurance Company, a Texas
insurance company ("Trinity") and Trinity Acquisition Corporation, a
Wisconsin corporation and a wholly-owned subsidiary of Trinity ("Trinity
Subsidiary"), pursuant to which, among other things (i) Trinity Subsidiary
will be merged with and into the Company (the "Merger"); and (ii) each
outstanding share of common stock, par value $.01 per share, of the Company
(other than dissenting shares), will be converted into the right to receive
$22.00 in cash. A copy of the Merger Agreement is attached as Exhibit A to
the accompanying Proxy Statement.
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment or adjournments thereof.
Your attention is called to the Proxy Statement and other materials
concerning the Company which are mailed with this Notice for a more complete
statement regarding the matters to be acted upon at the Special Meeting. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
By Order of the Board of Directors
Daniel A. Riedl, Secretary
Milwaukee, Wisconsin
September 1, 1995
YOUR VOTE IS IMPORTANT. ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE
SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY
NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
<PAGE>
PROXY STATEMENT
MILWAUKEE INSURANCE GROUP, INC.
803 WEST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53233
(414) 271-0525
This Proxy Statement is being furnished to the shareholders of Milwaukee
Insurance Group, Inc. ("MIG" or the "Company") in connection with the
solicitation of proxies by the Company's Board of Directors for a Special
Meeting of Shareholders to be held on Wednesday, September 27, 1995 at 2:00
p.m., local time, at the main office of the Company, 803 West Michigan Street,
Milwaukee, Wisconsin (the "Special Meeting"). At the Special Meeting, the
shareholders of the Company will consider and vote upon a proposal to approve
and adopt an Agreement and Plan of Merger dated August 17, 1995, as amended
(the "Merger Agreement"), among the Company, Trinity Universal Insurance
Company ("Trinity") and Trinity Acquisition Corporation ("Trinity Subsidiary").
If the Merger is consummated, Trinity Subsidiary will be merged into the
Company, with the Company being the surviving corporation. Pursuant to the
Merger Agreement, each outstanding share of the Company's common stock (other
than dissenting shares) will be converted into the right to receive $22.00 per
share in cash. Each outstanding share of Trinity Subsidiary common stock will
be converted into one share of the Company's common stock and the Company will
become a wholly-owned subsidiary of Trinity.
This Proxy Statement is accompanied by copies of the Company's 1994 Annual
Report to Shareholders and the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995. These materials are included to aid shareholders
in their deliberations. This Proxy Statement is first being sent to
shareholders on or about September 1, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... S-1
General................................................................. S-1
The Special Meeting................................................... S-1
Purpose of the Special Meeting; Quorum; Vote Required................. S-1
The Parties to the Transaction........................................ S-1
The Merger............................................................ S-2
Procedures for Exchange of Certificates............................... S-2
Recommendation of Board of Directors.................................. S-2
Voting of Shares Owned by Milwaukee Mutual Insurance Company.......... S-3
Interests of Certain Persons in the Merger............................ S-3
Accounting Treatment.................................................. S-3
Federal Income Tax Consequences....................................... S-3
The Merger Agreement.................................................... S-3
Effective Time of the Merger.......................................... S-3
Conditions to Consummation of the Merger.............................. S-3
Termination of the Merger Agreement................................... S-4
Amendments to the Merger Agreement.................................... S-4
Dissenters' Rights.................................................... S-4
Comparative Market Price Data......................................... S-4
Selected Consolidated Financial Data of the Company..................... S-5
INTRODUCTION.............................................................. 1
Proposal to be Considered at the Special Meeting........................ 1
Voting Rights; Vote Required for Approval............................... 1
Proxies................................................................. 2
THE MERGER................................................................ 2
Effects of the Merger................................................... 2
Effective Time.......................................................... 3
Procedures for Exchange of Certificates................................. 3
Background of the Merger................................................ 4
The Company's Reasons for the Merger; Recommendation of the Company's
Board of Directors..................................................... 5
Interests of Certain Persons in the Merger.............................. 6
Stock Option Plans.................................................... 6
Acceleration of Stock Options......................................... 6
Employment Agreements................................................. 6
Indemnification and Insurance......................................... 6
Mutual Financial Ratings.............................................. 7
Accounting Treatment.................................................... 7
Certain Federal Income Tax Consequences of the Merger to the Company's
Shareholders........................................................... 7
Source and Amount of Funds.............................................. 8
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Rights of Dissenting Shareholders........................................ 8
Overview............................................................... 8
Procedure.............................................................. 8
Dissent by Beneficial Shareholder...................................... 9
Regulatory Approvals..................................................... 9
Wisconsin and Other States' Insurance Laws............................... 10
THE MERGER AGREEMENT....................................................... 10
General.................................................................. 10
Effective Time........................................................... 10
Consideration to be Received by Shareholders of the Company.............. 11
Representations and Warranties........................................... 11
Covenants................................................................ 11
Termination Fee.......................................................... 12
Amendments and Waivers................................................... 12
Expenses................................................................. 12
Conditions to Consummation of the Merger................................. 12
Termination.............................................................. 13
THE MUTUAL AFFILIATION AGREEMENT........................................... 13
Stock Ownership of Management and Certain Beneficial Owners.............. 13
OTHER MATTERS.............................................................. 15
PROPOSALS BY HOLDERS OF COMPANY SHARES..................................... 15
EXPENSES OF SOLICITATION................................................... 15
LEGAL MATTERS.............................................................. 16
INDEPENDENT PUBLIC ACCOUNTANTS............................................. 16
AVAILABLE INFORMATION...................................................... 16
INFORMATION INCORPORATED BY REFERENCE...................................... 16
</TABLE>
(ii)
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement. The following summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information
contained in this Proxy Statement, in the materials accompanying this Proxy
Statement and in the Exhibits hereto. Shareholders are urged to review the
entire Proxy Statement and accompanying materials carefully.
GENERAL
The Special Meeting
The Special Meeting of Shareholders of Milwaukee Insurance Group, Inc. ("MIG"
or the "Company") will be held on Wednesday, September 27, 1995 at 2:00 p.m.,
local time, at the main office of the Company located at 803 West Michigan
Street, Milwaukee, Wisconsin (the "Special Meeting"). Only holders of record of
shares of $.01 par value common stock of the Company (the "Common Stock" or
"Company Shares") at the close of business on August 25, 1995 are entitled to
notice of and to vote at the Special Meeting. On that date, there were
4,150,600 Company Shares outstanding, with each share entitled to cast one vote
at the Special Meeting. See "INTRODUCTION--Voting Rights; Vote Required for
Approval."
Purpose of the Special Meeting; Quorum; Vote Required
At the Special Meeting, shareholders will consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger, as amended, a copy of
which is attached as Exhibit A to this Proxy Statement (the "Merger
Agreement"). The Merger Agreement provides for the merger of Trinity
Acquisition Corporation into the Company (the "Merger"), such that the Company,
as the surviving corporation (the "Surviving Corporation"), would become a
wholly-owned subsidiary of Trinity Universal Insurance Company, which in turn
is a wholly-owned subsidiary of Unitrin, Inc. See "INTRODUCTION--Proposal to be
Considered at the Special Meeting" The presence, in person or by proxy, of the
holders of a majority of the outstanding Company Shares at the Special Meeting
is necessary to constitute a quorum at the Special Meeting. Under the Articles
of Incorporation of the Company, approval of the Merger Agreement requires the
affirmative vote of the holders of two-thirds of the outstanding Company
Shares. See "INTRODUCTION--Voting Rights; Vote Required for Approval," and "THE
MERGER AGREEMENT--Conditions to Consummation of the Merger."
The Parties to the Transaction
Unitrin, Inc. Unitrin, Inc. ("Unitrin"), which pursuant to the Merger will
become the ultimate parent of the Company, is a provider through its
subsidiaries of life, health, property and casualty insurance and consumer
finance services. For 1994, Unitrin had total revenues of $1.365 billion and
total net income of $148 million. Unitrin's common stock is traded on the
Nasdaq Stock Market. The principal executive offices of Unitrin are located at
One East Wacker Drive, Chicago, Illinois 60601, and the telephone number is
(312) 661-4600.
Trinity Universal Insurance Company. Trinity Universal Insurance Company
("Trinity") is a wholly-owned subsidiary, and the principal property and
casualty insurance subsidiary, of Unitrin. Trinity is licensed in 27 states.
The principal executive offices of Trinity are located at 10000 North Central
Expressway, Dallas, Texas 75231 and the telephone number is (214) 360-8000.
Trinity Acquisition Corporation. Trinity Acquisition Corporation ("Trinity
Subsidiary") is a wholly-owned subsidiary of Trinity, formed solely for the
purpose of the Merger. Trinity Subsidiary has not engaged in any business
activity unrelated to the Merger. The principal executive offices of Trinity
Subsidiary are located at the offices of Trinity, and the telephone number is
the same.
<PAGE>
Milwaukee Insurance Group, Inc. The Company, through its subsidiaries, is a
provider of property and casualty insurance operating in 17 states. The
Company's Common Stock is traded on the Nasdaq Stock Market. The principal
executive offices of the Company are located at 803 West Michigan Street,
Milwaukee, Wisconsin 53233, and the telephone number is (414) 271-0525.
Milwaukee Mutual Insurance Company. Milwaukee Mutual Insurance Company
("Mutual") is a mutual insurance company formed under the laws of the State of
Wisconsin. Mutual provides property and casualty insurance in 10 states. Mutual
owns approximately 48% of the outstanding common stock of MIG, and the
insurance business of most of MIG's subsidiaries is pooled with that of Mutual
through a reinsurance pooling agreement. The principal executive offices of
Mutual are located at the offices of the Company, and the telephone number is
the same.
The Merger
Pursuant to the Merger Agreement, Trinity Subsidiary will merge into the
Company, with the Company being the Surviving Corporation. Each outstanding
Company Share (except those Company Shares held by the Company as treasury
shares and those Company Shares as to which dissenters' rights have been
perfected ("Dissenting Shares")) will be converted into the right to receive
from Trinity $22.00 in cash, without interest (the "Merger Consideration").
Trinity intends to fund payment of the Merger Consideration through general
corporate funds. All Company Shares held by the Company as treasury shares will
be canceled without consideration. Each outstanding share of Trinity
Subsidiary's common stock will be converted into one share of common stock of
the Surviving Corporation. Holders of Dissenting Shares will be entitled to
receive from the Surviving Corporation a cash payment in the amount of the
"fair value" of such shares, determined in the manner provided in Sections
180.1301 through 180.1331 of the Wisconsin Business Corporation Law. See "THE
MERGER--Rights of Dissenting Shareholders." After the Merger, Trinity will own
100% of the outstanding Company Shares. See "THE MERGER AGREEMENT."
Certain Effects of the Merger
As a result of the Merger, Trinity will acquire the entire equity interest in
the Company. Therefore, following the Merger the present holders of the Company
Shares will no longer have an equity interest in the Company and will no longer
share in future earnings and growth of the Company, the risks associated with
achieving such earnings and growth, or the potential to realize greater value
for their Company Shares through divestitures, strategic acquisitions or other
corporate opportunities that may be pursued by the Company in the future.
Instead, each holder of Company Shares at the effective time of the Merger (the
"Effective Time") will have the right to receive the Merger Consideration (or,
in the case of Dissenting Shares, the statutorily determined "fair value") for
each Company Share. The Company Shares will no longer be listed or traded on
the Nasdaq Stock Market and the registration of the Company Shares under the
Securities Exchange Act of 1934 (the "Exchange Act") will be terminated. See
"THE MERGER--Effects of the Merger."
Procedures for Exchange of Certificates
Promptly after the Effective Time, a letter of transmittal and instructions
for surrendering stock certificates evidencing shares of the Company's Common
Stock will be mailed to each holder of the Company's Common Stock for use in
exchanging such holder's stock certificates for the Merger Consideration to
which such holder is entitled as a result of the Merger. SHAREHOLDERS SHOULD
NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. See "THE MERGER--
Procedures for Exchange of Certificates."
Recommendation of Board of Directors
The Board of Directors has determined that the Merger and the Merger
Consideration are fair to, and in the best interests of, the Company's
shareholders. The Board of Directors has approved the Merger
S-2
<PAGE>
Agreement and recommends that shareholders vote FOR the proposal to approve and
adopt the Merger Agreement. See "THE MERGER--The Company's Reasons for the
Merger; Recommendation of the Company's Board of Directors."
Voting of Shares Owned by Milwaukee Mutual Insurance Company
The Board of Directors of Milwaukee Mutual Insurance Company, which is the
owner of approximately 48% of the outstanding Company Shares, has approved the
terms of the Merger and has granted to Unitrin an irrevocable proxy to vote
Mutual's 2,010,000 shares in favor of the Merger at the Special Meeting. See
"THE MUTUAL AFFILIATION AGREEMENT."
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors of the Company
with respect to the Merger Agreement and the transactions contemplated thereby,
shareholders should be aware that certain members of management of the Company
and the Board of Directors of the Company have certain interests in the Merger
that are in addition to the interests of shareholders of the Company generally.
See "THE MERGER--Interests of Certain Persons in the Merger."
Accounting Treatment
The Merger will be accounted for under the purchase method of accounting by
Trinity. See "THE MERGER--Accounting Treatment."
Federal Income Tax Consequences
The receipt of $22.00 per share in cash for Company Shares pursuant to the
Merger will be a taxable transaction for federal income tax purposes under the
Internal Revenue Code of 1986, as amended, and also may be a taxable
transaction under applicable state, local, foreign and other tax laws. For
federal income tax purposes, a shareholder of the Company will realize taxable
gain or loss as a result of the Merger measured by the difference, if any,
between the per share tax basis of such shareholder's Company Shares and
$22.00. See "THE MERGER--Certain Federal Income Tax Consequences of the Merger
to the Company's Shareholders."
THE MERGER AGREEMENT
Effective Time of the Merger
The Merger will become effective upon the filing of Articles of Merger with
the Secretary of State of the State of Wisconsin or at such later date
specified in the Articles of Merger. The filing will occur after all conditions
to the Merger contained in the Merger Agreement have been satisfied or waived.
The Company, Trinity and Trinity Subsidiary anticipate that the Merger will be
consummated promptly following the Special Meeting. See "THE MERGER AGREEMENT--
General" and "--Effective Time."
Conditions to Consummation of the Merger
The respective obligations of the Company, Trinity and Trinity Subsidiary to
effect the Merger are subject to the satisfaction at or prior to the Effective
Time of various closing conditions. Such conditions include, among others, the
approval and adoption of the Merger Agreement by the holders of two-thirds of
the outstanding Company Shares, the obtaining of necessary regulatory approvals
and the correctness in all material respects of each of the representations and
warranties of the parties to the Merger Agreement. In addition, Trinity and
Trinity Subsidiary are not obligated to consummate the Merger if the holders of
more than 5% of the outstanding Company Shares have delivered written notice of
their intent to seek dissenters' rights. See "THE MERGER AGREEMENT--Conditions
to Consummation of the Merger" and
"--Termination."
S-3
<PAGE>
Termination of the Merger Agreement
The Merger Agreement may, under specified circumstances, be terminated and
the Merger abandoned at any time prior to the Effective Time, notwithstanding
approval of the Merger Agreement by the shareholders of the Company. The Merger
Agreement requires the Company to pay Trinity a termination fee of $2 million
if the Merger is not consummated despite the satisfaction of all the conditions
to the Company's obligations to close, and if the Company enters into a letter
of intent or other written agreement with a third party regarding a merger,
consolidation, sale of assets or similar transaction within 12 months
thereafter. See "THE MERGER AGREEMENT--Termination" and "--Termination Fee."
Amendments to the Merger Agreement
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties. After approval of the Merger Agreement
by the shareholders of the Company and without the further approval of such
shareholders, no amendment will be approved by the Company which would
decrease, or change the nature of, the Merger Consideration. See "THE MERGER
AGREEMENT--Amendments and Waivers."
Dissenters' Rights
Under the Wisconsin Business Corporation Law ("WBCL"), holders of a class of
stock traded on the Nasdaq Stock Market (such as the Company Shares) do not
have dissenters' rights except in certain circumstances, none of which are
present with respect to the Merger. However, Article X of the Company's
Articles of Incorporation provides that notwithstanding the non-applicability
of statutory dissenters' rights in such circumstances, the shareholders of the
Company shall have dissenters' rights of the type and according to the
procedures set forth in the WBCL. Under subchapter XIII of the WBCL, a
shareholder or beneficial shareholder who dissents from a transaction, delivers
proper notice of intent to demand payment of the "fair value" of his or her
shares, does not vote in favor of the transaction and follows certain other
statutory procedures is entitled to receive the "fair value" of such shares (as
defined by the WBCL) in lieu of any other consideration. See "THE MERGER--
Rights of Dissenting Shareholders."
Comparative Market Price Data
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol "MILW." The following table sets forth the high and low sales price per
share of the Company's Common Stock on the Nasdaq Stock Market for the periods
indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1993
First Quarter............................................. $16.25 $14.00
Second Quarter............................................ 14.75 11.50
Third Quarter............................................. 12.50 10.50
Fourth Quarter............................................ 11.75 9.25
1994
First Quarter............................................. 11.75 9.50
Second Quarter............................................ 11.50 10.25
Third Quarter............................................. 11.25 10.25
Fourth Quarter............................................ 11.00 8.75
1995
First Quarter............................................. 11.00 9.63
Second Quarter............................................ 21.00 10.50
Third Quarter (through August 28, 1995)................... 22.25 20.25
</TABLE>
S-4
<PAGE>
On June 16, 1995, the last full day of trading prior to the announcement by
the Company and Unitrin of the Merger, the reported high and low sales prices
per share of Common Stock were $13 1/2 and $12 3/4, respectively. On August 28,
1995, the last full day of trading prior to the printing of this Proxy
Statement, the only reported trades were at $21 5/8.
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
Set forth below is a summary of certain consolidated selected financial data
with respect to the Company excerpted or derived from the information contained
in the Company's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1994, 1993 and 1992, and the Company's Quarterly Reports on Form
10-Q for the quarterly periods ended June 30, 1995 and 1994. More comprehensive
financial information is included in such reports and other documents filed by
the Company with the Securities and Exchange Commission (the "Commission"), and
the following summary is qualified in its entirety by reference to such reports
and other documents and all of the financial information (including any related
notes) contained therein. Such reports and other documents may be inspected and
copies may be obtained from the offices of the Commission. See "AVAILABLE
INFORMATION." In addition, certain detailed financial information concerning
the Company and its subsidiaries is contained in the Company's 1994 Annual
Report to Shareholders and Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, copies of which accompany each copy of this Proxy Statement
being provided to shareholders.
S-5
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE SIX
MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------- ---------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net premiums written... $58,597 $62,639 $116,232 $107,640 $58,953 $57,523 $70,761
======= ======= ======== ======== ======= ======= =======
Premiums earned........ $55,005 $54,813 $111,609 $ 96,126 $55,933 $59,502 $72,879
Net investment income.. 4,891 3,836 8,044 9,432 7,261 7,286 6,683
Other income........... 660 381 1,187 -- -- -- --
Net realized capital
gains................. 708 654 400 2,774 1,557 1,010 103
------- ------- -------- -------- ------- ------- -------
Total revenues..... 61,264 59,684 121,240 108,332 64,751 67,798 79,665
Losses and expenses.... 55,980 57,908 118,563 104,759 59,059 66,284 82,665
------- ------- -------- -------- ------- ------- -------
Income (loss) before
taxes................. 5,284 1,776 2,677 3,573 5,692 1,514 (3,000)
Income tax expense..... 1,699 423 353 633 2,615 434 1,515
------- ------- -------- -------- ------- ------- -------
Income (loss) from
continuing
operations............ 3,585 1,353 2,324 2,940 3,077 1,080 (3,000)
Income from
discontinued
operations............ -- 930 930 1,129 702 2,568 1,515
Gain on disposal of
business.............. -- -- 973 -- -- -- --
Extraordinary credit
and cumulative
effect of accounting
changes............... -- -- -- 195 1,885 435 --
------- ------- -------- -------- ------- ------- -------
Net income (loss)...... $ 3,585 $ 2,283 $ 4,227 $ 4,264 $ 5,664 $ 4,083 $(1,485)
======= ======= ======== ======== ======= ======= =======
Weighted average
number of
common shares
outstanding........... 4,150 4,138 4,138 3,671 3,079 3,075 3,075
Net income (loss) per
share:
Continuing
operations.......... $ .86 $ .33 $ .57 $ .85 $ 1.61 $ .49 $ (.97)
Discontinued
operations.......... -- .22 .45 .31 .23 .84 .49
------- ------- -------- -------- ------- ------- -------
Total net income
(loss) per share.. $ .86 $ .55 $ 1.02 $ 1.16 $ 1.84 $ 1.33 $ (.48)
======= ======= ======== ======== ======= ======= =======
Property and Casualty
Underwriting Ratios
(GAAP):
Loss ratio............. 68.8% 73.0% 73.6% 76.3% 74.2% 81.6% 82.6%
Expense ratio.......... 31.9% 32.2% 31.6% 32.3% 31.1% 29.7% 30.6%
------- ------- -------- -------- ------- ------- -------
Combined ratio......... 100.7% 105.2% 105.2% 108.6% 105.3% 111.3% 113.2%
======= ======= ======== ======== ======= ======= =======
</TABLE>
S-6
<PAGE>
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Milwaukee Insurance Group, Inc. ("MIG" or
the "Company") for a Special Meeting of Shareholders to be held on Wednesday,
September 27, 1995 (the "Special Meeting"). Shares represented by properly
executed proxies received by the Company will be voted at the Special Meeting
or any adjournment thereof in accordance with the terms of such proxies, unless
revoked. Proxies may be revoked at any time prior to the voting thereof either
by written notice filed with the Secretary of the Company or by oral notice to
the presiding officers during the meeting.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the shareholders of the Company will consider and
vote upon a proposal to approve and adopt an Agreement and Plan of Merger dated
August 17, 1995 (the "Merger Agreement") among the Company, Trinity Universal
Insurance Company ("Trinity") (which is a wholly-owned subsidiary of Unitrin,
Inc. ("Unitrin"), a publicly traded company) and Trinity Acquisition
Corporation ("Trinity Subsidiary"), a newly formed Wisconsin corporation and a
wholly-owned subsidiary of Trinity.
The Merger Agreement provides for the merger (the "Merger") of Trinity
Subsidiary into the Company, with the Company being the surviving corporation
(the "Surviving Corporation"). Pursuant to the Merger, (i) each outstanding
share of the common stock, $.01 par value, of the Company (the "Common Stock"
or "Company Shares"), other than Company Shares held by the Company as treasury
shares and those Company Shares as to which dissenters' rights have been
perfected ("Dissenting Shares"), will be converted into the right to receive
$22.00 per share in cash, without interest (the "Merger Consideration"); (ii)
all Company Shares held by the Company as treasury shares will be canceled
without consideration; and (iii) each outstanding share of Trinity Subsidiary
common stock will be converted into one share of common stock of the Surviving
Corporation. Holders of Dissenting Shares will be entitled to receive from the
Surviving Corporation a cash payment in the amount of the "fair value" of such
shares, determined in the manner provided in Sections 180.1301 through 180.1331
of the Wisconsin Business Corporation Law ("WBCL"), but after the effective
time of the Merger such shares will not represent any interest in the Surviving
Corporation other than the right to receive such cash payment. See "THE
MERGER--Rights of Dissenting Shareholders." A copy of the Merger Agreement is
attached as Exhibit A to this Proxy Statement.
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
The record date for the Special Meeting is the close of business on August
25, 1995. At that date, there were 4,150,600 Company Shares outstanding. Each
Company Share entitles its holder to one vote concerning all matters properly
coming before the Special Meeting. Any shareholder entitled to vote may vote
either in person or by duly authorized proxy. A majority of the shares entitled
to vote, represented in person or by proxy, will constitute a quorum.
Abstentions and broker non-votes (i.e., shares held by brokers in street name,
voting on certain matters due to discretionary authority or instructions from
the beneficial owner but not voting on other matters due to lack of authority
to vote on such matters without instructions from the beneficial owner) are
counted for the purpose of establishing a quorum. Under the WBCL, the Merger
Agreement must be approved by the holders of at least a majority of the
outstanding Company Shares, unless the Articles of Incorporation contain a
greater voting requirement. Article IV of the Company's Articles of
Incorporation provides that any merger of the Company must be approved by the
holders of at least two-thirds of the outstanding Company Shares, and therefore
the greater voting requirement applies to the Merger. Abstentions and broker
non-votes have the same effect as a vote "AGAINST" the approval of the Merger.
Votes will be tabulated by the Company's transfer agent, Firstar Trust Company.
<PAGE>
PROXIES
All Company Shares represented by properly executed proxies received prior to
or at the Special Meeting and not revoked will be voted in accordance with the
instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH
PROXIES WILL BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND, IN THE DISCRETION OF THE PERSONS NAMED IN THE PROXY, ON SUCH
OTHER MATTERS AS MAY PROPERLY BE PRESENTED AT THE SPECIAL MEETING.
A shareholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of the Company a signed notice of revocation or a
later dated and signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
Expenses in connection with the solicitation of proxies will be shared by
Mutual and the Company. Upon request, the Company will reimburse brokers,
dealers and banks, or their nominees, for reasonable expenses incurred in
forwarding copies of the proxy material to the beneficial owners of Company
Shares which such persons hold of record. Solicitation of proxies will be made
principally by mail. Proxies may also be solicited in person, or by telephone
or telegraph, by officers and regular employees of the Company.
This proxy material is being mailed to shareholders commencing on or about
September 1, 1995.
THE MERGER
The following information describes certain material aspects of the Merger.
This description does not purport to be complete and is qualified in its
entirety by reference to the exhibits hereto, including the Merger Agreement,
which is attached to this Proxy Statement as Exhibit A and is incorporated
herein by reference. All shareholders are urged to read Exhibit A in its
entirety. See also "THE MERGER AGREEMENT."
The Board of Directors of the Company has approved the Merger Agreement and
recommended approval of the Merger Agreement by the shareholders and has
determined that the transactions contemplated by the Merger Agreement are fair
to and in the best interests of the Company's shareholders. See "The Company's
Reasons for the Merger; Recommendation of the Company's Board of Directors."
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER AGREEMENT.
EFFECTS OF THE MERGER
Upon consummation of the Merger, (i) Trinity Subsidiary will merge with and
into the Company, which will be the Surviving Corporation; (ii) the Company
will become a wholly-owned subsidiary of Trinity (and therefore, an indirect
wholly-owned subsidiary of Unitrin); and (iii) each Company Share outstanding
immediately prior to the Effective Time (other than Dissenting Shares) will be
converted, in a taxable transaction, into the right to receive $22.00 in cash,
without interest.
As of the record date, there were 4,150,600 Company Shares outstanding and
130,348 Company Shares reserved for future issuance pursuant to currently
outstanding stock options. Assuming that no additional Company Shares or stock
options are outstanding at the Effective Time, then, upon consummation of the
Merger, holders of Company Shares and stock options would be entitled to
receive, in the aggregate, approximately $94 million.
Each certificate previously representing Company Shares will thereafter
represent only the right to receive the Merger Consideration (or, in the case
of Dissenting Shares, the statutorily determined "fair value" of such shares).
Certificates previously representing Company Shares may be exchanged for the
Merger
2
<PAGE>
Consideration as provided below, without interest. All Company Shares held as
treasury shares by the Company will be canceled and no payment will be made
with respect thereto.
The "fair value" of Dissenting Shares will be determined and paid as
described in "Rights of Dissenting Shareholders."
For a description of the procedures for exchanging certificates representing
Company Shares, see "Procedures for Exchange of Certificates."
EFFECTIVE TIME
If the Merger Agreement is adopted by the requisite vote of the Company's
shareholders and the other conditions to the Merger are satisfied (or waived to
the extent permitted), the Merger will be consummated and become effective at
the time Articles of Merger are filed with the Secretary of State of the State
of Wisconsin or at such later date as is specified in the Articles of Merger
(the "Effective Time").
The Merger Agreement provides that the parties will cause the Effective Time
to occur as promptly as practicable after the adoption of the Merger Agreement
by the shareholders of the Company and the satisfaction (or waiver, if
permissible) of the other conditions set forth in the Merger Agreement. The
Merger Agreement may be terminated prior to the Effective Time by either
Trinity or the Company in certain circumstances, whether before or after the
adoption of the Merger Agreement by the Company's shareholders. See "THE MERGER
AGREEMENT--Termination."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
As of the Effective Time, Trinity will deposit, or will cause to be
deposited, with First Chicago Trust Company of New York (the "Exchange Agent"),
for the benefit of the holders of Company Shares for exchange in accordance
with the terms of the Merger Agreement, approximately $94 million (the
"Exchange Fund") issuable pursuant to the Merger Agreement in exchange for
outstanding Company Shares. The Exchange Agent will, pursuant to irrevocable
instructions, deliver to the holders of Company Shares their respective
portions of the Exchange Fund according to the procedure summarized below.
