SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
( X )Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996.
( )Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission File Number: 0-11413
MERIDIAN INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1689161
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2955 North Meridian Street
P.O. Box 1980
Indianapolis, IN 46206-1980
(Address of principal executive offices)
Registrant's telephone number, including area code: (317) 931-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Shares
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days:
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. (X)
The aggregate market value of voting stock owned by non-affiliates at
March 3, 1997, based on the closing sales price, was $56,255,313.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date: 6,779,375
Common Shares at March 3, 1997.
The Index of Exhibits is located at page 44 in the sequential
numbering system. Total number of pages, including cover page: 410.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document have been incorporated by reference
into this Annual Report on Form 10-K:
Parts of Form 10-K into Which
Identity of Document Document is Incorporated
Definitive Proxy Statement Part III
with respect to the 1997
Annual Meeting of Shareholders
of Registrant
MERIDIAN INSURANCE GROUP, INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1996
PART I PAGE
ITEM 1. BUSINESS 4
ITEM 2. PROPERTIES 17
ITEM 3. LEGAL PROCEEDINGS 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS 18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 41
ITEM 11. EXECUTIVE COMPENSATION 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 42
PART I
ITEM 1: BUSINESS
General
Meridian Insurance Group, Inc. ("the Company"), is a regional holding
company principally engaged in the business of underwriting property
and casualty insurance through its wholly-owned subsidiaries, Meridian
Security Insurance Company ("Meridian Security"), Citizens Fund
Insurance Company ("Citizens Fund") and Insurance Company of Ohio
("ICO"). Citizens Fund and ICO, along with their holding company,
Citizens Security Group, Inc. ("CSGI"), were purchased by Meridian
Security on July 31, 1996. The Company also owns a small service
support company, Meridian Service Corporation, whose results of
operations are insignificant to the total operations of the Company.
During the fourth quarter of 1996, the Company dissolved MarketMasters
Agency, Inc., a small insurance agency, and Vernon Fire and Casualty
Insurance Company, a dormant property and casualty insurance company.
The assets and liabilities of these two subsidiaries were merged into
their parent companies at the historical book values.
Approximately 46.5 percent of the Company's outstanding common shares
are owned by Meridian Mutual Insurance Company ("Meridian Mutual"), a
mutual property and casualty insurance company headquartered in
Indianapolis, Indiana. Effective August 1, 1996, Meridian Security,
Citizens Fund, ICO, Meridian Mutual and Citizens Security Mutual
Insurance Company ("Citizens Security Mutual"), the former majority
shareholder of CSGI, became parties to a reinsurance pooling agreement
("pooling agreement") under which all business written by each entity
are shared by the companies on the basis of their percentage
participation defined in the pooling agreement. Prior to August 1,
1996, Meridian Security and Meridian Mutual were the only participants
in this pooling arrangement.
Meridian Mutual writes a broad line of property and casualty
insurance, including personal and commercial automobile; homeowners,
farmowners and commercial multi-peril; and workers' compensation.
Business is written through approximately 1,075 independent insurance
agencies in the states of Illinois, Indiana, Iowa, Kentucky, Michigan,
Ohio, Pennsylvania, Tennessee, and Wisconsin. Meridian Mutual is also
licensed to write business in the state of Minnesota, but no direct
premiums were written during 1996. Meridian Security is admitted in
all states in which Meridian Mutual is licensed and writes personal
and farm lines primarily in the rural areas of Indiana, Iowa,
Kentucky, Ohio, Tennessee, and Wisconsin through approximately 400
independent insurance agencies, many of which are cross-licensed with
Meridian Mutual. Citizens Fund and Citizens Security Mutual offer a
variety of personal and commercial insurance products in the states of
Iowa, Minnesota, Missouri, North Dakota, Ohio, South Dakota, and
Wisconsin through a network of approximately 425 independent insurance
agencies. ICO writes personal and commercial products in the state of
Ohio through approximately 90 independent insurance agencies. During
the fourth quarter of 1996, Citizens Security Mutual was granted a
license to write insurance in the state of Indiana, however, no
premiums were written during 1996.
Relationships with Meridian Mutual and Citizens Security Mutual
All of the Company's corporate officers are officers of Meridian
Mutual and six of the ten members that constitute the Company's Board
of Directors are also directors of Meridian Mutual. Of the directors
and officers of Citizens Security Mutual, six of the eight members, of
which all hold dual roles, are corporate officers of the Company.
Prior to January 1, 1997, the Company had no employees and was
dependent upon Meridian Mutual and Citizens Security Mutual for the
sale and underwriting of insurance, the servicing of policyholder
claims and all other aspects of the Company's operations. Effective
January 1, 1997, the Company became the employer for all of the
employees of Meridian Mutual and Citizens Security Mutual and the
related employee benefit plans were merged into the Company's plans.
Underwriting expenses are shared under the pooling agreement between
each entity in accordance with the participation percentages of the
parties. Other expenses which can be directly identified with
Meridian Mutual, Citizens Security Mutual or the Company are paid by
the company to which the expense is attributable, and all other
operating expenses relating to the business of each company (which
have not been and are not expected to be significant in amount) are
allocated in accordance with policies established in good faith by
their Boards of Directors.
Pooling Agreement
The pooling agreement covers all of the property and casualty
insurance written by Meridian Mutual, Citizens Security Mutual,
Meridian Security, Citizens Fund, and ICO. Under the pooling
agreement, all premiums, losses, loss adjustment expenses and other
underwriting and administrative expenses of each company are shared in
accordance with the participation percentages established under the
pooling agreement. Effective August 1, 1996, the participation
percentages of the Company's insurance subsidiaries totaled 74
percent. The participation rates were fixed with reference to the
relative historical net written premiums of the companies. Therefore,
each company's relative share of underwriting revenues, losses, and
expenses was not significantly altered as an immediate result of the
acquisition. Prior to August 1, Meridian Mutual and Meridian Security
were the only participants in the pooling agreement, of which Meridian
Security had assumed 74 percent of the combined underwriting income
and expenses since May 1, 1993.
The Boards of Directors of the Company, Meridian Mutual and Citizens
Security Mutual have delegated to their respective Audit Committees
the responsibility of monitoring the relationships between each of the
participants under the pooling agreement pursuant to such procedures
as those Committees may deem necessary and appropriate to allocate the
pool participation percentages to each participant of the agreement.
The Audit Committees have established guidelines for reviewing the
participation percentages at least annually and for referring to the
Pooling Committees of each company any decision to change the
participation percentages. Future events that could affect the
participation percentages among the parties include the receipt by
Meridian Mutual of dividends on the common shares of the Company held
by it, changes in the capital structure or asset values of Meridian
Mutual, Meridian Security, Citizens Security Mutual, Citizens Fund, or
ICO, different effective rates of income taxation, or other factors
which disproportionately affect the surplus of any of the
participants.
The Company, Meridian Mutual and Citizens Security Mutual have
conflicting interests with respect to the establishment of the
respective ratios of each company under the pooling agreement, and
conflicts may arise between the Company, Meridian Mutual and Citizens
Security Mutual relating to the allocation of expenses not related to
insurance underwriting, business and investment philosophies, profit
objectives, cash management, dividend policy and other matters. The
business and operations of the Company are integrated with and largely
dependent upon the business and operations of Meridian Mutual and
Citizens Security Mutual. Management of Meridian Mutual determines
which expenses are associated with underwriting operations (and
therefore shared by each of the entities under the pooling agreement),
and also selects and values the assets and liabilities transferred
between the companies pursuant to the pooling agreement. The pooling
agreement contains no specific provisions regarding the procedures to
be followed in making these decisions.
In arriving at decisions involving matters in which Meridian Mutual
and/or Citizens Security Mutual has an interest, the directors of the
Company will be governed by their fiduciary duties to the Company and
its shareholders, but those directors who also are directors of
Meridian Mutual and Citizens Security Mutual also owe fiduciary duties
to the policyholders of Meridian Mutual and Citizens Security Mutual
and no procedures have been established under which those decisions
would be made by disinterested directors. The terms of the pooling
agreement preclude conflicts which could arise in deciding which risks
are to be insured by each of the participants by making the results of
the operations of all participants dependent on the results of the
total business covered by the pooling agreement.
The pooling agreement has no fixed term and provides that it is to
remain in force until canceled by the mutual consent of Meridian
Security, Citizens Fund, ICO or Citizens Security Mutual and Meridian
Mutual. The pooling agreement may be amended or terminated without
the necessity of a vote by the shareholders of the Company or the
policyholders of any of the parties. In the event of a termination of
the pooling agreement, the terminating party or parties would transfer
back to Meridian Mutual the liabilities ceded to it by Meridian Mutual
and Meridian Mutual would transfer back to the terminating party the
liabilities ceded to it by terminating party, and each party would
receive from the other assets in an amount equal to the amount of the
policy liabilities received. If the pooling agreement had been
terminated at the end of February 1997, approximately 12 percent of
the assets and liabilities subject to the pooling agreement would have
been transferred to the Company's insurance subsidiaries. The
Company would continue to own all of the outstanding common shares of
Meridian Security, Citizens Fund and ICO. The Company would maintain
the employee force but would have limited sales operations through a
much smaller independent agency force.
Regulatory approvals of the states of domicile are required to change
the participation percentages of the parties to the pooling agreement
or to terminate the pooling agreement; however, the requirement for
such approvals is for the protection of the policyholders of the
participating companies and not for the protection of the Company's
shareholders. The Company intends that its insurance subsidiaries
will continue their participation in the pooling agreement, absent
some unforeseen change in circumstances.
A. M. Best Company, Inc., Ratings
Since 1993, Meridian Mutual and Meridian Security have maintained a
group rating of "A" (excellent) by A. M. Best Company, Inc. ("Best").
Subsequent to the July 31, 1996 acquisition of CSGI, the Meridian
group rating of "A" was also given to Citizens Fund, ICO and Citizens
Security Mutual. Best is an independent company which rates insurance
companies on the basis of their opinion as to the financial position
and operating performance. Best's ratings are based upon factors
related to the capacity of the insurer to make payment of its
obligations to policyholders and do not relate to the protection of
investors or indicate expected investment results.
Operations
In the following discussion of operations, the term "Meridian" refers
to the operations of the property and casualty insurance business of
Meridian Mutual and Meridian Security and the term "Citizens Security
Group" refers to the operations of Citizens Security Mutual, Citizens
Fund and ICO covered by the pooling agreement. Although the business
of Citizens Security Group is pooled with Meridian's business, the
operations of Citizens Security Group are separate from Meridian's
operations. The operations of Citizens Fund and ICO were included in
the Company's results of operations beginning on August 1, 1996.
The 1996 acquisition of Citizens Security Group expanded the Company's
operating territory into four additional states (Minnesota, Missouri,
South Dakota, and North Dakota) and expanded the premium base in Iowa,
Ohio and Wisconsin. This geographic expansion has enabled the Company
to spread its risk across a larger region. It is also anticipated
that certain economies of scale and expense efficiencies will result
from the acquisition.
Underwriting-Meridian
The underwriting of Meridian is separated into personal, commercial
and farm lines of business. The underwriting personnel are
responsible for establishing risk-selection guidelines for Meridian's
agents and underwrite and monitor policy issuance to insure adherence
to the established guidelines. The underwriting departments also
determine the pricing of Meridian's products and are responsible for
the development of new products and enhancements. The underwriting
personnel work closely with Meridian's sales representatives and
consult regularly with Meridian's agents to assess current market
conditions.
In establishing prices, Meridian's underwriting personnel analyze
studies of statistical and actuarial data concerning the impact of
price changes in the markets served by Meridian and consider data
compiled by industry organizations. This allows Meridian to more
accurately assess the anticipated costs of risks underwritten.
Over the past several years, Meridian has emphasized efforts to
improve underwriting in order to reduce its loss ratio. Processes
such as re-underwriting the existing book of business, monitoring
unprofitable agents, improving rate adequacy and consolidating four
district offices into the home office facility have all contributed to
reducing the Company's statutory combined ratio. The Company's 1996
combined ratio of 108.0 percent was unusually high as a result of a
record number of catastrophe and other weather-related non-
catastrophic claims. The Company has also focused considerable
resources on reducing per-unit costs and other expenses in order to
improve its loss adjustment and underwriting expense ratios.
Beginning in 1994, Meridian began to re-engineer and re-design certain
core processes. In 1996, Meridian began test piloting an automated
personal lines underwriting system that will enable policies meeting
certain criteria to be issued without manual review. This will allow
the Company to increase the processing of business without proportionally
expanding the size of the underwriting staff, thereby reducing per-unit costs.
By mid-1997, the Company anticipates that most new private passenger
automobile and homeowners business will be processed through automated
underwriting.
Underwriting-Citizens Security Group
Citizens Security Group has its own underwriting personnel who operate
independently of Meridian's underwriting operation. The underwriters
for Citizens Security Group underwrite only standard lines of property
and casualty insurance for persons and businesses in the "preferred
risk" category rather than those lines which are considered higher
risk, such as aviation, pollution and liquor liability. The
underwriting personnel of Citizens Security Group perform basically
the same functions as that of Meridian, but operate within their own
set of established guidelines and procedures.
Products and Marketing-Meridian
Meridian Mutual writes a broad line of property and casualty insurance
including personal and commercial automobile; homeowners, farmowners
and commercial multi-peril; and workers' compensation. Meridian
Security writes private passenger automobile, homeowners, farmowners,
and other personal lines coverages primarily in rural areas of its
operating territory. Meridian markets all of its insurance through
independent insurance agents, and development and maintenance of a
strong agency system is essential. Meridian seeks to provide its
agents and policyholders a level of service that surpasses industry
standards. Meridian Mutual's agency network numbers approximately
1,075 independent insurance agencies spread throughout nine states.
Meridian Security maintains its own agency network of approximately
400 independent insurance agencies in six states, many of which are
cross-licensed with Meridian Mutual. Meridian's independent agencies
are primarily small to medium-sized firms with no agency producing
more than 2 percent of the total written premium during 1996.
Meridian continuously monitors its agencies, giving special attention
to the volume and profitability of business written by each agency.
Agencies which consistently write unprofitable business may be
terminated by Meridian, subject to compliance with applicable state
laws.
Each agency enters into a standard agency agreement, under which the
agency is authorized to sell and bind insurance coverage in accordance
with procedures specified in the agreement and in accordance with
Meridian's underwriting guidelines, as well as to collect and remit
premiums. The agency receives as a commission a percentage of the
premium for each policy written. Meridian offers a direct billing
service to its agents, under which premium statements are provided to
the insured and the insured pays the premiums directly to Meridian.
Meridian pays the same commission rates on company-billed and agency-
billed policies, thereby allowing agencies to reduce administrative
costs without a reduction in commission income. Approximately 80
percent of Meridian's net written premium is derived from company-
billed business. Meridian offers an annual incentive trip to agents
who meet qualifying requirements that are set each year by Meridian.
In addition, Meridian offers an agency profit-sharing agreement in
which agencies attaining prescribed premium volume and meeting
prescribed profitability requirements receive a bonus.
Meridian has established agency councils which meet regularly with
members of management to discuss the concerns of the agents. These
councils are encouraged to suggest ways for Meridian to improve its
operations and service to the individual agents.
Meridian has developed separate growth strategies with respect to the
personal, commercial and farm lines of business. With respect to
personal lines, Meridian believes that continued improvements in
service to agents and policyholders and the development of additional
product enhancements will increase penetration of existing markets. By
emphasizing strict adherence to underwriting guidelines and targeting
selected lines of business, Meridian believes moderate growth in
personal lines business is achievable without significantly increasing
risk exposure.
Meridian has identified several segments of its commercial lines
markets in which management believes Meridian can compete effectively.
Meridian has and will continue to focus on the mid-sized accounts in
the $15,000 to $100,000 range of annual premium volume in addition to its
traditional business with smaller accounts. In an effort to increase
Meridian's penetration in commercial markets, Meridian has increased its
number of commercial field underwriters to work closely with designated
larger volume agents in developing new commercial accounts.
The strategy with respect to farm lines emphasizes increased
penetration of existing markets by targeting small to medium sized,
family-owned farms which meet Meridian's underwriting guidelines.
Management believes Meridian enjoys a competitive advantage in this
target market because of its regional focus and due to the fact that
some national insurers have vacated this market.
Products and Marketing-Citizens Security Group
The Citizens Security Group offers a variety of personal and
commercial products including homeowners, personal and commercial
automobile, commercial multi-peril, workers' compensation, tenant,
inland marine, general liability and umbrella lines of business. The
commercial products are oriented toward retail stores, restaurants,
trade contractors and members of various trade associations, including
funeral directors, newspaper publishers and veterinarians. Citizens
Security Mutual and Citizens Fund market their products through a
network of approximately 425 independent insurance agencies throughout
seven states and ICO solicits business through a network of
approximately 90 independent agencies in the state of Ohio. Citizens
Security Group's independent agencies are primarily small to medium-
sized firms with no one agency or group of related agencies accounting
for more than 3.5 percent of premiums written. The process in which
the Citizens Security Group selects and retains its insurance agencies
is basically the same as that of Meridian. The insurance agencies
retained by Citizens Security Group receive a commission on the direct
business written by each agency and participate in an agency profit
sharing program that is based on profitability, retention and growth
of business with additional compensation being provided to agencies
that exceed certain productivity levels.
Citizens Security Group strives to offer excellent service to its
agents and policyholders by providing 24-hour claims service and rapid
turnaround of rate quotations, policy issuances and policy
endorsements. As an incentive to agents to sell its products, the
Citizens Security Group emphasizes policyholder service, multi-line
insurance coverage packages and a policyholder-oriented premium
payment plan. The premium payment plan is a direct billing service
known as the "Citizens Account Plan", or "CAP", and is designed to
offer policyholders a convenient and flexible method in paying
premiums. Under the plan, policyholders are billed directly for
premiums on a monthly basis and have the option of making a minimum
monthly payment or prepaying all or a portion of the premium. A
single, easy-to-read bill covering the aggregate amount of premiums
for all policies written by the Citizens Security Group is sent to the
policyholders. Approximately 93 percent of all premiums received in
1996 were billed directly to the policyholders.
The Citizens Security Group markets their insurance products so that
the products of one company are distinguishable from those of the
other companies. The personal insurance products are designed to be
marketed in a comprehensive package that includes personal automobile,
homeowners, inland marine and umbrella insurance. Citizens Security
Group's commercial products are marketed through various state trade
associations, such as funeral directors, newspaper publishers and
veterinarians, in which the company is the endorsed property and
casualty insurance provider. The broad line of retail store,
restaurant and trade contractor coverages are designed to be tailored
to the customers' needs into one convenient package.
The following table sets forth for the periods indicated the net
premiums written, the net underwriting gain (loss), loss ratios,
expense ratios and combined ratios for the Company's insurance
operations, prepared in accordance with statutory accounting
principles. The 1996 column reflects the operations of Citizens Fund
and ICO beginning August 1, 1996. The combined ratio does not reflect
investment income, federal income taxes, or other non-underwriting
income or expense, all of which are included in determining net
income.
Year Ended December 31,
1996 1995 1994 1993 1992
(Dollars in thousands)
Premium Written
Personal lines:
Automobile $ 68,219 $ 59,444 $ 54,205 $ 55,291 $ 48,468
Homeowners 21,964 19,526 16,667 17,407 14,510
Other 5,678 5,190 4,035 3,894 3,226
Total personal lines 95,861 84,160 74,907 76,592 66,204
Farmowners 8,441 8,166 7,099 7,544 6,373
Commercial lines:
Automobile 16,227 13,107 11,972 11,556 8,363
Workers' compensation 23,380 22,438 21,894 19,264 12,518
Commercial multi-peril 23,453 19,548 19,414 18,842 14,417
Other 1,833 1,323 859 995 1,052
Total commercial lines 64,893 56,416 54,139 50,657 36,350
Total premium written $169,195 $148,742 $136,145 $134,793 $108,927
Net Underwriting Gain
(Loss) $(13,868) $ (1,610) $ (2,751) $ (5,536) $(3,900)
Loss Ratio
Personal lines:
Automobile 75.0% 75.0% 69.2% 65.8% 71.4%
Homeowners 110.7 81.2 82.9 77.8 91.0
Other 55.1 43.7 53.9 64.7 61.4
Total personal lines 81.8% 74.6% 71.5% 68.4% 75.1%
Farmowners 98.4% 69.6% 64.4% 68.5% 78.0%
Commercial lines:
Automobile 79.6% 89.1% 80.0% 65.3% 65.9%
Workers' compensation 54.2 58.6 62.7 79.9 71.1
Commercial multi-peril 85.5 45.8 70.3 67.4 50.4
Other 14.3 47.4 (14.0) 35.1 64.7
Total commercial lines 70.0% 61.0% 68.1% 71.0% 61.3%
Total loss ratio 78.0% 69.2% 69.8% 69.4% 70.8%
Expense Ratio 30.0% 31.0% 32.0% 32.4% 32.3%
Combined Ratio 108.0% 100.2% 101.8% 101.8% 103.1%
Claims-Meridian
Meridian's claim division is responsible for developing and
implementing policies and procedures for the payment and disposition
of claims and for establishing claim reserves. In connection
therewith, it resolves questions concerning policy coverage and
manages reinsurance recoveries and salvage and subrogation matters.
Claims litigation is managed in conjunction with Meridian's legal
division.
All claim services for Meridian are handled through claim service
centers in Indianapolis, Indiana; Louisville, Kentucky; and East
Lansing, Michigan. Insurance claims on policies underwritten by
Meridian are normally investigated and settled by Meridian claim adjusters.
Independent adjusters are employed as needed to handle the occasional
overload of claims and in territories in which the volume of claims is not
sufficient to justify having company claim adjusters.
Meridian claim adjusters have authority to settle claims within policy
limits, subject to direction and control by a claim manager or
supervisor. All claims estimated to have a potential value of $50,000
or more are supervised by examiners at the home office, and all claims
in excess of $100,000 must be approved by the claim division director
and, if litigation is involved, the legal division director. A claim
review committee provides for the periodic evaluation of larger claims
to enhance the investigation and decision-making process. The
committee reviews claims reserved in excess of $100,000, and any other
claims involving special circumstances in order to make decisions as
to investigations and/or settlement values.
Claims-Citizens Security Group
Meridian's claim division is also responsible for developing and
implementing policies and procedures for the payment and disposition
of claims on insurance policies written by Citizens Security Group.
The Citizens Security Group has a contract with an outside claim
adjustment firm, VIS'N, Inc., which provides initial claim
investigation and settlement services. All claims involving
litigation are referred to Meridian's legal staff for disposition. In
addition, certain of Citizens Security Group's independent insurance
agents are given authority to settle small property claims on behalf
of the companies.
Reserves-Meridian and Citizens Security Group
Loss reserves are estimates at a given time, based on facts then
known, of what an insurer predicts its exposure to be in connection
with incurred losses. Loss adjustment expense reserves are estimates
of the ultimate liability of the expenses in settling all claims,
including investigation and litigation costs resulting from such
claims. The ultimate liability of the insurer for all losses and loss
adjustment expenses reserved at any point in time may be greater or
less than these estimates.
Meridian and Citizens Security Group maintain reserves for the
eventual payment of losses and loss adjustment expenses with respect
to both reported and unreported claims. Two principal methods are
followed in establishing reserves. For coverages which involve a
large volume of claims of relatively small amounts such as automobile
property damage, comprehensive and collision insurance, reserves are
maintained on an average basis by reference to the number and amount
of paid claims. Adjustments to average reserves are made quarterly,
based on the claims experience for the prior quarter. Reserves for
other claims are established on a case-by-case basis pursuant to which
a reserve amount is assigned to each claim when reported, based
primarily upon an investigation of the circumstances surrounding each
claim, consideration of the liability and the damages, and the
insurance policy provisions relating to the claim. During the claim
settlement process, it may become necessary to adjust estimates of
future liability as additional facts regarding individual claims
become known.
Meridian and Citizens Security Group also establish reserves for
claims which have been incurred but which have not been reported,
utilizing statistical models based on historical experience. Reserves
established pursuant to the statistical models also are designed to
correct historical deficiencies or redundancies in the reserves
established on a case-by-case basis. Meridian and Citizens Security
Group consult with an independent actuarial firm on a quarterly basis
concerning the adequacy of their reserves.
Management believes that reserves for losses and loss adjustment
expenses are adequate to cover the ultimate cost of settling reported
and unreported claims, net of reinsurance, anticipated salvage and
subrogation receipts, and other recoveries. Loss reserves are not
discounted to present value. Inflation is implicitly provided for in
calculating reserves through analysis of cost trends and review of
historical reserve estimates.
The following table sets forth a three-year reconciliation of the
beginning and ending reserves for losses and loss adjustment expenses
for the Company. The net reserves acquired through acquisition
represent the loss and loss adjustment expense reserves, net of
reinsurance, for Citizens Fund and ICO at the date of acquisition.
Year Ended December 31,
1996 1995 1994
(In thousands)
Balance at beginning of period $123,577 $123,755 $119,764
Less reinsurance recoverables 31,204 31,815 30,134
Net balance at beginning of period 92,373 91,940 89,630
Net reserves acquired through acquisition 20,685 --- ---
Incurred related to:
Current year 137,817 104,585 99,444
Prior years (7,716) (5,461) (5,473)
Total incurred 130,101 99,124 93,971
Paid related to:
Current year 93,199 61,792 55,216
Prior years 30,470 36,899 36,445
Total paid 123,669 98,691 91,661
Net balance at end of period 119,490 92,373 91,940
Plus reinsurance recoverables 41,819 31,204 31,815
Balance at end of period $161,309 $123,577 $123,755
The reconciliation for 1996 shows an approximately $7.7 million
reduction in previously established loss reserves. Favorable loss
developments resulting from decreases in the frequency and severity of
claims in 1995 and prior accident years for the Company's personal and
commercial automobile liability and workers' compensation lines of
business were the primary factors in the most recent period reduction.
The Company also experienced favorable underwriting trends from its
involvement in the involuntary National Workers' Compensation Pool.
The following table shows the calendar-year development of the unpaid
losses and loss adjustment expenses of the Company's pooled business
for each of the last ten years. The Company was formed in 1987, thus
the reserve development for years prior to that date was based on the
statutory combined reserves and development of Meridian Security.
The top line of the table shows the estimated reserves for losses and
loss adjustment expenses, net of reinsurance recoveries, as recorded
by the Company for each of the indicated years. These reserves
represent the estimated amount of net unpaid losses and loss
adjustment expenses for claims arising on or before December 31 of
each year, including claims that had not yet been reported. The data
in the upper portion of the table reflect the cumulative payments made
as they have developed through time. The payments are expressed as a
percentage of the year-end reserves shown in the top line. The data
in the lower portion show the change in the reserve estimate over
time.
A redundancy in reserves means that reserves established in prior
years exceeded actual losses and loss adjustment expenses or were re-
evaluated to less than the originally reserved amount. A deficiency
in reserves means that the reserves established in prior years were
less than actual losses and loss adjustment expenses or were re-
evaluated at more than the originally reserved amount.
In evaluating the following information for the Company, it should be
noted that each amount includes the effects of all changes in amounts
for prior periods. For example, the amount of redundancy related to
losses settled in 1996 but incurred in 1990 is included in the
cumulative redundancy amount for each of the years from 1990 through
1995. The table does not present accident or policy-year development
data. Reserves increased significantly from 1986 to 1989 principally as a
result of an increase in private passenger automobile as a percentage of the
total business written by the Company, and related increases in the frequency
and severity of claims. Additionally, reserves in 1988 were increased by
approximately $5.0 million to adjust for the adverse loss development
trends experienced in 1985 through 1987. Increases in the Company's
share of the pooled loss and loss adjustment expense reserves also
contributed significantly to the increase in reserves. The Company's
participation increased from 44 percent in 1986, to 62 percent on
April 1, 1987, and to the current level of 74 percent on May 1, 1993.
In 1996, the Company acquired approximately $20.7 million in loss and
loss adjustment expense reserves from the acquisition of the Citizens
Fund and ICO insurance operations which is included in the current
year amount. Additionally, payments received on the acquired reserves
since the acquisition were spread out over the ten years based on the
accident year in which the original acquired reserve was set up. The
participation percentage from the pooling agreement for the combined
insurance operations of the Company totaled 74 percent. Conditions
and trends that have affected development of the reserves in the past
may not necessarily occur in the future. Accordingly, the data in the
table may not be indicative of future redundancies or deficiencies.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net reserves for losses
& loss adjustment
expenses $119,490 $ 92,373 $ 91,940 $ 89,630 $ 72,006 $ 68,102 $ 64,742 $ 62,281 $ 53,569 $ 43,899 $ 26,819
Cumulative paid as
a percent of year-
end reserves:
One year later 40.7% 39.0% 40.7% 29.0% 42.4% 46.6% 46.1% 47.2% 57.4% 41.6%
Two years later 59.0% 59.0% 51.7% 55.0% 68.5% 68.9% 68.1% 79.7% 74.0%
Three years later 68.9% 62.6% 67.5% 74.7% 81.3% 81.3% 90.3% 93.6%
Four years later 67.8% 74.9% 84.6% 84.1% 87.4% 97.0% 102.3%
Five years later 77.4% 85.7% 88.0% 88.6% 99.9% 107.2%
Six years later 87.5% 90.1% 90.7% 100.1% 109.7%
Seven years later 91.8% 92.3% 101.4% 110.3%
Eight years later 93.5% 102.7% 111.4%
Nine years later 103.7% 113.2%
Ten years later 114.8%
Reserves re-estimated
as a percent of
year-end reserves:
One year later 96.6% 92.9% 92.3% 93.6% 97.5% 103.2% 99.7% 102.3% 112.8% 109.6%
Two years later 94.9% 89.0% 84.6% 93.0% 99.0% 100.7% 100.6% 112.7% 120.1%
Three years later 89.2% 83.3% 89.0% 97.9% 99.2% 100.4% 109.5% 122.9%
Four years later 83.6% 89.3% 95.3% 99.3% 99.7% 110.0% 120.0%
Five years later 89.2% 96.3% 97.9% 100.3% 109.2% 119.3%
Six years later 95.4% 98.4% 99.5% 110.6% 119.6%
Seven years later 97.9% 100.0% 109.9% 122.6%
Eight years later 100.2% 110.6% 123.0%
Nine years later 110.9% 124.4%
Ten years later 125.1%
Redundancy (deficiency) 3.4% 5.1% 10.8% 16.4% 10.8% 4.6% 2.1% -0.2% -10.9% -25.1%
</TABLE>
Reinsurance
Meridian
Meridian follows the customary industry practice of limiting its
exposure by ceding to reinsurers a portion of the premiums received
and risks assumed under the policies reinsured. Reinsurance is
purchased to reduce a net liability on individual risks to
predetermined limits and to protect against multiple losses from a
single catastrophe or a series of catastrophes. Although reinsurance
does not discharge an insurer from its primary liability for claims up
to the full limits of the policies, it makes the assuming reinsurer
liable to the insurer to the extent of the reinsurance ceded.
Employers Reinsurance Corporation, rated "A++" by Best, is the
Company's main reinsurer providing property and liability excess of
loss coverage. Meridian uses a large number of reinsurers for
property catastrophe and facultative coverages to reduce the effect of
a default by any one reinsurer. Most of these companies are rated "A-
" or better by Best, or an equivalent rating by other recognized
independent rating agencies. Reinsurers not rated by Best or another
independent agency are analyzed and approved by Meridian's reinsurance
broker, E. W. Blanch, and by Meridian personnel.
The reinsurance purchased by Meridian includes contracts under which
certain types of policies are automatically reinsured up to the
contract limits ("treaty reinsurance") and contracts which provide
reinsurance on an individual risk basis and require specific agreement
of the reinsurer as to limits of coverage provided ("facultative
reinsurance"). The amount of coverage under the treaty reinsurance
contracts depends upon the amount, nature, and size of the risks
insured. For liability insurance, an excess of loss treaty provides
for recovery of losses over $250,000 ($200,000 in 1996) per occurrence
up to limits of between $1.0 million and $5.0 million depending on the
line of business. For property insurance, an excess of loss treaty
provides for the recovery of losses over $200,000 up to $4.0 million
per occurrence. Separate catastrophe coverage provided for recovery
of 95 percent of catastrophic losses in excess of an aggregate
retention of $6.0 million per catastrophic event, up to a limit of
$65.0 million. For 1997, an additional catastrophe contract was added
to provide an additional $50 million on top of the $65 million layer
for protection against earthquake exposures. The catastrophe coverage
is intended to protect the Company from a loss occurrence directly
occasioned by any one disaster, accident or loss or a series of
disasters, accidents or losses arising out of a single "event," as
that term is defined in the relevant reinsurance agreements.
Meridian also maintains two multiple-event catastrophe loss treaties
to provide protection for multiple catastrophe events that fall below
the $6.0 million single event retention level noted above but are
large enough in aggregate to cause significant loss exposure. The
combined retention under the first of these aggregate excess contracts
is based on 2.5 percent of subject earned premiums, plus five percent
of losses up to the $10.0 million contract limits ($8.0 million in
1996), with a $250,000 deductible per catastrophic event ($175,000 in
1996). Retention under the second aggregate excess contract, which
became effective in May, 1996, is $1,500,000 per quarter ($500,000 in
1996), plus five percent of losses up to $4.5 million per quarter,
with a total contract limit of $12.0 million and a $250,000 per event
deductible.
Effective January 1, 1997, Meridian Mutual, Meridian Security,
Citizens Security Mutual, Citizens Fund, and ICO were all named as
insured parties under these treaty reinsurance contracts, and the
coverage described herein applies to all risks written by these
companies. Prior to January 1, 1997, Meridian Mutual and Meridian
Security were the only companies participating in these contracts. On
both property and liability coverages, facultative reinsurance is
purchased to cover exposure from loss over the limits provided under
treaty reinsurance. The risks shared by the companies under the
pooling agreement consist of only the net risks remaining after the
ceding of reinsurance to third party reinsurers.
As of December 31, 1996, the Company had approximately $41.8 million
of reinsurance recoverable on unpaid losses. Of this amount,
approximately $18.7 million was recoverable from Employers Reinsurance
Corporation and approximately $14.7 million was recoverable from the Michigan
Catastrophic Claims Association, a mandatory state-administered
personal injury protection reinsurance pool in which all insurers
writing automobile business in that state must participate.
The cost of Meridian's reinsurance contracts is renegotiated annually.
If the relationships between Meridian and its current reinsurers were
to be terminated, Meridian believes that, under current circumstances,
relationships with other reinsurers could be established without a
material adverse effect on its business.
On December 29, 1995, Meridian Mutual entered into an indemnity
reinsurance agreement with Celina Mutual Insurance Company ("Celina")
to purchase the right to renew a select book of commercial lines
business. Under this agreement, Celina transferred approximately $6
million of its Pennsylvania commercial lines annualized premiums to
Meridian Mutual along with access to approximately 80 independent
insurance agents located in the state of Pennsylvania. This
transaction was recorded as assumed written premium, which was earned
over the succeeding twelve months. Renewals of the assumed policies
were recorded as direct business of Meridian Mutual. Through the
pooling agreement, the Company reflected unearned premiums of
approximately $2.1 million and ceding commissions of approximately
$409,000, which were deferred on the Company's books until the
premiums were earned.
Aside from the indemnity reinsurance agreement described above,
Meridian assumes a limited amount of reinsurance from third parties.
This business accounted for approximately 2.0 percent of net premiums
written in 1996.
Reinsurance-Citizens Security Group
The reinsurance contracts maintained by the Citizens Security Group in
1996 were of two general types, consisting of excess of loss
reinsurance, which covered losses in excess of a specified retained
amount, and pro rata reinsurance, under which premiums and losses were
shared on a proportionate basis up to a specified amount. Effective
January 1, 1996, Citizens Security Group entered into a pro rata
reinsurance contract covering 40 percent of each homeowner policy.
Under other reinsurance contracts, Citizens Security Group retained
the first $0.3 million of losses on any one risk on property coverage.
The Citizens Security Group also had pro rata reinsurance contracts
for property risks covering losses between $0.3 million and $4.6
million per risk. For property risks in excess of $4.6 million the
companies within the group negotiated reinsurance arrangements for
each risk on an individual basis. The casualty reinsurance written by
Citizens Security Group was reinsured for losses in excess of $0.25
million up to a maximum of $5.0 million per occurrence. Effective
January 1, 1996, the Citizens Security Group also entered into an
aggregate excess of loss contract which reinsured losses and
allocated loss adjustment expenses in excess of 62 percent in any
accident year. The reinsurer's obligation was limited to five percent
of accident year subject net earned premiums. Losses and loss
adjustment expenses in excess of 67 percent were retained.
The Citizens Security Group also maintained a catastrophe reinsurance
contract to protect against property loss occurrences that involved
more than one risk. Under this contract, Citizens Security Group
would recover 95 percent of the accumulated catastrophic losses in
excess of $0.6 million, up to $1.25 million and 97.5 percent of the
next $18.75 million of catastrophic losses.
Investments
Investments of the Company are principally held by Meridian Security,
Citizens Fund and ICO, which are subject to regulation by their
respective departments of insurance. The investment decisions are
made pursuant to guidelines established by the Company's Finance and
Investment Committee. This committee is made up of five directors of
the Company, three of whom are also directors of Meridian Mutual. All
investment transactions are reviewed by this committee.
The investment guidelines established by the Finance and Investment
Committee are intended to reflect a prudent approach to managing
invested assets. Investments are required to be diversified by type
of issuer, type of security and type of industry. Specific
restrictions prohibit investments in real estate mortgages unless the
related credit instruments are collateralized by federal or government
agencies, and also limit the amount which may be invested in common
stocks, based upon the premium-to-surplus ratio of the Company.
The Company's fixed maturity portfolio, which is made up of bonds and
sinking fund preferred stocks, consists almost entirely of investment
grade securities, the average quality of which is rated Aa/AA. The
fixed maturity securities at December 31, 1996 and 1995 were made up
entirely of securities classified as available for sale, which are
carried on the Company's balance sheet at fair market value. The
Company invests in both taxable and tax-exempt securities as part of
its strategy to maximize after-tax income. This strategy considers,
among other factors, the impact of the alternative minimum tax. Tax-
exempt bonds, on a carrying value basis, made up approximately 31.6
percent and 33.9 percent of the total fixed maturity portfolio at
December 31, 1996 and 1995, respectively. On a carrying value basis,
sinking fund preferred stocks made up approximately 14.2 percent and
16.5 percent of the total fixed maturity portfolio of the Company at
December 31, 1996 and 1995, respectively.
The Company also holds investments in mortgage-backed pass-through
securities and collateralized mortgage obligations ("CMO") which had a
carrying value of $54.7 million and $58.3 million at December 31, 1996
and 1995, respectively. The Company has attempted to reduce the
prepayment risks associated with mortgage-backed securities by
investing a majority of the Company's CMO holdings in planned
amortization and very accurately defined tranches. These investments
are designed to alleviate the risk of prepayment by providing
predictable principal prepayment schedules within a designated range
of prepayments. If principal is prepaid earlier than originally
anticipated, investment yields may decrease due to reinvestment of
these funds at lower current interest rates and capital gains or
losses may be realized since the book value of securities purchased at
premiums or discounts may be different than the prepayment amount.
As a result of the number of early calls and prepayments, the
estimated weighted average duration of the fixed maturity portfolio is
approximately 4.6 years.
The Company, as approved by the investment committee, has increased
its equity security holdings over the past three years. Equity
securities consist of common stocks and perpetual preferred stocks and
had a fair market value of $40.6 million and $31.1 million at December
31, 1996 and 1995, respectively. Equity securities accounted for 14.4
percent and 12.2 percent of the total investment portfolio at December
31, 1996 and 1995, respectively.
Regulation
Numerous aspects of the business and operations of the Company's
insurance subsidiaries and affiliates are subject to supervision and
regulation in each state in which they transact business. The primary
purpose of state supervision and regulation is the protection of
policyholders. The extent of such regulation varies among states but
generally derives from state statutes which delegate regulatory,
supervisory, and administrative authority to state insurance
departments. The authority of state insurance departments generally
extends to the establishment of solvency standards which must be met
and maintained by insurers, the licensing of insurers and agents, the
nature of and limitations on investments and premium rates, the
provisions which insurers must make for current losses and future
liabilities, the deposit of securities for the benefit of
policyholders, the approval of policy forms, the payment of dividends,
the establishment of premium rates and the settlement of claims.
State insurance departments also conduct periodic examinations of
insurance companies and require the filing of annual and other reports
relating to the financial condition of insurance companies.
The regulatory agencies of each state have statutory authority to
enforce their laws and regulations through various administrative
orders, civil and criminal enforcement proceedings, and the suspension
or revocation of certificates of authority. In extreme cases,
including insolvency, impending insolvency and other matters, a
regulatory authority may take over the management and operation of an
insurer's business and assets.
Meridian Mutual and Meridian Security are admitted as insurers in the
states of Illinois, Indiana, Iowa, Michigan, Minnesota, Kentucky,
Ohio, Tennessee, and Wisconsin. Citizens Fund and Citizens Security
Mutual hold licenses to write in Iowa, Minnesota, Wisconsin, North and
South Dakota. Citizens Fund and ICO each are admitted as insurers in
the state of Ohio. Citizens Security Mutual is also licensed to write
insurance in Missouri and has a reinsurance license for property and
casualty insurance in Ohio. Under insolvency or guaranty laws in the
states in which the above companies operate, insurers doing business
in those states can be assessed up to prescribed limits for losses
incurred by policyholders of insolvent insurance companies.
Additionally, the companies are required to participate in various
mandatory pools or underwriting associations. The maximum amounts
that can be assessed against an insurer in any one year under the
insolvency or guaranty laws of the states named above are limited to a
specified percentage of the annual direct premiums written by the
company in the state in question with respect to the affected lines of
business.
The Company is subject to statutes governing insurance holding
companies. Typically, such statutes require the Company to file
information periodically concerning its capital structure, ownership,
financial condition, and material transactions between the Company and
its insurance subsidiaries not in the ordinary course of business.
The Company's insurance subsidiaries are subject to periodic
examination by the insurance departments of the states in which they
do business, and the payment of dividends by the insurance
subsidiaries to the Company is subject to certain limitations. See
Note 10 of Notes to Consolidated Financial Statements. Certain
transactions between the Company and its insurance subsidiaries
including changes in the terms of the pooling agreement and certain
loan transactions, if any, may be effected only upon prior approval
thereof by state regulatory authorities in the insurance company's
state of domicile. Certain transactions deemed to constitute a
"change in control" of the Company, including a party's purchase of 10
percent or more of the outstanding common shares, are all subject to
approval by state regulatory authorities.
Changes in the laws or regulations to which the Company is subject
could adversely affect the operations of the Company. Specific
regulatory developments which could materially adversely affect the
operations of the Company include, but are not limited to, the
potential repeal of the McCarran-Ferguson Act (which exempts insurance
companies from a variety of federal regulatory requirements) and rate
rollback legislation. The Company will continue to monitor current
developments closely.
Competition
The property and casualty insurance industry is highly competitive.
Price competition has been particularly intense during recent years
and is expected to continue for the foreseeable future. Meridian
Mutual, Meridian Security, Citizens Security Mutual, Citizens Fund,
and ICO all compete with other property and casualty insurers, both in
the recruitment and retention of qualified agents and in the sale of
insurance products to consumers. The Company believes the principal
competitive factors in its markets to be service to agents and
policyholders and price. Success in recruiting and retaining agents
is dependent upon the administrative support provided to agents,
commission rates, and the ability of the insurer to provide products
that meet the needs of the agent and the agent's customers.
In selling its insurance products, Meridian Mutual, Meridian Security,
Citizens Security Mutual, Citizens Fund, and ICO compete with other
insurers writing through independent agents (including insurers
represented by the independent agents who represent Meridian and
Citizens Security Group), with insurers having their own agency
organizations and with direct sellers of insurance products. There
are numerous companies competing for business in the geographic areas
in which the Company, Meridian Mutual and Citizens Security Mutual
operate. No single company dominates the marketplace, but many of
Meridian's and Citizens Security Group's competitors have more
established national reputations and substantially greater financial
resources and market share.
Employees
Effective January 1, 1997, the Company became the employer of all
employees that were formerly employed by Meridian Mutual and Citizens
Security Mutual. This transfer will allow for more freedom in
compensation planning, such as more flexibility in the use of the
Company's common stock as compensation, and will improve internal
efficiencies by combining employee benefit plans. Prior to the
change, the Company had no employees and relied upon Meridian Mutual
and Citizens Security Mutual to provide all management and
administrative services required by the Company. Meridian Mutual
employed approximately 500 people and Citizens Security Mutual had
approximately 70 employees on its payroll. The Company believes that
its relationship with its employees is satisfactory.
Audit Practices
The Board of Directors has an Audit Committee composed of three
directors who are not employees of the Company or its affiliates.
Usually meeting in conjunction with the Meridian Mutual Audit
Committee, the committee monitors the Company's financial reporting
and internal control systems and reviews the work of internal audit.
The Company retains the firm of Coopers & Lybrand L.L.P. as
independent accountants to perform an independent audit of the
financial statements of the Company and its affiliates. The audit is
conducted in accordance with generally accepted auditing standards.
The independent accountants have unlimited access to, and meet
regularly with, the Audit Committees.
ITEM 2: PROPERTIES
The headquarters building of the Company and Meridian Mutual is owned
by Meridian Mutual and is located near downtown Indianapolis, Indiana.
The building is a multi-level structure containing approximately
205,000 square feet of office space. During 1995, construction was
completed on a 75,000-square-foot addition to the home office
facility. This expansion allowed the Company and Meridian Mutual to
enhance and enlarge its operational work areas and create a brighter,
more open environment. The expansion also allowed Meridian to
consolidate the two Indianapolis satellite offices, which were being
leased, into the home office facility.
In 1995, Meridian Mutual sold its 27,000-square-foot district service
office facility in Louisville, Kentucky. Due to consolidations which
led to staff reductions in the Louisville office, the Company and
Meridian Mutual now jointly lease office space of approximately 6,500
square feet in Louisville. Meridian also leases a claim service
center in Lansing, Michigan and a district service office in Columbus,
Ohio.
The principal office space for the operations of Citizens Security
Group is located in Red Wing, Minnesota and is being leased by
Citizens Security Mutual. The space consists of approximately 30,000
square feet with the lease expiring on December 31, 2002. In August,
1996, Citizens Security Mutual subleased approximately 8,200 square
feet of this office space to VIS'N, Inc. Citizens Security Mutual
also leases an additional office in Red Wing, Minnesota, consisting of
approximately 3,300 square feet under a lease that expires on June 30,
1998. In September, 1996, approximately 2,900 square feet of this
office space was subleased to Design Ink Plus, Ltd.
ITEM 3: LEGAL PROCEEDINGS
The Company's insurance subsidiaries are parties to litigation arising
in the ordinary course of their business. The Company believes that
the resolution of these lawsuits will not have a material adverse
effect on its financial condition.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market Information
The Company's common stock has traded on the NASDAQ Stock Market under
the symbol "MIGI" since completing an initial public offering of
1,700,000 shares in March 1987 at a price of $12 per share. On May 5,
1993, the Company completed a second public offering of 1,725,000
common shares at $12 per share. As of March 3, 1997, approximately
46.5 percent of the common stock was owned by Meridian Mutual and the
balance was spread among approximately 250 common shareholders of
record, including many brokers holding shares for their individual
clients. The number of individual shareholders on the same date was
approximately 1,300. The number of Common Shares outstanding on
February 26, 1997, totaled 6,779,375. Information relating to the
common stock is available through the NASDAQ Stock Market System and
the following table sets forth the high, low and closing sale prices
of the common stock for each quarter of 1996 and 1995.
1996 1995
Quarter Ended High Low Close High Low Close
March 31 $15.25 $13.50 $14.75 $12.00 $10.00 $11.50
June 30 $15.25 $13.25 $13.69 $13.50 $11.25 $13.00
September 30 $14.50 $13.25 $14.25 $14.13 $11.25 $13.25
December 31 $15.13 $13.13 $14.75 $15.63 $13.00 $14.88
Dividend Policy
Beginning with the first quarter of 1996, the Company increased its
quarterly cash dividend to $0.08 per common share. In 1995 and 1994,
the Company paid quarterly dividends of $0.07 and $0.06 per share,
respectively. The continued payment of dividends is reviewed
quarterly by the Board of Directors in relation to changes in the
financial condition and results of operations of the Company. The
ability of the Company to pay dividends is dependent upon the receipt
of dividends from its insurance company subsidiaries, which are
subject to state laws and regulations which restrict their ability to
pay dividends. See Note 10 of the Notes to Consolidated Financial
Statements.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of the Company. The data should be read in
conjunction with the consolidated financial statements, related notes,
and other financial information included elsewhere in this document.
Year Ended December 31,
1996 1995 1994 1993 1992
(In thousands, except per share data and ratios)
Operating data:
Premiums earned $167,304 $143,866 $135,002 $125,902 $108,097
Net investment income 14,908 14,564 13,996 13,569 12,620
Realized investment gains 3,794 1,538 286 890 540
Other income (expense) 563 (146) 54 (115) 182
Total revenues 186,569 159,822 149,338 140,246 121,439
Losses and loss adjustment
expenses 130,101 99,124 93,971 86,622 75,980
General operating expenses 13,767 14,156 14,527 14,935 12,742
Interest expense 308 --- --- --- ---
Amortization expenses 36,443 30,820 29,304 27,039 22,695
Total expenses 180,619 144,100 137,802 128,596 111,417
Income before taxes and
change in accounting method 5,950 15,722 11,536 11,650 10,022
Income taxes 150 4,105 2,415 2,765 1,797
Income before change in
accounting method 5,800 11,617 9,121 8,885 8,225
Changes in accounting method:
Other post-retirement
benefits --- --- --- --- (651)
Accounting for income taxes --- --- --- 526 ---
Net income $ 5,800 $ 11,617 $ 9,121 $ 9,411 $ 7,574
Weighted average shares
outstanding 6,779 6,770 6,740 6,139 4,945
Net income per share $ 0.86 $ 1.72 $ 1.35 $ 1.53 $ 1.53
Dividends declared per share $ 0.32 $ 0.28 $ 0.24 $ 0.24 $ 0.18
Underwriting ratios (statutory basis):
Loss and loss adjustment
expense ratio 78.0% 69.2% 69.8% 69.4% 70.8%
Expense ratio 30.0 31.0 32.0 32.4 32.3
Combined ratio 108.0% 100.2% 101.8% 101.8% 103.1%
Balance sheet data at end of period:
Total investments (1) $281,689 $254,694 $219,461 $221,197 $169,277
Total assets 397,798 322,588 291,406 285,936 221,534
Total liabilities 275,624 204,346 197,154 191,490 154,935
Shareholders' equity 122,174 118,243 94,252 94,447 66,599
Shareholders' equity per
share $ 18.02 $ 17.45 $ 13.98 $ 14.02 $ 13.42
(1) The 1996, 1995 and 1994 investments reflect the Company's adoption
of SFAS No. 115 (See Note 2 of the Notes to the Consolidated Financial
Statements).
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview:
The high level of catastrophe and other weather-related losses in 1996
is principally to blame for breaking the Company's several year trend
of improved operating results. Extensive property damage claims
arising primarily from hailstorms, tornadoes and high winds resulted
in the worst year for catastrophic claims in our Company's history.
Gross catastrophe losses were approximately six times those of an
average year. In spite of the significant increase in the magnitude
of such claims, our claims service quality remained high.
The catastrophe activity of 1996 should not overshadow certain
positive strides made during the year. A major development was the
acquisition of Citizens Security Group Inc. and its subsidiaries,
Citizens Fund Insurance Company and Insurance Company of Ohio on July
31, 1996. This acquisition fit well into the Company's plan for
geographic expansion into additional Midwestern and North Central
states. The acquisition expanded the Company's operating territory
into four additional states: Minnesota, Missouri, North Dakota, and
South Dakota; and increased its revenue base in Iowa, Ohio and
Wisconsin. The Company also gained control of Citizens Security
Mutual Insurance Company as a result of the acquisition. Direct
written premiums for the Citizens Security Group were nearly $55
million for the full year. Underwriting results for Citizens Security
were incorporated into the Company's pooling arrangement effective
August 1, 1996. The Company continues to look for other acquisitions
that meet its criteria.
The acquisition of Citizens Security Group, combined with growth in
the existing book of Meridian business, caused an increase in 1996
annualized direct written premiums of approximately 34 percent.
Future synergies are expected as the Company begins to take further
advantage of Citizens Security's strength in working with certain
business associations and as Meridian provides a farm product and
certain commercial lines products to Citizens Security. The Company
strives for a balanced book of property and casualty business
including personal, commercial and farm lines.
During 1996, the Company continued the favorable trend of decreasing
its operating expenses relative to premiums. Achieving continued
reductions in per-unit costs and improvement in productivity remain
key strategic goals. Meridian has developed an automated personal
lines underwriting system that will enable policies meeting certain
criteria to be issued without manual review, thus reducing costs
without increasing risk. Meridian began testing this system in late
1996. By mid-1997, we expect to have most new Meridian homeowners and
automobile business processed by automated underwriting. Additional
efficiencies are expected to result from progress with commercial
lines client-server processing and agency interface.
Results of Operations:
1996 Compared to 1995
In 1996, the Company reported net income of $5.8 million, or $0.86 per
common share . This compares to 1995 net income of $11.6 million, or
$1.72 per share. The 1996 results were negatively impacted by a
series of severe storms that produced an unusually large volume of
property damage claims throughout the Company's operating territory.
The after-tax impact of catastrophe and other weather-related non-
catastrophic claims is estimated to be approximately $1.17 per share
in 1996, compared to approximately $0.42 per share in 1995. The 1996
catastrophe losses represent the largest catastrophe loss total in the
Company's history. The Company's statutory combined ratio for 1996
was 108.0 percent versus 100.2 percent for the comparable 1995 period.
The Company's total revenues in 1996 were a record high of $186.6
million, a 16.7 percent increase over 1995's $159.8 million. The 1996
total includes five months of premiums and investment income from the
Citizens Security Group companies which were acquired on July 31,
1996. The effect of the Citizens Security Group acquisition on total
revenues was approximately $15.8 million, including approximately
$14.7 million of net earned premiums and $1.1 million of net
investment income. Incremental net income from the Citizens Security
Group operation for the five month period ended December 31, 1996 was
approximately $0.25 million, or $0.04 per share, net of goodwill
amortization and interest expense.
The Company's largest source of revenue, net earned premiums,
increased 16.3 percent in 1996 to $167.3 million compared to $143.9
million for the 1995 period. Aside from the 10.2 percent increase in
premium volume that resulted from the Citizens Security Group
acquisition, premiums earned by the Meridian operation increased
approximately 6.1 percent, or $8.8 million, over the 1995 total. The
Meridian growth was attributed to nearly all lines of business, with
personal lines production increasing 6.8 percent, commercial lines 5.6
percent and farmowners achieving growth of 2.8 percent in earned
premium volume. Commercial and personal automobile and homeowners
were the primary lines of business contributing to the increased
premium volume. Depressing the commercial lines growth was a
reduction of approximately $1.2 million in assumed earned premiums
from the National Workers' Compensation Pool. Total policy count for
the Meridian products, on a pooled basis, increased by approximately
12,650 policies, or 5.3 percent over the 1995 in-force total.
Net investment income of $14.9 million in 1996 increased 2.4 percent
over 1995's total of $14.6 million. The pre-tax net investment yield
declined slightly to 5.9 percent from 6.1 percent in 1995. The
reduced portfolio yield resulted primarily from a greater proportion
of assets being invested in equity securities and tax-exempt bonds.
The average yield of the fixed maturity portfolio is 6.8 percent. The
investment income generated from the acquired Citizens Security Group
investment portfolio was partially offset by a reduction in the
Meridian portfolio to help fund the purchase. In 1996, the Company
realized net gains on the disposition of invested assets of $3.8
million, or $0.37 per share net of tax, compared to $1.5 million, or
$0.15 per share after tax, for the 1995 period. Nearly all of the
realized gains recognized in 1996 were generated from the sale of
equity securities which are expected to have little impact on future
investment yields.
Heavily impacted by catastrophe losses in 1996, the Company's incurred
losses and loss adjustment expenses of $130.1 million were 31.3
percent higher than the $99.1 million reported for the comparable 1995
period. Approximately $12.2 million of the current year losses
resulted from catastrophe and other weather-related non-catastrophic
claims. This compares to approximately $4.4 million for the 1995
period. The acquisition of the Citizens Security Group business
contributed approximately $9.1 million to the current year loss and
loss adjustment expense total, accounting for over 9 percent of the
increase. Also contributing to the high volume of losses was an
increase in claim severity for Meridian's private passenger automobile
and commercial multiple-peril lines of business. Partially offsetting
these losses were improved results in the Company's workers'
compensation and personal and commercial automobile liability lines of
business. The Company's statutory loss ratio for 1996 deteriorated to
68.9 percent from 1995's 60.2 percent. The statutory loss adjustment
expense ratio of 9.1 percent remained virtually unchanged from 1995
ratio.
The Company's general operating and amortization expenses of $50.2
million for the year ended December 31, 1996 were 11.6 percent higher
than the $45.0 million reported for the same 1995 period. Relative to
earned premium volume, the Company's expense ratio for 1996 improved
to 30.0 percent from 31.3 percent for the prior year. Factors leading
to the reduced expense ratio include certain economies of scale and
decreases in employee incentive compensation, agent profit-sharing and
assessments from certain boards and bureaus. As a result of the
Citizens Security Group acquisition, the Company incurred
approximately $252,000 of additional expense in 1996 for goodwill
amortization and incurred interest expense of approximately $308,000
on the related bank loan.
For the most recent year, the Company recorded income tax expense of
$150,000. The low effective tax rate results primarily from the
amount of tax-exempt investment income in relation to pre-tax income.
1995 Compared to 1994
In 1995, the Company reported record highs in net income of $11.6
million and earnings per common share of $1.72. This compared to 1994
net income of $9.1 million and $1.35 per share. The improved results
were primarily attributed to increased revenues and a reduction in all
three components of the combined underwriting and expense ratio.
Total revenues increased 7.0 percent to $159.8 million from $149.3
million while the 1995 statutory combined ratio improved to 100.2
percent from 101.8 percent for 1994.
Net premiums earned for 1995 reflected 6.6 percent growth to $143.9
million from 1994's $135.0 million. This growth was attributed to
nearly all major lines of business. Meridian's personal lines
production for 1995 experienced growth of 8.7 percent. This was
primarily attributed to the homeowners and private passenger
automobile lines of business, which reflected earned premium growth of
9.7 percent and 7.6 percent, respectively. Farmowners achieved
earnings growth of 10.2 percent while Meridian's commercial lines of
business grew 3.1 percent over the 1994 level. The increase in
commercial lines was attributed primarily to 8.9 percent growth in the
commercial automobile line and 6.7 percent increase in voluntary
workers' compensation business. Depressing the commercial lines
growth was a reduction of nearly $600,000 in assumed earned premiums
from the National Workers' Compensation Pool ("NWCP"). This partially
resulted from actions taken by Meridian to control the type of
workers' compensation business it would accept in states where the
NWCP was unprofitable. The commercial lines growth was also hampered
by soft market conditions, primarily in the state of Michigan where
premium volume declined from the 1994 level. Meridian has addressed
its products, rates and personnel in the state of Michigan and will
continue to monitor these actions for improved results. Total policy
count, on a pooled basis, for 1995 increased by approximately 7,000
policies, or 3.0 percent, over the 1994 total.
Net investment income for 1995 increased 4.1 percent to $14.6 million
from $14.0 million in 1994 resulting primarily from a larger invested
asset base. A reduction in the Company's pre-tax net investment yield
to 6.1 percent in 1995 from 6.4 percent in 1994 primarily was a result
of a greater proportion of common stocks and tax-exempt bonds in the
investment portfolio and increased investment expenses. During 1995
the Company realized gains on the disposition of invested assets of
$1.5 million compared to $0.3 million of realized gains for the prior
year. Such gains were realized primarily on the sale of common stocks
and have an insignificant effect on future investment yields.
The Company's incurred losses and loss adjustment expenses of $99.1
million for 1995 increased 5.5 percent over 1994's $94.0 million,
primarily as a result of the increased volume of business. The
statutory loss and loss adjustment expense ratio improved to 69.2
percent in comparison to 69.8 percent for the previous year. The
Company reflected improved results in its commercial multiple-peril,
homeowner and workers' compensation lines of business. The loss ratio
for commercial multiple-peril improved significantly from 1994's ratio
of 55.5 percent to a 37.6 percent ratio in 1995. Homeowners also
recorded a reduction from 72.9 percent in 1994 to 71.0 percent in
1995. A reduction in liability claims for the current period was the
primary reason for the improvement in these lines of business. The
Company also experienced improved underwriting results in both the
voluntary and involuntary workers' compensation lines. Partially
offsetting these improvements was deterioration in the personal and
commercial automobile and farmowners lines of business. The loss
ratio for personal and commercial auto increased to 67.4 percent from
61.4 percent in 1994 primarily as a result of increased severity. The
deterioration in the farmowners loss ratio to 60.7 percent for 1995
from 56.5 percent in 1994 was caused by a rise in liability claims.
General operating expenses incurred during 1995 of $14.2 million
decreased 2.6 percent from $14.5 million reported for 1994. Lower
state income taxes, reduced assessments from the NWCP and certain
economies of scale were the primary contributors to the expense
reduction. The reduced expenses, combined with a slight reduction in
the Company's average commission rate, produced a statutory expense
ratio of 31.0 percent for the current period compared to 32.0 percent
for the prior year. Amortization expenses of $30.8 million for the
1995 period increased 5.2 percent from $29.3 million, corresponding
with the Company's growth in premium volume.
The Company's effective tax rate in 1995 increased to 26.1 percent
compared to the prior year's 20.9 percent. This increase was
attributed to an overall growth in taxable income causing the Company
to be subject to less relative impact of tax-exempt income and the
dividends received deduction.
Liquidity and Capital Resources:
The Company's primary need for liquidity is to pay shareholder
dividends, and its main source of liquidity is 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 10 of the Notes to Consolidated Financial
Statements.) The principal need of the Company's insurance
subsidiaries for liquid funds is the payment of claims and general
operating expenses in the ordinary course of business. The funds of
the Company's insurance subsidiaries are generally invested in
securities with maturities intended to provide adequate cash to pay
such claims and expenses without forced sales of investments. The
average duration of the fixed maturity portfolio is 4.6 years. Over
the next year, a relatively small portion of the Company's bond
portfolio is scheduled to mature.
Approximately 85 percent of the Company's investment assets are held
in fixed maturities, substantially all of which are believed to be
readily marketable. Within the fixed maturity portfolio, the Company
holds approximately 23 percent in mortgage-backed pass-through
securities and collateralized mortgage obligations. The Company has
attempted to reduce the prepayment risks associated with mortgage-
backed securities by investing a majority of the collateralized
mortgage obligations in planned amortization and very accurately
defined tranches. These investments are designed to alleviate the
risk of prepayment by providing predictable principal prepayment
schedules within a designated range of prepayments. The Company has
no exposure to high risk derivatives in its portfolio.
The Company's fixed income investment portfolio consists almost
entirely of investment grade securities, the average quality of which
is rated Aa / AA. The Company currently holds all of its fixed
maturity investments in the "available-for-sale" category which are
carried at market value. The Company at December 31, 1996 recorded
unrealized gains in the bond portfolio of approximately $2.7 million,
net of deferred income taxes. At year-end 1995, the Company recorded
unrealized gains on the bond portfolio of approximately $4.1 million,
net of deferred income taxes. Net unrealized appreciation of
investments added $1.05 to the Company's $18.02 book value per share
at December 31, 1996, similar to unrealized appreciation adding $1.01
per share to the $17.45 book value at December 31, 1995.
On July 31, 1996, the Company completed the acquisition of Citizens
Security Group Inc. of Red Wing, Minnesota. The Company purchased all
of the outstanding shares of Citizens Security Group and its wholly-
owned property and casualty insurance subsidiaries, Citizens Fund
Insurance Company and Insurance Company of Ohio, for approximately
$30.3 million in cash, including capitalized acquisition costs, and
became affiliated with Citizens Security Mutual Insurance Company.
Approximately 60 percent of the purchase price was generated from the
sale of a portion of the Company's investment portfolio. The
remaining $12 million was financed through bank debt and is being
amortized over seven years with a variable interest rate of LIBOR plus
50 basis points. The acquisition was accounted for as a purchase with
the assets acquired and liabilities assumed being recorded at their
estimated fair value at the date of acquisition. The excess cost over
the fair value of the net assets of approximately $15.1 million was
recorded as goodwill, which is being amortized on a straight-line
basis over a 25 year period.
Beginning in 1994, state insurance regulators required companies to
calculate Risk Based Capital ("RBC"). RBC is the capital required to
cover the varying degrees of risk inherent in a company's assets, loss
reserves, underwriting, and reinsurance. The "company action level"
RBC is the minimum amount of capital required in order to avoid
regulatory action. In 1996, the adjusted capital of the Company's
insurance subsidiaries is well above the required minimum.
Impact of Inflation:
Inflation can have a significant impact on property and casualty
insurers because premium rates are established before the amount of
losses and loss adjustment expenses is known. The Company attempts to
anticipate increases from inflation in establishing rates, subject to
limitations imposed for competitive pricing.
The Company considers inflation when estimating liabilities for losses
and loss adjustment expenses, particularly for claims having a long
period between occurrence and settlement. The liabilities for losses
and loss adjustment expenses are management's estimates of the
ultimate net cost of underlying claims and expenses and are not
discounted for the time value of money. In times of inflation, the
normally higher investment yields may partially offset potentially
higher claims and expenses.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS Page
Report of Independent Accountants 25
Financial Statements:
Consolidated Statement of Income 26
Consolidated Balance Sheet 27
Consolidated Statement of Shareholders' Equity 28
Consolidated Statement of Cash Flows 29
Notes to Consolidated Financial Statements 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Meridian Insurance Group, Inc.
We have audited the accompanying consolidated balance sheet of
Meridian Insurance Group, Inc., and Subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. 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 Meridian Insurance Group, Inc., and Subsidiaries as of December 31,
1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 2, the Company changed its method of accounting
for certain investments in debt and equity securities in 1994.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 26, 1997
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the Years Ended December 31, 1996, 1995 and 1994
December 31,
1996 1995 1994
Premiums earned $167,304,414 $143,865,821 $135,001,881
Net investment income 14,908,285 14,563,820 13,995,984
Net realized investment gains 3,793,778 1,538,281 285,701
Other income (expense) 562,198 (146,345) 54,623
Total revenues 186,568,675 159,821,577 149,338,189
Losses and loss adjustment expenses 130,101,192 99,123,849 93,970,529
General operating expenses 13,766,868 14,155,631 14,527,021
Interest expense 307,887 --- ---
Amortization expenses 36,442,635 30,820,058 29,304,576
Total expenses 180,618,582 144,099,538 137,802,126
Income before taxes 5,950,093 15,722,039 11,536,063
Income taxes (benefit)
Current 702,141 3,554,000 2,574,000
Deferred (552,000) 551,000 (159,000)
Total income taxes 150,141 4,105,000 2,415,000
Net income $ 5,799,952 $ 11,617,039 $ 9,121,063
Weighted average shares outstanding 6,779,284 6,770,081 6,739,712
Per share data:
Net income $ 0.86 $ 1.72 $ 1.35
The accompanying notes are an integral part of the consolidated
financial statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of December 31, 1996 and 1995
December 31,
1996 1995
ASSETS
Investments:
Fixed maturities--available for sale, at market
value (cost $234,356,000 and $213,816,000) $238,343,040 $220,036,772
Equity securities, at market
(cost $33,779,000 and $26,961,000) 40,629,633 31,119,875
Short-term investments, at cost, which
approximates market 1,326,634 2,483,338
Other invested assets 1,390,176 1,053,905
Total investments 281,689,483 254,693,890
Cash 3,128,154 935,098
Premium receivable, net of allowance for bad debts 4,674,984 2,642,425
Accrued investment income 3,241,125 2,942,194
Deferred policy acquisition costs 16,690,275 13,354,600
Goodwill 16,848,829 2,152,339
Reinsurance receivables 45,850,830 32,469,285
Prepaid reinsurance premiums 5,020,605 2,617,138
Due from Meridian Mutual Insurance Company 8,973,672 9,358,803
Other assets 11,679,744 1,422,444
Total assets $397,797,701 $322,588,216
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $161,309,239 $123,577,240
Unearned premiums 84,065,751 64,558,695
Other post-employment benefits 1,417,814 1,298,378
Bank loan payable 11,875,000 ---
Reinsurance payables 8,664,358 6,863,626
Other liabilities 8,291,558 8,047,610
Total liabilities 275,623,720 204,345,549
Shareholders' equity:
Common shares, no par value, Authorized-
20,000,000, Issued-6,805,955 and 6,803,185,
Outstanding-6,779,375 and 6,776,805 at
December 31, 1996 and 1995, respectively 44,077,846 44,076,685
Contributed capital 15,058,327 15,058,327
Unrealized appreciation of investments, net
of deferred income taxes 7,141,846 6,842,245
Retained earnings 55,895,962 52,265,410
Total shareholders' equity 122,173,981 118,242,667
Total liabilities and shareholders' equity $397,797,701 $322,588,216
The accompanying notes are an integral part of the consolidated
financial statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the Years Ended December 31, 1996, 1995 and 1994
Unrealized
Appreciation
Common Contributed (Depreciation) Retained
Shares Capital of Investments Earnings
Balance at January 1,
1994 $ 43,855,319 $ 15,058,327 $ 491,027 $ 35,041,862
Cumulative effect of
accounting change for
certain investments, net of
deferred income taxes --- --- 4,417,201 ---
Net income --- --- --- 9,121,063
Unrealized depreciation of
investment securities, net
of deferred income taxes --- --- (12,189,952) ---
Dividends ($0.24 per share) --- --- --- (1,617,811)
Vested restricted common
shares 35,584 --- --- ---
Exercise of stock options
for 6,925 common shares 39,819 --- --- ---
Balance at December 31,
1994 43,930,722 15,058,327 (7,281,724) 42,545,114
Net income --- --- --- 11,617,039
Unrealized appreciation of
investment securities, net
of deferred income taxes --- --- 14,123,969 ---
Dividends ($0.28 per share) --- --- --- (1,896,743)
Repurchase and retirement of
6,479 common shares (77,033) --- --- ---
Exercise of stock options
for 40,521 common shares 222,996 --- --- ---
Balance at December 31,
1995 44,076,685 15,058,327 6,842,245 52,265,410
Net income --- --- --- 5,799,952
Unrealized appreciation of
investment securities, net
of deferred income taxes --- --- 299,601 ---
Dividends ($0.32 per share) --- --- --- (2,169,400)
Exercise of stock options
for 4,042 common shares 23,241 --- --- ---
Repurchase and retirement of
1,472 common shares (22,080) --- --- ---
Balance at December 31,
1996 $ 44,077,846 $ 15,058,327 $ 7,141,846 $ 55,895,962
The accompanying notes are an integral part of the consolidated
financial statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the Years Ended December 31, 1996, 1995 and 1994
December 31,
1996 1995 1994
Cash flows from operating activities:
Net income $ 5,799,952 $ 11,617,039 $ 9,121,063
Reconciliation of net income to net
cash provided by operating activities:
Realized investment gains (3,793,778) (1,538,281) (285,701)
Amortization 36,442,635 31,257,989 30,202,060
Deferred policy acquisition costs (39,321,446) (32,068,780) (29,181,486)
Increase in unearned premiums 2,034,199 4,895,409 982,535
Increase (decrease) in loss and
loss adjustment expense 11,054,147 (177,410) 3,990,725
Decrease (increase) in amount due
from Meridian Mutual 385,131 (2,548,320) (1,337,003)
Decrease (increase) in reinsurance
receivables (7,352,448) 234,172 (2,303,137)
Decrease (increase) in prepaid
reinsurance premiums (349,547) 2,654 205,510
Decrease (increase) in other assets 2,064,651 66,763 (638,901)
Increase in other post-employment
benefits 119,436 197,223 102,060
Increase (decrease) in reinsurance
payables 1,800,732 972,951 (248,655)
Increase (decrease) in other
liabilities (1,866,664) 116,619 831,814
Other, net (61,732) 755,919 (247,430)
Net cash provided by operating
activities 6,955,268 13,783,947 11,193,454
Cash flows from investing activities:
Purchase of fixed maturities (47,518,736) (39,897,557) (37,157,445)
Proceeds from sale of fixed maturities 38,131,207 17,111,272 18,528,560
Proceeds from calls, prepayments and
maturity of fixed maturities 24,843,739 14,404,070 16,403,055
Purchase of equity securities (19,794,358) (15,735,622) (16,369,601)
Proceeds from sale of equity
securities 18,633,656 9,556,180 10,267,616
Net (increase) decrease in short-term
investments 3,300,088 1,641,491 (2,075,005)
Decrease (increase) in other invested
assets (336,271) 31,366 (347,414)
Acquisition of subsidiary (30,262,442) --- ---
Increase (decrease) in securities
payable (1,533,830) 1,117,355 430,569
Net cash used in investing activities (14,536,947) (11,771,445) (10,319,665)
Cash flows from financing activities:
Repurchase and retirement of common
stock (22,080) (77,033) ---
Exercise of stock options 23,241 222,996 39,819
Proceeds from bank loan 12,000,000 --- ---
Repayment of bank loan (125,000) --- ---
Dividends paid (2,101,426) (1,826,933) (1,617,696)
Net cash provided by (used in) financing
activities 9,774,735 (1,680,970) (1,577,877)
Increase (decrease) in cash 2,193,056 331,532 (704,088)
Cash at beginning of year 935,098 603,566 1,307,654
Cash at end of year $ 3,128,154 $ 935,098 $ 603,566
The accompanying notes are an integral part of the consolidated financial
statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies:
Nature of Operations:
Meridian Insurance Group, Inc. ("the Company"), was organized in
1986 as a subsidiary of Meridian Mutual Insurance Company
("Meridian Mutual"), an Indiana mutual insurance company that
currently owns 46.5 percent of the outstanding common shares of
the Company. The Company is a regional holding company
principally engaged in the business of underwriting property and
casualty insurance through its wholly-owned subsidiaries, Meridian
Security Insurance Company ("Meridian Security"), Citizens Fund
Insurance Company ("Citizens Fund") and Insurance Company of Ohio
("ICO"). Both Citizens Fund and ICO, along with their holding
company, Citizens Security Group Inc. ("CSGI"), were acquired by
the Company on July 31, 1996. (See Note 3.)
