<PAGE>
As filed with the Securities and Exchange Commission on April __, 1998
Registration No. 333-29047*
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
POST-EFFECTIVE AMENDMENT NUMBER 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
(Exact name of registrant as specified in its Charter)
---------------
State or other jurisdiction of incorporation or organization: Minnesota
Primary Standard Industrial Classification Code Number: 6749
IRS Employer Identification Number: 41-1625287
---------------
6600 France Avenue South, Suite 245
Minneapolis, MN 55435, (612) 922-5445
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
David P. Bounk, President
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435, (612) 922-5445
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
COPIES TO:
Charles A. Geer, Esq. Ross C. Formell, Esq.
Corporate Counsel for Registrant Best & Flanagan LLP
4400 IDS Center 4000 U.S. Bank Place
Minneapolis, MN 55402 601 Second Avenue South
Minneapolis, MN 55402
---------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as possible after the effective date of this registration
statement. If the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. X
---
---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit Price Fee
- ---------- ---------- -------- ----- ---
<S> <C> <C> <C> <C>
Class A 15,000 shares $1006(1)(2) $15,090,000(1)(2) $4,572.72
Common Stock
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Estimated based upon book value of securities of the registrant to be
issued as of December 31, 1996.
--------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
* THIS FILING ALSO CONSTITUTES POST EFFECTIVE AMENDMENT NUMBER 3 TO THE
REGISTRANT'S FORM S-1 FILING, REGISTRATION NUMBER 33-91308, PURSUANT TO RULE
429.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 501(b) of Regulation S-K
Form S-1 Item Number and Caption Location in the Prospectus
- -------------------------------- --------------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk Factors, and
Ratio of Earnings to Fixed Charges PROSPECTUS SUMMARY
4. Use of Proceeds Not Applicable
5. Determination of Offering Price THE OFFERING
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution THE OFFERING
9. Description of Securities to be Registered DESCRIPTION OF CAPITAL STOCK
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant SELECTED FINANCIAL
INFORMATION; MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS;
BUSINESS; MANAGEMENT;
DESCRIPTION OF CAPITAL
STOCK; FINANCIAL STATEMENTS
12. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities Not Applicable
<PAGE>
PROSPECTUS
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
51,000 Shares of Class A Common Stock
Shares of Class A Common Stock, $.01 par value (the "Shares"), are being
offered by Midwest Medical Insurance Holding Company ("MMIHC") only to insureds
of MMIHC's wholly-owned subsidiary, Midwest Medical Insurance Company ("MMIC").
The Shares are offered only as part of the insuring transaction and insureds are
not required to pay any consideration for the Shares separate from or in
addition to their insurance premiums. MMIC is a physician-controlled medical
malpractice insurance company which provides professional liability insurance to
physicians in Minnesota, Iowa, Nebraska, Wisconsin, Illinois, North Dakota and
South Dakota. Shares accrue daily and are allocated to insureds pursuant to a
formula which considers the insured's underwriting risk classification and
period of coverage with MMIC. Issuance of Shares to new insureds is subject to
a five-year vesting requirement and all rights will be forfeited if insurance
coverage is not continuous for five years. See "THE OFFERING."
The Shares are uncertificated and each shareholder is entitled to only one
vote, regardless of the number of Shares he or she owns. While MMIHC's Class B
Common Share remains outstanding, its holder, the Minnesota Medical Association,
has the exclusive right to elect directors from persons nominated by MMIHC's
Board of Directors, although the holders of the Class A Common Shares can cause
MMIHC to redeem the Class B Common Share at any time for $1,000, and thereby
terminate this right.
The Shares are not transferable or assignable and must be redeemed by
MMIHC at net book value, exclusive of any value attributable to MMIC (MMIHC's
principal asset), upon a shareholder's discontinuance of coverage with MMIC for
any reason. See "DESCRIPTION OF CAPITAL STOCK."
--------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------
The date of this Prospectus is May 1, 1998.
<PAGE>
No persons have been authorized to give any information or to make any
representation other than those contained in this Prospectus in connection with
this offering and, if given or made, such information or representation must not
be relied upon as having been authorized by MMIHC. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities in any jurisdiction to or from any person to whom it is unlawful to
make any such offer or solicitation in such jurisdiction. Neither the delivery
of this Prospectus nor any distribution of securities made hereunder shall,
under any circumstances, create an implication that there has been no change in
the affairs of MMIHC since the date hereof or that the information herein is
correct as of any time subsequent to its date. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates.
AVAILABLE INFORMATION
MMIHC is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission. Reports and other
information filed by MMIHC can be inspected and copied at the public reference
facilities maintained by the Commission in Washington, D. C. and at the
following Regional Offices: 26 Federal Plaza, New York, New York 10278; and 219
South Dearborn Street, Chicago, Illinois 60604. Copies of such material also
can be obtained from the Public Reference Section of the Commission in
Washington, D.C. 20549 at prescribed rates, or on the Internet at www.sec.gov.
MMIHC provides its shareholders with an annual report containing
consolidated MMIHC and subsidiaries year-end financial statements presented
in accordance with generally accepted accounting principles ("GAAP"). MMIC's
separate net income and shareholders' equity are presented on both a GAAP and
statutory accounting basis in the Notes to the Consolidated Financial
Statements. MMIC is subject to the insurance company filing requirements of
the Minnesota Department of Commerce and files the NAIC Annual Statement each
year with the Department of Commerce which includes financial statements
presented in accordance with statutory requirements, together with an
independent auditor's report on those financial statements. MMIHC is subject
to insurance holding company regulations and files Form B with the Minnesota
Department of Commerce annually. Form B contains current information about
management, the Board of Directors, and significant operating agreements, as
well as a financial report. Copies of any of these reports, or any of the
documents referred to herein, can be obtained by requesting them from David
P. Bounk, President and Chief Executive Officer, Midwest Medical Insurance
Holding Company, 6600 France Avenue South, Suite 245, Minneapolis, Minnesota
55435; (612) 922-5445.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Selected Financial Information . . . . . . . . . . . . . . . . . . . . . . 5
Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 29
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 32
APPENDIX - Allocation Formula . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
THE COMPANIES
MMIC originally was organized in 1980 under the auspices of the Minnesota
Medical Association (the "MMA"), to provide professional liability (malpractice)
insurance to Minnesota physicians who are members of the MMA. At that time,
claims and awards in medical malpractice cases had been increasing dramatically,
and physicians were faced with substantial premium increases and a declining
number of insurers offering medical malpractice coverage. The business was
reorganized on November 30, 1988 into a stock insurance company (MMIC), wholly
owned by a holding company (MMIHC), which could pursue other business
opportunities. The reorganization also was effected to give physicians a
limited equity interest in their malpractice insurer while preserving MMIC's
capital and surplus. As of July 1, 1993, the Iowa physician-owned malpractice
insurer, Iowa Physicians Mutual Insurance Trust ("IPMIT"), was merged with and
into MMIC, and as of June 5, 1996, the Nebraska physician-owned malpractice
insurer, Medical Liability Mutual Insurance Company of Nebraska ("MLM"), was
merged with and into MMIC. MMIC now provides malpractice insurance to
physicians and physician groups in Minnesota, Iowa, Nebraska, Wisconsin,
Illinois, North Dakota and South Dakota on a claims-made basis. Professional
liability, general liability, and umbrella excess liability insurance is also
available to hospitals, nursing homes and extended care facilities through MMIC.
MMIC has had the sponsorship of the MMA since inception, and also has the
sponsorship of the Iowa and North Dakota medical associations. See "BUSINESS."
The address and telephone number of the principal executive offices of MMIHC and
MMIC are as follows: 6600 France Avenue South, Suite 245, Minneapolis,
Minnesota 55435; (612) 922-5445.
THE OFFERING
Class A Common Shares (the "Shares") are being offered only to insureds of
MMIC as part of the insuring transaction, and insureds are not required to pay
any consideration for the Shares separate from, or in addition to, their
insurance premiums. Shares accrue daily and are allocated pursuant to a formula
which considers the insured's underwriting risk classification and period of
coverage with MMIC (the "Allocation Formula", which is set forth in the
Appendix). The number of shares allocated to Nebraska insureds is reduced by a
factor designed to take account of the fact that policy limits, and therefore
premiums, are lower in Nebraska. Shares allocated to new insureds are not
issued until the end of five years of continuous coverage. Cessation of
coverage before the completion of five years of coverage will result in a
forfeiture of accrued but unissued shares. Persons who were insureds at the
time of the 1988 reorganization and persons who were IPMIT or MLM insureds at
the time of the mergers between MMIC, IPMIT and MLM are not subject to the
five-year vesting requirement. See "THE OFFERING."
<PAGE>
THE SHARES
The Shares are uncertificated shares which may be owned by individual
physicians or by individual physicians jointly with the legal entities in which
they practice. In the latter case, the shares can be voted only by the
physicians. See "DESCRIPTION OF CAPITAL STOCK."
Each holder of the Shares is entitled to only one vote, regardless of the
number of Shares held. The Minnesota Medical Association (the "MMA"), so long
as it holds the single Class B Common Share of MMIHC presently outstanding, has
the exclusive right to vote for the election of directors, but only with respect
to persons nominated for election by a committee of the Board of Directors. The
holders of the Class A Common Shares, at any time, may cause MMIHC to redeem the
Class B Common Share at par value ($1,000), and thereby gain the right to elect
directors. Such an action requires the vote of a majority of the Class A
shareholders and two-thirds of the Class A shareholders who vote on the
question.
The Shares are not transferable or assignable, and must be redeemed by
MMIHC at net book value, exclusive of any value attributable to MMIC (MMIHC's
primary asset), upon a shareholder's discontinuance of coverage with MMIC for
any reason. By excluding the value attributable to MMIC from the calculation of
the redemption amount, MMIC's capital and surplus will be preserved and not
reduced by the redemption. The redemption amount thus reflects primarily
MMIHC's net income from operations, which consists principally of management
fees paid by MMIC, plus earnings on investments, plus any dividends paid by MMIC
to MMIHC. In the event of any merger, liquidation, sale of all or substantially
all of the assets, or other extraordinary event, any consideration payable to
holders of the Shares will reflect their full value, and will not be limited to
the redemption amount. See "DESCRIPTION OF CAPITAL STOCK." As of December 31,
1997 the net book value of MMIHC (redemption value) was $61.63 per share.
2
<PAGE>
THE OFFERING
Class A Common Shares (the "Shares") are being offered only to insureds of
MMIC who will accrue Shares for each day of insurance coverage they purchase
from MMIC. Insureds are not required to pay any consideration for the Shares
separate from or in addition to their insurance premiums. The Shares will be
allocated semi-annually, pursuant to a formula which considers the insured's
underwriting risk classification and period of coverage with MMIC (the
"Allocation Formula", which is set forth in the Appendix). Shares allocated to
new insureds are not issued until the end of five years of continuous coverage.
Cessation of coverage before the completion of five years of coverage will
result in a forfeiture of accrued but unissued shares. Persons who were
insureds at the time of the 1988 reorganization and persons who were IPMIT or
MLM insureds at the time of the merger between MMIC, IPMIT and MLM were not
subject to the five-year vesting requirement. Those persons were issued Shares
upon completion of those transactions and Shares they accrue currently are
deemed issued when they are allocated.
The Allocation Formula is set forth in the Appendix to the Prospectus. It
consists of a table which indicates the number of Shares to be accrued by and
allocated to each physician for each year of insurance coverage based upon his
or her insurance risk class. The insurance risk class each physician is
assigned is based on his or her medical specialty and is the same risk class to
which the physician has been assigned by MMIC for purposes of writing the
professional liability insurance for the physician. Annual insurance premiums
are based on these risk classes, which are derived from actuarial relativity
statistics. The number of shares shown in the table therefore reflect, in part,
the relative premiums paid to MMIC by each policyholder. These relativities
have changed very little since MMIC began its business. MMIHC reserves the
right to change the Allocation Formula in the future.
The shares allocable to Nebraska physicians are reduced by a factor to take
account of the fact that policy limits, and therefore premiums, are lower in
Nebraska. This factor is the inverse of the Increased Limits Factor determined
by MMIC's regular external actuaries to be applicable in order to adjust for the
difference between the policy limit of policies issued in Nebraska as compared
to the base policy limit issued by MMIC in all other states in which it does
business. MMIC's actuaries have determined that the designated Increased Limits
Factor is currently 1.72. Therefore, a Nebraska policyholder of MMIC would be
allocated the right to receive 58.1% of the shares of MMIHC Class A Common Stock
otherwise indicated by application of the Allocation Formula. This is based
upon current information and policy limits, and the actual factor used may be
recalculated from time-to-time.
The Shares are uncertificated. Although the Shares have been registered
under the Securities Act of 1933 and state securities laws, they are
nontransferable, and there is no market in which they may be sold. Upon
discontinuation of a physician's insurance policy with MMIC for any reason, the
Shares must be redeemed by MMIHC. See "DESCRIPTION OF CAPITAL STOCK."
3
<PAGE>
No independent brokers, dealers, or underwriters have been engaged to
represent MMIHC in connection with this offering and no commissions will be paid
to any person in connection with offers or sales of the Shares. The Shares will
be offered and sold solely by officers of MMIHC.
4
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial data of MMIHC for the five years ended December
31, 1997 are derived from the audited financial statements of MMIHC. This data
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
OPERATIONS DATA 1993 (2) 1994 (2) 1995 (1) 1996 (1) 1997(1)
- --------------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net premiums earned $40,183 $26,246 $29,798 $32,046 $33,795
Net investment and other income 14,773 11,509 14,258 14,689 18,397
------------------------------------------------------------------------
Total revenue 54,956 37,755 44,056 46,735 52,192
Loss and loss adjustment expenses 30,693 11,334 37,560 32,257 31,834
Other underwriting expenses 5,807 5,509 6,482 5,539 6,595
------------------------------------------------------------------------
36,500 16,843 44,042 37,796 38,429
------------------------------------------------------------------------
Income before income taxes 18,456 20,912 14 8,939 13,763
Income taxes (benefit) 6,156 6,417 (1,711) 1,458 4,463
------------------------------------------------------------------------
Net income $12,300 $14,495 $ 1,725 $ 7,481 $ 9,300
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income per common share - assuming dilution $99.53 $114.84 $13.74 $58.33 $70.23
Number of shares used in per share calculation 123,575 (3) 126,222 (3) 125,536 (3) 128,259 132,427
Net income/total revenue 22.4% 38.4% 3.9% 16.0% 17.8%
Return on average equity 9.0% 15.8% 1.7% 6.5% 7.4%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
-----------
FINANCIAL CONDITION 1993 (2) 1994 (2) 1995 (2) 1996 (1) 1997 (1)
- --------------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<S> <C> <C> <C> <C> <C>
Fixed maturities at fair value $ - $174,203 $182,817 $183,561 $171,975
Fixed maturities at amortized cost 181,526 - - - -
Equity securities at fair value 19,580 19,782 28,311 38,001 49,759
Short-term investments 7,429 9,755 15,015 7,898 13,909
Other - - - - 10,000
--------------------------------------------------------------------------
Total investments 208,535 203,740 226,143 229,460 245,643
Reinsurance recoverable 18,310 23,637 25,112 22,174 19,117
Other assets 16,335 19,100 13,329 10,359 10,755
--------------------------------------------------------------------------
Total assets $243,180 $246,477 $264,584 $261,993 $275,515
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES
Unpaid losses and loss adjustment expenses $123,420 $110,967 $120,264 $110,037 $107,806
Other liabilities 33,904 38,358 34,053 33,074 33,942
--------------------------------------------------------------------------
157,324 149,325 154,317 143,111 141,748
REDEEMABLE STOCK
Class A and Class B Common Stock
at redemption value 7,605 7,712 6,975 7,604 7,477
OTHER SHAREHOLDERS' EQUITY 78,251 89,440 103,292 111,278 126,290
--------------------------------------------------------------------------
Total liabilities, redeemable stock and
shareholders' equity $243,180 $246,477 $264,584 $261,993 $275,515
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Midwest Medical Insurance Holding Company:
Class A Common Shares issued and outstanding 115,230(3) 116,855(3) 116,251(3) 118,209 121,322
Redemption value per share $66.00 $66.00 $60.00 $64.33 $61.63
Class A Common Shares redeemed 6,426 12,640 12,424 10,272 10,306
Amount paid to terminating policyholders upon
redemption $ 415 $ 840 $ 829 $ 608 $ 648
</TABLE>
6
<PAGE>
- ---------------------------------------
(1) Amounts derived from audited consolidated financial statements of MMIHC
included in this Prospectus.
(2) Amounts derived from audited consolidated financial statements of MMIHC.
(3) Includes pro forma shares computed to give retroactive effect to the merger
of MMIHC/MMIC with MLM. See Note 1 to the consolidated financial statements
included in this Prospectus.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MANNER OF PRESENTATION. The financial statements of MMIHC and MMIC are
presented on a consolidated basis. In future references in this analysis, which
should be read together with the 1997 Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus, MMIHC and MMIC are
referred to collectively as the "Companies."
LIQUIDITY AND CAPITAL RESOURCES
The majority of the Company's assets are invested in bonds, stocks, a
real estate investment trust and short-term instruments. These investments
totaled $245,643,000 and $229,460,000 at December 31, 1997 and 1996,
respectively, which represented 89.2% and 87.5% of total assets. The primary
objective of the Company's investment policy is preservation of assets
while securing the highest return consistent with asset conservation. The
investment in U.S. Government bonds assists in assuring adequate liquidity for
payment of losses. Fixed maturity investments and equity securities are
classified as available for sale and carried at fair value. Through the Third
Quarter of 1997 partially taxable state and other political subdivision bonds
were utilized in the portfolio to reduce federal income taxes.
During 1997 the Company adopted a revised Investment Policy resulting in
a portfolio restructuring designed to increase overall return from investments.
The benchmark total return goal set for the fixed portfolio manager was
increased. This resulted in a turnover of most of the fixed portfolio which
included selling all municipal bonds. In addition, the Company invested
$10 million in a private placement real estate investment trust to further
diversify the portfolio. This change in policy recognizes the Company's
strong financial position relative to the risk inherent in the amount of premium
written.
The Company's cash flow from operations has been essentially breakeven
for the years 1996 and 1995 combined. The improved cash flow from 1997
operations to a positive $2,899,000 is primarily the result of lower loss
payments and higher realized capital gains. Premium rates have remained level
for several years causing cash receipts from operations to be relatively level.
In addition, in recent years MMIC has returned substantial amounts of premiums
to policyholders in the form of retrospective premium credits. Loss and
operating expense payments during all three years have generally been met from
current year's premium receipts with any excess cash allocated to the investment
portfolio. The Company regularly analyzes loss liabilities to project
cash flow required in future years. Since the overall portfolio is highly
liquid, exact matching of bond maturities and liabilities is not a goal.
Maturities are selected to maximize total return. Given the Company's
December 31, 1997 shareholders' equity of $126,290,000, investments of
$245,643,000 and total liabilities of $141,748,000, the Company
anticipates no cash flow problems in the near future.
8
<PAGE>
The Company's bylaws require that MMIHC Class A Common Stock issued to
MMIC policyholders be redeemed when a physician ceases to be insured by MMIC for
any reason. The redemption value per share is calculated by dividing the net
book value of the Company, excluding the net book value of MMIC (other
shareholders' equity) from the calculation, by the number of MMIHC Class A
Common Shares outstanding. More detail about the redeemable stock and the actual
redemptions during the years 1997, 1996 and 1995 are found in Note 2 to the
consolidated financial statements. This limited redemption value preserves the
capital of MMIC as other shareholders' equity. The consolidated statements of
changes in other shareholders' equity found in the accompanying financial
statements provide the details of additions to and reductions in other
shareholders' equity.
From time to time the Board of Directors of MMIC declares dividends payable to
MMIHC to maintain the redemption value of the Company's Class A Common
Stock. A $260,000 dividend in November 1995 was declared in accordance with that
principle and paid in February of 1996. In July 1996, a dividend of $327,000 was
paid to MMIHC as required by a provision of the MMIC/MLM merger agreement. Per
the merger agreement, the amount was sufficient to maintain the per share
redemption value of MMIHC's Class A Common Stock at the same per share value
immediately after the merger as immediately before the merger. There were no
dividends declared or paid by MMIC to MMIHC in 1997.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the
Company's computer programs that have time sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send billings, or engage in similar normal business activities.
Recently, in response to other business issues, the Company decided to
replace all significant application software with new purchased applications. A
key criterion in vendor selection was Year 2000 readiness of the software. The
new applications are currently being installed and are scheduled to be fully
operational prior to December 31, 1998. As a result, management believes that is
has adequately addressed the Year 2000 issue as it relates to internal use
software.
Management continues to evaluate the Year 2000 readiness of significant vendors
and business partners and will develop contingency plans as deemed necessary.
9
<PAGE>
LOSS AND LOSS ADJUSTMENT EXPENSE
RECONCILIATION OF LIABILITY FOR LOSS
AND LOSS ADJUSTMENT EXPENSE
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Liability for loss and loss adjustment
expense at beginning of year $ 88,227 $ 96,424 $ 90,342
Plus:
Incurred loss and loss adjustment expense:
Provision for current year 39,847 41,101 40,186
(Decrease) in provision for prior
years (2,287) (8,844) (8,352)
Total incurred loss and loss adjustment
expense 37,560 32,257 31,834
Less:
Incurred loss and loss adjustment expense
payments:
Payment attributable to current year 2,484 4,885 2,685
Payment attributable to prior years 26,879 33,454 30,097
Total payments 29,363 38,339 32,782
Liability for loss and loss adjustment
expense at end of year 96,424 90,342 89,394
Reinsurance recoverables on unpaid losses
at end of year 23,840 19,695 18,412
Liability for loss and loss adjustment expense,
gross of reinsurance recoverables on
unpaid losses at end of year $120,264 $110,037 $107,806
</TABLE>
The second to the last line on the preceding reconciliation reports the amount
of reinsurance recoverables for unpaid losses which are included in the 1997,
1996 and 1995 balance sheet liability "Unpaid losses and loss adjustment
expenses." Except for adding the reinsurance recoverables, the reconciliation is
presented net of reinsurance which coincides with the manner of presentation of
the income statements.
10
<PAGE>
The current year's provision for loss and loss adjustment expense, which is
based upon policyholder exposure, expected frequency of losses, and severity of
losses, was fairly stable for the years 1997, 1996 and 1995. The loss and loss
adjustment expenses reflected in the consolidated financial statements, and
shown in the Reconciliation of Liability for Loss and Loss Adjustment Expense as
total incurred loss and loss adjustment expense, include adjustments of prior
years' estimates.
Incurred loss and loss adjustment expenses for 1997 and 1996 of $31,834,000 and
$32,257,000, respectively, are significantly less than the $37,560,000 in 1995.
During the course of each year and particularly at each year end, management
reevaluates the liability for loss and loss adjustment expense. This evaluation
is supported by outside actuarial evaluation at year end. During 1997 and 1996
these evaluations resulted in a reduction is estimated liabilities applicable to
prior years of $8,352,000 and $8,844,000, respectively. A smaller reduction of
$2,287,000 was recorded in 1995. This difference is the primary reason for the
lower incurred loss and loss adjustment expense in 1997 and 1996.
The schedule which follows summarizes the development of the liability for loss
and loss adjustment expense from 1987 through 1997. This schedule is also
presented net of reinsurance which the Company believes best explains
the development as it affects operating results. The Company has a
conservative loss reserving policy which, when coupled with a moderation of
malpractice insurance losses which began in approximately 1986 for the
Company and across the industry, has resulted in redundancies in liabilities
larger than expected. The table indicates that the redundancy in loss
liabilities, which developed when more actual results were known, has been
significantly reduced from the high at December 31, 1990. Loss and loss
adjustment expense liabilities have not been discounted in the Company's
financial statements.
11
<PAGE>
Development of Liability for Loss and Loss Adjustment Expense
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for unpaid
loss and loss
adjustment expense $60,133 $74,577 $89,630 $97,375 $100,167 $98,617 $105,589 $88,227 $96,424 $90,342 $89,394
Liability reestimated
as of:
1 year later 53,358 65,928 73,244 83,359 83,991 94,633 80,960 85,595 87,580 81,990
2 years later 46,297 51,379 62,056 64,876 74,883 69,490 75,364 76,365 79,665
3 years later 35,881 43,516 52,010 56,351 53,538 65,568 64,586 67,891
4 years later 33,448 35,753 44,582 42,075 52,833 56,426 57,851
5 years later 30,345 31,052 37,872 41,771 45,892 52,388
6 years later 26,818 29,052 37,617 39,519 43,760
7 years later 26,613 29,002 35,882 38,929
8 years later 26,620 28,724 35,882
9 years later 26,611 28,724
10 years later 26,611
Cumulative redundancy 33,522 45,853 53,748 58,446 56,407 46,229 47,738 20,336 16,759 8,352
Cumulative amount of
liability paid
through:
1 year later 13,421 12,067 10,585 13,973 19,112 21,422 25,251 26,879 33,454 30,097
2 years later 19,787 19,043 21,890 28,643 32,798 37,498 42,685 46,925 53,132
3 years later 23,184 24,143 30,869 35,305 39,906 45,227 51,087 55,534
4 years later 25,238 26,241 35,015 37,624 42,752 46,226 53,594
5 years later 26,240 27,561 35,115 38,298 43,994 46,823
6 years later 26,555 27,695 35,187 39,505 44,370
7 years later 26,670 27,695 35,295 39,861
8 years later 26,695 27,695 35,295
9 years later 26,695 27,695
10 years later 26,695
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS
NET PREMIUMS EARNED increased $1,749,000 in 1997 from 1996 while policyholders'
rate levels remained relatively level for 1996 and 1997. An increase in the
number of policyholders in 1997 increased premium by $500,000. The remaining
increase was the result of the several increase/decrease factors listed below:
1. The estimated reinsurance premium applicable to the treaty years 1992-1994
and 1995-1997, which is based in part on reinsured claims experience, was
reduced resulting in a net increase in premium between years of $3,875,000.
2. Company recorded an increase of $1,171,000 in the Iowa Development
Experience Liability account in 1997. A similar increase of $2,901,000 was
recorded in 1996. While these increased liabilities both reduce premium,
the difference in the amounts between years causes an increase in net
premium from 1996 to 1997 of $1,730,000.
3. In 1996 $2,194,000 was received from the commutation of a reinsurance
treaty covering the years 1989 and 1990. This increased 1996 premiums.
Since there was no counterpart in 1997 it causes a decrease in premiums
from 1996 to 1997 of $2,194,000.
4. A number of other prior year reinsurance premium adjustments recorded in
1996 increased 1996 premiums by $2,143,000. With no counterpart in 1997,
the difference between years is a decrease in 1997 of $2,143,000.
Investment income has remained relatively level during the last three years.
While invested assets on a cost basis did increase by $6,980,000 during 1997,
almost all of that increase occurred in the last quarter when the fixed
portfolio was restructured to meet a new benchmark return which was referred to
earlier under Liquidity and Capital Resources. Restructuring the fixed portfolio
resulted in realized capital gains of $4,916,000.
Net premiums earned increased $2,248,000 in 1996 from 1995 while the number of
insured policyholders and rate levels were relatively the same. The primary
reasons for this increase are:
1. In 1996, $2,194,000 was received from the commutation of a reinsurance
treaty covering the years 1989 and 1990. This increases 1996 net premiums.
There was no similar item in 1995.
2. Several other reinsurance treaty adjustments involving prior years
retrospective reinsurance treaties resulted in reducing 1996 reinsurance
costs by $1,740,000, thereby increasing net premium earned. The years
involved ranged from 1987-1995. Most of these treaties originated with
IPMIT prior to its merger into MMIC on July 1, 1993.
3. Offsetting these two major reasons for the increase in 1996 net premiums
was one significant item which caused a decrease. The Company
recorded an increase of
13
<PAGE>
$2,901,000 in an Iowa development experience liability account in 1996. A
similar increase of $646,000 was recorded in 1995. The difference between
the 1996 and 1995 amounts decreased net premium $2,255,000. Under terms of
the MMIC/IPMIT July 1, 1993 merger agreement, if the financial results for
the years prior to 1993 are more favorable than expected at December 31,
1992, that favorable development must be returned to the prior IPMIT
policyholders who renew coverage with MMIC.
Realized capital gains of $1,771,000 in 1996 and $1,646,000 in 1995 were due to
active management of both the bond and equity sections of the portfolio. During
1997 the Company restructured the fixed portfolio and in this process
experienced realized capital gains of $4,916,000. In addition, normal investment
transactions resulted in additional realized capital gains of $1,568,000 for a
total of $6,484,000. The Company employs two outside professional
advisors to manage the portfolio, one to manage fixed income securities and a
separate manager for equities. The managers operate within the Company's
adopted investment policy. This policy was revised in 1997 as previously
discussed under Liquidity and Capital Resources. The Investment Committee meets
with the outside managers approximately four times per year.
Other underwriting expenses increased $1,056,000 form 1996 to 1997.
Approximately $425,000 of the increase was due to payments to state medical
societies, for the first time in 1997, under license and endorsement agreements.
The remainder of the increase reflects the increase in overall cost of operating
the Company.
Income taxes. In 1997 the Company's book net income before taxes was
$13,763,000. Deductions from book income, primarily tax exempt interest income
from municipal bonds reduces income subject to tax. This current year's tax
based on taxable earnings was increased by a reduction in deferred taxes of
$1,494,000 to arrive at the income tax charged to operations $4,463,000 as shown
in the financial statements.
Deferred tax effects are provided whenever expense items are recorded in the
accompanying financial statements in a time period different from those in the
Company's tax returns.
Net income for the Company during the last three years totaled
$18,506,000 which was added to retained earnings. A significant portion of net
income for these years resulted from the reversal of loss liabilities
established in prior years and realized capital gains on investments.
14
<PAGE>
BUSINESS
BACKGROUND. MMIC originally was organized in 1980 under the auspices of
the MMA to provide professional liability insurance to Minnesota physicians who
are members of the MMA. At that time, claims and awards in medical malpractice
cases had been increasing dramatically, and physicians were faced with
substantial premium increases and a declining number of insurers offering
medical malpractice coverage. The business was reorganized in 1988 into a stock
insurance company (MMIC), wholly owned by a holding company (MMIHC) which could
pursue other business opportunities. The reorganization also was effected to
give physicians a limited equity interest in their malpractice insurer, which
would give them input into the operations of the insurer and an opportunity to
share in any profits, while preserving the capital and surplus of MMIC. As of
July 1, 1993, the Iowa physician-owned malpractice insurer, IPMIT, was merged
with and into MMIC, and as of June 5, 1996, the Nebraska physician-owned
malpractice insurer, MLM, was merged with and into MMIC.
MMIC now provides professional liability insurance to physicians in
Minnesota, Iowa, Nebraska, Wisconsin, Illinois, North Dakota and South Dakota.
Professional liability, general liability and umbrella excess liability
insurance is also available to hospitals, nursing homes and extended care
facilities through MMIC. MMIC has had the sponsorship of the MMA since
inception and also has the sponsorship of the Iowa and North Dakota medical
associations.
MANAGEMENT AGREEMENT. Pursuant to a written agreement renewable annually,
MMIC pays MMIHC for comprehensive management, administration, and underwriting
services, and for use of MMIHC's facilities, equipment and personnel. MMIHC
receives a management fee generally equal to the allocated cost of providing
such services, plus 10 percent. As a result of this agreement, MMIHC employs
all of the employees, and owns all of the non-financial assets, used in the
operation of the businesses of the Companies. The agreement is subject
to annual review and approval by the Minnesota Department of Insurance. See
Note 1 to MMIHC's Consolidated Financial Statements.
INSURANCE POLICIES. MMIC primarily writes policies of medical professional
liability insurance to: (1) individual physicians, and (2) partnerships or
professional corporations comprised of physicians ("clinics"). In addition,
MMIC writes business liability insurance providing coverage for claims against a
medical business entity resulting from acts by its employees, and office
premises liability insurance providing coverage for claims arising out of the
ownership, maintenance or use of office premises of the insured.
In addition to meeting MMIC's underwriting standards, insureds must be
licensed to practice in Minnesota, Iowa, Nebraska, Wisconsin, Illinois, North
Dakota or South Dakota, and conduct a majority of their practice in such states.
All insured clinics must have their principal place of business in one of MMIC's
states and all full-time physicians practicing with insured clinics must be
insured by MMIC.
MMIC offers a "claims-made" medical malpractice liability insurance policy.
Under a claims-made policy, coverage is provided for claims asserted and
reported to MMIC while the policy is in effect relating to occurrences which
took place during the period in which the insured
15
<PAGE>
had coverage with MMIC. The policy also covers prior acts (i.e., claims first
made during the policy period with respect to occurrences which took place prior
to the date the insured initially secured coverage from MMIC) for physicians
previously insured under a claims-made policy with another professional
liability insurer. Prior acts coverage is not available from MMIC for
physicians who have not been continuously insured prior to obtaining coverage
from MMIC.
MMIC also offers reporting endorsements ("tails") which provide coverage of
subsequent claims (i.e., claims first made subsequent to the date the insured
terminates basic insurance coverage with MMIC, but with respect to occurrences
which took place while the insurance coverage was in effect prior to such
termination date) made against its former insureds who have voluntarily
terminated insurance coverage with MMIC. In the event of death, permanent
disability, or retirement at age 55 or older after five years of coverage with
MMIC, the reporting endorsement is provided at no additional premium.
MMIC offers basic limits of coverage from $100,000 for each claim, subject
to $300,000 annual aggregate, up to $5,000,000 for each claim, subject to
$5,000,000 annual aggregate. Excess coverage above the basic limits is
available from MMIC's reinsurers on a facultative basis.
REINSURANCE. MMIC purchases reinsurance in order to reduce its liability
on individual risks and to protect against catastrophic losses. A reinsurance
transaction takes place when an insurance company transfers, or "cedes", to
another insurer a portion of its exposure on insurance it writes. The reinsurer
assumes the exposure in return for a portion of the premium. The reinsurer's
liability is limited to losses it assumes that are in excess of the portion
retained by MMIC. However, in the event the reinsurer is unable or otherwise
fails to pay, MMIC remains primarily liable for the loss.
Historically, entering into reinsurance agreements permitted MMIC to issue
policies having greater liability limits than otherwise would have been allowed
under Minnesota insurance law, which prohibits an insurer from retaining a risk
on any one claim that is greater than 10 percent of its surplus. As MMIC's
surplus has grown, MMIC now utilizes reinsurance primarily to limit its risk on
any single claim. Such limits of risk assumed by MMIC for physician coverage
have increased from $150,000 in the first year of operations to $750,000
currently. The single claim limit of risk assumed is $500,000 for hospital
coverage. The reinsurer will pay losses in excess of the amount of risk
retained by MMIC, not to exceed the limits of liability of the policies issued
by MMIC.
MMIC currently operates under an excess-of-loss reinsurance treaty with
General Reinsurance Corporation of Stanford, Connecticut and Hanover Reinsurance
Company, Hanover, Germany. General Reinsurance Corporation assumes 85% of the
reinsurance risk under this treaty, and Hanover Reinsurance Company assumes the
remaining 15%. General Reinsurance Corporation is the largest reinsurer of
medical professional liability in the United States and one of the largest in
the world and has received the highest rating of A++ by A. M. Best & Company,
Inc. Hanover is one of the largest reinsurers in the world and has been a
leader in medical malpractice insurance. Its A.M. Best & Company, Inc. rating
is A+. (See "Rating" for a further description of A. M. Best.) Coverage under
the treaty was initially issued on October 1, 1986, and is continuous until
cancelled by either party. MMIC commuted the reinsurance
16
<PAGE>
treaties covering the period from October 1, 1986 through December 31, 1990. As
a result, there is no longer any reinsurance coverage for those reporting years.
As of December 31, 1997 there are also no open cases or claims pertaining to
those reporting years. Previous reinsurance treaties, which remain in effect
for pre-1986 incidents, were with various domestic and foreign reinsurers, all
of whom have maintained their obligations to MMIC and appear to be financially
sound. MMIC currently cedes about $3,500,000 of premium per year under the
reinsurance treaty with General Reinsurance Corporation and Hanover Reinsurance
Company.
MARKETING AND DISTRIBUTION. Marketing of MMIC policies in Minnesota,
South Dakota, Nebraska, Illinois and Wisconsin primarily is handled directly by
MMIC through salaried marketing representatives. MMIC has also made marketing
arrangements with a select group of large national brokers to assist MMIC in the
production of large accounts and in the production of new coverages as they are
developed. These brokers will sell MMIC's products in all states in which MMIC
is licensed to do business. IMS Services Company, a wholly-owned subsidiary of
the Iowa Medical Society, is the exclusive agent for marketing MMIC policies to
physicians and clinics in Iowa. MMIC does not believe that the loss of any
exclusive agent would have a material adverse effect on its business because
other agents are available and MMIC has the in-house capacity to market directly
in any of these areas. MMIC hospital insurance policies are marketed directly
by MMIC and through independent agents and brokers. MMIC approves all policies
(and their terms) sold by agents prior to their becoming effective, and no
commissions are earned by agents until such approval has been granted.
INVESTMENTS. MMIC's investment portfolio is under the direction of the
Board of Directors acting through the Investment Committee. The Investment
Committee establishes MMIC's investment policy which, in summary, is to assist
in maintaining MMIC's financial stability through the preservation of assets and
the maximizing of after-tax investment income. Adequate liquidity is maintained
to ensure that MMIC has the ability to meet its insurance operational
requirements, in particular the payment of claims. MMIC employs outside
investment managers who manage the portfolio on a discretionary basis consistent
with the policies set by MMIC. In addition, the Investment Committee utilizes
the services of a separate outside consultant who calculates performance
measures and provides an independent opinion on the overall results being
obtained by the investment managers.
MMIC's investment portfolio consists primarily of fixed income instruments,
including United States government and governmental agency bonds and corporate
bonds. MMIC's investment policy permits the inclusion of equity securities in
the portfolio in accordance with limitations established by Minnesota law.
Equities comprised 20% of the portfolio on December 31, 1997
The following table sets forth the composition of the combined investment
portfolio of MMIHC and MMIC at the dates indicated:
17
<PAGE>
<TABLE>
<CAPTION>
BOOK VALUE AT DECEMBER 31,
--------------------------
(IN THOUSANDS)
INVESTMENTS
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities at fair value
(cost: 1997 - $170,590, 1996 - $179,979,
1995 - $174,544 $182,817 $183,561 $171,975
Equity securities at fair value
(cost: 1997 - $20,595, 1996 - $20,237,
1995 - 17,670 28,311 38,001 49,759
Short-term 15,015 7,898 13,909
Other 10,000
Total Investments $226,143 $229,460 $245,643
-------- -------- --------
-------- -------- --------
</TABLE>
18
<PAGE>
The following schedule compares the average yield on investments during the
last three years.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Average yield 5.9% 5.4% 4.9%
</TABLE>
The fair value of fixed maturities at December 31, 1997, by contractual
maturity, is shown below as a percentage of the total fixed maturities
portfolio:
<TABLE>
<CAPTION>
PERCENTAGE OF FIXED
MATURITY MATURITY PORTFOLIO AT FAIR VALUE
-------- --------------------------------
<S> <C>
0 - 1 year 6%
1 - 5 years 31
5 - 10 years 13
Over 10 years 50
---
100%
----
----
</TABLE>
RATING. A. M. Best & Company, Inc. ("Best's"), publisher of BEST'S
INSURANCE REPORTS, PROPERTY-CASUALTY, has assigned MMIC an A, or excellent,
rating in 1996. Best's ratings range from A++ to F, and are based on an
analysis of the financial condition and operation of an insurance company as
compared with the industry in general. MMIHC believes that a favorable rating
has a positive effect since customers and their advisors often review Best's
ratings when selecting an insurer and are more apt to purchase insurance from a
company with a positive rating because of the greater security and stability
associated with a positive rating. A positive rating relates to the ability of
an insurer to meet its insurance obligations and does not directly relate to the
value of the insurer's securities. A.M. Best calculates several ratios and
publishes them each year as part of its annual report.
