<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996.
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MAIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 6331 63-1137505
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
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100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
(205) 877-4400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
A. DERRILL CROWE, M.D.
CHAIRMAN AND PRESIDENT
100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
(205) 877-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
JACK P. STEPHENSON, JR., ESQ.
BURR & FORMAN
420 NORTH 20TH STREET, SUITE 3100
BIRMINGHAM, ALABAMA 35203
(205) 458-5201
(205) 458-5100 (FAX)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: October
25, 1996, or as soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
Instruction G, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) PRICE FEE
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<S> <C> <C> <C> <C>
Common, $1.00 par value...... 396,852 $33.69 $13,369,943.88 $4,610.33
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) as of October 3, 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 SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
<TABLE>
<S> <C>
PROXY STATEMENT PROSPECTUS
MOMED HOLDING CO. MAIC HOLDINGS, INC.
8360 DELMAR BOULEVARD COMMON STOCK, $1.00 PAR VALUE
SUITE 100 100 BROOKWOOD PLACE
ST. LOUIS, MISSOURI 63124 BIRMINGHAM, ALABAMA 35209
</TABLE>
This Prospectus of MAIC Holdings, Inc., an insurance holding company
organized and existing under the laws of the state of Delaware ("MAIC
Holdings"), relates to up to 396,852 shares of common stock, par value $1.00 per
share ("MAIC Holdings Common Stock"), which are issuable to the stockholders of
MOMED Holding Co., an insurance holding company organized and existing under the
laws of the state of Missouri ("MOMED"), upon consummation of the proposed
merger (the "Merger") described herein by which MOMED will merge with and into
MOMED Acquisition, Inc. ("MOMED Acquisition"), a newly formed corporation
organized under the laws of the state of Missouri and a wholly owned subsidiary
of MAIC Holdings, pursuant to the terms of the Agreement and Plan of Merger,
dated as of June 11, 1996 (the "Agreement"), by and between MAIC Holdings, MOMED
and MOMED Acquisition.
At the effective time of the Merger (the "Effective Time"), except as
described herein, each issued and outstanding share of Class A common stock, par
value $1.00 per share, of MOMED ("MOMED Common Stock") will be converted into
and exchanged for, at the option of the record holders of such shares, either:
(i) 0.779 of a share of MAIC Holdings Common Stock; or (ii) the right to receive
cash in the amount of $25.32; provided that the total number of shares of MAIC
Holdings Common Stock to be issued in the Merger to persons other than MOMED's
subsidiary, Missouri Medical Insurance Co. ("MOMEDICO"), shall not be less than
275,000 shares nor more than 350,000 shares. All shares of MOMED Common Stock
held by MOMEDICO will be converted into shares of MAIC Holdings Common Stock at
the same conversion ratio resulting in additional 46,852 shares of MAIC Holdings
Common Stock to be issued in the Merger. See "THE MERGER -- Terms of the
Merger."
This Prospectus also serves as a Proxy Statement of MOMED, and is being
furnished to the stockholders of MOMED in connection with the solicitation of
proxies by the Board of Directors of MOMED for use at its special meeting of
stockholders, including any adjournment or postponement thereof, (the "Special
Meeting"), to be held on November 18, 1996, to consider and vote upon the
Agreement and Plan of Merger. This Proxy Statement/Prospectus ("Proxy
Statement") is being mailed to stockholders of MOMED on or about October 25,
1996.
SEE "RISK FACTORS" ON PAGE XVII OF THIS PROXY STATEMENT FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY MOMED STOCKHOLDERS IN CONNECTION
WITH THEIR CONSIDERATION OF THE MERGER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is , 1996.
<PAGE> 3
AVAILABLE INFORMATION
MAIC Holdings is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy, and information statements, and
other information with the Securities and Exchange Commission (the "SEC"). In
addition, MOMED is subject to the reporting requirements of the Exchange Act
under Section 15(d) thereof, and as such, is required to file reports with the
SEC required under Section 13(a) of the Exchange Act. Copies of such reports,
proxy and information statements, and other information can be obtained, at
prescribed rates, from the SEC by addressing written requests for such copies to
the Public Reference Section at the SEC at 450 Fifth Street, NW, Judiciary
Plaza, Washington, D.C. 20549. In addition, such reports, proxy statements, and
other information can be inspected at the public reference facilities referred
to above and at the regional offices of the SEC at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The Commission also maintains a Web
Site at http://www.sec.gov which contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
This Proxy Statement constitutes part of the Registration Statement on Form
S-4 of MAIC Holdings (including any exhibits and amendments thereto, the
"Registration Statement") filed with the SEC under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the securities offered hereby.
This Proxy Statement does not include all of the information in the Registration
Statement, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. For further information about MAIC Holdings and the
securities offered hereby, reference is made to the Registration Statement. The
Registration Statement may be inspected and copied, at prescribed rates, at the
SEC's public reference facilities at the addresses set forth above. MAIC
Holdings Common Stock was traded on NASDAQ National Market System through
September 20, 1996, and is currently traded on the New York Stock Exchange.
Reports, proxy statements, and other information concerning MAIC Holdings and
MOMED may be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, NW, Washington, D.C. 20006 and at the office of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
Certain financial and other information relating to MAIC Holdings is
contained in the documents indicated below under "Documents Incorporated by
Reference."
All information contained in this Proxy Statement or incorporated herein by
reference with respect to MAIC Holdings was supplied by MAIC Holdings, and all
information contained in this Proxy Statement with respect to MOMED was supplied
by MOMED. Although neither MAIC Holdings nor MOMED has actual knowledge that
would indicate that any statements or information (including financial
statements) relating to the other party contained or incorporated herein are
inaccurate or incomplete, neither MAIC Holdings nor MOMED warrants the accuracy
or completeness of such statements or information as they relate to the other
party.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION
OF THE SECURITIES BEING OFFERED PURSUANT TO THIS PROXY STATEMENT SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF MAIC HOLDINGS OR MOMED SINCE THE DATE OF THIS PROXY STATEMENT OR THAT
THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
i
<PAGE> 4
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by MAIC Holdings are
hereby incorporated by reference herein:
(a) MAIC Holdings' Annual Report on Form 10-K for the fiscal year
ended December 31, 1995;
(b) MAIC Holdings' Quarterly Reports on Form 10-Q for the three months
ended March 31 and June 30, 1996, respectively;
(c) The description of MAIC Holdings Common Stock under the heading
"Item 1. Capital Stock to be Registered" in the registration statement on
Form 8-A of MAIC Holdings, effective September 20, 1996, and any amendment
or report filed for the purpose of updating such description.
All documents filed by MAIC Holdings pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
in this Proxy Statement and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any subsequently filed document which also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT INCLUDING EXHIBITS THERETO
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN) ARE AVAILABLE TO ANY PERSON RECEIVING A COPY OF
THIS PROSPECTUS, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST AND BY FIRST CLASS
MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH
REQUEST. SUCH REQUEST SHOULD BE DIRECTED TO MAIC HOLDINGS, INC., POST OFFICE BOX
590009, BIRMINGHAM, ALABAMA 35259-0009, ATTENTION: FRANK O'NEIL, TELEPHONE:
(205) 877-4400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY NOVEMBER 11, 1996.
ii
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
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<S> <C>
AVAILABLE INFORMATION.............................................................. i
DOCUMENTS INCORPORATED BY REFERENCE................................................ ii
SUMMARY OF THE PROXY STATEMENT..................................................... iv
THE SPECIAL MEETING................................................................ 1
Record Date; Voting Rights and Vote Required..................................... 1
Voting and Revocation of Proxies................................................. 1
Solicitation of Proxies.......................................................... 2
THE COMPANIES...................................................................... 3
MAIC Holdings, Inc............................................................... 3
MOMED Holding Co................................................................. 3
THE MERGER......................................................................... 7
Background of the Merger......................................................... 7
Approval and Recommendation of the Boards of Directors........................... 9
Opinion of MOMED Financial Advisor............................................... 10
Terms of the Merger.............................................................. 14
Effective Time of the Merger..................................................... 15
Making the Cash or Stock Election................................................ 16
Exchange Procedure............................................................... 16
Federal Income Tax Consequences.................................................. 17
Accounting Treatment............................................................. 20
Regulatory Approvals............................................................. 21
Interests of Certain Persons in the Transactions................................. 21
Effect on Employee Benefit Plans................................................. 23
Comparison of Stockholder Rights................................................. 25
Restrictions on Transfer of MAIC Holdings Common Stock........................... 33
Management and Operations After the Merger....................................... 34
CERTAIN PROVISIONS OF THE MERGER AGREEMENT......................................... 35
Representations and Warranties................................................... 35
Certain Pre-Closing Covenants.................................................... 35
Certain Post-Closing Covenants................................................... 36
Conditions to Consummation of the Merger......................................... 37
Waiver, Amendment and Termination................................................ 37
COMPARATIVE MARKET PRICES AND DIVIDENDS............................................ 38
SELECTED FINANCIAL INFORMATION OF MOMED............................................ 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MOMED'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................... 41
PRO FORMA FINANCIAL INFORMATION.................................................... 48
APPRAISAL RIGHTS................................................................... 52
STOCKHOLDER PROPOSALS.............................................................. 53
EXPERTS............................................................................ 53
OPINIONS........................................................................... 53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS......................................... F-1
EXHIBIT A -- MERGER AGREEMENT...................................................... A-1
EXHIBIT B -- APPRAISAL STATUTE..................................................... B-1
</TABLE>
iii
<PAGE> 6
SUMMARY OF THE PROXY STATEMENT
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement and in the attached exhibits. MOMED stockholders are urged to
carefully read this Proxy Statement and the attached exhibits in their entirety,
and in particular the section entitled "Risk Factors".
THE SPECIAL MEETING........ A special meeting of the stockholders of MOMED
Holding Co. ("MOMED") will be held at MOMED's
offices at 8630 Delmar Boulevard, St. Louis,
Missouri 63124, on Monday, November 18, 1996, at
10:00 am. Central Standard Time (the "Special
Meeting"). At the Special Meeting, the holders of
the Class A Voting Common Stock of MOMED, par value
$1.00 per share ("MOMED Common Stock"), will
consider and vote upon the approval and adoption of
an Agreement and Plan of Merger attached as Exhibit
A to this Proxy Statement (the "Merger Agreement")
providing for the merger (the "Merger") of MOMED
into MOMED Acquisition, Inc., a newly formed wholly
owned subsidiary of MAIC Holdings, Inc. ("MAIC
Holdings"). MOMED Acquisition will survive the
Merger as a wholly owned subsidiary of MAIC
Holdings and will operate under the name MOMED
Holding Co. The stockholders may consider and vote
upon any other matter that may properly come before
the meeting. See "THE SPECIAL MEETING."
RECORD DATE AND VOTES
REQUIRED................. The record date for the Special Meeting is October
18, 1996. Approval of the Merger as contemplated by
the Merger Agreement will require the affirmative
vote of the record holders of two-thirds of the
outstanding shares of MOMED Common Stock. THE BOARD
OF DIRECTORS OF MOMED HAS ORDERED THAT THE TRANSFER
BOOKS BE CLOSED ON THE RECORD DATE PENDING THE VOTE
ON THE MERGER AT THE SPECIAL MEETING. As of
September 20, 1996, directors and officers of MOMED
and MOMED's wholly owned subsidiary, Missouri
Medical Insurance Co. ("MOMEDICO"), owned
beneficially approximately 39% of the shares of
MOMED Common Stock issued and outstanding. The
directors and officers have indicated they will
vote their shares of MOMED Common Stock, and that
they will direct MOMEDICO to vote its shares of
MOMED Common Stock, in favor of the proposal to
approve the Merger. See "THE SPECIAL
MEETING -- Record Date; Voting Rights and Vote
Required."
PARTIES TO THE MERGER...... Each of MOMED and MAIC Holdings operate as
insurance holding companies and through their
subsidiaries provide medical professional liability
insurance. MOMED is a Missouri corporation and
through its subsidiary MOMEDICO offers medical
professional liability insurance principally to
physicians whose practice is predominantly in the
State of Missouri. MAIC Holdings is a Delaware
corporation whose subsidiaries are authorized to
offer professional liability insurance in
approximately 30 states and is nationally
recognized as a provider of such insurance to
physicians, hospitals, dentists, managed care and
health care organizations. MOMED Acquisition, Inc.
is a Missouri corporation which has been organized
as a wholly owned subsidiary of MAIC Holdings
solely for the purpose of accomplishing the Merger.
The principal offices of MOMED are located at 8630
Delmar Boulevard, Suite 100, St. Louis,
iv
<PAGE> 7
Missouri 63124, Telephone (314) 872-8000. The
principal offices of MAIC Holdings are located at
100 Brookwood Place, Birmingham, Alabama 35209,
Telephone (205) 877-4400. See "THE COMPANIES."
MERGER CONSIDERATION....... At the Effective Time of the Merger (the "Effective
Time"), MOMED will merge with and into MOMED
Acquisition with MOMED Acquisition as the surviving
legal entity under the name of "MOMED Holding Co."
At the Effective Time, each issued and outstanding
share of MOMED Common Stock will be converted into
the right to receive at the election of the holder
of the MOMED Common Stock but subject to the
limitations set forth below, either cash or shares
of common stock of MAIC Holdings, par value $1.00
per share ("MAIC Holdings Common Stock")
(collectively the "Merger Consideration") as
follows:
The Cash or Stock Election. Each holder of issued
and outstanding shares of MOMED Common Stock other
than MOMEDICO has the right to elect to receive
$25.32 (without interest) per share of MOMED Common
Stock ("Cash Election") or to elect to have such
holder's shares of MOMED Common Stock converted as
of the Effective Time of the Merger into .779 of a
share of MAIC Holdings Common Stock for a share of
MOMED Common Stock ("Stock Election"). Holders of
shares of MOMED Common Stock on the record date for
the Special Meeting will be furnished a form for
making the election (the "Election Form") together
with this Proxy Statement and a proxy card. Holders
of MOMED Common Stock must properly complete the
Election Form in order to elect to receive cash or
MAIC Holdings Common Stock in exchange for their
MOMED Common Stock. The completed and executed
Election Form must be received by ChaseMellon
Shareholder Services L.L.C. (the "Exchange Agent")
at the address listed on the Election Form and not
withdrawn on or before November 15, 1996 (the
"Election Deadline").
Holders of MOMED Common Stock will be deemed to
have automatically made the Cash Election if they
do not execute and deliver an Election Form to the
Exchange Agent. The transfer books for the MOMED
Common Stock will be closed as of the close of
business on the record date and no transfers will
be effected for any shares of MOMED Common Stock
after the closing of said transfer books. Holders
of MOMED Common Stock should not send any of their
stock certificates to the Exchange Agent prior to
the Effective Time regardless of whether they elect
to receive cash or MAIC Holdings Common Stock.
HOLDERS OF MOMED COMMON STOCK MUST SEND IN THEIR
PROXY CARDS TO VOTE FOR OR AGAINST THE MERGER. THE
CASH ELECTIONS AND STOCK ELECTIONS MADE BY THE
MOMED STOCKHOLDERS WILL NOT BE EFFECTIVE UNLESS THE
MERGER RECEIVES THE AFFIRMATIVE VOTE OF THE HOLDERS
OF 2/3 OF THE SHARES OF MOMED COMMON STOCK.
See "THE MERGER -- Making the Cash Election" and
"-- Exchange Procedure."
v
<PAGE> 8
Limitations on the Cash Elections and Stock
Elections. The total number of shares of MAIC
Holdings Common Stock included in the Merger
Consideration (other than 46,852 shares to be
issued to MOMEDICO) to be issued in exchange for
the MOMED Common Stock pursuant to the Stock
Elections will not be more than 350,000 shares of
MAIC Holdings Common Stock nor less than 275,000
shares of MAIC Holdings Common Stock. If the
holders of MOMED Common Stock make Stock Elections
that would result in the issuance of a number of
shares of MAIC Holdings Common Stock in excess of
350,000 shares (other than 46,852 shares to be
issued to MOMEDICO), then a portion of the shares
of the MOMED Common Stock subject to each Stock
Election shall be converted on a pro rata basis
into the right to receive cash in the same amount
as those MOMED stockholders who have made Cash
Elections. If the holders of MOMED Common Stock
make Cash Elections that would result in the
issuance of a number of shares of MAIC Holdings
Common Stock that is less than 275,000 shares
(excluding 46,852 shares to be issued to MOMEDICO),
then a portion of the shares of the MOMED Common
Stock subject to each Cash Election shall be
converted on a pro rata basis into MAIC Holdings
Common Stock at the same ratio as the holders who
made Stock Elections.
MOMEDICO Shares. Each share of MOMED Common Stock
that is owned by MOMEDICO shall be converted into
.779 of a share of MAIC Holdings Common Stock
totaling 46,852 shares. The shares of MAIC Holdings
Common Stock to be issued to MOMEDICO will be in
addition to and not in limitation of the minimum
and maximum number of shares of MAIC Holdings
Common Stock to be issued in the Merger. Under The
General Corporation Laws of Delaware, the shares of
MAIC Holdings Common Stock issued to MOMEDICO will
be considered to be issued and outstanding but such
shares may not be voted by MOMEDICO in any matter
submitted to the stockholders of MAIC Holdings. In
addition, such shares will be treated as treasury
shares for financial reporting purposes in the
consolidated financial statements of MAIC Holdings.
See "THE MERGER -- Terms of the Merger."
RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS AND
REASONS FOR THE MERGER.. MOMED. The Board of Directors of MOMED (the "MOMED
Board") has approved the Merger and believes that
the terms of the Merger are fair to, and in the
best interest of, MOMED and its stockholders and
recommends that the MOMED stockholders vote for
approval of the Merger. The MOMED Board noted that
the proposed Merger has raised the market price for
the MOMED Common Stock from an average bid/ask
price of below $5 prior to the announcement of the
Merger to bid/ask prices of over $20 per share
after the press release. Although the proposed
Merger has been public knowledge since the press
release, there have been no alternative proposals
presented by any other company with an interest in
joining MOMED in any business combination. The
MOMED Board believes that MOMED needs to combine
its operations with another insurer in order to
provide new products and underwriting capacity in
view of the very strong competition in the Missouri
market and the recent trend in the consolidation of
hospitals and physicians' practices. Further, MOMED
believes that the
vi
<PAGE> 9
Merger will allow it to satisfy its commitments to
the Missouri State Medical Association and the
Missouri physician community generally by allowing
MOMED to continue to operate in Missouri for a
minimum period of five years in substantially the
same manner as it has in the past.
MAIC Holdings. The Board of Directors of MAIC
Holdings (the "MAIC Holdings Board") has approved
the Merger and the issuance of the MAIC Holdings
Common Stock in connection with the Merger. The
MAIC Holdings Board believes that the terms of the
Merger are fair to, and in the best interest of,
MAIC Holdings and its stockholders. The MAIC
Holdings Board considered the ability to expand the
business of MAIC Holdings to the State of Missouri
through a combination with an insurer that writes
similar products and that has an existing
relationship with the physician community in
Missouri. The MAIC Holdings Board also determined
that the amount of the proposed consideration in
the Merger will not adversely affect the
stockholders of MAIC Holdings.
See "THE MERGER -- Background of the Merger" and
"-- Approval and Recommendation of the Boards of
Directors."
OPINION OF MOMED FINANCIAL
ADVISOR.................. MOMED engaged Pauli & Company Incorporated (the
"Financial Advisor") as its Financial Advisor in
connection with this transaction. The Financial
Advisor has rendered a written opinion to the MOMED
Board that the per share exchange ratio under the
Merger Agreement is fair from a financial point of
view to the holders of the MOMED Common Stock. See
"THE MERGER -- Opinion of MOMED Financial Advisor."
INTERESTS OF CERTAIN
PERSONS IN THE
TRANSACTION.............. MAIC Holdings has agreed that substantially the
same terms and conditions of the existing
employment agreements for the President and Chief
Executive Officer, Executive Vice President and
Chief Operating Officer, and Vice
President -- Claims of MOMED shall be honored and
remain in effect. Upon the respective termination
dates of said employment agreements, the employment
of such persons will continue until the expiration
of five years after the Merger in the same or
similar capacities and at substantially the same
rate of compensation, subject to approval of the
Board of Directors of MOMED. Richard V. Bradley,
M.D., is currently serving as the President and
Chief Executive Officer of MOMED and MOMEDICO under
the terms of an employment agreement between MOMED
and Bradley DeMonbrun, Ltd., an affiliate of Dr.
Bradley, pursuant to which Bradley DeMonbrun, Ltd.
has agreed to provide the services of Dr. Bradley
in consideration for total annual compensation of
$210,362 subject to increase at the rate of 3%
annually. Kriete H. Hollrah is serving as Executive
Vice President and Chief Operating Officer of MOMED
under an employment agreement with MOMED which
agreement provides for a current base salary of
$120,139 subject to a minimum increase of 3% during
each year of the agreement. Russell L. Oldham is
currently serving as Vice President -- Claims of
MOMED under an employment agreement which provides
for a current base salary of $91,127 per annum
subject to increase at the rate of 3% per annum.
vii
<PAGE> 10
The Missouri State Medical Association ("MSMA")
beneficially owns 84,555 shares of MOMED Common
Stock representing approximately 11.5% of the
outstanding shares of such class. Under a
nomination agreement with MOMED, MSMA has the right
to include three persons as management nominees on
the Board of Directors of MOMED. Under the terms of
the Merger Agreement, 24,185 shares of Class C
Common Stock owned by MSMA were redeemed for an
aggregate price (including accrued interest) of
approximately $707,000, consistent with the terms
and conditions of a Share Exchange Agreement
between MSMA and MOMED. MSMA will also be entitled
to participate in the Merger with respect to its
shares of MOMED Common Stock. In addition, MAIC
Holdings has agreed to cause MOMED to honor the
MSMA/MOMED Nomination Agreement for the remainder
of its term, and the terms of certain other
agreements between MSMA and MOMED will continue in
effect after the Merger in accordance with their
respective terms. See "THE COMPANIES" and "THE
MERGER -- Interests of Certain Person in the
Transaction."
REGULATORY APPROVALS
REQUIRED................. The Merger is subject to the approval by the
Director of the Department of Insurance of the
State of Missouri under the Missouri Holding
Company Act. By order dated August 13, 1996, the
Director of the Department of Insurance approved
the Merger after a public hearing was held on July
31, 1996. The Director of the Department of
Insurance in his order found that (i) after the
Merger, MOMEDICO will be able to satisfy the
requirements for the issuance of a license to write
the lines of insurance for which it is presently
licensed; (ii) the effect of the Merger will not
substantially lessen competition in insurance or
tend to create a monopoly in the State of Missouri;
(iii) the financial condition of MAIC Holdings is
not such as might jeopardize the financial
stability of MOMEDICO or prejudice the interests of
its policyholders; (iv) MAIC Holdings plans, if
any, to liquidate or sell MOMEDICO or to
consolidate or merge it with any other company or
to make any other material change in MOMEDICO's
business, corporate structure, or management are
not unfair or unreasonable to policyholders of
MOMEDICO or contrary to public interests; (v) the
competence, experience or integrity of management
of MAIC Holdings are such that it would not be
contrary to the interests of policyholders of
MOMEDICO and of the public to permit the Merger;
and (vi) the proposed Merger is not likely to be
hazardous or prejudicial to the insurance buying
public. See "THE MERGER -- Regulatory Approvals."
CERTAIN POST CLOSING
COVENANTS................ The Merger Agreement includes certain covenants
regarding the business operations and corporate
structure of MOMED for a minimum period of five
years after the Effective Time (the "Transition
Period"). MAIC Holdings has agreed that the MOMED
Board may continue to nominate persons to serve on
the MOMED Board of Directors during the Transition
Period. MAIC Holdings has further agreed that
during the Transition Period the Board of Directors
of MOMED will be responsible for the day to day
management and operations of MOMED and its
subsidiaries so long as MOMED operates within an
annual budget (the "Budget") for MOMED and its
subsidiaries as adopted by the Board of Directors
of MOMED. The Budget is required to include certain
parameters established by the Merger Agreement
("Parame-
viii
<PAGE> 11
ters"). If during the Transition Period the MOMED
Board fails to adopt a Budget within the Parameters
or the operations of MOMED are not within the
Budget, a Management Committee comprised of two
persons nominated by the MOMED Board and two
persons nominated by MAIC Holdings will be
responsible for recommending appropriate curative
action. If the persons on the Management Committee
are unable to agree as to appropriate curative
action, a person nominated by MAIC Holdings and
approved by the Management Committee will cast the
tie breaking vote. MAIC Holdings has further agreed
that MOMED and its subsidiaries may continue to
operate in the metropolitan area of St. Louis,
Missouri, during the Transition Period. In
addition, substantially the same terms and
conditions of existing employment agreements for
the President and Chief Executive Officer,
Executive Vice President and Chief Operating
Officer, and Vice President -- Claims of MOMED will
remain in effect. MOMED will have one
representative to serve as a member of the Board of
Directors of MAIC Holdings during the Transition
Period. See "THE MERGER -- Background of the
Merger" and "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Certain Post Closing Covenants."
CONDITIONS TO THE MERGER;
TERMINATION.............. The obligations of MOMED and MAIC Holdings to
consummate the Merger are subject to various
conditions, including without limitation, obtaining
requisite approval of the stockholders of MOMED,
obtaining regulatory approvals, receipt of
favorable opinions of MOMED's accountants in
respect of certain federal income tax consequences
of the Merger, and the registration of the shares
of MAIC Holdings Common Stock under the Securities
Act. The obligations of MAIC Holdings are further
conditioned on the redemption by MOMED of all
rights under the Shareholder Rights Protection Plan
and the repurchase by MOMED of all of the issued
and outstanding shares of MOMED Class C Common
Stock at a price not exceeding that provided in the
Share Exchange Agreement between MOMED and MSMA.
See "THE COMPANIES." The Merger Agreement may be
terminated at any time prior to the Effective Time
by the mutual consent of MAIC Holdings and MOMED as
authorized by their respective Boards of Directors
or written notice from MAIC Holdings to MOMED or
from MOMED to MAIC Holdings if it becomes certain
(for all practical purposes) that any of the
conditions to the closing obligations of the party
giving such notice cannot be satisfied for reasons
other than such party's default on or before
December 31, 1996, and such party is not willing to
waive the satisfaction of such condition. See
"CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Waiver, Termination and Amendment."
FEDERAL INCOME TAX
CONSEQUENCES............. MOMED has received an opinion from KPMG Peat
Marwick LLP ("KPMG") to the effect that (i) no gain
or loss will be recognized by MOMED stockholders
who receive solely MAIC Holdings Common Stock in
exchange for their MOMED Common Stock; (ii) the tax
basis for the shares of MAIC Holdings Common Stock
received by the holders of MOMED Common Stock will
be the same as the tax basis of their converted
shares; and (iii) the holding period for the MAIC
Holdings Common Stock in the hands of the former
holders of
ix
<PAGE> 12
MOMED Common Stock will generally include the
holding period of their converted MOMED Common
Stock. The receipt of solely cash for the MOMED
Common Stock will subject such stockholders to a
taxable transaction for federal income tax
purposes. Such stockholders will generally
recognize gain or loss measured by the difference
between the tax basis for his or her shares and the
amount of cash received (unless the receipt of cash
is treated as dividend). In certain circumstances,
the receipt of cash for MOMED Common Stock could be
treated as a dividend (to the extent of the
stockholder's ratable share of the applicable
earnings and profits) if the stockholder owns MAIC
Holdings Common Stock (actually or constructively)
after the Merger. For a further discussion of
federal income tax consequences of the Merger, see
"THE MERGER -- Certain Federal Income Tax
Consequences."
MOMED stockholders should consult their own tax
advisors with respect to the specific tax
consequences of the Merger to them, including the
application and effect of state, local and foreign
tax laws.
ACCOUNTING TREATMENT....... The Merger will be accounted for under the purchase
method of accounting. Financial statements of MAIC
Holdings issued after consummation of the Merger
will include historical values for MAIC Holdings'
assets and liabilities. The value for MOMED's
assets will be determined under the purchase method
of accounting as of the Effective Time. The
consolidated financial statements of MAIC Holdings
will not be restated retroactively to reflect the
historical financial position or results of
operations of MOMED. See "THE MERGER -- Accounting
Treatment."
APPRAISAL RIGHTS........... Under Section 262 of the Delaware General
Corporation Law (the "Appraisal Statute") the
holders of MAIC Holdings Common Stock are not
entitled to appraisal rights by reason of the fact
that MAIC Holdings is not a party to the Merger.
Under Section 351.455 of The General and Business
Corporation Law of Missouri (the "Appraisal
Statute") which is presented in its entirety as
Exhibit B to this Proxy Statement, holders of MOMED
Common Stock are entitled to appraisal rights in
connection with the Merger. A stockholder who
properly exercises his or her appraisal rights is
entitled to the value of his or her shares as of
the day prior to the date on which the vote was
taken approving the Merger. Failure to take any of
the steps required under the Appraisal Statute on a
timely basis may result in the loss of appraisal
rights. See "APPRAISAL RIGHTS."
RESTRICTIONS ON RESALES BY
AFFILIATES............... Although the MAIC Common Stock to be issued to the
holders of the MOMED Common Stock in the Merger has
been registered under the Securities Act, the
transfer of such shares by any person who is an
affiliate of MAIC Holdings or who is an affiliate
of MOMED at the Effective Time will under existing
law, be subject to certain restrictions under Rule
144 and/or Rule 145 of the SEC. Generally these
restrictions limit the number of shares that such
affiliates can sell in a three month period and the
type of transaction in which such shares can be
sold.
Stop transfer instructions will be given by MAIC
Holdings to its transfer agent with respect to the
MAIC Holdings Common Stock to be received by a
person subject to the restrictions and an
appropriate legend may be
x
<PAGE> 13
placed on the certificates for such stock. See "THE
MERGER -- Restrictions on Transfer of MAIC Holdings
Common Stock."
MANAGEMENT OF MAIC HOLDINGS
AFTER THE MERGER......... The current directors and officers of MAIC Holdings
will continue as directors and officers of MAIC
Holdings. Richard V. Bradley, President and Chief
Executive Officer and a director of MOMED will be
added to the Board of Directors of MAIC Holdings.
xi
<PAGE> 14
COMPARATIVE MARKET PRICES OF COMMON STOCK
MAIC Holdings Common Stock began trading on the New York Stock Exchange
under the trading symbol "MAI" effective September 23, 1996. Until September 20,
1996, MAIC Holdings Common Stock was quoted on the NASDAQ National Market System
under the trading symbol "MAIC." MOMED Common Stock is traded in the
over-the-counter market by a limited number of market-makers. The following
table sets forth the reported closing sale prices per share for MAIC Holdings
Common Stock and bid prices for MOMED Common Stock and the equivalent per share
prices (as explained below) for MOMED Common Stock on June 10, 1996, the last
full business day preceding the public announcement of the execution of the
Merger Agreement, and on September 25, 1996.
<TABLE>
<CAPTION>
MAIC HOLDINGS MOMED EQUIVALENT PER
MARKET PRICE PER SHARE AT: COMMON STOCK COMMON STOCK SHARE PRICE
- -------------------------------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
June 10, 1996..................................... $ 35.25(1) $ 9.75 $27.46
September 25, 1996................................ 33.50(2) 20.00 26.10
</TABLE>
- ---------------
(1) As quoted on the NASDAQ National Market System.
(2) As quoted on the New York Stock Exchange.
The equivalent per share price of a share of MOMED Common Stock at each
specified date represents the closing sale price of a share of MAIC Holdings
Common Stock on such date multiplied by the Exchange Ratio. See "COMPARATIVE
MARKET PRICES AND DIVIDENDS."
There can be no assurance as to what the market price of the MAIC Holdings
Common Stock will be if and when the Merger is consummated.
COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative per share data relating
to income, cash dividends, and book value on (i) an historical basis for MAIC
Holdings and MOMED; (ii) a pro forma combined basis per share of MAIC Holdings
Common Stock, giving effect to the Merger with the minimum number of shares of
MAIC Holdings Common Stock to be issued in the Merger; (iii) an equivalent pro
forma basis per share of MOMED Common Stock, giving effect to the Merger with
the minimum number of shares of MAIC Holdings Common Stock to be issued in the
Merger; (iv) a pro forma combined basis per share of MAIC Holdings Common Stock,
giving effect to the Merger with the maximum number of shares of MAIC Holdings
Common Stock to be issued in the Merger; and (v) an equivalent pro forma basis
per share of MOMED Common Stock, giving effect to the Merger with the maximum
number of shares of MAIC Holdings Common Stock to be issued in the Merger. The
MAIC Holdings and MOMED pro forma combined information and the MOMED pro forma
Merger equivalent information give effect to the Merger on a purchase accounting
basis. The pro forma data are presented for information purposes only and are
not necessarily indicative of the results of operations or combined financial
position that would have resulted had the Merger been consummated at the dates
or during the periods indicated, nor are they necessarily indicative of future
results of operations or combined financial position.
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical consolidated financial statements
of MAIC Holdings, including the respective notes thereto, incorporated by
reference herein and the historical consolidated financial statements of MOMED,
including the respective notes thereof, and the pro forma financial information
included elsewhere herein. See "DOCUMENTS INCORPORATED BY REFERENCE," "INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS," "SELECTED FINANCIAL INFORMATION OF MOMED,"
and "PRO FORMA FINANCIAL INFORMATION."
xii
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- ------------------------
1996 1995 1995 1994 1993
------ ----- ------ ------ ------
(UNAUDITED EXCEPT MAIC
AND
(UNAUDITED) MOMED HISTORICAL)
<S> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE PER COMMON SHARE:
MAIC Holdings historical............................... $ 1.55 $1.42 $ 3.17 $ 2.63 $ 2.80
MOMED historical(3).................................... 2.53 0.58 6.07 2.55 (1.96)
MAIC Holdings and MOMED pro forma combined (minimum
MAIC Holdings shares)(1)............................. 1.68 3.39
MOMED pro forma merger equivalent (minimum MAIC
Holdings shares)(2).................................. 1.31 2.64
MAIC Holdings and MOMED pro forma combined (maximum
MAIC Holdings shares)(1)............................. 1.66 3.37
MOMED pro forma merger equivalent (maximum MAIC
Holdings shares)(2).................................. 1.29 2.63
CASH DIVIDENDS DECLARED PER COMMON SHARE:
None................................................... N/A N/A N/A N/A N/A
BOOK VALUE PER COMMON SHARE (PERIOD END):
MAIC Holdings historical............................... $22.13 $21.99 $18.06 $17.94
MOMED historical(3).................................... 25.74 25.32 14.64 15.10
MAIC Holdings and MOMED pro forma combined (minimum
MAIC Holdings shares)(1)............................. 22.45
MOMED pro forma merger equivalent (minimum MAIC
Holdings shares)(2).................................. 17.49
MAIC Holdings and MOMED pro forma combined (maximum
MAIC Holdings shares)(1)............................. 22.54
MOMED pro forma merger equivalent (maximum MAIC
Holdings shares)(2).................................. 17.56
</TABLE>
- ---------------
(1) Represents the combined results of MAIC Holdings and MOMED as if the Merger
were consummated on January 1, 1995 (or June 30, 1996, in the case of Book
Value Per Common Share data), and were accounted for as a purchase.
(2) Represents pro forma combined information multiplied by the Exchange Ratio
of .779 shares of MAIC Holdings Common Stock for each share of MOMED Common
Stock.
(3) The per common share amounts for MOMED reflect a three-for-one stock split
which occurred on January 22, 1996 for stockholders of record as of
November 8, 1995.
xiii
<PAGE> 16
SELECTED FINANCIAL DATA
The following tables present certain selected historical financial
information for MAIC Holdings and MOMED and are based on the consolidated
financial statements of MAIC Holdings and the consolidated financial statements
of MOMED, including the respective notes thereto, which are incorporated by
reference and included in this Proxy Statement. The data should be read in
conjunction with such historical financial statements, including the respective
notes thereto, and other financial information concerning MAIC Holdings and
MOMED incorporated by reference or included herein. Interim unaudited data for
the six months ended June 30, 1996 and 1995 of MAIC Holdings and MOMED reflect,
in the opinion of the respective managements of MAIC Holdings and MOMED, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data. Results for the six months ended June 30, 1996,
are not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole. See "DOCUMENTS INCORPORATED BY
REFERENCE," "SELECTED FINANCIAL INFORMATION OF MOMED" and "INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS."
SELECTED HISTORICAL FINANCIAL DATA OF MAIC HOLDINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AMOUNTS AND RATIOS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net premiums earned...... $ 41,910 $ 36,278 $ 75,953 $ 61,427 $ 57,228 $ 58,493 $ 54,738
Net investment income.... 15,919 14,607 29,582 23,072 22,468 21,673 19,190
Net losses and loss
adjustment expenses.... 29,342 27,601 53,642 43,887 44,774 48,629 47,064
Net income(A)............ 14,517 13,265 29,663 24,767 30,529 22,900 17,532
Net income per share of
common stock(B)........ $ 1.55 $ 1.42 $ 3.17 $ 2.63 $ 3.18 $ 2.37 $ --
Weighted average number
of shares
outstanding............ 9,369,832 9,369,408 9,369,429 9,418,057 9,613,670 9,668,908 --
Net loss and loss
adjustment expense
ratio.................. 70% 76% 71% 71% 78% 83% 86%
BALANCE SHEET DATA:
Total assets(C).......... $ 775,872 $ 720,478 $ 565,744 $ 507,529 $ 438,061 $380,864
Reserves for losses and
loss adjustment
expenses(D)............ 457,237 432,945 356,000 312,333 283,507 256,948
Total capital(C)......... 207,352 206,030 159,648 153,138 114,384 91,516
</TABLE>
- ---------------
(A) Net income for 1993 includes a benefit of $3.6 million ($.37 per share)
which represents the cumulative effect of a change in accounting for income
taxes.
(B) As a result of MAIC Holdings' conversion from a mutual insurer to a stock
insurer during September 1991, earnings per share have been disclosed only
for periods after 1991. In December, 1995, the Board of Directors declared
a 6% stock dividend and in December of 1994, 1993, and 1992, the Board of
Directors declared a 5% stock dividend. Share data have been stated as if
all dividends had been declared on January 1, 1992. Additionally, treasury
stock is excluded from the date of acquisition for purposes of determining
the weighted average number of shares outstanding used in the computation
of net income per share of common stock.
(C) Total investments and capital at June 30, 1996 and December 31, 1995, 1994,
and 1993 includes net unrealized gains and/or losses on available-for-sale
securities resulting from MAIC Holdings' adoption of Financial Accounting
Standards Board (FASB) Statement 115. In accordance with Statement 115,
prior-year financial statements have not been restated to reflect this
change in accounting principle.
(D) Data prior to 1993 has been reclassified for the adoption of FASB Statement
113.
xiv
<PAGE> 17
SELECTED HISTORICAL FINANCIAL DATA OF MOMED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AMOUNTS AND RATIOS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net premiums earned............ $ 5,739 $ 5,563 $ 11,666 $ 10,540 $ 10,646 $ 10,523 $ 13,512
Net investment income.......... 2,127 2,068 4,236 3,953 3,641 3,628 3,523
Net losses and loss adjustment
expenses..................... 4,182 6,263 10,734 9,978 14,439 11,204 10,026
Net income loss(A)............. 1,700 393 4,077 1,713 (419) 1,319 3,294
Net income (loss) per share of
common stock(D).............. $ 2.53 $ 0.58 $ 6.07 $ 2.55 $ (0.62) $ 1.96 $ 4.88
Weighted average number of
shares outstanding(D)........ 672,054 672,054 672,054 672,054 672,054 672,054 674,802
Net loss and loss adjustment
expense ratio................ 73% 113% 92% 95% 136% 106% 74%
BALANCE SHEET DATA:
Total assets(B)................ $ 81,012 $ 81,275 $ 77,524 $ 77,596 $ 61,054 $ 57,922
Reserves for losses and loss
adjustment expenses(C)....... 54,649 54,904 58,764 59,569 36,510 35,515
Mortgages payable.............. 667 694 800 850 907 260
Class C non-voting Common
Stock........................ 600 600 600 -- -- --
Total capital(B)............... 17,297 17,015 9,839 10,148 10,573 9,170
</TABLE>
- ---------------
(A) Net loss for 1993 includes a benefit of $900,000 ($1.33 per share) which
represents the cumulative effect of a change in accounting for income
taxes.
(B) Total investments and capital at June 30, 1996 and December 31, 1995 and
1994, includes net unrealized gains and/or losses on available-for-sale
securities resulting from MOMED's adoption of FASB Statement 115. In
accordance with Statement 115, prior-year financial statements have not
been restated to reflect this change in accounting principle.
(C) MOMED's 1993 data reflects the adoption of FASB Statement 113, however,
data prior to 1993 has not been reclassified.
(D) Reflects a three-for-one stock split which occurred on January 22, 1996 for
stockholders of record as of November 8, 1995.
xv
<PAGE> 18
SUMMARY PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data give effect, as
appropriate, to the Merger with the minimum and maximum number of shares of MAIC
Holdings Common Stock to be issued in the Merger as of the dates and for the
periods indicated on a purchase accounting basis. The unaudited pro forma
financial data are presented for informational purposes only and are not
necessarily indicative of the combined financial position or results of
operations which actually would have occurred if the transactions had been
consummated at the date and for the periods indicated or which may be obtained
in the future. The information should be read in conjunction with the unaudited
pro forma financial information appearing elsewhere in this Proxy Statement. See
"-- COMPARATIVE PER SHARE DATA" and "PRO FORMA FINANCIAL INFORMATION."
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
OPERATING DATA:
Net premiums earned.............................................. $ 47,650 $ 97,976
Net investment income............................................ 17,985 34,147
Net losses and loss adjustment expenses.......................... 33,524 73,287
Net income based on:
Minimum number of shares exchanged............................. 16,175 32,736
Maximum number of shares exchanged............................. 16,174 32,733
Net income per share based on:
Minimum number of shares exchanged............................. $ 1.68 $ 3.39
Maximum number of shares exchanged............................. $ 1.66 $ 3.37
Weighted average number of shares outstanding based on:
Minimum number of shares exchanged............................. 9,644,832 9,644,429
Maximum number of shares exchanged............................. 9,719,832 9,719,429
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------
MINIMUM MAXIMUM
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................................................. $856,438 $858,951
Reserves for losses and loss adjustment expenses......................... 511,379 511,379
Total capital............................................................ 216,564 219,077
Book value per share..................................................... $ 22.45 $ 22.54
</TABLE>
xvi
<PAGE> 19
RISK FACTORS
Stockholders of MOMED are urged to carefully consider the following
factors:
EXCHANGE RATIO; DILUTION OF MOMED STOCKHOLDERS
The terms of the Merger, including the exchange ratio, were determined by
arms-length negotiations between MAIC Holdings and MOMED. When the historical
financial information for MOMED and MAIC Holdings are combined on a pro forma
basis using the purchase accounting method, MOMED stockholders who exchange
their MOMED Common Stock for MAIC Holdings Common Stock would experience a pro
forma dilution in June 30, 1996 book value per share from $25.74 per share
(MOMED historical) to $17.56 on a pro forma merger equivalent share basis (See
"THE SUMMARY -- Comparative Per Share Data") and dilution in the earnings per
share from $2.53 per share (MOMED historical) to $1.29 on a pro forma merger
equivalent share basis, for the six months ended June 30, 1996. The complete pro
forma financial data and the summary financial data, presented in the sections
entitled "PRO FORMA FINANCIAL INFORMATION" and "SUMMARY PRO FORMA FINANCIAL
DATA," are for informational purposes only and are not necessarily indicative of
the combined financial position or results of operations which actually would
have occurred if the Merger had been consummated for the pro forma periods or
which may be obtained in the future. The pro forma dilution in the MOMED per
share book value and earnings per share is offset by the premium to be received
in the Merger by the MOMED stockholders. As of the date immediately preceding
the press release announcing the terms of the Merger, the last closing trade
price of a share of MAIC Holdings Common Stock was at $35.25 and the last bid
price of a share of MOMED Common Stock was $9.75. After giving effect to the
exchange ratio specified in the Merger, the equivalent per share price of a
share of MOMED Common Stock was $27.46 for holders making the Stock Election
($26.10 as of September 25, 1996) and $25.32 for holders making the Cash
Election. See "THE MERGER -- Background of the Merger" and "-- Opinion of MOMED
Financial Advisor" and "APPRAISAL RIGHTS" "THE SUMMARY -- Comparative Market
Prices of Common Stock."
TAX CONSIDERATIONS
It is intended that the Merger will be treated as a reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986 (the "Code").
Based upon certain representations made by management of MAIC Holdings and
MOMED, KPMG has provided an opinion to the effect that no gain or loss will be
recognized by MOMED stockholders who exchange their shares of MOMED Common Stock
solely for shares of MAIC Holdings Common Stock. A MOMED stockholder who
receives cash pursuant to the Merger will be subject to a taxable transaction
for federal income tax purposes. See "THE MERGER -- Federal Income Tax
Consequences."
NO RULING HAS BEEN REQUESTED FROM THE INTERNAL REVENUE SERVICE (THE "IRS")
AS TO ANY FEDERAL INCOME TAX CONSEQUENCES IN CONNECTION WITH THE MERGER, AND THE
OPINION OF KPMG IS NOT BINDING ON THE IRS. FURTHER, BECAUSE CERTAIN TAX
CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES
OF EACH STOCKHOLDER AND OTHER FACTORS, EACH HOLDER OF MOMED COMMON STOCK IS
URGED TO CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR IN ORDER TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER AS A RESULT OF THE MERGER (INCLUDING
THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS).
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain directors and officers of MOMED and affiliates of MOMED have
personal interests in the Merger that may present them with conflicts of
interest in connection with the Merger. The Board of Directors of MOMED is aware
of and has considered the personal interests disclosed in this Proxy Statement
in their evaluation of the Merger. See "THE MERGER -- Background of the Merger"
and "-- Interests of Certain Persons in the Transaction."
xvii
<PAGE> 20
RESTRICTIONS ON RESALE OF MAIC COMMON STOCK
Affiliates of MOMED who receive MAIC Holdings Common Stock pursuant to the
Merger will be restricted on the resale of such shares of MAIC Holdings Common
Stock pursuant to Rule 145 of the Securities Act of 1933. Additionally,
individuals who are not affiliates of MOMED but who will become affiliates of
MAIC Holdings after the Merger will be restricted on the resale of any shares of
MAIC Holdings Common Stock whether or not received in the Merger pursuant to
Rule 144 of the Securities Act of 1933. An affiliate is generally a person that
directly or indirectly controls an entity and generally includes all officers,
directors and 10% stockholders of such entity. See "THE MERGER -- Restrictions
on Transfer of MAIC Holdings Common Stock."
xviii
<PAGE> 21
THE SPECIAL MEETING
This Proxy Statement is being furnished to the holders of MOMED Common
Stock in connection with the solicitation by the Board of Directors of MOMED for
use at the MOMED Special Meeting of Stockholders (the "Special Meeting") to be
held on November 18, 1996, at 10:00 a.m. Central Standard Time. At the Special
Meeting the MOMED stockholders will be asked to consider and vote upon the
proposal to approve the Merger Agreement and the transactions contemplated
thereby and to transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof. Each copy of this
Proxy Statement mailed to holders of MOMED Common Stock is accompanied by a form
of proxy for use at the Special Meeting and an Election Form for use in making
an election to receive cash or MAIC Holdings Common Stock in the Merger. See
"THE MERGER -- Making the Cash or Stock Election."
RECORD DATE; VOTING RIGHTS AND VOTE REQUIRED
On September 20, 1996, MOMED had approximately 268 record holders of shares
of MOMED Common Stock. The Board of Directors of MOMED has fixed the close of
business on October 18, 1996, as the record date (the "Record Date") for the
determination of holders of MOMED Common Stock entitled to receive notice of and
to vote at the Special Meeting. As of the Record Date there were 732,198 shares
of MOMED Common Stock issued and outstanding. Approval of the Merger Agreement
by the stockholders of MOMED requires the affirmative vote of two-thirds ( 2/3)
of the outstanding shares of MOMED Common Stock. See "THE MERGER -- Interests of
Certain Persons in the Transaction."
Shares of MOMED Common Stock which are present in person or by proxy but
abstain from voting with respect to the Merger Agreement will be counted for
purposes of determining the presence or absence of a quorum. Additionally,
broker non-votes will be counted for purposes of determining the presence or
absence of a quorum. A broker who holds shares in street names has authority to
vote on certain, but not all, items when he has not received instructions from
the beneficial owner. Where brokers do not have or do not exercise such
discretion, the inability or failure to vote is referred to as a broker
non-vote. Since the approval of the Merger Agreement requires the affirmative
vote of two-thirds of those entitled to vote thereon, abstentions and broker
non-votes will be counted as "no" votes with respect to the Merger Agreement.
THE BOARD OF DIRECTORS OF MOMED HAS UNANIMOUSLY RECOMMENDED THAT THE MOMED
STOCKHOLDERS VOTE IN FAVOR OF THE MERGER. As of the Record Date, the directors
and officers of MOMED and MOMEDICO owned beneficially approximately 39% of the
shares of MOMED Common Stock issued and outstanding on such date. The Board of
Directors of MOMED has unanimously approved the Merger. The officers and
directors intend to vote their shares, and direct that MOMEDICO vote its shares,
in favor of the Merger. See "THE MERGER -- Approval and Recommendation of the
Boards of Directors" and "-- Expected Security Ownership of Certain Beneficial
Owners and Management of MOMED Before and After the Merger."
VOTING AND REVOCATION OF PROXIES
Shares of MOMED Common Stock represented by a proxy properly signed and
received at or prior to the Special Meeting, unless subsequently revoked, will
be voted in accordance with the instructions thereon. IF A PROXY IS SIGNED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS ALL SHARES OF RECORD HELD BY
THE PERSON GRANTING THE PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT. Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before the proxy is voted by (i) filing an
instrument revoking it or (ii) filing a duly executed proxy bearing a later date
with the Secretary of MOMED at or prior to the Special Meeting or (iii) voting
in person at the Special Meeting. Attendance at the Special Meeting will not in
and of itself constitute a revocation of a proxy.
The Exchange Agent has been engaged to receive and count the proxies
solicited for the Special Meeting. All proxies and all written notices of
revocation and other communications with respect to revocation of a proxy should
be addressed to the Exchange Agent as follows: ChaseMellon Shareholders Services
L.L.C., 450 West 33rd Street, 15th Floor, New York, New York 10001, Attention:
Reorganization Department.
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The Board of Directors of MOMED is not aware of any business to be acted
upon at the Special Meeting other than as described herein. If however other
matters are properly brought before the Special Meeting for consideration,
including, among other things, consideration of a Motion to Adjourn the Special
Meeting to another time and/or place (including without limitation for the
purposes of soliciting additional proxies), persons appointed as proxies will
have discretion to vote or act thereon according to their best judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
MOMED who will not be specifically compensated for such services may solicit
proxies from the stockholders of MOMED personally or by telephone or telegram or
other forms of communication. MOMED and MAIC Holdings have also engaged the
Exchange Agent to assist in the solicitation of proxies. The compensation of the
Exchange Agent for such services will be paid by MAIC Holdings.
Pursuant to the Merger Agreement, each of MAIC Holdings and MOMED has
agreed to bear its respective expenses with regard to the solicitation of
proxies, including the mailing.
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THE COMPANIES
MAIC HOLDINGS, INC.
MAIC Holdings was incorporated in the State of Delaware on February 8,
1995, by its sole incorporator, Mutual Assurance, Inc. ("Mutual Assurance") to
serve as a holding company for Mutual Assurance and its subsidiaries. Mutual
Assurance was incorporated in Alabama in 1976 and licensed to write property and
casualty insurance in Alabama in 1977, from which time it has been the leading
provider of professional liability insurance for physicians in Alabama. Mutual
Assurance currently is nationally recognized for providing malpractice
protection to physicians, hospitals, dentists and managed care and health care
organizations through programs which coordinate traditional insurance with
clinical management. Mutual Assurance is authorized to write property and
casualty insurance in approximately 30 states and has applied or will apply to
write such insurance in almost all other states. Mutual Assurance is currently
able to reinsure professional liability in all states.
Mutual Assurance has recently expanded its business through the acquisition
of insurers that write professional liability insurance in states other than
Alabama. In 1994, Mutual Assurance acquired all of the stock of West Virginia
Hospital Insurance Company (now known as Medical Assurance of West Virginia,
Inc. and referred to herein as "MA-West Virginia"). During 1995, Mutual
Assurance acquired approximately 100% of the stock of Physicians Insurance
Company of Indiana ("PIC-Indiana") and the prospective book of business of
Physicians Insurance Company of Ohio ("PIC-Ohio"). MA-West Virginia and
PIC-Indiana operate as subsidiary corporations in West Virginia and Indiana,
respectively. Mutual Assurance is writing the professional liability insurance
offered to the former insureds of PIC-Ohio, principally in the state of Ohio.
On August 31, 1995, MAIC Holdings became the holding company for Mutual
Assurance and its subsidiaries pursuant to a Plan of Exchange adopted in
accordance with the Alabama Insurance Code. At the effective time of the Plan of
Exchange, MAIC Holdings had no stockholders. As a result of the Plan of
Exchange, each of the shares of Mutual Assurance stock was automatically
exchanged for one share of MAIC Holdings Common Stock so that the former
stockholders of Mutual Assurance had no change in their proportionate ownership
of Mutual Assurance and its subsidiaries. MAIC Holdings Common Stock was
immediately listed for trading on NASDAQ/NMS under Mutual Assurance's prior
trading symbol "MAIC," and the stock of Mutual Assurance was delisted from
NASDAQ/NMS because it is now wholly owned by MAIC Holdings. On September 23,
1996, the MAIC Holdings Common Stock was listed for trading on the New York
Stock Exchange. See "COMPARATIVE MARKET PRICES AND DIVIDENDS."
At December 31, 1995, MAIC Holdings owned 100% of Mutual Assurance, MA-West
Virginia and PIC-Indiana. Prior to the Plan of Exchange, MAIC Holdings had no
assets, liabilities, or revenues. For accounting purposes, the historical
financial statements of Mutual Assurance and its subsidiaries have been restated
as the consolidated financial statements of MAIC Holdings and its subsidiaries
in a manner similar to a pooling combination.
The principal offices of MAIC Holdings are located in a building owned by
Mutual Assurance located at 100 Brookwood Place, Birmingham, Alabama 35209. The
telephone number for MAIC Holdings, Inc. and Mutual Assurance is (205) 877-4400.
At December 31, 1995, MAIC Holdings and its subsidiaries had 137 employees.
MOMED HOLDING CO.
General
MOMED was incorporated in Missouri on March 4, 1988, to serve as a holding
company for Missouri Medical Insurance Company ("MOMEDICO"). MOMEDICO is a
Missouri stock insurer that was organized by the Missouri State Medical
Association ("MSMA") as the sponsored medical professional liability insurer for
MSMA's members. MOMEDICO is licensed as a property and casualty insurer, and it
writes medical professional liability insurance to eligible physicians,
dentists, certified registered nurse anesthetists and professional practice
entities whose members are physicians practicing in Missouri and/or
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Kansas. MOMEDICO derives 100% of its premium income from the sale of medical
professional liability insurance and estimates that it currently insures
approximately 18% of the MSMA members as of December 31, 1995. The basic
professional liability policies issued by MOMEDICO in the State of Missouri
provide a limit of liability of $200,000 for loss resulting from any one claim
or suit or all suits because of injury or death of any one person and an annual
aggregate limit of $600,000 which is the total limit of MOMEDICO's liability
during the effective policy period. Such limits of liability apply separately to
each insured. Increased limits are also available in the amount of
$500,000/$1,500,000; $1,000,000/$3,000,000; $2,000,000/$3,000,000;
$2,000,000/$4,000,000; $3,000,000/$5,000,000; and $5,000,000/$7,000,000.
MOMEDICO is authorized to write primary limits of $200,000/$600,000 in the
State of Kansas. The Kansas Health Care Stabilization Fund requires physicians
to purchase excess coverage in one of the following amounts, $100,000/$300,000;
$300,000/$900,000; and $800,000/$2,400,000. MOMEDICO offers excess coverage over
the amounts available from the Fund up to a maximum of $5,000,000/$7,000,000.
MOMED and MOMEDICO are subject to ongoing regulations by the Director of
the Department of Insurance of Missouri. Such regulation includes, among other
things, review of premium rates and policy forms, adequacy of reserves, adequacy
of capital and surplus, and other matters pertaining to insurance and the
operation of MOMEDICO. During 1993, the Department of Insurance performed an
examination of the statutory statements for the two years ended December 31,
1992. There were no changes to MOMEDICO's statutory financial statements for
this period.
The medical professional liability insurance market is a highly competitive
segment of the total insurance industry. MOMEDICO estimates that it has written
approximately 15% of the physicians medical professional liability insurance
presently in effect in the State of Missouri. Based on MOMEDICO estimates and
published information, MOMEDICO believes that the balance was written by Medical
Protective Company (20%), St. Paul Fire and Marine Insurance Company (5%), PIE
Mutual Insurance Company of Ohio (20%), Intermed Insurance Company (12%),
Medical Defense Associates, Ltd. (25%), and 13% by others. The first two
companies are larger and better capitalized and have been in business longer
than MOMEDICO. Other non-Missouri domiciled companies have adopted very
aggressive pricing structures to gain market share.
MOMED has two other subsidiaries, Professional Liability Associates, Inc.
and MOMEDICO Professional Services, Inc. Professional Liability Associates is
engaged in the business of marketing claims management services to hospitals and
other self-insured groups. MOMEDICO Professional Services holds a brokerage
license and provides insurance not offered by MOMEDICO to physicians and
dentists through an agency arrangement.
The principal offices of MOMED and MOMEDICO are located in a building owned
by MOMED at 8630 Delmar Boulevard, Suite 100, St. Louis, Missouri 63124. The
telephone number of MOMED is (314) 872-8000. At December 31, 1995, MOMED and its
subsidiaries had 20 full-time employees.
Property
MOMED acquired a building in St. Louis, Missouri, on June 1, 1992, and
utilizes approximately one-half of the space for its home office and that of its
subsidiaries. The remainder is leased to other companies. MOMED acquired
permanent financing in the amount of $600,000 with interest at 7.75%. The
financing is for a period of four years and matures on October 31, 1997. As of
December 31, 1995, MOMED owed $513,333 on this loan.
MOMED acquired two parcels of real estate in Jefferson City, Missouri, on
September 19, 1989, at a cost of $121,687. Renovation of the structures were
completed during 1992 at a cost of $168,732, and MOMEDICO moved its Central
Missouri Claims office into one of the buildings. On June 30, 1995, MOMED sold
the parcel of real estate adjacent to its Central Missouri claims office and net
proceeds from the sale of approximately $54,000 were applied to the mortgage.
MOMED reported a gain of $1,962 on the sale. At December 31, 1995, MOMED owed
$180,310 on a bank loan with interest at 8.00%. The loan matures on September 1,
1996. MOMED expects to refinance both loans at their maturity and does not
anticipate difficulties in the refinancing activities.
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Classes of Stock and Relationship with MSMA
On May 12, 1988, the stockholders of MOMEDICO approved a plan to exchange
the issued and outstanding shares of the Class A Common Stock and Class B Common
Stock of MOMEDICO for shares of Class A Common Stock and Class B Common Stock of
MOMED. As a result of a 1989 amendment to MOMEDICO's Articles of Incorporation
changing the par value of the Class A Common Stock from $1.00 to $3,000 per
share, fractional shares of MOMEDICO were redeemed for cash resulting in MOMED
owning 100% of the Class A and Class B Common Stock of MOMEDICO.
On July 22, 1994, MOMED and MSMA entered into a share exchange agreement
(the "Share Exchange Agreement"), a nomination agreement (the "Nomination
Agreement"), a license agreement (the "License Agreement"), and a reciprocal
assistance agreement (the "Reciprocal Assistance Agreement"). At that time,
MOMED had issued and outstanding 219,881 shares of Class A Common Stock and
24,185 shares of Class B Common Stock, par value $25 per share, with each share
of Class A Common Stock entitled to one vote per share and each share of Class B
Common Stock entitled to 15 votes per share. Holders of shares of Class A Common
Stock and Class B Common Stock were entitled to cumulative voting rights.
Under the terms of the Share Exchange Agreement MSMA agreed to transfer to
MOMED for retirement all 24,185 shares of the Class B Common Stock. In
consideration for such transfer and retirement, MOMED agreed to issue to MSMA
24,185 shares of its Class A Common Stock and 24,185 shares of a new class of
non-voting common stock designated as the "Class C Common Stock," par value
$1.00 per share. The Class C Common Stock had no voting or dividend rights and
was not convertible into shares of MOMED's Class A Common Stock. The Share
Exchange Agreement provided the holders of shares of Class C Common Stock with
an option to sell the shares to MOMED at any time after closing the transaction
contemplated by the Share Exchange Agreement in limited quantities and for a
cash price of $24.81 per share (for an aggregate cash consideration not to
exceed $600,000) plus an interest factor accruing from date of closing at the
rate of 1% above the prime rate announced by Boatmen's National Bank of St.
Louis. The Share Exchange Agreement further provided MOMED with an option to
purchase those shares of Class C Common Stock not sold to MOMED. On September 4,
1996, MOMED redeemed all of the 24,185 shares of Class C Common Stock. The only
class of shares of common stock of MOMED outstanding on the Record Date was the
Class A Common Stock. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Conditions to Consummation of the Merger" and "THE
MERGER -- Interests of Certain Persons in the Transaction."
Under the Nomination Agreement, MSMA has the right to submit annually the
name of a candidate to the nominating committee of MOMED for election to MOMED's
Board of Directors. If the nominee is or has been an active officer or member of
the MSMA Council, or is otherwise reasonably acceptable to MSMA, MOMED has
agreed to include the candidate of MSMA as a management nominee in each proxy
statement circulated in advance of the annual meeting of MOMED's stockholders.
MOMED has further agreed to vote all management proxies cumulatively in such
manner as in the opinion of MOMED management will assure the election of the
MSMA candidate. Because each director of MOMED serves a term of three years,
MSMA is assured of at least three members on the Board of Directors of MOMED
during the term of the Nomination Agreement, which expires in 1999. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT -- Certain Post-Closing Covenants" and "THE
MERGER -- Interests of Certain Persons in the Transaction."
The License Agreement provides for the grant of an exclusive license by
MSMA to MOMEDICO for the use of the name "Missouri State Medical Association,"
the acronym "MSMA" and various symbols, devices, logos and designs (the
"Licensed Marks") and associated goodwill including the phrases "founded and
endorsed by MSMA" and "founded and endorsed by the Missouri State Medical
Association" to promote, market and advertise the professional liability
insurance and risk management products and services of MOMEDICO. In
consideration for the use of these Licensed Marks, MOMEDICO has agreed to pay
MSMA a royalty fee of $35,000 each year plus $20 per MOMEDICO insured physician
in the state of Missouri as of December 31 of each preceding year. The term of
the License Agreement also expires in 1999.
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Under the Reciprocal Assistance Agreement, MSMA has agreed to list MOMEDICO
in MSMA's resource directory as a provider of authorized member services,
include MOMEDICO in its list of vendors to MSMA, place and maintain MOMEDICO in
any and all MSMA lists of endorsed providers of member services, provide
MOMEDICO with an equal opportunity for selection of booths designated as
available for professional liability insurers at all conventions sponsored by
MSMA, provide to MOMEDICO mailing labels for MSMA members not more than six
times per calendar year, and refer inquiries regarding professional liability
insurance and risk management matters to MOMEDICO. MOMEDICO has in turn agreed
to respond with due diligence to all inquiries regarding professional liability
insurance and risk management matters received directly from members or by
referral from MSMA, to participate in conventions sponsored by MSMA which
include professional liability insurers by staffing a booth at such conventions,
to make presentations with respect to professional liability and risk management
issues at all seminars and conferences sponsored by MSMA which address such
subjects. The term of the Reciprocal Assistance Agreement also expires in 1999.
On August 16, 1994, the stockholders of MOMED approved the Share Exchange
Agreement, the License Agreement, the Reciprocal Assistance Agreement, and
approved an amendment to the Articles of Incorporation of MOMED that would
eliminate the Class B Common Stock and create 24,185 shares of Class C
Non-Voting Common Stock contemplated to be issued pursuant to the Share Exchange
Agreement. On December 8, 1995, the stockholders of MOMED approved another
amendment to its Articles of Incorporation to increase the number of authorized
shares of Class A Common Stock to 1,000,000 shares in order to accommodate a
three for one stock split effective on the date of the meeting. As a result of
the stock split, the issued and outstanding shares of Class A Common Stock of
MOMED were increased from 244,066 shares to 732,198 shares.
Rights Plan
On February 24, 1995, the MOMED Board of Directors adopted a Shareholder's
Protection Rights Plan ("Rights Plan") which was designed to protect stockholder
value in circumstances of unsolicited attempts to acquire a controlling interest
in MOMED. Each stockholder received one right for each share of MOMED Class A
Common Stock.
The Rights Plan originally provided each holder of a share of MOMED Common
Stock the right to purchase one additional share of such Stock for $50.00 if and
when the rights become exercisable under the plan. On September 8, 1995, the
MOMED Board of Directors declared a three for one stock split resulting in a
split of three rights per share of MOMED Common Stock. The purchase price for a
share to be purchased with each right, when and if the right becomes exercisable
under the Rights Plan, was proportionally reduced in value to $16.66 per right.
The Rights Plan provides that the MOMED Board of Directors can redeem the
rights for $0.01 per right at any time. On September 13, 1996, the MOMED Board
approved the redemption of the rights under the Rights Plan for $0.01 per right
subject to approval of the Merger by a two-thirds vote of the holders of MOMED
Common Stock. Upon such approval, stockholders of record on the Record Date will
be entitled to receive payment of $0.01 per right and the Rights Plan will cease
to exist.
Legal Proceedings
The Company has no lawsuits or outstanding settlements other than those
related to claims arising out of the normal operations of the Company's primary
business, which are covered by the reserves for losses and loss adjustment
expenses.
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THE MERGER
BACKGROUND OF THE MERGER
MAIC Holdings' predecessor, Mutual Assurance, has been the predominant
carrier of professional liability insurance for Alabama physicians since it
began business in 1977. The formation of Mutual Assurance was sponsored by the
Medical Association of the State of Alabama when the insurance carrier of its
professional liability insurance program announced it would not renew or offer
any new policies. Currently, MAIC Holdings' insurance subsidiaries (including
Mutual Assurance) are actively writing medical liability insurance for health
care providers in states principally located in the southern and midwestern
regions of the United States. MAIC Holdings currently intends to have an active
presence in these regions with the capability to respond outside them when an
opportunity for business arises.
MAIC Holdings has expanded its business, in part, through acquisitions of,
and combinations with, professional liability insurers licensed to do business
in states other than Alabama. Expansion through such acquisitions or
combinations is beneficial to MAIC Holdings because it provides MAIC Holdings
local management experienced in underwriting risks and managing claims in a new
state; the support and cooperation of the organized medical community in such
state; an established distribution network to assist in marketing; and
experienced local legal counsel to serve as defense counsel for claims made
against insureds. Such combinations also facilitate the use of the financial
strength and experience of Mutual Assurance when needed in the new market to
compete for large health care provider networks that are emerging with the
changes in the health care industry.
MOMED's predecessor, MOMEDICO, provides professional liability insurance to
physicians whose practices are located principally in Missouri. Like Mutual
Assurance, MOMEDICO was organized in the mid-1970s by the Missouri State Medical
Association ("MSMA") in response to the withdrawal from Missouri of many of the
predominant medical professional liability insurers. MOMEDICO was wholly owned
by MSMA until 1980 when it publicly offered and sold its common stock to provide
additional working capital. The MOMEDICO Board of Directors was comprised
principally of physician members of MSMA, and the purchasers of MOMEDICO common
stock in its 1980 public offering were predominantly Missouri physicians.
Management of MOMEDICO has historically included physicians with a strong
allegiance to MSMA and to the Missouri physician community generally. MOMEDICO
believes that active participation by persons with medical expertise together
with persons with expertise in the insurance industry enables MOMEDICO to offer
competitive professional liability insurance products and services to
physicians. The heritage of MOMEDICO also evidences its commitment to provide
Missouri physicians with a reliable source of professional liability insurance.
In 1988, MOMED was organized to serve as MOMEDICO's holding company. MOMED
and MOMEDICO have been, and continue to be, managed by essentially the same
Board of Directors and executive officers. One of the purposes of the holding
company structure was to enable MOMEDICO to combine its business with another
insurer in order to become more competitive and at the same time to allow
MOMEDICO to continue to be a reliable local source of professional liability
insurance to Missouri physicians in accordance with its commitments to MSMA and
the Missouri physician community.
The MOMED Board believed it was prudent to examine possible business
combinations with other medical insurers in order to create efficiencies of
claim administration and to increase market share. In the late 1980s, the MOMED
Board authorized its Executive Committee to explore possible business
combinations which would protect stockholder value and strengthen MOMED's
competitive advantage in the market place while maintaining support of Missouri
physicians. The MOMED Board wanted to find a business partner which would
support its strong defense posture on claims, create efficiencies in claim
administration and foster its relationship with and support of MSMA and local
physicians.
Based on this strategic planning decision, MOMED had discussions in the
late 1980s and in the 1990s with other physician controlled medical insurance
providers regarding the prospect of creating a meaningful
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business combination that would add strength to MOMED's business while
protecting or enhancing MOMED stock value. Discussions occurred with medical and
hospital insurers in Missouri regarding a combination of marketing and
underwriting efforts to generate and retain business and a coordination of
defense efforts on claims to achieve better results for the insureds and costs
savings. Though these discussions started and stopped on several occasions, no
mutually beneficial agreement was achieved. During this same period, MOMED has
also had discussions with non-Missouri physician controlled medical insurers
which also did not lead to an agreement.
In 1994, MOMED and Mutual Assurance began having discussions regarding a
possible combination of their businesses. In 1995, the parties had narrowed
their discussions to a plan of combination involving a holding company pursuant
to which Mutual Assurance's successor, MAIC Holdings, would acquire 100% of the
stock of MOMED and: (i) the consideration for the MOMED Common Stock would be
cash and such number of shares of MAIC Holdings Common Stock as would not result
in a material dilution in the earnings per share of MAIC Holdings on a pro forma
combined basis; (ii) MAIC Holdings would assure the continued function of MOMED
in Missouri for a period of five years; and (iii) MOMEDICO would retain the
endorsement and sponsorship of MOMEDICO's products by MSMA for the duration of
the current agreements with MSMA. See "-- Interests of Certain Persons in the
Transaction."
On February 1, 1996, MAIC Holdings and MOMED executed a letter of intent to
reflect their agreement in principle to effect a business combination of the two
companies. Under the terms of the Letter of Intent, it was agreed that the
transaction would be structured as a merger in which MOMED would become a wholly
owned subsidiary of MAIC Holdings and the holders of MOMED Common Stock would
receive cash or MAIC Holdings Common Stock. The per share price for the MOMED
Common Stock would be based on the consolidated "book value" of MOMED at
December 31, 1995, after deducting the redemption price of the Class C Common
Stock. See "-- Interests of Certain Persons in the Transaction."
The Letter of Intent further provided that the MAIC Holdings Common Stock
would be valued at the then approximate market value of $32.50 per share for
purposes of determining the exchange rate for the conversion of MOMED Common
Stock. The Letter of Intent did not establish the number of shares of MAIC
Holdings Common Stock to be exchanged for MOMED Common Stock, but it did reflect
the parties' understanding and intent that the number of such shares issued in
the Merger should be not less than the minimum required to obtain "tax free"
treatment for those MOMED stockholders who exchange their MOMED Common Stock for
MAIC Holdings Common Stock and that the number of shares should be limited to
such number of shares as would not result in a material dilution of the earnings
per share of MAIC Holdings on a historical pro forma basis after giving effect
to the Merger. See "-- Federal Income Tax Consequences."
The Letter of Intent also addressed the operational issues regarding MAIC
Holdings' agreement to allow MOMED and MOMEDICO to continue to operate in
Missouri as subsidiary companies in order to fulfill their commitment to MSMA
and the Missouri physician community. It was agreed that the definitive
agreement would include covenants that would address the following points: (i)
MOMED will continue to operate separately with continuing heavy emphasis on
local involvement, particularly in underwriting and claims management; (ii) the
organizational structure of the Board of Directors, officers and employees of
MOMED will continue for a period of five years; (iii) employment contracts with
executive officers of MOMED in effect at the Effective Time (herein defined)
will be honored; (iv) the offices of MOMED will remain in St. Louis, Missouri
for at least five years after the Effective Time and the duties of the officers
and employees during such period will remain substantially the same; and (v)
MOMED will have the right to designate one person to serve on the Board of
Directors of MAIC Holdings, with its approval, to serve for an initial period of
three years and a MOMED designee will be nominated for re-election following the
expiration of said term. See "-- Interests of Certain Persons in the
Transaction" and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Post Closing
Covenants."
The Letter of Intent provided for the execution of a definitive agreement
on or before April 1, 1996, and MOMED agreed not to solicit any acquisition
proposals during such period and to inform MAIC Holdings of any non-solicited
acquisition proposals received by MOMED. Upon the execution of the Letter of
Intent each
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of MOMED and MAIC Holdings issued a news release announcing the proposed
transaction and began conducting due diligence in anticipation of preparing and
finalizing the definitive Merger Agreement. Although a first draft of the Merger
Agreement was prepared by MAIC Holdings and submitted to MOMED in early March,
the due diligence efforts were delayed pending the preparation and filing of the
annual statements due to the insurance regulatory authorities and the annual
reports due to the SEC. The term of the Letter of Intent was extended to May 15,
1996, to allow additional time to conduct due diligence and to negotiate toward
the execution of a definitive agreement.
On April 3, 1996, representatives of MAIC Holdings traveled to St. Louis to
conduct due diligence at MOMED's offices and to begin discussions regarding the
substance of the post-closing covenants to be included in the Merger Agreement
regarding the separate operations of MOMED. MOMED was concerned that MAIC
Holdings would not include covenants that would permit its Board of Directors to
have sufficient independence. MOMED wanted to ensure that its Board would be
comprised of individuals that would represent MSMA, MOMED management and
physicians insured by MOMED and that the MOMED Board as so constituted would
have control of the operations of MOMED and MOMEDICO. MAIC Holdings did not
object to allowing management of MOMED to nominate its directors and to allowing
its Board and management to have control of the day-to-day operations of MOMED
and MOMEDICO. However, MAIC Holdings believed that it had to retain ultimate
control of management decisions respect to the operations of MOMED and MOMEDICO
so that the Board of Directors of MAIC Holdings would be able to direct the
operations of MOMED in the best interest of the stockholders of MAIC Holdings.
It was proposed that the Board of Directors of MOMED would have full authority
to operate the business of MOMED during the first five years so long as the
operations were within certain parameters to be established by the definitive
agreement. If the operations of MOMED were not within the parameters, the
control of operations would be vested in a "management committee" to be
comprised of two persons designated by MAIC Holdings and two persons designated
by the Board of Directors of MOMED. A third person to be appointed by MAIC
Holdings would also be appointed to the management committee for the sole
purpose of rendering the deciding vote in the case of any "deadlocks" on the
management committee.
The term of the Letter of Intent was again extended to June 10, 1996, while
the parties completed their due diligence, computed the range in the number of
shares of MAIC Holdings Common Stock to be issued in the Merger, and discussed
the proposed parameters of operations for MOMED. Based on computations provided
by MAIC Holdings, it was agreed that no less than 275,000 shares of MAIC
Holdings Common Stock should be issued in the Merger in order to satisfy the
requirements for "tax free" treatment on the exchange of MOMED Common Stock for
MAIC Holdings Common Stock and that no more than 350,000 shares of MAIC Holdings
Common Stock should be issued in order to avoid a material dilution in the per
share earnings of MAIC Holdings. The selection of 275,000 shares was made
because it represented the number of shares of MAIC Holdings Common Stock that
would be issued under the agreed exchange ratio if approximately 50% of the
outstanding shares of MOMED Common Stock are exchanged for MAIC Holdings Common
Stock. The selection of 350,000 shares was based on the impact that the issuance
of 350,000 shares of MAIC Holdings Common Stock would have had on the earnings
of MAIC Holdings if they had been issued in the Merger on January 1, 1995, and
MOMED had made no contribution to the earnings of MAIC Holdings during 1995.
Using this formula, the dilution in the earnings per share of MAIC Holdings in
1995 would have been $0.09 per share or 2.8% if 275,000 shares had been issued
in the Merger and $0.10 per share or 3.6% if 350,000 shares had been issued in
the Merger. See "-- Federal Income Tax Consequences" and "PRO FORMA FINANCIAL
INFORMATION."
During this period substantial consideration was given to the parameters
within which MOMED would operate as a subsidiary of the MAIC Holdings. MAIC
Holdings principal concern was that MOMEDICO should be operated in a manner that
emphasizes underwriting performance and that ensures that MOMED has policies
consistent with MAIC Holdings regarding premium levels and reserving for losses
and loss adjustment expenses. It was agreed that the parameters would be
reflected in a budget to be adopted each year by the Board of Directors of MOMED
for MOMED and its subsidiaries. Those parameters are: (i) the reserves for
losses and loss adjustment expenses of MOMEDICO must be no less than the
midpoint of the recommended range for such reserves provided by an independent
actuary designated by MAIC Holdings;
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(ii) premium rates must be within 10% of the pricing model developed by such
actuary; and (iii) the budget must reflect a combined ratio of MOMEDICO of 120%
(subject to a 5% variance allowance). Should the Board of Directors of MOMED
fail to adopt a budget that reflects these parameters or should MOMED fail to
operate within the budget, the Management Committee will recommend appropriate
curative action to be undertaken by management of MOMED. See "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT -- Certain Post Closing Covenants."
The parties executed the Merger Agreement on June 11, 1996, subject to the
approval of the Boards of Directors of MOMED and MAIC Holdings and the
stockholders of MOMED as well as certain other conditions. No other acquisition
inquiries or proposals have been received by MOMED during its negotiations with
MAIC Holdings. See "THE MERGER -- Approval and Recommendations of the Boards of
Directors" and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions to
Consummation of the Merger."
APPROVAL AND RECOMMENDATION OF THE BOARDS OF DIRECTORS
MAIC Holdings
The MAIC Holdings Board of Directors (the "MAIC Holdings Board") has
unanimously approved the Merger and MAIC Holdings has determined that the Merger
and the Merger Agreement (including the exchange ratio) are fair to and in the
best interests of MAIC Holdings and its stockholders. The MAIC Holdings
stockholders are not required to approve the Merger under the General
Corporation Laws of Delaware because MAIC Holdings is not a constituent
corporation in the Merger and the MAIC Holdings Board has the authority to issue
the MAIC Holdings Common Stock without stockholder approval under Delaware law
and the rules of the New York Stock Exchange.
In reaching its determination, the MAIC Holdings Board considered, without
assigning any special or relative weight, a number of factors including but not
limited to the following:
(1) The changing legal, regulatory and competitive environment for
health care providers in the United States;
(2) The ability to expand the business of MAIC Holdings to a new state
through a combination with an insurer that writes similar products and that
has an existing relationship with the medical community in Missouri;
(3) The healthcare industry in Missouri and the existing competition
for medical professional liability insurance in that state;
(4) The business, operations, earnings and financial condition of
MOMED, including adequacy of loss reserves, levels of risk based capital
and quality of investments of MOMEDICO, on a historical and pro forma
basis; and
(5) The determination by the MAIC Holdings Board that the amount of
the proposed consideration in the Merger will not adversely affect the
stockholders of MAIC Holdings (as described above, the exchange ratio for
the MOMED stockholders has been calculated to minimize dilution in the
earnings per share of MAIC Holdings on an historical pro forma basis; no
fairness opinion was obtained with respect to the fairness of the Merger
consideration with respect to the stockholders of MAIC Holdings).
MOMED
The MOMED Board has unanimously approved the Merger and determined that the
Merger Agreement (including the exchange ratio) is fair and in the best
interests of MOMED and its stockholders. In approving the Merger Agreement, the
MOMED Board considered, without assigning any special or relative weight, a
number of factors. The material factors considered by MOMED, include but are not
limited to, the following:
(1) The Merger consideration is fair to the MOMED stockholders. The
value of a share of MOMED Common Stock has not risen with the general
market upturn during the 1990s. The primary
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current influence on the value of a share of the MOMED Common Stock appears
to be the proposed Merger which has raised the market for MOMED Common
Stock from an average bid/ask price of below $5 prior to the February 1996
press release to bid/ask prices of up to $20 per share after the June 1996
press release. The proposed Merger with MAIC Holdings has been public
knowledge since the press release. There have been no alternative proposals
presented by any other company with an interest in joining with MOMED in
any business combination. MOMED has been searching for a favorable business
combination for years, and MAIC Holdings is the first business combination
that provides MOMED with a stronger future and good return to stockholders.
(2) The Merger with MAIC Holdings meets the corporate objectives for a
merger partner that MOMED's Board had authorized the Executive Committee to
pursue in the late 1980s. It will allow MOMED to continue as a local
provider of professional liability insurance to health care providers in
Missouri and Kansas as a subsidiary of a larger and stronger MAIC Holdings
organization which can better compete and serve in the changing market of
professional liability insurance. The Merger Agreement protects the
identity and business of MOMED by preserving operations of MOMED in
Missouri for at least five years by: (i) maintaining the Board of Directors
and local control of business operations subject to MOMED meeting budgetary
objectives; (ii) maintaining the strong influence of MSMA and its members
on MOMED's operations; (iii) maintaining key management through contracts
that provide an economic disincentive to their termination; and (iv)
preserving control of the business operations by the MOMED Board of
Directors, including without limitation, underwriting policy, claim
handling policy, employee matters and all other day to day business
operations.
(3) MAIC Holdings has competent, experienced and ethical management.
It has an excellent reputation in the insurance industry and its
involvement in MOMED's management will be beneficial to MOMED, its
customers, its community and its employees. MOMED will have a
representative on the Board of Directors of MAIC Holdings which will allow
MOMED to be involved in and have input on the direction of future
operations of MAIC Holdings and its subsidiaries, including MOMED. The
combination of management of MAIC Holdings with management of MOMED
provides significant expertise that will benefit the business of MOMED and
other subsidiaries of MAIC Holdings.
(4) The proposed Merger will provide MOMED new products and
underwriting capacity. MOMED's operations are subject to very strong
competition in the market. Competition is projected to be stronger in view
of the many hospital mergers and the trend of physicians to join together
in larger associations for purposes of negotiating with suppliers of goods
and services, including professional liability insurance. MAIC Holdings has
greater financial strength than MOMED and is an institutionally compatible
merger partner for MOMED.
(5) The Merger will have beneficial social and economic effects on
MOMED's community, employees, customers, suppliers and others having a
similar relationship with MOMED because MOMED will continue to operate in
substantially the same manner for a minimum period of five years, except
that the Merger will make MOMED stronger financially with a greater
capacity to service its customers, community and employees. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT."
THE MOMED BOARD HAS UNANIMOUSLY RECOMMENDED THAT THE MERGER BE APPROVED BY
THE HOLDERS OF MOMED COMMON STOCK AT THE SPECIAL MEETING.
OPINION OF MOMED FINANCIAL ADVISOR
MOMED retained Pauli & Company, Incorporated (the "Financial Advisor") to
advise its Board of Directors in connection with the Merger. The Financial
Advisor is a St. Louis, Missouri based investment banking firm and investment
advisor specializing in small and mid-size firms that are traded on the NASDAQ
System or over-the-counter. The Financial Advisor's business focuses on
valuation and trading of equities which, like the stock of MOMED, are not listed
on either the New York Stock Exchange or the American Stock Exchange. It also
manages public offerings of such securities and provides a complete range of
other investment banking services. The Financial Advisor has not done any work
for MOMED previously and was
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retained after a search by management for an independent financial advisor based
on expertise, reputation, qualifications, price and availability. There has been
no relationship in the last two years and no other relationship is contemplated
in the future between the Financial Advisor and its affiliates with MOMED or any
affiliate of MOMED. The Financial Advisor attended the meeting held on July 26,
1996, at which the MOMED Board approved the Merger Agreement. At the meeting,
the Financial Advisor made a written and oral presentation of its analysis of
the merger consideration to be received by the stockholders of MOMED and
rendered its oral opinion as of July 26, 1996, that the exchange ratio provided
in the Merger Agreement (the "Per Share Exchange Ratio") was fair to the
stockholders of MOMED from a financial point of view. The Financial Advisor
subsequently delivered a written opinion dated July 30, 1996, to the MOMED Board
that the Per Share Exchange Ratio is fair from a financial point of view to the
MOMED stockholders.
The Financial Advisor was retained to assist the MOMED Board in fulfilling
its fiduciary duty to determine that the Merger is fair to the stockholders of
MOMED. The Financial Advisor's opinion is directed to the MOMED Board and is
directed only to the Per Share Exchange Ratio. The opinion of the Financial
Advisor does not constitute a recommendation to any MOMED stockholder regarding
how such stockholder should vote at the Special Meeting.
In arriving at its opinion, the Financial Advisor, among other things: (i)
analyzed certain publicly available audited and unaudited financial statements
and other business and financial reports of MOMED and MAIC Holdings; (ii)
reviewed and discussed with appropriate management personnel the past and
current business activities and financial results and the business and financial
outlook of MOMED; (iii) reviewed and discussed with appropriate management
personnel the financial forecast prepared by the management of MOMED; (iv)
reviewed the historical price and trading activity of MOMED Common Stock and
MAIC Holdings Common Stock; (v) compared certain financial and stock market data
relating to MOMED with similar data of MAIC Holdings and other publicly held
insurance holding companies considered to be comparable to MOMED and MAIC
Holdings; (vi) reviewed the prices paid in certain comparable acquisition
transactions and the multiples of the transaction values to premiums, net
income, and book value; (vii) reviewed the Merger Agreement and certain related
documents; and (viii) performed such other analyses as the Financial Advisor
deemed appropriate. The Financial Advisor also took into account, among other
things, the limited source of revenue of MOMED as a provider of professional
liability insurance to physicians and dentists in the State of Missouri; the
long-term relationship with the Missouri State Medical Association; trends
toward reform, competition, and premium rate pressures in the health care and
medical malpractice industries; the volatility of the profitability of MOMED;
the capital position of MOMED; the current capital market environment; the
significant premium offered by MAIC Holdings for the shares of MOMED Common
Stock despite limited marketability of the MOMED Common Stock.
In conducting its analysis and arriving at its opinion, the Financial
Advisor assumed and relied upon, without independent verification, the accuracy
and completeness of the information it reviewed for purposes of the opinion. The
Financial Advisor also relied upon management of MOMED with respect to the
reasonableness and achievability of the financial and operating forecasts (and
the assumptions and bases underlying such forecasts). The Financial Advisor did
not make, nor was it furnished with, independent valuations or appraisals of the
assets and liabilities of MOMED. The Financial Advisor did not express any
opinion as to what the value of the MAIC Holdings Common Stock actually would be
when issued to the MOMED stockholders pursuant to the Merger or the price at
which the MAIC Holdings Common Stock would trade subsequent to the Merger.