Effective August 1, 1996, Citizens Fund , ICO and Citizens
Security Mutual Insurance Company ("Citizens Security Mutual"),
the former majority shareholder of CSGI, became participants in a
reinsurance pooling arrangement with Meridian Mutual and Meridian
Security, in which the underwriting income and expenses of each
entity are shared. The participation percentages of the Company's
insurance subsidiaries total 74 percent. Prior to August 1,
Meridian Security and Meridian Mutual were the only participants
in the reinsurance pooling arrangement, of which Meridian Security
assumed 74 percent of the combined underwriting income and
expenses of the two companies. (See Note 5.)
Meridian Mutual writes a broad line of property and casualty
insurance, including personal and commercial automobile;
homeowners, farmowners and commercial multi-peril; and workers'
compensation. Business is written through approximately 1,075
independent insurance agencies in the states of Illinois,
Indiana, Iowa, Kentucky, Michigan, Ohio, Pennsylvania, Tennessee,
and Wisconsin. Meridian Security is licensed in all states in
which Meridian Mutual is licensed and writes personal and farm
lines in Indiana, Iowa, Kentucky, Ohio, Tennessee, and Wisconsin
through approximately 400 independent insurance agencies, many of
which are cross-licensed with Meridian Mutual. Citizens Fund and
Citizens Security Mutual offer a variety of personal and
commercial insurance products in the states of Iowa, Minnesota,
Missouri, North Dakota, Ohio, South Dakota, and Wisconsin through
a network of 425 independent insurance agencies. ICO writes
personal and commercial products in the state of Ohio through
approximately 92 independent agencies.
Basis of Presentation:
The consolidated financial statements have been prepared on the
basis of generally accepted accounting principles which differ in
some respects from those followed in reports to insurance
regulatory authorities. Certain prior year amounts have been
reclassified to conform to the current-year presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
and disclosure of certain assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Principles of Consolidation:
The consolidated financial statements include the accounts of
Meridian Insurance Group, Inc., and its wholly-owned subsidiaries.
All intercompany transactions have been eliminated.
Investments:
Fixed maturity investments include bonds, notes, mortgage backed
pass-through securities, collateralized mortgage obligations,
other asset backed securities and sinking fund preferred stocks.
The fixed maturity portfolio is invested entirely in securities
classified as available for sale and is carried at quoted market
values. Equity securities, consisting of unaffiliated common and
perpetual preferred stocks, are reported at quoted market values.
Short-term investments are recorded at cost, approximating market
value. Other investments include a limited partnership recorded
on the equity method and a mortgage loan stated at the aggregate
unpaid balance.
Realized gains or losses on disposition of investments are
determined on a specific identification basis. Unrealized gains
and losses resulting from changes in the valuation of both equity
securities and fixed maturities available for sale are recorded
directly in shareholders' equity, net of applicable deferred
income taxes.
The Company regularly evaluates its investments based on current
economic conditions, past credit loss experience and other
circumstances of the Company. A decline in a security's net
market value that is not a temporary fluctuation is recognized as
a realized loss, and the cost basis of that security is reduced.
Premium Revenue:
Premiums are recognized as revenue on a monthly pro rata basis
over the coverage terms of the respective policies. Any premiums
applicable to the future terms of the policies are included in
liabilities as unearned premiums.
Deferred Policy Acquisition Costs:
Policy acquisition costs, principally commissions, premium taxes,
and variable underwriting and policy issue expenses, have been
deferred. Such costs are amortized as premium revenue is earned.
The method used in computing deferred policy acquisition costs
limits the amount of such deferred costs to their estimated
realizable value, and also considers the effects of anticipated
investment income, losses and loss adjustment expenses, and
certain other costs anticipated to be incurred as the premium is
earned. In connection with the acquisition of Citizens Fund and
ICO, the Company allocated a portion of its cost to an asset
representing the estimated equity in the unearned premium reserve
of the acquired book of business. The asset is being amortized as
the related premium revenue is earned.
Goodwill:
The Company's goodwill represents the excess of cost over the fair
value of identifiable net assets acquired from business
acquisitions and is being amortized on a straight-line basis over
a 25-year period.
Losses and Loss Adjustment Expenses:
Reserves for unpaid losses and loss adjustment expenses are based
on both estimates of the ultimate costs of individual claims and
on other non-discounted estimates, such as claims incurred but not
reported and salvage and subrogation. The methods of making such
estimates are continually reviewed and updated, and any reserve
adjustments are reflected in current operating results.
Income Taxes:
Deferred income taxes are provided to reflect the estimated future
tax effects of temporary differences between the tax basis of an
asset or liability and the basis recorded in financial statements.
The deferred tax asset or liability is measured by using enacted
tax rates expected to apply to future taxable income in the
periods in which the temporary differences are expected to be
recovered or settled. Accordingly, changes in future tax rates
cause immediate adjustments to deferred taxes.
Net Income per Share:
Net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the
year.
2.Investments:
Investment income is summarized as follows:
1996 1995 1994
Interest on fixed maturities:
Tax-exempt securities $ 3,875,822 $ 3,578,156 $ 3,050,947
Taxable securities 8,686,144 8,727,315 8,251,261
Dividends on redeemable preferred
stock 2,489,104 2,402,974 2,673,605
Dividends on equity securities 773,238 560,390 339,559
Interest on short-term investments 243,837 247,272 162,067
Other investment income 93,861 84,873 146,698
Total investment income 16,162,006 15,600,980 14,624,137
Investment expenses 1,253,721 1,037,160 628,153
Net investment income $ 14,908,285 $ 14,563,820 $ 13,995,984
Realized and unrealized gains on investments are summarized as follows:
1996 1995 1994
Realized gains (losses):
Fixed maturities $ (456,602) $ 87,370 $ (118,358)
Equity securities 4,559,380 1,458,589 404,059
Other invested assets --- (7,678) ---
Total realized investment gains 4,102,778 1,538,281 285,701
Investment expenses 309,000 --- ---
Net realized investment gains $ 3,793,778 $ 1,538,281 $ 285,701
Net change in unrealized appreciation
(depreciation):
Fixed maturities, available for
sale $ (2,150,596) $ 16,373,654 $(16,819,514)
Equity securities 2,692,197 5,104,315 (1,696,054)
Cumulative effect of accounting
change for certain investments --- --- 6,743,818
Deferred income tax from cumulative
effect of accounting change for
certain investments --- --- (2,326,617)
Deferred income tax benefit
(expense) (242,000) (7,354,000) 6,325,616
Net change in unrealized
appreciation (depreciation) $ 299,601 $ 14,123,969 $ (7,772,751)
Net change in unrealized
depreciation of fixed
maturities, held to maturity $ --- $ (367,533) $ (713,522)
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Under this
statement the Company classified all investment securities into
three categories: held-to-maturity securities carried at
amortized cost; available-for-sale securities carried at fair
value, with the unrealized gains and losses recorded, net of
deferred tax, to shareholders' equity; and trading securities
carried at fair value, with the unrealized gains and losses
reflected in the consolidated statement of income. Initially, the
Company classified approximately 98 percent of its fixed
maturities as "available for sale" and 2 percent as "held to
maturity", with no fixed maturities being assigned to the
"trading" category. The cumulative effect of adopting SFAS No.
115 resulted in a $4,417,201 increase, net of deferred taxes, to
the Company's shareholders' equity. On November 30, 1995, the
Company, as permitted in Q61 of the Financial Accounting Standards
Board ("FASB") Special Report on SFAS No. 115, transferred all
holdings classified as "held to maturity" to the "available for
sale" category. This transaction did not have a material effect
on the Company's financial statements.
The amortized cost and estimated market values of investments in
fixed maturity securities at December 31, 1996 and 1995, are as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
December 31, 1996
Available for sale:
Government and agency
domestic bonds $ 11,441,004 $ 317,830 $ 50,708 $ 11,708,126
Municipal bonds 73,550,278 1,954,019 302,450 75,201,847
Corporate bonds 61,810,087 1,141,551 152,224 62,799,414
Mortgage-backed
securities 54,090,640 714,993 155,481 54,650,152
Sinking fund preferred
stocks 33,464,362 1,080,656 561,517 33,983,501
Total fixed maturity
securities $234,356,371 $5,209,049 $1,222,380 $238,343,040
December 31, 1995
Available for sale:
Government and agency
domestic bonds $ 8,127,012 $ 600,241 $ 3,790 $ 8,723,463
Municipal bonds 72,356,941 2,649,867 371,703 74,635,105
Corporate bonds 40,484,745 1,633,386 5,580 42,112,551
Mortgage-backed
securities 57,037,770 1,425,970 158,915 58,304,825
Sinking fund preferred
stocks 35,809,142 803,950 352,264 36,260,828
Total fixed maturity
securities $213,815,610 $7,113,414 $ 892,252 $220,036,772
The amortized cost and estimated market value of fixed maturity
securities available for sale at December 31, 1996, by contractual
maturity, are shown 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.
Estimated
Amortized Market
Cost Value
Available for sale:
Due in one year or less $ 2,220,935 $ 2,231,573
Due after one year through five years 42,239,968 42,740,774
Due after five years through ten years 48,664,611 49,914,445
Due after ten years through fifteen years 32,881,299 33,865,382
Due after fifteen years through twenty years 5,693,977 5,655,926
Due after twenty years 48,564,941 49,284,788
Subtotal 180,265,731 183,692,888
Mortgage-backed securities 54,090,640 54,650,152
Total fixed maturity securities $234,356,371 $238,343,040
Proceeds from sales of investments in fixed maturity securities
during 1996, 1995 and 1994, respectively, were $38,131,207,
$17,111,272 and $18,528,560. During 1996, 1995 and 1994,
respectively, gross gains of $197,320, $445,260 and $444,784 and
gross losses of $653,922, $357,890 and $563,142 were realized on
those sales.
Unrealized appreciation resulting from changes in the valuation of
equity securities at December 31, 1996 totaled approximately
$6,851,000 representing $7,614,000 of gains on certain securities
and $763,000 of losses on other securities.
3. Acquisition:
On July 31, 1996, the Company acquired Citizens Security Group
Inc. and its property and casualty insurance subsidiaries,
Citizens Fund Insurance Company and Insurance Company of Ohio, for
a cash purchase price of approximately $30,262,000, including
capitalized acquisition costs. Approximately 60 percent of the
purchase price was generated from the sale of a portion of the
Company's investment portfolio and the remainder was financed
through bank debt. (See Note 4). The acquisition was accounted
for as a purchase with the assets acquired and liabilities assumed
being recorded at their estimated fair value at the date of
acquisition. The excess cost over the fair value of the net
assets resulted in goodwill of approximately $15,140,000, which is
being amortized over 25 years on the straight-line basis.
The consolidated financial statements include the results of
operations of the acquired entities from the date of acquisition.
Unaudited pro-forma condensed consolidated results of operations
presented below assume the acquisition and financing of the
transaction had occurred at the beginning of each period
presented:
1996 1995
Premiums earned $185,808,000 $174,501,000
Total revenues $206,201,000 $192,416,000
Net income $ 4,138,000 $ 11,310,000
Net income per share $ 0.61 $ 1.67
These unaudited pro-forma results are not necessarily indicative
of the results of operations that would have occurred had the
acquisition taken place at the beginning of each period, or of
future operations of the combined companies.
Supplemental cash flow information for the acquisition is as
follows:
1996
Fair value of assets acquired $ 77,440,427
Cash paid 30,262,442
Liabilities assumed $ 47,177,985
4.Bank Loan Payable:
The Citizens Security Group acquisition was funded in part through
a $12,000,000 bank loan. The debt has a variable interest rate of
LIBOR plus 50 basis points and will mature on August 1, 2003. The
Company is required to make principal payments in accordance with
the following schedule:
1997 $ 625,000
1998 1,125,000
1999 1,625,000
2000 2,000,000
2001 2,125,000
Thereafter 4,375,000
Total payments outstanding $ 11,875,000
The principal balance of the bank loan as of December 31, 1996
approximates its market value. Interest paid on the loan during
1996 amounted to $187,887. The bank debt includes certain
financial covenants, the most significant of which concern the
amounts of risk based capital, statutory policyholders' surplus,
total debt, debt to capitalization and debt service coverage (the
relationship of dividends available from the Company's insurance
subsidiaries to required principal and interest payments).
5.Related Party Transactions:
Meridian Security, Citizens Fund, ICO, Meridian Mutual and
Citizens Security Mutual are parties to a reinsurance pooling
agreement ("pooling agreement") under which all premiums, losses
and loss adjustment expenses as well as other underwriting
expenses are shared by the companies on the basis of their
percentage participation defined in the pooling agreement. Other
expenses are allocated on the basis of specific identification or
estimated costs. Amounts either due to or due from Meridian
Mutual and Citizens Security Mutual result from these
transactions, and are normally reimbursed on a monthly basis.
Management believes that such expenses would not be materially
different if incurred directly by each company.
Beginning August 1, 1996, the reinsurance pool participation
percentages of the Company's insurance subsidiaries total 74
percent. Prior to August 1, Meridian Security and Meridian Mutual
were the only participants in the aforementioned pooling
arrangement, of which Meridian Security assumed 74 percent of the
combined underwriting income and expenses of the two companies.
For the year ended December 31, 1996, approximately 88 percent of
the Company's total premium volume was derived from its
participation in the pooling agreement. In 1995 and 1994,
approximately 90 percent and 84 percent, respectively, was derived
from the pooling arrangement.
Prior to January 1, 1997, Meridian Security, Citizens Fund and ICO
had no employees and were dependent on the business and operations
of Meridian Mutual and Citizens Security Mutual. Meridian Mutual
had a defined pension plan covering substantially all employees
and a non-tax qualified retirement plan for certain key employees.
Related pension costs allocated to the Company were immaterial to
the results of operations for the periods ended December 31, 1996,
1995 and 1994. The Company also participated in the multi-
employer plan for other post-retirement benefits offered by
Meridian Mutual to employees, including medical benefits for
early retirees (eligible upon attainment of age 55 and five years
of service up to age 65) and group term life insurance that phases
out over a five year period from the retirement date. Related
costs allocated to the Company were approximately $53,000, $98,000
and $102,000 for 1996, 1995 and 1994, respectively.
Effective January 1, 1997, the Company became the employer of all
employees that were formerly employed by Meridian Mutual and
Citizens Security Mutual. This transfer allows for more freedom
in compensation planning, such as more flexibility in the use of
the Company's common stock as compensation, and to improve
internal efficiencies by combining employee benefit plans. As a
result of this transfer, all employee benefit plans that were
previously under Meridian Mutual and Citizens Security Mutual were
merged into Company plans.
The Company's non-insurance subsidiaries are provided office space
and various services by Meridian Mutual and Meridian Security.
Expenses are allocated to such subsidiaries on the basis of
specifically identified or estimated costs.
6. Liability for Losses and Loss Adjustment Expenses:
Activity in the liability for losses and loss adjustment expenses
is summarized as follows:
1996 1995 1994
Balance at beginning of period $123,577,240 $123,754,650 $119,763,925
Less reinsurance recoverables 31,204,462 31,815,440 30,133,606
Net balance at beginning of period 92,372,778 91,939,210 89,630,319
Net reserves acquired (See Note 3) 20,685,369 --- ---
Incurred related to:
Current year 137,817,367 104,584,909 99,444,243
Prior years (7,716,175) (5,461,060) (5,473,714)
Total incurred 130,101,192 99,123,849 93,970,529
Paid related to:
Current year 93,199,000 61,791,602 55,216,000
Prior years 30,470,408 36,898,679 36,445,638
Total paid 123,669,408 98,690,281 91,661,638
Net balance at end of period 119,489,931 92,372,778 91,939,210
Plus reinsurance recoverables 41,819,308 31,204,462 31,815,440
Balance at end of period $161,309,239 $123,577,240 $123,754,650
7.Reinsurance:
The companies participating in the reinsurance pooling agreement
(see Note 5) limit the maximum net loss which can arise from large
risks or risks in concentrated areas of exposure by reinsuring
their insurance business with unrelated third party insurers. 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.
Reinsurance recoverables are estimated in a manner consistent with
the claim liability associated with the reinsured policy.
Insurance ceded by the Company's insurance subsidiaries does not
relieve the subsidiaries' primary liability as the originating
insurers. For the years ended December 31, 1996, 1995 and 1994,
the amounts of unearned premiums that related to third party
reinsurers were approximately $5,021,000, $2,617,000 and
$2,620,000, respectively.
Three types of reinsurance were purchased jointly by Meridian
Mutual and Meridian Security. Treaty reinsurance automatically
covers certain types of policies up to contracted limits.
Facultative reinsurance is purchased on an individual risk basis
and sets specific limits of coverage. Such coverage was purchased
to cover liability and property exposures in excess of $200,000,
up to the limits set forth in the individual treaty. Catastrophe
reinsurance provides coverage for multiple losses caused by a
single catastrophic event such as a windstorm or earthquake. The
combined retention under this contract was $6,000,000 plus five
percent of losses up to the $65,000,000 contract limit ($3,250,000
and $50,000,000, respectively, for years prior to 1996).
Two other catastrophe reinsurance treaties provide coverage for
aggregate losses caused by multiple catastrophic events. The
combined retention under the first of these aggregate excess
contracts was based on 2.5 percent of subject earned premiums,
plus five percent of losses up to the $8,000,000 contract limits,
with a $175,000 deductible per catastrophic event. Retention
under the second aggregate excess contact, effective May 10, 1996,
was $500,000 per quarter, plus five percent of losses up to
$4,500,000 per quarter, with a total contract limit of $12,000,000
and a $250,000 per event deductible.
The reinsurance agreements maintained by Citizens Security Mutual,
Citizens Fund and ICO in 1996 were of two general types,
consisting of excess of loss reinsurance and pro rata reinsurance.
Effective January 1, 1996, the companies entered into a pro rata
reinsurance contract covering 40 percent of each homeowner policy.
Under other reinsurance contracts, the companies retained the
first $300,000 of loss on any one risk on property coverage. The
companies have pro rata reinsurance contracts for property risks
covering losses between $300,000 and $4,600,000 per risk. For
property risks in excess of $4,600,000, the companies negotiate
reinsurance arrangements for each risk on an individual basis.
The casualty reinsurance written by the companies is reinsured for
losses in excess of $250,000 up to a maximum of $5,000,000 per
occurrence. Effective January 1, 1996, the companies entered into
an aggregate excess of loss contract which reinsures losses and
allocated loss adjustment expenses in excess of 62 percent in any
accident year. The reinsurer's obligation is limited to 5 percent
of accident year subject net earned premium. Losses and allocated
adjustment expenses in excess of 67 percent are retained.
Approximately 89 percent of the Company's ceded reserves for
losses and loss adjustment expenses are with Michigan Catastrophic
Claims Association, Employers Reinsurance Corporation and Swiss
Reinsurance America Corporation. Reinsurance recoveries
recognized for the years ended December 31, 1996, 1995 and 1994
were $24,136,000, $1,547,000 and $2,758,000, respectively. The
effect of reinsurance on premiums written and earned for the years
ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
Premiums written:
Direct $181,680,624 $152,596,128 $144,084,372
Assumed 3,730,504 7,269,782 6,132,096
Ceded (16,216,479) (11,102,025) (14,026,543)
Net $169,194,649 $148,763,885 $136,189,925
Premiums earned:
Direct $176,718,644 $149,748,331 $141,275,894
Assumed 6,425,316 5,222,170 5,744,277
Ceded (15,839,546) (11,104,680) (12,018,290)
Net $167,304,414 $143,865,821 $135,001,881
On December 29, 1995, Meridian Mutual entered into an indemnity
reinsurance agreement with Celina Mutual Insurance Company
regarding commercial line business in the state of Pennsylvania.
This transaction was recorded as assumed written premium, which
was earned over the succeeding twelve months. Renewals of these
policies will be recorded as direct business of Meridian Mutual.
Through the pooling agreement, Meridian Security assumed premiums
written of approximately $2,100,000 and ceding commissions of
approximately $409,000.
8. Deferred Policy Acquisition Costs:
Changes in deferred policy acquisition costs are summarized as
follows:
1996 1995 1994
Deferred, beginning of period $ 13,354,600 $ 11,977,429 $ 11,972,069
Additions:
Commissions 30,593,227 25,797,651 23,444,057
Equity in acquired unearned
premium reserve 2,312,841 --- ---
Ceding commission --- 409,350 621,494
Premium taxes 2,458,670 1,625,370 2,108,746
Other 3,956,708 4,236,409 3,007,189
Total Additions 39,321,446 32,068,780 29,181,486
Amortization expense 35,985,771 30,691,609 29,176,126
Deferred, end of period $ 16,690,275 $ 13,354,600 $ 11,977,429
9.Income Taxes:
Current tax expense for the following periods differed from the
tax expected solely on pre-tax income by applying the applicable
statutory corporate tax rate to the various differences identified
as follows:
1996 1995 1994
Tax at statutory rate $ 2,023,000 $ 5,403,000 $ 3,813,000
Tax-exempt interest (1,134,000) (1,005,000) (897,000)
Dividends received deduction (619,000) (598,000) (593,000)
Loss, LAE and Salvage and
subrogation fresh start (17,000) (7,000) (20,000)
Nondeductible expenses 168,000 109,000 74,000
Other (270,859) 203,000 38,000
Total income taxes $ 150,141 $ 4,105,000 $ 2,415,000
The Revenue Reconciliation Act of 1990 required insurance
companies to accrue future recoveries of salvage and subrogation
on a discounted basis. A fresh start of 87 percent of the
beginning 1990 discounted balance was provided for by that act.
The impact of this provision has been calculated at $923,000, of
which no amortization was recognized in 1996. Approximately
$7,000 was recognized in 1995, and $20,000 in 1994. Prior to
1994, $876,000 was recognized.
The Tax Reform Act of 1986 allowed for a fresh start deduction for
reserve discounting requirements. This produced an aggregate tax
benefit of approximately $900,000 of which the Company recognized
approximately $17,000 in 1996. Prior to 1996, the Company had
recognized approximately $855,000 of this benefit.
Under SFAS No. 109, "Accounting For Income Taxes", the Company
recorded a net deferred tax asset in 1996 and 1995, which is
included among other assets. The net deferred tax asset at
December 31, 1996, 1995 and 1994, is comprised of the following:
1996 1995 1994
Deferred tax assets:
Unearned premium reserves $ 5,533,000 $ 4,336,000 $ 3,936,000
Loss and loss adjustment expense
reserves and salvage and
subrogation 6,336,000 4,980,000 5,346,000
Unrealized depreciation on
investment securities --- --- 3,747,000
Other post-employment benefits 496,000 454,000 380,000
Other 875,000 --- 10,000
Total deferred tax assets 13,240,000 9,770,000 13,419,000
Deferred tax liabilities:
Deferred policy acquisition costs 5,842,000 4,674,000 4,132,000
Investments 327,000 178,000 80,000
Unrealized appreciation on
investment securities 3,849,000 3,607,000 ---
Other 425,000 34,000 25,000
Total deferred tax liabilities 10,443,000 8,493,000 4,237,000
Net deferred tax asset $ 2,797,000 $ 1,277,000 $ 9,182,000
The Company has paid income taxes during the last three preceding
years that exceed the recorded deferred income tax asset generated
by operations ($1,678,000 in 1996, $3,248,000 in 1995 and
$2,950,000 in 1994).
10. Statutory Information:
Subsidiary retained earnings available for distribution as
dividends to the Company are limited by law to the statutory
unassigned surplus of the subsidiaries on the previous December 31,
as determined in accordance with the accounting practices
prescribed or permitted by insurance regulatory authorities of the
state of Indiana. Subject to this limitation, the maximum dividend
that may be paid during a 12-month period, without prior approval
of the insurance regulatory authorities is the greater of ten
percent of statutory capital and surplus as of the preceding
December 31 or net income for the preceding calendar year
determined on a statutory basis. Meridian Security declared and
paid dividends to the Company of $3,900,000 in 1996, $2,400,000 in
1995 and $2,200,000 in 1994. As of December 31, 1996,
approximately $9,300,000 was available for distribution to the
Company without prior approval of insurance regulatory
authorities.
The following is selected information for the Company's insurance
subsidiaries, as determined in accordance with accounting practices
prescribed or permitted by the Department of Insurance of their
state of domicile:
1996 1995 1994
Statutory capital and surplus $105,506,000 $ 90,952,000 $ 74,716,000
Statutory net investment income $ 15,809,000 $ 14,733,000 $ 13,927,000
Statutory net income $ 3,307,000 $ 11,625,000 $ 10,097,000
11. Shareholders' Equity:
The Company has an Incentive Stock Plan ("Plan") for the purpose
of attracting and retaining key employees. The maximum number of
common shares authorized for issuance under the Plan is 750,000
shares. Awards under the Plan may include non-qualified and
incentive stock options, stock appreciation rights, and restricted
stock. Options to purchase common shares granted under the Plan are
to have an exercise price of not less than the fair market value of
the Company's common shares on the date of grant. Options are to be
exercisable beginning one year from the date of grant and are to
expire over various periods not to exceed ten years from the date
of grant. Restricted stock awards may be granted subject to terms
and conditions as prescribed by the committee which administers the
Plan.
In November 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement encourages, but does not
require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments to employees
based on the fair value method of accounting. The Company
continues to account for stock options in accordance with
Accounting Principles Board Opinion No. 25. Had compensation cost
been determined using the fair value of the options at the grant
dates in accordance with SFAS No. 123, the Company's net income and
earnings per share for the periods ended December 31, 1996 and 1995
would have been reduced to the following pro-forma amounts:
$143,000 and $53,000 and $0.02 and $0.01, respectively. The fair
value of each option was estimated to be $13.63 and $13.43 on the
date of the grant using the Black-Scholes model with the following
assumptions for 1996 and 1995, respectively: risk free interest
rates of 6.55 percent and 6.70 percent; dividend yield of 2.15
percent and 2.35 percent; and volatility of .314 and .358. As of
December 31, 1996, options outstanding under these plans had an
exercise price that ranged from $11.88 to $15.28 and a remaining
weighted average contractual life of 6 years.
Stock options granted by the Company for the periods ended December
31, 1996, 1995 and 1994 are summarized in the following table:
1996 1995 1994
Weighted Weighted Weighted
Price Shares Price Shares Price Shares
Outstanding at January 1 $11.69 313,781 $10.88 328,401 $ 8.30 97,713
Granted 14.04 31,000 14.27 37,000 11.81 278,280
Exercised during the year 5.75 (4,042) 5.75 (30,521) 10.98 (47,592)
Canceled during the year 9.51 (37,415) 12.20 (21,099) --- ---
Outstanding at December 31 12.28 303,324 11.69 313,781 10.88 328,401
Portion thereof exercisable
at December 31 $12.30 272,324 $11.52 278,781 $ 5.75 50,121
Available for future
grants 220,856 251,856 288,856
12. Unaudited Selected Quarterly Financial Data:
(Amounts in thousands except per-share data)
Quarter Ended
March 31 June 30 September 30 December 31
1996
Revenues $ 41,400 $ 43,262 $ 48,990 $ 52,917
Net income $ 595 $ 702 $ 1,806 $ 2,697
Net income per share $ 0.09 $ 0.10 $ 0.27 $ 0.40
1995
Revenues $ 38,667 $ 39,633 $ 41,400 $ 40,122
Net income $ 2,751 $ 1,261 $ 3,404 $ 4,201
Net income per share $ 0.41 $ 0.19 $ 0.50 $ 0.62
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by
reference to the information contained under the captions "Election of
Directors" and "Executive Compensation" in the Company's definitive
proxy statement to be sent to shareholders in connection with the
annual meeting of shareholders to be held May 14, 1997.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the information contained under the caption "Executive
Compensation" in the Company's definitive proxy statement to be sent
to shareholders in connection with the annual meeting of shareholders
to be held on May 14, 1997.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the information contained under the caption "Beneficial
Ownership of Common Shares" in the Company's definitive proxy
statement to be sent to shareholders in connection with the annual
meeting of shareholders to be held on May 14, 1997.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the information contained under the caption "Certain
Relationships and Transactions" in the Company's definitive proxy
statement to be sent to shareholders in connection with the annual
meeting of shareholders to be held on May 14, 1997.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
(1) Financial Statements:
Report of Independent Accountants
Financial Statements:
Consolidated Statement of Income for the years ended December
31, 1996, 1995 and 1994
Consolidated Balance Sheet as of December 31, 1996 and 1995
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedules
Financial Statement Schedules:
Schedule I -- Summary of Investments Other Than Investments in
Related Parties
Schedule II -- Condensed Financial Information of Registrant
Schedule IV -- Reinsurance
Schedule VI -- Supplemental Information Concerning Property-Casualty
Insurance Operations
Schedules other than those listed above have been omitted
because the required information is contained in the financial
statements and notes thereto or because such schedules are not
required or applicable.
(3) Exhibits:
See Index to Exhibits
(b) Reports on Form 8-K
A report on Form 8-K was filed August 14, 1996, with respect to
Item 2, Item 5, and Item 7 thereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Meridian Insurance Group, Inc.
By: /s/Steven R. Hazelbaker
Steven R. Hazelbaker
Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on March
19, 1997, on behalf of the registrant in the capacities indicated:
/s/ Ramon L. Humke /s/ John T. Hackett
Ramon L. Humke John T. Hackett
Chairman of the Board Director
/s/ Norma J. Oman /s/ David M. Kirr
Norma J. Oman David M. Kirr
President, Chief Executive Officer Director
and Director
/s/ Brent Hartman /s/ Sarah W. Rowland
Brent Hartman Sarah W. Rowland
Senior Vice President Director
/s/ Harold C. McCarthy /s/ Van P. Smith
Harold C. McCarthy Van P. Smith
Director Director
/s/ Joseph D. Barnette, Jr. /s/ Thomas H. Sams
Joseph D. Barnette, Jr. Thomas H. Sams
Director Director
/s/ Scott S. Broughton
Scott S. Broughton
Director
MERIDIAN INSURANCE GROUP, INC.
FORM 10-K
for the fiscal year ended December 31, 1996
Index to Exhibits
Exhibit Number
Assigned in
Regulation S-K
Item 601 Description of Exhibit
(2) 2.01 Acquisition and Affiliation Agreement by and among Citizens
Security Group, Inc., Citizens Security Mutual Insurance
Company and Meridian Insurance Group, Inc. *Page 58
(3) 3.01 Restated Articles of Incorporation of Meridian Insurance
Group, Inc. (Incorporated by reference to Exhibit 3.01 to
the registrant's Form S-1 Registration Statement No.
33-11413.)
3.02 Bylaws of Meridian Insurance Group, Inc. as amended through
December 4, 1996. *Page 117
(4) 4.01 Text of Certificate for Common Shares of Meridian Insurance
Group, Inc. (Incorporated by reference to Exhibit 4.01 to
the registrant's Form S-1 Registration Statement No.
33-11413.)
(9) No exhibit.
(10) 10.01 Form of Supplemental Pension Agreement between Meridian
Mutual Insurance Company and Harold C. McCarthy.
(Incorporated by reference to Exhibit 10.06 to the
registrant's Form S-1 Registration Statement No.
33-11413.) **
10.02 Meridian Insurance Group, Inc., Incentive Stock Plan.
(Incorporated by reference to Exhibit 10.07 to Amendment
No. 1 to the registrant's Form S-1 Registration Statement
No. 33-11413.) **
10.03 The Meridian Mutual Insurance Company Non-employee
Director's Pension Plan. (Incorporated by reference to
Exhibit 10.11 to the registrant's Form 10-K for the fiscal
year ended December 31, 1988; Commission File No.
0-11413.) **
10.04 Form of 1991 Non-qualified Stock Option Agreement under
1987 Meridian Insurance Group, Inc., Employee Incentive
Stock Plan. (Incorporated by reference to Exhibit 19.03
to the registrant's Form 10-K for the fiscal year ended
December 31, 1990; Commission File No. 0-11413.) **
10.05 Meridian Mutual Insurance Company Sharing Success Plan
effective January 1, 1992. (Incorporated by reference
to Exhibit 19.03 to the registrant's Form 10-K for the
fiscal year ended December 31, 1991; Commission File No.
0-11413.) **
10.06 Form of Addendum to Supplemental Pension Agreement between
Meridian Mutual Insurance Company and Harold C. McCarthy.
(Incorporated by reference to Exhibit 19.07 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1991; Commission File No. 0-11413.) **
Exhibit Number
Assigned in
Regulation S-K
Item 601 Description of Exhibit
10.07 Form of Change in Control Agreement between Meridian Mutual
Insurance Company and Norma J. Oman, J. Mark McKinzie,
Brent Hartman, and Steven R. Hazelbaker. (Incorporated by
reference to Exhibit 19.08 to the registrant's Form 10-K
for the fiscal year ended December 31, 1991; Commission
File No. 0-11413.) **
10.08 Property Per Risk Excess of Loss Reinsurance Agreement
between Employers Reinsurance Corporation, Meridian Mutual
Insurance Company and Meridian Security Insurance Company
effective January 1, 1992. (Incorporated by reference to
Exhibit 10.26 to the registrant's Form S-2 Registration
Statement, File No. 33-58406.)
10.09 Multiple Layer Reinsurance Agreement between Employers
Reinsurance Corporation, Meridian Mutual Insurance Company
and Meridian Security Insurance Company effective January
1, 1991. (Incorporated by reference to Exhibit 10.28 to
the registrant's Form S-2 Registration Statement, File
No. 33-58406.) Amendments No. 1 and No. 2 to Multiple Layer
Reinsurance Agreement. (Incorporated by reference to
Exhibit 19.12 to the registrant's Form 10-K for the fiscal
year ended December 31, 1993; Commission File No. 0-11413.)
10.10 Form of 1991 Non-qualified Stock Option Agreement Amendment
effective February 13, 1992. (Incorporated by reference to
Exhibit 19.01 to the registrant's Form 10-K for the fiscal
year ended December 31, 1992; Commission File No.
0-11413.) **
10.11 Meridian Insurance Statement of Policy on Inter-Company
Expense Allocation. (Incorporated by reference to Exhibit
19.06 to the registrant's Form 10-K for the fiscal year
ended December 31, 1992; Commission File No. 0-11413.)
10.12 Reinsurance Pooling Agreement between Meridian Mutual
Insurance Company and Meridian Security Insurance Company
amended and restated as of June 23, 1993. (Incorporated by
reference to Exhibit 19.02 to the registrant's Form 10-K for
the fiscal year ended December 31, 1992; Commission File No.
0-11413.)
10.13 Meridian Insurance Group, Inc., 1994 Outside Director Stock
Option Plan. (Incorporated by reference to Exhibit 19.05
to the registrant's Form 10-K for the fiscal year ended
December 31, 1993; Commission File No. 0-11413.) **
10.14 Commercial and Personal Umbrella Reinsurance Agreement
between Employers Reinsurance Corporation and Meridian
Mutual Insurance Company and Amendments No. 1 through 6
thereto. (Incorporated by reference to Exhibit 19.09 to
the registrant's Form 10-K for the fiscal year ended
December 31, 1993; Commission File No. 0-11413.)
10.15 Personal Excess Liability Reinsurance Agreement between
Employers Reinsurance Corporation and Meridian Mutual
Insurance Company and Amendments No. 1 through 6 thereto.
(Incorporated by reference to Exhibit 19.10 to the
registrant's Form 10-K for the fiscal year ended December
31, 1993; Commission File No. 0-11413.)
Exhibit Number
Assigned in
Regulation S-K
Item 601 Description of Exhibit
10.16 Form of Supplemental Retirement Income Plan for Employees
of Meridian Mutual Insurance Company. (Incorporated by
reference to Exhibit 19.02 of the registrant's Form 10-K
for the fiscal year ended December 31, 1994; Commission
File No. 0-11413.) **
10.17 Form of 1994 Incentive Stock Option Agreement under 1987
Meridian Insurance Group, Inc., Incentive Stock Plan.
(Incorporated by reference to Exhibit 19.03 to the
registrant's Form 10-K for the fiscal year ended December
31, 1994; Commission File No. 0-11413.) **
10.18 Form of 1994 Non-qualified Stock Option Agreement under
1987 Meridian Insurance Group, Inc., Incentive Stock Plan.
(Incorporated by reference to Exhibit 19.04 to the
registrant's Form 10-K for the fiscal year ended December
31, 1994; Commission File No. 0-11413.) **
10.19 Amendment No. 3 to the Multiple Layer Reinsurance Agreement
between Employers Reinsurance Corporation, Meridian Mutual
Insurance Company and Meridian Security Insurance Company
effective January 1, 1991. (Incorporated by reference to
Exhibit 19.05 to the registrant's Form 10-K for the fiscal
year ended December 31, 1994; Commission File No. 0-11413.)
10.20 Amendment No. 7 to Commercial and Personal Umbrella
Reinsurance Agreement between Employers Reinsurance
Corporation and Meridian Mutual Insurance Company.
(Incorporated by reference to Exhibit 19.06 to the
registrant's Form 10-K for the fiscal year ended December
31, 1994; Commission File No. 0-11413.)
10.21 Amendment No. 1 to Property Per Risk Excess of Loss
Reinsurance Agreement between Employers Reinsurance
Corporation, Meridian Mutual Insurance Company and Meridian
Security Insurance Company effective January 1, 1992.
(Incorporated by reference to Exhibit 19.09 to the
registrant's Form 10-K for the fiscal year ended December
31, 1994; Commission File No. 0-11413.)
10.22 Form of Meridian Insurance Agency Profit-Sharing Agreement.
(Incorporated by reference to Exhibit 19.11 to the
registrant's Form 10-K for the fiscal year ended December
31, 1994; Commission File No. 0-11413.)
10.23 Form of Meridian Insurance Agency Agreement. (Incorporated
by reference to Exhibit 19.12 to the registrant's Form 10-K
for the fiscal year ended December 31, 1994; Commission
File No. 0-11413.)
10.24 Form of 1995 Non-qualified Stock Option Agreement under
1987 Meridian Insurance Group, Inc., Employee Incentive
Stock Plan. (Incorporated by reference to Exhibit 10.38 to
the registrant's Form 10-K for the fiscal year ended
December 31, 1995; Commission File No. 0-11413.) **
10.25 Meridian Insurance Group, Inc., 1996 Employee Incentive
Stock Plan. (Incorporated by reference to Exhibit 10.39
to the registrant's Form 10-K for the fiscal year ended
December 31, 1995; Commission File No. 0-11413.) **
Exhibit Number
Assigned in
Regulation S-K
Item 601 Description of Exhibit
10.26 Schedule of reinsurers and their participation percentages
under the Excess Catastrophe Reinsurance Contract issued
to Meridian Mutual Group effective January 1, 1996.
(Incorporated by reference to Exhibit 10.40 to the
registrant's Form 10-K for the fiscal year ended December
31, 1995; Commission File No. 0-11413.)
10.27 Excess Catastrophe Reinsurance Contract effective January
1, 1996, issued to Meridian Mutual Group by the Subscribing
Reinsurers identified therein. (Incorporated by reference
to Exhibit 10.41 to the registrant's Form 10-K for the
fiscal year ended December 31, 1995; Commission File No.
0-11413.)
10.28 Underlying Aggregate Excess Catastrophe Reinsurance
Contract effective January 1, 1996, issued to
Meridian Mutual Group by the Subscribing Reinsurers
identified therein. (Incorporated by reference to
Exhibit 10.42 to the registrant's Form 10-K for the
fiscal year ended December 31, 1995; Commission File
No. 0-11413.)
10.29 Property Excess of Loss Reinsurance Binding Agreement
between Meridian Mutual Group and NAC Reinsurance
Corporation effective June 15, 1995. (Incorporated by
reference to Exhibit 10.44 to the registrant's Form 10-K
for the fiscal year ended December 31, 1995; Commission
File No. 0-11413.)
10.30 Reinsurance Pooling Agreement Amended and Restated as
of August 1, 1996, by and among Meridian Mutual
Insurance Company, Meridian Security Insurance
Company, Citizens Security Mutual Insurance Company,
Citizens Fund Insurance Company, and Insurance
Company of Ohio *Page 126
10.31 Management Services Agreement between Meridian Mutual
Insurance Company and its Affiliates effective August
1, 1996 *Page 131
10.32 Management Services Agreement among Meridian
Insurance Group, Inc., Meridian Mutual Insurance
Company and their Affiliates effective January 1,
1997 *Page 135
10.33 Consulting Services Agreement between Meridian
Insurance Group, Inc., and Scott S. Broughton ** *Page 139
10.34 Stock Option Agreement between Meridian Insurance Group,
Inc., and Scott S. Broughton ** *Page 144
10.35 Claims Administration Agreement by and among Citizens
Security Mutual Insurance Company, Citizens Fund
Insurance Company, Insurance Company of Ohio, and
VIS'N, Inc. *Page 151
10.36 Software and Hardware Support Agreement by and among
Citizens Security Mutual Insurance Company, Citizens Fund
Insurance Company, Insurance Company of Ohio, and
VIS'N, Inc. *Page 165
10.37 Form of Meridian Insurance Agency Profit-Sharing Agreement
*Page 182
10.38 Form of Meridian Insurance New Agent's Incentive Compensation
Agreement *Page 186
Exhibit Number
Assigned in
Regulation S-K
Item 601 Description of Exhibit
10.39 Amendment No. 7 to the Personal Excess Liability
Reinsurance Agreement between Employers Reinsurance
Corporation, Meridian Mutual Insurance Company
Meridian Security Insurance Company, and the Citizens
Security Group *Page 190
10.40 Amendment No. 5 to the Multiple Layer Reinsurance
Agreement between Employers Reinsurance Corporation,
Meridian Mutual Insurance Company, Meridian Security
Insurance Company, and the Citizens Security Group
*Page 192
10.41 Amendment No. 9 to Commercial and Personal Umbrella
Reinsurance Agreement between Employers Reinsurance
Corporation and Meridian Mutual Insurance Company
*Page 198
10.42 Basket Reinsurance Agreement effective January 1, 1997,
among Employers Reinsurance Corporation, Meridian
Mutual Insurance Company, Meridian Security Insurance
Company and Citizens Security Group *Page 200
10.43 Addendum No. 1 to the January 1, 1996, Underlying Aggregate
Excess Catastrophe Reinsurance Contract issued to
Meridian Mutual Group *Page 204
10.44 Excess Catastrophe Reinsurance Contract effective January 1,
1997, issued to Meridian Mutual Group *Page 210
10.45 Underlying Aggregate Excess Catastrophe Reinsurance
Contract issued to Meridian Mutual Group effective
January 1, 1997 *Page 226
10.46 Second Underlying Aggregate Excess Catastrophe Reinsurance
Contract issued to Meridian Mutual Group effective
May, 1996, and Addendum No. 1 effective January
1,1997 *Page 240
10.47 Sixth Excess Catastrophe Reinsurance Program issued to
Meridian Mutual Group effective January 1, 1997 *Page 248
10.48 Seventh Excess Catastrophe Reinsurance Program issued to
Meridian Mutual Group effective January 1, 1997 *Page 262
10.49 Term Loan Agreement and Business Credit Note between NBD
Bank, N.A., and Meridian Insurance Group, Inc., dated
July 29, 1996 *Page 275
10.50 Form of 1997 Non-qualified Stock Option Agreement under
Meridian Insurance Group, Inc., 1996 Employee
Incentive Stock Plan ** *Page 291
10.51 Form of 1997 Incentive Stock Option Agreement under Meridian
Insurance Group, Inc., 1996 Employee Incentive Stock
Plan ** *Page 294
Exhibit Number
Assigned in
Regulation S-K
Item 601 Description of Exhibit
10.52 Written Descriptions of 1996 and 1997 Meridian Insurance
Group, Inc., Executive Incentive Plans *Page 297
10.53 Form of Directors' Non-qualified Stock Option Agreement **
*Page 301
10.54 Deferred Compensation Plan Agreement dated August 1, 1995,
between Citizens Security Mutual Insurance Company
and Scott S. Broughton ** *Page 304
10.55 Form of Citizens Security Group Agency Agreement *Page 315
10.56 Form of Citizens Security Mutual Insurance Company Agency
Agreement *Page 320
10.57 Form of Insurance Company of Ohio Agency Agreement*Page 326
10.58 Form of Citizens Security Group Limited Agency Agreement
*Page 331
10.59 Form of Citizens Security Mutual Insurance Company Personal
Partner Agency Agreement *Page 335
10.60 Form of Citizens Security Group Personal Partner Contingency
Plan *Page 339
10.61 Form of Citizens Security Group Network Agencies Profit
Sharing Plan *Page 342
10.62 Form of Citizens Security Group Individual Agency Profit
Sharing Plan *Page 346
(11) No exhibit.
(12) No exhibit.
(13) No exhibit.
(16) No exhibit.
(18) No exhibit.
(21) 21.01 Revised list of Subsidiaries of Meridian Insurance Group,
Inc. *Page 350
(22) No exhibit.
(23) 23.01 Consent of Independent Accountants dated March 27, 1997
*Page 351
(24) No exhibit.
(27) 27.01 Financial data schedule for Meridian Insurance Group,
Inc., for the year ended December 31, 1996.
Exhibit Number
Assigned in
Regulation S-K
Item 601 Description of Exhibit
(28) 28.01 Combined Statutory Schedule P Loss and Loss
Adjustment Expense Reserves for the Consolidated
Insurance Subsidiaries of Meridian Insurance Group,
Inc., as of December 31, 1996 *Page 352
* Exhibits filed as a part of this document.
** These exhibits represent management contracts, compensatory plans
or arrangements that are required to be filed by Item 601
of Regulation S-K.
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Shareholders and
Board of Directors
Meridian Insurance Group, Inc.
Our report on the consolidated financial statements of Meridian
Insurance Group, Inc., and Subsidiaries is included on page 25 of this
Form 10-K. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedules listed in the index on page 52 of this Form 10-K.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information
required to be included therein.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 26, 1997
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
FORM 10-K
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
Schedule I Summary of Investments Other than Investments
in Related Parties 53
Schedule II Condensed Financial Information of Registrant 54
Schedule IV Reinsurance 56
Schedule VI Supplemental Information Concerning Property-
Casualty Insurance Operations 57
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
SCHEDULE I--SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1996
Amount at
Which Shown
Market in the
Cost Value Balance Sheet
Fixed maturities
Available-for-sale:
Bonds
United States Government and
government agencies and
authorities $ 40,635,377 $ 41,294,992 $ 41,294,992
States, municipalities, and
political subdivisions 93,551,518 95,364,477 95,364,477
Public utilities 1,537,241 1,602,531 1,602,531
All other corporate bonds 65,167,873 66,097,539 66,097,539
Redeemable preferred stocks 33,464,362 33,983,501 33,983,501
Total fixed maturities 234,356,371 238,343,040 238,343,040
Equity securities
Common stocks
Public utilities 1,235,361 1,472,446 1,472,446
Banks, trust, and insurance
companies 2,109,155 2,853,082 2,853,082
Industrial, miscellaneous,
and all other 30,434,530 36,304,105 36,304,105
Total equity securities 33,779,046 40,629,633 40,629,633
Mortgage loan 704,485 704,485 704,485
Other long-term investments 525,000 685,691 685,691
Short-term investments 1,326,634 1,326,634 1,326,634
Total investments $270,691,536 $281,689,483 $281,689,483
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
BALANCE SHEET
as of December 31, 1996 and 1995
ASSETS
1996 1995
Cash and short-term investments $ 2,227,195 $ 1,041,331
Investment in subsidiaries (eliminated in
consolidation) 133,923,863 118,957,091
Other assets 18,890 24,411
Total assets $136,169,948 $120,022,833
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to Meridian Mutual Insurance Company $ 27,517 $ 6,551
Post-employment benefits 1,417,814 1,298,378
Bank loan payable 11,875,000 ---
Dividends payable 542,350 474,376
Other liabilities 133,286 861
Total liabilities 13,995,967 1,780,166
Shareholders' equity:
Common shares 44,077,846 44,076,685
Contributed capital 15,058,327 15,058,327
Unrealized appreciation of investments, net of
deferred income tax 7,141,846 6,842,245
Retained earnings 55,895,962 52,265,410
Total shareholders' equity 122,173,981 118,242,667
Total liabilities and shareholders' equity $136,169,948 $120,022,833
STATEMENT OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Dividend income from subsidiaries $ 3,900,000 $ 2,400,000 $ 2,200,000
Other income 24,656 1,928 780
Less: General operating expenses 727,648 730,704 734,605
Interest expense 307,887 --- ---
Current federal income tax benefit (265,508) (379,345) (314,016)
Income before equity in net income of
subsidiaries 3,154,629 2,050,569 1,780,191
Equity in undistributed net income of
subsidiaries 2,645,323 9,566,470 7,340,872
Net income $ 5,799,952 $ 11,617,039 $ 9,121,063
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT, Continued
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operation:
Net income $ 5,799,952 $ 11,617,039 $ 9,121,063
Reconciliation of net income to net
cash provided (used) by operations:
Equity in undistributed net
income of subsidiaries (2,645,323) (9,566,470) (7,340,872)
Compensation expense related
to restricted stock --- --- 35,584
(Increase) decrease in other
assets 5,521 (5,465) 47,371
Increase (decrease) in due to
Meridian Mutual Insurance
Company 20,966 (54,966) 40,107
Increase in post-employment
benefits 119,436 197,223 102,060
Increase in other liabilities 132,425 861 ---
Other, net (21,848) 243 431
Net cash provided by operations 3,411,129 2,188,465 2,005,744
Cash flows from investing activities:
Capital contribution to subsidiary (12,000,000) --- ---
Net cash used by investing
activities (12,000,000) --- ---
Cash flows from financing activities:
Proceeds from stock options 23,241 222,996 39,819
Repurchase and retirement of common
stock (22,080) (77,033) ---
Proceeds from bank loan 12,000,000 --- ---
Repayment of bank loan (125,000) --- ---
Dividends paid (2,101,426) (1,826,933) (1,617,696)
Net cash provided (used) by financing
activities 9,774,735 (1,680,970) (1,577,877)
Net increase in cash 1,185,864 507,495 427,867
Cash at beginning of year 1,041,331 533,836 105,969
Cash at end of year $ 2,227,195 $ 1,041,331 $ 533,836
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
SCHEDULE IV--REINSURANCE
For the Years Ended December 31, 1996, 1995 and 1994
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies(1) Companies(1) Amount to Net
Property and liability
insurance premiums:
Year ended
December 31,
1996 $176,718,644 $15,839,546 $ 6,425,316 $167,304,414 3.8%
Year ended
December 31,
1995 $149,748,331 $11,104,680 $ 5,222,170 $143,865,821 3.6%
Year ended
December 31,
1994 $141,275,894 $12,018,290 $ 5,744,277 $135,001,881 4.3%
(1) The amounts for the years ended December 31, 1996, 1995 and
1994 represents the Company's insurance subsidiaries share of third
party reinsurance transactions pursuant to the pooling agreement
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
SCHEDULE VI--SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
Year Ended December 31,
1996 1995 1994
Deferred policy acquisition costs $ 16,690,275 $ 13,354,600 $ 11,977,429
Reserves for losses and loss
adjustment expenses $161,309,239 $123,577,240 $123,754,650
Unearned premiums $ 84,065,751 $ 64,558,695 $ 59,663,286
Earned premiums $167,304,414 $143,865,821 $135,001,881
Investment income $ 14,908,285 $ 14,563,820 $ 13,995,984
Losses and loss adjustment expenses
incurred related to:
Current years $137,817,367 $104,584,909 $ 99,444,243
Prior years $ (7,716,175) $ (5,461,060) $ (5,473,714)
Amortization of deferred policy
acquisition costs $ 35,985,771 $ 30,691,609 $ 29,176,126
Paid losses and loss adjustment
expenses $123,669,408 $ 98,690,281 $ 91,661,638
Premiums written $169,194,649 $148,763,885 $136,189,925
REINSURANCE POOLING AGREEMENT
AMENDED AND RESTATED AS OF AUGUST 1, 1996
THIS REINSURANCE POOLING AGREEMENT (the "Agreement")
made by and among Meridian Mutual Insurance Company
("Mutual"), Meridian Security Insurance Company
("Security"), Citizens Security Mutual Insurance Company
("Citizens"), Citizens Fund Insurance Company ("Fund"), and
Insurance Company of Ohio ("ICO")is entered into effective
12:01 a.m. on the first day of August, 1996, (the "Effective
Time") and shall remain in force continuously thereafter
until cancelled at any time by mutual consent.
WHEREAS Mutual and Security have been parties to this
Agreement since January 1, 1981; and
WHEREAS Meridian Insurance Group, Inc. has become
affiliated with Citizens and has acquired Fund and ICO as of
the Effective Time and believes it is in the best interests
of Citizens, Fund, and ICO for them to be parties to this
Agreement; and
WHEREAS Citizens, Fund, ICO, and Citizens Security
Group Inc. entered into an amended reinsurance pooling
agreement effective October 20, 1989, which agreement the
parties, including Meridian Merger Corporation as successor
to Citizens Security Group Inc., desire to terminate as of
the Effective Time of this Agreement, thereby agreeing to
waive the one-hundred-eighty-day written termination notice
requirement contained in the amended reinsurance pooling
agreement;
NOW, THEREFORE, do Citizens, Fund, ICO, and Meridian
Merger Corporation hereby terminate, as of the Effective
Time of this Agreement, that amended reinsurance pooling
agreement executed October 20, 1989, by and among Citizens,
Fund, ICO, and Citizens Security Group Inc., and
simultaneously herewith Citizens, Fund, and ICO agree to
become parties to this Agreement as witnessed by their
signatures affixed to this Agreement.
ARTICLE I
The Companies are engaged in the insurance business and
maintain a mutual relationship having certain incidents of
common management, and desire to bring about for each other
added economies of operation, uniform underwriting results,
diversification as respects the classes of insurance
business written, and maximization of capacity. To
accomplish the aforesaid, the Companies do by means of this
Agreement, pool all of their insurance business in force as
of the Effective Time of this Agreement or thereafter and
agree to share in the fortunes of their pooled insurance
business.
ARTICLE II
Mutual hereby reinsures and Security, Citizens, Fund, and
ICO hereby cede and transfer to Mutual all liabilities
incurred under or in connection with all contracts and
policies of insurance issued by Security, Citizens, Fund,
and ICO outstanding and in force as of the Effective Time of
this Agreement, or thereafter issued by them. Such
liabilities shall include Security's, Citizens', Fund's, and
ICO's reserves for unearned premiums, outstanding losses and
loss expenses (including unreported losses), all other
underwriting and administrative expenses which shall include
service fee income and premium balances charged off as
uncollected receivables, and policyholder dividends as
evidenced by their books and records, but shall not include
inter-company balances, service fee income, liabilities for
Federal Income Taxes, or liabilities incurred in connection
with Security's, Citizens', Fund's, and ICO's investment
transactions.
ARTICLE III
Security, Citizens, Fund, and ICO hereby assign and transfer
to Mutual all right, title and interest in and to
reinsurance ceded to reinsurers, other than the parties
hereto, outstanding and in force with respect to the
liabilities reinsured by Mutual under Article II hereof.
ARTICLE IV
Each of Security, Citizens, Fund, and ICO agrees to pay to
Mutual amounts equal to the aggregate of all of its
liabilities reinsured by Mutual under Article II hereof.
ARTICLE V
Security, Citizens, Fund, and ICO hereby reinsure, and
Mutual hereby cedes and transfers to each of them the
following percentage of Mutual's net liabilities under all
contracts and policies of insurance (including those
reinsured by Mutual under Article II hereof) on which Mutual
is subject to liability and which are outstanding and in
force as of the Effective Time of
this Agreement, or which are issued thereafter:
61 percent ceded to Security;
4 percent ceded to Citizens;
9 percent ceded to Fund;
4 percent ceded to ICO.
Such liabilities shall include Mutual's reserves for
unearned premiums, outstanding losses and loss expense
(including unreported losses), all other underwriting and
administrative expenses which shall include service fee
income and premium balances charged off as uncollected
receivables, and policyholder dividends but shall not
include inter-company balances, service fee income,
liabilities for Federal Income Taxes or liabilities incurred
in connection with Mutual's investment transactions.
ARTICLE VI
Mutual hereby assigns and transfers to each of Security,
Citizens, Fund, and ICO assets in the amount equal to the
aggregate of all liabilities of Mutual reinsured by that
specific company under Article V hereof.
ARTICLE VII
Mutual agrees to pay to Security, Citizens, Fund, and ICO
their specified participation, as listed in Article V, of
all premiums written by the companies after first deducting
premiums on all reinsurance ceded to reinsurers (other than
the parties hereto). Similarly, it is further agreed that
all losses, loss expenses and other underwriting and
administrative expenses which shall include service fee
income and premium balances charged off as uncollected
receivables, (with the exceptions noted in Article II and V
hereof) of the companies, less all losses and expenses
recovered and recoverable under reinsurance ceded to
reinsurers (other than the parties hereto), shall be pro-
rated among all five parties on the basis of their
respective participations.
ARTICLE VIII
The obligation of the companies under this Agreement to
exchange reinsurance between themselves may be offset by the
reciprocal obligations so that the net amount only shall be
required to be transferred. An accounting on all
transactions shall be rendered quarterly, or more often as
may be mutually agreed, and shall be settled within a
reasonable time thereafter. Except as otherwise required by
the context of this Agreement, the amount of all payments
between the companies under this Agreement shall be
determined on the basis of the convention form of annual
statements of the companies. Notwithstanding anything
herein contained, this Agreement shall not apply to the
investment operations of the companies, but this provision shall not
prohibit other agreements pertaining to the intercompany
allocation or sharing of investment expense.
ARTICLE IX
The conditions of reinsurance hereunder shall in all cases
be identical with the conditions of the original insurance
or as changed during the term of such insurance.
ARTICLE X
Each of the companies hereto, as the assuming insurer,
hereby agrees that all reinsurance made, ceded, renewed or
otherwise becoming effective under this Agreement shall be
payable by the assuming insurer on the basis of the
liability of the ceding insurer under the policy or contract
reinsured without diminution because of the insolvency of
the ceding insurer; provided that such reinsurance shall be
payable directly to the ceding insurer or to its liquidator,
receiver or other statutory successor, except (a) where the
contract specifically provided another payee for such
reinsurance in the event of the insolvency of the ceding
insurer and (b) where the assuming insurer, with the consent
of the direct insured or insureds and with the approval of
the appropriate insurance department if such approval is
required by state law, has assumed such policy obligations
of the ceding insurer as direct obligations of the assuming
insurer to the payees under such policies and in
substitution for the obligations of the ceding insurer to
such payee; and further provided that the liquidator,
receiver or statutory successor of the ceding insurer shall
give written notice of the pendency of any claim against the
insolvent ceding insurer on the policy or contract reinsured
within a reasonable time after such claim; and the assuming
insurer may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses which it may deem
available to the ceding insurer or its liquidator, receiver
or statutory successor, the expense thus incurred by the
assuming insurer to be chargeable, subject to court
approval, against the insolvent ceding insurer as part of the
expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the ceding insurer solely as a
result of the defense undertaken by the assuming insurer.
ARTICLE XI
This Agreement has no fixed term and is terminable with
respect to any one of Security, Citizens, Fund, or ICO
(herein the "terminating party") by the mutual consent of
Mutual and the terminating party or parties. This Agreement
may be amended or terminated without the necessity of a vote
by the shareholders or the policyholders of any of the
parties. In the event of termination of this Agreement, the
terminating party shall transfer back to Mutual the
liabilities ceded to it by Mutual, and Mutual shall transfer
back to the terminating party the liabilities ceded to it by
the terminating party, and each party shall receive from the
other assets in an amount equal to the amount of the policy
liabilities received by it.
IN WITNESS WHEREOF, this Agreement is entered into as of the
date written above.
MERIDIAN MUTUAL INSURANCE COMPANY
By
Norma J. Oman, President
Attest:
J. Mark McKinzie, Secretary
MERIDIAN SECURITY INSURANCE COMPANY
By
Norma J. Oman, President
Attest:
J. Mark McKinzie, Secretary
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
By__________________________________
Norma J. Oman, President
Attest:___________________________
J. Mark McKinzie, Secretary
CITIZENS FUND INSURANCE COMPANY
By______________________________________
Norma J. Oman, President
Attest:____________________________
J. Mark McKinzie, Secretary
INSURANCE COMPANY OF OHIO
By_____________________________________
Norma J. Oman, President
Attest:____________________________
J. Mark McKinzie, Secretary
MANAGEMENT SERVICES AGREEMENT
BETWEEN MERIDIAN MUTUAL INSURANCE COMPANY
AND ITS AFFILIATES
THIS AGREEMENT, made as of this 31 day of July, 1996,
by and among Meridian Mutual Insurance Company ("Meridian"),
Meridian Insurance Group, Inc. ("MIGI"), Meridian Security
Insurance Company ("Security"), Vernon Fire and Casualty
Insurance Company ("Vernon"), MarketMasters Agency, Inc.
("MarketMasters"), Meridian Service Corporation ("Service"),
Citizens Security Mutual Insurance Company ("Citizens"),
Citizens Fund Insurance Company ("Fund"), Insurance Company
of Ohio ("ICO"), and Mississippi Valley Corporation
("Valley"). Security, Vernon, MIGI, MarketMasters,
Service, Citizens, Fund, ICO, and Valley are sometimes
referred to herein as the "affiliates."
WHEREAS Mutual desires to make available to its
affiliates and the affiliates desire to obtain from Mutual
some or all of the following: the services of Mutual's
executive, managerial, administrative and other employees,
its data processing services, and the use of its equipment,
supplies, communication and other facilities, together with
the use of office space, all of which may be used jointly by
the affiliates and Mutual;
NOW, THEREFORE, in consideration of the premises and
the mutual promises contained herein, the parties hereto
agree as follows:
1. Mutual shall provide to the affiliates as is
reasonably required by the affiliates in connection with the
affiliates' business operations, the services of Mutual's
executive, managerial, administrative and other employees,
together with Mutual's data processing services and all of
Mutual's equipment, supplies, telephone, communication,
office and support facilities, and any other personnel or
facilities employed, owned or leased by Mutual from time to
time in the course of its business operations. Any of
Mutual's employees may also serve as directors or officers
of the affiliates, notwithstanding that such persons may
also be officers or directors of Mutual. Mutual shall have
the right to continue using for its business operations all
of its employees, services and facilities provided to the
other parties hereunder. To the extent reasonably possible,
the parties shall jointly utilize Mutual's employees,
services and facilities in a cooperative manner and
consistent with the best business interests and needs of the
affiliates and Mutual.
2. The employees, services and facilities provided by
Mutual to the affiliates hereunder shall be made available
to assist the affiliates in the following areas as needed:
(a) insurance and reinsurance operations;
(b) corporate analysis and planning;
(c) investments
(d) information and advertising;
(e) communication;
(f) personnel;
(g) offices and facilities;
(h) legal, regulatory and governmental affairs;
(i) data processing; and
(j) any and all other areas necessary or
appropriate to the business operations of the
affiliates. Mutual shall direct its employees, in
performing such services for the affiliates, to
use their best efforts to promote the general
interests and economic welfare of the affiliates
in the same manner as such employees provide
services to their direct employer.
3. Each affiliate shall pay to Mutual for the
employees, services and facilities provided hereunder, in
arrears the fifteenth day of each calendar month during the
term of this Agreement, an amount equal to all Mutual's
costs relating to the following:
(a) salaries;
(b) employee benefit and pension plans;
(c) employee relations and welfare;
(d) payroll taxes and donations;
(e) insurance;
(f) travel;
(g) rental and rent items;
(h) equipment;
(i) data processing;
(j) printing and stationery;
(k) advertising;
(l) postage;
(m) telephone and telegraph;
(n) duplicating;
(o) supplies; and
(p) any similar or additional expenses arising in
connection with the employees, services and
facilities provided hereunder or as the parties
may agree upon from time to time; provided,
however, that no affiliate shall be responsible
for any expenses of Mutual which do not relate to
the employees, services or facilities provided by
Mutual to that affiliate hereunder.
The amounts due from each affiliate hereunder shall be
recomputed by Mutual on a quarterly, semi-annual or annual
basis as appropriate to accurately determine such amounts,
using generally accepted cost accounting principles and
appropriate bases of allocation supported by work papers.
Any resulting adjustments shall be settled between the
parties or credited to future payment periods as may be
determined by Mutual. Mutual shall make its books and
records available to the affiliates during regular business
hours for the affiliates to verify the accuracy of the
calculations by Mutual of the payments due from the
affiliates hereunder.
4. Any notices to be given hereunder shall be in
writing and shall be deemed effective when delivered in
person or, if mailed, two days after mailing first class
prepaid, to the address of the principal office of the party
to which the notice is being given.
5. This Agreement may not be assigned by any party
without the prior written consent of the other party. The
provisions of this Agreement shall bind and inure to the
benefit of the parties and their respective successors and
permitted assigns.
6. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter
hereof and supersedes all prior or contemporaneous
agreements with respect thereto. Any modifications or
amendments to this Agreement must be in writing and signed
by the parties to be bound.
7. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana both as
to execution and performance.
8. Nothing contained in this Agreement shall impair
the authority and responsibility of the Board of Directors
of any of the affiliates to exercise managerial control as
provided in said companies' Articles of Incorporation.
9. This Agreement shall remain in force until
terminated as provided herein. Any party to this Agreement
may terminate this Agreement by giving written notice to the
other party, stating a date certain not less than 30 days
hence on which such termination will become effective.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
MERIDIAN MUTUAL INSURANCE COMPANY
By:__________________________________
Title: President and Chief
Executive Officer
MERIDIAN SECURITY INSURANCE COMPANY
By:__________________________________
Title: President and Chief
Executive Officer
MERIDIAN INSURANCE GROUP, INC.
By:__________________________________
Title: President and Chief
Executive Officer
VERNON FIRE & CASUALTY INSURANCE COMPANY
By:_______________________________________
Title: President and Chief Executive Officer
MARKETMASTERS AGENCY, INC.
By:________________________________________
Title:President and Chief Executive Officer
MERIDIAN SERVICE CORPORATION
By:________________________________________
Title: President and Chief Executive Officer
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
By:_____________________________________
Title: President and Chief Executive Officer
CITIZENS FUND INSURANCE COMPANY
By:____________________________________
Title: President and Chief Executive Officer
INSURANCE COMPANY OF OHIO
By:____________________________________
Title: President and Chief Executive Officer
MISSISSIPPI VALLEY CORPORATION
By:____________________________________
Title: President and Chief Executive Officer
MANAGEMENT SERVICES AGREEMENT
AMONG MERIDIAN INSURANCE GROUP, INC.,
MERIDIAN MUTUAL INSURANCE COMPANY
AND THEIR AFFILIATES
THIS AGREEMENT, made as of this 1st day of January,
1997, by and among Meridian Insurance Group, Inc.
("Meridian"), Meridian Mutual Insurance Company ("Mutual"),
Meridian Security Insurance Company ("Security"), Meridian
Service Corporation ("Service"), Citizens Security Mutual
Insurance Company ("Citizens"), Citizens Fund Insurance
Company ("Fund"), Insurance Company of Ohio ("ICO"), and
Mississippi Valley Corporation ("Valley"). With reference to
Meridian, the word "affiliates" in this Agreement means
Mutual, Security, Service, Citizens, Fund, ICO, and Valley.
With reference to Mutual, the word "affiliates" in this
Agreement means Meridian, Security, Service, Citizens, Fund,
ICO, and Valley.
WHEREAS the Boards of Directors of Meridian, Mutual,
and Citizens have resolved to change the employer and
paymaster of all company employees from Mutual or Citizens
to Meridian Insurance Group, Inc. effective January 1, 1997;
and
WHEREAS Meridian desires to make available to its
affiliates and its affiliates desire to obtain from Meridian
certain services of Meridian's executive, managerial,
administrative and other employees and human resources; and
WHEREAS Mutual desires to make available to its
affiliates its data processing services and the use of its
equipment, supplies, communication and other facilities,
together with the use of office space, all of which may be
used jointly by the affiliates and Mutual;
NOW, THEREFORE, in consideration of the premises and
the mutual promises contained herein, the parties hereto
agree as follows:
1. Meridian shall provide to the affiliates, as is
reasonably required by the affiliates in connection with the
affiliates' business operations, the services of Meridian's
executive, managerial, administrative and other employees
and human resources. Any of Meridian's employees may also
serve as directors or officers of the affiliates,
notwithstanding that such persons may also be officers or
directors of Meridian. Meridian shall have the right to
continue using for its business operations all of its
employees provided to the other parties hereunder. To the
extent reasonably possible, the parties shall jointly
utilize Meridian's employees in a cooperative manner and
consistent with the best business interests and needs of the
affiliates and Meridian. Meridian shall direct its
employees, in performing such services for the affiliates,
to use their best efforts to promote the general interests
and economic welfare of the affiliates in the same manner as
such employees provide services to their direct employer.
2. Mutual shall provide to the affiliates, as is
reasonably required by the affiliates in connection with the
affiliates' business operations, Mutual's data processing
services and all of Mutual's equipment, supplies, telephone,
communication, office and support facilities, and any other
facilities owned or leased by Mutual from time to time in
the course of its business operations. Mutual shall have
the right to continue using for its business operations all
of its services and facilities provided to the other parties
hereunder. To the extent reasonably possible, the parties
shall jointly utilize Mutual's services and facilities in a
cooperative manner and consistent with the best business
interests and needs of the affiliates and Mutual.
3. The employees, services and facilities provided by
Meridian and Mutual to their affiliates hereunder shall be
made available to assist the affiliates in the following
areas as needed:
(a) insurance and reinsurance operations;
(b) corporate analysis and planning;
(c) investments;
(d) information and advertising;
(e) communication;
(f) personnel;
(g) offices and facilities;
(h) legal, regulatory and governmental affairs;
(i) data processing; and
(j) any and all other areas necessary or
appropriate to the business operations of
the affiliates.
4. Each affiliate shall pay to Meridian for the
employees and to Mutual for the services and facilities
provided hereunder an amount equal to all Meridian's and
Mutual's costs relating to the following:
(a) salaries;
(b) employee benefit and pension plans;
(c) employee relations and welfare;
(d) payroll taxes and donations;
(e) insurance;
(f) travel;
(g) rental and rent items;
(h) equipment;
(i) data processing;
(j) printing and stationery;
(k) advertising;
(l) postage;
(m) telephone and telegraph;
(n) duplicating;
(o) supplies; and
(p) any similar or additional expenses arising in
connection with the employees, services and
facilities provided hereunder or as the parties
may agree upon from time to time; provided,
however, that no affiliate shall be responsible
for any expenses of Meridian which do not relate
to the employees provided by Meridian to that
affiliate hereunder or any expenses of Mutual
which do not relate to the services or facilities
provided by Mutual to that affiliate hereunder.
Such payments shall be made in arrears on the fifteenth
day of each calendar month (or more often as agreed upon by
the parties) during the term of this Agreement.
The amounts due from each affiliate hereunder shall be
recomputed by Meridian and Mutual on a quarterly, semi-
annual or annual basis as appropriate to accurately
determine such amounts, using generally accepted cost
accounting principles and appropriate bases of allocation
supported by work papers. Any resulting adjustments shall
be settled between the parties or credited to future payment
periods as may be determined by Meridian and Mutual.
Meridian and Mutual shall make their books and records
available to the affiliates during regular business hours
for the affiliates to verify the accuracy of the
calculations by Meridian and Mutual of the payments due from
the affiliates hereunder.
5. Any notices to be given hereunder shall be in
writing and shall be deemed effective when delivered in
person or by facsimile or, if mailed, two days after mailing
first class prepaid, to the address of the principal office
of the party to which the notice is being given.
6. This Agreement may not be assigned by any party
without the prior written consent of the other party. The
provisions of this Agreement shall bind and inure to the
benefit of the parties and their respective successors and
permitted assigns.
7. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter
hereof and supersedes all prior or contemporaneous
agreements with respect thereto. Any modifications or
amendments to this Agreement must be in writing and signed
by the parties to be bound.
8. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana both as
to execution and performance.
9. Nothing contained in this Agreement shall impair
the authority and responsibility of the Board of Directors
of any of the affiliates to exercise managerial control as
provided in said companies' Articles of Incorporation.
10. This Agreement shall remain in force until
terminated as provided herein. Any party to this Agreement
may terminate this Agreement by giving written notice to the
other party, stating a date certain not less than 30 days
hence on which such termination will become effective.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
MERIDIAN INSURANCE GROUP, INC.
By:________________________________
Title: President and Chief Executive Officer
MERIDIAN MUTUAL INSURANCE COMPANY
By:________________________________
Title: President and Chief Executive Officer
MERIDIAN SECURITY INSURANCE COMPANY
By:________________________________
Title: President and Chief Executive Officer
MERIDIAN SERVICE CORPORATION
By:________________________________
Title: President and Chief Executive Officer
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
By:________________________________
Title: President and Chief Executive Officer
CITIZENS FUND INSURANCE COMPANY
By:________________________________
Title: President and Chief Executive Officer
INSURANCE COMPANY OF OHIO
By:________________________________
Title: President and Chief Executive Officer
MISSISSIPPI VALLEY CORPORATION
By:________________________________
Title: President and Chief Executive Officer
CONSULTING SERVICES AGREEMENT
This CONSULTING SERVICES AGREEMENT (this
"Agreement") is made and entered into as of July 31, 1996 by
and between MERIDIAN INSURANCE GROUP, INC., an Indiana
corporation (the "Company"), and SCOTT S. BROUGHTON
("Broughton").
Recitals
A. Effective as of the date of this Agreement, a
direct or indirect wholly-owned subsidiary of the Company
has been merged with and into Citizens Security Group Inc.
("Citizens"), with the result that Citizens and its wholly-
owned subsidiaries, Citizens Fund Insurance Company
("Citizens Fund") and Insurance Company of Ohio ("Citizens
Ohio"), have become indirect wholly-owned subsidiaries of
the Company. In addition, effective as of the date of this
Agreement, Citizens Security Mutual Insurance Company
("Citizens Mutual") has become affiliated with the Company.
These transactions have occurred pursuant to an Acquisition
and Affiliation Agreement dated as of March 20, 1996, by and
among the Company, Citizens and Citizens Mutual (the
"Acquisition and Affiliation Agreement").
B. Prior to the date of this Agreement, Citizens
Mutual, Citizens Fund and Citizens Ohio (collectively, the
"Citizens Insurance Companies") had been jointly operated
and managed under a management services agreement, a
reinsurance pooling agreement and other arrangements, and
Broughton had served for several years as an employee and
officer of Citizens and the Citizens Insurance Companies,
most recently as President and Chief Operating Officer.