GOVERNMENT REGULATION. MMIC is subject to governmental regulation in the
states in which it conducts its business - Minnesota, Iowa, Nebraska, Illinois,
Wisconsin, North Dakota and South Dakota. Such regulation is conducted by state
agencies having broad administrative power dealing with all aspects of MMIC's
business, including policy terms, rates, dividends and retroactive premium
adjustments to insureds, and dividends to the parent corporation, MMIHC.
Without prior approval from the Minnesota Commissioner of Commerce, annual
dividends to MMIHC cannot exceed 10 percent of unassigned surplus of MMIC or the
prior year's net income from operations of MMIC, whichever is greater. MMIC is
also subject to statutes that require it to file periodic information with state
regulatory authorities, and is subject to a financial and business conduct
examination every three years. MMIHC is also subject to statutes governing
insurance holding company systems in Minnesota, which relate primarily to the
acquisition of control of insurance companies directly or through a holding
company.
19
<PAGE>
COMPETITION. MMIC's major competitor is the St. Paul Companies. The
St. Paul Companies is a major national property-casualty insurance company, is
the largest writer of medical professional liability insurance in the United
States, and is many times larger than MMIC. In addition to the St. Paul
Companies, several other national companies have become active in the last
several years, including Medical Protective Insurance Company, CNA Insurance
Company, and the MMI Companies. At this time these additional competitors have
achieved limited market penetration, but represent an increasing competitive
pressure for the future. In addition, several other physician-owned specialty
carriers have entered the market, but have yet to be a significant factor in
MMIC's area. Finally, over the past few years several large self-insured
hospitals in Minneapolis and Des Moines have purchased MMIC insured clinics, and
other physician practices have been purchased by large, self-insured clinics
such as the Mayo Clinic. Although this trend slowed significantly in 1997.
These trends are causing a contraction in the market for MMIC's primary
malpractice insurance. MMIC is the only carrier in Minnesota, Iowa and North
Dakota markets endorsed by local medical societies and owned by its
physician-insureds, which management believes gives MMIC a competitive advantage
in marketing to physicians.
The market for medical professional liability insurance is changing,
especially with the dramatic changes proposed and occurring in the broader
health care industry. Significant changes in the market for medical
professional liability insurance are possible as a result of developments such
as practice consolidation and integration, physician-hospital organizations,
various forms of managed health care, various forms of alliances between
providers, proposals for enterprise liability, and many others. Management is
developing new programs and products which it believes will allow it to remain
competitive as such change occurs, although no assurance can be given to that
effect.
EMPLOYEES. As of December 31, 1997, MMIHC employed 65 persons, of whom
five were executives, 45 were supervisory employees or specialists, and 15 were
clerical employees. None of the employees is covered by a collective bargaining
agreement and management believes that relations with employees are good.
PROPERTIES. MMIHC owns the following fixed assets, all of which are used
in the conduct of its business:
<TABLE>
<CAPTION>
NET BOOK VALUE
DECEMBER 31, 1997
------------------
<S> <C>
Office furniture and equipment $289,933
Leasehold improvements at leased premises,
6600 France Ave. S., Minneapolis, MN 29,435
Computer hardware 469,624
Computer system software 625,657
--------
Total $1,414,649
----------
----------
</TABLE>
20
<PAGE>
MMIHC and MMIC own no real estate. MMIHC leases approximately 15,765 square
feet of office space in Edina, Minnesota under a 10-year lease that expires in
2001, subject to the option of MMIHC to renew the lease for an additional five
years after the original term. An additional 4,060 square feet of office space
is leased in West Des Moines, Iowa under a 10-year lease that expires in 2000,
with an option for MMIHC to extend the term for an additional five years after
the original term. Finally, 1,249 square feet of office space is leased in
Omaha, Nebraska under a three year lease that expires November 30, 2000.
Aggregate annual rent expense was $427,646 for 1997 and $392,282 for 1996.
Management believes such space will be sufficient for the conduct of its
business for the foreseeable future.
LITIGATION. MMIC believes that its loss and loss adjustment expense
reserves are adequate to cover possible liability from claims and lawsuits
against its insureds which arise in the normal course of its insurance business.
Apart from such matters, MMIC is not a party to any pending or threatened legal
proceeding which could have a material adverse effect on its operations.
21
<PAGE>
MANAGEMENT
DIRECTORS
The names and ages of the directors of MMIHC and MMIC, the year each first
became a director, and the number of Class A Common Shares owned by each as of
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
DIRECTOR CLASS A COMMON
NAME AGE SINCE SHARES OWNED
- ---- --- ------- --------------
<S> <C> <C> <C>
Michael Abrams 36 1996 0
John R. Balfanz, M.D. 52 1995 14
Gail P. Bender, M.D. 50 1996 22
James R. Bishop, M.D. 55 1994 0
David P. Bounk 51 1995 0
E. Duane Engstrom, M.D. 66 1986 34
Secretary
Roger L. Frerichs, M.D. 58 1988 84
Richard Geier Jr., M.D. 57 1995 20
Anthony C. Jaspers, M.D. 50 1996 49
Russel J. Kuzel, M.D. 45 1997 24
Wayne F. Leebaw, M.D. 54 1994 23
Steven A. McCue, M.D. 56 1995 120
William J. McMillan Jr., M.D. 50 1997 66
Harold W. Miller, M.D. 50 1996 26
Anton S. Nesse, M.D. 59 1989 53
Mark D. Odlund, M.D. 45 1996 81
G. William Orr, M.D. 62 1996 52
Norman Rinderknecht, M.D. 63 1993 93
Paul S. Sanders, M.D. 53 1984 0
Richard D. Schmidt, M.D. 54 1990 145
Andrew J. K. Smith, M.D. 55 1990 192
Chairman
G. David Spoelhof, M.D. 44 1989 46
Tom D. Throckmorton, M.D. 52 1997 68
Bruce R. Trimble, M.D. 57 1993 22
Vice Chairman
</TABLE>
22
<PAGE>
As of December 31, 1997 the directors of MMIHC, as a group, owned 1,234
Class A Common Shares, or one percent of the total Class A Common Shares
outstanding as of such date. No executive officer owned any Class A Common
Shares as of such date.
All of the directors have been principally engaged in the practice of
medicine for more than five years, except for Dr. Sanders who has been the
Executive Vice President of the MMA since 1990, Michael Abrams, who has been the
Executive Director of the Iowa Medical Society (the "IMS") since 1996 and David
P. Bounk who has been President and CEO of MMIHC since 1991. Prior to 1996, Mr.
Abrams was Director, Governmental Relations of the Indiana Medical Association
for nine years.
The Bylaws of MMIHC provide that MMIHC's Board of Directors shall include
the following: (1) up to 20 physicians divided into three classes and elected
for staggered three-year terms; (2) for as long as the Class B Common Share is
outstanding, the Chief Executive Officer of the MMA and the Executive Vice
President of the IMS, both of whom shall be ex-officio directors; (3) the
President of MMIHC as an ex-officio director; and (4) such additional ex-officio
and advisory members as the Board of Directors may determine. At least
two-thirds of the voting members of the Board of Directors must be members of a
state medical association and insured by MMIC. The MMA, which has the exclusive
right to elect directors, has agreed to elect the directors nominated by a
committee of the Board of Directors. Directors serve until their successors are
elected and qualified or until their prior resignation, removal, death or
disqualification.
The Bylaws of MMIHC provide for the election of directors who are members
of the IMS in a number, when compared to the total number of directors, which is
proportionate to the number of Iowa insureds compared to the total number of
MMIC insureds, subject to a minimum of two Iowa directors, one of whom shall be
the Executive Vice President of the IMS, for as long as the Class B Common Share
is outstanding. The MMA has placed the Class B Voting Share in a voting trust
which requires the trustee to vote the share for the election of the Iowa
directors nominated by the IMS.
The Board of Directors of MMIHC has the following standing committees: (1)
Executive; (2) Audit and Budget; (3) Nomination; and (4) Compensation. The
activities and current membership of each of these committees are described
below:
The Executive Committee, pursuant to Minnesota law and the Bylaws of MMIHC,
has the full power and authority to act for the Board between its meetings. The
members of the Executive Committee include the Chairman, Vice Chairman and
Secretary of the Board of MMIHC, the President, and such other individuals as
appointed by the Board of Directors. The persons currently on the Executive
Committee are as follows: Andrew J.K. Smith, Chairman, David P. Bounk, E. Duane
Engstrom, M.D., Roger L. Frerichs, M.D., Richard Geier, M.D., Paul S. Sanders,
M.D., Richard D. Schmidt, M.D., Bruce Trimble, M.D. and Michael Abrams.
23
<PAGE>
The Audit and Budget Committee reviews and approves the annual audit of the
books and records and annual budget of MMIHC. The members of the Audit and
Budget Committee are R. Bruce Trimble., Andrew J.K. Smith, M.D., Richard Geier,
M.D., John Balfanz, M.D. and Norman Rinderknecht, M.D.
The Nominating Committee submits to the Board of Directors the names of all
nominees for election to the Board. The Chairman of the Board is a member of
the Nominating Committee together with the Vice-Chairman of the Board, the
Chairman of the Board of the MMA or his or her designate, the Chief Executive
Officer of the MMA, and such two members as appointed by the Board. The members
of the Nominating Committee are Andrew J.K. Smith, M.D., Paul S. Sanders, M.D.,
Michael Abrams, R. Bruce Trimble, M.D., Anthony Jaspers, M.D., and Tim Crimmins,
M.D.
The Compensation Committee reviews and establishes the compensation and
benefits of all executives of MMIHC. The Committee consists of the Chairman of
the Board, the Vice Chairman of the Board, and two additional members appointed
by the Board. The current members of the Compensation Committee are Andrew J.K.
Smith, M.D., R. Bruce Trimble, M.D., and James Bishop, M.D. and Charles A. Geer.
The Bylaws of MMIC provide that the directors of MMIHC shall also serve as
the directors of MMIC, with the exception of any outside directors of MMIHC.
Outside directors are persons who are not policyholders of MMIC or members of
the MMA. There are currently no outside directors of MMIHC so the Boards of
MMIHC and MMIC are identical at this time.
The Board of Directors of MMIC has the following standing committees: (1)
Claims (Minnesota and Iowa); (2) Investment; and (3) Underwriting/Risk
Management. The activities and current membership of each of these committees
are described below.
The Minnesota and Iowa Claims Committees review trial alerts and individual
claims when the settlement authority request is in excess of $350,000. The
Claims Committees also review periodically all claims and lawsuits that have
been closed and monitors overall claim statistics. The members of the Minnesota
Claims Committee are Anton S. Nesse, M.D., Theodore S. Olson, M.D., William
Eversmann, Jr., M.D., Mark D. Odland, M.D., Gail Bender, M.D., James R. Bishop,
M.D., William L. Youmans, M.D., Susan J. Cushman, M.D. The members of the Iowa
Claims Committee are James F. Black, M.D., Norman L. Bone, M.D., Clarence H.
Denser, Jr., M.D., William W. Eversmann, Jr., M.D., Joe F. Fellow, M.D., Kevin
R. Kopesky, M.D., Lance E. Longnecker, M.D., James R. Skinner, M.D.
The Investment Committee establishes investment policy which is approved by
the Board and implemented by professional investment managers, who are employed
by MMIC for that purpose. The Investment Committee meets frequently with MMIC's
investment manager and reviews the past performance, the current portfolio and
the future direction of MMIC's investments. See "Business-Investments." The
members of the Investment Committee are Richard Geier, Jr., M.D., Chairman,
Charles A. Geer, M.D., Michael Abrams, M.D.,
24
<PAGE>
Andrew Smith, M.D., Paul Sanders, M.D., Gail Bender, M.D., Harold Miller, M.D.,
William Orr, M.D., and Norman Rinderknecht, M.D.
The Underwriting/Risk Management Committee establishes criteria for
acceptability of new applicants for insurance. The committee reviews closed
claims to determine renewal acceptability for current policyholders and
recommend changes in underwriting policy to the Board of Directors. The members
of the Committee are Richard Schmidt, M.D., Chairman, Charles F. Eisenbeis,
M.D., Stephen A. McCue, M.D., George J. Nemanich, M.D., Thomas F. Varecka, M.D.,
Norman Rinderknecht, M.D., William J. McMillan, Jr., M.D., M.D., John R.
Balfanz, M.D., E. Duane Engstrom, M.D., Anthony C. Jaspers, M.D., and Paul
Sanders, M.D.
The Chairman of the MMIHC Board of Directors (currently Dr. Smith) is paid
an annual fee of $31,500. All members of the Board of Directors currently are
paid $750 for each meeting of the Board of Directors they attend. In addition,
members of the Executive Committee currently are paid $750 for each meeting of
the Executive Committee they attend, and committee chairmen are paid $600 for
each meeting of the standing committee they chair. Other members of standing
committees currently are paid between $300 and $500, depending upon distance
traveled, for each committee meeting they attend.
25
<PAGE>
EXECUTIVE OFFICERS
The names, ages and positions of the executive officers of MMIHC and MMIC
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David P. Bounk 51 President and Chief Executive Officer
Merlin R. Bretzman 63 Vice President-Finance and Treasurer (Former)
Niles A. Cole 37 Vice President-Finance, Chief Financial
Officer and Treasurer (Current).
Jack L. Kleven 51 Vice President-Claims
Elizabeth S. Lincoln 44 Vice President-Risk Management
Michael Rutz 44 Vice President-Underwriting
</TABLE>
Mr. Bounk has over 29 years experience in the insurance industry and joined
MMIHC and MMIC as President and Chief Executive Officer in August, 1990.
Mr. Bounk has an MBA degree in finance.
Mr. Bounk has an annual employment agreement which renews for successive
calendar-year terms unless it is terminated by either party at least 60 days
prior to any renewal date. The agreement provides that Mr. Bounk's base salary
will be adjusted annually by the Executive Committee. If the agreement is
terminated by MMIHC for cause or by Mr. Bounk voluntarily, he is entitled to
receive his base salary for 30 days thereafter. If the agreement is terminated
by MMIHC without cause, Mr. Bounk is entitled to receive his base salary for six
months thereafter, plus one additional month for each year of service, subject
to a maximum of 12 additional months, and then only until he commences new
employment or self-employment. The agreement also prohibits Mr. Bounk from
competing with MMIHC for one year following his termination of employment.
Mr. Bretzman has over 40 years experience in the insurance industry,
including 23 years with Blue Cross/Blue Shield of Minnesota prior to joining
MMIHC's predecessor in 1983. He retired from his position effective March 31,
1998. He has a BA degree in accounting.
Mr. Cole has over 14 years experience in the insurance industry. He joined
MMIHC in December, 1996 and has been in his current position since March 17,
1998. He was a Vice President of Physicians Insurance Exchange in Seattle,
Washington for 7 years prior to joining MMIHC. He has BS degree in finance and
accounting.
26
<PAGE>
Mr. Kleven has over 25 years experience in medical malpractice claims
adjusting and management. He joined MMIHC's predecessor in 1983, and has held
his current position since March, 1986. He has a BS degree in business.
Ms. Lincoln has over 15 years experience in medical professional liability
risk management. She joined MMIHC's predecessor in 1982, and has held her
current position since January, 1990. She has a J.D. degree.
Mr. Rutz has over 19 years experience in the insurance industry, including
10 years in medical malpractice. From June, 1986 through April, 1994, he was
Senior Regional Underwriting Manager with St. Paul Fire and Marine Insurance
Company. From May, 1994 through April, 1995, he was Vice President with
Alexander and Alexander, insurance brokers. He joined the company in May 1995 as
Vice President - Underwriting. He has a BS degree in resource management.
Effective January 1, 1997, MMIHC entered into termination agreements with
the executive officers. These agreements provide a severance package to these
executives in the event of termination of employment without cause, ranging from
three months to 18 months depending upon length of employment and position.
Officers serve until their successors are appointed by the Board of
Directors, or until their prior resignation, removal or death.
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid by MMIHC to its Chief
Executive Officer and each of its four other most highly-compensated executive
officers during the last three fiscal years:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
PRINCIPAL ALL OTHER
NAME POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David P. President 1997 $187,088 $56,126 $20,963
Bounk & Chief 1996 170,080 51,024 17,687
Executive 1995 162,760 47,200 22,620
Officer
Merlin R. Vice President- 1997 $150,500 $45,168 $19,264
Bretzman Finance and 1996 133,240 39,972 18,478
Treasurer 1995 127,500 36,975 19,899
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
PRINCIPAL ALL OTHER
NAME POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jack L. Vice President- 1997 $145,840 $43,752 $17,193
Kleven Claims 1996 132,420 39,796 17,384
1995 126,720 36,749 18,512
Elizabeth Vice President- 1997 $114,110 $34,233 $14,113
S. Lincoln Risk Management 1996 97,020 29,106 14,319
1995 88,690 5,720 13,677
Michael G. Vice President 1997 $114,110 $34,233 $14,113
Rutz Underwriting 1996 $108,680 $32,604 $14,980
1995 65,000 7,250 8,658
</TABLE>
(1) Includes employer contributions to qualified retirement plans and the term
and cash surrender value of supplemental life insurance premiums.
The compensation of the President is determined by the Executive Committee.
Pursuant to the Bylaws, the President is a member of the Executive Committee,
but he does not participate in actions on his compensation. The President
determines the compensation of the other executive officers.
MMIHC also maintains a Supplemental Executive Retirement Plan ("SERP")
which provides an annual retirement benefit for an executive officer who retires
at age 62 with 10 years of service of 70 percent of the officer's final average
salary. Benefits are reduced for years of service less than 10 and retirement
prior to age 62. The annual benefit payable under the SERP is reduced by 50
percent of the officer's primary Social Security benefit and by the annual
benefit (expressed in the form of an annuity) of the officer's accrued benefits
under MMIHC's current money purchase pension plan and a predecessor plan. The
estimated annual benefits payable upon retirement at normal retirement age for
the executive officers in the Summary Compensation table are as follows: Mr.
Bounk - $149,800; Mr. Bretzman - $90,900; Mr. Kleven - $101,100; Ms. Lincoln -
$58,700 and Mr. Rutz - $92,600. The estimated annual retirement benefits were
calculated assuming salary increases of six percent per year, discounted four
percent per year for future inflation to express the estimated benefits in
today's dollars.
28
<PAGE>
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF CLASS A COMMON SHARES. Class A Common Shares, $.01 par
value, are uncertificated shares which may be owned by individual physicians or
by individual physicians jointly with the legal entities in which they practice.
In the latter case the Shares can be voted only by the physicians, subject to
their right to grant proxies. Each individual holder of Class A Common Shares
has only one vote, regardless of the number of shares that he or she owns.
Holders of Class A Common Shares have the right to vote on all corporate matters
except for the election of members of the Board of Directors of MMIHC. Such
right has been granted to the MMA, the holder of the sole Class B Voting Share
which is authorized and outstanding. However, the MMA has agreed to elect the
directors nominated by a committee of the Board of Directors. See "Description
of Class B Voting Share."
As long as the Class B Voting Share remains outstanding, the holders of
Class A Common Shares may, at any time, cause MMIHC to redeem the Class B Common
Share at par value ($1,000), and thereby gain the right to elect directors.
Such an action requires the vote of a majority of the Class A shareholders and
two-thirds of the Class A shareholders who vote on the question.
The Class A Common Shares are restricted shares that cannot be sold to any
person other than MMIHC and are subject to mandatory redemption at the time that
the physician-insured terminates his or her insurance coverage for any reason.
The redemption price will be based on the net book value of MMIHC, excluding the
net book value attributable to MMIC (MMIHC's primary asset). By excluding the
value attributable to MMIC from the calculation of the redemption price, MMIC's
capital and surplus will be preserved and not reduced by the redemption. Other
terms and conditions of the redemption will be established by the Board of
Directors of MMIHC. The redemption amount thus reflects primarily MMIHC's net
income from operations, which consists principally of management fees paid by
MMIC, plus earnings on investments, plus any dividends paid by MMIC to MMIHC.
Holders of Class A Common Shares will share in any remaining assets upon
liquidation of MMIHC, proportionately on the basis of the number of shares held
by each shareholder. In the event of any liquidation, all of the assets of
MMIHC will be included, including MMIC if MMIC remains a subsidiary of MMIHC at
the time of liquidation. In the event of any merger, sale of all or
substantially all of the assets, or other extraordinary event, any consideration
payable to holders of Class A Common Shares will reflect the full value of the
Shares and will not be limited to the redemption amount.
The Class A Common Shares do not entitle their holders to preemptive rights
or cumulative voting, and no assignment or other transfer of the Class A Common
Shares is permitted. Holders of Class A Common Shares are permitted to enter
into voting agreements and appoint proxies to vote such shares, and are
permitted to assign their rights, if any, to the proceeds from any redemption of
Class A Common Shares.
There is no market for the Class A Common Shares, nor is it anticipated
that there ever will be a public or private market in which the Class A Common
Shares are traded.
29
<PAGE>
Accordingly, all holders of Class A Common Shares must expect to retain their
shares until they cease to be policyholders of MMIC. MMIHC has never paid a
dividend nor does it intend to within the foreseeable future, although the Class
A Common Shares will have the right to receive dividends when, as, and if the
Board of Directors of MMIHC authorizes the payment of a dividend.
All physicians who were MMIC insureds at the time of the reorganization in
1988, IPMIT insureds at the time of its merger with MMIC in 1993, or MLM
insureds at the time of its merger with MMIC in 1996, received shares of MMIHC
upon completion of those transactions in accordance with the Allocation Formula
set forth in the Appendix, based upon their periods of coverage by MMIC and its
predecessors and their underwriting classifications. These insureds also accrue
and are issued additional Shares pursuant to the Allocation Formula (reduced by
the inverse of the Increased Limits Factor for Nebraska insureds, see "The
Offering") for each day they remain insured with MMIC after the completion of
those transactions. Issuance of shares to new insureds of MMIC is subject to a
five-year vesting requirement and all rights will be forfeited if insurance
coverage is not continuous for five years. The Allocation Formula has been
modified since 1988 and MMIHC reserves the right to modify it in the future.
As of December 31, 19976, there were 121,322 Class A Common Shares
outstanding held by 3,450 physicians; 2,453 additional physicians have accrued
the right to receive 13,041 additional Class A Common Shares subject to
completion of the five-year vesting period.
DESCRIPTION OF CLASS B VOTING SHARE. The holder of the one Class B Voting
Share authorized by MMIHC's Articles of Incorporation is the MMA. The Class B
Voting Share has no rights or preferences other than the right to elect the
members of the Board of Directors of MMIHC. This right gives the MMA the
effective right to elect the Board of Directors of MMIC, since the Bylaws of
both corporations provide that each member of the Board of Directors of MMIC
will be a member of the Board of Directors of MMIHC, and the MMA and MMIHC have
entered into an agreement to exercise their respective voting rights to elect
the same persons to the Board of Directors of MMIHC and MMIC. A nominating
committee of MMIHC nominates persons to be elected as members of the Board of
Directors, and the MMA has agreed to elect these persons to the Board of
Directors.
The Class B Voting Share is currently held in a voting trust which
requires the trustee to vote the share for the election of at least two Iowa
directors nominated by the IMS. See, "MANAGEMENT - Directors."
As long as the Class B Voting Share remains outstanding, the holders of
Class A Common Shares may, at any time, cause MMIHC to redeem the Class B Common
Share at par value ($1,000) by the vote of a majority of the outstanding Class A
shareholders and two-thirds of the Class A shareholders who vote on the
question.
30
<PAGE>
LEGAL MATTERS
The validity of the shares of MMIHC Class A Common Stock to be issued in
connection with this offering is being passed upon for MMIHC by its general
counsel, Charles A. Geer, Esq., Minneapolis, Minnesota. Best & Flanagan PLLP,
Minneapolis, Minnesota, has acted as special securities law counsel to MMIHC.
EXPERTS
The consolidated financial statements and schedules of Medical
Insurance Holding Company at December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
Consolidated Financial Statements
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F1
Consolidated Balance Sheets - December 31, 1997 and 1996. . . . . . . . F2
Consolidated Statements of Income - For the Years Ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . . F3
Consolidated Statements of Changes in Other Shareholders'
Equity - For the Years Ended December 31, 1997, 1996 and 1995 . . . . F4
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . . F5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F6
<CAPTION>
FINANCIAL STATEMENT SCHEDULES
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . F27
Schedule II - Condensed Financial Information of Registrant
(Parent Company). . . . . . . . . . . . . . . . . . . . . . . . . . . . F28
Balance Sheets - December 31, 1997 and 1996 . . . . . . . . . . . . . . F28
Statements of Income - For the Years Ended December 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F29
Statements of Cash Flows - For the Years Ended December 31,
1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . F30
Note to Condensed Financial Statements. . . . . . . . . . . . . . . . . F31
Schedule IV - Reinsurance - For the Years Ended December 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F32
32
<PAGE>
Schedule VI - Supplemental Information Concerning
Property/Casualty Insurance Operations - December 31, 1997
and 1996 and for Each of the Three Years in the Period
Ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . F33
</TABLE>
33
<PAGE>
Report of Independent Auditors
Board of Directors
Midwest Medical Insurance Holding Company
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Midwest
Medical Insurance Holding Company and Subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, changes in other
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. 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 Midwest Medical
Insurance Holding Company and Subsidiaries at December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 2, 1998
F-1
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Consolidated Balance Sheets
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (cost:
1997--$170,590; 1996--$179,979) $171,975 $183,561
Equity securities at fair value (cost:
1997--$20,595; 1996--$20,237) 49,759 38,001
Short-term 13,909 7,898
Other 10,000 -
-----------------------
245,643 229,460
Cash 2,378 -
Accrued investment income 2,341 2,778
Reinsurance recoverable 19,117 22,174
Other assets 6,036 6,451
Deferred income taxes - 1,130
-----------------------
Total assets $275,515 $261,993
-----------------------
-----------------------
LIABILITIES, REDEEMABLE STOCK AND OTHER
SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $107,806 $110,037
Unearned premiums 6,072 6,860
Retrospective premiums 9,905 10,838
Deferred income taxes 3,592 -
Amounts due reinsurers 2,984 7,274
Other liabilities 11,389 8,102
-----------------------
Total liabilities 141,748 143,111
Redeemable stock:
Class A Common Stock--authorized 300,000 shares,
issued and outstanding 121,322 shares in 1997
and 118,209 shares in 1996 7,476 7,603
Class B Common Stock--authorized, issued and
outstanding 1 share 1 1
-----------------------
7,477 7,604
Other shareholders' equity 126,290 111,278
-----------------------
Total liabilities, redeemable stock and other
shareholders' equity $275,515 $261,993
-----------------------
-----------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Consolidated Statements of Income
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Revenues:
Net premiums earned $33,795 $32,046 $29,798
Net investment income 11,509 12,061 12,278
Realized capital gains 6,484 1,771 1,646
Other 404 857 334
-----------------------------------
52,192 46,735 44,056
Losses and expenses:
Losses and loss adjustment expenses 31,834 32,257 37,560
Other underwriting expenses 6,595 5,539 6,482
-----------------------------------
38,429 37,796 44,042
-----------------------------------
Income before income taxes 13,763 8,939 14
Income taxes (benefit) 4,463 1,458 (1,711)
-----------------------------------
Net income $ 9,300 $ 7,481 $ 1,725
-----------------------------------
-----------------------------------
Income per common share $ 77.79 $ 64.45 $ 15.08
-----------------------------------
-----------------------------------
Income per common share--assuming
dilution $ 70.23 $ 58.33 $ 13.74
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Consolidated Statements of Changes in Other Shareholders' Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
ON INVESTMENTS,
PAID-IN RETAINED NET OF
CAPITAL EARNINGS INCOME TAXES TOTAL
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $12,734 $76,378 $ 356 $ 89,468
Net income - 1,725 - 1,725
Net loss of Medical Insurance Holding Company
includable in Class A Common Stock redemption value - 387 - 387
Dividend declared by subsidiary payable to
Medical Insurance Holding Company - (260) - (260)
Increase in unrealized appreciation, net of income tax - - 11,936 11,936
Adjustment to pro forma combination of Medical
Insurance Holding Company and Medical Liability Mutual
Insurance Company - (26) 7 (19)
Adjustment to pro forma distribution to holding
company from subsidiary to reflect change in number
of Class A common shares issued and net redemption
value per share 55 - - 55
----------------------------------------------------
Balance at December 31, 1995 12,789 78,204 12,299 103,292
Net income - 7,481 - 7,481
Net income of Medical Insurance Holding
Company includable in Class A Common Stock
redemption value - (1,070) - (1,070)
Increase in unrealized appreciation, net of income tax - - 1,575 1,575
----------------------------------------------------
Balance at December 31, 1996 12,789 84,615 13,874 111,278
Net income - 9,300 - 9,300
Net income of Medical Insurance Holding Company
includable in Class A Common Stock redemption value - (270) - (270)
Net income of Medical Insurance Holding Company
Services, Inc. includable in Class A Common Stock
redemption value - (2) - (2)
Increase in unrealized appreciation, net of income tax - - 5,984 5,984
----------------------------------------------------
Balance at December 31, 1997 $12,789 $93,643 $19,858 $126,290
----------------------------------------------------
----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Consolidated Statements of Cash Flows
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $9,300 $ 7,481 $ 1,725
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Decrease (increase) in accrued investment
income 437 97 (50)
Decrease (increase) in reinsurance
recoverable 3,057 2,938 (1,475)
Decrease (increase) in other assets 415 1,015 (1,898)
Deferred tax provision 1,494 298 482
(Decrease) increase in unpaid losses and
loss adjustment expenses (2,231) (10,227) 9,297
Decrease in unearned premiums (788) (173) (281)
Decrease in retrospective premiums (933) (26) (3,171)
Decrease in amounts due reinsurers (4,290) (544) (1,287)
Increase (decrease) in other liabilities 3,287 (236) 469
Accretion of bond discount, net of
premium amortization (618) (1,080) (1,087)
Realized capital gains (6,484) (1,771) (1,646)
Compensation expense for vested Class A
common shares 253 156 193
------------------------------------
2,899 (2,072) 1,271
INVESTING ACTIVITIES
Purchases of fixed maturity investments
and equity securities (311,947) (75,684) (56,345)
Sales of fixed maturity investments and
equity securities 318,085 54,293 52,545
Calls and maturities of fixed maturity
investments - 16,250 7,535
Net (purchases) sales of short-term
investments (6,011) 7,117 (5,261)
------------------------------------
127 1,976 (1,526)
FINANCING ACTIVITIES
Redemption of Class A Common Stock (648) (608) (829)
------------------------------------
Increase (decrease) in cash 2,378 (704) (1,084)
Cash at beginning of year - 704 1,788
------------------------------------
Cash at end of year $ 2,378 $ - $ 704
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
The Minnesota Medical Insurance Exchange (Exchange) began operations in
October 1980 as a reciprocal or inter-insurance exchange organized under Chapter
71A of the Minnesota Statutes. Minnesota Medical Management, Inc. (MMMI) was the
Exchange's attorney-in-fact and was responsible for management of the Exchange.
On November 30, 1988, the Exchange was reorganized into a stock insurance
company, Medical Insurance Company (MMIC), under the statutes of the
State of Minnesota. Concurrently, MMMI merged with the Medical Insurance
Holding Company (MMIHC) which then acquired all outstanding shares of the
reorganized stock company.
Effective July 1, 1993, MMIC merged with Iowa Physicians Mutual Insurance Trust
(IPMIT), a physician-owned professional liability insurance company providing
insurance coverage to Iowa physicians. As provided for in the agreement and plan
of merger, IPMIT was merged into MMIC. The merger was accounted for as a
pooling-of-interests.
During 1995, MMIHC formed MMIHC Services, Inc. to provide agency services for
the distribution of complementary insurance products and services to physicians,
clinics and hospitals.
Effective June 5, 1996, MMIC merged with Medical Liability Mutual Insurance
Company of Nebraska (MLM), a physician-owned professional liability insurance
company providing insurance coverage to Nebraska physicians. As provided for in
the agreement and plan of merger, MLM was merged into MMIC. The merger was
accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements include the combined financial position and results of
operations of MMIHC and MLM for all periods presented.
F-6
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
MMIHC provides management and administrative services to MMIC for a fee
generally equal to the cost of services provided plus ten percent. The insurance
company provides professional liability insurance to physicians in Minnesota,
Iowa, Nebraska, North Dakota and South Dakota.
Insurance policies issued by MMIC are on a "claims made" basis and provide
coverage for the policyholder for claims first made against the policyholder and
reported to MMIC during the policy period for claims which occurred on or after
the retroactive date stated in the policy.
MMIC provides, upon payment of an additional premium, a reporting endorsement
which extends the period in which claims otherwise covered by the "claims made"
policy may be reported to MMIC. In the event of death or permanent disability of
a policyholder, the reporting endorsement is issued without additional premium.
Upon retirement, as defined in the policy, a policyholder with at least five
years of consecutive coverage with MMIC is eligible for a credit toward the
additional premium for the reporting endorsement.
Prior acts coverage may be purchased by policyholders who were previously
insured under a "claims made" policy with another professional liability insurer
for an additional premium at the option of the insured in lieu of purchasing
reporting endorsement coverage from the previous insurer.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MMIHC and its
wholly-owned subsidiaries, MMIC and MMIHC Services, Inc. All transactions
between MMIHC and its subsidiaries have been eliminated in consolidation with
the exception of the distribution of capital to MMIHC by MMIC in the form of
dividends.
Hereafter, MMIHC, MMIC and MMIHC Services, Inc. shall be collectively referred
to as the Company unless the reference pertains to a specific entity.
F-7
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The consolidated financial statements have been presented in conformity with
generally accepted accounting principles, which differ in certain respects from
statutory accounting practices followed by MMIC in reporting to the Department
of Commerce of the State of Minnesota (see Note 10).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, as
well as disclosure of contingent assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
INVESTMENTS
The Company manages its investment portfolio to achieve its long-term investment
objective of providing for the financial stability of the Company through
preservation of assets and maximization of total portfolio return. Although
management believes the Company has the ability to hold its fixed maturity
investment portfolio to maturity, these investments are classified as "available
for sale" as management may take advantage of opportunities to increase total
return through sales of selected securities in response to changing market
conditions.
Consistent with management's classification of its investment in debt and equity
securities as available for sale, such investments are carried at fair value
with unrealized holding gains and losses reflected as a separate component of
equity, net of applicable deferred taxes.
Fair values are based on quoted market prices, where available. For fixed
maturity investments not actively traded, fair values are estimated using values
obtained from independent pricing services.
F-8
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
Short-term investments are principally money market funds backed by U.S.
government securities and are recorded at cost which approximates fair value.
Other investments are equity interests in non-traded real estate investment
trusts and are recorded at cost which approximates fair value.
Realized gains and losses on sales of investments are reported on a pre-tax
basis as a component of income and are determined on the specific identification
basis.
LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for unpaid losses and loss adjustment expenses represents an
estimate of the ultimate cost of all such amounts which are unpaid at the
balance sheet dates. The liability is based on both case-by-case estimates and
statistical analysis and projections using the historical loss experience of
MMIC, and gives effect to estimates of trends in claim severity and frequency.
These estimates are continually reviewed and, as adjustments become necessary,
such adjustments are included in current operations. MMIC believes that the
estimate of the liability for losses and loss adjustment expenses is reasonable.
PREMIUMS
Premiums received are recorded as earned ratably over the lives of the policies
to which they apply. A portion of premiums received is deferred to recognize
MMIC's obligation to provide reporting endorsement coverage without additional
premium upon the death, disability or retirement of policyholders. This amount
is recorded as an unearned premium reserve and represents the actuarially
determined present value of future benefits to be provided less the present
value of future revenues to be received.
MMIC has a retro premium program whereby physicians may receive credits against
future premiums based upon loss experience of MMIC. Amounts to be returned under
the program are accrued when approved by the Board of Directors and reflected as
a reduction in net premium earned.
F-9
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
REINSURANCE
MMIC cedes reinsurance in order to reduce its liability on individual risks and
to enable it to write business at limits it otherwise would be unable to accept.
All reinsurance contracts are excess-of-loss contracts which indemnify MMIC for
losses in excess of a stated retention limit up to the policy limits.
Reinsurance receivables and recoverables and prepaid reinsurance premiums are
reported as assets and reserve liabilities are reported gross of reinsurance
credits.
UNDERWRITING EXPENSES
Underwriting costs are expensed when incurred. Due to the nature of its
operations, MMIC does not pay significant amounts in commissions.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Deferred income tax assets or liabilities are recognized for the temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
EARNINGS PER SHARE. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of all earned but unissued shares of Class A common stock (see Note 2).
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been presented and, where appropriate, restated to conform to the Statement 128
requirements.
F-10
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been reclassified
to conform with the current year presentation.
2. REDEEMABLE STOCK
Effective November 30, 1988, MMIC policyholders earn Class A Common Shares for
each month of service pursuant to a stock allocation formula based on
underwriting risk classification. Shares earned by new policyholders are not
issued until the end of five years of continuous coverage under an MMIC policy
(the vesting date). The Company does not record any amounts related to unissued
Class A Common Shares. At the vesting date, the issued shares are recorded at
the then current redemption value (see Note 12).
The Company accounts for these shares by increasing Common Stock by the par
value ($.01 per share) of the newly issued shares, increasing paid-in capital by
the excess of the redemption value over par and charging stock compensation
expense for the full redemption value. Once vested, policyholders will continue
to earn shares for each month they remain insured with MMIC according to the
stock allocation formula. The Company accounts for additional shares issued to
vested policyholders by increasing Common Stock for the par value of the shares
and decreasing retained earnings by the same amount.
MMIC policyholders whose initial effective date was on or before the November
30, 1988 reorganization, IPMIT policyholders whose initial effective date was on
or before December 31, 1992 and MLM policyholders whose initial effective date
was on or before December 31, 1995 became fully vested upon initial receipt of
their shares without regard to their length of coverage. These policyholders
will continue to earn and receive additional Class A shares for each month they
remain insured with MMIC. The Company accounts for these shares similar to
additional shares issued to other fully vested shareholders.
F-11
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. REDEEMABLE STOCK (CONTINUED)
In accordance with the Articles of Incorporation and By-laws of MMIHC, only
active policyholders of MMIC may own shares of Class A Common Stock of MMIHC. At
each meeting of the shareholders, every Class A shareholder having the right to
vote shall be entitled to one vote, either in person or by proxy, regardless of
the number of Class A shares held by the individual.
Class A shareholders are required to redeem their shares with MMIHC upon
termination as policyholders of MMIC. The net redemption value (NRV) of the
shares is equal to the net book value of MMIHC, excluding the amount of net book
value that is attributable to MMIC, divided by the number of outstanding Class A
Common Shares of MMIHC at the semi-annual valuation dates of June 30 and
December 31 of each year. The amount paid upon redemption is the redemption
value determined at the most recent semi-annual valuation.
MMIHC has issued one share of Class B voting stock which carries with it the
right to elect the Board of Directors of MMIHC. The voting rights are currently
exercised by the Minnesota Medical Association and the Iowa Medical Society. A
majority of the Class A shareholders may at any time, by a two-thirds vote,
elect to redeem the Class B share at cost.