The Financial Advisor was not asked to consider and its opinion does not
address the relative merits of the Merger as compared to any alternative
business strategies that might exist for MOMED or the effect of any other
transactions in which MOMED might engage. In addition, although the Financial
Advisor evaluated the Merger consideration from a financial point of view, the
Financial Advisor did not participate in the Merger negotiations, was not asked
to, and did not recommend the specific consideration payable in the Merger. The
opinion of the Financial Advisor is necessarily based on economic, market and
other considerations as in effect on and the information made available to the
Financial Advisor as of the date of its analysis.
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The preparation of a fairness opinion involves various determinations of
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances, and therefore,
such an opinion is not readily susceptible to a summary description. In arriving
at its fairness opinion, the Financial Advisor did not attribute any particular
weight to any analysis or factor considered by it but rather made qualitative
judgments about the significance and relevancy of each analysis and factor. None
of the analyses performed by the Financial Advisor was assigned a greater
significance by the Financial Advisor than any other. Accordingly, the Financial
Advisor believes its analysis must be considered as a whole and that a review of
selected portions of such analysis and the factors considered therein, without
consideration of all analyses and factors, could create a misleading or
incomplete view of the processes underlying its opinion. In its analysis, the
Financial Advisor made numerous assumptions with respect to industry
performance, general and business and economic conditions and other matters,
many of which are beyond the control of MOMED and MAIC Holdings. Any estimates
contained in the Financial Advisor's analyses are not indicative of actual
values or predictable future results or values that may be significant and more
or less favorable than such estimates. Estimates of values of companies do not
purport to be appraisals or necessarily reflect the prices of which companies or
their securities actually may be sold. The following is a brief summary of the
analyses performed by the Financial Advisor in connection with its presentation
and opinion as delivered to the MOMED Board on July 26, 1996.
Discounted Cash Flow Analysis. The stand-alone valuation of MOMED was
estimated by computing the present value of future cash flow that MOMED could
produce over the five year period from 1996 through 2000, and the present value
of MOMED's residual value at the end of such five year period. The present value
was based on a 13.876% discount rate reflecting MOMED's estimated cost of
capital. The Financial Advisor estimated that the implied equity value was
approximately $26.36 per share.
Comparable Company Analysis. This method of analysis compares a company's
operating performance relative to a group of publicly traded peers. Based on
relative performance and outlook for a company versus its peers, this analysis
enables an implied unaffected market trading value to be determined. The
Financial Advisor compared certain financial and market information of MOMED and
MAIC Holdings with a group of three other publicly traded insurance holding
companies that it believed to be appropriate for comparison: MMI, Inc., Tenere
Group, and American Physicians Service Group. Such information included market
capitalization, book equity, revenues, and net income. Among the market trading
information compared were market value to revenues (which was approximately 91%
for MOMED and approximately 247% for MAIC Holdings and the average of which for
the three comparable companies was approximately 154%), and market price to book
value (which was 90% for MOMED and 140% for MAIC Holdings and the average of
which for the three comparable companies was approximately 137%), and market
price to earnings per share for 1994-1995 (which for MOMED was 3.7x for 1995 and
8.73x for 1994 and for MAIC Holdings was 9.6x for 1995 and 10.9x for 1994, and
the average of which for two of the comparable companies was 13x for 1995 and
18.2x for 1994). The merger value to MOMED revenues was 100.14% and the merger
value to book value of MOMED was 100%. The Merger value represented the midpoint
of the Cash and Stock Elections and was computed to be $24.49 per share of MOMED
Common Stock. The market capitalization is based on a price of the market value
of a share of MOMED Common Stock after the announcement of the terms and
conditions of the Merger and is significantly greater than the historical market
value of the price of MOMED Common Stock before the announcement of the Merger.
The Financial Advisor used a recent stock price of $22.25 per share in
determining for the market capitalization of MOMED. The Financial Advisor
pointed out in its report that the MOMED Common Stock had not traded on an
active basis since 1994. See "COMPARATIVE MARKET PRICES AND DIVIDENDS."
Comparable Merger and Acquisition Analysis. Comparable Merger and
Acquisition Analysis provides an analysis of multiples of market value to
written premiums, net premiums, net income and net book value for the Merger and
three comparable mergers, two of which involved MAIC Holdings. These
transactions were the acquisition of Kentucky Medical Insurance Company by
Michigan Physicians Mutual Liability Company which occurred in the fall of 1995,
the acquisition of Physicians Insurance Company of Indiana by MAIC Holdings,
Inc., and the acquisition of West Virginia Hospital Insurance Company by MAIC
Holdings, Inc. Based on the transaction value of the proposed Merger between
MAIC Holdings and MOMED, the
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analysis yielded a transaction value to direct premiums of 1.45; a transaction
value to net premiums of 1.57; a transaction value to net income of 35.08, and a
transaction value to net book value of 1.10. The only comparable acquisition not
involving MAIC Holdings was the acquisition of Kentucky Medical Insurance
Company by Michigan Physicians Mutual Liability Company in 1995. In that
transaction, the transaction value to direct premiums was 1.55; the transaction
value to net premiums was 2.09; the transaction value to net income was 53.08;
and the transaction value to net book value was 1.05.
No company used in the comparable company analysis is identical to MOMED or
MAIC Holdings and no transaction used in the comparable merger and acquisition
analysis is identical to the Merger. Accordingly, an analysis of the results of
the foregoing necessarily involves conflicts, considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect public trading value or the
acquisition value of the companies to which they are being compared.
Mathematical analysis (such as determining the average) is not in and of itself
a meaningful method of using comparable company data.
Pursuant to a letter agreement dated July 24, 1996, MOMED engaged the
Financial Advisor to provide investment banking advice and services to the Board
of Directors of MOMED in connection with the review and analysis of the
potential business combination with MAIC Holdings. MOMED agreed to pay the
Financial Advisor a fee of $10,000 upon rendering an opinion as to whether or
not the consideration payable to the holders of the MOMED Common Stock in the
Merger is fair from a financial point of view. Pursuant to the engagement
agreement, MOMED has agreed to reimburse the Financial Advisor for reasonable
expenses incurred by the Financial Advisor, subject to certain limitations,
including fees and disbursements of counsel, and to indemnify the Financial
Advisor against certain liabilities in connection with its engagement.
In the ordinary course of business, the Financial Advisor may trade the
securities of MOMED and MAIC Holdings for its own account and the accounts of
its customers and, accordingly, may at any time hold a long or short position of
such securities. The Financial Advisor reserves the right to provide financial
investment banking and financial advisory services to MOMED in the future.
TERMS OF THE MERGER
A copy of the Merger Agreement (without schedules) has been attached to
this Proxy Statement as Exhibit A and is incorporated herein by this reference.
The following summary of the terms and conditions of the Merger Agreement are
qualified in their entirety by reference to the Merger Agreement.
At the Effective Time (herein defined), MOMED will be merged with and into
MOMED Acquisition, Inc., a newly formed wholly owned subsidiary of MAIC Holdings
("MOMED Acquisition") resulting in MOMED Acquisition as the surviving
corporation of the Merger and a wholly owned subsidiary of MAIC Holdings. The
name of the surviving corporation after the Effective Time will be MOMED Holding
Co., which will continue as a holding company for MOMEDICO and MOMED's two other
wholly owned subsidiaries, Professional Liability Associates, Inc. and MOMEDICO
Professional Services, Inc. The Merger Agreement provides that the Articles of
Incorporation and ByLaws of MOMED Acquisition will serve as the Articles of
Incorporation and ByLaws of the surviving corporation. References to MOMED after
the Effective Time will refer to the corporation surviving the Merger.
Under the terms of the Merger Agreement, each holder of the issued and
outstanding shares of MOMED Common Stock other than MOMEDICO shall have the
right to elect to have each of such holder's shares converted as of the
Effective Time into either (i) .779 of a share of MAIC Holdings Common Stock for
a share of MOMED Common Stock (the "Stock Election"), or (ii) the right to
receive $25.32 (without interest) per share of MOMED Common Stock (the "Cash
Election"). The shares to be issued pursuant to the Stock Election and the cash
to be paid pursuant to the Cash Election are sometimes collectively referred to
as the "Merger Consideration." Each share of MOMED Common Stock that is owned by
MOMEDICO shall be converted into .779 of a share of MAIC Holdings Common Stock.
The total number of shares of MAIC Holdings Common Stock included in the
Merger Consideration to be issued in exchange for the MOMED Common Stock
pursuant to the Stock Election will not be more than
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350,000 shares of MAIC Holdings Common Stock, nor less than 275,000 shares of
MAIC Holdings Common Stock. If the holders of MOMED Common Stock make Stock
Elections that would result in the issuance of a number of shares of MAIC
Holdings Common Stock in excess of 350,000 shares, then a portion of the shares
of the MOMED Common Stock subject to each Stock Election shall be converted on a
pro rata basis into the right to receive cash in the same amount as those MOMED
stockholders who made Cash Elections. The proration factor will be determined by
dividing 350,000 shares by the total number of shares of MAIC Holdings Common
Stock that would be issued as Merger Consideration if all Stock Elections are
given effect. The number of shares of MOMED Common Stock to be converted into
MAIC Holdings Common Stock pursuant to the Stock Elections shall be determined
by multiplying the proration factor by the number of shares of MOMED Common
Stock covered by each Stock Election. All other shares of MOMED Common Stock
subject to Stock Elections will be converted into cash as if the holders thereof
had made the Cash Election.
If the holders of MOMED Common Stock make Cash Elections that would result
in the issuance of a number of shares of MAIC Holdings Common Stock included in
the Merger Consideration to be less than 275,000 shares, then a portion of the
shares of the MOMED Common Stock subject to each Cash Election shall be
converted on a pro rata basis into MAIC Holdings Common Stock at the same ratio
as the holders who made the Stock Elections. The proration factor will be
determined by dividing the 275,000 shares into the number of shares of MAIC
Holdings Common Stock that would be issued as Merger Consideration if all Stock
Elections are given effect. The number of shares of MOMED Common Stock subject
to each Cash Election to be converted into the right to receive cash will be
determined by multiplying the number of shares of MOMED Common Stock subject to
each Cash Election by such proration factor. All other shares of MOMED Common
Stock subject to the Cash Elections will be converted into MAIC Holdings Common
Stock as if the holders had made a Stock Election.
No fractional shares of MAIC Holdings Common Stock will be issued in the
Merger. Instead, the Merger Agreement provides that each holder of shares of
MOMED Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of MAIC Holdings Common Stock
(after taking into account all certificates delivered by such stockholder) will
receive in lieu thereof, cash (without interest) in an amount equal to the
product of the fractional interest of a share of MAIC Holdings Common Stock
multiplied by $32.50. The fractional interests of each holder of MOMED Common
Stock will be aggregated and no holder of MOMED Common Stock will receive cash
in an amount equal to or greater than the assigned value of one full share of
MAIC Holdings Common Stock.
A holder of MOMED Common Stock who exercises any available rights to
dissent from the Merger under the Missouri General and Business Corporation Law
shall not have his or her shares converted and has no right to receive Merger
Consideration unless such holder shall lose his right under the appraisal
statute, in which case such holder shall be deemed to have made a Cash Election.
See "APPRAISAL RIGHTS."
The MAIC Holdings Common Stock issued and outstanding immediately prior to
the Effective Time will remain issued and outstanding after the Merger. Further,
the issued and outstanding stock of MAIC Acquisition prior to the Effective Time
will remain issued and outstanding after the Merger so that the corporation
surviving the Merger will continue to be a wholly owned subsidiary of MAIC
Holdings.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at such time as the Secretary of State of
the State of Missouri issues a Certificate of Merger. The Certificate of Merger
will be issued upon the filing of Articles of Merger which have been duly signed
by MOMED and MOMED Acquisition. Unless otherwise agreed to by MAIC Holdings and
MOMED as regards the Merger, such filings will be made, subject to the terms and
conditions of the Merger Agreement following the time that all conditions
precedent as specified in the Merger Agreement have been satisfied or waived by
the party or parties required or permitted to do so. See "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT -- Conditions to Consummation of the Merger."
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MAKING THE CASH OR STOCK ELECTION
Each record holder of shares of MOMED Common Stock on the Record Date for
the Special Meeting will be furnished a form (the "Election Form") for making
the Cash Election or Stock Election (the "Election") together with this Proxy
Statement and a proxy card. Holders of MOMED Common Stock who fail to properly
make an Election as described herein will be deemed to have made a Cash Election
in order to facilitate the administration of the exchange procedure.
Persons making an Election are not required to vote for or against the
Merger; are not required to return a proxy card (although stockholders are
encouraged to do so). Only record holders of shares of MOMED Common Stock on the
Record Date are entitled to make an Election. On October 1, 1996, MOMED publicly
announced that the transfer books for the MOMED Common Stock will be closed as
of the close of business on the Record Date. The transfer agent for the MOMED
Common Stock has been instructed not to effect any transfers of shares of MOMED
Common Stock after the transfer books have been closed until the Merger is
terminated. If the Merger should be terminated or abandoned for any reason, the
transfer books for the MOMED Common Stock will immediately be opened, and all
Elections will be void and of no further force and effect. See "CERTAIN
PROVISIONS OF THE MERGER -- Waiver, Amendment and Termination."
Each record holder of a share of MOMED Common Stock will be entitled to
make an Election as herein described at any time prior to 5:00 p.m., Central
Standard Time, on November 15, 1996 (the "Election Deadline"). The making of an
Election will not be considered as a vote for the Merger. Holders of MOMED
Common Stock who desire to make an Election must properly complete the Election
Form and the completed and executed Election Form must be received by
ChaseMellon Shareholder Services, L.L.C. as the Exchange Agent at the address
listed on the Election Form and not withdrawn by the Election Deadline. A PERSON
WHO DESIRES TO REVOKE HIS OR HER ELECTION OR WHO HAS LOST HIS OR HER ELECTION
FORM BEFORE THE ELECTION DEADLINE MAY OBTAIN AN ELECTION FORM FROM THE EXCHANGE
AGENT. REQUESTS FOR ELECTION FORMS MAY BE MADE IN PERSON OR IN WRITING TO
CHASEMELLON SHAREHOLDERS SERVICES L.L.C. AT 450 WEST 33RD STREET, NEW YORK, NEW
YORK 10001, FACSIMILE NO. (201) 296-4293. ELECTION FORMS NOT DELIVERED IN PERSON
WILL BE MAILED TO THE PERSON REQUESTING THE ELECTION FORM WITHIN A REASONABLE
TIME AFTER RECEIPT OF THE REQUEST.
Holders of MOMED Common Stock will be deemed to have automatically made the
Cash Election if they do not execute and deliver an Election Form to the
Exchange Agent on or before the Election Deadline. Holders of MOMED Common Stock
who improperly execute and deliver the Election Form will also be deemed to have
made a Cash Election. Any MOMED stockholder who has previously made an Election
may subsequently make a different Election by delivery to the Exchange Agent
prior to the Election Deadline of written notice of the revocation of his or her
prior Election. The notice of revocation should be delivered to the Exchange
Agent at the address specified above. The determination by the Exchange Agent as
to whether or not an Election has been properly made or revoked and as to when
Elections or notices of revocation were received will be binding. The Exchange
Agent will have no duty to advise the MOMED stockholders of any such
determination.
A person desiring to vote for or against the Merger must have been a record
holder of MOMED Common Stock on the Record Date for the Special Meeting and must
vote for or against the Merger at the Special Meeting either in person or by
proxy. Persons desiring to vote by proxy may do so by properly executing and
delivering the enclosed Proxy Card. The Proxy Card may be mailed separately from
the Election Form. See "THE SPECIAL MEETING -- Voting and Revocation of
Proxies."
HOLDERS OF MOMED COMMON STOCK SHOULD NOT SEND ANY OF THEIR
STOCK CERTIFICATES TO THE EXCHANGE AGENT PRIOR TO THE
EFFECTIVE TIME. SEE "THE MERGER -- EXCHANGE PROCEDURES."
EXCHANGE PROCEDURE
After the Effective Time, former holders of MOMED Common Stock will have no
further equity interest in MOMED. On and after the Effective Time, there shall
be no transfer on the stock transfer books of
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MOMED for the shares of MOMED Common Stock, and MAIC Holdings shall be entitled
to treat the certificates representing MOMED Common Stock as either evidencing
ownership of the number of shares of MAIC Holdings Common Stock or the right to
receive cash into which the MOMED Common Stock represented by each certificate
shall have been converted, notwithstanding the failure on the part of any holder
of MOMED Common Stock to surrender his or her certificates.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of record of MOMED Common Stock on the Record Date a form
letter of transmittal and instructions for using that letter of transmittal to
effect the surrender of certificates of MOMED Common Stock for either cash or
certificates representing MAIC Holdings Common Stock. Separate transmittal
letters and instructions will be mailed to persons making Cash Elections and
persons making Stock Elections.
After the surrender of MOMED Common Stock certificates subject to Stock
Elections, together with the letter of transmittal signed by the record owner of
the shares of MOMED Common Stock represented by such certificate, the Exchange
Agent will deliver (i) a certificate to such stockholder for shares of MAIC
Holdings Common Stock representing the aggregate number of shares of MAIC
Holdings Common Stock to which such stockholder is entitled pursuant to the
Merger Agreement and (ii) cash for any fractional shares.
After the surrender of MOMED Common Stock certificates subject to Cash
Elections, together with a letter of transmittal signed by the record owner for
the shares of MOMED Common Stock represented by such certificate, the Exchange
Agent will deliver to the record owner a check in the amount of the cash
entitled to be received. Prior to or promptly after the Effective Time, MAIC
Holdings will deliver to the Exchange Agent the cash payment for the shares of
MOMED Common Stock to be exchanged for cash pursuant to the Cash Election.
Certificates of MAIC Holdings Common Stock or cash to be exchanged for
MOMED Common Stock will not be delivered except upon surrender of the
certificate or certificates representing MOMED Common Stock in compliance with
instructions set forth in the notice and letter of transmittal or in the absence
of any notice that any shares represented by undelivered certificates have been
acquired by a bona fide purchaser, upon satisfaction of alternative conditions
relating to proof of loss, taking or destruction, proof of ownership, and
provision of reasonable security or indemnity that may include the furnishing of
a satisfactory indemnity bond. No fractional shares of MAIC Holdings Common
Stock and no certificates of scrip therefor will be issued in connection with
the Merger. See " -- Terms of the Merger."
Holders of MOMED Common Stock who make a Cash Election will not be entitled
to any dividends or distributions with respect to the MAIC Holdings Common
Stock. Any holder of MOMED Common Stock who has made a Stock Election but who
has not surrendered the certificates representing that holder's shares of MOMED
Common Stock will not be entitled to receive dividends or other distributions
payable to holders of record of MAIC Holdings Common Stock on any date after the
Effective Time until that holder physically surrenders such certificates. Upon
the subsequent surrender and exchange of such MOMED certificates, such dividends
or other distributions, without interest and less taxes (if applicable), will be
delivered to such holder.
FEDERAL INCOME TAX CONSEQUENCES
The discussion set forth below provides information as to the material
federal income tax consequences to MOMED, MAIC Holdings, and the MOMED
stockholders as a result of the implementation of the Merger. Each holder of
MOMED Common Stock should consult his or her tax adviser as to the application
and possible affect of the federal income tax laws as to a Cash or Stock
Election as well as to the affect that foreign, state and local tax laws will
have on such election.
Subject to the qualifications discussed below, KPMG has issued its tax
opinion letter as to the following federal income tax matters:
(a) The acquisition by MOMED Acquisition of substantially all of the
assets of MOMED solely in exchange for MAIC Holdings Common Stock, cash and
the assumption by MOMED Acquisition of the liabilities of MOMED plus the
liabilities to which the MOMED assets may be subject, will qualify as a
17
<PAGE> 38
reorganization under Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) A MOMED stockholder who receives solely MAIC Holdings Common Stock
(including fractional share interests to which he may be entitled) will
recognize no gain or loss upon his exchange of MOMED Common Stock solely
for shares of MAIC Holdings Common Stock.
(c) If a MOMED stockholder receives both cash (other than cash in lieu
of a fractional share of MAIC Holdings Common Stock) and MAIC Holdings
Common Stock in the Merger in exchange for his MOMED Common Stock, gain
will be recognized, but in an amount not in excess of the amount of cash
received. If the exchange has the effect of the distribution of a dividend
(determined with the application of section 318), then the amount of gain
recognized that is not in excess of the MOMED stockholder's ratable share
of undistributed earnings and profits of MOMED will be treated as a
dividend. The determination of whether the exchange has the effect of the
distribution of a dividend will be made on a stockholder by stockholder
basis in accordance with the principles enunciated in Commissioner v.
Clark, 489 US 726 (1989). No loss will be recognized. See "-- Tax
Consequences to MOMED Stockholders Who Receive Both Cash and MAIC Holdings
Common Stock in the Merger."
(d) The basis of the MAIC Holdings Common Stock received by the
stockholders of MOMED (including any fractional shares to which they may be
entitled) will be the same as the basis of the MOMED Common Stock
surrendered in exchange therefor decreased by the amount of cash received
by the MOMED stockholder and increased by the amount, if any, that was
treated as a dividend and the amount of gain recognized to the MOMED
stockholder on the exchange (not including any portion of such gain that is
treated as a dividend).
(e) The holding period of the MAIC Holdings Common Stock received by
MOMED stockholders (including any fractional shares to which they may be
entitled) will include the period during which the MOMED Common Stock
surrendered in exchange therefor was held by the MOMED stockholders,
provided that the MOMED stock surrendered was a capital asset in the hands
of the MOMED stockholders on the date of the exchange.
(f) If a MOMED stockholder makes a Cash Election or dissents to the
transaction and receives solely cash in exchange for MOMED Common Stock,
such cash will be treated as having been received as a distribution in
redemption of the MOMED Common Stock, subject to the provisions of section
302 of the Code. Where, as a result of such distribution, a MOMED
stockholder owns no MAIC Holdings Common Stock, either directly or by
reason of the application of section 318, the redemption will be a complete
termination of interest within the meaning of section 302(b)(3) and such
cash will be treated as a distribution in full payment in exchange for his
or her MOMED Common Stock as provided in section 302(a). Such MOMED
stockholders will recognize gain or loss under section 1001 measured by the
difference between the amount of cash received and the adjusted basis of
the MOMED Common Stock surrendered. See "-- Tax Consequences to MOMED
Stockholders Who Receive Solely Cash in the Merger."
(g) Cash received by stockholders of MOMED in lieu of fractional
shares of MAIC Holdings Common Stock will be treated as if the fractional
shares were actually issued by MAIC Holdings and then redeemed by MAIC
Holdings for cash. These cash payments will be treated as having been
received in exchange for the redeemed fractional share interests under
section 302(a). See "-- Tax Consequences to MOMED Stockholders Who Receive
Cash in Lieu of Fractional Shares in the Merger."
In rendering the foregoing opinions, KPMG has relied on representations by
MOMED and MAIC Holdings as to factual matters. KPMG has advised MOMED that its
opinion is subject to, and conditioned upon, substantially all of the assets of
MOMED being exchanged for the Merger Consideration. For this purpose,
substantially all means at least 90% of the fair market value of the net assets
and at least 70% of the fair market value of the gross assets of MOMED
immediately prior to the Merger, and amounts used by MOMED to pay reorganization
expenses; to redeem stock and to pay dissenting stockholders, if any, will be
included as assets held by MOMED immediately prior to the Merger. The Missouri
General and Business
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<PAGE> 39
Corporation Act provides that MAIC Holdings will be responsible for the payment
of dissenting shares, therefore, MOMED will not be required to include any
amounts paid to dissenting stockholders in determining whether the
"substantially all" test has been met. Based on representations made by
management of MOMED, the "substantially all" test will be met in the Merger.
KPMG has also conditioned its opinion on the requirement that value of the
MAIC Holdings Common Stock issued in the Merger must be at least 50% of the
value of MOMED at the time of the Merger. Although the Internal Revenue Service
has not been clear as to the appropriate date and method for determining the
value of the MAIC Holdings Common Stock and the value of MOMED, management
believes that the market price of the MAIC Holdings Common Stock will be an
appropriate valuation method for the MOMED Common Stock to be exchanged for MAIC
Holdings Common Stock and that the Cash Election price shall be the appropriate
valuation of the MOMED Common Stock to be converted into cash. Based on this
assumption, this conditions should be satisfied if the price of the MAIC
Holdings Common Stock on the date of the Merger is not less than $27.30 per
share.
The Merger Agreement specifically provides that KPMG Peat Marwick will
update its opinion prior to giving effect to the Merger. If KPMG is unable to
give the opinion by reason of these conditions, then the Merger will be
abandoned. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the
Merger" and "-- Waiver, Amendment and Terminations."
Tax Consequences to MOMED Stockholders Who Receive Solely MAIC Holdings Common
Stock in the Merger
A holder of MOMED Common Stock will recognize neither gain or loss on the
exchange of all of his or her shares solely for MAIC Holdings Common Stock in
the Merger. The tax basis of the MAIC Holdings Common Stock received in the
Merger by such MOMED stockholder will be equal to the stockholder's tax basis
for the MOMED Common Stock exchanged therefor, and such stockholder will include
the period during which the stock surrendered was held in determining his or her
holding period for the MAIC Holdings Common Stock received in the Merger.
Tax Consequences to MOMED Stockholders Who Receive Solely Cash in the Merger
Holders of shares of MOMED Common Stock who receive cash in the Merger, or
holders of shares of MOMED Common Stock who receive cash upon the exercise of
any appraisal rights, will be subject to a taxable transaction for federal
income tax purposes. Such a stockholder will recognize gain or loss measured by
the difference between the tax basis for his or her shares and the amount of
cash received (unless the receipt of cash is treated as a dividend as described
below). In certain circumstances, the receipt of solely cash by a MOMED
stockholder could be treated as a dividend (to the extent of the stockholder's
ratable share of the applicable earnings and profits) if the stockholder
constructively owns shares of MOMED Common Stock that are exchanged for MAIC
Holdings Common Stock in the Merger. Additionally, in certain circumstances,
although the application of the law is not entirely clear, the receipt of solely
cash by a MOMED stockholder could be treated as a dividend (to the extent of the
stockholder's ratable share of the applicable earnings and profits) if the
stockholder owns MAIC Holdings Common Stock, actually or constructively after
the Merger. Generally a stockholder constructively owns stock that is owned by
members of the stockholder's family, and by certain controlled or related
partnerships, estates, trusts and corporations, pursuant to the constructive
ownership rules of Section 318 of the Code, as well as any shares that the
stockholder has an option to acquire.
The receipt of solely cash by a MOMED stockholder in exchange for his stock
will not be treated as a dividend if such exchange or receipt results in a
meaningful reduction or a substantially disproportionate reduction in the
stockholder's ownership interest or results in a complete termination of the
stockholder's interest, taking into account, in each case, the constructive
ownership rules described above. A complete termination of a stockholder's
interest will occur if, after the receipt of cash in exchange for stock, the
stockholder owns no shares of stock in MAIC Holdings. Thus, a stockholder who
receives solely cash for all of the MOMED Common Stock actually owned by him
will generally qualify for capital gain treatment under the complete termination
test if none of the shares constructively owned by him are exchanged in the
Merger
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<PAGE> 40
for MAIC Holdings Common Stock and the stockholder does not otherwise own,
actually or constructively, any shares of MAIC Holdings Common Stock after the
Merger. Where the complete termination of interest test is not satisfied with
respect to a particular stockholder (because for example, MOMED Common Stock
owned by a related party is exchanged for MAIC Holdings Common Stock in the
Merger), that stockholder will nevertheless generally be entitled to capital
gains treatment if the receipt of cash in exchange for his shares results in a
"substantially disproportionate" reduction or a "meaningful" reduction in his
ownership interest.
The Code provides a "safe harbor" for redemptions that will be considered
"substantially disproportionate," thereby resulting in capital gains treatment.
This treatment should normally result, if (i) the stockholder owns less than 50%
of the total combined voting power of all classes of stock of MAIC Holdings
immediately after the Merger, and (ii) the stockholder's proportionate stock
interest in MAIC Holdings immediately after the Merger is 20% or more below what
his proportionate interest in MAIC Holdings would have been had he received
solely MAIC Holdings Common Stock in the Merger. Even if such reduction in
interest would not amount to 20%, the Internal Revenue Service has indicated in
a published ruling that a distribution that results in any actual reduction in
the interest in a small minority stockholder in a publicly held corporation will
result in a "meaningful" reduction and will not constitute a dividend as the
stockholder exercises no control with respect to corporate affairs.
Tax Consequences to MOMED Stockholders Who Receive Both Cash and MAIC Holdings
Common Stock in the Merger
A MOMED stockholder may receive both cash and MAIC Holdings Common Stock in
exchange for his shares of MOMED Common Stock as a result of his or her Election
or proration because of the minimum and maximum number of MAIC Holdings Common
Stock to be issued in the Merger. MOMED stockholders who receive cash in
exchange for their shares of MOMED Common Stock, and who realize a gain upon the
exchange, will recognize such gain only to the extent of the cash received with
respect to such shares. An analysis similar to MOMED stockholders who receive
solely cash for their shares in the Merger will apply to determine if any gain
recognized by the stockholder will be treated as a receipt of a dividend (rather
than a capital gain).
Tax Consequences to MOMED Stockholders Who Receive Cash in Lieu of Fractional
Shares in the Merger
MOMED stockholders who receive cash in lieu of fractional shares of MAIC
Holdings Common Stock will be treated for federal income tax purposes as if the
fractional shares were distributed as part of the exchange then redeemed by MAIC
Holdings. These cash payments will be treated as having been received in full
payment in exchange for the amount of the MAIC Holdings Common Stock so
redeemed. The stockholders will recognize capital gain or loss equal to the
difference between the cash received and the basis of the fractional share
interests that would have been issued.
THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN
TAX ASPECTS OF THE MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING
PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER,
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD EFFECT THE CONTINUING VALIDITY OF
THIS DISCUSSION. KPMG HAS UNDERTAKEN TO UPDATE ITS OPINION AS A CONDITION TO THE
MERGER, AND SUCH OPINION MAY NOT BE ABLE TO BE UPDATED BY REASON OF CHANGES IN
FACTS OR LAW SUBSEQUENT TO THE DATE OF THE OPINION. MOMED AND MAIC HOLDINGS
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF
ANY STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
Pursuant to the Merger, MOMED will be merged with and into its ultimate
parent, MAIC Holdings. MOMED and its subsidiaries, including MOMEDICO, will
become wholly owned subsidiaries of MAIC Holdings. The Merger will be accounted
for as a purchase as that term is used pursuant to generally accepted
20
<PAGE> 41
accounting principles for accounting and financial reporting purposes. MAIC
Holdings will be the continuing legal entity and will remain as the registrant
for SEC filing purposes.
Under purchase accounting treatment, the operations of MOMED and its
subsidiaries will be included in the consolidated financial statements of MAIC
Holdings from the date of the Merger. The purchase price, determined based on
the cash and fair value of the stock exchanges, plus direct acquisitions costs,
will be allocated to MOMED's tangible and intangible assets acquired and
liabilities assumed based on their fair values with any excess purchase price
being recorded as goodwill.
REGULATORY APPROVALS
The Merger Agreement was executed on June 11, 1996. The Merger Agreement is
subject to approval by the Missouri Commissioner of Insurance by reason of the
change of control of MOMED under the Missouri Holding Company System Regulatory
Act. The Merger Agreement was approved by the Missouri Commissioner on August
13, 1996, after a public hearing thereon, in accordance with the Missouri
Holding Company Act. The Missouri Commissioner in his order found, among other
things, that:
(a) After the acquisition of MOMEDICO by MAIC Holdings, MOMEDICO would
be able to satisfy the requirements for the issuance of a license to the
line or lines of insurance for which it is presently licensed in Missouri
(see "THE COMPANIES -- MOMED Holding Co.");
(b) The effect of the acquisition of MOMEDICO by MAIC Holdings would
not be substantially to lessen competition in insurance or tend to create a
monopoly in the State of Missouri;
(c) The financial condition of MAIC Holdings is not such that as may
jeopardize the financial ability of MOMEDICO or prejudice the interests of
its policyholders;
(d) MAIC Holdings' plans, if any, to liquidate or sell MOMEDICO or to
consolidate or merge it with any other company or to make any other
material change in MOMEDICO's business, corporate structure, or management
are not unfair or unreasonable to policyholders of MOMEDICO or contrary to
the public interests;
(e) The competence, experience or integrity of MAIC Holdings'
management are such that it would not be contrary to the interests of
policyholders of MOMEDICO and of the public to permit the acquisition of
MOMEDICO by MAIC Holdings; and
(f) The proposed acquisition of MOMEDICO by MAIC Holdings is not
likely to be hazardous or prejudicial to the insurance buying public.
In addition, MAIC Holdings and MOMED were required to file a prior notice
with the Federal Trade Commission and the Department of Justice under the
Hart-Scott-Rodino Anti-Trust Improvement Acts of 1976. The Merger is conditioned
upon the expiration of the waiting period without any objections by the
Department of Justice and the Federal Trade Commission with regard to the
proposed acquisition. MAIC Holdings received notification that the Federal Trade
Commission had granted a request for early termination of the waiting period
with respect to the proposed acquisition by MAIC Holdings of voting securities
of MOMED effective on August 9, 1996.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Certain directors and officers of MOMED have personal interests in the
Merger, as described below, that may present them with potential conflicts of
interest in connection with the Merger. The Board of Directors of MOMED is aware
of the conflicts described below and considered them in addition to matters
described under "-- Background of the Merger" and "-- Approval and
Recommendation of the Boards of Directors."
MAIC Holdings has agreed that during the five years following the Merger
(the "Transition Period") the Board of Directors of MOMED will continue to serve
as the Board of Directors of MOMED until its next annual meeting of
shareholders. At each annual meeting of shareholders of MOMED during the
Transition Period and provided certain conditions are satisfied, MAIC Holdings
will vote its shares of MOMED to elect
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<PAGE> 42
a Board of Directors of the surviving corporation comprised of (i) two persons
selected by MAIC Holdings, (ii) the Chief Executive Officer of MOMED, (iii)
three persons nominated by the Missouri State Medical Association, (iv) two
persons who are knowledgeable concerning the professional liability insurance
business and who are nominated by a majority vote of the Board of Directors of
the surviving corporation, and (v) seven persons who are insured by an MAIC
Holdings subsidiary and are members of the Missouri medical community in good
standing and who are nominated by a majority vote of the Board of Directors of
MOMED. The directors so elected will be elected for three year terms with
staggered election dates among the various categories. See "THE
COMPANIES -- MOMED Holding Co." and "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Certain Post-Closing Covenants."
MAIC Holdings has also agreed that substantially the same terms and
conditions of existing employment agreements for the President and Chief
Executive Officer, Executive Vice President and Chief Operating Officer, and
Vice President -- Claims of MOMED shall remain in effect, and upon their
respective expiration dates, the employment of such persons shall continue
during the remainder of the Transition Period in the same or similar capacities
and at substantially the same rate of compensation, subject to approval of the
Board of Directors of MOMED during the Transition Period. Richard V. Bradley,
M.D., is currently serving as the President and Chief Executive Officer of MOMED
and MOMEDICO under the terms of an employment agreement between MOMED and
Bradley DeMonbrun, Ltd., an affiliate of Dr. Bradley. Bradley DeMonbrun, Ltd.
agrees to provide the services of Dr. Bradley to MOMED and MOMEDICO on a
full-time basis for the purposes of his serving as President and Chief Executive
Officer of each of MOMED and MOMEDICO. The term of the employment agreement
expires on October 1, 1999. The total annual compensation under the employment
agreement is currently $210,362 subject to increase at the rate of 3% annually
effective October 1 in each year during the term of the contract. Kriete H.
Hollrah is currently serving as Executive Vice President and Chief Operating
Officer of MOMED under an employment agreement with MOMED. His employment
agreement was amended in 1996 to extend the term to September 10, 1999, and his
current salary is $120,139 subject to a minimum increase of 3% effective on
September 10 during each year of the term of his agreement. Russell L. Oldham is
currently serving as Vice President -- Claims of MOMED under an employment
agreement that will expire on August 1, 1999. Mr. Oldham is currently being paid
a salary of $91,127 annually subject to a minimum per annum increase at the rate
of 3% effective August 1 during each year of the term of his agreement.
At the Effective Time, MOMED and MAIC Holdings will enter into a nomination
agreement pursuant to which MAIC Holdings has agreed to appoint Dr. Richard V.
Bradley as a representative on the MAIC Board of Directors until the next MAIC
Holdings annual meeting. Thereafter, MOMED will have the right to nominate one
person to be elected for a three year term on the MAIC Board of Directors during
the term of the agreement. The term of the agreement is for an initial period of
five years beginning at the Effective Time and will be automatically renewed or
extended for succeeding one year terms unless either MAIC or MOMED notifies the
other that it desires to terminate the agreement.
Under the terms of the Merger Agreement, MOMED was required to and has
redeemed all of the issued and outstanding Class C Common Stock in accordance
with the terms and conditions of the Share Exchange Agreement with MSMA. As the
holder and owner of all of the Class C Common Stock, MSMA will receive
approximately $707,000 (including accrued interest) in exchange for its Class C
Common Stock. At the present time, MSMA has three representatives on the MOMED
Board of Directors and has the right to continue to have three directors on the
Board of Directors of MOMED until the Nomination Agreement with MOMED expires in
1999. MSMA also beneficially owns 84,555 shares of MOMED Common Stock
representing approximately 11.5%of the outstanding shares of such stock, which
will be eligible to be exchanged for Merger Consideration under the terms and
conditions of the Merger. See "THE COMPANIES -- MOMED Holding Co." and "Expected
Security Ownership of Certain Beneficial Owners and Management of MOMED Before
and After the Merger."
Shares of MOMED Common Stock held by officers and directors of MOMED and
MOMEDICO will be converted into shares of MAIC Holdings Common Stock or cash on
the same basis as shares of MOMED Common Stock held by other stockholders of
MOMED.
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<PAGE> 43
EFFECT ON EMPLOYEE BENEFIT PLANS
MOMED currently has a defined benefit retirement plan which covers all
full-time employees who have one year of eligible service which is based upon
1,000 hours of work within a one year period beginning with the employee's first
date of employment. The defined benefit plan is non-contributory and benefits
under the plan are determined based on annual compensation for the plan year
utilizing five consecutive compensation years in the last ten years which
produced the highest average compensation. MOMED also has a 401(k) retirement
plan for employees of MOMED and its subsidiaries. Employees are eligible to
participate in the plan upon completion of three months of employment. MOMED
currently matches 75% of the first 4% of employee contributions. MOMED's
contributions become 100% vested to the employee after five years of service.
The defined benefit plan and the 401(k) plan will be terminated within two years
after the Effective Time and the employees of MOMED and its subsidiaries who
participate therein will be entitled to their vested benefits upon such
termination. Distributions will not occur until all governmental filings have
been made and a favorable determination letter has been received from the
Internal Revenue Service.
MAIC Holdings currently has a profit sharing retirement plan pursuant to
which MAIC Holdings makes a contribution equal to 10% of the aggregate
compensation of each participant who completes 1,000 hours of service during the
year and is employed on the last day of the year. The contribution is allocated
to participants' accounts pursuant to an integrated allocation formula, e.g.,
the amount allocated each participant is dependent upon the amount of such
participant's compensation and the amount of his compensation that exceeds
social security taxable wage base. Participants' benefits under the profit
sharing plan vest after five years employment. MAIC Holdings also has a
noncontributory 401(k) retirement plan pursuant to which such employees may
contribute up to 12% of their compensation. The employees of MOMED and its
subsidiaries will be eligible to participate in the MAIC Holdings' retirement
plans and will receive credit for prior years' employment with MOMED and its
subsidiaries. Vested benefits from terminated MOMED plans may take the form of a
direct roll-over to MAIC Holdings' retirement plans.
In addition to the retirement plans, MAIC Holdings has a Thrift Plan
pursuant to which each employee of MAIC Holdings and its subsidiaries who has
completed at least one year of service is eligible to participate in this plan
at his or her election. MAIC Holdings loans $.35 for each $.65 deposited by a
participating employee under the Thrift Plan. MAIC Holdings applies the
employees' deposits of loan proceeds toward the purchase of common stock of MAIC
Holdings in the open market for the account of such employees. The shares
purchased are pledged as securities and the shares purchased with the deposits
and loan proceeds are released from the pledge after four years if the employee
continues to be employed by MAIC Holdings or a subsidiary. Employees of MOMED
will be eligible to participate in the Thrift Plan if they have been employed by
MOMED or its subsidiaries at least one year prior to the Effective Time of the
Merger.
MAIC Holdings also has an Incentive Compensation Plan pursuant to which a
Stock Option Committee of the Board of Directors of MAIC Holdings may grant
stock options or stock awards to key employees of MAIC Holdings and its
subsidiaries. Currently there are no stock options outstanding. However,
employees of MOMED will be eligible to participate in the Incentive Compensation
Plan at the Effective Time.
EXPECTED SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF MOMED
AND MAIC HOLDINGS BEFORE AND AFTER THE MERGER
MAIC Holdings
The shares of MAIC Holdings Common Stock to be issued in the Merger,
including the shares to be issued to MOMEDICO, represent less than 5% of the
issued and outstanding shares of MAIC Holdings Common Stock. Accordingly, there
will be no significant change in the percentage ownership of the stockholders of
MAIC Holdings.
MOMED
The following table sets forth the number and percentage of outstanding
shares of MOMED Common Stock beneficially owned as of September 20, 1996, and
the pro forma percentage of shares of MAIC Holdings Common Stock that will be
beneficially owned after the Merger by (i) certain executive officers of
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<PAGE> 44
MOMED; (ii) each director of MOMED; (iii) all executive officers and directors
of MOMED as a group; and (iv) each person or entity known by MOMED to own more
than 5% of the outstanding MOMED Common Stock. The table assumes all such
persons will make Stock Elections and that all of their shares of MOMED Common
Stock will be converted into MAIC Holdings Common Stock.
<TABLE>
<CAPTION>
AFTER THE MERGER
BEFORE THE MERGER -------------------------
NAME OF ----------------------- PRO FORMA PRO FORMA
BENEFICIAL OWNER(1) TITLE SHARES PERCENTAGE(1) SHARES PERCENTAGE(1)
- ------------------------ -------------------------- ------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Richard V. Bradley,
M.D................... President and Director 40,956 5.6% 31,904 *
Thomas J. Cooper,
M.D................... Director 37,593 5.1% 29,284 *
Dale E. Darnell, M.D.... Director 3,600 * 2,804 *
Leonard L. Davis, Jr.,
M.D................... Director 39,186 5.4% 30,525 *
Gary A. Dyer, M.D....... Director 3,000 * 2,337 *
H. Peter Ekern, M.D..... Director 450 * 350 *
Eugene T. Hansbrough,
M.D................... Director 6,000 * 4,674 *
Kriete Hollrah.......... Executive Vice President 11,562 1.6% 9,006 *
R. J. King.............. Director 6,750 * 5,258 *
Norman P. Knowlton, III,
M.D................... Director 300 * 233 *
Howard E. Linville,
M.D................... Chairman of the Board 3,000 * 2,337 *
John I. Matthews,
M.D................... Director 19,719 2.6% 15,361 *
Russell L. Oldham....... Vice President -- Claims 3,420 * 2,664 *
Meredith J. Payne,
M.D................... Director 300 * 233 *
Garth S. Russell, Chief Financial Officer
M.D................... and Director 47,733 6.5% 37,184 *
Secretary-Treasurer and
James M. Stokes, M.D.... Chief Accounting Officer 600 * 467 *
Assistant Vice
Patricia J. Walsh....... President -- Underwriting 150 * 116 *
Vice President Marketing
Kimberly A. Wolterman... and Risk Management 525 * 408 *
All directors and
officers as a group
(18 persons).......... 224,844 30.7% 175,145 1.8%
</TABLE>
<TABLE>
<CAPTION>
BEFORE THE AFTER THE
MERGER MERGER
----------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Other Principal Shareholders
Missouri State Medical Association(2)...............
113 Madison Avenue
Jefferson City, MO 65102 84,555 11.5% 65,868 *
MOMEDICO(1).........................................
8630 Delmar Boulevard
St. Louis, MO 63124 60,144 8.2% 46,852 *
</TABLE>
- ---------------
* Less than one percent.
(1) The percentage before the Merger is based on 732,198 shares of MOMED Common
Stock that are currently issued and outstanding, and the percentage after
the Merger is based on 9,719,832 shares of MAIC Holdings Common Stock which
is the sum of 9,369,832 shares of MAIC Holdings Common Stock that are
currently outstanding and 350,000 shares of MAIC Holdings Common Stock to
be issued in the Merger. Shares of MAIC Holdings Common Stock to be issued
to MOMEDICO are not considered because shares held by a subsidiary of a
Delaware parent cannot be voted even though such shares are considered
issued and outstanding.
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(2) Includes 12,000 shares held by Missouri State Medical Insurance, Inc., a
wholly owned subsidiary of the Missouri State Medical Association.
COMPARISON OF STOCKHOLDER RIGHTS
MAIC Holdings is a Delaware corporation and MOMED is a Missouri
corporation. The following is a summary of differences between the rights of
stockholders in Delaware and Missouri corporations. This summary does not
purport to be a definitive discussion of the differences in the corporation laws
of Delaware and Missouri, and is qualified in its entirety by the General
Corporation Law of Delaware, The General and Business Corporation Law of
Missouri, the Articles of Incorporation of MOMED and the Certificate of
Incorporation of MAIC Holdings. See also "-- Certain Anti-Takeover Provisions of
the Certificate of Incorporation of MAIC Holdings; Position of the Board of
Directors."
Voting Requirements
Under Missouri law, mergers or share exchanges, the sale, lease, or
exchange or other disposition of all or substantially all of a corporation's
assets if not made in the ordinary course of business requires the affirmative
vote of the holders of at least two-thirds ( 2/3) of the outstanding shares
entitled to vote. Amendments to the Articles of Incorporation must be approved
by the affirmative vote of a majority of the outstanding shares entitled to vote
thereon, unless any class is entitled to vote thereon as a class, in which event
the adoption of proposed amendment requires the affirmative vote of a majority
of the outstanding shares of each class of shares entitled to vote thereon as a
class and of the total shares entitled to vote thereon. The effect of this
provision is that where a class is entitled to vote on an amendment as a class,
the proposed amendment must be approved by a majority of each class entitled to
vote thereon as well as the majority of the shares in all classes.
The holders of the outstanding shares of a class of a Missouri corporation
are entitled to vote as a class upon a proposed amendment to the articles of
incorporation, whether or not they have voting rights under the articles of
incorporation, if the amendment would: (i) increase or decrease the aggregate
number of authorized shares of the class; (ii) increase or decrease the par
value of the shares of the class; (iii) effect an exchange, reclassification or
cancellation of all or part of the shares of the class; (iv) effect an exchange,
or create a right of exchange, of all or any part of the shares of another class
into shares of the class; (v) change the designations, preferences, limitations
or relative rights of the shares of the class; (vi) change the shares of the
class, whether with or without par value, into the same or a different number of
shares, either with or without par value, of the same class or another class;
(vii) create a new class of shares having rights preferences prior or superior
to the shares of the class, or increase the rights and preferences or the number
of authorized shares, of any class having rights and preferences prior or
superior to the shares of the class; (viii) in the case of a preferred class of
shares, divide the shares of the class into series and fix and determine the
designation of the series and the variations in the relative rights and
preferences between the shares of the series, or authorize the board of
directors to do so; (ix) establish, limit, or deny any preemptive rights of the
shares of the class; or (x) cancel or otherwise affect dividends on the shares
of the class which have accrued but have not been declared. A merger or
consolidation which does not affect the number of authorized shares, par value,
designations, preferences, limitations or relative rights of shares of a
preferred class shall not be deemed to constitute and amendment for purposes of
the statute.
By comparison, Delaware law requires only the affirmative vote of a
majority of all outstanding voting shares, and of each class entitled to vote
thereon, to effect a merger, an amendment to the Certificate of Incorporation
and the sale of substantially all assets. Delaware law does not require classes
of shares to vote separately on a merger unless required by the Certificate of
Incorporation. In the case of an amendment to the Certificate of Incorporation,
Delaware law requires the shares of a class to vote separately on the amendment,
whether or not voting or nonvoting shares, only if the amendment would (a)
increase or decrease the authorized number of shares of such class (unless
otherwise provided in the Certificate of Incorporation); (b) increase or
decrease the par value of the shares of such class; or (c) alter or change the
powers, preferences of the stockholders of such class so as to affect them
adversely. The Certificate of Incorporation of MAIC Holdings requires an
affirmative vote of 80 percent of the outstanding voting shares, voting together
as
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a class, for any amendment, repeal or adoption of certain provisions of its
Certificate of Incorporation relating to the classification of the Board of
Directors, the election to be subject to Section 203 of the General Corporation
Law of Delaware and other provisions relating to proposed business combinations,
and amendment of the ByLaws. The special votes required for amendments to these
provisions of the Certificate of Incorporation are designed to deter
stockholders of MAIC Holdings from circumventing such provisions by amending the
Certificate of Incorporation of MAIC Holdings. See "-- Certain Anti-Takeover
Provisions of the Certificate of Incorporation of MAIC Holdings; Position of the
Board of Directors."
Removal of Directors
Like Delaware law, Missouri law provides a statutory method for the removal
of directors, with or without cause, at a special meeting of the stockholders
called for that purpose. Delaware law provides that where a corporation has a
staggered board of directors, then a director may only be removed for cause
regardless of whether so stated in the Certificate of Incorporation, thereby
eliminating any need to make any such provision in the certificate of
incorporation. Because MAIC Holdings' Board of Directors is staggered, MAIC
Holdings stockholders are only able to remove its directors for cause, and MAIC
Holdings' Certificate of Incorporation provides for the removal of directors
from the Board of Directors only by a vote of the majority of the outstanding
shares of its stock. Under Missouri law, and the articles of incorporation and
ByLaws of MOMED, one or more directors or the entire board of directors may be
removed with or without cause by vote of the holders of the majority of the
shares then entitled to vote in the election of directors.
Appraisal Rights
Both Missouri and Delaware law provide rights of appraisal for stockholders
who desire to dissent from the terms of a merger or consolidation. Missouri also
provides appraisal rights for a sale of all or substantially all of the
corporate assets other than in the regular course of business.
Under these statutes, a stockholder who properly dissents from the terms of
a transaction in which he has appraisal rights may demand that the corporation
pay him: (i) in Missouri the fair value of his shares as of the day prior to the
date on which the vote was taken approving the transaction; or (ii) in Delaware,
the fair value of the shares exclusive of any element of value arising from the
accomplishment or expectation of the transaction. The procedures for perfecting
appraisal rights are different for Missouri and Delaware corporations. For a
description of the appraisal procedure for holders of MOMED Common Stock, see
"Appraisal Rights"
Notice of Stockholder Meeting
Under Missouri law, written or printed notice of each meeting of
stockholders stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is called, must
be delivered or given not less than ten (10) nor more than seventy (70) days
before the date of the meeting. Under Delaware law, stockholders are generally
entitled to written notice of a stockholders' meeting not less than ten (10)
days nor more than sixty (60) days prior to the meeting, except for meetings to
vote on the merger, consolidation or sale of substantially all of the assets of
the corporation, in which case advance written notice of not less than twenty
(20) days is required under Delaware law. There is no similar notice provision
specifically addressing stockholder notice for mergers, consolidations or sales
of the substantially all of the assets of a corporation under Missouri law.
Dividends
The legal ability of the Board of Directors to declare and pay dividends on
the outstanding common stock is different for Missouri and Delaware
corporations. Delaware corporations may pay dividends to the extent of the
corporation's surplus (retained earnings and paid in capital), and if no surplus
is available, dividends may be paid to the extent of the net profits of the
corporation for the current and preceding fiscal year, if there is no deficiency
in the amount of capital represented by all outstanding classes of preferred
stock.
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Missouri corporations may pay dividends subject to the limitations set
forth below provided that no dividend shall be paid at a time when the net
assets of the corporation are less than its stated capital or when the payment
thereof would reduce the net assets of the corporation below its stated capital.
If a dividend is declared out of the paid-in surplus of the corporation, whether
created by reduction of stated capital or otherwise, the following limitations
shall apply: (i) no such distribution shall be made to any class of stockholders
unless all cumulative dividends accrued on preferred or special classes of
shares entitled to preferred dividends shall have been fully paid; (ii) no such
distribution shall be made to any class of stockholders when the net assets are
less than its stated capital or when such distribution would reduce the net
assets below the stated capital; or (iii) each such distribution, when made,
shall be identified as a liquidating dividend and the amount per share shall be
disclosed to the stockholders receiving the same, concurrently with the payment
thereof.
Permitted Business Combinations
Section 351.459 of the General and Business Corporation Law of Missouri
("Section 351.459") imposes a five (5) year restriction, with some exceptions,
on certain transactions and business combinations between a resident domestic
corporation and any person, other than the resident domestic corporation or a
subsidiary thereof, who is a beneficial owner, directly or indirectly, of twenty
percent (20%) or more of the outstanding voting stock of the resident domestic
corporation or who is an affiliate or associate of such resident domestic
corporation and at any time within the five year period immediately prior to the
date in question was the beneficial owner, directly or indirectly, of twenty
percent (20%) or more of the then outstanding voting stock of such resident
domestic corporation ("Interested Stockholder"). This five (5) year restriction
does not apply if such business combination or the purchase of stock made by
such Interested Stockholder or such Interested Stockholder's stock acquisition
date is approved by the board of directors of such resident domestic corporation
on or prior to such stock acquisition date or to any of the following business
combinations: (i) a business combination approved by the board of directors of
such resident domestic corporation prior to such Interested Stockholder's stock
acquisition date, or where the purchase of stock made by such Interested
Stockholder on such Interested Stockholder's stock acquisition date had been
approved by the board of directors of such resident domestic corporation prior
to such Interested Stockholder's stock acquisition date; (ii) a business
combination approved by the affirmative vote of the holders of a majority of the
outstanding voting stock not beneficially owned by such Interested Stockholder
or any affiliate or associate of such Interested Stockholder at a meeting called
for such purpose no earlier than five (5) years after such Interested
Stockholder's stock acquisition date; and (iii) any business combination in
which the consideration is required to be paid to all Stockholders at a minimum
price based on the price paid by the Interested Stockholder for shares in the
five year period or current market value, whichever is greater.
In addition to Section 351.459, the Missouri General and Business
Corporation Act provides specific factors that the Board of Directors may
consider when exercising its business judgment on an acquisition proposal. These
factors include the consideration offered in relation to the Board's estimate of
(i) the current value of the corporation in a freely negotiated sale or business
combination; (ii) the liquidated value of the corporation; or (iii) the future
value of the corporation over a period of years as a separate entity if
discounted to current value. The Board may also consider (A) then existing
political, economic and other factors bearing on security prices generally or
the current market price of the corporation in particular; (B) whether the
acquisition proposal will violate federal, state or local laws; (C) social,
legal and economic effects on employees, suppliers and others having similar
relationships with the corporation and the effect on the communities in which it
does business; (D) the financial condition and earning prospects of the person
making the acquisition; and (E) the competence, experience or integrity of the
person making the acquisition proposal.
Further, the Board of Directors of MOMED adopted a Stockholders' Rights
Protection Plan on February 24, 1995. This plan is designed to protect the
stockholders from persons attempting to acquire shares of MOMED Common Stock by
a partial tender offer or by buying shares in the market or in negotiated
transactions, without paying a fair premium for control and without offering a
fair price for all stockholders. On the adoption date, the MOMED Board declared
a dividend of one common share purchase right for each
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outstanding share of MOMED Common Stock of record or March 6, 1995. In the event
any person acquires 20 percent of the outstanding MOMED Common Stock, each right
will give the holder the option to purchase three shares of MOMED Common Stock
for $50.00. The rights expire February 24, 2005, and may be redeemed by the
Board of Directors from the record holders thereof at a price of $0.01 per right
at any time prior to the right becoming exercisable. On December 8, 1995, the
Board of Directors approved a 3 for 1 stock split resulting in three rights
issued for each share of MOMED Common Stock then outstanding and a reduction in
the exercise price to $16.66 per share. In any event, the Board of Directors of
MOMED at its meeting on September 13, 1996, authorized the redemption of the
rights under the Plan upon approval of the Merger by the holders of MOMED Common
Stock. See "THE COMPANIES -- MOMED Holding Co. -- Rights Plan" and "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT -- Conditions to Consummation of the Merger."
Section 203 of the Delaware General Corporation Law ("Section 203")
imposes, with certain exceptions, a three (3) year ban on certain transactions
and business combinations between a corporation (or its majority owned
subsidiaries) and a holder of fifteen percent (15%) or more of the corporation's
outstanding voting stock, together with affiliates or associates thereof. The
three year ban does not apply if either the proposed business combination or the
transaction by which the fifteen percent (15%) stockholder became a fifteen
percent (15%) stockholder is approved by the board of directors of the
corporation prior to becoming a fifteen percent (15%) stockholder, if the
fifteen percent (15%) stockholder owns at least eighty-five percent (85%) of the
outstanding voting stock of the corporation, without regard to those shares
owned by the corporation's officers and directors or certain employee stock
plans, or if approved by the board of directors of the corporation and, at an
annual or special meeting, by the holders of sixty-six and two-thirds percent
(66-2/3%) of the outstanding voting stock of the corporation not owned by the
fifteen percent (15%) stockholder. The Certificate of Incorporation of MAIC
Holdings includes an affirmative election for MAIC Holdings to be subject to and
controlled by Section 203. The election to be controlled by Section 203 cannot
be amended without the affirmative vote of the holders of more than eighty
percent (80%) of the outstanding voting stock of MAIC Holdings.
Delaware has no comparable provision to the provision in the Missouri
General and Business Corporation Law that specifies the factors that the Board
of Directors of a Delaware corporation may consider in exercising its business
judgment in connection with an acquisition proposal. The Certificate of
Incorporation of MAIC Holdings, however, includes a provision that permits
directors to consider the interests of its employees, customers and suppliers
and the communities in which it serves when considering a proposed acquisition
or business combination. It is uncertain as to whether such a provision has any
affect on the legal duty of the Board of Directors of a Delaware corporation
when considering such a proposal.
Section 251
Unless a Delaware corporation's certificate of incorporation provides
otherwise, the Delaware General Corporation Law limits stockholders' voting
rights on certain business combinations with other corporations. MAIC Holdings
as a Delaware corporation does not require a vote of stockholders to authorize a
merger in which it will be the surviving corporation if (i) the agreement or
merger does not amend the certificate of incorporation of such constituent
corporation, (ii) does not issue newly authorized stock, and (iii) does not
issue stock in an amount in excess of twenty percent (20%) of its issued and
outstanding stock immediately prior to the effective date of the merger.
This section is peculiar to Delaware corporations and does not apply to
Missouri corporations such as MOMED.
Control Share Acquisitions
Section 351.407 of the General and Business Corporation Law of Missouri
("Section 351.407") restricts the voting rights of "control shares" of a "public
corporation" acquired in a "control share acquisition" to those approved by the
stockholders of the public corporation. "Control Shares" are defined as shares
that would have voting power with respect to shares of a public corporation
that, when added to all other shares of
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the public corporation owned by a person or in respect to which that person may
exercise or direct the exercise of voting power, would entitle that person
immediately after the acquisition of the shares, directly or indirectly, alone
or as part of a group, to exercise or direct the exercise of the voting power of
the public corporation in the election of directors within any of the following
ranges of voting power: (i) one-fifth ( 1/5) or more, but less than one-third
( 1/3) of all the voting power; (ii) one-third ( 1/3) or more, but less than a
majority of all the voting power; or (iii) a majority or more of all voting
power; provided however, that shares which the person or the group have owned or
which the person or the group could have exercised or directing the voting for
more than ten (10) years shall not be deemed to be "control shares" and shall
not be aggregated for the purpose of determining inclusion within the
above-stated ranges. A "control share acquisition" generally does not include
shares that were acquired prior to 1984 and are subject to a gift or
testamentary transfer nor does it include most transactions in which the public
corporation is a party. If the person acquiring control shares in a control
share acquisition objects to the voting rights approved by the stockholders, the
person holding the control shares may object to the voting rights and demand to
have his control shares purchased by the corporation at the fair value of such
control shares. A corporation's articles of incorporation or ByLaws may provide
that Section 351.407 does not apply to control share acquisitions of shares of
the corporation. The Articles of Incorporation and ByLaws of MOMED do not so
provide.
Section 351.407 is peculiar to Missouri corporations and does not apply to
Delaware corporations such as MAIC Holdings.
Staggered Board
Both Missouri and Delaware law allows for staggered boards. The MOMED
Articles of Incorporation provide that the Board of Directors shall consist of
not less than nine (9) nor more than twenty-five (25) persons divided into three
classes, and MOMED currently has a board with fifteen (15) members serving terms
of three years. MAIC Holdings' Certificate of Incorporation provides that the
Board of Directors shall be divided into three classes of directors and that the
directors shall serve staggered terms of three years. MAIC Holdings ByLaws
provide for a Board of Directors with no less than four (4) and no more than
twenty-four (24) directors. The Board of Directors of MAIC Holdings currently
consists of seven (7) directors, a number which is allowed for a staggered board
under Delaware law.
Stockholder Consents
Both Missouri and Delaware law allow stockholders or stockholders to act
without a meeting or notice of a meeting by written consent. Delaware provides
for such written consent, unless otherwise provided in the Certificate of
Incorporation, to be signed by the holders of at least the minimum number of
votes which would be necessary to authorized such action at a meeting of all
eligible stockholders; whereas, Missouri requires unanimous written consent. The
Certificate of Incorporation of MAIC Holdings requires unanimous consent .
Blank Check Preferred Stock
MAIC Holdings' Certificate of Incorporation has authorized the issuance of
50,000,000 shares of preferred stock of which the designations and powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof (collectively, "Characteristics"), may be undetermined until fixed by
resolution or resolutions of the Board of Directors ("Blank Check Preferred
Stock"). The purpose of Blank Check Preferred Stock is to provide the Board of
Directors with financial flexibility to raise additional capital through the
issuance of senior securities and to provide the Board of Directors the ability
to respond to hostile takeover bids. By leaving the Characteristics undetermined
until resolved by the Board of Directors, the Board of Directors is able to
issue one or more classes of customized preferred stock to individuals or
corporations in negotiated transactions at any time in the future without a vote
of the stockholders. Blank Check Preferred Stock also allows the Board of
Directors to react quickly, in the face of a hostile bid, by issuing preferred
stock with Characteristics unfavorable to the hostile bidder in order to make
such an acquisition less economical. Blank Check Preferred Stock is allowed
under Missouri law. However, the articles of incorporation of MOMED provide that
the corporation shall not, without the approval of the holders of at least a
majority of the outstanding MOMED Common Stock create any other class or series,
including any series issued by the
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Board of Directors pursuant to authority conferred by the Articles of
Incorporation, or issue any stock to which the MOMED Common Stock would be
junior as to either dividends or liquidation or both.
Indemnification
MAIC Holdings Certificate of Incorporation provides for the indemnification
of its directors, officers, employees or agents to the fullest extent
permissible by Delaware law. Delaware provides that a director, employee,
officer or agent of a Delaware corporation may be indemnified against liability
(other than an action by or in the right of the corporation) and other costs
incurred by such person in connection with such proceedings, provided such
person acted in good faith and in a manner such person reasonably believed to
be, or at least not opposed to, the best interest of the corporation, and, with
respect to any criminal proceedings, had no reason to believe the conduct was
unlawful. For actions or suits brought by or in the name of the corporation, the
Delaware statute provides that a director, employee, officer or agent of a
corporation may be indemnified against expenses incurred by such person in
connection with such proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in, or at least not opposed to, the
best interest of the corporation, except that if such person is judged to be
liable to the corporation, such person can be indemnified if and only to the
extent that a court determines that despite the adjudication of liability, in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper. The
Delaware law provides that, if such director, employee, officer or agent
prevails, indemnification is mandatory.
Missouri law allows for indemnification, other than for actions by or in
the right of the corporation, of any person by reason of the fact that such
person was serving as a director, officer, employee or agent of the corporation,
so long as such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. For actions by or in the right of the
corporation, indemnification is allowed so long as such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation; except that no indemnification is allowed
in respect of any claim, issue or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his or her duty to
the corporation. The Articles of Incorporation of MOMED provide that MOMED shall
indemnify any person who is or was a director, officer or employee of MOMED, or
is or was serving at the request of MOMED as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any and all expenses, including attorneys fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by such
person in connection with any civil, criminal, administrative, or investigative
action, proceeding or claim (including an action by or in the right of the
corporation) by reason of the fact that such person is or was serving in such
capacity, provided such person's conduct is not finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful misconduct.
Both Missouri and Delaware corporations may purchase insurance or establish
reserves for self insurance on behalf of its directors, officers, employees and
agents to provide indemnification against any liability asserted against them in
such capacity whether or not such indemnity would otherwise be permitted by law.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
AS MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING MAIC HOLDINGS
PURSUANT TO THE FOREGOING PROVISIONS, MAIC HOLDINGS HAS BEEN INFORMED THAT IN
THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF 1933 AND IS
THEREFORE UNENFORCEABLE. IN THE EVENT A CLAIM FOR INDEMNIFICATION AGAINST SUCH
LIABILITIES (OTHER THAN THE PAYMENT BY MAIC HOLDINGS OF EXPENSES INCURRED OR
PAID BY A DIRECTOR, OFFICER OR CONTROLLING PERSON OF MAIC HOLDINGS IN A
SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH
DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES BEING
REGISTERED, MAIC HOLDINGS WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE MATTER
HAS BEEN
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SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE JURISDICTION
THE QUESTION OF WHETHER SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE SECURITIES ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION
OF SUCH ISSUE.
Director Liability
The General Corporation Law of Delaware permits Delaware corporations to
include a provision in their certificates of incorporation which limit or
eliminate the personal liability of a director to a corporation and its
stockholders for monetary damages for such person's conduct as a director,
provided that such provision may not so limit a director's liability (i) for a
breach of his or her duty of loyalty to the corporation or its stockholders;
(ii) for acts or omissions not in good faith or involving intentional misconduct
or a knowing violation of law, (iii) for unlawful payments of dividends, certain
stock repurchases or redemptions, or (iv) for any transaction from which the
director derived an improper personal benefit. The MAIC Holdings' Certificate of
Incorporation includes a provision so limiting its directors' liability. The
inclusion of this provision has the effect of protecting MAIC Holdings directors
against personal monetary liability from any breach of their duty of care.
Missouri has no comparable provision in its corporation laws.
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE CERTIFICATE OF INCORPORATION OF MAIC
HOLDINGS; POSITION OF THE BOARD OF DIRECTORS
The Certificate of Incorporation of MAIC Holdings, like that of MOMED,
includes certain "anti-takeover" provisions which are intended to prevent a
change of control of MAIC Holdings as a result of actions by less than a
substantial majority of the stockholders. These provisions may have the effect
of deterring both friendly and "unfriendly" changes in control of MAIC Holdings.
These and other provisions affect stockholder rights and should be given careful
attention.
Capital Stock. The Certificate of Incorporation of MAIC Holdings
authorizes 100,000,000 shares of common stock and 50,000,000 shares of preferred
stock. Such shares may be issued by the Board of Directors of MAIC Holdings
without further action or authorization by the stockholders of MAIC Holdings
(unless required in a specific case by applicable laws or regulations or by any
stock exchange upon which the shares may at the time be listed). The preferred
stock of MAIC Holdings may be issued in one or more classes or series and may
have such voting powers, if any, designations, preferences and relative,
participating, optional and other special rights, qualifications, limitations
and restrictions as its Board may fix by resolution or resolutions at the time
of issuance.
The authorization granted to the Board of MAIC Holdings to issue the
unissued shares of its common stock and its preferred stock provides MAIC
Holdings with the flexibility necessary to meet its future needs without
experiencing the time delay of having to seek stockholder approval to authorize
the creation of additional authorized capital stock. The unissued shares of
common stock (and the preferred stock) will be available for issuance from time
to time for any corporate purpose, including, without limitation, stock splits,
stock dividends, policyholder benefit plans, employee benefit and compensation
plans, acquisitions, and public or private sales for cash as a means of raising
capital.
Additionally, the Board of MAIC Holdings may use its authority to issue the
common stock or preferred stock in a way that could deter or impede the
completion of a tender offer or other attempt to gain control of MAIC Holdings
which the Board does not approve. The Board of MAIC Holdings may adopt, without
obtaining stockholder approval, a stockholder rights or "poison pill" plan for
the purpose of deterring or impeding attempts to acquire control of MAIC
Holdings that do not meet with the approval of the Board of MAIC Holdings. Such
a plan would likely involve the issuance of shares, or rights to acquire shares,
of the preferred stock and/or common stock of MAIC Holdings. The Board of
Directors of MAIC Holdings has not selected for adoption any particular "poison
pill" plan or type of plan to date. The MAIC Holdings Board reserves the right
to take any action in the future which it deems to be in the best interest of
the stockholders and MAIC Holdings under the circumstances.
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It is not possible to state the actual effect of any issuance of the
preferred stock of MAIC Holdings upon the rights of holders of its common stock
because the Board of MAIC Holdings has not determined an issuance price or
prices, terms or the rights of the holders of such preferred stock. However,
such effects might include: (i) restrictions on MAIC Holdings Common Stock
dividends if preferred stock dividends have not been paid; (ii) dilution of the
voting power and equity interest of holders of MAIC Holdings Common Stock to the
extent that any preferred stock series has voting rights, or that any preferred
stock series is convertible into the MAIC Holdings Common Stock; or (iii) then
current holders of the MAIC Holdings Common Stock not being entitled to share in
the assets of MAIC Holdings upon liquidation until satisfaction of any
liquidation preferences granted by the preferred stock series.
Classified Board of Directors. The Certificate of Incorporation of MAIC
Holdings provides that the Board of Directors is divided into three classes of
directors and that the directors will serve staggered terms of three years. See
"-- Comparison of the Rights of Stockholders -- Classified Board of Directors."
The purpose of a classified board is to promote conditions of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors, by insuring that in the ordinary course at
least two-thirds of the directors will at all times have had at least one year's
experience as directors. A classified board structure may prevent stockholders
who do not approve of the policies of the Board of Directors from removing a
majority of the Board of Directors at a single annual meeting because it would
normally take two annual meetings of stockholders to elect a majority of the
Board.
Delaware Anti-Takeover Legislation. Section 203 of the Delaware General
Corporation Law ("Section 203") is applicable to MAIC Holdings by virtue of the
provision in its Certificate of Incorporation affirmatively electing or "opting
into" coverage of Section 203. If the Certificate of Incorporation had not
elected coverage of Section 203, MAIC Holdings would not be subject to the
provisions described in "-- Comparison of the Rights of Stockholders -- Section
203." In any event, MAIC Holdings is subject to the Alabama Holding Company Act,
the West Virginia Holding Company Act, the Indiana Holding Company Act, and if
the Merger is effective, the Missouri Holding Company Act, each of which
requires approval of the Insurance Commissioners of each respective state, after
a public hearing thereon, before any person can acquire control of MAIC
Holdings.
Consideration of Certain Factors by the Board of Directors. The
Certificate of Incorporation of MAIC Holdings permits its Board of Directors and
officers in evaluating a merger, consolidation, business combination or similar
transaction to consider, in assessing the best interest of its stockholders and
the corporation, the effects of the transaction on the employees, customers, and
suppliers of MAIC Holdings and its subsidiaries and upon the communities in
which the offices of MAIC Holdings and its subsidiaries are located, to the
extent permitted by Delaware law. These provisions permit MAIC Holdings Board to
determine that a particular corporate act or transaction, including a business
combination, is not in the best interest of MAIC Holdings and its stockholders
on the basis of various factors being relevant. In some case such opposition by
the Board of Directors might have the effect of maintaining the position of
incumbent management.
Special Voting Requirements for Amendments to the Certificate of
Incorporation. The Certificate of Incorporation of MAIC Holdings requires an
affirmative vote of 80% of the outstanding voting shares, voting together as a
class, for any amendment, repeal or adoption of certain provisions of its
Certificate of Incorporation. See "-- Comparison of the Rights of
Stockholders -- Voting Requirements." The special votes required for amendments
to these provisions of the Certificate of Incorporation are designed to deter
stockholders of MAIC Holdings from circumventing such provisions by amending the
Certificate of Incorporation of MAIC Holdings.
Position of MAIC Holdings Board. The Board of Directors of MAIC Holdings
is concerned about the trend that began in the 1980s toward the accumulation of
substantial stock positions in public companies by third parties either with a
view toward utilizing control of a block of stock to force a merger,
consolidation, or change in management, or as a prelude to proposing a
restructuring or sale of all or part of such companies or a change in management
or management's policies. Such actions have often been undertaken without
advance notice to or consultation with management of the company. Typically,
such efforts are made during periods
32
<PAGE> 53
when a company's shares are quoted at prices significantly below their
underlying value. In many cases, such third parties seek representation on the
company's board of directors in order to increase the likelihood that their
proposals will be implemented by the company. If the company resists the efforts
to obtain representation on the company's board, such third parties may commence
proxy contests to have themselves or their nominees elected to the board of
directors in place of certain directors or the entire board. The Board of
Directors of MAIC Holdings believes that in many circumstances such efforts may
not be beneficial to the interest of companies and their stockholders because
such efforts may deprive management of the time and information to determine
whether the transaction will have an adverse effect on the interests of
stockholders and other interests.
The MAIC Holdings Board believes that any business combination in which
MAIC Holdings is involved should be studied by management of MAIC Holdings and
that the stockholders should have the benefit of the recommendations of its
Board of Directors and management. Although takeover bids are customarily made
at prices representing a premium over recent market prices for a target
company's securities, the MAIC Holdings Board believes that, in a situation
where a potential takeover bidder is required to seek management's cooperation,
the MAIC Holdings Board will be in a better position to promote consideration of
a broader range of relevant facts such as policyholder interests, tax
consequences, and future prospects of MAIC Holdings and its subsidiaries,
including MOMED.
The charters of both MOMED and MAIC Holdings include provisions designed to
discourage a merger, tender offer or proxy contest directed at either of them,
even if the transaction or occurrence generally is favorable to the interests of
the stockholders, or may delay the assumption of control by a holder of a large
block of their respective stock and the removal of the incumbent management,
even if such removal might be beneficial to the stockholders. Furthermore, these
provisions may deter or delay a future takeover attempt which is not approved by
incumbent management for which a majority of the stockholders may deem to be in
their best interest or in which stockholders may receive a substantial premium
for their shares over the present market value of such shares. By discouraging
takeover attempts, these provisions might have the effect of inhibiting certain
changes in management (some or all of whom may be replaced in the course of a
change in control) and also the temporary fluctuations in the market price of
the shares of MOMED Common Stock or MAIC Holdings Common Stock, as the case may
be, that often result from an actual or rumored takeover attempt.
The Certificate of Incorporation of MAIC Holdings, like MOMED, will have
effects which might be viewed as disadvantageous to some stockholders in certain
circumstances. On balance, however, the Board of Directors of MAIC Holdings
believes that the overall advantages of these provisions to the stockholders of
MAIC Holdings outweigh the potential disadvantages. The Board of Directors of
MAIC Holdings has no present intention to recommend the amendment of, or to
amend, the Certificate of Incorporation of MAIC Holdings to add any additional
provisions which might be viewed as anti-takeover in nature. Neither the Board
of Directors of MOMED nor the Board of Directors of MAIC Holdings has any
knowledge of any present effort to obtain control of MOMED or MAIC Holdings by
any means.
RESTRICTIONS ON TRANSFER OF MAIC HOLDINGS COMMON STOCK
Shares of MAIC Holdings Common Stock issued to affiliates of MOMED will be
restricted from resale pursuant to Rule 145 of the Securities Act. Additionally,
all persons who are or will be affiliates of MAIC Holdings after the Merger will
be subject to the restrictions on resale imposed by Rule 144 of the Securities
Act. Thus, persons who are affiliates of MOMED before the Merger and are also
affiliates of MAIC Holdings after the Merger will be subject to the restrictions
on resale of both Rule 144 and Rule 145. An "affiliate," as defined in Rule 144,
is a person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, another person,
including a corporation. Rule 405 under the Securities Act defines the term
"control" to mean the possession, direct or indirect, of power to direct or
cause the direction of management and policies of a person whether through the
ownership of voting securities, by contract or otherwise. Generally, all
officers, directors and 10% stockholders of a corporation are deemed to be
"affiliates."
33
<PAGE> 54
In general, under Rule 144 and Rule 145, any affiliate (regardless of
whether an affiliate of MOMED, MAIC Holdings, or any combination of the
foregoing) may sell, within any three month period, a number of shares of MAIC
Holdings Common Stock that does not exceed the greater of (i) 1% of the then
outstanding shares of MAIC Holdings' Common Stock, or (ii) the average weekly
trading volume of the MAIC Holdings Common Stock during the four calendar weeks
preceding the sale. Also, such securities must be sold in "brokers'
transactions," as defined in Rule 144, and the person selling the securities may
not solicit orders or make any payment in connection with the offer or sale of
securities to any person other than the broker who executes the order to sell
the securities (collectively, "Volume and Manner of Sale Limitations").
Affiliates of MOMED who will not also be affiliates of MAIC Holdings after the
Merger may sell shares of MAIC Holdings Common Stock without regard to the
Volume and Manner of Sale Limitations after holding such shares acquired in the
Merger for at least two years. Affiliates of MOMED who will also be affiliates
of MAIC Holdings after the Merger may sell shares of MAIC Holdings Common Stock
acquired in the Merger without regard to the Volume and Manner of Sale
Limitations if they have held such shares of MAIC Holdings Common Stock for at
least three (3) years and have not been an affiliate of MAIC Holdings for at
least three (3) months. However, an affiliate of MAIC Holdings will continue to
be subject to the Volume and Manner of Sale Limitations, regardless of how long
such affiliate has held his or her MAIC Holdings Common Stock.
Stop transfer instructions will be given by MAIC Holdings to its transfer
agent with respect to the MAIC Holdings Common Stock to be received by persons
subject to such transfer restrictions and an appropriate legend may be placed on
certificates for such stock.
The transfer agent and registrar for MAIC Holdings Common Stock is
ChaseMellon Shareholder Services, L.L.C.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the Effective Time, the current directors and officers of MAIC
Holdings will continue as directors of MAIC Holdings and Dr. Richard V. Bradley,
President and a Director of MOMED, will be added to the MAIC Holdings Board of
Directors as the nominee of MOMED.
Dr. Bradley, 69, was engaged in the practice of medicine in St. Louis
County, Missouri as a general surgeon for more than five years prior to 1986.
Effective October 1, 1986, he began his retirement from medical practice to
devote his full time to serve as President and Chief Executive Officer of MOMED
and MOMEDICO. He was Vice President of MOMEDICO from 1978 to 1980. On December
3, 1980, he was elected President and Chief Executive Officer. He serves on the
Board of Directors of the Physician Insurers Association of America, and he is a
past President of MSMA.
Information concerning management of MAIC Holdings is included in the
documents incorporated herein by reference. See "DOCUMENTS INCORPORATED BY
REFERENCE." For additional information regarding interests of certain persons in
the Merger, see "-- Interests of Certain Persons in the Transaction."
Upon consummation of the Merger, MOMED and MOMEDICO will continue to
operate their businesses and serve the communities and customers of their
respective market areas. For a description of the provisions of the Merger
Agreement affecting the operations of MOMED and MOMEDICO after the Effective
Time, see "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Certain Post Closing
Covenants" and "THE MERGER -- Interests of Certain Persons in the Transaction."
34
<PAGE> 55
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement which appears as Exhibit A to this Proxy Statement and is incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Merger Agreement. All references to the Merger Agreement in this section
shall be deemed to refer to the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
MOMED and MAIC Holdings relating to, with respect to each of MOMED and MAIC
Holdings and their subsidiaries, among other things: (a) organization, standing
and similar corporate matters; (b) subsidiaries; (c) capital structure; (d) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (e) completeness and accuracy in accordance with
generally accepted accounting principles of the financial statements for the
past five fiscal years and that all financial statements filed with any
insurance regulator were prepared in material compliance with the rules and
regulations of such regulator; (f) the absence of pending or threatened material
litigation; (g) compliance with applicable laws; (h) benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974 as
amended; (i) filing of tax returns and payment of taxes; and (j) the absence of
certain material changes or events since March 31, 1996, relating to the
incurrence of material liabilities or changes or events involving a material
adverse change in the business operations, properties, assets or financial
condition which has had or is reasonably likely to have a material and adverse
effect. In addition, MOMED has made representations with respect to (i) the
adequacy of its premium rates and reserves for losses and loss adjustment
expenses; (ii) its reinsurance treaties and amounts collectable thereunder;
(iii) changes in investment policies; (iv) environmental matters; and (v)
employment matters.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, MOMED has agreed, until the Effective
Time or until termination of the Merger Agreement, that MOMED (unless given the
written consent of MAIC Holdings) will and will cause each of its subsidiaries
to operate its business only in the usual regular and ordinary course; use its
best efforts to preserve intact its business organization; keep available the
services of their respective officers, employees, agents and salesmen, and
maintain the goodwill of their respective insureds, reinsurers and other persons
having business relations with them.
In addition, MOMED has agreed that it has not, and that it will not permit
its subsidiaries, to do, agree, or commit to do any of the following without the
prior written consent of MAIC Holdings: (a) amend the Articles of Incorporation
or By-laws; (b) issue, sell or otherwise permit to become outstanding any
additional shares of any of their capital stock including treasury stock or any
stock appreciation rights or any option, warrant or conversion or other right to
purchase any such stock or security convertible into any such stock; (c)
repurchase, redeem or otherwise acquire or exchange any shares of their capital
stock or any options, warrants or rights to acquire or any securities
convertible into any shares of their capital stock, other than the redemption of
Class C Common Stock and rights under the Shareholders Protection Rights Plan;
(d) incur any additional debt, obligation or other obligation for borrowed money
except in the ordinary course of their business consistent with past practices;
(e) acquire any direct or indirect equity interest in any person; (f) adopt any
new employee benefit plan or make any material change in or to an existing
employee benefit plan; (g) sell or dispose of a material amount of assets; (h)
increase or authorize an increase in compensation or benefits; (i) breach any
contract, license, insurance policy or permit; (j) begin to engage in any new
type of business or partially liquidate, dissolve or terminate any part of their
respective businesses.
MOMED and MAIC Holdings have further agreed to permit each other access to
their respective facilities and records to conduct due diligence and to
cooperate with each other in making all filings and obtaining all consents and
approvals necessary to effect the Merger. MOMED agreed to repurchase all of the
outstanding Class C Common Stock from MSMA and to redeem all rights under the
Shareholders' Protection
35
<PAGE> 56
Rights Plan prior to the Effective Time. See "THE COMPANIES -- MOMED Holding
Co." and "THE MERGER -- Interests of Certain Persons in the Merger."
Each of MOMED and MAIC Holdings has agreed to use its best efforts to
consummate the Merger and not to take any action that would impair the prospect
of completing the Merger or the transactions contemplated by the Merger
Agreement.
CERTAIN POST-CLOSING COVENANTS
The Merger Agreement includes certain covenants regarding the business
operations and corporate structure of MOMED for a minimum period of five years
after the Effective Time (the "Transition Period").
MAIC Holdings has agreed that during the Transition Period the Board of
Directors of MOMED will continue to serve as the Board of Directors of the
corporation surviving the Merger (for convenience referred to as "MOMED") until
said corporation's next annual meeting of stockholders. At each annual meeting
of the stockholders of MOMED during the Transition Period, MAIC Holdings has
agreed to vote its shares of the stock of MOMED to elect a Board of Directors
comprised of certain individuals. See "THE MERGER -- Interests of Certain
Persons in the Transaction."
MAIC Holdings has further agreed that during the Transition Period the
Board of Directors of MOMED will be responsible for the day-to-day management
and operations of MOMED and its subsidiaries so long as MOMED operates within an
annual budget (the "Budget") for MOMED and its subsidiaries as adopted by the
Board of Directors of MOMED. The Budget is required to include certain
parameters established by the Merger Agreement ("Parameters"). Those Parameters
are: (i) the reserves for losses and loss adjustment expenses of MOMEDICO in the
Budget shall be no less than the mid-point of the recommended range for such
reserves provided by an independent actuary designated by MAIC Holdings; (ii)
the premium rates used in the Budget shall be within 10% of the pricing model
developed by said actuary; and (iii) the Budget shall reflect a combined ratio
of MOMEDICO of 120% (subject to a 5% variance allowance). The combined ratio is
defined as the ratio that the net earned premiums bears to the sum of the
incurred losses and loss adjustment expenses and acquisition and underwriting
expenses.
During the Transition Period the Board of Directors of MOMED is further
restricted in that it may not take any of the following actions without the
prior approval of a management committee established by MOMED and MAIC Holdings
pursuant to the Merger Agreement. Those actions are the modification of
investment policies of MOMED and its subsidiaries; the acquisition or
disposition of any material assets outside the ordinary course of business of
MOMED and its subsidiaries; incurring any indebtedness on behalf of MOMED or any
of its subsidiaries other than accounts payable in the ordinary course of
business; the authorization of any increases in compensation for the officers of
MOMED and its subsidiaries; and the adoption of a new or additional benefit or
retirement plan for the benefit of employees of MOMED and its subsidiaries.
Under the terms of the Merger Agreement, MAIC Holdings and MOMED have
agreed to establish a management committee (the "Management Committee") during
the Transition Period made up of two persons selected by MAIC Holdings and two
persons selected by MOMED. Should the Board of Directors of MOMED fail to adopt
a Budget within the Parameters or to operate within the Budget, the Management
Committee is responsible for recommending appropriate curative action. If the
persons on the Management Committee are unable to agree as to the appropriate
curative action, a person nominated by MAIC Holdings and approved by the
Management Committee will cast the tie-breaking vote. During the Transition
Period, the two persons nominated to the MOMED Board by MAIC Holdings and the
three persons nominated to such Board by MSMA shall be subject to approval of
the Management Committee.
MAIC Holdings has further agreed that MOMED may continue to serve as the
holding company for its current subsidiaries for a minimum period of five years
after the Effective Time and that MOMED and its subsidiaries may continue to
operate in the metropolitan area of St. Louis, Missouri for a period of not less
than five years. In addition, substantially the same terms and conditions of
existing employment agreements for the President and Chief Executive Officer,
Executive Vice President and Chief Operating Officer and Vice
36
<PAGE> 57
President-Claims of MOMED will remain in effect, and upon their respective
expiration dates, the employment of such persons will continue during the
remainder of the Transition Period in the same or similar capacities and at
substantially the same rate of compensation, subject to the approval of the
Board of Directors of MOMED during the Transition Period. Current employees of
MOMED will continue to serve at the pleasure of the officers of MOMED. See "THE
MERGER -- Interests of Certain Persons in the Transaction."