After the Effective Time there will be no further transfers on the stock
transfer books of the Company of Company Shares which were outstanding
immediately prior to the Effective Time.
Promptly after the Effective Time, Trinity will instruct the Exchange Agent
to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Company Shares
(the "Certificates") (i) a letter of transmittal in customary form (which will
specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon proper delivery of the Certificates to the
Exchange Agent); and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with a letter of
transmittal, duly executed, and any other documents as may be required pursuant
to such instructions, the holder of a Certificate will be entitled to receive
in exchange therefor the Merger Consideration. The Certificate so surrendered
will forthwith be canceled. In the event of a transfer of ownership of Company
Shares which is not registered in the stock transfer records of the Company, it
shall be a condition to such exchange that a Certificate representing the
proper number of Company Shares be presented by a transferee to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon surrender the Merger
Consideration.
SHAREHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO
THE EXCHANGE AGENT WITHOUT A LETTER OF TRANSMITTAL, AND SHOULD NOT RETURN THEIR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
3
<PAGE>
Any portion of the Exchange Fund remaining undistributed twelve months after
the Effective Time will be returned to Trinity, and any holders of theretofore
unsurrendered Company Shares will thereafter be able to look only to Trinity
for any portion of the Exchange Fund to which they are entitled. Trinity will
not be liable to any holder of Company Shares for Merger Consideration
delivered to a public official pursuant to any abandoned property, escheat or
similar law.
BACKGROUND OF THE MERGER
During 1994, executive management of the Company became convinced that the
long-term viability of the pooled insurance businesses of the Company and
Mutual would depend upon an enlarged scope of operations and increased access
to capital. Representatives of the Company approached several other insurers
that might have been prudent acquisitions for the Company, but found none that
expressed interest in being acquired. In some instances the Company's structure
(total integration of management and most insurance operations with Mutual) was
viewed as a complicating factor; the Company also found that most insurers
would prefer to ally themselves with acquirers having higher A.M. Best
financial ratings (the rating of the Company's pooled insurance being B++).
In late March, 1995, the Company and Mutual chose the firm of Coopers &
Lybrand as its financial advisor to identify, and help choose among and
implement, the Company's strategic alternatives. Besides acquisitions, the
alternatives identified included future sales of stock, various methods of
going private, and the sale of the entire Company.
At the same time, as in all prior periods, senior management continued from
time to time to receive similar overtures from larger insurers seeking to
expand through acquisition. While the Company's practice was not to encourage
such contacts, the failure of attempts to grow through acquisition, coupled
with the identification of the Company's practical alternatives, led management
to view sale of the Company as a means of achieving its strategic goals. At an
informal joint meeting of the Boards of Directors of the Company and Mutual
held on April 11, 1995, management reviewed the foregoing process with the
Directors and obtained the sense of the Boards that the analysis of the
alternatives should continue. On May 12, 1995, an engagement letter was signed
with Coopers & Lybrand providing for various kinds of contingent compensation
based upon a range of possible transaction types.
During May and June of 1995, management and representatives of Coopers &
Lybrand contacted and met with representatives of a number of possible
acquirers, five of which had sufficient interest to execute confidentiality
agreements and exchange varying amounts of information with the Company. For a
number of reasons, including price, structural difficulties (generally
involving the relationship with Mutual), perceived failure to achieve the
parties' goals with respect to financial ratings, and geographical and product
line fit, the number of potential acquirers at a price deemed fair by the
management of the Company was reduced to three. At a joint meeting of the
Boards of Directors of the Company and Mutual held on June 9, 1995, a joint Ad
Hoc Special Committee was formed for the purpose of entering into negotiations
with these three entities, including Unitrin.
Unitrin's financial advisor contacted the Company initially in June, 1994, to
inquire whether the Company might be interested in a possible alliance.
Although the answer at that time was that the Company was seeking to remain
independent and grow through acquisition, further contacts were made, both
through Unitrin management and through its financial advisor. A confidentiality
agreement was executed by Unitrin on May 15, 1995, and a due diligence review
took place during early June. Also during the first half of June, management
and the Ad Hoc Special Committee were attempting to elicit the best available
proposal from each of the interested parties. The Committee reached the
conclusion that the Unitrin proposal (as subsequently set forth in the
Agreement and Plan of Merger and the associated agreements) was the best
alternative available from the standpoint of the interests of the shareholders
of the Company as well as the policyholders of Mutual, and a letter of intent
was executed and delivered on the evening of June 16, 1995. Representatives of
the parties then prepared and negotiated the terms of definitive agreements,
which (after
4
<PAGE>
an interim status meeting of the MIG and Mutual Boards on July 12, 1995) were
approved and adopted by the Board of Directors at a joint meeting held on July
27, 1995, by affirmative vote of all members present. On that date, the Board
of Directors of Mutual approved the execution and delivery of a separate
agreement (the "Mutual Affiliation Agreement") between Mutual and Unitrin,
principally providing for (i) the affiliation of the insurance businesses of
Mutual with Trinity through reinsurance arrangements and Board representation;
(ii) the amendment and continuation of certain existing reinsurance pooling
arrangements among Mutual and MIG's subsidiaries; (iii) the provision of
certain representations, warranties and covenants by Mutual to Unitrin in
connection with the Merger and indemnification of Unitrin with respect thereto;
and (iv) Mutual's agreement to use its best efforts to effect the Merger and
grant of an irrevocable proxy to Unitrin to vote the Company Shares owned by
Mutual. See "THE MUTUAL AFFILIATION AGREEMENT."
THE COMPANY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE COMPANY'S BOARD
OF DIRECTORS
The Company's Board of Directors, by affirmative vote of all Directors
attending at a special meeting held on July 27, 1995, has determined that the
Merger is in the best interest of the Company's shareholders, approved the
Merger Agreement and the transactions contemplated by the Merger Agreement and
resolved to recommend that the Company's shareholders vote for adoption of the
Merger Agreement. As described above under "Background of the Merger," the
Boards of Directors of the Company and Mutual held joint meetings on June 9 and
July 12 to receive advice and presentations from management and the Company's
legal counsel concerning the then current status of negotiations and the
evolving terms of the Merger Agreement and the Mutual Affiliation Agreement.
The presentations by the Company's management and legal advisors described and
explained (i) the terms and conditions of the proposed Merger; (ii) the terms
of the proposed Mutual Affiliation Agreement; (iii) the terms of certain
affiliation and pooling agreements to be entered into in accordance with the
terms of the Mutual Affiliation Agreement; and (iv) the fiduciary duties
applicable to the Company's and Mutual's Boards of Directors in the evaluation
of the proposed transaction.
In reaching its conclusion to enter into the Merger Agreement and recommend
adoption of the Merger Agreement by the Company's shareholders, the Company's
Board of Directors considered a number of factors, including, without
limitation, the following:
(i) The consideration to be received by the shareholders in the Merger,
including the fact that the Merger Consideration represents a substantial
premium over the market price of the Company Shares preceding announcement
of the proposed Merger, and the relationship between the Merger
Consideration and the Company's reported earnings and certain other
measures.
(ii) Current market conditions and historical market prices, volatility
and trading information with respect to the Company Shares.
(iii) The condition, prospects and strategic direction of the Company's
business.
(iv) The fact that the Company, through its financial adviser, Coopers &
Lybrand, contacted several prospective purchasers which executed
confidentiality agreements and reviewed due diligence materials resulting
in two other acquisition proposals offering an aggregate purchase price
below the Unitrin offer.
(v) The terms and conditions of the Merger, the Merger Agreement, and the
Mutual Affiliation Agreement, including the amount and form of the
consideration, as well as the parties' mutual representations, warranties
and covenants, and the conditions to their respective obligations.
In view of the wide variety of factors considered in connection with its
evaluation of the terms of the Merger, the Company's Board of Directors did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
conclusions. Based on the factors described above, the Company's Board of
Directors determined that the Merger is in the best interests of the Company's
shareholders and preferable to the other alternatives considered, approved the
Merger Agreement and the transactions contemplated by the Merger Agreement, the
Mutual Affiliation Agreement and certain related agreements and resolved to
recommend that the shareholders of the Company vote for adoption of the Merger
Agreement.
5
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of the Company
with respect to the Merger Agreement and the transactions contemplated thereby,
shareholders should be aware that certain members of the management and the
Boards of Directors of both the Company and Mutual have certain interests in
the Merger in addition to the interests of shareholders of the Company
generally.
Stock Option Plans
Pursuant to the Merger Agreement, each of the outstanding stock options of
the Company issued to certain directors, executive officers and other employees
of the Company under Mutual's Stock Option Plan and the Company's 1994
Incentive Stock Plan (the "Plans") will be converted into the right to receive
a cash payment equal in amount to the difference between $22.00 and the
exercise price of such option (the "Spread"). At the date of this Proxy
Statement, stock options covering a total of 130,348 Company Shares with
exercise prices ranging from $10.75 to $11.88 per share were outstanding under
the Plans (including unvested options as described below under "Acceleration of
Stock Options"). The aggregate Spread on all stock options under the Plans
payable pursuant to the Merger is $1,438,841. The Company and Trinity have
agreed that, with respect to all stock options outstanding under the Plans at
the Closing, Trinity or the Surviving Corporation will pay out at the Effective
Time the Spread on each stock option outstanding at the Closing. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Acceleration of Stock Options
The joint Compensation Committee of the Company and Mutual has exercised its
power under the Plans to provide for the accelerated vesting of any unvested
options outstanding under the Plans at the Closing. Currently there are 114,888
options outstanding under the Plans which have not yet vested through the
passage of time, with an aggregate Spread of $1,272,421, including options to
purchase 5,000 shares granted to each non-employee director of Mutual or the
Company at $10.75 per share.
In addition, Daniel R. Doucette, President of MIG and Mutual, holds an option
granted by Mutual by agreement dated January 2, 1992 (the "Doucette Option") to
purchase 150,000 Company Shares at $7.25 per share, which options are scheduled
to vest over a five-year period beginning in 1997. On November 1, 1994, the
Doucette Option was amended to incorporate the change of control provisions of
the Company's 1994 Incentive Stock Plan, and therefore the options granted
under the Doucette Option will vest upon the Merger and the aggregate Spread in
the amount of $2,212,500 will be paid out by Mutual as a stock appreciation
right in accordance with the terms of the Doucette Option.
Employment Agreements
Currently, seven key employees of the Company are parties to Key Executive
Employment and Severance Agreements. Under the terms of these agreements, the
employee is entitled to 18 months' cash compensation as a severance payment in
the event of termination without cause or constructive termination within 18
months after a "change in control" as defined. The Merger will constitute a
"change in control" under these agreements.
Indemnification and Insurance
The Merger Agreement and the Mutual Affiliation Agreement provide that Mutual
and the Surviving Corporation will maintain the current directors' and
officers' liability and corporate indemnification insurance for all directors
and officers of the Company and Mutual and their subsidiaries prior to the
Merger for a period of at least 60 months, and maintain in effect the bylaw
provisions of all such entities relating to corporate indemnification of all
such persons.
6
<PAGE>
Mutual Financial Ratings
In partial consideration of the representations, warranties and covenants of
Mutual set forth in the Mutual Affiliation Agreement, Unitrin has agreed to use
its best efforts to obtain enhanced financial ratings from A.M. Best Company,
Inc. for Mutual and for the Company's insurance subsidiaries. See "THE MUTUAL
AFFILIATION AGREEMENT."
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the Merger will be allocated among
the Surviving Corporation's consolidated assets and liabilities based on the
fair values of the assets acquired and liabilities assumed. At the Effective
Time, the Company will become a wholly-owned subsidiary of Trinity.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE COMPANY'S
SHAREHOLDERS
Set forth below is a description of certain federal income tax aspects of the
Merger to holders of Company Shares disposed of in the Merger under current law
and regulations. The discussion is based on the Internal Revenue Code of 1986,
as amended. The Company will not seek any rulings from the Internal Revenue
Service ("IRS") or an opinion of counsel with respect to the transactions
contemplated hereby.
The following discussion is limited to the material federal income tax
aspects of the Merger for a holder of Company Shares who is a citizen or
resident of the United States, and who, on the date of disposition of such
holder's Company Shares, holds such shares as capital assets. All holders are
urged to consult their own tax advisors regarding the federal, foreign, state
and local tax consequences of the disposition of Company Shares in the Merger.
The following discussion does not address potential foreign, state, local and
other tax consequences, nor does it address taxpayers subject to special
treatment under the federal income tax laws, such as life insurance companies,
tax-exempt organizations, S corporations and taxpayers subject to alternative
minimum tax.
A holder of Company Shares will realize gain or loss upon the surrender of
such holder's Company Shares pursuant to the Merger in an amount equal to the
difference, if any, between the amount of cash received and such holder's
aggregate adjusted tax basis in the Company Shares surrendered therefor.
In general, any gain or loss recognized by a shareholder in the Merger will
be eligible for capital gain or loss treatment. Any capital gain or loss
recognized by shareholders will be long-term capital gain or loss if the
Company Shares giving rise to such recognized gain or loss have been held for
more than one year; otherwise such capital gain or loss will be short term. An
individual's long-term capital gain is subject to federal income tax at a
maximum rate of 28% while any capital loss can be offset only against other
capital gains plus $3,000 of other income in any tax year. Any unutilized
capital loss will carry over as a capital loss to succeeding years for an
unlimited time until the loss is exhausted.
For corporations, a capital gain is subject to federal income tax at a
maximum rate of 35% while any capital loss can be offset only against other
capital gains. Any unutilized capital loss can be carried back three years and
forward five years to be offset against net capital gains generated in such
years.
Under the federal income tax backup withholding rules, unless an exemption
applies, the Exchange Agent will be required to withhold, and will withhold,
31% of all cash payments to which a holder of Company Shares or other payee is
entitled pursuant to the Merger Agreement, unless the shareholder or other
payee provides a tax identification number (social security number, in the case
of an individual, or employer identification number, in the case of other
Company shareholders) and certifies that such number is correct. Each Company
shareholder, and, if applicable, each other payee, should complete and sign the
Substitute Form W-9 included as part of the letter of transmittal to be
returned to the Exchange Agent in
7
<PAGE>
order to provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to the Exchange Agent.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL
INFORMATION ONLY. EACH HOLDER OF COMPANY SHARES IS URGED TO CONSULT HIS OR HER
OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH
SHAREHOLDER OF THE MERGER (INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN,
STATE, LOCAL AND OTHER TAX LAWS).
SOURCE AND AMOUNT OF FUNDS
Trinity intends to fund payment of the Merger Consideration through use of
its general corporate funds. The aggregate cost to Trinity of acquiring all of
the Company Shares in the Merger, making required payments to holders of stock
options (see "THE MERGER--Interests of Certain Persons in the Merger") and
payment of its fees and expenses will be approximately $95 million.
RIGHTS OF DISSENTING SHAREHOLDERS
Overview
Subchapter XIII of the Wisconsin Business Corporation Law (the "Dissenters'
Rights Statute") provides to shareholders of Wisconsin corporations the right
to dissent from, and obtain payment of the "fair value" of their shares in the
event of, certain corporate transactions listed in Section 180.1302 of the
WBCL. These transactions generally include mergers, except that in the absence
of contrary provisions in the articles of incorporation, statutory dissenters'
rights are not available if the corporation's shares are listed on a national
securities exchange or traded on the Nasdaq Stock Market. The Company Shares
are traded on the Nasdaq Stock Market, and therefore the statutes do not
provide dissenters' rights in the Merger; however, Article X of the Company's
Articles of Incorporation provides that the Company's shareholders shall have
dissenters' rights as provided in the WBCL unless the Company Shares are listed
on a national securities exchange or held of record by 2,000 or more
shareholders. Therefore, shareholders do have the right to dissent from the
Merger as provided in the Dissenters' Rights Statute.
Procedure
THE FOLLOWING IS A SUMMARY OF CERTAIN MATERIAL PROVISIONS OF THE DISSENTERS'
RIGHTS STATUTE RELATING TO DISSENTERS' RIGHTS. IT IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
DISSENTERS' RIGHTS STATUTE, WHICH IS INCLUDED IN THIS PROXY STATEMENT AS
EXHIBIT B AND IS INCORPORATED HEREIN BY REFERENCE.
A shareholder who wishes to assert dissenters' rights must (a) deliver to the
Company, before the Special Meeting, written notice of the shareholder's intent
to demand payment of "fair value" for his or her shares if the Merger is
effectuated, and (b) not vote his or her shares in favor of the Merger.
Abstention will satisfy the second prerequisite, but the right to dissent is
not preserved unless the notice of dissent is also timely provided. Notice must
be in writing, delivered in person or by mail, private courier, facsimile or
other commercially accepted means, and should be addressed to the Company at
its principal office address as provided herein, to the attention of the
Secretary. Notice must state clearly the name and address of the shareholder
and the number of shares held. A person may not dissent with respect to fewer
than all shares beneficially owned.
Within 10 days after the Special Meeting, any shareholder who has satisfied
the foregoing procedure will receive from the Surviving Corporation a form for
demanding payment of the fair value of his or her shares, together with
instructions for proper return and a due date for return, which may not be
fewer than 30 nor more than 60 days after the date on which the form is
provided to the dissenting shareholder. In
8
<PAGE>
order to perfect the right of dissent, the shareholder must (a) return the
demand form within the time frame specified, (b) certify whether the shares
were acquired before or after the date of the first announcement of the Merger
(June 19, 1995), and (c) deposit his or her certificates in accordance with
instructions provided in the notice.
Upon receipt of demand for payment, the Surviving Corporation will remit to
the dissenting holder the amount that the Surviving Corporation estimates to be
the fair value of his or her shares, plus interest from the Effective Time.
"Fair value" is defined as the value of the shares just prior to the Merger,
excluding, however, any appreciation or depreciation in anticipation of the
Merger. However, the Surviving Corporation is allowed to withhold payment from
a holder who acquired his or her shares after June 19, 1995, until final
determination of fair value between the parties.
If the dissenting holder believes that the amount paid or tendered by the
Surviving Corporation is less than the fair value of the shares, he or she
must, within 30 days thereafter, make a further written demand upon the
Surviving Corporation, specifying the dissenting holder's own estimate of
value. The Surviving Corporation must then either pay the dissenting holder the
amount demanded or, within 60 days, bring a special proceeding in circuit court
in Milwaukee County. All dissenters whose demands remain unsettled are parties
to this proceeding. The court may appoint one or more appraisers, and
ultimately must determine the value to be paid. The value may be greater or
less than the Merger Consideration. Each party bears its own expenses in the
proceeding, except that the court has the power to assess the fees and expenses
of counsel and experts (a) against the corporation if it determines that the
corporation has not substantially complied with its statutory obligations under
the Dissenters' Rights Statute, or (b) against a dissenter if the court
determines that the dissenter acted arbitrarily, vexatiously or not in good
faith.
Dissent by Beneficial Shareholder
Beneficial shareholders, that is, persons whose shares are held by a broker
(e.g. in street name) or other record holder, may dissent using the same
procedure, provided that the original notice of intent to demand payment must
be accompanied by the written consent of the record holder of the shares.
ANY HOLDER WHO FAILS TO COMPLY FULLY WITH THE STATUTORY PROCEDURE SUMMARIZED
ABOVE WILL FORFEIT HIS OR HER RIGHTS OF DISSENT AND WILL RECEIVE THE MERGER
CONSIDERATION FOR HIS OR HER SHARES. See Exhibit B.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), certain acquisition transactions may not be consummated unless notice
has been given and certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been satisfied. The
Merger is subject to these requirements.
The Company and Trinity each filed with the Antitrust Division and the FTC a
Notification and Report Form with respect to the Merger on August 18, 1995.
Under the HSR Act, the Merger may not be consummated until the expiration of a
waiting period of at least 30 days following the receipt of each filing, unless
the waiting period is earlier terminated by the FTC and the Antitrust Division
or unless the waiting period is extended by a request for additional
information. On August 28, 1995, the FTC notified the parties that the waiting
period was early terminated as of that date.
State Attorneys General and private parties may also bring legal actions
under the federal or state antitrust laws under certain circumstances. There
can be no assurance that a challenge to the proposed Merger on antitrust
grounds will not be made or of the result if such a challenge is made.
9
<PAGE>
WISCONSIN AND OTHER STATES' INSURANCE LAWS
Under Chapter 611 of the Wisconsin Statutes and related regulations, the
acquisition of control of a Wisconsin domestic insurer must receive prior
approval by the Office of the Commissioner of Insurance of the State of
Wisconsin ("OCI"). The statute provides that the transaction will be approved
if the OCI finds, after a hearing, that the transaction would not violate the
law or be contrary to the interests of the insureds of any participating
domestic corporation or of the Wisconsin insureds of any participating
nondomestic corporation and, in addition, that (a) the resulting domestic
insurer(s) will qualify for Wisconsin licensure; (b) the transaction will not
lessen competition in Wisconsin; (c) the financial condition of the acquiring
party is not likely to jeopardize the financial stability of the domestic
operations; (d) any material changes in the business or corporate structure or
management are fair and reasonable to policyholders or in the public interest;
and (e) the competence and integrity of the new controlling persons are such
that the transaction is in the public interest. Protection of shareholders is
not a criterion of the OCI's review of change of control transactions. Along
with the Merger Agreement, certain other related agreements between Mutual and
Unitrin, and among their subsidiaries, must be approved. See "THE MUTUAL
AFFILIATION AGREEMENT." An application for approval of the Merger and all
related transactions was submitted to the OCI on August 29, 1995.
A reinsurance agreement between Trinity and a MIG subsidiary to be entered
into pursuant to the Mutual Affiliation Agreement requires the prior approval
of the Texas Insurance Commissioner. An application was filed on August 24,
1995.
The Mutual Affiliation Agreement contemplates the dissolution and/or merger
of two inactive subsidiaries of Mutual domiciled in the State of South Dakota
whose operations are being run off. Such acts would require the prior approval
of the South Dakota Department of Insurance. Receipt of approval or waiver is
not a condition to the Closing of the Merger.
THE MERGER AGREEMENT
The following discussion of the Merger Agreement is qualified in its entirety
by reference to the complete text of the Merger Agreement, which is included in
this Proxy Statement as Exhibit A (exclusive of all exhibits and schedules) and
is incorporated herein by reference.
GENERAL
The Merger Agreement provides for the merger of Trinity Subsidiary into the
Company. The Company will be the Surviving Corporation of the Merger, and, as a
result of the Merger, Trinity will own all of the Surviving Corporation's
common stock. In the Merger, the shareholders of the Company, other than
holders who perfect their dissenters' rights, will receive the Merger
Consideration described below.
EFFECTIVE TIME
The Effective Time of the Merger will occur upon the filing of Articles of
Merger with the Secretary of State of the State of Wisconsin as required by the
WBCL or at such later date as may be specified in the Articles of Merger. It is
anticipated that such Articles of Merger will be filed promptly after the
approval and adoption of the Merger Agreement by the shareholders of the
Company at the Special Meeting. Such filing will be made, however, only upon
satisfaction or waiver of all conditions to the Merger contained in the Merger
Agreement.
10
<PAGE>
CONSIDERATION TO BE RECEIVED BY SHAREHOLDERS OF THE COMPANY
In connection with the Merger, each outstanding Company Share at the
Effective Time (except those shares held by the Company as treasury shares, and
Dissenting Shares) will be converted into the right to receive $22.00 in cash,
without interest. All Company Shares held by the Company as treasury shares
will be canceled without consideration. Dissenting Shares will be converted to
cash in the manner described in "THE MERGER--Rights of Dissenting
Shareholders." Instructions with regard to the surrender of certificates
formerly representing Company Shares, together with the letter of transmittal
to be used for that purpose, will be mailed to shareholders as soon as
practicable after the Effective Time. As soon as practicable following receipt
from the shareholder of a duly executed letter of transmittal, together with
certificates formerly representing Company Shares and any other items specified
by the letter of transmittal, the Exchange Agent will pay the Merger
Consideration to such shareholder, by check or draft.
Each of the outstanding shares of Trinity Subsidiary will automatically be
converted into one share of common stock, par value $.01 per share, of the
Surviving Corporation.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES FOR COMPANY SHARES WITH
THE ENCLOSED PROXY CARD.
After the Effective Time, the holder of a certificate formerly representing
Company Shares will cease to have any rights as a shareholder of the Company,
and such holder's sole right will be to receive the Merger Consideration with
respect to such shares (or, in the case of Dissenting Shares, the statutorily
determined "fair value"). If payment is to be made to a person other than the
person in whose name the surrendered certificate is registered, it will be a
condition of payment that the certificates so surrendered be properly endorsed
or otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of such
payment or establish to the satisfaction of the Surviving Corporation that such
taxes have been paid or are not applicable. No transfer of shares outstanding
immediately prior to the Effective Time will be made on the stock transfer
books of the Surviving Corporation after the Effective Time. Certificates
formerly representing Company Shares presented to the Surviving Corporation
after the Effective Time will be canceled in exchange for the Merger
Consideration.
In no event will holders of Company Shares be entitled to receive payment of
any interest on the Merger Consideration to be distributed to them in
connection with the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Company relating to, among other things, (a) corporate organization, existence,
good standing and power and authority to own and operate properties and carry
on business; (b) corporate power and authority to enter into, and the due,
valid and binding execution and delivery of, the Merger Agreement; (c) the
absence of any violations of applicable law; (d) consents and approvals of
public bodies; (e) the Merger not resulting in conflicts with respect to the
articles of incorporation or by-laws, breaches of any agreements or
instruments, or violations of orders relating to the Company or its
subsidiaries; (f) the capital structure of the Company and its subsidiaries;
(g) the proper filing by the Company with the Securities and Exchange
Commission (the "Commission") of all required documents and the accuracy of the
information contained in such documents; (h) the fair presentation of financial
statements supplied by the Company to Trinity; (i) the absence of certain
material adverse changes concerning the Company; (j) the absence of certain
undisclosed liabilities of the Company; and (k) certain matters pertaining to
federal, state and local taxes and employee benefit plans of the Company.
COVENANTS
Each of the parties to the Merger Agreement has agreed to use its best
efforts to take all such action as may be necessary or appropriate to
effectuate the Merger under the WBCL, including cooperation in the preparation
and filing of this Proxy Statement, expiration or termination of governmental
filings and waiting
11
<PAGE>
period requirements, and execution of any additional instruments reasonably
necessary to effect the transactions contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, the Company has agreed that, except as
expressly contemplated by the Merger Agreement or consented to in writing by
Trinity, from the date of the Merger Agreement until the Merger, neither the
Company nor any of its subsidiaries shall cause or permit the Company to:
(a) incur any liability or obligation outside the ordinary course of
business;
(b) issue any stock, options, warrants or rights, purchase any
outstanding stock, or declare or pay any dividend or other distribution;
(c) enter into any material agreements, amend any existing material
agreements, or pay any bonuses or special compensation;
(d) engage in any negotiations with third parties relating to the
acquisition of MIG or any significant portion of its business by such third
parties, except to the extent required by fiduciary obligations; or
(e) otherwise operate outside the ordinary course of business.
TERMINATION FEE
The Merger Agreement requires the Company to pay Trinity a termination fee of
$2 million (the "Termination Fee") if (a) the Merger is not consummated despite
the satisfaction of all the conditions to the Company's obligations to close,
and (b) the Company enters into a letter of intent or other written agreement
with a third party regarding a merger, consolidation, sale of assets or similar
transaction within 12 months thereafter. The Termination Fee is the sole and
exclusive remedy of Trinity upon any such termination of the Merger Agreement.
AMENDMENTS AND WAIVERS
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of the Company and Trinity. By mutual written consent, the
parties may (a) extend the time for performance of obligations, (b) waive
inaccuracies in representations and warranties, (c) waive compliance with
covenants and agreements, or (d) make other modifications as agreed to by the
parties' Boards of Directors. After approval of the Merger Agreement by the
shareholders of the Company, the Board of Directors of the Company will not,
without first obtaining the further approval of the shareholders, approve any
amendment which would decrease, or change the nature of, the Merger
Consideration.
EXPENSES
The Merger Agreement provides that, whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of the parties to effect the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of a number of
conditions typical in acquisition transactions, including accuracy of
representations and warranties; performance of all covenants; receipt of all
necessary legal approvals, consents and clearances; and approval by holders of
the necessary two-thirds of the Company's outstanding shares. In addition,
Trinity's obligation to close is conditioned upon:
(a) the simultaneous closing of the Mutual Affiliation Agreement;
(b) receipt of notices of intent to dissent from the holders of not more
than 5% of the outstanding Company Shares;
12
<PAGE>
(c) receipt of resignations of all Company Directors;
(d) maintenance by the Company of shareholders' equity in excess of $75
million;
(e) receipt of a "comfort letter" from Coopers & Lybrand, the Company's
independent accounting firm, relating to the absence of certain material
adverse financial changes since December 31, 1994; and
(f) receipt of an opinion of Foley & Lardner, counsel to the Company and
Mutual, with respect to certain legal matters.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
before the Effective Time, notwithstanding approval of the Merger Agreement by
the shareholders of the Company:
(a) by mutual written consent of the Company and Trinity;
(b) by Trinity, in the event of a failure of a condition to Trinity's
obligation to close; or
(c) by the Company, in the event of a failure of a condition to the
Company's obligation to close.