F-12
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. REDEEMABLE STOCK (CONTINUED)
Following is the detail of changes in redeemable stock for each of the three
years in the period ended December 31, 1997 (in thousands, except for share and
per share amounts):
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON
CLASS A COMMON STOCK CLASS B MMIHC MMIHC INVESTMENTS,
-------------------- COMMON PAID-IN RETAINED NET OF INCOME
SHARES AMOUNT STOCK CAPITAL EARNINGS TAXES TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 116,855 $1 $1 $4,858 $2,876 $ (24) $7,712
Redemption of shares due to policyholder
terminations by effective date:
January 1, 1995 to June 30, 1995;
NRV of $66.00 (8,017) (323) (207) (530)
July 1, 1995 to December 31, 1995;
NRV of $67.65 (4,407) (1) (181) (117) (299)
Issuance of shares to vested policyholders 9,271 1 (1) -
Initial issuance of shares to
policyholders upon vesting 2,890 193 193
Dividend receivable from Medical
Insurance Company 260 260
Net loss of Medical Insurance
Holding Company includable in Class A
Common Stock redemption value (387) (387)
Change in unrealized appreciation, net
of income tax 81 81
Adjustment to pro forma issuance of shares
to MLM policyholders to adjust effective
date to December 31, 1995 (341) (55) (55)
-----------------------------------------------------------------------------------
Balance at December 31, 1995 (carried
forward) 116,251 1 1 4,752 2,164 57 6,975
</TABLE>
F-13
<PAGE>
Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. REDEEMABLE STOCK (CONTINUED)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON
CLASS A COMMON STOCK CLASS B MMIHC MMIHC INVESTMENTS,
-------------------- COMMON PAID-IN RETAINED NET OF INCOME
SHARES AMOUNT STOCK CAPITAL EARNINGS TAXES TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (brought
forward) 116,251 $1 $1 $4,752 $2,164 $57 $6,975
Redemption of shares due to policyholder
terminations by effective date:
January 1, 1996 to June 30, 1996;
NRV of $60.00 (6,277) (1) (259) (117) (377)
July 1, 1996 to December 31, 1996;
NRV of $57.84 (3,995) (159) (72) (231)
Issuance of shares to vested policyholders 9,540 1 (1) -
Initial issuance of shares to
policyholders upon vesting 2,690 156 156
Net income of Medical Insurance
Holding Company includable in Class A
Common Stock redemption value 1,070 1,070
Change in unrealized appreciation, net
of income tax 11 11
-----------------------------------------------------------------------------------
Balance at December 31, 1996 118,209 1 1 4,490 3,044 68 7,604
Redemption of shares due to policyholder
terminations by effective date:
January 1, 1997 to June 30, 1997;
NRV of $64.33 (4,363) (165) (113) (278)
July 1, 1997 to December 31, 1997;
NRV of $62.12 (5,943) (1) (220) (149) (370)
Issuance of shares to vested policyholders 9,406 1 (1) -
Initial issuance of shares to
policyholders upon vesting 4,013 253 253
Net income of Medical Insurance
Holding Company includable in Class A
Common Stock redemption value 270 270
Net income of Medical Insurance
Holding Company Services, Inc.
includable in Class A Common Stock
redemption value 2 2
Change in unrealized appreciation,
net of income tax 11 11
Other (15) (15)
-----------------------------------------------------------------------------------
Balance at December 31, 1997 121,322 $1 $1 $4,358 $3,038 $79 $7,477
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
3. INVESTMENTS
Components of net investment income are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Fixed maturities $10,901 $11,561 $11,716
Equity securities 523 380 338
Short-term investments 939 904 923
-----------------------------------
12,363 12,845 12,977
Investment expenses (854) (784) (699)
-----------------------------------
$11,509 $12,061 $12,278
-----------------------------------
-----------------------------------
</TABLE>
The cost (amortized cost for fixed maturities) and fair value of available for
sale investments are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
MMIHC:
United States Government $ 1,255 $ - $ - $ 1,255
Industrial and other 53 - - 53
MMIC:
United States Government 97,234 801 (36) 97,999
State and other political
subdivisions 32,991 383 - 33,374
Industrial and other 39,057 257 (20) 39,294
---------------------------------------------
Total $170,590 $ 1,441 $(56) $171,975
---------------------------------------------
---------------------------------------------
Equity securities $ 20,595 $29,164 $ - $ 49,759
---------------------------------------------
---------------------------------------------
</TABLE>
F-15
<PAGE>
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
MMIHC:
Industrial and other $ 1,031 $ 4 $ (2) $ 1,033
MMIC:
United States Government 92,365 2,075 (797) 93,643
State and other political
subdivisions 57,968 1,885 (45) 59,808
Industrial and other 28,615 648 (186) 29,077
---------------------------------------------
Total $179,979 $ 4,612 $(1,030) $183,561
---------------------------------------------
---------------------------------------------
Equity securities $ 20,237 $ 18,183 $ (419) $ 38,001
---------------------------------------------
---------------------------------------------
</TABLE>
The components of the unrealized appreciation on available for sale securities
as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
MMIHC MMIC MMIHC MMIC
----------------- -----------------
<S> <C> <C> <C> <C>
Fixed maturities:
Gross unrealized gains $ - $ 1,441 $4 $ 4,608
Gross unrealized losses - (56) (2) (1,028)
Equity securities:
Gross unrealized gains - 29,164 - 18,183
Gross unrealized losses - - - (419)
----------------- -----------------
- 30,549 2 21,344
Deferred income taxes - (10,691) - (7,470)
----------------- -----------------
$ - $19,858 $2 $13,874
----------------- -----------------
----------------- -----------------
</TABLE>
In addition to the unrealized gains and losses per the above schedule, MMIHC has
unrealized gains on certain investments in mutual funds. The mutual fund assets
are classified as other assets in the consolidated balance sheet and are held to
coordinate with
F-16
<PAGE>
3. INVESTMENTS (CONTINUED)
the Supplemental Executive Retirement Plan obligation (Note 9). At December 31,
1997 and 1996, respectively, gross unrealized gains related to these assets were
$122,000 and $103,000. Deferred taxes related to these unrealized gains were
$43,000 and $37,000, respectively.
The amortized cost and market value of fixed maturities at December 31, 1997, by
contractual maturity, are shown below (in thousands). Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------------------
<S> <C> <C>
Due in one year or less $ 9,757 $ 9,728
Due after one year through five years 53,456 53,686
Due after five years through ten years 22,990 23,168
Due after ten years 84,387 85,393
--------------------
$170,590 $171,975
--------------------
--------------------
</TABLE>
Proceeds from sales of available for sale investments and the related gross
realized gains and losses are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
PROCEEDS REALIZED REALIZED
FROM SALES GAINS LOSSES
-----------------------------------
<S> <C> <C> <C>
Year ended December 31, 1997:
Fixed maturities $310,235 $5,806 $(884)
Equity securities 7,850 2,109 (547)
Year ended December 31, 1996:
Fixed maturities 46,735 803 (214)
Equity securities 7,558 1,347 (165)
Year ended December 31, 1995:
Fixed maturities 43,387 1,012 (254)
Equity securities 9,158 1,356 (468)
</TABLE>
F-17
<PAGE>
3. INVESTMENTS (CONTINUED)
Net unrealized appreciation of fixed maturities (decreased) increased by
$(2,197,000), $(4,691,000) and $12,000 and net unrealized appreciation of equity
securities increased by $11,400,000, $7,123,000 and $6,078,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
4. RETROSPECTIVE PREMIUMS
The components of retrospective premiums at December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
Retrospective premium credits declared:
Minnesota policyholders $5,000 $ 4,603
Iowa policyholders active at date of merger and
renewing in 1998 and 1997 3,100 2,500
Favorable development on pre-merger IPMIT liabilities
not yet approved for credit 1,805 3,735
--------------------
$9,905 $10,838
--------------------
--------------------
</TABLE>
A provision of the agreement and plan of merger between IPMIT and the Company
requires that any favorable development of certain pre-merger liabilities of
IPMIT be paid to the former IPMIT policyholders who remain active MMIC insureds
as of the date of payment through a retrospective premium credit. The agreement
further stipulates that any amounts due under this provision must be settled no
later than December 31, 1998. Actual payments of $2,501,000 and $2,330,000 were
made to former IPMIT policyholders in 1997 and 1996, respectively. Actual
retrospective premium credits applied to Minnesota policyholder accounts in 1997
and 1996 were $4,803,000 and $5,198,000, respectively.
A provision of the agreement and plan of merger between MLM and the Company
requires that any favorable development of certain pre-merger liabilities of MLM
be paid to the former MLM policyholders who remain active MMIC insureds as of
the date of payment through a retrospective premium credit. The agreement
further stipulates that
F-18
<PAGE>
4. RETROSPECTIVE PREMIUMS (CONTINUED)
any amounts due under this provision must be settled no later than June 5, 2001.
As of December 31, 1997, there has been no favorable development and therefore
there is no accrual related to this provision.
5. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
The reconciliation of the liability for unpaid losses and loss adjustment
expenses is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Balance as of January 1, net of
reinsurance recoverables $ 90,342 $ 96,424 $ 88,227
Incurred related to:
Current year 40,186 41,101 39,847
Prior years (8,352) (8,844) (2,287)
-----------------------------------
Total incurred 31,834 32,257 37,560
Paid related to:
Current year 2,685 4,885 2,484
Prior years 30,097 33,454 26,879
-----------------------------------
Total paid 32,782 38,339 29,363
-----------------------------------
Balance as of December 31, net of
reinsurance recoverables 89,394 90,342 96,424
Reinsurance recoverables at December 31 18,412 19,695 23,840
-----------------------------------
Balance as of December 31, gross $107,806 $110,037 $120,264
-----------------------------------
-----------------------------------
</TABLE>
The Company continually evaluates emerging trends in the development of loss
liabilities including the trends related to the pre-merger IPMIT and MLM
business. Based on this analysis, management periodically adjusts their
estimates of ultimate losses. See Note 4 regarding retrospective premium credits
paid and accrued.
F-19
<PAGE>
6. INCOME TAXES
Components of income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Current provision (benefit) $2,969 $1,160 $(2,193)
Deferred tax provision 1,494 298 482
-----------------------------------
$4,463 $1,458 $(1,711)
-----------------------------------
-----------------------------------
</TABLE>
The Company's income taxes differ from the federal statutory rate applied to
income before tax as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Income before tax at the federal
statutory rate of 35% $4,817 $3,129 $ 5
Tax-exempt income (net of proration
adjustment) (864) (1,452) (1,090)
State income taxes, net of federal tax
benefit 198 50 (42)
Payment of prior year taxes 300 - -
Proceeds on life insurance - (368) -
Benefit for prior year income taxes - - (660)
Other 12 99 76
-----------------------------------
$4,463 $1,458 $(1,711)
-----------------------------------
-----------------------------------
</TABLE>
The deferred income tax (benefit) provision includes the following differences
between financial and income tax reporting (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Discounting of post-1986 unpaid losses and
loss adjustment expenses $ 323 $1,190 $ 232
Liabilities not currently deductible 636 (274) 481
Unearned premiums 57 6 22
Utilization of alternative minimum tax
carryforwards 496 - -
Alternative minimum tax carryforwards - (496) -
Other (18) (128) (253)
-----------------------------------
$ 1,494 $ 298 $ 482
-----------------------------------
-----------------------------------
</TABLE>
F-20
<PAGE>
6. INCOME TAXES (CONTINUED)
The Company made income tax payments of $1,518,000, $3,260,000 and $832,000 in
1997, 1996 and 1995, respectively.
The components of the net deferred income tax (liability) asset as of December
31 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------
<S> <C> <C>
Deferred tax assets:
Unpaid losses and loss adjustment expenses $ 4,996 $5,319
Liabilities not currently deductible 1,675 2,311
Unearned premiums 477 534
Alternative minimum tax credit - 496
Other 552 510
---------------------
7,700 9,170
Deferred tax liabilities:
Unrealized gains (10,734) (7,507)
Other (558) (533)
---------------------
(11,292) (8,040)
---------------------
$ (3,592) $1,130
---------------------
---------------------
</TABLE>
Management has determined that no valuation allowances were necessary for
unrealizable portions of deferred tax assets. This was supported primarily
through the presence of taxable income in carryback years and reversals of
existing temporary differences which provide taxable income in future years. A
portion of the deferred tax assets was supported through reliance on available
tax planning strategies which could be implemented at no cost.
7. REINSURANCE
To reduce overall risk, including exposure to large losses, the Company
participates in various reinsurance programs. MMIC would only become liable for
losses in excess of stipulated amounts in the event that any reinsuring company
were unable to meet its obligations under the existing agreement. Management is
not aware of any such default at
F-21
<PAGE>
7. REINSURANCE (CONTINUED)
December 31, 1997. Reinsurance recoverables on paid and unpaid losses of
$16,141,000 and $17,485,000 are associated with a single reinsurer at December
31, 1997 and 1996, respectively.
MMIC is authorized to issue policies with limits not to exceed $5,000,000 for
each claim and $5,000,000 in the aggregate under each policy in any one policy
year. Limits in excess of $5,000,000 for each claim and $5,000,000 annual
aggregate are available to physicians and clinics through reinsurance placed on
a facultative basis by MMIC. The Company generally retains the first $750,000 of
each claim and reinsures the remainder through a treaty under which premiums are
subject to adjustment based on experience.
Total ceded reinsurance premiums, before the effects of treaty commutations, for
the years ended December 31, 1997, 1996 and 1995 were $3,329,000, $6,416,000 and
$7,544,000, respectively. Loss and loss adjustment expenses incurred are net of
applicable reinsurance of $2,455,000, $2,459,000 and $7,873,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
In 1996, the Company commuted reinsurance treaties covering the period January
1, 1989 through December 31, 1990. Net premiums recovered as a result of these
commutations of $2,194,000 have been included in net premiums earned in 1996.
8. OTHER COMMITMENTS
In the normal course of claim settlement, MMIC negotiates structured settlements
including the purchase of annuities from life insurance companies with an A+
rating from A.M. Best (an industry rating organization) at the date of issue and
a minimum of $100 million in surplus. These annuities guarantee a stream of
payments to the claimant holding the annuity. The majority of these settlements
have been assigned to the life insurance company which releases MMIC from any
future contractual liability to the claimant. MMIC and its reinsurers could only
become liable for ultimate settlement of those claims which have not been
assigned. At December 31, 1997 and 1996, respectively, non-assigned structured
settlements guaranteed $12,299,000 and $5,926,000 of payments under annuity
contracts for which MMIC and its reinsurers paid $4,726,000
F-22
<PAGE>
8. OTHER COMMITMENTS (CONTINUED)
and $3,208,000. In the event that the insurance company issuing the annuity was
unable to meet its obligation under the terms provided, MMIC would be liable for
the ultimate settlement.
9. BENEFIT PLANS
The Company has a non-contributory defined contribution pension plan covering
substantially all employees. Contributions to the plan are based upon each
covered employee's salary. The Company also sponsors a 401(k) plan covering
substantially all employees and provides a fifty percent match on employee
contributions subject to certain limitations. Total contributions charged to
expense for the years ended December 31, 1997, 1996 and 1995 were $393,000,
$371,000 and $294,000, respectively.
The Company provides an unfunded Supplemental Executive Retirement Plan (SERP)
which is a non-qualified, defined benefit retirement plan covering certain
Company officers. Benefits are based upon years of service and compensation.
Although the plan is technically unfunded, the Company has purchased life
insurance contracts for each officer, the cash value of which is designed to
coordinate with the projected benefit payments under the SERP. The cash value of
these contracts is included in other assets. The net periodic pension cost for
this plan was $363,000, $323,000 and $292,000 for the years ended December 31,
1997, 1996 and 1995, respectively. The liability recognized in the consolidated
balance sheets at December 31, 1997 and 1996 related to this plan was $2,192,000
and $1,909,000, respectively.
The Company also provides medical benefits to retirees through a defined benefit
post-retirement plan which covers substantially all employees. The net periodic
post-retirement benefit cost for the years ended December 31, 1997, 1996 and
1995 was $27,000, $30,000 and $25,000, respectively. As of December 31, 1997 and
1996, the net post-retirement benefit plan asset (liability) recognized in the
consolidated balance sheets was $4,000 and $12,000, respectively. The plan is
funded through contributions to mutual funds.
F-23
<PAGE>
10. RECONCILIATION WITH STATUTORY ACCOUNTING PRINCIPLES
The following is a reconciliation of net income and shareholders' equity under
generally accepted accounting principles with that reported for MMIC on a
statutory basis (in thousands):
Net Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
As reported under generally accepted
accounting principles $ 9,300 $7,481 $1,725
MMIHC (income) loss (270) (1,070) 387
MMIHC Services, Inc. (income) (2) - -
----------------------------------
On the basis of generally accepted
accounting principles, MMIC only 9,028 6,411 2,112
Additions (deductions):
Deferred income taxes 1,525 445 442
Other - 123 (215)
----------------------------------
On the basis of statutory accounting
principles $10,553 $6,979 $2,339
----------------------------------
----------------------------------
</TABLE>
Shareholders' Equity
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
As reported under generally accepted
accounting principles $126,290 $111,278 $103,292
Additions (deductions):
Deferred income taxes 4,158 (590) (2,015)
Unrealized (gain) loss on fixed maturities (1,385) (3,580) (8,269)
Pro forma equity distributed to MMIHC in
connection with pooling - - 327
Other (3) (41) (14)
----------------------------------
On the basis of statutory accounting
principles $129,060 $107,067 $ 93,321
----------------------------------
----------------------------------
</TABLE>
F-24
<PAGE>
10. RECONCILIATION WITH STATUTORY ACCOUNTING PRINCIPLES (CONTINUED)
The equity of MMIHC, exclusive of the carrying value of its investment in MMIC,
is subject to redemption and therefore reported outside of shareholders' equity
under the caption redeemable stock. As a result, consolidated other
shareholders' equity as reported on the balance sheets represents equity of MMIC
only under generally accepted accounting principles.
Under Minnesota insurance statutes, MMIC is required to maintain statutory
surplus in excess of ten times its per occurrence reinsurance retention limit.
The minimum level is $7,500,000 for 1997 and 1996.
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except for share and per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Numerator for basic and dilutive earnings
per share available to common shareholders $ 9,300 $ 7,481 $ 1,725
----------------------------------
Denominator:
Denominator for basic earnings per share--
weighted average shares 119,554 116,071 114,386
Effect of dilutive securities:
Unvested shares 12,873 12,188 11,150
----------------------------------
Denominator for dilutive earnings per
share--adjusted weighted-average shares
and assumed conversions 132,427 128,259 125,536
----------------------------------
----------------------------------
Basic earnings per share $ 77.79 $ 64.45 $ 15.08
----------------------------------
----------------------------------
Diluted earnings per share $ 70.23 $ 58.33 $ 13.74
----------------------------------
----------------------------------
</TABLE>
F-25
<PAGE>
12. NET REDEMPTION VALUE
The net redemption value per share of the Class A common shares was as follows:
<TABLE>
<CAPTION>
CLASS A NET REDEMPTION
MMIHC COMMON SHARES VALUE PER
NET EQUITY OUTSTANDING SHARE
(000S)
-----------------------------------------
<S> <C> <C> <C>
December 31, 1993 $7,605 115,230* $66.00
------ ------
------ ------
December 31, 1994 $7,712 116,855* $66.00
------ ------
------ ------
December 31, 1995 $6,975 116,251* $60.00
------ ------
------ ------
December 31, 1996 $7,604 118,209 $64.33
------ ------
------ ------
December 31, 1997 $7,477 121,322 $61.63
------ ------
------ ------
</TABLE>
* Includes pro forma shares related to merger.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Midwest Medical Insurance Holding Company
and Subsidiaires
We have audited the consolidated financial statements of Midwest Medical
Insurance Holding Company and Subsidiaries as of December 31, 1997 and 1996,
and for each of the three years in the period ended December 31, 1997, and
have issued our report thereon dated February 2, 1998 (included elsewhere in
this Registration Statement). Our audits also included the financial
statement schedules listed in Item 16(b) of this Registration Statement.
These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
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 set forth therein.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 2, 1998
F-27
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
(Parent Company)
Schedule II--Condensed Financial Information of Registrant
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Fixed maturities $ 1,308 $ 1,032
Short-term investments 2,730 4,183
Investment in subsidiary 126,290 111,278
Accrued investment income 40 45
Dividend receivable - -
Other 6,881 5,399
----------------------
Total assets $137,249 $121,937
----------------------
----------------------
LIABILITIES, REDEEMABLE STOCK AND
OTHER SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 111 $ 22
Accrued expenses and other liabilities 3,371 3,033
----------------------
3,482 3,055
REDEEMABLE STOCK
Class A Common Stock 7,476 7,603
Class B Common Stock 1 1
----------------------
7,477 7,604
OTHER SHAREHOLDERS' EQUITY
Additional paid-in capital 12,789 12,789
Retained earnings, comprised of undistributed
earnings of subsidiary 93,643 84,615
Unrealized appreciation on investments, net of
income taxes 19,858 13,874
----------------------
126,290 111,278
----------------------
$137,249 $121,937
----------------------
----------------------
</TABLE>
SEE ACCOMPANYING NOTE.
F-28
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
(Parent Company)
Schedule II--Condensed Financial Information of Registrant (continued)
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Management fee from subsidiary $9,901 $8,706 $5,405
Investment income 64 726 704
Other income (loss) 2 4 17
----------------------------------
9,967 9,436 6,126
EXPENSES
Operating and administrative 9,535 8,357 6,783
----------------------------------
Income (loss) before income taxes and
other items 432 1,079 (657)
Income tax expense (benefit) 162 9 (270)
----------------------------------
Income (loss) before equity in
undistributed income of subsidiary 270 1,070 (387)
Equity in undistributed income of
subsidiary 9,030 6,411 2,112
----------------------------------
Net income $9,300 $7,481 $1,725
----------------------------------
----------------------------------
</TABLE>
SEE ACCOMPANYING NOTE.
F-29
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
(Parent Company)
Schedule II--Condensed Financial Information of Registrant (continued)
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash (used in) provided by operating
activities $ (527) $ (877) $ 1,184
INVESTING ACTIVITIES
Purchase of fixed maturities (38,979) (20,469) (670)
Sales of fixed maturities 38,701 20,289 1,833
Calls and maturities of fixed maturities - - 240
Sales (purchases) of short-term
investments, net 1,453 1,338 (1,758)
FINANCING ACTIVITIES
Redemption of Class A Common Stock (648) (608) (829)
Dividend from MMIC in connection with merger - 327 -
----------------------------------
Increase in cash - - -
Cash at beginning of year - - -
----------------------------------
Cash at end of year $ - $ - $ -
----------------------------------
----------------------------------
</TABLE>
SEE ACCOMPANYING NOTE.
F-30
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
(Parent Company)
Schedule II--Condensed Financial Information of Registrant (continued)
Note to Condensed Financial Statements
December 31, 1996
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Midwest Medical
Insurance Holding Company and Subsidiaries.
See Note 2 to the consolidated financial statements of Midwest Medical Insurance
Holding Company and Subsidiaries for a description of the redeemable stock.
F-31
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Schedule IV--Reinsurance
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- --------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
CEDED TO ASSUMED FROM AMOUNT
GROSS OTHER OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Insurance premiums:
Property/casualty insurance $37,390 $3,595 - $33,795 N/A
Year ended December 31, 1996:
Insurance premiums:
Property/casualty insurance 34,875 2,829 - 32,046 N/A
Year ended December 31, 1995:
Insurance premiums:
Property/casualty insurance 37,342 7,544 - 29,798 N/A
</TABLE>
NOTE TO SCHEDULE IV:
Ceded premiums for the years ended December 31, 1997, 1996 and 1995 are net of
reductions (additions) in ceded premiums related to swing rated reinsurance
treaties of $(3,688,000), $748,000 and $(260,000), respectively. Ceded premiums
in 1996 are also net of proceeds from commutations of reinsurance covering the
period January 1, 1987 through December 31, 1990 of $2,194,000.
F-32
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Schedule VI--Supplemental Information Concerning Property/Casualty Insurance
Operations
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G
- ------------------------------------------------------------------------------------------
RESERVES FOR
DEFERRED UNPAID LOSSES DISCOUNT,
AFFILIATION POLICY AND LOSS IF ANY, NET
WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED EARNED INVESTMENT
REGISTRANT COSTS EXPENSES COLUMN C PREMIUMS PREMIUMS INCOME
- ------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Consolidated
property/
casualty
entities
1997 N/A $107,806 N/A $6,072 $33,795 $11,509
1996 N/A 110,037 N/A 6,860 32,046 12,061
1995 N/A 120,264 N/A 7,033 29,798 12,278
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------
COL. A COL. H COL. I COL. J COL. K
- ------------------- -----------------------------------------------------------------
LOSSES AND LOSS
ADJUSTMENT EXPENSES
INCURRED RELATED TO AMORTIZATION PAID
------------------------ OF DEFERRED LOSSES
AFFILIATION (1) (2) POLICY AND LOSS
WITH CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT YEAR YEAR COSTS EXPENSES WRITTEN
- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated
property/
casualty
entities
1997 $40,186 $(8,352) N/A $32,782 $36,601
1996 41,101 (8,844) N/A 38,339 32,036
1995 39,847 (2,287) N/A 29,363 35,519
</TABLE>
F-33
<PAGE>
APPENDIX
MIDWEST MEDICAL INSURANCE COMPANY
Allocation Formula for Class A Common Shares
Number of Shares Per Full Year Insured*
(Calculations Are Based On Number of Days Insured)
<TABLE>
<CAPTION>
CLASS DESCRIPTION 1985 THRU 1990 1991 1992 TO PRESENT
- ----- ----------- -------------- ---- ---------------
<S> <C> <C> <C> <C>
1A Psychiatry - No ECT .720 .780 .840
Pathology
Occupational Medicine
Physical Medicine and Rehab.
1 Family Practice - no surg 1.200 1.200 1.200
Surgical Specialists - office
practice only - no surg.
Administrative Medicine
Radiology - no invasive
procedures
Dermatology - no surg.
Pediatrics - no surg.
1C Internal Medicine all
(Class 1 prior to 1-1-89) 1.584 1.440 1.440
subspecialities - no surg.
no invasive procedures
Neurology - no surg.
(Class 1 prior to 1-1-89)
no invasive procedures
2 Ophthalmology - inc. surg.
(Class 3 prior to 1-1-89) 2.160 1.920 1.800
Family Practice - minor surg.
No OB
Internal Medicine - all
subspecialities minor surg.
Neurology - minor surg.
Dermatology - minor surg.
Pathology - minor surg.
Pediatrics - minor surg.
3 Family Practice - inc. OB 3.672 3.00 2.520
no C-Sections
Emergency Medicine
Internal Medicine - all
subspecialities - major
risk procedures
</TABLE>
A-1
<PAGE>
(CALCULATIONS ARE BASED ON NUMBER OF DAYS INSURED)
<TABLE>
<CAPTION>
CLASS DESCRIPTION 1985 THRU 1990 1991 1992 TO PRESENT
- ----- ----------- -------------- ---- ---------------
<S> <C> <C> <C> <C>
Neurology - major risk
procedures
Colon & Rectal Surgery
Radiology - inc. radiation
therapy
Dermatolory - inc. radiation
therapy
Psychiatry - inc. ECT
Urological Surgery
(Class 4 prior to 1-1-89)
Neonatology
Pediatrics - major risk
procedures
4 Family Practice -
inc. OB & C Sections 4.897 3.900 3.120
General Surgery
(Class 5 prior to 1-1-89)
Anesthesiology
(Class 5 prior to 1-1-89)
Otorhinolaryngological
Surgery
5 Plastic Surgery
(Class 6 prior to 1-1-89) 6.121 5.400 4.800
Gynecological Surgery
Foot & Ankle Surgery
(New Class since 1-1-91)
Oral Maxillofacial Surgery
6 Cardiac Surgery 7.321 6.900 6.600
Thoracic Surgery
(Class 7 prior to 1-1-89)
Vascular Surgery
(Class 7 prior to 1-1-89)
Cardiovascular Surgery
OB & GYN - inc. surgery
Hand Surgery
Head & Neck Surgery
7 Orthopedic Surgery 9.000 9.000 7.800
Trauma Surgery
8 Neurological Surgery 12.000 12.600 10.800
</TABLE>
* SUBJECT TO REDUCTION FOR PHYSICIANS PRACTICING IN NEBRASKA. SEE "THE
OFFERING".
NUMBER OF SHARES PER FULL YEAR INSURED*
A-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses to be paid by the Company in
connection with the distribution of the securities being registered. All such
expenses are estimated, except for the SEC registration fee:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee . . . . . . . . . . . . $4,572.72
Accounting fees and expenses . . . . . . . . . 10,000.00
Legal fees and expenses. . . . . . . . . . . . 10,000.00
Printing and engraving expenses. . . . . . . . 10,000.00
Blue Sky fees and expenses . . . . . . . . . . 5,000.00
Miscellaneous expenses . . . . . . . . . . . . 1,427.28
Total . . . . . . . . . . . . . . . . . $41,000.00
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article X of the Bylaws of the registrant provides that each director,
officer, and employee shall be indemnified for expenses and liabilities in the
manner, under the circumstances, and to the extent permitted by Minnesota
Statutes, Section 302A.521, as amended from time to time.
Minnesota Statutes, Section 302A.521, generally requires a corporation to
indemnity its directors, officers, and employees against judgments, penalties,
fines, and expenses, including attorney's fees, incurred in connection with
their official capacities, provided that such person (i) has not been
indemnified by another with respect to the same matter, (ii) acted in good
faith, (iii) received no improper personal benefit, (iv) had no reasonable cause
to believe that his conduct was unlawful, and (v) reasonably believed that his
conduct was in the best interests of the corporation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant has made no sales of unregistered securities in the last
three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
<S><C>
(1) 2A. Plan and Agreement of Merger between the Company and IPMIT,
without exhibits (Form S-4, Exhibit 3C).
(3) 2B. Plan and Agreement of Merger between the Company and Medical
Liability Mutual Insurance Company, dated August 15, 1996,
without exhibits.
(1) 3A. Restated Articles of Incorporation of the registrant (Form
S-4, Exhibit 3C).
II-1
<PAGE>
(1) 3B. Bylaws of the registrant, as amended (Form S-4, Exhibit 3D).
(4) 5. Opinion and Consent of Charles A. Geer, Esq.
(1) 9. Voting Trust Agreement between the Minnesota Medical Association
and the Iowa Medical Society.
(1) 10A. Governance Agreement between the registrant and the Minnesota
Medical Association, holder of the registrant's Class B Common
Share, dated November 30, 1988.
(1) 10B. Lease for office space between the registrant and Lexington
Property Fund, L.P., dated March 26, 1991.
10C. Amended and Restated Management Agreement between the registrant
and Medical Insurance Company dated January 1, 1996.
(Incorporated herein by reference to the Annual Report on Form
10-K, SEC file number 0-21230, filed by registrant for the year
ended December 31, 1996.)
(1) 10D. Agency Agreement with Vaaler Insurance, Inc. pursuant to which
Vaaler acted as agent of MMIC in North Dakota, dated April 21,
1989.
* 10E. Agreement of Reinsurance between Medical Insurance
Company and General Reinsurance Corporation, dated January 1,
1997.
(2) 10F. Letter Employment Agreement between the registrant and David P.
Bounk, President and Chief Executive Officer of the registrant
and Medical Insurance Company, dated January 1, 1993.
(1) 10G. Executive Bonus Plan of the registrant.
* 10H. Amended and Restated Supplemental Executive Retirement Plan of
the registrant.
10I. Agency Agreement with IMS Services, Inc. pursuant to which IMS
acts as agent of MMIC in Iowa, dated July 1, 1993. (Incorporated
herein by reference to the Report on Form 10-K filed by the
registrant for the fiscal year ended December 31, 1993, file
number 0-21230.)
(4) 10J. Form of Termination Agreement with Executive Officers.
(1) 21. Subsidiaries of the registrant.
* 23A. Consent of Ernst & Young LLP
*(4) 24. Powers of Attorney.
</TABLE>
(1) Incorporated herein by reference to the registration statement on Form S-4,
file number 33-55062, filed by registrant on November 25, 1993, as
amended.
II-2
<PAGE>
(2) Incorporated herein by reference to the registration statement on Form S-1,
SEC file number 33-70182, filed by registrant on October 12, 1993, as
amended.
(3) Incorporated herein by reference to the registration statement on Form S-4,
SEC file number 333-00134, filed by registrant on January 10, 1996, as
amended.
(4) Previously filed with original registration statement.
(*) Filed herewith.
(b) Financial Statement Schedules.
The following financial statement schedules of Medical
Insurance Holding Company and subsidiary required by Regulation S-X and
Form S-1 are filed as part of this Registration Statement:
II. Condensed Financial Information of Registrant (Parent
Company)--Balance Sheets--December 31, 1997 and 1996, Statements of
Income--For the Years Ended December 31, 1997 and 1996 and 1995; and,
Statements of Cash Flows--For the Years Ended December 31, 1997, 1996 and
1995. Included in "FINANCIAL STATEMENTS" Section of Prospectus filed
herewith.
IV. Reinsurance Summary for the Years Ended December 31, 1997, 1996
and 1995. Included in "FINANCIAL STATEMENTS" section of Prospectus filed
herewith.
VI. Supplemental Information Concerning Property/Casualty Insurance
Operations--December 31, 1997 and 1996, and for Each of the Three Years in
the Period Ended December 31, 1997. Included in "FINANCIAL STATEMENTS"
section of Prospectus filed herewith.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registrant statement to include any
financial statements required by 3-19 of Regulation S-X at the start
of any delayed offering or throughout a continuous offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Minneapolis, State of
Minnesota, on April 30, 1998.
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
By: /s/ David P. Bounk
-------------------
David P. Bounk, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities indicated on April 30, 1998.
SIGNATURE CAPACITY
- --------- --------
/s/ David P. Bounk Principal Executive Officer
- ------------------------- and Director
David P. Bounk
/s/ Niles A. Cole Principal Financial Officer and
- ------------------------- Principal Accounting Officer
Niles A. Cole
* Director, Chairman of the Board
- -------------------------
Andrew J.K. Smith, M.D.
* Director
- -------------------------
Michael Abrams
* Director
- -------------------------
John R. Balfanz, M.D.
* Director
- -------------------------
Gail P. Bender, M.D.
* Director
- -------------------------
James R. Bishop, M.D.
* Director
- -------------------------
E. Duane Engstrom, M.D.
* Director
- -------------------------
Roger L. Frerichs, M.D.
* Director
- -------------------------
G. Richard Geier, M.D.
* Director
- -------------------------
Anthony C. Jaspers, M.D.
* Director
- -------------------------
Russel J. Kuzel, M.D.
* Director
- -------------------------
Wayne F. Leebaw, M.D.
II-5
<PAGE>
* Director
- -------------------------
Stephen A. McCue, M.D.
* Director
- -------------------------
William J. McMillan, Jr., M.D.
* Director
- -------------------------
Harold W. Miller, M.D.
* Director
- -------------------------
Anton S. Nesse, M.D.
* Director
- -------------------------
Mark D. Odlund, M.D.
* Director
- -------------------------
G. William Orr, M.D.
* Director
- -------------------------
Norman Rinderknecht, M.D.
* Director
- -------------------------
Paul S. Sanders, M.D.
* Director
- -------------------------
Richard D. Schmidt, M.D.
* Director
- -------------------------
G. David Spoelhof, M.D.
* Director
- -------------------------
Tom D. Throckmorton, M.D.
* Director
- -------------------------
Bruce R. Trimble, M.D.
*By: /s/ David P. Bounk
--------------------------------
David P. Bounk pursuant to
power of attorney
The above persons signing as directors constitute all of the directors of the
registrant.
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
------- ----
<C> <S> <C>
10E. Agreement of Reinsurance between Medical Insurance
Company and General Reinsurance Corporation dated
January 1, 1997.
10H. Amended and Restated Supplemental Executive Retirement Plan
of the registrant.
23. Consent of Ernst & Young LLP
24. Powers of Attorney
</TABLE>
<PAGE>
REGENCY WESTPOINTE
LEASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
1. LEASE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. EXHIBITS AND ADDENDA. . . . . . . . . . . . . . . . . . . . . . . . . 2
4. DELIVERY OF POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . 3
5. INTENDED USE OF THE PREMISES. . . . . . . . . . . . . . . . . . . . . 3
6. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.1. PAYMENT OF BASE RENT . . . . . . . . . . . . . . . . . . . . . 3
6.2. ADJUSTED BASE RENT . . . . . . . . . . . . . . . . . . . . . . 3
6.3. ADDITIONAL RENT FOR INCREASES IN TAXES AND PROJECT OPERATING
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.4. DEFINITION OF RENT . . . . . . . . . . . . . . . . . . . . . . 5
6.5. TAXES ON TENANT'S USE AND OCCUPANCY. . . . . . . . . . . . . . 5
7. INTEREST AND LATE CHARGES . . . . . . . . . . . . . . . . . . . . . . 5
8. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. TENANT'S USE OF THE PREMISES. . . . . . . . . . . . . . . . . . . . . 6
9.1. USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9.2. OBSERVANCE OF LAW. . . . . . . . . . . . . . . . . . . . . . . 6
9.3. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9.4. NUISANCE AND WASTE . . . . . . . . . . . . . . . . . . . . . . 6
9.5. LOAD AND EQUIPMENT LIMITS. . . . . . . . . . . . . . . . . . . 6
9.6. HAZARDOUS MATERIAL . . . . . . . . . . . . . . . . . . . . . . 7
10. SERVICES AND UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . 7
11. REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . 8
11.1. LANDLORD'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . 8
11.2. TENANT'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . 8
11.3. COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . 8
11.4. NOTICE OF DEFECT . . . . . . . . . . . . . . . . . . . . . . . 8
11.5. LANDLORD'S LIABILITY . . . . . . . . . . . . . . . . . . . . . 8
12. CONSTRUCTION, ALTERATIONS AND ADDITIONS . . . . . . . . . . . . . . . 8
12.1. LANDLORD'S CONSTRUCTION OBLIGATIONS. . . . . . . . . . . . . . 8
12.2. TENANT'S CONSTRUCTION OBLIGATIONS. . . . . . . . . . . . . . . 8
12.3. TENANT'S ALTERATIONS AND ADDITIONS . . . . . . . . . . . . . . 8
12.4. PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
12.5. PROPERTY OF LANDLORD . . . . . . . . . . . . . . . . . . . . . 9
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY . . . . . . . . . . . . . . 9
13.1. LEASEHOLD IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . 9
13.2. TENANT'S PROPERTY. . . . . . . . . . . . . . . . . . . . . . . 9
14. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14.1. TENANT INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 9
14.2. LANDLORD NOT LIABLE. . . . . . . . . . . . . . . . . . . . . . 9
15. TENANT'S INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 10
15.1. INSURANCE REQUIREMENT . . . . . . . . . . . . . . . . . . . . 10
15.2. FIRE AND EXTENDED COVERAGE . . . . . . . . . . . . . . . . . . 10
15.3. GENERAL LIABILITY AND PROPERTY DAMAGE. . . . . . . . . . . . . 10
15.4. INCREASES IN INSURANCE POLICY LIMITS . . . . . . . . . . . . . 10
15.5. WORKER'S COMPENSATION INSURANCE. . . . . . . . . . . . . . . . 11
15.6. WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . . . . . 11
16. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . 11
16.1. DAMAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
16.2. REPAIR OF PREMISES IN EXCESS OF ONE HUNDRED EIGHTY DAYS. . . . 11
16.3. REPAIR OUTSIDE PREMISES. . . . . . . . . . . . . . . . . . . . 11
16.4. TENANT REPAIR. . . . . . . . . . . . . . . . . . . . . . . . . 11
16.5. ELECTION NOT TO PERFORM LANDLORD'S WORK. . . . . . . . . . . . 11
16.6. EXPRESS AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 12
i
<PAGE>
17. EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
17.1. WHOLE TAKING . . . . . . . . . . . . . . . . . . . . . . . . . 12
17.2. PARTIAL TAKING . . . . . . . . . . . . . . . . . . . . . . . . 12
17.3. PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
17.4. LANDLORD'S RESTORATION . . . . . . . . . . . . . . . . . . . . 12
18. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . 12
18.1. NO ASSIGNMENT OR SUBLETTING. . . . . . . . . . . . . . . . . . 12
18.2. LANDLORD'S CONSENT . . . . . . . . . . . . . . . . . . . . . . 12
18.3. TENANT REMAINS RESPONSIBLE . . . . . . . . . . . . . . . . . . 13
18.4. PAYMENT OF FEES. . . . . . . . . . . . . . . . . . . . . . . . 13
19. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
19.1. TENANT'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 14
19.2. LANDLORD REMEDIES. . . . . . . . . . . . . . . . . . . . . . . 14
19.3. DAMAGES RECOVERABLE. . . . . . . . . . . . . . . . . . . . . . 15
19.4. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. . . . . . . . . . . 15
19.5. LANDLORD'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . 15
19.6. MORTGAGEE PROTECTION . . . . . . . . . . . . . . . . . . . . . 15
19.7. TENANT'S RIGHT TO CURE LANDLORD'S DEFAULT. . . . . . . . . . . 15
20. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
21. SUBORDINATION AND ATTORNMENT. . . . . . . . . . . . . . . . . . . . . 16
22. TENANT ESTOPPEL CERTIFICATES. . . . . . . . . . . . . . . . . . . . . 16
22.1. LANDLORD REQUEST FOR ESTOPPEL CERTIFICATE. . . . . . . . . . . 16
22.2. FAILURE TO EXECUTE . . . . . . . . . . . . . . . . . . . . . . 16
23. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
24. TRANSFER OF LANDLORD'S INTEREST . . . . . . . . . . . . . . . . . . . 17
25. SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . 17
25.1. CLEAN AND SAME CONDITION . . . . . . . . . . . . . . . . . . . 17
25.2. FAILURE TO DELIVER POSSESSION. . . . . . . . . . . . . . . . . 17
25.3. PROPERTY ABANDONED . . . . . . . . . . . . . . . . . . . . . . 17
26. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
27. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . 17
28. CERTAIN RIGHTS RESERVED BY LANDLORD . . . . . . . . . . . . . . . . . 17
29. ADVERTISEMENTS AND SIGNS. . . . . . . . . . . . . . . . . . . . . . . 18
30. RELOCATION OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . 18
31. GOVERNMENT ENERGY OR UTILITY CONTROLS . . . . . . . . . . . . . . . . 18
32. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
33. BROKERAGE FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
34. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
35. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
35.1. ACCORD AND SATISFACTION; ALLOCATION OF PAYMENTS. . . . . . . . 19
35.2. ADDENDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
35.3. ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . 19
35.4. CAPTIONS AND SECTION NUMBERS . . . . . . . . . . . . . . . . . 19
35.5. CHANGES REQUESTED BY LENDER. . . . . . . . . . . . . . . . . . 19
35.6. CHOICE OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . 19
35.7. CONSENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
35.8. CORPORATE AUTHORITY. . . . . . . . . . . . . . . . . . . . . . 20
35.9. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . 20
35.10. EXECUTION OF LEASE; NO OPTION. . . . . . . . . . . . . . . . . 20
35.11. FURNISHING OF FINANCIAL STATEMENTS; TENANT'S REPRESENTATIONS . 20
35.12. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . 20
35.13. PRIOR AGREEMENTS; AMENDMENTS . . . . . . . . . . . . . . . . . 20
35.14. RECORDING. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
35.15. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 20
35.16. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . 20
35.17. TIME OF THE ESSENCE. . . . . . . . . . . . . . . . . . . . . . 20
ii
<PAGE>
LEASE
This lease between Glenborough Fund I, Limited Partnership, a Delaware limited
partnership, (herein Landlord), and Midwest Medical Insurance Holding Company, a
Minnesota corporation (herein Tenant), is dated for reference purposes only as
of this ______ day of ____________, 19__.