C. The Company wishes to maintain continuity of
profitable, growing operations and management expertise for
the Citizens Insurance Companies and, in view of the
importance of Broughton's continued support for the combined
enterprise and his unique institutional background and
contributions toward building Citizens and the Citizens
Insurance Companies, the Company desires to retain the
services of Broughton, and Broughton is willing to perform
services as an independent consultant, all on the terms and
conditions set forth in this Agreement.
Agreement
In consideration of the foregoing and of the
mutual covenants set forth herein, the Company and Broughton
hereby agree as follows:
Section 1. Services of Broughton. From the date
of this Agreement through July 31, 2001, Broughton shall, as
and when requested by the Company, provide consulting
services, advice and assistance to the Company in connection
with (a) the management and operations of Citizens and the
Citizens Insurance Companies, (b) the integration of the
operations and employees of Citizens and the Citizens
Insurance Companies with the other insurance company
subsidiaries and affiliates of the Company, (c) Citizens and
the Citizens Insurance Companies' relationships with its
employees, agents, lenders, regulators and others, (d) the
historical relationships and background relating to Citizens
and the Citizens Insurance Companies, and (e) other matters
relating to the operations and business of Citizens and the
Citizens Insurance Companies; and Broughton shall assist the
Company in such other capacities and provide such other
services as the Company may from time to time reasonably
request. Broughton shall use good faith efforts to respond
to requests for his services under this Agreement in a
timely, responsive and efficient manner; provided however,
that the Company acknowledges that Broughton shall not be
expected to provide full time services. Broughton is not an
agent of the Company, Citizens or any of the Citizens
Insurance Companies, and except as may be expressly directed
by the Company, Broughton is not authorized to take any
actions binding upon or in the name of the Company, Citizens
or any of the Citizens Insurance Companies.
Section 2. Compensation of Broughton. As sole
compensation for the services to be performed by Broughton
and for the non-compete and confidentiality provisions under
this Agreement:
(a) The Company shall pay to Broughton a
consulting fee at the rate of $175,000 per year. Such
fee shall be payable at the rate of $14,583.33 per
month and shall be paid to Broughton on the last day of
each month beginning August 31, 1996 and ending July
31, 2001.
(b) Broughton and the Company shall enter into
the Stock Option Agreement in the form attached to this
Agreement as Exhibit A, providing for the Company's
grant to Broughton of an option to purchase 20,000
shares of the Company's common stock.
(c) As additional compensation, in the event of
Broughton's death or disability during the term of this
Agreement, the Company shall continue to make the
payments provided for in Section 2(a) to Broughton or
to his estate.
The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as may be
required to be withheld pursuant to applicable law or
regulation. Broughton acknowledges that the compensation
set forth in this section shall be his sole compensation
under this Agreement and that he is not entitled to
additional payments or benefits of any kind pursuant to this
Agreement.
Section 3. Expenses. The Company shall reimburse
Broughton for all ordinary and necessary expenses incurred
by him in carrying out consulting services and assistance
requested by the Company under this Agreement. The Company,
however, retains the right to establish limits on types or
amount of expenses that Broughton may incur.
Section 4. Non-Compete and Non-Disclosure.
During the term of this Agreement, Broughton shall not:
(a) engage directly or indirectly in the
insurance business in competition with any of the
Citizens Insurance Companies, the Company or any of the
Company's direct or indirect subsidiaries or
affiliates, in any geographic area in which any of the
Citizens Insurance Companies are or have been engaged
in the insurance business;
(b) engage in any business with or directly or
indirectly solicit business from or seek to engage in
any business with any agents or policyholders of any of
the Citizens Insurance Companies, on his own behalf or
on behalf of any other person, if such business
involves products or services the same as or
competitive with products or services provided to such
agents or policyholders by any of the Citizens
Insurance Companies or by the Company or any of the
Companies' direct or indirect subsidiaries or
affiliates;
(c) solicit, take away, hire, employ or endeavor
to employ any person who is then an employee of any of
the Citizens Insurance Companies, the Company or any of
the Company's direct or indirect subsidiaries or
affiliates;
(d) acquire or assist in any manner whatsoever
any person in acquiring any insurance company or
insurance business or the assets of any insurance
company or insurance business if such company or
business is located within any geographical territory
within which any of the Citizens Insurance Companies,
the Company or any of the Company's insurance company
subsidiaries or affiliates is regularly engaged in
business; or
(e) disclose confidential information of any of
the Citizens Insurance Companies, the Company or any of
the Company's direct or indirect subsidiaries or
affiliates;
provided, however, that the restrictions contained in
Sections 4(a), 4(b), 4(c) and 4(d) shall not be construed to
prohibit or limit Broughton's participation as an owner,
officer and/or employee of Vis'n, Inc., or the business
operations or plans of Vis'n, Inc., as that company's
business and business plans have been disclosed to the
Company prior to the date of this Agreement. Broughton
acknowledges that the limitations contained in this Section
4 are an essential term and consideration for the execution
of this Agreement by the Company and that the time and
geographic limitations are reasonable and necessary to
protect the Company and its business interests. The Company
shall be entitled to injunctive relief, damages, reasonable
attorneys' fees and expenses in connection with any
violation by Broughton of Sections 4 or 5.
Section 5. Return of Records and Property.
Broughton acknowledges that all records and copies of
records pertaining to the operations, agents, customers, and
business of the Citizens Insurance Companies that are or
were made or received by Broughton in the performance of his
duties for Citizens, the Company or any of the Citizens
Insurance Companies, whether pursuant to his employment by
the Citizens Insurance Companies or the Company or his
retention by the Company under this Agreement, shall be the
property of the Company or its subsidiaries, and Broughton
shall keep such documents subject to the Company's custody
and control and shall surrender to the Company such of those
documents as are in his possession upon request of the Chief
Executive Officer of the Company. Broughton shall not
disclose or give possession of any such documents or records
to anyone except authorized representatives of the Company.
Section 6. Miscellaneous. (a) Except to the
extent expressly contemplated by Section 2(b), this
Agreement, being personal to Broughton, may not be assigned
by him. The terms and conditions of this Agreement shall
inure to the benefit and be binding upon the successors and
assigns of the Company, and the heirs, executors and
personal representatives of Broughton.
(b) Should any clause, portion or section of this
Agreement be unenforceable or invalid for any reason, such
unenforceability or invalidity shall not affect the
enforceability or validity of the remainder of this
Agreement. Should any particular covenant in this Agreement
be held unreasonable or unenforceable for any reason,
including without limitation the time period, geographical
area or scope of activity covered by such covenant, then
such covenant shall be given effect and enforced to whatever
extent would be reasonable and enforceable.
(c) This Agreement constitutes the entire
agreement between the parties with respect to the subject
matter hereof. Any amendments to this Agreement must be
made in writing and duly executed by each of the parties
hereto.
(d) This Agreement shall be governed as to
validity, construction and in all other respects by the laws
of the State of Indiana applicable to contracts made in that
state.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
MERIDIAN INSURANCE GROUP, INC.
By:_______________________________
Norma J. Oman, President
and Chief Executive Officer
"Broughton"
_________________________________
Scott S. Broughton
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this "Agreement") is
made and entered into as of July 31, 1996, by and between
MERIDIAN INSURANCE GROUP, INC., an Indiana corporation (the
"Company"), and SCOTT S. BROUGHTON ("Broughton").
Recitals
A. Broughton is and has been a key management
employee of Citizens Security Group Inc., a Minnesota
corporation ("Citizens") and its affiliates.
B. The Company has entered into an Acquisition
and Affiliation Agreement dated as of March 20, 1996 (the
"Acquisition and Affiliation Agreement"), pursuant to which
(1) Meridian Acquisition Corporation, an indirect wholly-
owned subsidiary of the Company has been merged with and
into Citizens (the "Merger"), with the result that Citizens
and its wholly-owned subsidiaries, Citizens Fund Insurance
Company and Insurance Company of Ohio, have become indirect
wholly-owned subsidiaries of the Company, and (2) Citizens
Security Mutual Insurance Company has become affiliated with
the Company.
C. In connection with the Merger and the
Acquisition Agreement, Broughton has entered into a
Consulting Services Agreement with the Company which, among
other matters, provides for the grant to Broughton of an
option to purchase shares of common stock of the Company, as
provided herein.
Agreement
In consideration of the premises and the mutual
promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which is
hereby acknowledged, the Company and Broughton agree as
follows:
Section 1. Grant of Option. Upon and subject to
the terms and conditions set forth herein, the Company
hereby grants to Broughton an option (the "Option") to
purchase up to Twenty Thousand (20,000) shares (the
"Shares") of the common stock of the Company (the "Common
Stock"), at a per share exercise price (the "Exercise
Price") equal to $14.125.
Section 2. Time of Exercise of Option. The
Option shall become exercisable (i) 25% on the first
anniversary of the Effective Time, as such term is defined
in the Acquisition and Affiliation Agreement, and (ii) an
additional 25% on each of the second, third and fourth
anniversary of the Effective Time. In addition, in the
event of Broughton's death prior to the fourth anniversary
of the Effective Time, the Option shall immediately become
exercisable in full. The Option shall expire on and shall
not be exercisable after the earlier of: (a)the date ninety
days following Broughton's death, or (b) the tenth
anniversary of the Effective Time.
Section 3. Method of Exercise; Restrictions.
(a) To the extent provided by Section 2 above, the Option
may be exercised in whole or in part (subject to Section
3(c) below), from time to time, by presentation and
surrender of this Agreement to the Company at its principal
office, together with an Option Exercise Form substantially
in the form attached hereto as Exhibit A, duly completed and
executed for purchase of the designated number of shares of
Common Stock accompanied by payment of the Exercise Price
due in connection with such exercise.
(b) The Exercise Price shall be paid in cash
(including certified or cashier's check).
(c) If the Option shall have been exercised in
part, the Company shall, at the time of delivery of the
certificates representing the Shares issuable pursuant to
such partial exercise, make appropriate notation of the
partial exercise of the Option on the face of this Agreement
and return this Agreement to Broughton.
(d) The Company shall make prompt delivery of the
certificate(s) representing the Shares purchased pursuant to
the Option; provided, however, that if any law or regulation
requires the Company to take any action with respect to such
Shares before the issuance thereof, then the date of
delivery of such certificate shall be extended for the
period necessary to take such action.
Section 4. Restrictions on Transfer. The Option
is not transferable by Broughton, except to his estate upon
his death. During Broughton's lifetime the Option is
exercisable only by him, and following Broughton's death the
Option is exercisable only by his personal representative,
to the extent provided in Section 2. Broughton or his
estate shall have no rights in any of the Shares or
otherwise as a shareholder of the Company by virtue hereof
until payment of the Exercise Price and delivery of such
Shares as herein provided. The Option and the rights
granted hereunder shall not be pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall
not be subject to execution, attachment, or similar process.
Upon any attempt to transfer, assign, pledge, hypothecate,
or otherwise dispose of the Option or any right granted
hereunder or such rights contrary to the provisions hereof,
or upon the levy of any attachment or similar process upon
the Option or any such rights, this Agreement, the Option
and such rights shall immediately and automatically become
null and void and of no further force or effect.
Section 5. Adjustments. In order to prevent
dilution of the rights granted under the Option, the
Exercise Price will be subject to adjustment from time to
time as provided in this Section 5 (such price or such price
as last adjusted pursuant to the terms hereof, as the case
may be, thereafter constituting the "Exercise Price" for all
purposes), and the number of shares of Common Stock
obtainable upon exercise of the Option (or part thereof),
will be subject to adjustment from time to time as provided
in this Section 5:
(a) Subdivision or Combination of Common Stock.
If the Company, at any time prior to last date on
which the Option may be exercised, declares any
stock dividend or subdivides (by any stock split,
recapitalization or otherwise) its outstanding
shares of Common Stock into a greater number of
shares, the number of shares of Common Stock
obtainable upon exercise of the Option will be
proportionately increased and the per share
Exercise Price shall be proportionately decreased.
If the Company at any time prior to the exercise
of the Option combines (by reverse stock split or
otherwise) its outstanding shares of Common Stock
into a smaller number of shares, the number of
shares of Common Stock obtainable upon exercise of
the Option will be proportionately decreased and
the per share Exercise Price shall be
proportionately increased.
(b) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any capital
reorganization, reclassification, consolidation,
merger, share exchange, sale of all or
substantially all of the Company's assets to
another person or similar transaction which is
effected in such a way that holders of Common
Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or
assets, including cash, with respect to or in
exchange for Common Stock is referred to herein as
an "Organic Change." Prior to the consummation of
any Organic Change, the Company will, at the
Company's sole election, either: (i) make
appropriate provisions to allow this Option to be
exercised in full immediately prior to the Organic
Change; (ii) make appropriate provisions to ensure
that Broughton will, upon consummation of the
Organic Change, receive the economic benefit of
the Option, as though the Option were exercisable
in full at that time; or (iii) make appropriate
provisions to ensure that Broughton will, after
consummation of the Organic Change, have the right
to acquire and receive in lieu of the shares of
Common Stock immediately theretofore acquirable
and receivable upon the exercise of the Option,
such shares of stock, securities or assets,
including cash, as may be issued or payable
pursuant to the terms of the transaction
constituting the Organic Change with respect to or
in exchange for the number of shares of Common
Stock immediately theretofore acquirable and
receivable upon exercise of the Option had such
Organic Change not taken place. In any such case,
upon consummation of the Organic Change, the
Option shall cease to be exercisable for shares of
Common Stock.
Section 6. Notice of Adjustment. On the
happening of an event requiring an adjustment of the
Exercise Price or the number or kind of securities or other
property purchasable hereunder, the Company shall forthwith
give written notice to Broughton stating the adjusted
Exercise Price and the adjusted number and kind of
securities or other property purchasable hereunder resulting
from the event and setting forth in reasonable detail the
method of calculation and the facts upon which the
calculation is based. The Board of Directors of the
Company, acting in good faith, shall determine the
calculation and all other matters relating to any adjustment
provided for under Section 5, which determination shall be
binding upon Broughton.
Section 7. Registration Statement on Form S-8.
Prior to the first date on which the Option becomes
exercisable and until the last date of the term of the
Option (or such earlier date on which all Option Shares have
been acquired), the Company shall use good faith efforts to
file with the Securities and Exchange Commission and
maintain the effectiveness of a Registration Statement on
Form S-8 (or such other substantially similar form as may
then be available to the Company for the registration of the
Option Shares) for the purpose of registering the Option
Shares under the Securities Act of 1933, as amended;
provided, however, that the Company's obligations pursuant
to this Section 7 are expressly conditioned upon its ability
or eligibility to use a Registration Statement on Form S-8
(or a substantially similar form) to register the Option
Shares. The expenses of registering the Option Shares
pursuant hereto shall be borne by the Company.
Section 8. Endorsement on Share Certificates. In
the event Broughton exercises the Option at a time when the
shares are not registered under the Securities Act of 1933
as contemplated by Section 7 above, the certificate
representing such Shares shall be required to bear a legend
in substantially the following form:
"The shares represented by this certificate
have not been registered under the federal
Securities Act of 1933 or the securities laws
of any state and have been issued and sold in
reliance upon certain exemptive provisions of
such laws. Such shares may not be sold or
transferred except if, in the opinion of
counsel reasonably acceptable to the Company,
any such sale or transfer would be pursuant
to an effective registration statement under
the applicable state and federal securities
laws or pursuant to an exemption from such
registration."
Section 9. Binding Effect. This Agreement shall
be binding upon and shall inure to the benefit of the
Company and Broughton and their respective heirs, personal
representatives, successors and assigns; provided that the
assignment of this Agreement by Broughton is expressly
prohibited pursuant to Section 4 above.
Section 10. Governing Law. This Agreement shall
be governed and construed in accordance with the internal
laws of the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed effective as of the day and year
first above written.
"COMPANY"
MERIDIAN INSURANCE GROUP, INC.
By:______________________________
Norma J. Oman, President and
Chief Executive Officer
BROUGHTON AFFIRMS THAT HE HAS READ AND UNDERSTANDS
THE CONTENTS OF THIS AGREEMENT AND THAT HE ACCEPTS THE
OPTION ON THE TERMS AND CONDITIONS SET FORTH HEREIN.
"BROUGHTON"
__________________________________
Scott S. Broughton
__________________________________
Social Security Number
Address: ___________________
___________________
EXHIBIT A
TO
STOCK OPTION AGREEMENT
OPTION EXERCISE FORM
Meridian Insurance Group, Inc.
2955 North Meridian Street
Indianapolis, Indiana 46208
Reference is hereby made to that certain Stock
Option Agreement dated July 31, 1996, between Meridian
Insurance Group, Inc. and Scott S. Broughton (the
"Agreement"). Capitalized terms used herein shall have the
meanings ascribed in the Agreement.
The undersigned hereby:
1. Irrevocably subscribes for _______ Shares of
Common Stock of the Company at the Exercise Price (as
defined in the Agreement) and encloses payment herewith in
the amount of $__________.
2. Acknowledges that such Shares shall be issued
by the Company pursuant to, and subject to the terms of the
Agreement.
3. [IF NEEDED] Acknowledges that he is
acquiring the Shares for investment solely for his own
account and not with a view to distribution or resale
thereof, and that he is familiar with the business and
affairs of the Company and has reviewed all such financial
information and other materials and information as he has
deemed desirable in connection with his purchase of the
Shares.
4. [IF NEEDED] Acknowledges and agrees that
such Shares shall bear a legend substantially similar to
that described in the Agreement.
5. Represents and warrants that he is the sole
holder of the Option, that the Option is outstanding,
unexpired and unexercised to the extent necessary for this
exercise, and that the exercise of the Option hereby is in
full compliance with the terms of the Agreement.
6. [IF A PARTIAL EXERCISE] Herewith surrenders
to the Company the Agreement for notation of the partial
exercise of the Option, subject to return to the undersigned
upon such notation.
7. Requests that a certificate for such Shares
of Common Stock be issued in the name of the undersigned and
delivered to the undersigned at the address set forth below.
Date: ____________________
_____________________________
Scott S. Broughton
_____________________________
Social Security Number
Address:
_____________________________
_____________________________
CLAIMS ADMINISTRATION AGREEMENT
by and among
CITIZENS SECURITY MUTUAL INSURANCE COMPANY,
CITIZENS FUND INSURANCE COMPANY,
INSURANCE COMPANY OF OHIO
and
VIS'N, INC.
July 31, 1996
Table of Contents
PageTOC \f
RECITALS 1
Article I Definitions 1
Article II Retention of Vis'n 2
Article III Duties of Vis'n 2
Section 3.1 Standard of care 2
Section 3.2 Policies to be administered 2
Section 3.3 Covered Claims 3
Section 3.4 Claims processing 3
Section 3.5 Check preparation 4
Section 3.6 Catastrophes 4
Section 3.7 Customer service 4
Section 3.8 Reports to Citizens Insurance Companies 4
Section 3.9 Documentation 5
Section 3.10 Other services 5
Section 3.11 Insurance 5
Section 3.12 Notification requirements 5
Article IV Duties of the Citizens Insurance Companies 5
Section 4.1 Standard of care 5
Section 4.2 Payments to Vis'n 6
Section 4.3 Funding of Claims Account 6
Section 4.4 Copies of Policy Forms 6
Section 4.5 Reinsurance Recoverables 6
Article V Compensation 6
Section 5.1 Compensation and payment 6
Section 5.2 Billing 6
Section 5.3 Fees 7
Section 5.4 Services not specified in Agreement 8
Article VI Records 8
Section 6.1 Maintenance of records 8
Section 6.2 Confidentiality 8
Section 6.3 Inspection and audit by Citizens 8
Section 6.4 Inspection and audit by Vis'n 9
Article VII Term 9
Section 7.1 Effective date and duration 9
Section 7.2 Termination by a Citizens Insurance Company 9
Section 7.3 Termination by Vis'n 10
Section 7.4 Effect of termination 11
Section 7.5 Duties upon termination 11
Article VIII Indemnification 11
Section 8.1 Indemnification by Citizens Insurance Companies 11
Section 8.2 Indemnification by Vis'n 12
Section 8.3 Remedies 12
Article IX Miscellaneous 12
Section 9.1 Assignment and binding effect 12
Section 9.2 Choice of law 12
Section 9.3 Severability 12
Section 9.4 Notice 12
Section 9.5 Independent contractor 14
Section 9.6 Merger and amendment 14
Section 9.7 Counterparts 14
CLAIMS ADMINISTRATION AGREEMENT
THIS CLAIMS ADMINISTRATION AGREEMENT (this
"Agreement") is entered into as of July 31, 1996 (the
"Contract Date"), by and among Citizens Security Mutual
Insurance Company ("Citizens Mutual"), Citizens Fund
Insurance Company ("Citizens Fund"), Insurance Company of
Ohio ("Citizens Ohio") and Vis'n, Inc. ("Vis'n").
RECITALS
A. Citizens Mutual is a mutual insurance company organized
under the laws of the State of Minnesota, whose office and
principal place of business is located at 406 Main Street,
Red Wing, Minnesota 55066.
B. Citizens Fund is a stock insurance company organized
under the laws of the State of Minnesota, whose office and
principal place of business is located at 406 Main Street,
Red Wing, Minnesota 55066.
C. Citizens Ohio is a stock insurance company organized
under the laws of the State of Ohio, whose office and
principal place of business is located at 406 Main Street,
Red Wing, Minnesota 55066.
D. Citizens Mutual, Citizens Fund and Citizens Ohio are
jointly operated and managed under a management services
agreement, a pooling reinsurance agreement and other
arrangements.
E. Vis'n is or will be a professional insurance claims
administrator whose office and principal place of business
is or will be located at 406 Main Street, Red Wing,
Minnesota 55066.
F. Citizens Mutual, Citizens Fund, Citizens Ohio
(collectively, the "Citizens Insurance Companies") and Vis'n
desire that Vis'n administer all of the insurance policies
issued by the Citizens Insurance Companies in accordance
with this Agreement.
AGREEMENT
In consideration of the mutual benefits to be
received by the parties and the mutual covenants and
agreements contained herein, the parties agree as follows:
Article I
Definitions
The following terms have the meanings set forth
below:
(a) The term "Catastrophe Response Team" has the
meaning set forth in Section 3.6.
(b) The term "Citizens Insurance Companies" has
the meaning set forth in Recital F.
(c) The term "Citizens Fund" has the meaning set
forth in the introductory paragraph.
(d) The term "Citizens Mutual" has the meaning
set forth in the introductory paragraph.
(e) The term "Citizens Ohio" has the meaning set
forth in the introductory paragraph.
(f) The term "Claims Account" has the meaning set
forth in Section 3.5.
(g) The term "Commencement Date" has the meaning
set forth in Section 5.3(a).
(h) The term "Contract Date" has the meaning set
forth in the introductory paragraph.
(i) The term "Covered Claim" has the meaning set
forth in Section 3.3.
(j) The term "Direct Written Premium" has the
meaning set forth in Section 5.3(a).
(k) The term "Net Recoverables" has the meaning
set forth in Section 5.3(b).
(l) The term "Policies" has the meaning set forth
in Section 3.2.
(m) The term "Vis'n" has the meaning set forth in
the introductory paragraph.
Article II
Retention of Vis'n
The Citizens Insurance Companies hereby retain and
authorize Vis'n to provide claims administration services as
described in this Agreement. Vis'n hereby accepts such
retention and authority and agrees to perform the claims
administration services in accordance with this Agreement.
Article III
Duties of Vis'n
Section 3.1. Standard of Care. Vis'n shall perform its
obligations under this Agreement in good faith using
reasonable care and professional judgment.
Section 3.2. Policies to be Administered. Vis'n shall
perform claim administrative services as outlined in this
Agreement for the Citizens Insurance Companies in connection
with all insurance policies issued or assumed by the
Citizens Insurance Companies (collectively, the "Policies").
Section. 3.3. Covered Claims. A "Covered Claim" shall be
any incurred claim that is properly payable under the
Policies.
Section 3.4. Claims Processing. Vis'n shall perform the
following claims processing services for the Citizens
Insurance Companies:
(a) Vis'n shall receive claims and
handle them in accordance with applicable
law, this Agreement and the provisions of the
Policies. As part of its duties, Vis'n shall
determine whether each claim is a Covered
Claim and, if so, in what amount; provided,
however, that each Citizen Insurer shall have
ultimate authority to accept or reject any
claim received in connection with Policies
that it issued. Vis'n shall also materially
comply with the Citizens Insurance Companies'
Standards and Guidelines for handling claims,
and the parties agree that 85% compliance
with each of the Standards and Guidelines
shall constitute material compliance on any
audit of a representative sample of not less
than 100 files handled by a variety of
adjusters.
(b) Vis'n shall forward to the person
designated by the appropriate Citizens
Insurance Company a copy of each claim file
for which a reserve has been established in
excess of $25,000 so that the Citizens
Insurance Company may supervise the handling
of the claim.
(c) The settlement authority of Vis'n
shall be limited to $25,000 per claim, except
for claims for material damage and medical
payment coverages. Requests by Vis'n for
settlement authority in excess of $25,000
shall be submitted to the person designated
by the appropriate Citizens Insurance Company
in a format prescribed by the Citizens
Insurance Companies.
(d) Vis'n shall forward for handling
all first party lawsuits and suits with
demands in excess of applicable policy limits
to the person designated by the appropriate
Citizens Insurance Company. Lawsuits with
open extensions of time and workers'
compensation filings where adjusters may
appropriately continue the claim handling
process will remain with Vis'n.
(e) All letters disclaiming coverage
must be approved and signed by a member of
the Vis'n management team. Vis'n shall
secure approval from the person designated by
the appropriate Citizens Insurance Company
before declining coverage on the basis of
suspected fraud.
(f) Vis'n shall be responsible for
reinsurance recoverables and billables for
individual claim files, unless the Citizens
Insurance Companies make other arrangements.
(g) Vis'n shall diligently pursue
salvage and subrogation in accordance with
the Standards and Guidelines for handling the
Citizens Insurance Companies' claims and
shall be compensated for such services as set
forth in Section 5.3(b).
(h) Vis'n shall document all claim
activity for each claim file, including the
volume and subject matter of telephone
conversations and copies of any
correspondence. Vis'n shall maintain and
organize claim files in an orderly form
consistent with the manner in which Meridian
Insurance Group, Inc., and its affiliates
have historically maintained their files.
(i) Vis'n shall review "other
insurance" provisions as it deems
appropriate, investigate the applicability of
such provisions, and inquire regarding
duplicate coverage of Covered Claims with
other insurance carriers.
Section 3.5. Check Preparation. With respect to each of
the Citizens Insurance Companies, Vis'n shall make claims
payments from an account (the "Claims Account") established
and funded by the Citizen Insurer with a bank that is a
member of the Federal Reserve System. Vis'n shall draw
checks on such account using the Citizens Insurer's check
book and shall provide the Citizens Insurance Company with a
periodic listing of all checks drawn.
Section 3.6. Catastrophes. Vis'n shall inform the person
designated by the Citizens Insurance Companies concerning
the use of any Catastrophe Response Team, including the
number of team members and the duration of the operation.
For purposes of this Agreement, "Catastrophe Response Team"
shall be any group of individuals assembled to respond to
either an incident deemed a catastrophe by the Property Loss
Research Bureau or any 100 losses generated by a single
storm.
Section 3.7. Customer Service. Vis'n shall respond to all
telephone and written inquiries relating to the Policies and
claims submitted under the Policies as outlined in the
Standards and Guidelines for handling the Citizens Insurance
Companies' claims. Vis'n shall maintain a special toll-free
long distance (1-800) telephone number exclusively for use
by insureds of the Citizens Insurance Companies. Throughout
the term of this Agreement, Vis'n shall also maintain a
recording system capable of receiving messages from insureds
of the Citizens Insurance Companies outside of normal
business hours.
Section 3.8. Reports to Citizens Insurance Companies.
Vis'n shall provide the following reports to the person
designated by each Citizens Insurance Company:
(a) weekly reports of all checks
prepared on the Citizens Insurer's behalf
during the preceding week, including any
checks that may have been voided. The
reports shall identify the insured's name,
policy, payee, date and amount of each check;
(b) monthly reports delivered on or
before the 15th day of each month showing (i)
claim files opened during the preceding
month, (ii) claim files closed during the
preceding month, both with and without
payment, (iii) claims for which reserves have
been established in excess of $25,000.00,
(iv) first party lawsuits and suits with
demands in excess of policy limits being
handled by the Citizens Insurance Companies
and (v) lawsuits with open extensions of time
and workers' compensation filings being
handled by Vis'n; and
(c) any other reports as are from time
to time reasonably requested by the Citizens
Insurance Company and can be prepared under
the WIN's Management Reporting System.
Section 3.9. Documentaiton. Vis'n shall provide original
claim files and other documentation reasonably requested by
any of the Citizens Insurance Companies as set forth in
Section 6.1.
Section 3.10. Other Services. Vis'n shall provide such
claims administration services not specified in this
Agreement as may be mutually agreed upon by the parties.
Vis'n shall respond in writing to a request for such
services within five business days of receiving the request.
Section 3.11. Insurance. Vis'n shall, at its own expense,
maintain:
(a) valuable papers and records
coverage in an amount not less than
$1,000,000 per occurrence and $2,000,000 in
the aggregate (with a deductible not
exceeding $5,000) for the protection of
files, records, and other property of the
Citizens Insurance Companies in the
possession of Vis'n;
(b) errors and omissions liability
coverage in an amount not less than
$1,000,000 per occurrence and $2,000,000 in
the aggregate (with a deductible not
exceeding $5,000).
Section 3.12. Notification Requirements. Vis'n shall
notify the Citizens Insurance Companies promptly by
telephone, with confirmation in writing to follow
immediately, should any of the following events occur:
(a) Vis'n discharges or reassigns
within a thirty (30) day period four or more
individuals on its adjusting staff who are
working on material matters within the scope
of this Agreement;
(b) Vis'n is unable to secure, in a
timely fashion, copies of claims materials or
other information required by Vis'n under
this Agreement; or
(c) Officers or directors of Vis'n
become aware of any circumstance
substantially affecting, or potentially
substantially affecting, the ability of Vis'n
to perform under this Agreement.
Article IV
Duties of the Citizens Insurance Companies
Section 4.1. Standard of Care. The Citizens Insurance
Companies shall perform their obligations under this
Agreement in good faith using reasonable care and
professional judgment.
Section 4.2. Payments to Vis'n. The Citizens Insurance
Companies shall provide compensation to and reimburse Vis'n
in accordance with Article V.
Section 4.3. Funding of Claims Account. Each Citizens
Insurance Company shall maintain an average daily balance in
its Claims Account in an amount mutually agreed to by the
Citizens Insurance Company and Vis'n.
Section 4.4. Copies of Policy Forms. The Citizens
Insurance Companies shall provide Vis'n with forms of the
Policies and any endorsements issued in connection with the
Policies.
Section 4.5. Reinsurance Recoverables. The Citizens
Insurance Companies will make available accounting personnel
to assist Vis'n in carrying out its duties under
Section 3.4(f).
Article V
Compensation
Section 5.1. Compensation and Payment. In consideration of
the performance by Vis'n of the services under this
Agreement, each Citizens Insurance Company agrees to pay
with respect to services provided on its behalf, and Vis'n
agrees to accept as compensation in full, the fee amounts to
be calculated in accordance with this Article.
Section 5.2. Billing. Vis'n shall submit monthly
statements of its fees and expenses to the person designated
by the Citizens Insurance Companies in a form mutually
agreed upon by the parties. All fees payable pursuant to
Section 5.3(a) shall be mailed by the tenth day of the month
for which the services are to be provided. If the precise
amount owed under Section 5.3(a) is not known at the time
such amount is due to be mailed, the Citizens Insurance
Companies shall inform Vis'n of that fact, mail Vis'n their
best estimate of the amount owed on the due date, and adjust
their next month's payment to reflect any over- or
underpayment resulting from the estimate. The Citizens
Insurance Companies shall mail the compensation due Vis'n
under Section 5.3(b) within five working days after receipt
of reports documenting gross subrogation and salvage
recoveries, collection expenses and administrative fees
incurred by Vis'n, and any deductible reimbursements issued
to policyholders. If Vis'n does not receive the
compensation owed under Section 5.3(a) or (b) within 3 days
of the date such compensation was to be mailed, Vis'n shall
send a written reminder notice to the Citizens Insurance
Companies by fax or by hand delivery. If Vis'n does not
receive the compensation owed under Section 5.3(a) or 5.3(b)
within 5 days of the date such compensation was to be
mailed, for every additional day that payment is not
received, the Citizens Insurance Companies shall pay to
Vis'n a late fee equal to .05% of the amount of compensation
owed; provided, however, that no such late fee will be owed
if the delay in payment was caused by any act or omission by
Vis'n.
Section 5.3. Fees. (a) Vis'n shall be compensated by the
Citizens Insurance Companies as follows:
(i) For the first month commencing on
the date Vis'n becomes operational and able
to perform its obligations under this
Agreement (the "Commencement Date"), the
Citizens Insurance Companies shall pay Vis'n
a monthly fee of $212,500.00. For the
remaining 11 months of the 12-month period
commencing on the Commencement Date, the
Citizens Insurance Companies shall pay Vis'n
a monthly fee of 5.1 percent (5.1%) of the
Citizens Insurance Companies' Direct Written
Premium, as defined below, for the month
preceding the month in which payment is due;
and
(ii) For the 12-month period commencing
on the one-year anniversary of the
Commencement Date, the Citizens Insurance
Companies shall pay Vis'n a monthly fee of
4.75 percent (4.75%) of the Citizens
Insurance Companies' Direct Written Premium,
as defined below, for the month preceding the
month in which payment is due; and
(iii) For the 12-month period
commencing on the second anniversary of the
Commencement Date, the Citizens Insurance
Companies shall pay Vis'n a monthly fee of
4.4 percent (4.4%) of the Citizens Insurance
Companies' Direct Written Premium, as defined
below, for the month preceding the month in
which payment is due.
The above charges shall be prorated for any
partial month. For purposes of this section, "Direct
Written Premium" means the total premiums written by the
Citizens Insurance Companies other than premiums for
reinsurance assumed by the Citizens Insurance Companies.
Notwithstanding the above, the Citizens Insurance
Companies agree that the monthly fee payable to Vis'n shall
be based on annual Direct Written Premium of no less than
$45 million. In the event the fees payable to Vis'n in any
year do not meet the requirement of this paragraph, there
shall be an adjustment in the payment made to Vis'n in the
last month of the term of this Agreement so that the total
amount paid meets the requirements of this paragraph. There
shall also be an adjustment in the payment made to Vis'n in
the last month of the term of this Agreement for any over-
or underpayment that resulted from Vis'n being paid $212,500
in the first month rather than 5.1 percent of the Direct
Written Premium for the first month.
(b) In addition, as compensation for the salvage
and subrogation services provided by Vis'n under Section
3.4(g), the Citizens Insurance Companies shall pay Vis'n a
monthly fee of 15 percent (15%) of Net Recoverables. For
purposes of this Agreement, "Net Recoverables" shall mean
funds obtained in the preceding month as a result of the
salvage and subrogation efforts of Vis'n, less collection
expenses and administrative fees incurred by Vis'n, and less
any deductible recoveries made and issued to policyholders.
Vis'n shall refund a portion of the fees paid under this
subsection under the following circumstances:
(i) Vis'n shall refund 50% of the fees
it received under this subsection during the
first year following the Commencement Date,
if the net salvage and subrogation recovery
realized by the Citizens Insurance Companies
(after payment of the monthly fees to Vis'n)
during that first year is not at least 10%
greater than the net recovery they realized
over the 12 month period immediately
preceding the Commencement Date;
(ii) Vis'n shall refund 50% of the fees
it received under this subsection during the
second year following the Commencement Date,
if the net salvage and subrogation recovery
realized by the Citizens Insurance Companies
(after payment of the monthly fees to Vis'n)
during that second year is not at least 20%
greater than the net recovery they realized
over the 12 month period immediately
preceding the Commencement Date; and
(iii) Vis'n shall refund 50% of the
fees it received under this subsection during
the third year following the Commencement
Date, if the net salvage and subrogation
recovery realized by the Citizens Insurance
Companies (after payment of the monthly fees
to Vis'n) during that third year is not at
least 30% greater than the net recovery they
realized over the 12 month period immediately
preceding the Commencement Date;
provided that Vis'n shall not be required to refund the fees
it received under this subsection in any year in which the
Citizens Insurance Companies' Direct Written Premium is less
than $45 million.
Section 5.4. Services not specified in Agreement. Vis'n
shall be compensated by the Citizens Insurance Companies for
any services provided under Section 3.10 on a basis mutually
agreed upon by the parties.
Article VI
Records
Section 6.1. Maintenace of Records. Vis'n shall maintain
records of its activities sufficient to inform the Citizens
Insurance Companies of the services performed by Vis'n under
this Agreement. All records and information obtained,
assembled, produced and maintained by Vis'n under this
Agreement shall be the property of the Citizens Insurance
Companies and shall be maintained at the principal office of
Vis'n, or the satellite processing center where the claim is
handled. Vis'n will maintain for at least one year all
material damage and property claim files. Vis'n will
maintain all other claim files for at least three years.
Upon expiration of the time periods noted, Vis'n will, on an
annual basis, forward claim files to an offsite storage
facility designated by the Citizens Insurance Companies.
Section 6.2. Confidentiality. All records and information
obtained from or on behalf of the Citizens Insurance
Companies are confidential business records and shall not be
disclosed by Vis'n, except as is reasonably necessary to
pursue subrogation rights, or at the written direction of
the appropriate Citizens Insurance Company or as required by
law after notice to the appropriate Citizens Insurance
Company.
Section 6.3. Inspection and Audit by Citizens. The
Citizens Insurance Companies and their designated
representatives may inspect, copy and audit all records and
any other information obtained, assembled, maintained or
produced by or for Vis'n in any format pertaining to the
performance of any of the services of Vis'n under this
Agreement at the location where such records are maintained
or at such other location as may be specified by the
Citizens Insurance Companies. In connection with routine
audits, the Citizens Insurance Companies anticipate that, at
a minimum, they will require access to claim files, data
files from which claim transactions can be extracted (with
related file names and record layouts), claim check
inventories and records accounting for the use of such
inventories, on-line claim information, a means to identify
the employees and agents of Vis'n and the Citizens Insurance
Companies involved with each claim, and codes for policy
coverages and claim transactions. Nothing in this paragraph
shall confer on the Citizens Insurance Companies any right
to inspect, copy, review or obtain any information relating
to any contracts or arrangement between Vis'n and its
vendors, suppliers, independent contractors or clients.
Section 6.4. Inspection and Audit by Vis'n. Vis'n and its
designated representatives may inspect, copy and audit all
records and any other information maintained by the Citizen
Insurance Companies that relates to or shows the manner of
calculating the Citizens Insurance Companies' Direct Written
Premium during the term of this Agreement.
Article VII
Term
Section 7.1. Effective date and Duration. This Agreement
shall be effective as of the Contract Date and shall remain
in effect until terminated by Vis'n or any Citizens
Insurance Company pursuant to this Article.
Section 7.2. Terminaiton by a Citizens Insurance Company.
A Citizens Insurance Company may terminate this Agreement:
(a) Immediately upon giving notice to the other
parties if the Commencement Date does not occur within one
year of the Effective Time of the merger contemplated by the
Acquisition and Affiliation Agreement dated as of March 20,
1996, by and among Meridian Insurance Group, Inc., Citizens
Security Group, Inc., and Citizens Mutual, as such time is
defined therein.
(b) Immediately upon giving written notice to the
other parties at any time after the institution of
insolvency, bankruptcy or similar proceedings by or against
Vis'n, any assignment or attempted assignment by Vis'n for
the benefit of creditors, or any appointment, or application
for such appointment, of a receiver for Vis'n;
(c) Immediately upon giving written notice to the
other parties at any time after the occurrence of any of the
following events: (i) failure by Vis'n to comply with any
material applicable federal, state or local law or
regulation; (ii) falsification by Vis'n of any records or
reports required hereunder; (iii) loss by Vis'n through
failure to renew or because of suspension, cancellation or
revocation, for a period of fifteen (15) days or more, of
any federal, state or local license or permit required by
law and necessary in carrying out the provisions of this
Agreement or in maintaining its corporate status;
(d) Immediately upon giving written notice to the
other parties upon the occurrence of either of the following
events relating to the performance standards set forth in
Section 3.4:
(i) Vis'n shall have failed to meet or
exceed the same performance standard for
three (3) consecutive audits covering at
least one month each; provided that a notice
of noncompliance, noting the specific
standard that has not been met, shall have
been delivered to Vis'n with respect to each
such audit within 15 days after the files
have been received by the Citizens Insurance
Company or its designee for audit; or
(ii) Vis'n shall have failed to meet or
exceed any of the performance standards for
twelve (12) consecutive audits covering at
least one month each; provided that a notice
of noncompliance, noting the specific
standard that has not been met, shall have
been delivered to Vis'n with respect to each
such audit within 15 days after the files
have been received by the Citizens Insurance
Company or its designee for audit.
(e) Immediately, without opportunity to cure, if
a material breach by Vis'n of its obligations under this
Agreement materially jeopardizes the financial well-being of
the Citizens Insurance Company;
(f) Immediately upon giving notice to the other
parties upon occurrence of either of the following events
relating to ownership of Vis'n:
(i) Scott Broughton and Kirk Simmons
cease to own directly a majority of the stock
of Vis'n; or
(ii) any of the stock of Vis'n is
acquired by someone other than an employee of
Vis'n;
(g) Immediately upon giving notice to the other
parties upon occurrence of either of the following events
relating to ownership of Claims Solution, Inc., if Vis'n
assigns its rights under this Agreement to Claims Solution,
Inc., pursuant to Section 9.1:
(i) Scott Broughton and Kirk Simmons
cease to own directly or indirectly a
majority of the stock of Claims Solution,
Inc.; or
(ii) any of the stock of Claims
Solution, Inc., is acquired by someone other
than an employee of Claims Solution, Inc.; or
(h) Upon giving 60 days' prior written notice to
the other parties at any time after the earlier of December
31, 1999, or three years following the Commencement Date,
without cause.
Section 7.3. Termination by Vis'n. Vis'n may terminate
this Agreement with respect to a Citizens Insurance Company:
(a) Immediately upon giving written notice to the
other parties at any time after the institution of
insolvency, bankruptcy or similar proceedings by or against
the Citizens Insurance Company, any assignment or attempted
assignment by the Citizens Insurance Company for the benefit
of creditors, or any appointment, or application for such
appointment, of a receiver for the Citizens Insurance
Company;
(b) Immediately upon giving written notice to the
other parties at any time after the occurrence of any of the
following events: (i) the Citizens Insurer's failure to
comply with any material applicable federal, state or local
law or regulation; (ii) the Citizens Insurer's falsification
of any records or reports required hereunder; (iii) the
Citizens Insurer's loss through failure to renew or because
of suspension, cancellation or revocation, for a period of
fifteen (15) days or more, of any federal, state or local
license or permit required by law and necessary in carrying
out the provisions of this Agreement or in maintaining its
corporate status;
(c) Immediately, without opportunity to cure, for
a material breach by the Citizens Insurance Company of its
obligations under this Agreement; or
(d) Upon giving 60 days' prior written notice to
the other parties at any time after the earlier of December
31, 1999, or three years following the Commencement Date,
without cause.
Section 7.4. Effect of Termination. If a Citizens
Insurance Company terminates this Agreement pursuant to
Section 7.2, all duties and obligations of the Citizens
Insurance Company and of Vis'n with respect to the Citizens
Insurance Company shall cease, but the Agreement shall
remain in full force and effect with respect to all other
Citizens Insurance Companies. If Vis'n terminates this
Agreement with respect to a Citizens Insurance Company
pursuant to Section 7.3, all duties and obligations of the
Citizens Insurance Company and of Vis'n with respect to the
Citizens Insurance Company shall cease, but the Agreement
shall remain in full force and effect with respect to all
other Citizens Insurance Companies.
Section 7.5. Duties upon Termination. Upon termination of
this Agreement, Vis'n shall provide for the return of all
claim records to the Citizens Insurance Companies and shall
cooperate fully to effect an orderly transfer of services to
the Citizens Insurance Companies or a third party
administrator designated by the Citizens Insurance
Companies. The Citizens Insurance Companies shall be liable
for all fees and expenses for services performed on their
behalf by Vis'n under this Agreement as of the date of
termination. In addition, if a Citizens Insurance Company
terminates this Agreement pursuant to Section 7.2(e) prior
to the earlier of December 31, 1999, or three years
following the Commencement Date, the Citizens Insurance
Company shall make a one-time severance payment to Vis'n in
an amount equal to the fees paid by the Citizens Insurance
Company to Vis'n for the three months immediately preceding
the termination.
Article VIII
Indemnification
Section 8.1. Indemnification by Citizens Insurance
Companies. Each Citizens Insurance Company, severally but
not jointly, hereby indemnifies and holds Vis'n harmless
from and against all loss, damage, cost and expense of any
nature, including legal, accounting and other professional
fees, arising from (a) any breach of this Agreement by the
Citizens Insurance Company, (b) any act or omission of the
Citizens Insurance Company or its agents or employees that
fails to comply with the standard of care set forth in
Section 4.1, (c) any claim against Vis'n arising out of a
denial by Vis'n of a claim submitted by an insured of the
Citizens Insurance Company or an assignee of such insured,
provided that Vis'n denied such claim in accordance with the
standards set forth in this Agreement or (d) any claim
against Vis'n arising out of a denial by the Citizens
Insurance Company of a claim submitted by an insured of the
Citizens Insurance Company or an assignee of such insured.
Section 8.2. Indemnification by Vis'n. Vis'n hereby
indemnifies and holds the Citizens Insurance Companies
harmless from and against all loss, damage, cost and expense
of any nature, including legal, accounting and other
professional fees, arising from any breach of this Agreement
by Vis'n or any act or omission of Vis'n, its agents or its
employees that fails to comply with the standard of care set
forth in Section 3.1.
Section 8.3. Remedies. Except as provided in this Article,
no party shall have any liability or responsibility, unless
expressly and separately agreed to in advance in writing,
for any other party's attorneys' fees, expenses of
litigation or any award, and shall have no liability or
responsibility for any penalty or interest assessed against
any other party.
Article IX
Miscellaneous
Section 9.1. Assignment and Binding Effect. Vis'n may
assign its rights, interests and obligations under this
Agreement to Claims Solutions, Inc., provided that Scott
Broughton and Kirk Simmons are and remain the direct or
indirect owners of a majority of the stock of Claims
Solution, Inc. Vis'n may also contract with an entity to
provide claims adjusting and investigation services called
for by this Agreement where such entity is in closer
proximity to the subject matter of any claim to be adjusted
or investigated. Except as otherwise provided by this
section, no party may assign its respective rights,
interests, or obligations under this Agreement without the
prior written consent of the other parties, which consent
shall not be unreasonably withheld. Notwithstanding the
foregoing, all respective rights, interests, and obligations
of the parties in, to and under this Agreement shall
immediately succeed to or be assumed by any successor, by
merger, consolidation or otherwise, of any of the parties.
Section 9.2. Choice of Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Minnesota notwithstanding any state's choice of law
rules to the contrary.
Section 9.3. Severability. If any part of this Agreement
is contrary to, prohibited by, or deemed invalid under
applicable law or regulations, that provision shall not
apply and shall be omitted to the extent so contrary,
prohibited, or invalid; but the remainder of this Agreement
shall not be invalidated and shall be given full force and
effect insofar as possible.
Section 9.4. Notice. Any notice required or permitted to
be given hereunder shall be deemed to be given upon receipt
if mailed by certified mail, postage prepaid, faxed, hand
delivered or sent by United States Postal Service or a
commercial express document overnight delivery service which
issues an individual delivery receipt, and addressed as
follows:
(a) If to Vis'n, to:
Scott Broughton
President
Vis'n, Inc.
406 Main Street
Red Wing, Minnesota 55061
Telephone:
Fax:
with a copy to:
Joyce Wright
Meridian Insurance Group, Inc.
2955 North Meridian Street, P.O. Box 1980
Indianapolis, Indiana 46206
Telephone: (317) 931-7000
Fax: (317) 931-7140
and a copy to:
Meagher & Geer, P.L.L.P.
Attn: Mary M.L. O'Brien
4200 Multifoods Tower
33 South Sixth Street
Minneapolis, Minnesota 55402
Telephone: (612) 338-0661
Fax: (612) 338-8384
(b) If to a Citizens Insurance Company:
William Haaland
Citizens Security Mutual Insurance Company
406 Main Street
Red Wing, Minnesota 55066
Telephone:
Fax: (612) 388-0538
with a copy to:
Joyce Wright
Meridian Insurance Group, Inc.
2955 North Meridian Street, P.O. Box 1980
Indianapolis, Indiana 46206
Telephone: (317) 931-7000
Fax: (317) 931-7140
Each party shall be responsible for notifying the others
promptly of any change in addressee or address in accordance
with the notice procedures of this section.
Section 9.5. Independent Contractor. Vis'n is an
independent contractor and nothing in this Agreement shall
create, or be construed to create, the relationship of
employer and employee between the Citizens Insurance
Companies and Vis'n or as principal and agent other than as
expressly provided in this Agreement. None of the agents,
officers, or employees of Vis'n shall be considered or
construed to be the agents or employees of the Citizens
Insurance Companies for any purpose whatsoever.
Section 9.6. Merger and Amendment. This Agreement
constitutes the entire agreement and merges and supersedes
all prior oral or written agreements of the parties hereto.
Any waiver of or failure to require adherence to any
provision of this Agreement in any instance or series of
instances by any party hereto shall not constitute a waiver
of such provision in any other instance or constitute a
modification of this Agreement, which may not be amended or
modified except by a written instrument signed by the
parties.
Section 9.7. Counterparts. This Agreement may be executed
in separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed on
the day and year subscribed:
VIS'N, INC.
By:___________________________________
Scott S. Broughton, President
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
By:___________________________________
Norma J. Oman, Chairman of the Board
and Chief Executive Officer
CITIZENS FUND INSURANCE COMPANY
By:_________________________________
Norma J. Oman, Chairman of the Board
and Chief Executive Officer
INSURANCE COMPANY OF OHIO
By:__________________________________
Norma J. Oman, Chairman of the Board
and Chief Executive Officer
SOFTWARE AND HARDWARE SUPPORT AGREEMENT
THIS SOFTWARE AND HARDWARE SUPPORT AGREEMENT (the
"Agreement") is made and entered as of this 31st day of
July, 1996 (the "Contract Date"), by and among VIS'N, INC.
("VIS'N"), a business corporation duly organized or to be
duly organized and whose principal place of business is or
will be located at 406 Main Street, Red Wing, Minnesota
55066, CITIZENS SECURITY MUTUAL INSURANCE COMPANY ("Citizens
Mutual"), a mutual insurance company organized under the
laws of the State of Minnesota, whose office and principal
place of business is located at 406 Main Street, Red Wing,
Minnesota 55066, CITIZENS FUND INSURANCE COMPANY ("Citizens
Fund"), a stock insurance company organized under the laws
of the State of Minnesota, whose office and principal place
of business is located at 406 Main Street, Red Wing,
Minnesota 55066, and INSURANCE COMPANY OF OHIO ("Citizens
Ohio"), a stock insurance company organized under the laws
of the State of Ohio, whose office and principal place of
business is located at 406 Main Street, Red Wing, Minnesota
55066. In consideration of the mutual representations,
warranties, covenants, agreements and undertakings herein
set forth, the sufficiency of which is hereby acknowledged,
the parties to this Agreement hereby agree as follows:
ARTICLE 1
Purpose
1.1 Generally. Citizens Mutual, Citizens Fund and Citizens
Ohio (collectively, the "Citizens Insurance Companies")
desire to have certain Technical Support performed for
computer software and hardware to allow for continuous and
uninterrupted operation of their insurance businesses.
VIS'N desires to take responsibility for the performance of
the Technical Support required by the Citizens Insurance
Companies. Citizens Insurance Companies further intend to
request Meridian Insurance Group, Inc., a business
corporation duly organized under the laws of the State of
Indiana, whose office and principal place of business is
located at 2955 North Meridian Street, Indianapolis, Indiana
46208 ("Meridian"), to provide technical and legal input and
assistance to the Citizens Insurance Companies during the
term of this Agreement, and the Citizens Insurance Companies
intend to provide Meridian with access to and copies of back-
ups, and consulting regarding the Citizens' Computer System,
as a third-party beneficiary of this Agreement.
ARTICLE 2
Term
2.1 Commencement. The respective responsibilities and
obligations of VIS'N and the Citizens Insurance Companies
specified in this Agreement shall commence at a date
("Commencement Date") mutually agreed upon in a writing that
references this Agreement and which is signed by VIS'N and
each of the Citizens Insurance Companies.
2.2 Expiration of Agreement. This Agreement shall expire
on the date ("expiration date"), which shall be the earlier
of three years from the Commencement Date or December 31,
1999. The expiration date may only be extended if mutually
agreed upon in a writing that references this Agreement and
which is signed by VIS'N and each of the Citizens Insurance
Companies. This Agreement may be terminated by the Parties
prior to the expiration date as provided in Articles 4, 8
and 12.
ARTICLE 3
Payment
3.1 Generally. During the term of this Agreement, the
Citizens Insurance Companies shall provide VIS'N with
payments in the amount and at the times listed on Appendix
A, attached hereto and made part hereof. Such payments are
provided in consideration for the Technical Support defined
in Appendix B. If VIS'N does not receive the compensation
listed in Appendix A within 3 days of the date such
compensation was to be mailed, VIS'N shall send a written
reminder notice to the Citizens Insurance Companies by fax
or by hand delivery. If VIS'N does not receive the
compensation listed on Appendix A within 5 days of the date
such compensation was to be mailed, for every additional day
that payment is not received, the Citizens Insurance
Companies shall pay to VIS'N a late fee equal to .05% of the
amount of compensation owed; provided, however, that no such
late fee will be owed if the delay in payment was caused by
any act or omission by VIS'N. Failure by the Citizens
Insurance Companies to meet the payment terms of Appendix A
shall not be grounds for cessation of Technical Support by
VIS'N until thirty (30) days elapse after the Citizens
Insurance Companies receive the written reminder notice from
VIS'N of the Citizens Insurance Companies purported payment
failure.
3.2 Financial Records. VIS'N agrees to maintain receipts
and invoices to support all out of pocket charges to the
Citizens Insurance Companies, and will provide time reports
substantively similar to the Citizens Insurance Companies
Data Processing Servicing Request which at least indicate
identity of personnel, time spent, description of service,
and project to which service is applicable. The Citizens
Insurance Companies shall have audit rights with respect to
all such records.
ARTICLE 4
Basic Support
4.1 Citizens' Computer System. VIS'N agrees to provide
and/or have provided Technical Support, as recited in
Appendix B, attached hereto and made part hereof, for the
Citizens' Computer System. Such Technical Support shall be
available twenty-four hours per day, seven days a week,
fifty-two weeks a year. Technical Support personnel will
remain in sufficient proximity to be on-site at the Citizens
Insurance Companies to respond to a Citizens' Computer
System error within one (1) hour of notification to VIS'N of
the existence of such an error by the Citizens Insurance
Companies, VIS'N or any third party ("error existence
identification"). Identification of the existence of such
an error by an employee of VIS'N shall for purposes of this
Agreement be deemed a notification to VIS'N of the existence
of such an error. VIS'N shall make a good faith effort to
remedy or cause to be remedied any defect in the Citizens'
Computer System within four (4) hours after error existence
identification, and, if necessary and within such time
frame, repair, replace any defective module or unit or swap
the entire defective modules or unit, or report to the
Citizens Insurance Companies as to the status of the remedy
efforts. The Citizens Insurance Companies shall reimburse
VIS'N for out of pocket expenses incurred in paying third
parties to provide hardware necessary to remedy the defect
in the Citizens' Computer System.
In the event any defect in the Citizens' Computer
System remains unresolved for five (5) days or more after
the error existence identification, the Citizens Insurance
Companies may, in their sole discretion, elect to
immediately terminate this Agreement for cause.
An Incident shall be defined as an occasion when a
defect in the Citizens' Computer System is not remedied or
caused to be remedied by VIS'N within twenty-four (24) hours
(i.e. one calendar day) after error existence
identification. In the event three or more Incidents occur
within any twelve month period, the Citizens Insurance
Companies may, in their sole discretion, elect to
immediately terminate this Agreement for cause.
4.2 Agency Software. VIS'N agrees to provide and/or have
provided Technical Support, as recited in Appendix B,
attached hereto and made part hereof, for the Agency
Software. Such Technical Support shall be available from
7:00 a.m. through 4:00 p.m., Central Standard time, Monday
through Friday, except for the Citizens Insurance Companies
designated holidays and other occasions as are necessary to
maintain the Agency Software.
4.3 Warranty. VIS'N warrants that the Technical Support
specified under this Agreement shall be provided by VIS'N
and by other Persons on behalf of VIS'N, and that such
Technical Support shall be provided in good faith and using
a high standard of care. VIS'N further warrants to the
Citizens Insurance Companies that VIS'N has acquired all
rights or licenses necessary to provide the Technical
Support specified under this Agreement and, to the best of
its knowledge, providing such Technical Support will not
infringe upon any rights, including but not limited to
Intellectual Property Rights, of third parties.
4.4 Miscellaneous. VIS'N shall make a good faith effort to
assure that any provision of Technical Support by VIS'N
and/or any Person acting on behalf of VIS'N shall not
interfere with, and shall be subordinate to, the ongoing
insurance business operations of the Citizens Insurance
Companies as reasonably determined by the management of the
Citizens Insurance Companies. Subsequent to the date of
legal incorporation of VIS'N, employees of the Citizens
Insurance Companies may participate in the provision of
Technical Support at the sole discretion of the management
of the Citizens Insurance Companies. VIS'N shall have no
warranty or indemnification obligation under this Agreement
as to these acts of the Citizens Insurance Companies
employees unless such acts are done at the direction of
VIS'N.
ARTICLE 5
Software Back-Ups
5.1 Generally. VIS'N agrees to create daily updates in
which all data entries and transactions for each day and for
all computer platforms are stored on a non-volatile storage
media, such as magnetic tape and diskette (referred to as
"back-ups" hereinafter). VIS'N further agrees to create
full pack weekly back-ups on a non-volatile storage media.
VIS'N warrants that by noon of the business day following
their creation the daily back-ups and the full weekly back-
ups shall be securely located at an off-site storage
location. VIS'N agrees that the off-site storage location
shall be approved in advance by the Citizens Insurance
Companies. VIS'N agrees that the Citizens Insurance
Companies and Meridian shall have reasonable access to all
back-ups stored at the off-site storage location. VIS'N
further agrees to supply Meridian with updated copies of the
Citizens Insurance Companies' full back-ups including the
software of the Citizens' Computer System at least once
every month. VIS'N agrees to maintain software back-ups for
the time periods set forth in Appendix C, attached hereto
and made part hereof.
ARTICLE 6
Disaster Recovery
6.1 Generally. The obligations and responsibilities of the
Citizens Insurance Companies under this Agreement shall, at
the option of the Citizens Insurance Companies, be subject
to the satisfaction, at or prior to June 30, 1996, of VIS'N
obtaining Meridian's written approval of a Disaster Recovery
Plan ("Plan") providing for the resumption of computing
operations for the Citizens Insurance Companies by VIS'N
within forty-eight (48) hours of a disaster. If VIS'N has
developed and submitted a proposed Plan to Meridian by
April 30, 1996, for each day beyond May 30, 1996, that
Meridian was tardy in conveying disapproval of the proposed
Plan to VIS'N, then VIS'N shall have an additional day
beyond June 30, 1996, to gain Meridian's approval for a
Plan. For proposed Plans submitted after May 30, 1996,
Meridian shall respond within seven (7) business days with
specific objections to the Plan if appropriate. VIS'N shall
pay any and all costs associated with developing the Plan.
Additional costs associated with activating, utilizing and
maintaining the Plan shall be specified within the Plan, and
such additional costs shall be borne by VIS'N and the
Citizens Insurance Companies as subsequently and mutually
agreed upon in writing.
ARTICLE 7
Contract Negotiation
7.1 Software. VIS'N shall negotiate all software contracts
and maintenance contracts for the Citizens' Computer System
and for the Agency Software. However, if any of the
Citizens Insurance Companies are a party to a contract, any
such software contract or maintenance contract requires the
review and approval of the Citizens Insurance Companies'
management prior to VIS'N's acceptance of such contract.
The Citizens Insurance Companies' management further
reserves the right to involve any Citizens Insurance
Companies' personnel and any third parties to this
Agreement, including but not limited to Meridian and its
legal department, in the contract review process. On any
occasion when VIS'N intends to enter into a software
contract or maintenance contract affecting the Citizens
Insurance Companies, VIS'N shall provide the Citizens
Insurance Companies with a summary of the impact on the
Citizens Insurance Companies of the intended contract.
VIS'N shall make reasonable efforts to provide such a
summary no less than seventy-two (72) hours prior to VIS'N
legally entering into the intended contract.
VIS'N further agrees that each contract negotiated by
VIS'N with a software vendor for software solely for use on
the Citizens' Computer System shall require that a copy of
the vendor's software source code be held in escrow. A
mutually agreeable escrow agent and escrow agreement shall
be implemented. Unless the Citizens Insurance Companies
agree to the contrary in writing, each contract for software
solely for use on the Citizens' Computer System shall
require a software vendor to notify the Citizens Insurance
Companies in the event the software vendor faces insolvency,
bankruptcy, cessation of business, or the inability to
service the software. Unless the Citizens Insurance
Companies agree to the contrary in writing, each contract
for software solely for use on the Citizens' Computer System
shall further provide that upon an occurrence which raises a
reasonable concern by the Citizens Insurance Companies that
a software vendor will be unable or unwilling to support the
software, such an occurrence including but not limited to a
vendor's insolvency, bankruptcy, cessation of business, and
refusal or inability to service the software, the Citizens
Insurance Companies may obtain a copy of the source code.
7.2 Hardware. Contracts with third parties for Maintenance
of the Citizens' Computer System hardware and contracts with
third parties for Enhancements of desk top computers and
their peripherals will be negotiated by VIS'N on behalf of
the Citizens Insurance Companies. All contracts to which
any of the Citizens Insurance Companies are a party will be
submitted to the Citizens Insurance Companies management for
review and approval. The Citizens Insurance Companies shall
have the right to involve any Citizens Insurance Companies'
personnel and any third parties to this Agreement, including
but not limited to Meridian and its legal department, in the
hardware contract review process.
ARTICLE 8
Enhancements
8.1 Generally. VIS'N agrees to upgrade the Citizens'
Computer System to be year 2000 compliant as defined under
this Article. Software Enhancements specified by the
Citizens Insurance Companies will be cost estimated by VIS'N
and submitted to the Citizens Insurance Companies for
approval and authorization. Software Enhancements will be
tested according to criteria provided in Appendix D, which
is attached hereto and made part hereof.
A comprehensive project plan addressing complete
conversion of the Citizens' Computer System for year 2000
compliance by March 31, 1998 (the "Project Plan") shall be
submitted by VIS'N to the Citizens Insurance Companies for
review and approval by September 1, 1996. The Citizens
Insurance Companies shall make reasonable efforts to approve
or disapprove any Project Plan submitted by VIS'N within ten
(10) business days of its receipt by the Citizens Insurance
Companies. The Project Plan will identify stages of the
conversion process, including but not limited to stages for
year 2000 compliance for various software systems, and will
specify proposed start and end dates for each stage.
Commencement of each stage, meaning the start of work
related to a stage for which the Citizens Insurance
Companies shall be responsible for payment of such work,
must be approved by the Citizens Insurance Companies.
In the event the Citizens Insurance Companies do not
receive the Project Plan by September 1, 1996, the Citizens
Insurance Companies may immediately terminate this
Agreement. In the event VIS'N fails to gain approval from
the Citizens Insurance Companies by November 1, 1996 for
both the Project Plan and the commencement of the stage of
the Project Plan having the earliest start date, the
Citizens Insurance Companies may immediately terminate this
Agreement. Approval of the Project Plan and the earliest
stage commencement shall not be unreasonably withheld.
VIS'N shall allow the Citizens Insurance Companies and
their designees to monitor all work undertaken to meet the
requirements of the Project Plan to ensure that acceptable
progress is made on each stage of the Project Plan. In the
event any quality and/or timeliness requirement of a stage
is not met to the reasonable satisfaction of the Citizens
Insurance Companies, the Citizens Insurance Companies may
immediately terminate this Agreement. The Citizens
Insurance Companies reserve the right to withhold final
approval of commencement of work on any stage(s) of the
Project Plan having a proposed start date later than the
proposed end date of another stage ("prior stage") until all
quality and timeliness requirements relating to the prior
stage are met to the reasonable satisfaction of the Citizens
Insurance Companies.
All software Enhancements, including but not limited to
such Enhancements forming a necessary part of a stage of the
Project Plan, that are negotiated by VIS'N and/or provided
under this Agreement shall be year 2000 compliant. All
software Enhancements shall be installed and in production,
operating in accordance with the processing requirements of
Article 9, as specified in project schedules proposed by
VIS'N and/or Persons acting on behalf of VIS'N and approved
in writing by Citizens Insurance Companies' management.
Approval of the project schedules shall not be unreasonably
withheld.
Project schedules shall include timetables which conform
to the Project Plan or are otherwise agreed to by the
parties in writing. Failure of any software Enhancement for
the Citizens' Computer System to be year 2000 compliant by
the timetables specified in the project schedules or as
otherwise agreed by the parties in writing shall be cause
for the Citizens Insurance Companies to immediately
terminate this Agreement.
In the event any software Enhancement (including any
year 2000 compliant software Enhancements) requires
modification of any files, including but not limited to data
files, utilities, libraries, copybooks, tables, batch files
and/or other programs of the Citizens' Computer System to
allow the Citizens Insurance Companies to conduct business
operations in a timely, accurate and reasonable manner, then
such modification shall be completed, at no additional cost
to the Citizens Insurance Companies, by the time the
respective software Enhancement is installed.
8.2 Computer System Changes. To the extent not completed
by the Citizens Insurance Companies prior to the
Commencement Date, VIS'N agrees to complete, to the
reasonable satisfaction of the Citizens Insurance Companies'
management, the Citizens Insurance Companies' RQ2 commercial
lines upgrade, move then current management reports from the
Unisys system to the AS400 system, move the billing system
from the Unisys system to the system in development as of
January 1, 1996 by the Citizens Insurance Companies and
Programming Resources Company ("PRC"), and complete
implementation of the Peat Marwick recommendations to the
Citizens Insurance Companies contained in the Peat Marwick
report provided in Appendix E, which is attached hereto and
made part hereof. VIS'N agrees to complete the tasks
specified under this section 8.2 without additional expense
or charge to the Citizens Insurance Companies or Meridian.
8.3 Ownership. The Citizens Insurance Companies shall own
all Intellectual Property Rights or other property rights in
and to any Citizens Insurance Companies specific software
Enhancements and associated manuals developed solely by
VIS'N for the Citizens Insurance Companies under this
Agreement. The Citizens Insurance Companies agree to grant
and hereby grant to VIS'N a license to use, in the operation
of VIS'N's business, all Citizens Insurance Companies
specific software Enhancements developed solely by VIS'N for
the Citizens Insurance Companies under this Agreement. The
Citizens Insurance Companies shall have no obligation to
provide any support for any software Enhancement. No costs
associated with obtaining any Intellectual Property Rights
with respect to such software Enhancements shall be borne by
VIS'N. VIS'N agrees to perform such lawful acts, including
but not limited to the execution of papers and the giving of
lawful testimony, as may be required to enable the Citizens
Insurance Companies to procure any Intellectual Property
Rights for such software enhancements.
8.4 Training Provided. During the term of this Agreement,
and at no additional charge, VIS'N shall provide the
Citizens Insurance Companies with any and all training
required or requested to operate Enhancements to the
Citizens' Computer System.
ARTICLE 9
Processing Requirements
9.1 Generally. The definition of a processing cycle for
purposes of this Agreement is set forth in Appendix F, which
is attached hereto and made part hereof. VIS'N represents
and warrants that throughout the term of this Agreement,
processing cycles for Citizens Insurance Companies data will
be run on a daily basis Monday through Friday, except for
holidays designated by the Citizens Insurance Companies (and
except as noted specifically in Appendix F), and further
will be run separately from cycles of other VIS'N clients.
Entered data will be processed within one processing cycle
in 98% of all instances. In no event will the processing of
entered policy data exceed two daily processing cycles, as
defined in Appendix F.
ARTICLE 10
System Operation
10.1 Citizens' Computer System. Scheduled "up time" for the
Citizens' Computer System shall be from 6 a.m. to 6 p.m.
Monday through Friday, and 7 a.m. to 12 p.m. Saturdays,
Central Standard Time, except for holidays designated by the
Citizens Insurance Companies and other occasions as are
necessary in the reasonable discretion of the Citizens
Insurance Companies to maintain the system. Additional up
time may be mutually agreed upon in writing by the Citizens
Insurance Companies' management and VIS'N. VIS'N agrees to
maintain on-line system availability at no less than 99% of
system up time, wherein system availability is defined in
Appendix G, which is attached hereto and made part hereof.
System response time shall be 5 seconds or less 99% of time
as measured according to Appendix G, so long as the Citizens
Insurance Companies have in place appropriate hardware to
meet this requirement. VIS'N further agrees that the
Citizens Insurance Companies, Meridian and any affiliates
shall have dial-in access via Carbon Copy and/or PC anywhere
program to monitor all aspects of Citizens' Computer System
operations.
ARTICLE 11
Reports
11.1 Generally. VIS'N agrees to process and make available
all reports, both in title and in substance, which the
Citizens Insurance Companies processes and makes available
as of the Commencement Date. VIS'N agrees that such reports
shall include but shall not be limited to those specified in
Appendix H, which is attached hereto and made part hereof.
VIS'N agrees that reports subject to this Article will be
processed and available upon request for review by the
Citizens Insurance Companies and Meridian as follows:
a) Monthly Reports--no later than 6th calendar day of
the next month.
b) Quarterly Reports--no later than 6th calendar day of
the next month.
c) Year-end Reports--no later than 10th calendar day of
the next year.
Systems Response Time reports, Systems Availability
reports, and Disk Utilization reports, as defined in
Appendix H, shall automatically be provided monthly by VIS'N
to the Citizens Insurance Companies within six (6) months of
the Commencement Date. Additional reports may be provided
if mutually agreed upon by the parties.
ARTICLE 12
Termination
12.1 Termination by the Citizens Insurance Companies.
Except as otherwise specifically provided for within this
Agreement, including but not limited to Articles 4 and 8,
the Citizens Insurance Companies shall have right to
terminate this Agreement prior to the expiration date in the
event:
a) VIS'N fails to provide or have provided the
Technical Support identified in this Agreement, and
VIS'N fails to cure such failing within thirty
(30) days after written notice of such failing from any
of the Citizens Insurance Companies;
b) VIS'N fails to provide or have provided software
and/or hardware capable of maintaining the present
operation of the insurance businesses of the Citizens
Insurance Companies, and VIS'N fails to cure such
failing within thirty (30) days after written notice of
such failing from any of the Citizens Insurance
Companies;
c) VIS'N or a Person acting on behalf of VIS'N breaches
any warranty, covenant, or other provision of this
Agreement and VIS'N fails to cure such breach within
thirty (30) days after written notice of such breach
from any of the Citizens Insurance Companies. VIS'N
will be deemed to have cured such breach only if it
takes steps reasonably adequate to alleviate any damage
to the Citizens Insurance Companies resulting from the
breach and to prevent a similar future breach.
However, VIS'N shall have no opportunity or right to
cure a breach of Article 16;
d) The Commencement Date is not earlier than a date
one (1) year after the Effective Time of the merger
contemplated by the Acquisition and Affiliation
Agreement dated as of March 20, 1996, by and among
Meridian, Citizens Security Group, Inc., and Citizens
Mutual, as such time is defined therein;
e) VIS'N does not assign its rights under this
Agreement pursuant to Article 17.2 and either (i) Scott
Broughton and Kirk Simmons cease to own directly a
majority of the stock of VIS'N, or (ii) any of the
stock of VIS'N is acquired by someone other than an
employee of VIS'N; or
f) VIS'N assigns its rights under this Agreement to a
new or existing corporate entity ("Corporate Entity")
pursuant to Article 17.2 and either (i) Scott Broughton
and Kirk Simmons cease to own directly or indirectly a
majority of the stock of Corporate Entity, or (ii) any
of the stock of Corporate Entity is acquired by someone
other than an employee of Corporate Entity.
12.2 Termination by VIS'N. Except as otherwise specifically
provided herein, VIS'N shall have right to terminate this
Agreement for cause in the event:
a) The Citizens Insurance Companies breach any
warranty, covenant, or other provision of this
Agreement and the Citizens Insurance Companies fail to
cure such breach within thirty (30) days after written
notice of such breach from VIS'N; or
b) Meridian, to the extent Meridian enters into a
written confidentiality agreement as described in
Article 16, breaches such a confidentiality agreement
with VIS'N.
ARTICLE 13
Consulting
13.1 Generally. During the term of this Agreement, and
provided operations of VIS'N shall not be unreasonably
interrupted, VIS'N will provide consulting to employees of
Meridian and insurance agents of the Citizens Insurance
Companies to assist in maintaining day-to-day operations.
Such consulting shall not require disclosure by VIS'N of any
intellectual property or other proprietary information which
is solely owned by VIS'N. The VIS'N personnel conducting
any such consulting, the prices of any such consulting, and
the schedules of any such consulting shall all subsequently
be mutually agreed upon by VIS'N and the Citizens Insurance
Companies. Consulting responsibilities provided under this
Article shall not survive the termination of this Agreement
ARTICLE 14
Transitional Period after Agreement
14.1 Generally. At the termination by VIS'N or expiration
of this Agreement, and at the Citizens Insurance Companies'
sole discretion, VIS'N shall provide the Citizens Insurance
Companies or its designees with consulting services,
including personnel and documentation, for a transitional
period of up to sixty (60) calendar days from the
termination by VIS'N or expiration of this Agreement. Such
consulting services shall provide any and all information
that the Citizens Insurance Companies or its designees may
reasonably deem necessary to enable them to operate and
maintain the Citizens' Computer System in a manner suitable
to allow the Citizens Insurance Companies to continue to
conduct their business operations in a timely, accurate and
reasonable manner. The Citizens Insurance Companies agrees
to reimburse VIS'N for all reasonable expenses incurred by
VIS'N in supporting the Citizens Insurance Companies during
the transitional period. Consulting service shall be
provided at a rate and in an amount of hours to be agreed
upon, and in no event shall the rate exceed $100.00 per
hour.