THE MUTUAL AFFILIATION AGREEMENT
Simultaneously with the execution and delivery of the Merger Agreement,
Mutual and Unitrin entered into a related agreement (the "Mutual Affiliation
Agreement"). Under the terms of the Mutual Affiliation Agreement, Mutual has
agreed to do each of the following:
(a) Cause a subsidiary of MIG to enter into a quota share reinsurance
agreement according to a form made an exhibit to the Mutual Affiliation
Agreement pursuant to which a portion of the pooled business of Mutual and
MIG's subsidiaries will be shared on a pro rata basis with Trinity;
(b) Amend the existing reinsurance pooling agreement among Mutual and
certain of its affiliates according to a form made an exhibit to the Mutual
Affiliation Agreement;
(c) Enter into a new reinsurance pooling agreement, which will revise the
respective shares of the pool participants, in a form made an exhibit to
the Mutual Affiliation Agreement;
(d) Recommend that certain nominees of Unitrin be elected to Mutual's
Board of Directors by the policyholders at a special meeting of
policyholders;
(e) Indemnify Unitrin and its affiliates against damage occasioned by
breaches of any representation, warranty or covenant made by the Company in
the Merger Agreement or Mutual in the Mutual Affiliation Agreement; and
(f) Use its best efforts to cause the Merger to be effectuated.
Performance by Mutual of all of its obligations under the Mutual Affiliation
Agreement is a condition to Trinity's obligation to consummate the Merger. In
addition, Mutual has granted Unitrin an irrevocable proxy to vote Mutual's
2,010,000 shares of common stock of the Company in favor of the Merger at the
Special Meeting. Unitrin has agreed pursuant to the Mutual Affiliation
Agreement to use its best efforts to obtain enhanced financial ratings for
Mutual and for the Company's insurance subsidiaries from A.M. Best Company,
Inc. Unitrin has also agreed to maintain for the benefit of the current
directors and officers of Mutual, MIG and their subsidiaries the same
indemnification insurance and bylaw provisions currently in force.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of August 31, 1995, regarding
beneficial ownership of Common Stock by each Director, the Chief Executive
Officer, each of the four most highly compensated Executive Officers other than
the Chief Executive Officer, all of the Directors and Executive Officers as a
13
<PAGE>
group and each person known to be the beneficial owner of 5% or more of the
outstanding Common Stock. Except as otherwise indicated in the footnotes, all
of the persons listed below have sole voting and investment power over the
shares of Common Stock identified as beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF CURRENT
BENEFICIAL PERCENT OF
OWNERSHIP SHARES
NAME OF BENEFICIAL OWNER (1) OUTSTANDING
------------------------ ---------- -----------
<S> <C> <C>
Robert W. Doucette.................................... 40,500 *
Daniel R. Doucette.................................... 19,710 *
Michael S. Ariens..................................... 200 *
Maureen J. Oster...................................... 800 *
James L. Dorman....................................... 3,000 *
Michael J. Koss....................................... -0- *
Joseph C. Branch...................................... 1,000 *
Thomas I. Doucette.................................... 1,200 *
Robert W. Grieb....................................... 1,000 *
Tracy Watchmaker Schneider............................ 4,130 *
Peter J. Donegan...................................... 3,177 *
Gil C. Rohde, Jr...................................... 2,623 *
All Directors and Executive Officers
as a group (16 persons).............................. 86,488 2.1%
Milwaukee Mutual Insurance Company
803 West Michigan Street
Milwaukee, WI 53233.................................. 2,010,000 48.4%
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202.................................. 553,000(2) 13.3%
T. Rowe Price Associates, Inc. and
T. Rowe Price Small Cap. Value Fund, Inc.
100 East Pratt Street
Baltimore, MD 21202.................................. 240,000(3) 5.8%
</TABLE>
- --------
* Less than one percent.
(1) Includes shares subject to exercisable stock options as follows: Mr. Daniel
Doucette, 3,510 shares; Ms. Watchmaker Schneider, 1,216 shares; Mr.
Donegan, 959 shares; and all directors and executive officers as a group,
9,008 shares. If the Merger is consummated, the following numbers of
additional options issued under the Milwaukee Mutual Insurance Company
Stock Option Plan and the Milwaukee
14
<PAGE>
Insurance Group, Inc. 1994 Incentive Stock Plan will be (a) accelerated as
to vesting and (b) automatically cashed out:
<TABLE>
<CAPTION>
NO. OF SHARES
-------------
<S> <C>
Daniel R. Doucette........................................ 16,102
Michael S. Ariens......................................... 5,000
Maureen J. Oster.......................................... 5,000
James L. Dorman........................................... 5,000
Michael J. Koss........................................... 5,000
Joseph C. Branch.......................................... 5,000
Tracy Watchmaker Schneider................................ 7,087
Peter J. Donegan.......................................... 6,674
Gil C. Rohde, Jr.......................................... 5,342
All Directors and Executive
Officers of the Company
as a group............................................... 84,888
</TABLE>
In addition, 6 non-employee Directors of Mutual each have an option to
purchase 5,000 shares, and Daniel R. Doucette currently holds an option
issued by Mutual to purchase 150,000 of Mutual's Company Shares, all of
which will be accelerated and cashed out in connection with the Merger.
(2) As reported by Heartland Advisors, Inc. (Heartland) on a Schedule 13G dated
February 15, 1995. Heartland reported sole dispositive power over 553,000
shares of Common Stock and sole voting power over none of the shares of
Common Stock.
(3) As reported by T. Rowe Price Associates, Inc. and T. Rowe Price Small Cap
Value Fund, Inc. on a Schedule 13G dated February 15, 1995, these
securities are owned by various investors including the T. Rowe Price Small
Cap Value Fund, Inc. (which owns 240,000 shares) for which T. Rowe Price
Associates, Inc. serves as investment adviser with power to direct
investments and/or shared power to vote the securities. For purposes of
reporting requirements of the Securities Exchange Act of 1934, Price
Associates is deemed to be a beneficial owner of such securities; however,
Price Associates expressly disclaims that it is, in fact, the beneficial
owner of such securities.
As required under the terms of the Mutual Affiliation Agreement, Mutual has
granted to Unitrin an irrevocable proxy to vote all of Mutual's 2,010,000
Company Shares at the Special Meeting.
OTHER MATTERS
The Board of Directors of the Company is not aware of any matters to be
presented for action at the Special Meeting other than those described herein
and does not intend to bring any other matters before the Special Meeting.
However, if other matters should come before the Special Meeting, it is
intended that the holders of proxies solicited hereby will vote thereon in
their discretion, unless such authority is withheld.
PROPOSALS BY HOLDERS OF COMPANY SHARES
As described in the Company's Proxy Statement relating to its 1995 Annual
Meeting (in the event the Merger is not consummated for any reason), proposals
of shareholders intended to be presented at the 1996 annual meeting of
shareholders must be received by the Company at its principal executive offices
not later than December 15, 1995, for inclusion in the Company's Proxy
Statement and form of proxy relating to that meeting. In addition, a
shareholder who intends to present business at any annual meeting must comply
with the notice requirements set forth in the Company's Bylaws. Shareholders
should mail any proposals by certified mail-return receipt requested.
EXPENSES OF SOLICITATION
The expenses in connection with solicitation of the enclosed form of proxy
will be shared by the Company and Mutual. In addition to solicitation by mail,
officers or regular employees of the Company, who will receive no compensation
for such services other than their regular salaries, may solicit proxies
personally
15
<PAGE>
or by telephone or facsimile. Arrangements will be made with brokerage houses,
nominees, participants in central certificate depository systems and other
custodians and fiduciaries to supply them with solicitation material for
forwarding to their principals, and arrangements may be made with such persons
to obtain authority to sign proxies. The Company may reimburse such persons for
reasonable out-of-pocket expenses incurred by them in connection therewith.
LEGAL MATTERS
Foley & Lardner, Milwaukee, Wisconsin, counsel to the Company, will deliver
an opinion to Trinity with respect to certain legal matters. Joseph C. Branch,
a partner in Foley & Lardner, is a member of the Board of Directors of the
Company. At August 31, 1995, Mr. Branch owned 1,000 shares of Common Stock, and
options to purchase another 5,000 shares.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of December 31, 1994
and 1993, and for each of the years in the three-year period ended December 31,
1994, incorporated by reference have been audited by Coopers & Lybrand,
independent public accountants, as stated in their report.
A representative of Coopers & Lybrand will be at the Special Meeting to
answer questions by shareholders and will have the opportunity to make a
statement if so desired.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copies made at the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at 7 World Trade Center, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of Commission at its Washington address at prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (Commission
File No. 0-15119) are hereby incorporated by reference into this Proxy
Statement:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1994;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1995 and March 31, 1995; and
3. The information contained on pages 13 through 50 of the Company's 1994
Annual Report to Shareholders, which is being provided herewith. The
information contained on pages 1 through 12 is not incorporated herein.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14 or
15(d) or the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents.
Copies of
16
<PAGE>
the documents (without exhibits) incorporated by reference in this Proxy
Statement are available without charge upon written or oral request from Daniel
A. Riedl, Secretary, Milwaukee Insurance Group, Inc., 803 West Michigan Street,
Milwaukee, Wisconsin 53233, telephone (414) 271-0525.
By order of the Board of Directors
Daniel A. Riedl
Secretary
Milwaukee, Wisconsin
September 1, 1995
17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AMONG
MILWAUKEE INSURANCE GROUP, INC.,
TRINITY ACQUISITION CORPORATION
AND
TRINITY UNIVERSAL INSURANCE COMPANY
AS OF AUGUST 17, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER...................................................... A-1
(a) The Merger.......................................................... A-1
(b) Effective Time...................................................... A-1
(c) Effect of the Merger................................................ A-2
(d) Articles of Incorporation........................................... A-2
(e) By-Laws............................................................. A-2
(f) Directors and Officers.............................................. A-2
(g) Conversion of Shares................................................ A-2
(h) Surrender of Shares................................................. A-2
(i) Designation of Paying Agent; Investment of Funds.................... A-3
(j) Transmittal Materials............................................... A-3
(k) Dissenting MIG Shares............................................... A-3
(l) Termination of Paying Agent's Duties................................ A-3
(m) Closing of MIG's Transfer Books..................................... A-3
(n) Employee Stock Options.............................................. A-3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF MIG.......................... A-4
(a) Organization and Standing of MIG.................................... A-4
(b) MIG Subsidiaries.................................................... A-4
(c) Authorized Stock.................................................... A-4
(d) Authorization....................................................... A-5
(e) Articles of Incorporation and By-laws............................... A-5
(f) Consents and Approvals.............................................. A-5
(g) Defaults and Conflicts.............................................. A-5
(h) SEC Reports; Financial Statements................................... A-5
(i) Statutory Financial Statements...................................... A-6
(j) Changes Since March 31, 1995........................................ A-6
(k) Properties.......................................................... A-7
(i)Real Estate and Mortgages........................................... A-7
(ii)Investment Securities.............................................. A-7
(iii) Title to Property................................................ A-7
(l) Environmental Laws.................................................. A-7
(m) Proprietary Rights.................................................. A-8
(n) Receivables......................................................... A-8
(o) Agreements.......................................................... A-8
(p) Litigation.......................................................... A-8
(q) Compliance with Laws................................................ A-9
(r) Taxes............................................................... A-9
(s) Related Party Transactions.......................................... A-10
(t) Employee Benefit Plans.............................................. A-10
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(u) Insurance............................................................ A-11
(v) Insurance Business................................................... A-11
(w) Reinsurance.......................................................... A-11
(x) Regulatory Filings................................................... A-11
(y) Agents............................................................... A-12
(z) Powers of Attorney; Guarantees....................................... A-12
(aa) Reserves............................................................ A-12
(ab) Finders and Investment Bankers...................................... A-12
(ac) Third Party Discussions............................................. A-12
(ad) Disclosure.......................................................... A-12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TRINITY...................... A-13
(a) Organization of Trinity and Trinity Subsidiary....................... A-13
(b) Authorization........................................................ A-13
(c) Consents and Approvals............................................... A-13
(d) Defaults and Conflicts............................................... A-13
(e) SEC Filings.......................................................... A-13
(f) Funds Available...................................................... A-13
ARTICLE IV RIGHT TO INVESTIGATE............................................ A-13
ARTICLE V COVENANTS OF MIG................................................. A-14
(a) Ordinary Course...................................................... A-14
(b) Liabilities.......................................................... A-14
(c) Changes in Stock..................................................... A-14
(d) New Agreements....................................................... A-14
(e) Employee Stock Options............................................... A-14
(f) Consents............................................................. A-14
(g) Notice............................................................... A-14
(h) Shareholders' Meeting................................................ A-15
(i) No Solicitation...................................................... A-15
(j) Reports.............................................................. A-15
(k) Cooperation.......................................................... A-15
(l) Conditions Precedent................................................. A-15
ARTICLE VI COVENANTS OF TRINITY............................................ A-15
(a) Consents............................................................. A-15
(b) Directors' and Officers' Insurance................................... A-15
(c) Cooperation.......................................................... A-16
(d) Conditions Precedent................................................. A-16
ARTICLE VII CLOSING AND CLOSING DOCUMENTS.................................. A-16
(a) Closing.............................................................. A-16
(b) MIG Closing Documents................................................ A-16
(c) Trinity Closing Documents............................................ A-16
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF TRINITY...................... A-17
(a) Validity of Representation and Warranties............................ A-17
(b) Consents............................................................. A-17
(c) Compliance with Covenants............................................ A-17
(d) Opinion of Counsel................................................... A-17
(e) Approval of MIG Shareholders......................................... A-17
(f) Dissenting MIG Shares................................................ A-17
(g) Mutual Agreement..................................................... A-17
(h) Resignations......................................................... A-17
(i) Employment Matters................................................... A-17
(j) Comfort Letter....................................................... A-17
(k) MIG Shareholders' Equity............................................. A-17
(l) Licenses............................................................. A-17
(m) Coopers & Lybrand Fees............................................... A-18
ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF MIG............................ A-18
(a) Validity of Representations and Warranties........................... A-18
(b) Consents............................................................. A-18
(c) Compliance with Covenants............................................ A-18
(d) Opinion of Counsel................................................... A-18
(e) Mutual Agreement..................................................... A-18
ARTICLE X CONDITIONS APPLICABLE TO TRINITY AND MIG......................... A-18
(a) Hart-Scott-Rodino Act................................................ A-18
(b) Governmental Approvals............................................... A-18
(c) Injunction........................................................... A-18
(d) Effective Time....................................................... A-18
ARTICLE XI TERMINATION AND TERMINATION FEE................................. A-19
(a) Termination.......................................................... A-19
(b) Termination Fee...................................................... A-19
(c) Survival of Rights................................................... A-19
ARTICLE XII SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.......... A-19
ARTICLE XIII MISCELLANEOUS................................................. A-19
(a) Payment of Expenses.................................................. A-19
(b) Entire Agreement..................................................... A-19
(c) Modifications, Amendments and Waivers................................ A-19
(d) Assignment........................................................... A-20
(e) Schedules............................................................ A-20
(f) Press Releases....................................................... A-20
(g) Knowledge............................................................ A-20
(h) Notices.............................................................. A-20
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 17, 1995 (the "Agreement"),
by and among Milwaukee Insurance Group, Inc., a Wisconsin corporation ("MIG"),
Trinity Acquisition Corporation, a Wisconsin corporation ("Trinity
Subsidiary"), said two corporations being merged as hereinafter provided
referred to as the "Constituent Corporations", and Trinity Universal Insurance
Company, a Texas insurance company ("Trinity").
The authorized capital stock of MIG consists of 2,000,000 shares of Preferred
Stock, $.01 par value per share, none of which are outstanding, and 15,000,000
shares of Common Stock, $.01 par value per share ("MIG Common Stock"), of which
4,150,600 shares are outstanding as of the date hereof;
The authorized capital stock of Trinity Subsidiary consists of 1,000 shares
of common stock, par value $.01 per share, all of which shares are issued and
outstanding and are owned by Trinity;
Trinity is a wholly-owned subsidiary of Unitrin, Inc., a Delaware corporation
("Unitrin");
Milwaukee Mutual Insurance Company, a Wisconsin mutual insurance company (the
"Mutual"), owns approximately 49% of the issued and outstanding shares of MIG
Common Stock;
Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to Trinity's and Trinity Subsidiary's willingness to
enter into this Agreement, the Mutual has entered into an agreement with
Unitrin (the "Mutual Agreement") providing for, among other things, certain
representations and warranties of the Mutual with respect to its operations,
the assumption by the Mutual of the representations, warranties and certain
covenants of MIG provided herein, indemnifications of Trinity with respect
thereto and the Mutual's undertakings to enter into certain affiliation
arrangements as of the Effective Time hereunder (the "Affiliation
Arrangements"), and has granted to Unitrin an irrevocable proxy to vote its
shares of MIG Common Stock; and
The respective Boards of Directors of MIG, Trinity and Trinity Subsidiary
deem the merger provided for herein (the "Merger") desirable and in the best
interests of their respective shareholders.
The respective Boards of Directors of MIG, Trinity and Trinity Subsidiary
have duly adopted resolutions approving the Agreement, and the Board of
Directors of MIG has directed that the Agreement be submitted for approval by
MIG's shareholders.
In consideration of the premises and the respective representations,
warranties, covenants and agreements set forth herein, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
(a) The Merger. In accordance with the provisions of this Agreement and the
Wisconsin Business Corporation Law ("WBCL"), at the Effective Time (as herein
defined), Trinity Subsidiary shall be merged with and into MIG and the separate
existence of Trinity Subsidiary shall thereupon cease, and the name of MIG, as
the surviving corporation in the Merger (the "Surviving Corporation"), shall be
"Milwaukee Insurance Group, Inc."
(b) Effective Time. The Merger shall become effective when properly executed
Articles of Merger are duly filed with the Secretary of State of Wisconsin,
which filing shall be made as promptly as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Article VII
hereof. As used herein, the term "Effective Time" shall mean the date and time
at which such Articles are so filed or such later time as is specified in the
Articles of Merger.
<PAGE>
(c) Effect of the Merger. At the Effective Time, title to all property owned
by the Constituent Corporations shall be vested in the Surviving Corporation
without reversion or impairment. The Surviving Corporation shall have all
liabilities of the Constituent Corporations. A civil, criminal, administrative
or investigatory proceeding pending against the Constituent Corporations may be
continued as if the Merger did not occur or the Surviving Corporation may be
substituted in the proceeding for Trinity Subsidiary. The shares of MIG Common
Stock shall be converted into cash in the manner and on the basis described
below and the former holders of such shares shall be entitled only to the
rights provided in this Agreement, MIG's Articles of Incorporation, as amended
(the "MIG Articles") or as provided under the WBCL.
(d) Articles of Incorporation. The Articles of Incorporation of Trinity
Subsidiary in effect at the time of the Merger shall be the Articles of
Incorporation of the Surviving Corporation. Such Articles of Incorporation,
separate and apart from this Agreement, shall be, and may be separately
certified as, the Articles of Incorporation of the Surviving Corporation.
(e) By-Laws. The By-Laws of Trinity Subsidiary in effect at the time of the
Merger shall be the By-Laws of the Surviving Corporation until altered, amended
or repealed.
(f) Directors and Officers. The directors and officers of the Surviving
Corporation at the Effective Time shall be individuals designated by Trinity to
serve, in each case, until their successors shall have been elected and shall
qualify. If at the Effective Time a vacancy shall exist on the Board of
Directors or in any of the offices of the Surviving Corporation, such vacancy
may thereafter be filled in the manner provided by the By-Laws of the Surviving
Corporation.
(g) Conversion of Shares. The manner and basis of converting and exchanging
the shares of MIG Common Stock and Trinity Subsidiary common stock, and the
manner and basis of making distributions, if any, to shareholders of MIG and
Trinity Subsidiary, shall be as follows:
(i) Each share of MIG Common Stock which is issued and outstanding
immediately prior to the Effective Time other than Dissenting MIG Shares
(as defined below) shall, by virtue of the Merger and without any action on
the part of the holder thereof, at and after the Effective Time be
converted into the right to receive $22.00 in cash (subject to appropriate
adjustment for any stock split, reverse stock split, stock dividend or
other similar distribution or reclassification with respect to the
outstanding shares of MIG Common Stock from the date hereof to the
Effective Time) (the "Merger Consideration").
(ii) Each share of MIG Common Stock, if any, which is issued and held in
the treasury of MIG, shall, by virtue of the Merger and without any action
on the part of Trinity Subsidiary or of MIG, at the Effective Time, be
retired and cancelled, and no cash or other consideration shall be issued
with respect thereto.
(iii) All shares of common stock of Trinity Subsidiary issued and
outstanding at the Effective Time shall be converted into and exchanged for
an equal number of shares of common stock of the Surviving Corporation so
that the Surviving Corporation shall become a wholly-owned subsidiary of
Trinity. Trinity as sole holder of the shares of Trinity Subsidiary common
stock outstanding immediately before the Effective Time shall, as promptly
as possible after the Effective Time, surrender the certificate
representing such shares of Trinity Subsidiary common stock to the
Surviving Corporation in exchange for a certificate representing an equal
number of shares of common stock of the Surviving Corporation, which shall
constitute all the outstanding shares of capital stock of the Surviving
Corporation.
(h) Surrender of Shares. As promptly as practicable after the Effective Time,
each holder of shares of MIG Common Stock shall, upon presentation and
surrender of the certificate or certificates therefor to the Paying Agent (as
defined below) for cancellation in accordance with the transmittal materials
described below, be entitled to receive in exchange therefor a check or checks
payable to such person representing payment of cash into which such holder's
shares of MIG Common Stock have been converted at the Effective Time. Each
certificate which represented issued and outstanding shares of MIG Common Stock
immediately
A-2
<PAGE>
prior to the Effective Time shall be deemed cancelled at the Effective Time and
shall represent only the right to receive cash for each share represented by
such certificate. In no event shall the holder of any such surrendered
certificates be entitled to receive interest on any of the funds to be received
in the Merger.
(i) Designation of Paying Agent; Investment of Funds. Trinity and Trinity
Subsidiary shall make available to First Chicago Trust Company of New York to
act as paying agent (the "Paying Agent") at the Effective Time an amount in
cash equal to the product of the Merger Consideration times the number of
shares of MIG Common Stock outstanding immediately prior to the Effective Time,
which shall not include the number of shares of MIG Common Stock held in MIG's
treasury, less the number of Dissenting MIG Shares whose holders have complied
with the provisions of Sections 180.1301 to 180.1331 of the WBCL and Article X
of the MIG Articles as described in Paragraph (k) below at or prior to the
Effective Time and less any shares owned by Trinity, Trinity Subsidiary or any
other subsidiary or affiliate of Trinity. The cash deposited with the Paying
Agent shall be invested by the Paying Agent as directed by Trinity.
(j) Transmittal Materials. As promptly as practicable following the Effective
Time, Trinity shall send or cause to be sent to each former holder of record of
shares of MIG Common Stock transmittal materials for use in surrendering their
certificate or certificates in exchange for cash. The letter of transmittal
will contain instructions with respect to the surrender of such certificates.
Trinity shall instruct record date holders of MIG Common Stock who hold such
shares for the account of others to provide the respective beneficial holders
of such shares instructions with respect to the surrender of their shares.
(k) Dissenting MIG Shares. Each outstanding share of MIG Common Stock for
which written notice of intent to demand payment therefor is delivered in
accordance with Sections 180.1301 to 180.1331 of the WBCL and Article X of the
MIG Articles and is not voted in favor of the Merger shall not be converted
into or represent a right to receive cash hereunder unless and until the holder
thereof shall have failed to perfect his demand for payment under Sections
180.1301 to 180.1331 of the WBCL and Article X of the MIG Articles, at which
time his shares shall be converted into a right to receive cash in the same
manner and subject to the same conditions as provided for other outstanding
shares of MIG Common Stock in this Article I. All such shares of MIG Common
Stock for which such a written notice of intent to demand payment is so
delivered and which are not voted in favor of the Merger, except for such
shares of MIG Common Stock for which a demand for payment is not perfected in
accordance with the WBCL and the MIG Articles, are herein called "Dissenting
MIG Shares." MIG shall give Trinity and Trinity Subsidiary prompt notice upon
receipt by MIG of any such written notice of intent to demand payment for
shares of MIG Common Stock. MIG agrees that prior to the Effective Time it will
not, except with the prior written consent of Trinity, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
payment. Each holder of Dissenting MIG Shares who becomes entitled, pursuant to
Sections 180.1301 to 180.1331 of the WBCL and Article X of the MIG Articles, to
receive payment for the fair value of his shares shall receive payment therefor
from MIG as the Surviving Corporation (but only after the amount thereof shall
have been agreed upon or finally determined pursuant to such provisions), and
such shares shall be retired and cancelled.
(l) Termination of Paying Agent's Duties. Promptly following the date which
is twelve months after the Effective Time, the Paying Agent shall deliver to
Trinity all cash and other documents in its possession relating to the
transactions described in this Agreement, and the Paying Agent's duties shall
terminate. Thereafter, each holder of a certificate formerly representing
shares of MIG Common Stock who has not previously surrendered such certificate
may surrender such certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefore the Merger Consideration.
(m) Closing of MIG's Transfer Books. At the Effective Time, the stock
transfer records of MIG shall be closed and no transfer of shares of MIG Common
Stock shall thereafter be made.
(n) Employee Stock Options. As of the Effective Time, each stock option
listed in Section 1(n) of a schedule delivered by MIG to Trinity concurrently
with the execution of this Agreement (the "MIG
A-3
<PAGE>
Schedule") which is outstanding on the date hereof and at the Effective Time
shall be converted into the right to receive the Merger Consideration on the
same basis on which shares of MIG Common Stock will be converted into cash
pursuant to the Merger. Immediately upon such conversion, each stock option
listed in such Schedule shall be deemed fully vested, exercised and cancelled
in exchange for the right to receive cash equal to the difference between (A)
the product of the number of shares of MIG Common Stock into which such option
would then be exercisable times the Merger Consideration and (B) the option
exercise price, subject to any required withholding of any amount for purposes
of federal, state, local or foreign taxes. MIG shall take all actions necessary
to obtain such consents as may be necessary for the transactions contemplated
by this Article I(n).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MIG
MIG represents and warrants to Trinity and Trinity Subsidiary as follows:
(a) Organization and Standing of MIG. MIG is a corporation duly organized and
validly existing under the laws of the State of Wisconsin and has the corporate
power to own or lease its properties and to carry on its business as now being
conducted.
(b) MIG Subsidiaries. Section 2(b) of the MIG Schedule sets forth a list of
all of MIG's subsidiaries (hereinafter separately called a "MIG Subsidiary" and
collectively called the "MIG Subsidiaries"). The schedule sets forth the
authorized capital stock, the number of shares duly issued and outstanding, the
number so owned by MIG and the jurisdiction of incorporation of each MIG
Subsidiary. The shares of capital stock of the MIG Subsidiaries owned directly
or indirectly by MIG are validly issued, fully paid and non-assessable (subject
to statutory obligations of holders, if any), and are owned free and clear of
any liens, claims, charges or encumbrances except as disclosed on the MIG
Schedule. Except as disclosed on such Schedule, neither MIG nor any of the MIG
Subsidiaries has any investment in any subsidiary or any investment in any
partnership, joint venture, limited liability company or similar entity, all of
which investments are owned free and clear of any liens, claims, charges or
encumbrances except as disclosed thereon. Each of the MIG Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the corporate power to
own or lease its properties and carry on its business as now being conducted.
Each of the MIG Subsidiaries is duly qualified or otherwise authorized to
transact business as a foreign corporation and is in good standing in every
jurisdiction in which such qualification or authorization is required by law to
carry on its business as now being conducted, except where the failure to
qualify or to be authorized would not have a material adverse effect on the
assets, properties, business or financial condition of MIG or any of the MIG
Subsidiaries. Each of the MIG Subsidiaries designated as an insurance company
on the MIG Schedule ("Insurance Subsidiary" or "Subsidiaries") has all
requisite power and authority to carry on an insurance business pursuant to and
to the extent of the certificates of authority issued under the laws of the
states listed in such Schedule. The MIG Schedule indicates the line or lines of
insurance which is permitted to be written with respect to each certificate of
authority listed. No certificate of authority identified in such Schedule has
been revoked, restricted, suspended, limited or modified nor is any certificate
of authority the subject of, nor to the knowledge of MIG is there a basis for,
a proceeding for revocation, restriction, suspension, limitation or
modification, nor is any Insurance Subsidiary operating under any formal or
informal agreement or understanding with the licensing authority of any state
which restricts its authority to do business or requires any Insurance
Subsidiary to take, or refrain from taking, any action.