MOMED will have one representative to serve as a member of the Board of
Directors of MAIC Holdings pursuant to the terms of the Nomination Agreement
executed in conjunction with the Merger Agreement. The terms and provisions of
the Nomination Agreement are included as an exhibit to the Merger Agreement
which is attached to this Proxy Statement as Exhibit A and incorporated herein
by this reference.
CONDITIONS TO CONSUMMATION OF THE MERGER
The consummation of the Merger is subject to various conditions including
(i) receipt of approval of the Agreement and Plan of Merger by the stockholders
of MOMED as required by the Missouri General and Business Corporation Laws, (ii)
receipt of approval of the change of control of MOMED by the Missouri Department
of Insurance under the Missouri Holding Company Act, (iii) receipt of a
favorable opinion of KPMG as to the federal income tax consequences of the
Merger, (iv) the Registration Statement being declared effective and all
necessary SEC and state approvals relating to the issuance or trading of the
shares of MAIC Holdings Common Stock issuable pursuant to the Merger shall have
been received, (v) the accuracy as of the date of the Merger Agreement and as of
the Effective Time of the representations and warranties of MOMED and MAIC
Holdings as set forth in the Merger Agreement, (vi) the performance of all
agreements and compliance with all covenants of MOMED and MAIC Holdings as set
forth in the Merger Agreement, (vii) receipt of all consents required for
consummation of the Merger or for the preventing of any default under any
contract or permit which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a material adverse affect, (viii) the
expiration of the waiting period under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, (ix) the absence of any law or order or any action
taken by any court, governmental or regulatory authority prohibiting,
restricting or making illegal the consummation of the transactions, (x) the
redemption by MOMED of all rights under the stockholders' Rights Protection
Plan, (xi) the repurchase by MOMED of all of the issued and outstanding shares
of the MOMED Class C Common Stock at a price not exceeding that provided in the
Share Exchange Agreement; (xii) approval of the Merger by the Board of Directors
of MAIC Holdings and MOMED; and (xiii) satisfaction of certain other conditions
including the receipt of agreements of affiliates of MOMED and various
certificates from officers of MOMED and MAIC Holdings. See "-- Recommendations
of the Board of Directors," "-- Regulatory Approvals" and "-- Federal Income Tax
Consequences" under the caption "THE MERGER" and see "-- Waiver, Amendment and
Termination" under this caption.
No assurance can be provided as to when or if all conditions precedent to
the Merger can or will be satisfied or waived by the party permitted to do so.
In the event the Merger is not effected on or before December 31, 1996, the
Agreement may be terminated and the Merger abandoned by a vote of a majority of
the Board of Directors of either MOMED or MAIC Holdings. See "-- Waiver,
Amendment and Termination."
WAIVER, AMENDMENT AND TERMINATION
To the extent permitted by the law, MAIC Holdings and MOMED, with the
approval of their respective Boards of Directors, may amend the Merger Agreement
by written agreement at any time before or after the approval of the Merger
Agreement by the MOMED stockholders; provided that after the Special Meeting, no
amendment will alter the manner or basis on which shares of MOMED Common Stock
will be exchanged for MAIC Holdings Common Stock without the requisite approval
of the issued and outstanding shares of MOMED Common Stock entitled to vote
thereon. In addition, prior to or at the Effective Time, either MOMED or MAIC
Holdings, or both, acting through their respective Boards of Directors or other
authorized officers may waive any default in the performance of any term of the
Merger Agreement by any other party, may waive or extend the time for compliance
or fulfillment by the other party of any and all of its obligations
37
<PAGE> 58
under the Agreement, and may waive any of the conditions precedent to the
obligations of such party under the Agreement, except MOMED does not intend to
waive any condition that if not satisfied, would result in a violation of
applicable law or government regulations or that requires the favorable opinion
from KPMG as to the federal income tax consequences of the transaction. No such
waiver will be effective unless written and unless executed by a duly authorized
officer of MAIC Holdings or MOMED, as the case may be. The Merger Agreement may
be terminated and the Merger abandoned at any time prior to the Effective Time
by the mutual consent of MAIC Holdings and MOMED as authorized by their
respective Boards of Directors or by written notice from MAIC Holdings to MOMED
or from MOMED to MAIC Holdings if it becomes certain (for all practical
purposes) that any of the conditions to the closing obligations of the party
giving such notice cannot be satisfied for reasons other than such party's
default on or before December 31, 1996, and such party is not willing to waive
the satisfaction of such condition. If the Agreement is terminated as described
above, the Merger Agreement will become void and have no effect, except that
certain provisions of the Agreement, including those relating to the obligations
to share certain expenses, maintain the confidentiality of certain information
obtained, and return all documents obtained from the other party under the
Agreement will survive. In addition, termination of the Agreement will not
relieve any breaching party from any liability from any uncured willful breach
of a representation, warranty, covenant or agreement giving rise to such
termination.
COMPARATIVE MARKET PRICES AND DIVIDENDS
MAIC Holdings Common Stock was quoted on the NASDAQ National Market System
under the symbol "MAIC" through September 20, 1996. Beginning on September 23,
1996, MAIC Holdings Common Stock has been traded on the New York Stock Exchange
under the symbol "MAI." MOMED Common Stock is not quoted on any quotation system
of a registered securities association as the market for its stock is maintained
by a limited number of market makers. The following table sets forth, for the
indicated periods, the high and low last sales prices for MAIC Holdings Common
Stock as reported on the NASDAQ National Market System and the high and low bid
prices for the MOMED Common Stock based on the bid and ask prices of said market
makers.
MAIC HOLDINGS
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
QUARTER HIGH LOW HIGH LOW HIGH LOW
- ----------------------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
First.......................................... $33.75 $31.00 $27.25 $25.25 $24.50 $20.50
Second......................................... $38.00 $32.25 $30.00 $26.00 $21.25 $19.75
Third.......................................... $37.63 $30.38 $32.00 $28.00 $30.25 $20.00
Fourth......................................... $35.25 $29.25 $30.00 $24.75
</TABLE>
MOMED(1)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
QUARTER HIGH LOW HIGH LOW HIGH LOW
- ----------------------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
First.......................................... $ 9.00 $ 2.67 $ 2.25 $ 2.25 $ 2.17 $ 2.17
Second......................................... $20.00 $ 9.75 $ 2.58 $ 2.58 $ 2.00 $ 2.00
Third.......................................... $20.00 $20.00 $ 2.67 $ 2.58 $ 2.25 $ 2.25
Fourth......................................... $ 2.67 $ 2.67 $ 2.25 $ 2.25
</TABLE>
- ---------------
(1) Reflects three-for-one stock split which occurred on January 22, 1996 for
stockholders of record as of November 8, 1995.
On September 25, 1996, the last sale price of MAIC Holdings Common Stock as
reported on the New York Stock Exchange was $33.50 and the last bid price for
MOMED Common Stock according to said market makers was $20.00. On June 10, 1996,
the last business day prior to the public announcement of the
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<PAGE> 59
proposed Merger, the last sales price of MAIC Holdings Common Stock as reported
on the NASDAQ National Market System was $35.25 and the last bid price for MOMED
Common Stock according to said market makers was $9.75.
All the quotations set forth in the table reflect inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
The holders of MAIC Holdings Common Stock are entitled to receive dividends
when and if declared by the Board of Directors out of funds legally available
therefor. Neither MAIC Holdings nor Mutual Assurance has paid any regular cash
dividends. On December 14, 1995, the Board of Directors of MAIC Holdings
declared a 6% stock dividend. On each of December 14, 1994, December 16, 1993,
and December 10, 1992, the Board of Directors of Mutual Assurance declared a 5%
stock dividend. MAIC Holdings currently intends to continue its policy of not
paying a regular cash dividend. See "THE COMPANIES -- MAIC Holdings, Inc."
MOMED paid no dividends during 1995. MOMED declared a dividend of $.25 per
share on the MOMED Common Stock and the Class B Common Stock in the second
quarter of 1991. No dividends have been paid by MOMED since that date.
Each of MAIC Holdings and MOMED are legal entities separate and distinct
from their respective subsidiaries and their respective revenues depend in
significant part on the payment of dividends from their respective subsidiary
insurance companies. Such insurance companies are subject to legal restrictions
on the amount of dividends they are permitted to pay. The state insurance codes
generally limit the source of dividends payable by a stock insurer to that part
of its available surplus fund which is derived from realized net profits on its
business. The Holding Company Acts of the various states require that a domestic
insurer give prior notice to the State Commissioner before payment of any
extraordinary dividend. Generally, an extraordinary dividend or distribution
includes any such dividend or distribution whose fair market value together with
other dividends and distributions in the preceding twelve months exceeds the
greater of either 10% of the insurer's statutory surplus or the statutory net
income (or in the alternative, net investment income) for the preceding year.
The Holding Company Acts would permit MAIC Holdings' insurance subsidiaries to
dividend to MAIC Holdings as much as approximately $21 million in 1996 without
such notice to the Commissioners. The maximum dividends that could be paid by
MOMED in 1996 would be $1,729,373 without the approval of the Director of
Insurance of Missouri. In addition, Delaware and Missouri Corporate Law each
imposed additional restrictions on the payments of dividends by MAIC Holdings
and MOMED. See "THE MERGER -- Comparison of Rights of
Stockholders -- Dividends."
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<PAGE> 60
SELECTED FINANCIAL INFORMATION OF MOMED
The following table sets forth certain historical financial data concerning
MOMED and its subsidiary. This information has been derived from the
consolidated financial statements of MOMED and its subsidiaries, including the
notes thereto. This data should be read in conjunction with the audited
consolidated financial statements of MOMED and its subsidiaries and notes
thereto, which are included elsewhere in this Proxy Statement. See "INDEX TO
FINANCIAL STATEMENTS."
In the opinion of MOMED, the interim unaudited financial data of MOMED as
of and for the six months ended June 30, 1996 and 1995 include all adjustments,
consisting only of normal recurring accruals necessary for a fair presentation
of such data.
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995 1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets................. $81,011,938 77,495,897 81,275,193 77,523,927* 77,596,377** 61,053,580 57,921,830
Reserve for losses and
loss adjustment
expenses............. 54,648,999 56,783,271 54,903,753 58,764,316 59,569,371** 36,509,588 35,515,048
Class C non-voting
redeemable common
stock................ 600,000 600,000 600,000 600,000 -- -- --
Stockholders' equity... 17,297,038 12,428,797 17,014,885 9,838,676 10,148,416 10,573,114 9,170,000
Net premiums earned.... 5,739,308 5,563,205 11,666,363 10,539,879 10,645,733 10,522,688 13,511,713
Realized gains on
investments.......... 60,241 361,358 682,189 265,133 570,980 780,921 128,625
Loss and loss
adjustment expenses
incurred............. 4,181,615 6,623,144 10,733,726 9,978,065 14,438,684 11,204,167 10,025,583
Net investment
income............... 2,126,976 2,068,302 4,236,391 3,952,945 3,641,198 3,627,714 3,523,448
Earnings (loss) before
Federal income tax
(benefit) and
cumulative effect of
change in accounting
principle............ 2,447,353 443,241 3,270,579 2,241,936 (2,095,133) 1,320,933 4,415,245
Earnings (loss) per
share before
cumulative effect of
change in accounting
principle............ 2.53 .58 6.07 2.55 (1.96) 1.96 4.88
Cumulative effect of
change accounting
principle............ -- -- -- -- 1.34 -- --
Net earnings (loss) per
share................ 2.53 .58 6.07 2.55 (.62) 1.96 4.88
</TABLE>
- ---------------
* Reflects adoption of FASB #115 in 1994, see note 2 of notes to consolidated
financial statements.
** Reflects adoption of FASB #113 in 1993, see note 9 of notes to consolidated
financial statements.
40
<PAGE> 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
MOMED'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CORPORATE STRUCTURE. As of June 30, 1996, MOMED Holding Co. owns 100% of
the following companies:
Missouri Medical Insurance Company "MOMEDICO"
Professional Liability Associates, Inc.
MOMEDICO Professional Services, Inc.
MOMEDICO is the Company's most significant subsidiary and its primary
business activity is providing professional liability insurance to physicians
and dentists in the State of Missouri. The Company received approval to do
business in the State of Kansas during 1992.
Professional Liability Associates, Inc. is available to provide claims
management services to hospitals and other self insured groups.
MOMEDICO Professional Services, Inc. holds a brokers license and is able to
access markets for hard to place physicians. It also has been appointed by the
Columbia Insurance Group to provide workers' compensation, medical office
business owners and commercial auto insurance policies to doctors in Missouri.
In the following sections of this analysis of financial condition and
results of operations, MOMED Holding Co. and Missouri Medical Insurance Company
"MOMEDICO" are referred to herein as the Company.
The Company was organized by the Missouri State Medical Association (MSMA)
in 1978 as the sponsored medical professional liability insurer for its members,
and the Company estimates that it insured approximately 20% of the MSMA members
as of December 31, 1995. Competition from large national carriers and several
Missouri based physician controlled companies continued to limit MOMEDICO's
growth in 1995.
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1996 and December 31, 1995, the Company had total investments
of $71,135,373 and $71,774,201 which is 87.8 percent and 88.3 percent of total
assets at each period end. On January 1, 1994, the Company implemented the
provision of FASB Statement 115 "Accounting for Certain Investments in Debt and
Equity Securities" which requires that fixed maturity investments be reported at
fair value in the financial statements. The Company's fixed maturity investments
have been classified as available for sale and reported at their fair value
which is $269,450 less than amortized cost at June 30, 1996. The market value of
all invested assets is $606,334 more than cost or amortized cost at June 30,
1996. The Company feels that it has sufficient invested assets to meet both its
short-term and long-term capital requirements. In addition, the Company has
entered into various reinsurance agreements to protect itself against
significant decreases in invested assets.
The reinsurance agreements generally limit the Company's maximum liability
to $400,000 per claim for policies issued or renewed after July 1, 1991.
For claims against policies issued or renewed between July 1, 1987 and June
30, 1991, losses are subject to a 5% deductible based on gross collected
premiums and a retention of $250,000 per claim after the deductible provision
has been satisfied, indexed $25,000 per year. For policies issued or renewed
between July 1, 1986 and June 30, 1987 losses are subject to a 10% deductible
based on gross collected premiums and a retention of $300,000 per claim after
the deductible provision has been satisfied. On policies issued prior to
41
<PAGE> 62
July 1, 1986 the Company's maximum lability is $200,000 per insured and $231,500
per claim involving up to six insureds. Rates charged for such protection were
as follows:
Prior to June 30, 1986, 40% of collected premiums
July 1, 1986 to June 30, 1987, 30% of collected premiums
July 1, 1987 to June 30, 1988, 17.5% of collected premiums
July 1, 1988 to June 30, 1991, 15% of collected premiums
July 1, 1991 to June 30, 1996 12.5% of collected premiums
Payments to reinsurers under contracts effective July 1, 1988 and
subsequent have been by quarterly deposits as follows:
July 1, 1988 through June 30, 1990, $775,000
July 1, 1990 through June 30, 1991, $687,500
July 1, 1991 through June 30, 1994, $400,000
July 1, 1994 through June 30, 1995, $266,667 (for 6 quarterly payments)
July 1, 1995 through June 30, 1996, $266,667 (for 6 quarterly payments)
As of June 30, 1996, the Company had fixed maturity investments in the
amount of $66,077,509 with an average date to maturity of approximately 6.01
years. All bonds are "A-" rated or higher, except for three bonds with a book
value of $2,483,441 of which two are rated BBB+ and one is BBB. Further, the
Company has no investment in high yield or non-investment grade securities.
Short-term investments totaling $1,250,275 are expected to provide sufficient
liquidity for payment of losses and loss adjustment expenses.
On December 6, 1993, the National Association of Insurance Commissioners
("NAIC") adopted a risk-based capital "RBC" model for the property and casualty
insurance industry implemented in 1994. This model is applied to virtually all
property and casualty insurance companies and mandates certain minimum capital
requirements, based on the underwriting, investment, and other business risks
inherent in an individual insurer's operations. The first Company Action Level
takes place when a property and casualty insurance company's adjusted actual
statutory surplus is equal to 90.0% of it RBC requirement. Under this event, the
insurer's management is required to file and obtain approval of a comprehensive
financial plan for improving its RBC. Based on the "RBC" model adopted on
December 6, 1993, by the NAIC the Company's statutory capital and surplus at
December 31, 1995 and June 30, 1996 exceeded all regulatory requirements.
MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995
The Company anticipates capital expenditure of approximately $50,000 for
furniture and data processing equipment during 1996.
Revenues
Premium earned for the six months ended June 30, 1996 increased
approximately 11.9% from the six months ended June 30, 1995, due primarily to a
decrease in actuarially projected reinsurance premiums payable, which reduces
reinsurance premiums ceded.
Investment Income
Net investment income for the six months ended June 30, 1996 increased
approximately .3% from the six months ended June 30, 1995. This is attributed
primarily to an increase in invested assets of 5.1%, based on cost or amortized
cost between June 30, 1996 and June 30, 1995.
Expenses
The Company's provision for loss and loss adjustment expenses as of June
30, 1996 and December 31, 1995 is based upon MOMEDICO's experience. The
percentage of losses and loss adjustment expenses to net earned premiums at June
30, 1996 is 72.9% compared to 92.0% for the year 1995. The percentage for the
six months ended June 30, 1995 was 112.6% The decrease between June 30, 1996 and
the results for the year
42
<PAGE> 63
1995 and the six months ended June 30, 1995, arise primarily from the continuing
decline in frequency of reported claims and favorable development of claim
reserves of prior accident years.
Policy acquisition costs as a percent of premiums earned were 5.5% and 6.0%
for the periods ended June 30, 1996 and June 30, 1995, respectively. The change
in policy acquisition cost as a percent of earned premiums results primarily
from changes in underwriting expenses and commission arrangements.
Other underwriting expenses increased approximately 2.0% from the period
ended June 30, 1995 and is attributed to reorganization expenses incurred
related to the proposed merger with MAIC Holdings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Trends. From 1988 through 1990 the Company and the medical malpractice
industry as a whole experienced a decrease in the number of reported claims and
a moderation in severity. The positive trends were attributed to tort reform
legislation passed by many states in the mid 1980's including the State of
Missouri. Beginning in 1991 and carrying on through 1993 the Company experienced
an increase in the frequency and severity of reported claims. As a result of the
increase in frequency and severity of losses during 1992 and 1993 the Company's
earnings (loss) before income taxes decreased substantially from the amount
reported in 1991. For the years 1994 and 1995, severity has remained constant
with 1993. However, frequency has subsided from the 1993 level and as a result,
the Company's earnings before income taxes increased substantially over 1993 and
1992.
Based on a rate analysis prepared by MOMEDICO's consulting actuary and the
increase in frequency and severity of reported claims during 1992 and 1993,
MOMEDICO increased rates by 12% for new policies issued after October 1, 1993,
and policies renewed after November 1, 1993. Due to the decrease in frequency of
reported claims and no significant changes in severity during 1994 and 1995, no
rate adjustments were taken. During 1996, rates may need to be increased if
significant changes in frequency and severity occur.
Liquidity and Capital Resources. At December 31, 1995, and 1994, the
Company had invested assets of $71,774,201 and $65,379,445 which are 88.8
percent and 85.5 percent of total assets at each year end. Effective January 1,
1994, the Company implemented the provisions of FASB Statement 115 "Accounting
for Certain Investments in Debt and Equity Securities". Under FASB Statement
115, debt securities are classified as available for sale and are reported in
the financial statements at fair value, with the unrealized gains (losses)
reported as a separate component of stockholders' equity, net of tax. The market
value of fixed maturity investments is $2,049,858 more than amortized cost at
December 31, 1995, compared to an unrealized loss of $2,049,261 at December 31,
1994. The Company believes that it has sufficient invested assets to meet both
its short-term and long-term capital requirements. Also, the Company had
positive cash flows from operations for the years 1995, 1994, and 1993. In
addition, the Company has entered into various reinsurance agreements to protect
itself against adverse loss developments. The reinsurance agreements generally
limit the Company's liability to $400,000 per claim for policies issued or
renewed after July 1, 1991. For claims against policies issued or renewed
between July 1, 1987 and June 30, 1991, losses are subject to a 5% deductible
based on gross collected premiums and a retention of $250,000 per claim after
the deductible provision has been satisfied, indexed $25,000 per year. For
policies issued or renewed between July 1, 1986 and June 30, 1987 losses are
subject to a 10% deductible based on gross collected premiums and a retention of
$300,000 per claim after the deductible provision has been satisfied. On
policies issued prior to July 1, 1986 the Company's maximum liability is
$200,000 per insured and $231,500 per claim involving up to six insureds. Rates
charged for such protection were as follows:
Prior to June 30, 1986, 40% of collected premiums
July 1, 1986 to June 30, 1987, 30% of collected premiums
July 1, 1987 to June 30, 1988, 17.5% of collected premiums
July 1, 1988 to June 30, 1991, 15% of collected premiums
July 1, 1991 to June 30, 1996, 12.5% of collected premiums
43
<PAGE> 64
Payments to reinsurers under contracts effective July 1, 1988 and
subsequent have been by quarterly deposits as follows:
July 1, 1988 through June 30, 1990, $775,000
July 1, 1990 through June 30, 1991, $687,500
July 1, 1991 through June 30, 1994, $400,000
July 1, 1994 through June 30, 1995, $266,667 (for six quarters)
July 1, 1995 through June 30, 1996, $266,667 (for six quarters)
As of December 31, 1995, the Company had fixed maturity investments, at
market value, in the amount of $64,167,237 with an average date to maturity of
4.66 years. All bonds are "A-" rated or higher, except for one bond with a
market value of $482,925 which is rated "BBB" by Standard & Poor's. The Company
has no investments in derivative type securities that would be accounted for or
disclosed pursuant to FASB Statement 119 "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments". Also, the Company had no
investments in high yield or non-investment grade securities. Short-term
investments totaling $4,423,463 are expected to provide significant liquidity
for the payment of losses and loss adjustment expenses.
On December 6, 1993, the NAIC adopted a risk-based capital ("RBC") model
for the property and casualty insurance industry, which was implemented in 1994.
This model applies to virtually all property and casualty insurance companies,
and mandates certain minimum capital requirements, based on the underwriting,
investment and other business risks inherent in an individual insurer's
operations. Under the model law, any property and casualty insurance company
which does not exceed RBC action levels is subject to varying degrees of
regulatory scrutiny and ultimately is subject to mandatory rehabilitation or
liquidation. The four RBC action levels are (i) Company Action Level (2 X
Authorized Control Level), (ii) Regulatory Action Level (1.5 X Authorized
Control Level), (iii) Authorized Control Level (45.0% of calculated RBC), and
(iv) Mandatory Control Level (70.0% X Authorized Control Level). The first
Company Action Level takes place when a property and casualty insurance
company's adjusted actual statutory surplus is equal to 90.0% of its RBC
requirement. Under this event, the insurer's management is required to file and
obtain approval of a comprehensive financial plan for improving its RBC. At
December 31, 1995, MOMEDICO's adjusted statutory surplus for RBC was $15,332,131
and 90% of its RBC requirement is $8,419,760. Accordingly MOMEDICO exceeded all
regulatory requirements.
MOMED anticipates capital expenditures of approximately $50,000 for
furniture and data processing equipment during 1996.
Results of Operations. From 1980 through 1987 MOMEDICO, at the request of
the Securities and Exchange Commission, provided loss and loss adjustment
expenses in an amount at least sufficient to reduce annual net earnings to zero,
since the adequacy of MOMEDICO's reserves for losses and loss adjustment
expenses were not based solely on its actual experience. Since December 31, 1988
the reserves for losses and loss adjustment expenses have been determined based
upon MOMEDICO's actual experience. The Company retains the services of an
independent actuary to analyze MOMEDICO's reserves for losses and loss
adjustment expenses. The actuarial studies projected net ultimate loss and loss
adjustment expense reserves (net as to reinsurance) of $42,171,000 and
$42,585,000 as of December 31, 1995 and 1994, compared to reserves established
by the Company of $42,175,111 and $42,586,063 as of December 31, 1995 and 1994.
For the years ended December 31, 1995, 1994 and 1993 the Company reported net
earnings (loss) of $4,077,025, $1,713,139, and $(418,539), respectively.
Net Premiums Written
Net premiums written for 1995 increased 9.1% from 1994. The increase in net
premiums written in 1995 compared to 1994 reflects the reduction in premiums
ceded to reinsurers and changes in estimated accrued premiums above provisional
premiums paid. Net premiums written for 1994 decreased 6.9% from 1993. The
decrease in net premiums written in 1994 compared to 1993 results from a profit
sharing payment on the July 1, 1986 to June 30, 1987 reinsurance contract
received in 1993 which increased 1993 net premiums written plus an increase in
the accrued premiums above provisional premiums paid for contracts in effect
after
44
<PAGE> 65
July 1, 1991. Also, MOMEDICO increased premiums by 12% for new policies issued
after October 1, 1993 and policies renewed after November 1, 1993. This increase
in rates resulted in an increase in gross written premiums of approximately
$542,000 during 1994. The impact on 1993 gross written premiums was
insignificant.
Investment Income
Investment income for 1995 increased 7.2% over 1994 and 16.3% over the 1993
amount. The increase in investment income arises from an increase in average
invested assets of $2,036,918 in 1995 over 1994 and $5,442,446 in 1994 over
1993. The Company's rate of return on average invested assets was 6.2% in 1995,
5.9% in 1994 and 6.0% in 1993. The higher rate of return in 1995 compared to
1994 and 1993 results from the increase in interest rates during the second half
of 1994 and the first half of 1995. This resulted in the reinvestment of funds
in higher yielding bonds during 1995 and an increased return on investments in
short-term money funds. Also, during 1994, the Company decreased its investment
in equity securities by approximately 31.0% and invested these funds in higher
yielding fixed maturity investments. During 1995 and 1994 the Company continued
to reduce its investment in tax exempt bonds as a percentage of invested assets
at cost to 8.7% and 25.9% compared to 34.4% in 1993 and 43.2% in 1992. The
reduction in tax exempt investments was done to reduce the Company's exposure to
the alternative minimum tax.
Policy Acquisition Costs and Other Operating Expenses
Policy acquisition costs are those costs directly related to the
acquisition of business and include commissions to agents, certain underwriting
expenses and premium taxes. Policy acquisition costs charged to operations as a
percentage of net premiums earned were 5.8% in 1995 and 6.2% in 1994 and 1993.
The small change in the acquisition cost percentage results primarily from the
change in credits allowed against premium taxes. The lack of significant change
in policy acquisition costs as a percentage of net premiums earned reflects the
fact that the premiums earned have remained relatively constant for the three
year period ended December 31, 1995.
Other operating expenses in 1995 decreased by 1.8% from 1994 due to
reductions in corporate legal expenses and the cost of officers life insurance
plus the continuing effort to contain or reduce costs in all areas possible.
Other operating expenses in 1994 increased by 2.3% over 1993. The increase arose
from an average increase in wages of 4% and nominal increases in other variable
expenses.
Losses and Loss Adjustment Expenses
As discussed under the caption Results of Operations, the Company's
provision for losses and loss adjustment expenses for 1995 and 1994 is based
upon MOMEDICO's experience. The percentage of losses and loss adjustment
expenses to net earned premiums in 1995 is 92.0% compared to 94.7% in 1994 and
135.6% in 1993. The decrease between 1995 and 1994 of 2.7 percentage points is
attributed to continued favorable development of 1994 and prior reported claims,
while the severity of claims remained constant with that experienced during 1994
and 1993. The 40.9 percentage points decrease in loss and loss adjustment
expenses compared to net earned premiums between 1994 and 1993 reflects the
significant decrease in the frequency of reported claims during 1994, with a
rate of severity comparable to 1993. The percentage for 1993 was 29.1 percent
points greater than 1992 and is attributed to the increase in frequency of
reported claims in 1993 compared to 1992 and a slight increase in the severity
of reported claims. The trends are reflected in the tables which summarize the
components of reserves for losses and loss adjustment expenses and changes in
reserves for losses and loss adjustment expenses and payments related thereto in
Note 6 of the notes to the accompanying consolidated financial statements. See
"INDEX TO FINANCIAL STATEMENTS."
In the opinion of management, the amounts provided for losses and loss
adjustment expenses are adequate. The Company is protected under various
reinsurance agreements which limit the Company's maximum liability on a per
claim basis. The various reinsurance agreements and the maximum liability on a
per claim basis are discussed in Note 9 of the notes to the accompanying
consolidated financial statements. See "INDEX TO FINANCIAL STATEMENTS."
45
<PAGE> 66
The effect of inflation is included in the reserve calculation along with
projections of severity, frequency and changes in reinsurance retention through
projections of ultimate losses and loss adjustment expenses.
As shown in the chart on the following page that summarizes the cumulative
development of the reserve for losses and loss adjustment expenses the reserve
deficiencies reached their peak in 1985 and have shown significant decreases
since that time. The Company has increased its reserves for losses and loss
adjustment expenses by $27,373,781 since 1985. This, along with the decrease in
frequency of claims from 1988 through 1990 and a leveling off of frequency
during 1994 and 1995, after experiencing an increase in both frequency and
severity from 1991 through 1993, has resulted in a cumulative reserve redundancy
as of December 31, 1995. Management feels that the current reserving methodology
will continue to produce favorable trends.
Federal Income Taxes
The provision for current income tax expense (benefit) of $483,000,
$(21,045), and $46,925 represents taxes currently due on the Company's 1995,
1994 and 1993 taxable earnings. The provision for deferred taxes for 1995, 1994
and 1993 represents the change in the deferred tax asset applicable to current
operations determined under the asset/liability method of accounting for income
taxes as required by FASB Statement 109 "Accounting for Income Taxes". The
Company is required by the Internal Revenue Code to discount its reserves for
losses and loss adjustment expenses and for the determination period beginning
January 1, 1992, the Company has elected to utilize discount factors based on
its historical loss payment patterns. Prior to 1992 the Company utilized
discount factors published by the Internal Revenue Service since the Company did
not have sufficient historical loss experience to utilize its own loss payment
factors. The Internal Revenue Service completed its examination of the Company's
1987 and 1989 tax returns and issued its final report on February 24, 1994. The
Company has filed a protest to the changes proposed by the IRS and at the
present time, is of the opinion that the settlement of the proposed changes
should not be material to the Company's overall financial position. For
additional information related to Federal income taxes see Note 8 of the notes
to the accompanying consolidated financial statements. See "INDEX TO FINANCIAL
STATEMENTS."
46
<PAGE> 67
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross reserve for losses and loss
adjustment expenses............... -- -- -- -- -- -- --
Less reinsurance receivable on paid
and unpaid losses................. -- -- -- -- -- -- --
Net reserve for losses and loss
adjustment expenses............... $ 14,801,330 20,993,288 24,794,281 28,185,938 32,217,508 32,368,926 35,515,048
----------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative paid as of
1 yr. later......................... 4,696,522 6,676,020 8,176,802 4,766,688 6,908,922 6,394,056 9,376,075
2 yrs. later........................ 11,221,785 14,368,011 12,626,168 10,460,833 12,427,267 15,048,175 15,578,917
3 yrs. later........................ 18,658,079 18,563,422 17,946,481 15,070,581 20,071,931 18,831,895 20,985,911
4 yrs. later........................ 22,688,891 23,480,405 21,381,361 21,803,304 22,722,720 21,943,381 23,694,596
5 yrs. later........................ 26,543,814 25,849,592 23,684,726 23,512,265 24,685,685 22,789,445 --
6 yrs. later........................ 28,236,883 27,631,221 25,118,074 25,236,221 25,245,535 -- --
7 yrs. later........................ 29,743,959 28,530,148 25,805,194 25,747,233 -- -- --
8 yrs. later........................ 30,329,987 29,012,295 26,285,911 -- -- -- --
9 yrs. later........................ 30,585,367 29,446,548 -- -- -- -- --
10 yrs. later....................... 30,974,205 -- -- -- -- -- --
Reserve for losses and loss adjustment expenses, net, reestimated as of:
End of year......................... 14,801,330 20,993,288 24,795,281 28,185,938 32,217,508 32,368,926 35,515,048
1 yr. later......................... 21,131,745 25,266,354 29,523,115 28,606,302 32,487,802 33,539,671 34,329,895
2 yrs. later........................ 26,153,588 31,293,361 29,567,912 29,261,357 33,043,138 31,895,390 34,528,838
3 yrs. later........................ 30,721,356 31,834,636 30,562,863 30,504,455 32,564,848 30,752,000 32,700,590
4 yrs. later........................ 32,696,752 33,177,757 31,845,442 31,284,231 30,905,488 28,708,396 30,307,235
5 yrs. later........................ 34,761,826 33,704,768 31,282,114 30,053,109 29,496,547 26,864,894 --
6 yrs. later........................ 34,862,649 33,482,742 29,671,214 28,700,272 28,341,567 -- --
7 yrs. later........................ 34,364,115 32,190,433 28,260,767 27,785,160 -- -- --
8 yrs. later........................ 32,768,488 31,167,268 27,577,674 -- -- -- --
9 yrs. later........................ 31,935,302 30,576,492 -- -- -- -- --
10 yrs. later....................... 31,689,569 -- -- -- -- -- --
=========== ========== ========== ========== ========== ========== ==========
(Deficiency) Redundancy............. $(16,888,239) (9,583,204) (2,783,393) 400,778 3,875,941 5,504,032 5,207,813
=========== ========== ========== ========== ========== ========== ==========
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross reserve for losses and loss
adjustment expenses............... -- 59,569,371 58,764,316 54,903,753
Less reinsurance receivable on paid
and unpaid losses................. -- (16,997,000) (16,178,253) (12,728,642)
Net reserve for losses and loss
adjustment expenses............... 36,509,588 42,572,371 42,586,063 42,175,111
---------- ---------- ---------- ----------
Cumulative paid as of
1 yr. later......................... 7,721,009 9,406,583 10,456,546 --
2 yrs. later........................ 15,133,579 18,125,537 -- --
3 yrs. later........................ 20,119,915 -- -- --
4 yrs. later........................ -- -- -- --
5 yrs. later........................ -- -- -- --
6 yrs. later........................ -- -- -- --
7 yrs. later........................ -- -- -- --
8 yrs. later........................ -- -- -- --
9 yrs. later........................ -- -- -- --
10 yrs. later....................... -- -- -- --
Reserve for losses and loss adjustment expenses, net, reestimated as of:
End of year......................... 36,509,588 42,572,371 42,586,063 42,175,111
1 yr. later......................... 36,339,521 41,165,102 38,132,897 --
2 yrs. later........................ 34,679,540 37,023,390 -- --
3 yrs. later........................ 31,880,804 -- -- --
4 yrs. later........................ -- -- -- --
5 yrs. later........................ -- -- -- --
6 yrs. later........................ -- -- -- --
7 yrs. later........................ -- -- -- --
8 yrs. later........................ -- -- -- --
9 yrs. later........................ -- -- -- --
10 yrs. later....................... -- -- -- --
========== ========== ========== ==========
(Deficiency) Redundancy............. 4,628,784 5,548,981 4,453,166
========== ========== ========== ==========
</TABLE>
47
<PAGE> 68
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996 (UNAUDITED)
The following unaudited Pro Forma Combined Condensed Balance Sheet presents
(i) the historical unaudited consolidated balance sheet of MAIC Holdings and
MOMED at June 30, 1996; (ii) the Pro Forma Combined Condensed Balance Sheet of
MAIC Holdings at June 30, 1996, giving effect to the Merger, assuming such
acquisition is accounted for as a purchase for accounting purposes and assuming
the maximum number of shares of MAIC Holdings Common Stock are issued in the
Merger (see Note A). The unaudited Pro Forma Combined Condensed Balance Sheet
should be read in conjunction with the historical consolidated financial
statements of MAIC Holdings, including the respective notes thereto, which are
incorporated by reference in this Proxy Statement and the historical
consolidated financial statements of MOMED, including respective notes thereto,
which are included elsewhere in this Proxy Statement. See "DOCUMENTS
INCORPORATED BY REFERENCE," "INDEX TO FINANCIAL STATEMENTS,"
"SUMMARY -- Comparative Per Share Data," and "-- Summary Pro Forma Financial
Data." The Pro Forma Combined Condensed Balance Sheet is not necessarily
indicative of the combined condensed financial position that actually would have
occurred if the Merger had been consummated on the date indicated or which may
be obtained in the future.
<TABLE>
<CAPTION>
MAIC HOLDINGS
AND MOMED
MAIC PRO FORMA PRO FORMA
HOLDINGS MOMED ADJUSTMENTS COMBINED
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Cash, cash equivalents and other
invested assets................... $557,860,891 $71,320,468 $ (707,000)(C) $622,684,474
(5,789,885)(A)
Premiums due and agents' balances... 35,335,578 236,963 (296,294)(D) 35,276,247
Reinsurance receivables............. 96,935,454 2,869,737 9,248,556(B) 108,546,071
(507,676)(D)
Prepaid reinsurance................. 22,215,474 493,649 (98,730)(D) 22,610,393
Deferred federal income taxes....... 36,346,424 2,706,811 39,053,235
Goodwill on MOMED acquisition....... 217,847(A) 217,847
Other............................... 27,178,240 3,384,310 30,562,550
------------ ----------- ------------ ------------
Total Assets.............. $775,872,061 $81,011,938 $ 2,066,818 $858,950,817
============ =========== ============ ============
LIABILITIES
Unpaid losses and loss adjustment
expense........................... $457,237,316 $54,648,999 $ (507,676)(D) $511,378,639
Unearned premiums and unearned
revenue........................... 63,308,577 6,244,320 (98,730)(D) 69,454,167
Reinsurance balances payable........ 27,589,570 15,631 9,248,556(B) 36,557,463
(296,294)(D)
Accrued expenses and other
liabilities....................... 18,333,891 2,205,950 (107,000)(C) 20,432,841
------------ ----------- ------------ ------------
Total Liabilities......... 566,469,354 63,114,900 8,238,856 637,823,110
Minority interests.................. 2,051,171 2,051,171
Class C non-voting common stock..... 600,000 (600,000)(C)
</TABLE>
48
<PAGE> 69
<TABLE>
<CAPTION>
MAIC HOLDINGS
AND MOMED
MAIC PRO FORMA PRO FORMA
HOLDINGS MOMED ADJUSTMENTS COMBINED
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY
Common Stock........................ 9,376,956 739,584 350,000(A) 9,726,956
(739,584)(A)
Additional paid in capital.......... 92,012,826 852,504 11,375,000(A) 103,387,826
(852,504)(A)
Net unrealized appreciation on
investments....................... 167,718 400,180 (400,180)(A) 167,718
Retained earnings................... 105,932,344 15,355,060 (15,355,060)(A) 105,932,344
------------ ----------- ------------ ------------
207,489,844 17,347,328 (5,622,328) 219,214,844
Less treasury stock at cost......... (138,308) (50,290) 50,290(A) (138,308 )
------------ ----------- ------------ ------------
Total stockholders'
equity.................. 207,351,536 17,297,038 (5,572,038) 219,076,536
------------ ----------- ------------ ------------
Total Liabilities and
Stockholders' Equity.... $775,872,061 $81,011,938 $ 2,066,818 $858,950,817
============ =========== ============ ============
</TABLE>
- ---------------
(A) To reflect the elimination of MOMED's capital accounts in accordance with
purchase accounting, the payment of cash and the issuance of 350,000 shares
of MAIC Holdings Common Stock for 100% of MOMED Common Stock and the
payment by MAIC Holdings of $150,000 in acquisition related expenses.
<TABLE>
<S> <C> <C>
Purchase Price:
Cash paid for MOMED shares.......................... $ 5,639,885
Cash paid for acquisition expenses.................. 150,000
-----------
Value of MAIC Holdings stock exchanged:............. 5,789,885
MAIC Holdings shares.............................. 350,000
Estimated value per share......................... $ 33.50 11,725,000
----------- -----------
Total acquisition cost.................... $17,514,885
Allocation of purchase price:
Less equity acquired:
Common stock...................................... $ 739,584
Treasury stock.................................... (50,290)
Additional paid-in capital........................ 852,504
Retained earnings................................. 15,355,060
Unrealized gain (loss) on investments............. 400,180 17,297,038
----------- -----------
Excess of cost over book value...................... $ 217,847
===========
</TABLE>
The maximum number of MAIC Holdings shares that may be issued as a part of
the MOMED purchase is 350,000. The minimum number of shares that may be
issued is 275,000. The Unaudited Pro Forma Combined Condensed Balance Sheet
has been prepared assuming that the maximum number of MAIC Holdings shares
will be issued. In the opinion of MAIC Holdings, the differences resulting
from issuance of the minimum or the maximum number of MAIC Holdings shares
is immaterial to the presentation of the Unaudited Pro Forma Combined
Condensed Balance Sheet. Fair values of identifiable assets and liabilities
approximate their carrying values.
(B) MOMED reinsurance premiums payable at June 30, 1996 ($9,248,556) are
reclassified for consistency with MAIC Holdings.
(C) Repurchase by MOMED of its Class C Common Stock plus accrued interest for
cash ($707,000) as a condition of the merger.
(D) Eliminate amounts related to reinsurance transactions between MOMEDICO and
Mutual Assurance. Reinsurance balances between the companies are as
follows:
<TABLE>
<S> <C>
Premiums receivable/payable....................................... $296,294
Loss reserves/recoverable......................................... $507,676
Unearned premiums/pre-paid reinsurance............................ $ 98,730
</TABLE>
49
<PAGE> 70
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR MAIC HOLDINGS AND MOMED (UNAUDITED)
The following unaudited Pro Forma Combined Condensed Statements of Income
have been prepared for the six months ended June 30, 1996, and for the year
ended December 31, 1995, giving effect to the Merger, assuming such acquisition
is accounted for as a purchase, and assuming that the maximum number of shares
of MAIC Holdings Common Stock will be issued in the Merger (see Note D). The Pro
Forma Condensed Statement of Income for the year ended December 31, 1995, also
gives effect to the July 16, 1995 acquisition of the recurring medical
professional insurance business of Physicians Insurance Company of Ohio and its
subsidiary, The Professionals Insurance Company (Ohio Business Acquired) and
assumes that both such acquisitions are accounted for as purchases, and all such
transactions had been consummated on January 1, 1995. The unaudited Pro Forma
Combined Condensed Statements of Income should be read in conjunction with the
historical consolidated financial statements of MAIC Holdings, including
respective notes thereto which are incorporated by reference in this Proxy
Statement, the historical consolidated financial statements of MOMED, including
respective notes thereto, which are included elsewhere in this Proxy Statement,
and the unaudited consolidated, historical and other pro forma financial
information, including notes thereto, appearing elsewhere in this Proxy
Statement. See "DOCUMENTS INCORPORATED BY REFERENCE," "INDEX TO FINANCIAL
STATEMENTS," "SUMMARY -- Comparative Per Share Data" and "-- Summary Pro Forma
Financial Data." The Pro Forma Combined Condensed Statements of Income are not
necessarily indicative of the results that actually would have occurred if the
Merger had been consummated at the dates indicated or which may be obtained in
the future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------
MAIC HOLDINGS
AND MOMED
MAIC PRO FORMA PRO FORMA
HOLDINGS MOMED ADJUSTMENTS COMBINED
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Direct premiums written................. $54,927,901 $5,399,750 $ $60,327,651
=========== ========== ======== ===========
Premium income earned................... 41,910,583 5,739,308 47,649,891
Investment income, net of expenses...... 15,919,062 2,126,976 (60,634)(B) 17,985,404
Realized gains on investments........... 524,537 60,241 584,778
Finance charges, fee income, and
other................................. 800,042 62,542 862,584
----------- ---------- -------- -----------
59,154,224 7,989,067 (60,634) 67,082,657
Expenses:
Less and loss adjustment expenses..... 29,342,116 4,181,615 33,523,731
Other underwriting expenses........... 10,907,266 1,360,099 5,446(A) 12,272,811
----------- ---------- -------- -----------
40,249,382 5,541,714 5,446 45,796,542
----------- ---------- -------- -----------
Income (loss) before federal income
taxes and minority interests.......... 18,904,842 2,447,353 (66,080) 21,286,115
Federal income taxes.................... 4,319,614 747,300 (23,128)(C) 5,043,786
----------- ---------- -------- -----------
Income (loss) before minority
interests............................. 14,585,228 1,700,053 (42,952) 16,242,329
Minority interests...................... (68,300) (68,300)
----------- ---------- -------- -----------
Net income (loss)....................... $14,516,928 $1,700,053 $ (42,952) $16,174,029
=========== ========== ======== ===========
Earnings per share:
Net income.............................. $ 1.55 $ 1.66(D)
=========== ===========
Weighted average number of common shares
outstanding........................... $ 9,369,832 $ 9,719,832
=========== ===========
</TABLE>
50
<PAGE> 71
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------
MAIC AND
OHIO MAIC MOMED
MAIC BUSINESS PRO FORMA HOLDINGS PRO-FORMA PRO FORMA
HOLDINGS ACQUIRED ADJUSTMENTS PRO-FORMA MOMED ADJUSTMENTS COMBINED
------------ ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Direct premiums written... $101,795,736 $12,650,600 $ $91,990,674 $12,598,948 $ $104,589,622
============ =========== =========== ============ =========== ========= ============
Premium income earned..... $ 75,953,235 $10,356,390 $ $86,309,625 $11,666,363 $ $ 97,975,988
Investment income, net of
expenses................ 29,581,536 449,876 30,031,412 4,236,391 (121,267)(B) 34,146,536
Realized gains on
investments............. 3,569,241 0 3,569,241 682,189 4,251,430
Finance charges, fee
income, and other....... 1,168,950 51,272 1,220,222 101,812 1,322,034
------------ ----------- ----------- ------------ ----------- --------- ------------
110,272,962 10,857,538 121,130,500 16,686,755 (121,267) 137,695,988
Expenses:
Loss and loss adjustment
expenses.............. 53,641,692 7,867,749 1,043,857(E) 62,553,298 10,733,726 73,287,024
Other underwriting
expenses.............. 17,896,789 3,061,975 300,000(E) 21,258,764 2,682,450 10,892(A) 23,952,106
------------ ----------- ----------- ------------ ----------- --------- ------------
71,538,481 10,929,724 1,343,857 83,812,062 13,416,176 10,892 97,239,130
------------ ----------- ----------- ------------ ----------- --------- ------------
Income (loss) before
federal income taxes and
minority interests...... 38,734,481 (72,186) (1,343,857) 37,318,438 3,270,579 (132,159) 40,456,858
Federal income taxes...... 8,991,876 (45,479) (450,136) 8,496,261 (806,446) (46,256)(C) 7,643,559
------------ ----------- ----------- ------------ ----------- --------- ------------
Income (loss) before
minority interests...... 29,742,605 (26,707) (893,721) 28,822,177 4,077,025 (85,903) 32,813,299
Minority interests........ (79,852) (79,852) (79,852)
------------ ----------- ----------- ------------ ----------- --------- ------------
Net income (loss)......... $ 29,662,753 $ (26,707) $(893,721) $28,742,325 $ 4,077,025 $ (85,903) $ 32,733,447
============ =========== =========== ============ =========== ========= ============
Earnings per share:
Net income................ $ 3.17 $ 3.07 $ 3.37(D)
============ ============ ============
Weighted average number of
common shares
outstanding............. 9,369,429 9,369,429 9,719,429
============ ============ ============
</TABLE>
- ---------------
(A) The excess of cost over net assets acquired is capitalized as goodwill and
amortized to "other underwriting expenses" on a straight-line basis over a
period of 20 years ($10,892 annually).
(B) The premium attributable to investments is amortized against investment
income on a straight-line basis over a period of five years ($121,267
annually).
(C) Federal income tax expense (benefit) on the effects of the pro-forma
adjustments was computed based on an effective tax rate of 35% ($46,256)
for the year ended December 31, 1995 and ($23,128) for the six months ended
June 30, 1996. The Merger is not expected to affect the tax basis of assets
and liabilities acquired.
(D) The maximum number of MAIC shares that may be issued as a part of the MOMED
purchase is 350,000. The minimum number of shares that may be issued is
275,000. The Unaudited Pro Forma Statement of Income has been prepared
assuming that the maximum number of MAIC shares will be issued. In the
opinion of MAIC, the differences resulting from issuance of the minimum or
the maximum number of MAIC shares is immaterial to the presentation of the
Unaudited Pro Forma Statement of Income.
(E) Pro-forma adjustments relating to Ohio Business for the first six months of
1995 (acquired by MAIC Holdings July 16, 1995):
(i) Amortization of the intangible asset is recorded as if the
transaction occurred January 1, 1995 based upon expected policy lapse
rates.
(ii) The effect of discounting Ohio Business loss reserves is removed.
(iii) The Ohio tax rate applicable to the results of the Ohio Business
is adjusted to the expected MAIC Holdings incremental tax rate of 35%.
51
<PAGE> 72
APPRAISAL RIGHTS
The following provides a discussion of the material provisions of the law
pertaining to appraisal rights under The General and Business Corporation Law of
Missouri. Such discussion is not a complete statement of such law and is
qualified in its entirety by the full text of the applicable provisions of the
General and Business Corporation Law of Missouri (which are presented in their
entirety as Exhibit B to this Proxy Statement-Prospectus.)
Holders of MOMED Common Stock have the right to dissent from the Merger and
to receive payment of the fair value for their shares as set forth in Section
351.455 of The General and Business Corporation Law of Missouri (the "Appraisal
Statute").
A holder of MOMED Common Stock who desires to dissent and who intends to do
so must file a written objection to the proposed Merger. Such objection must be
filed prior to, or at, the Special Meeting of MOMED. If the proposed Merger is
approved by the requisite vote and if such stockholder does not vote, either in
person or by proxy, in favor of the Merger, and has so filed such written
objection, then such stockholder may demand payment for the fair value of his
shares as of the day prior to the date on which the vote was taken approving the
Merger. Such demand must be in writing, must specify the number of shares of
MOMED Common Stock owned by such stockholder and must be filed with the
corporation surviving the Merger (the "Surviving Corporation") within twenty
days after the Effective Time. Any otherwise dissenting stockholder who fails to
make such demand within such twenty day period or who votes for the Merger shall
be conclusively presumed to have consented to the Merger and shall be bound by
the terms thereof.
A PROXY MARKED "AGAINST" THE MERGER WILL NOT BE DEEMED WRITTEN NOTICE OF
OBJECTION TO THE MERGER. A STOCKHOLDER WHO WISHES TO DISSENT FROM THE MERGER
MUST PROVIDE A SEPARATE WRITTEN NOTICE OF OBJECTION AT OR PRIOR TO THE SPECIAL
MEETING, MUST NOT VOTE "FOR" THE MERGER, AND MUST MAKE WRITTEN DEMAND FOR
PAYMENT OF THE FAIR VALUE OF HIS OTHER SHARES WITHIN TWENTY DAYS AFTER THE
EFFECTIVE DATE OF THE MERGER. A PROXY MARKED "AGAINST" OR "ABSTAIN" OR A
STOCKHOLDER'S FAILURE TO VOTE WITH RESPECT TO THE MERGER WILL SUFFICE AS NOT
VOTING IN FAVOR OF THE MERGER.
If within 30 days after the Effective Time of the Merger the fair value of
such shares is agreed upon between any dissenting stockholder and the Surviving
Corporation, payment therefor shall be made within 90 days after the Effective
Time, upon surrender of the certificate or certificates representing such
shares. MAIC Holdings intends to offer the Cash Election price of $25.32 per
share of MOMED Common Stock as the fair value of any shares of such stock held
by a dissenting MOMED stockholder.
If within said 30 day period, agreement as to the fair value of said shares
is not reached between the dissenting stockholder and the Surviving Corporation,
then the dissenting stockholder may, within 60 days after the expiration of such
30 day period, file a petition in any court of competent jurisdiction within the
County of St. Louis, Missouri, asking for a finding and determination of the
fair value of such shares, and shall be entitled to judgment against the
Surviving Corporation for the amount of the fair value as of the day prior to
the date on which such vote was taken approving the Merger, together with
interest thereon to the date of such judgment. The judgment shall be payable
only upon and simultaneously with the surrender to the Surviving Corporation of
the certificate or certificates representing said shares. Upon the payment of
the agreed upon fair value or the judgment, the dissenting stockholder shall
cease to have any interest in such shares.
Unless the dissenting stockholder shall file such petition within said 60
day period, such stockholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the Merger and shall be
bound by the terms thereof. The rights of a dissenting stockholder to be paid
the fair value of his shares as herein provided shall cease if and when there is
an abandonment of the Merger. Should a dissenting stockholder fail to comply
with any of the requirements of the Appraisal Statute, the stockholder will be
deemed to have made the Cash Election which will be paid upon surrender to the
Surviving Corporation of the certificate or certificates representing said
shares.
52
<PAGE> 73
The foregoing does not purport to be a complete statement of the procedures
to be followed by stockholders desiring to exercise appraisal rights and, in
view of the fact that exercise of such rights requires strict adherence to the
relevant provisions of The General and Business Corporation Law of Missouri,
stockholders who desire to exercise appraisal rights are advised to review with
care all applicable provisions of law and to obtain legal counsel concerning
proper compliance therewith.
STOCKHOLDER PROPOSALS
MAIC Holdings expects to hold its next annual meeting of stockholders after
the Merger during May 1997. Under SEC rules, proposals of MAIC Holdings
stockholders intended to be presented at that meeting must be received by MAIC
Holdings at its principal executive offices no later than the date specified in
MAIC Holdings 1996 Annual Meeting Proxy Statement.
EXPERTS
The consolidated financial statements of MOMED as of December 31, 1995 and
1994, and for each of the years in the three year period ended December 31,
1995, have been included herein in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, also included herein, and upon
the authority of said firm as experts in said accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1995
financial statements refers to a change in accounting for investments in 1994
and income taxes in 1993.
The consolidated financial statements of MAIC Holdings, incorporated by
reference from the Annual Report on Form 10-K of MAIC Holdings for the year
ended December 31, 1995, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon which is incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
OPINIONS
The legality of the shares of MAIC Holdings Common Stock to be issued in
the Merger will be passed upon by Burr & Forman, Birmingham, Alabama. As of
September 26, 1996, attorneys in the law firm of Burr & Forman owned an
aggregate of 44,130 shares of MAIC Holdings Common Stock.
Certain tax consequences of the transaction have been opined upon by KPMG
Peat Marwick LLP.
53
<PAGE> 74
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
MOMED HOLDING CO.
Unaudited Financial Statements for the Six Months Ended June 30, 1996 and 1995:
Consolidated Statements of Operations for the Six Months Ended June 30, 1996 and
1995 (unaudited).............................................................. F-2
Consolidated Balance Sheet as of June 30, 1996 (unaudited) and December 31,
1995.......................................................................... F-3
Consolidated Statements of Changes in Stockholders' Equity for Six Months Ended
June 30, 1996 and 1995 (unaudited)............................................ F-4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and
1995 (unaudited).............................................................. F-5
Notes to Consolidated Financial Statements (unaudited)........................... F-6
Financial Statements and Schedules for the Three Years Ended December 31, 1995:
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994
and 1993...................................................................... F-8
Consolidated Balance Sheets as of December 31, 1995 and 1994..................... F-9
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993.............................................. F-10
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993...................................................................... F-11
Notes to Consolidated Financial Statements....................................... F-12
Independent Auditors' Report..................................................... F-26
</TABLE>
F-1
<PAGE> 75
MOMED HOLDING CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30,
-----------------------------
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Net premiums written.......................................... $5,535,854 $5,503,388
Changes in unearned premiums.................................. 203,454 59,817
---------- ----------
Net premiums earned............................................. 5,739,308 5,563,205
Net investment income........................................... 2,126,976 2,068,302
Realized gains on investments................................... 60,241 361,358
Other income.................................................... 62,542 54,646
---------- ----------
Total revenues........................................ 7,989,067 8,047,511
---------- ----------
Expenses:
Loss and loss adjustment expenses incurred.................... 4,181,615 6,263,144
Policy acquisition costs...................................... 316,154 335,023
Other operating expenses...................................... 994,355 974,900
Interest expense.............................................. 49,590 31,203
---------- ----------
Total expenses........................................ 5,541,714 7,604,270
---------- ----------
Earnings before income taxes.................................... 2,447,353 443,241
Provision for income taxes
Current......................................................... 521,000 10,000
Deferred........................................................ 226,300 40,440
---------- ----------
Total................................................. 747,300 50,440
---------- ----------
Net earnings.................................................... $1,700,053 $ 392,801
---------- ----------
Average shares outstanding...................................... 672,054 672,054
---------- ----------
Per share data:
Earnings per share............................................ $ 2.53 $ .58
---------- ----------
</TABLE>
F-2
<PAGE> 76
MOMED HOLDING CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996
----------- DECEMBER 31,
(UNAUDITED) 1995
----------- ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (amortized cost $66,346,959
in 1996; $62,117,379 in 1995)............................ $66,077,509 $ 64,167,237
Equity securities, at market value (cost $2,779,118 in 1996
and $2,322,300 in 1995).................................... 3,654,902 3,027,108
Investment real estate, net of depreciation of $40,184 in 1996
and $36,480 in 1995........................................ 152,687 156,392
Short-term investments, at cost which approximates market..... 1,250,275 4,423,463
----------- -----------
Total investments..................................... 71,135,373 71,774,201
----------- -----------
Cash............................................................ 185,095 89,917
Accrued investment income....................................... 1,073,351 1,022,768
Premiums receivable............................................. 236,963 419,122
Reinsurance receivable on paid and unpaid losses net of
$9,248,556 in 1996 and $10,262,344 in 1995 of reinsurance
experience premiums payable attributable to unpaid losses
recoverable................................................... 2,869,737 2,791,317
Prepaid reinsurance premiums.................................... 493,649 599,434
Deferred policy acquisition costs............................... 127,782 154,955
Building, furniture and equipment, at cost less accumulated
depreciation of $470,756 in 1996 and $444,413 in 1995......... 831,955 851,402
Prepaid taxes................................................... 1,140,235 1,140,235
Deferred income taxes........................................... 2,706,811 2,202,678
Other assets.................................................... 210,987 229,164
----------- -----------
Total Assets.......................................... $81,011,938 $ 81,275,193
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses............... 54,648,999 54,903,753
Unearned premiums............................................. 6,244,320 6,553,559
Accounts payable and accrued expenses......................... 1,009,523 1,025,060
Reinsurance premiums payable.................................. 15,631 221,200
Mortgages payable............................................. 667,334 693,643
Accrued Federal income tax.................................... 529,093 263,093
----------- -----------
Total liabilities..................................... 63,114,900 63,660,308
----------- -----------
Class C Non-voting Common Stock $1.00 par value, redeemable,
authorized and issued 24,185 shares........................... 600,000 600,000
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
Stockholders' equity:
Class A Common Stock -- $1 par value, authorized 1,000,000
shares in 1996, 500,000 shares in 1995, issued 739,584
shares in 1996 and in 1995................................. 739,584 739,584
Additional paid-in capital.................................... 852,504 852,504
Unrealized appreciation (depreciation) of fixed maturity
investments and equity securities, net of tax.............. 400,180 1,818,080
Retained earnings............................................. 15,355,060 13,655,007
----------- -----------
17,347,328 17,065,175
----------- -----------
Less 67,530 shares of Class A treasury stock, at cost in 1996
and 1995................................................... (50,290) (50,290)
----------- -----------
Total stockholders' equity............................ 17,297,038 17,014,885
----------- -----------
Total liabilities and stockholders' equity............ $81,011,938 $ 81,275,193
----------- -----------
</TABLE>
F-3
<PAGE> 77
MOMED HOLDING CO.
UNAUDITED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL APPRECIATION TOTAL
COMMON STOCK PAID-IN OF EQUITY RETAINED TREASURY STOCKHOLDERS'
CLASS A CLASS B CAPITAL SECURITIES EARNINGS STOCK EQUITY
-------- ------- ---------- ------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/94............ $246,528 -- 1,345,560 (1,281,104) 9,577,982 (50,290 ) 9,838,676
Net Earnings................... 392,801 392,801
Unrealized appreciation
(depreciation) of:
Fixed Maturity Investments..... 2,083,335 2,083,335
Equity Securities.............. 113,985 113,985
------- ------- ---------- ----------- ----------- -------- -----------
Balance at 6/30/95............. $246,528 -- 1,345,560 916,216 9,970,783 (50,290 ) 12,428,797
======= ======= ========== =========== =========== ======== ===========
Balance at 12/31/95............ $739,584 -- 852,504 1,818,080 13,655,007 (50,290 ) 17,014,885
Net Earnings................... 1,700,053 1,700,053
Unrealized appreciation
(depreciation) of:
Fixed Maturity Investments..... (1,530,743) (1,530,743)
Equity Securities.............. 112,843
------- ------- ---------- ----------- ----------- -------- -----------
Balance at 6/30/96............. $739,584 -- 852,504 400,180 15,355,060 (50,290 ) 17,297,038
======= ======= ========== =========== =========== ======== ===========
</TABLE>
F-4
<PAGE> 78
MOMED HOLDING CO.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings..................................................... $ 1,700,053 392,801
----------- -----------
Adjustments to reconcile net income to net cash provided from
operating activities:
Changes in:
Accrued investment income..................................... (50,583) 80,402
Premiums receivable........................................... 182,159 32,785
Reinsurance recoverable on paid and unpaid losses............. (78,420) 1,736,658
Reserve for losses and loss adjustment expenses............... (254,754) (1,981,045)
Prepaid reinsurance premiums.................................. 105,785 96,738
Unearned premiums............................................. (309,239) (156,555)
Accounts payable and accrued expenses......................... (15,537) (104,721)
Reinsurance premiums payable.................................. (205,569) (246,403)
Deferred policy acquisition costs............................. 27,173 4,747
Deferred income taxes......................................... 226,300 (253,386)
Other assets.................................................. 18,177 2,336
Prepaid taxes................................................. -- 178,545
Accrued income taxes.......................................... 266,000 (50,000)
Depreciation of building, furniture and equipment................ 30,348 36,267
Amortization of premiums on bonds................................ 26,287 41,700
Net realized investment gains.................................... (60,241) (361,358)
----------- -----------
Net cash provided (used) by operating activities................... 1,607,939 (550,489)
----------- -----------
Cash flows from investing activities:
Due from broker.................................................. -- 7,076,623
Proceeds from investments sold or matured........................ 3,916,604 54,001
Purchase of bonds and stocks..................................... (8,569,047) (4,161,635)
Purchase of property and equipment............................... (7,197) (8,546)
----------- -----------
Net cash (used) provided from investing activities............... (4,659,640) 2,960,443
----------- -----------
Cash flows from financing activities:
Decrease in mortgage payable..................................... (26,309) (79,427)
----------- -----------
Net cash used by financing activities.............................. (26,309) (79,427)
----------- -----------
Net increase (decrease) in cash and short-term investments......... (3,078,010) 2,330,527
Cash and short-term investments at beginning of period............. 4,513,380 1,738,752
----------- -----------
Cash and short-term investments at end of period................... $ 1,435,370 4,069,279
=========== ===========
</TABLE>
F-5
<PAGE> 79
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
JUNE 30, 1996 AND 1995
1. BASIS OF PRESENTATION
The consolidated financial statements of MOMED Holding Co. and its
Subsidiaries (the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. MOMED believes that the accompanying consolidated financial statements
contain all adjustments (consisting of normal recurring accruals) necessary to
present fairly MOMED's consolidated financial position as of June 30, 1996 and
the consolidated results of operations and the consolidated cash flows for the
six month periods ended June 30, 1996 and 1995.
It is suggested that these consolidated financial statements be read in
conjunction with the audited consolidated balance sheets for the years ended
December 31, 1995 and 1994, and the consolidated statements of operations,
stockholder's equity, and cash flows for the three year period ended December
31, 1995, and the accompanying notes to consolidated financial statements and
the related Independent Auditors' report immediately following.
The results of operations for the six month period ended June 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
2. INVESTMENTS
The following tables summarize the Company's investments at June 30, 1996.
Fixed maturity investments are classified as available for sale and reported in
the financial statements at fair market value, with the unrealized gains
(losses) excluded form earnings and reported as a separate component of
shareholders equity pursuant to the provision of FASB Statement 115 "Accounting
for Certain Investments in Debt and Equity Securities. Equity securities are
carried at market value for each period.
<TABLE>
<CAPTION>
AMOUNT
AT WHICH
ESTIMATED SHOWN IN GROSS GROSS
MARKET THE BALANCE UNREALIZED UNREALIZED
TYPE OF INVESTMENTS COST VALUE SHEET GAINS LOSSES
- ---------------------------------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
June 30, 1996:
Fixed maturities................ $66,346,959 $66,077,509 $66,077,509 $ 901,821 $1,171,271
Equity securities............... 2,779,118 3,654,902 3,654,902 991,901 116,117
Investment Real Estate.......... 152,687 152,687 152,687 -- --
Short-term investments.......... 1,250,275 1,250,275 1,250,275 -- --
----------- ----------- ----------- ---------- ----------
Total Investments....... $70,529,039 $71,135,373 $71,135,373 $1,893,722 $1,287,388
=========== =========== =========== ========== ==========
</TABLE>
3. LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company retains the services of an independent actuary to analyze the
Company's reserves for losses and loss adjustment expenses on a quarterly basis.
Due to the inherent risk involved in projecting ultimate cost for losses and
loss adjustment expenses for long tail lines of business, such as medical
malpractice, the Company would anticipate that the ultimate cost to settle
claims will vary from the amounts provided in the accompanying financial
statements.
F-6
<PAGE> 80
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. AVERAGE SHARES OUTSTANDING
Average shares outstanding at June 30, 1996 and June 30, 1995 were 672,054
after giving effect to a three-for-one stock split to shareholders of record on
November 8, 1995.
5. CLASS C NON-VOTING COMMON STOCK
The Class C non-voting common stock was issued to Missouri State Medical
Association (MSMA) in connection with the exchange of Class B common stock for
Class A common stock. MSMA has an option to sell the Class C shares and the
Company is required to purchase such shares at a per share consideration of
$24.81, with the aggregate cash consideration not to exceed $600,000 plus
interest at Boatmen's National Bank's prime rate plus one percent (1%). MSMA may
exercise its options to sell the Class C shares as follows:
<TABLE>
<CAPTION>
PERIOD NO. OF SHARES AMOUNT
------------------------------------------------------------- ------------- --------
<S> <C> <C>
August 16, 1994 to August 15, 1995........................... 4,031 $100,009
August 16, 1995 to August 15, 1996........................... 4,031 $100,009
August 16, 1996 to August 15, 1997........................... 8,062 $200,018
August 16, 1997 and after.................................... 8,061 $199,964
------ --------
24,185 $600,000
====== ========
</TABLE>
On the second and third anniversaries of the share exchange agreement, the
Company has an option to purchase the Class C shares not yet put to the Company
at the same cash consideration as shown.
6. MERGER AGREEMENT
On June 11, 1996, the Company signed an agreement and plan of merger with
MAIC Holdings, Inc., of Birmingham, Alabama, wherein MOMED Holding Co. would
become a wholly owned subsidiary of MAIC. The plan of merger with MAIC Holdings,
Inc. provides that the Company will continue to operate from its current
location with the same management and employees. The transaction still requires
approval by the Board of Directors, Shareholders and appropriate regulatory
authorities.
F-7
<PAGE> 81
MOMED HOLDING CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Net premiums written.............................. $11,935,666 $10,942,885 $11,758,362
Changes in unearned premiums...................... (269,303) (403,006) (1,112,629)
----------- ----------- -----------
Net premiums earned............................... 11,666,363 10,539,879 10,645,733
Net investment income (note 5).................... 4,236,391 3,952,945 3,641,198
Realized gains on investments (note 5)............ 682,189 265,133 570,980
Other income...................................... 101,812 97,760 95,979
----------- ----------- -----------
Total revenues............................ 16,686,755 14,855,717 14,953,890
----------- ----------- -----------
Expenses:
Loss and loss adjustment expenses incurred (note
6)............................................. 10,733,726 9,978,065 14,438,684
Policy acquisition costs (note 4)................. 676,659 655,469 663,284
Other operating expenses.......................... 1,879,450 1,914,680 1,871,435
Interest expense.................................. 126,341 65,567 75,620
----------- ----------- -----------
Total expenses............................ 13,416,176 12,613,781 17,049,023
----------- ----------- -----------
Earnings (loss) before Federal income tax (benefit)
and cumulative effect of change in accounting
principle......................................... 3,270,579 2,241,936 (2,095,133)
Provision for Federal income tax (benefit) (note 8)
Current........................................... 483,000 (21,045) 46,925
Deferred.......................................... (1,289,446) 549,842 (823,519)
----------- ----------- -----------
Total..................................... (806,446) 528,797 (776,594)
----------- ----------- -----------
Earnings (loss) before cumulative effect of change
in accounting principle........................... 4,077,025 1,713,139 (1,318,539)
Cumulative effect of change in accounting principle
(note 8).......................................... -- -- 900,000
----------- ----------- -----------
Net earnings (loss)............................ $ 4,077,025 $ 1,713,139 $ (418,539)
----------- ----------- -----------
Average shares outstanding (note 2)................. 672,054 672,054 672,054
----------- ----------- -----------
Per share data (note 2):
Earnings (loss) before cumulative effect of change
in accounting principle........................ $ 6.07 $ 2.55 $ (1.96)
Cumulative effect of change in accounting
principle...................................... -- -- 1.34
----------- ----------- -----------
Earnings (loss) per share........................... $ 6.07 $ 2.55 $ (.62)
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 82
MOMED HOLDING CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Investments (note 5):
Fixed maturities:
Available for sale, at market (amortized cost $62,117,379 in 1995;
$63,565,035 in 1994)........................................... $64,167,237 $61,515,774
Equity securities, at market value (cost $2,322,300 in 1995 and
$2,144,046 in 1994)............................................ 3,027,109 2,252,240
Investment real estate, net of depreciation of $36,480 in 1995 and
$36,616 in 1994................................................ 156,392 216,303
Short-term investments, at cost which approximates market......... 4,423,463 1,395,128
----------- -----------
Total investments......................................... 71,774,201 65,379,445
----------- -----------
Cash................................................................ 89,917 343,624
Accrued investment income........................................... 1,022,768 1,067,151
Premiums receivable................................................. 419,122 391,217
Reinsurance receivable on paid and unpaid losses net of $10,262,344
in 1995 and $11,479,344 in 1994 of reinsurance experience premiums
payable attributable to unpaid losses recoverable (note 9)........ 2,791,317 4,849,475
Prepaid reinsurance premiums (note 9)............................... 599,434 659,036
Deferred policy acquisition costs (note 4).......................... 154,955 146,503
Building, furniture and equipment, at cost less accumulated
depreciation of $444,113 in 1995 and $378,924 in 1994............. 851,402 889,744
Prepaid taxes....................................................... 1,140,235 1,140,235
Deferred income taxes (note 8)...................................... 2,202,678 2,509,782
Other assets........................................................ 229,164 147,715
----------- -----------
Total assets.............................................. 81,275,193 77,523,927
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses (notes 6 and 9)... 54,903,753 58,764,316
Unearned premiums................................................. 6,553,559 6,343,858
Accounts payable and accrued expenses............................. 1,025,060 723,662
Reinsurance premiums payable...................................... 221,200 354,183
Mortgages payable (note 3)........................................ 693,643 799,640
Accrued Federal income tax........................................ 263,093 99,592
----------- -----------
Total liabilities......................................... 63,660,308 67,085,251
----------- -----------
Class C Non-voting Common Stock $1.00 par value, redeemable,
authorized and issued 24,185 shares (note 10)..................... 600,000 600,000
Commitments and Contingent Liabilities (notes 9, 13, 14, 16 and 18)
Stockholders' equity (notes 11, 12, and 17):
Class A Common Stock -- $1 par value authorized 1,000,000 shares
in 1995, 500,000 shares in 1994, issued 739,584 shares in 1995
and 246,528 shares in 1994..................................... 739,584 246,528
Additional paid-in capital........................................ 852,504 1,345,560
Unrealized appreciation (depreciation) of fixed maturity
investments and equity securities, net of tax.................. 1,818,080 (1,281,104)
Retained earnings................................................. 13,655,007 9,577,982
----------- -----------
17,065,175 9,888,966
Less 67,530 shares of Class A treasury stock, at cost in 1995,
22,510 shares in 1994.......................................... (50,290) (50,290)
----------- -----------
Total stockholders' equity................................ 17,014,885 9,838,676
----------- -----------
Total liabilities and stockholders' equity................ $81,275,193 $77,523,927
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 83
MOMED HOLDING CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
----------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
FIXED MATURITY
COMMON STOCK ADDITIONAL INVESTMENTS AND TOTAL
-------------------- PAID-IN EQUITY RETAINED TREASURY STOCKHOLDERS'
CLASS A CLASS B CAPITAL SECURITIES EARNINGS STOCK EQUITY
-------- --------- ---------- ----------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992..... $222,343 $ 604,625 $1,200,450 $ 111,921 $ 8,484,065 $(50,290) $10,573,114
Net (loss)....................... -- -- -- -- (418,539) -- (418,539)
Unrealized (depreciation) of
equity securities.............. -- -- -- (6,159) -- -- (6,159)
-------- --------- ---------- ----------- ----------- -------- -----------
Balance at December 31, 1993..... $222,343 $ 604,625 $1,200,450 $ 105,762 $ 8,065,526 $(50,290) $10,148,416
-------- --------- ---------- ----------- ----------- -------- -----------
Net Earnings..................... -- -- -- -- 1,713,139 -- 1,713,139
Effect of change in accounting
principle (note 2)............. -- -- -- 2,294,495 -- -- 2,294,495
Unrealized appreciation
(depreciation) of:
Fixed maturity investments..... -- -- -- (3,647,007) -- -- (3,647,007)
Equity securities.............. -- -- -- (34,354) -- -- (34,354)
Exchange of Class B common
stock.......................... -- (604,625) -- -- (36,013) -- (640,638)
Issuance of 24,185 shares of
Class A common stock at $7.00
per share...................... 24,185 -- 145,110 -- (164,670) -- 4,625
-------- --------- ---------- ----------- ----------- -------- -----------
Balance at December 31, 1994..... $246,528 $ -- $1,345,560 $(1,281,104) $ 9,577,982 $(50,290) $ 9,838,676
-------- --------- ---------- ----------- ----------- -------- -----------
Net earnings..................... -- -- -- -- 4,077,025 -- 4,077,025
Three-for-one stock split (note
2)............................. 493,056 -- (493,056) -- -- -- --
Unrealized appreciation of:
Fixed maturity investments..... -- -- -- 2,705,418 -- -- 2,705,418
Equity securities.............. -- -- -- 393,766 -- -- 393,766
-------- --------- ---------- ----------- ----------- -------- -----------
Balance at December 31, 1995..... $739,584 $ -- $ 852,504 $ 1,818,080 $13,655,007 $(50,290) $17,014,885
-------- --------- ---------- ----------- ----------- -------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 84
MOMED HOLDING CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................ $ 4,077,025 $ 1,713,139 $ (418,539)
------------ ------------ ------------
Adjustments to reconcile net earnings (loss) to
net cash provided from operating activities:
Change in:
Accrued investment income..................... 44,383 (44,135) (129,710)
Premiums receivable........................... (27,905) 5,308 (138,079)
Amounts recoverable from reinsurers on paid
and unpaid losses.......................... 2,058,158 (11,688) (4,837,787)
Prepaid reinsurance premiums............... 59,602 5,578 (664,614)
Deferred policy acquisition costs.......... (8,452) 12,575 (11,154)
Prepaid taxes.............................. -- (108,381) 2,982
Deferred income taxes...................... (1,289,446) 766,604 (1,723,519)
Other assets............................... (81,449) (27,638) (2,134)
Losses and loss adjustment expenses........ (3,860,563) (805,055) 23,059,783
Unearned premiums.......................... 209,701 397,428 1,777,243
Accounts payable and accrued expenses...... 301,398 (151,081) 222,811
Reinsurance premiums payable............... (132,983) 146,793 (8,035,782)
Accrued income taxes....................... 163,501 99,592 --
Depreciation of furniture and equipment............ 77,342 76,538 75,615
Amortization of premium on bonds................... 79,292 122,334 109,158
Net realized investment gains...................... (682,189) (265,133) (570,980)
------------ ------------ ------------
Net cash provided by operating activities............ 987,415 1,932,778 8,715,294
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from investments sold or matured.......... 13,106,337 8,246,617 10,772,538
Purchase of bonds and stocks....................... (11,182,281) (11,623,385) (17,920,473)
Purchase of investment real estate................. -- (7,530) --
Purchase of property and equipment................. (30,846) (78,317) (53,661)
------------ ------------ ------------
Net cash provided by (used) in investing
activities......................................... 1,893,210 (3,462,616) (7,201,597)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of mortgage loans........................ (105,997) (50,387) (56,560)
Stock exchange expense............................. -- (36,013) --
------------ ------------ ------------
Net cash used in financing activities................ (105,997) (86,400) (56,560)
------------ ------------ ------------
Net increase (decrease) in cash and short-term
investments........................................ 2,774,628 (1,616,238) 1,457,137
Cash and short-term investments at beginning of
year............................................... 1,738,752 3,354,990 1,897,853
------------ ------------ ------------
Cash and short-term investments at end of year....... $ 4,513,380 $ 1,738,752 $ 3,354,990
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 85
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATION PRINCIPLES
The accompanying consolidated financial statements of MOMED Holding Co.
(the Company) and subsidiaries have been prepared in accordance with generally
accepted accounting principles and include the accounts of the Company and its
wholly owned subsidiaries: Missouri Medical Insurance Company "MOMEDICO",
Professional Liability Associates, Inc., and Momedico Professional Services,
Inc. All significant intercompany accounts have been eliminated in
consolidation.
Throughout this report MOMED Holding Co. and its primary subsidiary,
Missouri Medical Insurance Company "MOMEDICO" are referred to both individually
and collectively as the Company.
MOMEDICO was incorporated on January 25, 1978, under the laws of the State
of Missouri, and is currently authorized under state law to write liability
insurance (other than auto liability). The Company provides professional
liability insurance for physicians, dentists and support technicians practicing
in the States of Missouri and Kansas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PREMIUMS WRITTEN
The Company issues primarily 12-month claims made policies with optional
installment payment plans available on a quarterly or semiannual basis.
Selection of an installment option by an insured increases the installment
payments of the premium by a service charge based on a 9% annual rate. The
Company records premiums as written when installments become due. The service
charge associated with the installment is recorded as premium income in the same
manner.
UNEARNED PREMIUMS
The liability for unearned premiums is computed on the monthly pro rata
basis. The unearned premiums liability for the years ended December 31, 1995 and
1994 are stated on a gross basis and unearned reinsurance premiums ceded of
approximately $599,434 and $659,036 are reported as prepaid reinsurance premiums
as required by Financial Accounting Standard Board (FASB) Statement 113,
"Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts."
DEFERRED ACQUISITION COSTS
Policy acquisition expenses, which are comprised of commission, premium
taxes, and certain variable underwriting expenses, are deferred and amortized to
income on a pro rata basis over the term of the policies.
INVESTMENTS
For the years ended December 31, 1995 and 1994, fixed maturity investments
have been classified as available for sale and are reported in the financial
statements at fair market value. Equity securities are carried at market value.
Short-term investments are stated at cost, which approximates market. Cost of
investments sold is determined using specific identified cost. Unrealized gains
or losses on fixed maturity investments and equity securities are recorded as
direct increases or decreases in shareholders' equity, net of applicable income
taxes.
Effective January 1, 1994, the Company implemented the provisions of FASB
Statement 115 "Accounting for Certain Investments in Debt and Equity
Securities." Debt securities are classified as available for sale and reported
in the financial statements at fair value, with the unrealized gains (losses)
excluded from
F-12
<PAGE> 86
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earnings and reported as a separate component of shareholders' equity. The
impact of the adoption of this statement as of January 1, 1994 was as follows:
<TABLE>
<S> <C>
Total assets, increase................................................ $ 3,476,507
Net deferred tax asset, decrease...................................... (1,182,012)
--------
Shareholders' equity, increase........................................ $ 2,294,495
========
</TABLE>
At December 31, 1995, investments of the Company with an amortized cost of
$1,000,884 were on deposit with the Department of Insurance, State of Missouri
as required by law.
DEFERRED FEDERAL INCOME TAXES
Deferred income taxes are provided for temporary differences between
financial statement and tax return basis, using the asset and liability method.
This method was adopted as of January 1, 1993, in accordance with FASB Statement
109, "Accounting for Income Taxes."
BUILDINGS, FURNITURE, EQUIPMENT AND RELATED DEPRECIATION
Buildings, furniture, and equipment are stated on the basis of cost less
accumulated depreciation. Building depreciation is provided on the straight-line
method over estimated useful lives of 27.5, 31.5, and 39.0 years. Depreciation
of furniture and equipment is provided on an accelerated tax basis over the
estimated useful life of the respective assets of 5-10 years.
LEASES
Rent expense charged to operations in 1995, 1994 and 1993 was $20,342,
$19,087, and $19,336, respectively. The Company's claims office lease expires
May 31, 1996. The Company's estimated annual rent expense for 1996 is
approximately $9,000 per year for the continued leasing of claims office space.
There is no rent expense for home office since the Company purchased a building
in 1992 and utilizes approximately one-half of the space as its home office. The
remaining space is leased to other individuals and companies. Future minimum
rental income under all of the Company's noncancellable leases is $71,786 in
1996, $33,096 in 1997, and $5,388 in 1998, for a total rental income from
noncancellable leases of $110,270. The Company has no contingent rents included
in income. In addition some space is leased on a month-to-month basis with an
annual rental income of approximately $14,570.
FAIR VALUE
At December 31, 1995, the carrying value of financial instruments such as
cash, short-term investments, receivables, payables and short-term debt
approximated their fair value, based on the short-term maturities of these
instruments. Fixed maturity and equity security investments are reported at
market value which is a reflection of their fair value as of the date of
valuation.
CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments as reported in the statement of cash flows
represent cash and cash equivalent investments with maturity dates of ninety
days or less.
PER SHARE DATA
Earnings (loss) per share is computed on the basis of the weighted average
number of Class A common shares outstanding during the year, less treasury
stock. The weighted average shares outstanding during 1995,
F-13
<PAGE> 87
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 and 1993 were 672,054 after giving effect to a three-for-one stock split to
shareholders of record on November 8, 1995.
USE OF ESTIMATES
Management of the Company has utilized estimates in establishing certain
assets and liabilities included in the accompanying consolidated financial
statements. The most significant estimate that can vary from the amounts
provided in the financial statements is the estimated cost of settlement of
losses and related loss adjustment expenses and such variances could be
significant.
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform to 1995
presentation.
3. MORTGAGES PAYABLE
During 1993 the Company acquired permanent financing on its home office
property and investment real estate under the following conditions:
<TABLE>
<CAPTION>
HOME OFFICE INVESTMENT
PROPERTY PROPERTY
------------------------ -------------------------
NAME OF LENDER BOATMEN'S NATIONAL BANK SOUTH SIDE NATIONAL BANK
----------------------------------------- ------------------------ -------------------------
<S> <C> <C>
Original Amount.......................... $600,000 $259,000
Interest Rate............................ 7.75% 8.0%
Monthly Payment.......................... $3,333 plus interest $2,568 principal and
interest
Amortization Period...................... 15 years 15 years
Maturity Date............................ October 31, 1997 September 1, 1996
Unpaid Balance, December 31, 1995........ $513,333 $180,310
</TABLE>
The Boatmen's National Bank loan is secured by a deed of trust on the home
office property and assignment of rents and leases. The Southside National Bank
loan is secured by a deed of trust on the investment property. The Company
anticipates that each of the loans will be refinanced at maturity. The Company
paid interest of $58,262 in 1995 and $65,567 in 1994.
Principal repayments due each year through maturity are as follows:
<TABLE>
<CAPTION>
HOME OFFICE INVESTMENT
PROPERTY PROPERTY
----------- ----------
<S> <C> <C>
1996.......................................................... $ 39,996 $ 180,310
1997.......................................................... 473,337 --
-------- --------
$ 513,333 $ 180,310
======== ========
</TABLE>
4. DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs of $685,110, $642,895, and $674,438 were deferred
during 1995, 1994, and 1993, respectively. The components of these costs are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Commissions............................................ $342,282 $353,964 $361,578
Underwriting expenses.................................. 99,504 92,024 92,106
Premium taxes.......................................... 243,324 196,907 220,754
-------- -------- --------
Total........................................ $685,110 $642,895 $674,438
-------- -------- --------
</TABLE>
F-14
<PAGE> 88
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Policy acquisition costs of $676,659, $655,469, and $663,284 were amortized
against income for the years ended December 31, 1995, 1994, and 1993,
respectively.
5. INVESTMENTS
(a) The following tables summarize the Company's investments at December
31, 1995 and 1994.
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
ESTIMATED IN THE GROSS GROSS
MARKET BALANCE UNREALIZED UNREALIZED
TYPE OF INVESTMENT COST VALUE SHEET* GAINS LOSSES
- ---------------------------------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Fixed maturities:
Bonds:
United States Government and
government agencies and
authorities................ $24,563,697 $25,600,167 $25,600,167 $1,048,970 $ 12,500
States, municipalities and
political subdivisions..... 5,979,714 6,360,480 6,360,480 380,766 --
Public utilities............. 7,141,614 7,040,950 7,040,950 69,275 169,939
Convertibles and bonds with
warrants................... 485,430 498,750 498,750 13,320 --
All other corporate.......... 23,946,924 24,666,890 24,666,890 776,168 56,202
----------- ----------- ----------- ---------- ----------
Total fixed maturities............ 62,117,379 64,167,237 64,167,237 2,288,499 238,641
----------- ----------- ----------- ---------- ----------
Equity securities:
Public utilities................ 45,814 67,000 67,000 21,186 --
Banks, trusts, and insurance
companies.................... 198,500 170,165 170,165 16,500 44,835
Industrial and miscellaneous.... 2,077,986 2,789,944 2,789,944 780,870 68,912
----------- ----------- ----------- ---------- ----------
Total equity securities........... 2,322,300 3,027,109 3,027,109 818,556 113,747
----------- ----------- ----------- ---------- ----------
Investment real estate............ 156,392 156,392 156,392 -- --
Short-term investments............ 4,423,463 4,423,463 4,423,463 -- --
----------- ----------- ----------- ---------- ----------
Total investments................. $69,019,534 $71,774,201 $71,774,201 $3,107,055 $ 352,388
----------- ----------- ----------- ---------- ----------
</TABLE>
F-15
<PAGE> 89
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
ESTIMATED IN THE GROSS GROSS
MARKET BALANCE UNREALIZED UNREALIZED
TYPE OF INVESTMENT COST VALUE SHEET* GAINS LOSSES
- ---------------------------------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1994:
Fixed maturities -- available for
sale:
Bonds:
United States Government and
government agencies and
authorities................ $21,433,753 $20,466,429 $20,466,429 $ 447 $ 967,771
States, municipalities and
political subdivisions..... 17,462,417 18,036,595 18,036,595 591,550 17,372
Public utilities............. 6,171,902 5,617,440 5,617,440 -- 554,462
Convertibles and bonds with
warrants................... 484,988 456,250 456,250 -- 28,738
All other corporate.......... 18,011,975 16,939,060 16,939,060 57,600 1,130,515
----------- ----------- ----------- ---------- ----------
Total fixed maturities............ 63,565,035 61,515,774 61,515,774 649,597 2,698,858
----------- ----------- ----------- ---------- ----------
Equity securities:
Public utilities................ 78,375 115,250 115,250 36,875 --
Banks, trusts, and insurance
companies.................... 65,000 -- -- -- 65,000
Industrial and miscellaneous.... 2,000,671 2,136,990 2,136,990 248,090 111,771
----------- ----------- ----------- ---------- ----------
Total equity securities........... 2,144,046 2,252,240 2,252,240 284,965 176,771
----------- ----------- ----------- ---------- ----------
Investment real estate............ 216,303 216,303 216,303 -- --
Short-term investments............ 1,395,128 1,395,128 1,395,128 -- --
----------- ----------- ----------- ---------- ----------
Total investments................. $67,320,512 $65,379,445 $65,379,445 $ 934,562 $2,875,629
----------- ----------- ----------- ---------- ----------
</TABLE>
- ---------------
* Fixed maturity investments at fair value.