ARTICLE 15
Indemnification
15.1 Generally. VIS'N, at its own expense, shall indemnify
and hold the Citizens Insurance Companies and any affiliate
harmless and agrees to defend the Citizens Insurance
Companies and any affiliate from and against any costs,
expenses, including but not limited to attorney fees, and
damages arising out of or based upon any breach of this
Agreement by VIS'N or a Person acting on behalf of VIS'N, or
any act or omission of VIS'N or a Person acting on behalf of
VIS'N that fails to comply with the care requirements set
forth in Article 4.3. VIS'N shall pay any costs, damages,
or awards of settlement, including court costs and attorney
fees, arising out of any such breach or act or omission.
The Citizens Insurance Companies, at their own expense,
shall indemnify and hold VIS'N and any affiliate harmless
and agree to defend VIS'N and any affiliate from and against
any costs, expenses, including but not limited to attorney
fees, and damages arising out of or based upon any breach of
this Agreement by the Citizens Insurance Companies or a
Person acting on behalf of the Citizens Insurance Companies.
The Citizens Insurance Companies shall pay any costs,
damages, or awards of settlement, including court costs and
attorney fees, arising out of any such breach.
15.2 Intellectual Property. VIS'N is generally familiar
with the Citizens Insurance Companies' business and use of
the Citizens' Computer System as of the Contract Date.
VIS'N, at its own expense, shall indemnify and hold the
Citizens Insurance Companies and any affiliate harmless and
agrees to defend the Citizens Insurance Companies and any
affiliate from and against any costs, expenses, including
but not limited to attorney fees, and damages arising out of
or based upon any claim, demand, or action alleging that
Technical Support provided by or on behalf of VIS'N after
the Commencement Date, either alone or in combination with
the Citizens' Computer System, infringes or contributes to
the infringement of any Intellectual Property Right of a
third party. VIS'N shall pay any costs, damages, or awards
of settlement, including court costs and attorney fees,
arising out of any such claim, demand, or action. If a
third-party infringement claim subjects the Citizens
Insurance Companies to an injunction prohibiting continuing
use of any software or software Enhancement for the
Citizens' Computer System provided by or on behalf of VIS'N
after the Commencement Date, then VIS'N shall, at its sole
election and expense, and within thirty (30) days after the
commencement of an injunction: (1) obtain for the Citizens
Insurance Companies the right to continue to use the
software or software Enhancement pursuant to this Agreement,
or (2) replace or modify the software or software
Enhancement to be non-infringing.
The Citizens Insurance Companies, at their own expense,
shall indemnify and hold VIS'N and any affiliate harmless
and agree to defend VIS'N and any affiliate from and against
any costs, expenses, including but not limited to attorney
fees, and damages arising out of or based upon any claim,
demand, or action alleging that acts of their employees,
both prior and subsequent to the Commencement Date, infringe
or contribute to the infringement of any Intellectual
Property Right of a third party. The Citizens Insurance
Companies shall pay any costs, damages, or awards of
settlement, including court costs and attorney fees, arising
out of any such claim, demand, or action.
The Citizens Insurance Companies, at their own expense,
shall indemnify and hold VIS'N and any affiliate harmless
and agree to defend VIS'N and any affiliate from and against
any costs, expenses, including but not limited to attorney
fees, and damages arising out of or based upon any claim,
demand, or action alleging that modification by the Citizens
Insurance Companies of any software, including Enhancements,
provided by or on behalf of VIS'N, or that use by the
Citizens Insurance Companies of any software, including
Enhancements, in a manner other than for uses for which such
software was provided by or on behalf of VIS'N, infringes or
contributes to the infringement of any Intellectual Property
Right of a third party. The Citizens Insurance Companies
shall pay any costs, damages, or awards of settlement,
including court costs and attorney fees, arising out of any
such claim, demand, or action.
ARTICLE 16
Confidential Information
16.1 Generally. VIS'N and the Citizens Insurance Companies
each agree not to disclose any confidential information
received from the other to any third party, except for
information the receiving party previously knew, information
the receiving party comes to know through third parties not
deriving that information from the disclosing party, and
information which is in the public domain. Further, unless
otherwise specified in writing, all documents and materials
containing any confidential proprietary information shall
remain the property of the disclosing party and shall be
returned to the disclosing party, along with all copies of
such proprietary information, upon disclosing party's
request.
Notwithstanding anything in this Agreement to the
contrary, VIS'N shall have no obligation to furnish any
confidential information to Meridian unless Meridian
executes a confidentiality agreement as provided in Appendix
I, attached hereto.
ARTICLE 17
General Administrative Provisions
17.1 General Definitions.
a) An "affiliate" of a specified corporation is any
other Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by,
or is under common control with, the specified
corporation. It is expressly confirmed that Citizens
Mutual and Meridian Mutual Insurance Company are
affiliates of Meridian.
b) Agency Software has the meaning set forth in
Appendix B.
c) Breach means (i) a breach by a Party of a covenant
or warranty herein, or (ii) a Material
misrepresentation made hereunder.
d) Citizens' Computer System means all operating system
software, all application software, on all platforms,
and all hardware, existing at the Citizens Insurance
Companies at the Commencement Date, and all
Enhancements for such software, but does not include
any software packages purchased by individual users for
installation in a stand-alone mode on personal
computers, the Open Systems Accounting System, and the
Agency Software.
e) "Defect in the computer system" means any software
or hardware related Material flaw or problem which
unreasonably compromises the Citizens Insurance
Companies's ability to conduct business operations in a
timely, accurate and reasonable manner.
f) Disaster means any occurrence, whether natural or
man-made, that prevents the conduct of business at the
current location of the Citizens Insurance Companies.
g) Enhancements means modifications, upgrades,
improvements and other activities intended to provide
new or increased capabilities and functions to the
existing Citizens' Computer System.
h) Hereunder, herein, and similar terms refer to this
Agreement.
i) Include and similar terms (e.g., includes,
including, included, comprises, comprising, e.g., for
example), when used as part of a phrase including one
or more specific items, are used by way of example and
not of limitation.
j) Intellectual Property Rights means any and all
rights, existing from time to time, to exclude in a
specified jurisdiction under patent law, copyright law,
moral rights law, trade-secret law, semiconductor chip
protection law, trademark law, unfair competition law,
or other similar rights.
k) Maintenance means repairs and adjustments intended
to bring or keep the existing Citizens' Computer System
in proper working order.
l) Material, with respect to a particular matter (e.g.,
a Breach), means that the matter is shown to affect
adversely (i) the rights and benefits of the other
Party under this Agreement; or (ii) the ability of the
other Party to perform its obligations hereunder; in
either case to such a degree that a reasonable person
in the management of his or her own affairs would be
more likely than not to decline to enter into this
Agreement in view of the matter in question.
m) Party means a party to this Agreement unless
otherwise clear from the context.
n) Person means a natural person, a corporation (stock,
mutual, for profit or not-for-profit), an association,
a partnership (general or limited), a joint venture, a
trust, a government or political department,
subdivision, or agency, or any other entity.
o) Technical Support means the services listed in
Appendix B.
17.2 Assignment. VIS'N may assign its rights, interests and
obligations under this Agreement to Corporate Entity,
provided that Scott Broughton and Kirk Simmons are and
remain the direct or indirect owners of a majority of the
stock of Corporate Entity and only employees of Corporate
Entity own any and all remaining stock. Except as
otherwise provided by this section, no party may assign its
respective rights, interests, or obligations under this
Agreement without the prior written consent of the other
parties, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, all respective rights,
interests, and obligations of the parties in, to and under
this Agreement shall immediately succeed to or be assumed by
any successor, by merger, consolidation or otherwise, of any
of the parties.
17.3 Authority and Other General Warranties. Each Party
warrants to the other that:
a) the Warranting Party, if a corporation, partnership,
limited partnership, or other nonnatural Person, is duly
organized and subsisting under the laws of the jurisdiction
of its incorporation or existence;
b) the Warranting Party has full power and authority to
enter into this Agreement;
c) the execution and/or performance of this Agreement
does not and will not violate or interfere with any other
agreement of the Warranting Party, which violation or
interference would have a Material adverse effect on the
Warranting Party;
d) the Warranting Party will not enter into any
agreement the execution and/or performance of which would
violate or interfere with the Warranting Party's performance
of this Agreement and have a Material adverse effect on the
other Party;
e) the Warranting Party is not presently the subject of
a voluntary or involuntary petition in bankruptcy, does not
presently contemplate filing any such voluntary petition,
and is not aware of any intention on the part of any other
Person to file such an involuntary petition against it;
f) the Warranting Party is not presently the subject
of, nor the proponent of, any claim that would have a
Material adverse effect on the other Party; and
g) the Person(s) executing this Agreement on behalf of
the Warranting Party has actual authority to bind the
Warranting Party to this Agreement.
17.4 Independent Parties. The Parties are independent
contractors. Except as may be expressly and unambiguously
provided in this Agreement, no partnership or joint venture
is intended to be created by this Agreement, nor any
principal-agent or employer-employee relationship. Except
to the extent expressly provided in this Agreement, neither
Party has, and neither Party shall attempt to assert, the
authority to make commitments for or to bind the other Party
to any obligation.
17.5 Entire Agreement. Except as may be expressly provided
otherwise herein, this Agreement constitutes the entire
agreement between the parties hereto with respect to the
subject matter of this Agreement and supersedes all previous
negotiations, agreements and commitments (if any) relating
to the subject matter of this Agreement. Each Party
represents and warrants that, in entering into and
performing its obligations under this Agreement, it does not
and will not rely on any promise, inducement, or
representation allegedly made by or on behalf of the other
Party with respect to the subject matter hereof, nor on any
course of dealings or custom and usage in the trade, except
as such promise, inducement, or representation may be
expressly set forth herein. No modification or amendment to
this Agreement will be valid or binding unless reduced to
writing and duly executed by the Party or Parties to be
bound thereby.
17.6 Notices. Unless otherwise provided herein, all
notices, demands and other communications under or in
connection with this Agreement shall be written in the
English language and shall be sent by registered mail,
postage prepaid and addressed as follows, and all notices,
demands and other communications shall be deemed to have
been given on the date when deposited to the post.
If to VIS'N:
Scott Broughton
President
VIS'N, INC.
406 Main Street
Red Wing, Minnesota 55061
with a copy to:
Mary M. O'Brien
Meagher & Geer, PLLP
4200 Multifoods Tower
33 South Sixth Street
Minneapolis, Minnesota 55402
If to the Citizens Insurance Companies:
William H. Beikes
Vice President, Director of
Information Resources
Meridian Insurance Group, Inc.
P.O. Box 1980
Indianapolis, Indiana 46206
with a copy to:
J. Mark McKinzie, Esq.
General Counsel
Meridian Insurance Group, Inc.
P.O. Box 1980
Indianapolis, Indiana 46206
Notwithstanding the above, any urgent notices, demands
and other communications may be given by telex or facsimile
addressed as follows and such notices, demands or
communications shall be deemed to have been given at the
time when confirmation of receipt of the telex or facsimile
is received.
If to VIS'N:
Fax: (612) 338-8384 Attn: Mary O'Brien
If to Citizens Insurance Companies:
Fax: (317) 931-7930
Either party hereto may change its address or telex or
facsimile number for the purpose of this section by notice
given to the other party in the manner set forth above.
17.7 Remedies. Except as otherwise provided herein or in
this Agreement, the remedies set forth herein or in this
Agreement are not exclusive, and either Party will be
entitled alternatively or cumulatively to damages for breach
of this Agreement or any other remedy available under
applicable law.
17.8 Choice Of Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of
Minnesota without giving effect to any choice or conflicts
of law provision or rule (whether of the State of Minnesota
or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of
Minnesota.
17.9 No Waiver. The failure of either Party at any time to
require performance by the other Party of any provision of
this Agreement shall in no way affect the right of such
Party to require performance of that provision. Any waiver
by either Party of any breach of any provision of this
Agreement shall not be construed as a waiver of any
continuing or succeeding breach of such provision, a waiver
of the provision itself or a waiver of any right under this
Agreement.
17.10 Binding On Successors. This Agreement will be
binding upon and inure to the benefit of the Parties and
their successors and assigns permitted by this Agreement.
17.11 Section Headings. The headings contained in this
Agreement are for reference purposes only and shall not in
any way control the meaning or interpretation of this
Agreement.
17.12 Representation of Counsel; Mutual Negotiation. Each
Party has had the opportunity to be represented by counsel
of its choice in negotiating this Agreement. This Agreement
shall therefore be deemed to have been negotiated and
prepared at the joint request, direction, and construction
of the Parties, at arms length, with the advice and
participation of counsel, and will be interpreted in
accordance with its terms without favor to any Party.
17.13 Survival of Representations and Warranties. The
representations and warranties made herein, including but
not limited to Article 14, shall survive the termination of
this Agreement except as may be expressly indicated
otherwise herein.
17.14 Effect of Partial Invalidity. If any one or more of
the provisions of this Agreement should be ruled wholly or
partly invalid or unenforceable by a court or other
government body of competent jurisdiction, then:
a) the validity and enforceability of all
provisions of this Agreement not ruled to be
invalid or unenforceable will be unaffected;
b) the effect of the ruling will be limited to
the jurisdiction of the court or other government
body making the ruling;
c) the provision(s) held wholly or partly
invalid or unenforceable will be deemed amended,
and the court or other government body is
authorized to reform the provision(s), to the
minimum extent necessary to render them valid and
enforceable in conformity with the Parties' intent
as manifested herein; and
d) if the ruling, and/or the controlling
principle of law or equity leading to the ruling,
is subsequently overruled, modified, or amended by
legislative, judicial, or administrative action,
then the provision(s) in question as originally
set forth in this Agreement will be deemed valid
and enforceable to the maximum extent permitted by
the new controlling principle of law or equity.
17.15 Attorneys' Fees. If litigation or other action is
commenced between the Parties concerning any dispute arising
out of or relating to this Agreement, the prevailing Party
in any contested ancillary proceeding relating to the action
(e.g., motions to transfer, to compel discovery, etc.) and
the prevailing Party in the action itself will be entitled,
in addition to any other award that may be made, to recover
all court costs or other official costs and all reasonable
expenses associated with the ancillary proceeding or action,
including without limitation reasonable attorneys' fees and
expenses.
IN WITNESS WHEREOF, the Parties have caused their duly
authorized representatives to execute this Agreement as of
the day and year first written above.
VIS'N, INC.
By:_______________________________________
Scott S. Broughton
President
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
By:_______________________________________
Norma J. Oman
Chairman of the Board and Chief Executive Officer
CITIZENS FUND INSURANCE COMPANY
By:_______________________________________
Norma J. Oman
Chairman of the Board and Chief Executive Officer
INSURANCE COMPANY OF OHIO
By:_______________________________________
Norma J. Oman
Chairman of the Board and Chief Executive Officer
AGENCY PROFIT SHARING AGREEMENT
The Company and the Agent agree that:
I. In addition to the commissions otherwise paid by the
Company to the Agent and subject to requirements imposed by
law and conditions set forth in this agreement, the Company
shall pay to the Agent a Profit-Sharing Commission based on
underwriting profits realized by the Company on all
Qualified Business.
II. Annual Written Premium must equal or exceed $250,000 in
order to be eligible for Profit-Sharing.
III. Definitions:
A. "Income" means the total of all earned premiums on
Qualified Business less any dividends paid to policyholders.
B. "Outgo" means the sum of the following items relating
to the Qualified Business.
1. Incurred losses (losses paid less salvage received and
subrogations recovered, plus reserves for losses at the end
of the year, less reserves for losses at the beginning of
the year) shall not be less than zero.
a) Incurred losses shall be limited to the first $100,000
for any one loss or occurrence on a policy per calendar
year.
2. Loss-adjustment expenses (loss-adjustment expenses
paid, plus reserves for loss adjustment expenses at the end
of the year, less reserves for loss-adjustment expenses at
the beginning of the year). Such expenses may be based on
the Company ratio of loss expense to earned premium.
3. Commissions paid or credited by Company to Agent,
excluding Profit-Sharing Commissions paid under this
Agreement.
4. Company Underwriting expense, as determined from the
consolidated Annual Statement of the Company, applied as a
ratio of Underwriting expense to earned premium.
5. Uncollected premiums developed by audit or under
reporting form policies for which the Agent is not
responsible under the Agency Agreement. If the premiums due
are collected, such premiums less expense shall be credited
to Agent.
6. Profit and Surplus allowance, equal to five percent of
Income.
C. "Qualified Business" means all business placed with the
Company through the Agent except "Excluded Business."
D. "Annual Written Premium" means the total of all written
premiums for the year on Qualified Business less return
premiums.
E. "Earned Premiums" shall be computed by the Company from
its records on the business referred to in Section I.
F. "Agent Profit" means the excess of Income over Outgo.
G. "Agent Loss" means the excess of Outgo over Income.
H. "Percentage of Profit" means Agent Profit divided by
Earned Premium.
I. "Excluded Business" means business excluded from profit
sharing by law, business administered by underwriting
associations, syndicates or pools or assigned-risk plans,
special reinsurance placed by or at the request of the
Agent, health insurance, premiums produced through safety or
commercial group methods, retrospective rating premium
developed as additional premium through operation of the
retrospective rating plan, and any other premium or line of
business determined to be Excluded Business by mutual
agreement between the agent and the Company. Business
written by the Agent in the State of Michigan under what is
presently referred to as the Essential Insurance Plan shall
not constitute Excluded Business.
J. "Annual Growth Rate" means the rate of growth or
decline in Annual Written Premium compared to prior year
Annual Written Premium. Annual Growth Rate is calculated by
dividing current year Annual Written Premium by prior year
Annual Written Premium. The excess over 100 (or deficit
below 100) is the Annual Growth Rate percentage shown in the
IV. D. Table.
"Initial Profit-Sharing Figure" means the result from
performing all calculations in Steps 1 through 4 of Section
IV.D. Table.
IV. Profit-Sharing Commission:
A. Following the close of the year, the Company shall
compute Agent Profit or Loss for that year and report
to the Agent. If there is an Agent Profit, the Profit-
Sharing Commission is determined by applying (as a
percentage) the Profit-Sharing Factor from the Table
in Section D to the Agent Profit. The Profit-Sharing
Factor is determined from three elements: (1) The
Agent Annual Written Premium; (2) the Agent Annual
Growth Rate; and (3) the Agent Percentage of Profit.
The Profit-Sharing Factor is the percentage shown in
the appropriate column of the Table corresponding to
the Agent Percentage of Profit on the line
corresponding to the Agent Annual Growth Rate as shown
in the appropriate column for the Agent Annual Written
Premium.
If an Agent Loss existed in the prior year and (1)
such Agent Loss is less than 50% for the Initial
Profit-Sharing Figure, the prior year Agent Loss shall
be subtracted from the Initial Profit-Sharing Figure
and the resulting amount is the Profit-Sharing
Commission, or (2) such Agent Loss is 50% or more of
the Initial Profit-Sharing Figure, the Profit-Sharing
Commission shall be 50% of the Initial Profit-Sharing
Figure.
B. The Company agrees that the Profit-Sharing
Commission Report shall be in writing and delivered to
the Agent within ninety (90) days of the close of the
year.
C. Any Profit-Sharing Commission payment shall be
made by the Company within ninety (90) days after the
close of the year, provided the Agent has paid all
premiums outstanding for the year. No charge or
deduction for Profit-Sharing Commission shall be made
or claimed by the Agent in his accounts.
D. Table.
Steps in computing the Profit-Sharing Commissions are
as follows:
1. Select column corresponding to Agent Annual Written
Premium.
2. Determine Agent Annual Growth Rate and locate in column
corresponding to Agent Annual Written Premium.
3. Determine Agent Percentage of Profit and select
appropriate column in right-hand portion of Table.
By going horizontally to the right from the Agent
Annual Growth Rate (as located in Step 2) to the column
containing the Agent Percentage of Profit (as located in
Step 3), the intersecting figure is the Profit-Sharing
Factor.
<TABLE>
PROFIT-SHARING TABLE
<CAPTION>
(STEP 1) IF ANNUAL WRITTEN PREMIUM IS: (STEP 3) THE PERCENTAGE OF PROFIT IS:
OVER $4,000,001 $2,000,001 $1,000,001 $500,001 $250,000-- 5%or 5.1%to 10.1%to 15.1%to 20.1%to 25%or
$6,000,000 $6,000,000 $4,000,000 $2,000,000 $1,000,000 $500,000 less 10% 15% 20% 25% more
(STEP 2) AND ANNUAL GROWTH RATE IS: (STEP 4) THE PROFIT-SHARING FACTOR IS: (1)<F1>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-15.0 -8.1 5 7 9 11 13 17
-15.0 -8.1 -8.0 0 6 8 10 12 14 18
-15.0 -8.1 -8.0 0 .1 4 7 9 11 13 15 19
-15.0 -12.1 -8.0 0 .1 4 4.1 8 8 10 12 14 16 20
-15.0 -12.1 -12 -8.1 .1 4 4.1 8 8.1 12 9 11 13 15 17 21
- -15.0 -12.1 -12 -8.1 -8.0 -4.1 4.1 8 8.1 12 12.1 16 10 12 14 16 18 22
- -12 -8.1 -8.0 -4.1 -4.0 0 8.1 12 12.1 16 16.1 20 11 13 15 17 19 23
-8.0 -4.1 -4.0 0 .1 2 12.1 16 16.1 20 20.1 24 12 14 16 18 20 24
-4.0 0 .1 1 2.1 4 16.1 20 20.1 24 24.1 28 13 15 17 19 21 25
.1 2 2.1 4 4.1 7 20.1 24 24.1 28 28.1 32 14 16 18 20 22 26
2.1 4 4.1 6 7.1 10 24.1 28 28.1 32 32.1 36 15 17 19 21 23 27
4.1 6 6.1 9 10.1 13 28.1 32 32.1 36 36.1 40 16 18 20 22 24 28
6.1 8 9.1 12 13.1 16 32.1 36 36.1 40 40.1 44 17 19 21 23 25 29
8.1 11 12.1 15 16.1 19 36.1 40 40.1 44 44.1 48 18 20 22 24 26 30
11.1 14 15.1 18 19.1 22 40.1 44 44.1 48 48.1 52 19 21 23 25 27 31
14.1 17 18.1 21 22.1 25 Over 44 Over 48 Over 52 20 22 24 26 28 32
17.1 20 21.1 24 25.1 28 21 23 25 27 29 33
Over 20 Over 24 Over 28 22 24 26 28 30 34
<FN>
<F1>
(1) Profit-Sharing Factors shown apply to agents with
positive Annual Growth Rate only. For profitable agents
with negative Annual Growth Rate, Profit-Sharing Factors
will be one-half of the published factor.
</FN>
</TABLE>
V. Other Provisions.
A. The Agreement supersedes all additional commission,
bonus commission, growth opportunity bonus, contingent or
profit-sharing agreements of any kind and any such previous
agreements are terminated.
B. The failure of the Company to enforce or apply at any
time, any of the provisions of this Agreement, shall in no
way be construed to be a waiver of such provisions, nor in
any way to affect the right of the Company thereafter to
enforce or apply each and every such provision.
C. No Profit-Sharing Commission shall be payable for any
calendar year in which the Agent's monthly account with the
Company is delinquent in accordance with the Agency
Agreement and the Agent is suspended as a result of such
delinquency.
D. The Agent and the Company recognize that the Company
must record its transactions and activities in accordance
with rules and regulations of insurance regulatory agencies.
In addition, the parties recognize that their records may
vary as regards the timing and accounting treatment of
transaction entries. It is agreed that all definitions and
computations under this Agreement shall reflect the records
of the Company which are conclusively presumed to be
correct. The Company will make a good faith effort to
correct any errors in its records disclosed by computations
under the Agreement, to the extent and in the manner
permitted by insurance accounting regulations.
E. This agreement may be terminated by either party
following ninety (90) days prior written notice, or shall
terminate automatically concurrent with the effective date
of termination of the Agency Agreement or Agent's contract
with the Company. Upon termination, only Profit-Sharing
Commission accrued and unpaid at the end of the year prior
to the year of termination shall be payable to Agent.
IN WITNESS WHEREOF, Agent and Company have executed this Agreement
on ____________, 19 ___, to be effective ________________, 19_______,
and thereafter until terminated as provided herein.
__________________________________________
herein referred to as "Agent"
by________________________________________
Title ______________________________________
Meridian Mutual Insurance Company
Meridian Security Insurance Company
Meridian Mutual Insurance Company and
Meridian Security Insurance Company Jointly
Herein referred to as "Company"
by _______________________________________
Title ______________________________________
MERIDIAN INSURANCE
NEW AGENT'S INCENTIVE COMPENSATION PLAN
I. PURPOSE
The purpose of this Plan is to provide the Agent who is newly
appointed with the Company with incentive compensation in
addition to the commissions otherwise paid by the Company.
This incentive compensation is based on Annual Written Premium
and growth in Annual Written Premium during the first four
years of the Agent's appointment.
II.DEFINITIONS
A. "Annual Written Premium" means the total of all written
premiums for the applicable calendar year on Qualified Business
less return premiums as computed on the Agency Production and
Experience Report.
B. "Excluded Business" means business excluded from incentive
compensation by law, business administered by underwriting
associations, syndicates, or pools or assigned-risk plans,
special reinsurance placed by or at the request of the Agent,
health insurance, premiums produced or placed through commercial
group methods, retrospective rating premium through operation of
the retrospective rating plan, and any other premium or line of
business determined to be Excluded Business by mutual agreement
between the Agent and the Company. Business written by the Agent
in the State of Michigan under what is presently referred to as
the Essential Insurance Plan shall not constitute Excluded
Business.
C. "Qualified Business" means all business placed with the
Company through the Agent except Excluded Business.
III. INCENTIVE COMPENSATION PAYMENT
A. Following the close of each calendar year, the Company will
compute the Incentive Compensation Payment for the previous
calendar year in accordance with the following schedule and
report to the Agent.
B. SCHEDULE
1. Calendar Year 1(Calendar year in which Agent is appointed),
Five percent (5%) of the Annual Written Premium provided Annual
Written Premium averages $5,000 per month.
2. Calendar Year 2Five percent (5%) of the Increase in Annual
Written Premium in Calendar Year 2 over Calendar Year 1, provided
the increase equals $100,000 or more.
3. Calendar Year 3Five percent (5%) of the increase in Annual
Written Premium in Calendar Year 3 over Calendar Year 2, provided
the increase equals $75,000 or more.
4. Calendar Year 4Five percent (5%) of the increase in Annual
Written Premium in Calendar Year 4 over Calendar Year 3 provided
the increase equals $75,000 or more.
C. The Incentive Compensation Payment payable under the above
Schedule is limited to a maximum of $25,000 for any one calendar
year.
D. The Company agrees that the Incentive Compensation Report
shall be in writing and delivered to the Agent within 90 days
after the close of the calendar year.
E. Any Incentive Compensation payment shall be made within 90
days after the close of the calendar year, provided the Agent has
paid all premiums outstanding for the year. No charge or
deduction for Incentive Compensation shall be made or claimed by
the Agent in his accounts.
IV. OTHER PROVISIONS
A. The Agreement supersedes all additional commission, bonus
commission, growth bonus, contingent or profit-sharing agreements
of any kind and any such previous agreements are terminated.
B. The failure of the Company to enforce or apply at any time,
any of the provisions of this Agreement, shall in no way be
construed to be a waiver of such provisions, nor in any way to
affect the right of the Company thereafter to enforce or apply
each and every such provision.
C. No Incentive Compensation shall be payable for any calendar
year in which the Agent's monthly account with the Company is
delinquent in accordance with the Agency Agreement and the Agent
is suspended as a result of such delinquency.
D. The Agent and the Company recognize that the Company must
record its transactions and activities in accordance with rules
and regulations of insurance regulatory agencies. In addition,
the parties recognize that their records may vary as regards the
timing and accounting treatment of transaction entries. It is
agreed that all definition and computations under this Agreement
shall reflect the records of the Company which are conclusively
presumed to be correct. The Company will make a good faith
effort to correct any errors in its records disclosed by
computations under the Agreement, to the extent and in the manner
permitted by insurance accounting regulations.
E. This Agreement may be terminated by either party following
ninety (90) days' prior written notice, or shall terminate
automatically concurrent with the effective date of termination
of the Agency Agreement with the Company. Upon termination, only
Incentive Compensation accrued and unpaid at the end of the
calendar year prior to the year of termination shall be payable
to the Agent. This Agreement shall automatically terminate on
December 31 of the fourth year of appointment, unless otherwise
terminated as provided in this
paragraph, at which time the Agent becomes eligible for the
Agency Profit-Sharing Agreement.
IN WITNESS WHEREOF, Agent and Company have executed
this Agreement on ___________________, 19_________, to be
effective ___________________, 19_________, and thereafter
until terminated as provided herein.
THIS AGREEMENT WILL TERMINATE on ___________________,
19_________.
Herein referred to as "Agent"
By:
Title
Meridian Mutual Insurance Company
Meridian Security Insurance Company
Meridian Mutual Insurance Company and
Meridian Security Insurance Company
Jointly
By:
Title
DRAFT
AMENDMENT NO. 7
The Personal Excess Liability Reinsurance Agreement of June 1,
1969, between EMPLOYERS REINSURANCE CORPORATION of Overland
Park, Kansas and MERIDIAN MUTUAL INSURANCE COMPANY, MERIDIAN
SECURITY INSURANCE COMPANY, and VERNON FIRE AND CASUALTY
INSURANCE COMPANY all of Indianapolis, Indiana, is hereby
amended as follows:
I. As respects occurrences under policies in force and those
becoming effective on or after January 1, 1997, the
designation of the REINSURED under this agreement is
hereby amended to include the following.
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
of
Red Wing, Minnesota
CITIZENS FUND INSURANCE COMPANY
of
Red Wing, Minnesota
INSURANCE COMPANY OF OHIO
of
Mansfield, Ohio
II. As soon as practicable after January 1, 1997, the
REINSURED shall pay to the CORPORATION an amount equal to
96% of the unearned premiums as of January 1, 1997 with
respect to policies in force as of January 1, 1997 and
written by CITIZENS SECURITY MUTUAL INSURANCE COMPANY,
CITIZENS FUND INSURANCE COMPANY and INSURANCE COMPANY OF
OHIO. Such amount shall be subject to the ceding
commission to the REINSURED.
In all other respects not inconsistent herewith, said agreement
shall remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this
amendment to be executed in duplicate.
MERIDIAN MUTUAL INSURANCE EMPLOYERS REINSURANCE
COMPANY CORPORATION
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
MERIDIAN SECURITY INSURANCE VERNON FIRE AND CASUALTY
COMPANY INSURANCE COMPANY
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
CITIZENS SECURITY MUTUAL CITIZENS FUND INSURANCE
INSURANCE COMPANY COMPANY
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
INSURANCE COMPANY OF OHIO
______________________________
Title:
______________________________
Title:
AMENDMENT NO. 5
The Multiple Layer Reinsurance Agreement of January 1, 1991,
between EMPLOYERS REINSURANCE CORPORATION of Overland Park,
Kansas and MERIDIAN MUTUAL INSURANCE COMPANY, MERIDIAN SECURITY
INSURANCE COMPANY and VERNON FIRE AND CASUALTY INSURANCE
COMPANY all of Indianapolis, Indiana, is hereby amended as
follows:
I. As respects occurrences under policies in force and those
becoming effective on or after January 1, 1997, the
designation of the REINSURED under this agreement is
hereby amended to include the following:
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
of
Red Wing, Minnesota
CITIZENS FUND INSURANCE COMPANY
of
Red Wing, Minnesota
INSURANCE COMPANY OF OHIO
of
Mansfield, Ohio
II. As respects occurrences taking place on or after January
1, 1997 and net premium income entered on the books and
records of the REINSURED on and after such date, the
Reinsurance Schedule, Article III-B, as set out in
Amendment No. 4 and as further amended by Amendment No. 4,
is hereby deleted and the attached Article III-C is
substituted therefor.
III. As soon as practicable after January 1, 1997, the
REINSURED shall pay to the CORPORATION an amount equal to
2.90% of the unearned premium as of January 1, 1997 with
respect to policies in force as of January 1, 1997 and
written by CITIZENS SECURITY MUTUAL INSURANCE COMPANY,
CITIZENS FUND INSURANCE COMPANY and INSURANCE COMPANY OF
OHIO.
In all other respects not inconsistent herewith, said agreement
shall remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused these
presents to be executed in
duplicate.
MERIDIAN MUTUAL INSURANCE EMPLOYERS REINSURANCE
COMPANY CORPORATION
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
MERIDIAN SECURITY INSURANCE VERNON FIRE AND CASUALTY
COMPANY INSURANCE COMPANY
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
CITIZENS SECURITY MUTUAL CITIZENS FUND INSURANCE
INSURANCE COMPANY COMPANY
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
INSURANCE COMPANY OF OHIO
______________________________
Title:
______________________________
Title:
DRAFT
AMENDMENT NO. 9
The Commercial and Personal Umbrella Reinsurance Agreement of
June 1, 1986, between EMPLOYERS REINSURANCE CORPORATION of
Overland Park, Kansas and MERIDIAN MUTUAL INSURANCE COMPANY of
Indianapolis, Indiana, is hereby amended as follows:
I. As respects occurrences under policies in force and those
becoming effective on or after January 1, 1997, the
designation of the REINSURED under this agreement is
hereby amended to include the following.
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
of
Red Wing, Minnesota
CITIZENS FUND INSURANCE COMPANY
of
Red Wing, Minnesota
INSURANCE COMPANY OF OHIO
of
Mansfield, Ohio
II. As soon as practicable after January 1, 1997, the
REINSURED shall pay to the CORPORATION a portion of the
unearned premiums as of January 1, 1997 for policies in
force as of January 1, 1997 and written by CITIZENS
SECURITY MUTUAL INSURANCE COMPANY, CITIZENS FUND INSURANCE
COMPANY and INSURANCE COMPANY OF OHIO equal to the portion
of the risk that is ceded to the CORPORATION. Such amount
shall be subject to the ceding commission to the
REINSURED.
In all other respects not inconsistent herewith, said agreement
shall remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this
amendment to be executed in duplicate.
MERIDIAN MUTUAL INSURANCE EMPLOYERS REINSURANCE
COMPANY CORPORATION
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
CITIZENS SECURITY MUTUAL CITIZENS FUND INSURANCE
INSURANCE COMPANY COMPANY
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
INSURANCE COMPANY OF OHIO
______________________________
Title:
______________________________
Title:
BASKET REINSURANCE AGREEMENT
Entered into between
EMPLOYERS REINSURANCE CORPORATION
of
Overland Park, Kansas
(hereinafter called the CORPORATION)
and
MERIDIAN MUTUAL INSURANCE COMPANY
VERNON FIRE AND CASUALTY INSURANCE COMPANY
MERIDIAN SECURITY INSURANCE COMPANY
all of Indianapolis, Indiana
CITIZENS SECURITY MUTUAL INSURANCE COMPANY
CITIZENS FUND INSURANCE COMPANY
both of Red Wing, Minnesota
INSURANCE COMPANY OF OHIO
of Mansfield, Ohio
(hereinafter collectively called the REINSURED)
EFFECTIVE DATE: January 1, 1997
In consideration of the mutual covenants hereinafter contained,
the parties hereto agree as follows:
ARTICLE I
APPLICATION OF AGREEMENT. This agreement applies to loss
sustained by the REINSURED and retained by the REINSURED under
the Property Per Risk Excess of Loss Reinsurance Agreement
dated January 1, 1992 and the Multiple Layer Reinsurance
Agreement dated January 1, 1991, between the parties hereto
(hereinafter, respectively, called the "Property Agreement" and
the "Multiple Layer Agreement", and collectively called the
"Collateral Reinsurance Agreements"), as respects occurrences
common to the Collateral Reinsurance Agreements taking place on
or after the effective date and prior to the termination date
of this agreement.
The Insolvency Clause is attached hereto and made a part of
this agreement.
ARTICLE II
RETENTION AND REINSURANCE. As respects such loss sustained and
retained by the REINSURED as a result of each common
occurrence, the REINSURED shall retain as its own net retention
under this agreement the first $250,000 of such loss and the
CORPORATION hereby agrees to indemnify the REINSURED against
100% of loss excess thereof, subject to a reinsurance limit of
$200,000 each occurrence; provided, however, that as respects
each such common occurrence, only loss pertaining to a single
property risk shall be covered hereunder and in the event such
common occurrence results in loss to two or more property
risks, the REINSURED shall elect the property risk to be
covered hereunder.
ARTICLE III
DEFINITIONS. Unless specifically defined herein, terms used
herein shall have the definitions accorded them under the
Collateral Reinsurance Agreements.
ARTICLE IV
REINSURANCE PREMIUM. Reinsurance premium paid by the REINSURED
under the Collateral Reinsurance Agreements shall be deemed to
include reinsurance premium for the reinsurance afforded by
this agreement.
ARTICLE V
ALLOCATION OF LOSS. Recoveries hereunder shall be allocated to
the Property Agreement and the Multiple Layer Agreement in the
ratio that loss retained by the REINSURED under such agreements
as respects each common occurrence constitute loss to which
this agreement applies.
ARTICLE VI
CLAIMS. The REINSURED agrees that it will notify the
CORPORATION of any occurrence which may give rise to a claim
hereunder within a reasonable time after knowledge that such
occurrence may result in a claim hereunder.
ARTICLE VII
OFFSET. The REINSURED or the CORPORATION may offset any
balance, whether on account of premiums, commissions, loss or
claim expenses due from one party to the other under this
agreement or under any other reinsurance agreement heretofore
or hereafter entered into between the REINSURED and the
CORPORATION, whether acting as assuming reinsurer or ceding
company.
ARTICLE VIII
TERMINATION. This agreement shall continue in effect until
terminated by mutual consent, or by either party's giving to
the other party not less than 90 days' notice by registered
mail or express delivery service, prior to any calendar quarter
stating the termination date.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed in duplicate.
MERIDIAN MUTUAL INSURANCE EMPLOYERS REINSURANCE
COMPANY CORPORATION
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
MERIDIAN SECURITY INSURANCE VERNON FIRE AND CASUALTY
COMPANY INSURANCE COMPANY
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
CITIZENS SECURITY MUTUAL CITIZENS FUND INSURANCE
INSURANCE COMPANY COMPANY
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
INSURANCE COMPANY OF OHIO
______________________________
Title:
______________________________
Title:
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Dorinco Reinsurance Company
Midland, Michigan
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
It Is Hereby Agreed, effective May 10, 1996, in lieu of the
provisions of paragraph A of Article XI - Profit Sharing - of the
Contract, that the following shall apply to the Subscribing
Reinsurer's share in the attached Contract:
"A. If this reinsurance Contract is renewed for calendar
years 1997 and 1998, and the premiums paid for the
Company's Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract effective May 10, 1996, this
Contract, and such 1997 and 1998 Contracts exceed the
claims incurred under said contracts, then the Company
will be entitled to a `Return Premium.' The `Return
Premium' shall be equal to the greater of zero or 25% of
the `Profit Balance' under said contracts in the
aggregate. The `Profit Balance' shall be equal to 80% of
the total premiums, including reinstatement premiums paid
(if any) during the terms of said contracts, less losses
incurred under said contracts."
The provisions of this Contract shall remain otherwise unchanged.
In Witness Whereof, the parties hereto by their respective duly
authorized representatives have executed this Addendum as of the
dates undermentioned at:
Indianapolis, Indiana,this _______ day of ________________199___.
________________________________________________
Meridian Mutual Group
Midland, Michigan,this _______ day of ____________________199___.
_______________________________________________
Dorinco Reinsurance Company
Addendum No. 1
to the
Interests and Liabilities Agreement
of
The Nissan Fire & Marine Insurance Co., Ltd.
Tokyo, Japan
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
It Is Hereby Agreed, effective May 10, 1996, in lieu of the
provisions of paragraph A of Article XI - Profit Sharing - of the
Contract, that the following shall apply to the Subscribing
Reinsurer's share in the attached Contract:
"A. If this reinsurance Contract is renewed for calendar
years 1997 and 1998, and the premiums paid for the
Company's Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract effective May 10, 1996, this
Contract, and such 1997 and 1998 Contracts exceed the
claims incurred under said contracts, then the Company
will be entitled to a `Return Premium.' The `Return
Premium' shall be equal to the greater of zero or 25% of
the `Profit Balance' under said contracts in the
aggregate. The `Profit Balance' shall be equal to 80% of
the total premiums, including reinstatement premiums paid
(if any) during the terms of said contracts, less losses
incurred under said contracts."
The provisions of this Contract shall remain otherwise unchanged.
In Witness Whereof, the parties hereto by their respective duly
authorized representatives have executed this Addendum as of the
dates undermentioned at:
Indianapolis, Indiana,this _______ day of _________________199___.
_________________________________________________
Meridian Mutual Group
Tokyo, Japan,this _______ day of _________________________ 199___.
_________________________________________________
The Nissan Fire & Marine Insurance Co., Ltd.
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Renaissance Reinsurance Ltd.
Hamilton, Bermuda
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
It Is Hereby Agreed, effective May 10, 1996, in lieu of the
provisions of paragraph A of Article XI - Profit Sharing - of the
Contract, that the following shall apply to the Subscribing
Reinsurer's share in the attached Contract:
"A. If this reinsurance Contract is renewed for calendar
years 1997 and 1998, and the premiums paid for the
Company's Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract effective May 10, 1996, this
Contract, and such 1997 and 1998 Contracts exceed the
claims incurred under said contracts, then the Company
will be entitled to a `Return Premium.' The `Return
Premium' shall be equal to the greater of zero or 25% of
the `Profit Balance' under said contracts in the
aggregate. The `Profit Balance' shall be equal to 80% of
the total premiums, including reinstatement premiums paid
(if any) during the terms of said contracts, less losses
incurred under said contracts."
The provisions of this Contract shall remain otherwise unchanged.
In Witness Whereof, the parties hereto by their respective duly
authorized representatives have executed this Addendum as of the
dates undermentioned at:
Indianapolis, Indiana,this _______ day of _________________199___.
__________________________________________________
Meridian Mutual Group
Hamilton, Bermuda,this _______ day of _____________________199___.
__________________________________________________
Renaissance Reinsurance Ltd.
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Cie Transcontinentale de Reassurance
Paris, France
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
It Is Hereby Agreed, effective May 10, 1996, in lieu of the
provisions of paragraph A of Article XI - Profit Sharing - of the
Contract, that the following shall apply to the Subscribing
Reinsurer's share in the attached Contract:
"A. If this reinsurance Contract is renewed for calendar
years 1997 and 1998, and the premiums paid for the
Company's Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract effective May 10, 1996, this
Contract, and such 1997 and 1998 Contracts exceed the
claims incurred under said contracts, then the Company
will be entitled to a `Return Premium.' The `Return
Premium' shall be equal to the greater of zero or 25% of
the `Profit Balance' under said contracts in the
aggregate. The `Profit Balance' shall be equal to 80% of
the total premiums, including reinstatement premiums paid
(if any) during the terms of said contracts, less losses
incurred under said contracts."
The provisions of this Contract shall remain otherwise unchanged.
In Witness Whereof, the parties hereto by their respective duly
authorized representatives have executed this Addendum as of the
dates undermentioned at:
Indianapolis, Indiana,this _______ day of _________________199___.
__________________________________________________
Meridian Mutual Group
Paris, France,this _______ day of _________________________199___.
__________________________________________________
Cie Transcontinentale de Reassurance
Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1996
issued to
1, 1997
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to collectively as the "Company"as the
"Company")
by
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
"Reinsurer")
Preamble
The "Meridian Mutual Group" for purposes of this Contract shall
consist of Meridian Mutual Insurance Company, Indianapolis,
Indiana, Meridian Security Insurance Company and, Indianapolis,
Indiana, Vernon Fire and Casualty Insurance Company,
Indianapolis, Indiana, Citizens Security Mutual Insurance
Company, Red Wing, all of Indianapolis, Indiana. It is
understood thatMinnesota, Citizens Fund Insurance Company,
Red Wing, Minnesota, and Insurance Company of Ohio, Mansfield,
Ohio. The application of this Contract shall be to the parties
comprising the Meridian Mutual Group as a group and not
separately to each.
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Fire and Allied Lines, Homeowners (property perils
only), Mobile Homeowners (property perils only), Farmowners
(property perils only), Commercial Multiple Peril (property
perils only), Businessowners (property perils only), Earthquake,
Inland Marine and Automobile Physical Damage (comprehensive
coverage only) business, subject to the terms, conditions and
limitations set forth herein and in Schedule A attached to and
forming part of this Contract.
Article II - Term
A. This Contract shall become effective on January 1, 1996 1997,
with respect to losses arising out of loss occurrences
commencing on or after that date, and shall remain in force
until December 31, 1996, both days inclusive.
1997, both days inclusive.
B. If this Contract expires while a loss occurrence covered
hereunder is in progress, the Reinsurer''s liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss occurrence had
occurred prior to the expiration of this Contract, provided
that no part of such loss occurrence is claimed against any
renewal or replacement of this Contract.
Article III - Territory
The liability of the Reinsurer shall be limited to losses under
policies covering property located within the territorial limits
of the United States of America, its territories or possessions,
Puerto Rico, the District of Columbia and Canada; but this
limitation shall not apply to moveable property if the Company''s
policies provide coverage when said moveable property is outside
the aforesaid territorial limits.
Article IV - Exclusions
This Contract shall not apply to:
1. Reinsurance accepted by the Company other than:
a. Facultative reinsurance on a share basis of risks
accepted individually and not forming part of any
agreement; or
b. Local agency reinsurance on a share basis accepted
in the normal course of business.
2. Nuclear incident per the following clauses attached
hereto:
a. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - U.S.A." (NMA 1119);
b. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - Canada" (NMA 1980);
c. "Nuclear Energy Risks Exclusion Clause
(Reinsurance) (1994) (Worldwide Excluding U.S.A. &
Canada)" (NMA 1975(a)).
3. Pool, association, or syndicate business as excluded
by the provisions of the "Pools, Associations and
Syndicates Exclusion Clause" attached to and forming part
of this Contract.
4. Any liability of the Company arising from its
participation or membership in any insolvency fund.
5. Credit, financial guarantee and insolvency business.
6. War risks as excluded in any standard policy.
7. Policies written to apply in excess of underlying
insurance or policies written with a deductible or
franchise of more than $10,000; however, this exclusion
shall not apply to policies which provide a percentage
deductible or franchise in connection with earthquake or
windstorm.
8. Insurance on growing crops.
9. Insurance against flood, surface water, waves, tidal
water or tidal wave, overflow of streams or other bodies
of water or spray from any of the foregoing, all whether
driven by wind or not, when written as such; however, this
exclusion shall not apply as respects the foregoing perils
included in Commercial Multiple Peril, Homeowners Multiple
Peril, Farmowners Multiple Peril, Inland Marine,
Businessowners, Mobile Homeowners, and Automobile Physical
Damage policies, and in endorsements to Fire and Extended
Coverage policies.
10. Mortgage impairment insurance and similar kinds of
insurance, howsoever styled, providing coverage to an
insured with respect to its mortgagee interest in property
or its owner interest in foreclosed property.
11. Difference in conditions insurance and similar kinds
of insurance, howsoever styled.
12. Risks which have a total insurable value of more than
$250,000,000.
13. Any collection of fine arts with an insurable value
of $5,000,000 or more.
14. Inland Marine business with respect to the following:
a. All bridges and tunnels;
b. Cargo insurance when written as such with respect
to ocean, lake, or inland waterways vessels;
c. Commercial negative film insurance and cast
insurance;
d. Drilling rigs, except water well drilling rigs;
e. Furriers' customers policies;
f. Garment contractors policies;
g. Insurance on livestock under so-called "mortality
policies," when written as such;
h. Jewelers' block policies and furriers' block
policies;
i. Mining equipment while underground;
j. Radio and television broadcasting towers;
k. Registered mail insurance when the limit of any
one addressee on any one day is more than $50,000;
l. Watercraft other than watercraft insured under
personal property floaters, yacht and/or outboard
policies, homeowners, farmowners, or recreational
vehicle policies.
15. Automobile physical damage business with respect to
the following:
a. Insurance against collision;
b. Insurance against theft or larceny;
c. Manufacturers' stocks at factories or warehouses.
16. This Contract excludes loss and/or damage and/or
costs and/or expenses arising from seepage and/or
pollution and/or contamination, other than contamination from
smoke. Nevertheless, this exclusion does not preclude payment
of the cost of removing debris of property damaged by a loss otherwise
covered hereunder, subject always to a limit of 25% of the
Company's property loss under the applicable original
policy.
17. Losses in respect of overhead transmission and
distribution lines and their supporting structures other
than those on or within 150 meters (or 500 feet) of the
insured premises.
It is understood and agreed that public utilities
extension and/or suppliers extension and/or contingent
business interruption coverages are not subject to this
exclusion provided that these are not part of a
transmitters' or distributors' policy.
18. Extra Contractual Obligations and Loss In Excess of
Policy Limits.
Article V - Retention and Limit
A. As respects each excess layer of reinsurance coverage provided
by this Contract, the Company shall retain and be liable for
the first amount of ultimate net loss, shown as "Company's
Retention" for that excess layer in Schedule A attached
hereto, arising out of each loss occurrence. The Reinsurer
shall then be liable, as respects each excess layer, for 95.0%
of the amount by which such ultimate net loss exceeds the
Company's applicable retention, but the liability of the
Reinsurer under each excess layer shall not exceed 95.0% of
the amount, shown as "Reinsurer's Per Occurrence Limit" for
that excess layer in Schedule A attached hereto, as respects
any one loss occurrence.
B. As respects each excess layer of reinsurance coverage provided
by this Contract, the Company shall retain, (net and
unreinsured elsewhere, as respects the Fourth and Fifth Excess
Layers), in addition to its initial retention for each loss
occurrence, 5.0% of the excess ultimate net loss to which the
excess layer applies. As respects the Second and Third Excess
Layers of reinsurance coverage, the Company's initial
retention and such additional retention shall be subject to
the reinsurance set forth in paragraph B of Article VIII.
C. No Claim shall be made under any excess layer of reinsurance
coverage provided by this Contract in any one loss occurrence
unless at least two risks insured or reinsured by the Company
are involved in such loss occurrence. For purposes of this
Article, the Company shall be the sole judge of what
constitutes one risk.
Article VI - Reinstatement
A. In the event all or any portion of the reinsurance under any
excess layer of reinsurance coverage provided by this Contract
is exhausted by loss, the amount so exhausted shall be
reinstated immediately from the time the loss occurrence
commences hereon. For each amount so reinstated the Company
agrees to pay additional premium calculated as follows:
equal to the product of the following:
1. The percentage of the occurrence limit for the excess
layer reinstated (based on the loss paid by the Reinsurer
under that excess layer); times
2. The earned reinsurance premium for the excess layer
reinstated for the term of this Contract (exclusive of
reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any
loss under any excess layer hereunder, the Company shall
submit a statement to the Reinsurer of reinstatement premium
due the Reinsurer for that excess layer. If the earned
reinsurance premium for any excess layer for the term of this
Contract has not been finally determined as of the date of any
such statement, the calculation of reinstatement premium due
for that excess layer shall be based on the annual deposit
premium for that excess layer and shall be readjusted when the
earned reinsurance premium for that excess layer for the term
of this Contract has been finally determined. Any
reinstatement premium shown to be due the Reinsurer for any
excess layer as reflected by any such statement (less prior
payments, if any, for that excess layer) shall be payable by
the Company concurrently with payment by the Reinsurer of the
requested loss for that excess layer. Any return reinstatement
premium shown to be due the Company shall be remitted by the
Reinsurer as promptly as possible after receipt and
verification of the Company''s statement.
C. Notwithstanding anything stated herein, the liability of the
Reinsurer under any excess layer of reinsurance coverage
provided by this Contract shall not exceed either of the
following:
1. 95.0% of an amount, shown as "Reinsurer's Per
Occurrence Limit" for that excess layer in Schedule 95.0%
of the amount, shown as "Reinsurer's Per Occurrence Limit"
for that excess layer in Schedule A attached hereto, as
respects loss or losses arising out of any one loss
occurrence; or
2. 95.0% of an amount, shown as "Reinsurer's Annual
Limit" for that excess layer in Schedule 95.0% of the
amount, shown as "Reinsurer's Annual Limit" for that
excess layer in Schedule A attached hereto, in all during
the term of this Contract.
Article VII - Definitions
"Ultimate net loss"A. "Ultimate net loss" as used herein is
defined as the sum or sums (including interest on judgments,
litigation expenseextra contractual obligations, litigation
expenses, interest on judgments and all other loss adjustment
expenses, except office expenses and salaries of the
Company''s regular employees) paid or payable by the Company
in settlement of claims and in satisfaction of judgments
rendered on account of such claims, after deduction of all
salvage, all recoveries and all claims on inuring insurance or
reinsurance, whether collectible or not. Nothing herein shall
be construed to mean that losses under this Contract are not
recoverable until the Company''s ultimate net loss has been
ascertained.
B. "Extra contractual obligations" as used herein shall mean 80%
of any punitive, exemplary, compensatory or consequential
damages paid or payable by the Company as a result of an
action against it by its insured or its insured's assignee,
which action alleges negligence or bad faith on the part of
the Company in handling a claim under a policy subject to this
Contract. However, for the purposes of this Contract, extra
contractual obligations arising out of any one loss occurrence
shall not exceed 25% of the contractual loss under all
policies involved in the loss occurrence. An extra
contractual obligation shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under
the policy. Notwithstanding anything stated herein, this
Contract shall not apply to any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or
criminal act by any officer or director of the Company acting
individually or collectively or in collusion with any
individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any
claim covered hereunder.
Article VIII - Other Reinsurance
A. The Company shall maintain in force excess per risk
reinsurance reinsurance, recoveries under which shall inure to
the benefit of this Contract.
B. The Company shall be permitted to carry underlying excess
catastrophe reinsurance, recoveries under which shall inure
solely to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this
Contract.
Article IX - Loss Occurrence (NMA 2244/BRMA 27A)
A. The term "loss occurrence""loss occurrence" shall mean the sum
of all individual losses directly occasioned by any one
disaster, accident or loss or series of disasters, accidents
or losses arising out of one event which occurs within the
area of one state of the United States or province of Canada
and states or provinces contiguous thereto and to one another.
However, the duration and extent of any one "loss
occurrence""loss occurrence" shall be limited to all
individual losses sustained by the Company occurring during
any period of 168 consecutive consecutive hours arising out
of and directly occasioned by the same event, except that the
term "loss occurrence""loss occurrence" shall be further
defined as follows:
1. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage, all
individual losses sustained by the Company occurring
during any period of 72 consecutive consecutive hours
arising out of and directly occasioned by the same event.
However, the event need not be limited to one state or
province or states or provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive consecutive hours
within the area of one municipality or county and the
municipalities or counties contiguous thereto arising out
of and directly occasioned by the same event. The maximum
duration of 72 consecutive consecutive hours may be
extended in respect of individual losses which occur
beyond such 72 consecutive consecutive hours during the
continued occupation of an assured''s premises by
strikers, provided such occupation commenced during the
aforesaid period.
3. As regards earthquake (the epicentre of which need
not necessarily be within the territorial confines
referred to in paragraph A of this Article) and fire
following directly occasioned by the earthquake, only
those individual fire losses which commence during the
period of 168 consecutive consecutive hours may be
included in the Company's "loss occurrence."
4. As regards "freeze,""freeze," only individual losses
directly occasioned by collapse, breakage of glass and
water damage (caused by bursting frozen pipes and tanks)
may be included in the Company's "loss occurrence."
B. Except for those "loss occurrences""loss occurrences" referred
to in subparagraphs 1 and 2 of paragraph A above, the Company
may choose the date and time when any such period of
consecutive hours commences, provided that it is not earlier
than the date and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of that
disaster, accident or loss, and provided that only one such
period of 168 consecutive consecutive hours shall apply with
respect to one event.
C. However, as respects those "loss occurrences""loss
occurrences" referred to in subparagraphs 1 and 2 of
paragraph A above, if the disaster, accident or loss
occasioned by the event is of greater duration than 72
consecutive consecutive hours, then the Company may divide
that disaster, accident or loss into two or more "loss
occurrences,""loss occurrences," provided that no two periods
overlap and no individual loss is included in more than one
such period, and provided that no period commences earlier
than the date and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of that
disaster, accident or loss.
D. No individual losses occasioned by an event that would be
covered by 72 hours clauses may be included in any "loss
occurrence""loss occurrence" claimed under the 168 hours
provision.
Article X - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (or within the terms
of extra contractual obligations coverage, if any, provided
under this Contract) and within the terms of this Contract,
shall be binding upon the Reinsurer. The Reinsurer agrees to
pay all amounts for which it may be liable upon receipt of
reasonable evidence of the amount paid (or scheduled to be
paid) by the Company. The Company shall be the sole judge of
what is covered by an original policy.
Article XI - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article XII - Premium
A. As premium for each excess layer of reinsurance coverage
provided by this Contract, the Company shall pay the Reinsurer
the greater of the following:
1. The amount, shown as "Annual Minimum Premium" for
that excess layer in Schedule A attached hereto; or
1. The amount, shown as "Annual Minimum Premium" for
that excess layer in Schedule A attached hereto; or
2. The percentage, shown as "Premium Rate" for that
excess layer in Schedule A attached hereto, of the
Company'"Premium Rate" for that excess layer in Schedule A
attached hereto, of the Company's net earned premium for
the term of this Contract.
B. The Company shall pay the Reinsurer an annualn annual deposit
premium for each excess layer of an amount, shown as "Annual
Deposit Premium"an amount, shown as "Annual Deposit Premium"
for that excess layer in Schedule A attached hereto, in four
equal installments of an amount, shown as "Quarterly Deposit
Premium" for that excess layer in Schedule A attached heretoan
amount, shown as "Quarterly Deposit Premium" for that excess
layer in Schedule A attached hereto, on January 1, April 1, on
January 1, April 1, July 1 and October 1 of 1997.
C. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder for each excess layer, computed in
accordance with paragraph A, and any additional premium due
the Reinsurer or return premium due the Company for each such
excess layer shall be remitted promptly.
D. "Net earned premium" as used herein is defined as gross earned
premium of the Company for the classes of business reinsured
hereunder, less the earned portion of premiums ceded by the
Company for reinsurance which inures to the benefit of this
Contract. For purposes of calculating net earned premium, 90%
of the total basic policy premium as respects Homeowners,
Mobile Homeowners and Farmowners business, 70% of the total
basic policy premium as respects Businessowners and Commercial
Multiple Peril business and 100% of the Comprehensive portion
of the premium for Automobile Physical Damage business shall
be considered subject premium.
Article XIII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XIV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XV - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in
excess of which this Contract attaches, only loss or losses in
respect of that portion of any policy which the Company
retains net for its own account shall be included.
B. The amount of the Reinsurer''s liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVI - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$""Dollars" or the "$"
sign appears in this Contract, they shall be construed to mean
United States Dollars and all transactions under this Contract
shall be in United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XVIII - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XIX - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd''s London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XX - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company''s ceded United States
outstanding loss and loss adjustment expense reserves by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances; 3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company''s ceded Canadian outstanding loss
and loss adjustment expense reserves by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved.
C. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause,""evergreen clause," which
automatically extends the term for at least one additional
year at each expiration date unless written notice of non-
-renewal is given to the Company not less than 30 days prior
to said expiration date. The Company and the Reinsurer further
agree, notwithstanding anything to the contrary in this
Contract, that said letters of credit may be drawn upon by the
Company or its successors in interest at any time, without
diminution because of the insolvency of the Company or the
Reinsurer, but only for one or more of the following purposes:
1. To reimburse itself for the Reinsurer''s share of
losses and/or loss adjustment expensess paid under the
terms of policies reinsured hereunder, unless paid in cash
by the Reinsurer;
2. To reimburse itself for the Reinsurer''s share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer''s share of any ceded outstanding loss and loss
adjustment expense reserves funded by means of a letter of
credit which is under non--renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer''s share of
the Company''s ceded outstanding loss and loss adjustment
expense reserves, if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1) or
C(3), or in the case of C(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXI - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the
approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a)
4118(a) of the New York Insurance Law or except (a) 1) where
this Contract specifically provides another payee of such
reinsurance in the event of the insolvency of the company or
(b) 2) where the Reinsurer with the consent of the direct
insured or insureds has assumed such policy obligations of the
company as direct obligations of the Reinsurer to the payees
under such policies and in substitution for the obligations of
the company to such payees.
Article XXII - Arbitration (BRMA 6J)
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd''s
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days days following a
written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an
Umpire before entering upon arbitration. If the two Arbiters
fail to agree upon the selection of an Umpire within 30 days
following their appointment, each Arbiter shall nominate three
candidates within 10 days thereafter, two of whom the other
shall decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30
days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location
mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of
the state in which the Company has its principal office.
Article XXIII - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of any
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood
to constitute a waiver of the Reinsurer''s rights to commence
an action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXIV - Agency Agreement
Meridian Mutual Insurance Company shall be deemed the agent of
the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXV - Intermediary (BRMA 23A)
E. W. Blanch W. Blanch Co. is hereby recognized as the
Intermediary negotiating this Contract for all business
hereunder. All communications (including but not limited to
notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements)
relating thereto shall be transmitted to the Company or the
Reinsurer through E. W. Blanch Co., Reinsurance Services, 3500
West 80th Street, Minneapolis, Minnesota 55431. Payments by the
Company to the Intermediary shall be deemed to constitute payment
to the Reinsurer. Payments by the Reinsurer to the Intermediary
shall be deemed to constitute payment to the Company only to the
extent that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Indianapolis, Indiana,this _______ day of _________________199___.
__________________________________________________
Meridian Mutual Group
Schedule A
Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1997
issued to
Meridian Mutual Group
Indianapolis, Indiana
Second Third Fourth Fifth
Excess Excess Excess Excess
Company's Retention $ 6,000,000 $ 10,000,000 $ 18,000,000 $ 30,000,000
Reinsurer's Per $ 4,000,000 $ 8,000,000 $ 12,000,000 $ 35,000,000
Occurrence Limit
(95.0% of)
Reinsurer's Annual $ 8,000,000 $ 16,000,000 $ 24,000,000 $ 70,000,000
Limit (95.0% of)
Annual Minimum
Premium $ 638,400 $ 434,720 $ 433,200 $ 771,400
Premium Rate 0.819% 0.558% 0.556% 0.989%
Annual Deposit
Premium $ 798,000 $ 543,400 $ 541,500 $ 964,250
Quarterly Deposit $ 199,500 $ 138,850 $ 135,375 $ 241,062
Premium
The figures listed above for each excess layer shall apply to
each Subscribing Reinsurer in the percentage share for that
excess layer as expressed in its Interests and Liabilities
Agreement attached hereto.
Table of Contents
Article Page
Preamble 210
I Classes of Business Reinsured 210
II Term 210
III Territory 211
IV Exclusions 211
V Retention and Limit 213
VI Reinstatement 214
VII Definitions 215
VIII Other Reinsurance 215
IX Loss Occurrence (NMA 2244/BRMA 27A) 216
X Loss Notices and Settlements 217
XI Salvage and Subrogation 217
XII Premium 217
XIII Offset (BRMA 36C) 218
XIV Access to Records (BRMA 1D) 218
XV Net Retained Lines (BRMA 32E) 218
XVI Errors and Omissions (BRMA 14F) 219
XVII Currency (BRMA 12A) 219
XVIII Taxes (BRMA 50C) 219
XIX Federal Excise Tax (BRMA 17A) 219
XX Unauthorized Reinsurers 219
XXI Insolvency 221
XXII Arbitration (BRMA 6J) 222
XXIII Service of Suit (BRMA 49C) 222
XXIV Agency Agreement 223
XXV Intermediary (BRMA 23A) 223
Schedule A
Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1997
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
"Reinsurer")
Preamble
The "Meridian Mutual Group" for purposes of this Contract shall
consist of Meridian Mutual Insurance Company, Indianapolis,
Indiana, Meridian Security Insurance Company, Indianapolis,
Indiana, Vernon Fire and Casualty Insurance Company,
Indianapolis, Indiana, Citizens Security Mutual Insurance
Company, Red Wing, Minnesota, Citizens Fund Insurance Company,
Red Wing, Minnesota, and Insurance Company of Ohio, Mansfield,
Ohio. The application of this Contract shall be to the parties
comprising the Meridian Mutual Group as a group and not
separately to each.
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Fire and Allied Lines, Homeowners (property perils
only), Mobile Homeowners (property perils only), Farmowners
(property perils only), Commercial Multiple Peril (property
perils only), Businessowners (property perils only), Earthquake,
Inland Marine and Automobile Physical Damage (comprehensive
coverage only) business, subject to the terms, conditions and
limitations hereinafter set forth.
Article II - Term
A. This Contract shall become effective on January 1, 1997, with
respect to losses arising out of loss occurrences commencing
on or after that date, and shall remain in force until
December 31, 1997, both days inclusive.
B. If this Contract expires while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss occurrence had
occurred prior to the expiration of this Contract, provided
that no part of such loss occurrence is claimed against any
renewal or replacement of this Contract.
Article III - Territory
The liability of the Reinsurer shall be limited to losses under
policies covering property located within the territorial limits
of the United States of America, its territories or possessions,
Puerto Rico, the District of Columbia and Canada; but this
limitation shall not apply to moveable property if the Company's
policies provide coverage when said moveable property is outside
the aforesaid territorial limits.
Article IV - Exclusions
This Contract shall not apply to:
1. Reinsurance accepted by the Company other than:
a. Facultative reinsurance on a share basis of risks
accepted individually and not forming part of any
agreement; or
b. Local agency reinsurance on a share basis accepted
in the normal course of business.
2. Nuclear incident per the following clauses attached hereto:
a. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - U.S.A." (NMA 1119);
b. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - Canada" (NMA 1980);
c. "Nuclear Energy Risks Exclusion Clause
(Reinsurance) (1994) Worldwide Excluding U.S.A. &
Canada" (NMA 1975(a)).
3. Pool, association, or syndicate business as excluded
by the provisions of the "Pools, Associations and
Syndicates Exclusion Clause" attached to and forming part
of this Contract.
4. Any liability of the Company arising from its
participation or membership in any insolvency fund.
5. Credit, financial guarantee and insolvency business.
6. War risks as excluded in any standard policy.
7. Policies written to apply in excess of underlying
insurance or policies written with a deductible or
franchise of more than $10,000; however, this exclusion
shall not apply to policies which provide a percentage
deductible or franchise in connection with earthquake or
windstorm.
8. Insurance on growing crops.
9. Insurance against flood, surface water, waves, tidal
water or tidal wave, overflow of streams or other bodies
of water or spray from any of the foregoing, all whether
driven by wind or not, when written as such; however, this
exclusion shall not apply as respects the foregoing perils
included in Commercial Multiple Peril, Homeowners Multiple
Peril, Farmowners Multiple Peril, Inland Marine,
Boatowners, Mobile Homeowners, and Automobile Physical
Damage policies, and in endorsements to Fire and Extended
Coverage policies.
10. Mortgage impairment insurance and similar kinds of
insurance, howsoever styled, providing coverage to an
insured with respect to its mortgagee interest in property
or its owner interest in foreclosed property.
11. Difference in conditions insurance and similar kinds
of insurance, howsoever styled.
12. Risks which have a total insurable value of more than
$250,000,000.
13. Any collection of fine arts with an insurable value
of $5,000,000 or more.
14. Inland Marine business with respect to the following:
a. All bridges and tunnels;
b. Cargo insurance when written as such with respect
to ocean, lake, or inland waterways vessels;
c. Commercial negative film insurance and cast
insurance;
d. Drilling rigs, except water well drilling rigs;
e. Furriers' customers policies;
f. Garment contractors policies;
g. Insurance on livestock under so-called "mortality
policies," when written as such;
h. Jewelers' block policies and furriers' block
policies;
i. Mining equipment while underground;
j. Radio and television broadcasting towers;
k. Registered mail insurance when the limit of any
one addressee on any one day is more than $50,000;
l. Watercraft other than watercraft insured under
personal property floaters, yacht and/or outboard
policies, homeowners, farmowners, or recreational
vehicle policies.
15. Automobile physical damage business with respect to
the following:
a. Insurance against collision;
b. Insurance against theft or larceny;
c. Manufacturers' stocks at factories or warehouses.
16. This Contract excludes loss and/or damage and/or
costs and/or expenses arising from seepage and/or
pollution and/or contamination, other than contamination
from smoke. Nevertheless, this exclusion does not
preclude payment of the cost of removing debris of
property damaged by a loss otherwise covered hereunder,
subject always to a limit of 25% of the Company's property
loss under the applicable original policy.
17. Losses in respect of overhead transmission and
distribution lines and their supporting structures other
than those on or within 150 meters (or 500 feet) of the
insured premises.
It is understood and agreed that public utilities
extension and/or suppliers extension and/or contingent
business interruption coverages are not subject to this
exclusion provided that these are not part of a
transmitters' or distributors' policy.
18.Extra Contractual Obligations and Loss in Excess of Policy
Limits.
Article V - Retention and Limit
A. No claim shall be made hereunder until the Company's subject
ultimate net loss arising out of loss occurrences commencing
during the term of this Contract exceeds 2.5% of net earned
premium for the term of this Contract, subject to a minimum
retention of $6,322,000. The Reinsurer shall then be liable
for 95.0% of the amount by which the Company's subject
ultimate net loss for the term of this Contract exceeds the
Company's retention, but the liability of the Reinsurer shall
not exceed 95.0% of $10,000,000 during the term of this
Contract.
B. "Subject ultimate net loss" as used herein shall mean:
1. The Company's ultimate net loss in excess of $250,000
arising out of any one loss occurrence, not to exceed
$5,750,000 in any one loss occurrence; plus,
2. The Company's 5.0% co-participation under their per
occurrence catastrophe coverage of $12,000,000 excess of
$6,000,000 per loss occurrence.
No loss occurrence shall be included in subject ultimate net
loss unless said loss occurrence involves at least two risks.
C. The Company shall maintain in force excess per risk
reinsurance, recoveries under which shall inure to the benefit
of this Contract.
Article VI - Definition of Ultimate Net Loss
"Ultimate net loss" as used herein is defined as the sum or sums
(including interest on judgments, litigation expenses and all
other loss adjustment expenses, except office expenses and
salaries of the Company's regular employees) paid or payable by
the Company in settlement of claims and in satisfaction of
judgments rendered on account of such claims, after deduction of
all salvage, all recoveries and all claims on inuring insurance
or reinsurance, whether collectible or not. Nothing herein shall
be construed to mean that losses under this Contract are not
recoverable until the Company's ultimate net loss has been
ascertained.
Article VII - Loss Occurrence (NMA 2244/BRMA 27A)
A. The term "loss occurrence" shall mean the sum of all
individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or losses
arising out of one event which occurs within the area of one
state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the
duration and extent of any one "loss occurrence" shall be
limited to all individual losses sustained by the Company
occurring during any period of 168 consecutive hours arising
out of and directly occasioned by the same event, except that
the term "loss occurrence" shall be further defined as
follows:
1. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours arising out of
and directly occasioned by the same event. However, the
event need not be limited to one state or province or
states or provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the area
of one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of
72 consecutive hours may be extended in respect of
individual losses which occur beyond such
72 consecutive hours during the continued occupation of an
assured's premises by strikers, provided such occupation
commenced during the aforesaid period.
3. As regards earthquake (the epicentre of which need
not necessarily be within the territorial confines
referred to in paragraph A of this Article) and fire
following directly occasioned by the earthquake, only
those individual fire losses which commence during the
period of 168 consecutive hours may be included in the
Company's "loss occurrence."
4. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass and water damage
(caused by bursting frozen pipes and tanks) may be
included in the Company's "loss occurrence."
B. Except for those "loss occurrences" referred to in
subparagraphs 1 and 2 of paragraph A above, the Company may
choose the date and time when any such period of
consecutive hours commences, provided that it is not earlier
than the date and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of that
disaster, accident or loss, and provided that only one such
period of 168 consecutive hours shall apply with respect to
one event.
C. However, as respects those "loss occurrences" referred to in
subparagraphs 1 and 2 of paragraph A above, if the disaster,
accident or loss occasioned by the event is of greater
duration than 72 consecutive hours, then the Company may
divide that disaster, accident or loss into two or more "loss
occurrences," provided that no two periods overlap and no
individual loss is included in more than one such period, and
provided that no period commences earlier than the date and
time of the occurrence of the first recorded individual loss
sustained by the Company arising out of that disaster,
accident or loss.
D. No individual losses occasioned by an event that would be
covered by 72 hours clauses may be included in any "loss
occurrence" claimed under the 168 hours provision.
Article VIII - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (or within the terms
of extra contractual obligations coverage, if any, provided
under this Contract) and within the terms of this Contract,
shall be binding upon the Reinsurer. The Reinsurer agrees to
pay all amounts for which it may be liable upon receipt of
reasonable evidence of the amount paid (or scheduled to be
paid) by the Company. The Company shall be the sole judge of
what is covered by an original policy.
C. If the aggregate subject excess ultimate net paid losses
occurring during the term of this Contract exceed the
provisional retention, the reinsurer shall make preliminary
payment of the Reinsurer's portion of such subject ultimate
net losses. The provisional retention shall be calculated
based upon 2.5% of the estimated net earned premium for the
term of this Contract, as estimated at the inception hereof.
Any such preliminary payment shall be adjusted to actual as
soon as the Company's net earned premium is known.
Article IX - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article X - Premium
A. As premium for the reinsurance provided hereunder, the Company
shall pay the Reinsurer .86% of its net earned premium for the
term of this Contract, subject to a minimum premium of
$1,880,800.
B. The Company shall pay the Reinsurer a deposit premium of
$2,351,000 in four equal installments of $587,750 on
January 1, April 1, July 1 and October 1 of 1997.
C. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder, computed in accordance with
paragraph A, and any additional premium due the Reinsurer or
return premium due the Company shall be remitted promptly.
D. "Net earned premium" as used herein is defined as gross earned
premium of the Company for the classes of business reinsured
hereunder, less the earned portion of premiums ceded by the
Company for reinsurance which inures to the benefit of this
Contract. For purposes of calculating net earned premium, 90%
of the total basic policy premium as respects Homeowners,
Mobile Homeowners and Farmowners business, 70% of the total
basic policy premium as respects Businessowners and Commercial
Multiple Peril, and 100% of the Comprehensive portion of the
premium for Automobile Physical Damage business shall be
considered subject premium.