(c) Authorized Stock. The authorized capital stock of MIG consists of
2,000,000 shares of Preferred Stock, $.01 par value per share, none of which
has been issued, and 15,000,000 shares of Common Stock, par value $.01 per
share, of which 4,150,600 shares are issued and outstanding as of the date
hereof. All of the issued and outstanding shares of MIG Common Stock have been
validly issued and are fully paid and non-
A-4
<PAGE>
assessable (subject to statutory obligations of holders, if any) and free of
preemptive rights. As of the date hereof, 117,766 shares of MIG Common Stock
were reserved for issuance upon exercise of outstanding MIG stock options
granted pursuant to the Milwaukee Insurance Group, Inc. 1994 Incentive Stock
Plan and 12,582 shares of MIG Common Stock were reserved for issuance upon
exercise of outstanding stock options granted under the Milwaukee Mutual
Insurance Company Stock Option Plan. Except for the options and shares
specified above and as reflected in Section 2(c) of the MIG Schedule, there is
no contract, understanding, restriction or agreement, including any voting
trust or other agreement or understanding with respect to the voting of any of
the capital stock of MIG, or any convertible, exchangeable or exercisable
security, option, warrant, call, or commitment on the part of MIG of any
character relating to issued or unissued shares of the capital stock of MIG.
(d) Authorization. The Board of Directors of MIG has adopted resolutions
approving the Agreement and the transactions contemplated hereby and has
authorized the execution and delivery of the Agreement and has directed by
resolution that the Agreement be submitted to a vote of the holders of shares
of MIG Common Stock taken at a meeting called for the purpose of considering
and acting upon this Agreement. MIG has full power and authority to enter into
this Agreement and, upon appropriate consent of its shareholders in accordance
with law, subject to obtaining all required regulatory approvals, to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by MIG and constitutes the valid and legally binding obligation of
MIG, enforceable against it in accordance with its terms, subject to
bankruptcy, receivership, insolvency, reorganization, moratorium or similar
laws affecting or relating to creditors rights generally and subject to general
principles of equity.
(e) Articles of Incorporation and By-laws. MIG has delivered to Trinity true
and complete copies of its and each of the MIG Subsidiaries' Articles of
Incorporation and By-Laws as in effect as of the date hereof.
(f) Consents and Approvals. Except for the consents and approvals listed on
the schedule attached hereto (the "MIG Consent Schedule"), no filing with, and
no permit, authorization, consent or approval of, any public body or authority
is necessary for the consummation by MIG of the transactions contemplated by
this Agreement.
(g) Defaults and Conflicts. Neither MIG nor any MIG Subsidiary is or
immediately prior to the Effective Time will be in default under its Articles
of Incorporation or By-Laws, or in default under any indenture or under any
material agreement or other material instrument to which it is a party or by
which it or any of its properties is bound or to which it is subject. Subject
to the receipt of all consents and approvals contemplated by this Agreement,
neither the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby or the fulfillment of and compliance with the
terms and provisions hereof, will (i) violate any judicial, administrative or
arbitral order, writ, award, judgment, injunction or decree involving MIG or
any of the MIG Subsidiaries, (ii) conflict with the terms, conditions or
provisions of the charter or By-Laws of MIG or any MIG Subsidiary, (iii)
conflict with, result in a breach of, constitute a default under or accelerate
or permit the acceleration of the performance required by, any indenture or any
material agreement or other material instrument to which MIG or any MIG
Subsidiary is a party or by which MIG or any MIG Subsidiary is bound, (iv)
result in the creation of any lien, charge or encumbrance upon any of the
assets of MIG or any MIG Subsidiary under any such agreement or instrument, or
(v) terminate or give any party thereto the right to terminate any such
indenture, agreement or instrument. Except as disclosed in Section 2(g) of the
MIG Schedule, no consent of any third party to any indenture or any material
agreement or other material instrument to which MIG or any MIG Subsidiary is a
party is required in connection with the Merger. MIG agrees that prior to the
Effective Time it will use its best efforts to obtain all required consents to
the Merger of parties to any such indenture, agreement, or other instrument
which is material to the business of MIG or any MIG Subsidiary.
(h) SEC Reports; Financial Statements. MIG has filed all required forms,
reports, registration statements and documents with the Securities and Exchange
Commission (the "SEC"), since December 31, 1991 (collectively, the "SEC
Reports"), each of which, as of its respective date, complied in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act") and the
A-5
<PAGE>
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As of their
respective dates, none of the SEC Reports, including, without limitation, any
financial statements or schedules included therein, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The audited
consolidated financial statements of MIG included in its Annual Report on Form
10-K for the years ended December 31, 1992, 1993 and 1994, and the unaudited
consolidated interim financial statements included in its Quarterly Report on
Form 10-Q for its quarter ended March 31, 1995, fairly present in conformity
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto), the consolidated
financial position of MIG and the MIG Subsidiaries as of the dates thereof and
their consolidated statements of operations, shareholders' equity, and cash
flows for the periods then ended (in the case of any unaudited interim
financial statements, subject to (i) normal year-end adjustments and (ii)
standard limitations on the application of generally accepted accounting
principles).
Except as and to the extent reflected in the interim consolidated statement
of financial position of MIG and the MIG Subsidiaries as of March 31, 1995, and
notes thereto (the "MIG March 31, 1995 Balance Sheet") or in Section 2(h) of
the MIG Schedule, neither MIG nor any MIG Subsidiary had as of March 31, 1995,
any liability or obligation (absolute, contingent or otherwise) except for
contractual liabilities arising in the ordinary course which are not required
to be reflected in a balance sheet prepared in accordance with generally
accepted accounting principles. Except as and to the extent disclosed in
Section 2(h) of the MIG Schedule, neither MIG nor any MIG Subsidiary has
incurred any liability or obligation (absolute, contingent or otherwise) since
March 31, 1995, other than in the ordinary course of business.
(i) Statutory Financial Statements. MIG has furnished to Trinity copies of
the statutory financial statements (the "Statutory Financial Statements") for
each of the MIG Insurance Subsidiaries for the years ended December 31, 1992,
1993 and 1994 and the quarter ended March 31, 1995 as filed with the Office of
the Commissioner of Insurance of the State of Wisconsin ("OCI"). The Statutory
Financial Statements, including, without limitation, the provisions made
therein for investments and the valuation thereof, reserves, policy and
contract claims, together with the notes thereto, fairly present the financial
position, assets, liabilities, change in financial position, surplus and other
funds of the Insurance Subsidiaries as of the dates thereof and the results of
their operations for the periods indicated in conformity with statutory
accounting principles ("SAP") prescribed or permitted by state law, rules and
regulations of the insurance departments of their respective states of domicile
and the National Association of Insurance Commissioners, applied on a
consistent basis with prior periods, except as set forth therein. Each such
Statutory Financial Statement was in compliance with applicable law and correct
in every material respect when filed and there were no material omissions
therefrom. Except for liabilities and obligations disclosed or provided for in
the Statutory Financial Statements, none of the Insurance Subsidiaries had, as
of the respective dates of each such Statutory Financial Statements, any
liabilities or obligations (whether absolute or contingent and whether due or
to become due) except for contractual liabilities arising in the ordinary
course which are not required to be reflected in statutory financial statements
prepared in accordance with SAP. All books of account of each Insurance
Subsidiary fully and fairly disclose all the transactions, properties, assets,
investments, liabilities and obligations of such Subsidiaries and all such
books of account are in the possession of such Subsidiary and are complete in
all material respects.
(j) Changes Since March 31, 1995. Except as disclosed in Section 2(j) of the
MIG Schedule, since March 31, 1995 there has been no material adverse change in
the assets, properties, business, financial condition or results of operations
of MIG or any of the MIG Subsidiaries; and neither MIG nor any MIG Subsidiary
has, since March 31, 1995 (i) made any change in its authorized capital stock,
(ii) issued any stock options, warrants or other rights calling for the issue,
transfer, sale or delivery of its capital stock or other securities, (iii) paid
any stock dividend or made any reclassification in respect of its outstanding
shares of capital stock, (iv) issued, transferred, sold or delivered any shares
of its capital stock (or securities convertible into or exchangeable, with or
without additional consideration, for such capital stock), (v) purchased or
otherwise acquired for a consideration any outstanding shares of its capital
stock, (vi) disposed of a material portion of
A-6
<PAGE>
MIG's or any of MIG Subsidiaries' assets, properties or business other than in
the ordinary course of business, or (vii) authorized or made any distribution
to MIG's stockholders of any assets of MIG or the MIG Subsidiaries by way of
cash dividends or otherwise.
(k) Properties.
(i) Real Estate and Mortgages. Section 2(k)(i) of the MIG Schedule sets
forth a list and summary description of (a) all real property owned by MIG
or any MIG Subsidiary and all buildings and other structures located on
such real property, (b) all leases, subleases or other agreements under
which MIG or any MIG Subsidiary is the lessor or lessee of any real
property, (c) all unexpired options held by MIG or any MIG Subsidiary or
contractual obligations on its part to purchase or acquire any interest in
real property, (d) all unexpired options granted by MIG or any MIG
Subsidiary or contractual obligations on its part to sell or dispose of any
interest in real property, and (e) all mortgages held by MIG or any MIG
Subsidiary (other than as investment securities), identifying all such
mortgages, if any, for which deficiency notices have been issued or that
are otherwise not current. Except as disclosed in Section 2(k)(i) of the
MIG Schedule, as of the date hereof such leases, subleases and other
agreements are in full force and effect and MIG or any MIG Subsidiary has
not received any notice of any material default thereunder. Each of the
options disclosed in Section 2(k)(i) of the MIG Schedule is in full force
and effect.
(ii) Investment Securities. The common stock, preferred stock, bonds,
mortgage loans and other investments owned by MIG or any MIG Subsidiary as
of the date hereof are evidenced by appropriate written instruments and
certificates (except where in non-certificated form), are valid and genuine
in all material respects and enforceable in accordance with their terms
against all persons against whom they purport to create an obligation,
subject to bankruptcy, receivership, insolvency, reorganization,
moratorium, or other similar laws affecting or relating to creditors'
rights generally and subject to general principles of equity. All such
bonds, stocks, mortgage loans and other investments conform in all material
respects to the requirements of applicable insurance laws. Except as
disclosed in Section 2(k)(ii) of the MIG Schedule, none of such investments
are in default on the payment of principal, interest or other required
distributions.
(iii) Title to Property. Except as disclosed in Section 2(k)(iii) of the
MIG Schedule, MIG and each MIG Subsidiary has good and marketable title to
all real properties reflected in Section 2(K)(i) and good and marketable
title to all other assets and properties shown as owned by it on the MIG
March 31, 1995 Balance Sheet or acquired since that date (except properties
disposed of in the ordinary course of business subsequent to said date), in
each case free of all mortgages, liens, charges and encumbrances of any
nature whatsoever, other than (A) liens for Taxes not yet due and payable
and (B) such minor liens, charges and encumbrances as, in the aggregate, do
not and would not if asserted have a material adverse effect on the assets,
properties, business, financial condition or results of operations of MIG
or any MIG Subsidiary.
(l) Environmental Laws. Except as disclosed in Section 2(l) of the MIG
Schedule, MIG and each MIG Subsidiary has conducted and is conducting its
business in compliance in all material respects with all applicable federal,
state, and local laws, regulations and requirements currently in force relating
to the protection of the environment ("Environmental Laws"). There is no
pending, or to the knowledge of MIG or any MIG Subsidiary, threatened, civil or
criminal litigation, written notice of violation, or administrative proceeding
relating to such Environmental Laws involving MIG or any MIG Subsidiary. There
is no condition existing with respect to the release, emission, discharge or
presence of hazardous substances in connection with the business of MIG or any
MIG Subsidiary which condition would subject MIG or any MIG Subsidiary to any
proceeding under such Environmental Laws or could otherwise have a material
adverse effect on the assets, properties, business, financial condition or
results of operations of MIG or any MIG Subsidiary. MIG and each MIG Subsidiary
has received all approvals, consents, licenses, and permits with respect to
environmental matters necessary to carry on its business substantially as
currently conducted.
A-7
<PAGE>
(m) Proprietary Rights. Section 2(m) of the MIG Schedule discloses all the
trademarks, trade names and service marks (and all registrations and
applications with respect thereto) (collectively the "Proprietary Rights") used
in the business of MIG or any MIG Subsidiary. Except as otherwise disclosed in
such Schedule, either MIG or one of the MIG Subsidiaries owns or is duly
authorized to use all of such Proprietary Rights. Such Proprietary Rights as
used by MIG or a MIG Subsidiary in its business do not violate or infringe upon
the proprietary rights of any third party, and there is no claim, action,
proceeding or investigation pending or, to the best of MIG's knowledge,
threatened against MIG or any of the MIG Subsidiaries with respect to any such
Proprietary Rights.
(n) Receivables. The receivables shown on the MIG March 31, 1995 Balance
Sheet, or which have been acquired since that date, have been collected or are
reasonably considered to be collectible in the amounts thereof (net of
applicable reserves) carried on the books of MIG or the MIG Subsidiaries.
(o) Agreements. Except as set forth in Section 2(o) of the MIG Schedule,
neither MIG nor any MIG Subsidiary is a party to nor is MIG or any MIG
Subsidiary bound by any oral or written (i) contract for the employment of any
officer or employee which pursuant to its terms is not terminable without
liability on 30 days' (or less) notice or which provides for any further
payments following such termination, or contract with a former officer or
employee pursuant to which payments are required to be made at any time
following the date hereof, or contract with any labor union or association
representing any employee, (ii) stock ownership, profit-sharing, bonus,
deferred compensation, stock option, severance pay, pension, retirement or
similar plan or agreement, (iii) mortgage, indenture, note or installment
obligation the unpaid balance of which exceeds $25,000, or other instrument for
or relating to any borrowing of money by MIG or any of the MIG Subsidiaries,
the unpaid balance of which exceeds $25,000, (iv) guaranty of any obligation
for borrowings or otherwise which in the aggregate exceed $25,000, (v)
agreement or arrangement for the sale or lease of any material amount of its
assets or part of its business other than in the ordinary course of business or
for the grant of preferential rights to purchase or lease any material amount
of its assets or part of its business, (vi) agreement or arrangement obligating
it to register any of its outstanding shares or other securities with the SEC,
(vii) agreement or arrangement with any officer or director of MIG, any MIG
Subsidiary, or any other affiliate of MIG, (viii) reinsurance treaty or
agreement, (ix) agreement or contract with any insurance agent or producer
other than pursuant to the forms of agreement included in such Schedule or (x)
contract, agreement or other instrument which is material to the assets,
properties, business, financial condition or results of operations of MIG or
any MIG Subsidiary. All contracts, plans, mortgages, indentures, guaranties and
other agreements disclosed in Section 2(o) of the MIG Schedule are in full
force and effect as of the date hereof, neither MIG nor any MIG Subsidiary or
to the knowledge of MIG or any MIG Subsidiary any other party thereto is in
default in any material respect as to any provision thereof, and no party
thereto may terminate any of such agreements by reason of the transactions
contemplated by this Agreement.
(p) Litigation. Section 2(p) of the MIG Schedule sets forth a description of
(i) each lawsuit in which punitive, exemplary or other extra-contractual
damages are sought against MIG or any MIG Subsidiary, (ii) each lawsuit not
involving insurance policies issued by MIG Subsidiaries in which MIG or any MIG
Subsidiary is a party, and (iii) each claim or lawsuit involving an insurance
policy issued by any MIG Subsidiary where the reserve exceeds $125,000 and
which has not been timely reported to the appropriate reinsurance carrier(s) or
as to which such carrier(s) has disputed coverage. Except as disclosed in
Section 2(p) of the MIG Schedule, and except for insurance claims litigation
arising in the ordinary course of business for which reserves have been
established in accordance with Article II(aa) hereof, there are no actions,
suits or proceedings pending, or to the knowledge of MIG or any MIG Subsidiary
threatened, against or affecting MIG or any MIG Subsidiary or its properties or
businesses, at law or in equity, or before any governmental or administrative
body or agency or before any arbitrator which, alone or in the aggregate, could
materially and adversely affect the assets, properties, business, financial
condition or results of operations of MIG or any MIG Subsidiary or the ability
of MIG or any MIG Subsidiary to carry out the transactions contemplated in this
Agreement. Except as may be disclosed on such Schedule, there are no unresolved
disputes under any contract to which MIG or any MIG Subsidiary is a party or by
which MIG or any MIG Subsidiary is bound
A-8
<PAGE>
involving in the aggregate an amount in excess of $50,000. Neither MIG nor any
MIG Subsidiary is in default with respect to any order, writ, award, judgment,
injunction or decree of any court, governmental or administrative body or
agency, or arbitrator applicable to it which could have a materially adverse
effect on the assets, properties, business, financial condition or results of
operations of MIG or any MIG Subsidiary.
(q) Compliance with Laws. MIG and each of the MIG Subsidiaries has complied
with all laws, regulations, orders, ordinances, judgments or decrees of all
governmental authorities (federal, state, local, foreign or otherwise)
applicable to its businesses, except where the failure to have so complied
would not, individually or in the aggregate, have a material adverse effect on
the assets, properties, business, financial condition or results of operations
of MIG or any MIG Subsidiary. Except as disclosed in Section 2(q) of the MIG
Schedule, neither MIG nor any MIG Subsidiary has received any notification of
any asserted failure by it to comply with any of such laws.
(r) Taxes.
(i) Except as disclosed in Section 2(r)(i) of the MIG Schedule: (a) all
Tax Returns (as defined below) required to be filed with the appropriate
taxing authorities have been filed by or on behalf of MIG or any MIG
Subsidiary and all Taxes (as defined below) shown to be due on such Tax
Returns have been paid or provided for in full; (b) there are no liens for
Taxes upon the assets of MIG or any MIG Subsidiaries except statutory liens
for Taxes not yet due; (c) there are no outstanding deficiencies in respect
of Taxes asserted or threatened or assessments of Taxes made or threatened,
nor any administrative or judicial proceedings pending or threatened
concerning Taxes, with respect to MIG or any MIG Subsidiary and any
deficiencies, assessments or proceedings shown in the MIG Schedule are
being contested in good faith through appropriate proceedings; (d) MIG has
established on the financial statements described in Section 2(h) of this
Agreement reserves and accruals adequate for the payment of all Taxes
accruing with respect to or payable by MIG and each MIG Subsidiary for all
periods reflected therein; (e) there are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any Tax
Returns required to be filed with respect to MIG or any MIG Subsidiary; and
(f) Neither MIG nor any MIG Subsidiary has requested any extension of time
within which to file any Tax Return, which Tax Return has not been filed.
(ii) The appropriate income Tax Returns of MIG and each MIG Subsidiary
have been examined by (a) the Internal Revenue Service or the statute of
limitations has expired for all periods up to and including December 31,
1991 and (b) the taxing authorities of all of the states disclosed in the
MIG Schedule pursuant to Section 2(b) or the statute of limitations has
expired for all periods up to and including December 31, 1991,
respectively, and there are no outstanding or unresolved proposed
adjustments.
(iii) Except as disclosed in Section 2(r)(iii) of the MIG Schedule, no
power of attorney has been granted by MIG or any MIG Subsidiary with
respect to any matter relating to Taxes which is currently in force.
(iv) The consummation of the transactions contemplated by this Agreement
will not give rise to any payments by MIG or any MIG Subsidiary which
payments will not be deductible (in whole or in part) by reason of Section
280G of the Internal Revenue Code (the "Code").
For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including without limitation, all
net income, gross income, premium or privilege, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated, severance, stamp, occupation, property or other
taxes, customs duties, fees, assessments, or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any governmental authority (domestic or foreign) upon MIG or
any MIG Subsidiary and the term "Tax Returns" shall mean all returns,
declarations, reports, estimates, and statements, regarding Taxes, required to
be filed under United States federal, state, local or any foreign laws.
A-9
<PAGE>
(s) Related Party Transactions. Except as disclosed in Section 2(s) of the
MIG Schedule and other than transactions exclusively between or among MIG
and/or any of the MIG Subsidiaries or the Mutual or its subsidiaries, neither
MIG nor any MIG Subsidiary has made any loan to any director, officer or other
affiliate of MIG or a MIG Subsidiary which remains outstanding nor has MIG or
any MIG Subsidiary entered into any agreement, other than an agreement referred
to in Paragraph (o) hereof, for the purchase or sale of any property or
services from or to any director, officer or other affiliate of MIG or a MIG
Subsidiary.
(t) Employee Benefit Plans.
(i) Section 2(t)(i) of the MIG Schedule sets forth a true and complete
list of each employee benefit plan, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
each other plan, arrangement and agreement providing employee benefits
(collectively the "Plans"), that covers current or former employees of MIG
or any MIG Subsidiary or affiliate and is presently maintained by MIG or
any MIG Subsidiary or any affiliate thereof or by any trade or business,
whether or not incorporated (an "ERISA Affiliate"), which together with MIG
would be deemed a "single employer" within the meaning of Section 4001 of
ERISA. None of the Plans is a "multiemployer plan," as defined in Section
3(37) of ERISA. MIG has delivered or made available to Trinity copies of
all such Plans; any related trust agreements, group annuity contracts,
insurance policies or other funding agreements or arrangements relating
thereto; the most recent determination letter, if any, from the Internal
Revenue Service with respect to each of the Plans which is subject to ERISA
("ERISA Plans"); actuarial valuations, if applicable, for the most recent
plan year for which such valuations are available; the current summary plan
descriptions; and the annual return/report on Form 5500 and summary annual
reports for each of the Plans for each of the last three years.
(ii) Each of the ERISA Plans is in substantial compliance with all
applicable provisions of law, including the Code and ERISA. Neither MIG nor
any ERISA Affiliate currently maintains or sponsors a defined benefit
pension plan as defined in Section 414(j) of the Code and neither MIG nor
any ERISA Affiliate has ever maintained or sponsored any such plan that
could give rise to a liability against MIG or any MIG Subsidiary.
(iii) The written terms of each of the Plans, and any related trust
agreement, group annuity contract, insurance policy or other funding
arrangement are in substantial compliance with all applicable laws
including ERISA, the Code, and the Age Discrimination in Employment Act, as
applicable, and each of such Plans has been administered in substantial
compliance with such requirements.
(iv) Except with respect to income taxes on benefits paid or provided, no
income, excise or other tax or penalty (federal or state) has been waived
or excused, has been paid or is owed by any person (including, but not
limited to, any Plan, any Plan fiduciary, MIG and ERISA Affiliates) with
respect to the operations of, or any transactions with respect to, any
Plan. No action has been taken, nor has there been any failure to take any
action, nor is any action or failure to take action contemplated, that
would subject any person or entity to any liability for any tax or penalty
in connection with any Plan. No reserve for any taxes or penalties has been
established with respect to any Plan, nor has any advice been given to any
person with respect to the need to establish such a reserve.
(v) There are no (A) actions, suits, arbitrations or claims (other than
routine claims for benefits), (B) legal, administrative or other
proceedings or governmental investigations or audits, or (C) complaints to
or by any governmental entity, which are pending, anticipated or
threatened, against the Plans or their assets.
(vi) The present value of the future cost to MIG and ERISA Affiliates of
post-retirement medical benefits that MIG or any ERISA Affiliate is
obligated to provide, calculated on the basis of actuarial assumptions MIG
considers reasonable estimates of future experience and which have been
provided to Trinity, does not exceed the amount specified in Section
2(t)(vi) of the MIG Schedule.
(vii) Neither MIG nor any ERISA Affiliate, nor any of the ERISA Plans,
nor any trust created thereunder, nor any trustee or administrator thereof
has engaged in a transaction in connection with which MIG or any ERISA
Affiliate, any of the ERISA Plans, any such trust, or any trustee or
A-10
<PAGE>
administrator thereof, or any party dealing with the ERISA Plans or any
such trust could be subject to either a civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or
4976 of the Code. Neither MIG nor any ERISA Affiliate is, or, as a result
of any actions, omissions, occurrences or state of facts existing prior to
the Effective Time, may become liable for any tax imposed under Section
4978 of the Code.
(u) Insurance. All properties of MIG and each MIG Subsidiary are covered by
valid and currently effective insurance policies issued in favor of MIG or a
MIG Subsidiary. Disclosed in Section 2(u) of the MIG Schedule is a list of all
insurance policies covering MIG and the MIG Subsidiaries. MIG or a MIG
Subsidiary is included as an insured party under such policies or has full
rights as a loss payee. No notice of cancellation or termination has been
received with respect to any such policy. Such policies will not be terminable
or cancelable by reason of this Agreement and the consummation of the
transactions contemplated hereby.
(v) Insurance Business. Except as disclosed in Section 2(v) of the MIG
Schedule, all policies of insurance issued by the Insurance Subsidiaries as now
in force are, to the extent required under applicable law, on forms approved by
applicable insurance regulatory authorities or which have been filed and not
objected to by such authorities within the period provided for objection. Any
premium rates required to be filed with or approved by insurance regulatory
authorities have been so filed or approved and premiums charged conform
thereto.
Each of the contracts between one or more of the Insurance Subsidiaries and
its agents, managers or brokers is in full force and effect. None of the
Insurance Subsidiaries is and to the knowledge of MIG none of the agents are in
default in any material respect thereunder, and no such party thereto may
terminate any such agreements by reason of the transactions contemplated by
this Agreement.
Each of the Insurance Subsidiaries has paid in full all guaranty fund and
residual market assessments required by any regulatory authority to be paid by
the Insurance Subsidiaries.
(w) Reinsurance. Section 2(w) of the MIG Schedule discloses all reinsurance
treaties or agreements to which MIG or any of the MIG Subsidiaries is a party
or is a named reinsured or is the reinsurer. Except as disclosed in such
Schedule, all such treaties or agreements are in full force and effect through
the respective dates noted on such Schedule. Neither MIG nor any MIG Subsidiary
or to the knowledge of MIG or any MIG Subsidiary any other party to any
agreement listed on Section 2(w) of the MIG Schedule is in default thereunder
except as disclosed in such Schedule. No party may terminate any of such
agreements by reason of the transactions contemplated by this Agreement.
(x) Regulatory Filings. MIG has made available for inspection by Trinity all
registrations, filings or submissions made by MIG or any MIG Subsidiary with
any governmental or regulatory body and delivered to Trinity each and every
annual and quarterly statutory financial statement filed with or submitted to
any state insurance governmental or regulatory body and any state insurance
reports of examinations issued by any such state insurance governmental or
regulatory body since December 31, 1991. MIG and each MIG Subsidiary has filed
all reports, statements, documents, registrations, filings or submissions
required to be filed by it with any governmental or regulatory body, except (i)
those with respect to which the imposition, levy or collection of all fines,
penalties, assessments, taxes, forfeitures, money judgments or sanctions of any
type are barred by statute of limitations, (ii) with respect to which the
failure to so file individually and in the aggregate does not have a material
adverse effect on the assets, properties, business, financial condition or
results of operations of MIG or any MIG Subsidiary, and (iii) as otherwise
agreed to in writing by the applicable governmental or regulatory body. Except
as disclosed in Section 2(x) of the MIG Schedule, (aa) all such registrations,
filings and submissions were in material compliance with applicable law when
filed, and (bb) no material deficiencies have been asserted by any such
governmental or regulatory body with respect to such registrations, filings and
submissions that have not been satisfied. Except as may be required for the
transactions contemplated by this Agreement, each of the MIG Insurance
Subsidiaries has duly filed with appropriate insurance authorities, to the
extent that filing of the same is required by laws, rules or
A-11
<PAGE>
regulations, all annual and quarterly statements and other statements,
documents and reports (including, without limitation, any filings required
under applicable state insurance holding company systems acts) required by the
insurance and other laws of its state of domicile and in each of the states in
which it is licensed to conduct an insurance business. All such statements and
filings are correct as filed, and there are no omissions therefrom, except as
set forth in the MIG Schedule. The MIG Schedule sets forth all reports of
examination issued by any department of insurance or regulatory body with
respect to MIG or any of its Insurance Subsidiaries since December 31, 1991.
Except as disclosed in Section 2(x) of the MIG Schedule, MIG and its Insurance
Subsidiaries have resolved all issues raised in such reports to the
satisfaction of the issuer of such reports.
(y) Agents. Set forth in Section 2(y) of the MIG Disclosure Schedule is a
true and correct summary description of the compensation arrangements of each
Insurance Subsidiary with its agents and general agents.
(z) Powers of Attorney; Guarantees. Except as disclosed in Section 2(z) of
the MIG Schedule, neither MIG nor any MIG Subsidiary has any obligation to act
under any outstanding power of attorney or any obligation or liability, either
accrued, accruing or contingent, as guarantor, surety, co-signer, endorser
(other than for purposes of collection in the ordinary course of business of
MIG or any MIG Subsidiary), co-maker or indemnitor in respect of the obligation
of any person, corporation, partnership, joint venture, association,
organization or other entity.