(b) Investments in the following companies and institutions exceeded 10% of
the Company's total shareholders' equity at December 31, 1995 and 1994.
F-16
<PAGE> 90
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Fixed maturities:
Caterpillar Financial............................................... $ -- $1,029,980
Chicago Il Mgt. Wtr Reclaim Dist.................................... -- 1,020,140
Cleveland Oh Wtwks Rev Ser F-92..................................... -- 1,012,580
Colo Spr Co Utils Rev Ref Ser A..................................... -- 1,027,550
Columbus OH Swr Rev Ref............................................. -- 998,790
Dade Co Fi Auit Rev Ser T........................................... -- 1,037,940
Ford Holdings Inc................................................... -- 1,542,210
General Motors Accept Corp.......................................... -- 983,940
Georgia Mun Elec Auth Pwr Rev Ser L................................. -- 1,071,690
Hawaii St Ser RB.................................................... -- 1,054,060
Il Univ Revs Aux Fac................................................ -- 1,032,290
Il Hlth Fac Ren Nw Hosp............................................. -- 1,031,300
KS City Sch Dist Bldg Lease Ser A................................... -- 1,030,470
Ky Tpk Auth E Con Dev Ser A......................................... -- 1,054,030
Loews Corp Notes.................................................... -- 999,670
Maricopa Cty AZ Ind Dev Ser A....................................... -- 1,048,440
Maryland St Dept of Trans........................................... -- 1,028,590
Minnesota St GO..................................................... -- 1,050,180
Ohio St. High Edl. Fac Ser A........................................ -- 1,028,530
Univ Mo Col Hosp Rev Ser A.......................................... -- 1,043,880
Utah St. Bd Reg Stud Ln Ser E....................................... -- 1,012,450
Wisconsin St Ser G.................................................. -- 1,046,320
Short-term investments:
Pilot Short-term Diversified Assets Fund............................ $2,149,016 $1,320,128
</TABLE>
(c) Details of realized and changes in unrealized gains (losses) on
investments are as follows:
<TABLE>
<CAPTION>
INVESTMENT TAX NET GAINS
FIXED EQUITY REAL EXPENSE (LOSSES) ON
MATURITIES SECURITIES ESTATE (BENEFITS) INVESTMENTS
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995
Realized................... $ 567,117 $ 113,110 $1,962 $ 231,944 $ 450,245
Unrealized................. 4,099,119 596,615 -- 1,596,549 3,099,184
----------- -------- ------ ----------- -----------
Total.............. $ 4,666,236 $ 709,725 $1,962 $ 1,828,493 $ 3,549,429
----------- -------- ------ ----------- -----------
1994
Realized................... $ 244,070 $ 21,064 $ -- $ 90,146 $ 174,988
Unrealized................. (5,525,768) (52,051) -- (1,896,458) (3,681,361)
----------- -------- ------ ----------- -----------
Total.............. $(5,281,698) $ (30,987) $ -- $(1,806,312) $(3,506,373)
----------- -------- ------ ----------- -----------
1993
Realized................... $ 559,022 $ 11,958 $ -- $ 194,133 $ 376,847
Unrealized................. 1,233,715 (9,333) -- 416,290 808,092
----------- -------- ------ ----------- -----------
Total.............. $ 1,792,737 $ 2,625 $ -- $ 610,423 $ 1,184,939
----------- -------- ------ ----------- -----------
</TABLE>
Proceeds from sales of investments during 1995, 1994, and 1993 were
$13,106,337, $8,246,617, and $10,772,538. Gross gains of $703,620 in 1995,
$506,030 in 1994, and $636,915 in 1993 and gross losses of $21,431 in 1995,
$240,896 in 1994, and $65,935 in 1993 were realized on these sales.
F-17
<PAGE> 91
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Details of investment income are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities................................... $4,158,097 $3,926,669 $3,657,419
Equity securities.................................. 53,307 67,050 53,588
Short-term investments............................. 175,734 110,094 76,200
---------- ---------- ----------
Total investment income............................ 4,387,138 4,103,813 3,787,207
Less investment expenses........................... (150,747) (150,868) (146,009)
---------- ---------- ----------
Net investment income.............................. $4,236,391 $3,952,945 $3,641,198
---------- ---------- ----------
</TABLE>
(e) Details of fixed investment maturities as of December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less............. $ 7,029,006 $ 7,063,650 $ 1,000,000 $ 1,012,450
Due after one year through five
years............................. 28,512,532 29,432,930 32,216,950 31,673,030
Due after five years through ten
years............................. 21,254,865 22,394,745 24,688,932 23,613,095
Due after ten years................. 5,320,976 5,275,912 5,659,153 5,217,199
----------- ---------- ---------- ----------
Total..................... $62,117,379 $64,167,237 $63,565,035 $61,515,774
----------- ---------- ---------- ----------
</TABLE>
6. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company's primary business is physicians' professional liability
insurance. Prior to July 1, 1986, the majority of the policies issued provided
coverage for losses that related to incidents which occurred during the policy
period without regard to the date a claim was actually reported to the Company.
Effective July 1, 1986, all new and renewal policies issued were on a "claims
made" basis which provides coverage only for incidents reported during the
policy periods and subsequent renewal periods. For policies issued prior to July
1, 1986, claims reported subsequent to the policy period represent the major
portion of actual claims occurring during the policy period. As a result, the
Company must provide reserves for losses on policies issued prior to July 1,
1986 which have not been reported.
The reserves for losses and loss adjustment expenses have been determined
based upon the Company's actual experience. The Company has retained the
services of an independent actuary to analyze the Company's reserve for losses
and loss adjustment expenses.
The following table summarizes the components of the reserve for losses and
loss adjustment expenses as of December 31, 1995, 1994, and 1993 and the
provisions for losses and loss adjustment expenses incurred for the respective
years, as presented in the accompanying consolidated financial statements.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Reserve for losses:
Reported claims....................................... $12,838,500 $17,294,500 $20,325,500
Unreported claims..................................... 24,235,150 25,097,277 23,033,047
Reserve for loss adjustment expenses.................. 17,830,103 16,372,539 16,210,824
----------- ----------- -----------
Total......................................... $54,903,753 $58,764,316 $59,569,371
----------- ----------- -----------
Provision for losses and loss adjustment expenses:
Losses................................................ $ 4,500,977 $ 5,822,845 $ 9,870,883
Loss adjustment expenses.............................. 6,232,749 4,155,220 4,567,801
----------- ----------- -----------
Total......................................... $10,733,726 $ 9,978,065 $14,438,684
----------- ----------- -----------
</TABLE>
F-18
<PAGE> 92
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the changes in reserves for losses and loss
adjustment expenses and the payments attributed to losses and loss adjustment
expenses for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Reserve for losses and loss adjustment expenses
beginning of year..................................... $58,764,316 $59,569,371 $
Less reinsurance recoverables........................... 16,178,253 16,997,000
----------- ----------- -----------
Reserve for losses and loss adjustment expenses
beginning of year, net of reinsurance................. 42,586,063 42,572,371 36,509,588
----------- ----------- -----------
Provision for incurred losses and loss adjustment
expenses:
Current year.......................................... 15,186,892 11,385,334 14,608,751
Prior years........................................... (4,453,166) (1,407,269) (170,067)
----------- ----------- -----------
Total provision for incurred losses and loss adjustment
expenses.............................................. 10,733,726 9,978,065 14,438,684
----------- ----------- -----------
Payments of losses and loss adjustment expenses:
Current year.......................................... 688,132 557,790 654,892
Prior years........................................... 10,456,546 9,406,583 7,721,009
----------- ----------- -----------
Total payments of losses and loss adjustment expenses... 11,144,678 9,964,373 8,375,901
----------- ----------- -----------
Reserve for losses and loss adjustment expenses end of
year, net of reinsurance.............................. 42,175,111 42,586,063 42,572,371
Plus reinsurance recoverables........................... 12,728,642 16,178,253 16,997,000
----------- ----------- -----------
Reserve for losses and loss adjustment expenses end of
year.................................................. $54,903,753 $58,764,316 $59,569,371
----------- ----------- -----------
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company has a defined benefit pension plan which covers substantially
all full-time employees.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated financial statements at December 31,
1995, and 1994 and 1993, based on an October 1 actuarial measurement date.
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Accumulated benefit obligations, including vested benefits
of $320,063 in 1995, $185,378 in 1994, and $194,569 in
1993...................................................... $ 412,223 $ 268,806 $ 296,438
--------- --------- ---------
Projected benefit obligations for services rendered to
date...................................................... 769,690 512,698 657,059
Plan assets at fair value................................... 495,088 388,014 284,816
--------- --------- ---------
Projected benefit obligations over plan assets.............. (274,602) (124,684) (372,243)
Unrecognized net gain....................................... 203,139 51,733 285,934
Prior service cost.......................................... (6,251) 5,460 5,851
Unrecognized initial net asset being amortized over 19.3
years..................................................... (8,739) (9,509) (10,279)
--------- --------- ---------
Accrued pension costs....................................... $ (86,453) $ (77,000) $ (90,737)
--------- --------- ---------
Net pension costs included the following components:
Service costs -- benefits earned............................ $ 70,407 $ 100,457 $ 76,461
Interest cost on projected benefit obligations.............. 37,164 37,774 26,720
Actual (gain) loss on plan assets........................... (47,673) 35,307 (20,271)
Net amortization and deferral............................... 18,227 (48,770) 10,468
--------- --------- ---------
Net periodic pension cost................................... $ 78,125 $ 124,768 $ 93,378
--------- --------- ---------
</TABLE>
F-19
<PAGE> 93
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 6.25% in 1995, 7.25% in 1994, and 5.75% in
1993. The expected long-term rate of return on Plan assets was 7.50% in 1995,
1994 and 1993.
The Company also maintains a 401(k) deferred compensation plan. The Company
contributed an amount equal to 75% of the first 4% of employee contributions in
1995, 1994, and 1993. The Company's contribution for 1995, 1994, and 1993 was
$22,493, $21,453, and $22,825 respectively.
The Company does not currently provide post retirement benefits other than
pension benefits.
8. TAXES ON INCOME
The Company recorded consolidated tax expense (benefit) of $(806,446),
$528,797 and $(776,594) for the years 1995, 1994 and 1993. These amounts differ
from the "expected" tax (computed by applying the U.S. Federal corporate tax of
34% in 1995, 1994, and 1993) as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax (benefit).................. $ 1,111,997 $ 762,258 $(712,345)
Tax exempt bonds................................... (252,988) (325,629) (398,077)
Dividend exclusion................................. (10,232) (13,188) (10,841)
Other.............................................. 10,615 30,811 18,052
Change in valuation allowance...................... (1,665,838) 74,543 326,617
---------- --------- ---------
Actual tax (benefit)............................... $ (806,446) $ 528,797 $(776,594)
---------- --------- ---------
</TABLE>
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method under APB Opinion 11 to the
asset/liability method of accounting for income taxes as required by FASB
Statement 109 "Accounting for Income Taxes". As permitted by FASB Statement 109
prior years financial statements have not been restated. The cumulative effect
of adopting FASB Statement 109 was to increase net income by $900,000 as of
January 1, 1993. Under FASB Statement 109, deferred income taxes reflect the net
tax effects of the differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.
F-20
<PAGE> 94
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the tax effect of such differences as of
December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Nondeductible portion of unpaid losses and
loss adjustment expenses for tax
purposes................................... $ 3,185,568 $ 3,484,000 $ 3,798,000
Unearned premium adjustment................... 404,880 387,000 359,000
Unrealized loss on fixed maturity
investments................................ -- 696,749 --
Other net:
Self insured trust......................... 221,017 199,713 180,775
Tax loss and credit carryforward........... 3,830 118,100 330,613
----------- ----------- -----------
224,847 317,813 511,388
----------- ----------- -----------
Total gross deferred tax asset........ 3,815,295 4,885,562 4,668,388
Less valuation allowance........................ (623,345) (2,289,183) (2,214,640)
----------- ----------- -----------
Deferred tax asset after valuation allowance.... 3,191,950 2,596,379 2,453,748
----------- ----------- -----------
Deferred tax liabilities:
Deferred policy acquisition cost.............. 52,685 49,811 54,087
Unrealized gains on fixed maturity
investments................................... 696,952 -- --
Unrealized gains on equity securities......... 239,635 36,786 54,483
----------- ----------- -----------
Total gross deferred tax liability.... 989,272 86,597 108,576
----------- ----------- -----------
Net deferred tax asset.......................... 2,509,782 2,345,178 2,345,178
=========== =========== ===========
The change in the net deferred tax asset and its
allocation is as follows:
Current operations............................ $ 1,289,446 $ (549,842) $ 823,519
Shareholders' equity.......................... (1,596,550) 714,446 3,174
----------- ----------- -----------
Total................................. $ (307,104) $ 164,604 $ 826,693
=========== =========== ===========
</TABLE>
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that the deferred tax assets will be
realized. The valuation allowance is provided to protect the Company in the
event that the realization of the deferred tax assets related to the temporary
differences are in excess of future taxable income.
Income taxes paid in 1995, 1994, and 1993 amounted to $300,000, $200,000,
and $506,000 respectively.
The Company's 1987 and 1989 tax returns have been examined by the Internal
Revenue Service (IRS). The changes proposed by the IRS in their final reports
dated February 24, 1994 have been protested by the Company. The final settlement
of these matters is not expected to have a material impact on the Company's
financial statements.
F-21
<PAGE> 95
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. REINSURANCE
The Company is protected under various reinsurance agreements which
generally limit its maximum liability per claim as follows:
<TABLE>
<CAPTION>
PERIOD COVERED MAXIMUM LIABILITY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Claims from policies issued:
Prior to December 31, 1983................. $192,500 per insured,
$231,500 per claim involving up to six
insureds
January 1, 1984 through June 30, 1985...... $150,000 per insured
$150,000 per claim
July 1, 1985 through June 30, 1986......... $170,000 per insured
$170,000 per claim
July 1, 1986 through June 30, 1987......... $300,000 per insured, after satisfying a
deductible based on 10% of gross collected
premiums
July 1, 1987 through June 30, 1991......... $250,000 per insured, after satisfying a
deductible based on 5% of gross collected
premiums, indexed $25,000 per year
July 1, 1991 through June 30, 1996......... $400,000 per insured
</TABLE>
The maximum liability for claims on policies issued between July 1, 1985
and June 30, 1986 increases $20,000 each July 1, up to a maximum retention of
$200,000. Reinsurance premiums charged to operations under these agreements
amounted to $663,282, $2,089,136, and $731,600 for the years ended December 31,
1995, 1994, and 1993, respectively.
On January 1, 1993, the Company adopted the Financial Accounting Standards
Board (FASB) Statement 113 "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts." This statement requires the
reinsurer to assume significant insurance risk and it must be reasonably
possible that the reinsurer may realize significant loss from the transaction.
The Company's reinsurance contracts in effect at December 31, 1995 and 1994, met
these requirements and accordingly are accounted for as reinsurance ceded. Also,
reinsurance recoverable on unpaid losses, including an estimate of amounts
recoverable on incurred but not reported losses, amounting to $12,728,642, and
$16,178,253 at December 31, 1995 and 1994 are reported as an asset under the
caption reinsurance receivable on paid and unpaid losses. Also, ceded unearned
reinsurance premiums in the amount of $599,434 and $659,036 at December 31, 1995
and 1994 are reported as an asset under the caption, prepaid reinsurance
premiums. The Company is contingently liable for reinsurance amounts if the
reinsurance companies are unable to meet their obligations under existing
reinsurance contracts. However, no amounts due from reinsurance have been
written off as uncollectible since the inception of the Company. Ceded incurred
losses for the years 1995, 1994 and 1993 were $(2,814,922), $190,688 and
$822,149, respectively.
The Company's reinsurers are rated for financial stability by either A.M.
Best or Standard & Poor's and are reviewed by the Company for acceptability. All
reinsurers, excluding Lloyd's Syndicates' are rated "B+" or higher by A.M. Best
and triple BBB or higher by Standard & Poor's. Lloyd's Syndicates are rated by
Standard & Poor's which utilizes a "Crown" designation to represent financial
stability with five "Crowns" being the highest ranking. Of the eight Lloyds
syndicates, seven are ranked four "Crowns" or higher and one is ranked three
"Crowns". In addition, the Company has irrevocable letters of credit from
unauthorized foreign reinsurers in the amount of $2,230,000 at December 31,
1995.
10. CLASS C COMMON STOCK
On August 16, 1994, the Company authorized and issued 24,185 shares of
Class C non-voting common stock to Missouri State Medical Association (MSMA) in
connection with the exchange of Class B common
F-22
<PAGE> 96
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock for Class A common stock on a share-for-share basis. Under the agreement,
MSMA has an option to sell the Class C shares and the Company is required to
purchase such shares at a per share consideration of $24.81 with the aggregate
cash consideration not to exceed $600,000 plus interest at Boatmen's National
Bank's prime rate plus one percent (1%). MSMA may exercise its options to sell
the Class C shares as follows:
<TABLE>
<CAPTION>
PERIOD NO. OF SHARES AMOUNT
----------------------------------------------------------- ------------- --------
<S> <C> <C>
August 16, 1994 to August 15, 1995......................... 4,031 $100,009
August 16, 1995 to August 15, 1996......................... 4,031 100,009
August 16, 1996 to August 15, 1997......................... 8,062 200,018
August 16, 1997 and after.................................. 8,061 199,964
------ --------
24,185 $600,000
====== ========
</TABLE>
On the second and third anniversaries of the share exchange agreement, the
Company has an option to purchase the Class C shares not yet put to the Company
at the same cash consideration as shown above.
11. CLASS A AND CLASS B COMMON STOCK
On August 16, 1994, the shareholders approved the exchange of Class B
common shares for Class A common shares on a share-for-share basis and all
authorized Class B shares were canceled. Also, in connection with the share
exchange agreement 24,185 shares of Class C non-voting common stock were
authorized and issued as described in Note 10 above.
As of December 31, 1995, the Company has authorized capital of 1,024,185
shares composed of 1,000,000 shares of Class A common stock, $1.00 par value,
one vote per share, and 24,185 shares of Class C non-voting common stock, $1.00
par value.
On September 8, 1995, the Board of Directors of the Company declared a
three-for-one split of the Company's Class A common stock. The additional
493,056 shares arising from the split were distributed on January 22, 1996, to
shareholders of record as of November 8, 1995. Accordingly, all share and per
share data, as appropriate, reflect the effects of this split. The par value for
the additional shares issued was transferred from additional paid in capital to
common stock.
12. DIVIDEND RESTRICTIONS -- MOMEDICO
The maximum amount of dividends which can be paid by Missouri Medical
Insurance Company (MOMEDICO) to its shareholders shall not exceed the lesser of
10% of statutory policyholders' surplus or net investment income as of the
preceding December 31. Such payments in excess of the limit are subject to the
approval of the Director of Insurance of the Missouri Department of Insurance.
MOMEDICO's statutory policyholders' surplus at December 31, 1995 is $17,293,731.
The maximum dividends that could be paid in 1996 are $1,729,373, without the
approval of the Director of Insurance.
13. RELATED PARTY TRANSACTIONS
In connection with the share exchange agreement between the Company and the
Missouri State Medical Association (MSMA), the parties also executed a license
agreement. The license agreement provides the Company the exclusive right to use
the licensed marks of MSMA to market and promote its products. In return for
this exclusive right, the Company agreed to pay MSMA $30,000 on August 16, 1994
and $35,000 on each of the first four anniversaries of the initial payment, plus
$20 per Company insured physician in the state of Missouri as of December 31st
of each year. Payments of $30,000 and $35,000 were paid in August 1994 and 1995,
respectively. The payment for insured physician was $22,180 for 1995 and $23,820
for 1994. These amounts were paid prior to February 15, 1996 and 1995.
F-23
<PAGE> 97
MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENT
On April 1, 1994, MOMEDICO agreed to purchase two units, 20,000 shares, of
HCIF Management Company at a cost of $20,000 and in connection, therewith,
agreed to engage the HCIF Management Company for consulting services for period
of three years at a consideration of $7,500 per calendar quarter for each unit
purchased. At December 31, 1995, the Company is committed to pay consulting fees
of $60,000 in 1996 and $15,000 during the first quarter of 1997.
15. RECONCILIATION WITH STATUTORY FINANCIAL STATEMENTS
The table below sets out the adjustments to statutory net earnings and
shareholders' equity of MOMEDICO needed to reconcile them to the accompanying
consolidated financial statements prepared in accordance with generally accepted
accounting principles.
<TABLE>
<CAPTION>
NET EARNINGS (LOSS) SHAREHOLDERS' EQUITY
------------------------------------- ---------------------------------------
1995 1994 1993 1995 1994 1993
---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statutory basis....... $2,530,318 $1,706,951 $(1,838,443) $17,293,731 $14,245,893 $12,487,142
Adjustments:
Equity in and
earnings (loss)
of parent and
affiliates....... 66,962 411,210 162,715 208,776 690,118 362,894
Future investment
income on
reserves......... 181,847 157,395 (477,484) (4,903,728) (5,085,575) (5,242,970)
Assets not admitted
on a statutory
basis............ -- -- -- 8,615 17,229 37,094
Deferred policy
acquisition
costs............ 8,452 (12,575) 11,154 154,955 146,503 159,078
Deferred income tax
benefit
(expense)........ 1,289,446 (549,842) 823,519 2,202,678 2,509,782 2,345,178
Cumulative effect of
change in
accounting
principle........ -- -- 900,000 -- -- --
Unrealized
appreciation
(depreciation)
fixed maturity
investments...... -- -- -- 2,049,858 (2,049,261) --
Redemption and
exchange of Class
B stock.......... -- -- -- -- (636,013) --
---------- ---------- -------- ----------- ---------- ----------
Balance per
accompanying
consolidated
financial
statements.......... $4,077,025 $1,713,139 $ (418,539) $17,014,885 $ 9,838,676 $10,148,416
========== ========== ======== =========== ========== ==========
</TABLE>
For statutory purposes the Company discounts its loss and loss adjustment
expenses at a rate of 5% as permitted by the Missouri Department of Insurance.
The total discount on reserves was $4,903,728, $5,085,575, and $5,242,970 in
1995, 1994 and 1993.
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MOMED HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. LITIGATION
The Company has no lawsuits or outstanding settlements other than those
related to claims arising out of the normal operations of the Company's primary
business, which are covered by the reserves for loss and loss adjustment
expenses.
17. SHAREHOLDERS RIGHTS PLAN
On February 24, 1995, the Board of Directors adopted a Shareholder's
Protection Rights Plan. This plan is designed to protect the shareholders from
persons attempting to acquire shares by a partial tender offer, or by buying
shares in the market or in negotiated transactions, without paying a fair
premium for control and without offering a fair price to all shareholders. On
the adoption date, the Company's Board of Directors declared a dividend of one
common share purchase right for each outstanding share of Class A common stock
of record on March 6, 1995. In the event any person acquires 20 percent of the
Company's outstanding common stock, each right will give the holder the option
to purchase one share of the Company's common stock for $50. The rights expire
February 24, 2005, and may be redeemed by the Company for $.01 per right at any
time.
18. SUBSEQUENT EVENTS
On February 2, 1996, the Company signed a letter of intent with MAIC
Holdings, Inc., of Birmingham, Alabama, wherein MOMED Holding Co. would enter
into negotiations to become a wholly owned subsidiary of MAIC. The letter of
intent with MAIC Holdings, Inc. states that the Company will continue to operate
from its current location with the same management and employees, while
providing additional products and services to be marketed by MOMEDICO. The
proposed transaction requires approval by the Board of Directors, Shareholders
and the appropriate regulatory authorities and is subject to the completion of
Due Diligence and Definitive Agreements.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
MOMED Holding Co.
We have audited the accompanying consolidated balance sheets of MOMED
Holding Co. and subsidiaries (the Company) as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MOMED
Holding Co. and subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in note 2 of the consolidated financial statements, the
Company adopted the provisions of Financial Accounting Standards Board's
Statement of Financial Accounting Standards: No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" in 1994. Also, as discussed in note 2
to the consolidated financial statements, the Company adopted the provisions of
Financial Accounting Standard Board's Statement No. 109 "Accounting for Income
Taxes" in 1993.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 8, 1996
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<PAGE> 100
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
PARTIES: MOMED HOLDING CO. ("MOMED")
a Missouri corporation
8630 Delmar Boulevard, Suite 100
St. Louis, Missouri 63124
MAIC HOLDINGS, INC. ("MAIC Holdings")
a Delaware corporation
100 Brookwood Place, Suite 500
Birmingham, Alabama 35209
MOMED ACQUISITION, INC. ("Newco")
a Missouri corporation
8630 Delmar Boulevard, Suite 100
St. Louis, Missouri 63124
DATE: June 11, 1996
BACKGROUND: Newco is a wholly-owned subsidiary of MAIC Holdings and has
been organized as a successor in interest to MOMED pursuant to this Agreement
and Plan of Merger. MOMED, MAIC Holdings and Newco desire to enter into this
Agreement and Plan of Merger (the "Agreement"), which contemplates the merger of
MOMED with and into Newco in accordance with the provisions of the Plan of
Merger (herein defined) set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and subject to the satisfaction of the terms and conditions set forth herein,
the parties, intending to be legally bound, agree as follows:
1. THE PLAN OF MERGER
1.1 Merger. On the Effective Date (as defined below), MOMED shall be
merged with and into Newco (the "Merger") in accordance with the Plan of Merger
set forth in this Section 1 of the Agreement and in compliance with, and the
Merger shall have the effect provided for in, Section 351.450 of the Missouri
General and Business Corporation Law. Newco (sometimes referred to below as the
"Surviving Corporation") shall be the surviving corporation of the Merger and
shall continue to exist and to be governed by the laws of the State of Missouri.
The corporate existence and identity of Newco, with its purposes and powers,
shall continue unaffected and unimpaired by the Merger, and Newco shall succeed
to and be fully vested with the corporate existence and identity of MOMED. The
separate corporate existence and identity of MOMED from Newco shall cease upon
the Effective Date (herein defined).
1.2 Name of Surviving Corporation. The name of the Surviving Corporation
shall continue to be "MOMED Holding Co.".
1.3 Certificate of Incorporation. On the Effective Date, the Certificate
of Incorporation of the Surviving Corporation shall be that of Newco immediately
before the Merger except that the Certificate of Incorporation shall be amended
at the Effective Time (herein defined) by delivering Article One in its entirety
therefrom and substituting in lieu thereof the following:
ARTICLE ONE
The name of the corporation is: MOMED Holding Co.
1.4 ByLaws. Immediately after the Merger, the ByLaws of the Surviving
Corporation shall be those of Newco immediately before the Merger.
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1.5 Directors. The Board of Directors of MOMED will serve as the Board of
Directors of the Surviving Corporation and shall be divided into three classes
of directors with staggered terms of three years each as provided in the
Certificate of Incorporation consistent with their current terms as directors of
MOMED until their successors are elected and qualified.
1.6 Officers. The officers of MOMED shall be the officers of the Surviving
Corporation.
1.7 Newco Shares. On the Effective Date, all of the One Thousand (1,000)
shares of common stock of Newco, $1.00 par value per share, issued and
outstanding immediately before the Effective Date shall continue to be and
remain outstanding. It is the intention of the parties that, immediately after
the Effective Date, MAIC Holdings shall continue to own all of the issued and
outstanding shares of common stock, par value $1.00 per share, of the Surviving
Corporation.
1.8 Conversion of MOMED Stock. (a) Except as otherwise provided herein and
subject to the provisions of Section 1.9 and Section 1.10 below, each holder of
the issued and outstanding shares of the Class A Common Stock of MOMED, par
value $1.00 per share ("Class A Common Stock") that is not a subsidiary of MOMED
shall have the right to elect to have each of such holder's shares converted as
of the Effective Time of the Merger into either of the following (the "Merger
Consideration"):
(i) 0.779 share(s) of Common Stock of MAIC Holdings, par value $1.00
per share ("MAIC Holdings Common Stock") for a share of the Class A Common
Stock (the "Stock Election"); or
(ii) the right to receive $25.32 for a share of the Class A Common
Stock (the "Cash Election");
Subject to the provisions of Section 1.10 below, if no election is made as to
the Merger Consideration to be received with respect to any shares of the Class
A Common Stock to be converted hereunder, the holder will be deemed to have made
the Cash Election pursuant to Section 1.8(a)(ii) above.
(b) Each share of the Class A Common Stock and each share of Class C
Non-Voting Common Stock of MOMED, par value $1.00 per share ("Class C Non-Voting
Common Stock") that is owned by MOMED shall automatically be canceled and
retired and shall cease to exist, and no cash or stock or other consideration
shall be delivered or deliverable in exchange therefor. Each share of the Class
A Common Stock that is owned by a subsidiary of MOMED shall be converted into
0.779 of a share of MAIC Holdings Common Stock and each share of Class C
Non-Voting Common Stock that is owned by a subsidiary of MOMED shall
automatically be canceled and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange therefor.
(c) Notwithstanding anything in this Agreement to the contrary, shares of
the Class A Common Stock issued and outstanding immediately prior to the
Effective Time of the Merger held by a holder (if any) who has the right to
demand payment for and an appraisal of his shares of the Class A Common Stock in
accordance with Sections 351.455 and 351.870 through 351.935 of the Missouri
General Business Corporation Law (or any successor provision) (the "Dissenters'
Statute"), and who exercises his rights under the Dissenters' Statute shall not
be converted into a right to receive Merger Consideration or any cash in lieu of
fractional shares of Class A Common Stock unless such holder fails to perfect or
otherwise loses his right to such payment or appraisal. If, after the Effective
Time of the Merger, such holder fails to perfect or otherwise loses any right to
such appraisal, each such holder shall be treated as having made a Cash Election
with respect to his shares in accordance with Section 1.8(a)(ii) above.
1.9 Class A Common Stock Elections.
(a) Each person who, on or prior to the Election Date referred to in (c)
below, is a record holder of shares of Class A Common Stock will be entitled to
make a Stock Election or Cash Election (the "Election") with respect to all or
any portion of his shares on or prior to such Election Date on the basis
hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined in Section 4.4
hereof), Newco shall appoint a bank or trust company to act as exchange agent
(the "Exchange Agent") for the payment of the Merger Consideration.
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(c) MOMED shall prepare and mail a form of election (the "Form of
Election"), with the Proxy Statement to the record holders of Class A Common
Stock as of the record date for the Stockholders Meeting (as contemplated in
Section 4.5 hereof), which Form of Election shall be used by each record holder
of shares of Class A Common Stock to make his or her Election with respect to
any or all of the Class A Common Stock held, subject to the provisions of
Section 1.10 hereof, by such holder. MOMED will use its best efforts to make the
Form of Election and Proxy Statement available to all persons who become holders
of Class A Common Stock during the period between such record date and the
Election Date referred to below. Any such holder's Election shall have been
properly made only if the Exchange Agent shall have received at its designated
office, by 5:00 p.m. Central Time on the business day (the "Election Date") next
preceding the date of the Stockholders' Meeting, a Form of Election properly
completed and signed. If a Cash Election is made, the Form of Election must be
accompanied by certificates for the shares of Class A Common Stock to which such
Form of Election relates, duly endorsed in blank or otherwise in form acceptable
for transfer on the books of MOMED (or by an appropriate guarantee of delivery
of such certificates as set forth in such Form of Election from a firm which is
a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States, provided such
certificates are in fact delivered to the Exchange Agent within five NASDAQ
trading days after the date of execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the record holder submitting a
new Form of Election to the Exchange Agent (i) prior to 5:00 p.m., Central Time
on the Election Date or (ii) after the date of the Proxy Statement, if (and to
the extent that) the Exchange Agent is legally required to permit revocations
and the Effective Time of the Merger shall not have occurred prior to such date.
In addition, all Forms of Election shall automatically be revoked if the
Exchange Agent is notified in writing by MAIC Holdings and MOMED that the Merger
has been abandoned. If a Form of Election is revoked, the certificate or
certificates (or guarantees of delivery, as appropriate) for the shares of Class
A Common Stock to which such Form of Election relates shall be promptly returned
to the stockholder submitting the same to the Exchange Agent.
(e) The determination of the Exchange Agent shall be binding whether or not
Elections have been properly made or revoked pursuant to this Section 1.9 with
respect to shares of Class A Common Stock and when elections and revocations
were received by it. If the Exchange Agent determines that any Election was not
properly made with respect to shares of Class A Common Stock, such shares shall
be treated by the Exchange Agent as if a Cash Election were made with respect to
such shares, and such shares shall be exchanged in the Merger for cash (and MAIC
Holdings Common Stock if required by Section 1.10 below) pursuant to Section
1.8(a)(ii). The Exchange Agent shall also make all computations as to the
allocation and the proration contemplated by Section 1.10, and any such
computation shall be conclusive and binding on the holders of shares of Class A
Common Stock. The Exchange Agent may, with the mutual agreement of MAIC Holdings
and MOMED, make such rules as are consistent with this Section 1.9 for the
implementation of the Elections provided for herein as shall be necessary or
desirable fully to effect such Elections.
1.10 Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the number
of shares of MAIC Holdings Common Stock included in the Merger Consideration
issued in exchange for the Class A Common Stock pursuant to Section 1.8(a) of
this Agreement shall not be more than 350,000 shares of MAIC Common Stock (the
"Stock Election Number") nor less than 275,000 shares of MAIC Holdings Common
Stock (the "Cash Election Number"). For purposes of this Section 1.10, the MAIC
Holdings Common Stock to be issued as Merger Consideration pursuant to properly
made Stock Elections shall be referred to as the "MAIC Holdings Merger Shares".
(b) If the Exchange Agent has received properly made Forms of Election
pursuant to which the record holders of the Class A Common Stock have made
Elections which would result in the issuance of a number of shares of MAIC
Holdings Merger Shares that is in excess of the Stock Election Number, then a
portion of the shares of the Class A Common Stock subject to each Stock Election
(the "Stock Election Shares") shall be
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<PAGE> 103
converted into the right to receive cash in accordance with the terms of Section
1.8(a)(ii) in the following manner:
(i) A proration factor (the "Stock Election Proration Factor") shall
be determined by dividing the Stock Election Number by the total number of
MAIC Holdings Merger Shares.
(ii) The number of shares of the Class A Common Stock covered by each
Stock Election to be converted into MAIC Holdings Common Stock shall be
determined by multiplying the Stock Election Proration Factor by the number
of shares of the Class A Common Stock covered by each such Stock Election.
(iii) All shares of the Class A Common Stock subject to each Stock
Election, other than those to be converted into shares of MAIC Holdings
Common Stock pursuant to Section 1.10(b)(ii) above, shall be converted into
the right to receive cash in accordance with Section 1.8(a)(ii) above.
(c) If the Exchange Agent has received properly made Forms of Election
pursuant to which the record holders of the Class A Common Stock have made
Elections which would result in the issuance of a number of shares of MAIC
Holdings Merger Shares that is less than the Cash Election Number, then a
portion of the shares of the Class A Common Stock subject to each Cash Election
shall be converted into MAIC Holdings Common Stock (and cash in lieu of
fractional shares) in accordance with the terms of Section 1.8(a)(i) above in
the following manner:
(i) A proration factor (the "Cash Election Proration Factor") shall be
determined by dividing the total number of MAIC Holdings Merger Shares by
the Cash Election Number.
(ii) The number of shares of the Class A Common Stock covered by each
Cash Election to be converted into the right to receive cash shall be
determined by multiplying the Cash Election Proration Factor by the number
of shares of the Class A Common Stock covered by each such Cash Election.
(iii) All shares of the Class A Common Stock subject to each such Cash
Election, other than those to be converted into the right to receive cash
pursuant to Section 1.10(c)(ii) above, shall be converted into shares of
MAIC Holdings Common Stock in accordance with Section 1.8(a)(i) above.
1.11 Fractional Shares. No certificates or scrip representing fractional
shares of MAIC Holdings Common Stock shall be issued upon the surrender of Class
A Common Stock certificates for exchange; no dividend or distribution with
respect to MAIC Holdings Common Stock shall be payable on or with respect to any
fractional share; and such fractional share interests shall not entitle the
owner thereof to vote or to any other rights of a stockholder of MAIC Holdings.
In lieu of any such fractional share, MAIC Holdings shall pay to each former
holder of Class A Common Stock who otherwise would be entitled to receive a
fractional share of MAIC Holdings Common Stock an amount in cash determined by
multiplying (a) $32.50 by (b) the fraction of a share of MAIC Holdings Common
Stock to which such holder would otherwise be entitled.
1.12 Exchange Procedures. Promptly after the Effective Time (herein
defined), the Surviving Corporation shall cause the Exchange Agent to mail to
the former stockholders of MOMED appropriate transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of Class A Common Stock shall pass,
only upon proper delivery of such certificates to the Exchange Agent). After the
Effective Time, each holder of shares of Class A Common Stock (other than shares
to be canceled pursuant to Section 1.8(b) of this Agreement or as to which
dissenters' rights of appraisal have been perfected as provided in Section
1.8(c) of this Agreement) issued and outstanding at the Effective Time shall
surrender the certificate or certificates representing such shares to the
Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the Merger Consideration provided in Section 1.8(a) of this Agreement,
together with all undelivered dividends or distributions with respect to such
shares (without interest thereon) pursuant to Section 1.13 of this Agreement. To
the extent required by Section 1.11 of this Agreement, each holder of shares of
Class A Common Stock issued and outstanding at the Effective Time also shall
receive, upon surrender of the certificate or certificates representing such
shares, cash in lieu of any fractional share of MAIC Holdings Common Stock to
which such holder may be otherwise entitled (without interest). The Surviving
Corporation
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shall not be obligated to deliver the Merger Consideration to which any former
holder of Common Stock is entitled as a result of the Merger until such holder
surrenders his certificate or certificates representing the shares of Class A
Common Stock for exchange as provided in this Section 1.12. The certificate or
certificates for Class A Common Stock so surrendered shall be duly endorsed as
the Exchange Agent may require. Any other provision of this Agreement
notwithstanding, neither the Surviving Corporation nor the Exchange Agent shall
be liable to a holder of Class A Common Stock for any amounts paid or property
delivered in good faith to a public official pursuant to any applicable
abandoned property law.
1.13 Rights of Former MOMED Stockholders. At the Effective Time, the stock
transfer books of MOMED shall be closed as to holders of Class A Common Stock
immediately prior to the Effective Time, and no transfer or Class A Common Stock
by any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 1.12 of this Agreement,
each certificate theretofore representing shares of Class A Common Stock, other
than shares to be canceled pursuant to Section 1.8(b) of this Agreement or as to
which dissenters' rights of appraisal have been perfected as provided in Section
1.8(c) of this Agreement, shall from and after the Effective Time represent for
all purposes only the right to receive the Merger Consideration provided in
Sections 1.8(a) and 1.11 of this Agreement in exchange therefor. To the extent
permitted by law, former stockholders of record of Class A Common Stock shall be
entitled to vote after the Effective Time at any meeting of Surviving
Corporation stockholders the number of whole shares of MAIC Holdings Common
Stock into which their respective shares of Class A Common Stock are converted,
regardless of whether such holders have exchanged their certificates for Class A
Common Stock for certificates representing MAIC Holdings Common Stock in
accordance with the provisions of this Agreement. Whenever a dividend or other
distribution is declared by the Surviving Corporation on the MAIC Holdings
Common Stock, the record date for which is at or after the Effective Time, the
declaration shall include dividends or other distributions on all shares
issuable pursuant to this Agreement. Notwithstanding the preceding sentence, any
person holding any certificate for Class A Common Stock at or after six (6)
months after the Effective Time (the "Cutoff") shall not be entitled to receive
any dividend or other distribution payable after the Cutoff to holders of MAIC
Holdings Common Stock, which dividend or other distribution is attributable to
such person's MAIC Holdings Common Stock represented by said certificate for
Class A Common Stock held after the Cutoff, until such person surrenders said
certificate for Class A Common Stock for exchange as provided in Section 1.12 of
this Agreement. However, upon surrender of such certificate, both the MAIC
Holdings Common Stock certificate (together with all such undelivered dividends
or other distributions, without interest) and any undelivered cash payments to
be paid for fractional share interests (without interest) shall be delivered and
paid with respect to each share represented by such certificate for Class A
Common Stock.
1.14 Lost or Stolen Certificates. If any holder of Class A Common Stock
convertible into the right to receive shares of MAIC Holdings Common Stock is
unable to deliver the certificate which represents such shares, the Exchange
Agent, in the absence of actual notice that any such shares have been acquired
by a bona fide purchaser, shall deliver to such holder the shares of MAIC
Holdings Common Stock to which the holder is entitled for such shares upon
presentation of the following: (a) evidence to the reasonable satisfaction of
MAIC Holdings that any such certificate has been lost, wrongfully taken or
destroyed; (b) such security or indemnity as may be reasonably requested by MAIC
Holdings to indemnify and hold MAIC Holdings and the Exchange Agent harmless;
and (c) evidence satisfactory to MAIC Holdings that such person is the owner of
the shares theretofore represented by each certificate claimed by the holder to
be lost, wrongfully taken or destroyed and that the holder is the person who
would be entitled to present such certificate for exchange pursuant to this
Agreement.
1.15 Effective Date; Effective Time. As used in this Plan, "Effective
Date" and "Effective Time" shall mean the date upon which a certificate of
merger is issued by the Missouri Secretary of State, which shall be after the
Articles of Merger have been duly signed by MOMED, Newco, and if required, MAIC
Holdings, and filed with the Secretary of State of the State of Missouri. For
accounting purposes, the term "Effective Date" is used in this Plan shall mean
and refer to October 1, 1996.
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2. REPRESENTATIONS AND WARRANTIES OF MOMED
MOMED represents and warrants to MAIC Holdings and Newco that the
statements contained in this Section 2 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date was substituted for the date of
this Agreement throughout this Section 2), except as set forth in the Disclosure
Schedule delivered by MOMED to MAIC Holdings and Newco on date hereof and
initialed by the parties (the "Disclosure Schedule"). Nothing in the Disclosure
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein, however, unless the Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
2.
2.1 Organization, Qualification and Corporate Power. MOMED is a Missouri
corporation duly organized, validly existing and in good standing under the laws
of the state of Missouri. MOMED has the corporate power to own its property and
to carry on its business as presently conducted.
2.2 Subsidiaries. Section 2.2 of the Disclosure Schedule sets forth the
name and state of incorporation or organization of each subsidiary of MOMED (the
"MOMED Subsidiaries"). Each of the MOMED Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the corporate power to carry on its
business as it is now being conducted. Section 2.2 of the Disclosure Schedule
further sets forth the jurisdictions in which each of the MOMED Subsidiaries is
authorized to conduct business as a property and casualty or other insurer.
Except as set forth in Section 2.2 of the Disclosure Schedule, MOMED is,
directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each of the MOMED Subsidiaries, there are
no irrevocable proxies with respect to such shares, and no equity securities of
any of the MOMED Subsidiaries are or may become required to be issued by reason
of any option, warrants, scrip, rights, to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of any capital stock of any of the MOMED
Subsidiaries except shares of the MOMED Subsidiaries issued to other wholly
owned MOMED Subsidiaries, and there are no contracts, commitments,
understandings or arrangements by which any of the MOMED Subsidiaries is bound
to issue additional shares of its capital stock or options, warrants or rights
to purchase or acquire any additional shares of its capital stock or securities
convertible into or exchangeable for such shares. All of such shares so owned by
MOMED are validly issued, fully paid and nonassessable and are owned by MOMED
free and clear of any mortgage, pledge, security interest, claim, lien,
encumbrance or charge (a "Lien"). MOMED does not directly or indirectly own any
interest in any other corporation, partnership, joint venture or other business
association or entity which is material to MOMED and the MOMED Subsidiaries
taken as a whole.
2.3 Corporate Affairs.
(a) Section 2.3 of the Disclosure Schedule lists the directors and officers
of MOMED and each of the MOMED Subsidiaries. MOMED has delivered to MAIC
Holdings and Newco correct and complete copies of the Articles of Incorporation
and By-Laws of the Company and each of the MOMED Subsidiaries (as amended to
date). MOMED has made available all of the minute books containing the records
of the meetings of the stockholders, the board of directors and any committee of
the board of directors of MOMED and each of the MOMED Subsidiaries. The minute
books of MOMED and the MOMED Subsidiaries reflect all of the material actions
taken by each of their respective Boards of Directors and Shareholders. All
material actions taken by the committees of the Board of Directors of MOMED and
any of the MOMED Subsidiaries are reflected in the minutes of the Board of
Directors or in written statements of actions taken by the Board of Directors
without a meeting.
(b) Schedule 2.3 of the Disclosure Schedule contains a list as of December
31, 1995, of all depositary accounts, including without limitation, demand
deposit accounts, custodial accounts, brokerage accounts, safe deposit boxes,
lock boxes, and safes, of MOMED and the MOMED Subsidiaries (the "MOMED Bank
Accounts"), and the names of all persons who have access thereto or are
authorized to make withdrawals therefrom.
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(c) MOMED's and each of the MOMED Subsidiaries' books and records are and
have been properly prepared and maintained in form and substance adequate for
preparing audited consolidated financial statements in accordance with generally
accepted accounting principles and fairly and accurately reflect all of MOMED's
and each of the MOMED Subsidiaries' assets and liabilities and all contracts and
other transactions to which MOMED or any of the MOMED Subsidiaries is or was a
party or by which MOMED or any of the MOMED Subsidiaries or any of their
respective businesses or assets is or was affected.
2.4 Capitalization. The entire authorized capital stock of MOMED consists
of 1,000,000 shares of Class A common stock, par value $1.00 per share (the
"Class A Common Stock"), of which 739,584 shares are issued and outstanding and
67,530 shares are held in treasury, and 24,185 shares of Class C non-voting
common stock, par value $1.00 per share (the "Class C Non-Voting Common Stock"),
of which 24,185 shares are issued and outstanding, (collectively, the "Company's
Common Stock"). MOMED has no authorized or issued Class B Common Stock. All of
the issued and outstanding shares of MOMED's Common Stock have been duly
authorized, validly issued, are fully paid and non-assessable. Except as set
forth in Section 2.4 of the Disclosure Schedule, there are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights, or other agreements or commitments to which MOMED
is a party or which are binding upon MOMED providing for the issuance,
disposition or acquisition of any of its capital stock. There are no outstanding
or authorized stock appreciation, phantom stock, or similar rights with respect
to MOMED. There are no voting trusts, proxies or any other agreements or
understandings with respect to the voting of the capital stock of MOMED. On or
before the record date for the meeting of MOMED's stockholders as contemplated
in Section 4.5 of this Agreement, MOMED shall have repurchased all of the
outstanding shares of the Class C Non-Voting Common Stock in accordance with
Section 5.3(a) below and there shall be no shares of Class C Non-Voting Common
Stock issued and outstanding on the record date for said meeting.
2.5 Authority Relative to Agreements.
(a) MOMED has the requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by MOMED and the consummation by MOMED of the
transactions contemplated hereby will, prior to closing, have been duly
authorized by the Board of Directors of MOMED and, except for the approval of
its stockholders as set forth in Section 4.5 hereof, no other corporate
proceedings on the part of MOMED are necessary to authorize this Agreement and
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by MOMED and (assuming due authorization, execution and delivery by
MAIC Holdings and Newco) constitutes a valid and binding obligation of MOMED,
enforceable against MOMED in accordance with its terms except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
(b) Except as set forth in Section 2.5 of the Disclosure Schedule, neither
the execution and delivery of this Agreement by MOMED nor the consummation of
the transactions contemplated hereby nor compliance by MOMED with any of the
provisions hereof will (i) violate, conflict with, or result in a breach of any
provision of, or constitute a default under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
MOMED or any of the MOMED Subsidiaries under, any of the terms, conditions or
provisions of (x) their respective charters or bylaws or (y) any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which MOMED or any of the MOMED Subsidiaries is a
party or to which they or any of their respective properties or assets may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to MOMED and the
MOMED Subsidiaries or any of their respective properties or assets, except, in
the case of each of clauses (i) and (ii) above, for such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances, which, in the aggregate, would not have any
material adverse effect on the business, results of operations, financial
condition or prospects of MOMED and the MOMED Subsidiaries taken as a whole.
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(c) Other than in connection with or in compliance with the provisions of
the Missouri Insurance Code, the Hart-Scott-Rodino Act, and the federal and
applicable state securities laws (including those described in Section 4 of this
Agreement), no notice to, filing with, or authorization, consent or approval of,
any domestic public body or authority is necessary for the consummation by MOMED
of the transactions contemplated by this Agreement, except where failure to give
such notices, make such filings, or obtain authorizations, consents or approvals
would, in the aggregate, not have a material adverse effect on the business,
results of operations, financial condition or prospects of MOMED and the MOMED
Subsidiaries taken as a whole.
2.6 Financial Statements and Other Reports.
(a) MOMED has delivered to MAIC Holdings (i) the audited Annual Statement
of the applicable MOMED Subsidiaries together with the applicable reports
thereon as filed with the Missouri Department of Insurance pursuant to Sections
379.105 and 383.180 of the Missouri Insurance Code for each of the years ended
December 31, 1991, 1992, 1993, 1994 and 1995; and (ii) the audited consolidated
financial statements of MOMED and the MOMED Subsidiaries for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991 together with the report(s) of KPMG
Peat Marwick, L.L.P., which consolidated financial statements include
consolidated balance sheets, consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended and notes thereto
prepared in accordance with generally accepted accounting principles (the items
described in (i) and (ii) above are collectively referred to as the "Financial
Statements"). Except for the Financial Statements described in (i) above, the
Financial Statements have been prepared in accordance with generally accepted
accounting principles on a consistent basis throughout the periods covered
thereby. All such Financial Statements fairly reflect the financial condition
and the results of operations of MOMED and the MOMED Subsidiaries for the dates
and periods indicated, and are consistent with the books and records of MOMED
and the MOMED Subsidiaries (which books and records are correct and complete).
(b) Section 2.6(b) of the Disclosure Schedule lists all financial
examinations that the Missouri Department of Insurance has conducted with
respect to MOMED or any of the MOMED Subsidiaries since December 31, 1990. MOMED
has provided to MAIC Holdings complete and correct reports issued by the
Missouri Department of Insurance of the examinations listed on the Disclosure
Schedule. Except with respect to the transactions contemplated hereby, there are
no regulatory examinations of MOMED or any of the MOMED Subsidiaries currently
in process.
(c) Schedule 2.6(c) sets forth a list of each registration statement,
report, proxy statement or other filing filed by MOMED or any of the MOMED
Subsidiaries with the Missouri Department of Insurance or the Securities and
Exchange Commission ("SEC") for periods ending and events occurring, after
December 31, 1990, accurate and complete copies of which have been delivered to
MAIC Holdings. MOMED has filed or has caused the applicable MOMED Subsidiaries
to file all registration statements, proxy statements, reports and other filings
and all amendments thereto which it was required to file with the Missouri
Department of Insurance and/or the SEC since December 31, 1990. As of its date,
all of the filings so listed on the Disclosure Schedule contained all
information required by the Missouri Insurance Code or the SEC and none of the
filings so listed contained any untrue statement of a material fact or omitted
any material fact necessary to make the statements made therein not misleading,
except to the extent any such statement or omission has been modified or
superseded in a document subsequently filed with the appropriate authority.
(d) Except as disclosed in the proxy statements or in MOMED's registration
statements on Form B listed in Section 2.6(c) of the Disclosure Schedule, there
are no contracts, real estate leases, loans, guarantees or other arrangements or
transactions of any nature between MOMED or any of the MOMED Subsidiaries and
any of their respective officers, directors, or affiliates (as such term is
defined in Rule 405 of the SEC) (excluding employment matters), or between MOMED
or any of the MOMED Subsidiaries and any person which is an affiliate or
immediate family member of any such officer, director or affiliate.
(e) MOMED has not received from any person any Notice on Form A or such
other form as may be prescribed under Section 382.040 of the Missouri Insurance
Holding Company Systems Act indicating that such person intends to make or has
made a tender offer for or a request or invitation for tenders of, or intends to
or has entered into any agreement to exchange securities for, or intends to
acquire or has acquired in the
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open market or otherwise, any voting security of MOMED, if after the
consummation thereof such person would directly or indirectly be in control of
MOMED.
2.7 Absence of Undisclosed Liabilities. Neither MOMED nor any of the MOMED
Subsidiaries has any material liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise (including, without limitation, tax
liabilities of a permanent nature due or to become due, and whether incurred in
respect of or measured by income of MOMED and the MOMED Subsidiaries for any
period prior to the close of business on December 31, 1995, or arising out of
any transactions entered into or any set of facts existing prior thereto),
except for (i) liabilities reflected or reserved against in the Financial
Statements (including notes thereto) or reflected or disclosed in the Disclosure
Schedule, and (ii) liabilities which have arisen after December 31, 1995, in the
ordinary course of business (none of which relates to any breach of contract,
breach of warranty, tort, infringement or violation of law, or arose out of any
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand).
2.8 Absence of Certain Changes. Since December 31, 1995, except as set
forth in Section 2.8 of the Disclosure Schedule, there has not been:
(a) any change in the financial condition, assets, liabilities or
business of MOMED and the MOMED Subsidiaries other than changes in the
ordinary course of business, none of which changes individually or in the
aggregate has been materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of
MOMED and the MOMED Subsidiaries;
(c) any payment by MOMED of dividends or any distribution by MOMED of
any assets of any kind whatsoever to any of the shareholders in redemption
of or as the purchase price of any of its capital stock, or any discharge
or cancellation, whether in part or in whole, of any indebtedness (whether
in payment of principal, interest or otherwise) owing to any such
shareholders, except reimbursement to employees of MOMED and the MOMED
Subsidiaries of ordinary business expenses or other debts arising in the
ordinary course of business;
(d) any mortgage, pledge, or subjection to lien, charge or encumbrance
of any material kind of any assets, tangible or intangible, of MOMED or the
MOMED Subsidiaries;
(e) any sale or transfer of any assets of MOMED or the MOMED
Subsidiaries or any cancellation of any debts or claims by MOMED or the
MOMED Subsidiaries, except in the ordinary course of business;
(f) any sale, assignment or transfer by MOMED or the MOMED
Subsidiaries of any trademarks, trade names, or other intangible assets;
(g) any material amendment to or termination of any contract,
agreement, instrument or license to which MOMED or any of the MOMED
Subsidiaries is a party;
(h) any other event or condition of any character materially and
adversely affecting the business or properties of MOMED and the MOMED
Subsidiaries.
2.9 Tax Matters.
(a) MOMED and the MOMED Subsidiaries have paid all of the following taxes
(whether or not shown on any tax return): federal, state, local or foreign
income, gross receipts, license, payroll, employment, excise, stamp, occupation,
premium, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto ("Taxes"). MOMED and each of the MOMED Subsidiaries have
timely and properly filed all of the following that it was required to file: any
return, declaration, report, claim for refund, or information return or
statement (including, without limitation, Form 1099 and Form W-2 and W-3)
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof ("Tax Returns"). All such Tax Returns were correct and
complete in all respects. Neither MOMED nor any of the
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MOMED Subsidiaries is the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where MOMED or any of the MOMED Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no security interests on any of the assets of MOMED or any of the MOMED
Subsidiaries that arose in connection with the failure (or alleged failure) to
pay any Taxes.
(b) Each of MOMED and the MOMED Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third party.
(c) To the knowledge of MOMED, there is no dispute or claim concerning any
tax liability of MOMED or any of the MOMED Subsidiaries. Section 2.9(c) of the
Disclosure Schedule lists all federal, state, local and foreign income tax
returns filed with respect to MOMED and the MOMED Subsidiaries for the taxable
periods ending on or after December 31, 1990, identifies those Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of an audit. MOMED has delivered to MAIC Holdings correct and complete
copies of all federal income tax returns (including amendments thereto),
examination reports, and statements of deficiencies assessed against or agreed
to by MOMED or any of the MOMED Subsidiaries since December 31, 1990.
(d) Neither MOMED nor any of the MOMED Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a tax assessment or deficiency.
(e) The unpaid Taxes of MOMED and the MOMED Subsidiaries do not exceed the
reserve for tax liability set forth on the face of the consolidated balance
sheet at December 31, 1995 (rather than any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with past custom and
practice of MOMED in filing its returns.
2.10 Loss Reserves and Premium Rates for Professional Liability Insurance.
(a) The reserves for losses and loss adjustment expenses reflected on the
consolidated balance sheet at December 31, 1995, are sufficient to provide for
the estimated ultimate net costs of all reported and unreported losses incurred
through the date of said balance sheet, and no director or officer of MOMED (or
any employee responsible for the administration of claims) has any knowledge of
any facts that would cause any of them to believe that the reserves for losses
and loss adjustment expenses reflected on such balance sheet, will not represent
the estimated ultimate net costs of all reported and unreported losses incurred
through December 31, 1995.
(b) MOMED has engaged Liscord, Ward & Roy as its independent consulting
actuary (the "Actuary") for each fiscal year commencing after December 31, 1990.
In connection with such engagement, the Actuary has reviewed MOMED's reserve for
losses and loss adjustment expenses of the MOMED Subsidiaries and premium rates
for professional liability insurance in each of said years of the MOMED
Subsidiaries and has made a written recommendation as to the amount that MOMED
should maintain in such reserves and as to the premiums that should be charged
for professional liability insurance in each of said years. Section 2.10(b) of
the Disclosure Schedule lists each item of correspondence delivered by the
Actuary to MOMED or a MOMED Subsidiary since December 31, 1990, in which the
Actuary has either expressed an opinion as to the adequacy of loss reserves and
premiums or made recommendations as to the amount of the reserve for losses and
loss adjustment expenses that should be maintained by MOMED of the MOMED
Subsidiaries or as to the premiums that should be charged by MOMED for
professional liability insurance. MOMED has provided to MAIC Holdings a true and
correct copy of each item of correspondence from the Actuary listed on the
Disclosure Schedule.
(c) The MOMED Subsidiaries are required to submit to the Missouri
Department of Insurance all policies, endorsements, underwriting manuals, and
premium rates for the professional liability insurance offered by them, if any,
within 10 days after they become effective. Since December 31, 1990, all premium
rates submitted to the Missouri Department of Insurance have been within the
range recommended by the Actuary. Except as set forth in Section 2.10(c) of the
Disclosure Schedule, all increases in premium rates have not been questioned by
the Missouri Department of Insurance, and none of the MOMED Subsidiaries
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has received any correspondence or communication from the Missouri Department of
Insurance requesting or suggesting that its premium rates, if applicable, for
professional liability insurance should be reduced below the current approved
premium levels.
(d) Section 2.10(d) of the Disclosure Schedule lists all forms of insurance
policies and endorsements which have been issued to the insureds of the MOMED
Subsidiaries and under which claims have or may be made. MOMED has provided
correct and complete copies of all forms listed on the Disclosure Schedule. All
of the professional liability insurance policies issued by any MOMED Subsidiary
since July 1, 1986, have provided for "claims made" coverage.
2.11 Reinsurance. Section 2.11 of the Disclosure Schedule sets forth all
reinsurance treaties that are currently in effect with respect to claims
incurred under professional liability insurance policies of any of the MOMED
Subsidiaries prior to December 31, 1995, and the consummation of the transaction
contemplated herein will not result in the termination of any such reinsurance
treaties. MOMED has provided MAIC Holdings true and correct copies of all such
reinsurance treaties. The reserve for unpaid losses, loss adjustment expenses
and unearned premiums at December 31, 1995, as reflected in the consolidated
balance sheets in the Financial Statements are stated net of reinsurance ceded
amounts. All reinsurance recoverable amounts reflected in the consolidated
balance sheets in the Financial Statements are collectible. MOMED is unaware of
any material adverse change in the financial condition of MOMED's reinsurers
that might raise concern regarding the ability to honor their reinsurance
commitments.
2.12 Investments. There has been no material change in MOMED's investment
policy or in the composition of the investments of MOMED and the MOMED
Subsidiaries since December 31, 1995.
2.13 Property.
(a) MOMED and the MOMED Subsidiaries own or lease all tangible assets
necessary for the conduct of their respective businesses as presently conducted
and presently proposed to be conducted. Each such tangible asset is free from
defects, has been maintained in accordance with normal industry practice, is in
good operating condition and repair, and is suitable for the purpose for which
it is presently used.
(b) Section 2.13(b) of the Disclosure Schedule is a list of all real
property owned by or under lease to MOMED or any of the MOMED Subsidiaries.
Except as set forth in the Disclosure Schedule, MOMED and the MOMED Subsidiaries
have good and marketable title to all real property owned by them free and clear
of any liens, claims and encumbrances, except taxes not yet due and those
clearly reflected on the most recent of MOMED's Financial Statements and those
explained in the Disclosure Schedule. MOMED's and each of the MOMED
Subsidiaries' ownership, or possession, operation and use of all real property
owned by MOMED and the MOMED Subsidiaries comply with all applicable laws,
except where the failure to do so would not have any material adverse effect on
MOMED and the MOMED Subsidiaries and would not subject MOMED or any of the MOMED
Subsidiaries to any material penalty.
(c) Except as set forth on Schedule 2.13(c) attached hereto, neither MOMED
nor any of the MOMED Subsidiaries has generated, operated, processed,
distributed, transported, used, treated, stored, handled, emitted, discharged,
released or disposed of (or caused any person or entity to do any of the
foregoing or assisted any person or entity in doing any of the foregoing) any
oil, gasoline, petroleum-related products, hazardous substances, hazardous
waste, or pollutants or contaminants (as defined by CERCLA), including, without
limitation, asbestos or asbestos containing materials, PCB's or urea
formaldehyde, except in accordance with applicable laws or any product which may
give rise to Hazardous Materials Liabilities. For purposes of this Section
2.13(c), the following terms shall have the following meanings:
(i) The term "Hazardous Materials" shall mean (a) hazardous materials,
contaminants, constituents, medical wastes, hazardous or infectious wastes
and hazardous substances as those terms are defined in any Environmental
Laws, including without limitation the following statutes and their
implementing regulations: the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq. (the "HMTA"), the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund
Amendments and Reauthorization Act, 42 U.S.C. Section 9601 et seq. (as so
amended, "CERCLA"), the Clean Water Act, 33 U.S.C. Section 1251 et seq.
(the "CWA"), and the
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Clean Air Act, 42 U.S.C. Section 7401 et seq. (the "CAA"); (b) petroleum,
including crude oil and any fractions thereof; (c) natural gas, synthetic
gas and any mixtures thereof; (d) asbestos and/or asbestos-containing
materials; and (e) polychlorinated biphenyl ("PCBs") or materials or fluids
containing PCBs in excess of 50 parts per million (ppm);
(ii) The term "Hazardous Materials Liabilities" shall mean any and all
damages, losses, liabilities, disabilities, fines, penalties, costs or
expenses (including reasonable attorneys' fees) incurred or to be incurred,
whether absolute, fixed or contingent, civil or criminal, and whether
arising under federal law or state law, incurred or to be incurred in
connection with the handling, storage, transportation, or disposal of any
Hazardous Materials; and
(iii) The Term "Environmental Laws" shall mean any statute, law,
ordinance, code, rule, regulation, policy, guideline, permit, consent,
approval, license, judgment, order, writ, decree or authorization,
including the requirement to register storage tanks, established or enacted
for, or relating to, the protection of the environment or the health and
safety of any Person (including, without limitation, those relating to (a)
the HMTA, CERCLA, the CWA, the CAA or the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6903 et seq.; (b) emissions, discharges,
releases or threatened releases of Hazardous Materials into the
environment, including, without limitation, into ambient air, soil,
sediments, land surface or subsurface, buildings or facilities, surface
water, groundwater, publicly-owned treatment works, septic systems or land;
or (c) the generation, treatment, storage, disposal, use, handling,
manufacturing, transportation or shipment of Hazardous Materials.
(d) MOMED and the MOMED Subsidiaries own or have the right to use pursuant
to license, sublicense, agreement or permission all intellectual property
necessary for the operation of their respective businesses as presently
conducted and as presently proposed to be conducted. The term "intellectual
property" means all trademarks, service marks, logos, trade names and corporate
names and registrations and applications for registration thereof, copyrights
and registrations and applications for registration thereof, computer software,
data and documentation, trade secrets and confidential business information
(including financial, marketing and business data, pricing and cost information,
business and marketing plans, and customer and supplier lists and information),
other proprietary rights, and copies and tangible embodiments thereof (in
whatever form or medium).
(e) Neither MOMED nor any of the MOMED Subsidiaries has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
intellectual property rights of third parties and neither MOMED nor any of the
MOMED Subsidiaries has received any charge, complaint, claim or notice alleging
any such interference, infringement, misappropriation or violation. To the
knowledge of MOMED, no third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any intellectual property
rights of MOMED or the MOMED Subsidiaries.
(f) Section 2.13(f) of the Disclosure Schedule identifies each item of
intellectual property that any third party owns and that MOMED or any of the
MOMED Subsidiaries uses pursuant to license, sublicense, agreement, or
permission. MOMED has supplied MAIC Holdings with correct and complete copies of
all such licenses, sublicenses, agreements and permissions (as amended to date).
With respect to each such item of such intellectual property: (i) the license,
sublicense, agreement or permission covering the item is legal, valid, binding,
enforceable and in full force and effect; (ii) the license, sublicense,
agreement or permission will continue to be legal, valid, binding and
enforceable and in full force and effect on identical terms following the
Closing; (iii) no party to the license, sublicense, agreement or permission is
in breach or default, and no event of default has occurred which with notice or
lapse of time would constitute a breach or default or permit termination,
modification or acceleration thereunder; (iv) no party to the license,
sublicense, agreement or permission has repudiated any provision thereof; (v)
with respect to each sublicense, the representations and warranties set forth in
(i) through (iv) above are true and correct with respect to the underlying
license; and (vi) neither MOMED nor any of the MOMED Subsidiaries has granted
any sublicense or similar right with respect to the license, sublicense,
agreement or permission.
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2.14 Contracts and Commitments. Section 2.14 of the Disclosure Schedule
lists the following written (unless otherwise specified) contracts, agreements
and written arrangements to which MOMED or any of the MOMED Subsidiaries is a
party:
(a) Any written arrangement (or group of related written arrangements)
for the lease of personal property from or to third parties, or for the
furnishing or receipt of services. Except as set forth in Section 2.14 of
the Disclosure Schedule, all such arrangements are terminable by MOMED or
the applicable MOMED Subsidiary, without penalty, on thirty (30) days'
notice or less.
(b) Any written arrangement concerning a partnership or joint venture;
(c) Any written arrangement (or group of related written arrangements)
under which MOMED or any of the MOMED Subsidiaries has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee)
indebtedness (including capitalized lease obligations) or under which any
of them has imposed (or may impose a security interest on any of its
assets, tangible or intangible);
(d) Any written arrangement concerning confidentiality or
non-competition;
(e) Any written arrangement with any of the officers, directors, and
employees of MOMED or any of the MOMED Subsidiaries in the nature of a
collective bargaining agreement, employment agreement or severance
agreement;
(f) Any written commitment or arrangement to pay employees of MOMED
and the MOMED Subsidiaries incentive or bonus compensation based on their
respective productivity or performance, the performance of the Company or
otherwise.
(g) Any written arrangement under which the consequences of a default
or termination could have an adverse affect on the assets, liabilities,
business, financial condition, operations, results of operations or future
prospects of MOMED and the MOMED Subsidiaries taken as a whole; or
(h) Any written or oral agreement or understanding with the Missouri
Department of Insurance or any other state insurance department relating to
restrictions on distributions or other payments to the shareholders of
MOMED or any of the MOMED Subsidiaries, the continued operation of MOMED or
any MOMED Subsidiary, or any other matter relating to MOMED or a MOMED
Subsidiary and its affairs.
(h) Any written or oral agreement or understanding with respect to the
retention of any law firms or other persons relating to the defense of
claims made against insureds of any of the MOMED Subsidiaries.
(i) Any other written arrangement (or group of related written
arrangements) which is not terminable by MOMED or a MOMED Subsidiary,
without penalty, on thirty (30) days' notice or less.
MOMED has delivered to MAIC Holdings a correct and complete copy of each
written arrangement listed in Section 2.14 of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed: (i) the
written arrangement is legal, valid, binding, enforceable, and in full force and
effect; (ii) the written arrangement will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms following the
Closing; (iii) no party thereto is in breach or default, and no event has
occurred with which notice or lapse of time would constitute a breach or default
or permit termination, modification, or acceleration, under the written
arrangement; and (iv) no party has repudiated any provision of the written
arrangement. Neither MOMED nor any of the MOMED Subsidiaries is a party to any
verbal contract, agreement or other arrangement which if reduced to written form
would be required to be listed in Section 2.14 of the Disclosure Schedule under
the terms of this Section 2.14.
2.15 Employee Benefit Plans. (a) Except as set forth on Schedule 2.15,
neither MOMED nor any of the MOMED Subsidiaries sponsors, maintains or
contributes to, or has any ongoing obligation or liability whatsoever with
respect to:
(i) Any employee benefit plan as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
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(ii) Any other program, plan, trust agreement or arrangement for any
bonus, severance, hospitalization, vacation, sick pay, deferred
compensation, pension, profit sharing, retirement, payroll savings, stock
option, stock purchase, group insurance, self insurance, death benefit,
fringe benefit, welfare or any other employee benefit plan or fringe
benefit arrangement of any nature whatsoever including those for the
benefit of former employees.
(all of such plans, programs, and arrangements being hereafter referred to as
"Employee Benefit Plans").
(b) Schedule 2.15 sets forth accurate and complete descriptions of all
Employee Benefit Plans of MOMED and each of the MOMED Subsidiaries which are
currently in effect or as to which MOMED or any of the MOMED Subsidiaries has
any ongoing obligation or liability whatsoever, all employees affected or
covered by such plans, and all direct or indirect liabilities and obligations
thereunder.
(c) MOMED has provided to MAIC Holdings true, correct and complete copies
of all Employee Benefit Plans described on Schedule 2.15, all insurance policies
relating thereto and any written materials used by MOMED to describe employee
benefits to employees of MOMED and the MOMED Subsidiaries.
(d) Except as described on Schedule 2.15, neither MOMED nor any of the
MOMED Subsidiaries has any agreement, arrangement, commitment, or understanding,
whether legally binding or not, to create any additional Employee Benefit Plan
or to continue, modify, change, or terminate, in any material respect, any
Employee Benefit Plan.
(e) If permitted and/or required by applicable law, MOMED and the MOMED
Subsidiaries have properly submitted all Employee Benefit Plans described on
Schedule 2.15, in good faith to meet the applicable requirements of ERISA and/or
the Internal Revenue Code of 1986, as amended (the "Code"), to the Internal
Revenue Service ("IRS") for its approval within the time prescribed therefor.
(f) Accurate and complete copies of all favorable determination letters
from the IRS, the most recent annual return on Form 5500 for each Employee
Benefit Plan, and the most current actuarial or valuation reports (as
applicable) for each Employee Benefit Plan are attached to Schedule 2.15.
(g) Each actuarial or valuation report which is described in subparagraph
(f) above correctly shows the value of the assets of each such Employee Benefit
Plan as of the date thereof, the total accrued and vested liabilities, all
contributions by MOMED and the MOMED Subsidiaries, and the assumptions on which
the calculations are based.
(h) With respect to each Employee Benefit Plan described on Schedule 2.15:
(i) MOMED and the MOMED Subsidiaries have made all payments required
to be made by them to date, have accrued (in accordance with generally
accepted accounting principles consistently applied) as of the date hereof
all payments due but not yet payable, and will have made on or prior to the
Closing Date all payments due as of the Closing Date;
(ii) MOMED and the MOMED Subsidiaries have operated and currently
operate such plans in compliance in all material respects with the plan
documents and all applicable laws, including without limitation ERISA and
the Code (including without limitation Section 4980B thereof) and the
regulations thereunder;
(iii) there has not been any Reportable Event (as defined in Section
4043 of ERISA);
(iv) there has not been any event described in Section 4068 of ERISA;
(v) there has not been any material violation of the reporting and
disclosure provisions of the Code and ERISA;
(vi) there has not been any Prohibited Transaction (as defined in
Section 406 of ERISA or Section 4975 of the Code);
(vii) there has not been any violation of Sections 404, 406 or 407 of
ERISA; and
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(viii) there has not been any termination or partial termination
(including any termination or partial termination attributable to this
Merger) of such plans.
(i) MOMED and the MOMED Subsidiaries have no direct or indirect liability
or obligation under any Employee Benefit Plan other than as described on
Schedule 2.15.
(j) Except as described on Schedule 2.15, MOMED and the MOMED Subsidiaries
have no knowledge of any circumstances arising out of MOMED's or any of the
MOMED Subsidiaries' sponsorship of any Employee Benefit Plan which will result
in any direct or indirect liability, other than liability for contributions,
benefit payments, administrative costs and liabilities incurred in the ordinary
course of business.
(k) If any Employee Benefit Plan were terminated as of the Closing Date,
the assets of each such plan will be sufficient to satisfy all benefit
liabilities of such plan, and there will be no direct or indirect liability of
MOMED or any of the MOMED Subsidiaries under Title IV of ERISA.
(l) MOMED and the MOMED Subsidiaries have not incurred, and will not incur
as a result of or in connection with the Merger, any liability to the Pension
Benefit Guaranty Corporation (or any successor thereto), including any liability
under Sections 4063 or 4064 of ERISA.
(m) MOMED and the MOMED Subsidiaries have not incurred, and will not incur
as a result of or in connection with the Merger, any withdrawal liability, nor
have MOMED and the MOMED Subsidiaries had, nor will they have as a result of or
in connection with the Merger, any contingent withdrawal liability, to any
Multi-employer Plan under ERISA, as amended by the Multi-employer Pension Plan
Amendments Act of 1980.
(n) Except as described on Schedule 2.15, there has never been in
existence, and there currently does not exist, any Employee Pension Benefit Plan
(as defined in Section 3(2) of ERISA) involving MOMED or any of the MOMED
Subsidiaries which is subject to the provisions of Title IV of ERISA, or any
such plan which is subject to the funding requirements of Section 412 of the
Code or Sections 301 et seq. of ERISA.
(o) No event has occurred and no circumstances currently exist which do or
will result in any civil penalty being assessed pursuant to Section 502 of
ERISA, any tax being imposed under Section 4975 of the Code, or any liability
for a breach of fiduciary or other responsibility under ERISA in connection with
any Employee Pension Benefit Plan which has been established, maintained or
contributed to by MOMED or any of the MOMED Subsidiaries or any other entity or
entities which, together with MOMED and the MOMED Subsidiaries, constitute
elements of either a controlled group of corporations (within the meaning of
Section 414(b) of the Code), a group of trades or businesses under common
control (within the meaning of Section 414(c) of the Code or Section 4001 of
ERISA), an affiliated service group (within the meaning of Section 414(m) of the
Code), or another arrangement covered by Section 414(o) of the Code.
(p) There are no pending claims or lawsuits which have been asserted or
instituted (other than in respect of benefits due in the ordinary course which,
in the aggregate, are not material against the assets of any of the Employee
Benefit Plans or against MOMED, any MOMED Subsidiary, or any fiduciary of the
Employee Benefit Plans with respect to the Employee Benefit Plans or against
MOMED or any MOMED Subsidiary whether federal or state.
2.16 Employees.
(a) Schedule 2.16(a) sets forth a true and correct list of the names and
residence addresses of the employees of MOMED and the MOMED Subsidiaries, their
ages, length of service, compensation rates, capacity in which employed, and
accrued vacation and sick leave, if any. Except as limited by any employment
agreements listed on Schedule 2.16(a) or as set forth on Schedule 2.15, and
except for any limitations of general application which may be imposed under
applicable employment laws, MOMED and each of the MOMED Subsidiaries have the
right to terminate the employment of any of their respective employees at will
and without payment to such employees.
(b) MOMED and the MOMED Subsidiaries are in full and complete compliance
with all applicable ordinances or other laws, orders, and regulations regarding
labor and employment and the compensation
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therefor, whether state or federal, including without limitation the
Occupational Safety and Health Act of 1970, as amended, the Equal Employment
Opportunity Act, as amended; the Americans With Disabilities Act, 42 U.S.C.
Section 12101 et seq., as amended; the Fair Labor Standards Act, 29 U.S.C.
Section 201 et seq., as amended; the Equal Pay Act, 29 U.S.C. Section 206d, as
amended, the Portal-to-Portal Pay Act of 1947, 29 U.S.C. Section 255 et seq., as
amended; Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e, as
amended and 42 U.S.C. Section 1981, as amended; Rehabilitation Act of 1973, as
amended; the Vietnam-Era Veterans' Readjustment Assistance Act of 1974, as
amended, Immigration Reform and Control Act, 8 U.S.C. Section 1324A et seq., as
amended; the Employee Polygraph Protection Act of 1988, as amended; the Veterans
Re-employment Act -- Handicap Bias, 38 U.S.C. Section 2027 et seq., as amended;
the Civil Rights Act of 1991, as amended; the Family and Medical Leave Act of
1993, as amended; the Religious Freedom Restoration Act of 1993, as amended; and
the Age Discrimination and Employment Act of 1967, as amended, except where the
failure to so comply would not have a material adverse effect on MOMED's or the
MOMED Subsidiaries' business or properties. Except as provided on Schedule
2.16(b), MOMED is not aware of any action or investigation which has been
instituted or is threatened to be conducted by any state or federal agency
regarding any potential violation of any laws, orders, ordinances and
regulations regarding labor and employment or the compensation therefor during
the past five (5) years including without limitation, any of the aforementioned
statutes and congressional acts.
(c) Neither MOMED nor any of the MOMED Subsidiaries has ever been a party
to or bound by any union or collective bargaining contract, nor is any such
contract currently in effect or being negotiated by MOMED or any of the MOMED
Subsidiaries. Neither MOMED nor any of the MOMED Subsidiaries have ever
experienced any material labor problem. Except as indicated on Schedule 2.16(c),
since March 31, 1996, no employee of MOMED or any of the MOMED Subsidiaries' has
indicated to any officer or director of MOMED or any of the MOMED Subsidiaries
an intention to terminate his or her employment.
2.17 Accounts Receivable. All accounts receivable of MOMED and the MOMED
Subsidiaries are reflected properly on their respective books and records, are
valid receivables subject to no set offs or counterclaims, are presently current
and collectible, and will be collected in accordance with their terms at the
recorded amounts, subject only to a reasonable reserve for bad debts.
2.18 Proceedings and Judgments. Except as fully described on Schedule
2.18, (a) there is no litigation, investigation, claim, suit, arbitration or
other proceeding pending or, to the best knowledge of the MOMED, threatened
against or relating to MOMED or any of the MOMED Subsidiaries, any of their
respective businesses or assets, any assets of any other person which are used
in any of their businesses or the transactions contemplated by this Agreement,
and there is no basis known to the MOMED or any of the MOMED Subsidiaries for
any such litigation, investigation, claim, suit, arbitration, or other
proceeding, (b) there are no outstanding judgments or orders against MOMED or
any of the MOMED Subsidiaries or any of their respective businesses or assets,
or any assets of any other person which are used in any of their businesses, or
against any of their respective officers, directors or employees which has had
or would be expected to have an adverse effect on MOMED and the MOMED
Subsidiaries, and (c) no breach of contract, breach of warranty, tort,
negligence, infringement, product liability, discrimination, wrongful discharge
or other claim of any nature has been asserted or, to the best knowledge of
MOMED and the MOMED Subsidiaries, threatened against the MOMED or any of the
MOMED Subsidiaries, nor is there any basis for any such claim. As to each item
described on Schedule 2.18 (if any), accurate and complete copies of all
relevant pleadings, judgments, orders and correspondence have been provided to
MAIC Holdings.
2.19 Insurance. Schedule 2.19 contains a list of each insurance policy
owned or maintained by MOMED and each of the MOMED Subsidiaries (excluding group
insurance and other employee benefit plan insurance policies which are listed on
Schedule 2.15), accurate and complete copies of which have been provided to MAIC
Holdings. All such policies are in full force and effect; neither MOMED nor any
of the MOMED Subsidiaries have received any notice of cancellation with respect
to any such policy; and, to the best knowledge of MOMED and the MOMED
Subsidiaries, there is no basis for the insurer thereunder to terminate any such
policy. No claims are pending under any such policy, except as explained on
Schedule 2.19. Except as indicated on Schedule 2.19, all such policies are on an
"occurrence" rather than a "claims made" basis. The coverages and policy limits
of all general liability and automobile insurance policies
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previously maintained by MOMED and each of the MOMED Subsidiaries are consistent
with the coverages and policy limits of the general liability and automobile
insurance policies listed on Schedule 2.19.
2.20 Questionable Payments. Neither MOMED nor any of the MOMED
Subsidiaries, nor any of their respective current directors or officers, and to
the best of MOMED's knowledge, former officers or directors or current or former
employees, agents or representatives have (a) used any corporate funds for any
illegal contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (b) used any corporate funds for any direct or indirect
unlawful payments to any foreign or domestic government officials or employees,
(c) violated any provision of the Foreign Corrupt Practices Act of 1977, (d)
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets, (e) made any false or fictitious entries on the books and records
of MOMED or any of the MOMED Subsidiaries, (f) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment of any nature, or (g) made
any material favor or gift which is not deductible for federal income tax
purposes.
2.21 Brokerage Fees. No person or company acting on behalf of MOMED is
entitled to any brokerage or finder's fee or investment banking fee in
connection with the transactions contemplated by this Agreement.
2.22 Affiliates. Schedule 2.22 sets forth a list of all persons who are
affiliates (as such term is defined in Rule 144 under the 1933 Act) of MOMED.
2.23 Full Disclosure. No representation or warranty made by MOMED in this
Agreement or pursuant hereto contains any untrue statement of material fact. All
of the representations and warranties made by MOMED in this Agreement, taken
together, do not omit to state any material fact necessary to make the
statements made, in the context in which made, not false or misleading. The
copies of documents attached to MOMED's Disclosure Schedule or otherwise
delivered to MAIC Holdings in connection with the transactions contemplated
hereby are accurate and complete in all material respects unless otherwise set
forth in Schedule 2.23, and are not missing any amendments, modifications,
correspondence or other related papers which would be pertinent, in any material
respect, to MAIC Holdings understanding thereof. There is no fact known to MOMED
which has not been disclosed to MAIC Holdings in MOMED's Disclosure Schedule, or
otherwise in writing, and which has, or so far as MOMED can now reasonably
foresee will have, a material adverse effect on MOMED and the MOMED
Subsidiaries, or on the ability of MOMED to perform its obligations under this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF MAIC HOLDINGS AND NEWCO.
MAIC Holdings and Newco represent and warrant to MOMED that the statements
contained in this Section 3 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date was substituted for the date of this
Agreement throughout this Section 3), except as set forth in the Disclosure
Schedule delivered by MAIC Holdings and Newco to MOMED on date hereof and
initialed by the parties (the "Disclosure Schedule"). Nothing in the Disclosure
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein, however, unless the Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
3.
3.1 Organization, Qualification and Corporate Power. MAIC Holdings is a
Delaware corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware. MAIC Holdings has the corporate power to own
its property and to carry on its business as presently conducted.
3.2 Subsidiaries. Section 3.2 of the Disclosure Schedule sets forth the
name and state of incorporation or organization of each subsidiary of MAIC
Holdings, including Newco, and the date they became a consolidated subsidiary of
MAIC Holdings or its predecessor-in-interest, Mutual Assurance, Inc. (the term
"MAIC Subsidiaries" shall refer to such companies only during the time that each
respective subsidiary has been a consolidated subsidiary of MAIC Holdings or
Mutual Assurance for financial reporting purposes).
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3.3 Capitalization.
(a) The entire authorized capital stock of Newco consists of 30,000 shares
of common stock, par value, $0.01 per share of which 3,000 shares will be issued
and outstanding prior to the Effective Time. All of the issued and outstanding
shares of Newco Common Stock will be duly authorized, validly issued, and when
issued, fully paid and non-assessable. Except as described in the Articles of
Incorporation of Newco, there are no outstanding or authorized options,
warrants, rights, contracts, calls, puts, rights to subscribe, conversions
rights, or other agreements or commitments to which Newco is a party or which
are binding upon Newco providing for the issuance, disposition or acquisition of
any of Newco's stock. There are no outstanding or authorized stock appreciation,
phantom stock, or similar rights with respect to Newco. There are no voting
trusts, proxies or any other agreements or understandings with respect to the
voting of the capital stock of Newco.
(b) The entire authorized capital stock of MAIC Holdings consists of
150,000,000 shares divided into 100,000,000 shares of common stock, par value
$1.00 per share ("MAIC Holdings Common Stock"), of which approximately 9,369,832
shares are issued and outstanding and 7,124 shares are held in treasury and
50,000,000 shares of preferred stock, par value $1.00 per share ("MAIC Holdings
Preferred Stock"), none of which is issued and outstanding. (MAIC Holdings
Common Stock and MAIC Holdings Preferred stock being collectively referred to as
"MAIC Holdings Stock"). All of the issued and outstanding shares of MAIC Common
Stock have been, and the MAIC Holdings Common Stock to be issued to MOMED's
shareholders as contemplated in this Agreement will be, duly authorized, validly
issued, and when issued, will be fully paid and non-assessable. Except as set
forth in Section 3.3 of the Disclosure Schedule, there are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights, or other agreements or commitments to which MAIC
Holdings is a party or which are binding upon MAIC Holdings providing for the
issuance, disposition or acquisition of any of MAIC Holdings Stock. There are no
outstanding or authorized stock appreciation, phantom stock, or similar rights
with respect to MAIC Holdings. There are no voting trusts, proxies or any other
agreements or understandings with respect to the voting of the capital stock of
MAIC Holdings.