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 6.) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as
Exhibit "A", and further described at Section 2.13. The Premises are located
within the Building and Project (as described in Sections 2.13. and 2.14.).
Tenant shall have the nonexclusive right (unless otherwise provided herein) in
common with Landlord, other tenants, subtenants and invitees, to use the Common
Area (as defined in Section 2.5.).
2. DEFINITIONS.
As used in this Lease the following terms shall have the following meanings:
2.1. ADJUSTMENT DATE: Each successive anniversary of Tenants' First
Adjustment Date (as described in 2.17.).
2.2. ANNUAL BASE RENT:
Lease Year 1: $ 21,852.00
-------------------
Lease Year 2: $ 22,416.00
-------------------
Lease Year 3: $ 22,980.00
-------------------
Lease Year 4: $
-------------------
Lease Year 5: $
-------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
2.3. BASE YEAR (Section 6.3.): 1997.
2.4. COMMENCEMENT DATE: December 1, 1997. If the Commencement Date is
other than the first day of a month, then the Expiration Date of
the Lease shall be extended to the last day of the month in which
the Lease expires.
2.5. COMMON AREA: The building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have
the right to regulate or restrict the use of the Common Area.
2.6. EXPIRATION DATE: November 30, 2000, unless otherwise sooner
terminated in accordance with the provisions of this Lease.
2.7
2.8. LANDLORD'S MAILING ADDRESS:
c/o Glenborough Corporation
400 South El Camino Real, Suite 1100
San Mateo, CA 94402-1708
RENT PAYMENT ADDRESS:
Glenborough Fund I
------------------------------------------------
10330 Regency Parkway Drive
------------------------------------------------
Suite 304
------------------------------------------------
Omaha, Nebraska 68114
TENANT'S MAILING ADDRESS:
Midwest Medical Insurance Holding Company
------------------------------------------------
6600 France Avenue South
------------------------------------------------
Suite 245
------------------------------------------------
Minneapolis, Minnesota 55435-1891
1
<PAGE>
2.9. LISTING AND LEASING AGENT(S): NA.
2.10. MONTHLY INSTALLMENTS OF BASE RENT:
Lease Year 1: $ 1,821.00 per month
------------------
Lease Year 2: $ 1,868.00 per month
------------------
Lease Year 3: $ 1,915.00 per month
------------------
Lease Year 4: $ per month
------------------
Lease Year 5: $ per month
------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
2.11. NOTICE: Except as otherwise provided herein, Notice shall mean any
notices, approvals and demands permitted or required to be given
under this Lease. Notice shall be given in the form and manner set
forth in Section 23.
2.12. PARKING: Tenant shall be entitled to the nonexclusive use of all
parking spaces and the exclusive use of 0 parking spaces located on
the Property. The charge for parking shall be 0 per month per
parking space for the first year of this Lease. Commencing with
Lease Year Two (2), the charge for parking may be adjusted by
Landlord any time.
2.13. PREMISES: That portion of the Building containing approximately
1,249 square feet of Usable Area, shown by diagonal lines on
Exhibit "A", located on the 3rd floor of the Building located at
10330 Regency Parkway Drive Omaha, Nebraska 68114, and known as
Suite 301.
2.14. PROJECT: The building of which the Premises are a part (the
Building) and any other buildings or improvements on the real
property (the Property) located at 10330 Regency Parkway Drive,
Omaha, Nebraska 68114 and further described at Exhibit "B". The
Project is commonly known as Regency Westpointe.
2.15. SECURITY DEPOSIT (Section 8.): $ 1,915.00*.
2.16. STATE: The State of Nebraska.
2.17.
2.18. TENANT'S PROPORTIONATE SHARE: 3.48%. Such share is a fraction,
the numerator of which is the Usable Area of the Premises, and the
denominator of which is the Usable Area of the Project, as
determined by Landlord from time to time. The Project consists of
one building(s) containing a total of 35,937 square feet.
2.19. TENANT'S USE (Section 9.): Offices used for the business of
providing insurance to doctors.
2.20. TERM: The period commencing on the Commencement Date and expiring
at midnight on the Expiration Date.
2.21. USABLE AREA: As to both the Premises and the Project, the
respective measurements of floor area as may from time to time be
subject to lease by Tenant and all tenants of the Project,
respectively, as determined by Landlord and applied on a consistent
basis throughout the Project.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are attached hereto and
incorporated by reference in this Lease:
3.1. Exhibit A - Floor Plan showing the Premises.
3.2. Exhibit B - Site Plan of the Project.
3.3. Exhibit C - Building Standard Tenant Improvements.
3.4. Exhibit D - Tenant Work Letter and Drawings.
3.5. Exhibit E - Rules and Regulations.
3.6. Addenda: Attached hereto and made a part of this Lease by reference
are Sections 36.
2
* Landlord hereby acknowledges that Tenant's Security Deposit of $1,486.25 will
be carried over from Tenant's prior Lease for the Premises.
<PAGE>
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, and such failure is not caused by an act or omission
of Tenant, the Expiration Date shall be extended by the number of days the
Commencement Date has been delayed and the validity of this Lease shall not be
impaired nor shall Landlord be subject to any liability for such failure; but
Rent shall be abated until delivery of possession. Provided, however, if the
Commencement Date has been delayed by an act or omission of Tenant then Rent
shall not be abated until delivery of possession and the Expiration Date shall
not be extended. Delivery of possession shall be deemed to occur on the date
Landlord receives a Certificate of Occupancy or upon substantial completion of
the Premises, as certified by Landlord's architect. If Landlord permits Tenant
to enter into possession of the Premises before the Commencement Date, such
possession shall be subject to the provisions of this Lease, including, without
limitation, the payment of Rent.
Within ten (10) days of delivery of possession Landlord shall deliver to Tenant
and Tenant shall execute an Acceptance of Premises in which Tenant shall
certify, among other things, that (a) Landlord has satisfactorily completed
Landlord's Work to the Premises pursuant to Exhibit "D", unless written
exception is set forth thereon, and (b) that Tenant accepts the Premises.
Tenant's failure to execute and deliver the Acceptance of Premises shall be
conclusive evidence, as against Tenant, that Landlord has satisfactorily
completed Landlord's Work to the Premises pursuant to Exhibit "D".
In the event Tenant fails to take possession of the Premises following execution
of this Lease, Tenant shall reimburse Landlord promptly upon demand for all
costs incurred by Landlord in connection with entering into this Lease
including, but not limited to, broker fees and commissions, sums paid for the
preparation of a floor and/or space plan for the Premises, costs incurred in
performing Landlord's Work pursuant to Exhibit "D", loss of rental income,
attorneys' fees and costs, and any other damages for breach of this Lease
established by Landlord.
5. INTENDED USE OF THE PREMISES.
The statement in this Lease of the nature of the business to be conducted by
Tenant in the Premises does not constitute a representation or guaranty by the
Landlord as to the present or future suitability of the Premises for the conduct
of such business in the Premises, or that it is lawful or permissible under the
certificate of occupancy issued for the Building, or is otherwise permitted by
law. Tenant's taking possession of the Premises shall be conclusive evidence, as
against Tenant, that, at the time such possession was taken, the Premises were
satisfactory for Tenant's intended use.
6. RENT.
6.1. PAYMENT OF BASE RENT. Tenant shall pay the Base Rent for the
Premises. Monthly Installments of Base Rent shall be payable in advance on the
first day of each calendar month of the Term. If the Term begins (or ends) on
other than the first (or last) day of a calendar month, the Base Rent for the
partial month shall be prorated based on a thirty (30) day month. The Rent shall
be paid to the Landlord at the Rent Payment Address set forth in Section 2.8.,
or to such other person at such place as Landlord may from time to time
designate in writing, without any prior demand therefor and without deduction or
offset, in lawful money of the United States of America. Tenant shall pay
Landlord the first Monthly Installment of Base Rent upon execution of this
Lease.
6.2.
6.3. ADDITIONAL RENT FOR INCREASES IN TAXES AND PROJECT OPERATING EXPENSES.
If, in any calendar year during the term of this Lease, Landlord's combined Tax
and Project Operating Costs (hereinafter sometimes together referred to as
Direct Costs) shall be higher than in the Base Year specified in Section 2.3.,
Rent payable by Tenant hereunder shall be increased by an amount equal to
Tenant's proportionate share of the difference between Landlord's actual Direct
Costs for the calendar year and the Base Year. However, if at any time during
the Term hereof the occupancy of the Building is less than one hundred percent
3
<PAGE>
(100%) then the Direct Costs (as defined hereinbelow) shall be calculated at the
actual percentage of occupancy or as if the Building were ninety percent (90%)
occupied, whichever is greater.
6.3.1. DEFINITIONS. As used in this Section 6.3., the following terms
shall have the following meanings:
6.3.1.1. Tax Costs shall mean any and all real estate taxes,
other similar charges on real property or improvements, assessments,
water and sewer charges, and all other charges assessed, levied,
imposed or becoming a lien upon part or all of the Project or the
appurtenances thereto, or attributable thereto, or on the rents,
issues, profits or income received or derived therefrom which may be
imposed, levied, assessed or charged by the United States or the
state, county or city in which the Project is located, or any other
local government authority or agency or political subdivision thereof.
Tax Costs for each tax year shall be apportioned to determine the Tax
Costs for the subject calendar years.
6.3.1.2. Operating Expenses shall mean any and all expenses
incurred by Landlord in connection with the maintenance, operation,
and repair of the Project, the equipment, adjacent walks, common
areas, parking areas, malls and landscaped areas, including, but not
limited to, salaries, wages, fringe benefits, pension payments,
payroll taxes, worker's compensation, and other costs related to
employees engaged in the operation, maintenance and/or repair of the
Project; the cost of all charges to Landlord for electricity, natural
gas, air conditioning, steam, water, and other utilities furnished to
the Project including any taxes thereon; the cost and expense for
third-party consultants, accountants and attorneys; a management fee
not to exceed five percent (5%) of the gross rents actually received
from the Project; reasonable reserves for replacements as may be
customary in the geographical area in which the Project is located;
the cost of license fees related to the Project; the cost of all
charges for fire and extended coverage, liability, rent loss and all
other insurance for the Project to the extent that such insurance is
required to be carried by Landlord under any lease, mortgage or deed
of trust covering the whole or a substantial part of the Project or
the Building, or, if not required under any such lease, mortgage or
deed of trust, then to the extent such insurance is carried by owners
or properties comparable to the Project; the cost of all building and
cleaning supplies and materials; the cost of all charges for security
services, cleaning, maintenance and service contracts, snow and ice
removal and other services with independent contractors, including but
not limited to the maintenance, operation and repair of all elevator,
electrical, plumbing and mechanical systems of the Project; and the
cost of any janitorial, utility or other services to be provided by
Landlord.
Notwithstanding the foregoing, the following shall not be
included within Operating Expenses: interest or rent paid to any
Lender; the cost of constructing tenant improvements for Tenant or any
other tenant of the Building or Project; Operating Expenses charged to
and paid by any other tenant of the Building or Project; the cost of
special services, goods or materials provided to any other tenant of
the Building or Project; repairs covered by proceeds of insurance or
from funds provided by Tenant or any other tenant of the Building or
Project.
6.3.2. DETERMINATION AND PAYMENT OF TAX COSTS AND OPERATING EXPENSES.
6.3.2.1. On or before the last day of each December during
the Term of this Lease, Landlord shall furnish to Tenant a written
statement showing in reasonable detail Landlord's projected Tax Costs
and Operating Expenses for the succeeding calendar year. If such
statement of projected Direct Costs indicates the Direct Costs will be
higher than the Base Year, then the Rent due from Tenant hereunder for
the next succeeding year shall be increased by an amount equal to
Tenant's proportionate share of the difference between the projected
Direct Costs for the calendar year and the Base Year. On the next
payment date of Monthly Installments of Rent following Tenant's
receipt of such statement, if such statement indicates that an
estimated rent increase is due, Tenant shall pay to Landlord an amount
equal to such monthly rent increase adjustment (as set forth on
Landlord's statement). Thereafter, the monthly rent adjustment
payments becoming due shall be in the amount set forth in such
projected rent adjustment statement from Landlord. Neither Landlord's
failure to deliver nor late delivery of such statement shall
constitute a default by Landlord or a waiver of Landlord's right to
any rent adjustment provided for herein.
6.3.2.2. On or before the first day of each April during the
Term of this Lease, Landlord shall furnish to Tenant a written
statement of reconciliation (the Reconciliation) showing in reasonable
detail Landlord's actual Direct Costs for the prior year, together
with a full statement of any adjustments necessary to reconcile any
sums paid as estimated rent adjustments during the prior year with
those sums actually payable for such prior year. In the event such
Reconciliation shows that additional sums are due from Tenant, Tenant
shall
4
<PAGE>
pay such sums to Landlord within ten (10) days of receipt of such
Reconciliation. In the event such Reconciliation shows that a credit
is due Tenant, such credit shall be credited against the next sums
becoming due from Tenant, unless this Lease has expired or been
terminated pursuant to the terms hereof (and all sums due Landlord
have been paid), in which event such sums shall be refunded to
Tenant. Neither Landlord's failure to deliver nor late delivery of
such Reconciliation to Tenant by April first shall constitute a
default by Landlord or operate as a waiver of Landlord's right to
collect all Additional Rent or sums due hereunder. Tenant agrees
that no written request of such Reconciliation shall be made until
the Reconciliation for such period shall be due. Within thirty (30)
days after receipt of Tenant's written request therefor, Landlord
shall deliver such Reconciliation to Tenant.
6.3.2.3. TENANT'S INSPECTION OF RECONCILIATION ACCOUNTING
RECORDS. Provided Tenant is not in default under the terms of the
Lease and following prior written request to Landlord, Tenant
shall have the right to inspect Landlord's Reconciliation
Accounting Records relating to Direct Costs at Landlord's
corporate office, during normal business hours, within thirty (30)
days of receipt of any annual Reconciliation of Direct Costs, for
the purpose of verifying the charges contained in such statement.
Tenant may not withhold any payment due Landlord pending
completion of such inspection.
6.4. DEFINITION OF RENT. All costs and expenses which Tenant assumes or
agrees or is obligated to pay to Landlord under this Lease shall be deemed
Additional Rent (which, together with the Base Rent is sometimes referred to as
the Rent).
6.5. TAXES ON TENANT'S USE AND OCCUPANCY. In addition to the Rent and any
other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord
upon demand for any and all taxes payable by Landlord (other than net income
taxes) which are not otherwise reimbursable under this Lease, whether or not now
customary or within the contemplation of the parties, where such taxes are upon,
measured by or reasonably attributable to (a) the cost or value of Tenant's
equipment, furniture, fixtures and other personal property located in the
Premises, or the cost or value of any leasehold improvements made in or to the
Premises by or for Tenant, other than Building Standard Tenant Improvements made
by Landlord, regardless of whether title to such improvements is held by Tenant
or Landlord; (b) the gross or net Rent payable under this Lease, including,
without limitation, any rental or gross receipts tax levied by any taxing
authority with respect to the receipt of the Rent hereunder; (c) the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion thereof; or (d) this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. If it becomes unlawful for Tenant to
reimburse Landlord for any costs as required under this Lease, the Base Rent
shall be revised to net Landlord the same net Rent after imposition of any tax
or other charge upon Landlord as would have been payable to Landlord but for the
reimbursement being unlawful.
7. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or Additional Rent or other amounts or
charges which Tenant is obligated to pay under the terms of this Lease, then
Tenant shall pay Landlord a late charge equal to six percent (6%) of such
installment if any such installment is not received by Landlord within five (5)
days from the date it is due. Tenant acknowledges that the late payment of any
Rent or Additional Rent will cause Landlord to lose the use of that money and
incur costs and expenses not contemplated under this Lease including, without
limitation, administrative and collection costs and processing and accounting
expenses, the exact amount of which is extremely difficult to ascertain.
Landlord and Tenant agree that this late charge represents a reasonable estimate
of such costs and expenses and is fair compensation to Landlord for the loss
suffered from such nonpayment by Tenant. Acceptance of any late charge shall not
constitute a waiver of Tenant's default with respect to such nonpayment by
Tenant nor prevent Landlord from exercising any other rights or remedies
available to Landlord under this Lease. In addition, Tenant shall be obligated
to pay interest at the maximum applicable rate then allowed by law on any unpaid
monies from the date the monies became due until payment is received by
Landlord. Late charges and interest shall be deemed Additional Rent and are
included collectively in the term Rent.
In no event shall this provision for the imposition of a late charge be deemed
to grant to Tenant a grace period or an extension of time within which to pay
any Rent or Additional Rent due hereunder or prevent Landlord from exercising
any right or remedy available to Landlord upon Tenant's failure to pay such Rent
or Additional Rent when due.
8. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth in Section
2.15. upon execution of this Lease as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest
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on such deposit. Tenant shall not mortgage, assign, transfer or encumber the
Security Deposit without the prior written consent of Landlord and any attempt
by Tenant to do so shall be void, without force or effect and shall not be
binding upon the Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may, at its option
and without prejudice to any other remedy which Landlord may have on account
thereof, appropriate and apply or use all or any portion of the Security Deposit
for Rent payments or any other amount then due and unpaid, for payment of any
amount for which Landlord has become obligated as a result of Tenant's default
or breach, and for any loss or damage sustained by Landlord as a result of
Tenant's default or breach. If Landlord so uses any of the Security Deposit,
Tenant shall, within ten (10) days after written demand therefor, restore the
Security Deposit to the full amount originally deposited. Tenant's failure to do
so shall constitute an act of default hereunder and Landlord shall have the
right to exercise any remedy provided for at Section 19. hereof.
If Tenant complies with all of the terms and conditions of this Lease, and
Tenant is not in default on any of its obligations hereunder, then within the
time period statutorily prescribed after Tenant vacates the Premises, Landlord
shall return to Tenant (or, at Landlord's option, to the last subtenant or
assignee of Tenant's interest hereunder) the Security Deposit less any
expenditures made by Landlord to repair damages to the Premises caused by Tenant
and to clean the Premises upon expiration or earlier termination of this Lease.
In the event of bankruptcy or other debtor-creditor proceedings against Tenant,
such Security Deposit shall be deemed to be applied first to the payment of Rent
and other sums due Landlord for all periods prior to the filing of such
proceedings.
9. TENANT'S USE OF THE PREMISES.
The provisions of this Section are for the benefit of the Landlord and are not
nor shall they be construed to be for the benefit of any tenant of the Building
or Project.
9.1. USE. Tenant shall use the Premises solely for the purposes set
forth in Section 2.19.
9.2. OBSERVANCE OF LAW. Tenant shall not use or occupy the Premises or
permit anything to be done in or about the Premises in violation of any
covenant, condition or restriction, or law, statute, ordinance or governmental
rules, regulations or requirements now in force or which may hereafter be
enacted or promulgated. Tenant shall, at its sole cost and expense, upon Notice
from Landlord, immediately discontinue any use of the Premises which is declared
by any governmental authority having jurisdiction to be a violation of law or
the Certificate of Occupancy and promptly comply with all laws, statutes,
ordinances and governmental rules, regulations or requirements now in force or
which may hereafter be in force which shall by reason of the nature of Tenant's
use or occupancy of the Premises, impose any duty upon Tenant or Landlord with
respect to the nature of Tenant's use or occupation. The judgment of any court
of competent jurisdiction or the admission by Tenant in any action or proceeding
against Tenant, whether Landlord is a party thereto or not, that Tenant has
violated any such law, statute, ordinance, or governmental regulation, rule or
requirement in the use of the Premises shall be conclusive of the fact as
between Landlord and Tenant.
9.3. INSURANCE. Tenant shall not do or permit to be done anything which
will invalidate or increase the cost of any fire, extended coverage or other
insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of Landlord's insurance carrier(s) or any board of fire
insurance underwriters or other similar body now or hereafter constituted,
relating to or affecting the condition, use or occupancy of the Premises,
excluding structural changes not related to or affected by Tenant's improvements
or acts. Tenant shall promptly upon demand reimburse Landlord for any additional
premium charged for violation of this Section.
9.4. NUISANCE AND WASTE. Tenant shall not do or permit anything to be done
in or about the Premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Building or Project, or injure or
annoy them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises. Tenant shall not commit or suffer to
be committed any waste in or upon the Premises.
9.5. LOAD AND EQUIPMENT LIMITS. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such floor
was designed to carry as determined by Landlord or Landlord's structural
engineer. The cost of any such determination made by Landlord's structural
engineer in connection with Tenant's occupancy shall be paid by Tenant upon
Landlord's demand. Tenant shall not install business machines or mechanical
equipment which will in any manner cause noise objectionable to other tenants or
injure, vibrate or shake the Premises or Building.
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9.6. HAZARDOUS MATERIAL.
Unless Tenant obtains the prior written consent of Landlord, Tenant shall not
create, generate, use, bring, allow, emit, dispose, or permit on the Premises,
Building or Shopping Center any toxic or hazardous gaseous, liquid, or solid
material or waste, or any other hazardous material defined or listed on any
applicable federal, state or local law, rule, regulation or ordinance. Tenant
shall indemnify and hold Landlord harmless from any claims, liabilities, costs
or expenses incurred or suffered by Landlord arising from such bringing,
allowing, using, permitting, generating, creating, emitting, or disposing of
toxic or hazardous material whether or not consent to same has been granted by
Landlord. Tenant's hold-harmless and indemnity obligations hereunder shall
survive the expiration or termination of this Lease.
10. SERVICES AND UTILITIES.
Landlord agrees to furnish services and utilities to the Premises during normal
business hours on generally recognized business days subject to the Rules and
Regulations of the Building or Project and provided that Tenant is not in
default hereunder. Services and utilities shall include reasonable quantities of
electricity, heating, ventilation and air conditioning (HVAC) as required in
Landlord's reasonable judgment for the comfortable use and occupancy of the
Premises; lighting replacement for building standard lights; window washing and
janitor services in a manner that such services are customarily furnished to
comparable office buildings in the area. Landlord shall supply common area water
for drinking, cleaning and restroom purposes only. Landlord shall also maintain
and keep lighted the common stairs, common entries and restrooms in the Building
and shall furnish elevator service and restroom supplies. If Tenant desires HVAC
at any other time, Landlord shall use reasonable efforts to furnish such
service upon reasonable notice from Tenant and Tenant shall pay Landlord's
charges therefor on demand.
Landlord shall not be in default hereunder or be liable for any damages directly
or indirectly resulting from, nor shall the Rent be abated by reason of (a) the
installation, use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services, (b) failure to furnish or delay in
furnishing any such services where such failure or delay is caused by accident
or any condition or event beyond the reasonable control of Landlord, or by the
making of necessary repairs or improvements to the Premises, Building or
Project, or (c) the limitation, curtailment or rationing of, or restrictions on,
use of water, electricity, gas or any other form of energy serving the Premises,
Building or Project. Landlord shall not be liable under any circumstances for a
loss of or injury to property or business, however occurring, through, in
connection with or incidental to the failure to furnish any such services.
Tenant shall not, without the prior written consent of Landlord, use any
apparatus or device in the Premises, including, without limitation, electronic
data processing machines, punch card machines, word processing equipment,
personal computers, or machines using in excess of 120 volts, which consumes
more electricity than is usually furnished or supplied for the use of desk top
office equipment and photocopy equipment ordinarily in use in premises
designated as general office space, as determined by Landlord. Tenant shall not
connect any apparatus to electric current except through existing electrical
outlets in the Premises.
Tenant shall not consume electric current in excess of that usually furnished or
supplied for the use of premises as general office space (as determined by
Landlord), without first procuring the written consent of Landlord, which
Landlord may refuse. In the event of consent, electrical current shall be
separately metered in Tenant's name and paid for by Tenant. The cost of any such
meter and its installation, maintenance and repair shall be paid by Tenant.
Nothing contained in this Section shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. If the
separate metering of utilities furnished to the Premises is due to Tenant's
excessive use of electric current, then the cost of any such meter and its
installation, maintenance and repair shall be paid by Tenant. If Landlord
requires separate metering for reasons other than Tenant's excessive consumption
of electric current, then the cost of any such meter and its installation,
maintenance and repair shall be paid by Landlord. In either event, accounts for
all such separately metered utilities shall be in Tenant's name and paid for by
Tenant and Landlord shall reduce Base Rent by the amount Landlord reasonably
estimates to be attributable to the utilities so separately metered.
If Tenant uses heat generating machines or equipment in the Premises which
effect the temperature otherwise maintained by the HVAC system, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation, operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand therefor.
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11. REPAIRS AND MAINTENANCE.
11.1. LANDLORD'S OBLIGATIONS. Landlord shall make all structural repairs
except as specified herein and shall maintain in good order, condition and
repair the Building and all other portions of the Premises not the obligation of
Tenant or of any other tenant in the Building.
11.2. TENANT'S OBLIGATIONS.
11.2.1. Tenant shall, at Tenant's sole expense and except for
services furnished by Landlord pursuant to Section 10. hereof, maintain
the Premises in good order, condition and repair. For the purposes of
this Section 11.2.1, the term Premises shall be deemed to include all
items and equipment installed by or for the benefit of or at the expense
of Tenant, including without limitation the interior surfaces of the
ceilings, walls and floors; all doors; all interior windows; dedicated
heating, ventilating and air conditioning equipment; all plumbing, pipes
and fixtures; electrical switches and fixtures; and Building Standard
Tenant Improvements. In addition, Tenant shall be responsible for any
and all damage to the exterior windows caused by Tenant, its guests or
invitees.
11.2.2. Tenant shall be responsible for all repairs and
alterations in and to the Premises, Building and Project and the
facilities and systems thereof to the satisfaction of Landlord, the need
for which arises out of (a) Tenant's use or occupancy of the Premises,
(b) the installation, removal, use or operation of Tenant's Property (as
defined in Section 13.) in the Premises, (c) the moving of Tenant's
Property into or out of the Building, or (d) the act, omission, misuse or
negligence of Tenant, its agents, contractors, employees or invitees.
11.2.3. If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Notice to Tenant to do such
acts as are reasonably required to so maintain the Premises. If Tenant
fails to promptly commence such work and diligently prosecute it to
completion, then Landlord shall have the right to do such acts and expend
such funds at the expense of Tenant as are reasonably required to perform
such work.
11.3. COMPLIANCE WITH LAW. Landlord and Tenant shall each do all acts
necessary to comply with all applicable laws, statutes, ordinances, and rules of
any public authority relating to their respective maintenance obligations as set
forth herein.
11.4. NOTICE OF DEFECT. If it is Landlord's obligation to repair, Tenant
shall give Landlord prompt Notice of any damage to or defective condition,
regardless of the nature or cause, in any part or appurtenance of the Building's
mechanical, electrical, plumbing, HVAC or other systems serving, located in, or
passing through the Premises.
11.5. LANDLORD'S LIABILITY. Except as otherwise expressly provided in
this Lease, Landlord shall have no liability to Tenant nor shall Tenant's
obligations under this Lease be reduced or abated in any manner by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease or by any other tenant's lease or required by law to make in or to
any portion of the Project, Building or Premises. Landlord shall nevertheless
use reasonable efforts to minimize any interference with Tenant's conduct of its
business in the Premises.
12. CONSTRUCTION, ALTERATIONS AND ADDITIONS.
12.1. LANDLORD'S CONSTRUCTION OBLIGATIONS Landlord shall perform
Landlord's Work to the Premises as described in Exhibit "D".
12.2. TENANT'S CONSTRUCTION OBLIGATIONS. Tenant shall perform Tenant's
Work to the Premises as described in Exhibit "D" and shall comply with all of
the provisions of this Section 12.
12.3. TENANT'S ALTERATIONS AND ADDITIONS. Except as provided in Section
12.2. above, Tenant shall not make any other additions, alterations or
improvements to the Premises without obtaining the prior written consent of
Landlord. Landlord's consent may be conditioned on Tenant removing any such
additions, alterations or improvements upon the expiration of the Term and
restoring the Premises to the same condition as on the date Tenant took
possession. All work with respect to any addition, alteration or improvement
shall comply with all applicable laws, ordinances, codes and rules of any public
authority and shall be done in a good and workmanlike manner by properly
qualified and licensed personnel approved by Landlord, and such work shall be
diligently prosecuted to completion. The work shall be performed in a manner
that will not interfere with the quiet enjoyment of the other tenants in the
Building in which the Premises is located.
Landlord may require, in Landlord's sole discretion and at Tenant's
sole cost and expense, that Tenant provide Landlord with a lien and
completion bond in an amount equal to at least one and one-half (1-1/2) times
the total estimated cost of any additions, alterations or improvements to be
made in or to the Premises. Nothing contained in this Section 12.3. shall
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relieve Tenant of its obligation under Section 12.4. to keep the Premises,
Building and Project free of all liens.
12.4. PAYMENT. Tenant shall pay the costs of any work done on the
Premises pursuant to Sections 12.2. and 12.3., and shall keep the Premises,
Building and Project free and clear of liens of any kind. Tenant hereby
indemnifies, and agrees to defend against and keep Landlord free and harmless
from all liability, loss, damage, costs, attorneys' fees and any other expense
incurred on account of claims by any person performing work or furnishing
materials or supplies for Tenant or any person claiming under Tenant.
Tenant shall give Notice to Landlord at least ten (10) business days prior to
the expected date of commencement of any work relating to alterations, additions
or improvements to the Premises. Landlord retains the right to enter the
Premises and post such notices as Landlord deems proper at any reasonable time.
12.5. PROPERTY OF LANDLORD. Unless their removal is required by Landlord
as provided in Section 12.3., all additions, alterations and improvements made
to the Premises shall become the property of Landlord and be surrendered with
the Premises upon the expiration of the Term; provided, however, Tenant's
equipment, machinery and trade fixtures shall remain the Property of Tenant and
may be removed, subject to the provisions of Section 13.2.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
13.1. LEASEHOLD IMPROVEMENTS. All fixtures, equipment (including
air-conditioning or heating systems), improvements and appurtenances attached to
or built into the Premises at the commencement or during the Term of the Lease
(Leasehold Improvements), whether or not by or at the expense of Tenant, shall
be and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section 13.2.,
unless Landlord, by Notice to Tenant not later than thirty (30) days prior to
the expiration of the Term, elects to have Tenant remove any Leasehold
Improvements installed by Tenant. In such case, Tenant, at Tenant's sole cost
and expense and prior to the expiration of the Term, shall remove the Leasehold
Improvements and repair any damage caused by such removal.
13.2. TENANT'S PROPERTY. All signs, notices, displays, movable partitions,
business and trade fixtures, machinery and equipment (excluding air-conditioning
or heating systems, whether installed by Tenant or not), communications
equipment and office equipment located in the Premises and acquired by or for
the account of Tenant, without expense to Landlord, which can be removed without
structural damage to the Building, and all furniture, furnishings and other
articles of movable personal property owned by Tenant and located in the
Premises (collectively, Tenant's Property) shall be and shall remain the
property of Tenant and may be removed by Tenant at any time during the Term;
provided that if any of Tenant's Property is removed, Tenant shall promptly
repair any damage to the Premises or to the Building resulting from such
removal, including without limitation repairing the flooring and patching and
painting the walls where required by Landlord to Landlord's reasonable
satisfaction, all at Tenant's sole cost and expense.
14. INDEMNIFICATION.
14.1. TENANT INDEMNIFICATION. Tenant shall indemnify and hold Landlord
harmless from and against any and all liability and claims of any kind for loss
or damage to any person or property arising out of: (a) Tenant's use and
occupancy of the Premises, or the Building or Project, or any work, activity or
thing done, allowed or suffered by Tenant in, on or about the Premises, the
Building or the Project; (b) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (c) any negligent or otherwise tortious act or
omission of Tenant, its agents, employees, subtenants, licensees, customers,
guests, invitees or contractors. At Landlord's request, Tenant shall, at
Tenant's expense, and by counsel satisfactory to Landlord, defend Landlord in
any action or proceeding arising from any such claim. Tenant shall indemnify
Landlord against all costs, attorneys' fees, expert witness fees and any other
expenses or liabilities incurred in such action or proceeding. As a material
part of the consideration for Landlord's execution of this Lease, Tenant hereby
assumes all risk of damage or injury to any person or property in, on or about
the Premises from any cause and Tenant hereby waives all claims in respect
thereof against Landlord, except in connection with damage or injury resulting
solely from the gross negligence or willful misconduct of Landlord or its
authorized agents.
14.2. LANDLORD NOT LIABLE. Landlord shall not be liable for injury or
damage which may be sustained by the person or property of Tenant, its
employees, invitees or customers, or any other person in or about the Premises,
caused by or resulting from fire, steam, electricity, gas, water or rain which
may leak or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning, lighting fixtures or mechanical or electrical
systems, whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the Building or Project or from other
sources, unless the condition was the sole result of Landlord's gross negligence
or willful misconduct. Landlord shall not be liable for any
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damages arising from any act or omission of any other tenant of the Building or
Project or for the acts of persons in, on or about the Premises, Building or the
Project who are not the authorized agents of Landlord.
Tenant acknowledges that Landlord's election to provide mechanical surveillance
or to post security personnel in the Building or on the Project is solely within
Landlord's discretion; Landlord shall have no liability in connection with the
decision whether or not to provide such services and Tenant hereby waives all
claims based thereon. Landlord shall not be liable for losses due to theft,
vandalism or like causes. Tenant shall defend, indemnify and hold Landlord
harmless from any such claims made by any employee, licensee, invitee,
contractor, agent or other person whose presence in, on, or about the Premises,
Building or Project is attendant to the business of Tenant.
15. TENANT'S INSURANCE.
15.1. INSURANCE REQUIREMENT. All insurance required to be carried by
Tenant hereunder shall be issued by responsible insurance companies acceptable
to Landlord and Landlord's lender and qualified to do business in the State.
Each policy shall name Landlord, and any parties designated by Landlord, as
additional insureds, as their respective interests may appear. The issuing
companies shall have a rating of not less than "A" in the latest edition of
Best's Insurance Guide and shall be at least a Class XII company. Each policy
shall contain (a) a cross-liability endorsement, (b) a provision that such
policy and the coverage evidenced thereby shall be primary and noncontributing
with respect to any policies carried by Landlord and that any coverage carried
by Landlord shall be excess insurance, and (c) a waiver by the insurer of any
right of subrogation against Landlord, its agents, employees and
representatives, which arises or might arise by reason of any act or omission of
Landlord, its agents, employees or representatives. A copy of each paid up
policy (authenticated by the insurer) or the certificate of the insurer
evidencing the existence and amount of each insurance policy required hereunder
shall be delivered to Landlord before the date Tenant is first given the right
of possession of the Premises, and thereafter within thirty (30) days after any
demand by Landlord therefor. Landlord may, at any time and from time to time,
inspect and/or copy any insurance policies required to be maintained by Tenant
hereunder. No such policy shall be cancelable or subject to reduction of
coverage or other modification or cancellation except after thirty (30) days
prior written notice to Landlord and Landlord's lender by the insurer. Tenant
shall furnish Landlord with renewals or "binders" of any such policy at least
twenty (20) days prior to the expiration thereof. Tenant agrees that if Tenant
does not take out and maintain such insurance, Landlord may (but shall not be
required to) procure said insurance on Tenant's behalf and charge the Tenant the
cost thereof together with a twenty-five percent (25%) handling charge, payable
upon demand with interest from the date such sums are extended at the rate set
forth in Section 7. hereof. Tenant shall have the right to provide such
insurance coverage pursuant to blanket policies obtained by Tenant, provided
such blanket policies expressly afford coverage to the Premises, Landlord,
Landlord's mortgagee and Tenant as required by this Lease.
15.2. FIRE AND EXTENDED COVERAGE. Beginning on the date Tenant is given
access to the Premises for any purpose and continuing until expiration of the
Term, Tenant shall procure, pay for and maintain in effect policies of property
insurance covering (a) all Leasehold Improvements (including any alterations,
additions or improvements as may be made by Tenant pursuant to the provisions of
Section 12. hereof), and (b) trade fixtures, merchandise and other personal
property from time to time in, on or about the Premises, in an amount not less
than one hundred percent (100%) of their actual replacement cost from time to
time, providing protection against any peril included with the classification
Fire and Extended Coverage insurance with vandalism and malicious mischief and
all risk endorsements subject to the standard exclusions among which are
earthquake and flood. The proceeds of such insurance shall be used for the
repair or replacement of the property so insured. Upon termination of this Lease
following a casualty as set forth herein, the proceeds under (a) shall be paid
to Landlord, and the proceeds under (b) above shall be paid to Tenant. Landlord
shall, during the term hereof, maintain in effect similar insurance on the
Common Area, including but not limited to insurance for sprinkler damage,
vandalism and malicious mischief, as well as, all risk, fire and extended
coverage.
15.3. GENERAL LIABILITY AND PROPERTY DAMAGE. Beginning on the date
Tenant is given access to the Premises for any purpose and continuing until
expiration of the Term, Tenant shall procure, pay for and maintain in effect
comprehensive general liability and property damage insurance with respect to
the construction of improvements on the Premises, the use, operation or
condition of the Premises and the operations of Tenant in, on or about the
Premises, providing personal injury and broad form property damage coverage of
not less than One Million and 00/100 Dollars ($1,000,000.00) combined single
limit for bodily injury, death and property damage liability. Landlord shall,
during the term hereof, maintain in effect similar insurance coverage on the
Common Area.