Article XI - Profit Sharing
A. If this reinsurance Contract is renewed for calendar year
1998, and the premiums paid for the Underlying Aggregate
Excess Catastrophe Reinsurance Contract effective January 1,
1996, this Contract, and such 1998 Contract exceed the claims
incurred under said contracts, then the Company will be
entitled to a "Return Premium." The "Return Premium" shall be
equal to the greater of zero or 25% of the "Profit Balance"
under said contracts in the aggregate. The "Profit Balance"
shall be equal to 80% of the total premiums, including
reinstatement premiums paid (if any) during the terms of said
contracts, less losses incurred under said contracts.
B. At the date that such a "Return Premium" is mutually
determined by the Company and the Reinsurer and the payment is
made by the Reinsurer to the Company, such contracts shall be
considered commuted, and such payment, once effected, shall be
regarded as a full and final release of the Reinsurer from all
liability under such contracts.
C. Should the Reinsurer decline to offer a renewal of this
reinsurance for 1998 at similar terms to this Contract, in
relation to the exposure presented, then the "Return Premium"
shall be calculated based on the period during which this
Contract and whichever (if any) other contracts as are
described in paragraph A were in effect, subject to the above
mentioned conditions.
Article XII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XIII - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XIV - Net Retained Lines (BRMA 32B)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account, and in
calculating the amount of any loss hereunder and also in
computing the amount or amounts in excess of which this
Contract attaches, only loss or losses in respect of that
portion of any policy which the Company retains net for its
own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XV - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVI - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XVII - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XVIII - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XIX - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
outstanding loss and loss adjustment expense reserves by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian outstanding loss and
loss adjustment expense reserves by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved.
C. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves, if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1) or
C(3), or in the case of C(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XX - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the
approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXI - Arbitration (BRMA 6J)
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within
30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location
mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of
the state in which the Company has its principal office.
Article XXII - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of any
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXIII - Agency Agreement
Meridian Mutual Insurance Company shall be deemed the agent of
the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXIV - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Indianapolis, Indiana,this _______ day of _________________199___.
__________________________________________________
Meridian Mutual Group
Table of Contents
Article Page
Preamble 226
I Classes of Business Reinsured 226
II Term 227
III Territory 227
IV Exclusions 227
V Retention and Limit 229
VI Definition of Ultimate Net Loss 230
VII Loss Occurrence (NMA 2244/BRMA 27A) 230
VIII Loss Notices and Settlements 231
IX Salvage and Subrogation 232
X Premium 232
XI Profit Sharing 232
XII Offset (BRMA 36C) 233
XIII Access to Records (BRMA 1D) 233
XIV Net Retained Lines (BRMA 32B) 233
XV Errors and Omissions (BRMA 14F) 233
XVI Currency (BRMA 12A) 234
XVII Taxes (BRMA 50C) 234
XVIII Federal Excise Tax (BRMA 17A) 234
XIX Unauthorized Reinsurers 234
XX Insolvency 236
XXI Arbitration (BRMA 6J) 236
XXII Service of Suit (BRMA 49C) 237
XXIII Agency Agreement 238
XXIV Intermediary (BRMA 23A) 238
Addendum No. 1
to the
Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: May 10, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to collectively as the "Company")
It Is Hereby Agreed, effective January 1, 1997, with respect to
losses arising out of loss occurrences commencing on or after
that date, that this Contract shall be amended as follows:
1. The Preamble to this Contract shall be deleted and the
following substituted therefor:
"Preamble
The `Meridian Mutual Group' for purposes of this Contract
shall consist of Meridian Mutual Insurance Company,
Indianapolis, Indiana, Meridian Security Insurance Company,
Indianapolis, Indiana, Vernon Fire and Casualty Insurance
Company, Indianapolis, Indiana, Citizens Security Mutual
Insurance Company, Red Wing, Minnesota, Citizens Fund
Insurance Company, Red Wing, Minnesota, and Insurance Company
of Ohio, Mansfield, Ohio. The application of this Contract
shall be to the parties comprising the Meridian Mutual Group
as a group and not separately to each."
2. Subparagraph 16 of Article IV - Exclusions - shall be deleted
and the following substituted therefor:
"16. This Contract excludes loss and/or damage and/or
costs and/or expenses arising from seepage and/or
pollution and/or contamination, other than contamination from
smoke. Nevertheless, this exclusion does not preclude payment of
the cost of removing debris of property damaged by a loss otherwise
covered hereunder, subject always to a limit of 25% of the
Company's property loss under the applicable original
policy."
The provisions of this Contract shall remain otherwise unchanged.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Indianapolis, Indiana,this _______ day of _________________199___.
_____________________________________________________
Meridian Mutual Group
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Dorinco Reinsurance Company
Midland, Michigan
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: May 10, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly
executed by the Company, as part of the Contract, effective
January 1, 1997.
In Witness Whereof, the Subscribing Reinsurer by its duly
authorized representative has executed this Addendum as of the
date undermentioned at:
Midland, Michigan,this _______ day of _____________________199___.
__________________________________________________
Dorinco Reinsurance Company
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Erie Insurance Exchange
Erie, Pennsylvania
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: May 10, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly
executed by the Company, as part of the Contract, effective
January 1, 1997.
In Witness Whereof, the Subscribing Reinsurer by its duly
authorized representative has executed this Addendum as of the
date undermentioned at:
Erie, Pennsylvania,this _______ day of ____________________199___.
__________________________________________________
Erie Insurance Exchange
Addendum No. 1
to the
Interests and Liabilities Agreement
of
The Nissan Fire & Marine Insurance Co., Ltd.
Tokyo, Japan
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: May 10, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly
executed by the Company, as part of the Contract, effective
January 1, 1997.
In Witness Whereof, the Subscribing Reinsurer by its duly
authorized representative has executed this Addendum as of the
date undermentioned at:
Tokyo, Japan,this _______ day of __________________________199___.
__________________________________________________
The Nissan Fire & Marine Insurance Co., Ltd.
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Renaissance Reinsurance Ltd.
Hamilton, Bermuda
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: May 10, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly
executed by the Company, as part of the Contract, effective
January 1, 1997.
In Witness Whereof, the Subscribing Reinsurer by its duly
authorized representative has executed this Addendum as of the
date undermentioned at:
Hamilton, Bermuda,this _______ day of _____________________199___.
__________________________________________________
Renaissance Reinsurance Ltd.
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Shelter Mutual Insurance Company
Columbia, Missouri
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: May 10, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly
executed by the Company, as part of the Contract, effective
January 1, 1997.
In Witness Whereof, the Subscribing Reinsurer by its duly
authorized representative has executed this Addendum as of the
date undermentioned at:
Columbia, Missouri,this _______ day of ____________________199___.
__________________________________________________
Shelter Mutual Insurance Company
Addendum No. 1
to the
Interests and Liabilities Agreement
of
SOREMA North America Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: May 10, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly
executed by the Company, as part of the Contract, effective
January 1, 1997.
In Witness Whereof, the Subscribing Reinsurer by its duly
authorized representative has executed this Addendum as of the
date undermentioned at:
New York, New York,this _______ day of ____________________199___.
__________________________________________________
SOREMA North America Reinsurance Company
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Cie Transcontinentale de Reassurance
Paris, France
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
Second Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: May 10, 1996
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly
executed by the Company, as part of the Contract, effective
January 1, 1997.
In Witness Whereof, the Subscribing Reinsurer by its duly
authorized representative has executed this Addendum as of the
date undermentioned at:
Paris, France,this _______ day of _________________________199___.
__________________________________________________
Cie Transcontinentale de Reassurance
Sixth Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1997
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Preamble
The "Meridian Mutual Group" for purposes of this Contract shall
consist of Meridian Mutual Insurance Company, Indianapolis,
Indiana, Meridian Security Insurance Company, Indianapolis,
Indiana, Vernon Fire and Casualty Insurance Company,
Indianapolis, Indiana, Citizens Security Mutual Insurance
Company, Red Wing, Minnesota, Citizens Fund Insurance Company,
Red Wing, Minnesota, and Insurance Company of Ohio, Mansfield,
Ohio. The application of this Contract shall be to the parties
comprising the Meridian Mutual Group as a group and not
separately to each.
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company arising from the peril
of Earthquake and fire following earthquake under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Fire and Allied Lines, Homeowners (property perils
only), Mobile Homeowners (property perils only), Farmowners
(property perils only), Commercial Multiple Peril (property
perils only), Businessowners (property perils only), Earthquake,
Inland Marine and Automobile Physical Damage (comprehensive
coverage only) business, subject to the terms, conditions and
limitations hereinafter set forth.
Article II - Term
A. This Contract shall become effective on January 1, 1997, with
respect to losses arising out of loss occurrences commencing
on or after that date, and shall remain in force until
December 31, 1999, both days inclusive.
B. In the event a loss occurrence covered hereunder is in
progress at the end of any contract year, the entire loss
arising out of the loss occurrence shall be charged to the
contract year in which the loss occurrence commenced, subject
to the other terms and conditions of this Contract.
C. "Contract year" as used in this Contract shall mean the period
from January 1, 1997 to December 31, 1997, both days
inclusive, and each respective twelve-month period thereafter
that this Contract continues in force.
Article III - Revision Clause
The contracting parties will mutually agree to change the
conditions of this Contract if an inequity should arise for one
or the other partner. In this case, conditions shall be
stipulated which have been agreed upon by the contracting parties
as if they had considered the changed circumstances at the
beginning of this Contract. If a mutual agreement is not
achievable and a continuation of the Contract at unchanged
conditions is unreasonable for one of the contracting parties,
the Contract can be terminated by this party.
Article IV - Territory
The liability of the Reinsurer shall be limited to losses under
policies covering property located within the territorial limits
of the States of Iowa, Illinois, Indiana, Kentucky, Michigan,
Minnesota, Missouri, North Dakota, Ohio, Pennsylvania, South
Dakota, Tennessee and Wisconsin, but this limitation shall not
apply to moveable property if the Company's policies provide
coverage when said moveable property is outside the aforesaid
territorial limits.
Article V - Exclusions
This Contract does not apply to and specifically excludes the
following:
1. Reinsurance accepted by the Company other than:
a. Facultative reinsurance on a share basis of risks
accepted individually and not forming part of any
agreement; or
b. Local agency reinsurance on a share basis accepted
in the normal course of business.
2. Nuclear incident per the following clauses attached hereto:
a. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - U.S.A." (NMA 1119);
b. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - Canada" (NMA 1980);
c. "Nuclear Energy Risks Exclusion Clause
(Reinsurance) (1994) (Worldwide Excluding U.S.A. &
Canada)" (NMA 1975(a)).
3. Pool, association, or syndicate business as excluded
by the provisions of the "Pools, Associations and
Syndicates Exclusion Clause" attached to and forming part
of this Contract.
4. Any liability of the Company arising from its
participation or membership in any insolvency fund.
5. Credit, financial guarantee and insolvency business.
6. War risks as excluded in any standard policy.
7. Policies written to apply in excess of underlying
insurance or policies written with a deductible or
franchise of more than $10,000; however, this exclusion
shall not apply to policies which provide a percentage
deductible or franchise in connection with earthquake or
windstorm.
8. Insurance on growing crops.
9. Insurance against flood, surface water, waves, tidal
water or tidal wave, overflow of streams or other bodies
of water or spray from any of the foregoing, all whether
driven by wind or not, when written as such; however, this
exclusion shall not apply as respects the foregoing perils
included in Commercial Multiple Peril, Homeowners Multiple
Peril, Farmowners Multiple Peril, Inland Marine,
Businessowners, Mobile Homeowners, and Automobile Physical
Damage policies, and in endorsements to Fire and Extended
Coverage policies.
10. Mortgage impairment insurance and similar kinds of
insurance, howsoever styled, providing coverage to an
insured with respect to its mortgagee interest in property
or its owner interest in foreclosed property.
11. Difference in conditions insurance and similar kinds
of insurance, howsoever styled.
12. Risks which have a total insurable value of more than
$250,000,000.
13. Any collection of fine arts with an insurable value
of $5,000,000 or more.
14. Inland Marine business with respect to the following:
a. All bridges and tunnels;
b. Cargo insurance when written as such with respect
to ocean, lake, or inland waterways vessels;
c. Commercial negative film insurance and cast
insurance;
d. Drilling rigs, except water well drilling rigs;
e. Furriers' customers policies;
f. Garment contractors policies;
g. Insurance on livestock under so-called "mortality
policies," when written as such;
h. Jewelers' block policies and furriers' block
policies;
i. Mining equipment while underground;
j. Radio and television broadcasting towers;
k. Registered mail insurance when the limit of any
one addressee on any one day is more than $50,000;
l. Watercraft other than watercraft insured under
personal property floaters, yacht and/or outboard
policies, homeowners, farmowners, or recreational
vehicle policies.
15. Automobile physical damage business with respect to
the following:
a. Insurance against collision;
b. Insurance against theft or larceny;
c. Manufacturers' stocks at factories or warehouses.
16. This Contract excludes loss and/or damage and/or
costs and/or expenses arising from seepage and/or
pollution and/or contamination, other than contamination
from smoke. Nevertheless, this exclusion does not
preclude payment of the cost of removing debris of
property damaged by a loss otherwise covered hereunder,
subject always to a limit of 25% of the Company's property
loss under the applicable original policy.
17. Losses in respect of overhead transmission and
distribution lines and their supporting structures other
than those on or within 150 meters (or 500 feet) of the
insured premises.
It is understood and agreed that public utilities
extension and/or suppliers extension and/or contingent
business interruption coverages are not subject to this
exclusion provided that these are not part of a
transmitters' or distributors' policy.
Article VI - Retention and Limit
A. The Company shall retain and be liable for the first
$65,000,000 of ultimate net loss arising out of each loss
occurrence. The Reinsurer shall then be liable for 95% of the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
95% of $25,000,000 as respects any one loss occurrence.
B. In addition to its initial retention each loss occurrence, the
Company shall retain 5% of the excess ultimate net loss to
which this Contract applies.
C. No claim shall be made under this Contract in any one loss
occurrence unless at least two risks insured or reinsured by
the Company are involved in such loss occurrence. For
purposes of this Article, the Company shall be the sole judge
of what constitutes one risk.
Article VII - Reinstatement
A. In the event all or any portion of the reinsurance hereunder
is exhausted by loss, the amount so exhausted shall be
reinstated immediately from the time the loss occurrence
commences hereon. For each amount so reinstated the Company
agrees to pay additional premium equal to the product of the
following:
1. The percentage of the occurrence limit reinstated
(based on the loss paid by the Reinsurer); times
2. The earned reinsurance premium for the contract year
during which the occurrence commenced (exclusive of
reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any
loss hereunder, the Company shall submit a statement to the
Reinsurer of reinstatement premium due the Reinsurer. If the
earned reinsurance premium for the contract year has not been
finally determined as of the date of any such statement, the
calculation of reinstatement premium due shall be based on the
annual deposit premium and shall be readjusted when the earned
reinsurance premium for the contract year has been finally
determined. Any reinstatement premium shown to be due the
Reinsurer as reflected by any such statement (less prior
payments, if any) shall be payable by the Company concurrently
with payment by the Reinsurer of the requested loss. Any
return reinstatement premium shown to be due the Company shall
be remitted by the Reinsurer as promptly as possible after
receipt and verification of the Company's statement.
C. Notwithstanding anything stated herein, the liability of the
Reinsurer hereunder shall not exceed 95% of $25,000,000 as
respects loss or losses arising out of any one loss
occurrence, nor shall it exceed 95% of $50,000,000 in all
during the term of this Contract.
Article VIII - Definitions
"Ultimate net loss"A. "Ultimate net loss" as used herein is
defined as the sum or sums (including interest on judgments,
litigation expenseextra contractual obligations, litigation
expenses, interest on judgments and all other loss adjustment
expenses, except office expenses and salaries of the
Company''s regular employees) paid or payable by the Company
in settlement of claims and in satisfaction of judgments
rendered on account of such claims, after deduction of all
salvage, all recoveries and all claims on inuring insurance or
reinsurance, whether collectible or not. Nothing herein shall
be construed to mean that losses under this Contract are not
recoverable until the Company''s ultimate net loss has been
ascertained.
B. "Extra contractual obligations" as used herein shall mean 80%
of any punitive, exemplary, compensatory or consequential
damages paid or payable by the Company as a result of an
action against it by its insured or its insured's assignee,
which action alleges negligence or bad faith on the part of
the Company in handling a claim under a policy subject to this
Contract. However, for the purposes of this Contract, extra
contractual obligations arising out of any one loss occurrence
shall not exceed 25% of the contractual loss under all
policies involved in the loss occurrence. An extra
contractual obligation shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under
the policy. Notwithstanding anything stated herein, this
Contract shall not apply to any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or
criminal act by any officer or director of the Company acting
individually or collectively or in collusion with any
individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any
claim covered hereunder.
Article IX - Other Reinsurance
A. The Company shall maintain in force excess per risk
reinsurance, recoveries under which shall inure to the benefit
of this Contract.
B. The Company shall be permitted to carry underlying excess
catastrophe reinsurance, recoveries under which shall inure
solely to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this
Contract.
Article X - Loss Occurrence
A. The term "loss occurrence" shall mean the sum of all
individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or losses
arising out of one event which occurs within the area of one
state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the
duration and extent of any one "loss occurrence" shall be
limited to all individual losses sustained by the Company
occurring during any period of 168 consecutive hours arising
out of and directly occasioned by the same event, except that
as regards earthquake (the epicentre of which need not
necessarily be within the territorial confines referred to in
paragraph A of this Article) and fire following directly
occasioned by the earthquake, only those individual fire
losses which commence during the period of 168 consecutive
hours may be included in the Company's "loss occurrence."
B. The Company may choose the date and time when any such period
of consecutive hours commences, provided that it is not
earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Company arising out
of that disaster, accident or loss, and provided that only one
such period of 168 consecutive hours shall apply with respect
to one event.
Article XI - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all amounts for
which it may be liable upon receipt of reasonable evidence of
the amount paid (or scheduled to be paid) by the Company.
Article XII - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article XIII - Premium
A. As premium for the reinsurance provided hereunder for each
contract year, the Company shall pay the Reinsurer .00872% of
its Insurance In Force calculated on June 30 of each
respective contract year, subject to an annual minimum premium
of $418,000.
B. The Company shall pay the Reinsurer a deposit premium of
$522,500 for each contract year, payable in four equal
installments of $130,625 on January 1, April 1, July 1 and
October 1, of each contract year.
C. Within 60 days after the end of each contract year, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder, computed in accordance with
paragraph A, and any additional premium due the Reinsurer or
return premium due the Company shall be remitted promptly.
Article XIV - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XVI - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in
excess of which this Contract attaches, only loss or losses in
respect of that portion of any policy which the Company
retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVIII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XIX - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XX - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XXI - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded outstanding
loss and loss adjustment expense reserves by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves, if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1) or
B(3), or in the case of B(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIII - Arbitration (BRMA 6J)
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within
30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location
mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of
the state in which the Company has its principal office.
Article XXIV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of any
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXV - Agency Agreement
Meridian Mutual Insurance Company shall be deemed the agent of
the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXVI - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Indianapolis, Indiana,this _______ day of _________________199___.
__________________________________________________
Meridian Mutual Group
Table of Contents
Article Page
Preamble 248
I Classes of Business Reinsured 248
II Term 249
III Revision Clause 249
IV Territory 249
V Exclusions 249
VI Retention and Limit 252
VII Reinstatement 252
VIII Definitions 252
IX Other Reinsurance 253
X Loss Occurrence 253
XI Loss Notices and Settlements 254
XII Salvage and Subrogation 254
XIII Premium 254
XIV Offset (BRMA 36C) 255
XV Access to Records (BRMA 1D) 255
XVI Net Retained Lines (BRMA 32E) 255
XVII Errors and Omissions (BRMA 14F) 255
XVIII Currency (BRMA 12A) 255
XIX Taxes (BRMA 50C) 256
XX Federal Excise Tax (BRMA 17A) 256
XXI Unauthorized Reinsurers 256
XXII Insolvency 257
XXIII Arbitration (BRMA 6J) 258
XXIV Service of Suit (BRMA 49C) 259
XXV Agency Agreement 259
XXVI Intermediary (BRMA 23A) 259
Seventh Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1997
issued to
Meridian Mutual Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Preamble
The "Meridian Mutual Group" for purposes of this Contract shall
consist of Meridian Mutual Insurance Company, Indianapolis,
Indiana, Meridian Security Insurance Company, Indianapolis,
Indiana, Vernon Fire and Casualty Insurance Company,
Indianapolis, Indiana, Citizens Security Mutual Insurance
Company, Red Wing, Minnesota, Citizens Fund Insurance Company,
Red Wing, Minnesota, and Insurance Company of Ohio, Mansfield,
Ohio. The application of this Contract shall be to the parties
comprising the Meridian Mutual Group as a group and not
separately to each.
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company arising from the peril
of Earthquake and related losses under its policies, contracts
and binders of insurance or reinsurance (hereinafter called
"policies") in force at the effective date hereof or issued or
renewed on or after that date, and classified by the Company as
Fire and Allied Lines, Homeowners (property perils only), Mobile
Homeowners (property perils only), Farmowners (property perils
only), Commercial Multiple Peril (property perils only),
Businessowners (property perils only), Earthquake, Inland Marine
and Automobile Physical Damage (comprehensive coverage only)
business, subject to the terms, conditions and limitations
hereinafter set forth.
Article II - Term
A. This Contract shall become effective on January 1, 1997, with
respect to losses arising out of loss occurrences commencing
on or after that date, and shall remain in force until
December 31, 1997, both days inclusive.
B. If this Contract expires while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss occurrence had
occurred prior to the expiration of this Contract, provided
that no part of such loss occurrence is claimed against any
renewal or replacement of this Contract.
Article III - Territory
The liability of the Reinsurer shall be limited to losses under
policies covering property located within the territorial limits
of the States of Iowa, Illinois, Indiana, Kentucky, Michigan,
Minnesota, Missouri, North Dakota, Ohio, Pennsylvania, South
Dakota, Tennessee and Wisconsin, but this limitation shall not
apply to moveable property if the Company's policies provide
coverage when said moveable property is outside the aforesaid
territorial limits.
Article IV - Exclusions
This Contract does not apply to and specifically excludes the
following:
1. Reinsurance accepted by the Company other than:
a. Facultative reinsurance on a share basis of risks
accepted individually and not forming part of any
agreement; or
b. Local agency reinsurance on a share basis accepted
in the normal course of business.
2. Nuclear incident per the following clauses attached hereto:
a. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - U.S.A." (NMA 1119);
b. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - Canada" (NMA 1980);
c. "Nuclear Energy Risks Exclusion Clause
(Reinsurance) (1994) (Worldwide Excluding U.S.A. &
Canada)" (NMA 1975(a)).
3. Pool, association, or syndicate business as excluded
by the provisions of the "Pools, Associations and
Syndicates Exclusion Clause" attached to and forming part
of this Contract.
4. Any liability of the Company arising from its
participation or membership in any insolvency fund.
5. Credit, financial guarantee and insolvency business.
6. War risks as excluded in any standard policy.
7. Policies written to apply in excess of underlying
insurance or policies written with a deductible or
franchise of more than $10,000; however, this exclusion
shall not apply to policies which provide a percentage
deductible or franchise in connection with earthquake or
windstorm.
8. Insurance on growing crops.
9. Insurance against flood, surface water, waves, tidal
water or tidal wave, overflow of streams or other bodies
of water or spray from any of the foregoing, all whether
driven by wind or not, when written as such; however, this
exclusion shall not apply as respects the foregoing perils
included in Commercial Multiple Peril, Homeowners Multiple
Peril, Farmowners Multiple Peril, Inland Marine,
Businessowners, Mobile Homeowners, and Automobile Physical
Damage policies, and in endorsements to Fire and Extended
Coverage policies.
10. Mortgage impairment insurance and similar kinds of
insurance, howsoever styled, providing coverage to an
insured with respect to its mortgagee interest in property
or its owner interest in foreclosed property.
11. Difference in conditions insurance and similar kinds
of insurance, howsoever styled.
12. Risks which have a total insurable value of more than
$250,000,000.
13. Any collection of fine arts with an insurable value
of $5,000,000 or more.
14. Inland Marine business with respect to the following:
a. All bridges and tunnels;
b. Cargo insurance when written as such with respect
to ocean, lake, or inland waterways vessels;
c. Commercial negative film insurance and cast
insurance;
d. Drilling rigs, except water well drilling rigs;
e. Furriers' customers policies;
f. Garment contractors policies;
g. Insurance on livestock under so-called "mortality
policies," when written as such;
h. Jewelers' block policies and furriers' block
policies;
i. Mining equipment while underground;
j. Radio and television broadcasting towers;
k. Registered mail insurance when the limit of any
one addressee on any one day is more than $50,000;
l. Watercraft other than watercraft insured under
personal property floaters, yacht and/or outboard
policies, homeowners, farmowners, or recreational
vehicle policies.
15. Automobile physical damage business with respect to
the following:
a. Insurance against collision;
b. Insurance against theft or larceny;
c. Manufacturers' stocks at factories or warehouses.
16. This Contract excludes loss and/or damage and/or
costs and/or expenses arising from seepage and/or
pollution and/or contamination, other than contamination
from smoke. Nevertheless, this exclusion does not
preclude payment of the cost of removing debris of
property damaged by a loss otherwise covered hereunder,
subject always to a limit of 25% of the Company's property
loss under the applicable original policy.
17. Losses in respect of overhead transmission and
distribution lines and their supporting structures other
than those on or within 150 meters (or 500 feet) of the
insured premises.
It is understood and agreed that public utilities
extension and/or suppliers extension and/or contingent
business interruption coverages are not subject to this
exclusion provided that these are not part of a
transmitters' or distributors' policy.
Article V - Retention and Limit
A. The Company shall retain and be liable for the first
$90,000,000 of ultimate net loss arising out of each loss
occurrence. The Reinsurer shall then be liable for 95% of the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
95% of $25,000,000 as respects any one loss occurrence.
B. In addition to its initial retention each loss occurrence, the
Company shall retain 5% of the excess ultimate net loss to
which this Contract applies.
C. No claim shall be made under this Contract in any one loss
occurrence unless at least two risks insured or reinsured by
the Company are involved in such loss occurrence. For
purposes of this Article, the Company shall be the sole judge
of what constitutes one risk.
Article VI - Reinstatement
A. In the event all or any portion of the reinsurance hereunder
is exhausted by loss, the amount so exhausted shall be
reinstated immediately from the time the loss occurrence
commences hereon. For each amount so reinstated the Company
agrees to pay additional premium equal to the product of the
following:
1. The percentage of the occurrence limit reinstated
(based on the loss paid by the Reinsurer); times
2. The earned reinsurance premium for the term of this
Contract (exclusive of reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any
loss hereunder, the Company shall submit a statement to the
Reinsurer of reinstatement premium due the Reinsurer. If the
earned reinsurance premium for the term of this Contract has
not been finally determined as of the date of any such
statement, the calculation of reinstatement premium due shall
be based on the annual deposit premium and shall be readjusted
when the earned reinsurance premium for the term of this
Contract has been finally determined. Any reinstatement
premium shown to be due the Reinsurer as reflected by any such
statement (less prior payments, if any) shall be payable by
the Company concurrently with payment by the Reinsurer of the
requested loss. Any return reinstatement premium shown to be
due the Company shall be remitted by the Reinsurer as promptly
as possible after receipt and verification of the Company's
statement.
C. Notwithstanding anything stated herein, the liability of the
Reinsurer hereunder shall not exceed 95% of $25,000,000 as
respects loss or losses arising out of any one loss
occurrence, nor shall it exceed 95% of $50,000,000 in all
during the term of this Contract.
Article VII - Definitions
"Ultimate net loss"A. "Ultimate net loss" as used herein is
defined as the sum or sums (including interest on judgments,
litigation expenseextra contractual obligations, litigation
expenses, interest on judgments and all other loss adjustment
expenses, except office expenses and salaries of the
Company''s regular employees) paid or payable by the Company
in settlement of claims and in satisfaction of judgments
rendered on account of such claims, after deduction of all
salvage, all recoveries and all claims on inuring insurance or
reinsurance, whether collectible or not. Nothing herein shall
be construed to mean that losses under this Contract are not
recoverable until the Company''s ultimate net loss has been
ascertained.
B. "Extra contractual obligations" as used herein shall mean 80%
of any punitive, exemplary, compensatory or consequential
damages paid or payable by the Company as a result of an
action against it by its insured or its insured's assignee,
which action alleges negligence or bad faith on the part of
the Company in handling a claim under a policy subject to this
Contract. However, for the purposes of this Contract, extra
contractual obligations arising out of any one loss occurrence
shall not exceed 25% of the contractual loss under all
policies involved in the loss occurrence. An extra
contractual obligation shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under
the policy. Notwithstanding anything stated herein, this
Contract shall not apply to any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or
criminal act by any officer or director of the Company acting
individually or collectively or in collusion with any
individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any
claim covered hereunder.
Article VIII - Other Reinsurance
A. The Company shall maintain in force excess per risk
reinsurance, recoveries under which shall inure to the benefit
of this Contract.
B. The Company shall be permitted to carry underlying excess
catastrophe reinsurance, recoveries under which shall inure
solely to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this
Contract.
Article IX - Loss Occurrence
A. The term "loss occurrence" shall mean the sum of all
individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or losses
arising out of one event which occurs within the area of one
state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the
duration and extent of any one "loss occurrence" shall be
limited to all individual losses sustained by the Company
occurring during any period of 168 consecutive hours arising
out of and directly occasioned by the same event, except that
as regards earthquake (the epicentre of which need not
necessarily be within the territorial confines referred to in
paragraph A of this Article) and fire following directly
occasioned by the earthquake, only those individual fire
losses which commence during the period of 168 consecutive
hours may be included in the Company's "loss occurrence."
B. The Company may choose the date and time when any such period
of consecutive hours commences, provided that it is not
earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Company arising out
of that disaster, accident or loss, and provided that only one
such period of 168 consecutive hours shall apply with respect
to one event.
Article X - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all amounts for
which it may be liable upon receipt of reasonable evidence of
the amount paid (or scheduled to be paid) by the Company.
Article XI - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article XII - Premium
A. As premium for the reinsurance provided hereunder, the Company
shall pay the Reinsurer .487% of its net earned premium for
the term of this Contract, subject to a minimum premium of
$380,000.
B. The Company shall pay the Reinsurer a deposit premium of
$475,000 in four equal installments of $118,750 on January 1,
April 1, July 1 and October 1 of 1997.
C. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder, computed in accordance with
paragraph A, and any additional premium due the Reinsurer or
return premium due the Company shall be remitted promptly.
D. "Net earned premium" as used herein is defined as gross earned
premium of the Company for the classes of business reinsured
hereunder, less the earned portion of premiums ceded by the
Company for reinsurance which inures to the benefit of this
Contract. For purposes of calculating net earned premium, 90%
of the total basic policy premium as respects Homeowners,
Farmowners and Mobile Homeowners business, 70% of the total
basic policy premium as respects Businessowners and Commercial
Multiple Peril business and 100% of the Comprehensive portion
of the premium for Automobile Physical Damage business shall
be considered subject premium.
Article XIII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XIV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XV - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in
excess of which this Contract attaches, only loss or losses in
respect of that portion of any policy which the Company
retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVI - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XVIII - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XIX - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XX - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded outstanding
loss and loss adjustment expense reserves by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves, if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1) or
B(3), or in the case of B(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXI - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXII - Arbitration (BRMA 6J)
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within
30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location
mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of
the state in which the Company has its principal office.
Article XXIII - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of any
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXIV - Agency Agreement
Meridian Mutual Insurance Company shall be deemed the agent of
the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXV - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Indianapolis, Indiana,this _______ day of _________________199___.
__________________________________________________
Meridian Mutual Group
Table of Contents
Article Page
Preamble 262
I Classes of Business Reinsured 262
II Term 263
III Territory 263
IV Exclusions 263
V Retention and Limit 265
VI Reinstatement 266
VII Definitions 266
VIII Other Reinsurance 267
IX Loss Occurrence 267
X Loss Notices and Settlements 267
XI Salvage and Subrogation 268
XII Premium 268
XIII Offset (BRMA 36C) 268
XIV Access to Records (BRMA 1D) 269
XV Net Retained Lines (BRMA 32E) 269
XVI Errors and Omissions (BRMA 14F) 269
XVII Currency (BRMA 12A) 269
XVIII Taxes (BRMA 50C) 269
XIX Federal Excise Tax (BRMA 17A) 270
XX Unauthorized Reinsurers 270
XXI Insolvency 271
XXII Arbitration (BRMA 6J) 272
XXIII Service of Suit (BRMA 49C) 273
XXIV Agency Agreement 273
XXV Intermediary (BRMA 23A) 273
TERM LOAN AGREEMENT
NBD BANK, N.A., a national banking association (the "Bank")
agrees to extend the loan described below (the "Loan") to
MERIDIAN INSURANCE GROUP, INC. (the "Borrower") under the terms
and conditions set forth in this agreement.
1. Definitions. As used herein, the following terms shall
have the meanings hereinafter set forth:
"Affiliates" means all stock insurance companies affiliated
with the Borrower after consummation of the Transaction,
including without limitation, Meridian Security, Vernon,
Citizens Fund and ICO.
"Available Ordinary Dividends" means for any fiscal year,
the greater of ten percent (10.0%) of a company's or group
of companies' statutory capital stock and surplus as of the
preceding December 31 or its net income for the preceding
calendar year as determined on a statutory basis.
"Borrower" means Meridian Insurance Group, Inc.
"Citizens" means prior to the consummation of the
Transaction, Citizens Security Group, Inc., a publicly held
Minnesota corporation, and after consummation of the
Transaction, a Minnesota corporation which is an indirect
wholly owned subsidiary of the Borrower.
"Citizens Fund" means Citizens Fund Insurance Company, a
Minnesota stock insurance company and a subsidiary of
Citizens.
"Citizens Mutual" means Citizens Security Mutual Insurance
Company, a Minnesota mutual insurance company.
"Debt Service Coverage Ratio" means at any point in time,
the ratio of (i) the last calculated Available Ordinary
Dividends for a company or group of companies as of the end
of a calendar year, as derived from the last available
annual statutory financial statements, to (ii) the combined
aggregate of principal payments on borrowed funds to be made
or accrued by such company or group of companies during the
four fiscal quarters following the time of measurement and
interest payments on borrowed funds made or accrued by such
company or group of companies during the four fiscal
quarters preceding the time of measurement .
"ICO" means Insurance Company of Ohio, an Ohio stock
insurance company and a wholly owned subsidiary of Citizens.
"Meridian Mutual" means Meridian Mutual Insurance Company,
an Indiana mutual insurance company.
"Meridian Security" means Meridian Security Insurance
Company, an Indiana stock insurance company which is a
wholly owned subsidiary of the Borrower.
"Transaction" means the creation of a Minnesota corporation
wholly owned by the Borrower which will be merged with and
into Citizens, the redemption and cancellation of all
ownership by former Citizens shareholders leaving Citizens a
wholly owned subsidiary of the Borrower and the entering
into various reinsurance and pooling agreements and
management services agreements which will affiliate the
insurance companies owned and operated Meridian Mutual and
by Citizens Mutual.
"Vernon" means Vernon Fire and Casualty Insurance Company,
an Indiana stock insurance company, which is a wholly owned
subsidiary of the Borrower .
2. Loan and Purpose. The Bank agrees to extend the Loan
to the Borrower, which will be an amortizing term loan in the
initial amount of Twelve Million and 00/100 Dollars
($12,000,000).
The Loan shall be evidenced by a Business Loan Note executed
concurrently with this agreement (referred to in this
agreement with all extensions, renewals and amendments as
the "Note").
The proceeds of the Loan shall be used exclusively to
consummate the Transaction.
3. Fees and Expenses.
3.1 Fees. Upon execution of this agreement, the Borrower shall
pay the Bank a facility fee of $15,000.00.
3.2 Out-of-Pocket Expenses. In addition to any fee set forth in
Section 3.1 above, the Borrower shall reimburse the Bank for its
out-of-pocket expenses not part of its ordinary overhead,
allocated to the Loan, which are customary in transactions
similar to the Loan and typically paid by a borrower.
4. Security. Unless otherwise agreed to in the future,
the Loan will be unsecured.
5. Affirmative Covenants. So long as the Loan remains
outstanding, the Borrower, and each of its subsidiaries, will:
5.1 Insurance. Maintain insurance with financially sound and
reputable insurers covering its properties and business against
those casualties and contingencies and in the types and amounts
as shall be in accordance with sound business and industry
practices.
5.2 Existence. Maintain its existence and business operations
as presently in effect in accordance with all applicable laws and
regulations, pay its debts and obligations when due under normal
terms, and pay on or before their due date all taxes,
assessments, fees and other governmental monetary obligations,
except as they may be contested in good faith if they have been
properly reflected on its books and, at the Bank's request,
adequate funds or security has been pledged to insure payment.
5.3 Pooling and Servicing Agreements. Maintain in full force
and effect the pooling and reinsurance agreements among Meridian
Mutual, Citizens Mutual and the Affiliates and the management
services sharing agreements among Meridian Mutual, the Borrower,
Citizens Mutual and the Affiliates and other affiliated companies
related to certain operating expenses, as amended from time to
time in the ordinary course of business.
5.4 Financial Records. Maintain proper books and records of
account, in accordance with generally accepted accounting
principles where applicable, and consistent with financial
statements previously submitted to the Bank.
5.5 Financial Reports. Furnish to the Bank whatever
information, books, and records the Bank may reasonably request,
including at a minimum:
A. Within 45 days after each quarterly period:
(1) For Meridian Security and its Affiliates a combining
statutory balance sheet as of the end of that period and a
combining statutory statement of operations, policyholders'
surplus and cashflow, from the beginning of that fiscal
year to the end of that period, certified as correct, sub-
ject to year-end adjustments, by one of its authorized
agents.
(2) A compliance certificate setting forth a calculation of any
financial covenant required under this agreement, provided
however that such compliance certificate need only
calculate the risk based capital ratio on an annual basis.
B. Within 60 days after the end of each of the first three
quarterly periods:
(1) A copy of SEC Form 10-Q for the Borrower.
(2) A copy of the shareholders report sent by the Borrower to
its shareholders.
C. Within 90 days after each annual fiscal period:
(1) A copy of the annual certification of reserves filed by
Meridian Security and the Affiliates.
(2) A copy of the management discussion and analysis for
Meridian Security and its Affiliates.
(3) A detailed set of the combined annual statutory financial
statements Meridian Security and its Affiliates including
all exhibits and schedules as filed with the Indiana
Department of Insurance or the Minnesota Department of
Insurance.
ii. Within 120 days after each annual fiscal period:
(1) The annual SEC Form 10-K filed by the Borrower.
(2) A copy of the annual shareholders' report for the Borrower.
iii. Within 150 days after each annual period:
(1) For Meridian Security and Affiliates, a combined statutory
balance sheet as of the end of that period and a combined
statutory statement of operations, policy holders surplus
and cashflow, from the beginning of that fiscal year to the
end of that period, audited and certified by an independent
certified public accountant.
2. Negative Covenants.
a. Unless otherwise noted, the financial requirements set forth
in this Section 6 shall be computed in accordance with statutory
accounting principles applied on a basis consistent with
financial statements previously submitted by the Borrower to the
Bank.
b. Without the written consent of the Bank, so long as any loan
remains outstanding, the Borrower will not: (where appropriate,
covenants shall apply on a consolidated basis)
i. Risk Based Capital. Permit the ratio of the combined total
adjusted capital of Meridian Mutual, Meridian Security and its
Affiliates to its company action level to be less than 200.0%, as
calculated at the end of each fiscal year.
ii. Debt Service Coverage Ratio. Permit its Debt Service
Coverage Ratio to be less than 1.5 to 1.0 for any consecutive
four (4) fiscal quarters.
iii. Total Debt Ratio. Permit the ratio of (i) the total
liabilities for borrowed money and capitalized leases of
Borrower, Meridian Security and its Affiliates, to (ii) the sum
of combined policyholders' surplus and liabilities for borrowed
money and capitalized leases to be greater than .20 to 1.00.
iv. Policyholders' Surplus. Permit the policyholders' surplus
of Meridian Security and its Affiliates to be less than
$75,000,000, which minimum amount will increase at each fiscal
year end by 25.0% of the combined statutory net income of
Meridian Security and its Affiliates.
v. Investment in Meridian Security. Permit its ownership of
the outstanding shares of Meridian Security to be less than
100.0% of the total number of shares issued and outstanding of
Meridian Security.
vi. Debt. Incur, or permit to remain outstanding, debt for
borrowed money or installment obligations, except (i) debt
reflected in the latest financial statement of the Borrower
furnished to the Bank prior to execution of this agreement and
which is not to be paid with proceeds of the Loan, (ii) debt to
the Bank, and (iii) other debt which would not give rise to a
violation of any of the terms and conditions of this Agreement.
For purposes of this covenant, capitalized leases and the sale of
any accounts receivable shall be deemed the incurring of debt for
borrowed money.
vii. Liens. Create or permit to exist any lien on any of its
property, real or personal, except: existing liens known to the
Bank; liens to the Bank; liens incurred in the ordinary course of
business securing current nondelinquent liabilities for taxes,
worker's compensation, unemployment insurance, social security
and pension liabilities; and liens being contested in good faith.
viii.Mergers, Sales, Consolidations. Consolidate with or
merge into any other entity, or permit any entity to merge into
it; convey, lease or sell all or a material portion of its assets
or business, except in the ordinary course of business; or lease,
purchase or otherwise acquire all or a material portion of the
assets or business of any other entity, except in the ordinary
course of business. Notwithstanding the foregoing:
(a) The Borrower may merge or consolidate with another
entity or acquire the all or a material part of the
assets of another entity, provided that the Borrower,
as a continuing entity, shall be the surviving
corporation and immediately after the consummation of
any such transaction, and after giving effect to
it and to any concurrent transactions, no Event of
Default would exist; and
(b) The Borrower may sell any of its assets outside the
ordinary course of business to any other entity,
provided that (i) in the opinion of the Board of
Directors of the Borrower the transaction is for fair
value and is in the best interests of the Borrower,
and (ii) immediately after the consummation of and
after giving effect to the transaction, no Event of
Default would exist.
3. Representation. Borrower represents that it is a
corporation duly organized and existing under the laws of the
State of Indiana, and that the execution and delivery of this
agreement and the Notes, and the performance of the obligations
they impose, are within its corporate powers, have been duly
authorized by all necessary action of its board of directors and
do not contravene the terms of its articles of incorporation or
by-laws. Borrower represents that the execution and delivery of
this agreement and the Note, and the performance of the
obligations they impose, do not violate any law, do not conflict
with any agreement by which it is bound, do not require the
consent or approval of any governmental authority or any third
party, and that this agreement and the Notes are valid and
binding agreements, enforceable in accordance with their terms.
Borrower also represents that the Notes evidence business loans
exempt from the Federal Truth In Lending Act (15 USC 1601, et
seq), the Federal Reserve Board's Regulation Z (12 CFR 226, et
seq), and the Indiana Uniform Consumer Credit Code (IC 24-4.5-1-
101, et seq). Borrower further represents that all balance
sheets, profit and loss statements, and other financial
statements, if any, furnished to the Bank are accurate and fairly
reflect the financial condition of the organizations and persons
to which they apply on their effective dates, including
contingent liabilities of every type, which financial condition
has not changed materially and adversely since those dates.
4. Acceleration.
a. Events of Default/Acceleration. If any of the following
events occurs:
i. The Borrower fails to pay when due any amount payable under
the Loan;
ii. The Borrower (a) fails to observe or perform any other term
of this agreement or the Notes; (b) makes any materially
incorrect or misleading representation, warranty, or certificate
to the Bank; (c) makes any materially incorrect or misleading
representation in any financial statement or other information
delivered to the Bank; or (d) defaults under the terms of any
agreement or instrument relating to any debt for borrowed money
(other than the Loans) such that the creditor declares the debt
due before its maturity;
iii. There is a default under the terms of any mortgage, security
agreement or any other document executed in connection with the
Loan;
iv. A "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974 as amended) occurs that would permit
the Pension Benefit Guaranty Corporation to terminate any
employee benefit plan of the Borrower or any affiliate of the
Borrower;
v. The Borrower or any Affiliate becomes insolvent or unable to
pay its debts as they become due;
vi. The Borrower or any Affiliate (a) makes an assignment for
the benefit of creditors; (b) consents to the appointment of a
custodian, receiver or trustee for it or a substantial part of
its assets; or (c) commences any proceeding under any bankruptcy,
reorganization, liquidation or similar laws of any jurisdiction;
vii. A custodian, receiver or trustee is appointed for the
Borrower or any Affiliate or for a substantial part of its assets
without its consent and is not removed within 60 days after such
appointment;
viii.Proceedings are commenced against the Borrower or any
Affiliate under any bankruptcy, reorganization, liquidation, or
similar laws of any jurisdiction, and such proceedings remain
undismissed for 60 days after commencement; or the Borrower
consents to the commencement of such proceedings;
ix. Any judgment is entered against the Borrower or any
Affiliate and any attachment, levy or garnishment is issued
against any property of the Borrower; or
x. There is a substantial change in the management or
ownership, or the existing or prospective financial condition of
the Borrower which the Bank reasonably and in good faith
determines to be materially adverse;
then, whether or not the Bank has made demand, the
Loans shall become due immediately, without notice, at
the Bank's option.
5.6 Remedies. If the Loans are not paid at maturity, whether by
acceleration or otherwise, the Borrower and Bank shall have all
of the rights and remedies provided by any law or agreement. Any
requirement of reasonable notice shall be met if the Bank sends
the notice to the Borrower at least twenty one (21) days prior to
the date of sale, disposition or other event giving rise to the
required notice. The Borrower shall be liable for any deficiency
remaining after disposition of any Collateral, and waives all
valuation and appraisement laws. The Borrower is liable to the
Bank for all reasonable costs and expenses of every kind incurred
in the making or collection of the Loan, including, without
limitation, reasonable attorneys' fees and court costs. These
costs and expenses shall include, without limitation, any costs
or expenses incurred by the Bank in any bankruptcy,
reorganization, insolvency or other similar proceeding.
6. Miscellaneous.
6.1 Notice from one party to another relating to this agreement
shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address,
telex number or facsimile number set forth under its name below
by any of the following means: (a) hand delivery, (b) registered
or certified mail, postage prepaid, with return receipt
requested, (c) first class or express mail, postage prepaid, (d)
Federal Express, Purolator Courier or like overnight courier
service. Notice made in accordance with this section shall be
deemed delivered upon receipt if delivered by hand 3 business
days after mailing if mailed by first class, registered or
certified mail, or one business day after mailing or deposit with
an overnight courier service if delivered by express mail or
overnight courier.
6.2 No delay on the part of the Bank in the exercise of any
right or remedy shall operate as a waiver. No single or partial
exercise by the Bank of any right or remedy shall preclude any
other future exercise of it or the exercise of any other right or
remedy. No waiver or indulgence by the Bank of any default shall
be effective unless in writing and signed by the Bank, nor shall
a waiver on one occasion be construed as a bar to or waiver of
that right on any future occasion.
6.3 This agreement, the Note, and any related loan documents
embody the entire agreement and understanding between the
Borrower and the Bank and supersede all prior agreements and
understandings relating to their subject matter. If any one or
more of the obligations of the Borrower under this agreement or
the Note shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the
remaining obligations of the Borrower shall not in any way be
affected or impaired, and such validity, illegality or
unenforceability in one jurisdiction shall not affect the
validity, legality or enforceability of the obligations of the
Borrower under this agreement or the Note in any other
jurisdiction.
6.4 This agreement is delivered in the State of Indiana and
governed by Indiana law. This agreement is binding on the
Borrower and its successors, and shall inure to the benefit of
the Bank, its successors and assigns.
6.5 Section headings are for convenience of reference only and
shall not affect the interpretation of this agreement.
7 WAIVER OF JURY TRIAL BY BANK AND BORROWER. The Bank and the
Borrower, after consulting or having had the opportunity to
consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any
litigation based upon or arising out of this agreement or any
related instrument or agreement or any of the transactions
contemplated by this agreement or any course of conduct, dealing,
statements (whether oral or written), or actions of either of
them. Neither the Bank nor the Borrower shall seek to
consolidate, by counterclaim or otherwise, any action in which a
jury trial has been waived with any other action in which a jury
trial cannot be or has not been waived. These provisions shall
not be deemed to have been modified in any respect or
relinquished by either the Bank or the Borrower except by a
written instrument executed by both of them.
Dated: ________________, 1996
MERIDIAN INSURANCE GROUP, INC.
By: ________________________________
Norma J. Oman, President and Chief Executive Officer
Address:
P.O. Box 1980
Indianapolis, Indiana 46206-1980
Tel.: _____________________
Fax: _____________________
NBD BANK, N.A.
By: ________________________________
Charles A. Liles, Authorized Agent
Address:
One Indiana Square, Suite 308
Indianapolis, Indiana 46266
Tel.: (317) 266-6540
Fax: (317) 266-6042
BUSINESS CREDIT NOTE
Due: August 1, 2003 $12,000,000.00
Note No. _________________ Date: ____________, 1996
Account No. _______________
Promise to Pay: On or before August 1, 2003, for value received,
the undersigned MERIDIAN INSURANCE GROUP, INC. ("Borrower")
promises to pay to NBD BANK, N.A., a national banking association
(the "Bank") or order, at any office of the Bank in Indiana, the
sum of TWELVE MILLION AND 00/100 DOLLARS ($12,000,000.00) or
such lesser sum as is indicated on Bank records as having been
disbursed by the Bank to or for the benefit of Borrower, plus
interest as hereinafter described.
.1 Definitions. In addition to the terms defined elsewhere
in this Note, the following terms have the meanings indicated for
purposes of this Note:
A "Adjustment Date" means any date specified on which the
Borrower elects to convert an Advance of any type to an Advance
of another type.
B "Advance" means a loan made by Bank to the Borrower
pursuant to this Note and the Agreement which may be a Variable
Rate Advance, a Eurodollar Advance or a Fixed Rate Advance.
C "Agreement" means the Term Loan Agreement between the
Borrower and Bank of even date, as amended or supplemented from
time to time.
D "Applicable Margin" means with respect to Eurodollar
Advances one half of one percent (0.5%) per annum.
E "Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks in the State of Indiana
are authorized or required to close under the laws of the State
of Indiana, and, if the applicable Business Day relates to any
Eurodollar Advance, means such a day on which dealings in dollars
are also carried on in the London interbank market.
F "Eurocurrency Liabilities" has the meaning assigned to
such term in Regulation D of the Federal Reserve Board, as in
effect from time to time.
G "Eurodollar Advance" means that amount of the Loan on
which interest is or is to be calculated with reference to the
Eurodollar Rate.
H "Eurodollar Rate" means, for each Interest Period for a
Eurodollar Advance, an interest rate per annum determined
pursuant to the following formula:
Eurodollar Rate = LIBOR
1.00-Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means,
for each Interest Period in respect of a
Eurodollar Advance, the maximum reserve percentage
in effect on the date LIBOR for such Interest
Period is determined (whether or not applicable to
the Bank) under regulations issued from time to
time by the Federal Reserve Board for determining
the maximum reserve requirement (including,
without limitation, any emergency, supplemental or
other marginal reserve requirement) with respect
to liabilities or assets consisting of or
including Eurocurrency Liabilities having a term
equal to such Interest Period; and
"LIBOR" means, for each Interest Period
in respect of a Eurodollar Advance, the rate of
interest determined by the Bank to be the rate of
interest at which dollar deposits for such
Interest Period and in an amount approximately
equal to the principal amount of the Eurodollar
Advance to be made or maintained by the Bank
during such Interest Period would be offered to
major banks in the London interbank market at
their request at or about 11:00 a.m. (London time)
on the second Business Day before the commencement
of such Interest Period.
I "Federal Funds Rate" means, for any period a fluctuating
interest rate per annum equal for each day during such period to
(i) the weighed average of the rate on overnight Federal fund
transactions with members of the Federal Reserve System arranged
by Federal fund brokers, as published for such day (or if such
day is not a Business day, for the preceding Business Day) by the
Federal Reserve Bank of New York, or, (ii) if such rate is not so
published for any day which is a Business Day, the average of the
quotation for such day such transaction received by the Bank
from three (3) Federal fund brokers of recognized standing
selected by Bank.
J "Federal Reserve Board" means the Board of Governors of
the Federal Reserve System of the United States of America or any
successor thereof.
K "Fixed Rate" means _______________ percent (______%) per
annum.
L "Fixed Rate Advance" means the amount of principal of this
note on which interest is or is to be calculated with respect to
the Fixed Rate.
M "Interest Period" shall mean:
(1) With respect to each Eurodollar Advance, the period
commencing on the Business Day such Advance is disbursed or on
the Adjustment Date on which an Advance is converted to such
Eurodollar Advance and ending on the date one (1), two (2) or
three (3) months thereafter as selected by the Borrower pursuant
to Section 2 (b); provided:
_ In the case of continuation of a Eurodollar Advance
pursuant to Section 3, the Interest Period applicable after the
continuation of such Advance shall commence on the last day of
the preceding Interest Period;
_ Any Interest Period which would otherwise end on a day
which is not a Business Day shall be extended to the next
succeeding Business Day unless such Business Day falls in another
calendar month, in which case such Interest Period shall end on
the preceding Business Day; and
_ Any Interest Period which begins on the last Business Day
of a calendar month (or on a day for which there is not a
numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period.
(1) With respect to a Variable Rate Advance, the period
commencing on the Business Day such Advance is disbursed or on
the Adjustment Date on which an Advance is converted to such
Variable Rate Advance and ending on a date such Variable Rate
Advance is converted to an Advance of any other type as selected
by the Borrower pursuant to Section 2 (b); provided any Interest
Period which would end on a day which is not a Business Day shall
be extended to the next succeeding Business Day.
(2) Notwithstanding anything to the contrary contained in this
definition of Interest Period, the Borrower may not select an
Interest Period for any Advance which ends after the maturity of
this note.
ii. "Interest Period Payment Date" means the first day of
each February, May, August and November.
iii. "Prime Rate" means that rate of interest announced from
time to time by NBD Bank, N.A. as its prime rate. The Prime Rate
is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. The Bank may make
commercial loans or other loans at rates of interest at, above or
below the Prime Rate.
iv. "Variable Rate Advance" means the amount of principal of
this note on which interest is or is to be calculated with
respect to the Variable Rate.
v. "Variable Rate" means the higher of (i) the Federal Funds
Rate plus one half of one percent per annum (0.5%), or (ii) the
"Prime Rate".
b. Advances.
i. The entire principal balance of this Note shall be
disbursed to or for the benefit of the Borrower at once, and once
repaid, may not be reborrowed. The Borrower shall designate
whether the principal balance of this Note shall bear interest at
(i) one or more fluctuating rates (a "Fluctuating Rate") equal to
either (a) the Variable Rate, or (b) a a rate indexed to a
Eurodollar Rate, with Interest Periods selected by the Borrower,
or (ii) the Fixed Rate. The Borrower shall designate which part
of the original balance of this Note be allocated to bear
interest at a Fixed Rate (the "Fixed Rate Component"), and which
part at a Fluctuating Rate (the "Fluctuating Rate Component").
If Borrower elects to have any part of the principal of
this Note bear interest at a Eurodollar Rate, the Borrower
shall submit a request in accordance with the terms of this
Section, a request ("Request") specifying the amount
thereof, and the Interest Period related thereto.
N Each Eurodollar Advance shall not be less than $500,000.00
and any higher integral multiple of $100,000.00 thereof, and
there shall not be more than five Eurodollar Advances outstanding
hereunder at any point in time;
O The Requests for Eurodollar Advances must take cognizance
of the required principal payments hereunder, and Interest
Periods must be scheduled to avoid the requirement for prepayment
of a Eurodollar Advance if a principal payment is required to be
made hereunder.
P Each Request, which shall be irrevocable once received,
must be received by the Bank not later than 11:00 a.m.,
Indianapolis time, on the day such Advance is to be made if such
Advance is a Variable Rate Advance and two (2) days prior to the
day on such Advance is to be made if such Advance is a Eurodollar
Advance. Requests may be made by telephone and Bank may, without
further inquiry, rely on such telephonic requests as the act of
the Borrower through any individual authorized by the Borrower in
operating resolutions supplied from time to time by the Borrower
to the Bank.
Q The Bank will advance to the Borrower the amount so
requested unless the Bank determines that any condition precedent
set forth in the Agreement shall not be fulfilled as of the date
of such Advance. All Advances will be made to the Borrower by a
credit to the Borrower's account maintained at the Bank, or as
otherwise directed by the Borrower.
R All notices, (including Requests) received by the Bank
after 11:00 a.m. Indianapolis time (or such other time as is
specified in any section hereof) on a Business Day shall be
deemed received on the next succeeding Business Day.
.2 Conversion and Renewal of Advances.
A The Borrower may, subject to the terms hereof, upon notice
to the Bank received not later than 11:00 a.m. Indianapolis time,
on the day of the proposed conversion or renewal and two (2) days
on a Eurodollar Advance prior to the relevant Adjustment Date:
(1)Elect to convert on any Business Day all or any portion of
any Variable Rate Advance into a Eurodollar Advance;
(2)Elect to convert on any Interest Period Payment Date, all
or any portion of any Eurodollar Rate Advance maturing on such
Interest Period Payment Date into a Variable Rate Advance; or
(3)Elect to renew, on any Interest Period Payment Date, all or
any portion of any Eurodollar Advance maturing on such Interest
Period Payment Date by selecting the duration of the next
Interest Period thereof; provided, however, that if any such
Eurodollar Rate Advance is a Eurodollar Advance with an
outstanding principal balance of less than Five Hundred Thousand
and 00/100 Dollars ($500,000.00), such Advance shall be renewed
as a Variable Rate Advance, and further provided, that any such
Advance subject to renewal shall automatically convert to a
Variable Rate Advance if the Borrower fails to convert such
Advance to another type of Advance;
B If, upon the expiration of any Interest Period applicable
to an Advance, the Borrower has failed to select a new Interest
Period to be applicable to such Advance, the Borrower shall be
deemed to have elected to convert such Advance into a Variable
Rate Advance effective as of the expiration of the current
Interest Period applicable thereto;
C Subject to the other provisions of this Agreement, if a
Variable Rate is converted to or renewed as a Eurodollar Advance,
the Borrower shall repay the principal amount of such Advance on
the last day of the Interest Period applicable thereto with
either a Variable Rate Advance or a Eurodollar Advance with the
same or another Interest Period.
.3 Interest.
A Each Advance shall bear interest on the outstanding
principal balance thereof from the date made until the due date,
at a rate per annum equal to the Eurodollar Rate plus the
Applicable Margin, or Variable Rate, or the Fixed Rate, as the
case may be.
B Interest shall be payable on each Interest Period Payment
Date.
C All computations of interest and fees under this Agreement
shall be made on the basis of a year of three hundred sixty (360)
days and calculated for the actual days elapsed. Interest shall
accrue on any principal balance outstanding from and including
the date of an Advance to but excluding the date on which such
principal balance is repaid.
D Notwithstanding anything to the contrary in this Agreement,
all principal hereunder not paid when due, whether by lapse of
time or by acceleration, shall bear interest after maturity at a
rate equal to three percent (3.0%) per annum plus the otherwise
applicable rate.
.4 Repayment of Principal. Each Eurodollar Advance shall
mature and the principal amount thereof shall be due and payable
on the last day of the Interest Period for such Eurodollar
Advance, subject however to the Borrower's rights to renew or
convert such Eurodollar Advance, and further subject to the
principal reduction requirements hereinafter set forth.
In addition to interest, the Borrower will be obligated to
make quarterly principal reductions, due on the first day of each
February, May, August and November, commencing November 1, 1996,
in accordance with the following schedule:
from November 1, 1996 through August 1, 1997 - $125,000
from November 1, 1997 through August 1, 1998 - $250,000
from November 1, 1998 through August 1, 1999 - $375,000
from November 1, 1999 through August 1, 2001 - $500,000
from November 1, 2001 through August 1, 2003 - $625,000
The principal payments made shall be applied to the
Fluctuating Rate Component and the Fixed Rate Component of this
Note on a pro-rata basis, based on the percentage of each
component designated by the Borrower at execution of this Note.
6. Prepayment.
A The Borrower may not prepay a Eurodollar Advance at any
time prior to the last day of the Interest Period applicable
thereto, and/or may not prepay this note if it is bearing
interest at the Fixed Rate prior to its maturity, without paying
a premium calculated by the Bank equal to the Bank's investment
loss, if any, assuming a reinvestment of prepaid funds in U.S.
Treasury obligations of comparable maturities to the amounts
being prepaid.
B The Borrower may prepay a Variable Rate Advance at any time
without premium or penalty.
.6 Method of Payment. Each payment of principal, due under
this note shall be made by the Borrower to the Bank at its main
office in Indianapolis, Indiana and each payment of interest and
other sums due under this Agreement shall be made without set-off
or counterclaim in immediately available funds on a Business Day
not later than 11:00 a.m. Indianapolis time. All sums received
after such time shall be deemed received on the next Business
Day. Any payment due on a day that is not a Business Day shall be
made on the next Business Day.
.7 Evidence of Credit Extensions. Bank shall record the
date, amount and maturity of each Advance and the amount of each
payment of principal made by the Borrower with respect thereto on
the grids attached thereto or, at the option of the Bank, in its
records, and Bank's record shall be conclusive absent manifest
error. Any statement of the Bank to the Borrower setting forth
the Borrower's account regarding the Advances and payments shall
be considered true and correct and binding on the Borrower unless
Bank is notified in writing of any discrepancy or exception
within thirty (30) days from the mailing by the Bank to the
Borrower of any such monthly statement. Notwithstanding the
foregoing, the failure to make, or an error in making, a notation
with respect to any Advance shall not limit or otherwise affect
the obligation of the Borrower hereunder or under this Note.
.8 Increased Cost. If any applicable domestic or foreign law,
treaty, rule or regulation now or later in effect or any
interpretation or administration thereof by any governmental
authority charged with its interpretation or administration, or
compliance by the Bank with any guideline, request or directive
of such an authority (whether or not having the force of law),
including any risk-based capital guidelines, affects or would
affect the amount of capital required or expected to be
maintained by the Bank with respect to this note if it is bearing
interest at a Fixed Rate and the Bank determines that the amount
of such capital is increased by or based upon the existence of
the Bank's obligations under this agreement and the increase has
the effect of reducing the rate of return on such Fixed Rate to a
level below that which the Bank could have achieved but for such
circumstances by an amount deemed by the Bank to be material,
then the Borrower shall pay to the Bank, from time to time, upon
request by the Bank, additional amounts sufficient to compensate
the Bank for any increase in the amount of capital and reduced
rate of return which the Bank reasonably determines to be
allocable to the existence of the Bank's obligations under this
agreement. A statement as to the amount of such compensation,
prepared in good faith and in reasonable detail by the Bank and
submitted by the Bank to the Borrower, shall be conclusive for
all purposes absent manifest error in computation.
RELATED DOCUMENTS: The terms of any other document executed as
part of the loan evidenced by this note are incorporated by
reference.
EVENTS OF DEFAULT/ACCELERATION: If any event of default
described in the Agreement occurs or is continuing, then this
note shall become due immediately, without notice, at the Bank's
option.
REMEDIES: If this note is not paid at maturity, whether by
demand, acceleration or otherwise, the Bank shall have all of the
rights and remedies provided by any law or agreement. Any
requirement of reasonable notice shall be met if the Bank sends
the notice to the Borrower at least seven (7) days prior to the
date of sale, disposition or other event giving rise to the
required notice. The Borrower is liable to the Bank for all
reasonable costs and expenses of every kind incurred in the
making or collection of this note, including, without limitation,
reasonable attorneys' fees and court costs. These costs and
expenses shall include, without limitation, any costs or expenses
incurred by the Bank in any bankruptcy, reorganization,
insolvency or other similar proceeding.
WAIVER: Each endorser and any other party liable on this note
severally waives demand, presentment, notice of dishonor and
protest, and consents to any extension or postponement of time of
its payment without limit as to the number or period, to any
substitution, exchange or release of all or any part of the
Collateral, to the addition of any party, and to the release or
discharge of, or suspension of any rights and remedies against,
any person who may be liable for the payment of this note. No
delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise
by the Bank of any right or remedy shall preclude any other
future exercise of it or the exercise of any other right or
remedy. No waiver or indulgence by the Bank of any default shall
be effective unless in writing and signed by the Bank, nor shall
a waiver on one occasion be construed as a bar to or waiver of
that right on any future occasion.
MISCELLANEOUS: This note shall be binding on Borrower and its
successors, and shall inure to the benefit of the Bank, its
successors and assigns. Any reference to the Bank shall include
any holder of this note. This note is governed by Indiana law.
Section headings are for convenience of reference only and shall
not affect the interpretation of this note. This note and any
related loan documents embody the entire agreement between the
Borrower and the Bank regarding the terms of the loan evidenced
by this note and supersede all oral statements and prior writings
relating to that loan.
WAIVER OF JURY TRIAL BY BANK AND BORROWER: The Bank and the
Borrower, after consulting or having had the opportunity to
consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any
litigation based upon or arising out of this note or any related
instrument or agreement or any of the transactions contemplated
by this note or any course of conduct, dealing, statements
(whether oral or written), or actions of either of them. Neither
the Bank nor the Borrower shall seek to consolidate, by
counterclaim or otherwise, any action in which a jury trial has
been waived with any other action in which a jury trial cannot be
or has not been waived. These provisions shall not be deemed to
have been modified in any respect or relinquished by either the
Bank or the Borrower except by a written instrument executed by
both of them.
MERIDIAN INSURANCE GROUP, INC.
By:_______________________________________
Norma J. Oman, President and Chief Executive Officer
P.O. Box 1980
Indianapolis, IN 46206-1980
Tel: (317) __________________
Fax: (317) __________________
Borrower hereby designates that:
an initial amount of $0.00 or 0.0% of the principal balance
of this Note will bear interest at the Fixed Rate; and
an initial amount of $12,000,000.00 or 100.0% of the
principal balance of this Note will bear interest at a
Fluctuating Rate.
MERIDIAN INSURANCE GROUP, INC.
By:_______________________________________
Norma J. Oman, President and Chief Executive Officer
P.O. Box 1980
Indianapolis, IN 46206-1980
Tel.: (317) __________________
Fax: (317) __________________
DRAFT CLOSING CHECKLIST
BORROWER: MERIDIAN INSURANCE GROUP, INC.
LENDER: NBD BANK, N.A., a national banking association
LOAN: $ 12,000,000 Term Loan
PURPOSE : Capital contribution to subsidiary to accomplish the
acquisition of Citizens Security Group, Inc. and its
affiliates, and affiliation of Meridian entities with
Citizens entities
ENABLING DOCUMENTS
8 Copy of articles of incorporation, bylaws
9 Certificate of existence
10 Resolution authorizing borrowing
11 Opinion of Counsel
LOAN DOCUMENTS
12 Term Loan Agreement
13 Note
MISCELLANEOUS
14 Copy of filed plan of merger (Certificate of merger to follow)
15 Copy of replacement Reinsurance Pooling Agreement, including
Citizens entities
16 Copy of executed Management Services Sharing
Agreements, including Citizens entities
17 Copy of closing statement for Acquisition and
Affiliation Transaction
18 Closing Statement for Loan
NON-QUALIFIED
STOCK OPTION AGREEMENT
THIS AGREEMENT, made this 3rd day of March, 1997, between
Meridian Insurance Group, Inc., with its principal office at
Indianapolis, Indiana, (hereinafter called the
"Corporation") and
________________________________, residing at
_________________, ________, __________, __________,
(hereinafter called the "Employee").
WITNESSETH THAT:
WHEREAS, the directors of the Corporation adopted the 1996
Employee Incentive Stock Plan (the "Plan") on December 6,
1995, and the shareholders of the Corporation approved the
Plan at their meeting held on May 1, 1996; and
WHEREAS, the Employee has been designated, in accordance
with the terms of the Plan, as a key employee to whom an
Option to purchase shares of the Corporation is to be
granted;
NOW, THEREFORE, it is mutually agreed as follows:
1. The Corporation hereby grants to the Employee, on the
terms and conditions hereinafter set forth, an Option to
purchase all or any part of ________ shares of the
Corporation's common shares at a price of $15.75 per share.
This Option is for all purposes pursuant and subject to the
provisions of the Plan, and the Employee agrees to be bound
by the rules and regulations for the administration of the
Plan as presently prescribed or hereafter amended, and by
any amendment, construction or interpretation of the Plan
adopted by the Board of Directors of the Corporation.
2. The right to purchase the shares subject to this Option
shall accrue on the following dates provided the Employee is
employed by the Corporation on such dates: one-third (1/3)
on March 3, 1998, one-third (1/3) on March 3, 1999, and one-
third (1/3) on March 3, 2000. No part of the Option shall
lapse by reason of any omission to exercise the Option or
any part thereof prior to March 3, 2007.
3. This Option may be exercised only by written notice to
the Corporation specifying the number of shares in respect
of which the Option is being exercised and by payment to the
Corporation in cash of the full purchase price for the
shares so specified, or, at the option of the Employee the
purchase price may be paid in whole or in part through the
transfer to the Corporation of shares of Meridian stock
previously acquired by the Employee.
4. The Corporation shall take any action required by law
and applicable regulations, including the Indiana Securities
Act and the rules and regulations of the Indiana Securities
Division, to authorize the issuance and delivery of any
shares covered by this Option. Upon completion of such
action and the receipt of payment for the shares in respect
of which this Option is exercised, the Corporation shall
deliver to the Employee or his duly authorized
representatives, certificates for such shares, which shares
shall be fully paid and non-assessable.
5. (a) If prior to the delivery by the Corporation of all
of the shares covered by this Option, there shall be any
increase or decrease in the number of issued shares of the
Corporation resulting from a subdivision or consolidation of
shares or any other capital adjustment, the payment of a
share dividend, or other increase or decrease in the shares
of the Corporation effected without receipt of
consideration, there shall be a proportionate and equitable
adjustment of the terms of this Option with respect to the
amount and class of shares remaining subject to the Option
and the purchase price to be paid therefor, as determined by
the Board of Directors or their designated Committee.
(b) In the event that, prior to the delivery by the
Corporation of all of the shares covered by this Option,
there shall be a capital reorganization or reclassification
of the Corporation resulting in a substitution of other
shares for common shares, there shall be substituted for the
shares of the Corporation the number of substitute shares
which would have been issued in exchange for the common
shares then remaining under the Option if such common shares
had been then issued and outstanding.
(c) If the Corporation shall enter into any agreement
providing for the merger or consolidation of the Corporation
with or into any other person, regardless of whether or not
the Corporation shall be the surviving or resulting
Corporation as a consequence of such merger or
consolidation, the Corporation shall have the right to
terminate this Agreement and to thereby terminate all rights
thereunder on thirty (30) days' written notice to the
Employee; provided, however, that if such merger or
consolidation is not consummated within 180 days from the
date of the notice, the Agreement so terminated shall be
deemed to have been continuously in effect since the date of
execution thereof. In the event of a dissolution or
liquidation of the Corporation, the Corporation shall give
thirty (30) days' written notice thereof to the Employee,
and all rights of the Employee under this Agreement shall be
deemed to be terminated upon such dissolution or
liquidation.
6. The Employee shall have no rights or privileges as a
shareholder of the Corporation with respect to the common
shares issuable under this Option until certificates
representing such shares have been delivered to him.
7. The Employee agrees, for himself and his personal
representatives, that any and all shares purchased by him or
them, upon the exercise of any portion of this Option, may
be "restricted securities" within the meaning of Rule 144
promulgated by the Securities and Exchange Commission
("SEC") under the Securities Act of 1933 (the "1933 Act"),
or may otherwise be subject to the provisions of Rule 144.
The Employee may be required to agree in writing, at any
time deemed appropriate by the Corporation, that there will
be no sale or other disposition of the shares (i) unless a
registration statement is in effect with respect to the
resale of such shares, (ii) unless the Employee has
received an opinion from counsel for the Corporation to the
effect that the shares may be sold without compliance with
the registration provisions of the 1933 Act, or (iii) unless
a "no-action" letter to that effect has been obtained from
the staff of the SEC. In this connection, all certificates
representing the shares purchased upon exercise of this
Option may have set forth thereon a legend evidencing the
foregoing restrictions in such form as the Corporation may
determine, and appropriate stop transfer instructions may be
issued to the Corporation's transfer agent in connection
therewith. In addition, the Employee may be required to
agree to any other limitation upon resale deemed appropriate
by the Corporation for the purpose of complying with the
then current rules and regulations of the SEC.
8. This Option shall not be assignable or transferable by
the Employee otherwise than by will or the laws of descent
and distribution and shall be exercisable during his
lifetime only by him.
9. (a) If the Employee shall cease to be employed by a
Company in the Meridian Group (as defined in the 1996
Employee Incentive Stock Plan) for reasons other than (i)
death, (ii) discharge for cause, or (iii) voluntary action
of the Participant without the written consent of the
President of the Company (or the President's delegate), the
Employee may exercise this Option at any time within
three years after such termination, to the extent of the
number of shares covered by this Option which were
purchasable at the date of such termination; provided,
however, that this Option shall be so exercisable only until
the earlier of the expiration of such three-year period or
the expiration date of such Option.
(b) If the Employee shall cease to be employed by a
Company in the Meridian Group either (i) for cause or (ii)
by voluntary action of the Employee without the written
consent of the President of the Company (or the President's
delegate), this Option shall expire and any rights hereunder
shall terminate immediately.
(c) Should the Employee die either while in the employ of
a Company in the Meridian Group or after termination of such
employment (other than discharge for cause, by voluntary
action of the Employee without the written consent of the
President of the Company, or the President's delegate), the
Option rights of the deceased Employee may be exercised by
his or her Personal Representative until the earlier of one
year after the Employee's death or three years after his or
her termination of employment to the extent of the number of
shares covered by this Option which were purchasable at the
date of such death except that this Option shall not be
exercisable on any date beyond the expiration date of this
Option. If the Employee granted an Option should die within
thirty days prior to the expiration date of such Option, if
on the date of death the Employee was then entitled to
exercise such Option, and if the Option expires without
being exercised, the Personal Representative of the Employee
shall receive in settlement a cash payment from the Company
of a sum equal to the amount, if any, by which the Fair
Market Value (determined on the expiration date of the
Option) of Meridian Stock subject to the Option exceeds the
Option Price.