3.4 Authority Relative to Agreements.
(a) MAIC Holdings and Newco have the requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement by MAIC Holdings and Newco and the
consummation by MAIC Holdings and Newco of the transactions contemplated hereby,
will, prior to the Effective Time, have been duly authorized by the Board of
Directors of MAIC Holdings and the Board of Directors and sole shareholder of
Newco. No other corporate proceedings on the part of MAIC Holdings and Newco are
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement has been duly executed and delivered by MAIC Holdings and Newco
and (assuming due authorization, execution and delivery by MOMED) constitutes a
valid and binding obligation of MAIC Holdings and Newco, enforceable against
them in accordance with its terms except to the extent that its enforceability
may be limited by applicable bankruptcy, insolvency, reorganization or other
laws affecting the enforcement of creditors' rights generally or by general
equitable principles.
(b) Except as set forth in Section 3.4 of the Disclosure Schedule, neither
the execution and delivery of this Agreement by MAIC Holdings and Newco nor the
consummation of the transactions contemplated hereby nor compliance by MAIC
Holdings and Newco with any of the provisions hereof will (i) violate, conflict
with, or result in a breach of any provision of, or constitute a default under,
or result in the termination of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of MAIC Holdings or any of the MAIC
Subsidiaries under, any of the terms, conditions or provisions of (x) their
respective charters or bylaws or (y) any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
MAIC Holdings or Newco is a party or to which they or any of their respective
properties or assets may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to MAIC Holdings and the MAIC Subsidiaries or any of their respective
properties or assets, except, in the case of each of clauses
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(i) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances, which, in the aggregate, would not have any material adverse
effect on the business, results of operations, financial condition or prospects
of MAIC Holdings and the MAIC Subsidiaries taken as a whole.
(c) Other than in connection with or in compliance with the provisions of
the Missouri Insurance Code, the Hart-Scott-Rodino Act and the federal and
applicable state securities laws (including those described in Section 4 of this
Agreement), no notice to, filing with, or authorization, consent or approval of,
any domestic public body or authority is necessary for the consummation by MAIC
Holdings and Newco of the transactions contemplated by this Agreement, except
where failures to give such notices, make such filings, or obtain
authorizations, consents or approvals would, in the aggregate, not have a
material adverse effect on the business, results of operations, financial
condition or prospects of MAIC Holdings and the MAIC Subsidiaries taken as a
whole.
3.5 Financial Statements and Other Reports.
(a) MAIC Holdings has delivered to MOMED (i) the Annual Statements of MAIC
Holdings wholly owned subsidiary Mutual Assurance, Inc. as filed with the
Alabama Department of Insurance for each of the years ended December 31, 1991,
1992, 1993, 1994, and 1995, and (ii) the audited consolidated financial
statements of MAIC Holdings (including its predecessor-in-interest, Mutual
Assurance, Inc. and the MAIC Subsidiaries), for the years ended December 31,
1995, 1994, 1993, 1992, and 1991, together with the report(s) of Ernst & Young
thereon, which consolidated financial statements include consolidated balance
sheets, consolidated statements of income, changes in shareholders' equity and
cash flows for the years then ended and notes thereto prepared in accordance
with generally accepted accounting principles (the items described in (i) and
(ii) above are collectively referred to as the "Financial Statements"). Except
for the Financial Statements described in (i) above, the Financial Statements
have been prepared in accordance with generally accepted accounting principles
on a consistent basis throughout the periods covered thereby. All such Financial
Statements fairly reflect the consolidated financial condition and results of
operations of MAIC Holdings and the MAIC Subsidiaries for the dates and periods
indicated, and are consistent with the books and records of MAIC Holdings (which
books and records are correct and complete).
(b) Section 3.5(b) of the Disclosure Schedule lists all financial
examinations that any state Department of Insurance has conducted with respect
to MAIC Holdings or any of the MAIC Subsidiaries since December 31, 1990. MAIC
Holdings has provided to MOMED correct and complete reports issued by the
applicable Department of Insurance with respect to the examinations listed on
the Disclosure Schedule. There are no regulatory examinations of MAIC Holdings
or any MAIC Subsidiary currently in process, except with respect to the
transactions contemplated hereby.
(c) Section 3.5(c) of the Disclosure Schedule sets forth a list of each
registration statement, report, proxy statement or other filing filed by MAIC
Holdings or an MAIC Subsidiary with a state Department of Insurance or the SEC
since December 31, 1990, accurate and complete copies of which have been
delivered to MOMED. MAIC Holdings has filed or caused the applicable MAIC
Subsidiaries to file all registration statements, proxy statements, reports and
other filings and all amendments thereto which it was required to file with the
applicable state Departments of Insurance and/or the SEC since December 31,
1990. As of its date, none of said filings contained any untrue statement of a
material fact or omitted any material fact necessary to make the statements made
therein not misleading, except to the extent any such statement or omission has
been modified or superseded in a document subsequently filed with the
appropriate authority.
(d) Except as disclosed in the proxy statements of Mutual Assurance or in
registration statements on Form B and amendments thereto of MAIC Subsidiaries
under the applicable state insurance laws or except as listed in Section 3.5(d)
of the Disclosure Schedule, there have not been since December 31, 1990, and
there are currently no contracts, real estate leases, loans, guarantees or other
arrangements or transactions of any nature between MAIC Holdings and any of the
MAIC Subsidiaries between any of the MAIC Subsidiaries, or between MAIC Holdings
and MAIC Subsidiaries and any of their respective officers, directors, or
affiliates (as such term is defined in Rule 405 of the SEC) (excluding
employment matters).
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3.6 Absence of Undisclosed Liabilities. Neither MAIC Holdings nor any of
the MAIC Subsidiaries has any material liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise, (including, without
limitation, tax liabilities of a permanent nature due or to become due, and
whether incurred in respect of or measured by income of MAIC Holdings and the
MAIC Subsidiaries for any period prior to the close of business on December 31,
1995, or arising out of any transactions entered into or any set of facts
existing prior thereto) except for (i) liabilities reflected or reserved against
in the Financial Statements of MAIC Holdings (including notes thereto) or
reflected or disclosed in the Disclosure Schedule, and (ii) liabilities which
have arisen after December 31, 1995, in the ordinary course of business (none of
which relates to any breach of contract, breach of warranty, tort, infringement
or violation of law, or arose out of any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand).
3.7 Absence of Certain Changes. Since December 31, 1995, except as set
forth in Section 3.7 of the Disclosure Schedule, there has not been:
(a) any change in the financial condition, assets, liabilities or
business of MAIC Holdings and the MAIC Subsidiaries other than changes in
the ordinary course of business, none of which changes individually or in
the aggregate has been materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of
MAIC Holdings and the MAIC Subsidiaries;
(c) any payment by MAIC Holdings of dividends or any distribution by
MAIC Holdings of any assets of any kind whatsoever to any of the
shareholders in redemption of or as the purchase price of any of its
capital stock, or any discharge or cancellation, whether in part or in
whole, of any indebtedness owing to any such shareholders, except (i)
reimbursement to employees of MAIC Holdings and the MAIC Subsidiaries of
ordinary business expenses or other debts arising in the ordinary course of
business, and (ii) cancellation of loans made to employees under the MAIC
Employee Stock Award Plan as disclosed in Section 3.15 of the Disclosure
Schedule, and (iii) repurchase of up to $3.6 million of MAIC Holdings
Common Stock pursuant to the previously announced stock repurchase program;
(d) any mortgage, pledge, or subjection to lien, charge or encumbrance
of any material kind of any assets, tangible or intangible, of MAIC
Holdings or the MAIC Subsidiaries;
(e) any sale or transfer of any assets of MAIC Holdings or the MAIC
Subsidiaries or any cancellation of any debts or claims by MAIC Holdings or
the MAIC Subsidiaries, except in the ordinary course of business and except
as disclosed in subparagraph (c) above;
(f) any sale, assignment or transfer by MAIC Holdings or the MAIC
Subsidiaries of any trademarks, trade names, or other intangible assets;
(g) any material amendment to or termination of any material contract,
agreement, instrument or license to which MAIC Holdings or any of the MAIC
Subsidiaries is a party;
(h) any other event or condition of any character materially and
adversely affecting the business or properties of MAIC Holdings and the
MAIC Subsidiaries.
3.8 Employee Benefit Plans. (a) Except as set forth on Schedule 3.8,
neither MAIC Holdings nor any of the MAIC Subsidiaries sponsors, maintains or
contributes to, or has any ongoing obligation or liability whatsoever with
respect to:
(i) Any employee benefit plan as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
(ii) Any other program, plan, trust agreement or arrangement for any
bonus, severance, hospitalization, vacation, sick pay, deferred
compensation, pension, profit sharing, retirement, payroll savings, stock
option, stock purchase, group insurance, self insurance, death benefit,
fringe benefit, welfare or any other employee benefit plan or fringe
benefit arrangement of any nature whatsoever including those for the
benefit of former employees.
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(all of such plans, programs, and arrangements being hereafter referred to as
"Employee Benefit Plans").
(b) Schedule 3.8 sets forth accurate and complete descriptions of all
Employee Benefit Plans of MAIC Holdings and each of the MAIC Subsidiaries which
are currently in effect or as to which MAIC Holdings or any of the MAIC
Subsidiaries has any ongoing obligation or liability whatsoever, all employees
affected or covered by such plans, and all direct or indirect liabilities and
obligations thereunder.
(c) MAIC Holdings has provided to MAIC Holdings true, correct and complete
copies of all Employee Benefit Plans described on Schedule 3.8, all insurance
policies relating thereto and any written materials used by MAIC Holdings to
describe its employee benefits to its employees.
(d) Except as described on Schedule 3.8, neither MAIC Holdings nor any of
the MAIC Subsidiaries has any agreement, arrangement, commitment, or
understanding, whether legally binding or not, to create any additional Employee
Benefit Plan or to continue, modify, change, or terminate, in any material
respect, any Employee Benefit Plan.
(e) If permitted and/or required by applicable law, MAIC Holdings and the
MAIC Subsidiaries have properly submitted all Employee Benefit Plans described
on Schedule 3.8, in good faith to meet the applicable requirements of ERISA
and/or the Internal Revenue Code of 1986, as amended (the "Code"), to the
Internal Revenue Service ("IRS") for its approval within the time prescribed
therefor.
(f) Accurate and complete copies of all favorable determination letters
from the IRS, the most recent annual return on Form 5500 for each Employee
Benefit Plan, and the most current actuarial or valuation reports (as
applicable) for each Employee Benefit Plan are attached to Schedule 3.8.
(g) Each actuarial or valuation report which is described in subparagraph
(f) above correctly shows the value of the assets of each such Employee Benefit
Plan as of the date thereof, the total accrued and vested liabilities, all
contributions by MAIC Holdings and the MAIC Subsidiaries, and the assumptions on
which the calculations are based.
(h) With respect to each Employee Benefit Plan described on Schedule 3.8:
(i) MAIC Holdings and the MAIC Subsidiaries have made all payments
required to be made by them to date, have accrued (in accordance with
generally accepted accounting principles consistently applied) as of the
date hereof all payments due but not yet payable, and will have made on or
prior to the Closing Date all payments due as of the Closing Date;
(ii) MAIC Holdings and the MAIC Subsidiaries have operated and
currently operate such plans in compliance in all material respects with
the plan documents and all applicable laws, including without limitation
ERISA and the Code (including without limitation Section 4980B thereof) and
the regulations thereunder;
(iii) there has not been any Reportable Event (as defined in Section
4043 of ERISA);
(iv) there has not been any event described in Section 4068 of ERISA;
(v) there has not been any material violation of the reporting and
disclosure provisions of the Code and ERISA;
(vi) there has not been any Prohibited Transaction (as defined in
Section 406 of ERISA or Section 4975 of the Code);
(vii) there has not been any violation of Sections 404, 406 or 407 of
ERISA; and
(viii) there has not been any termination or partial termination
(including any termination or partial termination attributable to this
Merger) of such plans.
(i) MAIC Holdings and the MAIC Subsidiaries have no direct or indirect
liability or obligation under any Employee Benefit Plan other than as described
on Schedule 3.8.
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(j) Except as described on Schedule 3.8, MAIC Holdings and the MAIC
Subsidiaries have no knowledge of any circumstances arising out of MAIC
Holdings's or any of the MAIC Subsidiaries' sponsorship of any Employee Benefit
Plan which will result in any direct or indirect liability, other than liability
for contributions, benefit payments, administrative costs and liabilities
incurred in the ordinary course of business.
(k) If any Employee Benefit Plan were terminated as of the Closing Date,
the assets of each such plan will be sufficient to satisfy all benefit
liabilities of such plan, and there will be no direct or indirect liability of
MAIC Holdings or any of the MAIC Subsidiaries under Title IV of ERISA.
(l) MAIC Holdings and the MAIC Subsidiaries have not incurred, and will not
incur as a result of or in connection with the Merger, any liability to the
Pension Benefit Guaranty Corporation (or any successor thereto), including any
liability under Sections 4063 or 4064 of ERISA.
(m) MAIC Holdings and the MAIC Subsidiaries have not incurred, and will not
incur as a result of or in connection with the Merger, any withdrawal liability,
nor have MAIC Holdings and the MAIC Subsidiaries had, nor will they have as a
result of or in connection with the Merger, any contingent withdrawal liability,
to any Multi-employer Plan under ERISA, as amended by the Multi-employer Pension
Plan Amendments Act of 1980.
(n) Except as described on Schedule 3.8, there has never been in existence,
and there currently does not exist, any Employee Pension Benefit Plan (as
defined in Section 3(2) of ERISA) involving MAIC Holdings or any of the MAIC
Subsidiaries which is subject to the provisions of Title IV of ERISA, or any
such plan which is subject to the funding requirements of Section 412 of the
Code or Sections 301 et seq. of ERISA.
(o) No event has occurred and no circumstances currently exist which do or
will result in any civil penalty being assessed pursuant to Section 502 of
ERISA, any tax being imposed under Section 4975 of the Code, or any liability
for a breach of fiduciary or other responsibility under ERISA in connection with
any Employee Pension Benefit Plan which has been established, maintained or
contributed to by MAIC Holdings or any of the MAIC Subsidiaries or any other
entity or entities which, together with MAIC Holdings and its Subsidiaries,
constitute elements of either a controlled group of corporations (within the
meaning of Section 414(b) of the Code), a group of trades or businesses under
common control (within the meaning of Section 414(c) of the Code or Section 4001
of ERISA), an affiliated service group (within the meaning of Section 414(m) of
the Code), or another arrangement covered by Section 414(o) of the Code.
(p) There are no pending claims or lawsuits which have been asserted or
instituted (other than in respect of benefits due in the ordinary course which,
in the aggregate, are not material against the assets of any of the Employee
Benefit Plans or against MAIC Holdings or any fiduciary of the Employee Benefit
Plans with respect to the Employee Benefit Plans or against MAIC Holdings
whether federal or state.
3.9 Proceedings and Judgments. Except as fully described on in the reports
listed in Schedule 3.5 or in 3.9, (a) there is no litigation, investigation,
claim, suit, arbitration or other proceeding pending or, to the best knowledge
of MAIC Holdings, threatened against or relating to MAIC Holdings or any of the
MAIC Subsidiaries, any of their respective businesses or assets, any assets of
any other person which are used in any of their businesses or the transactions
contemplated by this Agreement, and there is no basis known to MAIC Holdings for
any such litigation, investigation, claim, suit, arbitration, or other
proceeding, (b) there are no outstanding judgments or orders against MAIC
Holdings or any of the MAIC Subsidiaries or any of their respective businesses
or assets, or any assets of any other person which are used in any of their
businesses, or against any of their respective officers, directors or employees
which has had or would be expected to have an adverse effect on MAIC Holdings
and the MAIC Subsidiaries, and (c) no breach of contract, breach of warranty,
tort, negligence, infringement, product liability, discrimination, wrongful
discharge or other claim of any nature has been asserted or, to the best
knowledge of MAIC Holdings, threatened against MAIC Holdings or any of the MAIC
Subsidiaries, nor is there any basis for any such claim. As to each item
described in such reports or in Schedule 3.9 (if any), accurate and complete
copies of all relevant pleadings, judgments, orders and correspondence have been
provided to MOMED.
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3.10 Brokerage Fees. No person or company acting on behalf of MAIC
Holdings is entitled to any brokerage or finder's fee or investment banking fee
in connection with the transactions contemplated by this Agreement.
3.11 Full Disclosure. No representation or warranty made by MAIC Holdings
or Newco in this Agreement or pursuant hereto contains any untrue statement of
material fact. All of the representations and warranties made by MAIC Holdings
or Newco in this Agreement, taken together, do not omit to state any material
fact necessary to make the statements made, in the context in which made, not
false or misleading. The copies of documents attached as MAIC Holdings'
Schedules to this Agreement or otherwise delivered to MOMED in connection with
the transactions contemplated hereby are accurate and complete in all material
respects unless otherwise set forth in Schedule 3.11, and are not missing any
amendments, modifications, correspondence or other related papers which would be
pertinent, in any material respect, to MOMED's understanding thereof. There is
no fact known to MAIC Holdings or Newco which has not been disclosed to MOMED in
MAIC Holdings' Schedules, or otherwise in writing, and which has, or so far as
MAIC Holdings can now reasonably foresee will have, a material adverse effect on
MAIC Holdings, or on the ability of MAIC Holdings to perform any of its
obligations under this Agreement.
4. SHAREHOLDER AND REGULATORY APPROVAL OF THE MERGER.
4.1 General. Each of the parties will use its reasonable best efforts to
take all action and to do all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Sections 6 and 7
below.
4.2 Approval of the Missouri Department of Insurance. MAIC Holdings will
file a Form A and related documents pursuant to Section 382.050 of the Missouri
Holding Company Systems Act and the preacquisition notification and report forms
and related material on Form E that it may be required to file with the Missouri
Department of Insurance under Section 382.095 of the Missouri Insurance Code.
MOMED and each of the MOMED Subsidiaries will cooperate with MAIC Holdings
providing information necessary to complete such filings and in obtaining the
approval of the Commissioner of the Department of Insurance of Missouri (the
"Commissioner") to the Merger as herein contemplated, including, without
limitation, giving notice of the public hearing regarding this transaction to
any persons required by the Commissioner and in the manner prescribed by the
Commissioner, having its representatives attend the public hearing of the
Commissioner and testify at such hearing if required, and submit such
information as may be reasonably available to MOMED and its agents as may be
requested by the Commissioner in connection with such hearing. MAIC Holdings and
MOMED will use their reasonable best efforts to obtain an early termination of
the applicable waiting period, and will make any further filings pursuant
thereto that may be necessary, proper or advisable. MAIC Holdings and MOMED will
cooperate in filing such forms and each of MAIC Holdings and MOMED shall submit
such information as may be reasonably available to it and as is required to be
included in said notification.
4.3 Hart-Scott-Rodino Act. Each of MAIC Holdings, Newco and MOMED will
file any notification and report forms and related material that it may be
required to file with the Federal Trade Commission and the Anti-Trust Division
of the United States Department of Justice under the Hart-Scott-Rodino Act, will
use its reasonable best efforts to obtain an early termination of the applicable
waiting period, and will make any further filings pursuant thereto that may be
necessary, proper or advisable.
4.4 Registration Statement and Proxy Statements.
(a) As promptly as practicable after the execution of this Agreement, MAIC
Holdings shall prepare and file and use its reasonable best efforts to have
declared effective as promptly as practicable after such filing, such
registration statement (the "Registration Statement") as shall be necessary to
register under the Securities Act of 1933 (the "1933 Act") the shares of MAIC
Common Stock to be issued pursuant to this Agreement. The Registration Statement
shall include such information as may be necessary under the 1933 Act with
respect to the approval of the Plan of Merger by the stockholders of MOMED and
shall also include such information as may be necessary under Schedule 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"). MOMED shall
provide promptly to MAIC Holdings such information
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concerning the business, financial condition and affairs of MOMED and the MOMED
Subsidiaries as may be necessary or reasonably requested by MAIC Holdings in
connection with the preparation or filing of the Registration Statement and
shall otherwise cooperate and cause its representatives to cooperate with MAIC
Holdings' representatives in the preparation and filing of such Registration
Statement.
(b) MAIC Holdings shall use its reasonable best efforts to cause the
Registration Statement to become effective or otherwise approved for
distribution by the SEC as soon as practicable and thereafter to promptly
distribute copies of the prospectus and proxy statement contained in such
Registration Statement (the "Proxy Statement-Prospectus") to the stockholders of
MOMED. After the execution of this Agreement, and thereafter until the Closing
Date, MOMED and MAIC Holdings shall promptly advise each other of any facts
which should be set forth in an amendment or supplement to the Proxy
Statement-Prospectus or the Registration Statement, and each party shall take
all such action as shall be necessary to keep the Registration Statement and the
Proxy Statement-Prospectus current and effective until the Closing Date. Except
to the extent permitted by Rule 145(b) of the 1933 Act or Rule 14a-2 of the 1934
Act, as the case may be, MOMED and MAIC Holdings shall use their best efforts
not to publish any communication, other than the Registration Statement or the
Proxy Statement-Prospectus, relating to this Agreement or the transactions
contemplated hereby or thereby. If the MAIC Holdings Stock is registered under
the 1933 Act, MAIC Holdings shall not be required to maintain the effectiveness
of the Registration Statement or the Proxy Statement-Prospectus for the purpose
of resale by the affiliates of MOMED, as such term is used in Rule 144 under the
1933 Act.
4.5 Shareholder Approval. As promptly as practicable after the
Registration Statement becomes effective (or is otherwise approved for
distribution by the SEC), MOMED will duly hold a meeting of its shareholders for
the purpose of considering the transactions contemplated by this Agreement.
After the shareholders of MOMED shall have so approved the matters described
above, such approval shall not be revocable. MOMED shall, in full compliance
with the 1934 Act and the rules and regulations thereunder, solicit proxies from
their respective stockholders in favor of the matters herein described, for use
at the meeting of stockholders. Except with the prior written consent of MAIC
Holdings, MOMED shall not distribute any materials to its stockholders in
connection with such solicitation of proxies other than the Proxy
Statement-Prospectus.
4.6 Full Disclosure. Each party warrants, represents and covenants to the
other that when the Registration Statement and/or Proxy Statement-Prospectus
shall become effective or otherwise approved for distribution, and at all times
subsequent thereto, up to and including the date of MOMED's shareholders'
meeting referred to in Section 4.5, such Registration Statement and/or Proxy
Statement-Prospectus and all amendments or supplements thereto will, with
respect to the information furnished by such party or its representatives to the
other party or its representatives, (i) comply in all material respects with the
provisions of the 1933 Act and the 1934 Act and the rules and regulations
thereunder, and (ii) not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein not misleading. Each party warrants, represents and
covenants to the other that all information furnished to the other for use in
the filings described in or contemplated by this Agreement shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading. Each party hereby agrees to fully indemnify and hold harmless each
person who controls such other party (within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act), and each of such other party's
directors, officers and representatives, from and against any and all losses,
claims, liabilities, damages and expenses (including reasonable attorneys' fees)
that arise out of or are based upon a breach of this warranty, representation
and covenant.
4.7 State Securities Filings. MAIC Holdings and Newco shall make all
filings under applicable state securities laws which are required in connection
with the transactions contemplated by this Agreement. MOMED shall cooperate with
MAIC Holdings, and furnish all information required by MAIC Holdings, in
connection with such filings.
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4.8 Tax Opinion. MOMED covenants and agrees to promptly engage KPMG Peat
Marwick LLP, or such other nationally recognized tax expert, to render an
opinion as to the material tax consequences to the shareholders of MOMED
resulting from the Merger. The opinion shall be rendered on or before the filing
of the Registration Statement, and the person rendering the opinion shall
consent to being relied upon as an expert under the Securities Act of 1933.
5. CERTAIN OBLIGATIONS PENDING CLOSING
5.1 Conduct of Business. Between the date of this Agreement and the
Closing Date, except with the prior written consent of MAIC Holdings:
(a) MOMED shall, and shall cause each of the MOMED Subsidiaries, to conduct
their respective businesses in a diligent manner; MOMED shall not, and shall not
cause any Company Subsidiary, to make any material change in their respective
business practices; and MOMED shall, and shall cause each of the MOMED
Subsidiaries to, in good faith, use their respective best efforts to (i)
preserve their respective business organizations intact, (ii) keep available the
services of their respective current officers, employees, salesmen, agents and
representatives, and (iii) maintain the good will of their respective insureds,
reinsurers and other persons having business relations with MOMED or any of the
MOMED Subsidiaries.
(b) Except in the ordinary course of their respective businesses consistent
with past practices, MOMED shall not, and shall not cause any of the MOMED
Subsidiaries to, (i) create or assume any lien or encumbrance upon any of their
respective businesses or assets, (ii) incur any debt, liability, or obligation,
(iii) make any loan or advance, (iv) assume, guarantee or otherwise become
liable for any debt, liability or obligation of any third party, (v) commit for
any capital expenditure, (vi) sell, abandon or otherwise dispose of any of their
respective material assets, (vii) waive any material right or cancel any debt or
claim, (viii) assume or enter into any contract other than this Agreement (and
any other contract contemplated herein), (ix) increase, or authorize an increase
in, the compensation or benefits paid or provided to any of their respective
directors, officers, employees, salesmen, agents or representatives, except
consistent with and in accordance with past practice, or do anything else
outside the ordinary course of their respective businesses consistent with past
practices, whether or not specifically described in any of the foregoing
clauses.
(c) Even in the ordinary course of their businesses consistent with past
practices, MOMED shall not, and shall not cause any Company Subsidiary to,
borrow or lend any funds, purchase any goods or services, lease any equipment,
incur any debt, liability or obligation, or enter into any contract (excluding
customer contracts and related commitments entered into in the ordinary course
of business consistent with past practices) or other transaction involving an
amount exceeding $25,000.
(d) MOMED shall not, and shall not cause any Company Subsidiary to, (i)
permit or cause a breach or default by them under any of their respective
contracts, insurance policies, licenses or permits, (ii) adopt or enter into any
new Employee Benefit Plan, (iii) participate in any merger, consolidation or
reorganization, (iv) begin to engage in any new type of business, (v) acquire
the business or any bulk assets of any third party, (vi) completely or partially
liquidate or dissolve, or (vii) terminate any part of their respective
businesses.
(e) MOMED shall, and shall cause each of the MOMED Subsidiaries to, (i)
maintain their respective material real estate and fixed personal property
assets in good condition, (ii) maintain their respective insurance policies in
full force and effect, (iii) repair, restore or replace any of their respective
material assets which are damaged, destroyed, lost or stolen, (iv) comply with
all applicable laws, rules and regulations in all material respects, (v)
properly file all tax returns, annual reports and other returns and reports
required to be filed by them, and (vi) fully pay when due all taxes payable by
them or assessed against them or any of their respective assets.
(f) MOMED shall, and shall cause each of the MOMED Subsidiaries to,
maintain their respective corporate existence and good standing in their
respective jurisdictions of incorporation and in all jurisdictions where they
currently are qualified or registered to do business as foreign corporations,
and shall not amend their respective charters or bylaws. MOMED shall, and shall
cause each of the MOMED Subsidiaries, to continue the process of qualifying or
registering to do business as foreign corporations in those jurisdictions in
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which such process is currently underway. MOMED shall not, and shall not cause
any Company Subsidiary to, redeem, retire or purchase, or create, grant or issue
any contracts, options, warrants or other rights with respect to, any of their
respective capital stock or any other securities of MOMED or any of the MOMED
Subsidiaries, or create, grant or issue any stock appreciation rights, phantom
shares, cash performance units or other similar rights.
(g) MOMED shall not, and shall not cause any Company Subsidiary to enter
into any contract or agreement which commits any of them to take any action or
omit to take any action which would be inconsistent with any of the provisions
of this Section 5.1.
5.2 Due Diligence Investigation.
(a) Between the date of this Agreement and the Closing Date, MOMED and each
of the MOMED Subsidiaries shall (i) permit MAIC Holdings and its authorized
representatives to have reasonable access to MOMED's and each of the MOMED
Subsidiaries' facilities and offices during normal business hours, to observe
MOMED's and each of the MOMED Subsidiaries' operations, to meet with MOMED's and
each of the MOMED Subsidiaries' officers, and (ii) provide to MAIC Holdings and
its authorized representatives all information concerning MOMED and each of the
MOMED Subsidiaries and their respective businesses, assets and financial
condition which MAIC Holdings reasonably requests.
(b) Between the date of this Agreement and the Closing Date, MAIC Holdings
shall (i) permit MOMED and its authorized representatives to have reasonable
access to MAIC Holdings' and its Subsidiaries' facilities and offices during
normal business hours, to observe MAIC Holdings' operations and to meet with
MAIC Holdings' officers, and to examine MAIC Holdings' and the MAIC
Subsidiaries' books and records, and (ii) provide to MOMED and their authorized
representatives all information concerning MAIC Holdings and the MAIC
Subsidiaries and their businesses, assets and financial condition, which MOMED
reasonably requests.
5.3 Material Consents.
(a) Between the date of this Agreement and the Closing Date, MOMED and MAIC
Holdings and each of their respective subsidiaries shall in good faith use their
best efforts to obtain all consents and approvals of all lenders, lessors,
vendors, customers, and other persons necessary to permit the Merger and other
transactions contemplated by this Agreement to be consummated without violating
any loan agreement, lease or other material contract to which MOMED, MAIC
Holdings, or any of their respective subsidiaries is a party or by which MOMED,
MAIC Holdings, or any of their respective subsidiaries is bound, and to give the
notices and make the filings described on Schedule 5.3.
(b) Between the date of this Agreement and the Closing Date, MOMED, MAIC
Holdings and Newco shall in good faith cooperate with each other in their
efforts to obtain the consents and approvals, and to give the notices and make
the filings, described in Section 5.3.
5.4 Shareholder List. MOMED shall provide to MAIC Holdings as soon as
available one or more accurate and complete lists of all of MOMED's
shareholders, as of the record date for MOMED's meeting of shareholders held in
accordance with Section 4.5, certified by the transfer agent for such class of
stock or, if there is no transfer agent for such class of stock, by an officer
of MOMED, setting forth the current residence addresses of such holders, the
numbers of issued and outstanding shares of MOMED's Common Stock held by them,
and the certificate numbers for all such issued and outstanding shares of
MOMED's Common Stock.
5.5 Reports.
(a) MOMED and the MOMED Subsidiaries shall deliver to MAIC Holdings,
promptly after they become available, all registration statements, proxy
statements, reports and other filings, and all amendments thereto, which it
files with the SEC and the Missouri Department of Insurance pursuant to this
Agreement and the Merger. As of its date, none of such documents will contain
any untrue statement of material fact or omit any material fact required to be
stated therein or necessary to make the statements therein not misleading.
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(b) MAIC Holdings and the MAIC Subsidiaries shall deliver to MOMED,
promptly after they become available, all registration statements, proxy
statements, reports and other filings, and all amendments thereto, which it
files with the SEC and Departments of Insurance of the applicable states. As of
its date, none of such documents will contain any untrue statement of material
fact or omit any material fact required to be stated therein or necessary to
make the statement therein not misleading.
5.6 Advice of Changes.
(a) Between the date of this Agreement and the Closing Date, MOMED shall
promptly advise MAIC Holdings in writing of any fact of which it obtains
knowledge and which, if existing or known as of the date of this Agreement,
would have been required to be set forth or disclosed in or pursuant to this
Agreement (it being understood that such advice shall not be deemed to modify
MOMED's representations, warranties or covenants contained in this Agreement).
(b) Between the date of this Agreement and the Closing Date, MAIC Holdings
shall promptly advise MOMED in writing of any fact of which it obtains knowledge
and which, if existing or known as of the date of this Agreement, would have
been required to be set forth or disclosed in or pursuant to this Agreement (it
being understood that such advice shall not be deemed to modify MAIC Holdings'
representations, warranties or covenants contained in this Agreement).
5.7 Best Efforts. Each party shall use its best efforts to consummate the
Merger and the transactions contemplated by this Agreement as of the earliest
practicable date, and neither MAIC Holdings nor MOMED nor any of their
respective subsidiaries shall take, or cause or to the best of its ability
permit to be taken, any action that would impair the prospect of completing the
Merger and the transactions contemplated by this Agreement.
5.8 Purchase of Outstanding Securities.
(a) Between the date of this Agreement and the record date for the meeting
of MOMED's stockholders as contemplated in Section 4.5 of this Agreement, MOMED
shall take all necessary actions under the Share Exchange Agreement to cause
MSMA to sell, and upon taking such action MOMED shall purchase, all of the Class
C Non-Voting Common Stock of MOMED at an aggregate price not exceeding $600,000
plus interest from August 16, 1994 at one percent above the "prime rate" of
Boatmen's National Bank (the "Class C Maximum Price").
(b) Between the date of this Agreement and the Effective Time, MOMED shall
take all necessary actions under the Shareholder's Protection Rights Plan to
redeem the common share purchase rights issued under said plan, and upon taking
such action shall redeem and purchase all of said common share purchase rights
at a price not to exceed $0.01 per right in accordance with said plan.
6. CONDITIONS PRECEDENT TO MOMED'S CLOSING OBLIGATIONS
Each obligation of MOMED to be performed on the Closing Date shall be
subject to the satisfaction of each of the conditions stated in this Section 6,
except to the extent that such satisfaction is waived by MOMED in writing.
6.1 Effectiveness of Registration Statement. The Registration Statement
shall have become effective under the 1933 Act; no stop order suspending its
effectiveness shall be in effect; and no stop order proceeding with respect
thereto shall be pending or threatened.
6.2 Approval of the Department of Insurance. MAIC Holdings and MOMED shall
have obtained the approval of the Merger by the Missouri Department of Insurance
in accordance with Section 382.040 of the Missouri Insurance Code.
6.3 Stockholder Approval. The Merger shall have been approved by the
affirmative vote of the outstanding shares of MOMED's Stock in accordance with
Section 351.425 of the Missouri General Business Corporation Laws.
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6.4 MAIC Holdings's and Newco's Representations. All representations,
warranties and certifications made by MAIC Holdings and Newco in this Agreement
or pursuant hereto shall not have been false or misleading in any material
respect.
6.5 MAIC Holdings's and Newco's Performance. All of the terms and
conditions of this Agreement to be satisfied or performed by MAIC Holdings or
Newco on or before the Closing Date shall have been substantially satisfied or
performed.
6.6 Absence of Proceedings. No action, suit or other proceeding shall have
been instituted (excluding any action, suit or proceeding instituted by or on
behalf MOMED or any of the MOMED Subsidiaries or affiliates), no judgment or
order shall have been issued, and no new law, rule or regulation shall have been
enacted, on or before the Closing Date, which seeks to or does prohibit or
restrain, or which seeks damages as a result of, the consummation of the Merger
or any of the other transactions contemplated by this Agreement.
6.7 Adverse Changes. There shall not have been any material adverse change
or material casualty loss affecting MAIC Holdings and the MAIC Subsidiaries
taken as a whole or their businesses, assets or financial condition taken as a
whole between the date of this Agreement and the Closing Date.
6.8 Hart-Scott-Rodino Waiting Periods. All applicable waiting periods with
respect to the Merger under the Hart-Scott-Rodino Act shall have expired and
neither the Federal Trade Commission nor the Antitrust Division of the
Department of Justice shall have required either party to divest itself of any
assets in order to consummate the Merger.
6.9 Tax Opinion. MOMED shall have received an opinion, reasonably
satisfactory to its counsel, that the former stockholders of MOMED who receive
MAIC Holdings Common Stock in the Merger solely for their Class A Common Stock
will not recognize any gain on the transaction for federal income tax purposes.
6.10 Board Approval. The Board of directors of MOMED shall have approved
the Merger.
6.11 Purchase of Class C Non-Voting Stock. MOMED shall have purchased not
less than all of the issued and outstanding shares of Class C Non-Voting Common
Stock at an aggregate price not to exceed the Class C Maximum Price on or before
the record date for the stockholders' meeting contemplated in Section 4.5 of
this Agreement in accordance with Section 5.8(a) of this Agreement.
7. CONDITIONS PRECEDENT TO MAIC HOLDINGS'S AND NEWCO'S CLOSING OBLIGATIONS
Each obligation of MAIC Holdings and Newco to be performed on the Closing
Date shall be subject to the satisfaction of each of the conditions stated in
this Section 7, except to the extent that such satisfaction is waived by MAIC
Holdings in writing.
7.1 Effectiveness of Proxy Statements and Registration Statement. The
Registration Statement shall have become effective under the 1933 Act; no stop
order suspending its effectiveness shall be in effect; and no stop order
proceeding with respect thereto shall be pending or threatened.
7.2 Approval of the Department of Insurance. MAIC Holdings and MOMED shall
have obtained the approval of the Merger by the Missouri Department of Insurance
in accordance with Section 382.040 of the Missouri Insurance Code.
7.3 Material Consents. On or before the Closing Date, MAIC Holdings shall
have received all consents and approvals of all lenders, lessors, vendors,
customers and other persons necessary to permit the Merger and the other
transactions contemplated by this Agreement to be consummated without violating
any loan agreement, lease or other material contract to which MAIC Holdings,
MOMED, or any of their respective subsidiaries is a party or by which MAIC
Holdings, MOMED, or any of their respective subsidiaries is bound, except where
such violation would not have a material adverse effect on either MOMED or MAIC
Holdings.
7.4 Affiliate Letters. On or before the Closing Date, MAIC Holdings shall
have received, from each affiliate (as such term is defined in Rule 144 under
the 1933 Act) of MOMED, a duly signed letter, in form and substance satisfactory
to MAIC Holdings, stating that such affiliate will not sell any shares of MAIC
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Holdings Stock acquired pursuant to this Agreement except in compliance with the
applicable provisions of the 1933 Act.
7.5 MOMED's Representations. All representations, warranties and
certifications made by MOMED in this Agreement or pursuant hereto shall not have
been false or misleading in any material respect.
7.6 MOMED's Performance. All of the terms and conditions of this Agreement
to be satisfied or performed by MOMED on or before the Closing Date shall have
been substantially satisfied or performed.
7.7 Absence of Proceedings. No action, suit or other proceeding shall have
been instituted (excluding any such action, suit or proceeding initiated by or
on behalf MAIC Holdings or Newco or any of MAIC Holdings' subsidiaries or
affiliates), no judgment or order shall have been issued, and no new law, rule
or regulation shall have been enacted, on or before the Closing Date, which
seeks to or does prohibit or restrain, or which seeks damages as a result of,
the consummation of the Merger or any of the other transactions contemplated by
this Agreement.
7.8 Adverse Changes. There shall not have been any material adverse change
or material casualty loss affecting MOMED and the MOMED Subsidiaries between the
date of this Agreement and the Closing Date, and there shall not have been any
material adverse change in the financial performance of MOMED and the MOMED
Subsidiaries between the date of this Agreement and the Closing Date.
7.9 Hart-Scott-Rodino Waiting Periods. All applicable waiting periods with
respect to the Merger under the Hart-Scott-Rodino Act shall have expired, and
neither the Federal Trade Commission nor the Antitrust Division of the
Department of Justice shall have required either party to divest itself of any
assets in order to consummate the Merger.
7.10 Shareholder's Protection Rights Plan. All rights issued pursuant to
MOMED's Shareholder Protection Rights Plan, which plan has been provided to MAIC
Holdings, shall have been duly and validly redeemed by MOMED in accordance with
Section 5.8(b) of this Agreement.
7.11 Board Approval. The Board of Directors of MAIC Holdings shall have
approved the terms of the Merger.
7.12 Purchase of Class C Non-Voting Common Stock. MOMED shall have
purchased not less than all of the issued and outstanding shares of Class C
Non-Voting Common Stock at an aggregate price not to exceed the Class C Maximum
Price on or before the record date for the stockholders meeting contemplated in
Section 4.5 of this Agreement in accordance with Section 5.8(a) of this
Agreement.
8. CLOSING
8.1 Closing. The closing of the Merger and the other transactions
contemplated by this Agreement ("the Closing") shall be held at a mutually
agreeable time and place after MOMED's meeting of stockholders referred to in
Section 4, ("the Closing Date"). The parties shall cause appropriate Articles of
Merger to be filed with the Secretary of State of the State of Missouri on the
Closing Date or as soon thereafter as is possible, and the Merger shall be
effective upon the issuance of the Certificate of Merger by the Secretary of
State of Missouri pursuant to Section 351.440 of the Missouri General Business
Corporation Law (the "Effective Date"). The parties shall take such further
actions as may be required by the laws of Missouri in connection with such
filing and the consummation of the Merger.
8.2 MOMED's Obligations at Closing. MOMED shall deliver to MAIC Holdings
and Newco, at the Closing, the following:
(a) All of MOMED's and each of the MOMED Subsidiaries' minute books
and stock books, containing all of the items described in Section 2.3.
(b) A certificate dated the Closing Date, in form and substance
satisfactory to MAIC Holdings, of the President and Chief Executive Officer
and the Vice President-Finance and Chief Financial Officer of MOMED,
certifying that (i) all representations and warranties made by MOMED in
this Agreement are correct in all material respects as of the Closing Date
except for changes contemplated or permitted by
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this Agreement, (ii) all of the terms and conditions of this Agreement to
be satisfied or performed by MOMED on or before the Closing Date have been
substantially satisfied or performed, and (iii) there has not been any
material adverse change or material casualty loss affecting MOMED and the
MOMED Subsidiaries taken as a whole between the date of this Agreement and
the Closing Date.
(c) A good standing certificate for MOMED and each of its active
Company Subsidiaries, dated no earlier than ten days before the Closing
Date, from their respective jurisdictions of incorporation and each
respective jurisdiction in which MOMED or any of the MOMED Subsidiaries
currently or at the Closing Date is qualified or registered to do business
as a foreign corporation and a Certificate of Compliance/Deposit from the
Department of Insurance in which a Company Subsidiary is authorized to do
business as an insurer.
(d) Certified copies of the resolutions adopted by the board of
directors and shareholders of MOMED, authorizing MOMED to execute, deliver
and perform this Agreement and the Plan of Merger.
(e) All other agreements, certificates, instruments and documents
reasonably requested by MAIC Holdings in order to fully consummate the
transactions contemplated hereby and carry out the purposes and intent of
this Agreement.
8.3 MAIC Holdings' and Newco's Obligations at Closing. MAIC Holdings and
Newco shall deliver to MOMED at the Closing the following:
(a) A certificate dated the Closing Date, in form and substance
satisfactory to MOMED, of the President and Chief Executive Officer and the
Vice President-Chief Operating Officer and Chief Financial Officer of MAIC
Holdings, certifying that (i) all representations and warranties made by
MAIC Holdings and Newco in this Agreement are correct in all material
respects as of the Closing Date except for changes contemplated or
permitted by this Agreement, (ii) all of the terms and conditions of this
Agreement to be satisfied or performed by MAIC Holdings or Newco on or
before the Closing Date have been substantially satisfied or performed, and
(iii) there has not been any material adverse change or material casualty
loss affecting MAIC Holdings and the MAIC Subsidiaries taken as a whole or
their businesses, assets or financial condition taken as a whole between
the date of this Agreement and the Closing Date.
(b) Good standing certificates for MAIC Holdings and Newco dated no
earlier than ten days before the Closing Date, from their respective
jurisdictions of incorporation.
(c) Certified copies of the resolutions adopted by the board of
directors of MAIC Holdings and by the board of directors and sole
shareholder of Newco, authorizing MAIC Holdings and Newco, respectively, to
execute, deliver and perform this Agreement.
(d) All other agreements, certificates, instruments and documents
reasonably requested by MOMED in order to fully consummate the transactions
contemplated hereby and carry out the purposes and intent of this
Agreement.
9. POST CLOSING COVENANTS
9.1 Employee Benefit Plans.
(a) After the Closing Date, MOMED's defined benefit plan and MOMED's 401(k)
plan will be terminated, with a termination date no later than December 31,
1997. As a result of such termination, each affected plan participant's accrued
benefit under the plan(s) will become fully vested and will be distributable to
such participants in accordance with the terms of the respective plan and
applicable law. Distributions will not occur until after required governmental
filings have been made and after receipt of favorable determination letters from
the Internal Revenue Service. If so elected by a participant, who is currently
employed, such distribution may be in the form of a direct roll-over to a plan
maintained by MAIC Holdings.
(b) After the termination of the plans described in Section 9.1(a) above,
MAIC Holdings will provide employees of MOMED and the MOMED Subsidiaries with
substantially the same benefits that are generally
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available to employees of MAIC Holdings and the MAIC Subsidiaries. Until such
benefits are so provided and subject to the provisions of Section 9.1(a) above,
MAIC Holdings shall not cause MOMED to modify in any material respect the
benefits presently available under any of the above plans generally available to
employees of MOMED or of the MOMED Subsidiaries unless such modification is
required (i) by applicable law or regulation, or (ii) by an insurer of any such
benefits. All employees of MOMED and the MOMED Subsidiaries shall receive credit
for prior years of service with MOMED or the MOMED Subsidiary under any such
employee benefit plans of MAIC.
9.2 Transition Period Operations. For a period of five (5) years after the
Effective Time of the Merger (the "Transition Period"), MAIC Holdings covenants
and agrees that the following provisions shall apply with respect to the
operations of MOMED and the MOMED Subsidiaries:
(a) Election of Board of Directors. Subject to the provisions of
subparagraph (i) below, the Board of Directors of MOMED will serve as the
Board of Directors of the surviving corporation until MOMED's next annual
meeting of the shareholders and until their successors are elected and
qualified. At each annual meeting of MOMED during the Transition Period and
subject to the provisions of subparagraph (d) below, MAIC Holdings shall
vote its shares of MOMED to elect a Board of Directors of MOMED comprised
of the following five categories:
(i) Two persons selected by MAIC Holdings shall be appointed as
directors of the Company on the Effective Date of the Merger. At the
next Annual Meeting and thereafter, they will be nominated for election
as directors of MOMED with the approval of the Management Committee (as
defined in subparagraph (c) below), which approval will not be
unreasonably withheld.
(ii) The Chief Executive Officer of MOMED shall be elected as a
director of the Company at each Annual Meeting.
(iii) Three persons nominated by the Missouri State Medical
Association (MSMA) shall be elected as directors of MOMED, subject to
the approval of the Management Committee, which approval shall not
unreasonably be withheld. One nominee of MSMA shall be elected at each
Annual Meeting until the expiration or non-renewal of the Nominating
Agreement between MSMA and the Company, dated August 16, 1994.
(iv) Two persons who are knowledgeable concerning liability
insurance business and who are nominated by majority vote of the Board
of Directors of the Company shall be elected as directors of MOMED.
(v) Seven persons who are insured by an MAIC Holdings Subsidiary
and members of the Missouri medical community in good standing and who
are nominated by majority vote of the Board of Directors of the Company
shall be elected as directors of the Company.
It is understood that the directors of MOMED are elected for three year
terms with staggered election dates among the various categories. When a
Director elected pursuant to any of the above categories is unable to serve
for any reason, the successor of such director shall be selected in
accordance with the criteria for nomination of his or her category;
provided that the Management Committee shall have the right to nominate the
directors to fill any vacancies resulting from the expiration of the
Nominating Agreement with MSMA.
(b) Control of Operations. The Board of Directors of MOMED shall be
responsible for the management and operations of MOMED and the MOMED
Subsidiaries so long as MOMED and the MOMED Subsidiaries operate within the
parameters established in subparagraph (d) below (the "Parameters"). In the
event that the operations of MOMED and the MOMED Subsidiaries shall not be
in accordance with the Parameters, the Board of Directors of MOMED shall
adopt and implement such curative actions as shall be directed by the
Management Committee. The Board of Directors of MOMED shall be responsible
for the implementation of such curative actions with the advice and consent
of the Management Committee, which consent shall not unreasonably be
withheld.
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(c) Management Committee. MAIC Holdings and MOMED shall establish a
Management Committee (the "Management Committee") which shall be comprised
of two persons selected by MAIC Holdings and two persons selected by MOMED.
Actions taken by the Management Committee shall require the affirmative
consent of at least three members. MAIC Holdings, with the consent of the
Management Committee, shall designate one person to serve as an ex officio
member of the Management Committee for the purpose of voting on any matter
upon which at least three members of the Management Committee cannot agree.
(d) Parameters of Operation. MAIC Holdings agrees to elect the Board
of Directors of MOMED in accordance with subparagraph (a) above so long as
the Board of Directors either operates within the Parameters or follows the
curative actions directed by the Management Committee if the operations of
MOMED and the MOMED Subsidiaries shall not be in compliance with the
Parameters. The Parameters for operations of the Company shall be in the
form of an annual budget for MOMED and the MOMED Subsidiaries (the
"Budget"). The Budget shall be adopted by the Board of Directors of MOMED
on or before September 30 each year during the Transition Period, and
unless otherwise agreed by the Management Committee, shall satisfy each of
the following conditions:
(i) The reserves for losses and loss adjustment expenses of
Missouri Medical Insurance Company ("MOMEDICO") in the Budget shall be
no less than the mid-point of the recommended range for such reserves
provided by an independent actuary designated by MAIC Holdings (the
"Actuary"); and
(ii) The premium rates used in the Budget shall be within 10% of
the pricing model developed by the Actuary for insurance premiums to be
charged by MOMEDICO; and
(iii) Subject to a 5% variance allowance, the Budget shall reflect
a Combined Ratio of MOMEDICO of 120%.
MAIC Holdings shall engage the Actuary, at its expense, to perform an
actuarial review of MOMEDICO for each year during the Transition Period.
The Actuary will provide its recommendations as to the reserves for losses
and loss adjustment expenses and the pricing model for premium rates on or
before July 20 each year.
(e) Limitations on Authority of the Board of
Directors. Notwithstanding the provision of subparagraph (b) above, the
Board of Directors of the Company shall not take any of the following
actions without the prior approval of the Management Committee:
(i) modify the investment policies of the Company and its
subsidiaries;
(ii) acquire or dispose of any assets outside the ordinary course
of business other than the replacement of furniture, equipment and
leasehold improvements having an annual aggregate cost not exceeding
$10,000;
(iii) incur any indebtedness on behalf of the Company or any of its
subsidiaries other than accounts payable in the ordinary course of
business;
(iv) authorize increases in compensation for the officers of the
Company and its subsidiaries; or
(v) adopt any new or additional benefit or retirement plan for the
benefit of the employees of the Company or its subsidiaries.
(f) Company Organizational Structure. The Company shall continue to
be a holding company for its current subsidiaries for a minimum period of
five (5) years after the Effective Time of the Merger. MAIC Holdings agrees
that after the Effective Time of the Merger, the Company and its
subsidiaries shall continue to operate in the metropolitan area of St.
Louis, Missouri for a period of not less than five (5) years.
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(g) Company Employees. During the Transition Period:
(i) MAIC Holdings agrees that the terms and conditions of the
existing employment agreements for the following MOMED employees shall
not be terminated during the Transition Period except in accordance with
their respective terms by the Board of Directors of MOMED: President and
Chief Executive Officer, Executive Vice President and Chief Operating
Officer, and Vice President-Claims.
(ii) MAIC Holdings agrees that with respect to the persons
identified in 9.2(g)(i) above, that it will enter into a termination
agreement to provide for the following:
(1) They agree to be bound by a Confidentiality Agreement and a
Non-Compete Agreement for the benefit of MOMED and MAIC Holdings; and
(2) They agree to submit any disputes with MOMED, MAIC Holdings,
or any of their respective subsidiaries to binding arbitration in St.
Louis, Missouri;
(3) If the employment of any of them is terminated involuntarily
prior to the expiration of the Transition Period for any reason other
than Cause (herein defined), they will be paid their then current
compensation for the remainder of the period. Cause shall be defined
as fraud or dishonesty in any material respect or the willful refusal
to follow the directions of the MOMED Board of Directors. If any of
their employment is terminated for Cause, they will be paid their
current compensation for the lesser of twelve (12) months or the
remainder of the Transition Period. If any of them should desire to
voluntarily terminate their employment during the Transition Period,
such employee shall give MOMED 120 days written notice, and they
shall no longer be entitled to any compensation other than accrued
compensation through date of termination.
(iii) the Vice President-Risk Management and Marketing and the
Assistant Vice President-Underwriting shall continue to be employed in a
similar capacity so long as such officers are performing their job
duties to the satisfaction of the Board of Directors of MOMED;
(iv) the current employees of MOMED and its subsidiaries shall
continue in their respective positions at the pleasure of the officers
of MOMED; and
(v) Compensation shall be reviewed at least annually for all
categories of personnel.
9.3 MOMED Board Members. Beginning at the Effective Time of the Merger
MOMED shall have one representative serving as a member of the Board of
Directors of MAIC Holdings pursuant to the terms of the Nomination Agreement
attached hereto as Exhibit A.
10. OTHER PROVISIONS.
10.1 Termination. At any time before Closing, whether or not the Merger
has been approved by MOMED's shareholders this Agreement may be terminated and
the Merger abandoned in accordance with any of the following methods:
(a) By the mutual written consents of MAIC Holdings and MOMED
authorized by their respective boards of directors.
(b) By written notice from MAIC Holdings to MOMED, or from MOMED to
MAIC Holdings, if it becomes certain (for all practical purposes) that any
of the conditions to the closing obligations of the party giving such
notice cannot be satisfied for a reason other than such party's default on
or before December 31, 1996, and such party is not willing to waive the
satisfaction of such condition.
10.2 Confidentiality and Publicity. MAIC Holdings and Newco shall hold in
confidence all confidential information concerning MOMED and the MOMED
Subsidiaries which is disclosed to them in connection with the transactions
contemplated hereby, and MOMED and each of the MOMED Subsidiaries shall hold in
confidence all confidential information concerning MAIC Holdings and the MAIC
Subsidiaries which is
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disclosed to them in connection with the transactions contemplated hereby. MOMED
and MAIC Holdings shall consult with each other as to the form and substance of
any press release or other public disclosure of matters related to this
Agreement and the transactions contemplated hereby and thereby and neither party
shall make any such press release or other public disclosure without the consent
of the other party, which such consent shall not be unreasonably withheld or
delayed; provided, however, that nothing in this Section 10.3 shall be deemed to
prohibit any party hereto from making any disclosure which its counsel deems
necessary or advisable in order to fulfill such party's disclosure obligations
imposed by law. In the event that the Merger is not consummated, each party
shall promptly return to the other party all confidential information concerning
such other party including copies thereof.
10.3 Fees and Expenses. MAIC Holdings shall pay all of the fees and
expenses incurred by it or Newco, and MOMED shall pay all of the fees and
expenses incurred by it, in negotiating and preparing this Agreement (and all
other contracts and documents executed in connection herewith or therewith) and
in consummating the transactions contemplated hereby and thereby, except that
all printing expenses and filing or registration fees shall be divided equally
between MOMED and MAIC Holdings. All legal fees and accounting fees incurred by
MOMED and MAIC Holdings shall be based upon actual time spent on the
transactions contemplated by this Agreement and on hourly rates consistent with
past practice.
10.4 Notices. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or one business day
after being sent by a nationally recognized express courier service, postage or
delivery charges prepaid, to the parties at their respective addresses stated on
the first page of this Agreement. Notices may also be given by prepaid telegram
or facsimile and shall be effective on the date transmitted if confirmed within
24 hours thereafter by a signed original sent in the manner provided in the
preceding sentence. A copy of each notice to the MAIC Holdings and/or Newco
(before Closing) shall be simultaneously sent to Jack P. Stephenson, Jr., Burr &
Forman, 3000 SouthTrust Tower, Birmingham, Alabama 35203. A copy of each notice
to MOMED (before Closing), shall be sent to the attention of Morris E. Stokes,
8909 Ladue Road, St. Louis, Missouri 63124. Any party may change its address for
notice and the address to which copies must be sent by giving notice of the new
addresses to the other party in accordance with this Section 10.4, provided that
any such change of address notice shall not be effective unless and until
received.
10.5 Survival of Representations. The respective representations and
warranties of the parties in this Agreement shall not survive the Closing Date
and shall terminate on the Closing Date, except for the covenants contained in
Sections 9, 10.2 and 10.4. However, such termination shall not be deemed to
deprive any of the parties hereto or their subsidiaries, or any of their
directors, officers or controlling persons, of any defense in law or equity
which otherwise would be available against the claims of any person, including,
but not limited to, any stockholder or former stockholder of the parties hereto.
Before and on the Closing Date, each party shall be deemed to have relied upon
each of the representations and warranties made to it in this Agreement or
pursuant hereto, regardless of any investigation made by or on behalf of such
party or the right of investigation of such party.
10.6 Entire Understanding. This Agreement, together with the Exhibits and
Schedules hereto, states the entire understanding among the parties with respect
to the subject matter hereof, and supersedes all prior and contemporaneous oral
and written communications and agreements with respect to the subject matter
hereof, including without limitation the letter agreement between MAIC Holdings
and MOMED dated January 31, 1996. No amendment or modification of this Agreement
shall be effective unless in writing and signed by the party against whom
enforcement is sought. Each of the parties may agree to any amendment or
supplement to this Agreement, or a waiver of any provision of this Agreement,
either before or after the approval of MOMED's stockholders (as provided in this
Agreement) and without seeking further stockholder approval, so long as such
amendment, supplement or waiver does not have a material adverse effect on
MOMED's or MAIC Holdings' stockholders. This Agreement shall not be terminated
except as provided in Section 10.1.
10.7 Parties in Interest. This Agreement shall bind, benefit, and be
enforceable by and against MOMED, MAIC Holdings and Newco and their respective
successors and assigns. All rights of MAIC
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Holdings and/or Newco under this Agreement shall be joint and several, and each
of MAIC Holdings and Newco shall be entitled to the benefit of and to separately
enforce the rights of the other. No party shall in any manner assign any of its
rights or obligations under this Agreement without the express prior written
consent of the other parties. Nothing in this Agreement is intended to confer,
or shall be deemed to confer, any rights or remedies upon any persons other than
the parties hereto and the respective directors and shareholders of MOMED, Newco
and MAIC Holdings.
10.8 No Waivers. No waiver with respect to this Agreement shall be
enforceable unless in writing and signed by the party against whom enforcement
is sought. Except as otherwise expressly provided herein, no failure to
exercise, delay in exercising, or single or partial exercise of any right, power
or remedy by any party, and no course of dealing between or among any of the
parties, shall constitute a waiver of, or shall preclude any other or further
exercise of, any right, power or remedy.
10.9 Severability. If any provision of this Agreement is construed to be
invalid, illegal or unenforceable as to any party or generally, then that
provision shall be enforceable by the other parties and the remaining provisions
hereof shall not be affected thereby and shall be enforceable without regard
thereto.
10.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
10.11 Section Headings. Section and subsection headings in this Agreement
are for convenience of reference only, do not constitute a part of this
Agreement, and shall not affect its interpretation.
10.12 References. All words used in this Agreement shall be construed to
be of such number and gender as the context requires or permits.
10.13 Nature of Transaction. The parties intend that the Merger and the
exchange of MAIC Holdings Stock for MOMED's Stock contemplated by this Agreement
and the Plan shall constitute a tax-free reorganization under Section
368(a)(2)(D) of the Code.
WITNESS THE DUE EXECUTION AND DELIVERY HEREOF on the date first stated
above.
<TABLE>
<S> <C>
MAIC HOLDINGS, INC. MOMED HOLDING COMPANY
By: /s/ Paul R. Butrus By: /s/ Richard V. Bradley
- --------------------------------------------- ---------------------------------------------
Name: Paul R. Butrus Name: Richard V. Bradley
Title: Executive Vice President Title: President and CEO
MOMED ACQUISITION, INC.
By: /s/ James J. Morello
- ---------------------------------------------
Name: James J. Morello
Title: Treasurer
</TABLE>
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NOMINATION AGREEMENT
THIS NOMINATION AGREEMENT is made and entered into as of the day of
, 1996, by and between MOMED HOLDING CO., a Missouri corporation
("MOMED"), and MAIC HOLDINGS, INC., a Delaware corporation ("MAIC").
WHEREAS, MOMED and MAIC entered into the Agreement and Plan of Merger
("Merger Agreement") dated , 1996 (the "Merger"), wherein MAIC has
acquired MOMED.
WHEREAS, in connection with the Merger, MAIC desires to assist MOMED in
directly participating in the management of MAIC through the representation of
one (1) MOMED representative on the Board of Directors of MAIC.
WHEREAS, the Board of Directors of MAIC has determined that it is in the
best interest of MAIC to include on the MAIC Board of Directors a qualified
representative of MOMED ("MOMED Representative"), all on the terms and
conditions set forth in this Nomination Agreement consistent with the Merger
Agreement.
NOW THEREFORE, in consideration of the premises and the mutual terms and
provisions set forth in this Nomination Agreement, the parties hereto agree as
follows:
1. Appointment of MOMED Representative to MAIC Board. Upon entering
into the Merger Agreement, MAIC's Board of Directors shall appoint Dr.
Richard V. Bradley as the MOMED Representative on the MAIC Board of
Directors until the next MAIC annual meeting where the MOMED Representative
will be nominated for and elected to the MAIC Board of Directors in
accordance with the terms of this Nomination Agreement.
2. Nomination Covenants. During the term of this Nomination
Agreement, the MOMED Board of Directors shall submit in writing, on or
before January 1 of the year in which the MOMED Representative is to be
elected to the MAIC Board of Directors, the name of the candidate (the
"MOMED Candidate") to the MAIC Nominating Committee for election to the
MAIC Board of Directors. The MOMED Candidate must be, or must have been, an
active officer or member of the MOMED Board of Directors or other person
reasonably acceptable to MAIC. Subject to the good faith exercise of its
responsibilities to MAIC and its shareholders while giving due
consideration to MAIC's relationship with MOMED and the intent of this
Nomination Agreement, the MAIC Nominating Committee shall include the name
of the MOMED Candidate so submitted as one of its nominees for election to
the MAIC Board of Directors that year, and shall, in each such year,
nominate only that number of candidates for election to the MAIC Board of
Directors as shall equal the total number of Directors to be elected for
such year. The MAIC Nominating Committee shall place no name in opposition
to the MOMED Candidate.
3. Board Recommendation and Certain Shareholders' Votes. Subject to
the good faith exercise of its responsibilities to MAIC and its
shareholders while giving due consideration to MAIC's relationship with
MOMED and the intent of this Nomination Agreement, the MAIC Board of
Directors shall recommend and support the election of the MOMED Candidate
for election to the MAIC Board of Directors during the term of this
Agreement. It is further agreed by the below listed shareholders of MAIC,
that they will vote all of their respective MAIC shares for the election of
the MOMED Candidate to the MAIC Board of Directors during the term of this
Agreement:
A. Derrill Crowe, M.D.
Paul R. Butrus
James J. Morello
4. Proxy Materials. The name of the MOMED Candidate shall be included
as a management nominee in the Proxy Statement circulated in advance of the
annual meeting of the MAIC shareholders (the "Annual Meeting"). During the
Term of this Nomination Agreement, all proxies relating to the election of
MAIC Directors that are distributed to the MAIC shareholders in connection
with each Annual Meeting shall contain a statement notifying the MAIC
shareholders that if a proxy is returned
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without express directions from the shareholder to the contrary, MAIC
management will vote the proxy "For" all named nominees in such manner as
MAIC management shall determine. MAIC management shall vote such proxies in
such manner as in the opinion of MAIC management will assure the election
of the MOMED Candidate.
5. Term. The term of this Nomination Agreement shall be for an
initial period of five (5) years beginning on the closing of the Merger
Agreement and shall be automatically renewed and extended for succeeding
one (1) year terms unless wither MAIC or MOMED notifies the other, in
writing, at least six (6) months prior to the end of the current term of
this Nomination Agreement, that it terminates this Nomination Agreement at
the end of the current term.
6. Severability. Any provision of this Nomination Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction is, as to
such jurisdiction, ineffective to the extent of any prohibition,
unenforceability, or nonauthorization without invalidating the remaining
provisions hereof, or affecting the validity, enforceability, or legality
of such provision in any other jurisdiction, unless the ineffectiveness of
such provision would result in such a material change as to cause
completion of the transactions contemplated hereby to be unreasonable.
7. Entire Agreement. The Nomination Agreement constitutes the entire
agreement between the parties and supersedes and cancels any and all prior
discussion, negotiations, undertakings and agreements between the parties
relating to the subject matter hereof
8. Captions. The captions used herein are for convenience only and
shall not control or affect the meaning or construction of any of the
provisions of this Nomination Agreement.
9. Waiver, Amendment or Modification. The conditions of this
Nomination Agreement which may be waived may only be waived by duly
authorized, written notice to the other party waiving such condition. The
failure of any party at any time or times to require performance of any
provision hereof (other than by written waiver) shall in no matter affect
the right at a later time to enforce the same. This Nomination Agreement
may not be amended or modified except by a written document duly executed
by all of the parties hereto.
10. Counterparts. This Nomination Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of
which shall be deemed one and the same instrument.
11. Successors and Assigns. This Nomination Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. There shall be no third party
beneficiaries hereof.
12. Governing Law; Assignment. This Nomination Agreement shall be
governed by the laws of the State of Missouri. This Nomination Agreement
may not be assigned by any of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Nomination
Agreement as of the date first written above.
MOMED HOLDING CO.
--------------------------------------
Richard V. Bradley, M.D.,
President and Chief Executive Officer
MAIC HOLDINGS, INC.
--------------------------------------
A. Derrill Crowe, M.D.,
President and Chief Executive Officer
--------------------------------------
A. Derrill Crowe, M.D.
--------------------------------------
Paul R. Butrus
--------------------------------------
James J. Morello
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EXHIBIT B
MISSOURI
APPRAISAL STATUTE
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES, WHEN
1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing said shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presume to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in the
corporation.
3. If within such period of thirty days the shareholder the surviving or
new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in any
court of competent jurisdiction within the county in which the registered office
of the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporation of the certificate or certificates
representing said shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares, or in the surviving
or new corporation. Such shares may be held and disposed of by the surviving or
new corporation as it may see fit. Unless the dissenting shareholder shall cease
to have any interest in such shares, or in the surviving or new corporation as
it may see fit. Unless the dissenting shareholder shall file such petition
within the time herein limited, such shareholder and all persons claiming under
him shall be conclusively presumed to have approved and ratified the merger or
consolidation, and shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall abandon
the merger or consolidation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
MAIC Holdings, Inc.
Article X of the By-Laws of MAIC Holdings, Inc. ("MAIC Holdings") sets
forth the extent to which MAIC Holdings' directors and officers may be
indemnified by MAIC Holdings against liabilities which they may incur while
serving in such capacities. Such indemnification is authorized by Section 145 of
the Delaware General Corporation Law.
The By-Laws provide that MAIC Holdings shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of MAIC Holdings) by
reason of the fact that he is or was a director, officer, employee or agent of
MAIC Holdings, or is or was serving at the request of MAIC Holdings as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of MAIC Holdings, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of MAIC Holdings, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
The By-Laws further provide that MAIC Holdings shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of MAIC Holdings to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of MAIC Holdings, or is or was serving at
the request of MAIC Holdings, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of MAIC Holdings and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to MAIC Holdings unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery of such other court shall deem proper.
Article Eighth of MAIC Holdings Certificate of Incorporation also provides,
to the fullest extent permitted by the Delaware General Corporation Law, that no
director of MAIC Holdings shall be liable to MAIC Holdings or its shareholders
for monetary damages for breach of fiduciary duty as a director.
The First Amended and Restated MOMED Holding Co. Self Insured Directors and
Officers Liability Trust Agreement (the "Trust Agreement"), dated May 7, 1993,
between MOMED Holding Company, a Missouri corporation, ("MOMED"); its
subsidiaries; and Boatmen's Trust Company, a trust company organized under the
laws of the State of Missouri ("Trustee") provides for the maintaining of a
trust ("Trust") for indemnification of any director or officer of MOMED; its
subsidiaries, Missouri Medical Insurance Company, MOMEDICO Professional
Services, Inc. and Professional Liability Associates, Inc.; any subsidiary or
affiliated corporation of the above-stated corporations; or other corporations
on which the officers or directors of the above companies serve at the request
of the above companies pursuant to specific board resolution authorizing such
(collectively the "Companies") against any liability or loss incurred by a
director or officer arising out of or caused by the performance of his or her
duties as an officer or director which
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<PAGE> 140
indemnity is not expressly prohibited by Missouri law, including any cost or
expense incurred in the investigation, defense or payment of any claim against
such officer or director. The Trust Agreement requires the Companies to make
annual contributions to the Trust, not less than the amount equal to the annual
premium charged for a comparable directors and officers liability policy with
limits of $3 million annual aggregate until the funds in the trust equal $1
million. In any year in which no contribution would otherwise be required
because the amount in the Trust equals $1 million, a contribution shall be made
in an amount equal to the annual premium or the increase in the Consumer Price
Index between January 1 of the current year and January 1 of the preceding year
multiplied by $1 million, whichever is the lessor amount, after application of
the current year's net income. Payments for directors and officers losses are
made out of the Trust at the direction of a designated officer of MOMED. A final
determination with regard to the possible amendment or termination of the Trust
after the effective date of the Merger has not been reached.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits and Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- -----
<S> <C> <C> <C>
2 -- Agreement and Plan of Merger between MOMED Holding Co., MAIC Holdings, Inc.,
and MOMED Acquisition, Inc., dated June 11, 1996 (included as Exhibit A to
the Prospectus herein). .....................................................
3.1 -- Certificate of Incorporation of MAIC Holdings, Inc.(1).......................
3.2 -- By-Laws of MAIC Holdings, Inc.(1)............................................
4 -- Specimen of Common Stock Certificate of MAIC Holdings, Inc.(1) ..............
4.1 -- Agreement and Plan of Exchange between MAIC Holdings, Inc. and Mutual
Assurance, Inc., dated February 21, 1995.(1).................................
4.2 -- Certificate of Adoption of Plan of Exchange as approved by the Commissioner
of Insurance of Alabama and filed with the Secretary of State of Alabama on
August 31, 1995.(10).........................................................
5 -- Form of Opinion of Burr & Forman (Final to be filed by amendment)............
8 -- Tax Opinion of KPMG Peat Marwick, LLP. ......................................
10.1 -- Employment Agreement between A. Derrill Crowe, M.D. and Mutual Assurance,
Inc., including amendments.(2)...............................................
10.2 -- Employment Agreement between Bradley DeMonbrun, Ltd. and MOMED Holding Co.,
including amendments. .......................................................
10.3 -- Employment Agreement between Kriete H. Hollrah and MOMED Holding Co.,
including amendments. .......................................................
10.4 -- Employment Agreement between Russell L. Oldham and MOMED Holding Co.,
including amendments. .......................................................
10.5 -- Agreement to Reinsure between Specialty Underwriters Reinsurance Facility,
Ltd. and Mutual Assurance, Inc., MAG Mutual Insurance Company, Kentucky
Medical Insurance Company and Medical Mutual Insurance Company dated March
16, 1990.(2).................................................................
10.6 -- Mutual Assurance, Inc. 401(k) Savings Plan.(2)...............................
10.7 -- Mutual Assurance, Inc. Pension Plan.(2)......................................
10.8 -- MOMED Holding Co. Principal Financial Group Defined Benefit Plan. ...........
10.9 -- MOMED Holding Co. Principal Financial Group 401(k) Plan. ....................
10.10 -- Mutual Assurance, Inc. 1995 Stock Award Plan.(1).............................
10.11 -- Agreement between the Medical Association of the State of Alabama and Mutual
Assurance Society of Alabama dated July 1, 1977.(2)..........................
</TABLE>
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<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- -----
<S> <C> <C> <C>
10.12 -- Amendment No. 2 to Mutual Assurance, Inc. Pension Plan.(2)...................
10.13 -- Amendment No. 3 to Mutual Assurance, Inc. Pension Plan.(2)...................
10.14 -- Trust Agreement for Mutual Assurance, Inc. Pension Plan.(2)..................
10.15 -- Reinsurance Agreement between Specialty Underwriters Reinsurance Facility and
Mutual Assurance dated January 25, 1990.(2)..................................
10.16 -- Reinsurance Agreement between Specialty Underwriters Reinsurance Facility,
Ltd. and Mutual Assurance, Inc. dated October 24, 1990.(2)...................
10.17 -- Mutual Assurance, Inc. and Subsidiaries Consolidated Tax Allocation Agreement
dated December 18, 1989.(3)..................................................
10.18 -- Amendment No. 4 to Mutual Assurance, Inc. Pension Plan.(3)...................
10.19 -- Individual Flexible Spending Account Plan for Eligible Employees of Mutual
Assurance, Inc. and Affiliated Companies dated February 1, 1992.(5)..........
10.20 -- Reinsurance Agreement between Specialty Underwriters Reinsurance Facility,
Ltd. and Mutual Assurance, Inc. dated September 14, 1992. (First Excess
Reinsurance Contract)(5).....................................................
10.21 -- Reinsurance Agreement between Specialty Underwriters Reinsurance Facility,
Ltd. and Mutual Assurance, Inc. dated September 14, 1992. (Second Excess
Cession Reinsurance Contract)(5).............................................
10.22 -- MAIC Holdings, Inc. Thrift Plan (formerly known as the "Mutual Assurance,
Inc. Open Market Stock Purchase Plan").(4)...................................
10.23 -- Stock Purchase Agreement by and between Mutual Assurance, Inc., West Virginia
Health Services, Inc., a West Virginia corporation wholly owned by West
Virginia Hospital Association, a West Virginia non-profit corporation, and
West Virginia Hospital Insurance Company, a West Virginia insurance company,
dated January 1, 1994.(6)....................................................
10.24 -- Endorsement and Marketing Agreement by and between Mutual Assurance, Inc.,
West Virginia Health Services, Inc., a West Virginia corporation wholly owned
by West Virginia Hospital Association, a West Virginia non-profit
corporation, and West Virginia Hospital Insurance Company, a West Virginia
insurance company, dated January 1, 1994.(6).................................
10.25 -- Endorsement and Marketing Agreement by and between Medical Assurance of West
Virginia, Inc., a West Virginia insurance corporation and subsidiary of
Mutual Assurance, Inc., and the West Virginia State Medical Association, a
West Virginia non-profit corporation dated December 1, 1994.(6)..............
10.26 -- Stock Purchase Agreement by and between Mutual Assurance, Inc. and Indiana
State Medical Association, an Indiana non-profit corporation and Physicians
Insurance Company of Indiana, an Indiana insurance company effective as of
January 1, 1995.(6)..........................................................
10.27 -- Endorsement, Marketing and Sponsorship Agreement effective as of January 1,
1995 between Physicians Insurance Company of Indiana and The Indiana State
Medical Association.(10).....................................................
10.28 -- Amendment No. 1 to Mutual Assurance, Inc. 401(k) Savings Plan.(6)............
10.29 -- Stock Purchase Agreement between Mutual Assurance, Inc. and Physicians
Insurance Company of Michigan effective as of May 2, 1995.(10)...............
10.30 -- Stock Purchase Agreement between Mutual Assurance, Inc. and Physicians
Insurance Company of Ohio effective as of May 12, 1995.(10)..................
</TABLE>
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<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- -----
<S> <C> <C> <C>
10.31 -- The Agreement for Purchase and Sale of Assets among Physicians Insurance
Company of Ohio and The Professionals Insurance Company, as sellers, and
Mutual Assurance, Inc., as purchaser, dated July 14, 1995.(8)................
10.32 -- Reinsurance Treaty between Physicians Insurance Company of Ohio and Mutual
Assurance, Inc., effective as of July 16, 1995.(8)...........................
10.33 -- Management Agreement between Physicians Insurance Company of Ohio and Mutual
Assurance, Inc., dated July 16, 1995.(8).....................................
10.34 -- Escrow Agreement among Physicians Insurance Company of Ohio, Mutual
Assurance, Inc., and SouthTrust Bank of Alabama, National Association
effective as of July 16, 1995.(9)............................................
10.35 -- MAIC Holdings, Inc. Incentive Compensation Plan.(1)..........................
10.36 -- Amendment and Assumption Agreement between MAIC Holdings, Inc. and Mutual
Assurance, Inc., dated April 8, 1996.(7).....................................
10.37 -- Credit Agreement dated as of December 15, 1995, between MAIC Holdings, Inc.
and SouthTrust Bank of Alabama, National Association.(10)....................
10.38 -- Amendment and Assumption Agreement by and between Mutual Assurance, Inc. and
MAIC Holdings, Inc. dated April 18, 1996.(11)................................
10.39 -- Share Exchange Agreement by and between MOMED Holding Co., a Missouri
corporation and Missouri State Medical Association, a Missouri not-for-profit
corporation dated July 21, 1994. ............................................
10.40 -- Nomination Agreement between MOMED Holding Co. and Missouri State Medical
Association dated July 21, 1994. ............................................
10.41 -- Reciprocal Assistance Agreement between Missouri Medical Insurance Company, a
Missouri corporation and the Missouri State Medical Association, a Missouri
non-profit corporation, dated July 21, 1994. ................................
10.42 -- License Agreement between Missouri Medical Insurance Company, a Missouri
corporation and the Missouri State Medical Association, a Missouri non-profit
corporation, dated July 21, 1994. ...........................................
10.43 -- First Amended and Restated MOMED Holding Co. Self-Insured Directors and
Officers Liability Trust Agreement between MOMED Holding Co., a Missouri
corporation; its subsidiaries; and Boatmen's Trust Company, a trust company
organized under the laws of Missouri, dated May 7, 1993. ....................
10.44 -- Voting Agreement by and between MOMED Holding Co., a Missouri corporation,
Missouri State Medical Association, a Missouri non-profit corporation,
Richard V. Bradley, M.D., Kriete H. Hollrah, and Leonard L. Davis, Jr., M.D.,
dated July 21, 1994. ........................................................
10.45 -- Rights Agreement between MOMED Holding Co., a Missouri corporation and
Boatmen's Trust company, a Missouri trust company, dated February 24,
1995. .......................................................................
10.46 -- Engagement Agreement between MOMED Holding Co. and Pauli & Company
Incorporated. ...............................................................
13 -- MAIC Holdings, Inc., Annual Report to Shareholders for the Year Ended
December 31, 1995. ..........................................................
</TABLE>
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<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- -----
<S> <C> <C> <C>
21 -- Subsidiaries of MAIC Holdings, Inc.(10)......................................
23.1 -- Consent of Burr & Forman (included in opinion). .............................
23.2 -- Consent of Ernst & Young LLP with respect to consolidated financial
statements of MAIC Holdings. ................................................
23.3 -- Consent of KPMG Peat Marwick LLP with respect to consolidated financial
statements of MOMED Holding Co. and tax opinion. ............................
23.4 -- Consent of Pauli & Company Incorporated. ....................................
24 -- Powers of Attorney for seven (7) MAIC Holdings, Inc. directors. (See
signature pages of this registration statement). ............................
99.1 -- Proxy Card. .................................................................
99.2 -- Election Form. ..............................................................
</TABLE>
- ---------------
(1) Filed as an exhibit to MAIC Holdings' Registration Statement on Form S-4
(Commission File No. 33-91508) and incorporated herein by the reference
pursuant to Rule 12b-32 of the Securities and Exchange Commission.
(2) Filed as an exhibit to Mutual Assurance's Registration Statement on Form
S-1 (Commission File No. 33-35223) and incorporated herein by the reference
pursuant to Rule 12b-32 of the Securities and Exchange Commission.
(3) Filed as an exhibit to Mutual Assurance's Form 10-K for the year ended
December 31, 1991 (Commission File No. 0-19439) and incorporated herein by
reference pursuant to Rule 12b-32 of the Securities and Exchange
Commission.
(4) Filed as an exhibit to Mutual Assurance's Registration Statement on Form
S-8 (Commission File No. 33-55276) and incorporated herein by reference
pursuant to Rule 12b-32 of the Securities and Exchange Commission.
(5) Filed as an exhibit to Mutual Assurance's Form 10-K for the year ended
December 31, 1992 (Commission File No. 0-19439) and incorporated herein by
reference pursuant to Rule 12b-32 of the Securities and Exchange
Commission.
(6) Filed as an exhibit to Mutual Assurance's Form 10-K for the year ended
December 31, 1994 (Commission File No. 0-19439) and incorporated herein by
reference pursuant to Rule 12b-32 of the Securities and Exchange
Commission.
(7) Filed as an exhibit to MAIC Holdings' Proxy Statement for the 1996 Annual
Meeting (Commission File No. 0-19439) and incorporated herein by reference
pursuant to Rule 12b-32 of the Securities and Exchange Commission.
(8) Filed as an exhibit to Mutual Assurance's Form 8-K for event occurring July
14, 1995, and incorporated herein by this reference pursuant to Rule 12b-32
of the Securities and Exchange Commission.
(9) Filed as an exhibit to Mutual Assurance's Form 8-K for event occurring
August 28, 1995, and incorporated herein by this reference pursuant to Rule
12b-32 of the Securities and Exchange Commission.
(10) Filed as an exhibit to MAIC Holdings' Form 10-K for the year ended December
31, 1995 (Commission File No. 0-19439) and incorporated herein by reference
pursuant to Rule 12b-32 of the Securities and Exchange Commission.
(a) Not applicable.
(b) Not applicable.
II-5
<PAGE> 144
ITEM 22. 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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.
(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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
The undersigned registrant hereby undertakes as follows:
(i) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(ii) The registrant undertakes that every prospectus (i) that it is
filed pursuant to paragraph (1) immediately proceeding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes 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.
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<PAGE> 145
(b) The undersigned registrant hereby undertakes to respond to any request
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf, by the
undersigned thereunto duly authorized in the City of Homewood, State of Alabama,
on this the 25th the day of September, 1996.
MAIC HOLDINGS, INC.
By: /s/ A. DERRILL CROWE, M.D.
------------------------------------
A. Derrill Crowe, M.D.
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul R. Butrus, James J. Morello and Robert D.
Francis, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<C> <S> <C>
/s/ A. DERRILL CROWE, M.D. President (Principal September 25, 1996
- --------------------------------------------- Executive Officer) and
A. Derrill Crowe, M.D. Director
/s/ PAUL R. BUTRUS Executive Vice President September 25, 1996
- --------------------------------------------- (Principal Executive
Paul R. Butrus Officer) and Director
/s/ JAMES J. MORELLO Treasurer (Principal September 20, 1996
- --------------------------------------------- Financial Officer and
James J. Morello Principal Accounting
Officer)
* Director , 1996
- ---------------------------------------------
Paul D. Everest, M.D.
* Director , 1996
- ---------------------------------------------
Robert E. Flowers, M.D.
/s/ LEON C. HAMRICK, M.D. Director September 23, 1996
- ---------------------------------------------
Leon C. Hamrick, M.D.
/s/ JOHN PELHAM NORTH Director September 24, 1996
- ---------------------------------------------
John Pelham North
* Director , 1996
- ---------------------------------------------
Norton E. Cowart, M.D.
</TABLE>
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<PAGE> 1
EXHIBIT 5
<TABLE>
<S> <C>
BURR & FORMAN
(A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS)
POST OFFICE BOX 830719 WRITER'S OFFICE:
JACK P. STEPHENSON BIRMINGHAM, ALABAMA 35283-0719 SUITE 3100, SOUTHTRUST TOWER
DIRECT DIAL (205) 485-5201 (205) 251-3000 420 NORTH TWENTIETH STREET
BIRMINGHAM, ALABAMA 35203
FACSIMILE (205) 458-5100
</TABLE>
DRAFT
-----
Board of Directors
MAIC Holding, Inc.
RE: AGREEMENT AND PLAN OF MERGER BETWEEN MOMED HOLDING COMPANY, MAIC HOLDING
INC, AND MOMED ACQUISITION, INC. (THE "AGREEMENT AND PLAN OF MERGER")
Gentlemen:
As counsel to MAIC Holdings, Inc. ("MAIC Holdings"), we have been
requested to render the following opinion to you with regard to the proposed
merger of MOMED Holding Company, a Missouri corporation ("MOMED") with and into
MOMED Acquisition, Inc., a Missouri corporation ("MOMED Acquisition") and a
wholly-owned subsidiary of MAIC Holdings ("the "Merger"). As contemplated by
the Agreement and Plan of Merger between MAIC Holdings, MOMED and MOMED
Acquisition, the holders of the issued and outstanding shares of the Class A
Common Stock of MOMED shall, subject to the terms and conditions set forth in
the Agreement and Plan of Merger, have the right to elect to have each of such
holders' shares converted as of the effective time of the Merger into up to
396,852 shares of Common Stock of MAIC Holdings.
In connection with this opinion, we have reviewed the following: (i) the
Agreement and Plan of Merger; (ii) Order of the Missouri Insurance Commissioner
dated August 13, 1996, approving the Merger and the Form A Statement Regarding
the Acquisition of Control of or Merger with a Domestic Insurer filed by MAIC
Holdings with the Missouri Department of Insurance on July 8, 1996; (iii)
Solicitation Permit issued by the Alabama Commissioner of Insurance to MAIC
Holdings on ______________, 1996; (iv) Registration Statement of MAIC Holdings
on Form S-4, Commission filed No. ______________ (Including all exhibits
thereto) (the "Registration Statement"); (v) Resolutions of the Board of
Directors MAIC Holdings adopted June 21, 1996, relating to the approval of the
Agreement and Plan of Merger and the filing of the Registration Statement on
Form S-4 with the Securities and Exchange Commission; (vi) Resolutions of the
Board of Directors of MOMED dated July 26, 1996, relating to the approval of
the Agreement and Plan of Merger and the submission of the Agreement and Plan
of Merger for approval at a special meeting of the
<TABLE>
<S> <C> <C>
SUITE 1800, ONE GEORGIA CENTER SUITE 3100, SOUTHTRUST TOWER SUITE 204, REGENCY CENTER
600 WEST PEACHTREE STREET 420 NORTH TWENTIETH STREET 400 MERIDIAN STREET
ATLANTA, GEORGIA 30306 BIRMINGHAM, ALABAMA 35203 HUNTSVILLE, ALABAMA 35801
</TABLE>
<PAGE> 2
BURR & FORMAN
Board of Directors
October __, 1996
Page No. 2
___________________________
shareholder of MOMED Holding Company; (vii) a copy of the Certificate of
Incorporation and Bylaws of MAIC Holdings; and (viii) Certificate of Good
Standing with respect to MAIC Holdings issued by the Secretary of State of
Delaware on September 30, 1996. In addition, we have considered such matters of
law as we have deemed appropriate as a basis for our opinion set forth below.
In rendering the opinion set forth herein, we have relied upon, and
assumed the accuracy of these certificates and other statements, documents,
records, and papers with respect to the factual matters set forth herein, and we
assume the genuineness of all signatures and the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as certified or photostatic copies in the legal
capacity of all natural persons.
Based on the foregoing, we are the opinion, as of the date hereof:
1. MAIC Holdings is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power to own, lease and operate its properties and to carry
on its business as now being conducted;
2. The shares of MAIC Holdings common stock to be issued as
consideration pursuant to the Agreement and Plan of Merger have been duly
authorized and, when so issued, will be validly issued, fully paid and
non-assessable.