(aa) Reserves. Except as disclosed in Section 2(aa) of the MIG Schedule, the
insurance reserves and liabilities reflected in each of the Insurance
Subsidiaries' annual statutory financial statements and established on the
books of MIG or an Insurance Subsidiary for all future insurance policy
benefits, dividends, losses, claims and expenses make a sufficient provision
for all reasonably anticipated matured and unmatured liabilities and
obligations any such Insurance Subsidiary, under all insurance policies and
reinsurance and coinsurance agreements or other similar contracts outstanding
at the foregoing dates pursuant to which any Insurance Subsidiary had or has
any liability or obligation. All such reserves are computed in all material
respects in accordance with applicable statutory accounting principles and
generally accepted loss reserving practices, consistently applied, are fairly
stated in accordance with sound loss reserving principles, are based on factors
relevant to the provisions in the related insurance contracts, and are in
material compliance with the requirements of the insurance laws of the
applicable jurisdiction. Each Insurance Subsidiary owns assets which qualify as
admitted assets under applicable state insurance laws in an amount at least
equal to all of its required insurance reserves.
(ab) Finders and Investment Bankers. Neither MIG nor any MIG Subsidiary has
retained any broker, finder or other agent or incurred any liability for any
brokerage fees, commissions or finders' fees with respect to the Merger except
for MIG's retention of Coopers & Lybrand L.L.P. pursuant to the terms of its
agreement dated March 28, 1995.
(ac) Third Party Discussions. Other than pursuant to this Agreement, MIG is
not currently entertaining discussions with any third party regarding a
possible sale or merger of MIG or any MIG Subsidiary or a substantial portion
of their assets or business.
(ad) Disclosure. No representation or warranty of MIG and no statement or
information relating to MIG or any MIG Subsidiary or their respective
businesses or properties contained in (i) this Agreement, (ii) the MIG
Schedule, or (iii) in any certificate furnished or to be furnished to Trinity
or Trinity Subsidiary pursuant to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements made herein or therein, in light of the
circumstances in which they were made, not misleading.
A-12
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRINITY
Trinity represents and warrants to MIG as follows:
(a) Organization of Trinity and Trinity Subsidiary. Trinity is a corporation
duly organized, validly existing and in good standing under the laws of Texas.
Trinity Subsidiary is a corporation duly organized and validly existing under
the laws of the State of Wisconsin. Trinity Subsidiary is a wholly-owned
subsidiary of Trinity.
(b) Authorization. The Board of Directors of each of Trinity and Trinity
Subsidiary has adopted resolutions approving the transactions contemplated by
this Agreement and has authorized the execution and delivery of this Agreement
by Trinity and Trinity Subsidiary, respectively. Trinity and Trinity Subsidiary
each has full power and authority to enter into this Agreement and subject to
obtaining all required regulatory approvals, to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Trinity and Trinity Subsidiary and constitutes the valid and legally binding
obligation of each of them, enforceable against them in accordance with its
terms, subject to bankruptcy, receivership, insolvency, reorganization,
moratorium or similar laws affecting or relating to creditors rights generally
and subject to general principles of equity.
(c) Consents and Approvals. Except for consents and approvals listed on the
schedule attached hereto (the "Trinity Consent Schedule"), no filing with, and
no permit, authorization, consent or approval of, any public body or authority
is necessary for the consummation by Trinity or Trinity Subsidiary of the
transactions contemplated by this Agreement.
(d) Defaults and Conflicts. Subject to the receipt of all consents and
approvals contemplated by this Agreement, the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby or the
fulfillment of and compliance with the terms and provisions hereof will not (i)
violate any judicial or administrative order, writ, award, judgment, injunction
or decree involving Trinity or Trinity Subsidiary, or (ii) conflict with any of
the terms, conditions or provisions of the charter or bylaws of Trinity or
Trinity Subsidiary. No consent of any third party to any indenture or any
material agreement or other material instrument to which Trinity or Trinity
Subsidiary is a party is required in connection with the Merger.
(e) SEC Filings. None of the information supplied or to be supplied by
Trinity or Trinity Subsidiary in writing expressly for inclusion in the proxy
statement to be mailed to the shareholders of MIG in connection with the Merger
or in any amendments thereof or supplements thereto (the "Proxy Statement")
will, at the time of (i) the first mailing thereof and (ii) the meeting of
shareholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(f) Funds Available. Trinity and Trinity Subsidiary have available to them
sufficient funds to perform all of their respective obligations pursuant to the
Merger.
ARTICLE IV
RIGHT TO INVESTIGATE
MIG shall afford to the officers and authorized representatives of Unitrin
and Trinity free and full access to the offices, properties, books and records
of MIG in order that Unitrin and Trinity may have full opportunity to make such
investigations as they shall desire of the affairs of MIG and the MIG
Subsidiaries, and the officers of MIG shall furnish Unitrin with such
additional financial and operating data and other information as to the assets,
properties and business of MIG and the MIG Subsidiaries as Unitrin and Trinity
A-13
<PAGE>
shall from time to time reasonably request. MIG and the MIG Subsidiaries shall
consent to the review by the officers and authorized representatives of Unitrin
and Trinity of the reports and working papers of MIG's independent auditors and
to discussions by the officers and authorized representatives of Unitrin and
Trinity with parties with which MIG and the MIG Subsidiaries have business
relationships. All such information shall be held confidential in accordance
with the Confidentiality Agreement delivered by Unitrin to MIG dated May 11,
1995.
ARTICLE V
COVENANTS OF MIG
(a) Ordinary Course. Between the date hereof and the Effective Time of
Merger, the respective businesses of MIG and the MIG Subsidiaries will be
conducted only in the ordinary course of business and consistent with past
practices.
(b) Liabilities. Between the date hereof and the Effective Time, without the
prior written consent of Trinity, neither MIG nor any MIG Subsidiary will agree
to incur or to become subject to any material liability or obligation
(absolute, contingent or otherwise) except liabilities incurred or obligations
under contracts entered into in the ordinary course of business.
(c) Changes in Stock. Between the date hereof and the Effective Time, unless
the prior written consent of Trinity is first obtained, neither MIG nor any MIG
Subsidiary will (i) make any change in its authorized capital stock, (ii) issue
any stock options, nor issue any warrants, or other rights calling for the
issue, transfer, sale or delivery of its capital stock or other securities,
(iii) pay any stock dividend or make any reclassification in respect of its
outstanding shares of capital stock, (iv) issue, sell, exchange or deliver any
shares of its capital stock (or securities convertible into or exchangeable,
with or without additional consideration, for such capital stock), (v) purchase
or otherwise acquire for a consideration any outstanding shares of its capital
stock, or (vi) declare, pay or set apart in respect of its capital stock any
dividends or other distributions or payments, except that the MIG Subsidiaries
may pay dividends to MIG sufficient to service debt obligations of MIG.
(d) New Agreements. Except as disclosed in Section 5(d) of the MIG Schedule,
between the date hereof and the Effective Time, neither MIG nor any MIG
Subsidiary shall, without the prior written consent of Trinity, amend in any
material respect or enter into any contract, agreement or other instrument of
the types described in Article II (o) hereunder or pay any bonus or make any
special awards to any of the directors, officers, employees, agents or
affiliates of MIG.
(e) Employee Stock Options. MIG covenants and agrees that it shall take all
actions necessary to (i) cause the stock options listed in Section 1(n) of the
MIG Schedule to be adjusted to provide that at the Effective Time each such
option shall be converted into the right to receive a cash payment in the
amount of the Merger Consideration in lieu of shares of MIG Common Stock less
the exercise price thereof, and (ii) provide for the acceleration of time
periods relating to the exercise of each such stock option listed in such
Schedule.
(f) Consents. MIG shall, as soon as practicable, prepare or cause to be
prepared and made all necessary filings with all governmental or regulatory
bodies or other entities and shall use its best efforts to obtain all consents,
waivers, approvals, authorizations, rulings or orders from all governmental or
regulatory bodies or other entities listed on the MIG Consent Schedule and
furnish true, correct and complete copies of each thereof to Trinity.
(g) Notice. MIG shall give prompt notice to Trinity of (i) any notice of, or
other communication relating to, a default or event which with notice or lapse
of time or both would become a default, received by MIG or any MIG Subsidiary
subsequent to the date of this Agreement and prior to the Effective Time, under
its charter or by-laws or any indenture, or material instrument or agreement,
to which MIG is a party, by which it or any of its properties is bound or to
which it or any of its properties is subject, (ii) any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated
hereby and (iii) any matter which, if it had occurred prior to the date hereof,
would have been required to be included on the MIG Schedule.
A-14
<PAGE>
(h) Shareholders' Meeting. MIG shall duly call a meeting of its shareholders
to be held at the earliest practicable date for the purpose of voting on the
Agreement and, in connection therewith, MIG shall prepare and file with the
SEC, as soon as is reasonably practicable, the required proxy materials with
respect thereto and shall use its best efforts to obtain clearance by the SEC
of the mailing of such material to the MIG shareholders. MIG agrees to use its
best efforts to obtain the necessary approval of the Agreement by the
stockholders of MIG.
(i) No Solicitation. MIG and the MIG Subsidiaries will not, and will use
their best efforts to cause their respective directors, officers, employees,
financial advisors, legal counsel, accountants and other agents and
representatives not to, initiate or solicit, directly or indirectly, any
inquiries or the making of any proposal with respect to, or except to the
extent required by fiduciary obligations under applicable law as advised by
counsel, engage in negotiations concerning, provide any confidential
information or data to or have any discussions with any person relating to, any
acquisition, business combination or purchase of all or any significant portion
of the assets of, or any equity interest in, MIG or any MIG Subsidiary, other
than the Merger. MIG will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any person conducted
heretofore with respect to any of the foregoing. MIG will notify Trinity
immediately in writing if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, MIG or any MIG Subsidiary.
(j) Reports. Promptly after filing with the applicable authorities, MIG shall
provide to Trinity copies of (i) its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 as filed with the SEC, which shall conform to the
requirements for SEC Reports specified in Article II(h) above; and (ii) its
statutory financial statements for the quarter ended June 30, 1995 as filed
with the OCI, which shall conform to the requirements for Statutory Financial
Statements specified in Article II(i) above.
(k) Cooperation. MIG and the MIG Subsidiaries shall execute such documents
and other papers, provide such information, and take such further actions as
may be reasonably requested by Trinity to carry out the provisions hereof and
to consummate the transactions contemplated hereby.
(l) Conditions Precedent. MIG and all of the MIG Subsidiaries shall use their
best efforts to cause all of the conditions precedent to the consummation of
the Merger applicable to them to be met.
ARTICLE VI
COVENANTS OF TRINITY
(a) Consents. Trinity shall, as soon as practicable, prepare and make all
necessary filings with all governmental or regulatory bodies or other entities
and shall use its best efforts to obtain all consents, waivers, approvals,
authorizations, rulings or orders from all governmental or regulatory bodies or
other entities listed on the Trinity Consent Schedule and furnish true, correct
and complete copies of each to MIG.
(b) Directors' and Officers' Insurance. After the Effective Time, Trinity
will cause MIG as the Surviving Corporation, or another affiliate of Trinity,
to (i) maintain the current directors' and officers' liability and corporate
indemnification insurance policy of MIG and the MIG Subsidiaries, or a
substantially similar policy, subject to terms and conditions no less
advantageous than under such current policy, for all officers and directors of
MIG and the MIG Subsidiaries on the date of this Merger Agreement, for sixty
(60) months after the Effective Time to cover acts and omissions of directors
and officers of MIG and the MIG Subsidiaries occurring prior to the Effective
Time and (ii) maintain in effect provisions of the By-Laws of the Surviving
Corporation and the MIG Subsidiaries, as the case may be, relating to the
rights of officers and directors with respect to indemnification for acts and
omissions occurring prior to the Effective Time on terms no less advantageous
to such officers and directors as in effect prior to the Effective Time.
A-15
<PAGE>
(c) Cooperation. Trinity shall execute such documents and other papers,
provide such information, and take such further actions as may be reasonably
requested by MIG to carry out the provisions hereof and to consummate the
transactions contemplated hereby.
(d) Conditions Precedent. Trinity shall use its best efforts to cause all of
the conditions precedent to the consummation of the Merger applicable to it to
be met.
ARTICLE VII
CLOSING AND CLOSING DOCUMENTS
(a) Closing. The closing ("Closing") under this Agreement shall be held at
the offices of MIG in Milwaukee, Wisconsin at 10:00 a.m., Central Time, as
promptly as practicable after the fulfillment or waiver of all the terms and
conditions contained in Articles VII, VIII, IX and X of this Agreement, or at
such other place and time as shall be mutually agreeable to the parties. The
required number of fully executed and verified copies of the Articles of Merger
shall be filed immediately after the Closing with the Secretary of State of
Wisconsin.
(b) MIG Closing Documents. At the Closing, MIG shall deliver, or cause to be
delivered, to Trinity:
(i) A certificate of MIG, signed by its President, which shall confirm
the compliance by MIG in all material respects with its covenants and
agreements contained in this Agreement and the accuracy in all material
respects of the representations and warranties made by MIG in this
Agreement at and as of the Effective Time as if made at such time and as
contemplated by this Agreement.
(ii) The opinion of Foley & Lardner, counsel for MIG, dated the Effective
Time, and in form and substance satisfactory to Trinity, covering the
matters set forth in Exhibit A hereto.
(iii) A certificate of MIG's inspector of elections as to the vote taken
at the meeting of the holders of shares of MIG Common Stock with respect to
this Agreement and as to the holders of shares of MIG Common Stock that
shall have demanded payment of the fair value of their shares of MIG Common
Stock pursuant to the WBCL.
(iv) Written resignations, effective the Effective Time, of those
directors of MIG and the MIG Subsidiaries specified on a schedule to be
delivered by Trinity to MIG prior to the Closing (the "Directors
Schedule").
(v) Articles of Incorporation of MIG certified by the Secretary of State
of Wisconsin within ten (10) days prior to the Closing.
(vi) Certificate of Status of MIG certified by the Secretary of State of
Wisconsin dated the date of the Closing.
(c) Trinity Closing Documents. At the Closing, Trinity and Trinity Subsidiary
shall deliver, or cause to be delivered, to MIG:
(i) A Certificate of Trinity, signed by its President or Vice President,
which shall confirm the compliance by Trinity in all material respects with
its covenants and agreements contained in this Agreement and the accuracy
in all material respects of the representations and warranties made by it
in this Agreement at and as of the Effective Time as if made at such time
and as contemplated by this Agreement.
(ii) The opinion of Thomas H. Maloney, general counsel of Unitrin, dated
the Effective Time, and in form and substance satisfactory to MIG, covering
the matters set forth in Exhibit B hereto.
A-16
<PAGE>
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF TRINITY
The obligations of Trinity under this Agreement to cause this Agreement to
become effective and have the transactions contemplated hereby be consummated
are, at their option, subject to the conditions that:
(a) Validity of Representation and Warranties. The representations and
warranties of MIG herein contained shall be true in all material respects when
made and, in addition, shall be true in all material respects on and at the
Effective Time with the same force and effect as though made on and at the
Effective Time.
(b) Consents. All consents, waivers, approvals, authorizations or orders
listed on the MIG Consent Schedule shall have been obtained by MIG and copies
of the same shall have been delivered to Trinity.
(c) Compliance with Covenants. MIG shall have performed in all material
respects all obligations and agreements and complied with all covenants and
conditions contained in this Agreement to be performed and complied with by it
at or prior to the Effective Time.
(d) Opinion of Counsel. Trinity shall have received the opinion of Foley &
Lardner, counsel for MIG, specified in Article VII(b)(ii).
(e) Approval of MIG Shareholders. This Agreement shall have been approved and
adopted at a duly called meeting of the shareholders of MIG Common Stock by at
least two-thirds of the issued and outstanding shares of MIG Common Stock
entitled to vote thereon.
(f) Dissenting MIG Shares. The holders of not more than 5% of the issued and
outstanding shares of MIG Common Stock at the Effective Time shall have
delivered written notice of intent to demand payment of the fair value of their
shares of MIG Common Stock pursuant to Section 180.1321 of the WBCL.
(g) Mutual Agreement. All conditions to the obligations of Unitrin to
consummate the transactions specified in Articles IX or XI of the Mutual
Agreement shall have been fulfilled.
(h) Resignations. The directors of MIG and the MIG Subsidiaries as specified
in the Directors Schedule shall have tendered their resignations in writing,
effective on the Effective Time.
(i) Employment Matters. Trinity shall have received from MIG for those
employees who are parties to employment agreements with MIG or any of the MIG
Subsidiaries which permit such employees to terminate such employment upon a
change of control of MIG amendments to such employment agreements in the form
previously agreed to by the parties.
(j) Comfort Letter. Trinity shall have received from Coopers & Lybrand
letters with respect to certain financial information of MIG in substantially
the form previously agreed to by Trinity.
(k) MIG Shareholders' Equity. MIG's shareholders' equity determined in
accordance with generally accepted accounting principles applied on a
consistent basis in a manner consistent with MIG's preparation of its unaudited
interim financial statements included in its SEC Reports shall be at least
$75,000,000 as of August 31, 1995.
(l) Licenses. MIG shall have delivered to Trinity evidence satisfactory to
Trinity that MIG's, MIG Subsidiaries' and the Mutual's existing licenses and
governmental authorizations necessary for them to conduct business remain in
full force and effect and are not subject to any restriction.
A-17
<PAGE>
(m) Coopers & Lybrand Fees. The total compensation owed to Coopers & Lybrand
L.L.P. pursuant to the terms of its agreement dated March 28, 1995 shall not
exceed $1,100,000, and the obligations of MIG thereunder shall not exceed 51%
of such amount.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF MIG
The obligations of MIG under this Agreement to cause this Agreement to become
effective and have the transactions contemplated hereby be consummated are, at
its option, subject to the conditions that:
(a) Validity of Representations and Warranties. The representations and
warranties of Trinity herein contained shall have been in all material respects
true when made and, in addition, shall be true in all material respects on and
at the Effective Time with the same force and effect as though made on and at
the Effective Time.
(b) Consents. All consents, waivers, approvals, authorizations or orders
listed on the Trinity Consent Schedule shall have been obtained by Trinity and
copies of the same shall have been delivered to MIG.
(c) Compliance with Covenants. Trinity shall have performed in all material
respects all obligations and agreements and complied with all covenants and
conditions contained in this Agreement to be performed and complied with by
them at or prior to the Effective Time.
(d) Opinion of Counsel. MIG shall have received the opinion of Thomas H.
Maloney, general counsel of Unitrin, specified in Article VII(c)(ii).
(e) Mutual Agreement. All conditions to the obligations of the Mutual to
consummate the transactions set forth in Articles X or XI of the Mutual
Agreement shall have been fulfilled.
ARTICLE X
CONDITIONS APPLICABLE TO TRINITY AND MIG
The obligations of Trinity and MIG under this Agreement to cause this
Agreement to become effective and have the transactions contemplated hereby be
consummated are subject to the following terms and conditions:
(a) Hart-Scott-Rodino Act. Any waiting period applicable to the consummation
of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
shall have expired or been terminated, and no action shall have been instituted
by the Department of Justice or Federal Trade Commission challenging or seeking
to enjoin the consummation of this transaction, which action shall have not
been withdrawn or terminated.
(b) Governmental Approvals. A written order approving the Merger and the
transactions contemplated by the Mutual Agreement from the OCI pursuant to the
Wisconsin insurance laws and any approvals of the Merger as may be required by
other insurance regulatory authorities shall have been obtained at or prior to
the Effective Time.
(c) Injunction. The consummation of the Merger shall not have been
restrained, enjoined or prohibited by any court or governmental authority of
competent jurisdiction. No material litigation or administrative proceeding
shall be pending or threatened as of the Effective Time seeking to restrain,
enjoin or prohibit the consummation of this Agreement or the Merger.
(d) Effective Time. The Effective Time shall be no later than 5:00 P.M.
Central Time on October 31, 1995.
A-18
<PAGE>
ARTICLE XI
TERMINATION AND TERMINATION FEE
(a) Termination. This Agreement and the transactions contemplated by this
Agreement may be terminated at any time prior to the filing of the Articles of
Merger with the Secretary of State of Wisconsin, whether before or after action
by the shareholders of MIG as contemplated by Article V(h) of this Agreement
and without further approval by the outstanding shareholders of MIG (i) by
mutual written consent of the Boards of Directors of Trinity and MIG, (ii) by
action of the Board of Directors of Trinity in the event of a failure of a
condition set forth in Article VIII of this Agreement as of the time such
condition is required hereunder to be fulfilled, (iii) by action of the Board
of Directors of MIG in the event of failure of a condition set forth in Article
IX of this Agreement as of the time such condition is required hereunder to be
fulfilled, or (iv) by action of the Board of Directors of either Trinity or MIG
in the event of a failure of a condition set forth in Article X of this
Agreement as of the time such condition is required hereunder to be fulfilled.
(b) Termination Fee. If MIG and Trinity fail to consummate the Merger and (i)
MIG enters into a letter of intent, commitment letter or other written
agreement with a third party regarding a merger, consolidation, sale of assets
or other similar transaction involving MIG within twelve (12) months following
the failure to so consummate the Merger, (ii) Trinity shall have complied with
all of its obligations under this Agreement, and (iii) MIG shall not have
terminated this Agreement by reason of paragraphs (a)(iii) or (iv) above, MIG
shall promptly pay Two Million Dollars ($2,000,000) to Trinity and MIG shall
have no further liability or obligation to Trinity with respect to this
Agreement.
(c) Survival of Rights. Except as otherwise provided in paragraph (b) above,
nothing in this Article XI or in this Agreement shall be construed as limiting
the rights of any party in the event of a breach by any party of this
Agreement.
ARTICLE XII
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All of the representations and warranties of the parties hereunder shall
survive the Closing.
ARTICLE XIII
MISCELLANEOUS
(a) Payment of Expenses. Except as provided in Article XI, whether or not the
Merger shall be consummated, each party hereto shall pay its own expenses
incident to preparing for, entering and carrying out this Agreement and to the
consummation of the Merger.
(b) Entire Agreement. This Agreement (together with the Schedules and
Exhibits hereto and the documents referred to herein) contains, and is intended
as, a complete statement of all of the terms of the arrangements between the
parties with respect to the matters provided for herein, and supersedes any
previous agreements and understandings between the parties with respect to
those matters, including, without limitation, the agreement in principle
between Unitrin and MIG dated June 16, 1995.
(c) Modifications, Amendments and Waivers. At any time prior to the Effective
Time, the parties hereto may, by written agreement, (a) extend the time for the
performance of any of the obligations or other acts of the parties hereto, (b)
waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant hereto, (c) waive compliance
with any of the covenants or agreements contained in this Agreement, or (d)
make any other modification of this Agreement approved by the respective Boards
of Directors of the parties hereto. This Agreement shall not be altered or
otherwise
A-19
<PAGE>
amended except pursuant to an instrument in writing executed and delivered on
behalf of each of the parties hereto. For the convenience of the parties
hereto, this Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
(d) Assignment. This Agreement shall not be assignable by any of the parties
hereto and shall be construed in accordance with the laws of the State of
Wisconsin.
(e) Schedules. All information set forth in the MIG Schedule shall be deemed
a representation and warranty of MIG as to the accuracy of such information.
(f) Press Releases. Except as may otherwise be required by law, no publicity
release or announcement concerning this Agreement or the transactions
contemplated hereby shall be made prior to the Effective Time without advance
approval thereof by MIG and Trinity. MIG and Trinity will cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby.
(g) Knowledge. Where representations and warranties are made herein "to the
knowledge of" any entity, such knowledge shall be deemed to mean the actual
knowledge of one or more directors or executive officers of such entity.
(h) Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, overnight
express service or confirmed facsimile transmission, if to Trinity, addressed
to Trinity c/o Unitrin, Inc., One East Wacker Drive, 10th Floor, Chicago,
Illinois 60601, Attention: Richard C. Vie, facsimile: (312) 661-4690 (with a
copy to Trinity, c/o Unitrin, Inc. Attention: Thomas H. Maloney, Esq.,
facsimile: (312) 661-4941); and if to MIG addressed to MIG, 803 West Michigan
Street, Milwaukee, Wisconsin 53233, Attention: Daniel R. Doucette, facsimile:
(414) 272-5411 (with a copy to Foley & Lardner, Firstar Center, 777 East
Wisconsin Avenue, Milwaukee, WI 53202, Attention: Joseph C. Branch, Esq.,
facsimile: (414) 297-4900), or to such other persons as may be designated in
writing by the parties.
In Witness Whereof, the parties have caused this Agreement to be executed and
delivered as of the day and year first above written.
Attest: TRINITY UNIVERSAL INSURANCE COMPANY
/s/ Judith E. Fagan By: /s/ James W. Burkett
- ---------------------------------- ----------------------------------
Secretary President
Attest: TRINITY ACQUISITION CORPORATION
/s/ Thomas H. Maloney By: /s/ David Bengston
- ---------------------------------- ----------------------------------
Secretary Vice President
Attest: MILWAUKEE INSURANCE GROUP, INC.
/s/ Daniel A. Riedl By: /s/ Daniel R. Doucette
- ---------------------------------- ----------------------------------
Secretary President
A-20
<PAGE>
EXHIBIT B
SUBCHAPTER XIII
DISSENTERS' RIGHTS
180.1301 DEFINITIONS. In ss. 180.1301 to 180.1331:
(1) "Beneficial shareholder" means a person who is a beneficial owner of
shares held by a nominee as the shareholder.
(1m) "Business combination" has the meaning given in s. 180.1130 (3).
(2) "Corporation" means the issuer corporation or, if the corporate action
giving rise to dissenters' rights under s. 180.1302 is a merger or share
exchange that has been effectuated, the surviving domestic corporation or
foreign corporation of the merger or the acquiring domestic corporation or
foreign corporation of the share exchange.
(3) "Dissenter" means a shareholder or beneficial shareholder who is entitled
to dissent from corporate action under s. 180.1302 and who exercises that right
when and in the manner required by ss. 180.1320 to 180.1328.
(4) "Fair value", with respect to a dissenter's shares other than in a
business combination, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. "Fair value", with respect to a dissenter's
shares in a business combination, means market value, as defined in s. 180.1130
(9) (a) 1. to 4.
(5) "Interest" means interest from the effectuation date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on ist principal bank loans or, if none, at a rate that is fair and
equitable under all of the circumstances.
(6) "Issuer corporation" means a domestic corporation that is the issuer of
the shares held by a dissenter before the corporate action.
180.1302 RIGHT TO DISSENT. (1) Except as provided in sub. (4) and s. 180.1008
(3), a shareholder or beneficial shareholder may dissent from, and obtain
payment of the fair value of his or her shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the issuer corporation is a
party if any of the following applies:
1. Shareholder approval is required for the merger by s. 180.1103 or
by the articles of incorporation.
2. The issuer corporation is a subsidiary that is merged with its
parent under s. 180.1104.
(b) Consummation of a plan of share exchange if the issuer corporation's
shares will be acquired, and the shareholder or the shareholder holding
shares on behalf of the beneficial shareholder is entitled to vote on the
plan.
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the issuer corporation other than in the usual and regular
course of business, including a sale in dissolution, but not including any
of the following:
1. A sale pursuant to court order.
B-1
<PAGE>
2. A sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale.
(d) Except as provided in sub. (2), any other corporate action taken
pursuant to a shareholder vote to the extent that the articles of
incorporation, bylaws or a resolution of the board of directors provides
that the voting or nonvoting shareholder or beneficial shareholder may
dissent and obtain payment for his or her shares.
(2) Except as provided in sub. (4) and s. 180.1008 (3), the articles of
incorporation may allow a shareholder or beneficial shareholder to dissent from
an amendment of the articles or incorporation and obtain payment of the fair
value of his or her shares if the amendment materially and adversely affects
rights in respect of a dissenter's shares because it does any of the following:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(c) Alters or abolishes a preemptive right of the holder of shares to
acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter or
to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder or beneficial
shareholder to a fraction of a share if the fractional share so created is
to be acquired for cash under s. 180.0604.
(3) Notwithstanding sub. (1)(a) to (c), if the issuer corporation is a
statutory close corporation under ss. 180.1801 to 180.1837, a shareholder of
the statutory close corporation may dissent from a corporate action and obtain
payment of the fair value of his or her shares, to the extent permitted under
sub. (1)(d) or (2) or s. 180.1803, 180.1813 (1)(d) or (2)(b), 180.1815 (3) or
180.1829 (1)(c).
(4) Except in a business combination or unless the articles of incorporation
provide otherwise, subs. (1) and (2) do not apply to the holders of shares of
any class or series if the shares of the class or series are registered on a
national securities exchange or quoted on the national association of
securities dealers, inc., automated quotations system on the record date fixed
to determine the shareholders entitled to notice of a shareholders meeting at
which shareholders are to vote on the proposed corporate action.
(5) Except as provided in s. 180.1833, a shareholder or beneficial
shareholder entitled to dissent and obtain payment for his or her shares under
ss. 180.1301 to 180.1331 may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder, beneficial shareholder or issuer corporation.