10. A leave of absence for the Employee during the term of
this Option which is authorized by the Corporation shall not
be deemed a termination of employment; however, the Employee
may not exercise any Options hereunder during such leave of
absence.
11. Nothing in this Agreement shall be deemed to create
any limitation or restriction upon such rights as the
Corporation would otherwise have to terminate the employment
of the Employee at any time for any reason.
12. Any notice to be given or served under the terms of
this Agreement shall be delivered to the Secretary of the
Corporation and to the Employee at the address shown above,
or such other address or addresses as either party may
designate in writing to the other. Any such notice shall be
deemed to have been duly given or delivered if it is sent by
registered or certified mail, return receipt requested.
13. This Agreement shall be construed in accordance with
the laws of Indiana and shall be binding on and inure to the
benefit of any successor or successors of the Corporation
and the personal representatives of the Employee.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the day and year first above written.
MERIDIAN INSURANCE GROUP, INC.
By___________________________________________
Printed________________________________________
Title___________________________________________
Employee_______________________________________
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this 3rd day of March, 1997, by and
between Meridian Insurance Group, Inc., with its principal
office at Indianapolis, Indiana (hereinafter called the
"Corporation"), and ______________________, residing at
_______________________, ___________, ___________,
__________, (hereinafter called the "Employee").
WITNESSETH THAT:
WHEREAS, the directors of the Corporation adopted the 1996
Employee Incentive Stock Plan (the "Plan") on December 6,
1995, and the shareholders of the Corporation approved the
Plan at their meeting held on May 1, 1996; and
WHEREAS, the Employee has been designated, in accordance
with the terms of the Plan, as a key employee to whom an
Option to purchase shares of the Corporation is to be
granted;
NOW, THEREFORE, it is mutually agreed as follows:
1. The Corporation hereby grants to the Employee, on the
terms and conditions hereinafter set forth, an Option to
purchase all or any part of _______ shares of the
Corporation's common shares at a price of $15.75 per share.
This Option is for all purposes pursuant and subject to the
provisions of the Plan, and the Employee agrees to be bound
by the rules and regulations for the administration of the
Plan as presently prescribed or hereafter amended, and by
any amendment, construction or interpretation of the Plan
adopted by the Board of Directors of the Corporation.
2. The right to purchase the shares subject to this Option
shall accrue on the following dates provided the Employee is
employed by the Corporation on such dates: one-third on
March 3, 1998; one-third on March 3, 1999, and one-third on
March 3, 2000. No part of the Option shall lapse by reason
of any omission to exercise the Option or any part thereof
prior to March 3, 2007.
3. This Option may be exercised only by written notice to
the Corporation specifying the number of shares in respect
of which the Option is being exercised and by payment to the
Corporation in cash of the full purchase price for the
shares so specified, or, at the option of the Employee the
purchase price may be paid in whole or in part through the
transfer to the Corporation of shares of Meridian stock
previously acquired by the Employee.
4. The Corporation shall take any action required by law
and applicable regulations, including the Indiana Securities
Act and the rules and regulations of the Indiana Securities
Division, to authorize the issuance and delivery of any
shares covered by this Option. Upon completion of such
action and the receipt of payment for the shares in respect
of which this Option is exercised, the Corporation shall
deliver to the Employee or his duly authorized
representatives, certificates for such shares, which shares
shall be fully paid and non-assessable.
5. (a) If prior to the delivery by the Corporation of all
of the shares covered by this Option, there shall be any
increase or decrease in the number of issued shares of the
Corporation resulting from a subdivision or consolidation of
shares or any other capital adjustment, the payment of a
share dividend, or other increase or decrease in the shares
of the Corporation effected without receipt of
consideration, there shall be a proportionate and equitable
adjustment of the terms of this Option with respect to the
amount and class of shares remaining subject to the Option
and the purchase price to be paid therefor, as determined by
the Board of Directors or their designated Committee.
(b) In the event that, prior to the delivery by the
Corporation of all of the shares covered by this Option,
there shall be a capital reorganization or reclassification
of the Corporation resulting in a substitution of other
shares for common shares, there shall be substituted for the
shares of the Corporation the number of substitute shares
which would have been issued in exchange for the common
shares then remaining under the Option if such common shares
had been then issued and outstanding.
(c) If the Corporation shall enter into any agreement
providing for the merger or consolidation of the Corporation
with or into any other person, regardless of whether or not
the Corporation shall be the surviving or resulting
Corporation as a consequence of such merger or
consolidation, the Corporation shall have the right to
terminate this Agreement and to thereby terminate all rights
thereunder on thirty (30) days' written notice to the
Employee; provided, however, that if such merger or
consolidation is not consummated within 180 days from the
date of the notice, the Agreement so terminated shall be
deemed to have been continuously in effect since the date of
execution thereof. In the event of a dissolution or
liquidation of the Corporation, the Corporation shall give
thirty (30) days' written notice thereof to the Employee,
and all rights of the Employee under this Agreement shall be
deemed to be terminated upon such dissolution or
liquidation.
6. The Employee shall have no rights or privileges as a
shareholder of the Corporation with respect to the common
shares issuable under this Option until certificates
representing such shares have been delivered to him.
7. The Employee agrees, for himself and his personal
representatives, that any and all shares purchased by him or
them, upon the exercise of any portion of this Option, may
be "restricted securities" within the meaning of Rule 144
promulgated by the Securities and Exchange Commission
("SEC") under the Securities Act of 1933 (the "1933 Act"),
or may otherwise be subject to the provisions of Rule 144.
The Employee may be required to agree in writing, at any
time deemed appropriate by the Corporation, that there will
be no sale or other disposition of the shares (i) unless a
registration statement is in effect with respect to the
resale of such shares, (ii) unless the Employee has
received an opinion from counsel for the Corporation to the
effect that the shares may be sold without compliance with
the registration provisions of the 1933 Act, or (iii) unless
a "no-action" letter to that effect has been obtained from
the staff of the SEC. In this connection, all certificates
representing the shares purchased upon exercise of this
Option may have set forth thereon a legend evidencing the
foregoing restrictions in such form as the Corporation may
determine, and appropriate stop transfer instructions may be
issued to the Corporation's transfer agent in connection
therewith. In addition, the Employee may be required to
agree to any other limitation upon resale deemed appropriate
by the Corporation for the purpose of complying with the
then current rules and regulations of the SEC.
8. This Option shall not be assignable or transferable by
the Employee otherwise than by will or the laws of descent
and distribution and shall be exercisable during his
lifetime only by him.
9. (a) If the Employee shall cease to be employed by a
Company in the Meridian Group (as defined in the 1996
Employee Incentive Stock Plan) for reasons other than (i)
death, (ii) discharge for cause, or (iii) voluntary action
of the Participant without the written consent of the
President of the Company (or the President's delegate), the
Employee may exercise this Option at any time within three
months after such termination, to the extent of the number
of shares covered by this Option which were purchasable at
the date of such termination; provided, however, that this
Option shall be so exercisable only until the earlier of the
expiration of such three-month period or the expiration date
of such Option.
(b) If the Employee shall cease to be employed by a
Company in the Meridian Group either (i) for cause or (ii)
by voluntary action of the Employee without the written
consent of the President of the Company (or the President's
delegate), this Option shall expire and any rights hereunder
shall terminate immediately.
(c) Should the Employee die either while in the employ of
a Company in the Meridian Group or after termination of such
employment (other than discharge for cause, by voluntary
action of the Employee without the written consent of the
President of the Company, or the President's delegate), the
Option rights of the deceased Employee may be exercised by
his or her Personal Representative until the earlier of one
year after the Employee's death or three months after his or
her termination of employment to the extent of the number of
shares covered by this Option which were purchasable at the
date of such death except that this Option shall not be so
exercisable on any date beyond the expiration date of this
Option. If the Employee granted an Option should die within
thirty days prior to the expiration date of such Option, if
on the date of death the Employee was then entitled to
exercise such Option, and if the Option expires without
being exercised, the Personal Representative of the Employee
shall receive in settlement a cash payment from the Company
of a sum equal to the amount, if any, by which the Fair
Market Value (determined on the expiration date of the
Option) of Meridian Stock subject to the Option exceeds the
Option Price.
10. A leave of absence for the Employee during the term of
this Option which is authorized by the Corporation shall not
be deemed a termination of employment; however, the Employee
may not exercise any Options hereunder during such leave of
absence.
11. Nothing in this Agreement shall be deemed to create
any limitation or restriction upon such rights as the
Corporation would otherwise have to terminate the employment
of the Employee at any time for any reason.
12. Any notice to be given or served under the terms of
this Agreement shall be delivered to the Secretary of the
Corporation and to the Employee at the address shown above,
or such other address or addresses as either party my
designate in writing to the other. Any such notice shall be
deemed to have been duly given or delivered if it is sent by
registered or certified mail, return receipt requested.
13. This Agreement shall be construed in accordance with
the laws of Indiana and shall be binding on and inure to the
benefit of any successor or successors of the Corporation
and the personal representatives of the Employee.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the day and year first above written.
MERIDIAN INSURANCE GROUP, INC.
_____________________________________
By:_____________________________
Employee
Title:____________________________
MERIDIAN INSURANCE
PARTICIPANT DESCRIPTION
FISCAL YEAR 1996 ANNUAL EXECUTIVE INCENTIVE PLAN
Participant Name:
Title:
PURPOSE
Meridian's 1996 Annual Incentive Plan is designed to provide you
with a very competitive opportunity to increase your cash
compensation and your ownership of MIGI stock for the attainment
of the annual financial objectives.
You have been selected to participate in this plan because you
are in a position to substantially influence the accomplishment
of the corporate objectives.
1996 ANNUAL PLAN CONCEPTS
The Plan is structured to pay a cash award based on meeting or
exceeding the 1996 combined pre-tax income goals of the property-
casualty operations. Each plan participant's total award is
based on how well the companies do overall.
The size of your cash award may vary from ThresholdPercent to
MaximumPercent of your annual base salary as of December 31,
1996, and is based on meeting at least the threshold pre-tax
income goal.
PLAN DETAILS
The target cash award amount is calculated as a percent of your
1996 year-end salary. For example, your target cash bonus is
TargetPercent. Using your salary as of December 31, 1995, your
target award would be $TargetAward.
No incentive plan payment shall be made to any plan participant
in years when the pre-tax income result fails to meet a minimum
acceptable level. For fiscal year 1996, no incentives shall be
paid if the combined pre-tax income is less than $X.
The corporate goals are established each year as part of the
budgeting process. Applicable company goals and your
accompanying awards are as follows:
CORPORATE FINANCIAL PERFORMANCE
Award Payout Schedule as a % of Base Salary
Pre-Tax Income Your Award
Potential
Maximum (120% of $X X% of base salary
goal)
Target (100% of $X X% of base salary
goal)
Threshold (80% of $X X% of base salary
goal)
Pre-tax income results must fully reach the threshold level to
result in an award payout. The award will be pro-rated for
results between threshold and maximum pre-tax income levels. For
example, if pre-tax income is $X (halfway between target and
maximum), then your bonus would be X percent (or halfway between
the target and maximum award).
The Company has been motivated to adopt this plan, in part, to
encourage and allow participants to increase their equity
holdings in MIGI. As always, the timing of stock purchase(s)
should be consistent with the safe harbor periods permitted by
insider trading requirements. The Legal Department or Human
Resources should be contacted in advance of any MIGI stock
transaction to verify permissible timeframes.
AWARD PAYMENT
Barring unforeseen circumstances, individual cash awards will be
finalized after the close of the fiscal year for payment in
March. Normally, the award will be paid in cash at that time.
All appropriate taxes will be deducted from the award payment.
TERMINATION OF EMPLOYMENT
No bonuses are payable in the event of a participant's
termination during the Plan year other than by death, permanent
disability or normal retirement, in which event a discretionary
payment may be made. Generally, in order to be eligible for a
bonus payout, the participant must be a full-time active employee
of the Company at the time of the cash bonus payment. An
employee for whom a formal leave of absence has been granted by
the Company may be construed to be a full-time active employee of
the Company at the time of cash bonus payment with the approval
of the President.
The Joint Compensation Committee reserves the right to modify or
terminate this incentive plan as necessary.
MERIDIAN INSURANCE
PARTICIPANT DESCRIPTION
FISCAL YEAR 1997 ANNUAL EXECUTIVE INCENTIVE PLAN
Participant Name:
Title:
PURPOSE
Meridian's 1997 Annual Incentive Plan is designed to provide you
with a very competitive opportunity to increase your cash
compensation and your ownership of MIGI stock for the attainment
of the annual financial objectives.
You have been selected to participate in this plan because you
are in a position to substantially influence the accomplishment
of the corporate objectives.
1997 ANNUAL PLAN CONCEPTS
The Plan is structured to pay an award in cash, in Meridian
Insurance Group, Inc. stock or a combination of both, based on
meeting or exceeding the 1997 consolidated combined pre-tax
income goals of the property-casualty operations. Each plan
participant's total award is based on how well the companies do
overall.
The size of your cash award may vary from ThresholdPercent
percent to MaximumPercent percent of your annual base salary as
of December 31, 1997, and is based on meeting at least the
threshold pre-tax income goal.
PLAN DETAILS
The target cash award amount is calculated as a percent of your
1997 year-end salary. For example, your target cash bonus is
TargetPercent percent. Using your salary as of December 9,
1996, your target award would be $TargetAward.
No incentive plan payment shall be made to any plan participant
in years when the pre-tax income result fails to meet a minimum
acceptable level. For fiscal year 1997, no incentives shall be
paid if the combined pre-tax income is less than $X.
The corporate goals are established each year as part of the
budgeting process. Applicable company goals and your
accompanying awards are as follows:
CORPORATE FINANCIAL PERFORMANCE
Award Payout Schedule as a % of Base Salary
Pre-Tax Income Your Award
Potential
Maximum (120% of $X X% of base salary
goal)
Target (100% of $X X% of base salary
goal)
Threshold (80% of $X X% of base salary
goal)
Pre-tax income results must fully reach the threshold level to
result in an award payout. The award will be pro-rated for
results between threshold and maximum pre-tax income levels. For
example, if pre-tax income is $X (halfway between target and
maximum), then your bonus would be ExamplePercent percent (or
halfway between the target and maximum award).
The Company has been motivated to adopt this plan, in part, to
encourage and allow participants to increase their equity
holdings in MIGI. As always, the timing of stock purchase(s)
should be consistent with the safe harbor periods permitted by
insider trading requirements. The Legal Department or Human
Resources should be contacted in advance of any MIGI stock
transaction to verify permissible timeframes.
AWARD PAYMENT
Barring unforeseen circumstances, individual cash awards will be
finalized after the close of the fiscal year for payment in
March. The award is payable in cash, in stock of Meridian
Insurance Group, Inc. or a combination of both payment methods.
All appropriate taxes will be deducted from the award payment.
TERMINATION OF EMPLOYMENT
No bonuses are payable in the event of a participant's
termination during the Plan year other than by death, permanent
disability or normal retirement, in which event a discretionary
payment may be made. Generally, in order to be eligible for a
bonus payout, the participant must be a full-time active employee
of the Company at the time of the cash bonus payment. An
employee for whom a formal leave of absence has been granted by
the Company may be construed to be a full-time active employee of
the Company at the time of cash bonus payment with the approval
of the President.
The Joint Compensation Committee reserves the right to modify or
terminate this incentive plan as necessary.
DIRECTORS'
NON-QUALIFIED
STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ___day of _______, 199__,
between Meridian Insurance Group, Inc., with its principal
office at Indianapolis, Indiana, (hereinafter called the
"Corporation") and ____________________________, residing at
_________________________________, _________, __________,
___________, (hereinafter called the "Director").
WITNESSETH THAT:
WHEREAS, the Directors of the Corporation adopted the
1994 Outside Directors' Stock Option Plan (the "Plan") on
March 4, 1994, and the shareholders of the Corporation
approved the Plan at their meeting held on May 4, 1994; and
WHEREAS, the Director has been designated, in
accordance with the terms of the Plan, as a Director to whom
an Option to purchase shares of the Corporation is to be
granted;
NOW, THEREFORE, it is mutually agreed as follows:
1. The Corporation hereby grants to the Director, on
the terms and conditions hereinafter set forth, an Option to
purchase all or any part of 1,000 shares of the
Corporation's common shares at a price of $___ per share.
This Option is for all purposes pursuant and subject to the
provisions of the Plan, and the Director agrees to be bound
by the rules and regulations for the administration of the
Plan as presently prescribed or hereafter amended, and by
any amendment, construction or interpretation of the Plan
adopted by the Board of Directors of the Corporation.
2. The right to purchase the shares subject to this
Option shall accrue on ________________, 199__, provided the
Director is a member of the Board of Directors of the
Corporation on such date. No part of the Option shall lapse
by reason of any omission to exercise the Option or any part
thereof prior to _____________, 200__.
3. This Option may be exercised only by written
notice to the Corporation specifying the number of shares,
which may not be less than 100 shares, in respect of which
the Option is being exercised and by payment to the
Corporation in cash of the full purchase price for the
shares so specified, or, at the option of the Director the
purchase price may be paid in whole or in part through the
transfer to the Corporation of shares of Meridian stock
previously acquired by the Director.
4. The Corporation shall take any action required by
law and applicable regulations, including the Indiana
Securities Act and the rules and regulations of the Indiana
Securities Division, to authorize the issuance and delivery
of any shares covered by this Option. Upon completion of
such action and the receipt of payment for the shares in
respect of which this Option is exercised, the Corporation
shall deliver to the Director or his duly authorized
representatives, certificates for such shares, which shares
shall be fully paid and non-assessable.
5. (a) If prior to the delivery by the Corporation
of all of the shares covered by this Option, there shall be
any increase or decrease in the number of issued shares of
the Corporation resulting from a subdivision or
consolidation of shares or any other capital adjustment, the
payment of a share dividend, or other increase or decrease
in the shares of the Corporation effected without receipt of
consideration, there shall be a proportionate and equitable
adjustment of the terms of this Option with respect to the
amount and class of shares remaining subject to the Option
and the purchase price to be paid therefor, as determined by
the Board of Directors or their designated Committee.
(b) In the event that, prior to the delivery by
the Corporation of all of the shares covered by this Option,
there shall be a capital reorganization or reclassification
of the Corporation resulting in a substitution of other
shares for common shares, there shall be substituted for the
shares of the Corporation the number of substitute shares
which would have been issued in exchange for the common
shares then remaining under the Option if such common shares
had been then issued and outstanding.
(c) If the Corporation shall enter into any
agreement providing for the merger or consolidation of the
Corporation with or into any other person, regardless of
whether or not the Corporation shall be the surviving or
resulting Corporation as a consequence of such merger or
consolidation, the Corporation shall have the right to
terminate this Agreement and to thereby terminate all rights
thereunder on thirty (30) days' written notice to the
Director, and upon giving of any such notice, all Options
shall become immediately exercisable in full; provided,
however, that if such merger or consolidation is not
consummated within 180 days from the date of the notice, the
Agreement so terminated shall be deemed to have been
continuously in effect since the date of execution thereof.
In the event of a dissolution or liquidation of the
Corporation, the Corporation shall give thirty (30) days'
written notice thereof to the Director, and upon giving of
any such notice, all Options shall become immediately
exercisable in full, and all rights of the Director under
this Agreement shall be deemed to be terminated upon such
dissolution or liquidation.
6. The Director shall have no rights or privileges as
a shareholder of the Corporation with respect to the common
shares issuable under this Option until certificates
representing such shares have been delivered to him.
7. The Director agrees, for himself and his personal
representatives, that any and all shares purchased by him or
them, upon the exercise of any portion of this Option, may
be "restricted securities" within the meaning of Rule 144
promulgated by the Securities and Exchange Commission
("SEC") under the Securities Act of 1933 (the "1933 Act"),
or may otherwise be subject to the provisions of Rule 144.
The Director may be required to agree in writing, at any
time deemed appropriate by the Corporation, that there will
be no sale or other disposition of the shares (i) unless a
registration statement is in effect with respect to the
resale of such shares, (ii) unless the Director has
received an opinion from counsel for the Corporation to the
effect that the shares may be sold without compliance with
the registration provisions of the 1933 Act, or (iii) unless
a "no-action" letter to that effect has been obtained from
the staff of the SEC. In this connection, all certificates
representing the shares purchased upon exercise of this
Option may have set forth thereon a legend evidencing the
foregoing restrictions in such form as the Corporation may
determine, and appropriate stop transfer instructions may be
issued to the Corporation's transfer agent in connection
therewith. In addition, the Director may be required to
agree to any other limitation upon resale deemed appropriate
by the Corporation for the purpose of complying with the
then current rules and regulations of the SEC.
8. This Option shall not be assignable or
transferable by the Director otherwise than by will or the
laws of descent and distribution and shall be exercisable
during his lifetime only by him.
9. (a) If the Director shall cease to be a Director
of a Company in the Meridian Group (as defined in the 1994
Outside Directors' Stock Option Plan) for reasons other than
death, the Director may exercise this Option at any time
within three years after such termination, to the extent of
the number of shares covered by this Option which were
purchasable at the date of such termination; provided,
however, that this Option shall be so exercisable only until
the earlier of the expiration of such three-year period or
the expiration date of such Option.
(b) Should the Director die either while serving
as an Outside Director of a Company in the Meridian Group or
after termination of such service, the Option rights of the
deceased Director may be exercised by his or her Personal
Representative until the earlier of one year after the
Director's death or three years after his or her termination
of service to the extent of the number of shares covered by
this Option which were purchasable at the date of such death
except that this Option shall not be exercisable on any date
beyond the expiration date of this Option. If the Director
granted an Option should die within thirty days prior to the
expiration date of such Option, if on the date of death the
Director was then entitled to exercise such Option, and if
the Option expires without being exercised, the Personal
Representative of the Director shall receive in settlement a
cash payment from the Corporation of a sum equal to the
amount, if any, by which the Fair Market Value (determined
on the expiration date of the Option) of Meridian Stock
subject to the Option exceeds the Option Price.
10. Any notice to be given or served under the
terms of this Agreement shall be delivered to the Secretary
of the Corporation and to the Director at the address shown
above, or such other address or addresses as either party
may designate in writing to the other. Any such notice
shall be deemed to have been duly given or delivered if it
is sent by registered or certified mail, return receipt
requested.
11. This Agreement shall be construed in
accordance with the laws of Indiana and shall be binding on
and inure to the benefit of any successor or successors of
the Corporation and the personal representatives of the
Director.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed as of the day and year first above
written.
MERIDIAN INSURANCE GROUP, INC.
By:______________________________________
Printed:___________________________________
Title:_____________________________________
Director___________________________________
DEFERRED COMPENSATION PLAN AGREEMENT
THIS AGREEMENT, made and entered into as of this 1st day of
August, 1995, by and between Citizens Security Mutual Insurance
Company, a Minnesota corporation, with principal offices in Red
Wing, Minnesota (hereinafter referred to as the "Company"), and
Scott Broughton, an individual residing in the City of Red Wing,
Minnesota (hereinafter referred to as the "Employee"),
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Company; and
WHEREAS, the Company recognizes the valuable services
heretofore performed for it by the Employee and wishes to
encourage his continued employment; and
WHEREAS, the Employer wishes to provide Employee with
deferred compensation and Employee wishes to defer such
compensation; and
WHEREAS, the parties hereto wish to provide the terms and
conditions upon which the Company shall pay such deferred
compensation to the Employee or his designated beneficiary; and
WHEREAS, the parties hereto intend that this Agreement be
considered an unfunded arrangement, maintained primarily to
provide deferred compensation benefits for the Employee, a member
of select group of management or highly compensated employees of
the Company, for purposes of the Employee Retirement Income Act
of 1974, as amended;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, the parties hereto agree as follows:
1. DEFINITION OF TERMS. Certain words and phrases are
defined when first used in later paragraphs of this Agreement.
In addition, the following words and phrases when used herein,
unless the context clearly requires otherwise, shall have the
following respective meanings:
(a) Agreement. This Agreement, together with any and all
amendments or supplements thereto.
(b) Early Retirement Date: The date the Employee attains
fifty-five (55) years of age.
(c) Fiscal Year: The taxable year of the Company.
(d) Normal Retirement Date: The date the Employee attains
sixty-five (65) years of age.
(e) Retirement Account: Book entries maintained by the
Company reflecting Deferred Amounts and Additions thereon;
provided, however, that the existence of such book entries and
the Retirement Account shall not create and shall not be deemed
to create a trust of any kind, or a fiduciary relationship
between the Company and the Employee, his designated beneficiary,
or other beneficiaries under this Agreement.
1. DEFERRED COMPENSATION. Commencing on the date this
Agreement is made, and continuing through the date on which the
Employee's employment terminates as herein provided or because of
his death, early retirement, normal retirement, disability, or
any other cause, (whichever shall first occur), the Employee and
the Company agree that the Company shall credit to Employee's
Retirement Account Seven Thousand Dollars ($7,000.00) (herein
"Annual Deferral Sum"), on August 1, 1995 and on the first
business day in August of each year thereafter. The amounts so
credited to Employee's Retirement Account are hereinafter
collectively referred to as "Deferred Amounts."
2. ACCRUED BENEFIT. The term Accrued Benefit when used
with regard to the Employee shall mean the sum of all Deferred
Amounts, plus any increases or decreases in value allocated to
them, due and owing to the Employee or the Employee's
beneficiaries on the date of retirement, disability retirement,
termination or death, as the case may be; provided, however, that
Accrued Benefit with regard to the Employee or the Employee's
beneficiaries, shall never be less than the total of all Deferred
Amounts deposited into that Employee's Retirement Account.
3. (a) Retirement Benefit. The Company agrees that, from
and after the retirement of the Employee from the service of the
Company upon reaching his Early Retirement Date or Normal
Retirement Date, the Company shall thereafter pay as a retirement
benefit ("Retirement Benefit") to the Employee the Employee's
entire Accrued Benefit, plus an additional "Yield Amount" as
determined below, payable in equal monthly installments for a
period of two hundred forty (240) months, commencing with the
first day of the first month following the Employee's retirement
("Commencement Date"). The additional Yield Amount to be paid
shall be determined by applying the amount of yield on a U.S.
Treasury Bond with a maturity occurring twenty (20) years after
the Commencement Date, to the Accrued Benefit (or any balance of
the Accrued Benefit which has not been paid to the Employee) as
reported in the Wall Street Journal.
(a) Election of Benefits Upon Early Retirement Date or
Normal Retirement Date. The Employee shall have the option, upon
attaining his Early Retirement Date or Normal Retirement Date, to
elect to receive his Retirement Benefit, notwithstanding his
continued employment with the Company after he has attained his
Early Retirement Date or Normal Retirement Date. The Employee's
election to receive his Retirement Benefit notwithstanding his
continued employment must be made in writing at least fifteen
(15) days prior to his Early Retirement Date or Normal Retirement
Date, whichever applies. The Retirement Benefit payable upon
election pursuant to this paragraph 4(b) shall be the amount that
would have been payable had the Employee retired from service
with the Company as of his Early Retirement Date or Normal
Retirement Date, whichever applies. Any such election shall be
irrevocable, and shall result in the termination of the
Employee's right to any further deferrals hereunder.
4. DISABILITY RETIREMENT. Notwithstanding any other
provision hereof, the Employee shall be entitled to receive
payments hereunder prior to his Early Retirement Date or Normal
Retirement Date, whichever applies, in any case in which it is
determined by a duly licensed physician selected by the Company
that, because of ill health, accident, disability or general
inability because of age, the Employee is no longer able,
properly and satisfactorily, to perform his regular duties as an
Employee. If the Employee's employment is terminated pursuant to
this paragraph 5, the disability retirement benefit payable
hereunder ("Disability Retirement Benefit") shall be that amount
that would have been payable as a Retirement Benefit had the
Employee attained his Normal Retirement Date on the date of the
physician's disability determination. The Disability Retirement
Benefit payable under this paragraph 5 shall be distributed in
accordance with the provisions of paragraph 4(a) as if the
Employee had retired on the date of the physician's disability
determination.
5. (a) Death Benefit Prior to Commencement of Retirement
Benefits. In the event of the Employee's death while in the
employment of the Company and prior to the commencement of
Retirement Benefits or Disability Retirement Benefits, the
Company shall pay the Accrued Benefit in the Employee's
Retirement Account as of the date of his death in equal monthly
installments for a period of one hundred twenty (120) months to
the Employee's designated beneficiary, in accordance with the
last such designation received by the Company from the Employee
prior to his death. If no such designation has been received by
the Company from the Employee prior to his death or if said
payments are otherwise to be made as provided herein, said
payments shall be made to the Employee's then living spouse, so
long as she shall live and thereafter to such person or persons,
including her estate, as she may appoint under her Will, making
specific reference hereto; if the Employee is not survived by a
spouse or if she shall fail to so appoint, then said payments
shall be made to the then living children of the Employee, if
any, in equal shares, for their joint and survivor lives; and if
none, or after their respective joint and survivor lives, any
balance thereof in one lump sum to the estate of the Employee.
Such payments shall commence on the first day of the first month
following the Employee's death.
(a) Death Benefit After Commencement of Benefits. In the
event of the Employee's death after the commencement of
Retirement Benefits, Normal Retirement Benefits, or Disability
Retirement Benefits, but prior to the completion of all such
payments due and owing hereunder, the Company shall continue to
make such payments, in equal monthly installments, over the
remainder of the period specified in paragraph 4 or 5 hereof that
would have been applicable to the Employee had he survived. Such
continuing payments shall be made to the Employee's designated
beneficiary, in accordance with the last such designation
received by the Company from the Employee prior to his death or
if said payments are otherwise to be made as provided herein,
said payments shall be made to the Employee's then living spouse,
so long as she shall live and thereafter to such person or
person, including her estate, as she may appoint under her Will,
making specific reference hereto; if the Employee is not survived
by a spouse or if she shall fail to so appoint, then said
payments shall be made to the then living children of the
Employee, if any, in equal shares, for their joint and survivor
lives; and if none, or after their respective joint and survivor
lives, any balance thereof in one lump sum to the estate of the
Employee. Such continuing payments shall commence on the first
day of the first month following the Employee's death.
6. TERMINATION BENEFIT. In the event of the Employee's
termination of employment with the Company before his Early
Retirement Date for any reason, other than his disability
retirement or his death, the Company shall pay to the Employee,
as compensation for services rendered prior to such termination,
a single sum equal to the entire Accrued Benefit hereunder,
including additions thereto, (the "Termination Benefit");
provided however, if the termination of the Employee by the
Company is for just cause, payment of the Accrued Benefit, shall
be exclusive of additions thereto, and any and all additions
credited to the Employee's Retirement Account shall be forfeited
to the Company. The Termination Benefit shall be payable on the
first day of the first month following the termination of the
Employee's employment with the Company. Just cause is defined as
either serious criminal conduct by the Employee against the
Company, or conduct which the Employee knew was against the best
interests of the Company at the time it was committed by the
Employee.
7. HARDSHIP BENEFIT. In the event the Employee suffers a
financial hardship (as hereinafter defined), the Company may, if
it deems advisable in its sole and absolute discretion,
distribute to or utilize on behalf of the Employee as a hardship
benefit (the "Hardship Benefit") any portion of the Employee's
Retirement Account up to, but not in excess of, the Termination
Benefit to which the Employee would have been entitled as of the
date a Hardship Benefit is distributed or utilized. Any Hardship
Benefit shall be distributed or utilized at such times as the
Company shall determine, and the Accrued Benefit in the
Employee's Retirement Account shall be reduced by the amount so
distributed and/or utilized. Financial Hardship shall mean dire
financial need of the Employee caused by temporary or permanent
disability or incapacity, medical or educational expenses, the
purchase or maintenance of a residence, or a material reduction
in family income.
8. BENEFICIARY DESIGNATION. The Employee shall have the
right, at any time, to submit in substantially the form attached
hereto as Exhibit A, a written designation of primary and
secondary beneficiaries to whom payment under this Agreement
shall be made in the event of his death prior to complete
distribution of the benefits due and payable under the Agreement.
Each beneficiary designation shall become effective only when
receipt thereof is acknowledged in writing by the Company.
9. NO TRUST CREATED. Nothing contained in this Agreement,
and no action taken pursuant to its provisions by either party
hereto shall create, or be construed to create, a trust of any
kind, or a fiduciary relationship between the Company and the
Employee, his designated beneficiary, other beneficiaries of the
Employee or any other person.
10. BENEFITS PAYABLE ONLY FROM GENERAL CORPORATE ASSETS;
UNSECURED GENERAL CREDITOR STATUS OF EMPLOYEE
(a) The payments to the Employee or his designated
beneficiary or any other beneficiary hereunder shall be made from
assets which shall continue, for all purposes, to be a part of
the general, unrestricted assets of the Company; no person shall
have any interest in any such assets by virtue of the provisions
of this Agreement. The Company's obligation hereunder shall be
an unfunded and unsecured promise to pay money in the future. To
the extent that any person acquires a right to receive payments
from the Company under the provisions hereof, such right shall be
no greater than the right of any unsecured general creditor of
the Company; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or
assets of the Company.
(b) In the event that, in its discretion, the Company
purchases an insurance policy or policies insuring the life of
the Employee (or any other property), to allow the Company to
recover the cost of providing benefits, in whole or in part,
hereunder, neither the Employee, his designated beneficiary nor
any other beneficiary shall have any rights whatsoever therein or
in the proceeds therefrom. The Company shall be the sole owner
and beneficiary of any such insurance policy and shall possess
and may exercise all incidents or ownership therein. No such
policy, policies or other property shall be held in any trust for
the Employee or any other person nor as collateral security for
any obligation of the Company hereunder.
11. NO CONTRACT OF EMPLOYMENT. Nothing contained herein
shall be construed to be a contract of employment for any term of
years, nor as conferring upon the Employee the right to continue
to be employed by the Company in his present capacity, or in any
capacity. It is expressly understood by the parties thereto that
this Agreement relates to the payment of deferred compensation
for the Employee's services, payable after termination of his
employment with the Company, and is not intended to be an
employment contract.
12. BENEFITS NOT TRANSFERRABLE. Neither the Employee, his
designated beneficiary, nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate or otherwise encumber any part of all of
the amounts payable hereunder. No such amounts shall be subject
to seizure by any creditor of any such beneficiary, by a
proceeding at law or in equity, nor shall such amounts be
transferable by operation of law in the event of bankruptcy,
insolvency or death of the Employee, his designated beneficiary,
or any other beneficiary hereunder. Any such attempted
assignment or transfer shall be void.
13. DETERMINATION OF BENEFITS
a. Claim. A person who believes that he or she is being
denied a benefit to which he or she it entitled under the Plan
(hereinafter referred to as a "Claimant") must first file a
written request for such benefit with the Company, setting forth
his or her claim. The request must be addressed to the President
of the Company at its then principal place of business.
b. Claim Decision. Upon receipt of a claim, the Company
shall advise the Claimant that a reply will be forthcoming within
ninety (90) days and shall, in fact, deliver such reply within
such period. The Company may, however, extend the reply period
for an additional ninety (90) days for reasonable cause.
If the claim is denied in whole or in part, the Company
shall adopt a written opinion, using language calculated to
be understood by the Claimant, setting forth:
(f) The specific reason or reasons for such denial;
(g) The specific reference to pertinent provisions of this
Agreement on which such denial is based;
(h) A description of any additional material or information
necessary for the Claimant to perfect his claim and an
explanation why such material or such information is necessary;
(i) Appropriate information as to the steps to be taken if
the Claimant wishes to submit the claim for review; and
(j) The time limits for requesting a review under
subsection c. and for review under subsection d. hereof.
b. Request for Review. Within sixty (60) days after the
receipt by the Claimant of the written opinion described above,
the Claimant must request in writing that the Secretary of the
Company review the determination of the Company. Such request
must be addressed to the Secretary of the Company, at its then
principal place of business. The Claimant or his duly authorized
representative may, but need not, review the pertinent documents
and submit issues and comments in writing for consideration by
the Company. If the Claimant does not request a review of the
Company's determination by the Secretary of the Company within
such sixty (60) day period, he shall be barred and estopped from
challenging the Company's determination.
c. Review of Decision. Within sixty (60) days after the
Secretary's receipt of a request for review, he will review the
Company's determination. After considering all materials
presented by the Claimant, the Secretary will render a written
opinion, written in a manner calculated to be understood by the
Claimant, setting forth the specific reasons for the decision and
containing specific references to the pertinent provisions of
this Agreement on which the decision is based. If special
circumstances require that the sixty (60) day time period be
extended, the Secretary will so notify the Claimant and will
render the decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the request for
review.
1. AMENDMENT. This Agreement may not be amended, altered
or modified, except by a written instrument signed by the parties
hereto, or their respective successors, and may not be otherwise
terminated except as provided herein.
2. TERMINATION. The Agreement may be terminated at any
time by either party by written notice to the other party. All
rights and obligations of the parties with regard to Accrued
Benefits shall continue in full force and effect, but the
Employer shall not be required to credit any additional Annual
Deferral Sums to Employee's Retirement Account, after
termination.
3. INUREMENT. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and
assigns, and the Employee, his successors, heirs, executors,
administrators and beneficiaries.
4. NOTICE. Any notice, consent or demand required or
permitted to be given under the provisions of this Agreement
shall be in writing, and shall be signed by the party giving or
making the same. If such notice, consent or demand is mailed to
a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as
shown on the records of the Company. The date of such mailing
shall be deemed the date of notice, consent or demand. Either
party may change the address to which notice is to be sent by
giving notice of the change of address in the manner aforesaid.
5. GOVERNING LAW. This Agreement, and the rights of the
parties hereunder, shall be governed by and construed in
accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have executed this
Agreement, in duplicate, effective as of the day and year first
above written.
CITIZENS SECURITY MUTUAL
INSURANCE COMPANY
By
Jerry Olson, Vice President and
Corporate Secretary
Scott Broughton
AGENCY AGREEMENT
THIS AGREEMENT made this __________________ day of
_________________ ,19___, by and between Citizens Security
Group, Red Wing, Minnesota, (hereinafter called "Company")
and
___________________________________________________________
city of _________________________________ in the county of
________________________ and the state of
_______________________ (hereinafter called "Agent") agreed
as follows:
I. AUTHORITY OF AGENT
A. The Agent is an independent contractor, not an
employee of the Company, and subject to
requirements and prohibitions imposed by law, the terms of
this Agreement, and the underwriting rules
and regulations of the Company, is authorized to:
1. Solicit, receive and transmit to the Company
proposals for insurance contracts.
2. Bind and execute insurance contracts as provided
in the then current Instructions to
Agents.
3. Provide all usual and customary services of an
insurance agent on all insurance
contracts placed by the Agent with the Company.
4. Collect and receipt for premiums and, except as to
direct bill business or premium
finance payments, as full compensation to retain commissions
out of premiums so collected. The
Agent agrees to refund return commissions on policy
cancellations or reductions at the
same rate at which commissions were originally retained.
5. Exercise his authority personally or through his
authorized employees.
6. Represent other companies.
7. Exercise exclusive and independent control of his
time and the conduct of his agency.
II. PREMIUM ACCOUNTING
The Agent and the Company shall comply with the
following accounting procedures on
insurance written in the Company and billed to the Agent:
A. Itemized statements will be prepared monthly by
the Company, or, when mutually agreed upon,
by the Agent. These statements will be mailed by the 15th
day following the account month reported.
B. Each item owed by the Agent of the Company will be
due 45 days after the end of the account
month for which the statement was prepared.
C. The omission of any items from the monthly
statement will not affect the responsibility of
either party to account for and pay all amounts due to the
other party.
D. Final additional premiums or interim premiums
developed by audit or those premiums
developed under reporting form policies may, by written
notice, be turned over to the Company
for collection provided that:
1. The Agent will have no further responsibility for
collection of the premiums;
2. The Agent notifies the Company in writing within
45 days after the month in which the
premiums first appeared on his statement;
3. No commission will be due the Agent on premiums
collected by the Company.
E. The Agent's financial and accounting records
pertaining to Company business will be subject
to inspection and audit at all reasonable times by Company
representatives.
III. DIRECT BILL POLICY PROCEDURES
The following procedures apply to direct bill business:
A. The completed application shall be submitted to
the Company in accordance with the
provisions of the Company's direct bill program.
B. The Company will be responsible for all premium
billing and collection on renewals unless
otherwise mutually agreed upon by the Agent and the Company.
C. When the Company collects the premium, commissions
will be paid to the Agent within 30 days
after the end of the month in which premiums are received
and recorded by the Company, subject to
any return commissions due from Agent.
D. A copy of all underwriting requests, audits,
engineering reports, recommendations,
cancellation or renewal notices, endorsements and
statements, except for budget or premium
finance notices, sent to the insured by the Company will be
sent to the Agent.
E. The Agent will be given an advance release of all
mailings of informational material
designed for sales promotion prior to actual mailing to the
insured.
F. The Agent's name will be clearly and prominently
displayed on renewal policies,
continuation notices or renewal certificates, and premium
statements in print no smaller than any
produced by the Company's electronic data processing on that
document.
G. Unless authorized by the Agent, the Company will
not use, or permit use of, its records of
business placed by the Agent with the Company to
individually solicit policyholders for the
sale of other lines of insurance or other products or
services. When the Agent grants this
authorization, he will be allowed the regular commission on
sales resulting from the use of these
records, and will retain ownership and control of any
expirations arising from these sales.
IV. AGENCY SALE OR TRANSFER
A. The Agent agrees to give advance notice to the
Company of any sale or transfer of his
business, or its consolidation with a successor firm, in
order that the Company may, at its
election and with the consent of the parties of interest:
(1) Consent to the assignment of this
Agreement to the successor, or (2) Enter into a new Agency
Agreement with the successor. If neither
(1) or (2) fo the foregoing are agreed upon, then the
Company will place in effect a Limited
Agency Agreement with the successor.
B. There shall not be any interruption in service to
policyholders upon the sale or transfer of the
Agent's business.
V. COMPENSATION
As full compensation for services, the Company shall
pay the Agent commissions on premiums written
and paid for, at the rates specified in current "commission
schedules". The Agent shall pay the Company
return commission at the same rates on any return premiums,
including return premium on cancellations
ordered or made by the Company. Where no commission rate
has been specified, but insurance has been submitted
and accepted by the Company, the rates shall be
determined by the Company. The schedule(s) of commissions
allowable shall be subject to change provided
the Company gives the Agency prior written notice not less
than 90 days or the minimum number of days
allowed by the applicable state statutes.
VI. CHANGES IN AGREEMENT
A. This Agreement may be revised at any time by
mutual agreement of the Agent and the
Company.
B. This Agreement may be revised by the Company only
after it gives the Agent at least 60 days
advance notice which sets forth the proposed revision and
its effective date.
C. The Agent and the Company each agree to confirm in
writing and sign any revisions of this
Agreement.
VII. AMENDMENT AND TERMINATION PROCEDURES
A. If the Agent is delinquent in payment of monies
due the Company, the Company may, by
written notice to the Agent, immediately suspend the Agent's
authority under items 1, 2, 3, and 4 of
Authority of Agent, to whatever extent the Company may
elect, during the period the Agent
remains delinquent in such payment. Routine differences in
account which are minor in amount will not
constitute delinquency in payment under this provision.
B. This Agreement shall terminate:
1. Automatically, if any public authority cancels or
declines to renew the Agent's license or
certificate of authority;
2. Upon either party giving at least 60 days written
notice in advance to the other.
C. In the event this Agreement is terminated in
accordance with Section B2 above, the
Company will:
1. At the Agent's request, provide the Agent with a
complete list of existing direct bill
policies placed by the Agent with the Company, including the
expiration date of such policies.
2. At the Agent's request, authorize the reinsurance
of all existing policies with another
company, in which event the Agent shall, at no cost to the
Company, arrange with an other
insurer acceptable to the Company for the prompt assumption
of such risks on terms acceptable to
the Company and Agent. The reinsurance will be effective as
of the termination date of this
Agreement, and the Company agrees to promptly deliver to the
assuming company a bordereau of the business reinsured.
D. In the event of termination of this Agreement, the
Agent having and continuing to promptly
account for and pay to the Company the premiums for which he
may be liable, the Agent's records, use
and control of expirations will remain the property of the
Agent and be left in his undisputed
possession; otherwise the records, use and control of all
expirations of business placed with the
Company will become vested in the Company. If, in disposing
of these records and expirations, the Company
does not realize sufficient money to discharge in
full the Agent's indebtedness to the Company, the Agent will
remain liable for the balance of the
indebtedness. Any amount realized in excess of
indebtedness, less expense of disposing
of the records and expirations, will be returned to the
Agent.
VIII. INDEMNIFICATION OF AGENT
A. The Company shall indemnify and hold the Agent
harmless from liability for damages
arising out of Company error or omission in the preparation
or handling of any insurance contract or
billing statement to which this Agreement applies, except to
the extent that the Agent has caused,
contributed to or compounded the error or omission.
B. The Agent shall promptly notify the Company of any
claim for damages as outlined above; and
the Company, at its option, will have the right to assume or
associate in the defense thereof.
C. The Agent shall not, except at his own expense,
voluntarily make any payment, assume any
liability, or incur any expense related to such claim
without the consent of the Company.
D. Providing the Agent has complied with the above
provisions the Company agrees to pay all
expenses including legal fees reasonably incurred by the
Agent in connection with the investigation
or defense of any such claim.
E. The Company shall indemnify and hold the Agent
harmless against actual pecuniary damages
which the Agent becomes obligated to pay, including costs of
defense, due solely to the failure of the
Company to comply with the requirements of Public Law 91-508
(The Fair Credit Reporting Act) in the
procurement or use of consumer reports ordered by the
Company, except to the extent that such damages are caused
or contributed to by any act or omission
of the Agent. The Agent shall immediately notify the
Company of any claim or action relating to
the Fair Credit Reporting Act, and the Company shall be
entitled to defend such action with counsel of
its choice.
IX. ARBITRATION
In the event of any dispute arising out of or under
this contract between the Agent and the
Company, both agree to submit such dispute to arbitration,
and the expenses will be borne equally.
A. There will be three arbitrators; one will be
selected by the Agent, one will be selected by the
Company, and a third will be selected by those two
arbitrators.
B. The determination of the arbitrators will be final
and binding on all parties hereto.
X. CONDITIONS
A. The provisions of this Agreement will not apply to
business subject to the administration or
control of any underwriting association, pool, plan or
syndicate.
B. This Agreement supersedes all previous agency
agreements, including any amendments,
whether written or oral, between the Company and the Agent.
C. All sums paid by policyholders to the Agent or his
representatives less any commission due
the agent, shall be held in trust for the Company by the
Agent and shall not be used to pay any
expenses or other obligations. The making of payments or
rendering of accounts pursuant to this
Agreement do not convert the relationship to debtor and
creditor as to such sums.
D. Flat cancellations must be effected not later than
forty-five (45) days after effective date of
insurance or in conformity with the rule of the Rating
Bureau having jurisdiction. The Agent
shall not be entitled to credit for flat cancellation until
proof of such cancellation satisfactory to
the Company be furnished to the Company.
E. Any policy forms, policies, manuals and other like
Company supplies furnished to the Agent by
the Company shall always remain the property of the Company
and shall be returned to the Company, or
its representative, promptly upon demand.
FOR THE COMPANY
_____________________________________
_____________________________________
*If Agent is operating under a trade or firm name, such name
should be shown followed by the name and title or position
of the individual signing such trade or firm name as Agent;
in case of a Partnership, the names of all partners should
be shown and this Agreement signed by at least one partner;
if a Corporation, or a concern doing business under a name
indicating incorporation, this Agreement should be signed in
the name of the corporation or concern by proper officials.
AGENCY AGREEMENT
THIS AGREEMENT made this __________________ day of
_________________ ,19___, by and between Citizens Security
Mutual Insurance Company, Red Wing, Minnesota, (hereinafter
called "Company") and
___________________________________________________________
city of _________________________________ in the county of
________________________ and the state of
_______________________ (hereinafter called "Agent") agreed
as follows:
I. AUTHORITY OF AGENT
A. The Agent is an independent contractor, not an
employee of the Company, and subject to
requirements and prohibitions imposed by law, the terms of
this Agreement, and the underwriting rules
and regulations of the Company, is authorized to:
1. Solicit, receive and transmit to the Company
proposals for insurance contracts.
2. Bind and execute insurance contracts as provided
in the then current Instructions to
Agents.
3. Provide all usual and customary services of an
insurance agent on all insurance
contracts placed by the Agent with the Company.
4. Collect and receipt for premiums and, except as to
direct bill business or premium
finance payments, as full compensation to retain commissions
out of premiums so collected. The
Agent agrees to refund return commissions on policy
cancellations or reductions at the same
rate at which commissions were originally retained.
5. Exercise his authority personally or through his
authorized employees.
6. Represent other companies.
7. Exercise exclusive and independent control of his
time and the conduct of his agency.
II. PREMIUM ACCOUNTING
The Agent and the Company shall comply with the
following accounting procedures on insurance
written in the Company and billed to the Agent:
A. Itemized statements will be prepared monthly by
the Company, or, when mutually agreed
upon, by the Agent. These statements will be mailed by the
15th day following the account month reported.
B. Each item owed by the Agent of the Company will be
due 45 days after the end of the account
month for which the statement was prepared.
C. The omission of any items from the monthly
statement will not affect the responsibility
of either party to account for and pay all amounts due to
the other party.
D. Final additional premiums or interim premiums
developed by audit or those premiums
developed under reporting form policies may, by written
notice, be turned over to the Company
for collection provided that:
1. The Agent will have no further responsibility for
collection of the premiums;
2. The Agent notifies the Company in writing within
45 days after the month in which the
premiums first appeared on his statement;
3. No commission will be due the Agent on premiums
collected by the Company.
E. The Agent's financial and accounting records
pertaining to Company business will be
subject to inspection and audit at all reasonable times by
Company representatives.
III. DIRECT BILL POLICY PROCEDURES
The following procedures apply to direct bill business:
A. The completed application shall be submitted to
the Company in accordance with the
provisions of the Company's direct bill program.
B. The Company will be responsible for all premium
billing and collection on renewals
unless otherwise mutually agreed upon by the Agent and the
Company.
C. When the Company collects the premium, commissions
will be paid to the Agent within 30 days
after the end of the month in which premiums are received
and recorded by the Company, subject to any
return commissions due from Agent.
D. A copy of all underwriting requests, audits,
engineering reports, recommendations,
cancellation or renewal notices, endorsements and
statements, except for budget or premium
finance notices, sent to the insured by the Company will be
sent to the Agent.
E. The Agent will be given an advance release of all
mailings of informational material
designed for sales promotion prior to actual mailing to the
insured.
F. The Agent's name will be clearly and prominently
displayed on renewal policies,
continuation notices or renewal certificates, and premium
statements in print no smaller than any
produced by the Company's electronic data processing on that
document.
G. Unless authorized by the Agent, the Company will
not use, or permit use of, its records of
business placed by the Agent with the Company to
individually solicit policyholders for
the sale of other lines of insurance or other products or
services. When the Agent grants this
authorization, he will be allowed the regular commission
on sales resulting from the use of these records, and will
retain ownership and control of any
expirations arising from these sales.
IV. AGENCY SALE OR TRANSFER
A. The Agent agrees to give advance notice to the
Company of any sale or transfer of his
business, or its consolidation with a successor firm, in
order that the Company may, at its election
and with the consent of the parties of interest: (1)
Consent to the assignment of this
Agreement to the successor, or (2) Enter into a new Agency
Agreement with the successor. If neither (1) or (2) fo
the foregoing are agreed upon, then the
Company will place in effect a Limited Agency Agreement with
the successor.
B. There shall not be any interruption in service to
policyholders upon the sale or transfer of
the Agent's business.
V. COMPENSATION
As full compensation for services, the Company shall
pay the Agent commissions on premiums written and
paid for, at the rates specified in current "commission
schedules". The Agent shall pay the Company
return commission at the same rates on any return
premiums, including return premium on cancellations ordered
or made by the Company. Where no commission
rate has been specified, but insurance has been submitted
and accepted by the Company, the rates shall be
determined by the Company. The schedule(s) of
commissions allowable shall be subject to change provided
the Company gives the Agency prior written
notice not less than 90 days or the minimum number of days
allowed by the applicable state statutes.
VI. CHANGES IN AGREEMENT
A. This Agreement may be revised at any time by
mutual agreement of the Agent and the
Company.
B. This Agreement may be revised by the Company only
after it gives the Agent at least 60 days
advance notice which sets forth the proposed revision and
its effective date.
C. The Agent and the Company each agree to confirm in
writing and sign any revisions of this Agreement.
VII. AMENDMENT AND TERMINATION PROCEDURES
A. If the Agent is delinquent in payment of monies
due the Company, the Company may, by written
notice to the Agent, immediately suspend the Agent's
authority under items 1, 2, 3, and 4 of
Authority of Agent, to whatever extent the Company may
elect, during the period the Agent remains
delinquent in such payment. Routine differences
in account which are minor in amount will not constitute
delinquency in payment under this provision.
B. This Agreement shall terminate:
1. Automatically, if any public authority cancels or
declines to renew the Agent's
license or certificate of authority;
2. Upon either party giving at least 60 days written
notice in advance to the other.
C. In the event this Agreement is terminated in
accordance with Section B2 above, the
Company will:
1. At the Agent's request, provide the Agent with a
complete list of existing direct bill
policies placed by the Agent with the Company, including the
expiration date of such policies.
2. At the Agent's request, authorize the reinsurance
of all existing policies with
another company, in which event the Agent shall, at no cost
to the Company, arrange with an
other insurer acceptable to the Company for the prompt
assumption of such risks on terms acceptable to the Company
and Agent. The reinsurance will be
effective as of the termination date of this Agreement, and
the Company agrees to promptly deliver to
the assuming company a bordereau of the
business reinsured.
D. In the event of termination of this Agreement, the
Agent having and continuing to promptly
account for and pay to the Company the premiums for which he
may be liable, the Agent's records, use
and control of expirations will remain the property of
the Agent and be left in his undisputed possession;
otherwise the records, use and control of
all expirations of business placed with the Company will
become vested in the Company. If, in
disposing of these records and expirations, the Company does
not realize sufficient money to discharge in full the
Agent's indebtedness to the Company, the
Agent will remain liable for the balance of the
indebtedness. Any amount realized in
excess of indebtedness, less expense of disposing of the
records and expirations, will be
returned to the Agent.
VIII. INDEMNIFICATION OF AGENT
A. The Company shall indemnify and hold the Agent
harmless from liability for damages
arising out of Company error or omission in the preparation
or handling of any insurance contract or
billing statement to which this Agreement applies, except to
the extent that the Agent has caused, contributed
to or compounded the error or omission.
B. The Agent shall promptly notify the Company of any
claim for damages as outlined above; and
the Company, at its option, will have the right to assume or
associate in the defense thereof.
C. The Agent shall not, except at his own expense,
voluntarily make any payment, assume any
liability, or incur any expense related to such claim
without the consent of the Company.
D. Providing the Agent has complied with the above
provisions the Company agrees to pay all
expenses including legal fees reasonably incurred by the
Agent in connection with the
investigation or defense of any such claim.
E. The Company shall indemnify and hold the Agent
harmless against actual pecuniary damages
which the Agent becomes obligated to pay, including costs of
defense, due solely to the failure of the
Company to comply with the requirements of Public Law
91-508 (The Fair Credit Reporting Act) in the procurement or
use of consumer reports ordered by the Company,
except to the extent that such damages are caused or
contributed to by any act or omission of the Agent. The
Agent shall immediately notify the Company
of any claim or action relating to the Fair Credit Reporting
Act, and the Company shall be entitled to
defend such action with counsel of its choice.
IX. ARBITRATION
In the event of any dispute arising out of or under
this contract between the Agent and the
Company, both agree to submit such dispute to arbitration,
and the expenses will be borne equally.
A. There will be three arbitrators; one will be
selected by the Agent, one will be selected
by the Company, and a third will be selected by those two
arbitrators.
B. The determination of the arbitrators will be final
and binding on all parties hereto.
X. CONDITIONS
A. The provisions of this Agreement will not apply to
business subject to the administration
or control of any underwriting association, pool, plan or
syndicate.
B. This Agreement supersedes all previous agency
agreements, including any
amendments, whether written or oral, between the Company and
the Agent.
C. All sums paid by policyholders to the Agent or his
representatives less any commission due the
agent, shall be held in trust for the Company by the Agent
and shall not be used to pay any expenses
or other obligations. The making of payments or rendering
of accounts pursuant to this Agreement do not convert the
relationship to debtor and creditor as to such sums.
D. Flat cancellations must be effected not later than
forty-five (45) days after effective date
of insurance or in conformity with the rule of the Rating
Bureau having jurisdiction. The Agent
shall not be entitled to credit for flat cancellation until
proof of such cancellation satisfactory to the
Company be furnished to the Company.
E. Any policy forms, policies, manuals and other like
Company supplies furnished to the Agent by
the Company shall always remain the property of the Company
and shall be returned to the Company, or
its representative, promptly upon demand.
FOR THE COMPANY
_____________________________________
_____________________________________
*If Agent is operating under a trade or firm name, such name
should be shown followed by the name and title or position
of the individual signing such trade or firm name as Agent;
in case of a Partnership, the names of all partners should
be shown and this Agreement signed by at least one partner;
if a Corporation, or a concern doing business under a name
indicating incorporation, this Agreement should be signed in
the name of the corporation or concern by proper officials.
AGENCY AGREEMENT
THIS AGREEMENT made this __________________ day of
_________________ ,19___, by and between Insurance Company
of Ohio, Red Wing, MN, (hereinafter called "Company") and
____________________________________________________________
___________ city of _____________________________________in
the county of _________________________ and the state of
_______________________ (hereinafter called "Agent") agreed
as follows:
I. AUTHORITY OF AGENT
A. The Agent is an independent contractor, not an
employee of the Company, and subject to
requirements and prohibitions imposed by law, the terms of
this Agreement, and the underwriting rules
and regulations of the Company, is authorized to:
1. Solicit, receive and transmit to the Company
proposals for insurance contracts.
2. Bind and execute insurance contracts as provided
in the then current Instructions to Agents.
3. Provide all usual and customary services of an
insurance agent on all insurance
contracts placed by the Agent with the Company.
4. Collect and receipt for premiums and, except as to
direct bill business or premium
finance payments, as full compensation to retain commissions
out of premiums so collected. The
Agent agrees to refund return commissions on policy
cancellations or reductions at the
same rate at which commissions were originally retained.
5. Exercise his authority personally or through his
authorized employees.
6. Represent other companies.
7. Exercise exclusive and independent control of his
time and the conduct of his agency.
II. PREMIUM ACCOUNTING
The Agent and the Company shall comply with the
following accounting procedures on
insurance written in the Company and billed to the Agent:
A. Itemized statements will be prepared monthly by
the Company, or, when mutually agreed upon,
by the Agent. These statements will be mailed by the 15th
day following the account month reported.
B. Each item owed by the Agent of the Company will be
due 45 days after the end of the account
month for which the statement was prepared.
C. The omission of any items from the monthly
statement will not affect the responsibility of
either party to account for and pay all amounts due to the
other party.
D. Final additional premiums or interim premiums
developed by audit or those premiums
developed under reporting form policies may, by written
notice, be turned over to the Company
for collection provided that:
1. The Agent will have no further responsibility for
collection of the premiums;
2. The Agent notifies the Company in writing within
45 days after the month in which the
premiums first appeared on his statement;
3. No commission will be due the Agent on premiums
collected by the Company.
4. Commercial Audit Premiums are direct billed
through CAP account when the audited
policy term was direct billed on CAP.
E. The Agent's financial and accounting records
pertaining to Company business will be subject
to inspection and audit at all reasonable times by Company
representatives.
III. DIRECT BILL POLICY PROCEDURES
The following procedures apply to direct bill business:
A. The completed application shall be submitted to
the Company in accordance with the
provisions of the Company's direct bill program.
B. The Company will be responsible for all premium
billing and collection on renewals unless
otherwise mutually agreed upon by the Agent and the Company.
C. When the Company collects the premium, commissions
will be paid to the Agent within 30 days
after the end of the month in which premiums are received
and recorded by the Company, subject to
any return commissions due from Agent.
D. A copy of all underwriting requests, audits,
engineering reports, recommendations,
cancellation or renewal notices, endorsements and
statements, except for budget or premium
finance notices, sent to the insured by the Company will be
sent to the Agent.
E. The Agent's name will be clearly and prominently
displayed on renewal policies,
continuation notices or renewal certificates, and premium
statements in print no smaller than any
produced by the Company's electronic data processing on that
document.
F. Unless authorized by the Agent, the Company will
not use, or permit use of, its records of
business placed by the Agent with the Company to
individually solicit policyholders for the
sale of other lines of insurance or other products or
services. When the Agent grants this
authorization, he will be allowed the regular commission on
sales resulting from the use of these
records, and will retain ownership and control of any
expirations arising from these sales.
IV. AGENCY SALE OR TRANSFER
A. The Agent agrees to give advance notice to the
Company of any sale or transfer of his
business, or its consolidation with a successor firm, in
order that the Company may, at its
election and with the consent of the parties of interest:
(1) Consent to the assignment of this
Agreement to the successor, or (2) Enter into a new Agency
Agreement with the successor. If neither
(1) or (2) fo the foregoing are agreed upon, then the
Company will place in effect a Limited
Agency Agreement with the successor.
B. There shall not be any interruption in service to
policyholders upon the sale or transfer of the
Agent's business.
V. COMPENSATION
As full compensation for services, the Company shall
pay the Agent commissions on premiums written
and paid for, at the rates specified in current "commission
schedules". The Agent shall pay the Company
return commission at the same rates on any return premiums,
including return premium on cancellations
ordered or made by the Company. Where no commission rate
has been specified, but insurance has been submitted
and accepted by the Company, the rates shall be
determined by the Company. The schedule(s) of commissions
allowable shall be subject to change provided
that the Company gives the Agency prior written notice not
less than 90 days or the minimum number of days
allowed by the applicable state statutes.
VI. CHANGES IN AGREEMENT
A. This Agreement may be revised at any time by
mutual agreement of the Agent and the Company.
B. This Agreement may be revised by the Company only
after it gives the Agent at least 60 days
advance notice which sets forth the proposed revision and
its effective date.
C. The Agent and the Company each agree to confirm in
writing and sign any revisions of this Agreement.
VII. AMENDMENT AND TERMINATION PROCEDURES
A. If the Agent is delinquent in payment of monies
due the Company, the Company may, by
written notice to the Agent, immediately suspend the Agent's
authority under items 1, 2, 3, and 4 of
Authority of Agent, to whatever extent the Company may
elect, during the period the Agent
remains delinquent in such payment. Routine differences in
account which are minor in amount will not
constitute delinquency in payment under this provision.
B. If the Agent's license is suspended by the State
Insurance Department, the Agent's authority
under items 1 & 2 of Authority of Agent are suspended for
duration of State Insurance Department suspension.
C. This Agreement shall terminate:
1. Automatically, if any public authority cancels or
declines to renew the Agent's license or
certificate of authority;
2. Upon the Company giving at least 180 days written
notice in advance to the Agent
unless a shorter time period is mutually agreed upon.
D. In the event this Agreement is terminated in
accordance with Section C2 above, the
Company will:
1. At the Agent's request, provide the Agent with a
complete list of existing direct bill
policies placed by the Agent with the Company, including the
expiration date of such policies.
2. At the Agent's request, authorize the reinsurance
of all existing policies with another
company, in which event the Agent shall, at no cost to the
Company, arrange with an other
insurer acceptable to the Company for the prompt assumption
of such risks on terms acceptable to
the Company and Agent. The reinsurance will be effective as
of the termination date of this
Agreement, and the Company agrees to promptly deliver to the
assuming company a bordereau of the business reinsured.
E. In the event of termination of this Agreement, the
Agent having and continuing to promptly
account for and pay to the Company the premiums for which he
may be liable, the Agent's records, use
and control of expirations will remain the property of the
Agent and be left in his undisputed
possession; otherwise the records, use and control of all
expirations of business placed with the
Company will become vested in the Company. If, in disposing
of these records and expirations, the Company
does not realize sufficient money to discharge in
full the Agent's indebtedness to the Company, the Agent will
remain liable for the balance of the
indebtedness. Any amount realized in excess of
indebtedness, less expense of disposing
of the records and expirations, will be returned to the
Agent.
VIII. INDEMNIFICATION OF AGENT
A. The Company shall indemnify and hold the Agent
harmless from liability for damages
arising out of Company error or omission in the preparation
or handling of any insurance contract or
billing statement to which this Agreement applies, except to
the extent that the Agent has caused,
contributed to or compounded the error or omission.
B. The Agent shall promptly notify the Company of any
claim for damages as outlined above; and
the Company, at its option, will have the right to assume or
associate in the defense thereof.
C. The Agent shall not, except at his own expense,
voluntarily make any payment, assume any
liability, or incur any expense related to such claim
without the consent of the Company.
D. Providing the Agent has complied with the above
provisions the Company agrees to pay all
expenses including legal fees reasonably incurred by the
Agent in connection with the investigation
or defense of any such claim.
E. The Company shall indemnify and hold the Agent
harmless against actual pecuniary damages
which the Agent becomes obligated to pay, including costs of
defense, due solely to the failure of the
Company to comply with the requirements of Public Law 91-508
(The Fair Credit Reporting Act) in the
procurement or use of consumer reports ordered by the
Company, except to the extent that such damages are caused
or contributed to by any act or omission
of the Agent. The Agent shall immediately notify the
Company of any claim or action relating to
the Fair Credit Reporting Act, and the Company shall be
entitled to defend such action with counsel of
its choice.
IX. ARBITRATION
In the event of any dispute arising out of or under
this contract between the Agent and the
Company, both agree to submit such dispute to arbitration,
and the expenses will be borne equally.
A. There will be three arbitrators; one will be
selected by the Agent, one will be selected by the
Company, and a third will be selected by those two
arbitrators.
B. The determination of the arbitrators will be final
and binding on all parties hereto.
X. CONDITIONS
A. The provisions of this Agreement will not apply to
business subject to the administration or
control of any underwriting association, pool, plan or
syndicate.
B. This Agreement supersedes all previous agency
agreements, including any amendments,
whether written or oral, between the Company and the Agent.
C. All sums paid by policyholders to the Agent or his
representatives less any commission due
the agent, shall be held in trust for the Company by the
Agent and shall not be used to pay any
expenses or other obligations. The making of payments or
rendering of accounts pursuant to this
Agreement do not convert the relationship to debtor and
creditor as to such sums.
D. Flat cancellations must be effected not later than
forty-five (45) days after effective date of
insurance or in conformity with the rule of the Rating
Bureau having jurisdiction. The Agent
shall not be entitled to credit for flat cancellation until
proof of such cancellation satisfactory to
the Company be furnished to the Company.
E. Any policy forms, policies, manuals and other like
Company supplies furnished to the Agent by
the Company shall always remain the property of the Company
and shall be returned to the Company, or
its representative, promptly upon demand.
FOR THE COMPANY
_____________________________________
_____________________________________
*If Agent is operating under a trade or firm name, such name
should be shown followed by the name and title or position
of the individual signing such trade or firm name as Agent;
in case of a Partnership, the names of all partners should
be shown and this Agreement signed by at least one partner;
if a Corporation, or a concern doing business under a name
indicating incorporation, this Agreement should be signed in
the name of the corporation or concern by proper officials.
LIMITED AGENCY AGREEMENT
THIS AGREEMENT made this __________________ day of
_________________ ,19___, by
and between Citizens Security Mutual Insurance Company, Red
Wing, Minnesota, (hereinafter called "Company") and
____________________________________________________________
___________
city of _________________________________ in the county of
________________________
and the state of _______________________ (hereinafter called
"Agent") agreed as follows:
I. AUTHORITY OF AGENT
A. The Agent is an independent contractor, not an employee
of the Company, and subject to requirements
imposed by law, the terms of this Agreement, and the
underwriting rules and regulations of the
Company, is authorized to:
1. Represent the Company for the sole purpose of
servicing and renewing members of the following
Association(s):_____________________________________________
____________________________________________________________
_____insurance contracts placed by the
Agent and with the Company. (Hereinafter called the
"Association".)
2. Issue and countersign appropriate endorsements on
contracts for members of the
Association, provided that without prior approval of the
Company, the endorsement will not increase
the Company's liability or extend the term of any insurance
contract.
3. Collect and receipt for premiums: All members of
the Association will be billed through
Citizens Account Plan (CAP). Agencies shall receive the
Company's standard commission rates.
Policies submitted require (2) months premium included with
the application. Business shall be submitted
using the Company's applications. Commissions shall be paid
on an annual or semi-annual basis. The Agent
agrees to refund commissions on policy
cancellations or reductions at the same rate at which
commissions were originally retained.
4. Exercise his authority personally or through his
authorized employees.
5. Represent other companies.
6. Exercise exclusive and independent control of his
time and the conduct of his agency.
II. PREMIUM ACCOUNTING
The following procedures apply to all Association members'
policies:
A. The Company will be responsible for all premium billing
and collection, unless otherwise mutually agreed
upon by the Agent and the Company.
B. Commissions will be paid to the Agent within 30 days
after the end of the month in which premiums
are received and recorded by the Company, subject to any
return commissions due from the Agent.
C. A copy of all underwriting requests, audits,
engineering reports, recommendations, cancellation
or renewal notices, endorsements and statements, except for
budget or premium finance notices, sent to
the insured by the Company will be sent to the Agent.
III. AGENCY SALE OR TRANSFER
A. The Agent agrees to give advance notice to the Company
of any sale or transfer of business, or its
consolidation with a successor firm, in order that the
Company may, at its election and with the
consent of the parties of interest: (1) Consent to the
assignment of this Agreement to the successor,
or (2) Enter into a new agency agreement with the successor.
B. There shall not be any interruption in service to
policyholders upon the sale or transfer of the
Agent's business.
IV. CHANGES IN AGREEMENT
A. This Agreement may be revised at any time by mutual
agreement of the Agent and the Company.
B. This Agreement may be revised by the Company only after
it gives the Agent at least 60 days advance
notice which sets forth the proposed revision and its
effective date.
C. The Agent and the Company each agree to confirm in
writing and sign any revisions of this Agreement.
V. AMENDMENT AND TERMINATION PROCEDURES
A. If the Agent is delinquent in payment of monies due the
Company, the Company may, by written notice to
the Agent, immediately suspend the Agent's authority to
whatever extent the Company may elect, during
the period the Agent remains delinquent in such payment.
Routine differences in account which are
minor in amount will not constitute delinquency in payment
under this provision.
B. This Agreement shall terminate:
1. Automatically, if any public authority cancels or
declines to renew the Agent's license
or certificate of authority;
2. One year after the Termination Date.
C. In the event this Agreement is terminated in accordance
with Section B2 above, the Company will:
1. At the Agent's request, provide the Agent with a
complete list of existing direct bill policies
placed by the Agent with the Company, including the
expiration date of such policies.
D. In the event of termination of the Agreement, the Agent
having promptly accounted for and paid to the
Company the premiums for which he may be liable, the Agent's
records, use and control of expirations will remain
the property of the Agent and be left in his undisputed
possession; otherwise the records, use and
control of all expirations of business placed with the
company will become vested in the company. If, in
disposing of these records and expirations, the company
does not realize sufficient money to discharge in full the
Agent's indebtedness to the Company, the Agent
will remain liable for the balance of the indebtedness. Any
amount realized in excess of indebtedness,
less expense of disposing of the records and expirations,
will be returned to the Agent.
VI. INDEMNIFICATION OF AGENT
A. The Company shall indemnify and hold the Agent harmless
from liability for damages arising out of
Company error or omission in the preparation or handling of
any insurance contract or billing statement to
which the Agreement applies, except to the extent that the
Agent has caused, contributed to or compounded the
error or omission.
B. The Agent shall promptly notify the Company of any
claim for damages as outlined above; and the
Company, at its option, will have the right to assume or
associate in the defense thereof.
C. The Agent shall not, except at his own expense,
voluntarily make any payment, assume any
liability, or incur any expense related to such claim
without the consent of the Company.
D. Providing the Agent has complied with the above
provisions, the Company agrees to pay all
expenses including legal fees reasonably incurred by the
Agent in connection with the investigation
or defense of any such claim.
E. The Company shall indemnify and hold the Agent harmless
against actual pecuniary damages which the Agent
becomes obligated to pay, including costs of defense, due
solely to the failure of the Company to
comply with the requirements of Public Law 91-508 (The Fair
Credit Reporting Act) in the procurement or use
of consumer reports ordered by the Company, except to the
extent that such damages are caused or contributed
to by any act or omission of the Agent. The Agent
shall immediately notify the Company of any claim or action
relating to the Fair Credit Reporting Act, and the
Company shall be entitled to defend such action with counsel
of its choice.
VII. ARBITRATION
In the event of any dispute arising out of or under the
contract between the Agent and the Company, both agree to
submit such dispute or arbitration and the expenses will be
borne equally.
A. There will be three arbitrators; one will be selected
by the Agent, one will be selected by the
Company, and a third will be selected by those two
arbitrators.
B. The determination of the arbitrators will be final and
binding on all parties thereto.
VIII. CONDITIONS
A. The provisions of this Agreement will only apply to
business subject to members of the
Association. This Agreement will not apply to the
administration or control of any other.
B. This Agreement supercedes all previous agency
agreements, including any amendments, whether
written or oral, between the Company and the Agent.
C. All sums paid by policyholders to the Agent or his
representative less any commission due the
Agent, shall be held in trust for the Company by the Agent
and shall not be used to pay any expense or
other obligations. The making of payments or rendering of
accounts pursuant to this Agreement do not
convert the relationship to debtor and creditor as to such
sums.
FOR THE COMPANY: FOR THE AGENT:
________________________ ________________________________
________________________
________________________ _______________________________
PERSONAL PARTNER AGENCY AGREEMENT
THIS AGREEMENT is made this __________________ day of
___________________ ,19___, by and between Citizens Security
Mutual Insurance Company and Citizens Fund Insurance
Company, Red Wing, Minnesota, (hereinafter called "Company")
and
____________________________________________________________
__________, city of _________________________________ in the
county of _________________________ and the state of
_______________________ (hereinafter called "Agent"). The
Company and
Agent agree as follows:
I. AUTHORITY OF AGENT
A. The Agent is an independent contractor, not an
employee of the Company, and subject to
requirements and prohibitions imposed by law, the terms of
this Agreement, and the underwriting rules
and regulations of the Company, and is authorized to:
1. solicit, receive and transmit to the Company
proposals for insurance contracts;
2. bind and execute insurance contracts in accordance
with the Company's underwriting guidelines;
3. provide all usual and customary services of an
insurance agent on all insurance contracts
placed by the Agent with the Company;
4. exercise authority personally or through
authorized employees;
5. represent other companies; and
6. exercise exclusive and independent control of time
and conduct of agency.