15.4. INCREASES IN INSURANCE POLICY LIMITS. Not less than every five (5)
years, if, in the opinion of Landlord or Landlord's lender, the amount of
Tenant's insurance policy limits for all insurance to be carried by Tenant as
set forth in this Section 15. is not adequate,
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Tenant shall increase the insurance coverage as recommended by either Landlord
or Landlord's lender.
15.5. WORKER'S COMPENSATION INSURANCE. Beginning on the date Tenant is
given access to the Premises for any purpose and continuing until expiration of
the Term, Tenant shall procure, pay for and maintain in effect worker's
compensation insurance as required by law.
15.6. WAIVER OF SUBROGATION. Notwithstanding any other provision in this
Lease, Landlord and Tenant each hereby waive all rights of recovery against the
other and against the officers, employees, agents and representatives,
contractors, and invitees of the other, on account of loss by or damage to the
waiving party or its property or the property of others under its control, to
the extent that such loss or damage is insured against under any insurance
policy which may have been in force at the time of such loss or damage. Tenant
shall, upon obtaining the policies of insurance required under this Lease, give
written notice to its insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Lease. In the event either party is
unable to obtain a waiver of subrogation from its insurer, this Section 15.6.
shall become void and of no force or effect.
16. DAMAGE OR DESTRUCTION.
16.1. DAMAGE. If, during the term of this Lease, the Premises or the
portion of the Building necessary for Tenant's occupancy is damaged by fire or
other casualty covered by fire and extended coverage insurance carried by
Landlord, Landlord shall promptly repair the damage provided (a) such repairs
can, in Landlord's opinion, be completed, under applicable laws and regulations,
within one hundred eighty (180) days of the date a permit for such construction
is issued by the governing authority, (b) insurance proceeds are available to
pay eighty percent (80%) or more of the cost of restoration, and (c) Tenant
performs its obligations pursuant to Section 16.4. hereof. In such event, this
Lease shall continue in full force and effect, except that if such damage is not
the result of the negligence or willful misconduct of Tenant or Tenant's agents,
employees, contractors, licensees or invitees, Tenant shall be entitled to a
proportionate reduction of Rent to the extent Tenant's use of the Premises is
impaired, commencing with the date of damage and continuing until completion of
the repairs required of Landlord under Section 16.4. If the damage is due to the
fault or neglect of Tenant or its employees, there shall be no abatement of
Rent.
16.2. REPAIR OF PREMISES IN EXCESS OF ONE HUNDRED EIGHTY DAYS. If in
Landlord's opinion, such repairs to the Premises or portion of the Building
necessary for Tenant's occupancy cannot be completed under applicable laws and
regulations within one hundred eighty (180) days of the date a permit for such
construction is issued by the governing authority, Landlord may elect, upon
Notice to Tenant given within thirty (30) days after the date of such fire or
other casualty, to repair such damage, in which event this Lease shall continue
in full force and effect, but the Base Rent shall be partially abated as
provided in Section 16.1. If Landlord does not so elect to make such repairs,
this Lease shall terminate as of the date of such fire or other casualty.
16.3. REPAIR OUTSIDE PREMISES. If any other portion of the Building or
Project is totally destroyed or damaged to the extent that in Landlord's opinion
repair thereof cannot be completed under applicable laws and regulations within
one hundred eighty (180) days of the date a permit for such construction is
issued by the governing authority, Landlord may elect upon Notice to Tenant
given within thirty (30) days after the date of such fire or other casualty, to
repair such damage, in which event this Lease shall continue in full force and
effect, but the Base Rent shall be partially abated as provided in Section 16.1.
If Landlord does not elect to make such repairs, this Lease shall terminate as
of the date of such fire or other casualty.
16.4. TENANT REPAIR. If the Premises are to be repaired under this
Section 16., Landlord shall repair at its cost any injury or damage to the
Building and Building Standard Tenant Improvements, if any. Notwithstanding
anything contained herein to the contrary, Landlord shall not be obligated to
perform work other than Landlord's Work performed previously pursuant to Section
12.1. hereof. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property. Landlord shall not be liable for any loss of business,
inconvenience or annoyance arising from any repair or restoration of any portion
of the Premises, Building or Project as a result of any damage from fire or
other casualty.
16.5. ELECTION NOT TO PERFORM LANDLORD'S WORK. Notwithstanding anything
to the contrary contained herein, Landlord shall provide Notice to Tenant of its
intent to repair or replace the Premises, and, within five (5) days of its
receipt of such Notice, Tenant shall provide Notice to Landlord of its intent to
reoccupy the Premises. Should Tenant fail to provide such Notice to Landlord,
then such failure shall be deemed an election by Tenant not to re-occupy the
Premises and Landlord may elect not to perform the repair or replacement of the
Premises. Such election shall not result in a termination of this Lease and all
obligations of Tenant hereunder shall remain in full force and effect,
including the obligation to pay Rent.
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16.6. EXPRESS AGREEMENT. This Lease shall be considered an express
agreement governing any case of damage to or destruction of the Premises,
Building or Project by fire or other casualty, and any present or future law
which purports to govern the rights of Landlord and Tenant in such circumstances
in the absence of express agreement shall have no application.
17. EMINENT DOMAIN.
17.1. WHOLE TAKING. If the whole of the Building or Premises is
lawfully taken by condemnation or in any other manner for any public or
quasi-public purpose, this Lease shall terminate as of the date of such taking,
and Rent shall be prorated to such date.
17.2. PARTIAL TAKING. If less than the whole of the Building or
Premises is so taken, this Lease shall be unaffected by such taking, provided
that (a) Tenant shall have the right to terminate this Lease by Notice to
Landlord given within ninety (90) days after the date of such taking if twenty
percent (20%) or more of the Premises is taken and the remaining area of the
Premises is not reasonably sufficient for Tenant to continue operation of its
business, and (b) Landlord shall have the right to terminate this Lease by
Notice to Tenant given within ninety (90) days after the date of such taking. If
either Landlord or Tenant so elects to terminate this Lease, the Lease shall
terminate on the thirtieth (30th) calendar day after either such Notice. The
Rent shall be prorated to the date of termination. If this Lease continues in
force upon such partial taking, the Base Rent and Tenant's Proportionate Share
shall be equitably adjusted according to the remaining Usable Area of the
Premises and Project.
17.3. PROCEEDS. In the event of any taking, partial or whole, all of
the proceeds of any award, judgment or settlement payable by the condemning
authority shall be the exclusive property of Landlord, and Tenant hereby assigns
to Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority; however, Tenant shall have the right,
to the extent that Landlord's award is not reduced or prejudiced, to claim from
the condemning authority (but not from Landlord) such compensation as may be
recoverable by Tenant in its own right for relocation expenses and damage to
Tenant's Property and damage to Leasehold Improvements installed at the sole
expense of Tenant.
17.4. LANDLORD'S RESTORATION. In the event of a partial taking of the
Premises which does not result in a termination of this Lease, Landlord shall
restore the remaining portion of the Premises as nearly as practicable to its
condition prior to the condemnation or taking; provided however, Landlord shall
not be obligated to perform work other than Landlord's Work performed previously
pursuant to Section 12.1. hereof. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of Tenant's Property and
any other Leasehold Improvements.
18. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Section 18.
18.1. NO ASSIGNMENT OR SUBLETTING. Tenant shall not, without the prior
written consent of Landlord, assign or hypothecate this Lease or any interest
herein or sublet the Premises or any part thereof, or permit the use of the
Premises by any party other than Tenant. Any of the foregoing acts without such
consent shall be voidable and shall, at the option of Landlord, constitute a
default hereunder. This Lease shall not, nor shall any interest of Tenant
herein, be assignable by operation of law without the prior written consent of
Landlord.
18.1.1. For purposes of this Section 18., the following shall be
deemed an assignment:
18.1.1.1. If Tenant is a partnership, any withdrawal or
substitution (whether voluntary, involuntary, or by operation of
law, and whether occurring at one time or over a period of time) of
any partner(s) owning twenty-five (25%) or more (cumulatively) of
any interest in the capital or profits of the partnership, or the
dissolution of the partnership;
18.1.1.2. If Tenant is a corporation, any dissolution,
merger, consolidation, or other reorganization of Tenant, any sale
or transfer (or cumulative sales or transfers) of the capital stock
of Tenant in excess of twenty-five percent (25%), or any sale (or
cumulative sales) of fifty-one (51%) or more of the value of the
assets of Tenant provided, however, the foregoing shall not apply
to corporations the capital stock of which is publicly traded.
18.2. LANDLORD'S CONSENT. If, at any time or from time to time during
the Term hereof, Tenant desires to assign this Lease or sublet all or any part
of the Premises and Tenant is not in default under the term of the Lease, Tenant
shall submit to Landlord a written request for approval setting forth the terms
and provisions of the proposed assignment or sublease and the identity of the
proposed assignee or subtenant. Tenant shall promptly supply
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Landlord with such information concerning the business background and financial
condition of such proposed assignee or subtenant as Landlord may reasonably
request. Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld. Landlord's consent
to any assignment shall not be construed as a consent to any subsequent
assignment, subletting, transfer of partnership interest or stock, occupancy or
use.
18.2.1. Landlord's approval shall be conditioned, among other
things, on Landlord's receiving adequate assurances of future
performance under this Lease and any sublease or assignment. In
determining the adequacy of such assurances, Landlord may base its
decision on such factors as it deems appropriate, including but not
limited to:
18.2.1.1. that the source of rent and other consideration due
under this Lease, and, in the case of assignment, that the
financial condition and operating performance of the proposed
assignee and its guarantors, if any, shall be similar to the
financial condition and operating performance of Tenant and its
guarantors, if any, as of the time Tenant became the lessee under
this Lease;
18.2.1.2. that any assumption or assignment of this Lease
will not result in increased cost or expense, wear and tear,
greater traffic or demand for services and utilities provide by
Landlord pursuant to Section 10. hereof and will not disturb or be
detrimental to other tenants of Landlord;
18.2.1.3. whether the proposed assignee's use of the Premises
will include the use of Hazardous Material, or will in any way
increase any risk to Landlord relating to Hazardous Material; and
18.2.1.4. that assumption or assignment of such lease will
not disrupt any tenant mix or balance in the Project.
18.2.2. The assignment or sublease shall be on the same terms and
conditions set forth in the written request for approval given to
Landlord, or, if different, upon terms and conditions consented to by
Landlord;
18.2.3. No assignment or sublease shall be valid and no assignee
or sublessee shall take possession of the Premises or any part thereof
until an executed counterpart of such assignment or sublease has been
delivered to Landlord;
18.2.4. No assignee or sublessee shall have a further right to
assign or sublet except on the terms herein contained;
18.2.5. Any sums or other economic considerations received by
Tenant as a result of such assignment or subletting, however denominated
under the assignment or sublease, which exceed, in the aggregate (a) the
total sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the Premises
subleased), plus (b) any real estate brokerage commissions or fees
payable to third parties in connection with such assignment or
subletting, shall be shared equally by Tenant and Landlord as Additional
Rent under this Lease without effecting or reducing any other obligations
of Tenant hereunder.
18.3. TENANT REMAINS RESPONSIBLE. No subletting or assignment shall
release Tenant of Tenant's obligations under this Lease or alter the primary
liability of Tenant to pay the Rent and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of Rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by an assignee or
subtenant of Tenant or any successor of Tenant in the performance of any of the
terms hereof, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such assignee, subtenant or successor. Landlord
may consent to subsequent assignments of the Lease or sublettings or amendments
or modifications to the Lease with assignees of Tenant, without notifying
Tenant, or any successor of Tenant, and without obtaining its or their consent
thereto and any such actions shall not relieve Tenant of liability under this
Lease.
18.4. PAYMENT OF FEES. If Tenant assigns the Lease or sublets the
Premises or requests the consent of Landlord to any assignment or subletting,
then Tenant shall, upon demand, pay Landlord, whether or not consent is
ultimately given, an administrative fee of Two Hundred Fifty and 00/100 Dollars
($250.00) plus costs and other expenses incurred by Landlord in connection with
each such act or request.
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19. DEFAULT.
19.1. TENANT'S DEFAULT. The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by Tenant:
19.1.1. If Tenant abandons or vacates the Premises; or
19.1.2. If Tenant fails to pay any Rent or Additional Rent or any
other charges required to be paid by Tenant under this Lease and such
failure continues for three (3) days after receipt of Notice thereof from
Landlord to Tenant; or
19.1.3. If Tenant fails to promptly and fully perform any other
covenant, condition or agreement contained in this Lease and such failure
continues for thirty (30) days after Notice thereof from Landlord to
Tenant; or
19.1.4. If a writ of attachment or execution is levied on this
Lease or on any of Tenant's Property; or
19.1.5. If Tenant makes a general assignment for the benefit of
creditors, or provides for an arrangement, composition, extension or
adjustment with its creditors; or
19.1.6. If Tenant files a voluntary petition for relief or if a
petition against Tenant in a proceeding under the federal bankruptcy laws
or other insolvency laws is filed and not withdrawn or dismissed within
forty-five (45) days thereafter, or if under the provisions of any law
providing for reorganization or winding up of corporations, any court of
competent jurisdiction assumes jurisdiction, custody or control of Tenant
or any substantial part of its property and such jurisdiction, custody or
control remains in force unrelinquished, unstayed or unterminated for a
period of forty-five (45) days; or
19.1.7. If in any proceeding or action in which Tenant is a party,
a trustee, receiver, agent or custodian is appointed to take charge of
the Premises or Tenant's Property (or has the authority to do so) for the
purpose of enforcing a lien against the Premises or Tenant's Property; or
19.1.8. If Tenant is a partnership or consists of more than one
(1) person or entity, if any partner of the partnership or other person
or entity is involved in any of the acts or events described in Sections
19.1.4. through 19.1.7. above.
19.2. LANDLORD REMEDIES. In the event of Tenant's default hereunder,
then, in addition to any other rights or remedies Landlord may have under any
law or at equity, Landlord shall have the right, at Landlord's option and
without further notice or demand of any kind, to do the following:
19.2.1. Terminate this Lease and Tenant's right to possession of
the Premises and reenter the Premises and take possession thereof, and
Tenant shall have no further claim to the Premises or under this Lease;
or
19.2.2. Continue this Lease in effect, reenter and occupy the
Premises for the account of Tenant, and collect any unpaid Rent or other
charges which have or thereafter become due and payable; or
19.2.3. Reenter the Premises under the provisions of Section
19.2.2., and thereafter elect to terminate this Lease and Tenant's right
to possession of the Premises.
If Landlord reenters the Premises under the provisions of Sections 19.2.1. or
19.2.3. above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing unless
Landlord notifies Tenant in writing of Landlord's election to terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. In the
event of any reentry or retaking of possession by Landlord, Landlord shall have
the right, but not the obligation, to remove all or any part of Tenant's
Property in the Premises and to place such property in storage at a public
warehouse at the expense and risk of Tenant. If Landlord elects to relet the
Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of rent received
from the reletting which is applied against the Rent due hereunder is less than
the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises which are not covered by the rent received from the
reletting.
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19.3. DAMAGES RECOVERABLE. Should Landlord elect to terminate this
Lease under the provisions of Section 19.2.1 or 19.2.3 above, Landlord may
recover as damages from Tenant the following:
19.3.1. PAST RENT. The worth at the time of the award of any
unpaid Rent which had been earned at the time of termination including
the value of any Rent that was abated during the Term of the Lease; plus
19.3.2. RENT PRIOR TO AWARD. The worth at the time of the award
of the amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental
loss that Tenant proves could have been reasonably avoided; plus
19.3.3. RENT AFTER AWARD. The worth at the time of the award of
the amount by which the unpaid Rent for the balance of the Term after the
time of award exceeds the amount of the rental loss that Tenant proves
could be reasonably avoided; plus
19.3.4. PROXIMATELY CAUSED DAMAGES. Any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, including,
but not limited to, any costs or expenses (including attorneys' fees),
incurred by Landlord in (a) retaking possession of the Premises, (b)
maintaining the Premises after Tenant's default, (c) preparing the
Premises for reletting to a new tenant, including any repairs or
alterations, and (d) reletting the Premises, including brokers'
commissions.
"The worth at the time of the award" as used in items 19.3.1. and 19.3.2. above,
is to be computed by allowing interest at the maximum rate permitted by law to
be charged by an individual. "The worth at the time of the award" as used in
item 19.3.3. above, is to be computed by discounting the amount at the discount
rate of the Federal Reserve Bank situated nearest to the Premises at the time of
the award plus one percent (1%).
19.4. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If Tenant defaults in
the performance of any of its obligations under this Lease, Landlord may (but
shall not be obligated to), without waiving such default, perform the same for
the account and at the expense of Tenant. Tenant shall pay Landlord all costs of
such performance immediately upon written demand therefor, and if paid at a
later date these costs shall bear interest in accordance with Section 7.
19.5. LANDLORD'S DEFAULT. If Landlord fails to perform any covenant,
condition or agreement contained in this Lease within thirty (30) days after
receipt of Notice from Tenant specifying such default, or, if such default
cannot reasonably be cured within thirty (30) days if Landlord fails to commence
to cure within that thirty (30) day period, then Landlord shall be liable to
Tenant for any damages sustained by Tenant as a result of Landlord's breach;
provided, however, it is expressly understood and agreed that if Tenant obtains
a money judgment against Landlord resulting from any default or other claim
arising under this Lease, that judgment shall be satisfied only out of the
rents, issues, profits, and other income actually received on account of
Landlord's right, title and interest in the Premises, Building or Project, and
no other real, personal or mixed property of Landlord (or of any of the partners
which comprise Landlord, if any), wherever situated, shall be subject to levy to
satisfy such judgment.
19.6. MORTGAGEE PROTECTION. Tenant agrees to send by certified or
registered mail to any first mortgagee or first deed of trust beneficiary of
Landlord whose address has been furnished to Tenant, a copy of any notice of
default served by Tenant on Landlord. If Landlord fails to cure such default
within the time provided for in this Lease, then such mortgagee or beneficiary
shall have such additional time to cure the default as is reasonably necessary
under the circumstances.
19.7. TENANT'S RIGHT TO CURE LANDLORD'S DEFAULT. If, after Notice to
Landlord of default, Landlord (or any first mortgagee or first deed of trust
beneficiary of Landlord) fails to cure the default as provided herein, then
Tenant shall have the right to cure that default at Landlord's expense. Tenant
shall not have the right to terminate this Lease or to withhold, reduce or
offset any amount against any payments of Rent or any other charges due and
payable under this Lease except as otherwise specifically provided herein.
Tenant expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair.
20. WAIVER.
No delay or omission in the exercise of any right or remedy of Landlord upon any
default by Tenant shall impair such right or remedy or be construed as a waiver
of such default. The receipt and acceptance by Landlord of delinquent Rent shall
not constitute a waiver of
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any other default; it shall constitute only a waiver of timely payment for the
particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only written
acknowledgement from Landlord to Tenant shall constitute acceptance of the
surrender of the Premises and accomplish a termination of this Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of this
Lease.
21. SUBORDINATION AND ATTORNMENT.
This Lease is and shall be subject and subordinate to all ground or underlying
leases which now exist or may hereafter be executed affecting the Building or
the land upon which the Building is situated, or both, and to the lien of any
mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter
placed on or against the Building or on or against Landlord's interest or estate
therein, or on or against any ground or underlying lease, without the necessity
of the execution and delivery of any further instruments on the part of Tenant
to effectuate such subordination.
If any mortgagee, trustee or ground lessor shall elect to have this Lease prior
to the lien of its mortgage, deed of trust or ground lease, and shall give
written notice thereof to Tenant, this Lease shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease is dated prior or
subsequent to the date of said mortgage, deed of trust, or ground lease, or the
date of the recording thereof. Tenant covenants and agrees to execute and
deliver upon demand, without charge therefor, such further instruments
evidencing such subordination of this Lease to such ground or underlying leases,
and to the lien of any such mortgages or deeds of trust as may be required by
Landlord.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
22. TENANT ESTOPPEL CERTIFICATES.
22.1. LANDLORD REQUEST FOR ESTOPPEL CERTIFICATE. Within ten (10) days
after written request from Landlord, Tenant shall execute and deliver to
Landlord or Landlord's designee, in the form requested by Landlord, a written
statement certifying, among other things, (a) that this Lease is unmodified and
in full force and effect, or is in full force and effect as modified and stating
the modifications; (b) the amount of Base Rent and the date to which Base Rent
and Additional Rent have been paid in advance; (c) the amount of any security
deposited with Landlord; and (d) that Landlord is not in default hereunder or,
if Landlord is claimed to be in default, stating the nature of any claimed
default. Any such statement may be conclusively relied upon by a prospective
purchaser, assignee or encumbrancer of the Premises.
22.2. FAILURE TO EXECUTE. Tenant's failure to execute and deliver such
statement within the time required shall at Landlord's election be a default
under this Lease and shall also be conclusive upon Tenant that: (a) this Lease
is in full force and effect and has not been modified except as represented
by Landlord; (b) there are no uncured defaults in Landlord's performance and
that Tenant has no right of offset, counter-claim or deduction against Rent and
(c) not more than one month's Rent has been paid in advance.
23. NOTICE.
Notice shall be in writing and shall be deemed duly served or given if
personally delivered, sent by certified or registered U.S. Mail, postage prepaid
with a return receipt requested, or sent by overnight courier service, fee
prepaid with a return receipt requested, as follows: (a) if to Landlord, to
Landlord's Mailing Address and to the Building manager, and (b) if to Tenant, to
Tenant's Mailing Address; provided, however, Notices to Tenant shall be deemed
duly served or given if delivered or sent to Tenant at the Premises. Landlord
and Tenant may from time to time by Notice to the other designate another place
for receipt of future Notice. Notwithstanding anything contained herein to the
contrary, any notice from Landlord to Tenant arising from Section 19. of the
Lease shall be served or given in accordance with State laws and shall be the
only notice required.
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24. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, provided the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. This Lease shall not be affected by any such sale and Tenant agrees to
attorn to the purchaser or assignee provided all Landlord's obligation hereunder
are assumed by such transferee. If any security deposit or prepaid Rent has been
paid by Tenant, Landlord shall transfer the security deposit or prepaid Rent to
Landlord's successor and upon such transfer, Landlord shall be relieved of any
and all further liability with respect thereto.
25. SURRENDER OF PREMISES.
25.1. CLEAN AND SAME CONDITION. Upon the Expiration Date or earlier
termination of this Lease, Tenant shall peaceably surrender the Premises to
Landlord clean and in the same condition as when received, except for (a)
reasonable wear and tear, (b) loss by fire or other casualty, and (c) loss by
condemnation. Tenant shall remove Tenant's Property no later than the Expiration
Date. If Tenant is required by Landlord to remove any additions, alterations, or
improvements under Section 12.3., Tenant shall complete such removal no later
than the Expiration Date. Any damage to the Premises, including any structural
damage, resulting from removal of any addition, alteration, or improvement made
pursuant to Section 12.3. and/or from Tenant's use or from the removal of
Tenant's Property pursuant to Section 13.2. shall be repaired no later than the
Expiration Date by Tenant at Tenant's sole cost and expense. On the Expiration
Date Tenant shall surrender all keys to the Premises.
25.2. FAILURE TO DELIVER POSSESSION. If Tenant fails to vacate and
deliver possession of the Premises to Landlord on the expiration or sooner
termination of this Lease as required by Section 25.1., Tenant shall indemnify
and hold Landlord harmless from all claims, liabilities and damages resulting
from Tenant's failure to vacate and deliver possession of the Premises,
including, without limitation, claims made by a succeeding tenant resulting from
Tenant's failure to vacate and deliver possession of the Premises and rental
loss which Landlord suffers.
25.3. PROPERTY ABANDONED. If Tenant abandons or surrenders the
Premises, or is dispossessed by process of law or otherwise, any of Tenant's
Property left on the Premises shall be deemed to be abandoned, and, at
Landlord's option, title shall pass to Landlord under this Lease as by a bill of
sale. If Landlord elects to remove all or any part of such Tenant's Property,
the cost of removal, including repairing any damage to the Premises or Building
caused by such removal, shall be paid by Tenant.
26. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
the term and Base Rent), but the Monthly Installments of Base Rent payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term.
Such monthly rent shall be payable in advance on or before the first day of
each month. If either party desires to terminate such month to month tenancy,
it shall give the other party not less than thirty (30) days advance Notice
of the date of termination.
27. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"E" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be liable for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
28. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without (a) liability to
Tenant for damage or injury to property, person or business; (b) causing an
actual or constructive eviction from the Premises; or (c) disturbing Tenant's
use or possession of the Premises:
28.1. To name the Building and Project and to change the name or street
address of the Building or Project;
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28.2. To install and maintain all signs on the exterior and interior of
the Building and Project;
28.3. To have pass keys to the Premises and all doors within the
Premises, excluding Tenant's files, vaults and safes;
28.4. To stripe or restripe, resurface, enlarge, change the grade or
drainage of and control access to the parking lot; to assign and reassign spaces
for the exclusive or nonexclusive use of tenants (including Tenant); and to
locate or relocate parking spaces assigned to Tenant;
28.5. At any time during the Term, and on prior telephonic notice to
Tenant, to inspect the Premises, and to show the Premises to any person having
an existing or prospective interest in the Project or Landlord, and during the
last six months of the Term, to show the Premises to prospective tenants
thereof; and
28.6. To enter the Premises for the purpose of making inspections,
repairs, alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or balancing
controls and other parts of the HVAC system), and to take all steps as may be
necessary or desirable for the safety, protection, maintenance or preservation
of the Premises or the Building or Landlord's interest therein, or as may be
necessary or desirable for the operation or improvement of the Building or in
order to comply with laws, orders or requirements of governmental or other
authority. Landlord agrees to use its best efforts (except in an emergency) to
minimize interference with Tenant's business in the Premises in the course of
any such entry.
29. ADVERTISEMENTS AND SIGNS.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation the inside or outside of windows or doors,
without the prior written consent of Landlord. Landlord shall have the right to
remove any signs or other matter installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as Additional Rent hereunder, payable within ten (10) days
of written demand by Landlord.
30. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the Premises to another part of the
Building in accordance with the following:
30.1. The new premises shall be substantially the same in size,
dimensions, configuration, decor and nature as the Premises described in this
Lease, and if the relocation occurs after the Commencement Date, shall be placed
in that condition by Landlord at its cost.
30.2. Landlord shall give Tenant at least thirty (30) days Notice of
Landlord's intention to relocate the Premises.
30.3. As nearly as practicable, the physical relocation of the Premises
shall take place on a weekend and shall be completed before the following
Monday. If the physical relocation has not been completed in that time, Base
Rent shall abate in full from the time the physical relocation commences to the
time it is completed. Upon completion of such relocation, the new Premises shall
become the Premises under this Lease.
30.4. All reasonable costs incurred by Tenant as a result of the
relocation shall be paid by Landlord.
30.5. If the new premises are smaller than the Premises as it existed
before the relocation, Base Rent shall be reduced proportionately.
30.6. The parties hereto shall immediately execute an amendment to this
Lease setting forth the relocation of the Premises and the reduction of Base
Rent, if any.
31. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
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<PAGE>
32. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Section 32. shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
33. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except the Listing and
Leasing Agent(s) set forth in Section 2.9. of this Lease. Tenant shall indemnify
and hold Landlord harmless from any cost, expense or liability (including costs
of suit and reasonable attorneys' fees) for any compensation, commission or fees
claimed by any other real estate broker or agent in connection with this Lease
or its negotiation by reason of any act of Tenant.
34. QUIET ENJOYMENT.
Tenant, upon payment of Rent and performance of all of its obligations under
this Lease, shall peaceably, quietly and exclusively enjoy possession of the
Premises without unwarranted interference by Landlord or anyone acting or
claiming through Landlord, subject to the terms of this Lease and to any
mortgage, lease, or other agreement to which this Lease may be subordinate.
35. MISCELLANEOUS.
35.1. ACCORD AND SATISFACTION; ALLOCATION OF PAYMENTS. No payment by
Tenant or receipt by Landlord of a lesser amount than the Rent provided for in
this Lease shall be deemed to be other than on account of the earliest due Rent,
nor shall any endorsement or statement on any check or letter accompanying any
check or payment as Rent be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of the Rent or pursue any other remedy provided for in this Lease.
In connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
35.2. ADDENDA. If any provision contained in an addendum to this Lease
is inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
35.3. ATTORNEYS' FEES. If any action or proceeding is brought by either
party against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
35.4. CAPTIONS AND SECTION NUMBERS. The captions appearing in the body
of this Lease have been inserted as a matter of convenience and for reference
only and in no way define, limit or enlarge the scope or meaning of this Lease.
All references to Section numbers refer to Sections in this Lease.
35.5. CHANGES REQUESTED BY LENDER. Neither Landlord or Tenant shall
unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as such changes do not
alter the basic business terms of this Lease or otherwise materially diminish
any rights or materially increase any obligations of the party from whom consent
to such change or amendment is requested.
35.6. CHOICE OF LAW. This Lease shall be construed and enforced in
accordance with the Laws of the State.
35.7. CONSENT. Notwithstanding anything contained in this Lease to the
contrary, Tenant shall have no claim, and hereby waives the right to any claim
against Landlord for money damages, by reason of any refusal, withholding or
delaying by Landlord of any consent, approval or statement of satisfaction, and,
in such event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, approval or statement of satisfaction.
19
<PAGE>
35.8. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
signing this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation, and
that this Lease is binding on Tenant in accordance with its terms. Tenant shall,
at Landlord's request, deliver a certified copy of a resolution of its board of
directors authorizing such execution.
35.9. COUNTERPARTS. This Lease may be executed in multiple
counterparts, all of which shall constitute one and the same Lease.
35.10. EXECUTION OF LEASE; NO OPTION. The submission of this Lease to
Tenant shall be for examination purposes only and does not and shall not
constitute a reservation of or option for Tenant to Lease, or otherwise create
any interest of Tenant in the Premises or any other premises within the Building
or Project. Execution of this Lease by Tenant and its return to Landlord shall
not be binding on Landlord, notwithstanding any time interval, until Landlord
has in fact signed and delivered this Lease to Tenant.
35.11. FURNISHING OF FINANCIAL STATEMENTS; TENANT'S REPRESENTATIONS. In
order to induce Landlord to enter into this Lease, Tenant agrees that it shall
promptly furnish Landlord, from time to time, upon Landlord's written request,
with financial statements reflecting Tenant's current financial condition.
Tenant represents and warrants that all financial statements, records and
information furnished by Tenant to Landlord in connection with this Lease are
true, correct and complete in all respects.
35.12. FURTHER ASSURANCES. The parties agree to promptly sign all
documents reasonably requested to give effect to the provisions of this Lease.
35.13. PRIOR AGREEMENTS; AMENDMENTS. This Lease and the schedules and
riders attached, if any, form a part of this Lease together with the rules and
regulations set forth on Exhibit "E" attached hereto, and set forth all the
covenants, promises, assurances, agreements, representations, conditions,
warranties, statements, and understandings (Representations) between the
Landlord and Tenant concerning the Premises and the Building and Project, and
there are no Representations, either oral or written, between them other than
those in this Lease.
This Lease supersedes and revokes all previous negotiations, arrangements,
letters of intent, offers to lease, lease proposals, brochures,
representations, and information conveyed, whether oral or in writing, between
the parties hereto or their respective representatives or any other person
purporting to represent the Landlord or Tenant. Tenant acknowledges that it has
not been induced to enter into this Lease by any Representations not set forth
in this Lease, and that it has not relied on any such Representations. Tenant
further acknowledges that no such Representations shall be used in the
interpretation or construction of this Lease, and that Landlord shall have no
liability for any consequences arising as a result of any such Representations.
Except as herein otherwise provided, no subsequent alteration, amendment,
change, or addition to this Lease shall be binding upon Landlord or Tenant
unless in writing and signed by each of the parties.
35.14. RECORDING. Tenant shall not record this Lease without the prior
written consent of Landlord. Tenant, upon the request of Landlord, shall execute
and acknowledge a short form memorandum of this Lease for recording purposes.
35.15. SEVERABILITY. A final determination by a court of competent
jurisdiction that any provision of this Lease is invalid shall not affect the
validity of any other provision, and any provision so determined to be invalid
shall, to the extent possible, be construed to accomplish its intended effect.
35.16. SUCCESSORS AND ASSIGNS. This Lease shall apply to and bind the
heirs, personal representatives, and successors and assigns of the parties.
35.17. TIME OF THE ESSENCE. Time is of the essence of this Lease.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first set forth on Page 1.
LANDLORD:
GLENBOROUGH FUND I, LIMITED PARTNERSHIP,
a Delaware limited partnership
By: GRT Financial, Inc.,
a Delaware corporation
Its General Partner
By:
----------------------------------
Its
-----------------------------
TENANT:
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
a MINNESOTA CORPORATION
By: /s/ David P. Bounk
----------------------------------
Its President
-----------------------------
By:
----------------------------------
Its
-----------------------------
21
<PAGE>
ADDENDUM TO LEASE BETWEEN
Glenborough Fund I, L.P. (Landlord)
-----------------------------------
Midwest Medical Insurance
and Holding Company (Tenant)
--------------------------------
DATED , 1997
------------------
TELECOMMUNICATIONS
Section 36.1. adds to and amends the Lease as follows:
(a) Telecommunications Companies. Tenant and Tenant's telecommunications
companies, including but not limited to local exchange telecommunications
companies and alternative access vendor services companies
("Telecommunications Companies"), shall have no right of access to and within
the lands or Buildings comprising Landlord's real property for the
installation and operation of telecommunications systems including but not
limited to voice, video, data, and any other telecommunications services
provided over wire, fiber optic, microwave, wireless and any other
transmission systems, for part or all of Tenant's telecommunications within
the Building and from the Building to any other location (hereinafter
collectively referred to as "Telecommunications Systems"), without Landlord's
prior written consent, which such consent shall not be unreasonably withheld.
Notwithstanding the foregoing, Tenant may perform any installation, repair
and maintenance to its Telecommunications Systems without Landlord's consent
where the equipment being installed, repaired or maintained is not located in
an area in which the Telecommunications Systems or any part thereof of any
other tenant, or of Landlord, are located.
(b) Tenant's Obligations. If at any time, Tenant's Telecommunications
Companies or appropriate governmental authorities relocate the point of
demarcation from the location of Tenant's telecommunications equipment in
Tenant's telephone equipment room or other location, to some other point, or in
any other manner transfer any obligations or liabilities for telecommunications
to Landlord or Tenant, whether by operation of law or otherwise, upon Landlord's
election, Tenant shall, at Tenant's sole expense and cost: (1) within thirty
(30) days after notice is first given to Tenant of Landlord's election, cause to
be completed by an appropriate telecommunications engineering entity approved in
advance in writing by Landlord, all details of the Telecommunications Systems
serving Tenant in the Building which details shall include all appropriate
plans, schematics, and specifications; and (2) immediately undertake the
operation, repair and maintenance of the Telecommunications Systems serving
Tenant in the Building; and (3) upon the termination of the Lease for any
reason, or upon expiration of the Lease, immediately effect the complete removal
of all or any portion or portions of the Telecommunications Systems serving
Tenant in the Building and repair any damage caused thereby (to Landlord's
reasonable satisfaction).
Prior to the commencement of any alterations, additions, or modifications
to the Telecommunications Systems serving Tenant in the Building, except for
minor changes, Tenant shall first obtain Landlord's prior written consent by
written request accompanied by detailed plans, schematics, and specifications
showing all alterations,
1
<PAGE>
additions and modifications to be performed, with the time schedule for
completion of the work, and the identity of the entity which will perform the
work, for which, except as otherwise provided in Paragraph (c) below, Landlord
may withhold consent in its sole and absolute discretion.
(c) Landlord's Consent. Without in any way limiting Landlord's right to
withhold its consent to a proposed request for access, or for alterations,
additions or modifications of the Telecommunications Systems serving Tenant in
the Building, Landlord shall consider the following factors in making its
determination:
(i) If the proposed actions of Tenant and its Telecommunications
Companies will impose new obligations on Landlord, or expose Landlord to
liability of any nature or description, or increase Landlord's insurance
premiums for the Building, or create liabilities for which Landlord is
unable to obtain insurance protection, or imperil Landlord's insurance
coverage;
(ii) If Tenant's Telecommunications Companies are unwilling to pay
reasonable monetary compensation for the use and occupation of the Building
for the Telecommunications Systems;
(iii) If Tenant and its Telecommunications Companies would cause any
work to be performed that would adversely affect the land and Building or
any space in the Building in any manner;
(iv) If Tenant encumbers or mortgages its interest in any
telecommunications wiring or cabling; or
(v) If Tenant is in default under this Lease.
(d) Indemnification. Tenant shall indemnify and hold harmless Landlord and
its employees, agents, officers, and directors from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs, or expenses
of any kind or nature, known or unknown, contingent or otherwise, arising out of
or in any way related to the acts and omissions of Tenant, Tenant's officers,
directors, employees, agents, contractors, subcontractors, subtenants, and
invitees with respect to (1) any Telecommunications Systems serving Tenant in
the Building which are on, from, or affecting the land and Building; (2) any
personal injury (including wrongful death) or property damage (real or personal)
arising out of or related to any Telecommunications Systems serving Tenant in
the Building which are on, from, or affecting the Building; (3) any lawsuit
brought or threatened, settlement reached, or governmental order relating to
such Telecommunications Systems; (4) any violations of laws, orders,
regulations, requirements, or demands of governmental authorities, or any
reasonable policies or requirements of Landlord, which are based upon or in any
way related to such Telecommunications Systems, including, without limitation,
attorney and consultant fees, court costs, and litigation expenses. This
indemnification and hold harmless agreement will survive this Lease. Under no
circumstances shall Landlord be required to maintain, repair or replace any
Building systems or any portions thereof, when such maintenance, repair or
replacement is caused in whole or in part by the failure of any such system or
any portions thereof, and/or the requirements of any governmental authorities.
Under no circumstances shall Landlord be liable for interruption in
telecommunications services to Tenant or any other entity affected, for
electrical spikes
2
<PAGE>
or surges, or for any other cause whatsoever, whether by Act of God or
otherwise, even if the same is caused by the ordinary negligence of Landlord,
Landlord's contractors, subcontractors, or agents or other tenants, subtenants,
or their contractors, subcontractors, or agents.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to Lease as
of the date first above written.
LANDLORD:
Glenborough Fund I, L.P.
- ------------------------------------
a Delaware Limited Partnership
- ------------------------------------
GRT Financial, Inc.
--------------------------------
a Delaware corporation
--------------------------------
Its General Partner
--------------------------------
By:
----------------------------------
Its
-----------------------------
TENANT:
Midwest Medical Insurance Holding Company,
- -----------------------------------------
a Minnesota corporation
- -----------------------------------------
By: /s/ David P. Bounk
------------------------------------
Its President
-------------------------------
3
<PAGE>
EXHIBIT A
[THIRD FLOOR PLAN]
<PAGE>
EXHIBIT B
[REGENCY SITE]
<PAGE>
EXHIBIT "C"
REGENCY WESTPOINTE
TENANT IMPROVEMENT BUILDING STANDARDS
CARPET: Standard carpeting budget of $12.00 per square yard installed.
BASE: Vinyl base throughout.
WALLS: All interior partition walls to be 25 ga. 3-5/8" metal studs and
24" o.c., 5/8" gypsum board both sides, insulated.
WALL All walls to be painted or covered in available
TREATMENTS: wallcovering to match existing.
LIGHTING: 2' X 4' recessed florescent light fixtures to provide 40 foot
candles of light.
MECHANICAL: Run all ductwork, diffusers, returns to each office, to deliver
conditioned air adequate for heating and cooling space with above
mentioned lighting and normal equipment and occupancy.
DOORS: All doors will be 3' X 6'8" solid core.
FRAMES: All individual office door frames will be wood.
HARDWARE: All hardware to be Schlage D-50-PD or equal Series, oil rubbed
bronze.
SPRINKLER: To meet code requirements for suite.
ELECTRICAL: Standard electrical to meet code requirements.
CEILING: 2' X 4' suspended acoustical ceilings.
RESTROOMS: Public restrooms.
DIRECTORY: To provide building standard directory strip and entry numerals.