The law covered by the opinions expressed herein is limited to the
Federal law of the United States, the law of the State of Alabama and corporate
laws of the State of Delaware;
This letter may be relied upon by you only in connection with the
offering of common stock contemplated by the Agreement and Plan of Merger and
may not be used or relied upon by any other person for any purpose whatsoever,
other than in connection with the regulatory requirements or response to court
order, without in each instance, our prior written consent.
<PAGE> 3
BURR & FORMAN
Board of Directors
October __, 1996
Page No. 3
_________________________
We consent to the reference of our firm under the caption "Legal" in the
Registration Statement (Form S-4) and related Prospectus of MAIC Holdings, Inc.,
Commission File No. _________.
Very truly yours,
Burr & Forman
<PAGE> 1
EXHIBIT 8
[LETTERHEAD] KPMG PEAT MARWICK
September 25, 1996
PRIVATE & CONFIDENTIAL
Board of Directors
MOMED Holding Co.
8630 Delmar Boulevard
Suite 100
St. Louis, MO 63124
Board Members:
Pursuant to an Agreement and Plan of Merger dated June 11, 1996 (the
"Agreement"), MOMED Holding Co. ("MOMED"), MAIC Holdings, Inc. ("MAIC"), and
MOMED Acquisition, Inc. ("NEWCO") have agreed to the merger of MOMED with and
into NEWCO in accordance with the provisions of the Plan of Merger set forth in
the Agreement. Pursuant to section 4.8 of the Agreement, MOMED has engaged
KPMG Peat Marwick LLP ("KPMG") to render an opinion as to the material Federal
income tax consequences to the shareholders of MOMED resulting from the merger.
Our engagement letter dated July 2, 1996, executed by an authorized officer of
MOMED on July 8, 1996, limits the use of our opinion as follows:
"We understand that our opinion letter will be referred to in the
registration statement to be filed by MAIC to register under the
Securities Act of 1933 the shares of MAIC common stock to be issued
pursuant to the merger. After approval by the SEC, copies of the
prospectus and proxy statement contained in such registration
statement will be distributed to MOMED's shareholders, who are
estimated to number about 300. No other use of our opinion is
authorized or permitted."
Our opinion does not address any tax consequences to the holders of MOMED's
Class C nonvoting common stock.
Our opinion is based on the facts, representations, and assumptions set forth
below.
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Board of Directors
MOMED Holding Co.
September 25, 1996
FACTS
MOMED
MOMED is a holding company incorporated in the state of Missouri. MOMED's
primary subsidiary is Missouri Medical Insurance Company ("MOMEDICO"), a
Missouri-domiciled insurer engaged in the business of providing professional
liability insurance for physicians, dentists, and support technicians
practicing in the states of Missouri and Kansas.
MOMED has issued 739,584 shares of its $1 par value Class A common stock. The
Class A stock has one vote per share. Of the 739,584 issued Class A shares,
732,198 are presently outstanding, and 7,386 are held by MOMED as treasury
shares. MOMEDICO owns 60,144 of the outstanding Class A MOMED shares.(1)
MOMED's Class A stock is available for trading by a limited number of
marketmakers. At present, there are approximately 300 holders of MOMED's Class
A common stock.
At the date of the Agreement, MOMED also had outstanding 24,185 shares of Class
C nonvoting common stock. All of the Class C shares were owned by the Missouri
State Medical Association ("MSMA"). The Class C shares, which were issued on
August 16, 1994, were subject to an agreement whereby MSMA had an option to
sell, and MOMED had a requirement to purchase, Class C shares at a per share
consideration of $24.81, with the aggregate cash consideration not to exceed
$600,000 plus interest at Boatmen's National Bank's prime rate plus one
percent. MSMA could have exercised its options to sell the Class C shares as
follows:
<TABLE>
<CAPTION>
Period Shares Amount
------ ------ ------
<S> <C> <C>
August 16, 1994 to August 15, 1995 4,031 $100,009
August 16, 1995 to August 15, 1996 4,031 $100,009
August 16, 1996 to August 15, 1997 8,062 $200,018
August 16, 1997 and after 8,061 $199,964
------ --------
24,185 $600,000
</TABLE>
On the second and third anniversaries of the issuance of the Class C shares
(i.e., August 16, 1996 and 1997), MOMED had an option to purchase the Class C
shares not yet put to MOMED by MSMA for the same cash consideration as shown
above. Pursuant to the
- --------------------------
(1) For consolidated GAAP financial reporting purposes, the MOMED shares owned
by MOMEDICO also are classified as treasury shares.
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MOMED Holding Co.
September 25, 1996
Agreement, MOMED redeemed the Class C shares on September 4, 1996 for an
aggregate consideration of $707,877.(2)
On February 24, 1995, MOMED's Board of Directors adopted a Shareholders'
Protection Rights Plan (the "Rights Plan"), and declared a dividend of one
common share purchase right for each outstanding share of Class A common stock
of record on March 6, 1995. In the event any person acquires 20 percent or
more of MOMED's outstanding common stock, each right will give the holder the
option to purchase one share of MOMED's common stock for $50. The rights expire
February 24, 2005, and may be redeemed by MOMED for $0.01 per right at any
time.(3)
MAIC
MAIC is a Delaware corporation which serves as a holding company for various
subsidiaries. Through its subsidiaries, MAIC is engaged in the business of
providing professional and general liability insurance for physicians and
surgeons, dentists, hospitals, and others engaged in the delivery of health
care.
As of December 31, 1995, MAIC had issued 9,376,956 shares of its $1 par value
common stock, of which 9,369,832 shares were outstanding. At that date, MAIC
had 2,723 shareholders of record. MAIC common stock trades on the NASDAQ
National Market Tier of the NASDAQ Stock Market.
AGREEMENT AND PLAN OF MERGER
For what has been represented to KPMG to be bona fide corporate business
reasons,(4) MOMED, MAIC, and NEWCO have entered into the Agreement to merge
MOMED with and into NEWCO. NEWCO, a Missouri corporation, has been organized
as a
- --------------------------
(2) Sections 5.8(a) and 7.12 of the Agreement require MOMED, as a condition
precedent to closing, to take all necessary actions to cause MSMA to sell, and
MOMED to purchase, all of MOMED's Class C nonvoting common stock at an
aggregate price not exceeding $600,000 plus interest from August 16, 1994 at
one percent above the prime rate of Boatmen's National Bank.
(3) Pursuant to sections 5.8(b) and 7.10 of the Agreement, as a condition
precedent to closing, MOMED is required to take all necessary actions under
the Rights Plan to redeem the common share purchase rights issued under the
Rights Plan and, upon taking such action, to redeem and purchase all such
common share purchase rights at a price not to exceed $0.01 per right in
accordance with the Rights Plan. It is assumed, for purposes of this opinion,
that the redemption of the rights will be treated as a dividend distribution
for Federal income tax purposes.
(4) All representations to KPMG by the parties to the merger are set forth in
our letter dated September 18, 1996, which was executed by the parties on
September 20, 1996.
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MOMED Holding Co.
September 25, 1996
wholly-owned subsidiary of MAIC to serve as a successor in interest to MOMED
pursuant to the Agreement.
The Plan of Merger, which is set forth in section 1 of the Agreement, includes
the following provisions:
- - On the Effective Date (i.e., the date upon which a certificate of
merger is issued by the Missouri Secretary of State), MOMED shall be
merged with and into NEWCO in accordance with the Plan of Merger and
in compliance with the Missouri General Business Corporation Law.
NEWCO shall be the surviving corporation. The separate corporate
existence of MOMED from NEWCO shall cease upon the Effective Date.
NEWCO will change its name to MOMED Holding Co.
- - Subject to conditions set forth below, each holder (other than
MOMEDICO) of the issued and outstanding shares of MOMED's Class A
common stock shall have the right to elect to have each of such
holder's shares converted as of the effective time of the merger into
either of the following (the "Merger Consideration"):
(i) 0.779 of a share of MAIC common stock for a share of
MOMED Class A common stock (the "Stock Election"); or
(ii) the right to receive $25.32 for a share of MOMED
Class A common stock (the "Cash Election").
- - If no election is made as to the merger consideration to be received
with respect to any MOMED Class A share, the holder will be deemed to
have made the Cash Election, subject to the Proration provision
described below.
- - Each share of MOMED Class A common stock owned by MOMED and each share
of MOMED Class C nonvoting common stock owned by MOMED or MOMEDICO
shall be canceled and retired and shall cease to exist, and no cash or
other consideration shall be delivered in exchange therefor.
- - Each share of MOMED Class A common stock that is owned by MOMEDICO
shall be converted into 0.779 of a share of MAIC common stock.
- - A Class A shareholder who exercises his right to demand payment for
and an appraisal of his Class A common shares ("Dissenters' Rights")
pursuant to the Missouri General Business Corporation Law shall not
have his shares converted into a right to receive Merger
Consideration, unless such holder fails to perfect or
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otherwise loses his Dissenters' Rights, in which case such holder
shall be treated as having made the Cash Election.
- - Notwithstanding anything in the Agreement to the contrary, the number
of shares of MAIC common stock included in the Merger Consideration
issued in exchange for MOMED Class A shares (other than MOMED Class A
shares exchanged by MOMEDICO) shall not be more than 350,000 (the
"Stock Election Number") nor less than 275,000 (the "Cash Election
Number").
- - If the MOMED Class A shareholders (other than MOMEDICO) make Stock
Elections which would result in issuance of a number of MAIC shares in
excess of the Stock Election Number, then the shares covered by each
Stock Election shall be ratably prorated down so that the total MAIC
shares to be issued to Class A shareholders other than MOMEDICO will
equal the Stock Election Number.
- - If the MOMED Class A shareholders (other than MOMEDICO) make Cash
Elections which would result in issuance of a number of MAIC shares
less than the Cash Election Number, then the shares covered by each
Cash Election shall be ratably prorated down so that the total MAIC
shares to be issued to Class A shareholders other than MOMEDICO will
equal the Cash Election Number.
- - No fractional shares of MAIC common stock shall be issued in exchange
for MOMED Class A common stock. In lieu of any such fractional share,
MAIC shall pay to each former holder of MOMED Class A shares who
otherwise would be entitled to receive a fractional share of MAIC
common stock an amount in cash determined by multiplying $32.50 by the
fraction of a share of MAIC stock to which such holder would otherwise
be entitled.
REPRESENTATIONS
In connection with the proposed transaction, the following additional
representations have been made to KPMG.(5) It is understood that KPMG has not
verified any representation, but it is relying on same in rendering its opinion.
(a) The parties to the merger negotiated an arm's-length exchange ratio
with the intention that the fair market value of the MAIC stock and
other consideration received by each MOMED shareholder will be
approximately equal to the fair market value of the MOMED stock
surrendered in the exchange.
- --------------------------
(5) See footnote 4, supra.
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(b) There is no plan or intention by the shareholders of MOMED who own 5
percent or more of the MOMED stock, and to the best of the knowledge
of the management of MOMED, there is no plan or intention on the part
of the remaining shareholders of MOMED to sell, exchange, or otherwise
dispose of a number of shares of MAIC stock received in the
transaction that would reduce the MOMED shareholders' ownership of
MAIC stock to a number of shares having a value, as of the date of the
transaction, of less than 50 percent of the value of all of the
formerly outstanding stock of MOMED as of the same date. For purposes
of this representation, shares of MOMED stock exchanged for cash and
other property, surrendered by dissenters, or exchanged for cash in
lieu of fractional shares will be treated as outstanding MOMED stock
on the date of the transaction. Moreover, shares of MOMED stock and
shares of MAIC stock held by MOMED shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the transaction will
be considered in making this representation.
(c) NEWCO will acquire at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the
gross assets held by MOMED immediately prior to the transaction. For
purposes of this representation, amounts paid by MOMED to dissenters,
amounts paid by MOMED to shareholders who receive cash or other
property, MOMED assets used to pay its reorganization expenses, and
all redemptions and distributions (except for regular, normal
dividends) made by MOMED immediately preceding the transfer, will be
included as assets of MOMED held immediately prior to the transaction.
(d) Prior to the transaction, MAIC will be in control of NEWCO within the
meaning of section 368(c) of the Internal Revenue Code. Control,
within the meaning of section 368(c), means the ownership of stock
possessing at least 80 percent of the total combined voting power of
all classes of NEWCO stock entitled to vote and at least 80 percent of
the total number of shares of all other classes of stock of NEWCO.
(e) Following the transaction, NEWCO will not issue additional shares of
its stock that would result in MAIC losing control of NEWCO within the
meaning of section 368(c) of the Internal Revenue Code.
(f) MAIC has no plan or intention to reacquire any of its stock issued in
the transaction.
(g) MAIC has no plan or intention to liquidate NEWCO; to merge NEWCO with
and into another corporation; to sell or otherwise dispose of the
stock of NEWCO; or to cause NEWCO to sell or otherwise dispose of any
of the assets of MOMED acquired in the transaction, except for
dispositions made in the ordinary course of business or transfers
described in section 368(a)(2)(C) of the Internal Revenue Code. A
transfer
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September 25, 1996
described in section 368(a)(2)(C) is a transfer of assets to a
corporation controlled by NEWCO.
(h) Following the transaction, NEWCO will continue the historic business
of MOMED or use a significant portion of MOMED's business assets in a
business.
(i) MAIC, NEWCO, MOMED and the shareholders of MOMED will pay their
respective expenses, if any, incurred in connection with the
transaction.
(j) No two parties to the transaction are investment companies as defined
in section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
(k) The fair market value of the assets of MOMED transferred to NEWCO will
equal or exceed the sum of the liabilities assumed by NEWCO, plus the
amount of liabilities, if any, to which the transferred assets are
subject.
(1) No stock of NEWCO will be issued in the transaction.
(m) The payment of cash in lieu of fractional shares of MAIC stock is
solely for the purpose of avoiding the expense and inconvenience to
MAIC of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will
be paid in the transaction to the MOMED shareholders instead of
issuing fractional shares of MAIC stock will not exceed 1 percent of
the total consideration that will be issued in the transaction to the
MOMED shareholders in exchange for their shares of MOMED stock. The
fractional share interests of each MOMED shareholder will be
aggregated and no MOMED shareholder will receive cash in an amount
equal to or greater than the value of one full share of MAIC stock.
(n) None of the compensation received by any shareholder-employees of
MOMED will be separate consideration for, or allocable to, any of
their shares of MOMED stock; none of the shares of MAIC stock received
by any shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and compensation paid to any
shareholder-employees will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(o) The proposed merger of MOMED with and into NEWCO (the "Merger") will
qualify as a statutory merger under applicable state law.
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DISCUSSION
GENERAL REQUIREMENTS OF A REORGANIZATION
Section 10.13 of the Agreement states that the parties intend that the Merger
shall constitute a "tax-free" reorganization. Treasury Regulation section
1.368-1(b) sets forth the purpose of the reorganization provisions of the
Code(6) as follows:
"Under the general rule, upon the exchange of property, gain or loss
must be accounted for if the new property differs in a material
particular, either in kind or in extent, from the old property. The
purpose of the reorganization provisions of the Code is to except from
the general rule certain specifically described exchanges incident to
such readjustments of corporate structures made in one of the
particular ways specified in the Code, as are required by business
exigencies and which effect only a readjustment of continuing interest
in property under modified corporate forms. Requisite to a
reorganization under the Code are a continuity of the business
enterprise under the modified corporate form, and. . . a continuity of
interest therein on the part of those persons who, directly or
indirectly, were the owners of the enterprise prior to the
reorganization. . . "
Thus, in general, in order to qualify as a reorganization, a transaction must
meet the business purpose requirement, the continuity of business enterprise
requirement, and the continuity of ownership interest requirement, in addition
to the specific requirements of the Code. Furthermore, Treasury Regulations
section 1.368-1(c) provides that there must be a plan of reorganization.
According to the regulation, "a plan of reorganization must contemplate the
bona fide execution of one of the transactions specifically described as a
reorganization in section 368(a) and for the bona fide consummation of each of
the requisite acts under which nonrecognition of gain is claimed."
1. BUSINESS PURPOSE
The business purpose requirement is a judicially-established requirement. In
our experience, when dealing with a commercially-motivated acquisitive
reorganization in which the parties are dealing at arm's-length and are not
owned by substantially the same shareholders, satisfying the business purpose
requirement is rarely a concern. This is particularly true where stock of the
acquirer or the target company, or both, are publicly
- -------------------------
(6) Unless otherwise noted, all references to "the Code", or "Code section",
or "section", are to the Internal Revenue Code of 1986, as amended.
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traded. Moreover, the parties have represented that the Merger is being
undertaken for bona fide corporate business reasons. Accordingly, the business
purpose requirement will be satisfied in the Merger.
2. CONTINUITY OF BUSINESS ENTERPRISE
Continuity of business enterprise is discussed in Treasury Regulation section
1.368-1(d). Pursuant to this regulation, continuity of business enterprise
requires that the acquiring corporation either (1) continue the acquired
corporation's historic business, or (2) use a significant portion of the
acquired corporation's historic business assets in a business. The regulation
also states that the "application of this general rule to certain transactions,
such as mergers of holding companies, will depend on all facts and
circumstances."
In Revenue Ruling 85-197, 1985-2 CB 120, a holding company ("P") whose only
asset consisted of all the stock of an operating subsidiary ("S"), merged into
S and the P shareholders exchanged their P stock for S stock. The ruling
stated:
"For purposes of the continuity of business enterprise requirement,
the historic business of P is the business of S, its operating
subsidiary. Therefore, after the merger, S continues to conduct P's
historic business."
In the Merger, it has been represented that the acquiring company (NEWCO) will
either continue the business of the acquired company (MOMED), or use a
significant portion of its assets in a business. Accordingly, the continuity
of business enterprise requirement will be satisfied.
3. CONTINUITY OF OWNERSHIP INTEREST
Continuity of ownership interest is also a judicially-established requirement
applicable to acquisitive reorganizations. The purpose of this requirement is
to ensure that the historic shareholders of the target company maintain
(indirectly) a substantial part of their equity participation in the target
company following the acquisition. In general, to satisfy the continuity of
interest requirement, the historic shareholders of the acquired company must
(1) exchange at least 50 percent of their stock in the target company for stock
in the acquiring company (or the acquiring company's parent), (2) have the
unrestricted right to maintain ownership of such stock for some period of time
after the acquisition, and (3) either actually retain ownership of such stock
for some period of time after the acquisition or, in the event of an early
disposition, demonstrate that the early disposition was not pursuant to a plan
or arrangement that was in place at the time of the acquisition.
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The 50 percent minimum continuity requirement noted in the preceding paragraph
is a safe harbor provided by the Internal Revenue Service for purposes of
issuing private letter rulings (Revenue Procedure 77-37, 1977-2 CB 568; Revenue
Procedure 86-42, 1986-2 CB 722). Section 3.02 of Revenue Procedure 77-37
states:
"The 'continuity of interest' requirement...is satisfied if there is
continuing interest through stock ownership in the acquiring or
transferee corporation (or a corporation in 'control' thereof...) on
the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the
formerly outstanding stock of the acquired or transferor corporation
of the same date. It is not necessary that each shareholder of the
acquired or transferor corporation receive in the exchange stock of
the acquiring or transferee corporation, or a corporation in 'control'
thereof, which is equal in value to at least 50 percent of the value
of his former stock interest in the acquired or transferor corporation,
so long as one or more of the shareholders of the acquired or
transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation
in 'control' thereof) which is, in the aggregate, equal in value to at
least 50 percent of the value of all of the formerly outstanding stock
of the acquired or transferor corporation. Sales, redemptions, and
other dispositions of stock occurring prior or subsequent to the
exchange which are part of the plan of reorganization will be
considered in determining whether there is a 50 percent continuing
interest through stock ownership as of the effective date of the
reorganization."
In the instant case, the Agreement provides that (1) the MOMED Class A
shareholders other than MOMEDICO will receive no fewer than 275,000 MAIC common
shares as Merger Consideration, and (2) the MOMED Class A shares owned by
MOMEDICO will be converted to 46,852 (60,144 times 0.779 to 1 conversion ratio)
MAIC common shares. Therefore, no fewer than 321,852 MAIC common shares will
be issued in the merger. At the conversion ratio of 0.779 to 1, this accounts
for 413,160 of MOMED's 732,198 outstanding Class A shares. Accordingly, a
maximum of 319,038 of MOMED's Class A shares will be exchanged for cash in the
merger. Pursuant to section 3.02 of Revenue Procedure 77-37, quoted above, the
50 percent continuity of interest test must also take into account the MOMED
Class C common stock that was redeemed as part of the transaction. The
redemption price of the Class C shares was $707,877. As a result, the maximum
amount of cash to be taken into account for continuity of interest purposes is
$8,785,919 (319,038 Class A shares x $25.32/share + $707,877 attributable to
the Class C shares). Accordingly, the parties to the Merger understand that
this opinion by KPMG is based on the assumption that the MAIC common stock
issued in the Merger (including the MAIC shares issued to MOMEDICO) is valued
at $8,785,919 or higher at
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the time of the Merger, so that the 50 percent continuity of interest safe
harbor will be satisfied.
SPECIFIC REQUIREMENTS OF A REORGANIZATION
Section 368 of the Code provides definitions relating to corporate
reorganizations. Code section 368(a)(1)(A) provides that the term
"reorganization" includes a statutory merger or consolidation. Treasury
Regulation section 1.368-2(b)(1) provides that in order to qualify as a
reorganization under section 368(a)(1)(A), the transaction must be a merger or
consolidation effected pursuant to the corporation laws of the United States or
a State or Territory or the District of Columbia.
Code section 368(a)(2)(D) provides rules relating to use of stock of a
controlling corporation in case of a statutory merger or consolidation - a
transaction commonly referred to as a "forward subsidiary merger". Pursuant to
section 368(a)(2)(D), the acquisition by one corporation, in exchange for stock
of a corporation (referred to as the "controlling corporation") which is in
control of the acquiring corporation, of substantially all of the properties of
another corporation shall not disqualify a transaction under section
368(a)(1)(A) if -
(i) no stock of the acquiring corporation is used in the
transaction, and
(ii) such transaction would have qualified under section
368(a)(1)(A) if the merger had been into the controlling
corporation.
Code section 368(c) defines "control" as ownership of stock possessing at least
80 percent of the total combined voting power of all classes of stock entitled
to vote and at least 80 percent of the total number of shares of all other
classes of stock of the corporation.
The Internal Revenue Service has defined a safe harbor for the "substantially
all" requirement of section 368(a)(2)(D) for purposes of obtaining a private
letter ruling. Section 3.01 of Revenue Procedure 77-37 provides:
"The 'substantially all' requirement...is satisfied if there is a
transfer...of assets representing at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by the corporation immediately
prior to the transfer. All payments to dissenters and all redemptions
and distributions (except for regular, normal distributions) made by
the corporation immediately preceding the transfer and which are part
of the plan
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of reorganization will be considered as assets held by the corporation
immediately prior to the transaction."(7)
In Revenue Ruling 77-307, 1977-2 CB 117, the Internal Revenue Service held that
cash contributed by a parent corporation to a wholly-owned subsidiary, formed
for the purpose of effectuating a "reverse subsidiary merger" pursuant to Code
section 368(a)(2)(E), so that the subsidiary could, among other things, pay
cash in lieu of issuing fractional shares of parent stock to target company
shareholders, should not be taken into account in determining whether the
"substantially all" requirement of Code section 368(a)(2)(E) has been met.
TAX TREATMENT OF ACQUIRED COMPANY'S SHAREHOLDERS
Pursuant to section 354(a)(1) of the Code, no gain or loss is recognized if
stock or securities in a corporation a party to a reorganization are, in
pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation or in another corporation a party to the
reorganization. Code section 368(b) provides that the term "a party to a
reorganization" includes both corporations in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Furthermore, in the case of a reorganization qualifying
under section 368(a)(1)(A) by reason of section 368(a)(2)(D), the term "a party
to a reorganization" includes the controlling corporation referred to in
section 368(a)(2)(D).
Pursuant to Code section 356(a)(1), if section 354 would apply to an exchange
but for the fact that the property received in the exchange consists not only
of property permitted by section 354 to be received without the recognition of
gain, but also of other property or money,(8) then the gain, if any, to the
recipient is recognized, but in an amount not in excess of the sum of such
money and the fair market value of such other property. However, no loss from
the exchange may be recognized (Code section 356(c)).
Code section 356(a)(2) provides rules for the determination of the character of
any gain recognized under section 356(a)(1). Section 356(a)(2) states that if
an exchange described in section 356(a)(1) has the effect of the distribution
of a dividend, then each distributee treats as a dividend (i.e., ordinary
income) an amount of the gain recognized
- --------------------------
(7) Accordingly, in the instant case, MOMED's pre-merger redemptions of its
Class C nonvoting common stock, and the common stock purchase rights issued
under the Rights Plan, must be taken into account in making the 90 percent/70
percent test. However, these redemptions will, in the aggregate, constitute
far less than ten percent of the fair market value of MOMED's net assets (as
measured by the value of the Merger Consideration) prior to the redemptions.
(8) Such other property or money is commonly referred to as "boot".
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under section 356(a)(1) as does not exceed his ratable share of the
corporation's undistributed earnings and profits. The remainder, if any, of
the gain is treated as gain from the exchange of property (i.e., capital gain
income).
In determining whether an exchange has the effect of a distribution of a
dividend, the standards of dividend equivalence under Code section 302(b) in
redemption transactions are applied. Code section 302(b) provides that
redemptions are treated as exchanges and, therefore, not as dividend
distributions, in the following circumstances:
(1) If the redemption is not essentially equivalent to a dividend.
In general, this test focuses on whether there has been a
"meaningful reduction" in the shareholder's voting power in
the corporation.
(2) If the redemption distribution is "substantially
disproportionate" to the shareholder. In order for a
distribution to be substantially disproportionate, (a) the
shareholder must own, immediately after the redemption, less
than 50 percent of the total combined voting power of all
classes of stock entitled to vote; and (b) the ratio which the
voting stock of the corporation owned by the shareholder
immediately after the redemption bears to all of the voting
stock of the corporation at such time, is less than 80 percent
of the ratio which the voting stock of the corporation owned
by the shareholder immediately before the redemption bears to
all of the voting stock of the corporation at such time.(9)
(3) If the redemption is in complete redemption of all of the
stock of the corporation owned by the individual.
In general, the constructive ownership rules of Code section 318 apply in
determining the ownership of stock for purposes of Code section 302(b).
In the case of Commissioner v. Clark, 489 US 726 (1989), the US Supreme Court
held that, for purposes of Code section 356(a)(2), the Code section 302(b)
standards should be applied as if the target company's shareholders had
received solely stock of the acquiring corporation (or its parent) in the
reorganization, and a part of such stock was then redeemed by the issuing
corporation.
- --------------------------
(9) No distribution is treated as substantially disproportionate unless the
shareholder's ownership of the common stock of the corporation (whether voting
or nonvoting) after and before the redemption also meets the 80 percent
requirement.
<PAGE> 14
[LOGO] KPMG PEAT MARWICK LLP
Page 14
Board of Directors
MOMED Holding Co.
September 25, 1996
In Revenue Ruling 74-515, 1974-2 CB 118, common stock was exchanged for common
stock and preferred stock was exchanged for cash under the terms of a statutory
merger agreement. The ruling held that the receipt of cash by the shareholders
who owned only preferred stock was a distribution in exchange for the stock
pursuant to section 302(a) by reason of the complete termination of interest
provision of section 302(b)(3), and that gain or loss is recognized to those
shareholders measured by the difference between the amount received in the
redemption and the cost or other basis of the stock.
In Revenue Ruling 66-365, 1966-2 CB 116, it was held that, in a reorganization
described in section 368(a)(1)(A), where a cash payment made by the acquiring
corporation was not separately bargained-for consideration, but was instead in
lieu of fractional share interests to which the shareholders of the acquired
corporation were entitled, such cash payment should be treated under Code
section 302 as in redemption of the fractional share interests. Therefore, the
ruling stated that each shareholder's redemption should be treated as a
distribution in full payment in exchange for his fractional share interest
under section 302(a), provided the redemption is not essentially equivalent to
a dividend. This position is further clarified by Revenue Procedure 77-41,
1977-2 CB 574. Under this revenue procedure, the issuance of cash in lieu of a
fractional share of stock pursuant to the terms of a reorganization will
qualify to be treated as a capital gain (loss) transaction under section 302(a)
if the cash distribution is undertaken solely for the purpose of saving the
corporation the expense and inconvenience of issuing and transferring
fractional shares, and is not separately bargained-for consideration.
Code section 358(a)(1) provides that in the case of an exchange to which
section 354 or 356 applies, the basis of the property to be received under such
section without the recognition of gain or loss is the same as that of the
property exchanged, decreased by (i) the fair market value of any other
property (except money) received by the taxpayer, (ii) the amount of any money
received by the taxpayer, and (iii) the amount of loss to the taxpayer which
was recognized on such exchange; and increased by (i) the amount which was
treated as a dividend, and (ii) the amount of gain to the taxpayer which was
recognized on the exchange (not including any portion of such gain which was
treated as a dividend).
Code section 1223(1) provides that in determining the period for which the
taxpayer has held property received in an exchange, there is included the
period for which he held the property exchanged if the property has, for
purposes of determining gain or loss from a sale or exchange, the same basis in
whole or in part in his hands as the property exchanged and the property
exchanged was a capital asset as defined in section 1221 or property described
in section 1231.
<PAGE> 15
[LOGO] KPMG PEAT MARWICK LLP
Page 15
Board of Directors
MOMED Holding Co.
September 25, 1996
OPINION
Based on the above facts, representations, and assumptions, including the
assumption that MAIC common stock issued in the Merger (including the MAIC
shares issued to MOMEDICO) is valued at $8,785,919 or higher at the time of the
Merger, it is our opinion that:
(1) The acquisition by NEWCO of substantially all of the assets of MOMED
solely in exchange for MAIC stock, cash, and the assumption by NEWCO of the
liabilities of MOMED plus the liabilities to which the MOMED assets may be
subject, will qualify as a reorganization under sections 368(a)(1)(A) and
368(a)(2)(D) of the Code. For this purpose, (a) "substantially all" means
at least 90 percent of the fair market value of the net assets and at least
70 percent of the fair market value of the gross assets of MOMED
immediately prior to the Merger; and (b) amounts used by MOMED to pay
reorganization expenses and dissenting shareholders, if any, will be
included as assets held by MOMED immediately prior to the Merger. Cash
paid by MAIC to MOMED shareholders in lieu of shares of MAIC stock will not
be taken into account in determining whether the "substantially all"
requirement of section 368(a)(2)(D) is met. Revenue Ruling 77-307. MOMED,
MAIC, and NEWCO will each be "a party to a reorganization" within the
meaning of section 368(b).
(2) A MOMED shareholder who receives solely MAIC common shares (including any
fractional share interest to which he may be entitled) will recognize no
gain or loss upon his exchange of MOMED stock solely for shares of MAIC
stock. Section 354(a) of the Code.
(3) If a MOMED shareholder receives both cash (other than cash in lieu of a
fractional share of MAIC stock) and MAIC stock in exchange for his MOMED
stock, gain will be recognized, but in an amount not in excess of the
amount of cash received. Section 356(a)(1) of the Code. If the exchange
has the effect of the distribution of a dividend (determined with the
application of section 318), then the amount of gain recognized that is not
in excess of the MOMED shareholder's ratable share of undistributed
earnings and profits of MOMED will be treated as a dividend. Section
356(a)(2) of the Code. The determination of whether the exchange has the
effect of the distribution of a dividend will be made on a shareholder by
shareholder basis in accordance with the principles enunciated in
Commissioner v. Clark, 489 US 726 (1989). No loss will be recognized.
Section 356(c) of the Code.
(4) The basis of the MAIC stock received by the shareholders of MOMED
(including any fractional shares to which they may be entitled) will be
the same as the basis of the MOMED stock surrendered in exchange therefor
decreased by the amount of
<PAGE> 16
[LOGO] KPMG PEAT MARWICK LLP
Page 16
Board of Directors
MOMED Holding Co.
September 25, 1996
cash received by the shareholder and increased by the amount, if any, that
was treated as a dividend and the amount of gain recognized to the
shareholder on the exchange (not including any portion of such gain that
is treated as a dividend). Section 358(a)(1) of the Code.
(5) The holding period of the MAIC stock received by MOMED shareholders
(including any fractional shares to which they may be entitled) will
include the period during which the MOMED stock surrendered in exchange
therefor was held by the MOMED shareholders, provided that the MOMED stock
surrendered was a capital asset in the hands of the MOMED shareholders on
the date of the exchange. Section 1223(1) of the Code.
(6) If a shareholder makes a Cash Election or dissents to the transaction and
receives solely cash in exchange for MOMED stock, such cash will be treated
as having been received as a distribution in redemption of the MOMED stock,
subject to the provisions of section 302 of the Code. Where, as a result
of such distribution, a shareholder owns no MAIC stock, either directly or
by reason of the application of section 318, the redemption will be a
complete termination of interest within the meaning of section 302(b)(3)
and, provided neither MOMED nor MAIC is a collapsible corporation as
defined in section 341(b), such cash will be treated as a distribution in
full payment in exchange for his or her MOMED stock as provided in section
302(a). Such shareholders will recognize gain or loss under section 1001
measured by the difference between the amount of cash received and the
adjusted basis of the MOMED stock surrendered. Revenue Ruling 74-515.
(7) Cash received by shareholders of MOMED in lieu of fractional shares of
MAIC common stock will be treated as if the fractional shares were
actually issued by MAIC and then redeemed by MAIC for cash. These cash
payments will be treated as having been received in exchange for the
redeemed fractional share interests under section 302(a), provided
MAIC is not a collapsible corporation as defined in section 341(b).
Revenue Ruling 66-365 and Revenue Procedure 77-41.
*****
The opinions expressed above are rendered only with respect to the specific
matters discussed herein, and we express no opinion with respect to any other
Federal or state income tax or legal aspect of the transaction. If any of the
above-stated facts, circumstances, representations, or assumptions are not
entirely complete or accurate, it is imperative that we be informed
immediately, as the inaccuracy or incompleteness could have a material effect
on our conclusions. In rendering our opinion, we are relying upon the relevant
provisions of the Internal Revenue Code of 1986, as amended, the
<PAGE> 17
[LOGO] KPMG PEAT MARWICK LLP
Page 17
Board of Directors
MOMED Holding Co.
September 25, 1996
regulations thereunder, and judicial and administrative interpretations
thereof, which are subject to change or modification by subsequent legislative,
regulatory, administrative, or judicial decisions. Any such changes could also
have an effect on the validity of our opinion. KPMG does not undertake any
responsibility to update this opinion in the event of any such subsequent
change.
/s/ KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
WHEREAS, Missouri Medical Insurance Company (herein ("MOMEDICO") desires
to obtain the services of a President and Chief Executive Officer on a
full-time basis, and
WHEREAS, Bradley DeMonbrun Ltd., a Missouri Corporation with offices at
1034 South Brentwood Boulevard, St. Louis, Missouri 63117 (herein "DEMONBRUN")
is in the business of arranging for executives in its employee to be provided
to other corporations and businesses on a full-time basis, and
WHEREAS, MOMEDICO has been offered (by DeMonbrun) the services of Richard
V. Bradley, M.D. and it desires to obtain the services of Richard V. Bradley,
M.D., or other suitable person as its full-time President and Chief Executive
Officer pursuant to this contract between MOMEDICO and DEMONBRUN, and
WHEREAS, the parties hereto have considered all aspects of the needs of
MOMEDICO and the background and qualifications of the executive (herein
"Bradley") whose services are to be provided as President and Chief Executive
Officer,
NOW, THEREFORE, on this 1st day of October, 1986, the parties agree as
follows:
1. PURPOSE OF AGREEMENT AND STATUS OF PARTIES: DeMonbrun shall provide
to MOMEDICO the services of Richard V. Bradley,
<PAGE> 2
M.D., for the purposes and period of time provided herein. Dr. Bradley is and
shall remain an employee of DeMonbrun, his employer. Dr. Bradley is an
independent contractor as to MOMEDICO, and although he shall function as its
President and Chief Executive Officer and as such, its agent and
representative, he shall not be an employee of MOMEDICO and nothing contained
herein shall be construed to create an employer-employee relationship between
MOMEDICO and Dr. Bradley.
2. TITLE: DeMonbrun shall provide the services Richard V. Bradley, M.D.,
or other suitable person approved by MOMEDICO to serve as its President and
Chief Executive Officer, effective October 1, 1986.
3. DUTIES: Richard V. Bradley, M.D., (as MOMEDICO's President and Chief
Executive Officer) shall be responsible for all aspects of the operation of
MOMEDICO, subject to the direction and control of its Board of Directors.
4. COMPENSATION: DeMonbrun shall receive as compensation for the
services of its employee (Bradley), an annual aggregate amount of $126,973.92,
which shall be paid in monthly installments, commencing October 1, 1986.
5. FRINGE BENEFITS: As an independent contractor, Richard V. Bradley,
M.D.,, shall receive no direct employee benefits from MOMEDICO. By being a
signatory to this Agreement, Bradley
2
<PAGE> 3
acknowledges that any fringe benefits in connection with his services as
President and Chief Executive Officer of MOMEDICO shall be provided by his
employer, DeMonbrun.
6. EXECUTIVE TIME REQUIREMENTS: DeMonbrun agrees that Bradley shall be
available full-time and devote his efforts exclusively to the management of
MOMEDICO, after June 30, 1987. MOMEDICO agrees that Bradley may be excused
from his duties for twenty (20) working days (4 weeks) per year without
reduction of the compensation of DeMonbrun provided herein. Such time off by
Bradley may be accrued to a maximum amount of sixty (60) working days. No
reduction in compensation to DeMonbrun shall occur by reason of such time off
provided herein. It is agreed that Bradley shall be allowed sufficient time to
effect an orderly transfer of his medical practice between now and June 30,
1987, no reduction in compensation to DeMonbrun shall occur by reason of
Bradley's activities in transferring his medical practice or other time off
provided herein.
7. CLUB MEMBERSHIP: MOMEDICO shall provide a corporate club membership
for use of Bradley in the business of MOMEDICO, and MOMEDICO shall pay for such
club membership costs.
8. INCIDENTAL EXPENSES: DeMonbrun shall bill MOMEDICO for all of the
incidental expenses of Bradley incurred by him in furtherance of MOMEDICO
business, including, but not limited to, the attendance of two (2) medical
professional meetings per year
3
<PAGE> 4
and two (2) AMA meetings annually. All other reasonable and customary
incidental expenses incurred by Bradley in performance of his duties for
MOMEDICO shall also be billed by DeMonbrun to MOMEDICO and reimbursed by
MOMEDICO to DeMonbrun.
9. TERM OF AGREEMENT: This Agreement shall be and remain in effect for
twelve (12) months from the date of execution, subject to termination as
provided in Paragraph 10. Unless terminated by written notice sixty (60) days
prior to anniversary date, the Agreement shall automatically renew for a period
of one (1) year.
10. TERMINATION OF AGREEMENT: At any time prior to the expiration of the
then current term of this Agreement, the Agreement may be terminated as
follows:
A. By mutual consent of DeMonbrun and MOMEDICO.
B. Immediately upon Bradley's death, provided that in such event that
Company shall cause the compensation to DeMonbrun provided for in
Paragraph 4 of this Agreement to be paid to DeMonbrun for the period
through the end of the month in which Bradley's death occurs.
C. By MOMEDICO upon thirty (30) days' prior written notice in the event
Bradley, by reason of physical or mental disability, shall be unable
to perform the services required hereunder. In the event of
disagreement concerning the existence of any such disability, the
4
<PAGE> 5
matter shall be resolved by a disinterested licensed physician agreed
upon by the parties. In the event the parties are unable to agree
upon such a physician, the parties shall each choose a physician, who
shall together choose a third, and the three physicians so chosen
shall settle the matter by majority vote. The existence of such a
disability shall be conclusively presumed in the event either (i)
Bradley is entitled to payment of benefits under Social Security or
any disability insurance policy program carried by DeMonbrun or
others, or (ii) Bradley is unable to perform his duties for a total
of sixty (60) or more calendar days (whether or not consecutive)
during any period of one hundred eighty (180) consecutive calendar
days, whether as a result of one or more illnesses, ailments or
causes. The Board, in its discretion, may waive the provision of
this paragraph 10c. In the event of any such termination MOMEDICO
shall cause the compensation to DeMonbrun provided for in Paragraph 4
of this Agreement to be paid to it for the period through the date of
termination.
D. By either party upon thirty (30) days' prior written notice for good
cause. "Good cause" shall be deemed to exist in the event of fraud,
dishonesty, willful misconduct, or continuing and material breach of
the
5
<PAGE> 6
terms of this Agreement on the part of DeMonbrun and its
employees. The actions of Bradley in this regard shall be deemed to
be the actions of DeMonbrun. No action to terminate this Agreement
for good cause shall be taken by either party unless it has given
prior notice of its intent to take such action to the other party and
has allowed the other party a reasonable opportunity to present its
views on the subject.
E. By DeMonbrun, with or without cause, upon sixty (60) days' prior
written notice.
F. By MOMEDICO without cause upon one hundred eighty (180) days written
notice, provided that DeMonbrun shall be entitled to six (6) months'
aggregate compensation after the effective date of such termination.
Immediately upon the effective date of any such termination, without
cause all other obligations of the parties, including the obligation
of MOMEDICO to pay any compensation or other costs to DeMonbrun
accruing after the date of such termination, shall cease.
G. In the event of proper termination of this Agreement other than as
provided in Section E or F above (whether such termination is
initiated by the DeMonbrun or MOMEDICO and regardless of the reason
for such termination), DeMonbrun shall only be entitled to receive
such compensation as is owing under Paragraph 4
6
<PAGE> 7
of this Agreement which accrues through the date of such
termination. Unless otherwise specifically agreed by MOMEDICO in
writing, any bonus applicable to the services provided by Bradley
shall be deemed to have accrued only in the event that the entire
period to which the bonus applies has lapsed prior to the date of
termination.
11. BONUS: DeMonbrun shall be entitled to participate in any annual bonus
plan established by the Board of Directors for officers or employees of
MOMEDICO, even though DeMonbrun and Bradley are not employees. Such bonus is
wholly discretionary with the Board of Directors and the terms of such bonus
plan, if and when established, may be altered, changed, or the plan may be
terminated at any time the Board of Directors elects to do so.
12. ASSIGNMENTS:
A. This Agreement and MOMEDICO's rights and obligations hereunder shall
be freely assignable by MOMEDICO to, and shall inure to the benefit
of, and be binding upon any third-party which shall succeed to the
ownership of MOMEDICO or the business conducted by it. Without
limiting the generality of the foregoing, the Agreement may be
assigned and transferred to any entity which may acquire all or any
substantial part of MOMEDICO's business, whether in connection with a
merger or
7
<PAGE> 8
consolidation, sale of assets, dissolution or liquidation of MOMEDICO
or in any other form of transaction.
B. As this Agreement is a contract for services of the employee of
another corporation and the skills and duties of such person and
unique, the rights and obligations of DeMonbrun shall not be
assignable without the prior written consent of MOMEDICO.
13. GOVERNING LAW: This Agreement shall be interpreted in accordance with
and governed by the laws of the State of Missouri.
14. NOTICES: Any notice given by either party hereunder shall be in
writing and shall be personally delivered, telexed, wired, or mailed (certified
or registered air mail, postage prepaid), as follows:
If to DeMonbrun: Bradley DeMonbrun Ltd.
1034 S. Brentwood Blvd.
St. Louis, Missouri 63117
If to MOMEDICO: Chairman, Board of Directors
Missouri Medical Insurance Co.
10795 Watson Road
St. Louis, Missouri 63127
Attention: Mr. David P. Bounk
Executive Vice President
or to such other address as may have been furnished to the other party by
written notice in the same manner set forth above.
8
<PAGE> 9
15. COUNTERPARTS: This Agreement may be executed in one or more identical
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Instrument.
16. ENTIRE AGREEMENT: This Agreement contains the entire Agreement of the
parties as respects. No modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing specifically
referring hereto, and signed by both parties.
17. NON-DISCLOSURE: DeMonbrun and its employee acknowledge and agree that
(a) all records and other material not released to the general public and (b)
all trade secrets, confidential and proprietary information, unpublished date
and information, in each case relating to MOMEDICO's operations, services and
business, whether reduced to writing or not, are confidential and are the sole
property of MOMEDICO. DeMonbrun and its employees agree that they will not
disclose any of such information to any person or entity, either during or
subsequent to the effective termination date of this Agreement, nor will they
use any such information, except in the regular course of Bradley's services to
MOMEDICO, without MOMEDICO's written consent. Bradley agrees not to make use
of, except on behalf of MOMEDICO, such information and upon termination of
Bradley as an employee of
9
<PAGE> 10
DeMonbrun he shall surrender, all such records, material, data and information,
and any copies thereof, as may be in his possession or under his control.
IN WITNESS WHEREOF, DeMonbrun, MOMEDICO and have executed this Agreement
as of the day and year first above written.
MISSOURI MEDICAL INSURANCE
COMPANY
Attest:
/s/ David P. Bounk BY /s/ Howard J. McAlhany, M.D.
- --------------------------------- ----------------------------------
CHAIRMAN, BOARD OF DIRECTORS
BRADLEY DeMONBRUN LTD.
1034 S. Brentwood Blvd.
St. Louis, Missouri 63117
Attest:
/s/ Carre J. Bratzke BY /s/ Richard V. Bradley, M.D.
- --------------------------------- ----------------------------------
Richard V. Bradley, M.D.
President
10
<PAGE> 11
ADDENDUM OF DECEMBER 19, 1989 TO
AN EMPLOYMENT AGREEMENT BETWEEN MISSOURI MEDICAL
INSURANCE COMPANY AND BRADLEY DeMONBRUN LTD.
WHEREAS, Missouri Medical Insurance Company (herein "MOMEDICO") and
Bradley DeMONBRUN, Ltd. (herein "DeMONBRUN"), entered into an EMPLOYMENT
AGREEMENT effective October 1, 1986, whereby the services of Richard V.
Bradley, M.D. (herein "BRADLEY") are to be provided by DeMONBRUN and all
references to BRADLEY are intended to refer to his status as an employee of
DeMONBRUN, and said Agreement was modified by addenda on or about June 30,
1987, and on or about January 1, 1989, and
WHEREAS, the parties desire to further amend and modify said Agreement,
NOW, THEREFORE, the parties agree as follows:
1. ADDITIONAL PARTIES: MOMED Holding Co. (herein "HOLDING CO.") shall
become a party to this Agreement and be bound by its terms to the same extent
and in all respects as MOMEDICO.
2. ADDITIONAL DUTIES: All duties to be performed by BRADLEY for MOMEDICO
and all positions to be held by BRADLEY with MOMEDICO shall also be performed
and held by him for HOLDING CO.
3. ADDITIONAL OBLIGATIONS: All obligations of MOMEDICO under said
Agreement shall become joint and concurrent obligations of HOLDING CO.
4. PURPOSE OF AGREEMENT AND STATUS OF PARTIES:
The purpose of the Agreement is to assure the continued
<PAGE> 12
availability of BRADLEY to serve as HOLDING CO.'s President and Chief Executive
Officer, or in such other or additional positions or capacities as HOLDING CO.,
with the mutual agreement of its Board of Directors and DeMONBRUN, may from
time to time determine, and to set forth the terms under which such employment
shall occur.
5. TITLE:
BRADLEY shall have the title of President and Chief Executive Officer,
initially, and such new or additional titles as may be assigned to him.
6. DUTIES:
BRADLEY, (as HOLDING CO.'s President and Chief Executive Officer) shall be
responsible for all aspects of the operations of HOLDING CO. and its
subsidiaries, subject to the direction and control of the Board of Directors,
performing such duties as from time to time may be assigned to him. DeMONBRUN
agrees that BRADLEY'S position with HOLDING CO. is a full-time position. With
the exception of his duties as an Officer and Director of DeMONBRUN, he shall
devote his full time and effort exclusively to the performance of his duties as
President and Chief Executive Officer of HOLDING CO., or to such other
assignments and duties as the Board of Directors of HOLDING CO. may assign him.
DeMONBRUN agrees that BRADLEY shall not to undertake any other
2
<PAGE> 13
work, or accept any position, during his employment with HOLDING CO. which
would detract from his ability to perform his duties described herein or which
would be inconsistent with such duties, or otherwise be inappropriate or be in
any way detrimental to the public perception of HOLDING CO. and its Executive
Officers, in the sole and exclusive discretion of the Board of Directors of
HOLDING CO. The decision of HOLDING CO. regarding such other activities shall
be final and binding.
7. COMPENSATION:
DeMONBRUN shall receive as compensation for BRADLEY'S services for the
calendar year 1990 an annual base compensation of $149,935.34 which shall be
paid in monthly installments, commencing October 1, 1989. Commencing no later
than January 1, 1991, such annual base compensation shall be recommended by the
Compensation Committee with the input of the Executive Vice President and Chief
Operating Officer and approved by the Board of Directors. Such annual base
compensation shall be increased or decreased annually on January 1 of each
calendar year by the amount of the increase or decrease in the Consumer Price
Index reported for the twelve months immediately preceding.
8. ANNUAL COMPENSATION REVIEW:
On or about January 1 of each calendar year, commencing January 1, 1991,
DeMONBRUN shall receive a review of BRADLEY'S
3
<PAGE> 14
performance for the preceding calendar year. The purpose of such review shall
be to determine whether BRADLEY's performance and other relevant circumstances
warrant an increase in DeMONBRUN'S base compensation for that calendar year.
The determination of whether such increase shall be made, the amount thereof,
and the criteria for determining the amount of such increase, if any, shall
originate with the Compensation Committee with input of the Executive Vice
President and Chief Operating Officer, and shall be subject to final approval
of the Board of Directors.
9. ANNUAL BONUS:
For the purpose of determining the advisability of payment by HOLDING CO.
to DeMONBRUN of additional compensation by way of a bonus, an annual review of
BRADLEY'S performance as President and Chief Executive Officer shall be
conducted o later than thirty (30) days following each calendar year of
employment. Such bonus, if awarded, shall be based upon the recommendation of
the Compensation Committee, with input of the Executive Vice President and
Chief Operating Officer and must be approved by the Board of Directors. Any
bonus shall take into consideration the after tax profitability of HOLDING
CO.'s operations during the preceding fiscal year in combination with all other
aspects of BRADLEY's performance of his duties. The provision for an annual
review for consideration of a bonus is not intended, nor
4
<PAGE> 15
is it warranted to be, a guarantee of the payment of an annual bonus.
10. COMPANY AUTOMOBILE:
HOLDING CO. desires that its Executives have available for their use a
safe, reliable and presentable automobile. DeMONBRUN shall be provided for
BRADLEY'S use an automobile which is equivalent to the top of the line 4 door
passenger automobile manufactured by Oldsmobile or such other model of
automobile which is substantially equivalent thereto. The selection of such
automobile shall be approved by the Chairman of the Board of HOLDING CO. The
automobile may be owned or leased by HOLDING CO., and its upkeep, maintenance,
and all costs of operation including licenses, insurance and taxes, shall be
paid by HOLDING CO.
11. COMPANY TRAVEL:
HOLDING CO. anticipates that it will be necessary for BRADLEY to make
numerous trips during the year on HOLDING CO. business which travel will
necessarily require BRADLEY to be absent from his home and family. HOLDING CO.
deems it appropriate to allow BRADLEY to be accompanied on two (2) such
business trips annually by his spouse, in which event the travel expenses
incurred for the spouse shall be reimbursed to DeMONBRUN by HOLDING CO. In
order to obtain such reimbursement, the trip
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<PAGE> 16
by the accompanying spouse must be approved by the Chairman of the Board of
HOLDING CO. in advance. Only one such spousal trip shall be made outside of
the continental United States of America.
12. TERM OF AGREEMENT:
This Agreement shall be and remain in effect for three (3) years from
January 1, 1990, unless terminated sooner pursuant to other applicable
provisions herein.
13. TERMINATION OF EMPLOYMENT:
Paragraph 13 of the original Agreement and all addenda thereto is deleted
and shall be replaced as follows:
"At any time prior to the expiration of the current term of this
Agreement, the employment of BRADLEY may be terminated as follows:
A. By mutual consent of HOLDING CO. and DeMONBRUN.
B. Immediately upon BRADLEY's death, provided that in such event
HOLDING CO. shall cause the compensation to DeMONBRUN in effect
at that time to continue for the period through the end of the
month in which BRADLEY's death occurs.
C. Upon thirty (30) days prior written notice in the event BRADLEY,
by reason of physical or mental disability, shall be unable to
perform the
6
<PAGE> 17
services required hereunder. In the event of disagreement
concerning the existence of any such a disability, the matter
shall be resolved by a disinterested licensed physician agreed
upon by the parties. In the event the parties are unable to
agree upon such a physician, the parties shall each choose a
physician, who shall together choose a third, and the three
physicians so chosen shall settle the matter by majority vote.
The existence of such a disability shall be conclusively
presumed in the event either (i) BRADLEY is entitled to payment
of disability benefits under Social Security or any disability
insurance program provided by DeMONBRUN or (ii) BRADLEY is
unable to perform his duties for a total of sixty (60) or more
calendar days (whether or not consecutive) during any period of
one hundred eighty (180) consecutive calendar days, whether as a
result of one or more illnesses, ailments or causes. The Board
of Directors of HOLDING CO., in its discretion, may waive the
provision of this Paragraph 13C. In the event of any such
termination HOLDING CO. shall cause the
7
<PAGE> 18
compensation to DeMONBRUN provided for in this Agreement
to be paid through the date of such termination.
D. By either party for "good cause" upon thirty (30) days prior
written notice to the other party. "Good cause" with respect to
HOLDING CO. shall mean requiring BRADLEY to perform any unlawful
act or to participate in any unlawful transaction or a
continuing and material breach of the terms of this Agreement on
the part of HOLDING CO. or its employees. "Good cause" with
respect to DeMONBRUN shall be deemed to exist in the event of
fraud, dishonesty, willful misconduct on the part of BRADLEY or
DeMONBRUN, or continuing and material breach of the terms of
this Agreement on the part of DeMONBRUN. No action to terminate
this Agreement for good cause shall be taken by either party
unless it has given prior notice of its intent to take such
action to the other party and has allowed the other party a
reasonable opportunity to present its views on the subject.
E. In the event, MOMEDICO or HOLDING CO. is acquired by purchase of
all the assets or purchase of all
8
<PAGE> 19
or a controlling portion of the outstanding stock of either of
such companies and DeMONBRUN's contract for the services of
BRADLEY is terminated by the purchaser or party acquiring
control, then DeMONBRUN shall receive at the time of such
termination of this Agreement as fair and reasonable damages the
sum of $100,00.00 (One Hundred Thousand and no/100ths Dollars).
In the event of such acquisition the provisions of the
Non-Competition Agreement contained in Paragraph 15 shall not be
applicable to or binding upon DeMONBRUN or BRADLEY.
F. In the event that DeMONBRUN's contract for BRADLEY's services is
terminated without cause under Paragraph 13 and not due to the
circumstances described in 13E, than DeMONBRUN shall receive its
base compensation in effect on the date of such termination for
the balance of the thirty-six (36) month term of this Agreement.
14. NON-COMPETITION AGREEMENT:
In the event BRADLEY's services as provided by DEMONBRUN are terminated
for cause or pursuant to Paragraph 13E, neither DeMONBRUN or BRADLEY shall
become an agent, representative,
9
<PAGE> 20
employee or participant, directly or indirectly, in the business of
Professional Medical Liability Insurance or other lines of business in which
COMPANY or its subsidiaries are engaged, in the State of Missouri, for the
balance of any of the three (3) year term of this Agreement or any extension
thereof.
15. GOVERNING LAW:
This Agreement shall be interpreted in accordance with and governed by the
laws of the State of Missouri.
16. PRIOR AGREEMENTS:
All provisions and terms of the "Agreement" not modified or deleted hereby
shall remain in full force and effect.
MISSOURI MEDICAL INSURANCE COMPANY
Attest: /s/ David P. Bounk
------------------------- By: /s/ Howard J. McAlhany, M.D.
--------------------------------
CHAIRMAN, BOARD OF DIRECTORS
MOMED HOLDING CO.
Attest: /s/ David P. Bounk
------------------------- By: /s/ Howard J. McAlhany
--------------------------------
CHAIRMAN, BOARD OF DIRECTORS
BRADLEY DeMONBRUN LTD.
1034 S. Brentwood Blvd.
St. Louis, Missouri 63117
Attest: /s/ Lori McCutchen
------------------------- BY: /s/ Richard V. Bradley, M.D.
--------------------------------
Richard V. Bradley, M.D.
President
10
<PAGE> 21
2. Paragraph 13E of the Addendum of December 19, 1989 is hereby modified
to read as follows:
"E. In the event Missouri Medical Insurance Company or MOMED Holding Co.
is acquired by purchase of all the assets or purchase of all or a
controlling share of the outstanding stock of such Companies and Bradley's
services are not retained (as a leased employee from DeMONBRUN), then
DeMONBRUN shall receive sixty (60) days written notice of non-retention,
after which sixty (60) days it shall receive its monthly compensation for
the balance of the Agreement then in effect and DeMONBRUN's cost of
continued major medical insurance coverage for Bradley for 180 days at
COMPANY's cost, as fair and reasonable severance compensation. In the
event of such acquisition, the provisions of the Non-Competition clauses
contained in all prior Agreements, addenda or modifications thereto shall
not be applicable or binding on DeMONBRUN."
3. PRIOR AGREEMENTS:
All provisions and terms of the "Agreement" and all prior amendments and
modifications, not modified or deleted hereby, shall remain in full force and
effect.
MISSOURI MEDICAL INSURANCE COMPANY
Attest: /s/ Karen Svoboda
------------------------- By: /s/ Howard J. McAlhany, M.D.
-----------------------------------
CHAIRMAN, BOARD OF DIRECTORS
MOMED HOLDING CO.
Attest: /s/ Karen Svoboda
------------------------- By: /s/ Howard J. McAlhany, M.D.
-----------------------------------
CHAIRMAN, BOARD OF DIRECTORS
BRADLEY DeMONBRUN LTD.
1034 S. Brentwood Blvd.
St. Louis, Missouri 63117
Attest: /s/ Karen Svoboda
------------------------- By: /s/ Richard V. Bradley, M.D.
-----------------------------------
Richard V. Bradley, M.D., President
<PAGE> 22
ADDENDUM NO. 6 TO AN EMPLOYMENT AGREEMENT
BETWEEN BRADLEY DeMONBRUN LTD AND
MISSOURI MEDICAL INSURANCE COMPANY
DATED OCTOBER 1, 1986
Pursuant to resolution of the Board of Directors of MOMED Holding Co.
dated December 10, 1993, the parties agree that the Bradley DeMONBRUN Ltd.
Agreement be extended for two years to expire in October 1996; that the
compensation presently provided under the Bradley DeMONBRUN, Ltd. Agreement be
increased three percent (3%) annually, effective October 1, 1993.
Dated: October 1, 1993
-------------------------
MISSOUR MEDICAL INSURANCE COMPANY
BY: /s/ Howard E. Linville, M.D.
-----------------------------------
CHAIRMAN, BOARD OF DIRECTORS
MOMED HOLDING CO.
BY: /s/ Howard E. Linville, M.D.
-----------------------------------
CHAIRMAN, BOARD OF DIRECTORS
BRADLEY DeMONBRUN, LTD.
BY: /s/ Richard V. Bradley, M.D.
-----------------------------------
RICHARD V. BRADLEY, PRESIDENT
<PAGE> 23
ADDENDUM NUMBER 5 DATED OCTOBER 1, 1991
TO AN EMPLOYMENT AGREEMENT
BETWEEN MISSOURI MEDICAL INSURANCE COMPANY
AND BRADLEY DeMONBRUN LTD
WHEREAS, Missouri Medical Insurance Company (herein "MOMEDICO") and
Bradley DeMONBRUN, Ltd. (herein "DeMONBRUN"), entered into an EMPLOYMENT
AGREEMENT effective October 1, 1986, whereby the services of Richard V.
Bradley, M.D. (herein "BRADLEY") are to be provided by DeMONBRUN and all
references to BRADLEY are intended to refer to his status as an employee of
DeMONBRUN, and said Agreement was modified by addenda on or about June 30,
1987, on or about January 1, 1989, December 19, 1989, and October 23, 1990, and
WHEREAS, the parties desire to further amend and modify said Agreement,
NOW, THEREFORE, the parties agree as follows:
1. In consideration of the increase of six percent (6%) in annual
compensation to become effective October 1, 1991, and the extension of term of
employment herein, the parties agree that the term of this agreement is
extended for an additional year, whereby the three-year term will end on
October 1, 1993.
2. PRIOR AGREEMENTS:
All provisions and terms of the "Agreement" and all prior amendments and
modifications, not modified or deleted hereby, shall remain in full force and
effect.
MISSOURI MEDICAL INSURANCE COMPANY
Attest: /s/ M.E. Stokes
---------------------- BY: /s/ Howard J. McAlhany, M.D.
------------------------------------
CHAIRMAN, BOARD OF DIRECTORS
<PAGE> 24
MOMED HOLDING CO.
Attest: /s/ M.E. Stokes
--------------------- BY: /s/ Howard J. McAlhany, M.D.
------------------------------------
CHAIRMAN, BOARD OF DIRECTORS
BRADLEY DeMONBRUN LTD.
1034 S. Brentwood Blvd.
St. Louis, Missouri 63117
Attest: /s/ M.E. Stokes
---------------------- BY: /s/ Richard V. Bradley, M.D.
------------------------------------
Richard V. Bradley, M.D., President
2
<PAGE> 25
ADDENDUM NO. 8 TO AN EMPLOYMENT AGREEMENT
BETWEEN BRADLEY DeMONBRUN, LTD. AND MISSOURI
MEDICAL INSURANCE COMPANY DATED AUGUST 1, 1990
Pursuant to a resolution of the Board of Directors of MOMED Holding Co.
dated September 8, 1995, the parties agree that the term of this agreement is
extended for an additional year to expire in October, 1998; that the
compensation presently provided under the Agreement be increased three percent
(3%) annually, effective October 1, 1995; making the annual base compensation
$204,234.42.
Dated: March 11, 1996
----------------------
MISSOURI MEDICAL INSURANCE COMPANY
BY: /s/ Howard E. Linville, M.D.
-----------------------------------
Chairman, Board of Directors
MOMED HOLDING CO.
BY: /s/ Howard E. Linville, M.D.
------------------------------------
Chairman, Board of Directors
BRADLEY DeMONBRUN, LTD.
/s/ Richard V. Bradley, M.D.
----------------------------------------
Richard V. Bradley, President
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
WHEREAS, MOMED Holding Co. (herein sometimes "COMPANY") desires to
obtain the services of a Vice President Finance and Administration, on a
full-time basis, commencing September 10, 1990 and
WHEREAS, Kriete H. Hollrah (herein "Hollrah") is to be employed as
Vice President, Finance and Administration of MOMED Holding Co.,
NOW, THEREFORE, on this 10th day of September, 1990, the parties agree
as follows:
1. PURPOSE OF AGREEMENT AND STATUS OF PARTIES:
The purpose of the Agreement is to assure the continued availability
of Hollrah to serve as COMPANY'S Vice President, Finance and Administration, or
in such other or additional positions or capacities as the COMPANY, with the
mutual agreement of its Board of Directors and Hollrah, may from time to time
determine, and to set forth the terms under which such employment shall occur.
2. TITLE:
Hollrah shall have the title of Vice President, Finance and
Administration, initially.
3. DUTIES:
Hollrah, (as COMPANY'S Vice President, Finance and Administration)
shall be responsible for accounting, financial reporting and records and
administration of COMPANY and its subsidiaries, subject to the direction and
control of the President and the Board of Directors, performing such duties as
from time to time may be assigned to him. Hollrah agrees that his position
with COMPANY is a full-time position. He agrees to devote his full time and
effort exclusively to the performance of his duties as Vice President, Finance
and Administration of COMPANY, or to such other assignments and duties as the
President with the consent of the Board of Directors may assign him. He agrees
not to undertake any other work, or accept any position, during his employment
with COMPANY which would detract from his ability to perform his duties
described herein or which would be inconsistent with such duties, or otherwise
inappropriate in the sole and exclusive discretion of the Board of Directors or
be in any way detrimental to the public perception of COMPANY and its
<PAGE> 2
Executive Officers. The decision of COMPANY regarding such other activities
shall be final and binding.
4. COMPENSATION:
Hollrah shall receive as annual compensation for his services, base
compensation of $80,000.00 (Eighty Thousand and no/100ths Dollars).
5. FRINGE BENEFITS:
In addition to the amount of the annual base compensation, Hollrah
shall receive all general employee benefits which are presently provided or may
be provided in the future to employees of COMPANY.
6. ANNUAL COMPENSATION REVIEW.
On the annual anniversary of his date of first employment, in 1991,
Hollrah shall receive a review of his performance as an employee for the
preceding year. The purpose of such review shall be to determine Hollrah's
performance and other relevant circumstances which may warrant an increase in
his base compensation for the next 12 months of his contract term. The
determination of whether such increase shall be made and the criteria for
determining the amount of such increase, if any, shall reside with the
COMPANY's Compensation Committee with input of the President and Chief
Executive Officer, subject to final approval of the Board of Directors.
7. CLUB MEMBERSHIP:
COMPANY shall provide a corporate club membership in a health,
recreational or luncheon club for use by Hollrah and COMPANY shall pay the
approved dues of such membership. Hollrah shall select the particular club and
such selection shall require the approval of the Board of Directors with input
from the President and Chief Executive Officer.
8. VACATIONS:
Hollrah shall receive fifteen (15) working days (3 weeks) per year of
vacation time without reduction of compensation. After an additional two (2)
consecutive years of employment with COMPANY, Hollrah shall receive five (5)
additional days as vacation and after five (5) consecutive years with COMPANY,
Hollrah shall receive five (5) additional working days vacation.
2
<PAGE> 3
If accrued vacation time is not taken by Hollrah as allowed during any calendar
year, such vacation time shall be forfeited.
9. COMPANY AUTOMOBILE:
COMPANY desires that is Executive employees have available for their
use a safe, reliable and presentable automobile. Hollrah shall be provided
with an automobile which is equivalent to the mid-sized 4 door passenger
automobile manufactured by Oldsmobile or such other model of automobile which
is substantially equivalent thereto. Such automobile shall be approved by the
Chief Executive Officer of COMPANY. Such automobile may be owned or leased by
COMPANY. Hollrah shall be reimbursed for licenses, insurance, taxes, gas, oil
and maintenance incurred for company business, by COMPANY. In lieu of such
automobile, Hollrah may elect to receive a monthly automobile allowance of
$500.00, and pay all expenses of ownership, maintenance and operation, except
allowable business mileage which will be reimbursed at the current mileage
schedule as documented by this expense account.
10. COMPANY TRAVEL:
COMPANY anticipates that it will be necessary for Hollrah to make
numerous trips during the year on COMPANY business which travel will
necessarily require Hollrah to be absent from his home and family. COMPANY
deems it appropriate to allow Hollrah to be accompanied on one (1) such
business trip annually by his spouse, in which event the travel expenses
incurred for the spouse shall be reimbursed to Hollrah by COMPANY. In order to
obtain such reimbursement, the trip by the accompanying spouse must be approved
by the Chief Executive Officer in advance.
11. TERM OF AGREEMENT:
This Agreement shall be and remain in effect for three (3) years from
September 10, 1990, unless terminated sooner pursuant to other applicable
provisions herein.
12. TERMINATION OF EMPLOYMENT:
At any time prior to the expiration of this Agreement, the employment
of Hollrah may be terminated as follows:
A. By mutual consent of COMPANY and Hollrah.
3
<PAGE> 4
B. Immediately upon Hollrah's death, provided that in such
event COMPANY shall cause the compensation to Hollrah in
effect at that time to continue for the period through
the end of the month in which Hollrah's death occurs.
C. Upon thirty (30) days prior written notice in the event
Hollrah, by reason of physical or mental disability,
shall be unable to perform the services required
hereunder. In the event of disagreement concerning the
existence of any such a disability, the matter shall be
resolved by a disinterested licensed physician agreed
upon by the parties. In the event the parties are unable
to agree upon such a physician, the parties shall each
choose a physician, who shall together choose a third,
and the three physicians so chosen shall settle the
matter by majority vote. The existence of such a
disability shall be conclusively presumed in the event
either (i) Hollrah is entitled to payment of benefits
under Social Security or any disability insurance program
provided by COMPANY, or (ii) Hollrah is unable to perform
his duties for a total of sixty (60) or more calendar
days (whether or not consecutive) during any period of
one hundred eighty (180) consecutive calendar days,
whether as a result of one or more illnesses, ailments or
causes. The Board of Directors, in its discretion, may
waive the provision of this paragraph 13C. In the event
of any such termination COMPANY shall cause the
compensation to Hollrah provided for in this Agreement to
be paid through the date of such termination.
D. By either party upon thirty (30) days prior written
notice to the other party for "good cause." "Good cause"
with respect to COMPANY shall mean requiring Hollrah to
perform any unlawful act or to participate in any
unlawful transaction or a continuing and material breach
of the terms of this Agreement on the part of COMPANY or
its employees. "Good cause" with respect to Hollrah shall
be deemed to exist in the event of fraud, dishonesty,
willful misconduct, or continuing and material breach of
the terms of this Agreement on the part of Hollrah. No
action
4
<PAGE> 5
to terminate this Agreement for good cause shall be
taken by either party unless it has given prior notice of
its intent to take such action to the other party and has
allowed the other party a reasonable opportunity to
present its views on the subject.
E. In the event Missouri Medical Insurance Company or
MOMED Holding Co. is acquired by purchase of all the
assets or purchase of all or a controlling share of the
outstanding stock of such Companies and Hollrah is not
retained as an employee by the purchaser, then Hollrah
shall receive sixty (60) days' written notice of
non-retention, after which sixty (60) days he shall
receive his base monthly compensation as of the date of
termination for the balance of the 36 month term of the
Agreement and continued major medical insurance coverage
for 180 days at COMPANY's cost, as fair and reasonable
severance compensation. In the event of such acquisition,
the provisions of the Non- Competition Agreement
contained in Paragraph 14 shall not be applicable or
binding on Hollrah.
F. In the event that Hollrah's employment is terminated
without cause under Paragraph 12 and not due to the
circumstances described in Paragraph 12E, then Hollrah
shall receive his base compensation as of the date of
termination for the balance of the 36 month term of the
Agreement and continued major medical insurance coverage
for 180 days at COMPANY's cost.
13. ASSIGNMENTS:
A. This Agreement and COMPANY's rights and obligations
hereunder shall be freely assignable by COMPANY to, and
shall inure to the benefit of, and be binding upon any
third-party which shall succeed to the ownership of
COMPANY or the business conducted by it. Without
limiting the generality of the foregoing, the Agreement
may be assigned and transferred to any entity which may
acquire all or any substantial part of COMPANY's
business, whether in connection with a merger or
consolidation, sale of assets, dissolution or
5
<PAGE> 6
liquidation of COMPANY or in any other form of
transaction.
B. As this Agreement is a contract for services of Hollrah
and the skills and duties of Hollrah are unique, the
rights and obligations of Hollrah shall not be
assignable.
14. NON-COMPETITION AGREEMENT:
In the event of Hollrah's discharge for cause, Hollrah shall not
become an agent, representative, employee or participant, directly or
indirectly, in the business of acting as the carrier for Professional Medical
Liability Insurance for physicians or other lines of business in which COMPANY
or its subsidiaries are engaged, in any state in which COMPANY does business,
for the balance of any of the three (3) year term of this Agreement or any
extension thereof.
15. GOVERNING LAW:
This Agreement shall be interpreted in accordance with and governed by
the laws of the State of Missouri.
16. NOTICES:
Any notice given by either party hereunder shall be in writing and
shall be personally delivered, faxed, wired, or mailed (certified or registered
mail, postage prepaid), as follows:
If to MOMED Holding Co.: Chairman, Board of Directors
Momed Holding Co.
10795 Watson Road
St. Louis, Missouri 63127
Attention: Richard V. Bradley, M.D.,
President and Chief Executive Officer
If to Hollrah: Kriete H. Hollrah
217 Stoney View Court
St. Louise, Missouri 63146
6
<PAGE> 7
or to such other address as may have been furnished to the other party by
written notice in the same manner set forth above.
17. COUNTERPARTS:
This Agreement may be executed in one or more identical counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same Instrument.
18. ENTIRE AGREEMENT:
This Agreement contains the entire Agreement of the parties in all
respects. No modification, amendment or waiver of any of the provisions of
this Agreement shall be effective unless in writing specifically referring
hereto, and signed by both parties.
19. NON-DISCLOSURE:
Hollrah acknowledges and agrees that (a) all records and other
materials not released to the general public and (b) all trade secrets,
confidential and proprietary information, unpublished data and information,
relating to COMPANY's operations, services and business, whether reduced to
writing or not, are confidential and are the sole property of COMPANY. Hollrah
agrees that he will not disclose any of such information to any person or
entity, either during or subsequent to the effective termination date of this
Agreement, nor will he use any such information, except in the regular course
of his employment by COMPANY, without COMPANY's written consent. Hollrah
agrees that upon termination of his employment he shall surrender all such
records, materials, data and information, and any copies thereof, as may be in
his possession or under his control.
20. WINDING UP ACCOUNTING PRACTICE:
Hollrah requires time to arrange for an orderly transfer of his
accounting practice. Hollrah may take reasonable time as may be necessary to
accomplish this, including, but not limited to, meeting with former clients or
others, to assist in conclusion of former clients' transactions. Such
activities shall be concluded as soon as reasonably possible and Hollrah shall
schedule such activities so as to avoid interference with the performance of
his duties for COMPANY.
7
<PAGE> 8
21. CONTINUING EDUCATIONAL REQUIREMENTS AND PROFESSIONAL
DUES AND FEES:
Hollrah shall be allowed sufficient time during each year of his
employment to allow him to fulfill the requirements for continuing education as
required to maintain his license as a Certified Public Accountant and his
membership in the American Institute of Certified Public Accountants and the
Missouri Society of Certified Public Accountants. Such continued educational
activities shall be scheduled so as to avoid interference with his duties and
at times approved by the President.
COMPANY shall pay the annual dues and/or fees necessary for Hollrah to
maintain his membership in the American Institute of Certified Public
Accountants and the Missouri Society of Certified Public Accountants.
IN WITNESS WHEREOF, Hollrah, and COMPANY have executed this Agreement
as of the day and year first above written.
Attest:
/s/ Kriete H. Hollrah
--------------------------------------
/s/ Tamara K. Ray Kriete H. Hollrah
- ---------------------------------
MOMED Holding Co.
Attest:
/s/ Tamara K. Ray BY: /s/ Richard V. Bradley, M.D.
- --------------------------------- -----------------------------------
PRESIDENT and CHIEF EXECUTIVE OFFICER
8
<PAGE> 9
ADDENDUM TO AN EMPLOYMENT AGREEMENT
DATED SEPTEMBER 10, 1990
In consideration of the increase in annual compensation to become
effective September 10, 1991, and the extension of term of employment herein,
the parties agree that the term of this agreement is extended for an additional
year, whereby the three-year term will end on September 10, 1994.
MOMED HOLDING CO.
BY: /s/ Richard V. Bradley, M.D.
-------------------------------------
President and Chief Executive Officer
/s/ Kriete H. Hollrah
-------------------------------------
Kriete H. Hollrah
<PAGE> 10
ADDENDUM NO. 2 TO AN EMPLOYMENT AGREEMENT
BETWEEN KRIETE H. HOLLRAH AND MOMED HOLDING CO.
DATED SEPTEMBER 10, 1990
Pursuant to resolution of the Board of Directors of MOMED Holding Co.
dated September 10, 1993, the parties agree that the term of this agreement is
extended for an additional two years, whereby the three-year term will end on
September 10, 1996.
Dated: September 16, 1993
----------------------
MOMED HOLDING CO.
BY:/s/ Richard V. Bradley, M.D.
-------------------------------------
President and Chief Executive Officer
/s/ Kriete H. Hollrah
-------------------------------------
Kriete H. Hollrah
<PAGE> 11
ADDENDUM NO. 3 TO AN EMPLOYMENT AGREEMENT
BETWEEN KRIETE H. HOLLRAH AND MOMED HOLDING CO.
DATED SEPTEMBER 10, 1990
Pursuant to a resolution of the Board of Directors of MOMED Holding
Co. dated August 16, 1994, the parties agree that the term of this agreement is
extended for an additional year to expire in September, 1997; that the
compensation presently provided under the Agreement be increased three percent
(3%) annually, effective September 1, 1994.
Dated: September 10, 1994
----------------------
MOMED HOLDING CO.
BY: /s/ Richard V. Bradley, M.D.
-------------------------------------
President and Chief Executive Officer
/s/ Kriete H. Hollrah
-------------------------------------
Kriete H. Hollrah
<PAGE> 12
MODIFICATION OF APRIL 1, 1994 TO
AN EMPLOYMENT AGREEMENT BETWEEN MOMED HOLDING CO.
AND KRIETE H. HOLLRAH
DATED SEPTEMBER 10, 1990
WHEREAS, MOMED Holding Co. (herein "HOLDING CO.") and KRIETE H.
HOLLRAH (herein "HOLLRAH") entered into an EMPLOYMENT AGREEMENT effective
September 10, 1990, and said Agreement was modified by addenda on or about
September 10, 1991 and September 10, 1993, and
WHEREAS, the parties desire to further amend and modify said
Agreement,
NOW, THEREFORE, in consideration of continuation of the Employment
Agreement for the balance of its term, the parties agree as
1. Paragraph 9 of the Employment Agreement dated September 10,
1990 is hereby modified to read as follows:
"9. COMPANY AUTOMOBILE:
COMPANY desires that its Executive employees have available for their
use a safe, reliable and presentable automobile. HOLLRAH shall be
provided with an automobile for his use. Such automobile shall be
approved by the Chief Executive Officer of COMPANY. Such automobile
may be owned or leased by COMPANY. HOLLRAH shall be reimbursed for
its upkeep, maintenance, oil and gasoline for allowable
business-related mileage only, but not personal mileage, and all costs
of operation including licenses, insurance and taxes, subject to a
total monthly limit of Six Hundred and Fifty Dollars
<PAGE> 13
($650.00). In lieu of such automobile, HOLLRAH may elect to receive a
monthly automobile allowance of Six Hundred and Fifty Dollars
($650.00), and pay all expenses of ownership, maintenance and
operation. Gasoline for allowable business-related mileage only will
be reimbursed as documented by his expense account."
2. PRIOR AGREEMENTS:
All provisions and terms of the "Agreement" and all prior amendments
and modifications, not modified or deleted hereby, shall remain in full force
and effect.
Dated:
-------------------------
MOMED HOLDING CO.
BY:
-------------------------------------
President and Chief Executive Officer
------------------------------------
KRIETE H. HOLLRAH
2
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
WHEREAS, MOMED Holding Co. (herein sometimes "COMPANY") desires to obtain
the services of a Vice President Claims on a full-time basis, and
WHEREAS, Russell L. Oldham (herein "Oldham") is presently employed as Vice
President Claims of MOMED Holding Co. and desires to continue in such position.
NOW, THEREFORE, on this 1st day of August 1990, the parties agree as
follows:
1. PURPOSE OF AGREEMENT AND STATUS OF PARTIES:
The purpose of the Agreement is to assure the continued availability of
Oldham to serve as COMPANY'S Vice President Claims, or in such other or
additional positions or capacities as the COMPANY, with the mutual agreement of
its Board of Directors and Oldham, may from time to time determine, and to set
forth the terms under which such employment shall occur.
2. TITLE:
Oldham shall have the title of Vice President, Claims.
3. DUTIES:
Oldham, (as COMPANY's Vice President Claims) shall be responsible for all
of the operations of the Claim Department, including budgetary and personnel
matters, subject to the direction and control of the President and the Board of
Directors, performing such duties as from time to time may be assigned to him.
Oldham agrees that his position with COMPANY is a full-time position. He
agrees to devote his full time and effort exclusively to the performance of his
duties as Vice President Claims of COMPANY, or to such other assignments and
duties as the President with the consent of the Board of Directors may assign
him. He agrees not to undertake any other work, or accept any position, during
his employment with COMPANY which would detract from his ability to perform his
duties described herein or which would be inconsistent with such duties, or
otherwise inappropriate in the sole and exclusive discretion of the Board of
Directors or be in any way detrimental to the
<PAGE> 2
public perception of COMPANY and its Executive Officers. The decision of
COMPANY regarding such other activities shall be final and binding.
4. COMPENSATION:
Oldham is receiving as compensation for his services for the contract year
August 1, 1990 to August 1, 1991, an annual base compensation of $70,000
(Seventy thousand and no/100ths Dollars) which has been and shall continue to
be paid in monthly installments.
5. FRINGE BENEFITS:
In addition to the amount of the annual base compensation, Oldham shall
receive all general employee benefits which are presently provided or may be
provided in the future to employees of COMPANY.
6. ANNUAL COMPENSATION REVIEW:
On the anniversary of his date of first employment, Oldham shall receive a
review of his performance as an employee for the preceding contract year. The
purpose of such review shall be to determine Oldham's performance and other
relevant circumstances which warrant an increase in his base compensation for
the next calendar year. The determination of whether such increase shall be
made and the criteria for determining the amount of such increase, if any,
shall reside with the Compensation Committee with input of the President and
Chief Executive Officer, subject to final approval of the Board of Directors.
7. CLUB MEMBERSHIP:
COMPANY shall provide a corporate club membership in a health,
recreational or luncheon club for use by Oldham and COMPANY shall pay the
approved dues of such membership. Oldham shall select the particular club and
such selection shall require the approval of the Board of Directors with input
from the President and Chief Executive Officer.
2
<PAGE> 3
8. VACATIONS:
Oldham shall receive fifteen (15) working days (3 weeks) per year of
vacation time without reduction of compensation. After April 1, 1991, Oldham
shall receive five (5) additional days as vacation and after five (5)
additional consecutive years with COMPANY, Oldham shall receive five (5)
additional working days vacation. If accrued vacation time is not taken by
Oldham as allowed during any calendar year, such vacation time shall be
forfeited.
9. COMPANY AUTOMOBILE:
COMPANY desires that its Executive employees have available for their use
a safe, reliable and presentable automobile . Oldham shall be provided with an
automobile which is equivalent to the mid-sized 4 door passenger automobile
manufactured by Oldsmobile or such other model of automobile which is
substantially equivalent thereto. Such automobile shall be approved by the
Chief Executive Officer of COMPANY. Such automobile may be owned or leased by
COMPANY. Oldham shall be reimbursed for licenses, insurance, taxes, gas, oil
and maintenance incurred for company business, by COMPANY. In lieu of such
automobile, Oldham may elect to receive a monthly automobile allowance of
$500.00, and pay all expenses of ownership, maintenance and operation except
allowable business mileage which will be reimbursed at the current mileage
schedule as documented by his expense account.
10. COMPANY TRAVEL:
COMPANY anticipates that it will be necessary for Oldham to make numerous
trips during the year on COMPANY business which travel will necessarily require
Oldham to be absent from his home and family. COMPANY deems it appropriate to
allow Oldham to be accompanied on one such business trip annually by a guest,
in which event the travel expenses incurred for the guest shall be reimbursed
to Oldham by COMPANY. In order to obtain such reimbursement, the trip by the
accompanying guest must be approved by the Chief Executive Officer in advance.
3
<PAGE> 4
11. TERM OF AGREEMENT:
This Agreement shall be and remain in effect for three (3) years from
August 1, 1990, unless terminated sooner pursuant to other applicable
provisions herein.
12. TERMINATION OF EMPLOYMENT:
At any time prior to the expiration of the current term of this Agreement,
the employment of Oldham may be terminated as follows:
A. By mutual consent of COMPANY and Oldham.
B. Immediately upon Oldham's death, provided that in such event
COMPANY shall cause the compensation to Oldham in effect at that
time to continue for the period through the end of the month in
which Oldham's death occurs.
C. Upon thirty (30) days prior written notice in the event Oldham,
by reason of physical or mental disability, shall be unable to
perform the services required hereunder. In the event of
disagreement concerning the existence of any such a disability,
the matter shall be resolved by a disinterested licensed
physician agreed upon by the parties. In the event the parties
are unable to agree upon such a physician, the parties shall
each choose a physician, who shall together choose a third, and
the three physicians so chosen shall settle the matter by
majority vote. The existence of such a disability shall be
conclusively presumed in the event either (i) Oldham is entitled
to payment of benefits under Social Security or any disability
insurance program provided by COMPANY, or (ii) Oldham is unable
to perform his duties for a total of sixty (60) or more calendar
days (whether or not consecutive calendar days, whether as a
result of one or more illnesses, ailments or causes. The Board
of Directors, in its discretion, may waive the provision of this
paragraph 12C. In the event of any such termination COMPANY
shall cause the
4
<PAGE> 5
compensation to Oldham provided for in this Agreement to be
paid through the date of such termination.
D. By either party upon thirty (30) days prior written notice to
the other party for "good cause." "Good cause" with respect to
COMPANY shall mean requiring Oldham to perform any unlawful act
or to participate in any unlawful transaction or a continuing
and material breach of the terms of this Agreement on the part
of COMPANY or its employees. "Good cause" with respect to
Oldham shall be deemed to exist in the event of fraud,
dishonesty, willful misconduct, or continuing and material
breach of the terms of this Agreement on the part of Oldham. No
action to terminate this Agreement for good cause shall be taken
by either party unless it has given prior notice of its intent
to take such action to the other party and has allowed the other
party a reasonable opportunity to present its views on the
subject.
E. In the event Missouri Medical Insurance Company or MOMED Holding
Co. is acquired by purchase of all the assets or purchase of
all or a controlling share of the outstanding stock of such
Companies and Oldham is not retained as an employee by the
purchaser, then Oldham shall receive sixty (60) days' written
notice of non-retention, after which sixty (60) days he shall
receive his base monthly compensation as of the date of
termination for the balance of the thirty-six month term of the
Agreement and continued major medical insurance coverage for 180
days at COMPANY's cost, as fair and reasonable severance
compensation. In the event of such acquisition, the provisions
of the Non-Competition Agreement contained in Paragraph 14 shall
not be applicable or binding on Oldham.
F. In the event that Oldham's employment is terminated without
cause under Paragraph 12 and not due to the circumstances
described in Paragraph 12E, then Oldham shall receive his base
compensation as of the date of termination for the balance of
the thirty-six month term of the
5
<PAGE> 6
Agreement and continued major medical insurance coverage for
180 days at COMPANY's cost.
13. ASSIGNMENTS:
A. This Agreement and COMPANY's rights and obligations hereunder
shall be freely assignable by COMPANY to, and shall inure to the
benefit of, and be binding upon any third-party which shall
succeed to the ownership of COMPANY or the business conducted by
it. Without limiting the generality of the foregoing, the
Agreement may be assigned and transferred to any entity which
may acquire all or any substantial part of COMPANY's business,
whether in connection with a merger or consolidation, sale of
assets, dissolution or liquidation of COMPANY or in any other
form of transaction.