II. DIRECT BILL POLICY PROCEDURES
A. All premiums will be billed through the direct
bill plan.
B. The Company will be responsible for all premium
billing and collection on renewals unless
otherwise mutually agreed upon by the Agent and the Company.
C. Commissions will be paid to the Agent within 30
days after the end of the month in which
the premium appears on the Agent's statement, subject to any
return commissions due from Agent.
D. A copy of all underwriting requests, audits,
engineering reports, recommendations,
cancellation or renewal notices, endorsements and
statements, except for budget or premium
finance notices, sent to the insured by the Company will be
sent to the Agent. Additionally, all
underwriting requests, applications, inspections, audits,
engineering reports, cancellations or renewal
notices generated by the Agent will be kept in the Agent's
file and will be subject to audit by the
company.
E. The Agent's name will be clearly and prominently
displayed on renewal policies,
continuation notices or renewal certificates, and premium
statements in print no smaller than any
produced by the Company's electronic data processing on that
document.
F. The Agent's financial and accounting records
pertaining to Company business will be subject
to inspection and audit at all reasonable times by Company
representatives.
G. No commission will be due the Agent on premiums
turned over to a collection agency by the
Company.
III. AGENCY SALE OR TRANSFER
The Agent agrees to give advance notice to the Company
of any sale or transfer of business, or
Agency consolidation with a successor firm. This provides
the Company the opportunity to: (1) consent to
the assignment of this agreement to the successor, (2) enter
into a new agreement with the successor, or (3)
offer, in good faith, to purchase the book of business at a
fair market price.
IV. COMPENSATION
As full compensation for services, the Company shall
pay the Agent commissions on premiums written,
at the rates specified in current "commission schedules".
The Agent shall pay the Company return commission
at the same rates on any return premiums, including return
premium on cancellations ordered or made by the Company.
Where no commission rate has been specified, but
insurance has been submitted and accepted by the Company,
the rates shall be determined by the Company. The
schedule(s) of commissions allowable shall be subject to
change provided the Company gives the Agency prior written
notice not less than six months or the
minimum number of days allowed by the applicable state
statutes.
V. CHANGES IN AGREEMENT
A. This Agreement may be revised at any time by
mutual agreement of the Agent and the
Company.
B. This Agreement may be revised by the Company only
after it gives the Agent at least 90 days
advance notice which sets forth the proposed revision and
its effective date.
C. The Agent and the Company must confirm in writing
revisions to this Agreement.
VI. TERMINATION PROCEDURES
A. This Agreement shall terminate:
1. automatically, if any public authority cancels or
declines to renew the Agent's license or
certificate of authority;
2. if the Agency does not inform the Company in
advance of using any Agency file
information (including MVRs, CBRs, CLUE Reports, and
Inspection Reports) for which the Agency
was reimbursed, to transfer or solicit such accounts to
another carrier;
3. upon either party giving at least 90 days written
notice in advance to the other; or
4. automatically, if any portion of the Personal
Partner Software is given or demonstrated,
in whole or in part, to any third party without the written
consent of the Company.
VII. INDEMNIFICATION OF AGENT
A. The Company shall indemnify and hold the Agent
harmless from liability for damages
arising out of Company error or omission in the preparation
or handling of any insurance contract or
billing statement to which this Agreement applies, except to
the extent that the Agent has caused,
contributed to or compounded the error or omission.
B. The Agent shall promptly notify the Company of any
claim for damages as outlined above, and
the Company, at its option, will have the right to assume or
associate in the defense thereof.
C. The Agent shall not, except at the Agent's own
expense, voluntarily make any payment,
assume any liability, or incur any expense related to such
claim outside of the authority granted
through the Company's E-Z Claim Draft Authority Program.
D. Providing the Agent has complied with the above
provisions, the Company agrees to pay all
expenses including legal fees reasonably incurred by the
Agent in connection with the investigation
or defense of any such claim.
E. The Company shall indemnify and hold the Agent
harmless against actual pecuniary damages
which the Agent becomes obligated to pay, including costs of
defense, due solely to the failure of the
Company to comply with the requirements of Public Law 91-508
(The Fair Credit Reporting Act) in the
procurement or use of consumer reports ordered by the
Company or Agency, except to the extent that such damages
are caused or contributed to by any act or
omission of the Agent. The Agent shall immediately notify
the Company of any claim or action relating
to the Fair Credit Reporting Act, and the Company shall be
entitled to defend such action with counsel
of its choice.
VIII. ARBITRATION
In the event of any dispute arising out of or under
this contract between the Agent and the
Company, both agree to submit such dispute to arbitration,
and the expenses will be borne equally.
A. There will be three arbitrators: one selected by
the Agent, one selected by the Company, and
a third selected by those two arbitrators.
B. The determination of the arbitrators will be final
and binding on all parties hereto.
IX. CONDITIONS
A. The provisions of this Agreement will not apply to
business subject to the administration or
control of any underwriting association, pool, plan or
syndicate.
B. This Agreement supersedes all previous agency
agreements, including any amendments,
whether written or oral, between the Company and the Agent
as they apply to new personal lines
business processed through or in conjunction with the
Partners System.
C. All sums paid by policyholders to the Agent or the
Agent's representatives less any
commission due the agent, shall be held in trust for the
Company by the Agent and shall not be
used to pay any expenses or other obligations. The making
of payments or rendering of accounts
pursuant to this Agreement do not convert the relationship
to debtor and creditor as to such sums.
D. Flat cancellations must be effected not later than
forty-five (45) days after effective date of
insurance or in conformity with the rule of the rating
bureau having jurisdiction. The Agent shall
not be entitled to credit for flat cancellation until proof
of such cancellation, satisfactory to the
Company, be furnished to the Company.
E. Policy forms, individual account information,
policies, manuals, computer hardware and
software, and other like Company supplies furnished to the
Agent by the Company shall always remain
the property of the Company and shall be returned to the
Company, or its representative, promptly
upon demand. In addition, within fourteen (14) days
following termination of this Agreement,
the Agent will notify the Company, in writing, that all
Company software has been removed from the Agent's hardware.
F. The Agency will have a policy in force of no less
than $500,000 Errors and Omissions
insurance coverage.
G. The Agency will file an annual business plan with
the Company covering marketing area,
growth, goals, balance of business, etc.
H. The Agent will solicit business within a defined
marketing area. The marketing area will be
defined annually by the Agent and Company to accommodate the
exclusivity of the program to all
participants and the potential expansion of the Agent's
operation.
I. The Personal Partner System, excluding the Boeckh
Cost Estimator, is a proprietary system
and may not be used to solicit or process business other
than the Company's personal lines related
business.
FOR THE COMPANY
_____________________________________
_____________________________________
*If Agent is operating under a trade or firm name, such name
should be shown followed by the name and title or position
of the individual signing such trade or firm name as Agent.
In case of a partnership, the names of all partners should
be shown and this Agreement signed by at least one partner.
If a corporation, or a concern doing business under a name
indicating incorporation, this Agreement should be signed in
the name of the corporation or concern by proper officials.
Personal Partner Contingency Plan
Citizens provides this Partner Contingency Plan on the net
profits of business written and produced through the Partner
as shown by the home office records of Citizens for each
period and during the time this plan is in force. This
agreement applies only to personal lines policies processed
through the Partner system.
For the purpose of this agreement, the profit on business
produced by the Partner during the year under
consideration will be determined by the following formula:
I. PHASE I
Each December 31, the agency will be paid a flat 5%
growth commission on premiums processed
through the Partners program for the most recent prior
calendar year, beginning each January 1,
subject to a minimum of $100,000 per calendar year as
reported on Citizens' AG01 reports.
Phase I applies for the first three years of the
Partner Agreement or until the agency reaches
$350,000 in annual written premium (whichever is
first). Phase II will apply for the following year
if the agency reaches $350,000 during the current year.
II. PHASE II
At the end of each profit sharing year, the Net Profit
or Loss shall be calculated as follows:
A. Earned Premiums $_________________
Subtract
1. Incurred Losses $_________________
2. Company Home Office Expense at 32.5%
of Written Premium $_________________
3. IBNR Factor at 2.5% of Written Premium $_________________
4. Actual Allocated Loss Adjusting
Expense Incurred $_________________
5. Previous Year's Deficit (if applicable) $_________________
B. Total $_________________
C. Profit (deficit) $_________________
D. Profit Share Earned (50% of C; not to exceed 10%
of WP) $_________________
III. FORMULA DEFINITIONS
A. Earned Premiums are defined as the Written Premiums
on business produced during the Profit Sharing Year minus the
Unearned Premiums as of the end of the same year plus the
Unearned Premiums as of the end of the prior year.
B. Incurred Losses are defined as net losses paid
during the Profit Sharing Year plus reserve
for unpaid losses as of the end of the same year
and minus reserve for unpaid losses as of
the end of the prior year. If a negative total
results, a zero total will be used.
C. Annual Net Written Premiums are gross premiums less
credits for premiums on
cancellations and returns written by and recorded
by Citizens during the Profit Sharing Year.
D. Partners' Home Office Expense shall be 32.5% of
Written Premiums as defined above.
E. Net Paid Losses shall mean the amount of money
paid by Citizens on behalf of the insured
for insured events less deduction for all salvage
and subrogation recoveries from third
parties.
F. The Previous Year's Deficit is defined as II. (C)
above on the prior year's profit share
calculation and applies only when the number is
less than zero. The maximum deficit carry
forward for any single profit share year is three
years.
G. Allocated Loss Adjustment Expense shall mean the
expenses incurred in connection with the
settlement of a claim or a suit including
expenses of litigation, expenses incurred to obtain
subrogation and salvage recoveries, a pro rata
portion of the salaries and expenses of the
COMPANY'S field employees related to the
adjusting of losses chargeable hereunder and
expenses of the COMPANY'S officials incurred in
connection with the settlement of losses
chargeable hereunder. Salaries of the COMPANY'S
officials and normal overhead charges,
such as rent, heat, light, etc., shall not be
considered as part of the loss adjustment expense.
IV. OTHER PROVISIONS
A. The Partner agent will be provided with a Profit
Sharing Statement within a reasonable time
after the close of the Profit Sharing period, and
if a net profit is shown, the Company will
promptly remit the resultant Profit Sharing
payment to the Partner, if all premiums and other
current indebtedness for the period have been
paid. The Profit Sharing allowed the Partner,
if any, is not payable unless the Partner has
complied with all terms of this plan and the
Partner Agreement. (No charge or deduction for
Profit Sharing payment shall be made or
claimed by the Partner in its accounts, and is
payable only by Citizens' check.)
B. Citizens' Partner home office records shall be
considered binding and conclusive as to all
information pertaining to this statement.
C. A deficit is incurred any time the total of the
Partner's Earned Premiums are less than the
total of the following:
1. Incurred Losses;
2. Citizens' Home Office Expense factor of
32.5% of Written Premium;
3. Citizens' Allocated Loss Adjustment Expenses
Incurred;
4. IBNR Factor of 2.5%; and
5. The Previous Year's Deficit.
D. The maximum loss charged to your Partner
Contingency Plan on any one loss will be
$150,000.
E. The maximum single year profit share earned II. (D)
is capped at 10% of written premium.
F. In the event of a change in the Partner's
organizational structure during the Profit Sharing
period, any Profit Sharing earned during that
period shall be payable by Citizens to an
assigned recipient as mutually agreed on by
Citizens and the agency.
G. Neither this plan, nor any rights hereunder shall
be assignable, but the plan may be altered
or amended at any time by written instrument to
that effect.
H. This plan pertains only to the business written
through the Partners contract.
I. This Citizens' Partner Contingency Plan is
automatically canceled when the Partner's
Agreement is canceled, and the Plan does not
apply to premiums earned during a calendar
year in which the Partner Agreement is canceled.
J. The Citizens' Partner Contingency Plan is a
voluntary plan on the part of the Citizens and
is not, nor does it become, a part of any Agency
Agreement now in force or subsequently
executed between Citizens and the Partner; and
Citizens reserves the right to amend or
withdraw the Plan at any time.
NETWORK AGENCIES
PROFIT SHARING PLAN
Citizens Security Group (hereafter called "Citizens")
provides this Profit Sharing Plan on the net profits of the
business written and produced through the a Network of four
(4) or more agencies as shown by the Home Office records of
the Citizens for each period and during the time this plan
is in force; the first such period beginning January 1, and
ending on December 31, and each calendar year thereafter.
Profit Sharing payments shall not be payable to the Network
for any Profit Sharing Year unless the Network's annual
written premiums are:
$250,000 as of 12/31/96
The provisions of this plan do not pertain to premium
production of underwriting associations, pools, or
individual agency networks of three (3) or less.
For the purpose of this agreement, the profit on the
business produced by the Network during the year under
consideration will be determined by the following formula:
I. FORMULA
At the end of each Profit Sharing Year (the accounting
period beginning January 1 and ending December 31 of the
same calendar year), the Net Profit or Loss shall be
calculated as follows:
A. Earned premiums $_______________
B. Incurred Losses (not less than zero) $_______________
C. Incurred Losses Percentage (B/A x 100) $_______________%
D. Gross Profit Percentage (50% - C) $_______________%
E. Gross Profit (D x A) $_______________
F. Base Profit Share Due Network (___% x E) $_______________
G. Profit Share Due Network $_______________
II. FORMULA DEFINITIONS (Letters refer to lettered items listed under
Section I.)
A. Annual Written Premiums are defined as gross premiums
less credits for premiums on cancellations
and returns written by agent and recorded by Company during
the Profit Sharing Year.
B. Earned Premiums are defined as the Written Premiums on
business produced during the Profit Sharing
Year minus the Unearned Premiums as of the end of the same
year plus the Unearned Premium as of the end of
the prior year.
C. Incurred Losses are defined as net losses paid during
the Profit Sharing Year plus reserve for
unpaid losses as of the end of same year and minus reserve
for unpaid losses as of the beginning of the
same year. If a negative total results, a zero total will be
used. The maximum amount charged for any one
loss shall be the net amount paid or reserved, subject to
Section VI. paragraph D. Incurred Losses
Percentage is calculated by dividing the Incurred Losses by
the Earned Premiums times 100. If such Percentage is
greater than 50%, no further calculation will
be made.
D. Gross Profit Percentage is calculated by subtracting
the Incurred Loss Percentage from 50%.
E. Gross Profit is calculated by multiplying Earned
Premiums by the Gross Profit Percentage.
F. Base Profit Share Due Network shall be calculated by
multiplying the Net Profit by the applicable
Profit Share Percentage set forth in the following table:
(a) (b)
Annual Profit Share
Written Premiums Percentage
0 - 124,999 .0%
125,000 - 250,000 10.0%
250,001 - 500,000 12.5%
500,001 -1,000,000 15.0%
1,000,001 -2,000,000 20.0%
2,000,001 - over 25.0%
Determination of base Profit Share Percentage: The
percentage figure which is opposite the
written premiums for the Profit Sharing Year is the base
Profit Share Percentage (enter in Section I. F).
G. Profit Share Due Network shall be the base profit share
plus or minus any Bonus Plan percentages as
set forth in Section III., Bonus Plan.
III. BONUS PLAN
A. Growth Bonus
1. Citizens agrees to include the following Growth
Bonus percentage points to the current
year's base profit share percentage (Section II. F (b)) when
the policy count as of 12/31 to the policy
count of 1/1 of the same year as shown in Citizens agency
statement is:
% of Policy Count Growth Bonus
.949% and less -1.0%
+1.050% to +1.15% +1.0%
+1.151% and above +2.0%
B. Retention Bonus
1. Citizens agrees to include the following Retention
Bonus percentage points to the base profit
share percentage (Section II. F (b)) when policies in force
as of 12/31 divided by the same policies
in force as of 1/1 of the same year are:
Retention
In Force Retention Bonus Points
80.0% - 90.99% +2%
91.0% - 100.00% +3%
C. Loss Ratio Bonus
1. Citizens agrees to include the following Loss
Ratio Bonus percentage points to the current
year's base profit share percentage (Section II. F (b)) when
the current year plus the preceding
two years' loss ratios are:
Loss Ratio
3 Year Loss Ratios Bonus Points
0 - 25.99% +4%
26.0% - 39.99% +3%
40.0% - 49.99% +2%
50.0% - 59.99% 0%
60.0% - 69.99% -2%
70.0% - 79.99% -3%
80.0% - Over -4%
IV. DELINQUENCIES
Citizens agrees to reduce the Network's total profit
sharing percentage .5 points for each member agency of
the Network delinquent more than once in payment of their
account as provided in our Agency Agreement. Payments are
based on the twelve (12) monthly statements which make up
the Profit Sharing Period.
V. INDIVIDUAL MEMBER MINIMUM PREMIUM REQUIREMENT
A. Citizens agrees to reduce the Network's total profit
sharing percentage .5 points for each member
agency below $25,000 in volume with Citizens as of 12/31.
Network members appointed within eighteen (18)
months of 12/31 shall not be subject to this $25,000 minimum
volume requirement.
B. Citizens agrees to add .25 points to the total
Network's total profit sharing percentage for each
member agency above $100,000 in volume with Citizens as of
12/31.
C. It is agreed to increase Section V. A to $50,000 and
Section V. B to $200,000 effective 12/31/94.
VI. OTHER PROVISIONS
A. Citizens agrees to submit to the Network a Profit
Sharing Statement within a reasonable time after
the close of the Profit Sharing period, and if a net profit
is shown, the Company will promptly remit the
resultant profit sharing payment to the Network, if all
premiums and other current indebtedness for the
period have been paid. The profit sharing allowed the
Network, if any, is not payable unless the
Network has complied with all terms of this plan and our
Agency Agreement. No charge or deduction for
profit sharing payment shall be made or claimed by the
Network in its accounts and is payable only by the Citizens'
check.
B. Citizens records shall be considered binding and
conclusive as to all information pertaining to
this Agreement.
C. A deficit is incurred anytime the Network's Loss
Percentage is in excess of 50%. There is no
deficit carry-over, except as it may apply to the Loss Ratio
Bonus, Section III. C (1).
D. The maximum loss charged to Section I. B "Incurred
Losses" per Network member for a Profit
Sharing Year will be $100,000 on any one occurrence. Section
III. C (1) shall include total losses incurred for
the Bonus Period calculation.
E. In the event of a change in Network ownership during
the Profit Sharing Period, any profit sharing
earned during that period shall be payable by the Citizens
to the agency delegated by at least three (3)
current Network members to Citizens at the close of that
Profit Sharing period. It is also agreed, for
the purpose of computing Profit Sharing, that the purchaser
receive credit for all the earned premiums and is
charged with all the incurred losses of the purchased agency
subject to the terms of this agreement.
F. Neither this plan, nor any rights hereunder shall be
assignable, but the plan may be altered or
amended at any time by written instrument to that effect.
G. This plan supersedes all previous agreements, whether
written or oral.
H. This Network Profit Sharing Plan is automatically
cancelled when the Network Agency Agreement
is cancelled, and the Plan does not apply to premiums earned
during a calendar year in which the Network
Agreement is cancelled.
I. The Network's Profit Sharing Plan is a voluntary plan
on the part of the Citizens and is not, nor does
it become, a part of any individual Agency or Network
Agreement now in force or subsequently
executed between the Company and any of its Agencies or
Networks; and the Citizens reserves the right to
amend or withdraw the Plan at any time.
INDIVIDUAL AGENCY
PROFIT SHARING PLAN
Citizens Security Group (hereafter called "Citizens")
provides this Profit Sharing Plan on the net profits of the
business written and produced through the Agency as shown by
the Home Office records of the Citizens for each period and
during the time this plan is in force; the first such period
beginning January 1, and ending on December 31, and each
calendar year thereafter.
Profit Sharing payments shall not be payable to the Agency
for any Profit Sharing Year unless the Agency's annual
written premiums are:
$75,000 as of 12/31/96
otherwise this plan will be inoperative.
The provisions of this plan do not pertain to premium
production of underwriting associations, pools, or
network/cluster agencies of four (4) or more.
No profit sharing will be paid if an Agency has been
delinquent more than once in payment of account as provided
in the Company's Agency Agreement. Payments are based on the
twelve (12) monthly statements which make up the profit
sharing.
For the purpose of this agreement, the profit on the
business produced by the Agent during the year under
consideration will be determined by the following formula:
I. FORMULA
At the end of each Profit Sharing Year (the accounting
period beginning January 1 and ending December 31 of the
same calendar year), the Net Profit or Loss shall be
calculated as follows:
A. Earned premiums $______________
B. Incurred Losses (not less than zero) $______________
C. Incurred Losses Percentage (B/A x 100) $______________%
D. Gross Profit Percentage (50% - C) $______________%
E. Gross Profit (D x A) $______________
F. Base Profit Share Due Agent (___% x E) $______________
G. Profit Share Due Agent $______________
II. FORMULA DEFINITIONS (Letters refer to lettered items
listed under Section I.)
A. Annual Written Premiums are defined as gross premiums
less credits for premiums on cancellations
and returns written by agent and recorded by Company during
the Profit Sharing Year.
B. Earned Premiums are defined as the Written Premiums on
business produced during the Profit Sharing
Year minus the Unearned Premiums as of the end of the same
year plus the Unearned Premium as of the end of
the prior year.
C. Incurred Losses are defined as net losses paid during
the Profit Sharing Year plus reserve for
unpaid losses as of the end of same year and minus reserve
for unpaid losses as of the beginning of the
same year. If a negative total results, a zero total will be
used. The maximum amount charged for any one
loss shall be the net amount paid or reserved subject to
Section V, paragraph D.Incurred Loss Percentage is calculated
by dividing the Incurred Losses by the Earned Premiums
times 100. If such Percentage is greater than 50%, no
further calculation will be made.
D. Gross Profit Percentage is calculated by subtracting
the Incurred Loss Percentage from 50%.
E. Gross Profit is calculated by multiplying Earned
Premiums by the Gross Profit Percentage.
F. Base Profit Share Due Agent shall be calculated by
multiplying the Net Profit by the applicable
Profit Share Percentage set forth in the following table:
(a) (b)
Annual Base Profit Share
Written Premiums Percentage
0 - 49,999 0%
50,000 - 100,000 10.0%
100,001 - 250,000 15.0%
250,001 - 500,000 20.0%
500,001 - Over 25.0%
Determination of base Profit Share Percentage: The
percentage figure which is opposite the
written premiums for the Profit Sharing Year is the base
Profit Share Percentage (Enter in Section I. F).
G. Profit Share Due Agent shall be the base profit share
plus or minus any Bonus Plan percentages as
set forth in Section III. and Section IV., Bonus Plan.
III. BONUS PLAN - Agencies with annual written premiums of
$50,000 to $250,000:
A. Growth Bonus
1. The Citizens agrees to pay 1.25 times the dollar
amount shown in Section I. F when the
policy count as of 12/31 is in excess of 1.149% of the
policy count as of 1/1 of the current year
as shown in Citizens' agency statement.
2. The Citizens agrees to pay .75 times the dollar
amount shown in Section I. F when the policy
count as of 12/31 is less than .949% of the policy count as
of 1/1 of the current year as shown in
Citizens' agency statement.
Profit Sharing calculation ends here for
agencies BELOW $250,000 annual written premiums.
IV. BONUS PLAN - Agencies with annual written premiums of
$250,001 to $1,000,000:
A. Growth Bonus
1. Citizens agrees to include the following Growth
Bonus percentage points to the current
year's base profit share percentage (Section II. F (b)) when
the policy count as of 12/31 to the policy
count of 1/1 of the current year as shown in Citizens agency
statement is:
% of Policy Count Growth Bonus
.949% and less -1.0%
+1.050% to +1.15% +1.0%
+1.151% and above +2.0%
B. Retention Bonus
1. Citizens agrees to include the following Retention
Bonus percentage points to the base profit
share percentage (Section II. F (b)) when policies in force
as of 12/31 divided by the same policies
in force as of 1/1 of the current year are:
Current Retention
Retention Percentage Bonus Points
80.0% - 90.99% +2%
91.0% - 100.00% +3%
C. Loss Ratio Bonus
1. Citizens agrees to include the following Loss
Ratio Bonus percentage points to the current
year's base profit share percentage (Section II. F (b)) when
the current year plus the preceding
two years' total incurred losses to earned premiums loss
ratio is:
Loss Ratio
3 Year Loss Ratios Bonus Points
0 - 25.99% +4%
26.0% - 39.99% +3%
40.0% - 49.99% +2%
50.0% - 59.99% 0%
60.0% - 69.99% -2%
70.0% - 79.99% -3%
80.0% - Over -4%
V. OTHER PROVISIONS
A. The Citizens agrees to submit to the Agency a Profit
Sharing Statement within a reasonable time after
the close of the Profit Sharing period, and if a net profit
is shown, the Company will promptly remit the
resultant profit sharing payment to the Agency, if all
premiums and other current indebtedness for the
period have been paid. The profit sharing allowed the
agency, if any, is not payable unless the Agency
has complied with all terms of this plan and our Agency
Agreement. No charge or deduction for profit sharing payment
shall be made or claimed by the Agency in its
accounts and is payable only by the Citizens' check.
B. Citizens records shall be considered binding and
conclusive as to all information pertaining to
this Agreement.
C. A deficit is incurred anytime Agency's Loss Percentage
is in excess of 50%. There is no deficit carry-
over, except as it may apply to the Loss Ratio Bonus,
Section IV. C (1).
D. The maximum loss charged to Section I. B "Incurred
Losses" for a Profit Sharing Year will be
$100,000 on any one occurrence. Section IV. C (1), shall
include total losses incurred for the Bonus
Period calculation.
E. In the event of a change in agency ownership during the
Profit Sharing Period, any profit sharing earned
during that period shall be payable by the Citizens to the
agency owner shown on the Citizens records at
the close of that Profit Sharing period. It is also agreed,
for the purpose of computing Profit Sharing, that
the purchaser receive credit for all the earned premiums and
is charged with all the incurred losses of the
purchased agency subject to the terms of this
agreement.
F. Neither this plan, nor any rights hereunder shall be
assignable, but the plan may be altered or
amended at any time by written instrument to that effect.
G. This plan supersedes all previous agreements, whether
written or oral.
H. The Agent's Profit Sharing Plan is automatically
cancelled when an Agency Agreement is cancelled,
and the Plan does not apply to premiums earned during a
calendar year in which the Agency Agreement is
cancelled.
I. The Agent's Profit Sharing Plan is a voluntary plan on
the part of the Citizens and is not, nor does
it become, a part of any Agency Agreement now in force or
subsequently executed between the Company and
any of its Agents; and the Citizens reserves the right to
amend or withdraw the Plan at any time.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Registration
No. 33-81768 on Form S-8 and in Registration Statement No.
33-10947 on Form S-8 of Meridian Insurance Group, Inc. of
our report, dated February 26, 1997, on our audits of the
consolidated financial statements and financial statement
schedules of Meridian Insurance Group, Inc. as of December
31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996, which report is included in
this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 238,343
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 1,327
<EQUITIES> 40,630
<MORTGAGE> 704
<REAL-ESTATE> 0
<TOTAL-INVEST> 281,689
<CASH> 3,128
<RECOVER-REINSURE> 45,850
<DEFERRED-ACQUISITION> 16,690
<TOTAL-ASSETS> 397,798
<POLICY-LOSSES> 161,309
<UNEARNED-PREMIUMS> 84,066
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 11,875
0
0
<COMMON> 44,078
<OTHER-SE> 78,096
<TOTAL-LIABILITY-AND-EQUITY> 397,798
167,304
<INVESTMENT-INCOME> 14,908
<INVESTMENT-GAINS> 3,794
<OTHER-INCOME> 562
<BENEFITS> 130,101
<UNDERWRITING-AMORTIZATION> 36,443
<UNDERWRITING-OTHER> 13,767
<INCOME-PRETAX> 5,950
<INCOME-TAX> 150
<INCOME-CONTINUING> 5,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,800
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
<RESERVE-OPEN> 123,577
<PROVISION-CURRENT> 137,817
<PROVISION-PRIOR> (7,716)
<PAYMENTS-CURRENT> 93,199
<PAYMENTS-PRIOR> 30,470
<RESERVE-CLOSE> 161,309
<CUMULATIVE-DEFICIENCY> (7,716)
</TABLE>
ACQUISITION AND AFFILIATION AGREEMENT
By and Among
CITIZENS SECURITY GROUP INC.,
CITIZENS SECURITY MUTUAL INSURANCE COMPANY,
and
MERIDIAN INSURANCE GROUP, INC.
March 20, 1996
TABLE OF CONTENTS
RECITALS 1
AGREEMENT 4
ARTICLE I THE MERGER 4
Section 1.1. Merger 4
Section 1.2. Effective Time of the Merger 4
Section 1.3. Conversion of Citizens' Shares 5
Section 1.4. Conversion of Merger Company's Shares 8
Section 1.5. Employee Stock Ownership Plan 9
Section 1.6. Stock Options 10
Section 1.7. Board of Directors of Citizens Mutual 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF CITIZENS AND
CITIZENS MUTUAL 10
Section 2.1. Organization 11
Section 2.2. Organization of Subsidiaries 11
Section 2.3. Capitalization 12
Section 2.4. Authority to Conduct Insurance Business 13
Section 2.5. Consents and Approvals and No Defaults 14
Section 2.6. Authority Relative to this Agreement 15
Section 2.7. GAAP Financial Statements 16
Section 2.8. Statutory Financial Statements 17
Section 2.9. Reserves 18
Section 2.10. No Undisclosed Liabilities 18
Section 2.11. Regulatory Filings 19
Section 2.12. SEC Reports 19
Section 2.13. Litigation 20
Section 2.14. Compliance With Law 20
Section 2.15. Properties 21
Section 2.16. Intellectual Property 22
Section 2.17. Environmental Laws and Permits 23
Section 2.18. Taxes 23
Section 2.19. Employee Benefit Plans 24
Section 2.20. Contracts and Commitments 28
Section 2.21. Related Party Transactions 29
Section 2.22. No Finders 29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MERIDIAN 29
Section 3.1. Organization 29
Section 3.2. Corporate Power and Authority, Etc. 29
Section 3.3. No Conflicts 30
Section 3.4. Consents 30
Section 3.5. Funds Available 31
Section 3.6. Merger Company 31
Section 3.7. GAAP Financial Statements 32
Section 3.8. Statutory Financial Statements 32
Section 3.9. Reserves 33
Section 3.10. No Undisclosed Liabilities 34
Section 3.11. Regulatory Filings 34
Section 3.12. SEC Reports 35
Section 3.13. Litigation 36
Section 3.14. Compliance With Law 36
Section 3.15. Authority to Conduct Insurance Business 37
Section 3.16. Properties 38
Section 3.17. Intellectual Property 38
Section 3.18. Environmental Laws and Permits 38
Section 3.19. Taxes 39
Section 3.20. Employee Benefit Plans 40
Section 3.21. Contracts and Commitments 40
ARTICLE IV PRE-CLOSING COVENANTS 40
Section 4.1. General 40
Section 4.2. Notices and Consent 41
Section 4.3. Operation of Business 41
Section 4.4. Full Access 43
Section 4.5. Shareholders' Meeting 43
Section 4.6. Acquisition Negotiations 44
Section 4.7. Policyholders' Meeting 45
Section 4.8. Representation Letter of ESOP Trustee 46
ARTICLE V OTHER COVENANTS 46
Section 5.1. General 46
Section 5.2. Continuity of Identity and Operations for Citizens
Insurance Companies 46
Section 5.3. Indemnification; Directors and Officers Insurance 47
Section 5.4. Citizens Employees 49
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF MERIDIAN 52
Section 6.1. No Misrepresentation or Breach of Covenants
or Warranties 53
Section 6.2. Officers' Certificates 53
Section 6.3. Letter as to Transaction Cost 54
Section 6.4. Approval of Citizens' Shareholders and Citizens
Mutual's Policyholders 55
Section 6.5. Dissenting Shares 55
Section 6.6. Regulatory Approval 55
Section 6.7. Hart-Scott-Rodino 56
Section 6.8. Third Party Consents 56
Section 6.9. Boards of Directors 56
Section 6.10. Officers 57
Section 6.11. Reinsurance Pooling Agreement 57
Section 6.12. Management Services Agreements 57
Section 6.13. No Material Adverse Change 58
Section 6.14. Certain Personnel Matters 58
Section 6.15. Vis'n Matters 58
Section 6.16. ESOP and Plan Matters 60
Section 6.17. Opinion of Counsel for Citizens and
Citizens Mutual 60
Section 6.18. Fairness Opinion 60
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OFCITIZENS AND
CITIZENS MUTUAL 61
Section 7.1. No Misrepresentation or Breach of
Covenants or Warranties 61
Section 7.2. Shareholder and Policyholder Approval 61
Section 7.3. Officers' Certificates 62
Section 7.4. Regulatory Approval 62
Section 7.5. Hart-Scott-Rodino 63
Section 7.6. Boards of Directors 63
Section 7.7. Third Party Consents 63
Section 7.8. Reinsurance Pooling Agreement 64
Section 7.9. Management Services Agreements 64
Section 7.10. Certain Personnel Matters 64
Section 7.11. Vis'n Matters 64
Section 7.12. No Material Adverse Change 65
Section 7.13. Opinion of Counsel for Meridian 65
Section 7.14. Fairness Opinions 65
Section 7.15. Payment of ESOP Note 65
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES 66
Section 8.1. Survival of Representations and
Warranties 66
ARTICLE IX TERMINATION 66
Section 9.1. Termination 66
Section 9.2. Termination Fee 67
Section 9.3. Survival of Rights 69
ARTICLE X MISCELLANEOUS 69
Section 10.1. Notices 69
Section 10.2. Expenses 71
Section 10.3. Titles and Headings 72
Section 10.4. No Third-Party Beneficiaries 72
Section 10.5. Entire Agreement 72
Section 10.6. Public Announcements 72
Section 10.7. Waiver 73
Section 10.8. Governing Law 73
Section 10.9. Binding Effect 73
Section 10.10. No Assignment 74
Section 10.11. Invalid Provisions 74
Section 10.12. Construction 74
Section 10.13. Execution in Counterparts 74
ACQUISITION AND AFFILIATION AGREEMENT
This ACQUISITION AND AFFILIATION AGREEMENT
("Agreement") is made and entered into as of March 20, 1996,
by and among CITIZENS SECURITY GROUP INC. ("Citizens"), a
business corporation organized under the laws of the State
of Minnesota, whose office and principal place of business
is located at 406 Main Street, Red Wing, Minnesota 55066,
CITIZENS SECURITY MUTUAL INSURANCE COMPANY ("Citizens
Mutual"), a mutual insurance company organized under the
laws of the State of Minnesota, whose office and principal
place of business is located at 406 Main Street, Red Wing,
Minnesota 55066, and MERIDIAN INSURANCE GROUP, INC.
("Meridian"), a business corporation organized under the
laws of the State of Indiana, whose office and principal
place of business is located at 2955 North Meridian Street,
Indianapolis, Indiana 46208.
RECITALS
A. Citizens is a publicly-held insurance holding
company. Citizens directly owns all of the issued and
outstanding shares of capital stock of Citizens Fund
Insurance Company ("Citizens Fund"), a stock insurance
company organized under the laws of the State of Minnesota,
whose office and principal place of business is located at
406 Main Street, Red Wing, Minnesota 55066, and all of the
issued and outstanding shares of capital stock of Insurance
Company of Ohio ("Citizens Ohio"), a stock insurance company
organized under the laws of the State of Ohio, whose office
and principal place of business is located at 406 Main
Street, Red Wing, Minnesota 55066. (Citizens Fund and
Citizens Ohio are sometimes referred to herein as the
"Citizens Subsidiaries.") Citizens was organized by Citizens
Mutual, which presently owns approximately 20% of the issued
and outstanding shares of Citizens Common Stock (as defined
in Section 2.3) and all of the issued and outstanding shares
of Citizens Preferred Stock (as defined in Section 2.3).
Citizens Mutual also owns all of the issued and outstanding
shares of capital stock of Mississippi Valley Corporation
("Mississippi Valley"), a business corporation organized
under the laws of the State of Minnesota, whose office and
principal place of business is located at 406 Main Street,
Red Wing, Minnesota 55066. (Citizens Mutual, Citizens,
Citizens Fund, Citizens Ohio and Mississippi Valley are
collectively referred to herein as the "Citizens
Companies.")
B. Citizens Mutual, Citizens Fund and Citizens Ohio
(collectively, the "Citizens Insurance Companies") are
jointly operated and managed under a management services
agreement and a reinsurance pooling agreement.
C. Meridian is a publicly-held insurance holding
company. Meridian directly owns all of the issued and
outstanding shares of capital stock of Meridian Security
Insurance Company ("Meridian Security"), a stock insurance
company organized under the laws of the State of Indiana,
whose office and principal place of business is located at
2955 North Meridian Street, Indianapolis, Indiana 46208.
Meridian was organized by Meridian Mutual Insurance Company
("Meridian Mutual"), a mutual insurance company organized
under the laws of the State of Indiana, whose office and
principal place of business is located at 2955 North
Meridian Street, Indianapolis, Indiana 46208; Meridian
Mutual presently owns approximately 47% of the issued and
outstanding shares of common stock of Meridian. Meridian,
Meridian Security and Meridian Mutual (such companies are
collectively referred to herein as the "Meridian Companies")
are jointly operated and managed under a reinsurance pooling
agreement and shared management services arrangements.
D. The parties to this Agreement entered into a non-
binding letter of intent (the "Letter of Intent") dated
January 29, 1996 and accepted by Citizens and Citizens
Mutual on February 1, 1996.
E. In order to consummate the acquisition of Citizens
by Meridian as contemplated by the Letter of Intent and this
Agreement, Meridian will cause a corporation to be formed
under the laws of the State of Minnesota ("Merger Company").
All of the issued and outstanding capital stock of Merger
Company will be owned by Meridian or by Meridian Security.
F. The Boards of Directors of Citizens, Citizens
Mutual, Meridian and Meridian Mutual have determined that it
is in the best interest of their respective corporations
that Citizens be acquired by Meridian pursuant to the merger
of Merger Company with and into Citizens (the "Merger"), and
the Boards of Directors of Citizens Mutual, Meridian and
Meridian Mutual have determined that it would be in the best
interests of their respective corporations that Citizens
Mutual become affiliated with Meridian, all upon and subject
to the terms and conditions of this Agreement.
G. Citizens, Citizens Mutual and Meridian desire to
make certain representations, warranties, covenants and
agreements in connection with the transactions contemplated
by the Letter of Intent and this Agreement and to prescribe
various conditions precedent to the transactions
contemplated hereby.
AGREEMENT
In consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein
set forth, the parties to this Agreement hereby agree as
follows:
ARTICLE I
THE MERGER
Section 1.1. Merger. Subject to the terms and
conditions of this Agreement and the Plan of Merger
substantially in the form attached hereto as Exhibit A (the
"Plan of Merger"), at the Effective Time (as defined in
Section 1.2) Merger Company shall merge with and into
Citizens in accordance with the applicable laws of the State
of Minnesota and the separate existence of Merger Company
shall cease (except insofar as continued by applicable law).
Articles of Merger, with the Plan of Merger attached, shall
be filed with the Secretary of State of the State of
Minnesota in connection with the closing of the Merger and
other transactions contemplated by this Agreement (the
"Closing").
Section 1.2. Effective Time of the Merger and Closing
. Unless otherwise agreed by the parties or otherwise
provided by law, the Merger shall become effective at 11:59
p.m., Eastern Standard Time, on a date as soon as
practicable after the conditions to the Merger pursuant to
Articles VI and VII are satisfied or waived, or such other
date as the parties may agree (the "Effective Time"). The
parties anticipate that the Effective Time will be on or
about June 30, 1996. The Closing shall take place at the
offices of Meridian, or such other place as the parties may
agree.
Section 1.3. Conversion of Citizens' Shares. (a) At
the Effective Time of the Merger, the shares of Citizens
Common Stock and Citizens Preferred Stock issued and
outstanding immediately prior to the Effective Time, and all
rights with respect thereto, shall by reason of the Merger
and without any further action on the part of the holders
thereof, be cancelled and converted into rights to receive
cash (except for Dissenting Shares, as defined in Section
1.3(f)), as follows:
(i) Citizens Common Stock. The holders
of Citizens Common Stock shall be entitled
to receive, for each share held, an amount of
cash equal to the portion of the "Final
Common Stock Merger Price" (as hereinafter
defined) which bears the same proportion to
the total Final Common Stock Merger Price as
one share of Citizens Common Stock bears to
all issued and outstanding shares of Citizens
Common Stock as of the Effective Time. The
term "Final Common Stock Merger Price" as
used in this Agreement means: $24,957,312,
less 85.1% of the Transaction Costs
Adjustment, if any, as that term is defined
in Section 10.2.
(ii) Citizens Preferred Stock. Citizens
Mutual, as the holder of all of the issued
and outstanding shares of Citizens Preferred
Stock, shall be entitled to receive for all
of such shares, an amount of cash equal to:
$4,375,000, less 14.9% of the Transaction
Costs Adjustment, if any, as that term is
defined in Section 10.2.
No Dissenting Shares shall be converted into or represent a
right to receive cash. Dissenting Shares shall be subject
to the provisions of Section 1.3(f).
(b) Immediately following the Effective Time,
each holder of an outstanding certificate representing
shares of Citizens Common Stock, upon surrender of the
certificate or certificates therefor, properly endorsed, to
a bank appointed by Citizens with the prior approval of
Meridian (which approval shall not be unreasonably withheld)
to act as exchange agent (the "Exchange Agent"), shall be
entitled to receive the amount of cash as provided herein.
The cash payment will be made by check payable to the
registered holder of each certificate representing shares of
Citizens Common Stock in the name of each such holder, or to
such other person as that holder may specify in writing to
the Exchange Agent. Immediately following the Effective
Time, Citizens Mutual, upon surrender to Citizens of the
certificate or certificates representing the Citizens
Preferred Stock, properly endorsed, shall be entitled to
receive the amount of cash as provided herein. The cash
payment shall be made by direct wire transfer of funds to a
bank account of Citizens Mutual specified in writing to
Meridian not less than two business days prior to the
Closing, or in such other manner as Citizens Mutual and
Meridian may agree.
(c) All rights with respect to shares of Citizens
Common Stock and Citizens Preferred Stock owned by holders
thereof as of the Effective Time shall cease and terminate,
notwithstanding that any certificates for such shares shall
not have been surrendered to the Exchange Agent or Citizens,
and the holders of such shares shall have no interest in nor
claims against Citizens, the surviving corporation in the
Merger, except the right to receive the cash payment
specified herein, without interest (except for Dissenting
Shares, the holders of which shall be subject to Section
1.3(f)).
(d) Meridian shall cause to be deposited with the
Exchange Agent and with Merger Company on or prior to
Closing, funds immediately available as shall be necessary
for the cash distribution by the Exchange Agent and Citizens
described herein. No interest shall accrue or be payable
with respect to any funds held by the Exchange Agent or
Merger Company or Citizens for the benefit of the former
holders of Citizens Common Stock or Citizens Preferred
Stock. All interest or other investment income earned on
the funds on deposit with the Exchange Agent shall, from
time to time, be paid to Merger Company prior to the
Effective Time or to Citizens following the Effective Time.
(e) To the extent permitted by law, the
appointment of the Exchange Agent may be terminated by
Citizens at any time after twelve months following the
Effective Time; and upon termination of such appointment,
any unclaimed funds for cash payments shall be returned to
Citizens, as the surviving corporation in the Merger, and
thereafter the holders of certificates formerly representing
shares of Citizens Common Stock who have not received their
cash payments for whatever reason may surrender such
certificates to Citizens and (subject to applicable
abandoned property, escheat and similar laws) receive in
exchange therefor the cash payment to which they are
entitled under this Agreement.
(f) Each share of Citizens Common Stock, the
holder of which has taken all of the steps required by
Section 302A.473 of the Minnesota Business Corporation Act
(the "Minnesota Dissenters' Rights Statute") to establish
such holder's shares as dissenting shares as therein
defined, is herein referred to as a "Dissenting Share."
Dissenting Shares owned by each holder thereof shall not be
converted into or represent the right to receive cash and
shall be entitled only to receive the value of such
Dissenting Shares in accordance with the Minnesota
Dissenters' Rights Statute, provided that such holder
complies with the procedures contemplated by and set forth
therein. If any holder of Dissenting Shares shall
effectively withdraw or lose such holder's dissenters'
rights, such Dissenting Shares shall be converted into the
right to receive cash in accordance with the provisions of
Section 1.3(a).
(g) Citizens shall give Meridian (i) prompt
notice of any written notices, demands for payment,
withdrawals of notices or demands and any other instrument
served pursuant to the Minnesota Dissenters' Rights Statute
and received by Citizens (such notice by Citizens shall, to
the extent available to Citizens, set forth the name and
address of, and the number of shares of Citizens Common
Stock held by, the holder making such objection or giving
such notice), and (ii) the opportunity to direct all
negotiations or proceedings with respect to holders of
Dissenting Shares. Citizens shall not voluntarily make any
payment with respect to any demands for payment for shares
under the Minnesota Dissenters' Rights Statute, and shall
not, except with the prior written consent of Meridian,
settle or offer to settle any such demands.
Section 1.4. Conversion of Merger Company's Shares.
At the Effective Time of the Merger, the shares of capital
stock of Merger Company issued and outstanding immediately
prior to the Effective Time shall, by reason of the Merger
and without any further action on the part of the holder
thereof, be cancelled and converted into all of the issued
and outstanding shares of capital stock of Citizens.
Immediately following the Effective Time, the holder of the
certificate representing all of the shares of capital stock
of Merger Company issued and outstanding immediately prior
to the Effective Time, upon surrender to Citizens of the
certificate therefor, properly endorsed, shall be entitled
to receive a certificate representing all of the issued and
outstanding shares of capital stock of Citizens following
the Effective Time.
Section 1.5. Employee Stock Ownership Plan. Prior to
the Closing and the Effective Time, Citizens and Citizens
Mutual shall take such actions in connection with the
Citizens Security Employee Stock Ownership Plan (the "ESOP")
as may be necessary to:
(a) cause National City Bank of Minneapolis, as
Trustee of the ESOP (the "ESOP Trustee"), to surrender to
the Exchange Agent the certificates representing all shares
of Citizens Common Stock owned by the ESOP for payment at
the Effective Time in accordance with the terms of the
Merger;
(b) cause (i) the repayment, by ESOP Trustee, of the
outstanding amounts due under the Promissory Note of the
ESOP dated October 30, 1992, executed on behalf of the ESOP
by the ESOP Trustee and payable to the order of Citizens
Mutual (the "ESOP Note"), (ii) the cancellation of the ESOP
Note, and (iii) the release of the assets held as collateral
in the ESOP suspense account, as of the Effective Time;
(c) allow for the allocation of the unallocated assets
held by the ESOP, after repayment of the outstanding amounts
due under the ESOP Note, to the ESOP participants as
provided in the ESOP and to the fullest extent permitted by
applicable law, as soon as practicable after the Effective
Time; and
(d) at the Effective Time, cause the ESOP participants
who were employed by Citizens Mutual as of February 8, 1996,
to become fully vested in their ESOP accounts and cause ESOP
participation to be limited to those individuals employed by
Citizens Mutual on or before the Closing.
Section 1.6. Stock Options. Prior to the Closing and
the Effective Time, Citizens shall make any necessary
amendments to or adjustments in outstanding stock options
for the purchase of shares of Citizens Common Stock, or the
plan under which those options were issued, so that:
(a) such options may be exercised immediately prior to the
Effective Time (including payment to Citizens in cash of the
exercise price), (b) the shares of Citizens Common Stock
issued in respect of such exercises may be tendered for
payment in accordance with the terms of the Merger, and (c)
any unexercised options and any stock option plans of
Citizens shall, as of the Effective Time, terminate, no
longer be exercisable, and otherwise not represent any claim
against Citizens or Merger Company for the issuance of
capital stock or other securities or for the payment of cash
or other consideration.
Section 1.7. Board of Directors of Citizens Mutual.
At the Effective Time, the Board of Directors of Citizens
Mutual shall be reconstituted so that it consists of the six
current directors of Meridian Security, plus the current
Vice President of Marketing of Citizens Mutual and the
current President of Citizens Mutual.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CITIZENS AND CITIZENS
MUTUAL
Citizens and Citizens Mutual hereby represent and
warrant to Meridian as follows; subject, however, to the
exceptions set forth on the attached Disclosure Schedule
which specifies the particular section or sections to which
each exception relates; and further subject to the exception
that the representations and warranties of Citizens Mutual
set forth in this Article II and pertaining solely to
Citizens or to the Citizens Subsidiaries are limited and
made to the knowledge of Citizens Mutual, its officers,
directors and employees who are not officers, directors or
employees of Citizens or the Citizens Subsidiaries:
Section 2.1. Organization. Each of Citizens and
Citizens Mutual is a corporation duly organized and validly
existing under the laws of the State of Minnesota. Each of
Citizens and Citizens Mutual has the corporate power and
authority to own, operate and lease its properties and
assets and to carry on its business as now being conducted.
Section 2.2. Organization of Subsidiaries. Citizens
Mutual has no direct or indirect subsidiaries other than
Citizens (and its subsidiaries) and Mississippi Valley, and
Citizens has no direct or indirect subsidiaries other than
the Citizens Subsidiaries. Schedule 2.2 sets forth for
Mississippi Valley and for each Citizens Subsidiary the
authorized capital stock, the number of shares duly issued
and outstanding, and the owners of such shares and the
number of shares held by each owner. The shares of capital
stock of Mississippi Valley owned by Citizens Mutual, and
the shares of capital stock of each Citizens Subsidiary
owned directly or indirectly by Citizens are duly
authorized, validly issued, fully paid and non-assessable,
and are owned free and clear of any liens, claims, charges
or encumbrances. No equity security of Mississippi Valley
or either Citizens Subsidiary is or may be required to be
issued by reason of any option, warrant, right to subscribe
to, call, or commitment of any character whatsoever relating
to, or security or right convertible into, shares of any
capital stock, and there are no contracts, commitments,
understandings, or arrangements by which Mississippi Valley
or either Citizens Subsidiary is bound to issue additional
shares of its capital stock, or options, warrants, or rights
to purchase or acquire any additional shares of its capital
stock. None of the Citizens Companies has any investment in
any partnership, joint venture or limited liability company,
and all loans or advances to its independent insurance
agents are listed on Schedule 2.2 (including the relevant
amounts, outstanding balances and dates thereof). Each of
Mississippi Valley and the Citizens 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 and authority to
own or lease its properties and carry on its business as now
being conducted.
Section 2.3. Capitalization. The authorized capital
stock of Citizens consists of (i) 5,000,000 shares of
preferred stock, par value $0.01 per share, of which the
only authorized series is 1,250,000 shares of Series A
Preferred Stock, par value $0.01 per share (the "Citizens
Preferred Stock"), and (ii) 10,000,000 shares of common
stock, par value $0.01 per share (the "Citizens Common
Stock"). As of the date of this Agreement, the only issued
and outstanding shares of Citizens' capital stock are
1,250,000 shares of Citizens Preferred Stock and 1,661,585
shares of Citizens Common Stock. The only outstanding
options, warrants, or other rights to purchase shares of
Citizens Common Stock or Preferred Stock are the employee
and nonemployee director stock options covering a total of
335,000 shares of Citizens Common Stock referred to in
Section 1.6 above. All shares of capital stock of Citizens
which are outstanding as of the date hereof, or which will
be outstanding immediately prior to the Effective Time, are
or will be duly authorized, validly issued, fully paid and
non-assessable, and are not or will not be subject to or
issued in violation of, any preemptive rights. Except as
set forth above, there are no shares of capital stock of
Citizens authorized or outstanding and there are no
subscriptions, options to purchase shares of the capital
stock of Citizens, conversion or exchange rights, warrants,
preemptive rights or other arrangements, claims or
commitments of any nature whatsoever (whether firm or
conditional) obligating Citizens to issue, transfer, deliver
or sell, or cause to be issued, transferred, delivered or
sold, additional shares of the capital stock or other
securities or interests of Citizens or obligating Citizens
to grant, extend or enter into any such agreement or
commitment.
Section 2.4. Authority to Conduct Insurance Business.
Each of Citizens Mutual and the Citizens Subsidiaries is an
insurance company licensed or authorized to write the kinds
of insurance coverage set forth on Schedule 2.4 in its
respective state of incorporation and in each of the
jurisdictions specified in such schedule in which it writes
insurance. Each of Citizens Mutual and the Citizens
Subsidiaries holds a license and is fully qualified as a
foreign insurer to conduct its business in each of those
jurisdictions, and there is no other jurisdiction in which
the failure to hold a license or to be so qualified to
conduct the business as now being conducted by the
respective company would have a material adverse effect on
the business of the Citizens Companies (considered as a
whole) or on the consolidated results of operations or
consolidated financial condition of Citizens and the
Citizens Subsidiaries (considered as a whole) or of Citizens
Mutual and Mississippi Valley (considered as a whole)
(hereinafter referred to as a "Citizens Material Adverse
Effect"). No license or certificate of authority identified
in Schedule 2.4 has been revoked, restricted, suspended,
limited or modified nor is any license or certificate of
authority the subject of, nor, to the knowledge of Citizens
or Citizens Mutual, is there a basis for, a proceeding for,
or a threatened proceeding for, revocation, restriction,
suspension, limitation or modification, nor is Citizens
Mutual or either of the Citizens Subsidiaries operating
under any formal or informal agreement or understanding with
the licensing authority of any state that restricts its
authority to do business or requires any such company to
take, or refrain from taking, any action.
Section 2.5. Consents and Approvals and No Defaults.
The execution and delivery by Citizens and Citizens Mutual
of this Agreement, the performance by Citizens and Citizens
Mutual of their obligations hereunder, and the consummation
by Citizens and Citizens Mutual of the transactions
contemplated hereby do not require Citizens or Citizens
Mutual to obtain any consent, approval or action of, or make
any filing with or give any notice to, any corporation,
person or firm or any public, governmental or judicial
authority, other than any consents or approvals from, or any
filings or notices to, any corporations, persons or firms in
connection with any agreements or other instruments that
individually or in the aggregate are not material to
Citizens or Citizens Mutual. This Agreement is the valid
and binding obligation of each of Citizens and Citizens
Mutual, enforceable against each of 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. Provided the required
approvals of agencies of any government (including, without
limitation, the Insurance Division of the Minnesota
Department of Commerce (the "Minnesota Department") and the
Ohio Department of Insurance (the "Ohio Department")) are
obtained, neither the execution, delivery, and performance
by Citizens or Citizens Mutual of this Agreement, nor the
consummation of the transactions contemplated hereby, nor
compliance by Citizens or Citizens Mutual with any of the
provisions hereof, will:
(A) violate, conflict with, or result
in a breach of any provisions of, or
constitute a default (or an event which, with
notice or lapse of time or both, would
constitute a default) under, or result in the
termination of, or accelerate the performance
required by, or result in a right of
termination or acceleration of, or result in
the creation of any lien, security interest,
charge, or encumbrance upon any of the
properties or assets of the Citizens
Companies under, any of the terms,
conditions, or provisions of:
(i) their respective articles
of incorporation or by-laws, or
(ii) any material note, bond,
mortgage, indenture, deed of trust,
license, lease, agreement, or other
material instrument or obligation to
which any of the Citizens Companies is a
party or by which any of such companies
may be bound, or to which any Citizens
Company or any of their properties or
assets may be subject; or
(iii) any governmental
license, permit or authorization
material to the business of any Citizens
Company; or
(B) violate any judgment, ruling,
order, writ, injunction, decree, statute,
rule, or regulation applicable to any
Citizens Company or any of their respective
properties or assets.
Section 2.6. Authority Relative to this Agreement.
Each of Citizens and Citizens Mutual has all requisite
corporate power and authority to enter into and deliver this
Agreement, and the execution and delivery hereof has been
duly approved and authorized by the Boards of Directors of
Citizens and Citizens Mutual. Subject to approvals by the
holders of the Citizens Preferred Stock and the Citizens
Common Stock and such approvals of governmental agencies
having regulatory authority over the Citizens Companies
(including the Minnesota Department and the Ohio Department)
and such further action of the Board of Directors of
Citizens and Citizens Mutual as may be required by the
Minnesota Insurance Law or the Indiana Insurance Law,
Citizens and Citizens Mutual have or will have all requisite
corporate power and authority to effectuate the Merger. The
holders of Citizens Preferred Stock and the holders of
Citizens Common Stock are entitled to vote as separate
classes on the Merger in person or by proxy at a meeting
convened to approve the Merger (with each such holder being
entitled to one vote per share), and the vote at such
meeting is the only vote of the holders of Citizens
Preferred Stock or Citizens Common Stock necessary to
approve the Merger.
Section 2.7. GAAP Financial Statements. Citizens has
previously delivered to Meridian true and complete copies of
audited financial statements (the "GAAP Financial
Statements") for the years ended December 31, 1993,
December 31, 1994, and December 31, 1995 for Citizens
(prepared on a consolidated basis). The GAAP Financial
Statements so provided were prepared in accordance with
generally accepted accounting principles ("GAAP") applied on
a consistent basis and present fairly, in all material
respects, the financial condition, results of operations and
changes in financial position of Citizens as of the dates or
for the periods covered thereby, in conformity with GAAP.
Citizens has also previously delivered to Meridian true and
complete copies of the internally prepared unaudited
financial statements for the years ended December 31, 1993,
December 31, 1994, and December 31, 1995, for Mississippi
Valley (the "Mississippi Valley Financial Statements"). The
Mississippi Valley Financial Statements were prepared by
personnel of Citizens Mutual based on the accounting records
of Mississippi Valley, which accounting records were
prepared by personnel of Citizens Mutual in the ordinary
course and in accordance with customary business practices,
and the Mississippi Valley Financial Statements fairly
present in all material respects the financial condition and
results of operations of Mississippi Valley for the periods
covered by the Mississippi Valley Financial Statements.
Section 2.8. Statutory Financial Statements. (a)
Citizens has previously delivered to Meridian true and
complete copies of the audited statutory financial
statements of Citizens Mutual and each Citizens Subsidiary
(including statements of operations, unassigned surplus and
cash flows) for the fiscal years ended December 31, 1990 to
1995 (the "Audited SAP Financials"). The Audited SAP
Financial Statements present fairly in all material respects
the financial condition of the respective companies at such
dates and results of operations for such periods and were
prepared in accordance with statutory accounting principles
("SAP").
(b) Annual Statements required to be filed with
applicable insurance regulatory authorities on the
respective forms prescribed or permitted by such authorities
(the "Annual Statements") for Citizens Mutual and each
Citizens Subsidiary for the years ended December 31, 1991,
1992, 1993, 1994 and 1995 have been filed with the
appropriate regulatory authorities in all jurisdictions in
which such filing is required. The Annual Statements were
prepared in accordance with accounting practices prescribed
or permitted by such regulatory authorities, applied on a
consistent basis throughout the related periods except as
otherwise stated therein, and presented fairly in all
material respects the statutory financial position of the
respective company at the dates of, and the statutory
results of operations for the respective company for the
periods covered by, such statutory statements.
Section 2.9. Reserves. The aggregate actuarial
reserves and other actuarial amounts held in respect of
liabilities with respect to Citizens Mutual and each of the
Citizens Subsidiaries as established or reflected in their
respective financial statements as of December 31, 1995:
(a) (i) were determined in accordance with generally
accepted actuarial standards consistently applied, (ii) were
fairly stated in accordance with sound actuarial principles,
and (iii) were based on reasonable and appropriate actuarial
assumptions;
(b) met the requirements of the applicable insurance
laws of the States of Minnesota and Ohio, or any other state
having such jurisdiction in all material respects; and
(c) were adequate (under generally accepted actuarial
standards consistently applied) to cover the total amount of
all reasonably anticipated matured and unmatured liabilities
of Citizens Mutual and each Citizens Subsidiary under all
outstanding insurance policies pursuant to which Citizens
Mutual or either Citizens Subsidiary has any liability.
Section 2.10. No Undisclosed Liabilities. As of
December 31, 1995, none of the Citizens Companies had any
debts, obligations or liabilities of whatever kind or
nature, either direct or indirect, absolute or contingent,
matured or unmatured (the "Citizens Liabilities"), except
debts, obligations and liabilities that are fully reflected
in, or reserved against on, the GAAP Financial Statements or
the Audited SAP Financial Statements, except for liabilities
arising from the ordinary course of business that are not
required to be reflected in a balance sheet prepared in
accordance with GAAP or SAP (as the case may be). Since
such date, there have been no changes in the Citizens
Liabilities except for changes arising from the ordinary
course of business, none of which changes, individually or
in the aggregate, have had a Citizens Material Adverse
Effect.
Section 2.11. Regulatory Filings. Citizens has
previously delivered to Meridian true and complete copies of
all filings which were made by Citizens, Citizens Mutual or
any Citizens Subsidiary within the past three years with the
Minnesota Department, the Ohio Department or any other
department of insurance in any jurisdiction where Citizens,
Citizens Mutual or any Citizens Subsidiary is required to
make such filings. Each of such filings, as of its
respective date, complied as to form and content in all
material respects with the provisions of applicable law.
Section 2.12 . SEC Reports. Citizens has delivered to
Meridian (i) each registration statement, Current Report on
Form 8-K, Quarterly Report on Form 10-Q, annual report to
shareholders, and proxy statement or information statement
prepared by it since January 1, 1992, (ii) an Annual Report
on Form 10-K for each of the years ended December 31, 1991,
1992, 1993 and 1994, and (iii) a Quarterly Report on Form
10-Q for each of the periods ended March 31, June 30 and
September 30, 1995, each in the form (including exhibits)
filed with Securities and Exchange Commission (collectively,
the "Citizens SEC Reports"). As of its respective date,
each of the Citizens SEC Reports did not contain any untrue
statements of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in
which they were made, not misleading. Each of the balance
sheets included in or incorporated by reference into the
Citizens SEC Reports (including the related notes and
schedules) fairly presents the financial position of
Citizens as of its date, and each of the statements of
income, of shareholders' equity and of cash flows included
in or incorporated by reference into the Citizens SEC
Reports (including the related notes and schedules) fairly
presents the results of operations, shareholders' equity and
cash flows, as the case may be, of Citizens for the period
set forth therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments which will
not be material to Citizens in amount or effect), in each
case in accordance with generally accepted accounting
principals consistently applied during the periods involved,
except as may be noted therein. Other than the Citizens SEC
Reports, Citizens has not filed any other definitive reports
or statements with the Securities and Exchange Commission
since January 1, 1992.
Section 2.13. Litigation. There are no proceedings or
investigations (other than claims in the ordinary course of
the insurance business), pending or threatened against,
relating to, involving or otherwise affecting any of the
Citizens Companies, which individually exceed $10,000 or in
the aggregate may have a Citizens Material Adverse Effect.
Section 2.14. Compliance With Law. (a) None of the
Citizens Companies is in violation in any material respect
(or, with notice or lapse of time or both, would be in
violation in any material respect) of any term or provision
of any applicable law, regulation, rule, ordinance, order,
judgment, writ or injunction of any federal, state or local
government or instrumentality or agency thereof, or of any
court, which violation may reasonably be expected to have a
Citizens Material Adverse Effect, and Citizens and Citizens
Mutual are not aware of any facts or circumstances which may
constitute or result in any such violation.
(b) None of the Citizens Companies is a party to
any contract with or other undertaking to, or is subject to
any order by, or is a recipient of any supervisory letter or
other oral or written communication of any kind from, any
governmental entity that (i) currently materially and
adversely affects the business of the Citizens Companies
(considered as a whole) or the consolidated financial
condition of either Citizens and the Citizens Subsidiaries
(considered as a whole) or Citizens Mutual and Mississippi
Valley (considered as a whole), including without
limitation, reserve adequacy, investment, sales or trade
practices and policies, underwriting practices and policies,
or management, or (ii) may reasonably be expected to
materially and adversely affect the business or financial
condition of any of the Citizens Companies. None of
Citizens, Citizens Mutual or any Citizens Subsidiary has
been advised by a governmental entity that it is
contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any order,
contract or other communication of the kind described above
in this Section 2.14.
Section 2.15. Properties. Each of Citizens Companies
has good title to all properties and assets material to the
conduct of its business, which it purports to own,
including, without limitation, all property reflected in the
GAAP Financial Statements or Audited SAP Financial
Statements or Mississippi Valley Financial Statements dated
December 31, 1995, or acquired since that date (except in
all cases to the extent such assets or properties have been
sold or otherwise disposed of in the ordinary and usual
course of business since that date). All such properties
and assets are owned, free and clear of all liens, charges
and encumbrances, other than (i) those set forth on
Schedule 2.15, (ii) any liens and assessments for taxes not
yet due and payable or being contested in good faith by
appropriate proceedings, and (iii) such imperfections of
title, or encumbrances and liens, if any, as do not
materially detract from the value or interfere with the
actual or intended use of the properties owned by any of the
Citizens Companies or otherwise materially impair the
business operations of any of the Citizens Companies. All
material leases pursuant to which any of the Citizens
Companies leases real or personal property are valid and
binding on the respective Citizens Company, enforceable
against such Citizens Company in accordance with their
respective 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 (and Citizens and
Citizens Mutual do not know of any reason that such leases
would not be valid and binding upon or enforceable against
the other parties thereto), and there is not under any of
such leases any existing default or event of default on the
part of any Citizens Company, or any event which with notice
or lapse of time, or both, would constitute a default on the
part of any Citizens Company (and Citizens and Citizens
Mutual do not know of any default, event of default or event
which with notice or lapse of time, or both, would
constitute a default, in each case on the part of the other
party thereto), the consequence of which would have a
Citizens Material Adverse Effect.
Section 2.16. Intellectual Property. There are no
copyrights, trademarks, trade names, service marks or
patents covered under federal or state common law or
statutory law, whether or not registered, used by any of the
Citizens Companies (the "Intellectual Property") that are
material to the conduct of their respective businesses. Set
forth on Schedule 2.16 is a listing of any federal or state
registered Intellectual Property that any of the Citizens
Companies uses in the conduct of its respective business.
There are no infringement suits pending, or to the best
knowledge of Citizens or Citizens Mutual threatened, against
any of the Citizens Companies with respect to the
Intellectual Property, and neither Citizens nor Citizens
Mutual knows of any fact or condition which could give rise
to any such infringement suit.
Section 2.17. Environmental Laws and Permits. Each of
the Citizens Companies is in compliance with any and all
laws, regulations, rules, ordinances, orders, judgments,
permits, agreements, licenses or other governmental
restrictions or requirements relating to health, the
environment or the release by such Citizens Company of any
materials into the environment, now in effect in any and all
jurisdictions, in which the Citizens Companies are or from
time to time may be doing business (collectively the
"Environmental Laws"), except where such failure to comply
would not have a Citizens Material Adverse Effect.
Section 2.18. Taxes. (a) All federal income tax
returns required to be filed by the Citizens Companies have
been properly and timely filed with the Internal Revenue
Service, (b) all state and local income tax returns
required to be filed by the Citizens Companies have been
properly and timely filed with the appropriate state or
local taxing authorities, except where the failure so to
file such state and local income tax returns would not have
a Citizens Material Adverse Effect, and (c) all federal,
state and local tax information returns required to be filed
by the Citizens Companies have been properly and timely
filed with the appropriate federal, state or local taxing
authorities, except where the failure so to file such
information returns would not have a Citizens Material
Adverse Effect. Such income tax returns were true, correct
and complete in all material respects at the time filed, and
the Citizens Companies have paid all taxes shown to be due
on such returns. The Citizens Companies have adequately
reserved, in accordance with GAAP, on the GAAP Financial
Statements, and in accordance with SAP, on the Audited SAP
Financial Statements, for the payment of all unpaid federal,
state and local taxes, including interest and penalties,
payable in respect of any taxable event or period (including
interim periods) ending on the dates of such financial
statement and for all periods prior thereto. There are no
outstanding deficiencies, assessments or proceedings for the
assessment or collection of taxes or any material dispute as
to taxes against or involving any of the Citizens Companies.
Section 2.19. Employee Benefit Plans. (a) Except
for the Citizens Companies, there are no other trades or
businesses, whether or not incorporated, which, together
with any of the Citizens Companies, would be deemed to be a
"single employer" within the meaning of Code Sections
414(b), (c) or (m) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) Schedule 2.19 sets forth a true and a complete
list of (i) each employee benefit plan, as defined in
Section 3 (3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") that any of the Citizens
Companies currently maintains or has maintained within the
three year period preceding the Effective Time (the "ERISA
Plans"), and (ii) each other plan, arrangement, program and
agreement providing employee benefits, including, but not
limited to, deferred compensation, bonuses, severance pay
and fringe benefits, that are presently maintained for the
benefit of any current or former employees of any of the
Citizens Companies (the ERISA Plans and each other plan
listed on Schedule 2.19 hereafter, collectively, the
"Plans"). Citizens has delivered or made available to
Meridian copies of all Plans and any related documents or
instruments establishing the Plans or any related trusts or
funding arrangements; the most recent determination letter,
or any outstanding request for a determination letter, from
the Internal Revenue Service (the "IRS") with respect to
each ERISA Plan intended to satisfy the requirements of Code
Section 401(a) and a copy of the application on which the
determination letter or request for determination letter is
based; actuarial valuations, if applicable, for the most
recent three plan years for which such valuations are
available; current summary plan descriptions; annual
returns/reports on Form 5500 and summary annual reports for
each of the most recent three plan years; Form 5310 and any
related filings with the IRS, the Department of Labor
("DOL") or the Pension Benefit Guaranty Corporation ("PBGC")
within the last five years preceding the date of this
Agreement; and any material correspondence to or from the
IRS, DOL or PBGC within the last three years preceding the
Effective Time in connection with any Plan.
(c) Each ERISA Plan intended to be qualified under
Code Section 401(a) has received a favorable determination
letter from the IRS that the Plan, in its current form, is
qualified and satisfies all legal requirements, including
the requirements of the Tax Reform Act of 1986 and
subsequent legislation enacted through the date hereof.
Nothing has occurred since the dates of the respective IRS
favorable determination letters that could adversely affect
the qualification of the Plans and their related trusts.
(d) None of the Citizens Companies currently maintains
or contributes to, or has ever maintained or contributed to,
a "multiemployer plan" as defined in ERISA Section 3(37),
and none of the Citizens Companies currently maintains or
contributes to a defined benefit pension plan, as defined in
ERISA Section 3 (35). None of the Citizens Companies has
any unpaid liability or is threatened with any liability for
the termination of any Plan, and each terminated Plan was
terminated in accordance with all provisions of applicable
law. Each terminated ERISA Plan that was intended to be
qualified under Code Section 401(a) received a favorable
determination letter from the IRS that such Plan was
qualified upon termination.
(e) 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, rules and regulations,
including without limitation, the rules and regulations
promulgated by the DOL, PBGC or IRS pursuant to the
provisions of ERISA and the Code, and each of such Plans has
been administered in substantial compliance with such
requirements.
(f) 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 or any of the Citizens Companies)
with respect to the operations of, or any transactions with
respect to, any Plan. No action has been taken by any of
the Citizens Companies, nor has there been any failure by
any of the Citizens Companies to take any action, nor is any
action or failure to take action contemplated by any of the
Citizens Companies, that would subject any person or entity
to any liability, tax or penalty imposed by the IRS, DOL, or
PBGC, in connection with any Plan. No reserve for any taxes
or penalties has been established with respect to any Plan
by any of the Citizens Companies, nor has any advice been
given to any of the Citizens Companies with respect to the
need to establish such a reserve.
(g) There are no (i) actions, suits, arbitrations or
claims (other than routine claims for benefits), (ii) legal,
administrative or other proceedings or governmental
investigations or audits, or (iii) complaints to or by any
governmental entity, which are pending, anticipated or
threatened, against any Plan or its assets, or against any
Plan fiduciary or administrator, or against any of the
Citizens Companies or their officers or employees with
respect to any Plan.
(h) The present value of the future cost of post-
retirement medical benefits that any of the Citizens
Companies is obligated to provide, calculated on the basis
of actuarial assumptions Citizens Mutual considers
reasonable estimates of future experience and which have
been provided to Meridian, does not exceed the amount
specified on Schedule 2.19.
(i) None of the Citizens Companies, nor any of the
Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in
connection with which any of the Citizens Companies, any of
the Plans, any such trust, or any trustee or administrator
thereof, or any party dealing with the Plans or related
trusts could be subject to either a civil penalty assessed
pursuant to ERISA Sections 409 or 502 or a tax imposed
pursuant to Code Sections 4975 or 4976. None of the
Citizens Companies is, or, as a result of any actions,
omissions, occurrences or state of facts existing prior to
or at the Effective Time, may become liable for any tax
imposed under Code Sections 4978 or 4978(B).
(j) There are no leased employees, as defined in Code
Section 414(n), that must be taken into account with respect
to the requirements under Code Section 414(n)(3).
(k) Total employer contributions to each Plan with
respect to the most recent plan year are listed in Scheduled
2.19 and the employer contributions to all Plans required
for the current plan year are not estimated to be materially
more than contributions for the prior plan year.
(l) Each Plan may be terminated directly or indirectly
by Meridian, in its discretion, at any time after the
Effective Time of the Merger in accordance with its terms,
without any liability to Meridian, or any of the Citizens
Companies, to any person, entity or government agency for
any conduct, practice or omission of any of the Citizens
Companies which occurred prior to the Effective Time of the
Merger, except for liabilities to and the rights of the
employees thereunder accrued prior to the Effective Time of
the Merger, or if later, the time of termination, and except
for continuation rights required by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or other
applicable law.
Section 2.20. Contracts and Commitments. None of the
Citizens Companies is in default under any material
agreement, commitment, arrangement, lease, insurance policy,
or other instrument, whether entered into in the ordinary
course of business or otherwise, and there has not occurred
any event that, with the lapse of time or giving of notice
or both, would constitute such a default, except, in all
cases, where such default would not have a Citizens Material
Adverse Effect.
Section 2.21. Related Party Transactions. None of the
Citizens Companies has made any loan to any director,
officer or other affiliate of any of the Citizens Companies
which remains outstanding, nor has any of the Citizens
Companies entered into any agreement for the purchase or
sale of any property or services from or to any director,
officer or other affiliate of any of the Citizens Companies.