<PAGE>
EXHIBIT "D"
WORK LETTER AND DRAWING
Landlord shall contribute an allowance of no more than Six Thousand Five Hundred
Dollars ($6,500.00) toward the cost of construction of the Tenant Improvements
("Tenant Improvement Allowance"). The Tenant will be responsible for the balance
of the Tenant Improvements, which shall not exceed Twenty One Thousand Dollars
($21,000.00) without the written approval of the Tenant. Landlord shall pay the
Tenant Improvement Allowance directly to any architects, contractors and/or
subcontractors, hired by the Landlord, performing the Tenant Improvements in the
Premises. If the actual cost of completing the Tenant Improvements is less than
the Tenant Improvement Allowance, then Landlord shall retain the difference and
no credit shall be due Tenant. Any cost of construction of Tenant Improvements
in excess of the Tenant Improvement Allowance shall be paid in cash by Tenant to
Landlord (as "Additional Rent") within ten (10) days of receipt of Landlord's
invoice. The Tenant Improvements are shown on the drawing below and include the
following:
1. Demo walls and construct new walls, as indicated on the drawing below.
2. Furnish and install 7' of upper and lower cabinets with counter in
kitchenette.
3. Install new ceiling tile in open area. Paint all grid throughout the
Premises.
4. Relocate 2 existing doors.
5. Wallpaper all walls. Landlord to approve selection. Paint paneled wall in
northeast office.
6. Install new carpet and vinyl base throughout. Carpet allowance of $12.00
per square yard installed.
7. Electrical as indicated.
8. HVAC will be adjusted to new floor plan to allow for adequate HVAC
distribution.
9. Relocate existing sink to new location.
[FLOOR PLAN]
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
REGENCY WESTPOINTE
1. Building Hours: 8:00 a.m. - 5:00 p.m. WEEKDAYS
Glenborough Corporation recognizes the following holidays:
President's Day
Memorial Day
Martin Luther King Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
New Year's Day
Day after New Year's Day
2. Overtime heating, ventilating, and air conditioning is billed on an hourly
basis at Landlord's cost for supplying this service.
3. The sidewalks, passages, exits, and entrances shall not be obstructed by
Tenant or used for any purpose other than for ingress to and egress from
their respective premises. The Landlord shall in all cases retain the right
to control and prevent access by all persons whose presence, in the
judgment of the landlord, shall be prejudicial to the safety, character,
reputation, and interest of the Building and its Tenants, provided that
nothing herein contained shall be construed to prevent such access to
persons with whom the Tenants normally deal in the ordinary course of
Tenant's business, unless such persons are engaged in illegal activities.
No Tenant and no employees or invitees of any Tenant shall go upon the roof
of the Building.
4. The directory of the Building will be provided exclusively for the display
of the name and location of Tenant only, and Landlord reserves the right to
exclude any other names thereon.
5. No signs shall be attached to or placed in windows. No awning or shade
shall be affixed or installed over or in the windows or the exterior of the
Premises. the windows of the Building shall not be covered or obstructed by
Tenant.
6. The toilets and urinals shall not be used for any purpose other than those
for which they were constructed and no rubbish, newspapers or other
substances of any kind shall be thrown into them. Tenants shall not
excessively mark, drive nails, screw or drill into, paint, nor in any way
deface the walls, ceilings, partitions or floors. The expense of any
breakage, stoppage, or damage resulting from a violation of this rule shall
be borne by the Tenant who has caused such breakage, stoppage, or damage.
7. Electric wiring of any kind shall be introduced and connected as directed
by landlord, and no boring or cutting for wires will be allowed except with
the consent of Landlord. The location of telephones, call boxes, etc.,
shall be prescribed by Landlord.
1
<PAGE>
Rules and Regulations
Regency Westpointe
8. Landlord reserves the right to prescribe the weight and position of all
safes and other heavy equipment so as to distribute properly the weight
thereof and to prevent any unsafe condition from arising. Safes or other
heavy objects shall, if considered necessary by Landlord, stand on wood
strips of such thickness as is necessary to properly distribute the weight.
Landlord will be responsible for any loss or damage to any such safe or
property shall be repaired at the expense of Tenant.
9. There shall not be used in any space, or in the public halls of the
Building, either by Tenant or others, any hand trucks, except those
equipped with rubber tires and side guards. All desks must have plastic
chair mats under the desk chairs.
10. No additional lock or locks shall be placed by Tenants on any door in the
Building unless written consent of landlord shall have first been obtained.
Two keys will be furnished by Landlord for entry door or doors only, and
any additional keys required must be obtained from landlord, at Tenant's
cost, and duplicate key made. The Tenant, upon termination of the tenancy,
shall deliver to the landlord the keys of the offices, rooms, and toilet
rooms which shall have been furnished, or shall pay the landlord the cost
of replacing same or changing the lock or locks opened by such lost key if
Landlord deems it necessary to make such changes.
11. The carrying in or out of freight, furniture, or bulky matter of any
description, must take place during such hours as Landlord may from time to
time reasonably determine. The installation and moving of such property
shall be made upon previous notice to the superintendent of the Building,
but Landlord shall not be responsible for loss of or damage to such
property, from any cause.
12. Tenant and Tenant's officers, agents, and employees shall not make or
permit any loud, unusual, or improper noises, nor interfere in any way with
other Tenants or those having business with them, nor bring into nor keep
any animal or bird, or any bicycle, automobile, or other vehicle, except
such vehicles as they are permitted to park in the parking lot, and shall
park in the areas designated from time to time for employee parking.
13. Tenant shall not employ any person or persons for the purpose of cleaning
the Premises unless otherwise agreed to by Landlord. Except with written
consent of landlord, no person other than those approved by Landlord shall
be permitted to enter the Building for the purpose of cleaning same. Tenant
shall not cause any unnecessary labor by reason of Tenant's carelessness or
indifference in the preservation of good order and cleanliness. Landlord
shall in no way be responsible to Tenant for any loss of property on the
premises, however, occurring, or for any damage done to the effects of
Tenant by the janitor or any other employee or any other person. Janitor
service shall include ordinary dusting and cleaning by the janitor assigned
to such work and shall not include cleaning of carpets or rugs, except
normal vacuuming, or moving of furniture and other special services.
14. No machinery of any kind will be allowed in the Premises without the
written consent of Landlord. This shall not apply, however, to customary
office equipment or trade fixtures or package handling equipment.
15. No aerial shall be erected on the roof or exterior walls of the Premises,
or on the grounds, without in each instance, the written consent of
Landlord.
2
<PAGE>
Rules and Regulations
Regency Westpointe
16. Tenant shall not lay linoleum, tile, carpet, or other similar floor
covering so that the same shall be affixed to the floor of the Premises in
any manner, except as approved by Landlord. The expense of repairing any
damage resulting from a violation of this rule or removal of any floor
covering shall be borne by the tenant by whom, or by whose contractors,
employees, or invitees, the damage shall have been caused.
17. All garbage, including wet garbage, refuse, or trash shall be placed by the
Tenant in the receptacles provided by the Landlord for the purpose.
18. No vending machine or machines of any description shall be installed,
maintained, or operated upon the Premises without the written consent of
Landlord.
19. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and the street address of the
Building of which the premises are a part.
20. Tenant agrees that it shall comply with all fire and security regulations
that may be issued from time to time by Landlord, and Tenant also shall
provide Landlord with the name of all designated responsible employee to
represent Tenant in all matters pertaining to such fire or security
regulations.
21. Tenant shall see that the doors of the Premises are closed and securely
locked before leaving the Building and must observe strict care and caution
that all water faucets or water apparatus are entirely shut off before
Tenant or Tenant's employees leave the Building, and that all electricity
shall be likewise carefully shut off, so as to prevent waste or damage, and
for any default or carelessness Tenant shall make good all injuries
sustained by Tenant, other tenants, or occupants of the Building. Landlord
reserves the right to close and keep locked all entrances and exit doors of
the Building before and after the normal hours of operation, and during
such further hours as Landlord may deem advisable for the adequate
protection of said Building and the property of its tenants.
22. The requirements of Tenant will be attended to only upon application at the
Building Office. Employees of landlord shall not perform any work or
anything outside of their regular duties unless under special instructions
from Landlord, and no employees will admit any person (Tenant or otherwise)
to any office without specific instructions from Landlord.
23. Landlord reserves the right by written notice to Tenant to add to, rescind,
alter, or waive these rules and regulations at any time prescribed for the
Building when, in Landlord's reasonable judgment, it is necessary,
desirable or proper for the best interest of the Building and its Tenants.
24. Tenants shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
25. Regency Westpointe has been designated a "Smoke Free" building.
3
<PAGE>
Rules and Regulations
Regency Westpointe
All city and county ordinance shall be observed by Tenants in the use of this
Building and leased Premises.
It is understood and agreed between Tenant and Landlord that no assent or
consent to any waiver of any part hereof by Landlord in spirit or letter shall
be deemed or taken as made except when the same is done in writing and attached
to or endorsed hereon by Landlord.
In the event of any conflict between these rules and regulations or any further
or modified rules and regulations from time to time issued by Landlord and the
lease provisions, the Lease provisions shall govern and control.
GLENBOROUGH FUND I
4
<PAGE>
MIDWEST MEDICAL
INSURANCE COMPANY
Agreement No. A190B
<PAGE>
INTERESTS AND LIABILITIES AGREEMENT
NO. A190B
to the
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
between
MIDWEST MEDICAL INSURANCE COMPANY
6600 France Avenue South, Suite 245
Minneapolis, Minnesota 55435-1891
(herein referred to as the "Company")
and
GENERAL REINSURANCE CORPORATION
a Delaware Corporation
having its principal offices at
Financial Centre
695 East Main Street P.O. Box 10350
Stamford, Connecticut 06904-2350
(herein referred to as the "Subscribing Reinsurer")
The Subscribing Reinsurer agrees to assume 85% of the Liability of the
Reinsurers under the Professional Liability Agreement of Reinsurance attached
hereto.
As consideration the Subscribing Reinsurer shall receive an identical share
of the premiums named therein.
The share of the Subscribing Reinsurer shall be separate and apart from the
shares of the other Reinsurers, and the Subscribing Reinsurer shall in no event
participate in the Interests and Liabilities of the other Reinsurers.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
<PAGE>
executed in duplicate,
this 17th day of April, 1995,
MIDWEST MEDICAL INSURANCE COMPANY
/s/ David P. Bounk
Attest: /s/ Lee King
and this 4th day of April, 1995.
GENERAL REINSURANCE CORPORATION
/s/ James J. Olzacki
Vice President
Attest: [ILLEGIBLE]
-2-
<PAGE>
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
between
MIDWEST MEDICAL INSURANCE COMPANY
6600 France Avenue South, Suite 245
Minneapolis, Minnesota 55435-1891
(herein referred to as the "Company")
and
The Subscribing Reinsurers executing the
Interests and Liabilities Agreements
attached to this Agreement
(herein collectively referred to as the "Reinsurers")
- --------------------------------------------------------------------------------
In consideration of the promises set forth in this Agreement, the parties agree
as follows:
ARTICLE I - SCOPE OF AGREEMENT
As a condition precedent to the Reinsurers' obligations under this
Agreement, the Company shall cede to the Reinsurers the professional liability
business described in this Agreement, and the Reinsurers shall accept such
business as reinsurance from the Company. The terms of this Agreement shall
determine the rights and obligations of the parties.
ARTICLE II - PARTIES TO THE AGREEMENT
This Agreement is solely between the Company and the Reinsurers. When more
than one Company is named as a party to this Agreement, the first Company named
shall be the agent of the other companies as to all matters pertaining to this
Agreement. Performance of the obligations of each party under this Agreement
shall be rendered solely to the other party. However, if the Company becomes
insolvent, the liability of the Reinsurers shall be modified to the extent set
forth in the article entitled INSOLVENCY OF THE COMPANY. In no
<PAGE>
instance shall any insured of the Company or any claimant against an insured of
the Company have any rights under this Agreement.
ARTICLE III - LIABILITY OF THE REINSURERS AND COMPANY RETENTION
The Reinsurers shall pay to the Company, with respect to each insured under
each professional liability policy written by the Company, the amount of net
loss each claim or each occurrence, as applicable, in excess of the Company
Retention but not exceeding the Limits of Liability of the Reinsurers as set
forth in the Schedule of Reinsurance.
SCHEDULE OF REINSURANCE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Company
Class of Business Retention Limits of Liability of the Reinsurers
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Professional Liability $750,000 each First Excess Cover: The difference
claim/$4,000,000 between $2,000,000 each claim/
annual aggregate $4,000,000 annual aggregate and
the Company Retention
Second Excess Cover: The difference
between $5,000,000 each claim/
$5,000,000 annual aggregate and
$2,000,000 each claim/$4,000,000
annual aggregate
Professional Premises $750,000 each First Excess Cover: The next
Liability occurrence $250,000 each occurrence
- ---------------------------------------------------------------------------------------
</TABLE>
ARTICLE IV - ALLOCATION OF ADJUSTMENT EXPENSE
In addition to payments for its share of net loss, the Reinsurers shall pay
to the Company a share of adjustment expenses proportionate to the Reinsurers'
share of net loss.
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<PAGE>
Should the amount of a judgment be reduced by any process other than by a
trial court or should a judgment be reversed outright, the adjustment expenses
incurred in securing such reduction or reversal shall be apportioned between the
Company and the Reinsurers in the ratio that each party benefits from such
reduction or reversal.
ARTICLE V - COMBINATION COVER
If a claim is made or an occurrence takes place which involves:
(a) Two or more insureds under policies reinsured hereunder;
(b) Two or more insureds under policies written by the Company for
hospitals and reinsured under Facultative Certificates issued by
General Reinsurance Corporation; or
(c) A combination of one or more insureds described in (a) above and one
or more insureds described in (b) above;
the Reinsurers shall pay to the Company the amount of net loss in excess of a
Combination Company Retention of $1,250,000 with respect to such occurrence or
claim, but not exceeding a Limit of Liability of the Reinsurers equal to the
difference between the sum of the separate Company Retentions applicable to each
insured involved in such occurrence or claim and $1,250,000, but in no event
more than $2,000,000. The Limit of Liability of the Reinsurers in this Article
shall be in addition to the Limits of Liability of the Reinsurers set forth in
the article entitled LIABILITY OF THE REINSURERS AND COMPANY RETENTION.
ARTICLE VI - LOSS IN EXCESS OF POLICY LIMITS
Notwithstanding the provisions of the article entitled MANAGEMENT OF CLAIMS
AND LOSSES, if a third party claimant is awarded an amount in excess of the
Company's policy limit and, as a result of the Company's failure to settle
within the policy limit or of the Company's alleged or actual negligence or bad
faith in rejecting an offer of settlement or in the preparation of the defense
or in the trial of any action against its insured or in the preparation
-3-
<PAGE>
or prosecution of an appeal consequent upon such action, an action is taken by
the insured or assignee and an obligation is imposed upon the Company by
judgment or decree for an amount in excess of the Company's policy limit, the
Reinsurers shall afford additional reinsurance to the Company for 75% of only
that portion of the award made to the third party claimant which is in excess of
the greater of the Company's policy limit or the Company Retention. The
liability of the Reinsurers with respect to the loss in excess of the Company's
policy limit and any extra contractual obligation as afforded by the article
entitled EXTRA CONTRACTUAL OBLIGATIONS, shall not exceed $2,000,000.
However, this Article shall not apply where the loss has been incurred due
to the fraud or criminal conduct of a member of the Board of Directors, a
corporate officer of the Company, or any other employee 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.
Any insurance or reinsurance, whether collectible or not, which indemnifies
or protects the Company against claims which are the subject matter of this
Article and any contribution, subrogation or recovery shall inure to the benefit
of the Reinsurers and shall be deducted to arrive at the amount of the Company's
net loss.
ARTICLE VII - EXTRA CONTRACTUAL OBLIGATIONS
Notwithstanding the provisions of the article entitled MANAGEMENT OF CLAIMS
AND LOSSES, if the Company incurs an extra contractual obligation, the
Reinsurers shall afford additional reinsurance to the Company for 75% of that
portion of the extra contractual obligation which is in excess of the Company
Retention, subject to the conditions of the following paragraphs. The liability
of the Reinsurers with respect to the extra contractual obligation and any loss
in excess of the Company's policy limit as afforded by the article entitled LOSS
IN EXCESS OF POLICY LIMITS, shall not exceed $2,000,000.
-4-
<PAGE>
For purposes of this Article, the term "extra contractual obligation" shall
mean an obligation imposed upon the Company by judgment or decree which is not
covered under any other provision of this Agreement and which arises from the
Company's handling of any claim on the policies reinsured hereunder which have
limits of liability or amounts of insurance greater than the Company Retention.
The date on which an extra contractual obligation is incurred by the
Company shall be deemed in all circumstances, to be the date of the original
occurrence.
This Article shall not apply where the extra contractual obligation has
been incurred due to the fraud or criminal conduct of a member of the Board of
Directors, a corporate officer of the Company, or any other employee of the
Company, acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the investigation,
defense or settlement of any claim covered hereunder.
Any insurance or reinsurance, whether collectible or not, which indemnifies
or protects the Company against claims which are the subject matter of this
Article and any contribution, subrogation, or recovery shall inure to the
benefit of the Reinsurers and shall be deducted to arrive at the amount of the
Company's net loss.
ARTICLE VIII - COMPANY POLICY AMOUNTS
For the purpose of determining the Company Retention and the Limits of
Liability of the Reinsurers, the limits of liability of the Company with respect
to any one insured under any one policy shall be deemed not to exceed:
(a) Professional Liability $5,000,000 each claim
$5,000,000 annual aggregate
(b) Professional Premises Liability $1,000,000 each occurrence.
-5-
<PAGE>
ARTICLE IX - DEFINITIONS
(a) PROFESSIONAL LIABILITY BUSINESS
This term shall mean physicians', surgeons' and dentists' professional
liability policies issued by the Company to cover professional
liability on a claims made basis and professional premises liability
on an occurrence basis for insureds practicing in the States of Iowa,
Minnesota, North Dakota and South Dakota.
(b) INSURED
This term shall mean each physician, surgeon, paramedical employee, or
position as respects position coverage as afforded by the Company's
Additional Insured - Blanket Position Coverage Separate Limits of
Liability endorsement.
(c) COMPANY RETENTION
This term shall mean the amount the Company shall retain for its own
account; however, this requirement shall be satisfied if this amount
is retained by the Company or its affiliated companies under common
management or common ownership.
(d) NET LOSS
This term shall mean all payments by the Company within the limits of
its policies in settlement of claims or losses, payment of benefits,
or satisfaction of judgments or awards after deduction of recoveries
and after deduction of amounts due from all other reinsurance, whether
collectible or not. This term shall not include adjustment expense. If
the Company becomes insolvent, this definition shall be modified to
the extent set forth in the article entitled INSOLVENCY OF THE
COMPANY.
(e) ADJUSTMENT EXPENSE
This term shall mean expenditures by the Company within the terms of
its policies allocated to an individual claim or loss, other than for
office expenses and for the salaries and expenses of employees of the
Company or of any subsidiary or related or wholly owned company of the
Company, made in connection with the disposition of a claim, loss, or
legal proceeding including investigation, negotiation, and legal
expenses; court costs; statutory penalties; prejudgment interest or
delayed damages; and interest on any judgment or award. If the Company
becomes insolvent,
-6-
<PAGE>
this definition shall be modified to the extent set forth in the
article entitled INSOLVENCY OF THE COMPANY.
(f) PREJUDGMENT INTEREST OR DELAYED DAMAGES
This term shall mean interest or damages added to a settlement,
verdict, award, or judgment based on the amount of time prior to the
settlement, verdict, award, or judgment whether or not made part of
the settlement, verdict, award, or judgment.
(g) CLAIM
This term shall mean any one claim or suit or all claims or suits due
to the injury to or death of any one person arising out of the
performance of professional services rendered or which should have
been rendered by the insured.
(h) OCCURRENCE
This term shall mean an accident, including injurious exposure to
conditions, which results in bodily injury, property damage or
personal injury neither expected nor intended from the standpoint of
the insured, as respects the professional premises liability reinsured
hereunder.
ARTICLE X - EXCLUSIONS
This Agreement shall not apply to:
(a) Business accepted by the Company as reinsurance from other insurers;
(b) Nuclear incident per the Nuclear Incident Exclusion Clause -
Liability - Reinsurance attached hereto;
(c) Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools and associations in which membership by the Company is
required under any statutes or regulations;
(d) Any liability of the Company arising from its participation or
membership in any insolvency fund;
(e) Any loss or damage which is occasioned by war, invasion, hostilities,
acts of foreign enemies, civil war, rebellion, insurrection, military
or usurped
-7-
<PAGE>
power, or martial law or confiscation by order of any government or
public authority;
(f) Business written on a co-indemnity basis;
(g) Pollution under any policy written by the Company which does not
contain the pollution exclusion set forth in ISO Commercial General
Liability Coverage Form CG 00 01 (Ed. 11/88) or as subsequently
amended; however, this exclusion does not apply to any risk located in
a jurisdiction which has not approved the Insurance Services Office
exclusion or where other regulatory constraints prohibit the Company
from implementing such exclusion. If the Company elects to implement
an exclusion different from that of ISO, such exclusion will be deemed
a suitable substitute provided the Company has submitted the wording
to the Reinsurers and received the Reinsurers' prior approval;
(h) Any policy with a deductible greater than $250,000.
ARTICLE XI - MANAGEMENT OF CLAIMS AND LOSSES
The Company shall investigate and settle or defend all claims and losses.
When requested by the Reinsurers, the Company shall permit the Reinsurers, at
the expense of the Reinsurers, to be associated with the Company in the defense
or control of any claim, loss, or legal proceeding which involves or is likely
to involve the Reinsurers. All payments of claims or losses by the Company
within the limits of its policies which are within the limits set forth in this
Agreement shall be binding on the Reinsurers, subject to the terms of this
Agreement.
ARTICLE XII - RECOVERIES
The Company shall pay to or credit the Reinsurers with the Reinsurers'
portion of any recovery obtained from salvage, subrogation, or other insurance.
Adjustment expenses for recoveries shall be deducted from the amount recovered.
The Reinsurers shall be subrogated to the rights of the Company to the
extent of its loss payments to the Company against any person or other entity
who may be legally respon-
-8-
<PAGE>
sible in damages for said loss. The Company agrees to enforce its rights of
salvage, subrogation, and its rights against insurers or to assign these rights
to the Reinsurers.
Recoveries shall be distributed to the parties in an order inverse to that
in which their respective liabilities accrued.
ARTICLE XIII - REINSURANCE PREMIUM AND COMMISSION
The Company shall pay to the Reinsurers:
(a) For the First Excess Cover including coverage set forth in the
articles entitled COMBINATION COVER, LOSS IN EXCESS OF POLICY LIMITS,
and EXTRA CONTRACTUAL OBLIGATIONS, 17.52% of the Company's gross
earned premium for the first $2,000,000 each claim/$4,000,000 annual
aggregate or the first $1,000,000 each occurrence, as applicable,
subject to an annual deposit reinsurance premium of $5,000,000.
(b) For the Second Excess Cover:
(1) For the layer of $1,000,000 each claim/$1,000,000 annual
aggregate in excess of $2,000,000 each claim/$4,000,000 annual
aggregate, 60% of the Company's gross earned premium for the
layer of $1,000,000 each claim/$1,000,000 annual aggregate in
excess of $1,000,000 each claim/$3,000,000 annual aggregate.
(2) For the layer of $1,000,000 each claim in excess of $3,000,000
each claim/$ 5,000,000 annual aggregate, 65% of the Company's
gross earned premium for the layer of $1,000,000 each
claim/$1,000,000 annual aggregate in excess of $2,000,000 each
claim/ $4,000,000 annual aggregate.
(3) For the layer of $1,000,000 each claim in excess of $4,000,000
each claim/$5,000,000 annual aggregate, 70% of the Company's
gross earned premium for the layer of $1,000,000 each claim in
excess of $3,000,000 each claim/$5,000,000 annual aggregate.
(c) As respects the reinsurance coverage afforded for reporting
endorsements, 100% of the Company's actual premiums for limits in
excess of the Company Retention for each reporting endorsement issued
by the
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<PAGE>
Company, calculated in accordance with the Company's rates, which
rates are on file with the Reinsurers.
The reinsurance premiums set forth in sub-paragraph (b) above shall be
subject to a fixed commission allowance of 15%.
The reinsurance premium set forth in sub-paragraph (a) above is provisional
and shall be adjusted in accordance with the provisions of the article entitled
ADJUSTMENT OF REINSURANCE PREMIUM.
ARTICLE XIV - ADJUSTMENT OF REINSURANCE PREMIUM
The adjusted reinsurance premium for the First Excess Cover for each
experience period shall be not more than 115% nor less than 28% of the net
provisional reinsurance premium earned during the experience period and, subject
to such limitations, shall be equivalent to 117.5% of the reinsurance loss
incurred for the experience period. Calculation of the adjusted reinsurance
premium for each experience period shall be independent of the results of any
other experience period.
With respect to the adjusted reinsurance premium and the calculation
thereof, the following interpretations and reporting provisions shall apply:
(a) EXPERIENCE PERIOD
The initial experience period shall be from January 1, 1995, through
December 31, 1997, and thereafter each experience period shall consist
of 36 months to begin concurrently with the expiration of the previous
experience period; however,
(1) Should the date of termination of this Agreement coincide with
the completion of an experience period, such experience period
and the period from the date of termination until expiration or
termination of the reinsurance, if any, then in effect shall be
combined and shall constitute a single experience period;
(2) Should the date of termination of this Agreement not coincide
with the completion of an experience period, the following
periods shall be combined and shall constitute a single
experience period:
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<PAGE>
(i) the last experience period completed prior to the date of
termination, and
(ii) the period from the last completed experience period until
the date of termination, and
(iii) the period from the date of termination until expiration
or termination of the reinsurance, if any, then in effect.
(b) NET PROVISIONAL REINSURANCE PREMIUM EARNED
This term shall mean the First Excess Cover reinsurance premium
earned, net of commission, if any, during the experience period.
(c) REINSURANCE LOSS INCURRED
This term shall mean the sum of the Reinsurers' payments and reserves
for claims, losses and adjustment expense (including reserves for
claims and losses incurred but not reported, as set forth in
sub-paragraph (d) below), less the Reinsurers' portion of salvage
recovered, resulting from professional liability claims made to the
Company during the experience period and professional premises
liability occurrences taking place during the experience period and
allocated to the First Excess Cover including coverage set forth in
the articles entitled COMBINATION COVER, LOSS IN EXCESS OF POLICY
LIMITS, and EXTRA CONTRACTUAL OBLIGATIONS.
(d) RESERVES FOR CLAIMS AND LOSSES INCURRED BUT NOT REPORTED
The reserves for claims and losses incurred but not reported (IBNR)
shall be determined separately for each twelve month period within
each experience period. IBNR will be determined by multiplying the net
provisional reinsurance premium earned for each twelve month period by
the appropriate factor based on the maturity of the twelve month
period from its expiration date.
<TABLE>
<CAPTION>
MATURITY IN MONTHS IBNR FACTOR
<S> <C>
36 17.1%
48 10.1%
60 6.2%
72 3.8%
84 2.1%
96 1.3%
108 0.4%
120 and subsequent 0%
</TABLE>
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<PAGE>
(e) INTERIM ADJUSTMENTS (ANNUALLY)
As soon as practicable after the third anniversary of the end of the
first calendar year in each experience period, the Reinsurers shall
render to the Company a statement of adjusted reinsurance premium for
such calendar year. The amount thereof shall be balanced against the
portion of the First Excess Cover net reinsurance premium previously
paid the Reinsurers for such calendar year, and the difference due
either party shall be remitted promptly.
As soon as practicable after the third anniversary of the end of the
second calendar year in each experience period, the Reinsurers shall
render to the Company a statement of adjusted reinsurance premium for
the first and second calendar years in the experience period. The
amount thereof shall be balanced against the portion of the First
Excess Cover net reinsurance premium previously paid the Reinsurers
for such calendar years, and the difference due either party shall be
remitted promptly.
(f) STATEMENTS OF ADJUSTED PREMIUM (ENTIRE EXPERIENCE PERIOD)
As soon as practicable after the third anniversary of the end of an
experience period, the Reinsurers shall render to the Company a
statement of the adjusted reinsurance premium for the entire
experience period. The amount thereof shall be balanced against the
portion of the First Excess Cover net reinsurance premium previously
paid the Reinsurers for the experience period, and the amount due
either party shall be remitted promptly. Annually thereafter, revised
statements shall be rendered to the Company reflecting changes in the
original statement until all claims and losses resulting from
professional liability claims made to the Company during the
experience period and from professional premises liability occurrences
taking place during the experience period are fully discharged, and
the difference due either party shall be remitted promptly.
ARTICLE XV - REPORTS AND REMITTANCES
(a) SUMMARY REPORTS
On or before each April 30, July 31, October 31, and January 31,
the Company shall render to the Reinsurers a report summarizing
premiums written by limit and by state for policies of the Company
becoming effective during the preceding calendar quarter and reinsured
hereunder. The Company shall also include a summary of the earned
premium by limit
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<PAGE>
and by state for the preceding calendar quarter for policies reinsured
hereunder.
(b) FIRST EXCESS REINSURANCE PREMIUM
On or before each April 30, July 31, October 31, and January 31,
the Company shall pay to the Reinsurers one quarter of the annual
deposit reinsurance premium stipulated in sub-paragraph (a) of the
article entitled REINSURANCE PREMIUM AND COMMISSION.
On or before February 15, 1996 and each February 15 thereafter, the
Company shall calculate the reinsurance premium for the First Excess
Cover for the prior calendar year in accordance with said
sub-paragraph (a), shall balance such amount against the annual
deposit reinsurance premium previously paid for such calendar year,
and the difference due either party shall be remitted promptly.
(c) SECOND EXCESS AND REPORTING ENDORSEMENTS REINSURANCE PREMIUM
On or before each May 15, August 15, November 15, and February 15, the
Company shall calculate the reinsurance premium for the Second Excess
Cover and for reporting endorsements for the preceding calendar
quarter in accordance with the provisions of sub-paragraphs (b) and
(c) of the article entitled REINSURANCE PREMIUM AND COMMISSION and
remit such amounts to the Reinsurers.
(d) CLAIMS AND LOSSES
The Company shall report promptly to the Reinsurers each claim or loss
for which the Company's estimated amount of net loss is 50% or more of
the amount of the Company Retention and shall also report all cases of
serious injury which, regardless of considerations of liability or
coverage, might involve this reinsurance, including but not limited to
the following:
(1) Brain injury;
(2) Spinal cord injury and/or other damage resulting in significant
sensory and/or motor loss;
(3) Fatalities of wage earners, women with minor children and all
fatalities in jurisdictions where mental anguish and/or emotional
distress are recoverable;
(4) Blindness;
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<PAGE>
(5) Amputation of a significant portion of limb(s);
(6) Serious physical and/or psychiatric residuals;
(7) Significant burns, including over-exposure to radiation;
(8) Significantly diminished life expectancy;
(9) Any other serious injury which, in the judgment of the Company,
might involve the Reinsurers.
The Company shall advise the Reinsurers of the estimated amount of net
loss and adjustment expense in connection with each such claim or loss
and of any subsequent changes in such estimates.
Upon receipt of a definitive statement of net loss from the Company,
the Reinsurers shall pay promptly to the Company the Reinsurers'
portion of net loss and the Reinsurers' portion of adjustment expense,
if any. Any subsequent changes shall be reported by the Company to the
Reinsurers and the amount due either party shall be remitted promptly.
(e) COMPANY FORMS
The Company has furnished the Reinsurers with the materials listed
below and shall inform the Reinsurers in advance before making any
material or substantial changes therein:
(1) Specimen copies of the Company's policies and all special
endorsements used in conjunction therewith;
(2) A copy of the Company's underwriting rules and rates.
(f) OTHER INFORMATION
In addition to the reports required in (a) through (e) above, the
Company shall furnish such other information as may be required by the
Reinsurers for the completion of the Reinsurers' quarterly and annual
statements and internal records.
All reports shall be rendered on forms acceptable to the Company and
the Reinsurers.
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<PAGE>
ARTICLE XVI - RESERVES AND TAXES
The Reinsurers shall maintain the required reserves as to the Reinsurers'
portion of unearned premium, claims, losses, and adjustment expense.
The Company shall be liable for all premium taxes on premium ceded to the
Reinsurers under this Agreement. If the Reinsurers are obligated to pay any
premium taxes on this premium, the Company shall reimburse the Reinsurers;
however, the Company shall not be required to pay taxes twice on the same
premium.
Article XVII - REASSURANCE OVER THIS AGREEMENT
The Company shall advise the Reinsurers of any reinsurance of the Company
that would apply over and beyond the limit of liability of the Reinsurers under
this Agreement.
Article XVIII - OFFSET
The Company or the Reinsurers may offset any balance, whether on account of
premium, commission, claims or losses, adjustment expense, recoveries, or
otherwise, due from one party to the other under this Agreement or under any
other agreement heretofore or hereafter entered into between the Company and the
Reinsurers.
Article XIX - SPECIAL ACCEPTANCES
Business not within the terms of this Agreement may be submitted to the
Reinsurers for special acceptance and, if accepted by the Reinsurers, shall be
subject to all of the terms of this Agreement except as modified by the special
acceptance.
ARTICLE XX - COMMENCEMENT AND TERMINATION
This Agreement shall apply to professional liability claims made to the
Company at and after 12:01 A.M., January 1, 1995 under new and renewal policies
of the Company becoming effective at and after such time and date and under
policies of the Company in force at such
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<PAGE>
time and date, provided that the injury which results in each such claim occurs
on or after the retroactive date indicated in each such policy. However, this
Agreement shall not apply to professional liability claims made to the Company
during any Extended Reporting Period in force at such time and date. This
Agreement shall also apply to professional premises liability claims and losses
resulting from occurrences taking place at and after 12:01 A.M., January 1, 1995
and insured under new and renewal policies of the Company becoming effective at
and after such time and date and under policies of the Company in force at such
time and date.
This Agreement may be terminated by either party sending to the other, by
registered mail to its principal office, notice stating the time and date when,
not less than 90 days after the date of mailing of such notice, termination
shall be effective. As respects professional liability, the Reinsurers shall not
be liable for claims made to the Company at and after the effective time and
date of termination, unless such claim is made to the Company during an Extended
Reporting Period in force at the time and date of termination. As respects
professional premises liability, the Reinsurers shall not be liable for claims
and losses resulting from occurrences taking place at and after the effective
time and date of termination.
ARTICLE XXI - ERRORS AND OMISSIONS
The Reinsurers shall not be relieved of liability because of an error or
accidental omission of the Company in reporting any claim or loss or any
business reinsured under this Agreement, provided that the error or omission is
rectified promptly after discovery. The Reinsurers shall be obligated only for
the return of the premium paid for business reported but not reinsured under
this Agreement.
ARTICLE XXII - INSPECTION OF RECORDS
The Company shall allow the Reinsurers to inspect, at reasonable times, the
records of the Company relevant to the business reinsured under this Agreement,
including Company
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<PAGE>
files concerning claims, losses, or legal proceedings which involve or are
likely to involve the Reinsurers.
ARTICLE XXIII - ARBITRATION
Any unresolved difference of opinion between the Reinsurers and the Company
shall be submitted to arbitration by three arbitrators. One arbitrator shall be
chosen by the Reinsurers, and one shall be chosen by the Company. The third
arbitrator shall be chosen by the other two arbitrators within ten (10) days
after they have been appointed. If the two arbitrators cannot agree upon a third
arbitrator, each arbitrator shall nominate three persons of whom the other shall
reject two. The third arbitrator shall then be chosen by drawing lots. If either
party fails to choose an arbitrator within thirty (30) days after receiving the
written request of the other party to do so, the latter shall choose both
arbitrators, who shall choose the third arbitrator. The arbitrators shall be
impartial and shall be present or former officials of property or casualty
insurance or reinsurance companies.
The party requesting arbitration (the "Petitioner") shall submit its
brief to the arbitrators within thirty (30) days after notice of the
selection of the third arbitrator. Upon receipt of the Petitioner's brief,
the other party (the "Respondent") shall have thirty (30) days to file a
reply brief. On receipt of the Respondent's brief, the Petitioner shall have
twenty (20) days to file a rebuttal brief. Respondent shall have twenty (20)
days from the receipt of Petitioner's rebuttal brief to file its rebuttal
brief. The arbitrators may extend the time for filing of briefs at the
request of either party.
The arbitrators are relieved from judicial formalities and, in addition to
considering the rules of law and the customs and practices of the insurance and
reinsurance business, shall make their award with a view to effecting the intent
of this Agreement. The decision of the majority shall be final and binding upon
the parties. The costs of arbitration, including the fees of the arbitrators,
shall be shared equally unless the arbitrators decide otherwise. The arbitration
shall be held at the times and places agreed upon by the arbitrators.
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<PAGE>
ARTICLE XXIV - INSOLVENCY OF THE COMPANY
In the event of the insolvency of the Company, the reinsurance proceeds
will be paid to the Company or the liquidator on the basis of the amount of the
claim allowed in the insolvency proceeding without diminution by reason of the
inability of the Company to pay all or part of the claim.
The Reinsurers shall be given written notice of the pendency of each claim
against the Company on the policy(ies) reinsured hereunder within a reasonable
time after such claim is filed in the insolvency proceedings. The Reinsurers
shall have the right to investigate each such claim and to interpose, at their
own expense, in the proceeding where such claim is to be adjudicated, any
defenses which it may deem available to the Company or its liquidator. The
expense thus incurred by the Reinsurers shall be chargeable, subject to court
approval, against the insolvent Company as part of the expense of liquidation to
the extent of a proportionate share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurers.
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<PAGE>
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - USA
(1) This Agreement does not cover any loss or liability accruing to the
Company as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this Agreement all
the original policies of the Company (new, renewal and replacement) of the
classes specified in Clause (ii) of this paragraph (2) from the time specified
in Clause (iii) in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
Limited Exclusion Provision*
(i) It is agreed that the policy does not apply under any liability
coverage, to INJURY, SICKNESS, DISEASE. DEATH OR DESTRUCTION bodily
injury or property damage with respect to which an insured under the
policy is also an insured under a nuclear energy liability policy
issued by Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance Association
of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
(ii) Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only) Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or policies
of a similar nature; and the liability portion of combination forms
related to the four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.
(iii) The inception dates and thereafter of all original policies as
described in (ii) above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after lst May, 1960, or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above;
provided this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies, or policies or
combination policies of a similar nature, issued by the Company on New
York risks, until 90 days following approval of the Limited Exclusion
Provision by the Governmental Authority having jurisdiction thereof.
(3) Except for those classes of policies specified in Clause (ii) of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
Agreement the original liability policies of the Company (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product Liability, Professional and
Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile
Liability (including Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause (v) of this paragraph (3), the following provision
(specified as the Broad Exclusion Provision):
Broad Exclusion Provision*
It is agreed that the policy does not apply:
(i) Under any Liability Coverage, to INJURY, SICKNESS, DISEASE, DEATH OR
DESTRUCTION bodily injury or property damage:
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
(b) resulting from the hazardous properties of nuclear material and
with respect to which (1) any person or organization is required
to maintain financial protection pursuant to the Atomic Energy
Act of 1954, or any law amendatory thereof, or (2) the insured
is, or had this policy not been issued would be, entitled to
indemnity from the United States of America, or any agency
thereof, under any agreement entered into by the United States of
America, or any agency thereof, with any person or organization.
(ii) Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to IMMEDIATE MEDICAL OR SURGICAL RELIEF
first aid to expenses incurred with respect to BODILY INJURY,
SICKNESS, DISEASE OR DEATH bodily injury resulting from the hazardous
properties of nuclear material and arising out of the operation of a
nuclear facility by any person or organization.
(iii) Under any Liability Coverage, to INJURY, SICKNESS, DISEASE, DEATH OR
DESTRUCTION bodily injury or property damage resulting from the
hazardous properties of nuclear material if
<PAGE>
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been
discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
(c) the INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION bodily injury
or property damage arises out of the furnishing by an insured of
services, materials, parts or equipment in connection with the
planning, construction, maintenance, operation or use of any
nuclear facility, but if such facility is located within the
United States of America, its territories, or possessions or
Canada, this exclusion (c) applies only to INJURY TO OR
DESTRUCTION OF PROPERTY AT SUCH NUCLEAR FACILITY property damage
to such nuclear facility and any property thereat.