B. As this Agreement is a contract for services of Oldham and the
skills and duties of Oldham are unique, the rights and
obligations of Oldham shall not be assignable.
14. NON-COMPETITION AGREEMENT:
In the event of Oldham's discharge for cause, Oldham shall not become an
agent, representative, employee or participant, directly or indirectly, in the
business of acting as the carrier for Professional Medical Liability Insurance
for physicians or other lines of business in which COMPANY or its subsidiaries
are engaged, in any state in which COMPANY does business, for the balance of
any of the three (3) term of this Agreement or any extension thereof.
15. GOVERNING LAW:
This Agreement shall be interpreted in accordance with and governed by the
laws of the State of Missouri.
6
<PAGE> 7
16. NOTICES:
Any notice given by either party hereunder shall be in writing and shall
be personally delivered, faxed, wired, or mailed (certified or registered mail,
postage prepaid), as follows:
If to MOMED Holding Co.: Chairman, Board of
Directors
Momed Holding Co.
10795 Watson Road
St. Louis, Missouri 63127
Attention: Richard V. Bradley,
M.D., President and Chief
Executive Officer
If to Oldham: Russell L. Oldham
12767 Bennington Common Lane
St. Louis, Missouri 63146
or to such other address as may have been furnished to the other party by
written notice in the same manner set forth above.
17. COUNTERPARTS:
This Agreement may be executed in one or more identical counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same Instrument.
18. ENTIRE AGREEMENT:
This Agreement contains the entire Agreement of the parties in all
respects. No modification, amendment or waiver of any of the provisions of
this Agreement shall be effective unless in writing specifically referring
hereto, and signed by both parties.
19. NON-DISCLOSURE:
Oldham acknowledges and agrees that (a) all records and other materials
not released to the general public and (b) all
7
<PAGE> 8
trade secrets, confidential and proprietary information, unpublished data and
information, relating to COMPANY's operations, services and business, whether
reduced to writing or not, are confidential and are the sole property of
COMPANY. Oldham agrees that he will not disclose any of such information to
any person or entity, either during or subsequent to the effective termination
date of this Agreement, nor will he use any such information, except in the
regular course of his employment by COMPANY, without COMPANY's written consent.
Oldham agrees that upon termination of his employment he shall surrender all
such records, materials, data and information, and any copies thereof, as may
be in his possession or under his control.
IN WITNESS WHEREOF, Oldham, and COMPANY have executed this Agreement as of
the day and year first above written.
Attest:
/s/ Russell L. Oldham
/s/ Tamara K. Ray -------------------------------------
- ------------------------------- Russell L. Oldham
MOMED Holding Co.
Attest:
/s/ Tamara K. Ray BY: /s/ Richard V. Bradley, M.D.
- -------------------------------- ---------------------------------
PRESIDENT and CHIEF EXECUTIVE OFFICER
8
<PAGE> 9
ADDENDUM TO AN EMPLOYMENT AGREEMENT
DATED AUGUST 1, 1990
In consideration of the increase in annual compensation to become
effective August 1, 1991, and the extension of term of employment herein, the
parties agrees that the term of this agreement is extended for an additional
year, whereby the three-year term will end on August 1, 1994.
MOMED HOLDING CO.
BY: /s/ Richard V. Bradley, M.D.
-----------------------------------
President and Chief Executive
Officer
/s/ Russell L. Oldham
---------------------------------------
Russell L. Oldham
<PAGE> 10
ADDENDUM NO. 2 TO AN EMPLOYMENT AGREEMENT
BETWEEN RUSSELL L. OLDHAM AND MOMED HOLDING CO.
DATED AUGUST 1, 1990
Pursuant to resolution of the Board of Directors of MOMED Holding Co.
dated September 10, 1993, the parties agree that the Employment Agreement with
Mr. Russell L. Oldham be extended two years to expire August 6, 1996 and that
his annual salary be increased to Eighty-One Thousand Seven Hundred Ninety-Five
Dollars ($81,795.00);
Dated:
------------------------
MOMED HOLDING CO.
BY: /s/ Richard V. Bradley, M.D.
-----------------------------------
President and Chief Executive
Officer
/s/ Russell L. Oldham
---------------------------------------
Russell L. Oldham
<PAGE> 11
ADDENDUM NO. 3 TO AN EMPLOYMENT AGREEMENT
BETWEEN RUSSELL L. OLDHAM AND MOMED HOLDING CO.
DATED AUGUST 1, 1990
Pursuant to a resolution of the Board of Directors of MOMED Holding Co.
dated August 16, 1994, the parties agree that the term of this agreement is
extended for an additional year to expire in August, 1997; that the
compensation presently provided under the Agreement be increased three percent
(3%) annually, effective August 1, 1994.
Dated: September 10, 1994
----------------------
MOMED HOLDING CO.
BY: /s/ Richard V. Bradley, M.D.
-----------------------------------
President and Chief Executive
Officer
/s/ Russell L. Oldham
---------------------------------------
Russell L. Oldham
<PAGE> 12
MODIFICATION OF APRIL 1, 1994 TO
AN EMPLOYMENT AGREEMENT BETWEEN MOMED HOLDING CO.
AND RUSSELL L. OLDHAM
DATED AUGUST 1, 1990
WHEREAS, MOMED Holding Co. (herein "HOLDING CO.") and RUSSELL L. OLDHAM
(herein "OLDHAM") entered into an EMPLOYMENT AGREEMENT effective August 1,
1990, and said Agreement was modified by addenda on or about September 10, 1991
and September 10, 1993, and
WHEREAS, the parties desire to further amend and modify said Agreement,
NOW, THEREFORE, in consideration of continuation of the Employment
Agreement for the balance of its term, the parties agree as follows:
1. Paragraph 9 of the Employment Agreement dated August 1, 1990 is
hereby modified to read as follows:
"9. COMPANY AUTOMOBILE:
COMPANY desires that its Executive employees have available for their
use a safe, reliable and presentable automobile. OLDHAM shall be provided
with an automobile for his use. Such automobile shall be approved by the
Chief Executive Officer of COMPANY. Such automobile may be leased by
COMPANY. OLDHAM shall be reimbursed for its upkeep, warranties,
maintenance, oil and all other costs of operation including licenses,
insurance and taxes, subject to a total monthly limit of Six Hundred
Dollars ($600.00). In lieu of such automobile, OLDHAM may elect to
receive a monthly automobile allowance of Six Hundred Dollars ($600.00),
and pay all expenses of ownership, maintenance
<PAGE> 13
and operation. Gasoline for allowable business-related mileage only
will be reimbursed as documented by his expense account."
2. PRIOR AGREEMENTS: All provisions and terms of the "Agreement" and
all prior amendments and modifications, not modified or deleted hereby, shall
remain in full force and effect.
Dated: April 1, 1996
----------------------
MOMED HOLDING CO.
BY: /s/ Richard V. Bradley, M.D.
-----------------------------------
President and Chief Executive
Officer
/s/ Russell L. Oldham
---------------------------------------
RUSSELL L. OLDHAM
2
<PAGE> 1
EXHIBIT 10.8
THE PRINCIPAL
D FINANCIAL GROUP
E PROTOTYPE
F BASIC DEFINED
I BENEFIT PLAN
N
E
D
====================================================
B
E
N
E
F
I
T
BASIC PLAN NO.: 02 TO BE USED WITH
ADOPTION AGREEMENT PLAN NOS.: 001-002
APPROVED: SEPTEMBER 12, 1991
<PAGE> 2
UNILATERAL AMENDMENT - MODEL AMENDMENT TO COMPLY WITH
SECTION 401(a)(17) OF THE INTERNAL REVENUE CODE AS AMENDED BY
THE OMNIBUS BUDGET RECONCILIATION ACT OF 1993
Principal Mutual Life Insurance Company hereby amends, effective as of January
1, 1994, the following prototype plans and by such amendment, amends each
retirement plan set forth on any such prototype by an adopting employer:
<TABLE>
<CAPTION>
THE PRINCIPAL FINANCIAL GROUP PROTOTYPE FOR:
<S> <C> <C>
Defined Benefit Plans - Nonintegrated Letter Serial No.: D359699A Plan No.: 002 Basic Plan No.: 02
Defined Benefit Plans - Integrated Letter Serial No.: D359698A Plan No.: 001 Basic Plan No.: 02
</TABLE>
ARTICLE I: The following is added to the definition of PAY:
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on and after January 1, 1994, the annual pay of each employee taken
into account under the plan shall not exceed the OBRA '93 annual pay limit. The
OBRA '93 annual pay limit is $150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with section 401(a)(17)(B) of the
Internal Revenue Code. The cost of living adjustment in effect for a calendar
year applies to any period, not exceeding 12 months, over which pay is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual pay
limit will be multiplied by a fraction, the numerator of which is the number of
months in the determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in this
plan to the limitiation under section 401(a)(17) of the Code shall mean the
OBRA '93 annual pay limit set forth in this provision.
If pay for any prior determination period is taken into account in determining
an employee's benefits accruing in the current plan year, the pay for that
prior determination period is subject to the OBRA '93 annual pay limit in
effect for that prior determination period. For this purpose, for determination
periods beginning before the first day of the first plan year beginning on or
after January 1, 1994, the OBRA '93 annual pay limit is $150,000.
ARTICLE IV: The following is added to the Minimum Accrued Benefit under the
ACCRUED BENEFITS SECTION of Article IV:
Notwithstanding any other provision in the plan, if the Plan does not apply one
of the fresh start formulas in section 1.401(a)(4)-13(c)(4) of the regulations
to determine the accrued benefit of each employee under the Plan on the last
day of the last Plan Year beginning before January 1, 1994, each section 401
(a)(17) employee's accrued benefit under this plan will be the greater of:
(a) the employee's accrued benefit as of the last day of the last plan year
beginning before January 1, 1994, frozen in accordance with section
1.401(a)(4)-13 of the regulations, or
(b) the employee's accrued benefit determined with respect to the benefit
formula applicable for the plan year beginning on or after January 1,
1994, as applied to the employee's total years of service taken into
account under the plan for purposes of benefit accruals.
A section 401(a)(17) employee means an employee whose current accrued benefit
as of a date on or after the first day of the first plan year beginning on or
after January 1, 1994, is based on pay for a year beginning prior to the first
day of the first plan year beginning on or after January 1, 1994, that exceeded
$150,000.
Executed by PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY on
April 8, 1994
- ---------------------------------
by /s/ Roger Jacobsen
------------------------------
Officer
<PAGE> 3
UNILATERAL AMENDMENT - MODEL AMENDMENT TO COMPLY WITH
SECTION 401(A)(31) OF THE INTERNAL REVENUE CODE
AS ADDED BY THE UNEMPLOYMENT COMPENSATION AMENDMENTS OF 1992
Principal Mutual Life Insurance Company hereby amends, effective as of January
1, 1993, the following prototype plans and by such amendment, amends each
retirement plan set forth on any such prototype by an adopting employer:
<TABLE>
<CAPTION>
The Principal Financial Group Prototype for:
<S> <C> <C> <C>
Profit Sharing Plans - Plus Letter Serial No.: D347613B Plan No.: 003 Basic Plan No.: 01
Profit Sharing Plans - Standardized Letter Serial No.: D247614B Plan No.: 004 Basic Plan No.: 01
Savings Plans - Plus Letter Serial No.: D347609B Plan No.: 001 Basic Plan No.: 03
Savings Plans - Standardized Letter Serial No.: D247610B Plan No.: 002 Basic Plan No.: 03
Money Purchase Plan - Plus Letter Serial No.: D347611B Plan No.: 001 Basic Plan No.: 01
Money Purchase Plans - Standardized Letter Serial No.: D247612B Plan No.: 002 Basic Plan No.: 01
Target Plans - Plus Letter Serial No.: D360921A Plan No.: 005 Basic Plan No.: 01
Target Plans - Standardized Letter Serial No.: D260922A Plan No.: 006 Basic Plan No.: 01
Defined Benefit Plans - Nonintegrated Letter Serial No.: D359699A Plan No.: 002 Basic Plan No.: 02
Defined Benefit Plans - Integrated Letter Serial No.: D359698A Plan No.: 001 Basic Plan No.: 02
</TABLE>
ARTICLE I: The following words and phrases are added to the DEFINITIONS section
of Article I:
DIRECT ROLLOVER: A Direct Rollover is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
DISTRIBUTEE: A Distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in section 414(p)
of the Code, are Distributees with regard to the interest of the spouse or
former spouse.
ELIGIBLE RETIREMENT PLAN: Eligible Retirement Plan is an individual retirement
account described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, an annuity plan described in
section 403(a) of the Code, or a qualified trust described in section 401 (a) of
the Code, that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to the surviving
spouse, an Eligible Retirement Plan is an individual retirement account or
individual retirement annuity.
ELIGIBLE ROLLOVER DISTRIBUTION: An Eligible Rollover Distribution is any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's designated Beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for not unrealized appreciation with respect to
employer securities).
ARTICLE IX: The following section is added as
SECTION 9.01A - DIRECT ROLLOVERS:
This section applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a Distributee's election under this section, a Distributee may elect, at
the time and in the manner prescribed by the Plan Administrator, to have any
portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan, specified by the Distributee in a Direct Rollover.
Executed by PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY on January 11, 1993 by
/s/ Owen M. Westman
-------------------
Officer
[LOGO] the Principal
Financial
Group
<PAGE> 4
INTRODUCTION
The provisions of this Plan apply as of the date specified in Item A or such
other dates as may be specified in this Plan with the following exceptions:
1. The provisions included to comply with the technical corrections to
the Deficit Reduction Act and the Retirement Equity Act (REA)
contained in the Tax Reform Act of 1986 are effective as if included
in the respective bills to which the corrections apply.
2. The provisions included to comply with the provisions of the Tax
Reform Act of 1986 other than the technical corrections to DEFRA and
REA are effective as of the dates specified in the law.
3. The provisions included to comply with the provisions Of the Omnibus
Budget Reconciliation Act of 1986 (OBRA 86) are effective as of the
dates specified in the law.
4. The provisions included to comply with the provisions of the Omnibus
Budget Reconciliation Act of 1987 (OBRA 87) are effective as of the
dates specified in the law.
5. The provisions included to comply with the final regulations on
optional forms of benefit issued July 11, 1988, are effective as of
the effective date prescribed by such regulations.
6. The provisions included to comply with the final REA regulations
issued August 22, 1988, are effective as of the effective date
prescribed by such regulations.
7. The provisions included to comply with the provisions of the Technical
and Miscellaneous Revenue Act of 1988 are effective as of the dates
specified in the law.
ARTICLE I
FORMAT AND DEFINITIONS
SECTION 1.01 - FORMAT.
Our retirement plan is set out in this document, the attached Adoption
Agreement which we signed, and any amendments to these documents.
Words and phrases defined in Section 1.02 shall have that defined meaning when
used in this Plan, unless the context clearly indicates otherwise. These words
and phrases have initial capital letters to aid in identifying them as defined
terms. References to "Section" are references to parts of this document;
references to "Item" are references to parts of the Adoption Agreement.
Some of the defined terms and phrases in Section 1.02 and some of the provisions
contained in the following articles do not apply to our Plan and shall have no
meaning when used in our Plan. The provisions of the attached Adoption
Agreement shall determine whether or not the terms apply.
SECTION 1.02 - DEFINITIONS.
ACCOUNT means the value of a Member's Voluntary Contributions and Rollover
Contributions. Separate accounting records shall be kept for those parts of the
Member's Account resulting from the following
(a) Nondeductible Voluntary Contributions, if any.
(b) Deductible Voluntary Contributions, if any.
(c) Rollover Contributions, if any.
The Account shall be reduced by the amount of any distribution of the Member's
Account. The Account shall be valued at least annually at current fair market
value or, at the discretion of the Trustee (Insurer if our Plan is not
trusteed), at more frequent intervals. Such valuation takes into consideration
earnings credited, expenses charged and any appreciation or depreciation of the
Account. The Account is subject to any minimum guarantees applicable under the
Annuity Contract or other investment arrangement
ACCRUAL BREAK means, when the elapsed time method is used, a one-year Period of
Severance beginning on an Employee's Severance Date. An Employee incurs an
Accrual Break on the last day of a one-year Period of Severance.
When the hours method is used, Accrual Break in service is defined in Item N.
An Employee incurs an Accrual Break on the last day of the Accrual Service
Period in which he has an Accrual Break in service.
ACCRUAL SERVICE means an Employee's service with us as defined in Item N.
Accrual Service shall be subject to the modifications selected under that item.
Accrual Service shall include a Period of Military Duty. If Accrual Service
includes only service while an Eligible Employee, then a Period of Military
Duty shall be counted only if the Employee was an Eligible Employee on the day
before the Period of Military Duty began. If Accrual Service includes only
service while an Active Member, then a Period of Military Duty shall be counted
only to the extent the Employee would have been an Active Member if his
employment with us had continued, unchanged, from the day immediately before
such Period of Military Duty began. If the hours method is used, an Hour of
Service shall be credited (without regard to the 501 Hours of Service
limitation) for each hour the Employee would normally have been scheduled to
work for us during such Period of Military Duty. If a part of a Period of
Military Duty has already been counted as Accrual Service, it shall not be
included again.
If the elapsed time method is used, the Accrual Service shall be the total of
the Employee's Periods of Service. Such total shall be equal to the period from
his Hire Date (the date the elapsed time method is first used, it later) to the
date Accrual Service is determined. This period shall be reduced by (a) any
part of a Period of Service which is excluded due to the service modifications
selected and by (b) any Period of Severance. These periods shall be expressed
in whole years and fractional parts of a year (to two decimal places) on the
basis that 365 days equal one year.
If Item O(3)(f) is selected and Accrual Service is determined using the elapsed
time method, Accrual Service during the one-year period specified in that item
shall be expressed as the number of complete days of the Employee's Accrual
Service during that period divided by 365.
- 1 -
<PAGE> 5
consecutive Accrual Breaks equals or exceeds his prior Accrual Service
(disregarding any Accrual Service that was excluded because of a previous period
of Accrual Breaks).
Accrual Service accrued before the first Yearly Date in 1985 and before an age
greater than 21 shall be excluded if the Prior Plan excluded such service.
However, service accrued after the Employee's Entry Date shall not be excluded
because of this provision.
ACCRUAL SERVICE PERIOD means the period defined in Item N.
ACCRUED BENEFIT means the amount of monthly retirement benefit on the Normal
Form accrued by an Active Member as of any date.
ACCRUED BENEFIT ADJUSTMENT means the adjustment which may be applied to
determine a Member's benefit. The Accrued Benefit Adjustment on any date shall
be equal to the quotient (to four decimal places) of (a) divided by (b):
(a) The Member's Accrual Service as of such date.
(b) The Member's potential Accrual Service as of the date he reaches
Normal Retirement Age, if he remains an Eligible Employee between the
date of determination and the date he reaches Normal Retirement Age
(Accrual Service as of such date, if such date is on or after the
date he reaches Normal Retirement Age) subject to any minimum provided
in Item P.
If Accrual Service is determined using the hours method, the Member's
potential Accrual Service shall be determined as of the last day of
the last Accrual Service Period ending before the date he reaches
Normal Retirement Age and prior to the date he reaches Normal
Retirement Age, changes in (b) above shall occur only on the first day
of an Accrual Service Period.
The Accrued Benefit Adjustment shall not exceed 1.00.
ACTIVE MEMBER means an Eligible Employee who is actively participating
in the Plan according to the provisions of Section 2.01.
ACTUARIAL EQUIVALENT means equality in value of the aggregate amounts
expected to be received under different forms of payment based on the
rates of interest and mortality (male table) used (as of the Annuity
Starting Date) by the Pension Benefit Guaranty Corporation for a
trusteed single-employer plan to value a benefit upon termination of
an insufficient trusteed single-employer plan. In the event the basis,
for determining Actuarial Equivalent is changed, Actuarial Equivalent
of the Member's Accrued Benefit on and after the date of the change
shall be determined as of the greater of (a) the Actuarial Equivalent
of the Accrued Benefit as of the date of the change computed on the
old basis, or (b) the Actuarial Equivalent of the total Accrued
Benefit computed on the new basis. The benefit from the Member's
Account on an optional form shall be the Actuarial Equivalent of the
benefit payable on the Normal Form using the purchase rates available
under the Annuity Contract.
ADJUSTMENT FACTOR means the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of
the Code for years beginning after December 31, 1987, as applied to
such items and in such manner as the Secretary shall provide.
ADOPTING EMPLOYER means an employer controlled by or affiliated with
us and listed in Item Z.
ADOPTION AGREEMENT means the attached document which contains our
selections and specifications for our Plan.
AFFILIATED SERVICE GROUP means any group of corporations, partnerships
or other organizations of which we are a part and which is affiliated
within the meaning of Code Section 414(m) and regulations thereunder.
Such a group includes at least two organizations one of which is
either a service organization (that is, an organization the principal
business of which is performing services), or an organization the
principal business of which is performing management functions on a
regular and continuing basis. Such service is of a type historically
performed by employees. In the case of a management organization, the
Affiliated Service Group shall include organizations related, within
the meaning of Code Section 144(a)(3), to either the management
organization or the organization for which it performs management
functions. The term Controlled Group, as it is used in our Plan, shall
include the term Affiliated Service Group.
ANNUITY CONTRACT means the annuity contract or contracts into which
the Trustee enters (into which we enter, if our Plan is not trusteed)
with the Insurer for the investment of Contributions and the payment
of benefits under this Plan. The term Annuity Contract as it is used in
this Plan shall include the plural unless the context clearly
indicates the singular is meant.
ANNUITY STARTING DATE means, for a Member, the first day of the first
period for which an amount is paid as an annuity or any other form.
The Annuity Starting Date for disability benefits shall be the date
such benefits commence if the disability benefit is not an auxiliary
benefit. An auxiliary benefit is a disability benefit which does not
reduce the benefit payable at Normal Retirement Age.
AVERAGE PAY means the average of the Employee's Monthly Pay as defined
in Item M.
BENEFICIARY means the person or persons named by a Member to receive
any benefits under the Plan when the Member dies. (See Section 9.06.)
CLAIMANT means any person who makes a claim for benefits under this
Plan. (See Section 8.04.)
CODE means the Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT means an individual named by a Member to receive
a lifetime benefit according to a survivorship life annuity after the
Member dies.
CONTRIBUTIONS means Employer, Required, Voluntary and Rollover
Contributions, unless the context clearly indicates only one is, or
certain of these are, meant.
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TABLE OF CONTENTS
<TABLE>
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INTRODUCTION 1
ARTICLE I - FORMAT AND DEFINITIONS 1
Section 1.01 - Format
Section 1.02 - Definitions
ARTICLE II - MEMBERSHIP 10
Section 2.01 - Active Membership
Section 2.02 - Ceasing Active Membership
Section 2.03 - Adopting Employers - Separate Plans
Section 2.04 - Adopting Employers - Single Plan
ARTICLE III - CONTRIBUTIONS 11
Section 3.01 - Employer Contributions
Section 3.02 - Required Contributions by Members
Section 3.03 - Voluntary Contributions by Members
Section 3.04 - Rollover Contributions
Section 3.05 - Investment of Contributions
Section 3.06 - Funding Policy
ARTICLE IV - RETIREMENT BENEFITS 13
Section 4.01 - Accrued Benefit
Section 4.01 A - Required Contribution Accrued Benefit
Section 4.02 - Disregard of Accrued Benefit
Section 4.03 - Benefit Limit
Section 4.04 - Amount of Benefit at Retirement
Section 4.05 - Temporary Limit on Benefits
Section 4.06 - Benefits upon Reemployment after Retirement Date
ARTICLE V - OTHER BENEFITS 20
Section 5.01 - Death Benefits
Section 5.02 - Vested Benefits
Section 5.03 - Disability Benefits
ARTICLE VI - WHEN BENEFITS START AND DISTRIBUTION 23
OF BENEFITS
Section 6.01 - When Benefits Start
Section 6.02 - Automatic Forms of Distribution
Section 6.03 - Optional Forms of Distribution and Distribution Requirements
Section 6.04 - Election Procedures
Section 6.05 - Notice Requirements
Section 6.06 - Transitional Rules
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VII - TERMINATION OF PLAN 30
ARTICLE VIII - ADMINISTRATION OF PLAN 30
Section 8.01 - Administration
Section 8.02 - Records
Section 8.03 - Information Available
Section 8.04 - Claim and Appeal Procedures
Section 8.05 - Delegation of Authority
ARTICLE VIIIA - TRUST PROVISIONS 31
Section 8A.01 - The Trust and Trust Fund
Section 8A.02 - The Trustee
Section 8A.03 - Duties of Trustee
Section 8A.04 - Powers of Trustee
Section 8A.05 - Expenses
Section 8A.06 - Accounting
ARTICLE IX - GENERAL PROVISIONS 32
Section 9.01 - Amendments
Section 9.02 - Mergers and Direct Transfers
Section 9.03 - Provisions Relating to the Insurer and Other Parties
Section 9.04 - Employment Status
Section 9.05 - Rights to Plan Assets
Section 9.06 - Beneficiary
Section 9.07 - Nonalienation of Benefits
Section 9.08 - Construction
Section 9.09 - Legal Actions
Section 9.10 - Small Amounts
Section 9.11 - Word Usage
Section 9.12 - Transfers Between Plans
Section 9.13 - Partnership or Sole Proprietorship
Section 9.14 - Qualification of Plan
Article X - TOP-HEAVY PLAN REQUIREMENTS 36
Section 10.01 - Application
Section 10.02 - Definitions
Section 10.03 - Modification of Vesting Requirements
Section 10.04 - Modification of Pay and Accrued Benefit
Section 10.05 - Modification of Benefit Limit
</TABLE>
<PAGE> 8
CONTROLLED GROUP means any group of corporations, trades or businesses of which
we are a part that are under common control. A Controlled Group includes any
group of corporations, trades or businesses, whether or not incorporated, which
is either a parent-subsidiary group, a brother-sister group or a combined group
within the meaning of Code Section 414(b), Code Section 414(c) and regulations
thereunder and, for the purpose of determining benefit limitations under Section
4.03, as modified by Code Section 415(h) and, for the purpose of Leased
Employees, as modified by Code Section 144(a)(3).
The term Controlled Group, as it is used in our Plan, shall include the term
Affiliated Service Group.
COVERED PAY means, for a Plan Year, the average (without indexing) of the
taxable wage bases in effect for each calendar year during the 35-year period
ending with the last day of the calendar year in which the Member attains (or
will attain) Social Security Retirement Age rounded to the nearest whole
multiple of $600. No increase in Covered Pay shall decrease a Member's Accrued
Benefit under the Plan.
In determining a Member's Covered Pay for a Plan Year, the taxable wage base
for the current Plan Year and any subsequent Plan Year shall be assumed to be
the same as the taxable wage base in effect as of the beginning of the Plan
Year for which the determination is being made.
A Member's Covered Pay for a Plan Year before the 35-year period ending with
the last day of the calendar year in which the Member attains Social Security
Retirement Age is the taxable wage base in effect as of the beginning of the
Plan Year. A Member's Covered Pay for a Plan Year after such 35-year period is
the Member's Covered Pay for the Plan Year during which the Member attained
Social Security Retirement Age.
"Taxable wage base" as used in this definition means the contribution and
benefit base in effect under section 230 of the Social Security Act at the
beginning of the Plan Year.
EARLY RETIREMENT DATE means the date a Member selects for beginning his early
retirement benefit. Early retirement benefits may begin whether the Member met
the age requirement, if any, before or after ceasing to be an Employee. (See
Item U.)
EFFECTIVE DATE means the date in Item D.
ELIGIBLE EMPLOYEE means an Employee who meets the requirements specified in
Item J.
EMPLOYEE means an individual who is employed by us or any other employer
required to be aggregated with us under Code Sections 414(b), (c), (m) or (o).
A Controlled Group member is required to be aggregated with us.
The term Employee shall also include any Leased Employee deemed to be an
employee of any employer described in the preceding paragraph as provided in
Code Sections 414(n) or 414(o).
EMPLOYER means the Employer named in Item 8 and any successor corporation,
trade or business which will, by written agreement assume the obligations of
this Plan or any Predecessor which maintained this Plan. The terms we, us and
ours as they are used in this Plan refer to the Employer.
EMPLOYER CONTRIBUTIONS means the Contributions made by us to fund the Plan.
(See Section 3.01.)
ENTRY BREAK means, when the elapsed time method is used, a one-year Period of
Severance beginning on an Employee's Severance Date. An Employee incurs an
Entry Break on the last day of a one-year Period of Severance.
When the hours method is used, Entry Break is defined in Item K.
ENTRY DATE means the date an Employee first enters the Plan as an Active
Member. (See Item L and Section 2.01.)
ENTRY SERVICE means an Employee's service as defined in Item K. Entry Service
shall include service with a Controlled Group member while we are both members
of the Controlled Group.
ENTRY SERVICE shall include a Period of Military Duty. If the elapsed time
method is used, the entire Period of Military Duty shall be included to the
extent it has not already been counted as Entry Service. If the hours method
is used, an Hour of Service shall be credited (without regard to the 501 Hours
of Service limitation) for each hour the Employee would normally have been
scheduled to work for us during such Period of Military Duty to the extent such
hour has not already been counted for purposes of Entry Service.
If the elapsed time method is used, the Entry Service shall be the total of the
Employee's Periods of Service. Such total shall be equal to the period from
his Hire Date to the date Entry Service is determined. This period shall be
reduced by (a) any part of a Period of Service which is excluded because of an
Entry Break and by (b) any Period of Severance which is not included under the
service spanning rule. An Employee's Entry Service shall be determined on the
basis that 30 days equal one month and 365 days equal one year.
If the elapsed time method is used, Entry Service shall include Period of
Severance (service spanning rule) if
(a) the Period of Severance immediately follows a period during which an
Employee is not absent from work and ends within twelve months, or
(b) the Period of Severance immediately follows a period during which an
Employee is absent from work for any reason other than quitting, being
discharged or retiring (such as a leave of absence or layoff) and ends
within twelve months of the date he was first absent.
If the Prior Plan applied the rule of parity before the first Yearly Date in
1985, an Employee's Accrual Service, accumulated before an Accrual Break which
occurred before that date, shall be excluded according to the Prior Plan
provisions if (a) his Vesting Percentage is zero, and (b) his latest period of
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<PAGE> 9
If the hours method is used and the Entry Service Period Shifts to the Plan
Year, an Employee will be credited with two years of Entry Service if he has
the Hours of Service required for a year of Entry Service in both his first and
second Entry Service Periods.
If the method of crediting Entry Service changes, the provisions of Section
9.12 shall apply.
ENTRY SERVICE PERIOD means the period defined in Item K. If an Employee has a
Rehire Date, a new Entry Service Period shall begin on that date in the same
manner as if it were a Hire Date.
ERISA means the Employee Retirement Income Security Act of 1974.
FISCAL YEAR means our taxable year. (See Item F.)
HIGHLIGHLY COMPENSATED EMPLOYEE means a highly compensated active Employee or a
highly compensated former Employee.
A highly compensated active Employee means any Employee who performs service
for us during the determination year and who, during the look-back year
(a) received compensation from us in excess of $75,000 (as adjusted
pursuant to Code Section 415(d));
(b) received compensation from us in excess of $50,000 (as adjusted
pursuant to Code Section 415(d)) and was a member of the top-paid
group for such year; or
(c) was an officer of ours and received compensation during such year that
is greater than 50 percent of the dollar limitation in effect under
Code Section 415f(b)(1)(A).
The term Highly Compensated Employee also means:
(d) Employees who are both described in the preceding sentence if the term
"determination year" is substituted for the term "look-back year" and
the Employee is one of the 100 Employees who received the most
compensation from us during the determination year; and
(e) Employees who are 5 percent owners at any time during the look-back
year or determination year.
If no officer has satisfied the compensation requirement of (c) above during
either a determination year or look-back year, the highest paid officer for
such year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The look-back
year shall be the twelve-month period immediately preceding the determination
year.
A highly compensated former Employee means any Employee who separated from
service (or was deemed to have separated) prior to the determination year,
performs no service for us during the determination year, and was a highly
compensated active Employee for either the separation year or any determination
year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a family
member of either a 5 percent owner who is an active or former Employee or a
Highly Compensated Employee who is one of the 10 most highly compensated
Employees ranked on the basis of compensation paid by us during such year, then
the family member and the 5 percent owner or top-ten highly compensated
Employee shall be aggregated. In such case, the family member and 5 percent
owner or top-ten highly compensated Employee shall be treated as a single
Employee receiving compensation and Plan contributions or benefits equal to the
sum of such compensation and contributions or benefits of the family member and
5 percent owner or top-ten highly compensated Employee. For purposes of this
definition, family member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of such lineal
ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and the
compensation that is considered, will be made in accordance with Code Section
414(q) and the regulations thereunder.
HIRE DATE means the date an Employee first performs an Hour of Service.
HOUR OF SERVICE means, for the elapsed time method of crediting service in this
Plan, each hour for which an Employee is paid, or entitled to payment for
performing dubes for us. Hour of Service means, for the hours method of
crediting service in this Plan, the following:
(a) Each hour for which an Employee is paid, or entitled to payment, for
performing duties for us during the applicable service period.
(b) Each hour for which an Employee is paid, or entitled to payment, by us
on account of a period of time in which no duties are performed
(irrespective of whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, military duty or leave of absence. Notwithstanding
the preceding provisions of this subparagraph (b) no credit shall be
given to the Employee
(1) for more than 501 Hours of Service under this subparagraph (b)
on account of any single continuous period in which the
Employee performs no duties (whether or not such period occurs
in a single service period); or
(2) for an Hour of Service for which the Employee is directly or
indirectly paid, or entitled to payment on account of a period
in which no duties are performed if such payment is made or
due under a plan maintained solely for the purpose of
complying with applicable worker's or workmen's compensation,
or unemployment compensation or disability insurance laws; or
(3) for an Hour of Service for a payment which solely reimburses
the Employee for medical or medically related expenses
incurred by him.
For purposes of this subparagraph (b), a payment shall be deemed to be
made by or due from us regardless of whether such payment is made by
or due from us directly or indirectly through, among others, a trust
fund or insurer, to which
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<PAGE> 10
we contribute or pay premiums and regardless of whether contributions
made or due to the trust fund, insurer or other entity are for the
benefit of particular employees or are on behalf of a group of
employees in the aggregate.
(c) Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by us. The same Hour of Service shall
not be credited under both this subparagraph (c) and under either
subparagraph (a) or (b) above. Crediting of Hours of Service for back
pay awarded or agreed to with respect to periods described in
subparagraph (b) above shall be subject to the limitations set forth
in that subparagraph.
The crediting of Hours of Service above shall be applied under the rules of
paragraphs (b) and (c) of the Department of Labor Regulation 2530.200b-2
(including any interpretations or opinions implementing said rules); which
rules, by this reference, are specifically incorporated in full within this
Plan. The reference to paragraph (b) applies to the special rule for
determining hours of service for reasons other than the performance of duties
such as payments calculated (or not calculated) on the basis of units of time
and the rule against double credit. The reference to paragraph (c) applies to
the crediting of hours of service to service periods.
Hours of Service shall be credited for employment with any other employer
required to be aggregated with us under Code Sections 414(b), (c), (m) or (o)
and the regulations thereunder for purposes of entry and vesting. Hours of
Service shall also be credited for any individual who is considered an employee
for purposes of this Plan pursuant to Code Section 414(n) or Code Section
414(o) and the regulations thereunder.
Solely for purposes of determining whether a one-year break in service has
occurred for entry or vesting purposes, during a Parental Absence an Employee
shall be credited with the Hours of Service which would otherwise have been
credited to the Employee but for such absence, or in any case in which such
hours cannot be determined, eight Hours of Service per day of such absence.
The Hours of Service credited under this paragraph shall be credited in the
service period in which the absence begins if the crediting is necessary to
prevent a break in service in that period; or in all other cases, in the
following service period.
INACTIVE MEMBER means a former Active Member who has an Accrued Benefit. (See
Section 2.02.)
INSURER means Principal Mutual Life Insurance Company and, if our Plan is
trusteed, any other insurance company or companies named by the Trustee.
INTEGRATION LEVEL means the Integration Level defined in Item O. If a Member
also participates in a Controlled Group member's plan which uses an integration
level to determine the amount of benefits, the Integration Level shall be
adjusted based upon the ratio of the Member's Pay from us to his total pay
from us and the Controlled Group member.
INVESTMENT MANAGER means any fiduciary (other than a Trustee or Named
Fiduciary)
(a) who has the power to manage, acquire, or dispose of any assets of the
plan;
(b) who (1) is registered as an investment adviser under the Investment
Advisers Act of 1940, or (2) is a bank, as defined in the Investment
Advisers Act of 1940, or (3) is an insurance company qualified to
perform services described in subparagraph (a) above under the laws of
more than one state; and
(c) who has acknowledged in writing being a fiduciary with respect to the
Plan.
ITEM means the specified item in the Adoption Agreement we signed.
LATE RETIREMENT DATE means the first day of any month which is after a Member's
Normal Retirement Date and on which retirement benefits begin.
Late Retirement Date for a Member who continues to work for us after Normal
Retirement Date shall be the earliest first day of the month on or after the
Member ceases to be an Employee. If a Member's Normal Retirement Date occurs
before he attains age 62 and he ceases to be an Employee before he attains age
62, a later Retirement Date may apply. Retirement benefits shall not begin
before the Member attains age 62 without the consent of the Member and, if
applicable, his spouse. A Member may elect a later Retirement Date. (See
Section 6.01.) A Member may elect an earlier Retirement Date.
LEASED EMPLOYEE means any person (other than an employee of the recipient) who
pursuant to an agreement between the recipient and any other person ("leasing
organization") has performed services for the recipient (or for the recipient
and related persons determined in accordance with Code Section 414(n)(6)) on a
substantially full time basis for a period of at least one year, and such
services are of a type historically performed by employees in the business
field of the recipient employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to service
performed for the recipient employer shall be treated as provided by the
recipient employer.
A Leased Employee shall not be considered an employee of the recipient if:
(a) such employee is covered by a money purchase pension plan providing
(1) a nonintegrated employer contribution rate of at least 10 percent
of compensation, as defined in Code Section 415(c)(3), but including
amounts contributed pursuant to a salary reduction agreement which are
excludable from the employee's gross income under Code Sections 125,
402(a)(8), 402(h) or 403(b), (2) immediate participation, and (3) full
and immediate vesting and
(b) Leased Employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce.
MEMBER means either an Active Member or an Inactive Member.
MEMBER CONTRIBUTIONS means Required and Voluntary Contributions, if any, unless
the context clearly indicates only one is meant.
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<PAGE> 11
MONTHLY DATE means each Yearly Date and the same day of each following month
during the Plan Year which begins on that Yearly Date.
MONTHLY PAY means, for a Pay Year, 1/12th of an Employee's Pay for such year.
To determine Monthly Pay if an Employee is an Employee for only part of a Pay
Year, his Pay for that Pay Year shall be converted to an annual basis as though
he were employed for the full Pay Year. Pay shall not be annualized when the
hours method, other than the hours ratio, is used to determine Accrual Service.
If an Employee is an Employee for less than one month of the latest Pay Year
before his Entry or Reentry Date, whichever applies, his fixed rate of annual
pay on such date shall be treated as his Pay for the Pay Year.
NAMED FIDUCIARY means the person named in Item H.
NORMAL FORM means the form of benefit selected in Item X(1). However, for
purposes of distributing the Member's Account, the Normal Form means a single
life annuity with installment refund.
NORMAL RETIREMENT AGE means, for a Member, the age defined in Item U.
NORMAL RETIREMENT DATE means the earliest first day of the month on or after a
Member reaches Normal Retirement Age. Retirement benefits shall begin on
Normal Retirement Date if the Member is not an Employee, has an Accrued Benefit
and has not elected to have retirement benefits begin later. However,
retirement benefits shall not begin before the later of age 62 or Normal
Retirement Age unless the qualified election procedures of Article VI are met
Even if the Member is an Employee on his Normal Retirement Date, he may choose
to have retirement benefits begin on such date. An earlier Retirement Date may
apply if the Member is 7O 1/2. (See Section 6.01.) Retirement benefits shall
not begin before the Member attains age 62 without the consent of the Member
and, if applicable, his spouse.
PARENTAL ABSENCE means an Employee's absence from work which begins on or after
the first Yearly Date after December 31, 1984,
(a) by reason of pregnancy of the Employee,
(b) by reason of birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in connection
with adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement
PAY means the pay defined in Item M. For years beginning after December 31,
1988, the annual Pay of each Member taken into account under the Plan for any
year shall not exceed $200,000. This limitation shall be adjusted by the
Secretary at the same time and in the same manner as under Code Section 415(d),
except that the dollar increase in effect on January 1 of any calendar year is
effective for years beginning in such calendar year and the first adjustment to
the $200,000 limitation is effected on January 1, 1990. If the Plan determines
Pay on a period of time that contains fewer than 12 calendar months, then the
annual Pay limit is an amount equal to the annual Pay limit for the calendar
year in which the pay period begins multiplied by the ratio obtained by
dividing the number of full months in the period by 12.
In determining the Pay of a Member for purposes of this limitation, the rules
of Code Section 414(q)(6) shall apply, except that in applying such rules, the
term "family" shall include only the spouse of the Member and any lineal
descendants of the Member who have not attained age 19 before the close of the
Plan Year. If, as a result of the application of such rules the adjusted
$200,000 limitation is exceeded, then (except for purposes of determining the
portion of Pay up to the Integration Level if this Plan provides for permitted
disparity), the limitation shall be prorated among the affected individuals in
proportion to each such individual's Pay as determined under this definition
prior to the application of this limitation.
If Pay for any prior Plan Year is taken into account in determining an
Employee's contributions or benefits for the current year, the Pay for such
prior year is subject to the applicable annual Pay limit in effect for that
prior year. For this purpose, for years beginning before January 1, 1990, the
applicable annual Pay limit is $200,000.
Pay means, for a Leased Employee, Pay for the services the Leased Employee
performs for us, determined in the same manner as the Pay of Employees who are
not Leased Employees, regardless of whether such Pay is received directly from
us or from the leasing organization.
PAY YEAR means, for a Member, the period defined in Item M ending immediately
before his Entry Date (the Restatement Date if the Prior Plan did not use an
average of Pay) if he is an Employee during such period and each such period
ending on or after such date during which he is an Employee. If the Pay Year
ends on the last day of the Fiscal Year and the Fiscal Year is a 52-53 week
period, then the Pay Year shall be such period.
PERIOD OF MILITARY DUTY means, for an Employee
(a) who served as a member of the armed forces of the United States, and
(b) who was reemployed by us at a time when the Employee had a right to
reemployment in accordance with seniority rights as protected under
Section 2021 through 2026 of Title 38 of the United States Code,
the period of time from the date the Employee was first absent from work
for us because of such military duty to the date the Employee was reemployed.
PERIOD OF SERVICE means a period of time beginning on an Employee's Hire or
Rehire Date, whichever applies, and ending on his Severance Date.
PERIOD OF SEVERANCE means a period beginning on an Employee's Severance Date
and ending on the date he again performs an Hour of Service.
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<PAGE> 12
A one-year Period of Severance means a Period of Severance of 12 consecutive
months.
Solely for purposes of determining whether a one-year Period of Severance has
occurred for entry or vesting purposes, the 12- consecutive month period
beginning on the first anniversary of the first date of a Parental Absence
shall not be a one-year Period of Severance.
PLAN means our retirement plan set forth in the attached Adoption Agreement and
this document, including any later amendments to them. If this Plan is
trusteed, the term Plan shall include the term Trust, unless the context
clearly indicates otherwise.
PLAN ADMINISTRATOR means the person named in Item H.
PLAN YEAR means a 12-consecutive month period beginning on a Yearly Date and
ending on the day before the next Yearly Date. If the Yearly Date changes, the
change will result in a short Plan Year. If a service period or the Pay Year
is based on the Plan Year, corresponding years before the Effective Date shall
be included.
PREDECESSOR means a Predecessor designated in Item I.
PRESENT VALUE means, except for purposes of Article X, the current value of a
benefit payable on a specified form on a specified date. The Present Value of
any benefit under the terms of this Plan will be the actuarial equivalent of
the benefit payable on the Normal Form. Actuarial equivalence shall be
determined on the basis of the mortality rates specified in the definition of
Actuarial Equivalent, and either the interest rate(s) specified in the
definition of Actuarial Equivalent or the Code Section 417 interest rate(s),
whichever produces the greater benefit.
In addition, the amount of any distribution under the terms of this Plan will
be determined in accordance with the preceding paragraph.
The two preceding paragraphs shall not apply to the extent they would cause the
Plan to fail to satisfy the requirements of Section 4.01A and Section 4.03.
The Code Section 417 interest rate(s) are:
(a) the applicable interest rate if the Present Value of the benefit
(using such rate(s)) is not in excess of $25,000; or
(b) 120 percent of the applicable interest rate if the Present Value of the
benefit exceeds $25,000 (as determined under (a) above). In no
event shall the Present Value determined under this (b) be less than
$25,000.
The applicable interest rate is the interest rate(s) which would be used (as of
the Annuity Starting Date) by the Pension Benefit Guaranty Corporation for a
trusteed single-employer plan to value a benefit upon termination of an
insufficient trusteed single-employer plan.
The Code Section 417 interest rate limitations shall apply to distributions in
Plan Years beginning after December 31, 1984. Notwithstanding the foregoing,
the Code Section 417 interest rate limitations shall not apply to any
distributions commencing in Plan Years beginning before January 1, 1987, if
such distributions were determined in accordance with the interest rate(s)
required by regulations section 1.417(e)-1T(e) (including the PBGC immediate
interest rate).
The Code Section 417 interest rate limitations shall not apply to annuity
contracts distributed to or owned by a Member prior to September 17,1985,
unless additional contributions are made under the Plan by us with respect to
such contracts. In addition, the Code Section 417 interest rate limitations
shall not apply to annuity contracts owned by us or distributed to or owned by
a Member prior to the first Plan Year after December 31, 1988, if the annuity
contracts satisfied the requirements in sections 1.401(a)-11T and 1.417(e)-1T
of the regulations. The preceding sentence shall not apply if additional
contributions are made under the Plan by us with respect to such contracts on
or after the beginning of the first Plan Year beginning after December 31,1988.
Notwithstanding the above, if a benefit is distributed in a form other than a
nondecreasing annuity payable for a period of not less than the life of a
Member (or in the case of a Qualified Preretirement Survivor Annuity, the life
of the surviving spouse), the interest rate used in determining the actuarial
equivalence of the portion of the excess benefit percentage that exceeds the
base benefit percentage (in an excess benefit plan) shall be the Code Section
417 interest rate(s).
PRIOR PLAN means a retirement plan of ours or of a Predecessor which was
qualifiable under Code Section 401(a), and of which this Plan is a
restatement, as specified in the initial Adoption Agreement. If, because of a
merger, consolidation or transfer of assets or liabilities, this Plan is a
continuation of a plan which was qualifiable under Code Section 401(a), that
plan shall be a Prior Plan. If, with the approval of any governmental agency to
which it is subject, the assets of a terminated plan of ours which was
qualified under Code Section 401(a) are transferred to this Plan, that
terminated plan shall be deemed to be the Prior Plan.
PRIOR PLAN ASSETS means the assets accumulated under the Prior Plan which have
not been distributed and which are held under this Plan.
QUALIFIED JOINT AND SURVIVOR FORM means, for a Member who has a spouse, a
survivorship immediate life annuity where the Contingent Annuitant is the
Member's spouse and the survivorship percentage is specified in Item X. A
former spouse will be treated as the spouse to the extent provided under a
qualified domestic relations order as described in Code Section 414(p). If a
Member does not have a spouse, the Qualified Joint and Survivor Form means the
Normal Form.
For purposes of distributing the Member's Account the Qualified Joint and
Survivor Form shall include an installment refund feature.
This Qualified Joint and Survivor Form shall be at least the Actuarial
Equivalent of any form of benefit offered under the Plan.
QUALIFIED PRERETIREMENT SURVIVOR ANNUITY means a straight life annuity payable
to the surviving spouse of a Member who dies before his Annuity Starting Date.
Benefits shall be determined as if the Member has ceased to be an Employee on
the date of his death (date he last ceased to be an Employee, if earlier) and
survived to the date benefits become payable
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to the spouse and retired on that date. The monthly benefit payable to the
spouse shall be equal to the survivorship percentage of the retirement benefit
derived from the Member's Accrued Benefit that would have been payable to the
Member if his Retirement Date had occurred on the date benefits start to the
spouse and he had retired under the Qualified Joint and Survivor Form. If the
Member elects a survivorship annuity (where the survivorship percentage is a
least 50% and the Contingent Annuitant is the Member's spouse) and which is at
least the Actuarial Equivalent of the Qualified Joint and Survivor Form, then
such form shall be treated as the Qualified Joint and Survivor Form for
purposes of determining the Qualified Preretirement Survivor Annuity. Such
election must be a qualified election according to the provisions of Section
6.03. A former spouse will be treated as the surviving spouse to the extent
provided under a qualified domestic relations order as described in Code
Section 414(p).
For purposes of distributing the Member's Account, a Qualified Preretirement
Survivor Annuity means a single life annuity with installment refund payable to
the surviving spouse of the Member who dies before his Annuity Starting Date.
QUARTERLY DATE means each Yearly Date and the third, sixth and ninth Monthly
Date after each Yearly Date which is within the same Plan Year.
REENTRY DATE means the date a former Active Member reenters the Plan. (See
Section 2.01.)
REHIRE DATE means the date an Employee first performs an Hour of Service
following an Entry Break, when the hours method is used, or a Period of
Severance, when the elapsed time method is used.
REQUIRED CONTRIBUTION ACCOUNT means, on any date, the total of a Member's
Required Contributions with interest. Contributions previously paid to the
Member or applied for him, and any interest that would have been credited on
those Contributions, shall be excluded.
Interest shall be credited in each Plan Year at the rate specified in Item
Q(1). If this is a restatement, interest before the Restatement Date was
credited at the rate specified in the Plan as in effect on the day immediately
before such date.
Interest shall be credited on each Required Contribution from the end of the
Plan Year for which it was made until the Monthly Date on or before the date of
determination.
REQUIRED CONTRIBUTION ACCRUED BENEFIT means, for a Member, the amount of
monthly retirement benefit on the Normal Form which is derived from the
Member's Required Contribution Account. (See Section 4.01A.)
REQUIRED CONTRIBUTIONS means the nondeductible Member Contributions which an
Active Member is required to make. (See Item Q and Section 3.02.)
RESTATEMENT DATE means the date our retirement plan was last restated. (See
Item A of the initial Adoption Agreement.)
RETIREMENT DATE means the date a retirement benefit will begin and is a
Member's Early, Normal or Late Retirement Date, as the case may be.
ROLLOVER CONTRIBUTIONS means the Rollover Contributions which are made by or
for a Member. (See Section 3.04.)
SEMI-YEARLY DATE means each Yearly Date and the sixth Monthly Date after each
Yearly Date which is within the same Plan Year.
SEVERANCE DATE means the earlier of
(a) the date on which an Employee quits, retires, dies or is discharged,
or
(b) the first anniversary of the date an Employee begins a one-year
absence from service (with or without pay). This absence may be the
result of any combination of vacation, holiday, sickness, disability,
leave of absence or layoff.
Solely to determine whether a one-year Period of Severance has occurred for
entry or vesting purposes for an Employee who is absent from service beyond the
first anniversary of the first day of a Parental Absence, Severance Date is the
second anniversary of the first day of the Parental Absence. The period
between the first and second anniversaries of the first day of the Parental
Absence is not a Period of Service and is not a Period of Severance.
SHORT SERVICE PERCENTAGE means the adjustment which may be applied to a
Member's Accrued Benefit according to the provisions of Item O. The Short
Service Percentage shall be equal to the quotient (expressed as a percentage to
two decimal places of (a) divided by (b):
(a) The Member's potential Accrual Service as of the date he reaches
Normal Retirement Age, if he remains an Eligible Employee between
his Entry Date (Reentry Date, if applicable) and his Normal Retirement
Age.
(b) The number of years specified in Item O.
The Short Service Percentage shall not exceed 100%. If a Member continues
to be an Eligible Employee after his Normal Retirement Age, his Short Service
Percentage as of any specified date shall be recalculated as if the earlier of
such date or the date he last ceased to be an Employee were the date he reached
Normal Retirement Age.
SOCIAL SECURITY RETIREMENT AGE means age 65 in the case of a Member attaining
age 62 before January 1, 2000 (i.e., born before January 1, 1938), age 66 for a
Member attaining age 62 after December 31, 1999, and before January 1, 2017
(i.e., born after December 31, 1937, but before January 1, 1955), and age 67
for a Member attaining age 62 after December 31, 2016 (i.e., born after
December 31, 1954).
TEFRA means the Tax Equity and Fiscal Responsibility Act of 1982.
TEFRA COMPLIANCE DATE means the date our Plan is to comply with the provisions
of TEFRA. The TEFRA Compliance Date as used in this Plan is,
(a) for purposes of determining the Maximum Permissible Amount and
contribution limitations of Section 4.03,
(1) if this Plan was in effect on July 1, 1982, the first day of
the first Limitation Year which begins after December 31,
1982, or
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(2) if this Plan was not in effect on July 1, 1982, the first day
of the first Limitation Year which ends after July 1, 1982.
(b) for all other purposes, the first Yearly Date after December 31, 1983.
TOTALLY DISABLED means that a Member is disabled, as a result of sickness or
injury, to the extent that he is prevented from engaging in any substantial
gainful activity, and is eligible for and receives a disability benefit under
Title II of the Federal Social Security Act
If our Employees are not covered under Title II of the Federal Social Security
Act, Totally Disabled means that a Member is disabled as a result of sickness or
injury, to the extent that he is completely prevented from performing any work,
engaging in any occupation for wage or profit and has been continuously
disabled for six months. Initial written proof that the disability exists and
has continued for at least six months must be furnished to the Plan
Administrator by the Member within one year after the date the disability
begins. The Plan Administrator, upon receipt of any notice of proof of a
Participant's total disability, shall have the right and opportunity to have a
physician it designates examine the Member when and as often as it may
reasonably require, but not more than once each year after the disability has
continued uninterruptedly for at least two years beyond the date of furnishing
the first proof.
TRANSFER VALUE means, on any date, a Member's allocated share, if any, of the
Prior Plan Assets which resulted from employer contributions. A Member's
Transfer Value shall be reduced by the amount of any distribution of his
Transfer Value.
If Item Y(1)(a) is selected, a Member's Transfer Value shall be credited with
interest at the rate of five percent per annum compounded annually. The
interest shall be credited from the date such Transfer Value is first
determined until the Monthly Date on or before the date the Transfer Value is
distributed.
TRUST means, for trusteed plans, the Agreement of Trust set out in Article
VIIIA.
TRUST FUND means, for trusteed plans, the total funds held under the Trust as
provided in Article VIIIA.
TRUSTEE means, for trusteed plans, the party or parties named in Item R. The
term Trustee as it is used in this Plan shall include the plural unless the
context clearly indicates the singular is meant.
VESTED TRANSFER VALUE means the vested portion of a Member's Transfer Value as
defined in Item Y. A Member's Vested Transfer Value will be zero if his
Transfer Value is zero.
VESTING BREAK means, when the elapsed time method is used, a one-year Period of
Severance. An Employee incurs a Vesting Break on the last day of a one-year
Period of Severance.
When the hours method is used, Vesting Break is defined in Item T. An Employee
incurs a Vesting Break on the last day of the Vesting Service Period in which
he has a Vesting Break.
VESTING PERCENTAGE means the Vesting Percentage of a Member determined under
Item S. If the schedule used to determine a Member's Vesting Percentage is
changed, the new schedule shall not apply to a Member unless he is credited
with an Hour of Service on or after the date of the change. If the computation
of Vesting Percentage is changed (whether directly or indirectly), a Member's
Vesting Percentage as of the day before the change shall not be reduced due to
the change. Indirect changes include, but are not limited to, changes in Early
Retirement Date requirements or the method of crediting Vesting Service. The
provisions of Section 9.01 regarding changes in the computation of Vesting
Percentage shall apply.
VESTING SERVICE means an Employee's service determined under Item T. Vesting
Service is subject to the modifications selected under that item. Vesting
Service shall include service with a Controlled Group member while we are both
members of the Controlled Group.
If, under Item T(4), Vesting Service is determined under the Prior Plan
provisions, service before the date the Prior Plan became subject to ERISA may
be disregarded if such service would have been disregarded under the Prior Plan
break in service rules as in effect on the day before such date.
Vesting Service shall include a Period of Military Duty. If the elapsed time
method is used, the entire Period of Military Duty shall be included to the
extent it has not already been counted as Vesting Service. If the hours method
is used, an Hour of Service shall be credited (without regard to the 501 Hours
of Service limitation) for each hour the Employee would normally have been
scheduled to work for us during such Period of Military Duty, to the extent
such hour has not already been credited as Vesting Service.
If the elapsed time method is used, the Employee's Vesting Service shall be
equal to the period of time beginning on his Hire Date (the date the elapsed
time method is first used, if later) to the date Vesting Service is determined.
This period of Vesting Service shall be reduced by (a) any portion of a Period
of Service which is excluded due to the service modifications selected and (b)
any Period of Severance which is not included under the service spanning rule.
These periods shall be expressed as whole years and fractional parts of a year
(to two decimal places) on the basis that 365 days equal one year.
If the elapsed time method is used, Vesting Service shall include a Period of
Severance (service spanning rule) if
(a) the Period of Severance immediately follows a period during which an
Employee is not absent from work and ends within twelve months, or
(b) the Period of Severance immediately follows a period during which an
Employee is absent from work for any reason other than quitting, being
discharged or retiring (such as a leave of absence or layoff) and ends
within twelve months of the date he was first absent.
If the Prior Plan applied the rule of parity before the first Yearly Date in
1985, an Employee's Vesting Service, accumulated before a Vesting Break which
occurred before that date, shall be excluded according to the Prior Plan
provisions if (a) his Vesting Percentage is zero, and (b) his latest period of
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<PAGE> 15
consecutive Vesting Breaks equals or exceeds his prior Vesting Service
(disregarding any Vesting Service that was excluded because of a previous
period of Vesting Breaks).
For a Member who is not credited with an Hour of Service on or after the first
Yearly Date in 1985, Vesting Service accrued before such date and before an age
greater than 18 (before the beginning of the Vesting Service Period in which he
attained that age, when the hours method is used) shall be excluded if the
Prior Plan excluded such service.
If the method of crediting Vesting Service changes, the provisions of Sections
9.01 and 9.12 shall apply.
VESTING SERVICE PERIOD means the period defined in Item T. If the hours method
is used, this same period is used to determine both the Employee's Vesting
Service and Vesting Breaks.
VOLUNTARY CONTRIBUTIONS means the Contributions by a Member that are not
required as a Condition of employment or membership or for obtaining additional
benefits from our Contributions. (See Item Q and Section 3.03.)
YEARLY DATE means the Yearly Date defined in Item E.
YEARS OF SERVICE means an Employee's Vesting Service as defined in Item T,
disregarding any modifications which exclude service.
If Vesting Service is not defined in Item T, then for purposes of determining
Years of Service, Vesting Service shall be deemed to be determined using the
elapsed time method.
ARTICLE II
MEMBERSHIP
SECTION 2.01 - ACTIVE MEMBERSHIP.
An Employee may first become an Active Member (begin active participation in
the Plan) on the earliest date specified in Item L on which he is an Eligible
Employee and has met all of the entry requirements selected in Item K. This
date is the Member's Entry Date.
Each Employee who was an active member under the Prior Plan on the day before
the Restatement Date may become an Active Member under this Plan on the
Restatement Date if he is still an Eligible Employee. The Member's entry date
under the Prior Plan is deemed to be his Entry Date under this Plan.
If a person has been an Eligible Employee who has met all of the entry
requirements selected in Item K but is not an Eligible Employee on the date
which would have been his Entry Date, he may become an Active Member on the
date he again becomes an Eligible Employee. This date is the Member's Entry
Date.
A former Active Member may reenter the Plan as an Active Member on the date he
again performs an Hour of Service as an Eligible Employee. This date is the
Member's Reentry Date. An Inactive Member ceases to be an Inactive Member on
his Reentry Date.
If Member Contributions are not required in Item Q, an Eligible Employee shall
become an Active Member on his Entry or Reentry Date, whichever applies.
If Member Contributions are required under Item Q, an Eligible Employee shall
become an Active Member on his Entry or Reentry Date, whichever applies, if he
agrees to make Required Contributions as provided in Section 3.02. The
agreement to make Required Contributions must be in writing and completed not
later than thirty days after his Entry or Reentry Date. If the Eligible
Employee does not complete the agreement within the time allowed, he shall
become an Active Member on the earliest date specified in Item L on which he is
an Eligible Employee and has completed such a written agreement. This date
shall be his adjusted Entry Date (or adjusted Reentry Date, if it applies).
A Member's benefits under this Plan shall not be duplicated because of more
than one period as an Active Member.
SECTION 2.02 - CEASING ACTIVE MEMBERSHIP.
An Active Member shall become an Inactive Member (stop accruing benefits under
the Plan) on the earliest of the following:
(a) The date the Member ceases to be an Eligible Employee (his Retirement
Date if he ceases to be an Eligible Employee within one month of his
Retirement Date).
(b) The effective date of complete termination of the Plan under Article
VII.
(c) The date the Member incurs an Accrual Break in Service.
(d) The date the Member does not make a Required Contribution.
An Employee or former Employee who was an inactive member under the Prior Plan
on the day before the Restatement Date shall become an Inactive Member under
this Plan on the Restatement Date. Eligibility for any benefits payable to the
Member or on his behalf and the amount of the benefits shall be determined
according to the provisions of the Prior Plan.
A Member shall cease to be a Member on the earlier of the date he dies or, if
his Vesting Percentage is 100%, the date he receives a single sum distribution
which is in lieu of all of his benefits under the Plan. An Inactive Member
shall cease to be a Member on the earliest date on which he is not entitled to
a deferred monthly income under Section 5.02.
SECTION 2.03 - ADOPTING EMPLOYERS - SEPARATE PLANS.
If Item Z(1)(a)(i) is selected, each Adopting Employer listed in Item Z
maintains this Plan as a separate and distinct plan for the exclusive benefit
of its employees. If Item Z(1)(a)(ii) is selected, each Adopting Employer
identified in Item Z(1)(a)(ii) maintains this Plan as a separate and distinct
plan for the exclusive benefit of its employees. An Adopting Employer's
adoption of the Plan shall be in writing. If the Adopting Employer did not
maintain a Prior Plan, the date of adoption specified in Item Z is the
Effective Date of its Plan. This date is the first Yearly Date for the
Adopting Employer's Plan and shall be the Entry Date for any of its employees
who have met the requirements in Section
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<PAGE> 16
2.01 as of that date. If the Adopting Employer did maintain a Prior Plan,
the date of adoption is the Restatement Date of its Plan.
An Adopting Employer shall be deemed to be the Employer but only with respect
to its Plan and for those Employees who are on its payroll. In interpreting the
Adoption Agreement and this document as to an Adopting Employer, the terms
Employer, we, us and ours shall be deemed to refer to the Adopting Employer and
the Adopting Employer's fiscal year is deemed to be the Fiscal Year. The
primary Employer in Item B is deemed to be an Adopting Employer for purposes of
the following two paragraphs.
The Contributions made by an Adopting Employer shall not be used to fund the
benefits for Employees of any other Adopting Employer. Service with an Adopting
Employer shall be included as service with all other Adopting Employers and
transfer of employment, without interruption, between Adopting Employers shall
not be an interruption of service. The benefit for any Employee under the Plan
established by an Adopting Employer shall be based on the Employee's service
with and pay from all Adopting Employers. However, benefits shall not be
duplicated because the Employee has accrued benefits under more than one such
plan. If an Employee accrues benefits under more than one Adopting Employer's
Plan at the same time, the benefit he accrues under each such Plan shall be
proportional to the pay he receives from each such Adopting Employer.
Any amendment to the Plan by the primary Employer in Item B of the Adoption
Agreement shall be deemed to be an amendment to each Adopting Employer's Plan.
Without the consent of any other Adopting Employer, an Adopting Employer may
restate its Plan in the form of a separate document at any time and, in that
event, cease to be an Adopting Employer. An employer shall not be an Adopting
Employer if it ceases to be controlled by us or affiliated with us. Such an
employer may continue its Plan by restating it in the form of a separate
document. This Plan shall be amended to delete a former Adopting Employer from
Item Z.
If the Plan of the Adopting Employer terminates, the provisions of Article VII
shall apply to its Plan.
SECTION 2.04 - ADOPTING EMPLOYERS - SINGLE PLAN.
If Item Z(1)(b)(i) is selected, each Adopting Employer listed in Item Z
participates with us in this Plan. It Item Z(1)(b)(ii) is selected, each
Adopting Employer identified in Item Z(1)(b)(ii) participates with us in this
Plan. An Adopting Employer's agreement to participate in this Plan shall be in
writing. Employees of Adopting Employers who do not make such written agreement
shall be eligible to become Members and shall be entitled to benefits in the
same manner as if their employers had agreed to participate in the Plan.
If the Adopting Employer did not maintain a Prior Plan, the date of
participation in Item Z shall be the Entry Date for any of its employees who
have met the requirements in Section 2.01 as of that date. Service with and pay
from an Adopting Employer shall be included as service with and pay from us.
Transfer of employment, without interruption, between an Adopting Employer and
another Adopting Employer or us shall not be considered an interruption of
service. Our Fiscal Year in Item F shall be the Fiscal Year used in
interpreting this Plan for Adopting Employers.
For purposes of Section 4.05, the employees of each Adopting Employer are
considered separately in determining the highly paid employees under the Plan.
If the Adopting Employer did not maintain a plan before participating in this
Plan, its date of participation shall be substituted for the Effective Date. If
the Adopting Employer did maintain a plan before participating in this Plan,
the date the Adopting Employer's plan was originally effective shall be
substituted for the Effective Date.
Contributions made by an Adopting Employer shall be treated as Contributions
made by us.
An employer shall not be an Adopting Employer if it ceases to be controlled by
us or affiliated with us. Such an employer may continue a retirement plan for
its employees in the form of a separate document. This Plan shall be amended to
delete a former Adopting Employer from Item Z.
If an employer ceases to be an Adopting Employer and does not continue a
retirement plan for the benefit of its employees, partial termination may result
and the provisions of Article VII apply.
ARTICLE III
CONTRIBUTIONS
SECTION 3.01 - EMPLOYER CONTRIBUTIONS.
The amount of our Employer Contributions shall meet or exceed the minimum
funding standards of ERISA and the Code. Our Contributions are conditioned on
initial qualification of the Plan. If the Plan is denied initial qualification,
the provisions of Section 9.14 shall apply.
The amount and time of our Contributions shall be based on actuarial valuations
and recommendations as to the amounts which are required to fund benefits under
this Plan. Dividends declared under the Annuity Contract and forfeitures shall
be applied to reduce our future Contributions.
A portion of the Plan assets resulting from our Contributions (but not more
than the original amount of those Contributions) may be returned if our
Contributions are made because of a mistake of fact or are more than the amount
deductible under Code Section 404 (excluding any amount which is not deductible
because the Plan is disqualified). The amount involved must be returned to us
within one year after our Contributions are made by mistake of fact or the date
the deduction is disallowed, whichever applies. Except as provided under this
paragraph and Articles VII and IX, the assets of the Plan shall never be used
for our benefit and are held for the exclusive purpose of providing benefits to
Members and their Beneficiaries and for defraying reasonable expenses of
administering the Plan.
Prior Plan Assets which result from contributions made by us shall be treated
in the same manner as Employer Contributions made under this Plan.
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<PAGE> 17
SECTION 3.02 - REQUIRED CONTRIBUTIONS BY MEMBERS.
If Member Contributions are required under Item Q, the amount of the Required
Contributions made by each Active Member is specified under that item.
A Member who is Totally Disabled shall not make Required Contributions during
any period in which he is receiving disability benefits according to the
provisions of Section 5.03.
The Member's Required Contribution Account is fully (100%) vested and
nonforfeitable at all times.
If a Member made Required Contributions in an Accrual Service Period in which
he is not credited with Accrual Service, that part of his Required Contribution
Account which results from such Required Contributions shall be returned to the
Member, subject to the qualified election procedures of Article VI.
Prior Plan Assets which result from required contributions made by the Member
shall be treated in the same manner as Required Contributions made under this
Plan.
SECTION 3.03 - VOLUNTARY CONTRIBUTIONS BY MEMBERS.
If permitted under Item Q, an Active Member may make Voluntary Contributions.
Voluntary Contributions shall be made according to nondiscriminatory procedures
and limitations set up by the Plan Administrator.
A Member's membership in the Plan is not affected by stopping or changing
Voluntary Contributions. An Active Member's request to start, change or stop
Voluntary Contributions must be in writing on a form furnished for that
purpose. The form must be delivered to the Plan Administrator before the date
the Member is to start, change or stop Voluntary Contributions.
This Plan will not accept Voluntary Contributions for Plan Years beginning
after the Plan Year in which this Plan is adopted by us. Nondeductible
Voluntary Contributions for Plan Years beginning after December 31, 1986, will
be limited so as to meet the nondiscrimination test of Code Section 401(m).
The part of a Member's Account resulting from Voluntary Contributions is fully
(100%) vested and nonforfeitable at all times.
A Member may withdraw in a single sum any part of his Account resulting from
his Voluntary Contributions subject to the limitations provided in Item
Q(2)(b). A request for withdrawal shall be in writing on a form furnished for
that purpose and delivered to the Plan Administrator before the withdrawal is
to occur. Withdrawals shall be subject to the qualified election provisions of
Article VI.
Prior Plan Assets which result from voluntary contributions made by the Member
shall be treated in the same manner as Voluntary Contributions made under this
Plan.
SECTION 3.04 - ROLLOVER CONTRIBUTIONS.
A Rollover Contribution may be made by or for an Eligible Employee if Rollover
Contributions are permitted in Item Q and if the following conditions are met:
(a) The Contribution is a rollover contribution which the Code permits to
be transferred to a plan that meets the requirements of Code Section
401(a).
(b) If the Contribution is made by the Eligible Employee, it is made
within sixty days after he receives the distribution.
(c) The Eligible Employee furnishes evidence satisfactory to the Plan
Administrator that the proposed transfer is in fact a rollover
contribution which meets conditions (a) and (b) above.
The Rollover Contribution may be made by the Eligible Employee or the Eligible
Employee may direct the trustee or named fiduciary of another plan to transfer
the funds which would otherwise be a Rollover Contribution directly to this
Plan. Such transferred funds shall be called a Rollover Contribution. The
Contribution shall be made according to procedures set up by the Plan
Administrator.
If the Eligible Employee is not an Active Member when the Rollover Contribution
is made, he shall be deemed to be an Active Member only for the purpose of
investment and distribution of the Rollover Contribution.
Rollover Contributions made by or for an Eligible Employee shall be credited to
his Account. Rollover Contributions are at all times fully (100%) vested and
nonforfeitable. A separate accounting record shall be maintained for that part
of his Rollover Contribution consisting of voluntary contributions which were
deducted from the Member's gross income for Federal income tax purposes.
Prior Plan Assets which result from the Member's rollover contributions shall
be treated in the same manner as Rollover Contributions made under this Plan.
SECTION 3.05 - INVESTMENT OF CONTRIBUTIONS.
If this Plan is trusteed, all Contributions are forwarded by us to the Trustee
to be deposited in the Trust Fund. Investment of Contributions is governed by
the provisions of the Trust, Annuity Contract and any other funding arrangement
in which the Trust is or may be invested. If permitted, the Member shall direct
his Voluntary Contributions and Rollover Contributions to any of the accounts
available under the Trust and may request the transfer of assets resulting from
those Contributions between such accounts. A Member may not direct the Trustee
to invest the Member's Account in collectibles. Collectible means any work of
art, rug or antique, metal or gem, stamp or coin, alcoholic beverage or other
tangible personal property specified by the Secretary of the Treasury. To the
extent that a Member does not direct the investment of his Account, such Account
shall be invested ratably in the accounts available under the Trust in the same
manner as the undirected Accounts of all other Members. The Account of a Member
shall be credited with its share of the gains and losses of the Trust Fund.
That part of a Member's Account invested in a funding arrangement which
establishes an account or accounts for such Member thereunder shall be credited
with the gain or loss from such account or accounts. That part of a Member's
Account which is invested in other funding arrangements shall be credited with
a proportionate share of the gain or loss of such investments. The share shall
be determined by multiplying the gain or loss of the investment by the ratio of
the part of the Member's Account
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<PAGE> 18
invested in such funding arrangement to the total of the Accounts invested in
such funding arrangement.
If this Plan is not trusteed, all Contributions are forwarded by us to
the Insurer to be deposited in the Annuity Contract. If permitted, the Member
shall direct his Voluntary Contributions and Rollover Contributions to any of
the accounts available under the Annuity Contract and may request the transfer
of assets resulting from those Contributions between such accounts. To the
extent that a Member does not direct the investment of his Account, such
Account shall be invested ratably in the accounts available under the Annuity
Contract in the same manner as the undirected Accounts of all other Members.
The Investment Fund shall be allocated at all times to Members. The Account of
a Member shall be credited with its share of the investment gains and losses.
That part of a Member's Account invested in a funding arrangement which
establishes an account or accounts for such Member thereunder shall be credited
with the gain or loss from such account or accounts. That part of a Member's
Account which is invested in other funding arrangements shall be credited with
a proportionate share of the gain or loss of such investments. The share shall
be determined by multiplying the gain or loss of the investment by the ratio of
the part of the Member's Account invested in such funding arrangement to the
total of the Accounts invested in such funding arrangement.
The Named Fiduciary may delegate to the Investment Manager investment
discretion for Plan assets which are not included in a Member's Account.
Prior Plan Assets which consist of reserves of either insured annuities in the
course of payment, or paid-up annuities held under an annuity contract issued
before the Restatement Date to hold assets of the Prior Plan, may be
transferred to the Annuity Contract at out discretion with the consent of the
Insurer.
SECTION 3.06 - FUNDING POLICY.
At least annually, the Named Fiduciary shall review all pertinent Employee
information and Plan data in order to establish the funding policy of the Plan
and to determine appropriate methods of carrying out the Plan's objectives.
The Named Fiduciary shall annually inform the Trustee, if applicable, and any
Investment Manager of the Plan's short-term and long-term financial needs so
the investment policy can be coordinated with the Plan's financial
requirements.
ARTICLE IV
RETIREMENT BENEFITS
SECTION 4.01 - ACCRUED BENEFIT.
An Active Member's Accrued Benefit as of any date is determined using the
accrued benefit formula selected in Item O. Accrued Benefit is modified as
follows:
Minimum Accrued Benefit:
An Active Member's Accrued Benefit shall not be less than the benefit
determined under the minimum benefit provisions selected in Item P.
If Item P(10)(a) is selected and the Prior Plan was a fully insured
plan, the Member's expected monthly retirement benefit multiplied by
his Accrued Benefit Adjustment as of the date specified under that
item shall be deemed to be his accrued benefit under the Prior Plan.
Maximum Accrued Benefit:
An Active Member's Accrued Benefit shall not be more than the benefit
determined under the maximum benefit provisions selected in Item P.
This maximum shall not limit any minimum accrued benefit provided
under Article X.
Adjusted Accrued Benefit:
If a flat benefit formula is selected under Item O and the Active
Member has not made all the Member Contributions required for
membership in the Plan (Prior Plan), his monthly Accrued Benefit shall
be multiplied by the ratio of (a) to (b) below:
(a) The number of months (counting a partial month as a complete
month) the Member will have been an Active Member in this Plan
and the Prior Plan if he remains an Active Member until Normal
Retirement Age.
(b) The number of months (counting a partial month as a complete
month) the Member would have been an Active Member in this
Plan and the Prior Plan if he had made all of the Required
Contributions and if he remains an Active Member until Normal
Retirement Age.
The ratio above shall not change after the Member's Normal Retirement
Age. This adjustment shall not apply to any minimum accrued benefit
provided under Article X.
If Item V(1)(a) is selected, the amount of monthly benefit payable to
an Active Member on the Normal Form shall be offset for each full or
partial year that his spouse is eligible for the Qualified
Preretirement Survivor Annuity on or after the date the Member may
waive the Qualified Preretirement Survivor Annuity and before the
earlier of the date he becomes an Inactive Member or reaches Normal
Retirement Age. If he becomes an Inactive Member, his Accrued Benefit
used to determine his deferred vested benefit shall be offset for such
coverage before it is multiplied by his Vesting Percentage. For each
year of coverage the reduction shall be .25%. The provisions of this
paragraph apply on and after August 23, 1984 in the same manner as
other death benefit provisions as explained in the first paragraph of
Section 5.01 and the provisions of the Prior Plan apply before that
date in like manner as the other death benefit provisions of the Prior
Plan.
The Member's employer derived Accrued Benefit in all years shall be equal to
the excess, if any, of the Accrued Benefit over the employee derived Accrued
Benefit. A Member shall be 100% vested in his employee derived Accrued
Benefit. A Member's employee derived Accrued Benefit is equal to his Required
Contribution Accrued Benefit determined according to the provisions of Section
4.01A.
- 13 -
<PAGE> 19
SECTION 4.01 A - REQUIRED CONTRIBUTION ACCRUED BENEFIT.
An Active Member's Required Contribution Accrued Benefit is his employee
derived Accrued Benefit. On any date, his Required Contribution Accrued Benefit
shall be computed as follows:
(a) STEP ONE. Determine the total amount of Contributions made by a Member
as a condition of participation in the Plan and, where applicable, the
Prior Plan.
(b) STEP TWO. Add to the amount in step one interest, if any, required by
the terms of the Prior Plan to be paid on such Contributions up to the
ERISA compliance date.
(c) STEP THREE. Add to the sum of the amounts determined in steps one and
two interest compounded annually at the rate of 5% from the ERISA
compliance date or the date the Member began participation in the
Plan, whichever is later, to the end of the last Plan Year beginning
before January 1, 1988, or the Member's Normal Retirement Age,
whichever is earlier.
(d) STEP FOUR. Add to the sum of the amounts determined in steps one, two
and three interest compounded annually:
(1) at the rate of 120 percent of the Federal mid-term rate (as in
effect under Code Section 1274 for the first month of the Plan
Year) from the beginning of the first Plan Year beginning
after December 31, 1987, and ending on the date on which the
determination is being made, and
(2) at the interest rate which would be used under the Plan under
Code Section 417(e)(3) (as of the determination date) for the
period beginning with the determination date and ending on the
date on which the Employee attains Normal Retirement Age.
(e) STEP FIVE. The amount in step four will be converted into the normal
form of benefit using the interest rate that would be used under the
Plan under Code Section 417(e)(3).
Where the terms of the Plan, or Prior Plan, at any time required that an
Employee make Contributions to it in order to be a Member, and the Plan or
Prior Plan has been amended so as to no longer require such Contributions, the
Member's employee derived Accrued Benefit and employer derived Accrued Benefit
shall be determined as if the Plan required Contributions of the Employee as a
condition of participation at the time of termination of employment. This
section, however, shall not apply to the extent the Contributions the Member
has made to the Plan (or Prior Plan) have been refunded to him.
SECTION 4.02 - DISREGARD OF ACCRUED BENEFIT.
If a Member receives a single-sum payment equal to the Present Value of his
entire vested Accrued Benefit his entire Accrued Benefit (both vested and
nonvested) as of the date of the distribution shall be disregarded. If such
payment is less than the Present Value of his entire Accrued Benefit, such
Member shall have the right to restore his Accrued Benefit derived from our
Contributions as provided below.
If a Member receives a single-sum payment that is less than the Present Value
of his entire vested Accrued Benefit, a portion of his vested Accrued Benefit
as of the date of the distribution shall be disregarded. This portion shall be
determined by multiplying his entire vested Accrued Benefit as of the date of
the distribution by the ratio of (i) the single-sum payment to (ii) the Present
Value of such vested Accrued Benefit. Such Member shall not have a right to
restore his Accrued Benefit derived from our Contributions.
If a Member again becomes an Eligible Employee after receiving a single-sum
payment of less than the Present Value of his entire Accrued Benefit as of the
date of the distribution, he shall have the right to restore his Accrued
Benefit derived from our Contributions (including all optional forms of
benefits and subsidies relating to such benefits) to the extent disregarded.
Such Accrued Benefit shall be restored upon repayment to the Plan of the full
amount of the distribution resulting from our Contributions plus interest,
compounded annually from the date of distribution at the rate of five percent.
Such repayment must be made before the earlier of the date five years after the
date he again becomes an Eligible Employee or the end of the first period of
five consecutive Vesting Breaks which begin after the date of the distribution.
If a Member was deemed to have received a distribution of the Present Value of
his entire vested Accrued Benefit because his vested Accrued Benefit was zero,
and the Member again becomes an Eligible Employee before the end of the first
period of five consecutive Vesting Breaks which begin after the date of the
deemed distribution, upon the date he again performs an Hour of Service as an
Eligible Employee, the Accrued Benefit derived from our Contributions shall be
restored to the amount of such Accrued Benefit on the date of the deemed
distribution.
SECTION 4.03 - BENEFIT LIMIT.
(a) For the purpose of determining the benefit limitation set forth in
this section, the following terms are defined:
ANNUAL ADDITIONS mean the sum of the following amounts credited to a
Member's account for the Limitation Year:
(1) employer contributions,
(2) employee contributions,
(3) forfeitures, and
(4) amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Code Section 415(l)(2), which is
part of a pension or annuity plan maintained by the Employer.
These amounts are treated as Annual Additions to a defined
contribution plan. Also amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such
date, which are attributable to postretirement medical benefits,
allocated to the separate account of a key employee, as defined in
Code Section 419A(d)(3), under a welfare benefit fund, as defined in
Code Section 419(e), maintained by the Employer are treated as Annual
Additions to a defined contribution plan.
ANNUAL BENEFIT means a retirement benefit under the Plan which is
payable annually in the form of a straight life annuity. Except as
provided below, a benefit payable in a form other than a straight life
annuity shall be adjusted to an actuarially
- 14 -
<PAGE> 20
equivalent straight life annuity before applying the limitations of this
section. The interest assumption used to determine the actuarial adjustment
will be the greater of the interest rate specified in the definition of
Actuarial Equivalent in Section 1.02 of this Plan or five percent. The Annual
Benefit does not include any benefits attributable to Member Contributions or
Rollover Contributions, or the assets transferred from a qualified plan that
was not maintained by the Employer. No actuarial adjustment to the benefit is
required for (1) the value of a qualified joint and survivor annuity, (2) the
value of benefits that are not directly related to retirement benefits (such as
the qualified disability benefit, pre-retirement death benefits, and
post-retirement medical benefits), and (3) the value of post-retirement
cost-of-living increases made in accordance with Code Section 415(d) and
section 1.415-3(c)(2)(iii) of the Federal Income Tax Regulations.
COMPENSATION means all of a Member's 415 Safe-harbor Compensation, Code
Section 3401(a) Wages or Code Section 3121 Wages, as selected in Item P of the
Adoption Agreement and defined below:
(1) 415 Safe-harbor Compensation means wages, salaries, and fees for
professional service and other amounts received (without regard to
whether or not an amount is paid in cash) for personal service
actually rendered in the course of employment with the employer
maintaining the plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, reimbursements, and expense allowances), and excluding the
following:
(i) Employer contributions to a plan of deferred compensation to
the extent contributions are not included in the gross income
of the Employee for the taxable year in which contributed, or
employer contributions under a simplified employee pension
plan to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred
compensation.
(ii) Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by an
Employee becomes freely transferable or is no longer subject
to a substantial risk of forfeiture.
(iii) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option.
(iv) Other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
described in Code Section 403(b) (whether or not the amounts
are actually excludable from the gross income of the
Employee).
(2) Code Section 3401(a) Wages means wages as defined in Code Section
3401(a) for the purposes of income tax withholding at the source but
determined without regard to any rules that limit the remuneration
included in wages based on the nature or location of the employment or
the services performed (such as the exception for agricultural labor
in Code Section 3401(a)(2)).
(3) Code Section 3121 Wages means wages as defined in Code Section
3121(a), for purposes of calculating Social Security taxes, but
determined without regard to the wage base limitation in Code Section
3121(a)(1), the limitations of the exclusions from wages in Code
Section 3121(a)(5)(C) and (D) for elective contributions and payments
by reason of salary reduction agreements, the special rules in Code
Section 3121(v), any rules that limit covered employment based on the
type or location of an employee's employer, and any rules that limit
the remuneration included in wages based on familial relationship or
based on the nature or location of the employment of the services
performed (such as the exceptions to the definition of employment in
Code Section 3121(b)(1) through (20)).
For any self-employed individual compensation will mean earned income.
For Limitation Years beginning after December 31, 1991, for purposes of
applying the limitations of this section, Compensation for a Limitation Year is
the Compensation actually paid or includible in gross income during such
Limitation Year.
For any Limitation Year beginning after December 31, 1988, only the first
$200,000 (multiplied by the Adjustment Factor) of the Member's Compensation
shall be taken into account under the Plan.
CURRENT ACCRUED BENEFIT means a Member's accrued benefit under the plan,
determined as if the Member had separated from service as of the close of the
last limitation year beginning before January 1, 1987, when expressed as an
annual benefit within the meaning of Code Section 415(b)(2). In determining the
amount of a Member's Current Accrued Benefit, the following shall be
disregarded:
(1) any change in the terms and conditions of the plan after May 5, 1986;
and
(2) any cost of living adjustments occurring after May 5, 1986.
DEFINED BENEFIT DOLLAR LIMITATION means $90,000. Effective on January 1, 1988,
and each January 1 thereafter, the $90,000 limitation above will be
automatically adjusted by multiplying such limit by the cost of living
adjustment factor prescribed by the Secretary of the Treasury under Code
Section 415(d) in such manner as the Secretary shall prescribe. The new
limitation shall apply to Limitation Years ending within the calendar year of
the date of the adjustment.
- 15 -
<PAGE> 21
DEFINED BENEFIT PLAN FRACTION means a fraction, the numerator of which is the
sum of the Member's Projected Annual Benefits under all the defined benefit
plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415 (b) and (d) and in
accordance with (2) in the definition of Maximum Permissible Amount or 140
percent of the Highest Average Compensation, including any adjustments under
Code Section 415(b).
Notwithstanding the above, if the Member was a member as of the first day of
the first Limitation Year beginning after December 31, 1986, in one or more
defined benefit plans maintained by the Employer which were in existence on May
6, 1986, the denominator of this fraction will not be less than 125 percent of
the sum of the annual benefits under such plans which the Member had accrued as
of the close of the last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the plan after May 5,
1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code Section
415 for all Limitation Years beginning before January 1, 1987.