Section 2.22. No Finders. None of the Citizens
Companies has made any representation, contract or
commitment by which any such party or Meridian might be
obligated to pay any finder's fee, brokerage commission or
similar payment for bringing the parties together or
bringing about the transactions contemplated by this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERIDIAN
Meridian represents and warrants to Citizens and
Citizens Mutual that:
Section 3.1. Organization. Meridian is a corporation
duly organized and validly existing under the laws of the
State of Indiana and has the corporate power and authority
to carry on its business as it is now being conducted and to
execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby.
Section 3.2. Corporate Power and Authority, Etc. The
execution, delivery and performance by Meridian of this
Agreement and the consummation by Meridian of the
transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Meridian.
This Agreement has been duly and validly executed and
delivered by Meridian and constitutes the valid and binding
obligation of Meridian, 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.
Section 3.3. No Conflicts. The execution, delivery
and performance by Meridian of this Agreement and the
consummation by Meridian of the transactions contemplated
hereby will not, with or without the giving of notice or the
lapse of time, or both, (i) violate any provision of law,
statute, rule or regulation to which Meridian is subject,
(ii) violate any order, judgment or decree applicable to
Meridian or (iii) conflict with, or result in a breach or
default under, any term or condition of the Articles of
Incorporation or By-Laws of Meridian or any material
agreement or other material instrument to which Meridian or
any of its subsidiaries is a party or by which any of them
may be bound; except for violations, conflicts, breaches or
defaults which in the aggregate would not materially hinder
or impair the consummation of the transactions contemplated
hereby.
Section 3.4. Consents. Except as set forth on
Schedule 3.4, no consent, approval or authorization of,
exemption by, or filing with, any governmental or regulatory
authority, or any third party, is required in connection
with the execution, delivery and performance by Meridian of
this Agreement or the consummation by Meridian of the
transactions
contemplated hereby.
Section 3.5. Funds Available. Meridian and Merger
Company have or will have available to them sufficient funds
to perform all of their respective obligations pursuant to
this Agreement.
Section 3.6. Merger Company. At or prior to the
Closing:
(a) Merger Company shall be a corporation duly
organized and validly existing under the laws of the State
of Minnesota, with the corporate power and authority to
adopt, deliver and perform the Plan of Merger and to
consummate the transactions of Merger Company contemplated
thereby and by this Agreement.
(b) The adoption, delivery and performance by Merger
Company of the Plan of Merger and the consummation by Merger
Company of the transactions contemplated thereby and by this
Agreement shall have been duly authorized by all necessary
corporate action on the part of Merger Company, and the Plan
of Merger shall have been duly and validly adopted by Merger
Company and constitute its valid and binding obligation,
enforceable against Merger Company 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) The adoption, delivery and performance by Merger
Company of the Plan of Merger and the consummation by Merger
Company of the transactions contemplated thereby and by this
Agreement will not, with or without the giving of notice or
the lapse of time, or both, (i) violate any provision of
law, statute, rule or regulation to which Merger Company is
subject, (ii) violate any order, judgment or decree
applicable to Merger Company, or (iii) conflict with, or
result in a breach or default under, any term or condition
of the Articles of Incorporation or By-Laws of Merger
Company.
Section 3.7. GAAP Financial Statements. Meridian has
previously delivered to Citizens and Citizens Mutual true
and complete copies of audited financial statements (the
"Meridian GAAP Financial Statements") for the years ended
December 31, 1993, December 31, 1994, and December 31, 1995
for Meridian (prepared on a consolidated basis). The
Meridian GAAP Financial Statements so provided were prepared
in accordance with GAAP applied on a consistent basis and
present fairly, in all material respects, the financial
condition, results of operations and changes in financial
position of Meridian as of the dates or for the periods
covered thereby, in conformity with GAAP.
Section 3.8. Statutory Financial Statements. (a)
Meridian has previously delivered to Citizens and Citizens
Mutual true and complete copies of (i) the audited combined
statutory financial statements of Meridian Mutual and
affiliates (including statements of operations, unassigned
surplus and cash flows) for the fiscal years ended December
31, 1990 to 1994 (the "Meridian Audited SAP Financial
Statements"), and (ii) the unaudited combined statutory
financial statements of Meridian Mutual and affiliates for
the interim periods ended March 31, 1995, June 30, 1995 and
September 30, 1995 (the "Meridian Unaudited Interim SAP
Financials"). The Meridian Audited SAP Financial Statements
present fairly in all material respects the combined
financial condition of Meridian Mutual and affiliates at
such dates and results of operations for such periods and
were prepared in accordance with SAP, and the Meridian
Unaudited Interim SAP Financial Statements present fairly in
all material respects the combined financial condition of
Meridian Mutual and affiliates at such dates and results of
operations for such periods and were prepared in accordance
with SAP, except for the absence of notes and subject to
normal year-end adjustments which are not material to the
Meridian Companies in amount or effect.
(b) Annual Statements required to be filed with
applicable insurance regulatory authorities on the
respective forms prescribed or permitted by such authorities
(the "Meridian Annual Statements") for Meridian Mutual and
Meridian Security for the years ended December 31, 1991,
1992, 1993, 1994 and 1995 have been filed with the
appropriate regulatory authorities in all jurisdictions in
which such filing is required. The Meridian Annual
Statements were prepared in accordance with accounting
practices prescribed or permitted by such regulatory
authorities, applied on a consistent basis throughout the
related periods except as otherwise stated therein, and
presented fairly in all material respects the statutory
financial position of the respective company at the dates
of, and the statutory results of operations for the
respective company for the periods covered by, such
statutory statements.
Section 3.9. Reserves. The aggregate actuarial
reserves and other actuarial amounts held in respect of
liabilities with respect to Meridian Mutual and Meridian
Security as established or reflected in their combined
financial statements as of September 30, 1995:
(a) (i) were determined in accordance with
generally accepted actuarial standards consistently
applied, (ii) were fairly stated in accordance with
sound actuarial principles, and (iii) were based on
reasonable and appropriate actuarial assumptions;
(b) met the requirements of the applicable
insurance laws of the State of Indiana, or any other
state having such jurisdiction, in all material
respects; and
(c) were adequate (under generally accepted
actuarial standards consistently applied) to cover the
total amount of all reasonably anticipated matured and
unmatured liabilities of Meridian Mutual and Meridian
Security under all outstanding insurance policies
pursuant to which Meridian Mutual or Meridian Security
has any liability;
subject, however, to normal year-end adjustments which shall
not be material to the Meridian Companies in amount or
effect.
Section 3.10. No Undisclosed Liabilities. None of the
Meridian Companies has any debts, obligations or liabilities
of whatever kind or nature, either direct or indirect,
absolute or contingent, matured or unmatured (the "Meridian
Liabilities"), except debts, obligations and liabilities
that are fully reflected in, or reserved against on, the
Meridian GAAP Financial Statements, the Meridian Audited SAP
Financial Statements or the Meridian Unaudited Interim SAP
Financial Statements, except for liabilities arising from
the ordinary course of business that are not required to be
reflected in a balance sheet prepared in accordance with
GAAP or SAP (as the case may be), and except for changes in
the Meridian Liabilities arising from the ordinary course of
business since the respective dates of such financial
statements, none of which changes, individually or in the
aggregate, have had a Meridian Material Adverse Effect.
Section 3.11. Regulatory Filings. Meridian has
previously delivered or made available to Citizens and
Citizens Mutual true and complete copies of all filings
which were made by the Meridian Companies within the past
three years with the Indiana Department of Insurance (the
"Indiana Department") or any other department of insurance
in any jurisdiction where any of the Meridian Companies is
required to make such filings. Each of such filings, as of
its respective date, complied as to form and content in all
material respects with the provisions of applicable law.
Section 3.12 . SEC Reports. Meridian has delivered or
made available to Citizens and Citizens Mutual (i) each
registration statement, Current Report on Form 8-K,
Quarterly Report on Form 10-Q, annual report to
shareholders, proxy statement or information statement
prepared by it since January 1, 1992, (ii) an Annual Report
on Form 10-K for each of the years ended December 31, 1991,
1992, 1993 and 1994, and (iii) a Quarterly Report on Form
10-Q for each of the periods ended March 31, June 30 and
September 30, 1995, each in the form (including exhibits)
filed with Securities and Exchange Commission (collectively,
the "Meridian SEC Reports"). As of its respective date,
each of the Meridian SEC Reports did not contain any untrue
statements of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in
which they were made, not misleading. Each of the balance
sheets included in or incorporated by reference into the
Meridian SEC Reports (including the related notes and
schedules) fairly presents the financial position of
Citizens as of its date, and each of the statements of
income, of shareholders' equity and of cash flows included
in or incorporated by reference into the Meridian SEC
Reports (including the related notes and schedules) fairly
presents the results of operations, shareholders' equity and
cash flows, as the case may be, of Meridian for the period
set forth therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments which will
not be material to Meridian in amount or effect), in each
case in accordance with generally accepted accounting
principals consistently applied during the periods involved,
except as may be noted therein. Other than the Meridian SEC
Reports, Meridian has not filed any other definitive reports
or statements with the Securities and Exchange Commission
since January 1, 1992.
Section 3.13. Litigation. There are no proceedings or
investigations (other than claims in the ordinary course of
the insurance business), pending or threatened against,
relating to, involving or otherwise affecting any of the
Meridian Companies, which individually or in the aggregate
may have a material adverse effect on the business, results
of operations or financial condition of the Meridian
Companies (considered as a whole) (a "Meridian Material
Adverse Effect").
Section 3.14. Compliance With Law. (a) None of the
Meridian Companies is in violation in any material respect
(or, with notice or lapse of time or both, would be in
violation in any material respect) of any term or provision
of any applicable law, regulation, rule, ordinance, order,
judgment, writ or injunction of any federal, state or local
government or instrumentality or agency thereof, or of any
court, which violation may reasonably be expected to have a
Meridian Material Adverse Effect, and Meridian and Meridian
Mutual are not aware of any facts or circumstances which may
constitute or result in any such violation.
(b) None of the Meridian Companies is a party to
any contract with or other undertaking to, or is subject to
any order by, or is a recipient of any supervisory letter or
other oral or written communication of any kind from, any
governmental entity that (i) currently materially and
adversely affects the business, results of operations or
financial condition of the Meridian Companies (considered as
a whole), including without limitation, reserve adequacy,
investment, sales or trade practices and policies,
underwriting practices and policies, or management, or
(ii) may reasonably be expected to materially and adversely
affect the business, results of operations or financial
condition of any of the Meridian Companies. None of the
Meridian Companies has been advised by a governmental entity
that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting)
any order, contract or other communication of the kind
described above in this Section 3.14.
Section 3.15. Authority to Conduct Insurance Business.
Each of Meridian Mutual and Meridian Security is an
insurance company licensed or authorized to write insurance
coverages in its state of incorporation, and each of
Meridian Mutual and Meridian Security holds a license and is
fully qualified as a foreign insurer to conduct its
respective business in each jurisdiction in which such
licensure or qualification is required therefor, and there
is no other jurisdiction in which the failure to hold a
license or to be so qualified to conduct the business as is
now being conducted by the respective company would have a
Meridian Material Adverse Effect. No such license or
certificate of authority has been revoked, restricted,
suspended, limited or modified nor is any license or
certificate of authority the subject of, nor, to the
knowledge of Meridian, is there a basis for, a proceeding
for, or a threatened proceeding for, revocation,
restriction, suspension, limitation or modification, nor is
Meridian Mutual or Meridian Security operating under any
formal or informal agreement or understanding with the
licensing authority of any state that restricts its
authority to do business or requires any such company to
take, or refrain from taking, any action.
Section 3.16. Properties. Each of Meridian Companies
has good title to all properties and assets material to the
conduct of its business, which it purports to own,
including, without limitation, all property reflected in the
Meridian GAAP Financial Statements or Meridian Audited SAP
Financial Statements, or acquired since the date of such
financial statements, except (a) in all cases to the extent
such assets or properties have been sold or otherwise
disposed of in the ordinary and usual course of business
since that date or (b) to the extent such failure to have
good title would not have a Meridian Material Adverse
Effect.
Section 3.17. Intellectual Property. There are no
infringement suits pending, or to the best knowledge of
Meridian, threatened, against any of the Meridian Companies
with respect to any copyright, trademark, trade name,
service mark, or patent covered under federal or state
common law or statutory law, whether or not registered, used
by any of the Meridian Companies in a way that is material
to the conduct of their respective businesses, which would
have a Meridian Material Adverse Effect, and neither
Meridian nor Meridian Mutual knows of any fact or condition
which could give rise to any such infringement suit.
Section 3.18. Environmental Laws and Permits. Each of
the Meridian Companies is in compliance with any and all
laws, regulations, rules, ordinances, orders, judgments,
permits, agreements, licenses or other governmental
restrictions or requirements relating to health, the
environment or the release by such Meridian Company of any
materials into the environment, now in effect in any and all
jurisdictions, in which the Meridian Companies are or from
time to time may be doing business, except where such
failure to comply would not have a Meridian Material Adverse
Effect.
Section 3.19. Taxes. (a) All federal income tax
returns required to be filed by the Meridian Companies have
been properly and timely filed with the Internal Revenue
Service, (b) all state and local income tax returns
required to be filed by the Meridian Companies have been
properly and timely filed with the appropriate state or
local taxing authorities, except where the failure so to
file such state and local income tax returns would not have
a Meridian Material Adverse Effect, and (c) all federal,
state and local tax information returns required to be filed
by the Meridian Companies have been properly and timely
filed with the appropriate federal, state or local taxing
authorities, except where the failure so to file such
information returns would not have a Meridian Material
Adverse Effect. Such income tax returns were true, correct
and complete in all material respects at the time filed, and
the Meridian Companies have paid all taxes shown to be due
on such returns. The Meridian Companies have adequately
reserved, in accordance with GAAP, on the GAAP Financial
Statements, and in accordance with SAP, on the Audited SAP
Financial Statements, for the payment of all unpaid federal,
state and local taxes, including interest and penalties,
payable in respect of any taxable event or period (including
interim periods) ending on the dates of such financial
statement and for all periods prior thereto, except where
any deficiencies would not have a Meridian Material Adverse
Effect. There are no outstanding deficiencies, assessments
or proceedings for the assessment or collection of taxes or
any material dispute as to taxes against or involving any of
the Meridian Companies that would have a Meridian Material
Adverse Effect.
Section 3.20. Employee Benefit Plans. All employee
benefit plans, as defined in Subsection 3(3) of ERISA, and
all other arrangements, agreements, or programs for deferred
compensation, bonuses, severance pay, or employee fringe
benefits covering current or former employees of the
Meridian Companies that the Meridian Companies currently
maintain or to which the Meridian Companies contribute, or
are obligated to contribute, and all related trusts and
insurance contracts comply in form and in operation in all
material respects with all applicable laws and regulations,
including, without limitation, the applicable requirements
of ERISA and the Code, except where any failure to comply
would not have a Meridian Material Adverse Effect.
Section 3.21. Contracts and Commitments. None of the
Meridian Companies is in default under any material
agreement, commitment, arrangement, lease, insurance policy,
or other instrument, whether entered into in the ordinary
course of business or otherwise, and there has not occurred
any event that, with the lapse of time or giving of notice
or both, would constitute such a default, except, in all
cases, where such default would not have a Meridian Material
Adverse Effect.
ARTICLE IV
PRE-CLOSING COVENANTS
From the date hereof through the Closing Date, the
parties covenant and agree as follows:
Section 4.1. General. Each of the parties will use
its good faith efforts to take all action and to do all
things necessary, proper or advisable in order to consummate
and make effective the transactions contemplated by this
Agreement (including, without limitation, the Merger, the
reconfiguration of the Citizens Mutual Board of Directors as
contemplated by Section 1.7, and the satisfaction, but not
waiver, of the closing conditions set forth in Articles VI
and VII below); provided, however, that nothing contained in
this Agreement shall constitute an obligation or agreement
of Citizens Mutual to vote its shares of Citizens Common
Stock and Citizens Preferred Stock in favor of the Merger
and other transactions contemplated by this Agreement at the
meeting of the shareholders of Citizens contemplated by
Section 4.5(a).
Section 4.2. Notices and Consent. Each of the parties
to this Agreement will, individually and in cooperation with
the other parties, give any notices to, make any filing
with, and use good faith efforts to obtain any
authorizations, consents, and approvals of, governments and
governmental agencies and any other third parties that are
necessary, proper or advisable in connection with the
transactions contemplated by this Agreement (including,
without limitation, the Merger and the reconfiguration of
the Citizens Mutual Board of Directors as contemplated by
Section 1.7). Without limiting the generality of the
foregoing, each of the parties will file any Notification
and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the
Antitrust Division of the United States Department of
Justice under the Hart-Scott-Rodino Act, will use good faith
efforts to obtain a waiver from the applicable waiting
period, and will make any further filings pursuant thereto
that may be necessary, proper or advisable.
Section 4.3. Operation of Business. Except as set
forth in Schedule 4.3, as otherwise contemplated by this
Agreement or as Meridian may otherwise consent to in
writing: (a) each of the Citizens Companies will: (i)
operate only in the ordinary course of business in
substantially the same manner as its business has
historically been conducted; (ii) use good faith efforts to
keep available the services of its present executive
officers and key employees; and (iii) use good faith efforts
to preserve its relationships with employees and agents,
lenders, suppliers, policyholders, licensors and licensees,
insurance departments and others having material business
dealings with the Citizens Companies; and (b) none of the
Citizens Companies will: (i) issue, sell or deliver any
shares of its capital stock or issue or sell any securities
convertible into or exchangeable for, or options with
respect to, or warrants to purchase or rights to subscribe
to any of its capital stock; (ii) effect any
recapitalization, reclassification, stock dividend, stock
split or similar change in capitalization; (iii) merge with
or into, consolidate or otherwise combine with, or acquire
all or substantially all of the assets of, any other entity
(except as may be permitted under Section 4.6 of this
Agreement); (iv) make any commitments that extend beyond the
Closing Date in an amount individually exceeding $25,000;
(v) change any provision of its Articles of Incorporation or
By-Laws or similar governing documents; (vi) permit any
material insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated or any of
the coverage thereunder to lapse unless simultaneously with
such termination or cancellation replacement policies
reasonably satisfactory to Meridian are in full force and
effect; (vii) enter into any material contract, lease or
other agreement other than in the ordinary course of
business, that extends by its terms beyond the Effective
Time; (viii) amend or cancel or agree to the amendment or
cancellation of any reinsurance agreement, treaty or
arrangement; (ix) make any material change in any accounting
methods or practices; (x) effect any increases in salary,
bonuses or otherwise increase or enhance any employee or
officer compensation or benefits other than in the ordinary
course of business consistent with past practices or make
any employment commitments to existing employees that extend
by their terms beyond the Effective Time, except such as are
consistent with Section 5.4 and Section 7.10(c) hereof; or
(xi) enter into any agreement or understanding to do any of
the things described in clauses (i) through (x) above.
Section 4.4. Full Access. Citizens and Citizens
Mutual shall permit representatives of Meridian to have full
access at all reasonable times to all premises, properties,
personnel, books, records (including tax records),
contracts, and documents of or pertaining to the Citizens
Companies.
Section 4.5. Shareholders' Meeting. (a) Citizens
shall prepare and file with the Securities and Exchange
Commission (the "SEC"), as soon as is reasonably
practicable, the required proxy materials relating to
shareholder approval of the Merger and shall use its good
faith efforts to obtain clearance by the SEC of the mailing
of such material to the Citizens shareholders. After such
clearance is obtained, Citizens shall promptly call a
meeting of its shareholders to be held at the earliest date
that is reasonably practicable for the purpose of voting on
this Agreement and the transactions contemplated hereby.
Subject to the provisions of Section 4.5(b) hereof, Citizens
shall, through its Board of Directors, recommend to its
shareholders approval of the Merger and of the other
transactions contemplated by this Agreement (to the extent
such shareholder approval is required for such other
transactions).
(b) The Board of Directors of Citizens may fail to make
the foregoing recommendation, or withdraw, modify or change
any such recommendation in a manner adverse to Meridian or
approval of the Merger, if such Board of Directors, after
having consulted with and considered the advice of outside
counsel, has reasonably determined in good faith that the
making of such recommendation, or the failure to withdraw,
modify or change its recommendation, would constitute a
breach of the fiduciary duty of the members of such Board of
Directors under applicable law.
Section 4.6. Acquisition Negotiations. During the
period from the date of this Agreement to the Effective
Time, Citizens shall not without the prior written consent
of Meridian authorize or permit any of its officers,
directors, employees or agents to directly or indirectly
solicit, initiate or encourage any inquiries relating to, or
the making of any proposal which constitutes, a Takeover
Proposal (as defined below), or recommend or endorse any
Takeover Proposal, or participate in any discussions or
negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal or
otherwise facilitate any effort or attempt to make or
implement a Takeover Proposal; provided, however, that,
following prior written notice to Meridian, Citizens may,
and may authorize and permit its officers, directors,
employees and agents to,
(i) provide a third party with nonpublic
information (subject to execution of an appropriate
confidentiality agreement requiring, that all
confidential or non-public information provided to such
third party or its representatives shall be used
exclusively for the purpose of evaluating the possible
Takeover Proposal and not for any other purpose) or
otherwise facilitate any offer or attempt by that third
party to make a Takeover Proposal,
(ii) participate in discussions and negotiations
with that third party relating to any Takeover
Proposal, and
(iii) recommend or endorse any Takeover Proposal
with or by that third party,
if the Board of Directors of Citizens, after having
consulted with and considered the advice of outside counsel,
has reasonably determined in good faith that the failure to
do so would cause the members of such Board of Directors to
breach their fiduciary duties under applicable law. The
prior written notice to Meridian required by the foregoing
sentence shall include the identity of the third party and
shall be maintained by Meridian on a confidential basis. As
used in this Agreement, "Takeover Proposal" shall mean, with
respect to any person, any tender or exchange offer,
proposal for a merger, consolidation or other business
combination involving any of the Citizens Companies or any
proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets
of, any of the Citizens Companies other than the
transactions contemplated or permitted by this Agreement.
Section 4.7. Policyholders' Meeting. Citizens Mutual
shall promptly call a meeting of its policyholders to be
held at the earliest date that is reasonably practicable for
the purpose of ratifying this Agreement and voting on the
reconstitution of the Board of Directors of Citizens Mutual,
as contemplated by Section 1.7 of this Agreement, and
Citizens Mutual shall (absent the existence of an event
which has a Meridian Material Adverse Effect), through its
Board of Directors, recommend to its policyholders the
ratification of this Agreement and the approval of such
reconstitution of the Board of Directors, as contemplated by
Section 1.7 of this Agreement.
Section 4.8. Representation Letter of ESOP Trustee.
Citizens and Citizens Mutual shall use their good faith
efforts to cause the ESOP Trustee to provide to Meridian and
Citizens Mutual the ESOP Trustee's written representations,
dated the date of Closing and substantially in the form of
Exhibit J (Representation Letter of ESOP Trustee), that the
ESOP Trustee has made an independent investigation of the
proposed Merger and the transactions contemplated by this
Agreement (including use of the Merger proceeds to pay the
outstanding balance due under the ESOP Note) and determined
that such Merger and transactions are in the best interests
of the ESOP and its beneficiaries, and that all allocated
and unallocated ESOP Shares have been voted in accordance
with the provisions of the ESOP and applicable laws.
ARTICLE V
OTHER COVENANTS
The parties agree as follows with respect to the period
following the Closing:
Section 5.1. General. In case at any time after the
Closing any further action is necessary or desirable to
carry out the purposes and interest of this Agreement, each
of the parties will take such further action (including the
execution and delivery of such further instruments and
documents) as any other party reasonably may request, all at
the sole cost and expense of the requesting party.
Section 5.2. Continuity of Identity and Operations for
Citizens Insurance Companies. Meridian acknowledges the
importance of Citizens Mutual and the Citizens Subsidiaries
to the community of Red Wing, Minnesota. Accordingly,
through at least December 31, 1999, Meridian shall cause
Citizens Mutual to continue to operate under its present
corporate name and shall cause Citizens Mutual and the
Citizens Subsidiaries to continue to maintain substantial
business operations and employment in the Red Wing,
Minnesota, area.
Section 5.3. Indemnification; Directors and Officers
Insurance. (a) For a period of at least five years after
the Effective Time, Meridian shall not, and shall not permit
any of its affiliates to, take any action to change, alter
or diminish the rights to indemnification and reimbursement
or advancement of expenses by the Citizens Companies now
existing in favor of each present and former director,
officer, employee and agent of any of the Citizens Companies
(the "Indemnified Parties") as provided in their respective
articles or certificate of incorporation in effect on the
date hereof; provided that, in the event any claim or claims
are asserted or made within such five-year period, all
rights to indemnification and reimbursement or advancement
of expenses with respect of any such claim or claims shall
continue until final disposition of any and all such claims.
(b) To the extent not otherwise provided for in
the rights to indemnification referred to in Section 5.3(a)
hereof, Meridian shall, subject to the terms set forth
herein, indemnify and hold harmless an Indemnified Party,
and advance costs and expenses (including reasonably
attorneys' fees) as incurred, in each case to the fullest
extent permitted under applicable law (provided, the person
to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such
person is not entitled to indemnification), in connection
with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative,
arising out of or pertaining to the transactions
contemplated by this Agreement, for a period of five years
after the Effective Time; provided that, in the event any
claim or claims are asserted or made within such five-year
period, all rights to such indemnification and advancement
of expenses in respect of the defense of any such claim or
claims shall continue until final disposition of any and all
such claims.
(c) Any Indemnified Party wishing to claim
indemnification under Section 5.3(a) or (b), upon learning
of any such claim, action, suit, proceeding or
investigation, shall promptly notify Meridian thereof, but
the failure to so notify shall not relieve Meridian of any
liability it may have to such Indemnified Party except to
the extent such failure materially prejudices Meridian. In
the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective
Time), (i) Meridian shall have the right to assume the
defense thereof, and Meridian shall not be liable to such
Indemnified Parties for any advancement of legal expenses of
other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense
thereof, except that, if Meridian elects not to assume such
defense or if counsel for the Indemnified Parties advises
that there are issues which raise conflicts of interest
between Meridian and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them,
and Meridian shall advance all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, however, that
(i) Meridian shall be obligated to advance costs and
expenses for only one firm of counsel for all Indemnified
Parties in any jurisdiction unless the use of one counsel
for such Indemnified Parties would present such counsel with
a conflict of interest, and (ii) all Indemnified Parties
shall cooperate in good faith in the defense of any such
matter. If full indemnity is not available with respect to
any Indemnified Party, Meridian and the Indemnified Party
shall contribute to the amount payable in such proportion as
is appropriate to reflect faults and benefits.
(d) For a period of five years from the Effective
Time, Meridian shall use good faith efforts to provide that
portion of directors' and officers' liability insurance that
serves to reimburse the present and former officers and
directors of each of the Citizens Companies (determined
immediately prior to the Effective Time) with respect to
claims against such officers and directors arising from
facts or events which occurred before the Effective Time but
were not previously reported to the Citizens Companies'
insurance carriers, which insurance shall contain
substantially at least the same coverage and amounts, and
contain terms and conditions substantially no less
advantageous, as that coverage currently provided by the
Citizens Companies; provided, that officers and directors of
the Citizens Companies may be required to make application
and provide customary representations and warranties to
Meridian's or the Citizens Companies' insurance carrier for
the purpose of obtaining such insurance; and provided,
further, that such coverage will have a single aggregate for
such five-year period in an amount not less than the annual
aggregate of such coverage currently provided by the
Citizens Companies.
(e) The provisions of this Section 5.3 shall
survive the Closing , shall be binding on all successors and
assigns of Meridian, and are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
Section 5.4. Citizens Employees. This Section 5.4
sets forth certain agreements of Meridian with Citizens and
Citizens Mutual regarding the employees of Citizens Mutual
(the "Citizens Employees") following the Closing. At or
prior to the Closing, Meridian and Citizens Mutual shall
provide a joint letter to each of the Citizens Employees
establishing the applicable agreements contained in this
Section 5.4.
(a) The Citizens Employees listed on Schedule 5.4(a)
will be offered continued employment in Red Wing, Minnesota
in their present or similar capacities with Citizens Mutual
(and at not less than their current cash compensation
levels) until the earlier of (i) the date on which such
Citizens Employees are offered employment with Vis'n (as
defined in Section 6.15 hereof) or (ii) the first
anniversary date of the date of the Closing; and until the
earlier of such dates the employment of such Citizens
Employees may not be terminated except for failure to meet
reasonable performance expectations consistent with their
respective job descriptions, failure to comply with
applicable employment policies, or misconduct.
(b) The Citizens Employees listed on Schedule 5.4(b)
will be offered continued employment in Red Wing, Minnesota
in their present or similar capacities with Citizens Mutual
(and at not less than their current cash compensation
levels) after the date of the Closing, and, during the
period beginning on such Closing date through December 31,
1997, the employment of such Citizens Employees may not be
terminated except for failure to meet reasonable performance
expectations consistent with their respective job
descriptions, failure to comply with applicable employment
policies, or misconduct. Such employment shall continue to
be in Red Wing, Minnesota throughout such period.
(c) The Citizens Employees listed on Schedule 5.4(c)
will be offered continued employment in Red Wing, Minnesota
in their present or similar capacities with Citizens Mutual
(and at not less than their current cash compensation
levels) after the date of the Closing, and, during the
period beginning on such Closing date through December 31,
1998, the employment of such Citizens Employees may not be
terminated except for failure to meet reasonable performance
expectations consistent with their respective job
description, failure to comply with applicable employment
policies, or misconduct. Such employment shall continue to
be in Red Wing, Minnesota throughout such period.
(d) Continued employment following the Closing is not
contemplated with respect to the Citizens Employees listed
on Schedule 5.4(d). In the event the employment of any such
Citizens Employee is terminated on or after the date of the
Closing, such terminated Citizens Employee will be offered a
severance package, substantially as follows: (i) supervisory
employees would be offered their then current salary and
benefits for a period of eight weeks, plus an additional
week for each full year of service with Citizens Mutual as
of the time of termination of employment, and (ii) non-
supervisory employees would be offered their then current
salary and benefits for a period of four weeks, plus an
additional week for each full year of service with Citizens
Mutual as of the date of termination of employment.
(e) No severance package (other than existing
arrangements or agreements contemplated by this Agreement)
or offer of continued employment will be made to the
Citizens Employees and other persons listed on Schedule
5.4(e). Citizens and Citizens Mutual represent and warrant
that the Schedules provided for in this Section 5.4 include
all of the Citizens Employees.
(f) All employment policies and benefit plans for
continuing employees of Citizens Mutual will continue in
full force and effect until December 31, 1996. Effective
January 1, 1997, all existing Citizens Mutual employee
benefit plans will be terminated or merged into or amended
to be consistent with Meridian employee benefit plans, and
all other existing Citizens Mutual employment policies and
practices will be changed to be consistent with Meridian
employment policies and practices. For purposes of
determining participation and vesting (but not for
calculating benefits) under the employee benefit plans of
Meridian, each Citizens Employee will be credited with his
or her length of service while employed by Citizens Mutual.
After December 31, 1996, and except as otherwise provided in
this Section 5.4, Citizens Employees will be governed by
Meridian's employment policies and practices as they may be
changed from time to time.
(g) The provisions of this Section 5.4 are not
intended and shall not be construed to give any Citizens
Employee or any person other than the parties to this
Agreement any legal or equitable right, remedy or claim
under or in respect of this Agreement. Any rights of the
Citizens Employees contemplated by this Section 5.4 shall be
established by and arise under the separate joint letter to
be provided to each of the Citizens Employees, as
contemplated by this Section 5.4 and by Section 7.10.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF MERIDIAN
The obligations of Meridian under this Agreement shall,
at the option of Meridian, be subject to the satisfaction,
at or prior to the time of the Closing, of the following
conditions:
Section 6.1. No Misrepresentation or Breach of
Covenants or Warranties. As of the time of Closing, (a)
there shall have been no material breach by Citizens or
Citizens Mutual in the performance of any of its covenants
and agreements herein, (b) each of the representations and
warranties of Citizens and Citizens Mutual contained in this
Agreement shall have been true and correct as of the date of
execution of this Agreement, and (c) each of the
representations and warranties of Citizens and Citizens
Mutual contained in this Agreement, without regard to any
qualification, materiality threshold or reference to
immateriality or a Citizens Material Adverse Effect, shall
be true and correct as of the date of the Closing as though
made on and as of such date (provided, that each of the
representations and warranties made as of a particular date
need only be true and correct as of that date), except for
any inaccuracies which, individually or in the aggregate,
have not had a Citizens Material Adverse Effect; provided,
however, that there shall be deemed not to be such a
Citizens Material Adverse Effect to the extent that such
effect is the result of the announcement of the Merger or
the result of transactions contemplated by this Agreement.
Section 6.2. Officers' Certificates. Citizens and
Citizens Mutual shall have delivered to Meridian a
certificate, dated the date of the Closing and executed by
the chief executive officer and by the chief financial
officer or an executive vice president of Citizens and
Citizens Mutual, certifying that the conditions set forth in
Section 6.1 hereof have been fulfilled. In addition,
Citizens and Citizens Mutual shall have delivered to
Meridian a certificate, dated the date of the Closing and
executed by the corporate secretary or assistant corporate
secretary of Citizens and Citizens Mutual, certifying as to:
the articles of incorporation, by-laws and corporate
existence of each of the Citizens Companies; that the
resolutions (true and complete copies of which shall be
attached to the certificate) of the Boards of Directors of
Citizens and Citizens Mutual with respect to this Agreement
and the transactions contemplated hereby have been duly and
validly adopted and are in full force and effect; that the
resolutions (true and complete copies of which shall be
attached to the certificate) of the shareholders of Citizens
with respect to this Agreement and the transactions
contemplated hereby have been duly and validly adopted and
are in full force and effect; that any resolutions (true
and complete copies of which shall be attached to the
certificate) of the policyholders or members of Citizens
Mutual with respect to this Agreement and the transactions
contemplated hereby, if any such resolutions are required,
have been duly and validly adopted and are in full force and
effect; and as to the incumbency and signatures of certain
officers of Citizens and Citizens Mutual.
Section 6.3. Letter as to Transaction Cost. Citizens
and Citizens Mutual shall have delivered to Meridian a
letter, dated the date of the Closing and executed by the
chief financial officer and the treasurer of Citizens and
Citizens Mutual, setting forth all Transaction Costs (as
defined in Section 10.2) paid or incurred by the Citizens
Companies (whether paid or payable before or after the
Effective Time), in connection with this Agreement or the
transactions contemplated hereby, and specifying in
reasonable detail the amount of such Transaction Costs in a
manner that will enable the parties to determine the amount
of the Transaction Costs Adjustment, if any, as that term is
defined in Section 10.2. Such letter shall be based upon
facts and such good faith estimates as may be reasonable
under the circumstances; provided, however, that the letter
shall clearly indicate the amounts that are estimated and
the basis for the estimates.
Section 6.4. Approval of Citizens' Shareholders and
Citizens Mutual's Policyholders. (a) The Merger shall have
been approved and adopted at a duly called meeting of the
shareholders of Citizens by the requisite vote of the issued
and outstanding shares of Citizens Common Stock and Citizens
Preferred Stock entitled to vote thereon, voting as separate
classes.
(b) This Agreement and the reconstitution of the Board
of Directors of Citizens Mutual, as contemplated by Section
1.7 of this Agreement, shall have been approved at a duly
called meeting of the policyholders of Citizens Mutual by
the requisite vote of policyholders entitled to vote
thereon.
Section 6.5. Dissenting Shares. The holders of not
more than 5% of the issued and outstanding shares of
Citizens Common Stock at the Effective Time shall have
delivered written notice of intent to demand payment of the
fair value of their shares of Citizens Common Stock pursuant
to the Minnesota Dissenters' Rights Statute, and Citizens
Mutual shall not have delivered written notice of intent to
demand payment of the fair value of the shares of Citizens
Preferred Stock pursuant to the Minnesota Dissenters' Rights
Statute.
Section 6.6. Regulatory Approval. All approvals,
authorizations and consents from governmental and regulatory
bodies required for the transactions contemplated by this
Agreement and to permit the business currently carried on by
the Citizens Companies to continue to be carried on
substantially in the same manner following the Effective
Time, shall have been obtained and shall be in full force
and effect (including, without limitation, approvals by
appropriate insurance regulators in the states of Minnesota,
Indiana and Ohio), and Meridian shall have been furnished
with appropriate evidence, reasonably satisfactory to it and
its counsel, of the granting of such approvals,
authorizations and consents. There shall not have been any
action taken by any court, arbitration tribunal or any
governmental or regulatory body prohibiting or making
illegal at the time of the Closing or the Effective Time any
of the transactions contemplated by this Agreement.
Section 6.7. Hart-Scott-Rodino. The waiting period
required under the Hart-Scott-Rodino Act, including any
extension thereof, shall have terminated or expired prior to
the time of the Closing.
Section 6.8. Third Party Consents. All consents,
permits and approvals from parties to material contracts or
other material agreements with the Citizens Companies
required in connection with the transactions contemplated
hereby shall have been obtained (including, without
limitation, any consents required for the continued use by
the Citizens Companies of computer software or hardware
material to the business of the Citizens Companies licensed
or leased to Citizens Mutual for use by any of the other the
Citizens Companies).
Section 6.9. Boards of Directors. The respective
Boards of Directors of the Citizens Companies shall be
reconstituted as follows:
(a) Citizens Subsidiaries: The six current
directors of Meridian Security, plus the current
President and the current Vice President of Marketing
of Citizens.
(b) Citizens Mutual: The six current directors
of Meridian Security, plus the current Vice President
of Marketing of Citizens Mutual and the current
President of Citizens Mutual.
(c) Mississippi Valley Corporation: Such persons
as may be designated by Meridian not less than five
days prior to the Closing.
In addition, any amendments to the articles or certificate
of incorporation or bylaws of any of the Citizens Companies
necessary for the foregoing shall have been adopted and
become effective.
Section 6.10. Officers. Each officer of each of the
Citizens Insurance Companies shall have tendered his or her
resignation as an officer, effective as of the Effective
Time, and arrangements reasonably satisfactory to Meridian
shall have been made providing for the appointment of the
Chief Executive Officer of Meridian as the Chairman of the
Board, President and Chief Executive Officer of each of the
Citizens Insurance Companies, effective at the Effective
Time. In addition, each officer of each other Citizens
Company shall have tendered his or her resignation as an
officer, effective as of the Effective Time.
Section 6.11. Reinsurance Pooling Agreement. All
regulatory approvals necessary for the execution of the
Reinsurance Pooling Agreement, substantially in the form of
Exhibit B, by all parties thereto shall have been obtained,
and the Citizens Insurance Companies shall have entered into
that Pooling Reinsurance Agreement, effective as of the
Effective Time.
Section 6.12. Management Services Agreements. All
regulatory approvals necessary for the execution of the
Management Services Agreements, substantially in the forms
of Exhibits C-1 and C-2, by all parties thereto shall have
been obtained, and the Citizens Insurance Companies shall
have entered into those Management Services Agreements,
effective as of the Effective Time.
Section 6.13. No Material Adverse Change. Since
December 31, 1995, there shall have been no material adverse
change in the business of the Citizens Companies (considered
as a whole) or in the consolidated results of operations or
consolidated financial condition of either Citizens
(considered as a whole) or Citizens Mutual (considered as a
whole); provided, however, that there shall be deemed not to
be such a material adverse change to the extent that such
change is the result of the announcement of the Merger or
the result of transactions contemplated by this Agreement.
Section 6.14. Certain Personnel Matters. (a) Spencer
Broughton shall have entered into the Consulting Services
Agreement, substantially in the form of Exhibit D.
(b) Scott Broughton shall have entered into the
Employment Agreement, substantially in the form of
Exhibit E.
Section 6.15. Vis'n Matters. Scott Broughton, Kirk
Simmons, Meridian and Citizens Mutual shall have entered
into a letter agreement (the "Vis'n Letter") regarding a
corporation to be organized by Scott Broughton and Kirk
Simmons ("Vis'n"). The Vis'n Letter shall provide among
other matters that, upon Vis'n's formation and Meridian's
reasonable satisfaction that Vis'n is then or will be
authorized to conduct business and to enter into the
contracts and transactions contemplated by this Section
6.15, Vis'n or Vis'n and Citizens Mutual, as the case may
be, will do the following:
(a) Vis'n will offer employment, with at least
substantially the same compensation as provided by Citizens
Mutual, to the Citizen employees listed on Schedule 5.4(a),
such employment to be effective on or about the commencement
date of the Claims Administration Agreement and Software and
Hardware Systems Agreement referred to in Sections 6.15(c)
and (d) hereof; and Vis'n will immediately reimburse
Citizens Mutual or Meridian for any required payments in
respect of unused vacation time or personal leave time made
to such Citizens Employees who accept Visn's employment
offer (or will allow Citizens Mutual or Meridian to deduct
such payments from amounts otherwise payable to Vis'n under
the Claims Administration Agreement and Software and
Hardware Support Agreement referred to in Sections 6.15(c)
and (d) hereof);
(b) Vis'n and Citizens Mutual will enter into the
Real Estate Sublease Agreement, substantially in the form of
Exhibit F.
(c) Vis'n and Citizens Mutual will enter into the
Claims Administration Agreement, substantially in the form
of Exhibit G.
(d) Vis'n and Citizens Mutual will enter into the
Software and Hardware Support Agreement, substantially in
the form of Exhibit H.
(e) Vis'n and Citizens Mutual will enter into the
Office Equipment Lease Agreement, substantially in the form
of Exhibit I.
(f) Vis'n will pay $3,000 of the monthly
consulting fees payable by Citizens Mutual to Michael L.
Halvorson under a certain Independent Consultant Agreement
with Citizens Mutual.
Section 6.16. ESOP and Plan Matters. The actions to
be taken by or in respect of the ESOP described in Section
1.5 shall have been taken.
Section 6.17. Opinion of Counsel for Citizens and
Citizens Mutual. Meridian shall have received from separate
counsel for Citizens and for Citizens Mutual, opinions dated
the date of the Closing, in form and substance reasonably
satisfactory to Meridian.
Section 6.18. Fairness Opinion. The fairness opinion
Meridian has received from the investment banking firm of
McDonald & Company Securities, Inc., to the effect that the
consideration to be paid by Meridian to the shareholders of
Citizens pursuant to the Merger is fair, from a financial
point of view, to the shareholders of Meridian, shall have
been updated to the time of Closing in form and substance
reasonably satisfactory to the Board of Directors of
Meridian.
Section 6.19. Halvorson Arrangements. The First
Amended Software Agreement, dated March 21, 1996, between
Michael L. Halvorson and Citizens Mutual shall be in effect.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
CITIZENS AND CITIZENS MUTUAL
The obligations of Citizens and Citizens Mutual under
this Agreement shall, at the option of Citizens and
Citizens Mutual, be subject to the satisfaction, at or prior
to the time of the Closing, of the following conditions:
Section 7.1. No Misrepresentation or Breach of
Covenants or Warranties. As of the time of the Closing, (a)
there shall have been no material breach by Meridian in the
performance of any of its covenants herein, (b) each of the
representations and warranties of Meridian contained in this
Agreement shall have been true and correct as of the date of
the execution of this Agreement, and (c) each of the
representations and warranties of Meridian contained in this
Agreement, without regard to any qualification, materiality
threshold or reference to immateriality or a Meridian
Material Adverse Effect, shall be true and correct as of the
date of the Closing as though made on and as of such date
(provided, that each of the representations and warranties
made as of a particular date need only be true and correct
as of that date), except for any inaccuracies which,
individually or in the aggregate, have not had a Meridian
Material Adverse Effect; provided, however, that there shall
be deemed not to be such a Meridian Material Adverse Effect
to the extent that such effect is the result of the
announcement of the Merger or the result of transactions
contemplated by this Agreement.
Section 7.2. Shareholder and Policyholder Approval.
(a) The Merger shall have been approved and adopted at a
duly called meeting of the shareholders of Citizens by the
requisite vote of the issued and outstanding shares of
Citizens Common Stock and Citizens Preferred Stock entitled
to vote thereon, voting as separate classes.
(b) This Agreement and the reconstitution of the Board
of Directors of Citizens Mutual, as contemplated by Section
1.7 of this Agreement, shall have been approved at a duly
called meeting of the policyholders of Citizens Mutual by
the requisite vote of such policyholders entitled to vote
thereon.
Section 7.3. Officers' Certificates. Meridian shall
have delivered to Citizens and Citizens Mutual a
certificate, dated the date of the Closing and executed by
the chief executive officer and by the chief financial
officer or an executive vice president of Meridian,
certifying that the conditions set forth in Section 7.1
hereof have been fulfilled. In addition, Meridian shall
have delivered to Citizens and Citizens Mutual a
certificate, dated the date of the Closing and executed by
the corporate secretary or assistant corporate secretary of
Meridian and Merger Company, certifying as to: the articles
of incorporation, by-laws and corporate existence of
Meridian and Merger Company; that the resolutions (true and
complete copies of which shall be attached to the
certificate) of the Boards of Directors of Meridian and
Merger Company with respect to this Agreement and the
transactions contemplated hereby have been duly and validly
adopted and are in full force and effect; and as to the
incumbency and signatures of certain officers of Meridian
and Merger Company.
Section 7.4. Regulatory Approval. All approvals,
authorizations and consents from governmental and regulatory
bodies required for the transactions contemplated by this
Agreement shall have been obtained and shall be in full
force and effect (including, without limitation, approvals
by appropriate insurance regulators in the states of
Minnesota, Indiana and Ohio), and Citizens and Citizens
Mutual shall have been furnished with appropriate evidence,
reasonably satisfactory to it and its counsel, of the
granting of such approvals, authorizations and consents.
There shall not have been any action taken by any court,
arbitration tribunal or any governmental or regulatory body
prohibiting or making illegal at the time of the Closing or
the Effective Time any of the transactions contemplated by
this Agreement.
Section 7.5. Hart-Scott-Rodino. The waiting period
required under the Hart-Scott-Rodino Act, including any
extension thereof, shall have terminated or expired prior to
the time of the Closing.
Section 7.6. Boards of Directors. Arrangements
reasonably satisfactory to Citizens and Citizens Mutual
shall have been made providing for: (a) the Boards of
Directors of each of the Citizens Subsidiaries to include
the current President and the current Vice President of
Marketing of Citizens, (b) for the Board of Directors of
Citizens Mutual to include the current Vice President of
Marketing of Citizens Mutual and the current President of
Citizens Mutual, and (c) for the Board of Directors of
Meridian to include the current President of Citizens and
Citizens Mutual; in each case, as of immediately following
the Effective Time.
Section 7.7. Third Party Consents. All consents,
permits and approvals from parties to material contracts or
other material agreements with the Meridian Companies
required in connection with the transactions contemplated
hereby shall have been obtained.
Section 7.8. Reinsurance Pooling Agreement. All
corporate and regulatory approvals necessary for the
execution of the Reinsurance Pooling Agreement substantially
in the form of Exhibit B, by all parties thereto, shall have
been obtained; and Meridian Mutual and Meridian Security
shall have entered into that Reinsurance Pooling Agreement,
effective as to the Effective Time.
Section 7.9. Management Services Agreements. All
corporate and regulatory approvals necessary for the
execution of the Management Services Agreements
substantially in the forms of Exhibit C-1 and C-2, by the
respective parties thereto, shall have been obtained; and
Meridian, Meridian Mutual and Meridian Security shall have
entered into those Management Services Agreements, effective
as of the Effective Time.
Section 7.10. Certain Personnel Matters.
(a) Meridian shall have entered into the
Consulting Services Agreement with Spencer Broughton,
substantially in the form of Exhibit D.
(b) Meridian shall have entered into the
Employment Agreement with Scott Broughton, substantially in
the form of Exhibit E.
(c) The letter or letters to Citizens Employees
referred to in Section 5.4, in a form or forms reasonably
satisfactory to Citizens and Citizens Mutual, shall have
been provided to such Citizens Employees, or arrangements
therefor reasonably satisfactory to Citizens and Citizens
Mutual shall have been made.
Section 7.11. Vis'n Matters. The Vis'n Letter
referred to in Section 6.15 shall have been entered into.
Section 7.12. No Material Adverse Change. Since
December 31, 1995, there shall have been no material adverse
change in the business, results of operations or financial
condition of the Meridian Companies (considered as a whole);
provided, however, that there shall be deemed not to be such
a material adverse change to the extent that such change is
the result of the announcement of the Merger or the result
of transactions contemplated by this Agreement.
Section 7.13. Opinion of Counsel for Meridian.
Citizens and Citizens Mutual shall have received from
counsel for Meridian, an opinion dated the date of the
Closing, in form and substance reasonably satisfactory to
Citizens and Citizens Mutual.
Section 7.14. Fairness Opinions. The fairness opinion
Citizens has received from the investment banking firm of
Goldsmith, Agio, Helms Securities, Inc., to the effect that
the consideration to be received in the Merger by the
holders of Citizens Common Stock and Citizens Preferred
Stock is fair to such holders from a financial point of
view, shall have been updated to the date of the proxy
statement referred to in Section 4.5(a) and to the time of
Closing, in form and substance reasonably satisfactory to
the Board of Directors of Citizens.
Section 7.15. Payment of ESOP Note. The ESOP note
shall have been repaid as contemplated by Section 1.5(b).
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 8.1. Survival of Representations and
Warranties. The representations and warranties made in this
Agreement by the parties hereto shall not survive the
Closing. Notwithstanding the foregoing, the covenants set
forth in Article V shall survive the Effective Time.
ARTICLE IX
TERMINATION
Section 9.1. 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 Minnesota, whether
before or after action by the shareholders of Citizens as
contemplated by Section 4.5(a), of this Agreement and
without further approval by the shareholders of Citizens:
(a) By mutual written consent of Meridian, Citizens
and Citizens Mutual;
(b) By Citizens and Citizens Mutual, by written notice
to Meridian, if the number of votes in favor of the Merger
and this Agreement cast by the shareholders of Citizens and
required for the consummation of the Merger shall not have
been obtained at the meeting of Citizens' shareholders or at
any adjournment thereof duly held for such purpose;
(c) By either Citizens and Citizens Mutual, on the one
hand, or by Meridian, on the other hand, by written notice
to the other, if the Minnesota Department fails by
September 30, 1996, to approve, or give its consent to any
of the material transactions contemplated by this Agreement
that the Minnesota Department is required to approve or
consent to under applicable law;
(d) By Meridian, in the event a condition set forth in
Article VI of this Agreement cannot be satisfied;
(e) By Citizens and Citizens Mutual, in the event a
condition set forth in Article VII of this Agreement cannot
be satisfied; or
(f) By either Meridian, on the one hand, or by
Citizens and Citizens Mutual, on the other hand, by written
notice to the other if the Merger is not consummated by
September 30, 1996.
Section 9.2. Termination Fee. (a) If Citizens and
Meridian fail to consummate the Merger and:
(i) Citizens 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 Citizens
or Citizens Mutual prior to January 1, 1997; and
(ii) Meridian shall have complied with all of its
obligations under this Agreement required to be
performed by it through the date of the earliest
relevant event described in Section 9.2(a)(i); and
(iii) this Agreement shall not have been
terminated by mutual written consent of all of the
parties pursuant to Section 9.1(a);
then Citizens shall promptly pay to Meridian an amount equal
to $586,646 plus the amounts of all Transaction Costs paid
or incurred by Meridian or its affiliates, and Citizens and
Citizens Mutual shall have no further liability or
obligation to Meridian with respect to this Agreement.
(b) If Citizens and Meridian fail to consummate the
Merger and:
(i) either (A) the Board of Directors of Citizens
refuses or fails to make the recommendation to the
shareholders of Citizens contemplated by
Section 4.5(a), or withdraws, modifies or changes any
such recommendation in a manner adverse to Meridian or
to approval of the Merger, (B) any party terminates
this Agreement pursuant to Section 9.1(c) because the
Minnesota Department does not approve the Merger due to
the amount of consideration to be received by any
shareholders in the Merger, (C) Citizens Mutual shall
not have voted its shares of Citizens Common Stock or
Citizens Preferred Stock in favor of the Merger and
other transactions contemplated by this Agreement at
the meeting of the shareholders of Citizens
contemplated by Section 4.5(a) (it being understood
that Citizens Mutual is not obligated by this Agreement
or otherwise to vote in favor of the Merger and such
transactions) or (D) the First Amended Software
Agreement, dated March 21, 1996, between Michael L.
Halvorson and Citizens Mutual shall not have remained
in effect; and
(ii) Meridian shall have complied with all of its
obligations under this Agreement required to be
performed by it through the date of the earliest
relevant event described in Section 9.2(b)(i); and
(iii) this Agreement shall not have been
terminated by mutual written consent of all of the
parties pursuant to Section 9.1(a),
then Citizens shall pay and reimburse to Meridian all
Transaction Costs paid or incurred by Meridian or its
affiliates, promptly upon receipt from Meridian of a
reasonably detailed accounting thereof; and Citizens and
Citizens Mutual shall have no further liability or
obligations to Meridian with respect to this Agreement
except as may arise under Section 9.2(a).
Section 9.3. Survival of Rights. Except as otherwise
provided in Sections 9.1 and 9.2, nothing in this Article IX
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 X
MISCELLANEOUS
Section 10.1. Notices. All notices or other
communications required or permitted hereunder shall be in
writing and shall be given by confirmed telecopy or
registered mail addressed:
(a) If to Citizens or Citizens Mutual:
Mr. Scott S. Broughton
President, Chief Operating Officer and Chief
Financial Officer
Citizens Security Group Inc.
Citizens Security Mutual Insurance Company
406 Main Street
Red Wing, Minnesota 55066
Fax: (612) 388-0538
If to Citizens, a copy to:
Jay L. Swanson, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Fax: (612) 340-8738
If to Citizens Mutual, a copy to:
Thomas H. Borman, Esq.
Maslon Edelman Borman & Brand
3300 Norwest Center
90 S. Seventh Street
Minneapolis, Minnesota 55402-4140
Fax: (612) 672-8397
(b) If to Meridian:
Ms. Norma J. Oman
President and Chief Executive Officer
Meridian Insurance Group, Inc.
2955 North Meridian Street
Indianapolis, Indiana 46208
Fax: (317) 927-8119
with copies to:
J. Mark McKinzie, Esq.
General Counsel
2955 North Meridian Street
Indianapolis, Indiana 46208
Fax: (317) 931-7930
and
Tibor D. Klopfer, Esq.
Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, Indiana 46204
Fax: (317) 237-1000
All notices and other communications required or permitted
under this Agreement that are addressed as provided in this
Section 10. 01 will (i) if delivered personally, be deemed
given upon delivery, (ii) if delivered by facsimile
transmissions, be deemed given when sent and confirmation or
receipt is received, and (iii) if delivered by mail in the
manner described above, be deemed received on the date of
receipt. Any party from time to time may change its address
for the purpose of notices to that party by giving notice to
the other parties hereto specifying a new address, but no
such notice will be deemed to have been given until it is
actually received by the party sought to be charged with the
contents thereof.
Section 10.2. Expenses. (a) Except as otherwise
provided herein, each party hereto shall pay its own
expenses, including without limitation, legal and accounting
fees and expenses, incident to its negotiation and
preparation of this Agreement and to its performance and
compliance with the provisions contained herein
("Transaction Costs").
(b) In the event that the aggregate Transaction
Costs paid or incurred by the Citizens Companies exceed
$650,000, the excess over that amount (the "Transaction
Costs Adjustment") shall reduce the amount of cash payable
to the holders of Citizens Common Stock and Citizens
Preferred Stock, as provided in Section 1.3(a). The parties
acknowledge that the Transaction Costs Adjustment, if any,
may be based in part upon reasonable good faith estimates
and projections made immediately prior to the Closing and
shall be determined in the manner provided in Section 6.3.
Section 10.3. Titles and Headings. Titles and
headings to Articles and Sections herein are inserted for
convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this
Agreement.
Section 10.4. No Third-Party Beneficiaries. Except as
otherwise provided in Section 5.3 of this Agreement, nothing
in this Agreement or in any agreement attached hereto as an
exhibit is intended or shall be construed to give any
person, other than the parties hereto any legal or equitable
right, remedy or claim under or in respect of this Agreement
or any agreement attached hereto as an exhibit or any
provision contained herein or therein.
Section 10.5. Entire Agreement. This Agreement,
together with the contracts executed and delivered pursuant
hereto, supersedes all prior discussions and agreements
between the parties with respect to the subject matter of
this Agreement, and this Agreement, including documents,
certificates and contracts executed and delivered pursuant
hereto, contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
Notwithstanding the foregoing, the parties agree that the
terms and conditions of the Confidentiality and Non-
Disclosure Agreement shall continue to remain in full force
and effect.
Section 10.6. Public Announcements. At all times at
or before the Closing, Citizens and Citizens Mutual and
Meridian will consult with the other before issuing or
making any reports, statements, or releases to the public
with respect to this Agreement or the transactions
contemplated hereby and will use good faith efforts to
obtain the other party's approval of the text of any public
report, statement, or releases to be made on behalf of such
party. If either party is unable to obtain the approval of
its public report, statement, or release from the other
party and such report, statement, or release is, in the
opinion of legal counsel to such party, required by law in
order to discharge such party's disclosure obligations, then
such party may make or issue the legally required report,
statement, or release and promptly furnish the other party
with a copy thereof.
Section 10.7. Waiver. Any term or condition of this
Agreement may be waived at any time by the party that is
entitled to the benefit thereof. A waiver on one occasion
will not be deemed to be a waiver of the same or any other
breach on a future occasion. All remedies, either under
this Agreement, or by law or otherwise afforded, will be
cumulative and not alternative, but no such waiver shall be
effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such terms or
conditions.
Section 10.8. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
state of Indiana without giving effect to any choice or
conflicts of law provision or rule (whether of the State of
Indiana or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the
State of Indiana.
Section 10.9. Binding Effect. This Agreement is
binding upon and will inure to the benefit of the parties
and their respective successors and permitted assignees.
Section 10.10. No Assignment. This Agreement or any
right or obligation hereunder may not be assigned by any
party hereto without the prior written consent of the other
parties hereto and any attempt to do so will be void.
Section 10.11. Invalid Provisions. If any provision
of this Agreement is held to be illegal, invalid or
unenforceable under any present or future law, and if the
rights or obligations of the parties under this Agreement
will not be materially and adversely affected thereby: (a)
such provision will be fully severable; (b) this Agreement
will be construed and enforced as if such illegal, invalid
or unenforceable provision had never comprised a part
hereof; (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by
the illegal, invalid or unenforceable provision or by its
severance herefrom; and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and
enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
Section 10.12. Construction. The language used in
this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent, and no rule of
strict construction shall be applied against any party. Any
reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context
requires otherwise.
Section 10.13. Execution in Counterparts. This
Agreement may be executed in two or more counterparts, all
of which shall be considered one and the same agreement, and
shall become a binding agreement when one or more
counterparts have been signed by each of the parties and
delivered to each of the other parties.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement the day and year first above written.
MERIDIAN INSURANCE GROUP, INC.
By:___________________________
Norma J. Oman, President and
Chief Executive Officer
CITIZENS SECURITY GROUP INC.
By:___________________________
Name:_________________________
Title:________________________
CITIZENS SECURITY MUTUAL
INSURANCE COMPANY
By:___________________________
Name:_________________________
Title:________________________
LIST OF EXHIBITS ATTACHED TO THE ACQUISITION AND AFFILIATION
AGREEMENT BY AND AMONG CITIZENS SECURITY GROUP INC.,
CITIZENS SECURITY MUTUAL INSURANCE COMPANY, AND MERIDIAN
INSURANCE GROUP, INC.
Following is a description of the exhibits attached to the
Acquisition and Affiliation Agreement by and among Citizens
Security Group Inc., Citizens Security Mutual Insurance
Company, and Meridian Insurance Group, Inc.:
Exhibit A - Plan of Merger, copy of which follows this list
of Acquisition Agreement exhibits.
Exhibit B - Reinsurance Pooling Agreement Amended and
Restated as of August 1, 1996, copy of which is attached as
a separate exhibit to Form 10-K for the fiscal year ended
December 31, 1996.
Exhibit C - Management Services Agreement Between Meridian
Mutual Insurance
Company and its Affiliates, a copy of which is attached as a
separate exhibit to Form 10-K for the fiscal year ended
December 31, 1996.
Exhibit D - Consulting Services Agreement between the
Company and Spencer A. Broughton, former Chairman and Chief
Executive Officer of Citizens Security Group Inc., with a
Stock Option Agreement granting Mr. Broughton the right to
purchase up to 20,000 Common Shares of the Company.
Exhibit E - Consulting Services Agreement and Stock Option
Agreement between the Company and Scott S. Broughton, with
copies of both agreements attached as separate exhibits to
Form 10-K for the fiscal year ended December 31, 1996.
Exhibit F - Sublease Agreement under which VIS'N, Inc.
subleases a portion of the office space leased by Citizens
Security Mutual Insurance Company.
Exhibit G - Claims Administration Agreement by and among
Citizens Security Mutual Insurance Company, Citizens Fund
Insurance Company, Insurance Company of Ohio and VIS'N,
Inc., a copy of which agreement is attached as a separate
exhibit to the Form 10-K for the fiscal year ended December
31, 1996.
Exhibit H - Software and Hardware Support Agreement by and
among Citizens Security Mutual Insurance Company, Citizens
Fund Insurance Company, Insurance Company of Ohio, and
VIS'N, Inc., a copy of which agreement is attached as a
separate exhibit to the Form 10K for the fiscal year ended
December 31, 1996.
Exhibit I - Office Equipment Lease Agreement between
Citizens Security Mutual Insurance Company as Lessor and
VIS'N, Inc. as Lessee.
Exhibit J - Representation Letter of ESOP Trustee.
BY-LAWS
OF
MERIDIAN INSURANCE GROUP, INC.
INCLUDING ALL AMENDMENTS
December 4, 1996
ARTICLE I
Certificates for Shares
Section 1. Certificates. Each holder of shares of the
Corporation shall be entitled to a certificate signed by the
President or a Vice President and attested by the Secretary
or an Assistant Secretary, certifying the number of shares
owned by such shareholder and such other information as may
be required by law. The form of such certificate shall be
prescribed by resolution of the Board of Directors.
Section 2. Lost or Destroyed Certificates. If a
certificate of any shareholder is lost or destroyed, a new
certificate may be issued to replace such lost or destroyed
certificate. Unless waived by the Board of Directors, the
shareholder shall make an affidavit or affirmation of the
fact that his certificate is lost or destroyed, shall
advertise the same in such manner as the Board of Directors
may require, and shall give the Corporation a bond of
indemnity in the amount and form which the Board of
Directors may prescribe.
Section 3. Transfer of Shares. Shares of the
Corporation shall be transferable only on the books of the
Corporation upon presentation of the certificate
representing the same, endorsed by an appropriate person or
persons and accompanied by (1) reasonable assurance that
those endorsements are genuine and effective and (2) a
request to register such transfer. Transfers of shares
shall be otherwise subject to the provisions of Article 8 of
the Indiana Uniform Commercial Code, Ind. Code Chapter 26-1-
8, as amended.
Section 4. Recognition of Shareholders. The
Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of
shares to receive dividends and to vote as such owner
notwithstanding any equitable or other claim to, or interest
in, such shares on the part of any other person.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meeting. The annual meeting of the
shareholders of the Corporation shall be held within the
first six months of the calendar year on such date and at
such place as designated by the Board of Directors.
Section 2. Special Meetings. Special meetings of the
shareholders may be called by the President, by the Board
of Directors, or by shareholders who hold not less than two-
thirds (2/3) of all the outstanding shares which may be
voted on the business proposed to be transacted thereat.
Special meetings of shareholders shall be held at such place
as the Board of Directors may designate.
Section 3. Notice of Meetings. Written notice stating
the date, time and place of any meeting of shareholders and,
in the case of special meetings or when otherwise required
by law, the purpose for which any such meeting is called,
shall be delivered or mailed by the Secretary of the
Corporation to each shareholder of record entitled to vote
at such meeting, at such address as appears upon the records
of the Corporation and at least ten (10) but no more than
sixty (60) days before the date of such meeting, on being
notified of the date, time and place thereof by the person
or persons calling the meeting.
Section 4. Waiver of Notice. Notice of any meeting
may be waived in writing by any shareholder before or after
the date and time for such meeting stated in the notice.
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Attendance at any meeting in person, or by proxy when the
instrument of proxy sets forth in reasonable detail the
purposes of such meeting, shall constitute a waiver of
notice of such meeting.
Section 5. Date of Determination of Voting Rights.
The Board of Directors may fix in advance a date as a record
date, not exceeding sixty (60) days prior to the date of any
meting of shareholders for the purpose of determining the
shareholders entitled to notice of and to vote at such
meeting, to demand a special meeting, or to take any other
action. In the absence of action by the Board of Directors
to fix a record ate as herein provided, the record date
shall be the fourteenth (14th) day prior to the date of the
meeting.
Section 6. Voting by Proxy. A shareholder entitled to
vote at any meeting of shareholders may vote either in
person or by proxy executed in writing by the shareholder or
a duly authorized attorney-in-fact of such shareholder. No
proxy shall be voted at any meeting of shareholders unless
the same shall be filed with the Secretary of the meeting
prior to the commencement of such meeting. The general
proxy of a fiduciary shall be given the same effect as the
general proxy of any other shareholder.
Section 7. Voting Lists. The Secretary shall make, at
least five (5) days before each meeting of shareholders, a
complete list of the shareholders entitled to vote at such
meeting, arranged in alphabetical order, with the address of
each and the number of shares held by each, which list shall
be kept on file at the principal office of the Corporation
and shall be subject to inspection by any shareholder at any
time during usual business hours for a period of five (5)
days prior to such meeting. The list shall also be produced
and kept open at the time and place of such meeting and
shall be subject to inspection by any shareholder during
such meeting or any adjournment.
Section 8. Quorum. At any meeting of shareholders,
the holders of a majority of the outstanding shares which
may be voted on the business to be transacted at such
meeting, represented thereat in person or by proxy, shall
constitute a quorum, and a majority vote of such quorum
shall be necessary for the transaction of any business by
the meeting, unless a greater number is required by law, the
Articles of Incorporation or these By-Laws.
Section 9. Action by Consent. Any action required to
be taken at a meeting of shareholders, or any action which
may be taken at a meeting of shareholders, may be taken
without a meeting but with the same effect as a unanimous
vote at a meeting, if, prior to such action, a consent in
writing, setting forth the action so taken, shall be signed
by all shareholders entitled to vote with respect thereto,
and such consent is filed with the minutes of shareholders'
proceedings or the Corporation's records.
ARTICLE III
Board of Directors
Section 1. Duties and Qualifications. All corporate
powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed
under the direction of, the Board of Directors, except as
may be otherwise provided by law or the Articles of
Incorporation.
Section 2. Number and Terms of Office. There shall be
at least nine (9) directors of its Corporation who shall be
divided into three (3) classes containing, as nearly as
possible, an equal number of directors in each class. The
term of office of each of the directors in each class shall
expire in the same year so that each class shall be elected
at succeeding annual meetings for a three-year term; except
as shorter terms may be required for individual directors so
as to maintain, as nearly as possible, an equal number of
directors in each class.
Section 3. Annual Meeting. Unless otherwise agreed
upon, the Board of Directors shall meet immediately
following the annual meeting of the shareholders, at the
place where such meeting of shareholders was held, for the
purpose of election of officers of the Corporation and
consideration of any other business which may be brought
before the meeting. No notice shall be necessary for the
holding of this annual meeting.
Section 4. Other Meetings. Regular meetings of the
Board of Directors may be held pursuant to a resolution of
the Board to such effect. No notice shall be necessary for
any regular meeting. Special meetings of the Board of
Directors may be held upon the call of the President or of
any two (2) members of the Board and upon twenty-four (24)
hours' notice specifying the date, time, and place of the
meeting, given to each director either orally in person or
by telephone, or in writing delivered in person, by mail, or
by expedited courier service, or by telegram or
photographic, telecopy, or equivalent reproduction of a
writing. Notice of a special meeting may be waived in
writing before the time of the meeting, at the time of the
meeting, or after the time of the meeting. Attendance at
any special meeting shall constitute waiver of notice of
such meeting, except as otherwise provided by law.
Section 5. Quorum. A majority of the actual number of
directors elected and qualified, from time to time, shall be
necessary to constitute a quorum for the transaction of any
business except the filling of vacancies, and the act of the
majority of the directors present at a meeting when a quorum
is present shall be the act of the Board of Directors,
unless the act of a greater number is required by law, the
Articles of Incorporation, or these By-Laws.
Section 6. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if prior to such
action a written consent to such action is signed by all
members of the Board and such consent is filed with the
minutes of proceedings of the board or the Corporation's
records.
Section 7. Committees. The Board of Directors, by
resolution adopted by a majority of the actual number of
directors elected and qualified, may designate from among
its members an executive Committee and one or more other
committees, each of which, to the extent provided in such
resolution, may have and exercise all the authority of the
Board of Directors, except as may otherwise be provided by
law or the Articles of Incorporation.
Section 8. Participation in Meetings. A member of the
Board of Directors or of the executive committee or other
committee designated by the Board may participate in a
meeting of the Board or executive or other committee of the
Board by means of a conference telephone or similar
communications equipment by which all directors
participating may simultaneously hear each other during the
meeting; and participation by these means constitutes
presence in person at the meeting for all purposes under
these By-Laws.
ARTICLE IV
Offices
Section 1. Offices and Qualification Therefor. The
officers of the Corporation shall consist of a Chairman of
the Board of Directors, a President, one (1) or more Vice
Presidents, a Secretary, a Treasurer and such assistant
officers as the Board of Directors shall designate. The
President shall be chosen from among the directors. Any two
(2) or more offices may be held by the same person.
Section 2. Terms of Office. Each officers of the
Corporation shall be elected annually by the Board of
Directors at its annual meeting and shall hold office for a
term of one (1) year and until his successor shall be duly
elected and qualified.
Section 3. Vacancies. Whenever any vacancies shall
occur in any of the offices of the Corporation for any
reason, the same may be filled by the Board of Directors at
any meeting thereof, and any officer so elected shall hold
office until the next annual meeting of the Board of
Directors and until his successor shall be duly elected and
qualified.
Section 4. Removal. Any officer of the Corporation
may be removed, with or without cause, by the Board of
Directors whenever a majority of such Board shall vote in
favor of such removal.
Section 5. Compensation. Each officer of the
Corporation shall receive such compensation for his service
in such office as may be fixed by action of the Board of
Directors, duly recorded.
ARTICLE V
Powers and Duties of Officers
Section 1. Chairman of the Board of Directors. The
Chairman of the Board of Directors shall preside at all
meetings of shareholders and directors, a duty which he may
delegate to the President, or in the absence of the
President, to any other director at his discretion. The
Chairman shall have such other powers and duties as these By-
Laws or the Board of Directors may prescribe.
Section 2. President. Subject to the general control
of the Board of Directors, the president shall manage and
supervise all the affairs and personnel of the Corporation
and shall discharge all the usual functions of the chief
executive officer of a corporation. Shares of other
corporations owned by this Corporation shall be voted by the
President or by such proxies as the President shall
designate. The President shall have authority to execute,
with the Secretary, powers of attorney appointing other
corporations, partnerships or individuals as the agents of
the Corporation, subject to law, the Articles of
Incorporation, and these By-Laws.
Section 3. Vice Presidents. The Vice Presidents, in
the order designated by the Board of Directors, shall have
all the powers of, and perform all the duties incumbent
upon, the President during his absence or disability and
shall have such other powers and duties as these By-Laws or
the Board of Directors may prescribe.
Section 4. Secretary. The Secretary shall attend all
meetings of the shareholders and of the Board of Directors,
and shall keep or cause to be kept, a true and complete
record of the proceedings of such meetings, and he shall
perform a like duty, when required, for all standing
committees appointed by the Board of Directors. If
required, he shall attest the execution by the Corporation
of deeds, leases, agreements and other official documents.
He shall attend to the giving and serving of all notices of
the Corporation required by these By-Laws, shall have
custody of the books (except books of account) and records
of the Corporation, and in general shall perform all duties
pertaining to the office of Secretary and such other duties
as these By-Laws or the Board of Directors may prescribe.
Section 5. Treasurer. The Treasurer shall keep
correct and complete records of account, showing accurately
at all times the financial condition of the Corporation. He
shall have charge and custody of, and be responsible for,
all funds, notes, securities and other valuables which may
from time to time come into the possession of the
Corporation. he shall deposit, or cause to be deposited,
all funds of the Corporation with such depositories as the
Board of Directors shall designate. He shall furnish at
meetings of the Board of Directors, or whenever requested, a
statement of the financial condition of the Corporation, and
in general shall perform all duties pertaining to the office
of Treasurer and such other duties as these
By-Laws or the Board of Directors may prescribe.
Section 6. Assistant Officers. The Board of Directors
may from time to time designate and elect assistant officers
who shall have such powers and duties as the officers whom
they are elected to assist shall specify and delegate to
them, and such other powers and duties as these By-Laws or
the Board of Directors may prescribe. An Assistant
Secretary may, in the event of the absence or the disability
of the Secretary, attest the execution of all documents by
the Corporation.
ARTICLE VI
Miscellaneous
Section 1. Corporate Seal. The Corporation shall have
no seal.
Section 2. Execution of Contracts and Other Documents.
Unless otherwise ordered by the Board of Directors, all
written contracts and other documents entered into by the
Corporation shall be executed on behalf of the Corporation
by the President or a Vice President, and, if required,
attested by the Secretary or an Assistant Secretary.
Section 3. Fiscal Year. The fiscal year of the
Corporation shall begin on January 1 of each year and end on
the December 31 immediately following.
ARTICLE VII
Amendments
Subject to law and the Articles of Incorporation, the
power to make, alter, amend or repeal all or any part of
these By-Laws is vested in the Board of Directors. The
affirmative vote of two-thirds (2/3) of the entire Board of
Directors then in office shall be required to effect any
alteration, amendment or repeal of these By-Laws.
MERIDIAN INSURANCE GROUP, INC.
Listing of Subsidiaries
As of December 31, 1996
State of Incorporation
Name of Subsidiary or Organization
Meridian Security Insurance Company Indiana
Citizens Security Group, Inc. Minnesota
Citizens Fund Insurance Company Minnesota
Insurance Company of Ohio Ohio
Meridian Service Corporation Indiana