180.1303 DISSENT BY SHAREHOLDERS AND BENEFICIAL SHAREHOLDERS. (1) A
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in his or her name only if the shareholder dissents with respect to
all shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he or she
asserts dissenters' rights. The rights of a shareholder who under this
subsection asserts dissenters' rights as to fewer than all of the shares
registered in his or her name are determined as of the shares as to which he or
she dissents and his or her other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on his or her behalf only if the beneficial shareholder does all of the
following:
(a) Submits to the corporation the shareholder's written consent to the
dissent not later than the time that the beneficial shareholder asserts
dissenters' rights.
(b) Submits the consent under par .(a) with respect to all shares of
which he or she is the beneficial shareholder.
B-2
<PAGE>
180.1320 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action
creating dissenters' rights under s. 180.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders and
beneficial shareholders are or may be entitled to assert dissenters' rights
under ss. 180.1301 to 180.1331 and shall be accompanied by a copy of those
sections.
(2) If corporate action creating dissenters' rights under s. 180.1302 is
authorized without a vote of shareholders, the corporation shall notify, in
writing and in accordance with s. 180.0141, all shareholders entitled to assert
dissenters' rights that the action was authorized and send them the dissenters'
notice described in s. 180.1322.
180.1321 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate action
creating dissenters' rights under s. 180.1302 is submitted to a vote at a
shareholders' meeting, a shareholder or beneficial shareholder who wishes to
assert dissenters' rights shall do all of the following:
(a) Deliver to the issuer corporation before the vote is taken written
notice that complies with s. 180.0141 of the shareholder's or beneficial
shareholder's intent to demand payment for his or her shares if the
proposed action is effectuated.
(b) Not vote his or her shares in favor of the proposed action.
(2) A shareholder or beneficial shareholder who fails to satisfy sub. (1) is
not entitled to payment for his or her shares under ss. 180.1301 to 180.1331.
180.1322 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under s. 180.1302 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
and beneficial shareholders who satisfied s. 180.1321.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action is authorized at a shareholders' meeting or without a vote of
shareholders, whichever is applicable. The dissenters' notice shall comply with
s. 180.0141 and shall include or have attached all of the following:
(a) A statement indicating where the shareholder or beneficial
shareholder must send the payment demand and where and when certificates
for certificated shares must be deposited.
(b) For holders of uncertificated shares, an explanation of the extent to
which transfer of the shares will be restricted after the payment demand is
received.
(c) A form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires the shareholder or beneficial
shareholder asserting dissenters' rights to certify whether he or she
acquired beneficial ownership of the shares before that date.
(d) A date by which the corporation must receive the payment demand,
which may not be fewer than 30 days nor more than 60 days after the date on
which the dissenters' notice is delivered.
(e) A copy of ss. 180.1301 to 180.1331.
180.1323 DUTY TO DEMAND PAYMENT. (1) a shareholder or beneficial shareholder
who is sent a dissenters' notice described in s. 180.1322, or a beneficial
shareholder whose shares are held by a nominee who is sent a dissenters' notice
described in s. 180.1322, must demand payment in writing and certify whether he
or she acquired beneficial ownership of the shares before the date specified in
the dissenters' notice under s. 180.1322 (2) (c). A shareholder or beneficial
shareholder with certificated shares must also deposit his or her certificates
in accordance with the terms of the notice.
(2) A shareholder or beneficial shareholder with certificated shares who
demands payment and deposits his or her share certificates under sub. (1)
retains all other rights of a shareholder or beneficial shareholder until these
rights are canceled or modified by the effectuation of the corporate action.
B-3
<PAGE>
(3) A shareholder or beneficial shareholder with certificated or
uncertificated shares who does not demand payment by the date set in the
dissenters' notice, or a shareholder or beneficial shareholder with
certificated shares who does not deposit his or her share certificates where
required and by the date set in the dissenters' notice, is not entitled to
payment for his or her shares under ss. 180.1301 to 180.1331.
180.1324 RESTRICTIONS ON UNCERTIFICATED SHARES. (1) The issuer corporation
may restrict the transfer of uncertificated shares from the date that the
demand for payment for those shares is received until the corporate action is
effectuated or the restrictions released under s. 180.1326.
(2) The shareholder or beneficial shareholder who asserts dissenters' rights
as to uncertificated shares retains all the rights of a shareholder or
beneficial shareholder, other than those restricted under sub. (1), until these
rights are cancelled or modified by the effectuation of the corporate action.
180.1325 PAYMENT. (1) Except as provided in s. 180.1327, as soon as the
corporate action is effectuated or upon receipt of a payment demand, whichever
is later, the corporation shall pay each shareholder or beneficial shareholder
who has complied with s. 180.1323 the amount that the corporation estimates to
be the fair value of his or her shares, plus accrued interest.
(2) The payment shall be accompanied by all of the following:
(a) The corporation's latest available financial statements, audited and
including footnote disclosure if available, but including not less than a
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of payment, an income statement for that year, a statement
of changes in shareholders' equity for that year and the latest available
interim financial statements, if any.
(b) A statement of the corporation's estimate of the fair value of the
shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment under s.
180.1328 if the dissenter is dissatisfied with the payment.
(e) A copy of ss. 180.1301 to 180.1331.
180.1326 FAILURE TO TAKE ACTION. (1) If an issuer corporation does not
effectuate the corporate action within 60 days after the date set under s.
180.1322 for demanding payment, the issuer corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the issuer corporation effectuates the corporate action, the
corporation shall deliver a new dissenters' notice under s. 180.1322 and repeat
the payment demand procedure.
180.1327 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold
payment required by s. 180.1325 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date specified in the dissenters'
notice under s. 180.1322 (2) (c) as the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action.
(2) To the extent that the corporation elects to withhold payment under sub.
(1) after effectuating the corporate action, it shall estimate the fair value
of the shares, plus accrued interest, and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his or her demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under s. 180.1328 if
the dissenter is dissatisfied with the offer.
180.1328 PROCEDURE IF DISSENTER DISSATISFIED WITH PAYMENT OR OFFER. (1) A
dissenter may, in the manner provided in sub. (2), notify the corporation of
the dissenter's estimate of the fair value of his or her shares
B-4
<PAGE>
and amount of interest due, and demand payment of his or her estimate, less any
payment received under s. 180.1325, or reject the offer under s. 180.1327 and
demand payment of the fair value of his or her shares and interest due, if any
of the following applies:
(a) The dissenter believes that the amount paid under s. 180.1325 or
offered under s. 180.1327 is less than the fair value of his or her shares
or that the interest due is incorrectly calculated.
(b) The corporation fails to make payment under s. 180.1325 within 60
days after the date set under s. 180.1322 for demanding payment.
(c) The issuer corporation, having failed to effectuate the corporate
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the date
set under s. 180.1322 for demanding payment.
(2) A dissenter waives his or her right to demand payment under this section
unless the dissenter notifies the corporation of his or her demand under sub.
(1) in writing within 30 days after the corporation made or offered payment for
his or her shares. The notice shall comply with s. 180.0141.
180.1330 COURT ACTION. (1) If a demand for payment under s. 180.1328 remains
unsettled, the corporation shall bring a special proceeding within 60 days
after receiving the payment demand under s. 180.1328 and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not bring the special proceeding within the 60-day period, it shall pay
each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall bring the special proceeding in the circuit court
for the county where its principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall bring the special
proceeding in the county in this state in which was located the registered
office of the issuer corporation that merged with or whose shares were acquired
by the foreign corporation.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the special proceeding.
Each party to the special proceeding shall be served with a copy of the
petition as provided in s. 801.14.
(4) The jurisdiction of the court in which the special proceeding is brought
under sub. (2) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value. An appraiser has the power described in the order
appointing him or her or in any amendment to the order. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the special proceedings is entitled to
judgment for any of the following:
(a) The amount, if any, by which the court finds the fair value of his or
her shares, plus accrued interest, exceeds the amount paid by the
corporation.
(b) The fair value, plus accrued interest, of his or her shares acquired
on or after the date specified in the dissenters' notice under s. 180.1322
(2) (c), for which the corporation elected to withhold payment under
s. 180.1327.
180.1331 COURT COSTS AND COUNSEL FEES. (1) (a) Notwithstanding ss. 814.01 to
814.04, the court in a special proceeding brought under s. 180.1330 shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court and shall assess the costs
against the corporation, except as provided in par. (b).
(b) Notwithstanding ss. 814.01 and 814.04, the court may assess costs against
all or some of the dissenters, in amounts that the court finds to be equitable,
to the extent that the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment under s. 180.1328.
B-5
<PAGE>
(2) The parties shall bear their own expenses of the proceedings, except
that, notwithstanding ss. 814.01 and 814.04, the court may also assess the fees
and expenses of counsel and experts for the respective parties, in amounts that
the court finds to be equitable, as follows:
(a) Against the corporation and in favor of any dissenter if the court
finds that the corporation did not substantially comply with ss. 180.1320
to 180.1328.
(b) Against the corporation or against a dissenter, in favor of the other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this chapter.
(3) Notwithstanding ss. 814.01 and 814.04, if the court finds that the
services of counsel and experts for any dissenter were of substantial benefit
to other dissenters similarly situated, the court may award to these counsel
and experts reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
B-6
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per share data and ratios) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net premiums written $116,232 $107,640 $ 58,953 $ 57,523 $ 70,761
====================================================
Premiums earned $111,609 $ 96,126 $ 55,933 $ 59,502 $ 72,879
Net investment income 8,044 9,432 7,261 7,286 6,683
Other income 1,187 -- -- -- --
Net realized capital gains 400 2,774 1,557 1,010 103
----------------------------------------------------
Total revenues 121,240 108,332 64,751 67,798 79,665
Losses and expenses 118,563 104,759 59,059 66,284 82,665
----------------------------------------------------
Income (loss) before taxes 2,677 3,573 5,692 1,514 (3,000)
Income tax expense 353 633 2,615 434 --
----------------------------------------------------
Income (loss) from continuing
operations 2,324 2,940 3,077 1,080 (3,000)
Income from discontinued operations 930 1,129 702 2,568 1,515
Gain on disposal of business 973 -- -- -- --
Extraordinary credit and cumulative
effect of accounting changes -- 195 1,885 435 --
----------------------------------------------------
Net income (loss) $ 4,227 $ 4,264 $ 5,664 $ 4,083 $ (1,485)
====================================================
Weighted average number of common
shares outstanding 4,138 3,671 3,079 3,075 3,075
Net income (loss) per share:
Continuing operations (1) $ .57 $ .85 $ 1.61 $ .49 $ (.97)
Discontinued operations .45 .31 .23 .84 .49
----------------------------------------------------
Total net income (loss) per share $ 1.02 $ 1.16 $ 1.84 $ 1.33 $ (.48)
====================================================
PROPERTY AND CASUALTY UNDERWRITING RATIOS (GAAP):
Loss ratio 73.6% 76.3% 74.2% 81.6% 82.6%
Expense ratio 31.6 32.3 31.1 29.7 30.6
----------------------------------------------------
Combined ratio 105.2% 108.6% 105.3% 111.3% 113.2%
====================================================
PROPERTY AND CASUALTY UNDERWRITING RATIOS (STATUTORY):
Loss ratio 73.9% 76.7% 74.1% 81.6% 82.7%
Expense ratio 33.2 30.8 30.5 29.7 29.7
----------------------------------------------------
Combined ratio 107.1% 107.5% 104.6% 111.3% 112.4%
====================================================
BALANCE SHEET AND OTHER DATA:
Weighted average pool percentage 60% 55% 40% 40% 40%
Total assets (2) $320,550 $301,041 $239,962 $124,679 $123,919
Debt obligations 12,031 4,375 5,000 -- --
Total shareholders' equity 69,973 70,281 53,624 47,673 43,079
====================================================
Shareholders' equity per share 16.91 16.98 17.33 15.50 14.01
</TABLE>
(1) Includes extraordinary credit of $.61 per share in 1992 and $.14 per share
in 1991, due to the utilization of net operating loss carryforwards, and
cumulative effect of accounting changes of $.05 per share in 1993.
(2) Data for 1994, 1993 and 1992 reflect the impact of accounting changes.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ---------------------------------------------------------------------------- 13
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
THE INDUSTRY
The operating results of the property and casualty insurance industry are
subject to significant fluctuations from quarter to quarter and from year to
year. The profitability of insurers is affected by many factors, including the
effect of competition on pricing, the frequency and severity of losses, natural
disasters, interest rates, crime rates, regulatory measures, and court decisions
that interpret the extent of insurance coverage and amount of compensation for
injuries or losses.
The property and casualty insurance industry experienced record catastrophe
losses in recent years, including Hurricanes Andrew and Iniki in 1992, Midwest
flooding and California fires in 1993, the Northridge earthquake and harsh
winter storms in the Northeast in 1994. Since the majority of the Company's
policies are issued to insureds in eight upper Midwestern states, the Company
did not experience the large catastrophe losses that the industry did. However,
these losses will have a lasting effect on how the insurance industry evaluates
exposures, and on the availability and cost of reinsurance. Additionally, the
lack of catastrophe losses in the past does not predict future tendencies.
The property and casualty insurance industry is intensely competitive. The
Company expects that competition in the personal and commercial products will
continue during 1995. The Company competes with many regional and national
insurers which are currently focusing on the Midwest as a profitable region.
OVERVIEW
In the face of the increased competition for its insureds, the Company undertook
several actions during 1994 and has plans for 1995 which will allow it to
continue to compete for business without compromising its underwriting and
pricing standards.
1994 Actions
During 1994 the Company examined its expenses and made several changes in order
to control its expense ratio. Two branch claims offices were closed, and
consolidation of two southeastern Wisconsin locations into one was initiated. A
change was made to the employee benefit programs at the end of 1994 which
resulted in a one time expense savings of approximately $910,000.
The Company experienced a decline in the persistency of some of its personal
lines products during 1994. In order to reverse this trend, claim free and
multi-policy discounts were introduced. The Company believes that these
discounts will improve the persistency of profitable business.
During 1994 the Company restructured its management team, consolidated reporting
for personal lines under one individual, and assigned another individual
responsibility for commercial lines results. The underwriting, marketing, and
agent needs for these two lines are different. The Company believes that this
new alignment will allow it to better meet the needs of both customer groups.
Milwaukee Insurance Group, Inc. 1994 Annual Report
14 -----------------------------------------------------------------------------
<PAGE>
1995 Plans
The Company participated in an industry study in 1994 to compare its operational
costs to those of the competition. This benchmarking information will be used
by management during 1995 to prioritize and sharpen its focus with regard to the
commitment of resources. Specifically, the postretirement benefits being
offered to employees will be reviewed to determine if they are cost effective.
The Company will continue to look for ways to consolidate both operational and
service areas and reduce operating expenses.
SALE OF LIFE OPERATION
On July 1, 1994, the Company sold its life insurance subsidiary, Milwaukee Life
Insurance Company to an unrelated party. Approximately $20,500,000 of cash was
received. Additionally, the life insurance subsidiary paid the Company a
$3,400,000 property dividend immediately prior to the sale. The property
consisted of the home office, net of a mortgage loan on the real estate, and a
mortgage loan receivable from Mutual. The Company used the proceeds to make
additional capital contributions to Safeguard and Guardian of $6,000,000 each,
and to repay the term loan (related to the purchase of Alpha) which had an
outstanding balance of approximately $4,000,000.
At the time of the sale, the Company's investment in the life subsidiary was
$17,300,000. The sale increased shareholders' equity by $2,031,000 after taxes.
The two components of this after-tax benefit are a gain on the sale of $973,000
and an increase of $1,058,000 in unrealized appreciation on securities.
The results of operations for the life insurance segment have been classified as
discontinued operations.
POOLING AND REINSURANCE AGREEMENTS
The pooling agreement between the Company and Mutual, its 49% owner, was amended
effective January 1, 1994 to designate the Company as the administrator of the
underwriting pool and to provide a management fee to the Company for these
services. The fee is 1% of direct written premium of Mutual, and was $733,000
for 1994.
Effective January 1, 1994, the remaining portion of the quota share reinsurance
contract was terminated. During 1993 and 1992, 7.5% and 15%, respectively, of
pooled premiums were ceded under this contract. During 1993, the quota share
reinsurance agreement for the period October 1, 1990 to December 31, 1991 was
commuted. During 1994, the remainder of the quota share reinsurance agreement
was commuted. The effect of these transactions was that the Company has
reassumed the loss reserves previously ceded to the reinsurer for that period,
and recorded assets in an equivalent amount. Consequently, both the assets and
liabilities for the Company, have been increased by $4.4 million during 1994 and
by $2.7 million during 1993.
Effective April 1, 1993, the Company's share of business under its pooling
arrangement increased from 40% to 60%. As a result, Mutual paid $35,505,000 to
Safeguard and Guardian, which equaled the net liabilities assumed. Assets
transferred consisted of cash, common stocks, and premiums receivable. The
transfer of assets took place over the course of 1993, with final cash
settlement during 1994. Mutual paid Safeguard and Guardian interest of $18,000
and $1,944,000 in 1994 and 1993, respectively, which represented interest at
7.25% on outstanding balances.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 15
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS -- CONTINUED
Substantially all of the pool's reinsurance activity is with American
Reinsurance Company. As of December 31, 1993, American Reinsurance Company had
an "A+" rating from A.M. Best. The Company is contingently liable on losses
ceded if the unaffiliated reinsurer or Mutual should fail to meet their
obligations.
SECONDARY STOCK OFFERING
The Company completed a second public offering of 1 million shares of common
stock in June, 1993. This offering produced a net capital infusion of
approximately $11.5 million. The Company used the proceeds to make additional
capital contributions to Safeguard and Guardian of $5,800,000 each.
ACQUISITION
The Company acquired Alpha Property and Casualty Insurance Company on December
31, 1992 in a transaction accounted for as a purchase. Therefore, Alpha's
results of operations are not included in the results of operations prior to
1993, but the assets and liabilities are included on the Company's balance sheet
as of December 31, 1992.
RESULTS OF OPERATIONS
1994 Compared with 1993
During 1994, the Company recorded income from continuing operations before
extraordinary items and accounting changes of $2,324,000, or $0.57 per share, as
compared to $2,940,000, or $0.80 per share for 1993. The per share comparisons
are affected by the 13% more weighted average shares outstanding during 1994 as
a result of the secondary stock offering during 1993.
The Company's GAAP combined ratio improved from 108.6% during 1993 to 105.2%
during 1994.
Premiums earned increased by $15,483,000 or 16%, in 1994 compared to 1993. The
increase in pooling participation increased premiums earned approximately
$8,000,000. The reduction of the quota share reinsurance accounted for an
additional $7,000,000 of the increase. The rest of the increase reflects the
Company's share of an increase in direct premiums earned during 1994 by the
pooled operations.
The Company has been working towards balancing its book of business to 50%
commercial and 50% personal. 1994 showed progress toward this goal with
commercial increasing from 38% in 1993 to 44% in 1994. 1995 projections
indicate the mix will continue to move toward an even split. The Company
believes that having a 50-50 mix will reduce the volatility of the Company's
earnings stream.
[CHART]
COMBINED RATIO (GAAP)
Percent
120
115
113.2%
111.3%
110
108.6%
105.3% 105.2%
105
100
'90 '91 '92 '93 '94
Milwaukee Insurance Group, Inc. 1994 Annual Report
16 -----------------------------------------------------------------------------
<PAGE>
Losses and loss adjustment expense in 1994 increased by 12% over the 1993
period. This increase is less than the 16% increase in premiums earned. The
loss ratio decreased from 76.3% in 1993 to 73.6% in 1994. Weather related
losses added 3.6% and 3.0% to the loss ratio in 1993 and 1994 respectively. The
improvement in the loss ratio is also the result of better underwriting results
in the commercial lines. Management believes its reserves for losses and loss
adjustment expenses at December 31, 1994, are adequate to cover the ultimate
cost of settling reported and unreported claims.
The Company's expense ratio improved 0.7% during 1994 from 32.3% in 1993 to
31.6% for 1994. This improvement reflects a non-recurring change in some of the
benefits offered to employees which accounted for 0.8% improvement in the
expense ratio. The Company expects that the changes outlined in the Overview
section will have positive impacts on the expense ratio during 1995.
Net investment income before taxes decreased $1,388,000 or 15% to $8,044,000 for
1994, compared to $9,432,000 for 1993. The decrease was a result of the
following events. Interest income on the receivable related to the pooling
change was $18,000 during 1994, as compared to $1,944,000 during 1993. In
1993 the Company restructured its fixed maturity portfolio by investing in tax-
exempt bonds. This change reduced investment income approximately $250,000;
however, the positive tax impacts ($450,000) more than offset the decline in
investment income resulting in a $200,000 increase to net income. The proceeds
from the sale of Milwaukee Life generated additional investment income of
approximately $500,000 during 1994. A rise in the average yield accounts for the
remainder of the increase. It is anticipated that investment income for 1995
will exceed the 1994 level as the proceeds from the sale of Milwaukee Life, the
commutation of the quota share reinsurance contract, and final settlement of the
pooling change are invested for an entire year.
The Company recognized $400,000 of pre-tax capital gains in 1994, compared to
$2,774,000 in 1993. The restructuring of the fixed maturity portfolio during
1993 caused the gains to be higher than those recognized in 1994.
The Company's effective tax rate for 1994 was 13.2% compared to 17.7% for 1993.
The significant items impacting the reduction in the rate were: an increase in
tax-exempt interest reduced the rate 10.9%, a reduction in state taxes reduced
the rate 4.4%, and a reduction in the valuation reserve that occurred during
1993, and did not recur during 1994 increased the rate 11.6%. As of December
31, 1994, the Company recorded net deferred tax assets of $8,859,000. In
assessing the realization of deferred tax assets, management considers whether
it is more likely than not that the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. A significant portion of any changes in the recoverability
of the deferred tax assets would be reflected in the future tax expense of the
Company.
[CHART]
PREMIUMS EARNED
$ In Thousands
120
111,609
100
96,126
80
72,879
60
59,502 55,993
40
'90 '91 '92 '93 '94
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 17
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS -- CONTINUED
1993 Compared with 1992
During 1993, the Company recorded income from continuing operations before
extraordinary items and accounting changes of $2,940,000, or $0.80 per share, as
compared to $3,077,000, or $1.00 per share for 1992. The per share comparisons
are affected by the 19% more weighted average shares outstanding during 1993 as
a result of the secondary stock offering that year.
The Company's GAAP combined ratio deteriorated from 105.3% during 1992 to 108.6%
during 1993.
Premiums earned increased by $40,194,000 or 72%, in 1993 compared to 1992. The
increase in pooling participation increased premiums earned approximately
$21,000,000. The reduction of the quota share reinsurance accounted for
$7,000,000 of the increase. The inclusion of Alpha increased premiums nearly
$10,000,000. The balance reflects the Company's share of an increase in direct
premiums earned during 1993 by the pooled operations.
Losses and loss adjustment expense in 1993 increased by 77% over 1992. This
increase is greater than the 72% increase in premiums earned. The loss ratio
increased from 74.2% in 1992 to 76.3% in 1993. Losses from wind and hail storms
added 3.8% and 3.6% to the loss ratios for 1992 and 1993, respectively.
Net investment income before taxes increased 30% to $9,432,000 for 1993,
compared to $7,262,000 for 1992. The majority of the increase is related to the
interest earned on the balance due from Mutual as a result of the 1993 pooling
change.
The Company recognized $2,774,000 of pre-tax capital gains in 1993 compared to
$1,557,000 in 1992. The restructuring of the fixed maturity portfolio during
1993 caused the gains to be higher than those recognized in 1992.
The Company's effective tax rate for 1993 was 17.7% compared to 45.9% for 1992.
The significant items impacting the reduction in the rate were: an increase in
tax-exempt interest reduced the rate 9.6%, a reduction in the alternative
minimum tax reduced the rate 9.2%, and a reduction in the valuation reserve that
occurred during 1993, which did not occur during 1992 decreased the rate 11.6%.
Parent and Other
The parent holding company recorded a pre-tax gain of $361,000 in 1994, compared
to a pre-tax loss of $367,000 in 1993. The majority of the increase in earnings
was caused by the $733,000 fee, new in 1994, related to administration of the
underwriting pool.
The parent holding company recorded a pre-tax loss of $44,000 in 1992. The
primary cause for the $322,000 increase in the loss in 1993 is $339,000 of
interest expense associated with the term loan for the purchase of Alpha.
Milwaukee Insurance Group, Inc. 1994 Annual Report
18 -----------------------------------------------------------------------------
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity relates to the Company's ability to produce sufficient cash to fulfill
contractual obligations, primarily to policyholders. Sources of liquidity
include premiums, investment income and sales and maturities of investments.
Additionally, the Company has secured a $5 million line of credit. At December
31, 1994 there was no outstanding balance on the line.
The funds of the Company are generally invested in securities with maturities
intended to provide adequate funds to pay claims without forced sales of
investments. The anticipated weighted average maturity of the fixed maturity
portfolio approximates 4.6 years. The Company estimates that over 90% of all
losses are paid within 4 years.
The Company does not anticipate any paydowns of the long term debt other than
the scheduled monthly payments of principal. The Company has no material
commitments for capital expenditures.
Over 99% of the Company's investments are comprised of fixed maturity, equity,
or short-term securities which are believed to be readily marketable. Nearly
95% of these are rated "A" or better by independent rating agencies. The
Company's investments generally have a longer maturity than the liabilities owed
to policyholders. A portion of the portfolio is maintained at all times in
short-term investments to reduce the likelihood that long-term investments would
be required to be liquidated in an adverse interest rate environment.
As of December 31, 1994, the Company's weighted average yield to maturity on the
fixed income portfolio was nearly 7.5%. Approximately 25% of the Company's
investments are invested in securities with prepayment options. A substantial
decline in interest rates may cause early receipt of principal, which may reduce
future investment yields due to reinvestment of the funds at the lower market
rates.
The volume of premiums that the property and casualty insurance subsidiaries may
prudently write is based in part on the amount of their statutory net worth as
determined in accordance with applicable insurance regulations. The statutory
premium-to-surplus ratio for the Company was 2.3 in 1994 compared to 2.6 in 1993
and 2.2 in 1992.
Funds provided from operating activities amounted to $13,716,000 for 1994
compared to $12,900,000 for 1993 and $1,222,000 for 1992. The primary reason
for the increases in 1993 and 1994 over 1992 was the termination of the quota
share reinsurance contract and commutation of related losses. Additional
cash was provided during 1994 from the proceeds related to the sale of the life
insurance subsidiary ($20,429,000), during 1993 from the secondary offering of
stock ($12,073,000), and during 1992 from the issuance of long term debt
($5,000,000). Additional cash was used during 1994 to purchase additional
investments ($35,805,000) and to re-pay the long term debt ($4,558,000).
Additional cash was used during 1993 to purchase investments ($14,363,000).
Additional cash was used during 1992 to purchase Alpha ($4,877,000).
The Company does not have any unwaived debt covenant violations as of December
31, 1994.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 19
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS -- CONTINUED
RATINGS AND REGULATION
Based on 1993 and prior results, Mutual, Guardian and Safeguard are rated "B++"
(very good) by A.M. Best Company. Alpha has a Best rating of "A"(excellent).
The NAIC has established a set of financial "tests" denominated the Insurance
Regulatory Information System ("IRIS") which are designed for the early
detection of companies which may be developing performance or solvency problems.
For the three years ended December 31, 1994, the Company's insurance
subsidiaries only had one test that fell outside of the usual value ranges with
respect to all IRIS tests.
The Company's insurance subsidiaries are subject to various regulatory
restrictions which limit the maximum amount of dividends available to the
Company without prior approval of insurance regulatory authorities. During
1995, $623,000 is available for distribution to the Company as long as the
State of Wisconsin's surplus requirements are met.
The NAIC has adopted risk-based capital requirements for property and casualty
insurance companies, effective for 1994 financial statement data. Compliance is
determined by a ratio of the Company's regulatory total adjusted capital to its
authorized control level RBC (as defined by the NAIC). Each of the Company's
insurance subsidiaries' ratios of total adjusted capital to RBC at December 31,
1994 are well in excess of the level which would prompt regulatory action.
The NAIC has proposed a Model Investment Law that may affect the statutory
carrying values of certain investments; however, the final outcome of that
proposal is not certain, nor is it possible to predict what impact the proposal
will have on the Company or whether the proposal will be adopted in the
foreseeable future.
The Company's underwriting policies are designed to minimize exposure to product
liability risks. Historically, the amounts of commercial coverage afforded by
the Company generally render these products more suitable to mercantile and
service entities and a limited number of small manufacturers, rather than the
large manufacturers that have traditionally been the target of product liability
exposure. Recently the Company has adjusted its policies to include larger
manufacturers and it has developed a loss control facility to assist in
underwriting these risks. The Company's commercial policies have always
excluded liabilities arising out of environmental laws, and such exclusions were
broadened in 1985 in response to evolving case law. The Company's ability to
limit exposure to products liability, environmental, or any other risk of loss
is subject to limitation or elimination at any time by legislation, regulation,
or court decision.
INFLATION
Inflation is implicitly provided for in the reserving function through analysis
of cost trends and reviews of historical reserving results. The Company does
not discount loss reserves.