(iv) As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive
properties; "nuclear material" means source material, special nuclear
material or byproduct material; "source material", "special nuclear
material", and "byproduct material" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent
fuel" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "waste"
means any waste material (1) containing byproduct material and (2)
resulting from the operation by any person or organization of any
nuclear facility included within the definition of nuclear facility
under paragraph (a) or (b) thereof; "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "nuclear reactor" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to
contain a critical mass of fissionable material;
WITH RESPECT TO INJURY TO OR DESTRUCTION OF PROPERTY THE WORD "INJURY"
OR "DESTRUCTION" includes all forms of radioactive contamination of
property.
"Property damage" includes all forms of radioactive contamination of
property.
(v) The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after lst
May, 1960, provided this paragraph (3) shall not be applicable to
1. Garage and Automobile Policies issued by the Company on New York
risks, or
2. statutory liability insurance required under Chapter 90, General
Laws of Massachusetts, until 90 days following approval of the Broad
Exclusion Provision by the Governmental Authority having jurisdiction
thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Company in Canada and that with
respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters'
Association or the Independent Insurance Conference of Canada.
*NOTE. The words underlined in the Limited Exclusion Provision and in
the Broad Exclusion Provision shall apply only in relation to original liability
policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.
N.M.A. 1590
Page 2 of 2
<PAGE>
ADDENDUM NO. 1
Attached to and made a part of
INTERESTS AND LIABILITIES AGREEMENT
NO. A190B
between
MIDWEST MEDICAL INSURANCE COMPANY
and
GENERAL REINSURANCE CORPORATION
The Subscribing Reinsurer acknowledges and accepts the attachment of
Endorsement No. 1 to the Professional Liability Agreement of Reinsurance.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed in duplicate,
this 2nd day of January, 1996,
MIDWEST MEDICAL INSURANCE COMPANY
/s/ David P. Bounk
Attest: /s/ Lee King
and this 28th day of December, 1995.
GENERAL REINSURANCE CORPORATION
/s/ James J. Olzacki
Vice President
Attest: /s/ Victoria T. Wixtead
GENERAL REINSURANCE CORPORATION
<PAGE>
ENDORSEMENT NO. 1
Attached to and made a part of
AGREEMENT OF REINSURANCE
NO. A190B
between
GENERAL REINSURANCE CORPORATION
and
MIDWEST MEDICAL INSURANCE COMPANY
IT IS MUTUALLY AGREED that, retroactive to its inception date, this
Agreement is amended as follows:
I - The Schedule of Reinsurance set forth in ARTICLE III - LIABILITY OF
THE REINSURER AND COMPANY RETENTION is amended to read:
SCHEDULE OF REINSURANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Company
Class of Business Retention Limits of Liability of the Reinsurers
- ----------------------------------------------------------------------------------
<S> <C> <C>
Professional Liability $750,000 each First Excess Cover: The difference
claim/$4,000,000 between $2,000,000 each claim/
annual aggregate $4,000,000 annual aggregate and
the Company Retention
Second Excess Cover: The difference
between the Policy Limit and
$2,000,000 each claim/$4,000,000
annual aggregate, subject to the
provisions of the article entitled
COMPANY POLICY AMOUNTS
Professional Premises $750,000 each First Excess Cover: The next
Liability occurrence $250,000 each occurrence"
- ----------------------------------------------------------------------------------
</TABLE>
II - Sub-paragraph (a) of ARTICLE VIII - COMPANY POLICY AMOUNTS is
amended to read:
<PAGE>
"(a) Professional Liability
(1) As respects policies issued $5,000,000 each claim
in the State of Iowa $7,500,000 annual aggregate
(2) As respects policies issued $5,000,000 each claim
in all other states $5,000,000 annual aggregate"
III - Sub-paragraph (b) of ARTICLE XIII - REINSURANCE PREMIUM AND
COMMISSION is amended to read:
"(b) For the Second Excess Cover:
(1) For the layer of $1,000,000 each claim in excess of $2,000,000
each claim/$4,000,000 annual aggregate, 60% of the Company's
gross earned premium for the layer of $1,000,000 each
claim/$1,000,000 annual aggregate in excess of $1,000,000 each
claim/$3,000,000 annual aggregate.
(2) For the layer of $1,000,000 each claim in excess of $3,000,000
each claim, 65% of the Company's gross earned premium for the
layer of $1,000,000 each claim in excess of $2,000,000 each
claim/ $4,000,000 annual aggregate.
(3) For the layer of $1,000,000 each claim in excess of $4,000,000
each claim, 70% of the Company's gross earned premium for the
layer of $1,000,000 each claim in excess of $3,000,000 each
claim."
IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be
executed in duplicate this 28th day of December, 1995.
GENERAL REINSURANCE CORPORATION
/s/ James J. Olzacki
Vice President
Attest: /s/ Victoria T. Wixtead
MIDWEST MEDICAL INSURANCE COMPANY
/s/ David P. Bounk
Attest: /s/ Lee King
-2-
Endorsement No. 1
Agreement No. A190B
<PAGE>
Company, calculated in accordance with the Company's rates, which
rates are on file with the Reinsurers.
The reinsurance premiums set forth in sub-paragraph (b) above shall be
subject to a fixed commission allowance of 15%.
The reinsurance premium set forth in sub-paragraph (a) above is provisional
and shall be adjusted in accordance with the provisions of the article entitled
ADJUSTMENT OF REINSURANCE PREMIUM.
ARTICLE XIV - ADJUSTMENT OF REINSURANCE PREMIUM
The adjusted reinsurance premium for the First Excess Cover for each
experience period shall be not more than 115% nor less than 28% of the net
provisional reinsurance premium earned during the experience period and, subject
to such limitations, shall be equivalent to 117.5% of the reinsurance loss
incurred for the experience period. Calculation of the adjusted reinsurance
premium for each experience period shall be independent of the results of any
other experience period.
With respect to the adjusted reinsurance premium and the calculation
thereof, the following interpretations and reporting provisions shall apply:
(a) EXPERIENCE PERIOD
The initial experience period shall be from January 1, 1995, through
December 31, 1997, and thereafter each experience period shall consist
of 36 months to begin concurrently with the expiration of the previous
experience period; however,
(1) Should the date of termination of this Agreement coincide with
the completion of an experience period, such experience period
and the period from the date of termination until expiration
or termination of the reinsurance, if any, then in effect
shall be combined and shall constitute a single experience
period;
(2) Should the date of termination of this Agreement not coincide
with the completion of an experience period, the following
periods shall be combined and shall constitute a single experi
ence period:
-10-
<PAGE>
and by state for the preceding calendar quarter for policies reinsured
hereunder.
(b) FIRST EXCESS REINSURANCE PREMIUM
On or before each April 30, July 31, October 31, and January 31,
the Company shall pay to the Reinsurers one quarter of the annual
deposit reinsurance premium stipulated in sub-paragraph (a) of the
article entitled REINSURANCE PREMIUM AND COMMISSION.
On or before the February 15 after the third anniversary of the end of
each calendar year, the Company shall calculate the reinsurance
premium for the First Excess Cover for such calendar year in
accordance with said sub-paragraph (a), shall balance such amount
against the annual deposit reinsurance premium previously paid for
such calendar year, and the difference due either party shall be
remitted promptly.
(c) SECOND EXCESS AND REPORTING ENDORSEMENTS REINSURANCE PREMIUM
On or before each May 15, August 15, November 15, and February 15, the
Company shall calculate the reinsurance premium for the Second Excess
Cover and for reporting endorsements for the preceding calendar
quarter in accordance with the provisions of sub-paragraphs (b) and
(c) of the article entitled REINSURANCE PREMIUM AND COMMISSION and
remit such amounts to the Reinsurers.
(d) CLAIMS AND LOSSES
The Company shall report promptly to the Reinsurers each claim or
loss for which the Company's estimated amount of net loss is 50% or
more of the amount of the Company Retention and shall also report all
cases of serious injury which, regardless of considerations of
liability or coverage, might involve this reinsurance, including but
not limited to the following:
(1) Brain injury;
(2) Spinal cord injury and/or other damage resulting in significant
sensory and/or motor loss;
(3) Fatalities of wage earners, women with minor children and all
fatalities in jurisdictions where mental anguish and/or emotional
distress are recoverable;
(4) Blindness;
-13-
<PAGE>
ENDORSEMENT NO. 2
Attached to and made a part of
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
between
MIDWEST MEDICAL INSURANCE COMPANY
and
The Subscribing Reinsurers executing the
Interests and Liabilities Agreements
attached to this Agreement
IT IS MUTUALLY AGREED that, retroactive to its inception date, this
Agreement is amended as follows:
I - Sub-paragraph (a) of ARTICLE XIII - REINSURANCE PREMIUM AND
COMMISSION is amended to read:
"(a) For the First Excess Cover including coverage set forth in the
articles entitled COMBINATION COVER, LOSS IN EXCESS OF POLICY LIMITS,
and EXTRA CONTRACTUAL OBLIGATIONS, 75% of 17.52% of the Company's
gross earned premium for the first $2,000,000 each claim/$4,000,000
annual aggregate or the first $1,000,000 each occurrence, as
applicable, subject to an annual deposit reinsurance premium of
$5,000,000."
II - Sub-paragraph (b) of ARTICLE XIV - ADJUSTMENT OF REINSURANCE PREMIUM
is amended to read:
"(b) NET PROVISIONAL REINSURANCE PREMIUM EARNED
This term shall mean 17.52% of the Company's gross earned premium for
the first $2,000,000 each claim/$4,000,000 annual aggregate or the
first $1,000,000 each occurrence, as applicable."
<PAGE>
ENDORSEMENT NO. 3
Attached to and made a part of
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
between
MIDWEST MEDICAL INSURANCE COMPANY
and
The Subscribing Reinsurers executing the
Interests and Liabilities Agreements
attached to this Agreement
IT IS MUTUALLY AGREED that, retroactive to its inception date, this
Agreement is amended as follows:
I - Sub-paragraph (a) of ARTICLE XIII - REINSURANCE PREMIUM AND
COMMISSION is amended to read:
"(a) For the First Excess Cover including coverage set forth in the
articles entitled COMBINATION COVER, LOSS IN EXCESS OF POLICY
LIMITS, and EXTRA CONTRACTUAL OBLIGATIONS, 75% of 17.52% of the
Company's gross earned premium for the first $2,000,000 each
claim/$4,000,000 annual aggregate or the first $1,000,000 each
occurrence, as applicable, subject to an annual deposit reinsurance
premium of $5,000,000."
II - Sub-paragraph (b) of ARTICLE XIV - ADJUSTMENT OF REINSURANCE PREMIUM
is amended to read:
"(b) NET PROVISIONAL REINSURANCE PREMIUM EARNED
This term shall mean 17.52% of the Company's gross earned premium
for the first $2,000,000 each claim/$4,000,000 annual aggregate or
the first $1,000,000 each occurrence, as applicable."
<PAGE>
ENDORSEMENT NO. 3
Attached to and made a part of
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
between
MIDWEST MEDICAL INSURANCE COMPANY
and
The Subscribing Reinsurers executing the
Interests and Liabilities Agreements
attached to this Agreement
IT IS MUTUALLY AGREED that, as respects new and renewal policies of the
Company becoming effective at and after 12:01 A.M., January 1, 1996, this
Agreement is amended as follows:
I - The Schedule of Reinsurance set forth in ARTICLE III - LIABILITY OF
THE REINSURERS AND COMPANY RETENTION is amended to read:
"SCHEDULE OF REINSURANCE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Company
Class of Business Retention Limits of Liability of the Reinsurers
- ---------------------------------------------------------------------------------------
<S> <C> <C>
(a) Professional Liability $750,000 each First Excess Cover: The difference
(including the claim/$4,000,000 between $2,000,000 each claim/
Physicians Coverage annual aggregate $4,000,000 annual aggregate and
Endorsement - the Company Retention
Separate Limits of
Liability under Health Second Excess Cover: The difference
Care Systems Professional between the Policy Limit and $2,000,000
Liability policies) each claim/$4,000,000 annual aggregate,
subject to the provisions of the article
entitled COMPANY POLICY AMOUNTS
(b) Professional Premises $750,000 each First Excess Cover: The next $250,000
Liability occurrence each occurrence
</TABLE>
<PAGE>
ADDENDUM NO. 2
Attached to and made a part of
INTERESTS AND LIABILITIES AGREEMENT
NO. A190B
between
MIDWEST MEDICAL INSURANCE COMPANY
and
GENERAL REINSURANCE CORPORATION
The Subscribing Reinsurer acknowledges and accepts the attachment of
Endorsement No. 2 to the Professional Liability Agreement of Reinsurance.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed in duplicate,
this 20th day of May, 1996,
MIDWEST MEDICAL INSURANCE COMPANY
/s/ David P. Bounk
Attest: /s/ Lee G. King
and this 12th day of April, 1996.
GENERAL REINSURANCE CORPORATION
/s/ James J Olzacki
Vice President
Attest: /s/ [ILLEGIBLE]
GENERAL REINSURANCE CORPORATION
<PAGE>
SCHEDULE OF REINSURANCE (CONT'D.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Company
Class of Business Retention Limits of Liability of the Reinsurers
- --------------------------------------------------------------------------------------------
<S> <C> <C>
(c) Health Care System $500,000 each First Excess Cover: The difference
Professional Liability claim or occurrence/ between $2,000,000 each claim or
(except as provided $3,000,000 annual occurrence/$3,000,000 annual
in (a) above) aggregate aggregate and the Company Retention
Second Excess Cover: The difference
between the Policy Limit and $2,000,000
each claim or occurrence/$3,000,000
annual aggregate, subject to the
provisions of the article entitled
COMPANY POLICY AMOUNTS"
- --------------------------------------------------------------------------------------------
</TABLE>
II - The following sub-paragraph (c) is added to ARTICLE VIII - COMPANY
POLICY AMOUNTS:
"(c) Health Care Systems Professional $6,000,000 each claim or
Liability occurrence/
$8,000,000 annual aggregate"
III - Sub-paragraphs (a), (b) and (h) of ARTICLE IX - DEFINITIONS are
amended to read and sub-paragraph (1) is added to said ARTICLE as
follows:
"(a) PROFESSIONAL LIABILITY BUSINESS
This term shall mean physicians', surgeons' and dentists'
professional liability policies issued by the Company to cover
professional liability on a claims made basis and professional
premises liability on an occurrence basis for insureds practicing in
the States of Iowa, Minnesota, Nebraska, North Dakota, South Dakota
and Wisconsin."
"(b) INSURED
This term shall mean each insured who is provided a separate limit
of liability under the Company's policy(ies)."
-2-
<PAGE>
"(h) OCCURRENCE
This term shall have the same meaning as in the applicable Company
policy form."
"(i) HEALTH CARE SYSTEMS PROFESSIONAL LIABILITY BUSINESS
This term shall mean the primary healthcare systems liability
protection policies issued by the Company to health care systems
located in the States of Iowa, Minnesota, Nebraska, North Dakota,
South Dakota and Wisconsin. Such primary policies provide
professional liability coverage on a claims-made basis, general
liability coverage on an occurrence basis, and employee benefits
liability on a claims-made basis. This term shall also mean the
umbrella/excess healthcare systems liability protection policies
issued by the Company to health care systems located in the
aforementioned states. Such umbrella/excess policies provide
professional liability and employee benefits liability coverage on a
claims-made basis and umbrella coverage on an occurrence basis in
excess of:
(1) Primary healthcare systems liability policies written by the
Company with minimum limits of liability of $1,000,000 each
claim or occurrence/$1,000,000 annual aggregate;
(2) Automobile liability policies with minimum limits of liability
of $1,000,000 each accident, combined single limit;
(3) Employers liability coverage written under workers compensation
and employers liability policies with minimum limits of
liability of $100,000 each accident bodily injury by accident,
$500,000 policy limit bodily injury by disease, $100,000 each
employee bodily injury by disease.
For the purposes of this Agreement, the combination of the Company's
primary and umbrella/excess policies issued to any one healthcare
systems shall be considered one policy."
IV - ARTICLE XIII is amended to read:
"ARTICLE XIII - REINSURANCE PREMIUM AND COMMISSION
The Company shall pay to the Reinsurers:
(a) For the First Excess Cover including coverage set forth in the
articles entitled COMBINATION COVER, LOSS IN EXCESS OF POLICY
-3-
<PAGE>
LIMITS, and EXTRA CONTRACTUAL OBLIGATIONS, 75% of 17.52% of the
Company's gross earned premium for the first:
(1) $2,000,000 each claim/$4,000,000 annual aggregate as respects
professional liability business;
(2) $1,000,000 each occurrence as respects professional premises
liability business;
(3) $2,000,000 each claim/$3,000,000 annual aggregate as respects
health care system professional liability business,
subject to an annual deposit reinsurance premium of $5,000,000.
(b) For the Second Excess Cover:
(1) As respects professional liability business:
(i) For the layer of $1,000,000 each claim/$1,000,000 annual
aggregate in excess of $2,000,000 each claim/$4,000,000
annual aggregate, 60% of the Company's gross earned
premium for the layer of $1,000,000 each claim/$1,000,000
annual aggregate in excess of $1,000,000 each
claim/$3,000,000 annual aggregate;
(ii) For the layer of $1,000,000 each claim in excess of
$3,000,000 each claim/$5,000,000 annual aggregate, 65% of
the Company's gross earned premium for the layer of
$1,000,000 each claim/$1,000,000 annual aggregate in
excess of $2,000,000 each claim/ $4,000,000 annual
aggregate;
(iii) For the layer of $1,000,000 each claim in excess of
$4,000,000 each claim/$ 5,000,000 annual aggregate, 70%
of the Company's gross earned premium for the layer of
$1,000,000 each claim in excess of $3,000,000 each
claim/$5,000,000 annual aggregate.
(2) As respects health care system professional liability business:
(i) For the layer $1,000,000 each claim excess of $2,000,000
each claim, 50% of the Company's gross earned premium for
the layer $1,000,000 each claim in excess of $1,000,000
each claim;
-4-
<PAGE>
(ii) For the layer $1,000,000 each claim excess of $3,000,000
each claim, 55% of the Company's gross earned premium for
the layer $1,000,000 each claim in excess of $2,000,000
each claim;
(iii) For the layer $1,000,000 each claim excess of $4,000,000
each claim, 60% of the Company's gross earned premium for
the layer $1,000,000 each claim in excess of $3,000,000
each claim;
(iv) For the layer $1,000,000 each claim excess of $5,000,000
each claim, 65% of the Company's gross earned premium for
the layer $1,000,000 each claim in excess of $4,000,000
each claim,
subject to a minimum reinsurance premium of $2,500 per
$1,000,000 layer.
(c) As respects the reinsurance coverage afforded for reporting
endorsements, 100% of the Company's actual premiums for limits in
excess of the Company Retention for each reporting endorsement
issued by the Company, calculated in accordance with the Company's
rates, which rates are on file with the Reinsurers.
The reinsurance premiums set forth in sub-paragraph (b)(1) above shall be
subject to a fixed commission allowance of 15%. The reinsurance premiums and
minimum reinsurance premiums set forth in (b)(2) above shall be subject to a
fixed commission allowance of 20%.
The reinsurance premium set forth in sub-paragraph (a) above is provisional
and shall be adjusted in accordance with the provisions of the article entitled
ADJUSTMENT OF REINSURANCE PREMIUM."
V - Sub-paragraph (b) of ARTICLE XIV - ADJUSTMENT OF REINSURANCE PREMIUM
is amended to read:
"(b) NET PROVISIONAL REINSURANCE PREMIUM EARNED
This term shall mean 17.52% of the Company's gross earned premium
for the first:
(1) $2,000,000 each claim/$4,000,000 annual aggregate as respects
professional liability business;
-5-
<PAGE>
(2) $1,000,000 each occurrence as respects professional premises
liability business;
(3) $2,000,000 each claim/$3,000,000 annual aggregate as respects
health care system professional liability business."
VI - The second paragraph of ARTICLE XX - COMMENCEMENT AND TERMINATION is
amended to read:
"This Agreement may be terminated by either party sending to the other, by
registered mail to its principal office, notice stating the time and date when,
not less than 90 days after the date of mailing of such notice, termination
shall be effective. As respects insurance coverages written on a claims-made
basis, the Reinsurers shall not be liable for claims first made in accordance
with the policy provisions at and after the effective time and date of
termination, unless such claim is first made during an Extended Reporting Period
in force at the time and date of termination. As respects insurance coverages
written on an occurrence basis, the Reinsurers shall not be liable for claims
and losses resulting from occurrences taking place at and after the effective
time and date of termination."
-6-
Endorsement No. 3
<PAGE>
ENDORSEMENT NO. 4
Attached to and made a part of
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
between
MIDWEST MEDICAL INSURANCE COMPANY
and
The Subscribing Reinsurers executing the
Interests and Liabilities Agreements
attached to this Agreement
IT IS MUTUALLY AGREED that, as respects new and renewal policies of the
Company becoming effective at and after 12:01 A.M., January 1, 1997, this
Agreement is amended as follows:
II - Sub-paragraphs (a), (c), (d) and (i) of ARTICLE IX - DEFINITIONS are
amended to read and sub-paragraph j) is added to said ARTICLE as
follows:
"(a) PROFESSIONAL LIABILITY BUSINESS
This term shall mean physicians', surgeons' and dentists'
professional liability policies issued by the Company to cover
professional liability on a claims made basis and professional
premises liability on an occurrence basis for insureds practicing in
the States of Illinois, Iowa, Minnesota, Nebraska, North Dakota,
South Dakota and Wisconsin."
"(c) COMPANY RETENTION
This term shall mean the amount the Company shall retain for its own
account; however, this requirement shall be satisfied if this amount
is retained by the Company or its affiliated companies under common
management or common ownership or by an insured under a deductible
or self-insured retention of up to $250,000 each claim or
occurrence."
"(d) NET LOSS
This term shall mean all payments by the Company within the limits
of its policies in settlement of claims or losses, payment of
benefits, or satisfaction of judgments or awards after deduction of
recoveries and after
<PAGE>
deduction of amounts due from all other reinsurance, whether
collectible or not. This term shall include payments by the Company
or the insured under deductibles and self-insured retentions of up
to $250,000 each claim or occurrence. This term shall not include
adjustment expense. If the Company becomes insolvent, this
definition shall be modified to the extent set forth in the article
entitled INSOLVENCY OF THE COMPANY."
"(i) HEALTH CARE SYSTEMS PROFESSIONAL LIABILITY BUSINESS
This term shall mean the primary healthcare systems liability
protection policies issued by the Company to health care systems
located in the States of Illinois, Iowa, Minnesota, Nebraska, North
Dakota, South Dakota and Wisconsin. Such primary policies provide
professional liability coverage on a claims-made basis, general
liability coverage on an occurrence basis, and employee benefits
liability on a claims-made basis. This term shall also mean the
umbrella/excess healthcare systems liability protection policies
issued by the Company to health care systems located in the
aforementioned states. Such umbrella/excess policies provide
professional liability and employee benefits liability coverage on a
claims-made basis and umbrella coverage on an occurrence basis in
excess of:
(1) Primary healthcare systems liability policies written by the
Company with minimum limits of liability of $1,000,000 each
claim or occurrence/$1,000,000 annual aggregate;
(2) Automobile liability policies with minimum limits of liability
of $1,000,000 each accident, combined single limit;
(3) Employers liability coverage written under workers compensation
and employers liability policies with minimum limits of
liability of $100,000 each accident bodily injury by accident,
$500,000 policy limit bodily injury by disease, $100,000 each
employee bodily injury by disease.
For the purposes of this Agreement, the combination of the Company's
primary and umbrella/excess policies issued to any one healthcare
systems shall be considered one policy."
"(j)" COMPANY'S GROSS EARNED PREMIUM
This term shall mean the earned premium of the Company before
application of deductible and self-insured retention credits."
-2-
<PAGE>
II - Exclusion (h) of ARTICLE X - EXCLUSIONS is amended to read:
"(h) Any policy with a deductible or self-insured retention greater than
$250,000 each claim or occurrence."
-3-
Endorsement No. 4
<PAGE>
ENDORSEMENT NO. 2
Attached to and made a part of
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
between
MIDWEST MEDICAL INSURANCE COMPANY
and
The Subscribing Reinsurers executing the
Interests and Liabilities Agreements
attached to this Agreement
IT IS MUTUALLY AGREED that, as respects new and renewal policies of the
Company becoming effective at and after 12:01 A.M., January 1, 1996, this
Agreement is amended as follows:
I - The Schedule of Reinsurance set forth in ARTICLE III - LIABILITY OF
THE REINSURERS AND COMPANY RETENTION is amended to read:
"SCHEDULE OF REINSURANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Company
Class of Business Retention Limits of Liability of the Reinsurers
- ----------------------------------------------------------------------------------------
<S> <C> <C>
(a) Professional Liability $750,000 each First Excess Cover: The difference
(including the claim/$4,000,000 between $2,000,000 each claim/
Physicians Coverage annual aggregate $4,000,000 annual aggregate and
Endorsement - the Company Retention
Separate Limits of
Liability under Health Second Excess Cover: The difference
Care Systems Professional between the Policy Limit and $2,000,000
Liability policies) each claim/$4,000,000 annual aggregate,
subject to the provisions of the article
entitled COMPANY POLICY AMOUNTS
(b) Professional Premises $750,000 each First Excess Cover: The next $250,000
Liability occurrence each occurrence
</TABLE>
<PAGE>
SCHEDULE OF REINSURANCE (CONT'D.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Company
Class of Business Retention Limits of Liability of the Reinsurers
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
(c) Health Care System $500,000 each First Excess Cover: The difference
Professional Liability claim or occurrence/ between $2,000,000 each claim or
(except as provided $3,000,000 annual occurrence/$3,000,000 annual
in (a) above) aggregate aggregate and the Company Retention
Second Excess Cover: The difference
between the Policy Limit and $2,000,000
each claim or occurrence/$3,000,000
annual aggregate, subject to the
provisions of the article entitled
COMPANY POLICY AMOUNTS"
- ---------------------------------------------------------------------------------------------
</TABLE>
II - The following sub-paragraph (c) is added to ARTICLE VIII - COMPANY
POLICY AMOUNTS:
"(c) Health Care Systems Professional $6,000,000 each claim or
Liability occurrence/$8,000,000 annual
aggregate"
III - Sub-paragraphs (b) and (h) of ARTICLE IX - DEFINITIONS are amended
to read and sub-paragraph (i) is added to said ARTICLE as follows:
"(b) INSURED
This term shall mean each insured who is provided a separate limit
of liability under the Company's policy(ies)."
"(h) OCCURRENCE
This term shall mean have the same meaning as in the applicable
Company policy form."
"(i) HEALTH CARE SYSTEMS PROFESSIONAL LIABILITY BUSINESS
This term shall mean the primary healthcare systems liability
protection policies issued by the Company to health care systems
located in the States of Iowa, Minnesota, North Dakota and South
Dakota. Such
-2-
<PAGE>
primary policies provide professional liability coverage on a
claims-made basis and general liability coverage on an occurrence
basis. This term shall also mean the umbrella/excess healthcare
systems liability protection, policies issued by the Company to
health care systems located in the State of Minnesota. Such
umbrella/excess policies provide professional liability coverage on
a claims-made basis and umbrella coverage on an occurrence basis in
excess of:
(1) Primary healthcare systems liability policies written by the
Company with minimum limits of liability of $1,000,000 each
claim or occurrence/$1,000,000 annual aggregate;
(2) Automobile liability policies with minimum limits of liability
of $1,000,000 each accident, combined single limit;
(3) Employers liability coverage written under workers compensation
and employers liability policies with minimum limits of
liability of $100,000 each accident bodily injury by accident,
$500,000 policy limit bodily injury by disease, $100,000 each
employee bodily injury by disease.
For the purposes of this Agreement, the combination of the Company's
primary and umbrella/excess policies issued to any one healthcare
systems shall be considered one policy."
IV - The following paragraph is added as the last paragraph to ARTICLE
XIII - REINSURANCE PREMIUM AND COMMISSION:
"The reinsurance premium and commission provisions set forth above do not
apply to the healthcare systems professional liability business reinsured
hereunder. As respects such business, the Company shall pay to the Reinsurers an
appropriate percentage of the Company's earned premium for the First Excess
Cover and for the Second Excess Cover, as separately agreed to by the Company
and the Reinsurers and as kept on file with the Reinsurers. Such First Excess
Cover reinsurance premium as respects healthcare system medical professional and
general liability is provisional and shall be adjusted in accordance with the
provisions of the article entitled ADJUSTMENT OF REINSURANCE PREMIUM. Such
Second Excess Cover reinsurance premium shall be subject to a fixed commission
allowance of 20%."
-3-
<PAGE>
V - The following sub-paragraph (g) is added to ARTICLE XIV - ADJUSTMENT
OF REINSURANCE PREMIUM:
"(g) FIRST EXCESS COVER
For purposes of this Article, whenever the term First Excess Cover
is used, as respects the health care systems professional liability
business reinsured hereunder, such term shall include only
healthcare system medical professional and general liability."
VI - The second paragraph of ARTICLE XX - COMMENCEMENT AND TERMINATION is
amended to read:
"This Agreement may be terminated by either party sending to the other,
by registered mail to its principal office, notice stating the time and date
when, not less than 90 days after the date of mailing of such notice,
termination shall be effective. As respects insurance coverages written on a
claims-made basis, the Reinsurers shall not be liable for claims first made
in accordance with the policy provisions at and after the effective time and
date of termination, unless such claim is first made during an Extended
Reporting Period in force at the time and date of termination. As respects
insurance coverages written on an occurrence basis, the Reinsurers shall not
be liable for claims and losses resulting from occurrences taking place at
and after the effective time and date of termination."
-4-
Endorsement No. 2
<PAGE>
ADDENDUM NO. 3
Attached to and made a part of
INTERESTS AND LIABILITIES AGREEMENT
NO. A190B
between
MIDWEST MEDICAL INSURANCE COMPANY
and
GENERAL REINSURANCE CORPORATION
The Subscribing Reinsurer acknowledges and accepts the attachment of
Endorsement No. 3 to the Professional Liability Agreement of Reinsurance.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed in duplicate,
this 20th day of May, 1996,
MIDWEST MEDICAL INSURANCE COMPANY
/s/ David P. Bounk
Attest:
and this 10th day of April, 1996.
GENERAL REINSURANCE CORPORATION
/s/ James J Olzacki
Vice President
Attest: /s/ [ILLEGIBLE]
GENERAL REINSURANCE CORPORATION
<PAGE>
ADDENDUM NO. 4
Attached to and made a part of
INTERESTS AND LIABILITIES AGREEMENT
NO. A190B
between
MIDWEST MEDICAL INSURANCE COMPANY
and
GENERAL REINSURANCE CORPORATION
The Subscribing Reinsurer acknowledges and accepts the attachment of
Endorsement No. 4 to the Professional Liability Agreement of Reinsurance.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed in duplicate,
this 30th day of January, 1997,
MIDWEST MEDICAL INSURANCE COMPANY
/s/ Michael G. Rutz
Vice President
Attest:
and this 13th day of January, 1997.
GENERAL REINSURANCE CORPORATION
/s/ James J Olzacki
Vice President
Attest: /s/ [ILLEGIBLE]
GENERAL REINSURANCE CORPORATION
<PAGE>
ADDENDUM NO. 5
Attached to and made a part of
INTERESTS AND LIABILITIES AGREEMENT
NO. A190B
between
MIDWEST MEDICAL INSURANCE COMPANY
and
GENERAL REINSURANCE CORPORATION
The Subscribing Reinsurer acknowledges and accepts the attachment of
Endorsement No. 5 to the Professional Liability Agreement of Reinsurance.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed in duplicate,
this 2 day of July, 1997,
MIDWEST MEDICAL INSURANCE COMPANY
/s/ Michael Rutz
Attest:
and this 26th day of June, 1997.
GENERAL REINSURANCE CORPORATION
/s/ James J Olzacki
Vice President
Attest:
GENERAL REINSURANCE CORPORATION
<PAGE>
ENDORSEMENT NO. 5
Attached to and made a part of
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
between
MIDWEST MEDICAL INSURANCE COMPANY
and
The Subscribing Reinsurers executing the
Interests and Liabilities Agreements
attached to this Agreement
IT IS MUTUALLY AGREED that, as respects new and renewal policies of the
Company becoming effective at and after 12:01 A.M., January 1, 1996 and
notwithstanding the provisions of Endorsement No. 3 to contrary, Sub-paragraph
(b) of ARTICLE XIV - ADJUSTMENT OF REINSURANCE PREMIUM is amended to read:
"(b) NET PROVISIONAL REINSURANCE PREMIUM EARNED
This term shall mean 17.52% of the Company's gross earned premium
for the first:
(1) $2,000,000 each claim/$4,000,000 annual aggregate as respects
professional liability business;
(2) $1,000,000 each occurrence as respects professional premises
liability business;
(3) $2,000,000 each claim/$3,000,000 annual aggregate as respects
health care system professional liability business.
However, this term shall not include any portion of the Company's
gross earned premium in the State of Nebraska."
<PAGE>
ADDENDUM NO. 2
Attached to and made part of the
INTERESTS AND LIABILITIES AGREEMENT
between
Midwest Medical Insurance Company
Minneapolis, Minnesota
and
Hannover Ruckversicherungs-Aktiengesellschaft
and
Eisen und Stahl Ruckversicherungs-Aktiengesellschaft
both of Hannover, Germany
(HEREINAFTER REFERRED TO AS THE "SUBSCRIBING REINSURER")
The SUBSCRIBING REINSURER acknowledges and accepts the attachment of Endorsement
No. 2 to the Professional Liability Agreement of Reinsurance, effective
January 1, 1995.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed
in duplicate.
Minneapolis, Minnesota, this 10 day of March 1997.
/s/ Michael Rutz VP Underwriting
--------------------------------------------------
Midwest Medical Insurance Company
Hannover, Germany, this 3rd day of February 1997.
<TABLE>
<S> <C>
Hannover Ruckversicherungs-Aktiengesellschaft 80.0%
Eisen und Stahl Ruckversicherungs-Aktienceselischaft 20.0%
Total 100.0%
</TABLE>
Each company participating to the extent of the respective proportions of the
liability assumed severally and not jointly.
---------------------------------------------------------
Hannover Ruckversicherungs-Aktiengesellschaft
Eisen und Stahl Ruckversicherungs-Aktiengeselischaft
<PAGE>
ADDENDUM NO. 3
Attached to and made part of the
INTERESTS AND LIABILITIES AGREEMENT
between
MIDWEST MEDICAL INSURANCE COMPANY
Minneapolis, Minnesota
and
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELISCHAFT
and
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
both of Hannover, Germany
(HEREINAFTER REFERRED TO AS THE "SUBSCRIBING REINSURER")
The SUBSCRIBING REINSURER acknowledges and accepts the attachment of Endorsement
No. 3 to the Professional Liability Agreement of Reinsurance, effective January
1, 1996.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed
in duplicate.
Minneapolis, Minnesota, this 10 day of March 1997.
/s/ Michael Rutz VP Underwriting
----------------------------------------
Midwest Medical Insurance Company
Hannover, Germany, this 3rd day of February 1997.
<TABLE>
<S> <C>
Hannover Ruckversicherungs-Aktiengesellschaft 80.0%
Eisen und Stahl Ruckversicherungs-Aktiengesellschaft 20.0%
Total 100.0%
</TABLE>
Each company participating to the extent of the respective proportions of the
liability assumed severally and not jointly.
---------------------------------------------------------
Hannover Ruckversicherungs-Aktiengesellschaft
Eisen und Stahl Ruckversicherungs-Aktiengesellschaft
<PAGE>
TERMINATION ADDENDUM
attached to and made part of the
INTERESTS AND LIABILITIES AGREEMENT
between
Midwest Medical Insurance Company
Minneapolis, Minnesota
and
Hannover Ruckversicherungs-Aktiengesellschaft
and
Eisen und Stahl Ruckversicherungs-Aktiengesellschaft
both of Hannover, Germany
(HEREINAFTER REFERRED TO AS THE "SUBSCRIBING REINSURER")
with respect to the
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
EFFECTIVE: JANUARY 1, 1995
IT IS HEREBY AGREED that this Interests and Liabilities Agreement and the
SUBSCRIBING REINSURER'S 15.0% share in the interests and liabilities of the
"Reinsurers" under the Agreement of Reinsurance shall be terminated at 12:01
a.m., January 1, 1997, with respect to claims first made in accordance with the
policy provisions at and after that time and date, unless such claim is first
made during an Extended Reporting Period in force at that time and date, as
respects insurance coverages written on a claims-made basis and claims and
losses resulting from occurrences taking place at and after that time and date
as respects insurance coverages written on an occurrence basis.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Minneapolis, Minnesota, this _____ day of ______________________ 199__.
----------------------------------------
Midwest Medical Insurance Company
Hannover, Germany, this ____ day of ____________________________ 199__.
<TABLE>
<S> <C>
Hannover Ruckversicherungs-Aktiengesellschaft 80.0%
Eisen und Stahl Ruckversicherungs-Aktiengesellschaft 20.0%
Total 100.0%
</TABLE>
Each company participating to the extent of the respective proportions of the
liability assumed severally and not jointly.
---------------------------------------------------------------
Hannover Ruckversicherungs-Aktiengesellschaft
Eisen und Stahl Ruckversicherungs-Aktiengesellschaft
<PAGE>
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Midwest Medical Insurance Company
Minneapolis, Minnesota
and
Hannover Ruckversicherungs-Aktiengesellschaft
Hannover, Germany
(HEREINAFTER REFERRED TO AS THE "SUBSCRIBING REINSURER")
IT IS HEREBY AGREED that the SUBSCRIBING REINSURER shall have a 15.0% share in
the interests and liabilities of the "Reinsurers" as set forth in the attached
Agreement of Reinsurance entitled:
PROFESSIONAL LIABILITY
AGREEMENT OF REINSURANCE
EFFECTIVE: JANUARY 1, 1995
(as amended by Endorsement Nos. 1 through 3)
IT IS FURTHER AGREED that this Interests and Liabilities Agreement shall become
effective at 12:01 a.m., January 1, 1997, with respect to claims first made in
accordance with the policy provisions at and after that time and date, unless
such claim is first made during an Extended Reporting Period in force at that
time and date, as respects insurance coverages written on a claims-made basis
and claims and losses resulting from occurrences taking place at and after that
time and date as respects insurance coverages written on an occurrence basis,
and shall continue in force until terminated in accordance with the provisions
of the attached Agreement of Reinsurance.
IT IS ALSO AGREED that the following Articles shall apply to the SUBSCRIBING
REINSURER'S share in the attached Agreement of Reinsurance:
"ARTICLE XXVI - UNAUTHORIZED REINSURERS
A. If the Reinsurers are unauthorized in any state of the United States
of America or the District of Columbia, the Reinsurers agree to fund
their share of the Company's ceded outstanding loss and loss
adjustment expense reserves including incurred but not reported loss
reserves (to be mutually agreed at each December 31) 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
Page 1 of 4
<PAGE>
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 Reinsurers, at their 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 Reinsurers 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 Reinsurers, but only for one or more of the
following purposes:
1. To reimburse itself for the Reinsurers' share of losses and/or
loss adjustment expense paid under the terms of policies
reinsured hereunder, unless paid in cash by the Reinsurers;
2. To reimburse itself for the Reinsurers' share of any other
amounts claimed to be due hereunder, unless paid in cash by the
Reinsurers;
3. To fund a cash account in an amount equal to the Reinsurers'
share of any ceded outstanding loss and loss adjustment expense
reserves including incurred but not reported loss reserves (to
be mutually agreed at each December 31) 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
Reinsurers 10 days prior to its expiration date;
4. To refund to the Reinsurers any sum in excess of the actual
amount required to fund the Reinsurers' share of the Company's
ceded outstanding loss and loss adjustment expense reserves
including incurred but not reported loss reserves (to be
mutually agreed at each December 31), if so requested by the
Reinsurers.
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 Reinsurers the excess amount so
drawn.
Page 2 of 4
<PAGE>
ARTICLE XXVII - 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 Reinsurers' 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 reinsurers, whether specific
or general, any amounts which may have become due from such
reinsurers, whether such inability arises from the insolvency of
such other reinsurers or otherwise.
ARTICLE XXVIII - CURRENCY (BRMA 12A)
A. Whenever the word 'Dollars' or the '$' sign appears in this
Agreement, they shall be construed to mean United States Dollars and
all transactions under this Agreement 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 XXIX - 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 Reinsurers have 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 premium becoming due hereunder the
Reinsurers 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 XXX - SERVICE OF SUIT (BRMA 49C)
(Applicable if the Reinsurers are not domiciled in the United States of
America, and/or are not authorized in any State, Territory or District of
the United States where authorization is required by insurance regulatory
authorities)
Page 3 of 4
<PAGE>
A. It is agreed that in the event the Reinsurers fail to pay any amount
claimed to be due hereunder, the Reinsurers, at the request of the
Company, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this Article
constitutes or should be understood to constitute a waiver of the
Reinsurers' rights to commence an action in a 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 Reinsurers
hereby designate 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 Agreement.
ARTICLE XXXI - INTERMEDIARY (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Agreement 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 Reinsurers
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 Reinsurers. Payments by the
Reinsurers 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."
IT IS ALSO AGREED that the SUBSCRIBING REINSURER'S share in the attached
Agreement of Reinsurance shall be separate and apart from the shares of the
other reinsurers, and shall not be joint with the shares of the other
reinsurers, it being understood that the SUBSCRIBING REINSURER shall in no
event participate in the interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned
at:
Minneapolis, Minnesota, this _____ day of __________________________ 199__.
_____________________________________________
Midwest Medical Insurance Company
Hannover, Germany, this _____ day of _______________________________ 199__.
_____________________________________________
Hannover Ruckversicherungs-Aktiengesellschaft
Page 4 of 4
<PAGE>
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. ESTABLISHMENT AND PURPOSE . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 - Establishment . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 - Purpose . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. DEFINITIONS, GENDER, AND NUMBER . . . . . . . . . . . . . . . . . 2
Section 2.1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 - Gender and Number . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 3. PARTICIPATION AND ELIGIBILITY FOR BENEFITS . . . . . . . . . . . 7
Section 3.1 - Who May Participate . . . . . . . . . . . . . . . . . . . 7
Section 3.2 - Time and Conditions of Participation . . . . . . . . . . 7
Section 3.3 - Termination of Participation . . . . . . . . . . . . . . 7
Section 3.4 - Effect of Termination of Employment Prior to
Early Retirement Date . . . . . . . . . . . . . . . . . 8
Section 3.5 - Effect of Disability . . . . . . . . . . . . . . . . . . 8
Section 3.6 - Reemployment . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.7 - Forfeiture for Misconduct . . . . . . . . . . . . . . . . 9
Section 3.8 - Missing Persons . . . . . . . . . . . . . . . . . . . . . 9
Section 3.9 - Relationship to Other Plans . . . . . . . . . . . . . . .10
ARTICLE 4. BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 4.1 - Normal Benefit Amount . . . . . . . . . . . . . . . . . .10
Section 4.2 - Forms of Benefit . . . . . . . . . . . . . . . . . . . .12
Section 4.3 - Value of Benefits Upon Normal Retirement Date . . . . . .13
Section 4.4 - Value of Benefits Upon Early Retirement . . . . . . . . .13
Section 4.5 - Effect of Incompetency . . . . . . . . . . . . . . . . .14
Section 4.6 - No Interest Payable . . . . . . . . . . . . . . . . . . .14
ARTICLE 5. BENEFICIARY DESIGNATION . . . . . . . . . . . . . . . . . . . . .14
Section 5.1 - Designation by Participant . . . . . . . . . . . . . . .14
Section 5.2 - Failure to Designate Beneficiary . . . . . . . . . . . .15
Section 5.3 - Death of Beneficiary . . . . . . . . . . . . . . . . . .15
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE 6. FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Section 6.1 - Source of Benefits . . . . . . . . . . . . . . . . . . .16
Section 6.2 - No Claim on Specific Assets . . . . . . . . . . . . . . .16
ARTICLE 7. ADMINISTRATION AND EXPENSES . . . . . . . . . . . . . . . . . . .16
Section 7.1 - Administration . . . . . . . . . . . . . . . . . . . . .16
Section 7.2 - Powers of Committee . . . . . . . . . . . . . . . . . . .16
Section 7.3 - Claims Procedure . . . . . . . . . . . . . . . . . . . .17
Section 7.4 - Delegation . . . . . . . . . . . . . . . . . . . . . . .18
Section 7.5 - Reports and Records . . . . . . . . . . . . . . . . . . .18
Section 7.6 - Expenses . . . . . . . . . . . . . . . . . . . . . . . .18
ARTICLE 8. AMENDMENTS AND TERMINATION . . . . . . . . . . . . . . . . . . .19
Section 8.1 - Amendments . . . . . . . . . . . . . . . . . . . . . . .19
Section 8.2 - Termination . . . . . . . . . . . . . . . . . . . . . . .19
ARTICLE 9. ACCELERATION OF VESTING AND ACCRUAL . . . . . . . . . . . .19
Section 9.1 - Accelerated Vesting and Accrual . . . . . . . . . . . . .19
Section 9.2 - Early Distribution . . . . . . . . . . . . . . . . . . .21
Section 9.3 - Change in Control . . . . . . . . . . . . . . . . . . . .21
ARTICLE 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . .22
Section 10.1 - No Guaranty of Employment . . . . . . . . . . . . . . .22
Section 10.2 - Release . . . . . . . . . . . . . . . . . . . . . . . .22
Section 10.3 - Notices . . . . . . . . . . . . . . . . . . . . . . . .23
Section 10.4 - Non-Alienation . . . . . . . . . . . . . . . . . . . . .23
Section 10.5 - Captions . . . . . . . . . . . . . . . . . . . . . . . .23
Section 10.6 - Applicable Law . . . . . . . . . . . . . . . . . . . . .23
</TABLE>
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<PAGE>
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(AMENDED AND RESTATED AS OF MAY 14, 1997)
ARTICLE 1. ESTABLISHMENT AND PURPOSE
SECTION 1.1 ESTABLISHMENT. Midwest Medical Insurance Holding Company
("Company"), through its predecessor, Minnesota Medical Management, Inc.,
established a nonqualified supplemental retirement income plan for the benefit
of specified Executive Employees of the Company effective as of March 1, 1986.
This plan was originally known as the MINNESOTA MEDICAL MANAGEMENT, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "Plan"). The Plan is intended to be
an unfunded pension plan maintained primarily for the purposes of providing
additional retirement income for a select group of highly compensated employees,
as described in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. The Company
hereby amends and restates the Plan, which is now known as the MIDWEST MEDICAL
INSURANCE HOLDING COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The
restatement is effective May 14, 1997, and shall apply only to Participants who
are in the employ of the Company on May 14, 1997, or are hired after May 14,
1997.
SECTION 1.2 PURPOSE. The purpose of the Plan is to supplement the
benefits payable to Participants and their Beneficiaries under the federal
Social Security Act, the Midwest Medical Insurance Holding Company 1986 Pension
Plan, and the Polaris Qualified Pension Plan.
<PAGE>
ARTICLE 2. DEFINITIONS, GENDER, AND NUMBER
SECTION 2.1 DEFINITIONS. Whenever used in the Plan, the following words
and phrases shall have the meanings set forth below unless the context plainly
requires a different meaning, and when the defined meaning is intended, the term
is capitalized:
(a) "AGE" of a Participant means the number of whole calendar years
that have elapsed since the date of the Participant's birth.
(b) "AVERAGE MONTHLY COMPENSATION" for a Participant means the
quotient of the total Compensation of such Participant for the
Participant's Compensation Reference Period divided by the number of
complete months in the Compensation Reference Period.
(c) "BENEFICIARY" means the persons or trusts designated by a
Participant in writing pursuant to Section 5.1 of the Plan as being
entitled to receive any benefit payable under the Plan by reason of the
death of a Participant, or, in the absence of such designation, the persons
specified in Section 5.2 of the Plan.
(d) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
the Company as constituted at the relevant time.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be to that section as it
now exists and to any successor provision.
(f) "COMMITTEE" means the administrative committee referred to in
Article 7 consisting of the Chairman, Vice Chairman and Secretary of the
Board
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and the President and Chief Financial Officer of the Company. The Chairman
and Secretary of the Board shall serve as chairman and secretary of the
Committee, respectively. The Committee shall be designated the Company's
Executive Retirement Committee. A member of the Committee who is also a
Participant shall not participate in any decision of the Committee that
affects the Participant's rights under the Plan, unless the decision
affects all Participants.
(g) "COMPANY" means Midwest Medical Insurance Holding Company.
(h) "COMPENSATION" of a Participant with respect to any period of
time means the sum of the Participant's base salary, pay for overtime,
bonuses, and vacation pay, all as determined prior to any salary reduction
contributions to plans described in Sections 125, 401(k), or 403(b) of the
Code, earned by the Participant during such period.
(i) "COMPENSATION REFERENCE PERIOD" for a Participant means the five
non-overlapping periods of twelve (12) consecutive calendar months --
within the one hundred twenty (120) consecutive calendar months immediately
preceding the Participant's termination of employment -- during which the
Participant earned the greatest Compensation. It is not necessary that the
five 12-month periods be consecutive or that they each begin with the same
calendar month. The periods shall be deemed "non-overlapping" as long as no
single month is counted more than once in determining a Participant's
Compensation. If the Participant has completed sixty (60) months of
employment with the
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<PAGE>
Employer but has not completed one hundred twenty (120) months of
employment, the Compensation Reference Period shall be the five
non-overlapping periods of twelve (12) consecutive calendar months during
which the Participant earned the greatest Compensation. If the Participant
has not completed sixty (60) months of employment with the Employer, the
Compensation Reference Period shall be the period from the Participant's
first Hour of Service to his termination of employment, disregarding
incomplete months at either end of such period.
(j) "EARLY RETIREMENT DATE" of a Participant means the first day of
the first calendar month commencing on or after (i) the date the
Participant reaches the Age of 55 while in the employ of the Company, and
(ii) the date the Participant completes at least ten (10) Years of Service.
(k) "EFFECTIVE DATE" means the date on which the Plan became
effective, i.e., March 1, 1986.
(l) "ENTRY DATE" for any Participant shall be his first day of
employment as a Participant.
(m) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(n) "EXECUTIVE EMPLOYEE" means a person employed on a full time basis
by the Company as an officer with substantial responsibility in the
management of the business of the Company.
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<PAGE>
(o) "HOURS OF SERVICE" means hours of service determined in
accordance with the provisions of the Midwest Medical Insurance Holding
Company 1986 Pension Plan. Participants shall receive credit for service
with North Star Casualty Service, Inc. and American Health Systems, Inc.
prior to employment with Company. The dates from which Hours of Service
will be counted for certain Participants are set forth in Schedule A.
(p) "NORMAL RETIREMENT DATE" of a Participant means the first day of
the first calendar month commencing on or after the date Participant
reaches the Age of 62.
(q) "PARTICIPANT" means only an Executive Employee of the Company who
is specifically designated as a Participant by action of the Committee. The
individuals listed on Schedule A, who have been selected by the Board, are
active Participants as of the effective date of this restatement of the
Plan.
(r) "PLAN" means the "Midwest Medical Insurance Holding Company
Supplemental Executive Retirement Plan" as set forth herein and as amended
or restated from time to time.
(s) "PRIMARY SOCIAL SECURITY BENEFIT" means the monthly primary
old-age insurance benefit which a Participant is or would be entitled to
receive under the federal Social Security Act. For this purpose, it shall
be assumed that the Participant applies for such benefit and does not
disqualify himself from receiving it by reason of earnings he may receive
in excess of any earnings limit
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<PAGE>
on full entitlement to benefits or any other reason within the control of
the Participant.
For purposes of determining the Primary Social Security Benefit amount
in any case in which the Employee's termination of employment occurs prior
to his sixty-second birthday, the Primary Social Security Benefit shall be
determined in the same manner as in the case of termination of employment
at his sixty-second birthday, except that the computation shall be made on
the assumption that he will continue to receive, until his sixty-second
birthday, annual compensation that would be treated as wages for purposes
of the federal Social Security Act at the same rate as his compensation for
the Plan Year ending with or next preceding the date of his termination of
employment, that the federal Social Security Act as in effect on the last
day of the month coincident with or immediately preceding his termination
of employment will remain unchanged until his sixty-second birthday, and
that the primary monthly old-age insurance benefit will be computed as of
his sixty-second birthday.
(t) "STANDARD FORM OF BENEFIT," as to any Participant, means an
annuity providing monthly payments for the life of the Participant, with a
ten (10) year minimum term, commencing on the first day of the first month
in which such benefit is payable.
(u) "TARGET PERCENTAGE" of any individual who is a Participant as of
May 14, 1997, means seventy percent (70%). For a Participant whose Entry
Date is later than May 14, 1997, the Participant's Target Percentage shall
be seventy
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<PAGE>
percent (70%) unless a different Target Percentage has been designated by
the Committee.
(v) "YEARS OF SERVICE" of a Participant means the number of
consecutive twelve-month periods (including periods prior to the Effective
Date of this Plan) commencing on the date of the Participant's first Hour
of Service (and anniversaries thereof) and ending on the date of his
termination of employment, plus any additional Years of Service granted
pursuant to Article 9. Fractional Years of Service shall be counted by
crediting the Participant with one-twelfth of a Year of Service for each
calendar month during which the Participant is employed by the Company for
at least 16 days, including weekends and holidays.
SECTION 2.2 GENDER AND NUMBER. Except as otherwise indicated by
context, masculine terminology used herein also includes the feminine and
neuter, and terms used in the singular may also include the plural.
ARTICLE 3. PARTICIPATION AND ELIGIBILITY FOR BENEFITS
SECTION 3.1 WHO MAY PARTICIPATE. Participation in the Plan (as restated
herein) shall be limited to those Executive Employees who are listed on Schedule
A, attached hereto and made a part hereof, or who are otherwise selected to be
Participants by the Committee from time to time in its sole discretion. No
person employed by the Company in any capacity shall have a right, solely by
reason of such employment, to be a Participant in the Plan.
SECTION 3.2 TIME AND CONDITIONS OF PARTICIPATION. An eligible Executive
Employee shall become a Participant only upon (a) designation as a Participant
by action of the Committee
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<PAGE>
and (b) compliance with such terms and conditions as the Committee may from time
to time establish for the implementation of the Plan, including, but not limited
to, any conditions that the Committee may deem necessary or appropriate for the
Company to meet its obligations under the Plan.
SECTION 3.3 TERMINATION OF PARTICIPATION. Once an Executive Employee
has become a Participant in the Plan, participation shall continue until the
first to occur of (a) payment in full of all benefits to which the Participant
or designated Beneficiary is entitled under the Plan or (b) the occurrence of an
event specified in this Article which results in loss of benefits.
SECTION 3.4 EFFECT OF TERMINATION OF EMPLOYMENT PRIOR TO EARLY
RETIREMENT DATE. A Participant shall cease to be a Participant and shall
forfeit all rights to benefits under this Plan if his employment with the
Company is terminated for any reason, including death or disability, prior to
his Early Retirement Date, except as provided in Article 9. A Participant's
employment shall not be deemed to be terminated by reason of an approved leave
of absence granted by the Company.
SECTION 3.5 EFFECT OF DISABILITY. If a Participant shall be determined
to be disabled under the provisions of any policy of disability income insurance
maintained by the Company or under any waiver of premium provision on a policy
of life insurance maintained by the Company on the life of the Participant, or,
in the absence of any such insurance, upon a determination by the Committee
based on the opinion of a physician of the Committee's choice that the
Participant is unable to perform the major duties of the Participant's
employment, then, solely for purposes of determining the Participant's right to
benefits under the Plan, such Participant shall not be deemed to have terminated
employment with the Company until the date on which the
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<PAGE>
Participant has been disabled for six (6) consecutive months or, if earlier, the
date of the Participant's death.
SECTION 3.6 REEMPLOYMENT. Except to the extent that the Company and the
Participant agree in writing to the contrary, if a person who ceased to be a
Participant by reason of a termination of employment prior to his Early
Retirement Date, is reemployed by the Company and becomes a Participant, such
Participant's rights under the Plan shall be determined as if such reemployment
constituted the Participant's initial employment. All Compensation, Hours of
Service, Years of Service, and years of plan participation for periods prior to
the date of such Participant's reemployment shall be disregarded in determining
such Participant's rights and benefits under this Plan.
SECTION 3.7 FORFEITURE FOR MISCONDUCT. Notwithstanding any other
provision of the Plan, no benefits shall be paid to any Participant who has been
convicted (by guilty plea or by adjudication which has become final) of, or has
entered a plea of nolo contendere to a charge of, fraud, embezzlement, or other
criminal misconduct involving the assets or business of the Company. If a
Participant is receiving benefits at the time such final adjudication or plea
shall occur, no further benefits shall be paid to the Participant or to the
Participant's Beneficiary in the event of the Participant's death. At any time
after the filing (or issuance of an indictment) for any criminal charges, which,
if sustained, would terminate a Participant's rights to benefits hereunder, the
Company may defer any benefit payments which would otherwise become due
hereunder until such criminal charges have been finally determined. Any amounts
so deferred shall be forfeited or brought current by lump sum payment (without
interest), as the case may be, once a final determination has been made.
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<PAGE>
SECTION 3.8 MISSING PERSONS. If the Company is unable to locate the
Participant or his Beneficiary for purposes of making distribution, the amount
of a Participant's benefits under this Plan that would otherwise be considered
as nonforfeitable shall be forfeited effective four (4) years after (i) the last
date a payment of said benefit was made, if at least one such payment was made,
or (ii) the first date a payment of said benefit was directed to be made by the
Company, if no payments had been made. If such person is located after the date
of such forfeiture, the benefits for such Participant or Beneficiary shall not
be reinstated.
SECTION 3.9 RELATIONSHIP TO OTHER PLANS. Participation in the Plan
shall not preclude or limit the participation of the Participant in any other
fringe benefit program or plan sponsored by the Company for which such
Participant would otherwise be eligible. Unless otherwise specifically provided
for in such other program or plan, no portion of any costs incurred by the
Company in providing benefits hereunder shall be considered "compensation" of
the Participant for purposes of determining the contributions or benefits under
such program or plan.
ARTICLE 4. BENEFITS
SECTION 4.1 NORMAL BENEFIT AMOUNT. A Participant shall be eligible to
receive a benefit under this Plan upon termination of employment on or after his
Early Retirement Date. The benefit shall be paid in the Standard Form of
Benefit, in an amount determined under Sections 4.3 and 4.4. Benefits are
calculated on the basis of a Participant's Normal Benefit Amount, as defined in
the following paragraph.
The Normal Benefit Amount for any Participant shall mean monthly annuity
payments to the Participant, commencing on his Normal Retirement Date, paid in
the Standard Form of
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<PAGE>
Benefit, in an amount equal to the greater of (1) the minimum supplemental
benefit defined in this Section, or (2) the product of the Participant's Average
Monthly Compensation multiplied by the Participant's Target Percentage, such
product being (i) reduced by:
(a) One-half of the Primary Social Security Benefit to which the
Participant would be entitled if application were made as of the Normal
Retirement Date based upon the law in effect when the Normal Benefit Amount
is being calculated and assuming that the Participant receives no further
earnings, and
(b) An amount equal to the monthly benefits that would be paid to the
Participant under the Midwest Medical Insurance Holding Company 1986
Pension Plan (or any other qualified Plan(s) to which the Company has
agreed to make contributions on the Participant's behalf in lieu of the
Midwest Medical Insurance Holding Company 1986 Pension Plan), if (1) the
value of the Participant's nonforfeitable benefit under such plan as of the
distribution commencement date of such benefit (or on the date of the most
recent valuation of such benefit, if no distributions have been made from
said plan to the Participant) were projected to his Normal Retirement Date
assuming a net growth rate from year to year equal to the interest rate
fixed by the Pension Benefit Guaranty Corporation for valuing immediate
annuities for single-employer plans terminating as of January 1 of the
calendar year in which the Normal Benefit Amount is being determined, and
(ii) such amount were paid in the form of a
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<PAGE>
straight life annuity for the life of the Participant with monthly payments
commencing on the Normal Retirement Date, and
(c) The amount shown in Schedule B as the Polaris Offset Amount for
said Participant,
and (ii) increased by such amounts, if any, as are determined in the sole
discretion of the Board.
For purposes of determining the amount of the monthly annuity that could be
purchased with the Participant's projected accrued benefit under the Midwest
Medical Insurance Holding Company 1986 Pension Plan (or a substitute plan), the
Company shall rely on the annuity amount quoted by the funding agent of the
Pension Plan, if such funding agent offers annuity contracts. If the Pension
Plan has no funding agent, or the funding agent does not offer annuity
contracts, the Company may rely on the annuity amount quoted by any insurance
company or other annuity provider deemed by the Company to be reputable. The
selection of an insurance company or annuity provider shall be final and binding
on all parties.
The "minimum supplemental benefit" referred to in the second paragraph of
this Section is a monthly annuity payment commencing on the Participant's Normal
Retirement Date, paid in the Standard Form of Benefit, equal to the product of
the Participant's Average Monthly Compensation multiplied by one percent (1%)
for each full year of plan participation completed by the Participant, to a
maximum of 10%. A year of plan participation shall be a twelve-consecutive-month
period measured from the Participant's Entry Date or anniversaries of that date,
subject to the loss of credited years of participation under Section 3.6.
SECTION 4.2 FORMS OF BENEFIT. Except as elected otherwise by the
Company in the manner provided herein, benefits under this Plan will be payable
in accordance with the Standard Form of Benefit. By written notice provided to
the Company prior to the effective date of his or
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<PAGE>
her participation in the Plan, a new Participant may elect to receive benefits
in an alternative form from among options selected by the Company, rather than
the Standard Form of Benefit. At the Company's option, such alternative forms of
benefit may include:
(a) Monthly annuity payments for the life of the Participant;
(b) Monthly annuity payments for the life of the Participant with a
fixed minimum term of other than ten (10) years;
(c) Monthly joint and survivor annuity payments for the lives of the
Participant and the Participant's spouse; or
(d) Monthly joint and survivor annuity payments for the lives of the
Participant and the Participant's spouse, with a fixed minimum term.
If a Participant elects to receive benefit payments under this Plan in a form
other than the Standard Form of Benefit, the amount of the benefit so provided
shall be actuarially equivalent to the Normal Benefit Amount paid in the
Standard Form of Benefit (based upon the annuity amounts offered by the
insurance company or other annuity provider selected by the Company to provide
the benefit), adjusted in accordance with Sections 4.3 and 4.4. No Participant
shall have any right or option to receive additional current compensation in
lieu of any benefit under this Plan.
The Beneficiary of a Participant shall receive a monthly death benefit if
(a) the Participant was receiving a benefit under the Plan at the time of his
death, or would have been eligible to receive a benefit had he retired on the
day before his death, and (b) the form of benefit determined under this Section
provides for a survivor benefit or payments for a fixed minimum
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<PAGE>
term that has not expired. Death benefits shall commence as of the first day of
the first calendar month beginning on or after the date of the Participant's
death.
SECTION 4.3 VALUE OF BENEFITS UPON NORMAL RETIREMENT DATE. If a
Participant retires or otherwise terminates his employment with the Company for
any reason, including death or disability, on or after his Normal Retirement
Date, the Participant or his Beneficiary shall be entitled to receive benefits
under the Plan equivalent to the Normal Benefit Amount multiplied by the
Participant's vesting percentage. The vesting percentage for a Participant is
the Participant's Years of Service (including fractional years) multiplied by
10%. The vesting percentage shall never be greater than 100%. Benefits under
this Section shall commence as of the first day of the first calendar month
beginning on or after the date of termination.
SECTION 4.4 VALUE OF BENEFITS UPON EARLY RETIREMENT. If a Participant
retires or otherwise terminates employment with the Company for any reason,
including death or disability, prior to his Normal Retirement Date but after
reaching his Early Retirement Date, he or his Beneficiary shall be entitled to
receive an early retirement benefit under this Plan commencing on the first day
of the first calendar month beginning on or after the date of termination. His
early retirement benefit shall be the benefit he would have received under
Section 4.3 had he retired on his Normal Retirement Date, assuming the
Participant's Years of Service and Average Monthly Compensation are the same as
on his actual termination date, reduced by five-twelfths of one percent (5/12%)
for each complete calendar month, if any, by which the Participant's benefit
commencement date precedes his Normal Retirement Date.
SECTION 4.5 EFFECT OF INCOMPETENCY. Every Participant receiving or
entitled to receive benefits under this Plan shall be presumed mentally
competent until and unless the Company receives written notice in a form and
manner acceptable to the Company to the effect that such
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<PAGE>
Participant is incompetent and that a guardian, conservator, or other person
legally vested with the care of the Participant's estate has been appointed.
Such notice shall also specify the name, address, and telephone number of such
guardian, conservator, or other person. Upon receipt of such notice the Company
may, but shall not be required to, direct benefit payments due such Participant
to such guardian, conservator, or other person legally vested with the care of
the Participant's estate.
SECTION 4.6 NO INTEREST PAYABLE. No Participant shall have the right to
receive interest on any portion of the total benefits under this Plan that
remains unpaid from time to time.
ARTICLE 5. BENEFICIARY DESIGNATION
SECTION 5.1 DESIGNATION BY PARTICIPANT. Each Participant may designate
primary and contingent Beneficiaries for any benefits that may remain payable
under the Plan at the time of the Participant's death. Such Beneficiaries may be
individuals or trusts for the benefit of individuals, except that the Company,
in its discretion, may require the designation of a single party to whom benefit
payments may be made (as a matter of convenience and without prejudice to the
rights of others) where a Participant's beneficiary designation would otherwise
require that benefit payments be allocated among four (4) or more recipients. A
beneficiary designation by a Participant shall be in writing in a form
acceptable to the Company and shall only be effective upon delivery to the
Company prior to the Participant's death. A beneficiary designation may be
revoked by a Participant at any time by delivering to the Company either written
notice of revocation or a new beneficiary designation form. The beneficiary
designation form last delivered to the Company prior to the death of a
Participant shall control.
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<PAGE>
SECTION 5.2 FAILURE TO DESIGNATE BENEFICIARY. In the event there is no
beneficiary designation on file with the Company or all Beneficiaries designated
by a Participant have predeceased the Participant, any benefits remaining
payable under this Plan at the time of the death of the Participant shall be
paid to the Participant's spouse, if living; if the Participant does not leave a
surviving spouse, to the Participant's issue by right of representation; or, if
there are no such issue then living, to the Participant's estate.
SECTION 5.3 DEATH OF BENEFICIARY. Any portion of a Participant's
benefit payable to a Beneficiary shall be paid to the Beneficiary's estate,
unless the Beneficiary has previously provided the Company with a written
directive naming a successor Beneficiary, in which case such unpaid benefits
shall be paid to such named successor Beneficiary.
ARTICLE 6. FUNDING
SECTION 6.1 SOURCE OF BENEFITS. All benefits under this Plan shall be
paid when due by the Company out of its assets. The Company may, but shall have
no obligation to, make such advance provision for the payment of such benefits
as the Board of Directors may from time to time consider appropriate.
SECTION 6.2 NO CLAIM ON SPECIFIC ASSETS. In the event the Company shall
determine in its discretion to make advance provisions for any portion of its
obligations under the Plan, any amounts so set aside shall nonetheless remain
the exclusive property of the Company and shall in no event be deemed to
constitute a segregated fund, whether in trust or otherwise, for the current
benefit of any Participant. No Participant shall be deemed to have, by virtue of
being a Participant in the Plan, any claim on any specific assets of the Company
such that the Participant would be subject to income taxation on his benefits
under this Plan prior to distribution and the
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<PAGE>
rights of Participants and Beneficiaries to benefits to which they are otherwise
entitled under the Plan shall be those of a general creditor of the Company.
ARTICLE 7. ADMINISTRATION AND EXPENSES
SECTION 7.1 ADMINISTRATION. The Plan shall be administered by the
Committee.
SECTION 7.2 POWERS OF COMMITTEE. The Committee shall have all powers
necessary to administer the Plan, including, without limitation, powers:
(a) to interpret the provisions of the Plan;
(b) to establish and revise the method of accounting for the Plan and
to maintain the accounts;
(c) to establish rules for the administration of the Plan and to
prescribe any forms required to administer the Plan; and
(d) to determine the rights of Participants and Beneficiaries.
SECTION 7.3 CLAIMS PROCEDURE. The Committee shall notify a Participant
in writing within ninety (90) days of his written application for benefits of
his eligibility or non-eligibility for benefits under the Plan. If the Committee
determines that a Participant is not eligible for benefits or full benefits, the
notice shall set forth (1) the specific reasons for such denial, (2) a specific
reference to the provision of the Plan on which the denial is based, (3) a
description of any additional information or material necessary for the claimant
to perfect his claim, and a description of why it is needed, and (4) an
explanation of the Plan's claims review procedure and other appropriate
information as to the steps to be taken if the Participant wishes to have his
claim reviewed. If the Committee determines that there are special circumstances
requiring additional time to make a decision, the Committee shall notify the
Participant of the special
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<PAGE>
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional 90-day period. If a Participant is
determined by the Committee to be not eligible for benefits, or if the
Participant believes that he is entitled to greater or different benefits, he
shall have the opportunity to have his claim reviewed by the Committee by filing
a petition for review with the Committee within sixty (60) days after receipt by
him of the notice issued by the Committee. Said petition shall state the
specific reasons the Participant believes he is entitled to benefits or greater
or different benefits. Within sixty (60) days after receipt by the Committee of
said petition, the Committee shall afford the Participant (and his counsel, if
any) an opportunity to present his position to the Committee orally or in
writing, and said Participant (or his counsel) shall have the right to review
the pertinent documents, and the Committee shall notify the Participant of its
decision in writing within said sixty (60) day period, stating specifically the
basis of said decision written in a manner calculated to be understood by the
Participant and the specific provisions of the Plan on which the decision is
based. If, because of the need for a hearing, the sixty (60) day period is not
sufficient, the decision may be deferred for up to another sixty (60) day period
at the election of the Committee, but notice of this deferral shall be given to
the Participant.
In the event of the death of a Participant, the same procedure shall be
applicable to his Beneficiaries.
SECTION 7.4 DELEGATION. The Committee shall have the power to delegate
specific duties and responsibilities to officers or other employees of the
Company or other individuals or entities. Any delegation by the Committee may
allow further delegations by the individual or entity to whom the delegation is
made. Any delegation may be rescinded by the Committee at any time. Each person
or entity to whom a duty or responsibility has been delegated shall be
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<PAGE>
responsible for the exercise of such duty or responsibility and shall not be
responsible for any act or failure to act of any other person or entity.
SECTION 7.5 REPORTS AND RECORDS. The Company, the Committee and those
to whom the Committee has delegated duties under the Plan shall keep records of
all their proceedings and actions and shall maintain books of account, records,
and other data as shall be necessary for the proper administration of the Plan
and for compliance with applicable law.
SECTION 7.6 EXPENSES. The administrative costs of the Plan shall be
borne solely by the Company. No contributions from Participants, whether by way
of salary reduction, deferral of bonuses or salary increases, or any other
means, will be required or permitted.
ARTICLE 8. AMENDMENTS AND TERMINATION
SECTION 8.1 AMENDMENTS. The Company, by action of the Board, may amend
the Plan, in whole or in part, at any time and from time to time. Any such
amendment shall be filed with the Plan documents. No amendment, however, may be
effective to eliminate or reduce the benefits of any retired Participant or the
Beneficiary of any deceased Participant then eligible for benefits or the
benefits, if any, which any active Participant would be entitled to receive if
such Participant retired after the occurrence of an event specified in Section
9.1 immediately before the effective date of such amendment.
SECTION 8.2 TERMINATION. The Company expects the Plan to be permanent,
but necessarily must, and hereby does, reserve the right to terminate the Plan
at any time by action of the Board. Any such termination shall not operate to
eliminate or reduce benefits of any retired Participant or the Beneficiary of
any deceased Participant then eligible for benefits, and active Participants
shall become vested in their accrued benefits to the extent and in the manner
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provided in Article 9 as of the effective date of such termination. Termination
of the Plan will not accelerate the distribution of benefits. Benefits shall be
paid in accordance with the terms of the Plan as in existence at the time of its
termination.
ARTICLE 9. ACCELERATION OF VESTING AND ACCRUAL
SECTION 9.1 ACCELERATED VESTING AND ACCRUAL. Upon the occurrence of one
of the events specified in this Section, a Participant, notwithstanding the
provisions of Article 4, shall be credited with three additional Years of
Service for purposes of vesting. The credited service awarded under the
preceding sentence shall be in addition to any Years of Service credited before
or after the event. The occurrence of an event specified in this Section will
not cause any benefit to be immediately distributable.
The events referred to in the preceding paragraph, which will cause the
accelerated vesting of benefits, shall include the following:
(a) The Company terminates the Plan.
(b) A "Change in Control" as defined in Section 9.3.
(c) The voluntary decision by the Company to discontinue its present
operations (including the adoption of a plan of liquidation).
(d) The enactment of legislation providing that the insurance
activities of the Company shall be provided by the State of Minnesota or
the Federal government.
In the event that the Company terminates the Plan or a Participant's
employment is terminated after the occurrence of an event described in (b), (c)
or (d) above (regardless whether
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<PAGE>
the Participant has reached his Early Retirement or Normal Retirement Date),
each affected Participant shall have a contingent vested interest in the benefit
described in Section 4.3 of the Plan, taking into account the additional Years
of Service awarded pursuant to this Section. Vesting of this benefit is
contingent upon the Participant's attaining Age 55 or liquidation of the Company
while solvent, whichever occurs first. Service after termination of the Plan
shall be disregarded and no additional vesting shall be granted after
termination of employment. The Average Monthly Compensation used to determine
this benefit shall be calculated as of the Normal Retirement Date assuming that
the Participant continued employment until his Normal Retirement Date at the
same rate of compensation that he was receiving on the day of the Plan
termination or his termination of employment, whichever is earlier.
A benefit described in this Section shall be payable in the Standard Form
of Benefit commencing on the Participant's Normal Retirement Date. If the
Participant dies after attaining Age 55 but before payments commence under this
Article, benefits shall commence to the Participant's Beneficiary on the 60th
day following the Participant's death in accordance with the Standard Form of
Benefit, including payments retroactive to the first day of the first month
beginning on or after the date of the Participant's death, and in an amount
which is actuarially equivalent to the Standard Form of Benefit commencing on
the Normal Retirement Date. If the 60th day after the Participant's death falls
on a weekend or holiday, the initial payment shall be made on the first business
day following the 60th day.
SECTION 9.2 EARLY DISTRIBUTION. Upon a determination (as defined in
Section 1313 of the Code) that any amounts are includible in a Participant's
gross income as a result of benefits to be provided under this Plan, but prior
to the receipt of such benefits, a Participant shall be entitled to receive an
accelerated, lump sum distribution of the includible amounts. The
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<PAGE>
accelerated benefit shall be paid in a single payment on the 60th day after the
date of the determination. Any such distribution shall be deemed a benefit paid
pursuant to the Plan and shall be offset, without interest, in determining the
amount of any subsequent distribution to the Participant pursuant to the Plan.
If the 60th day after the date of the determination falls on a weekend or
holiday, the payment shall be made on the first business day following the 60th
day.
SECTION 9.3 CHANGE IN CONTROL. A Change in Control shall occur if:
(a) Any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"))
becomes the "beneficial owner" (as defined in Rule 13d under the Act) of
more than 50 percent of the then outstanding voting stock of Midwest
Medical Insurance Holding Company, otherwise than through a transaction
arranged by, or consummated with the prior approval of, the Board of
Directors of Midwest Medical Insurance Holding Company ("MMIHC Board"); or
(b) During any period of two consecutive years, individuals who at
the beginning of such period constitute the MMIHC Board (and any new
director whose election by the MMIHC Board or whose nomination for election
by the stockholders of Midwest Medical Insurance Holding Company was
approved by a vote of at least 2/3rds of the directors then still in office
who either were directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority thereof.
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<PAGE>
ARTICLE 10. MISCELLANEOUS
SECTION 10.1 NO GUARANTY OF EMPLOYMENT. Neither the adoption and
maintenance of the Plan nor the execution by the Company of a participation
agreement with any employee shall be deemed to be a contract of employment
between the Company and any Participant. Nothing contained herein shall give any
Participant the right to be retained in the employ of the Company or to
interfere with the right of the Company to discharge any Participant at any
time, nor shall it give the Company the right to require any Participant to
remain in its employ or to interfere with the Participant's right to terminate
his employment at any time.
SECTION 10.2 RELEASE. Any payment of benefits to or for the benefit of a
Participant or a Participant's Beneficiaries that is made in good faith by the
Company in accordance with the Company's interpretation of its obligations
hereunder, shall be in full satisfaction of all claims against the Company for
benefits under this Plan to the extent of such payment.
SECTION 10.3 NOTICES. Any notice permitted or required under the Plan
shall be in writing and shall be hand delivered or sent, postage prepaid,
certified or registered mail with return receipt requested, to the principal
office of the Company, if to the Company, or to the address last shown on the
records of the Company, if to a Participant or Beneficiary. Any such notice
shall be effective as of the date of hand delivery or mailing.
SECTION 10.4 NON-ALIENATION. No benefit payable at any time under this
Plan shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, levy, attachment, or encumbrance of any kind.
SECTION 10.5 CAPTIONS. Article and section headings and captions are
provided for purposes of reference and convenience only and shall not be relied
upon in any way to construe, define, modify, limit, or extend the scope of any
provision of the Plan.
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<PAGE>
SECTION 10.6 APPLICABLE LAW. The Plan and all rights hereunder shall be
governed by and construed according to the laws of the State of Minnesota,
except to the extent such laws are preempted by the laws of the United States of
America.
MIDWEST MEDICAL INSURANCE HOLDING
COMPANY
By /s/ David P. Bounk
-------------------------------
Its President
-------------------------
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Participant Service Date
- ----------- ------------
<S> <C>
David Bounk 7-31-90
Jack Kleven 3-8-82
Merlin Bretzman 11-5-80
Elizabeth Lincoln 8-30-82
Michael Rutz 5-15-95
</TABLE>
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<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Participant Polaris Offset Amount*
- ----------- ----------------------
<S> <C>
David Bounk $ 0
Jack Kleven 676
Merlin Bretzman 481
Elizabeth Lincoln 228
Michael Rutz 0
</TABLE>
*The Polaris Offset Amount is a monthly offset determined by (a) projecting
the value at Normal Retirement Date of the Participant's final accrued
benefit under the Polaris Qualified Pension Plan, assuming net growth of 6%
per year compounded annually commencing February 20, 1986; and (b)
amortizing the projected value over 180 monthly periods, assuming a 6%
effective annual interest rate compounded monthly with payments on the
first day of each month.
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<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 2, 1998, in the Registration Statement (Form
S-1) and related Prospectus of Midwest Medical Insurance Holding Company and
Subsidiary dated May 1, 1998.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 30, 1998
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Tom Throckmorton, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Tom Throckmorton, M.D.
-----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ William J. McMillan, Jr., do hereby constitute and appoint David P.
Bounk, my attorney in fact for the purposes of signing in my name and on my
behalf as Director of Midwest Medical Insurance Holding Company, a registration
statement on Form S-1 for the registration under the Securities Act of 1933, as
amended, of Class A common stock of the Company, par value of $.01 per share,
and any and all amendments to said registration statement, and to deliver on my
behalf said registration statement and any and all amendments thereto, as each
thereof is so signed, for filing with the Securities and Exchange Commission.
Dated: April 18, 1998 /s/ William J. McMillan, Jr.
-----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Russel Kuzel, do hereby constitute and appoint David P. Bounk, my
attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: January 26, 1998 /s/ Russel Kuzel
-----------------------------------