Milwaukee Insurance Group, Inc. 1994 Annual Report
20 -----------------------------------------------------------------------------
<PAGE>
ACCOUNTING CHANGES
During 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." This statement requires that the expected cost of retiree medical
benefits be charged to expense during the years that the employees render
service rather than the Company's past practice of recognizing these costs on a
cash basis. The initial liability was recognized as a one time charge to
earnings during 1993 in the amount of $1,000,000 net of income taxes.
During 1993, the Company adopted SFAS 109, "Accounting for Income Taxes." SFAS
109 changed the manner of providing for deferred income tax expense by adopting
the liability method. Under this method, deferred tax assets and liabilities are
established for the future tax effects of temporary differences between the book
and tax bases of assets and liabilities for financial and tax reporting
purposes. This change resulted in a non-recurring credit to income of
$1,194,000 in 1993. Changes in future tax rates will result in immediate
adjustments to deferred taxes.
During 1993, the Company adopted SFAS 112, "Employers' Accounting for
Postemployment Benefits." The effect of the Company's adoption of this
pronouncement on the financial statements was not material.
The Company has no material loans subject to the provisions of SFAS 114,
"Accounting by Creditors for Impairment of a Loan."
Effective January 1, 1994, the Company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," and classified its entire fixed
maturity investment portfolio as "available-for-sale". The adoption of SFAS 115
increased shareholders' equity by approximately $3,173,000, after deferred
income taxes, as of January 1, 1994, but had no impact on the Company's results
of operations. Shareholders' equity decreased by $7,710,000, net of deferred
income taxes, during 1994 as a result of a decline in the market value of the
Company's investment portfolio.
The Company has no derivative financial instruments subject to the provisions of
SFAS 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments."
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 21
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets as of December 31, 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Fixed maturities, at market value in 1994
(amortized cost $153,774,823) and lower of
aggregate amortized cost or market value in
1993 (market value $127,176,626) $147,303,673 $121,974,480
Equity securities, at market value (cost
$9,516,293 and $9,244,213, respectively) 9,785,493 10,278,908
Mortgage loan to related party, at unpaid
principal balance 1,000,000 --
Short-term investments, at amortized cost,
which approximates market value (including
cash equivalents of $6,411,589 and
$12,709,492, respectively) 10,301,980 12,709,492
----------------------------
Total investments 168,391,146 144,962,880
Cash 363,146 537,970
Accrued investment income 2,396,291 1,958,330
Premiums receivable 19,280,850 22,765,708
Reinsurance receivable 69,353,287 68,544,096
Prepaid reinsurance premiums 25,651,562 25,133,169
Federal income taxes recoverable 333,988 --
Net assets of discontinued operation -- 21,176,869
Deferred policy acquisition costs 9,539,578 8,026,854
Deferred income taxes 8,859,068 6,149,699
Property and equipment, at cost, net of
accumulated depreciation of $791,238 and
$653,331, respectively 14,798,354 66,717
Other assets 1,582,979 1,719,196
----------------------------
Total assets $320,550,249 $301,041,488
============================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Milwaukee Insurance Group, Inc. 1994 Annual Report
22 -----------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity as
of December 31, 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Insurance reserves:
Losses and loss adjustment expenses $158,009,038 $149,406,856
Unearned premiums 67,282,650 62,140,987
Payable to affiliates 1,355,596 2,381,693
Long-term debt 12,030,870 4,375,000
Federal income taxes payable -- 739,816
Other liabilities 11,898,975 11,716,561
------------ ------------
Total liabilities 250,577,129 230,760,913
------------ ------------
Commitments and contingent liabilities (Note 14)
Shareholders' equity:
Preferred stock, $.01 par value, authorized
2,000,000 shares; none issued -- --
Common stock, $.01 par value, authorized
15,000,000 shares; issued and outstanding
4,138,100 and 4,137,960 shares, respectively 41,381 41,380
Additional paid-in capital 30,099,879 30,098,375
Unrealized gain (loss) on securities, net of
deferred income taxes (3,815,197) 721,683
Retained earnings 43,647,057 39,419,137
------------ ------------
Total shareholders' equity 69,973,120 70,280,575
------------ ------------
Total liabilities and shareholders'
equity $320,550,249 $301,041,488
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 23
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums earned $111,609,133 $ 96,126,599 $55,932,844
Investment income, net of
investment expense 8,043,552 9,432,019 7,261,519
Other income 1,186,720 -- --
Net realized capital gains 400,444 2,773,711 1,556,574
--------------------------------------------
121,239,849 108,332,329 64,750,937
--------------------------------------------
Losses and expenses:
Losses and loss adjustment
expenses 82,152,622 73,365,568 41,526,112
Amortization of deferred policy
acquisition costs 24,784,443 20,349,414 10,666,390
Insurance and general expenses 11,626,034 11,043,813 6,866,983
--------------------------------------------
118,563,099 104,758,795 59,059,485
--------------------------------------------
Income from continuing operations
before income tax expense,
extraordinary credit and
cumulative effect of accounting
changes 2,676,750 3,573,534 5,691,452
Income tax expense 352,301 633,147 2,614,093
--------------------------------------------
Income from continuing operations
before extraordinary credit and
cumulative effect of accounting
changes 2,324,449 2,940,387 3,077,359
--------------------------------------------
Discontinued operations:
Income from operations, less
applicable income taxes of
$317,044, $157,583 and
$167,422, respectively 930,135 1,129,291 702,142
Gain on disposal of business,
less applicable income taxes
of $1,098,429 973,336 -- --
--------------------------------------------
1,903,471 1,129,291 702,142
--------------------------------------------
Income before extraordinary
credit and cumulative effect of
accounting changes 4,227,920 4,069,678 3,779,501
Extraordinary credit-utilization
of loss carryforwards -- -- 1,884,849
Cumulative effect of accounting
changes -- 193,996 --
--------------------------------------------
Net income $ 4,227,920 $ 4,263,674 $ 5,664,350
============================================
Per share data:
Income from continuing
operations before
extraordinary credit and
cumulative effect of
accounting changes $ .57 $.80 $1.00
Discontinued operations .45 .31 .23
-------------------------------------
Income before extraordinary
credit and cumulative effect
of accounting changes 1.02 1.11 1.23
Extraordinary credit -- -- .61
Cumulative effect of accounting
changes -- .05 --
-------------------------------------
Net income $1.02 $1.16 $1.84
=====================================
Weighted average number of common
shares outstanding 4,137,980 3,670,895 3,079,386
============================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Milwaukee Insurance Group, Inc. 1994 Annual Report
24 -----------------------------------------------------------------------------
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares outstanding:
Beginning of year 4,137,960 3,094,945 3,075,148
Issuance of common stock -- 1,000,000 --
Stock options exercised 140 43,015 19,797
-------------------------------------------
End of year 4,138,100 4,137,960 3,094,945
===========================================
Common stock:
Beginning of year $ 41,380 $ 30,949 $ 30,752
Issuance of common stock -- 10,000 --
Stock options exercised 1 431 197
-------------------------------------------
End of year 41,381 41,380 30,949
-------------------------------------------
Additional paid-in capital:
Beginning of year 30,098,375 18,035,675 17,788,630
Issuance of common stock -- 11,527,708 --
Stock options exercised 1,504 534,992 247,045
-------------------------------------------
End of year 30,099,879 30,098,375 18,035,675
-------------------------------------------
Unrealized gain (loss) on securities, net of
deferred income taxes:
Beginning of year 721,683 401,856 362,973
Unrealized gain on securities due to change
in accounting for investments, net of
deferred income taxes 3,173,302 -- --
Unrealized gain (loss) on securities, net of
deferred income taxes (7,710,182) 319,827 38,883
-------------------------------------------
End of year (3,815,197) 721,683 401,856
-------------------------------------------
Retained earnings:
Beginning of year 39,419,137 35,155,463 29,491,113
Net income 4,227,920 4,263,674 5,664,350
-------------------------------------------
End of year 43,647,057 39,419,137 35,155,463
-------------------------------------------
Total shareholders' equity $69,973,120 $70,280,575 $53,623,943
===========================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ------------------------------------------------------------------------------25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,227,920 $ 4,263,674 $ 5,664,350
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Cumulative effect of accounting changes -- (193,996) --
Net realized capital gains (400,444) (2,773,711) (1,556,574)
Depreciation and amortization 61,353 (80,700) --
Amortization of bond premium and discount 242,190 120,547 17,061
Discontinued operations (1,903,471) (1,129,291) (702,142)
Changes in assets and liabilities net of effects of
acquired businesses:
Insurance reserves 15,901,119 13,029,251 (1,590,872)
Deferred policy acquisition costs (1,512,724) (3,085,260) (595,894)
Payable to affiliates (1,026,097) 510,601 (624,863)
Accrued investment income (437,961) (243,400) (127,362)
Federal income taxes (2,172,233) 903,963 27,440
Deferred income taxes (9,605) (3,575,965) (829,855)
Net assets of discontinued operation -- 898,908 700,015
Other assets and liabilities 746,180 4,255,799 841,117
--------------------------------------------
Net cash provided by operating activities 13,716,227 12,900,420 1,222,421
--------------------------------------------
Cash flows from investing activities:
Proceeds from investments sold or matured 26,646,166 52,415,375 38,049,151
Net proceeds from sale of business 20,428,907 -- --
Purchases of investments (62,451,499) (66,777,488) (39,446,432)
Purchases of property and equipment, net (256,253) 5,505 --
Purchases of subsidiaries -- (475,603) (6,020,000)
Cash acquired with acquisitions -- 43,693 1,142,970
--------------------------------------------
Net cash used for investing activities (15,632,679) (14,788,518) (6,274,311)
--------------------------------------------
Cash flows from financing activities:
Payments on long-term debt (4,557,780) (625,000) --
Proceeds from long-term debt -- -- 5,000,000
Proceeds from issuance of common stock 1,505 12,073,131 247,242
--------------------------------------------
Net cash provided by (used for) financing activities (4,556,275) 11,448,131 5,247,242
--------------------------------------------
Net increase (decrease) in cash and cash equivalents (6,472,727) 9,560,033 195,352
Cash and cash equivalents at beginning of year 13,247,462 3,687,429 3,492,077
--------------------------------------------
Cash and cash equivalents at end of year $ 6,774,735 $ 13,247,462 $ 3,687,429
============================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Milwaukee Insurance Group, Inc. 1994 Annual Report
26-----------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation and Basis of Presentation
Milwaukee Insurance Group, Inc. ("Company") was organized in 1985 and is a
49% owned subsidiary of Milwaukee Mutual Insurance Company ("Mutual"). The
Company is a holding company engaged through its wholly-owned subsidiaries in
the business of property and casualty insurance. The consolidated financial
statements have been prepared on the basis of generally accepted accounting
principles, and include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances have been eliminated.
Premiums
Premiums are recognized as revenue ratably over the terms of the respective
policies. Reserves for unearned premiums are established for the portion of
premiums applicable to the unexpired term of policies in force. Net written
premiums were $116,232,403, $107,639,991 and $58,953,304 for the years ended
December 31, 1994, 1993 and 1992, respectively.
Deferred Policy Acquisition Costs
Policy acquisition costs, principally commissions, premium taxes and certain
variable underwriting and policy issuance expenses, have been deferred. Such
costs are being amortized as premium revenue is recognized. The method followed
in computing deferred policy acquisition costs limits the amount of such
deferred costs to their estimated realizable value, which gives effect to the
premium to be earned, related investment income, losses and expenses and certain
other costs expected to be incurred as the premium is earned.
Reserves for Losses and Loss Adjustment Expenses
Reserves for losses and loss adjustment expenses include amounts determined
on the basis of claims evaluations and other estimates for reported losses, an
estimate of losses incurred but not reported, and amounts estimated to be
recoverable as salvage or subrogation. The method for making such estimates
and establishing the liability is continually reviewed and updated, and any
adjustments resulting therefrom are reflected currently in operating results.
The ultimate settlement of certain lines of insurance may not occur until
several years after policy issuance.
Investments
As of January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115) "Accounting for Certain Investments in Debt and
Equity Securities." SFAS 115 requires classification of marketable equity
securities and all fixed maturities into one of the following categories:
trading, available-for-sale, or held-to-maturity. Under the trading and
available-for-sale categories, these investments are carried at market value
with unrealized gains (losses) recognized directly in income and shareholders'
equity (net of deferred income tax effects), respectively. Investments in the
held-to-maturity category are carried at amortized cost. The Company has
classified all of its
Milwaukee Insurance Group, Inc. 1994 Annual Report
- --------------------------------------------------------------------------- 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
equity and fixed maturity investments as available-for-sale. The fixed
maturity investments are classified as available-for-sale because the Company
may sell them prior to maturity in response to such items as changes in market
interest rates, liquidity needs or tax planning objectives. Market value is
based upon quoted market prices, where available, or on values obtained from
independent pricing services. The adoption of SFAS 115 increased shareholders'
equity by $3,173,302, after deferred income taxes, as of January 1, 1994, but
had no impact on the Company's results of operations.
Prior to the adoption of SFAS 115, fixed maturity investments that the
Company might have sold prior to maturity in response to such items as changes
in market interest rates, liquidity needs or tax planning objectives were
carried at the lower of aggregate amortized cost or market value. Any
aggregate unrealized loss was charged directly to shareholders' equity, net of
applicable deferred income taxes. Equity securities were carried at market
value, based upon quoted market prices. Redeemable preferred stocks were
carried at cost.
The mortgage loan is carried at the unpaid principal balance. Short-term
investments are carried at amortized cost, which approximates market value.
Realized gains and losses on disposition of investments are determined on a
specific identification basis and are credited or charged to income.
Unrealized gains and losses resulting from changes in the valuation of
securities are credited or charged to shareholders' equity, net of deferred
income taxes.
Fixed maturities with a carrying value of $5,909,848 and $5,304,483 as of
December 31, 1994 and 1993, respectively, were on deposit with various
regulatory authorities as required by law.
Investments owned by the Company with a carrying value of $19,570,488 and
$27,361,313 as of December 31, 1994 and 1993, respectively, were loaned to
qualified borrowers in exchange for a portion of the fee earned by the
investment custodian. Under the terms of the securities lending agreement, each
loan is secured by the custodian with collateral having value in excess of the
loan. The custodian indemnifies the Company against any loss arising from the
custodian's negligence.
Property and Equipment
Property and equipment, which consists primarily of the home office
building, data processing equipment and office furniture, is carried at cost
less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets; 31-1/2
years for the home office building and 3-10 years for data processing equipment
and office furniture.
Reinsurance
The Company assumes and cedes reinsurance. The reinsurance arrangements
provide for greater diversification of business, allow management to control
exposure to potential losses arising from large risks, and provide additional
capacity for growth. Prepaid insurance premiums and reinsurance receivables
are reported as assets and represent ceded unearned premiums and reinsurance
recoverable on both paid and unpaid losses, respectively. Amounts recoverable
from reinsurers are estimated in a manner consistent with the claim liability
associated with the reinsured policies.
Milwaukee Insurance Group, Inc. 1994 Annual Report
28 -----------------------------------------------------------------------------
<PAGE>
Income Taxes
The Company files a consolidated Federal income tax return with all of its
subsidiaries. The Internal Revenue Service has completed tax audits for all
years through 1991. Management believes that any tax liability which may arise
for subsequent years will not have a materially adverse effect on the financial
position or results of operations of the Company.
Effective with the adoption of SFAS 109, "Accounting for Income Taxes" as
of January 1, 1993, deferred income taxes are provided for differences between
the bases of assets and liabilities for financial and tax reporting purposes.
In prior years, deferred taxes were provided for timing differences in
recognizing income and expenses for financial and tax reporting purposes.
Earnings Per Share
Earnings per share is computed by dividing net income by the weighted average
number of shares outstanding during the year.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and short-term investments with original maturities of three months or
less. Federal and state income tax payments of $1,162,691, $3,144,986 and
$2,019,000 were made in 1994, 1993 and 1992, respectively. Interest payments
of $447,591, $339,391 and $44,159 were made in 1994, 1993 and 1992,
respectively.
In 1992, the Company acquired the net assets of a property and casualty
insurance company (see Note 3). In conjunction with the acquisition,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired, adjusted
for negative goodwill $15,381,287
Cash paid 6,102,500
-----------
Liabilities assumed $ 9,278,787
===========
</TABLE>
Reclassification
Certain prior year amounts have been reclassified to conform to the 1994
presentation.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ------------------------------------------------------------------------------29
<PAGE>
NOTE 2 SALE OF BUSINESS
----------------
On July 1, 1994, the Company sold its life insurance subsidiary, Milwaukee
Life Insurance Company ("Life"), to an unrelated party for $20.5 million in
cash. Immediately prior to the sale, the Company received a $3.4 million
property dividend from Life, consisting of the home office building, net of a
mortgage loan on the real estate, and a mortgage loan receivable from Mutual.
As a result of the sale, the Company recorded a gain, net of income taxes, of
$973,336 and recorded an unrealized gain on securities, net of deferred income
taxes, of $1,058,300. Life had revenues of $4,356,545, $8,503,161, and
$8,870,347 for the period ending June 30, 1994 and the years ended December 31,
1993 and 1992, respectively. The results of operations of Life for all
periods, including the cumulative effect of accounting changes, have been
classified as discontinued operations.
The net assets of Life have been reclassified in the Company's consolidated
balance sheet as net assets of discontinued operation. In addition, the Notes
to Consolidated Financial Statements have been restated to eliminate Life
amounts. The net assets of discontinued operation as of December 31, 1993 are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Assets:
Fixed maturities $35,769,787
Mortgage loan to related party 1,000,000
Policy loans 2,448,850
Short-term investments 589,639
-----------
Total invested assets 39,808,276
Accrued investment income 598,205
Deferred policy acquisition costs 8,209,431
Reinsurance receivable 1,036,418
Property and equipment 9,698,972
Other assets 579,574
-----------
Total assets 59,930,876
-----------
Liabilities:
Future policy benefits 27,591,847
Other policyholder funds 1,389,506
Payable to affiliates 146,477
Long-term debt 7,350,000
Federal income taxes payable 56,042
Deferred income taxes 895,928
Other liabilities 1,324,207
-----------
Total liabilities 38,754,007
-----------
Net assets of discontinued operation $21,176,869
===========
</TABLE>
Milwaukee Insurance Group, Inc. 1994 Annual Report
30 --------------------------------------------------------------------------
<PAGE>
NOTE 3 ACQUISITION
-----------
As of December 31, 1992, the Company acquired all of the outstanding common
stock of Alpha Property & Casualty Insurance Company ("Alpha") and USA
Insurance Services, Inc. ("USA"). Alpha is engaged in the business of property
and casualty insurance, including motorcycle business. USA acts as an
insurance broker. The acquisition was accounted for utilizing the purchase
method of accounting; accordingly, the results of their operations have been
included with those of the Company beginning in 1993.
The following represents the unaudited proforma results of operations as if
the acquisitions occurred as of January 1, 1992. This data does not purport to
be indicative of what would have occurred had the acquisitions been made as of
that date or of the results which may occur in the future.
<TABLE>
<CAPTION>
<S> <C>
Revenues* $83,436,000
Income before extraordinary item 4,114,000
Net income** 5,998,000
Net income per share** 1.95
</TABLE>
*Includes net capital gains of $2,298,000.
**Includes extraordinary credit of $1,885,000, or $.61 per share.
NOTE 4 INVESTMENTS
-----------
The components of net investment income for the last three years are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on fixed maturities $8,435,797 $ 7,892,065 $7,792,478
Dividends on equity securities 196,135 309,908 23,908
Interest on mortgage loan 60,000 -- --
Interest on short-term investments 310,666 168,530 107,249
Interest on balance with affiliate 17,930 1,944,195 --
-----------------------------------------
Gross investment income 9,020,528 10,314,698 7,923,635
Investment expenses 976,976 882,679 662,116
-----------------------------------------
Net investment income $8,043,552 $ 9,432,019 $7,261,519
=========================================
</TABLE>
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ---------------------------------------------------------------------------- 31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of investment purchases, sales, and maturities for the last three
years are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases:
Fixed maturities $53,945,195 $63,724,269 $37,792,996
Equity securities 4,615,914 3,053,219 1,653,436
Short-term investments 3,890,390 -- --
-------------------------------------------
Total purchases $62,451,499 $66,777,488 $39,446,432
===========================================
Sales and maturities:
Fixed maturities-sales $14,838,383 $16,750,540 $28,314,729
Fixed maturities-maturities 8,214,635 33,815,033 8,047,606
Equity securities 3,593,148 1,849,802 1,686,816
-------------------------------------------
Total sales $26,646,166 $52,415,375 $38,049,151
===========================================
</TABLE>
The amortized cost and estimated market value of the Company's fixed maturity
and equity investments as of December 31, 1994 and 1993 follow:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1994 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 23,305,219 $ 67,168 $ 829,346 $ 22,543,041
States, municipalities & political
subdivisions 37,586,494 3,000 2,519,584 35,069,910
Public utilities 1,543,746 17,574 -- 1,561,320
All other corporate bonds 38,948,153 180,987 1,304,111 37,825,029
Mortgage-backed securities 47,523,189 193,412 2,175,903 45,540,698
Redeemable preferred stocks 4,868,022 2,469 106,816 4,763,675
-------------------------------------------------------------------
Total fixed maturities 153,774,823 464,610 6,935,760 147,303,673
Equity securities 9,516,293 1,327,241 1,058,041 9,785,493
-------------------------------------------------------------------
Totals $163,291,116 $1,791,851 $7,993,801 $157,089,166
===================================================================
</TABLE>
Milwaukee Insurance Group, Inc. 1994 Annual Report
32 -----------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1993 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government agencies and authorities $ 23,922,724 $1,758,818 $ 69,094 $ 25,612,448
States, municipalities & political subdivisions 34,005,867 671,149 39,301 34,637,715
Public utilities 2,607,567 242,552 2,793 2,847,326
All other corporate bonds 27,416,896 1,639,963 144,125 28,912,734
Mortgage-backed securities 30,809,965 1,226,900 107,163 31,929,702
Redeemable preferred stocks 3,211,461 36,691 11,451 3,236,701
-----------------------------------------------------------
Total fixed maturities 121,974,480 5,576,073 373,927 127,176,626
Equity securities 9,244,213 1,244,490 209,795 10,278,908
-----------------------------------------------------------
Totals $131,218,693 $6,820,563 $583,722 $137,455,534
===========================================================
</TABLE>
A summary of realized capital gains (losses) for the last three years follows:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized investment gains (losses):
Fixed maturities:
Gross gains $ 414,271 $2,209,656 $1,168,193
Gross losses (254,196) (13,572) (31,623)
Equity securities:
Gross gains 604,690 666,469 494,308
Gross losses (363,041) (88,842) (74,304)
Short-term investments:
Gross gains -- -- --
Gross losses (1,280) -- --
---------------------------------------
$ 400,444 $2,773,711 $1,556,574
=======================================
</TABLE>
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The amortized cost and estimated market value of fixed maturity investments
as of December 31, 1994 are shown by contractual maturity below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Due within one year $ 700,609 $ 702,156
Due after one year through five years 56,874,095 55,271,160
Due after five years through ten years 35,349,211 33,311,439
Due after ten years 8,459,697 7,714,545
Mortgage-backed securities 47,523,189 45,540,698
Redeemable preferred stocks 4,868,022 4,763,675
-----------------------------
Totals $153,774,823 $147,303,673
=============================
</TABLE>
NOTE 5 Fair Value of Financial Insrtuments
-----------------------------------
Fair value estimates are made at a specific point in time, based on available
market information and judgements about the financial instrument, such as
estimates of the timing and amount of expected future cash flows. Considerable
judgement is required to develop the estimates of fair value, thus the estimates
provided herein are not necessarily indicative of the amounts that could be
realized in a current market exchange. Fair value is defined as the amount at
which the financial instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair value of
each class of significant financial instruments for which it is practicable to
estimate that value:
CASH AND SHORT-TERM INVESTMENTS - The carrying amount is a reasonable estimate
of fair value because of the short maturity of these instruments.
INVESTMENTS IN FIXED MATURITIES AND EQUITY SECURITIES - Fair value is based upon
quoted market prices, where available, or on values obtained from independent
pricing services.
Milwaukee Insurance Group, Inc. 1994 Annual Report
34 -----------------------------------------------------------------------------
<PAGE>
MORTGAGE LOAN TO RELATED PARTY - Fair value has been estimated using the
expected cash flows of the loan discounted at market interest rates.
ACCRUED INVESTMENT INCOME - The carrying amount is a reasonable estimate of
the instrument's fair value.
LONG-TERM DEBT - For long-term debt as of December 31, 1994, fair value is
estimated by discounting the future cash flows using current rates estimated to
be available to the Company for debt of similar terms and remaining maturities.
The fair value of the variable rate term loan, with regular rate adjustments,
approximated book value at December 31, 1993.
The estimated fair values of the Company's financial instruments as of
December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
1994 Amount Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 10,665,126 $ 10,665,126
Investments in fixed maturities 147,303,673 147,303,673
Investments in equity securities 9,785,493 9,785,493
Mortgage loan to related party 1,000,000 1,002,418
Accrued investment income 2,396,291 2,396,291
Financial liabilities:
Long-term debt 12,030,870 11,497,907
</TABLE>
<TABLE>
<CAPTION>
Carrying Fair
1993 Amount Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 13,247,462 $ 13,247,462
Investments in fixed maturities 121,974,480 127,176,626
Investments in equity securities 10,278,908 10,278,908
Accrued investment income 1,958,330 1,958,330
Financial liabilities:
Long-term debt 4,375,000 4,375,000
</TABLE>
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ---------------------------------------------------------------------------- 35
<PAGE>
NOTE 6 RELATED PARTY TRANSACTIONS
--------------------------
The Company's property and casualty subsidiaries, other than Alpha, and
Mutual are parties to a reinsurance pooling agreement. Under the terms of the
pooling agreement, all premiums, losses, loss adjustment expenses and other
underwriting expenses (after deducting all other reinsurance) are prorated
among the parties on the basis of their agreed percentage participations in the
pool.
As of April 1, 1993, the Company's participation in the pool was changed from
40% to 60%. The increase in participation caused Mutual to pay $35,505,000 to
the property and casualty subsidiaries, which equaled the additional liabilities
assumed less a ceding commission of $3,276,000. The ceding commission was
deferred and amortized as premiums were earned. The transfer of assets took
place over the course of 1993, with final cash settlement in 1994. A balance of
$1,952,398 was receivable from Mutual as of December 31, 1993, and was included
in short-term investments on the balance sheet. Mutual paid the property and
casualty subsidiaries interest of $17,930 and $1,944,195 in 1994 and 1993,
respectively, which represented interest at 7.25% on outstanding balances.
The following amounts represent reinsurance transactions for the Company's
property and casualty subsidiaries under the pooling agreement:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Ceded:
Premiums written $ 92,137,765 $97,003,581 $95,974,859
Premiums earned 91,388,125 96,319,754 94,788,663
Unearned premiums 25,644,611 24,894,971 24,211,145
Reserves for losses and loss
adjustment expenses 68,374,559 66,906,308 69,687,466
Assumed:
Premiums written $104,972,334 $98,149,820 $58,953,304
Premiums earned 100,580,530 86,574,678 55,932,844
Unearned premiums 38,635,132 34,243,328 21,786,594
Reserves for losses and loss
adjustment expenses 83,495,754 76,311,128 47,306,016
</TABLE>
As of January 1, 1994, the Company became the pool administrator. In
exchange for certain administrative services, the Company receives a fee from
Mutual equal to one percent of Mutual's direct written premiums. Income from
this fee amounted to $733,381 during 1994 and is included in other income.
The Company's mortgage loan investment relates to a second mortgage on a
real estate project in which Mutual is the debtor. The loan bears interest at
12% and is due June 1, 1995.
Milwaukee Insurance Group, Inc. 1994 Annual Report
36 -----------------------------------------------------------------------------
<PAGE>
The Company receives annual rental income of $518,000 from Mutual for their
use of the home office building under the terms of a lease agreement expiring
in 2004, with six 6-year renewal options. Prior to the dividend of the
building to the Company described in Note 2, the rental income was received by
Life.
As of December 31, 1993, the Company purchased the net assets of Milwaukee
Teleservice of Minnesota, Inc. (MTS) from Mutual and the net assets of
Milwaukee Teleservice Corporation (MTC) from a subsidiary of Mutual for
$475,603; their aggregate net book value. Also as of December 31, 1993, MTS
and MTC were merged into the Company.
An officer of the Company holds options to acquire from Mutual 150,000
shares of the Company's outstanding common stock for $7.25 per share. The
options vest at an annual rate of 20% beginning in 1998 and are exercisable
through 2006; however, the options immediately vest upon the death, retirement
or permanent disability of the officer or upon change in ownership of the
Company.
NOTE 7 Reinsurance
-----------
The Company limits the maximum net loss which can arise from large risks or
risks in concentrated areas of exposure by reinsuring the business with other
insurers. Reinsurance for property and casualty losses is currently maintained
under a per risk agreement affording the pool recovery of property and casualty
losses up to limits of $5,000,000 and $10,000,000, respectively, after
deducting the pool's retention of $150,000 and $250,000, respectively. In
addition, the pool has catastrophic loss reinsurance which provides for
recovery on losses from any single event in excess of a retention of $2,200,000
and 5% of each loss occurrence above that amount, up to a limit of $25,000,000.
The following represents the Company's share of amounts ceded under all
third party reinsurance agreements:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums written $ 5,289,661 $15,584,784 $12,840,000
Premiums earned 8,306,993 15,451,000 14,436,000
Unearned premiums 74,447 3,064,552 1,809,000
Reserves for losses and loss adjustment expenses 10,699,332 16,151,000 11,532,000
</TABLE>
Substantially all of the reinsurance activity is with a single reinsurer.
During 1993 and 1992, 7.5% and 15%, respectively, of pooled premiums were ceded
under a quota share reinsurance agreement. During 1993, the Company commuted a
portion of this agreement. During 1994, the remainder of this agreement was
commuted. The effect of these commutations was to increase assets and
liabilities by $4,375,317 and $2,654,357 during 1994 and 1993, respectively.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ------------------------------------------------------------------------------37
<PAGE>
NOTE 8 Reserves for Losses and Loss Adjustment Expenses
------------------------------------------------
The following table sets forth the activity in the reserves for losses and
loss adjustment expenses for the years shown.
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserves for losses and loss adjustment expenses, beginning of year $149,407 $122,507 $123,104
Less reinsurance receivable 68,544 71,368 71,187
--------------------------------
Reserves for losses and loss adjustment expenses,
net of reinsurance, beginning of year 80,863 51,139 51,917
--------------------------------
Incurred losses and loss adjustment expenses:
Provision for losses of the current period 81,058 72,119 42,504
Increase (decrease) in provision for losses of prior periods 1,095 1,247 (978)
--------------------------------
Total incurred losses and loss adjustment expenses 82,153 73,366 41,526
--------------------------------
Payments:
Losses and loss adjustment expenses attributable
to losses of the current period 42,800 36,095 22,872
Losses and loss adjustment expenses attributable
to losses of prior periods 31,560 7,547 23,265
--------------------------------
Total payments 74,360 43,642 46,137
--------------------------------
Reserves prior to acquisition of Alpha 88,656 80,863 47,306
Acquisition of Alpha -- -- 3,833
--------------------------------
Reserves for losses and loss adjustment expenses,
net of reinsurance, end of year 88,656 80,863 51,139
Reinsurance receivable 69,353 68,544 71,368
--------------------------------
Reserves for losses and loss adjustment expenses, end of year $158,009 $149,407 $122,507
================================
</TABLE>
Changes are made to the provision for losses of prior periods as payments
are made and more information becomes known about the severity of still unpaid
claims. No additional premiums or return premiums have been accrued as a
result of the prior year effects.
Milwaukee Insurance Group, Inc. 1994 Annual Report
38------------------------------------------------------------------------------
<PAGE>
NOTE 9 LONG-TERM DEBT
--------------
Long-term debt as of December 31, 1994 and 1993 consists of the following:
<TABLE>
<CAPTION>
1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage note, collateralized by the home office building and
guaranteed by Mutual, payable in monthly installments of
$84,399, including interest at 8.125%, due January 1, 2005 $ 6,955,870 $ --
Obligation under capital lease, payable in monthly installments
of $119,826, plus interest at the adjusted eurodollar rate, as
defined (8.5% at December 31, 1994) 5,075,000 --
Variable rate term loan paid in full during 1994 -- 4,375,000
--------------------------------
$12,030,870 $4,375,000
================================
</TABLE>
The aggregate scheduled maturities of long-term debt in subsequent years are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 1,902,587
1996 1,941,780
1997 2,745,543
1998 592,450
1999 642,420
Thereafter 4,206,090
-----------
Total $12,030,870
===========
</TABLE>
The Company incurred interest expense of $574,414, $339,391 and $44,159 for
the years ended December 31, 1994, 1993 and 1992, respectively.
NOTE 10 EMPLOYEE BENEFITS
-----------------
The Company maintains a defined contribution 401(k) plan which covers
substantially all employees. The Company makes employer contributions,
consisting of a percentage of annual compensation and profits, each as defined.
For the years ended December 1994, 1993 and 1992, the Company expensed
$455,000, $444,000 and $196,000, respectively.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company has granted various supplemental retirement benefits to certain
employees, for which the expense was $325,000, $33,000 and $384,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. As of December 31,
1994 and 1993, the present value of these unfunded benefits included in other
liabilities was $2,007,000 and $1,760,000, respectively.
In addition, the Company provides certain postretirement benefits for
retired employees. Substantially all employees become eligible for these
benefits upon retirement. The benefits provided consist primarily of medical
benefits, including medical and prescription drugs, for eligible retirees. The
plan is contributory with retiree contributions adjusted annually, and contains
other cost sharing features such as deductibles and coinsurance. The plan is
unfunded.
The Company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" during 1993. This Statement requires that the
expected cost of retiree medical benefits be charged to expense during the
years that the employees render service rather than the Company's past practice
of recognizing these costs on a cash basis. The effect of adopting the
pronouncement increased the Company's 1993 net periodic postretirement benefit
cost by $999,885, net of deferred income taxes of $475,181. In addition, the
Company will amortize $421,017 over a period of 16 years for the prior service
cost related to the acquisition of Alpha and the inclusion of Alpha employees
in the Company's postretirement plan.
The following table sets forth the components of the total accrued
postretirement benefit cost before allocation as of December 31, 1994 and 1993,
respectively:
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 2,248,000 $ 2,383,000
Fully eligible active plan participants 3,549,000 3,819,000
Other active plan participants 3,551,000 5,275,000
---------------------------
Accumulated postretirement benefit obligation
in excess of plan assets 9,348,000 11,477,000
Unrecognized prior service cost (368,000) (395,000)
Unrecognized net gain (loss) 1,950,000 (1,405,000)
---------------------------
Accrued postretirement benefit cost $10,930,000 $ 9,677,000
===========================
</TABLE>
The Company's allocated portion of the accrued postretirement benefit cost
was $2,733,000 and $2,917,000 as of December 31, 1994 and 1993, respectively.
Milwaukee Insurance Group, Inc. 1994 Annual Report
40 -----------------------------------------------------------------------------
<PAGE>
The components of the Company's net periodic postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 561,000 $438,000
Interest cost 495,000 470,000
Net amortization amounts 38,000 --
--------------------------
Net periodic postretirement benefit cost $1,094,000 $908,000
==========================
</TABLE>
The discount rate used in determining the liability was 8.00% and 7.00% as of
December 31, 1994 and 1993, respectively. For measurement purposes, an annual
rate of increase in the per capita cost of health care benefits of up to 13.2%
was assumed through 1994; the rate is assumed to decrease gradually to a minimum
of 7.2% in 2011, and remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by 1% in each year would
increase the total unallocated accumulated postretirement benefit obligation as
of December 31, 1994 by $1,713,000 and the aggregate of the Company's service
and interest cost components of the net periodic postretirement benefit cost for
the year ended December 31, 1994 by $291,000.
N O T E 11 Income Taxes
------------
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $361,906 $ 2,241,731 $1,281,709
Deferred (9,605) (1,608,584) 1,332,384
---------------------------------------
$352,301 $ 633,147 $2,614,093
=======================================
</TABLE>
As of January 1, 1993, the provisions of SFAS 109, "Accounting for Income
Taxes," were adopted. The cumulative effect of this accounting change, a one-
time increase in earnings of $1,193,881 (net of a valuation reserve of
$415,045), has been reflected in the 1993 financial statements. Prior year
financial information has not been restated to reflect the provisions of this
statement.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ---------------------------------------------------------------------------- 41
<PAGE>
Notes to Consolidated Financial Statements -- continued
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loss and loss adjustment expense reserves $ 5,315,833 $ 5,144,414
Unearned premium reserves 3,349,133 2,582,926
Postretirement benefits 1,076,454 907,096
Accrued retirement liabilities 831,938 1,224,678
Unrealized depreciation of investments 2,317,625 --
Other 88,558 276,114
---------------------------
Total gross deferred tax assets 12,979,541 10,135,228
---------------------------
Deferred tax liabilities:
Deferred acquisition costs (3,722,774) (3,300,499)
Unrealized appreciation of investments -- (382,086)
Other (397,699) (302,944)
---------------------------
Total gross deferred tax liabilities (4,120,473) (3,985,529)
---------------------------
Net deferred tax assets $ 8,859,068 $ 6,149,699
===========================
</TABLE>
There was no valuation allowance for deferred income tax assets as of December
31, 1994 and 1993. In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
primarily the scheduled reversal of deferred tax liabilities, carryback
provisions and tax planning strategies in making this assessment and believes it
is more likely than not that the Company will realize the benefits of these
deductible differences as of December 31, 1994.
Milwaukee Insurance Group, Inc. 1994 Annual Report
42 ----------------------------------------------------------------------------
<PAGE>
The actual income tax expense (benefit) differed from the expected tax
computed by applying the United States Federal corporate tax rate to income
from continuing operations before income tax expense, extraordinary credit and
cumulative effect of accounting changes as follows:
<TABLE>
<CAPTION>
1994 1993 1992
Year ended December 31, Amount % Amount % Amount %
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense $ 910,095 34.0% $1,215,001 34.0% $1,935,093 34.0%
State income tax, net of Federal tax benefit 44,684 1.7 218,686 6.1 174,650 3.1
Book alternative minimum tax -- -- -- -- 526,626 9.2
Tax exempt interest net of proration (548,075) (20.5) (343,529) (9.6) -- --
IRS settlement (1986-1991) -- -- 60,916 1.7 -- --
Valuation reserve reduction -- -- (415,045) (11.6) -- --
Dividends received deduction (69,416) (2.6) (62,354) (1.7) -- --
Other, net 15,013 0.6 (40,528) (1.2) (22,276) (0.4)
--------------------------------------------------------------------
Income tax expense and effective rate $ 352,301 13.2% $ 633,147 17.7% $2,614,093 45.9%
====================================================================
</TABLE>
A summary of timing differences under the income tax accounting rules used
for the year ended December 31, 1992 and their related tax effects follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred policy acquisition costs $ 476,012
Tax revenue offset (908,331)
Timing differences on property and
casualty net loss reserves 1,989,724
Pensions (225,368)
Other, net 347
----------
Total deferred income tax provision $1,332,384
==========
</TABLE>
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 43
<PAGE>
NOTE 12 Shareholders' Equity
--------------------
The preferred stock may be issued in one or more series providing for such
dividend rates, voting, liquidation, redemption, and conversion rights and such
other terms and conditions as the Board of Directors may determine without
further approval by holders of common stock.
On June 11, 1993, 1,000,000 shares of common stock were sold to the public.
The Company received $11,537,708, net of underwriting discount and expenses
from the sale of stock. The secondary stock offering reduced Mutual's
ownership of the Company from 65% to 49%.
The Company's insurance subsidiaries are subject to various regulatory
restrictions which limit the maximum amount of dividends available to the
Company without prior approval of insurance regulatory authorities. During
1995, $622,915 is available for distribution to the Company without prior
approval as long as the State of Wisconsin's surplus requirements are met. See
Note 14 for a further dividend restriction.
The following selected information for the Company's insurance subsidiaries
is determined in accordance with accounting practices prescribed or permitted
by insurance regulatory authorities of the State of Wisconsin:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory capital and surplus $50,675,039 $41,876,678 $30,803,552
Statutory net income (loss) (1,029,920) (1,563,700) 4,292,840
</TABLE>
At December 31, 1994, the Company's insurance subsidiaries' combined statutory
capital and surplus exceeded the state of Wisconsin's minimum surplus
requirements by $27,622,423 in the aggregate.
NOTE 13 Stock Options
-------------
On March 28, 1994, the Board of Directors of the Company approved establishment
of the Milwaukee Insurance Group, Inc. 1994 Incentive Stock Plan (1994 Plan),
which authorized the granting of stock options (either incentive stock options
meeting the requirements of Section 422 of the Internal Revenue Code or
nonqualified stock options), restricted stock, performance shares and
performance units and cash appreciation rights to employees. In addition, the
1994 Plan authorized the granting, on May 19, 1994, of stock options to purchase
5,000 shares of the Company's common stock to all non-employee directors of
record on that date, and the subsequent automatic granting of stock options to
purchase 5,000 shares of the Company's common stock to all new non-employee
directors. A total of 300,000 shares of the Company's common stock are available
for the granting of awards, of which up to 50,000 shares may be granted as
restricted stock. Options granted may be exercised over a term not to exceed ten
years, and carry an option price of not less than the fair market value on the
date of the grant. Options granted to employees in 1994 vest at an annual rate
of 25% commencing with the first anniversary of the date of grant. Options
granted to non-
Milwaukee Insurance Group, Inc. 1994 Annual Report
44 -----------------------------------------------------------------------------
<PAGE>
employee directors in 1994 vest at an annual rate of 25% commencing with the
second anniversary of the date of the grant; however in the event the service
of a non-employee director terminates for any reason, all outstanding options
granted to that non-employee director will immediately vest 100% and become
immediately exercisable. Stock option activity pursuant to the 1994 Plan was
as follows:
<TABLE>
<CAPTION>
1994 Shares Option Price
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year -- --
Granted during year 119,361 $10.75 - $11.00
Exercised during year -- --
Forfeited during year (1,595) 11.00
-------
Outstanding at end of year 117,766 $10.75 - $11.00
===================================
Options currently exercisable 5,000
=======
</TABLE>
On August 27, 1986, the Boards of Directors of the Company and Mutual approved
establishment of the Milwaukee Mutual Insurance Company Stock Option Plan (1986
Stock Option Plan), whereby 300,000 shares of the Company's common stock were
reserved for issuance to key management employees of Mutual at an option price
of not less than the fair market value on the date of grant. The options may be
exercised over a seven-year term. Upon exercise, Mutual purchases the reserved
shares from the Company at the current market price. Options granted vest at an
annual rate of 20% on a cumulative basis over the first five years. Upon death,
retirement or permanent disability, all options granted become exercisable.
Options issued prior to 1993 contain stock appreciation rights (SAR) which
permit surrender of the option and receipt of the excess of current market price
over the option price in shares of the Company's stock or in a combination of
cash and stock. On May 19, 1994, the 1986 Stock Option Plan was terminated
except as to outstanding options. Stock option and SAR activity pursuant to the
1986 Stock Option Plan was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------
Option Option Option
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 18,065 $8.00-11.88 66,770 $8.00-9.25 125,485 $8.00-9.25
Granted during year -- -- 14,065 11.88 -- --
Exercised during year (2,000) 9.25 (62,770) 8.00-8.50 (58,715) 8.00-9.25
Forfeited during year (3,961) 8.50-11.88 -- -- -- --
------ ------- -------
Outstanding at end of year 12,104 $ 11.88 18,065 $8.50-11.88 66,770 $8.00-9.25
=========================================================================
Options currently exercisable 3,385 7,116 62,770
==========================================================
</TABLE>
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 45
<PAGE>
NOTE 14 COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
In December 1994, the Company entered into an agreement with a bank to lease
certain computer application software. The Company is accounting for this
agreement as a capital lease. The initial lease term is one year and may be
renewed for two additional one year terms provided, among other conditions,
there is no decrease in the appraised value of the software. Rental payments
under the lease vary with changes in interest rates. The Company may purchase
the software and terminate the lease at any time upon payment of all remaining
lease obligations due. The lease agreement contains certain restrictive
covenants, including one that limits dividend distributions from the Company to
its shareholders to the lesser of $1,000,000 or 25% of the Company's
consolidated net income for any given year that there remains an obligation
under the lease agreement.
In accordance with industry practice, the Company in its consolidated
financial statements treats risks, to the extent reinsured, as though they were
risks for which the Company is not liable. Insurance ceded by the property and
casualty subsidiaries does not relieve them of their primary liability as
the originating insurers and the Company remains contingently liable in the
event that any reinsurer fails to meet its obligations under reinsurance
agreements.
Certain of the agents of the Company can execute a covenant not to compete in
the event of the termination of their agency relationship, and receive a
predetermined percentage of their annualized written premium at the date of
termination (including policies written by the Company and, in certain cases, by
other insurance companies) for up to fifteen years depending on the timeliness
of the agents notification to terminate. The commitment has not been quantified
because the Company does not have the data for business the agencies have
written with other companies. Subsequent to December 31, 1994, an agent elected
this option. This election will not have a material impact on the Company's
financial statements.
In the normal course of business, the Company is involved in litigation with
claimants and others. In the opinion of management, the ultimate liability, if
any, arising from this litigation is not expected to have a material adverse
effect on the financial position or results of operations of the Company.
Milwaukee Insurance Group, Inc. 1994 Annual Report
46 ----------------------------------------------------------------------------
<PAGE>
N O T E 15 Quarterly Data (Unaudited)
--------------------------
Selected quarterly financial data is as follows:
<TABLE>
<CAPTION>
1994 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $29,978,227 $29,706,140 $31,087,321 $30,468,161
Income from continuing operations 416,403 936,383 (94,587) 1,066,250
Discontinued operations 499,288 430,847 973,336 --
Net income 915,691 1,367,230 878,749 1,066,250
Per share:
Income from continuing operations .10 .23 (.02) .26
Net income .22 .33 .21 .26
</TABLE>
During the fourth quarter of 1994, the Company changed the provisions of
certain employee benefits, resulting in a non-recurring decrease in operating
expenses of approximately $910,000.
<TABLE>
<CAPTION>
1993 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $20,663,441 $29,554,150 $29,529,215 $28,585,523
Income before cumulative effect of accounting
changes and discontinued operations 1,154,785 756,016 (378,558) 1,408,144
Cumulative effect of accounting changes 193,996 -- -- --
Discontinued operations 277,300 402,030 404,672 45,289
Net income 1,626,081 1,158,046 26,114 1,453,433
Per share:
Income before cumulative effect of accounting
changes and discontinued operations .37 .23 (.09) .34
Net income .52 .35 .01 .35
</TABLE>
The sum of the 1993 quarterly per share amounts do not equal the annual per
share amounts because of the stock transaction described in Note 12. Quarterly
data previously published differs from 1993 data stated above. This difference
is caused by a correction during the fourth quarter for the cumulative effect
of accounting changes in the amount of $1,400,124. First quarter and fourth
quarter net income was increased/decreased respectively by $1,400,124. Net
income per share was increased/decreased during the first and fourth quarter,
respectively by $.45 and $.34 per share.
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ---------------------------------------------------------------------------- 47
<PAGE>
F I N A N C I A L Reporting Responsibility
To the Shareholders and Board of Directors
Milwaukee Insurance Group, Inc.
The management of the Company has prepared the consolidated financial
statements, notes and all other sections of this annual report. The financial
statements were prepared in accordance with generally accepted accounting
principles. The accounting process relies on actuarial estimates and informed
judgments by management. We believe these estimates and judgments have been made
in good faith based on available information and that the financial statements
represent fairly the Company's financial position and results of operation.
The Company is responsible for the accuracy and integrity of the financial
statements. Management has established a corporate culture that deters any
impediment to reporting financial results fairly. The organizational structure,
accounting procedures and systems of internal control are designed by management
to provide reasonable assurance that assets are protected and that the books and
records properly reflect the transactions of the Company.
The Board of Directors has appointed an Audit Committee to monitor financial
reporting and internal control. The Audit Committee is comprised of two
directors of the Company and two directors of Mutual, none of whom are officers
or employees of the Company.
Our internal audit department independently reviews and evaluates the internal
controls. The department manager meets with the Audit Committee and has the
authority and responsibility to contact them at any time as circumstances
warrant.
We have engaged Coopers & Lybrand L.L.P., an independent firm, to audit the
financial statements and their opinion appears in the following column. They
have direct access to each member of management and to the Audit Committee in
conducting their audit. Their audit includes a review of our internal controls
and procedures, tests of our accounting records and such other auditing
procedures as they consider necessary to comply with generally accepted auditing
standards.
Report of Independent Accountants:
To the Shareholders and Board of Directors
Milwaukee Insurance Group, Inc.
We have audited the accompanying consolidated balance sheets of Milwaukee
Insurance Group, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Milwaukee
Insurance Group, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting and reporting for investments in 1994. As discussed in
Notes 10 and 11 to the financial statements, the Company changed its method of
accounting and reporting for postretirement benefits and income taxes,
respectively, in 1993.
/S/ COOPERS & LYBRAND LLP
Milwaukee, Wisconsin
February 23, 1995
Milwaukee Insurance Group, Inc. 1994 Annual Report
48 ----------------------------------------------------------------------------
<PAGE>
CORPORATE Directory
Board of Directors
Robert W. Doucette Chairman of the Board
Employee of the Company since 1947,
Director Since 1985.
Daniel R. Doucette President
Employee of the Company since 1989,
Director Since 1992.
Michael S. Ariens President, Ariens Company --
Manufacturer of power lawn and garden equipment.
Director Since 1986.
Joseph C. Branch Partner in the law firm of Foley & Lardner.
Director Since 1990.
James L. Dorman Chairman and Chief Executive Officer, Amalga
Composites, Inc. -- Manufacturer of advanced composite components.
Director Since 1986.
Michael J. Koss President and Chief Executive Officer, Koss
Corporation -- Manufacturer of electronics.
Director Since 1991.
Maureen J. Oster President and Chief Investment Officer, Johnson
Asset Management of Wisconsin, Inc. -- Registered Investment Advisors.
Director Since 1989.
Officers & Executive Management
Roger D. Brown Vice President, Administration &
Information Systems
Peter J. Donegan Vice President, Commercial Lines
Daniel R. Doucette President, Milwaukee Guardian,
Milwaukee Mutual, Milwaukee Safeguard
Robert W. Doucette Chairman of the Board
Thomas I. Doucette* former President, Milwaukee Life
Insurance Company
Howard R. Frank President, Milwaukee Teleservice Division
Robert W. Grieb* former Chief Operating Officer, Milwaukee
Mutual & former President, Milwaukee Safeguard
Gerald F. Johnson Vice President, Claims
Daniel A. Riedl Corporate Counsel & Secretary
Gil C. Rohde, Jr. Vice President, Personal Lines & President,
Alpha Property & Casualty
Tracy Watchmaker Schneider Vice President, Finance & Treasurer
* Retiring in 1995.
Affiliated Operating Insurers and
Their Chief Operating Officers:
Alpha Property & Casualty Insurance Company
Gil C. Rohde, Jr. -- President
Milwaukee Guardian Insurance, Inc.
Daniel R. Doucette -- President
Milwaukee Mutual Insurance Company
Daniel R. Doucette -- President and Chief Executive Officer
Milwaukee Safeguard Insurance Company
Daniel R. Doucette -- President
Milwaukee Insurance Group, Inc. 1994 Annual Report
- ----------------------------------------------------------------------------- 49
<PAGE>
INVESTOR Information
The Common Stock ($.01 par value) of Milwaukee Insurance Group, Inc. trades
on the Nasdaq Stock Market under the symbol: MILW. The range of high and low
prices for each quarterly period during 1994 and 1993 as reported by the Nasdaq
Stock Market follows:
<TABLE>
<CAPTION>
1994 1993
High Low High Low
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4th quarter $11.00 $8.75 $11.75 $9.25
3rd quarter 11.25 10.25 12.50 10.50
2nd quarter 11.50 10.25 14.75 11.50
lst quarter 11.75 9.50 16.25 14.00
</TABLE>
There were 204 shareholders of record of common stock as of March 13, 1995.
The Company estimates that there are approximately 700 beneficial shareholders.
The Company currently retains earnings to finance its future growth and has
not paid cash dividends. Furthermore, the ability of the Company to pay
dividends will depend on the receipt of dividends from its subsidiaries. The
Company's subsidiaries are subject to state laws and regulations which restrict
their ability to pay dividends. See Note 12 to the Consolidated Financial
Statements. During 1995, the aggregate amount available from the Company's
subsidiaries for payment of dividends to the Company without obtaining prior
regulatory approvals is approximately $623,000 as long as the compulsory net
worth requirements of Wisconsin insurance regulations are met. In addition,
the Company is restricted, pursuant to the terms of a lease agreement, from
paying dividends in any year in an amount in excess of the lesser of $1.0
million or 25% of the Company's net income in such year. See Note 14 to the
Consolidated Financial Statements. The Company does not anticipate paying any
cash dividends in the foreseeable future.
Transfer Agent
Firstar Trust Company -- Corporate Trust Services
615 E. Michigan Street
Milwaukee, Wisconsin 53202
Form 10-K
Copies of Form 10-K filed with the Securities and Exchange Commission can be
obtained by writing Tracy Watchmaker Schneider at Milwaukee Insurance Group,
Inc., P.O. Box 621, Milwaukee, WI 53201-0621
Annual Meeting
The annual meeting of shareholders will be held Thursday, May 18, 1995, at
4:00 p.m. CDT at the Company's Home Office.
Home Office
803 W. Michigan Street
P.O. Box 621
Milwaukee, WI 53201-0621
414-271-0525
Auditors
Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
Stock Listing
The common stock of the Company trades on the Nasdaq Stock Market under the
symbol MILW. Shares are included in the Nasdaq National Market System.
Milwaukee Insurance Group, Inc. 1994 Annual Report
50 -----------------------------------------------------------------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Milwaukee Insurance Group, Inc. on Form S-8 (File Nos. 33-19526, 33-81604 and
33-77198) of our reports dated February 23, 1995 on our audits of the
consolidated financial statements and financial statement schedules of Milwaukee
Insurance Group, Inc. and Subsidiaries as of December 31, 1994 and 1993, and for
the years ended December 31, 1994, 1993 and 1992, which reports are incorporated
by reference to this Proxy Statement.
Milwaukee, Wisconsin
September 6, 1995
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
Milwaukee Insurance Group, Inc.:
We have reviewed the accompanying consolidated balance sheet of Milwaukee
Insurance Group, Inc. and consolidated subsidiaries as of March 31, 1995, and
the related consolidated statements of operations and cash flows for the three-
month period then ended. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the year then ended (not presented herein); and in our report
dated February 23, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1994, is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
Milwaukee, Wisconsin
May 4, 1995
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
Milwaukee Insurance Group, Inc.:
We have reviewed the accompanying consolidated balance sheet of Milwaukee
Insurance Group, Inc. and consolidated subsidiaries as of June 30, 1995, and the
related consolidated statements of operations for the three and six-month
periods ended June 30, 1995, and the consolidated statement of cash flows for
the six-month period ended June 30, 1995. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the year then ended (not presented herein); and in our report
dated February 23, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1994, is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
Milwaukee, Wisconsin
May 4, 1995
<PAGE>
Awareness Letter of Independent Accountants
Securities and Exchange Commission
Washington, D.C.
RE: Milwaukee Insurance Group, Inc.
We are aware that our report dated August 1, 1995 on our review of interim
financial information of Milwaukee Insurance Group, Inc. for the three and
six-month periods ended June 30, 1995 and included in the Company's quarterly
report on Form 10-Q for the quarter then ended, is incorporated by reference in
the registration statements of Milwaukee Insurance Group, Inc. on Form S-8 (File
Nos. 33-19526, 33-81604 and 33-77198). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
Milwaukee, Wisconsin
August 7, 1995
<PAGE>
Awareness Letter of Independent Accountants
Securities and Exchange Commission
Washington, D.C.
RE: Milwaukee Insurance Group, Inc.
We are aware that our report dated May 4, 1995 on our review of interim
financial information of Milwaukee Insurance Group, Inc. for the three-month
period ended March 31, 1995 and included in the Company's quarterly report on
Form 10-Q for the quarter then ended, is incorporated by reference in the
registration statements of Milwaukee Insurance Group, Inc. on Form S-8 (File
Nos. 33-19526, 33-81604 and 33-77198). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
Milwaukee, Wisconsin
May 4, 1995
<PAGE>
MILWAUKEE INSURANCE GROUP, INC.
803 WEST MICHIGAN STREET, MILWAUKEE, WISCONSIN 53233
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel R. Doucette and Daniel A. Riedl, and
each of them, as Proxies, each with the power to appoint his substitute; and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Common Stock of Milwaukee Insurance Group, Inc. (the "Company") held
of record by the undersigned on August 25, 1995, at the Special Meeting of
Shareholders to be held on September 27, 1995 and at any adjournment thereof.
1 On the proposal to approve the merger ("Merger") of the Company with a
wholly-owned subsidiary of Trinity Universal Insurance Corporation pursuant
to an Agreement and Plan of Merger dated August 17, 1995, as described in
the accompanying proxy statement.
[_] FOR the Merger [_] AGAINST the Merger [_] ABSTAIN
- --------------------------------------------------------------------------------
2 In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued and to be signed on the reverse side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE MERGER.
Dated 1995
----------------------------------
----------------------------------
Signature
----------------------------------
Signature if held jointly
(Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney, personal representative,
executor, administrator, trustee or guardian,
please give full title as such. If a corporation,
please sign in full corporate name by President or
other authorized officer. If a partnership, please
sign in partnership name by authorized person.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