DEFINED CONTRIBUTION PLAN FRACTION means a fraction, the numerator of which is
the sum of the Annual Additions to the Member's account under all the defined
contribution plans (whether or not terminated) maintained by the Employer for
the current and all prior Limitation Years (including the Annual Additions
attributable to the Member's nondeductible employee contributions to this and
all other defined benefit plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all welfare benefit funds,
as defined in Code Section 419(e), and individual medical accounts, as defined
in Code Section 415(l)(2), maintained by the Employer), and the denominator of
which is the sum of the maximum aggregate amounts for the current and all prior
Limitation Years of service with the Employer (regardless of whether a defined
contribution plan was maintained by the Employer). The maximum aggregate amount
in any Limitation Year is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415 (b) and (d) in effect under Code Section
415(c)(1)(A) of the Code or 35 percent of the Member's Compensation for such
year.
If the Member was a member as of the first day of the first Limitation Year
beginning after December 31, 1986, in one or more defined contribution plans
maintained by the Employer which were in existence on May 6, 1986, the
numerator of this fraction shall be adjusted if the sum of this fraction and
the Defined Benefit Plan Fraction would otherwise exceed 1.0 under the terms of
this Plan. Under the adjustment, an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of this fraction.
The adjustment is calculated using the fractions as they would be computed as of
the end of the last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the Plan made after May
5, 1986, but using the Code Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before January 1, 1987,
shall not be recomputed to treat all employee contributions as Annual
Additions.
EMPLOYER means the employer that adopts this Plan and all members of a
controlled group of corporations (as defined in Code Section 414(b) as modified
by Code Section 415(h), all commonly controlled trades or businesses (as
defined in Code Section 414(c) as modified by Code Section 415(h) or
affiliated service groups (as defined in Code Section 414(m) of which the
adopting employer is a part, and any other entity required to be aggregated
with the employer pursuant to regulations under Code Section 414(o).
HIGHEST AVERAGE COMPENSATION means the average Compensation for the three
consecutive Limitation Years of service with the Employer that produces the
highest average.
LIMITATION YEAR means a calendar year or the 12-consecutive month period elected
by the Employer in Item P. If the Limitation Year ends on the last day of the
Fiscal Year and the Fiscal Year is a 52-53 week period, then the Limitation Year
shall be such period. All qualified plans maintained by the Employer must use
the same Limitation Year. It the Limitation Year is amended to a different
12-consecutive month period, the new Limitation Year must begin on a date within
the Limitation Year in which the amendment is made.
MAXIMUM PERMISSIBLE AMOUNT means:
(1) The lesser of the Defined Benefit Dollar Limitation or 100 percent of
the Member's Highest Average Compensation.
(2) If the Member has less than ten Years of Participation, the Defined
Benefit Dollar Limitation is reduced by one-tenth for each Year of
Participation (or part thereof) less than ten. To the extent provided
in regulations or in other guidance issued by the Internal Revenue
Service, the preceding sentence shall be applied separately with
respect to each change in the benefit structure of the Plan. If the
Member has less than ten Years of Service, the compensation limitation
is reduced by one-tenth for each Year of Service (or part thereof) less
than ten. The adjustments of this (2) shall be applied in the
denominator of the Defined Benefit Plan Fraction based upon Years of
Service. Years of Service shall include future years occurring before
the Member's Normal Retirement Age. Such future years shall include the
year which contains the date the Member reaches Normal Retirement Age,
only if it can be reasonably anticipated that the Member will receive
a Year of Service for such year.
(3) If the Annual Benefit of the Member commences before the Member's
Social Security Retirement Age, but on or after age 62, the Defined
Benefit Dollar Limitation as reduced above, shall be determined as
follows:
- 16 -
<PAGE> 22
(i) if a Member's Social Security Retirement Age is 65, the dollar
limitation for benefits commencing on or after age 62 is
determined by reducing the Defined Benefit Dollar Limitation by
5/9 of one percent for each month by which benefits commence
before the month in which the Member attains age 65.
(ii) If a Member's Social Security Retirement Age is greater than 65,
the dollar limitation for benefits commencing on or after age
62, is determined by reducing the Defined Benefit Dollar
Limitation by 5/9 of one percent for each of the first 36 months
and 5/12 of one percent for each of the additional months (up to
24 months) by which benefits commence before the month of the
Member's Social Security Retirement Age.
(4) If the Annual Benefit of a Member commences prior to age 62, the Defined
Benefit Dollar Limitation shall be the actuarial equivalent of an
Annual Benefit beginning at age 62, as determined above, reduced for
each month by which benefits commence before the month in which the
Member attains age 62. To determine actuarial equivalence, the
interest rate assumption is the greater of the rate specified in the
definition of Actuarial Equivalent in Section 1.02 of the Plan or five
percent. Any decrease in the Defined Benefit Dollar Limitation
determined in accordance with this provision (4) shall not reflect the
mortality decrement to the extent that benefits will not be forfeited
upon the death of the Member.
(5) If the Annual Benefit of a Member commences after the Member's Social
Security Retirement Age, the Defined Benefit Dollar Limitation as
reduced in (2) above, if necessary, shall be adjusted so that it is the
actuarial equivalent of an Annual Benefit of such dollar limitation
beginning at the Member's Social Security Retirement Age. To determine
actuarial equivalence, the interest rate assumption used is the lesser
of the rate specified in the definition of Actuarial Equivalent in
Section 1.02 of the Plan or five percent.
(6) The provisions of this definition shall be modified as provided in:
(i) Code Section 415(b)(2)(F) for plans maintained by organizations
(other than governmental units) exempt from tax under Subtitle
A of the Code, and qualified merchant marine plans; and
(ii) Code Section 415(b)(9) for Plan Members who are commercial
airline pilots.
PROJECTED ANNUAL BENEFIT means the Annual Benefit as defined in this section,
to which the Member would be entitled under the terms of the plan assuming:
(1) the Member will continue employment until normal retirement age under
the plan (or current age, if later), and
(2) the Member's Compensation for the current Limitation Year and all other
relevant factors used to determine benefits under the plan will remain
constant for all future Limitation Years.
YEAR OF PARTICIPATION means one year (computed to fractional parts of a year)
for each Accrual Service Period for which the following conditions are met:
(1) The Member is credited with at least the number of Hours of Service
(or Period of Service if the elapsed time method is used) for benefit
accrual purposes, required under the terms of the Plan in order to
accrue a benefit for the Accrual Service Period, and
(2) the Member is included as a Member under the eligibility provisions of
the Plan for at least one day of the Accrual Service Period.
If these two conditions are met, the portion of a Year of Participation
credited to the Member shall equal the amount of Accrual Service credited to
the Member for such Accrual Service Period. A Member who is totally and
permanently disabled within the meaning of Code Section 415(c)(3)(C)(i) for an
Accrual Service Period shall receive a Year of Participation with respect to
that period. In addition, for a Member to receive a Year of Participation (or
part thereof) for an Accrual Service Period, the Plan must be established no
later than the last day of such Accrual Service Period. In no event will more
than one Year of Participation be credited for any 12-month period.
(b) This (b) and (c) and (d) below are applicable regardless of whether
any Member is or has ever been a member in another qualified plan
maintained by the Employer. If any Member is or has ever been a member
in another qualified plan maintained by the Employer, or a welfare
benefit fund, as defined in Code Section 419(e), maintained by the
Employer, or an individual medical account, as defined in Code Section
415(l)(2), which provides an Annual Addition as defined in this
section, (f), (g), and (h) below are also applicable to that Member's
benefits.
(c) The Annual Benefit otherwise payable to a Member at any time will not
exceed the Maximum Permissible Amount. If the benefit the Member would
otherwise accrue in a Limitation Year would produce an Annual Benefit
in excess of the Maximum Permissible Amount, the rate of accrual will
be reduced so that the Annual Benefit will equal the Maximum
Permissible Amount.
(d) If a Member has made nondeductible employee contributions under the
terms of this Plan, the amount of such contributions is treated as
an Annual Addition to a qualified defined contribution plan, for
purposes of (c) and (h) of this section.
(e) The limitation in (c) is deemed satisfied if the Annual Benefit payable
to a Member is not more than $1,000 multiplied by the Member's number
of Years of Service or parts thereof (not to exceed ten) with the
Employer, and the Employer has not at any time maintained a defined
contribution plan, a welfare benefit plan as defined in Code Section
419(e), or an individual medical account as defined in Code Section
451(l)(2) in which such Member participated.
(f) This (f) applies if any Member is covered, or has ever been covered,
by another plan maintained by the Employer, including a qualified plan,
or a welfare benefit fund, as defined in Code Section 419(e), or an
individual medical account, as defined in Code Section 415(1)(2),
which provides an Annual Addition as defined in this section.
- 17 -
<PAGE> 23
(g) If a Member is, or has ever been, covered under more than one defined
benefit plan maintained by the Employer, the sum of the Member's Annual
Benefits from all such plans may not exceed the Maximum Permissible
Amount. The Employer will choose in Item P the method by which the
plans will meet this limitation.
(h) If the Employer maintains, or at any time maintained, one or more
qualified defined contribution plans covering any Member in this Plan,
a welfare benefit fund, as defined in Code Section 419(e), or an
individual medical account as defined in Code Section 415(1)(2), the
sum of the Member's Defined Contribution Fraction and Defined Benefit
Fraction will not exceed 1.0 in any Limitation Year, and the Annual
Benefit otherwise payable to the Member under this Plan will be limited
in accordance with Item P.
(i) In the case of an individual who was a Member in one or more defined
benefit plans of the Employer as of the first day of the first
limitation year beginning after December 31, 1986, the application of
the limitations of this section shall not cause the Maximum
Permissible Amount for such individual under all such defined benefit
plans to be less than the individual's Current Accrued Benefit. The
preceding sentence applies only if such defined benefit plans met the
requirements of Code Secton 415, for all limitation years beginning
before January 1, 1987.
SECTION 4.04 - AMOUNT OF BENEFIT AT RETIREMENT.
The amount of retirement benefit to be provided on the Normal Form for an
Active Member on his Retirement Date shall be determined according to the
provisions of this section. The monthly retirement benefit shall not decrease
after the Member's Retirement Date due to any increase in social security
benefits that occurs after he ceases to be an Employee.
An Active Member's retirement benefit on his Normal Retirement Date shall be
equal to his Accrued Benefit on such date.
An Active Member's retirement benefit on his Early Retirement Date shall be
equal to his Accrued Benefit on such date, multiplied by the factor determined
from the schedule below based on the number of years the Member's Early
Retirement Date precedes his Normal Retirement Date.
If the Nonintegrated Adoption Agreement is used:
<TABLE>
<CAPTION>
NUMBER OF YEARS NUMBER OF YEARS
EARLY RETIREMENT EARLY RETIREMENT
DATE PRECEDES NORMAL DATE PRECEDES NORMAL
RETIREMENT DATE FACTOR RETIREMENT DATE FACTOR
<S> <C> <C> <C>
1 .9333 6 .6333
2 .8667 7 .6000
3 .8000 8 .5667
4 .7333 9 .5333
5 .6667 10 .5000
</TABLE>
The above factors shall be prorated for a partial year (counting a partial
month as a complete month). Factors for years beyond ten shall be determined
using a consistently applied reasonable actuarially equivalent method.
If the Integrated Adoption Agreement is used:
<TABLE>
<CAPTION>
NUMBER OF YEARS NUMBER OF YEARS
EARLY RETIREMENT EARLY RETIREMENT
DATE PRECEDES NORMAL DATE PRECEDES NORMAL
RETIREMENT DATE FACTOR RETIREMENT DATE FACTOR
<S> <C> <C> <C>
1 .9231 6 .6538
2 .8462 7 .6154
3 .7692 8 .5769
4 .7308 9 .5292
5 .6923 10 .4862
</TABLE>
The above factors shall be prorated for a partial year (counting a partial month
as a complete month). Factors for years beyond ten shall be determined using a
consistently applied reasonable actuarially equivalent method.
An Active Member's retirement benefit on his Late Retirement Date shall be
equal to the greater of (a) or (b) below:
(a) The Member's Accrued Benefit as of his Late Retirement Date.
(b) The Member's Accrued Benefit on Normal Retirement Date, multiplied by
the factor determined from the schedule below based on the number of
years the Member's Late Retirement Date follows Normal Retirement Date.
<TABLE>
<CAPTION>
NUMBER OF YEARS NUMBER OF YEARS
LATE RETIREMENT LATE RETIREMENT
DATE FOLLOWS NORMAL DATE FOLLOWS NORMAL
RETIREMENT DATE FACTOR RETIREMENT DATE FACTOR
<S> <C> <C> <C>
1 1.0600 6 1.4200
2 1.1200 7 1.5000
3 1.1900 8 1.5900
4 1.2600 9 1.6900
5 1.3400 10 1.7900
</TABLE>
The above factors shall be prorated for a partial year (counting a partial month
as a complete month). Factors for years beyond ten shall be determined using a
consistently applied reasonable actuarially equivalent method.
An Active Member's retirement benefit on the Normal Form shall not be less
than the greatest amount of benefit that would have been provided according to
the provisions of this section had he retired on any earlier Retirement Date.
In any event, an Active Member's retirement benefit on the Normal Form on his
Retirement Date will not be less than the sum of (i) the monthly benefit on the
Normal Form which is the Actuarial Equivalent of his Transfer Value, if any, on
such date, and (ii) the greater of the Member's Required Contribution Accrued
Benefit on his Retirement Date, multiplied by the appropriate factor if his
Retirement Date is an Early Retirement Date, or the monthly benefit on the
Normal Form which is the Actuarial Equivalent of his Required Contribution
Account on such date.
The Member's retirement benefit shall be distributed to the Member according to
the distribution of benefits provisions of Article VI and the small amounts
provisions of Section 9.10. The amount of payment under any form (other than
the Normal Form) shall be determined as provided under Section 6.03.
- 18 -
<PAGE> 24
The Member's Account provides a retirement benefit in addition to the benefits
described above. On his Retirement Date, the Member's Account shall be
distributed to the Member according to the distribution of benefits provisions
of Article VI and the small amount provisions of Section 9.10.
SECTION 4.05 - TEMPORARY LIMIT ON BENEFITS.
(a) For Plan Years beginning before January 1, 1991, the limitations set
forth in this (a) apply.
(1) The amount of our Contributions used to provide a Member's
retirement benefit on the Normal Form shall be limited as
provided in (2) below if the Member is one of our 25 most
highly paid Employees on the Effective Date, the retirement
benefit is over $125 ($1,500 annually), and one of the
following conditions occurs:
(i) The plan is terminated within ten years of the
Effective Date.
(ii) The monthly retirement benefit of such highly paid
Member becomes payable within ten years of the
Effective Date, or
(iii) If Code Section 412 (without regard to Code Section
412(h)(2) does not apply to our Plan, the monthly
retirement benefit of such highly paid Member becomes
payable more than ten years after the Effective Date,
and full current costs of the Plan for the first ten
years have not been met.
(2) If one of the conditions in (1) above does occur, the amount
of our Contributions used to provide retirement benefit on the
Normal Form for such a highly paid Member shall not exceed the
amount provided by the greater of (i) or (ii) and, if this
Plan is subject to Section 4021 (a) of ERISA, (iii) or (iv)
below, whichever applies:
(i) $20,000.
(ii) 20% of the first $50,000 of the average of his annual
compensation for the five latest Pay Years multiplied
by the number of years between the Effective Date and
the earlier of (A) the date the benefit becomes
payable, or (B) the date the Plan terminates. If on
the earlier of (A) or (B) the full current costs have
not been met, then the date on which the full current
costs have not been met shall be substituted for such
earlier date.
(iii) For a Member who is a substantial owner (as defined
in Section 4022(b)(5) of ERISA), an amount equal to
the present value of the benefit guaranteed for him
under Section 4022 of ERISA. If the Plan has not
terminated, an amount equal to the present value of the
benefit which would be guaranteed for such Member
under Section 4022 of ERISA if the Plan were to
terminate on the date the retirement benefit is to
begin. Such present value shall be determined
according to regulations of the Pension Benefit
Guaranty Corporation.
(iv) For a Member who is not described in (iii) above, an
amount equal to the present value of the benefit
guaranteed for him under Section 4022(b)(3)(B) of
ERISA, without regard to any other limitations in
Section 4022 of ERISA. If the Plan has not terminated,
an amount equal to the present value of the benefit
which would be guaranteed for such Member under
Section 4022(b)(3)(B) of ERISA, without regard to any
other limitations in Section 4022 of ERISA, if the
Plan were to terminate on the date the benefit is to
begin. Such present value shall be determined
according to regulations of the Pension Benefit
Guaranty Corporation.
(3) If the Plan is amended to increase the retirement benefit on
the Normal Form provided by our Contributions, the amount of
our Contributions used to provide that benefit may be limited.
Such amount shall be limited if the Member is one of our 25
most highly paid Employees on the effective date of the
amendment and the retirement benefit provided by our
Contributions made before the effective date of the amendment
and during the following ten years (assuming his rate of pay
remains unchanged) is over $125 ($1,500 annually).
The provisions of (1) and (2) above shall continue to apply
to the original group of Members who are highly paid Employees
as if the Plan had not been amended. The amount of our
Contributions which may be used for the benefit of the new
group of Members who are highly paid Employees shall be
limited as provided in (2) above, except that in lieu of
(2)(i) and (ii) the following (i) and (ii) shall be
substituted:
(i) The amount of our Contributions which would have been
applied to provide benefits for the Member if the Plan
had continued without change or $20,000, if greater.
(ii) The sum of (A) the amount of our Contributions which
would have been applied to provide benefits for the
Member if the Plan had terminated on the day before the
effective date of the amendment, and (B) the product of
the number of years for which the current costs of the
Plan after the effective date of the amendment are met
multiplied by the lesser of (a) 20 percent of the
average of his annual pay for the five latest Pay Years
or (b) $10,000.
A highly paid Member may receive a single sum distribution only if he
enters into an agreement to repay to the Plan all amounts he receives
in excess of the limitations of this section. The requirement of
repayment shall apply if the Plan terminates, if the full current
costs of the Plan are not met during a period when the limitations of
this section are in effect, or benefits are paid and the Plan is less
than ten years old. In order to guarantee the repayment, the Member
must deposit the amount which would be repayable in a guaranteed
account or with an acceptable depository property having a fair market
value equal to 125 percent of the amount which would be repayable had
the Plan terminated on the date of the single sum distribution. If
the market value of the property held by the depository falls below
110 percent of the amount which would be repayable
- 19 -
<PAGE> 25
if the Plan were then to terminate, additional property necessary to
bring the value of the property held by the depository up to 125
percent of such amount will be deposited.
(b) For Plan Year beginning on or after January 1, 1991, the limitations
set forth in this (b) apply.
In the event of Plan termination, the benefit of any active or former
Highly Compensated Employee is limited to a benefit that is
nondiscriminatory under Code Section 401 (a)(4).
For Plan Years beginning on or after January 1, 1991, benefits
distributed to any of the 25 most highly compensated active and former
Highly Compensated Employees are restricted such that the annual
payments are no greater than an amount equal to the payment that would
be made on behalf of the Employee under a single life annuity that is
the Actuarial Equivalent of the sum of the Employee's Accrued Benefit
and the Employee's other benefits under the Plan.
The preceding paragraph shall not apply if:
(1) after payment of the benefit to an Employee described in the
preceding paragraph, the value of plan assets equals or exceeds
110% of the value of current liabilities, as defined in Code
Section 412 (1)(7), or
(2) the value of the benefits for an Employee described above is
less than 1% of the value of current liabilities.
For purposes of this (b), benefit includes loans in excess of the
amount set forth in Code Section 72(p)(2)(A), any periodic income, any
withdrawal values payable to a living Employee, and any death benefits
not provided by insurance on the Employee's life.
SECTION 4.06 - BENEFITS UPON REEMPLOYMENT AFTER RETIREMENT DATE.
If a Member is reemployed by us after his Retirement Date, any monthly
retirement benefit payment he is receiving shall continue unchanged.
If the reemployed Member also becomes an Active Member, his benefits
under this Plan shall not be duplicated. Any death benefit from the
Accured Benefit he accrued during his lates period of membership shall
be determined as provided in Section 5.01. The retirement benefit
from such Accrued Benefit shall be payable according to the provisions
of Article IV and Article VI.
ARTICLE V
OTHER BENEFITS
SECTION 5.01 - DEATH BENEFITS.
If the provisions of (b) and (c) below do not apply and if item V(1)(a) has
not been selected, the provisions of this section apply on or after August 23,
1984. These provisions shall also apply to an Inactive Member who became
inactive before August 23, 1984. If the provisions of (b) or (c) below apply
or if item V(1)(a) has been selected, the provisions of this section shall
apply on or after August 23, 1984, to any Member who is credited with at least
one Hour of Service or one hour of paid leave on or after August 23, 1984, and
to such other Members as provided in Section 6.06. If the Effective Date of
our Plan occurred before January 1, 1984, the provisions of the Prior Plan as
in effect on the day before the TEFRA Compliance Date shall apply before
August 23, 1984. If the Effective Date occurred on or after January 1, 1984,
and before August 23, 1984, the provisions of the Plan as originally adopted
shall apply before August 23, 1984.
If a Member dies before his Annuity Starting Date, death benefits shall be
determined under subsections (a), (b) and (c) below. The distribution of death
benefits shall be subject to the distribution of benefits provisions of Article
VI and the small amounts provisions of Section 9.10.
(a) Qualified Preretirement Survivor Annuity derived from Accrued Benefit:
A Qualified Preretirement Survivor Annuity shall be payable if the
following requirements are met:
(1) The Member is survived by a spouse to whom he was continuously
married throughout the one-year period ending on the date he
dies.
(2) The Member's Vesting Percentage is greater than zero or the
Member has a Required Contribution Account greater than zero.
(3) If Item V(1)(a) is selected and the Member is an Active Member,
he has not waived the Qualified Preretirement Survivor Annuity.
Any waiver of the Qualified Preretirement Survivor Annuity must
be made according to the qualified election provisions of
Section 6.04.
If the requirements above are met on the date the Member dies, a
Qualified Preretirement Survivor Annuity shall be payable. The spouse
may elect to start benefits on any first day of the month on or after
the earliest date retirement benefits could have been paid to the
Member if he had ceased to be an Employee on the date of his death and
survived to retire. Benefits must start by the date the Member would
have been age 70 1/2. If the spouse dies before the Qualified
Preretirement Survivor Annuity starts, the only death benefit payable
from his Accrued Benefit is that provided in (b) below.
If a single-sum death benefit would otherwise be payable in (b) below,
the monthly benefit payable to the spouse under the Qualified
Preretirement Survivor Annuity shall not be less than the monthly
benefit which is the Actuarial Equivalent of the single-sum death
benefit at the date benefits start. If Item V(3) is not selected and
the Member waives the Qualified Preretirement Survivor Annuity,
according to the provisions of Section 6.04, by electing to have the
single-sum death benefit in (b) below paid to his Beneficiary after the
requirements above are met or if the spouse waives the Qualified
Preretirement Survivor Annuity, according to the Section 6.04, by
electing to have the single-sum death benefit in (b) below paid to
himself as Beneficiary after the requirements above are met, the
Qualified Preretirement Survivor Annuity shall be reduced. The amount
of the reduction shall be equal to the monthly benefit
- 20 -
<PAGE> 26
which is the Actuarial Equivalent of what would have been the
single-sum death benefit at the date benefits start.
(b) Single-sum death benefit: If the requirements of subsection (a) above
have not been met on the date a Member dies, a single-sum death
benefit equal to (1) the amount of his Required Contribution Account, if
any, on the date of his death plus (2), if Item V(2) is selected, an
amount equal to the Member's Transfer Value or Vested Transfer Value
on the date of his death, as selected in that item, shall be payable
to the Member's Beneficiary. If the requirements of subsection (a)
above have been met on the date such Member dies and the Qualified
Preretirement Survivor Annuity has not been waived, but the Member's
spouse dies before the Qualified Preretirement Survivor Annuity starts,
this single-sum death benefit, determined as of the date of the
spouse's death, shall be paid to the spouse's Beneficiary.
Before a single-sum death benefit will be paid on account of the death
of a Member who would have met all the requirements in (a) above if he
had had a spouse to whom he had been continuously married throughout
the one-year period ending on the date of his death, it must be
established to the satisfaction of a plan representative that there is
no spouse or that the Member had not been continuously married
throughout the one-year period ending on the date of his death.
(c) Account death benefit: The Member's Account provides a death benefit in
addition to the benefits described above.
The Member's Account shall be paid in the form of a Qualified
Preretirement Survivor Annuity if he has a spouse to whom he has been
continuously married throughout the one-year period ending on the date
of his death, unless the Member has waived the Qualified Preretirement
Survivor Annuity, according to the provisions of Section 6.04, by naming
somone other than his spouse as Beneficiary or the spouse has waived
the Qualified Preretirement Survivor Annuity, according to the
provisions of Section 6.04, by electing to have benfits paid in some
other form. The spouse may elect to start receiving the death benefit
on any first day of the month on or after the Member dies. Benefits
must start by the date the Member would have been age 70 1/2. If the
spouse dies before benefits start, the Member's Account, determined as
of the date of the spouse's death, will be paid to the spouse's
Beneficiary.
The Member's Account shall be paid in a single sum to the Member's
Beneficiary, if on the date of the Member's death, the Member does not
have a spouse who is entitled to a Qualified Preretirement Survivor
Annuity derived from the Member's Account. Before such death benefit
will be paid, it must be established to the satisfaction of a plan
representative that there is no such spouse.
If a Member dies on or after his Normal Retirement Date and before his Annuity
Starting Date, the death benefit shall be payable in like manner as provided
under the provisions of subsections (a), (b) and (c) above. However, if item
V(4) is selected, and a Member dies on or after his Normal Retirement Date and
before his Annuity Starting Date and such Member is not survived by a spouse to
whom he was continuously married throughout the one-year period ending on the
date of his death, the provisions of (a) and (b) above shall not apply.
Instead, the death benefit derived from the Member's Accrued Benefit shall be
the preservation of retirement option death benefit. This death benefit is the
death benefit which would have been payable to the Member's Beneficiary or
Contingent Annuitant if the Member's Retirement Date had occurred on the date
the Member died. If the optional form of retirement benefit in effect is a
single-sum payment, a single-sum payment shall be paid to the Member's
Beneficiary. This single-sum payment shall be equal to the single-sum payment
that would have been paid to the Member had his Retirement Date occurred on the
date of his death. The optional form of distribution elected according to the
provisions of Section 6.04 before the Member's death is the form in effect for
determining the death benefit. For purposes of this death benefit only, an
election of an optional form of distrubution shall be a qualified election even
if it is not made within 90 days of the date retirement benefits would have
begun, if it meets all of the other requirements for a qualified election. The
automatic form of distribution for retirement benefits under Section 6.02 shall
be in effect if an election has not been made or an election is revoked
without a subsequent election according to the provisions of Section 6.04. Any
death benefit payable shall be subject to the distribution limitations of
Section 6.03.
If, after any death benefit above is distributed in a single-sum, the sum of the
Present Value of the remaining Qualified Preretirement Survivor Annuity payable
under (a) above and the Account payable in the form of a Qualified Preretirement
Survivor Annuity under (c) above is $3,500 or less, the spouse may receive such
Present Value and Account in a single-sum payment in lieu of the Qualified
Preretirement Survivor Annuity. It will be distributed only if the spouse so
elects. The spouse's election shall be subject to the requirements in Section
6.04 for a qualified election of a death benefit payable in a form other than
a Qualified Preretirement Survivor Annuity. Before the first Yearly Date in
1989, the Member's Account which results from deductible Voluntary Contributions
shall not be taken into account in determining whether the sum of the Present
Value and the Account is $3,500 or less.
Any death benefit after Annuity Starting Date will be determined by the form of
retirement benefit in effect on a Member's Annuity Starting Date.
SECTION 5.02 - VESTED BENEFITS.
A Member who becomes an Inactive Member before retirement or death (and, if
applicable, before the date a disability payment begins under Section 5.03)
shall be entitled to one of the following vested benefits whichever is
applicable. Any distribution of vested benefits shall be a retirement benefit
and shall be subject to the distribution of benefits provisions of Article VI
and the small amounts provisions of Section 9.10.
(a) A deferred monthly retirement benefit on the Normal Form to begin on
the Member's Normal Retirement Date. The deferred retirement benefit
shall be equal to the sum of (1) and (2):
(1) The Member's Required Contribution Accrued Benefit as of the
date of determination (date the Member's Required Contribution
Account is paid in a single-sum, if earlier).
- 21 -
<PAGE> 27
(2) The product of (i) the excess of the Member's Accrued Benefit on
the day before he became an Inactive Member over the amount
determined under (1) above and (ii) the Member's Vesting Percentage
on the date he ceases to be an Employee.
(b) A deferred monthly retirement benefit on the Normal Form to begin on the
Member's Early Retirement Date. The deferred retirement benefit shall be
equal to the amount under (a) above multiplied by the applicable early
retirement factor in Section 4.04.
(c) A deferred monthly retirement benefit on the Normal Form to begin on the
Member's Late Retirement Date. The deferred retirement benefit shall be
determined as follows:
(1) For a Member who became an Inactive Member on or before his Normal
Retirement Date, an amount equal to the amount under (a) above
multiplied by the applicable late retirement factor in Section 4.04.
(2) For a Member who became an Inactive Member after his Normal
Retirement Date, an amount equal to the greater of (i) or (ii)
below:
(i) The Member's Accrued Benefit on the day before the date he
became an Inactive Member.
(ii) His Accrued Benefit on his Normal Retirement Date multiplied
by the applicable late retirement factor in Section 4.04.
The deferred retirement benefit for the Member on his Retirement Date shall not
be less than the monthly benefit which is the Actuarial Equivalent of the sum
of his Required Contribution Account and his Vested Transfer Value. If any, on
such date.
The amount of payment under any form (other than the Normal Form) shall be
determined as provided under Section 6.03. After the Member ceases to be an
Employee, the deferred retirement benefit shall not decrease because of any
post-separation social security benefit increase. If he again becomes an
Active Member, such a decrease shall also not apply to any deferred retirement
benefit to which he was entitled before his Reentry Date.
If Item X(4) is selected, the Member may receive his Required Contribution
Account and his Vested Transfer Value, if any, in a single-sum payment at any
time after he ceases to be an Employee and before his Retirement Date, provided
he has not again become an Employee. If such amount is not payable under the
provisions of Section 9.10, it will be distributed only if the Member so
elects. The Member's election shall be subject to the requirements in Section
6.04 for a qualified election of a retirement benefit payable in a form other
than a Qualified Joint and Survivor Form. Such payment shall result in all or
a portion of his Accrued Benefit being disregarded. See Section 4.02.
The Member's Account provides a vested benefit in addition to those described
above. A Member may receive a distribution of his Account after he ceases to
be an Employee, provided he has not again become an Employee. If such amount
is not payable under the provisions of Section 9.10, it will be distributed
only if the Member so elects. The Member's election shall be subject to the
requirements in Section 6.04 for a qualified election of a retirement benefit.
If the Member does not receive an earlier distribution under the provisions of
this paragraph or the provisions of Section 9.10, upon his Retirement Date or
death, his Account shall be distributed according to the provisions of Section
4.04 or Section 5.01.
If, after any single-sum distribution above which occurs before a Member's
Retirement Date, the sum of the Present Value of the Member's remaining vested
Accrued Benefit and his Account is $3,500 or less, the Member may receive such
Present Value and Account in a single-sum payment, provided he has not again
become an Employee. Such amount shall be distributed only if the Member so
elects. The Member's election shall be subject to the requirements in Section
6.04 for a qualified election of a retirement benefit payable in a form other
than a Qualified Joint and Survivor Form. Such payment shall result in all of
the Member's Accrued Benefit being disregarded and shall be in full settlement
of all benefits otherwise payable. See Section 4.02. Before the first Yearly
Date in 1989, the Member's Account which results from deductible Voluntary
Contributions shall not be taken into account in determining whether the sum
of the Present Value and the Account is $3,500 or less.
If the Member dies before his Retirement Date, death benefits shall be
distributed according to the provisions of Section 5.01.
SECTION 5.03 - DISABILITY BENEFITS.
If Item W(3) is selected, a disability benefit shall be payable to a Member who
meets the requirements set out in that item. The amount of the disability
benefit is specified in Item W. The disability benefit is an immediate monthly
benefit which shall begin on the earliest first day of the month on or after
the date the Member meets the requirements in Item W(3). Payments shall
continue through the first day of the month before the earliest of his
Retirement Date (Normal Retirement Date if earlier), the date he dies or the
day following the date he is no longer Totally Disabled. If payments continue
through the first day of the month before the Member's Retirement Date (Normal
Retirement Date, if earlier), retirement benefits shall be provided for him on
his Retirement Date according to the provisions of Section 4.04 as if he were
an Active Member. His Accrued Benefit shall be equal to his Accrued Benefit
as of the day before the disability benefit began. However, such Accrued
Benefit shall not be less than the amount of monthly disability payment paid
to him under this paragraph. If, before the Member's Retirement Date (Normal
Retirement Date, if earlier), he recovers and returns to active work for us
within one month of his recovery, the payments shall stop and he shall again
become an Active Member according to the provisions of Section 2.01. If,
before the Member's Retirement Date (Normal Retirement Date, if earlier), he
recovers and does not return to active work for us within one month of his
recovery, the payments shall stop and his benefits shall be redetermined
according to the provisions of Section 5.02 as of the date he ceased to be an
Employee. The Member's Transfer Value and Vested Transfer Value shall be
reduced by any disability payments he receives according to the provisions of
this paragraph.
- 22 -
<PAGE> 28
ARTICLE VI
WHEN BENEFITS START AND
DISTRIBUTION OF BENEFITS
If neither Item V(1)(a) nor Item V(2) is selected, the provisions of Sections
6.02, 6.03, 6.04, and 6.05 shall apply on or after August 23, 1984. These
provisions shall apply to an Inactive Member who became inactive before such
date. If either Item V(1)(a) or Item V(2) is selected, the provisions of
Sections 6.02, 6.03, 6.04, and 6.05 shall apply on or after August 23, 1984, to
any Member who is credited with at least one Hour of Service or one hour of
paid leave on or after August 23, 1984, and to such other Members as provided
in Section 6.06. If the Effective Date of our Plan occurred before January 1,
1984, the provisions of the Prior Plan as in effect on the day before the
TEFRA Compliance Date shall apply before August 23, 1984. If the Effective
Date occurred on or after January 1, 1984, and before August 23, 1984, the
provisions of the Plan as originally adopted shall apply before August 23, 1984.
SECTION 6.01 - WHEN BENEFITS START.
Benefits under the Plan begin when a Member retires, dies, ceases to be an
Employee or becomes Totally Disabled, whichever applies, as provided in
Article IV and Article V. Benefits may begin on an earlier date to the extent
necessary to avoid a violation of Code Section 415 or 411(b). The start of
benefits is subject to the qualified election procedures of Section 6.04.
Unless otherwise elected, benefits shall begin before the sixtieth day
following the close of the Plan Year in which the latest date below occurs:
(a) The date the Member attains the earlier of (i) age 65 or
(ii) the later of his Normal Retirement Age or age 62.
(b) The tenth anniversary of the Member's Entry Date.
(c) The date the Member ceases to be an Employee.
Notwithstanding the foregoing, the failure of a Member and spouse to consent
to a distribution while a benefit is immediately distributable, within the
meaning of Section 6.03, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy this section.
The Member may elect to have his benefits begin after the latest date
described above, subject to the provisions of this section. The Member shall
make his election in writing and deliver the signed statement of election to
the Plan Administrator before the latest of Normal Retirement Date, attainment
of age 62, or the date he ceases to be an Employee. The statement of election
must describe the form of distribution and the date the retirement benefits
will begin. The Member shall not elect a date for beginning retirement
benefits or a form of distribution that would result in a death benefit
payable upon his death that would be more than incidental within the meaning
of governmental regulations.
Benefits shall begin by the Member's Required Beginning Date, as defined in
Section 6.03. Distribution of any Accrued Benefit earned (the Account
resulting from Contributions made) after the Member's Required Beginning Date
shall begin by the April 1 following the calendar year in which such Accrued
Benefit was earned (such Contributions were made).
If a Member receives a taxable distribution attributable to his Accrued Benefit
or a taxable distribution (including a withdrawal) of his Account the Member
may be subject to a federal tax penalty. The tax penalty does not apply if the
distribution is:
(a) made on or after age 59 1/2;
(b) made on account of the Member's death to his Beneficiary or estate;
(c) made on account of being disabled;
(d) part of a series of periodic payment after separation from service that
are substantially equal, at least annual, and based on the life
expectancy of the Member or the Member and his Beneficiary; or
(e) made after separation from service after the attainment of age 55.
In addition, no tax is imposed on amount received and paid during the taxable
year for medical expenses in an amount not to exceed that deductible under
Code Section 213. Disabled means that a Member is disabled to the extent he
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or be of long-continued and indefinite duration. Proof of the
existence of the disability will be in such form and manner as the Secretary of
the Treasury may require.
SECTION 6.02 - AUTOMATIC FORMS OF DISTRIBUTION.
The automatic form of retirement benefit for a Member who does not die before
his Annuity Starting Date shall be the Qualified Joint and Survivor Form. The
amount of payment under the Qualified Joint and Survivor Form shall be
determined as provided in Section 6.03.
The automatic form of death benefit for a Member who dies before his Annuity
Starting Date is determined according to the provisions of Section 5.01.
The automatic form of benefit shall not be payable if a qualified election of
an optional form is in effect. See Section 6.04.
SECTION 6.03 - OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS.
(a) For purposes of this section, the following terms are defined:
DESIGNATED BENEFICIARY means the individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9)
and the proposed regulations thereunder.
DISTRIBUTION CALENDAR YEAR means a calendar year for which a minimum
distribution is required. For distributions beginning before the
Member's death, the first Distribution Calendar Year is the calendar
year immediately preceding the calendar year which contains the Member's
Required Beginning Date. For distributions beginning after the Member's
death, the first Distribution Calendar Year is the calendar year in
which distributions are required to begin pursuant to (h) below.
- 23 -
<PAGE> 29
JOINT AND LAST SURVIVOR EXPECTANCY means the joint and last survivor expectancy
calculated using the attained age of the Member (or Designated Beneficiary) as
of the Member's (or Designated Beneficiary's) birthday in the applicable
calendar year. The applicable calendar year shall be the Distribution Calendar
Year. If annuity payments commence before the Required Beginning Date, the
applicable calendar year is the year such payments commence. Joint and Last
Survivor Expectancy is computed by use of the expected return multiples in
Table VI of section 1.72-9 of the Income Tax Regulations.
LIFE EXPECTANCY means life expectancy calculated using the attained age of the
Member (or Designated Beneficiary) as of the Member's (or Designated
Beneficiary's) birthday in the applicable calendar year. The applicable
calendar year shall be the Distribution Calendar Year. If annuity payments
commence before the Required Beginning Date, the applicable calendar year is
the year such payments commence. Life Expectancy is computed by use of the
expected return multiples in Table V of section 1.72-9 of the Income Tax
Regulations.
REQUIRED BEGINNING DATE means, for a Member, the first day of April of the
calendar year following the calendar year in which the Member attains age 70
1/2, unless otherwise provided in (1), (2) or (3) below:
(1) The Required Beginning Date for a Member who attains age 70 1/2 before
January 1, 1988, and who is not a 5-percent owner is the first day of
April of the calendar year following the calendar year in which the
later of retirement or attainment of age 70 1/2 occurs.
(2) The Required Beginning Date for a Member who attains age 70 1/2 before
January 1, 1988, and who is a 5-percent owner is the first day of April of
the calendar year following the later of
(i) the calendar year in which the Member attains age 70 1/2, or
(ii) the earlier of the calendar year with or within which ends the
Plan Year in which the Member becomes a 5-percent owner, or the
calendar year in which the Member retires.
(3) The Required Beginning Date of a Member who is not a 5-percent owner and
who attains age 70 1/2 during 1988 and who has not retired as of January
1, 1989, is April 1, 1990.
A Member is treated as a 5-percent owner for purposes of this section if such
Member is a 5-percent owner as defined in Code Section 416(i) (determined in
accordance with Code Section 416 but without regard to whether the Plan is
top-heavy) at any time during the Plan Year ending with or within the calendar
year in which such owner attains age 66 1/2 or any subsequent Plan Year.
Once distributions have begun to a 5-percent owner under this section, they
must continue to be distributed, even if the Member ceases to be a 5-percent
owner in a subsequent year.
(b) The optional forms of retirement benefit for the benefit derived from
the Member's Accrued Benefit shall be the following: a straight life
annuity; single life annuities with certain periods of five, ten, or
fifteen years; a single life annuity with modified cash refund of the
Member's Required Contribution Account, if any, and, if Item V(2) if
selected, refund of the Member's Transfer Value or Vested Transfer
Value, whichever is selected in Item V(2); and survivorship life
annuities with survivorship percentages of 50, 66 2/3, or 100. The
benefit payable on any optional annuity form available above (other than
the Normal Form) shall be the Actuarial Equivalent of the benefit that
would otherwise be payable on the Normal Form.
If Item X(3) is selected, the Member may also elect to receive a single-
sum payment in lieu of all other benefits under this Plan from his
Accrued Benefit. This single-sum payment shall be equal to the Present
Value of the retirement benefit which would have been payable to such
Participant on his Retirement Date on the Normal Form of distribution.
The single-sum payment shall not be less than the sum of his Required
Contribution Account and his Transfer Value determined on his Retirement
Date. The Member may also elect to have this amount segregated from the
other Plan funds and the segregated amount paid to him in a series of
installments chosen by the Member. The segregated amount will remain a
part of the Plan, but (subject to Section 4.03) it alone shall share in
any income earned and it alone shall bear any expense or loss it incurs.
A minimum payment will be made each year beginning with the year the
Member turns age 70 1/2. The payment for the first year in which a
minimum payment is required will be made by April 1 of the following
calendar year. The payment for the second year and each successive year
will be made by December 31 of that year. The minimum payment will be
based on a period equal to the Joint and Last Survivor Expectancy of the
Member and the Member's spouse, if any, as provided in (f) below where
the Joint and Last Survivor Expectancy is recalculated. The balance of
the segregated amount, if any, will be payable on the Member's death to
his Beneficiary in a single sum. Any single-sum payment shall be
subject to the provisions of Section 4.05.
The optional forms of retirement benefit for a Member's Account shall
be the following: a straight life annuity; single life annuities with
certain periods of five, ten or fifteen years; a single life annuity
with installment refund; survivorship life annuities with installment
refund and survivorship percentages of 50, 66 2/3 or 100; fixed period
annuities for any period of whole months which is not less than sixty
and does not exceed the Life Expectancy of the Member and the named
Beneficiary as provided in (f) below where Life Expectancy is not
recalculated; and a series of installments chosen by the Member with a
minimum payment each year beginning with the year the Member turns age
70 1/2. The payment for the first year in which a minimum payment is
required will be made by April 1 of the following calendar year. The
payment for the second year and each successive year will be made by
December 31 of that year. The minimum payment will be based on a period
equal to the Joint and Last Survivor Expectancy of the Member and the
Member's spouse, if any, as provided in (f) below where the Joint and
- 24 -
<PAGE> 30
Last Survivor Expectancy is recalculated. The balance of the Member's
Account, if any, will be payable on the Member's death to his
Beneficiary in a single sum.
The Member may also elect to receive a single-sum payment in lieu of
all other benefits from his Account. This single-sum payment shall be
equal to the Member's Account.
Election of an optional form is subject to the qualified election
provisions of Article VI.
Any annuity contract distributed shall be nontransferable. The terms
of any annuity contract purchased and distributed by the Plan to a
Member or spouse shall comply with the requirements of this Plan.
(c) The optional forms of death benefit are any annuity that is an
optional form of retirement benefit and, if Item X(3) is selected, a
single-sum payment. The optional forms of death benefit from the
Member's Account shall include a single-sum payment regardless of
whether or not Item X(3) is selected. However, a series of
installments shall not be available if the Beneficiary is not the
spouse of the deceased Member.
(d) Subject to Section 6.02, joint and survivor annuity requirements, the
requirements of this section shall apply to any distribution of a
Member's interest and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions of
this section apply to calendar years beginning after December 31,
1984.
All distributions required under this section shall be determined and
made in accordance with the proposed regulations under Code Section
401 (a)(9), including the minimum distribution incidental benefit
requirement of section 1.401 (a)(9)-2 of the proposed regulations.
(e) Required Beginning Date. The entire interest of a Member must be
distributed or begin to be distributed no later than the Member's
Required Beginning Date.
(f) Limits on Distribution Periods. As of the first Distribution Calendar
Year, distributions, if not made in a single sum, may only be made
over one of the following periods (or combination thereof):
(1) the life of the Member,
(2) the life of the Member and a Designated Beneficiary,
(3) a period certain not extending beyond the Life
Expectancy of the Member, or
(4) a period certain not extending beyond the Joint and
Last Survivor Expectancy of the Member and a
Designated Beneficiary.
(g) Determination of amount to be distributed each year.
(1) If the Member's interest is to be paid in the form of
annuity distributions under the Plan, payment under
the annuity shall satisfy the following requirements:
(i) the annuity distributions must be paid in periodic
payments made at intervals not longer than one year;
(ii) the distribution period must be over a life (or lives)
or over a period certain not longer than a Life
Expectancy or Joint and Last Survivor Expectancy)
described in Code Section 401(a)(9)(A)(ii) or Code
Section 401(a)(9)(B)(iii), whichever is applicable;
(iii) the Life Expectancy (or Joint and Last Survivor
Expectancy) for purposes of determining the period
certain shall be determined without recalculation
of Life Expectancy;
(iv) once payments have begun over a period certain, the
period certain may not be lengthened even if the
period certain is shorter than the maximum permitted;
(v) payments must either be nonincreasing or increase
only as follows:
(a) with any percentage increase in a specified
and generally recognized cost-of-living
index;
(b) to the extent of the reduction to the amount
of the Member's payments to provide for a
survivor benefit upon death, but only if the
Beneficiary whose life was being used to
determine the distribution period described
in (f) above dies and the payments continue
otherwise in accordance with (f) above over
the life of the Member;
(c) to provide cash refunds of employee
contributions upon the Member's death; or
(d) because of an increase in benefits under the
Plan.
(vi) If the annuity is a life annuity (or a life annuity
with a period certain not exceeding 20 years), the
amount which must be distributed on or before the
Member's Required Beginning Date (or, in the case
of distributions after the death of the Member, the
date distributions are required to begin pursuant
to (h) below) shall be the payment which is required
for one payment interval. The second payment need not
be made until the end of the next payment interval
even if that payment interval ends in the next
calendar year. Payment intervals are the period for
which payments are received, e.g., bimonthly,
monthly, semi-annually, or annually.
If the annuity is a period certain annuity without a
life contingency (or is a life annuity with a period
certain exceeding 20 years) periodic payments for
each Distribution Calendar Year shall be combined
and treated as an annual amount. The amount which
must be distributed by the Member's Required
Beginning Date (or, in the case of distributions after
the death of the Member, the date distributions are
required to begin pursuant to (h) below) is the
annual amount for the first Distribution
- 25 -
<PAGE> 31
Calendar Year. The annual amount for other Distribution Calendar
Years, including the annual amount for the calendar year in which the
Member's Required Beginning Date (or the date distributions are
required to begin pursuant to (h) below) occurs, must be distributed
on or before December 31 of the calendar year for which the
distribution is required.
(2) Annuities purchased after December 31, 1988, are subject to the
following additional conditions:
(i) Unless the Member's spouse is the Designated Beneficiary, if
the Member's interest is being distributed in the form of a
period certain annuity without a life contingency, the period
certain as of the beginning of the first Distribution Calendar
Year may not exceed the applicable period determined using the
table set forth in Q&A A-5 of section 1.401(a)(9)-2 of the
proposed regulations.
(ii) If the Member's interest is being distributed in the form of
a joint and survivor annuity for the joint lives of the Member
and a nonspouse Beneficiary, annuity payments to be made on or
after the Member's Required Beginning Date to the Designated
Beneficiary after the Member's death must not at any time
exceed the applicable percentage of the annuity payment for
such period that would have been payable to the Member using
the table set forth in O&A A-6 of section 1.401(a)(9)-2 of the
proposed regulations.
(iii) Transitional rule. If payment under an annuity which complies
with (1) above begins prior to January 1, 1989, the minimum
distribution requirements in effect as of July 27, 1987, shall
apply to distributions from this Plan, regardless of whether
the annuity form of payment is irrevocable. This transitional
rule also applies to deferred annuity contracts distributed to
or owned by the employee prior to January 1, 1989, unless
additional contributions are made under the Plan by us with
respect to such contract.
(iv) If the form of distribution is an annuity made in accordance
with this (g), any additional benefits accruing to the Member
after his Required Beginning Date shall be distributed as a
separate and identifiable component of the annuity beginning
with the first payment interval ending in the calendar year
in which such amount accrues.
(v) Any part of the Member's interest which is in the form of an
individual account shall be distributed in a manner satisfying
the requirements of Code Section 401 (a)(9) and the proposed
regulations thereunder.
(h) Death Distribution Provisions.
(1) Distribution beginning before death. If the Member dies after
distribution of his interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under
the method of distribution being used prior to the Member's death.
(2) Distribution beginning after death. If the Member dies before
distribution of his interest begins, distribution of the Member's entire
interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Member's death except to the
extent that an election is made to receive distributions in accordance
with (i) or (ii) below:
(i) if any portion of the Member's interest is payable to a
Designated Beneficiary, distributions may be made over the
life or over a period certain not greater than the Life
Expectancy of the Designated Beneficiary commencing on or
before December 31 of the calendar year immediately following
the calendar year in which the Member died;
(ii) if the Designated Beneficiary is the Member's surviving
spouse, the date distributions are required to begin in
accordance with (i) above shall not be earlier than the later
of (a) December 31 of the calendar year immediately following
the calendar year in which the Member died and (b) December 31
of the calendar year in which the Member would have attained
age 70 1/2.
If the Member has not made an election pursuant to this (2) by the time
of his death, the Member's Designated Beneficiary must elect the method
of distribution no later than the earlier of (a) December 31 of the
calendar year in which distributions would be required to begin under
this (h), or (b) December 31 of the calendar year which contains the
fifth anniversary of the date of death of the Member. If the Member has
no Designated Beneficiary, or if the Designated Beneficiary does not
elect a method of distribution, distribution of the Member's entire
interest must be completed by December 31 of the calendar year
containing the fifth anniversary of the Member's death.
(3) For purposes of (2) above, if the surviving spouse dies after the
Member, but before payments to such spouse begin, the provisions of (2)
above, with the exception of (ii) therein, shall be applied as if the
surviving spouse were the Member.
(4) For purposes of this (h), any amount paid to a child of the Member
will be treated as if it had been paid to the surviving spouse if the
amount becomes payable to the surviving spouse when the child reaches
the age of majority.
(5) For the purposes of this (h), distribution of a Member's interest is
considered to begin on the Member's Required Beginning Date (or, if (3)
above is applicable, the date distribution is required to begin to the
surviving spouse pursuant to (2) above). If distribution in the form
of an annuity described in (g) above irrevocably commences to the
Member before the Required Beginning Date, the date distribution is
considered to begin is the date distribution actually commences.
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<PAGE> 32
SECTION 6.04 - ELECTION PROCEDURES.
The Member, Beneficiary, or spouse shall make any election under this section
in writing. The Plan Administrator may require such individual to complete and
sign any necessary documents as to the provisions to be made. Any election
permitted under (a) and (b) below shall be subject to the qualified election
provisions of (c) below.
(a) Retirement Benefits. A Member may elect his Beneficiary or Contingent
Annuitant and may elect to have retirement benefits distributed under
any of the optional forms of retirement benefit described in Section
6.03.
(b) Death Benefits. A Member may elect his Beneficiary for any single
sum or Account death benefits and may elect to have such death
benefits distributed under any of the optional forms of death benefit
described in Section 6.03.
If Item V(1)(a) is selected, an Active Member may waive the Qualified
Preretirement Survivor Annuity derived from his Accrued Benefit
described in Section 5.01.
Unless Item V(3) is selected, the Member may waive the Qualified
Preretirement Survivor Annuity derived from his Accrued Benefit by
electing not to have the single-sum death benefit used to provide a
minimum Qualified Preretirement Survivor Annuity described in Section
5.01. If the Member makes this election, the single-sum death benefit
shall be paid as if the requirements of subsection (a) of Section 5.01
had not been met. If Item V(3) is selected, the Member may not make
such an election.
The Member may waive the Qualified Preretirement Survivor Annuity
derived from his Account by naming someone other than his spouse as
Beneficiary.
If the Member has not elected an optional form of distribution for the
death benefit, payable to his Beneficiary, the Beneficiary may, for his
own benefit, elect the form of distribution, in like manner as a
Member.
The spouse may waive the Qualified Preretirement Survivor Annuity
derived from the Member's Accrued Benefit by electing not to have the
single-sum death benefit, if any, used to provide a minimum Qualified
Preretirement Survivor Annuity as described in Section 5.01. If the
spouse makes this election, the single-sum death benefit shall be paid
as if the requirements of subsection (a) of Section 5.01 had not been
met and the Member had named his spouse as Beneficiary.
In lieu of the Qualified Preretirement Survivor Annuity described in
Section 5.01, the spouse may, for his own benefit, waive the Qualified
Preretirement Survivor Annuity by electing to have the benefit
distributed under any of the optional forms of death benefit described
in Section 6.03.
(c) Qualified Election. The Member, Beneficiary or spouse may make an
election at any time during the election period. The Member,
Beneficiary, or spouse may revoke the election made (or make a new
election) at any time and any number of times during the election
period. An election is effective only if it meets the consent
requirements below.
The election period as to retirement benefits is the 90-day period
ending on the Annuity Starting Date. An election to waive the
Qualified Joint and Survivor Form may not be made by the Member before
the date he is provided with the notice of the ability to waive the
Qualified Joint and Survivor Form. If a Member elects a series of
installments for the benefit derived from his Account, he may elect on
any later date to have the balance of his Account paid under any of
the optional forms of retirement benefit for his Account available
under the Plan. His election period for this election is the 90-day
period ending on the Annuity Starting Date for the optional form of
retirement benefit elected.
A Member may make an election as to death benefits at any time before
he dies. The spouse's election period begins on the date the Member
dies and ends on the date benefits begin. The Beneficiary's election
period begins on the date the Member dies and ends on the date
benefits begin. An election to waive the Qualified Preretirement
Survivor Annuity may not be made by the Member before the date he is
provided with the notice of the ability to waive the Qualified
Preretirement Survivor Annuity. A Member's election to waive the
Oualified Preretirement Survivor Annuity which is made before the first
day of the Plan Year in which he reaches age 35 shall become invalid on
such date. An election made by a Member after he ceases to be an
Employee will not become invalid on the first day of the Plan Year in
which he reaches age 35 with respect to death benefits from that part
of his Accrued Benefit earned or Account resulting from Contributions
made before he ceased to be an Employee.
If the Present Value of the Member's vested Accrued Benefit and his
Account has at any time exceeded $3,500, any benefit which is (1)
immediately distributable or (2) payable in a form other than a
Qualified Joint and Survivor Form or a Qualified Preretirement
Survivor Annuity requires the consent of the Member and the Member's
spouse (or where either the Member or the spouse had died, the
survivor). A benefit may be immediately distributable in a Qualified
Joint and Survivor Form without the consent of the Member and spouse
to the extent necessary to avoid a violation of Code Section
401(a)(9), 415 or 411(b). The consent of the Member or spouse to a
benefit which is immediately distributable must not be made before the
date the Member or spouse is provided with the notice of the ability
to defer the distribution. Such consent shall be in writing. The
consent shall not be made more than 90 days before the Annuity
Starting Date. Spousal consent is not required for a benefit which is
immediately distributable in a Qualified Joint and Survivor Form.
Neither the consent of the Member nor the Member's spouse shall be
required to the extent that a distribution is required to satisfy Code
Section 401 (a)(9) or Code Section 415. A benefit is immediately
distributable if any part of the benefit could be distributed to the
Member (or surviving spouse) before the Member attains (or would have
attained if not deceased) the older of Normal Retirement Age or age
62. If the Qualified Joint and Survivor Form is waived, the spouse
has the right to limit consent only to a specific Beneficiary or a
specific form of benefit. The spouse can relinquish one or both such
rights. Such consent shall be made in writing. The consent shall not
be made more than 90 days before the Annuity Starting
- 27 -
<PAGE> 33
Date. If the Qualified Preretirement Survivor Annuity is waived, the
spouse has the right to limit consent only to a specific Beneficiary.
Such consent shall be made in writing. The spouse's consent shall be
witnessed by a plan representative or notary public. The spouse's
consent must acknowledge the effect of the election. including that
the spouse had the right to limit consent only to a specific
Beneficiary or a specific form of benefit, if applicable, and that the
relinquishment of one or both such rights was voluntary. Unless the
consent of the spouse expressly permits designations by the Member
without a requirement of further consent by the spouse, the spouse's
consent must be limited to the form of benefit, if applicable, and the
Beneficiary (including any Contingent Annuitant), class of
Beneficiaries, or contingent Beneficiary named in the election.
Spousal consent is not required, however, if the Member establishes to
the satisfaction of the plan representative that the consent of the
spouse cannot be obtained because there is no spouse or the spouse
cannot be located. Any consent by a spouse obtained under this
provision (or establishment that the consent of a spouse may not be
obtained) shall be effective only with respect to such spouse. A
consent that permits designations by the Member without any
requirement of further consent by such spouse must acknowledge that
the spouse has the right to limit consent to a specific Beneficiary,
and a specific form of benefit where applicable, and that the spouse
voluntarily elects to relinquish either or both of such rights. Any
new election will require a new spousal consent, unless the consent of
the spouse expressly permits such election by the Member without
further consent by the spouse. A spouse's consent may be revoked at
any time within the Member's election period. A revocation of a prior
waiver may be made by a Member without the consent of the spouse at any
time prior to the commencement of benefits. The number of revocations
shall not be limited. No consent obtained under this provision shall
be valid unless the Member has received notice as provided in Section
6.05 below.
Before the first Yearly Date in 1989, the Member's Account which
results from deductible Voluntary Contributions shall not be taken into
account in determining whether the Present Value of his vested Accrued
Benefit and the Member's Account has exceeded $3,500 and an election
as to the distribution of a Member's Account which results from
deductible Voluntary Contributions is not subject to the consent
requirements above and may be made any time before such distribution
is to begin.
SECTION 6.05 - NOTICE REQUIREMENTS.
(a) Optional forms of retirement benefit. The Plan Administrator shall
furnish to the Member and the Member's spouse a written explanation of
the optional forms of retirement benefit in Section 6.03, including
material features and relative values of these options, in a manner
that would satisfy the notice requirements of Code Section 417(a)(3)
and the right of the Member and the Member's spouse to defer
distribution until the benefit is no longer immediately distributable.
The Plan Administrator shall furnish the written explanation by a
method reasonably calculated to reach the attention of the Member and
the Member's spouse no less than 30 days and no more than 90 days
before the Annuity Starting Date.
(b) Qualified Joint and Survivor Form. The Plan Administrator shall
furnish to the Member a written explanation of the following: the
terms and conditions of the Qualified Joint and Survivor Form; the
Member's right to make, and the effect of, an election to waive the
Qualified Joint and Survivor Form; the rights of the Member's spouse;
and the right to revoke an election and the effect of such a
revocation. The Plan Administrator shall furnish the written
explanation by a method reasonably calculated to reach the attention of
the Member no less than 30 days and no more than 90 days before the
Annuity Starting Date.
After the written explanation is given, a Member or spouse may make
written request for additional information. The written explanation
must be personally delivered or mailed (first class mail, postage
prepaid) to the Member or spouse within 30 days from the date of the
written request. The Plan Administrator does not need to comply with
more than one such request by a Member or spouse.
The Plan Administrator's explanation shall be written in nontechnical
language and will explain the terms and conditions of the Qualified
Joint and Survivor Form and the financial effect upon the Member's
benefit (in terms of dollars per benefit payment) of electing not to
have benefits distributed in accordance with the Qualified Joint and
Survivor Form.
(c) Qualified Preretirement Survivor Annuity. If the Member may waive the
Qualified Preretirement Survivor Annuity, the Plan Administrator shall
furnish to the Member a written explanation of the following: the
terms and conditions of the Qualified Preretirement Survivor Annuity;
the Member's right to make, and the effect of, an election to waive the
Qualified Preretirement Survivor Annuity; the rights of the Member's
spouse; and the right to revoke an election and the effect of such a
revocation. The Plan Administrator shall furnish the written
explanation by a method reasonably calculated to reach the attention
of the Member within the applicable period. The applicable period for
a Member is whichever of the following periods ends last:
(1) the period beginning one year before the date the individual
becomes a Member and ending one year after such date; or
(2) the period beginning one year before the date the Member's
spouse is first entitled to a Qualified Preretirement Survivor
Annuity and ending one year after such date.
If such notice is given before the period beginning with the first day
of the Plan Year in which the Member attains age 32 and ending with
the close of the Plan Year preceding the Plan Year in which the Member
attains age 35, an additional notice shall be given within such
period. If a Member ceases to be an Employee before attaining age 35,
an additional notice shall be given within the period beginning one
year before the date he ceases to be an Employee and ending one year
after such date. In any event,
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<PAGE> 34
the Plan Administrator shall not be required to furnish the notice
before the period beginning one year before the date the Member may
first waive the Qualified Preretirement Survivor Annuity, and ending
one year after such date.
After the written explanation is given, a Member or spouse may make
written request for additional information. The written explanation
must be personally delivered or mailed (first class mail, postage
prepaid) to the Member or spouse within 30 days from the date of the
written request. The Plan Administrator does not need to comply with
more than one such request by a Member or spouse.
The Plan Administrator's explanation shall be written in nontechnical
language and will explain the terms and conditions of the Qualified
Preretirement Survivor Annuity and the financial effect upon the
spouse's benefit (in terms of dollars per benefit payment) of electing
not to have benefits distributed in accordance with the Qualified
Preretirement Survivor Annuity.
SECTION 6.06 - TRANSITIONAL RULES.
In modification of the preceding provisions of this Plan, distributions
(including distributions to a five-percent owner) may be made in a form which
would not have caused this Plan to be disqualified under Code Section 401
(a)(9) as in effect before the TEFRA Compliance Date. The form must be elected
by the Member or, if the Member has died, by the Beneficiary. The election must
be made in writing and signed before January 1, 1984. The election will only
be applicable if the Member has an Accrued Benefit as of December 31, 1983.
The Member's or Beneficiary's election must specify when the distribution is to
begin, the form of distribution and the Contingent Annuitant and/or
Beneficiaries listed in the order of priority, if applicable. A distribution
upon death will not be covered by this transitional rule unless the election
contains the required information described above with respect to the
distributions to be made when the Member dies. Distributions in the process of
payment on January 1, 1984, are deemed to meet the above requirements if the
form of distribution was elected in writing and the form met the requirements
of Code Section 401 (a)(9) as in effect before the TEFRA Compliance Date. If
the election under this paragraph is revoked any subsequent distribution must
meet the requirements of Code Section 401 (a)(9) and the proposed regulations
thereunder. If an election is revoked subsequent to the date distributions are
required to begin, the Plan must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the total amount not
yet distributed which would have been required to have been distributed to
satisfy Code Section 401(a)(9) and the proposed regulations thereunder, but for
the Code Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distribution must meet the minimum distribution
incidental benefit requirements in section 1.401(a)(9)-2 of the proposed
regulations. Any changes in the election will be considered a revocation of
the election. However, the mere substitution or addition of another
Beneficiary (one not named in the election) under the election will not be
considered to be a revocation of the election, so long as such substitution or
addition does not alter the period over which distributions are to be made
under the election, directly or indirectly (for example, by altering the
relevant measuring life). In the case in which an amount is transferred or
rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of
section 1.401(a)(9)-1 of the proposed regulations shall apply. A Member's
election of an Optional form of retirement benefit shall be subject to his
spouse's consent as provided in Section 6.04.
If the Effective Date occurred before August 23, 1984, and if Item Q(2)(a) or
Item V(2) is selected. the following provisions shall apply: A Member who would
not otherwise receive the benefits prescribed by the previous sections of this
article, will be entitled to the following benefits:
(a) If he is living and not receiving benefits on August 23, 1984, he will
be given the opportunity to elect to have Sections 5.01, 6.02, 6.03,
6.04, and 6.05 apply, if he is credited with at least one Hour of
Service under this Plan or a predecessor plan in a plan year beginning
on or after January 1, 1976, and he had at least ten Years of Service
when he separated from service.
(b) If he is living and not receiving benefits on August 23,1984, he will
be given the opportunity to elect to have his benefits paid according
to the following provisions of this plan or a section, if he is
credited with at least one Hour of Service under this Plan or a
predecessor plan on or after September 2, 1974, and he is not credited
with any service in a plan year beginning on or after January 1, 1976.
The respective opportunities to elect (as described in (a) and (b) above) must
be afforded to the appropriate Members during the period beginning on August
23, 1984, and ending on the date benefits would otherwise begin to such
Member.
Any Member who has elected according to (b) above and any Member who qualifies
but does not elect under (a) above or who meets the requirements of (a) above
except that such Member does not have at least ten Years of Service when he
separated from service, shall have his benefits distributed in accordance with
the following if benefits would have been payable in the form of a life annuity:
(c) Automatic joint and survivor annuity. If benefits in the form of a
life annuity become payable to a married Member who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age; or
(2) dies on or after Normal Retirement Age while still working for
the Employer; or
(3) begins to receive payments on or after the qualified early
retirement age; or
(4) separates from service on or after attaining Normal Retirement
Age (or the qualified early retirement age) and after
satisfying the eligibility requirements for the payment of
benefits under the Plan and thereafter dies before beginning
to receive such benefits;
then such benefits will be paid under the Qualified Joint and
Survivor Form, unless the Member has elected otherwise during
the election period. The election period must begin at least
six months before the Member attains qualified early
retirement age and end not more than 90 days before benefits
begin. Any election hereunder will be in writing and may be
changed by the Member at any time.
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<PAGE> 35
(d) Election of early survivor annuity. A Member who is employed after
attaining the qualified early retirement age will be given the
opportunity to elect, during the election period, to have a Qualified
Preretirement Survivor Annuity payable on death. Any election under
this provision will be in writing and may be changed by the Member at
any time. The election period begins on the later of (1) the 90th day
before the Member attains the qualified early retirement age, or (2)
the Member's Entry Date, and ends on the date the Member terminates
employment.
(e) For purposes of this paragraph, qualified early retirement age is the
latest of:
(1) the earliest date, under the Plan, on which the Member may
elect to receive retirement benefits,
(2) the first day of the 120th month beginning before the Member
reaches Normal Retirement Age, or
(3) the Member's Entry Date.
ARTICLE VII
TERMINATION OF PLAN
We expect to continue the Plan indefinitely but reserve the right to terminate
the Plan in whole or in part at any time upon giving written notice to all
parties concerned. The Pension Benefit Guaranty Corporation may also
terminate the Plan according to the procedures under Section 4042 of ERISA.
An Employee who is included in the group of Employees deemed to be affected by
complete or partial termination of the Plan shall be fully (100%) vested in
his Accrued Benefit as of the date of such complete or partial termination.
Upon complete termination of the Plan, no further Employees shall become
Members, and no further Contributions shall be made except as required by any
governmental agency to which the Plan's termination is subject.
A Member's recourse towards satisfaction of his right to his nonforfeitable
Accrued Benefit shall be limited to the Plan assets and the Pension Benefit
Guaranty Corporation.
The assets of the Plan that are available to provide benefits, other than the
Accounts of Members, shall be allocated and applied as of the effective date of
termination of the Plan according to the classifications and order of
precedence provided under Title IV of ERISA and under any rules, regulations,
interpretations or opinions implementing said Title IV. A Member's Account
shall be held for him under the Plan and may be distributed at any time after
the termination of the Plan.
If we are a professional service employer and if not more than 25 Employees
have been Active Members at any one time since the Plan became subject to
ERISA, benefits are not insured by the Pension Benefit Guaranty Corporation. A
Member's recourse toward the satisfaction of his right to his nonforfeitable
Accrued Benefit shall be limited to the Plan assets, which shall be allocated
and applied as described in the preceding paragraph.
No part of the Plan assets shall be paid to us at any time, except that, after
the satisfaction of all liabilities under the Plan, any assets remaining shall
be paid to us. The payment shall not be made if it would contravene any
provision of law.
ARTICLE VIII
ADMINISTRATION OF PLAN
SECTION 8.01 - ADMINISTRATION.
Subject to the provisions of this article, the Plan Administrator has complete
control of the administration of the Plan. The Plan Administrator has all the
powers necessary for it to properly carry out its administrative duties. Not
in limitation, but in amplification of the foregoing, the Plan Administrator
has the power to construe the Plan and to determine all questions that may
arise under the Plan, including all questions relating to the eligibility of
Employees to participate in the Plan and the amount of benefit to which any
Member, Beneficiary, spouse or Contingent Annuitant may become entitled. The
Plan Administrator's decisions upon all matters within the scope of its
authority are final.
Unless otherwise set out in the Plan or Annuity Contract, the Plan
Administrator may delegate recordkeeping and other duties which are necessary
to assist it with the administration of the Plan to any person or firm which
agrees to accept such duties. The Plan Administrator shall be entitled to rely
upon all tables, valuations, certificates and reports furnished by the
consultant or actuary appointed by the Plan Administrator and upon all opinions
given by any counsel selected or approved by the Plan Administrator.
The Plan Administrator shall receive all claims for benefits by Members, former
Members, Beneficiaries, spouses, and Contingent Annuitants. The Plan
Administrator shall determine all facts necessary to establish the right of any
Claimant to benefits and the amount of those benefits under the provisions of
the Plan. The Plan Administrator may establish rules and procedures to be
followed by Claimants in filing claims for benefits, in furnishing and
verifying proofs necessary to determine age, and in any other matters required
to administer the Plan.
SECTION 8.02 - RECORDS.
All acts and determinations of the Plan Administrator shall be duly recorded.
All these records, together with other documents necessary for the
administration of the Plan, shall be preserved in the Plan Administrator's
custody.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording or other
forms of data compilation shall be acceptable means of keeping records.
SECTION 8.03 - INFORMATION AVAILABLE.
Any Member in the Plan or any Beneficiary may examine copies of the Plan
description, latest annual report, any bargaining
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agreement, this Plan, the contract or any other instrument under which the
Plan was established or is operated. The Plan Administrator shall maintain
all of the items listed in this section in its office, or in such other place or
places as it may designate in order to comply with governmental regulations.
These items may be examined during reasonable business hours. Upon the written
request of a Member or Beneficiary receiving benefits under the Plan, the Plan
Administrator shall furnish him with a copy of any of these items. The Plan
Administrator may make a reasonable charge to the requesting person for the
copy.
SECTION 8.04 - CLAIM AND APPEAL PROCEDURES.
A Claimant must submit any required forms and pertinent information when making
a claim for benefits under the Plan.
If a claim for benefits under the Plan is denied, the Plan Administrator shall
provide adequate written notice to any Claimant whose claim for benefits under
the Plan has been denied. The notice must be furnished within 90 days of the
date that the claim is received by the Plan Administrator. The Claimant shall
be notified in writing within this initial 90-day period if special
circumstances require an extension of time needed to process the claim and the
date by which the Plan Administrator's decision is expected to be tendered. The
written notice shall be furnished no later than 180 days after the date the
claim was received by the Plan Administrator.
The Plan Administrator's notice to the Claimant shall specify the reason for
the denial; specify references to pertinent Plan provisions on which denial is
based; describe any additional material and information needed for the
Claimant to perfect his claim for benefits; explain why the material and
information is needed; inform the Claimant that any appeal he wishes to make
must be made in writing to the Plan Administrator within 60 days after receipt
of the Plan Administrator's notice of denial of benefits and that failure to
make the written appeal within such 60-day period renders the Plan
Administrator's determination of such denial final, binding and conclusive.
If the Claimant appeals to the Plan Administrator, the Claimant, or his
authorized representative, may submit in writing whatever issues and comments
the Claimant, or the representative, feels are pertinent. The Claimant, or the
authorized representative, may review pertinent Plan documents. The Plan
Administrator shall reexamine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Plan Administrator shall advise the Claimant of its
decision within 60 days of his written request for review, unless special
circumstances (such as a hearing) would make rendering a decision within the
60-day limit unfeasible. The Claimant shall be notified within the 60-day
limit if an extension is necessary. The Plan Administrator shall render a
decision on a claim for benefits no later than 120 days after the request for
review is received.
SECTION 8.05 - DELEGATION OF AUTHORITY.
All or any part of the administrative duties and responsibilities under this
article may be delegated by the Plan Administrator to a retirement committee.
The duties and responsibilities of the retirement committee shall be set out
in a separate written agreement.
ARTICLE VIIIA
TRUST PROVISIONS
SECTION 8A.01 - THE TRUST AND TRUST FUND.
If Item R(1) is selected, we have established this Trust by executing the
attached Adoption Agreement. The Trust is established for the purpose of
holding and distributing the Trust Fund under the provisions of the Plan. The
Trust is construed, regulated and administered under the law of the state in
which we have our principal office.
The Trust Fund consists of the total assets held under the Trust for the
purpose of providing benefits for Members. These assets result from
Contributions made under the Plan, which are forwarded to the Trustee to be
deposited in the Trust Fund as provided in Article III.
SECTION 8A.02 - THE TRUSTEE.
We have appointed the Trustee named in Item R. We have the power to appoint an
additional or successor Trustee or remove a Trustee at any time by amending the
Adoption Agreement.
The Trustee accepts this appointment by executing the Adoption Agreement or an
amendment to it. A Trustee may resign at any time upon thirty days written
notice to us. If a Trustee is removed, resigns or dies, the successor Trustee
whom we appoint has the same powers and duties as the Trustee replaced.
Pending the appointment of and acceptance of the successor Trustee, a remaining
Trustee has full power to act. When appointment has been accepted by a
successor Trustee, the removed or resigning Trustee must assign, transfer, pay
over and deliver to the successor Trustee all of the assets which then
constitute the Trust Fund.
If there are two or more persons appointed as Trustees, the Trustees may, in
writing, name one of their number to act in the execution of all documents
relating to the Plan and Trust. When more than two persons have been appointed
as Trustee, all acts and decisions shall be made by majority vote.
SECTION 8A.03 - DUTIES OF TRUSTEE.
It is the duty of the Trustee to accept and hold the Trust Fund and administer
it according to the provisions of the Trust. The Trustee has no duty to demand
or require that Contributions be made to the Trust, nor shall a Trustee be
liable to determine the amount of any Contributions to the Trust.
The Plan is administered by the Plan Administrator. The Trustee is not
responsible for any aspect of its administration. The Trustee is not required
to look into any action taken by the Named Fiduciary, Plan Administrator or us
and will be fully protected in taking, permitting or omitting any action on the
basis of our actions. Any action by the Named Fiduciary, Plan Administrator or
us according to the Plan provisions shall be evidenced in writing. We will
indemnify the Trustee by satisfying any liabilities the Trustee may incur in
acting in accordance with the Trust provisions upon written instruction from
the Named Fiduciary, Plan Administrator, or us.
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SECTION 8A.04 - POWERS OF TRUSTEE.
Except where the Plan expressly provides that the Trustee is subject to the
direction of the Named Fiduciary, Plan Administrator or us, the Trustee is
authorized and empowered
(a) to apply for and invest all or any part of the assets of the Trust
Fund in the Annuity Contract issued by the Insurer and to hold the
Annuity Contract as owner;
(b) to invest and reinvest all or any part of the assets of the Trust Fund
in any bonds, debentures, notes, mortgages or mortgage participations,
preferred stocks, common stocks or other securities, or other real or
personal properties;
(c) to sell, exchange, convey, transfer or otherwise dispose of any
property held by it, by private contract or at public auction;
(d) to exercise the voting rights of any stocks, bonds or other securities
and to exercise any of the powers of an owner with respect to stocks,
bonds, securities or other property held in the Trust Fund;
(e) to retain in cash an amount which the Trustee considers advisable, and
to deposit cash in any depository selected by it, without liability
for interest;
(f) to make, execute, acknowledge and deliver any instruments necessary to
carry out the powers granted it;
(g) to employ such agents, actuaries, clerical help, custodians and others
as are needed to carry out the Trustee's duties;
(h) to consult with legal counsel, including our counsel, with respect to
the meaning or construction of, or the Trustee's obligations or duties
under, the Plan and Trust, or with respect to any action or proceeding
or any question of law. The Trustee shall be fully protected with
respect to any action it takes in good faith pursuant to the advice of
such counsel.
(i) to enforce any right, obligation or claim and, in its absolute
discretion, to protect in any way the interest of the Trust Fund and
if the Trustee considers such an action to be in the best interest of
the Trust Fund, to abstain from the enforcement of any right,
obligation or claim and to abandon any property it has held.
SECTION 8A.05 - EXPENSES.
We pay the expenses incurred by the Trustee in the performance of its duties,
any fees for legal services rendered to the Trustee, and compensation to the
Trustee which we have mutually agreed upon in writing. The Trustee may charge
against the Trust Fund taxes imposed with respect to the Trust Fund or its
income.
SECTION 8A.06 - ACCOUNTING.
The Trustee shall maintain accurate and detailed records on all receipts,
investments, disbursements and other transactions performed in its capacity as
Trustee. These records must be open to inspection and audit by the Plan
Administrator. Named Fiduciary and us at all reasonable times.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording or other
forms of data compilation shall be acceptable means of keeping records.
The Trustee shall file all reports, returns and information required under the
Code and regulations and rulings issued under the Code.
The Trustee shall file with us an accounting of its transactions as soon as
practical after each Yearly Date or any other date we may specify. Any report
or accounting which the Trustee files with us is open to inspection by a Member
for a period of sixty days following the date it is filed. At the end of the
sixty-day period, the Trustee is released and discharged as to any matters set
forth in the report or account, except with respect to any act or omission as to
which a Member, the Plan Administrator, the Named Fiduciary or we have filed a
written objection within the sixty-day period.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 - AMENDMENTS.
We may amend a selection or specification in the Adoption Agreement at any
time, including any remedial retroactive changes (within the time specified by
Internal Revenue Service regulation) to comply with any law or regulation
issued by any governmental agency to which the Plan is subject. An amendment
(including a change in the actuarial basis for determining optional or early
retirement benefits) may not diminish or adversely affect any accrued interest
or benefit of Members or their Beneficiaries nor allow reversion or diversion
of Plan assets to us at any time, except as may be required to comply with any
law or regulation issued by any governmental agency to which the Plan is
subject. However, a Member's Accrued Benefit may be reduced to the extent
permitted under Code Section 412(c)(8). For purposes of this paragraph, a plan
amendment which has the effect of (1) eliminating or reducing an early
retirement benefit or a retirement-type subsidy, or (2) eliminating an optional
form of benefit with respect to benefits attributable to service before the
amendment shall be treated as reducing accrued benefits. In the case of a
retirement-type subsidy, the preceding sentence shall apply only with respect
to a Member who satisfies (either before or after the amendment) the
preamendment conditions for the subsidy. In general, a retirement-type subsidy
is a subsidy that continues after retirement, but does not include a qualified
disability benefit, a medical benefit, a social security supplement, a death
benefit (including life insurance), or a plant shut down benefit (that does not
continue after retirement age). Furthermore, if the vesting schedule of the
Plan is amended, in the case of an Employee who is a Member as of the later of
the date such amendment is adopted or the date it becomes effective, the
nonforfeitable percentage (determined as of such date) of such Employee's
employer-derived Accrued Benefit will not be less than the percentage computed
under the Plan without regard to such
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amendment. We may amend the Plan to change the choice of options in the
Adoption Agreement. We may amend the Plan by adding overriding plan language to
the Adoption Agreement in order to satisfy Code Section 415 and 416 because of
the required aggregation of multiple plans under those sections. We may amend
the Plan by adding certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as individually designed. An amendment to this Plan will be
forwarded to Principal Mutual Life Insurance Company, the prototype Plan
sponsor.
If we amend the Plan for any reason other than those set out above or if the
Plan loses its qualified status, the Plan shall not be a prototype plan within
the meaning of governmental regulations. In that event, Principal Mutual Life
Insurance Company will not be the prototype plan sponsor and the Plan will not
be a prototype plan. As the Employer, we reserve the right to continue our
retirement program under a document separate and distinct from this Plan. In
such event, all rights and obligations of any Member, Beneficiary, or of ours
under this document shall cease. Assets held in support of this Plan will be
transferred to the designated funding medium under the new or restated plan
and, if applicable, trust, in the manner permitted under, and subject to the
provisions of, the Annuity Contract.
We delegate authority to amend this Plan to Principal Mutual Life Insurance
Company as sponsor. We hereby consent to any such amendment. However, no such
amendment shall increase the duties of the Named Fiduciary without his consent.
Such an amendment shall not deprive any Member or Beneficiary of any accrued
benefit except to the extent necessary to comply with any law or regulation
issued by any governmental agency to which this Plan is subject. Such an
amendment shall not provide that the Investment Fund be used for any purpose
other than the exclusive benefit of Members or their Beneficiaries or that the
Investment Fund ever revert to or be used by us.
Any amendment to this Plan by Principal Mutual Life Insurance Company, as
sponsor, shall be deemed to be an amendment to this Plan by us. The effective
date of any amendment shall be specified in the written instrument of
amendment.
An amendment shall not decrease a Member's vested interest in the Plan. If an
amendment to the Plan, or a deemed amendment in the case of a change in
top-heavy status of the Plan as provided in Section 10.03, changes the
computation of Vesting Percentage (whether directly or indirectly), each Member
or former Member
(a) who has completed at least three Years of Service with us on the date
the election period described below ends (five Years of Service if the
Member does not have at least one Hour of Service in a Plan Year
beginning after December 31, 1988) and
(b) whose Vesting Percentage will be determined on any date after the date
of the change
may elect, during the election period, to have the nonforfeitable percentage of
his Accrued Benefit which results from our Contributions determined without
regard to the amendment. This election may not be revoked. An election does
not need to be provided for any Member or former Member whose Vesting
Percentage, determined according to the Plan provisions as changed, cannot at
any time be less than the percentage determined without regard to such change.
The election period shall begin no later than the date the Plan amendment is
adopted, or deemed adopted in the case of a change in the top-heavy status of
the Plan, and end no earlier than the sixtieth day after the latest of the date
the amendment is adopted (deemed adopted) or becomes effective, or the date the
Member is issued written notice of the amendment (deemed amendment) by us or
the Plan Administrator.
SECTION 9.02 - MERGERS AND DIRECT TRANSFERS.
The Plan may not be merged or consolidated with, nor have its assets or
liabilities transferred to, any other retirement plan, unless each Member in
the plan would (if the plan then terminated) receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit the Member would have been entitled to receive immediately before
the merger, consolidation or transfer (if this Plan had then terminated). We
may enter into merger agreements or direct transfer of assets agreements with
the employers under other retirement plans which are qualifiable under Code
Section 401 (a), including an elective transfer, and may accept the direct
transfer of plan assets, or may transfer plan assets, as a party to such
agreement.
The Plan may accept a direct transfer of plan assets on behalf of an Eligible
Employee. If the Eligible Employee is not an Active Member when the transfer is
made, the Eligible Employee shall be deemed to be an Active Member only for the
purpose of investment and distribution of the transferred assets. He may not
make Member Contributions or accrue benefits until the time he meets all of the
requirements to become an Active Member. If he terminates employment prior to
becoming an Active Member, his transferred assets may be distributed to him as
if they were employer-derived accrued benefits.
Unless a transfer of assets to the Plan is an elective transfer, the Plan shall
apply the optional forms of benefit protections described in Section 9.01 to
all transferred assets. A transfer is elective if: (1) the transfer is
voluntary, under a fully informed election by the Member; (2) the Member has an
alternative that retains his Code Section 411(d)(6) protected benefits
(including an option to leave his benefit in the transferor plan, if that plan
is not terminating); (3) if the transferor plan is subject to Code Sections 401
(a)(11) and 417, the transfer satisfies the applicable spousal consent
requirements of the Code; (4) the notice requirements under Code Section 417,
requiring a written explanation with respect to an election not to receive
benefits in the form of a qualified joint and survivor annuity, are met with
respect to the Member and spousal transfer election; (5) the Member has a right
to immediate distribution from the transferor plan under provisions in the plan
not inconsistent with Code Section 401 (a); (6) the transferred benefit is
equal to the Member's entire nonforteitable accrued benefit under the
transferor plan, calculated to be at least the greater of the single sum
distribution provided by the transferor plan (if any) or the present value of
the Member's accrued benefit under the transferor plan payable at the plan's
normal retirement age and calculated using an interest rate subject to the
restrictions of
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Code Section 417(e) and subject to the overall limitations of Code Section
415; (7) the Member has a 100% nonforteitable interest in the transferred
benefit; and (8) the transfer otherwise satisfies applicable Treasury
regulations.
SECTION 9.03 - PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.
The obligations of the Insurer shall be governed solely by the provisions of
the Annuity Contract. The Insurer shall not be required to perform any act not
provided in or contrary to the provisions of the Annuity Contract. The Annuity
Contract when purchased will comply with the Plan. See Section 9.08.
Any issuer or distributor of investment contracts or securities is governed
solely by the terms of its policies, written investment contract, prospectuses,
security instruments, and any other written agreements entered into with the
Trustee.
Such Insurer, issuer or distributor is not a party to the Plan, nor bound in
any way by the Plan provisions. Such parties shall not be required to look to
the terms of this Plan, nor to determine whether we, the Plan Administrator,
the Trustee or the Named Fiduciary have the authority to act in any particular
manner or to make any contract or agreement.
Until notice of any amendment or termination of this Plan or of a change in
Trustee has been received by the Insurer at its home office or an issuer or
distributor at their principal address, they are and shall be fully protected
in assuming that the Man has not been amended or terminated and in dealing with
any party acting as Trustee according to the latest information which they have
received at their home office or principal address.
SECTION 9.04 - EMPLOYMENT STATUS.
Nothing contained in this Plan gives any Employee the right to be retained in
our employ or to interfere with our right to discharge any Employee.
SECTION 9.05 - RIGHTS TO PLAN ASSETS.
An Employee shall not have any right to or interest in any assets of the Plan
upon termination of employment or otherwise except as specifically provided
under this Plan, and then only to the extent of the benefits payable to such
Employee according to the Plan provisions.
Any final payment or distribution to a Member or his legal representative or
to any Beneficiaries, spouse or Contingent Annuitant of such Member under the
Plan provisions shall be in full satisfaction of all claims against the Plan,
the Named Fiduciary, the Plan Administrator, the Insurer, the Trustee and us
arising under or by virtue of the Plan.
SECTION 9.06 - BENEFICIARY.
Each Member may name a Beneficiary to receive any death benefit (other than
any income payable to a Contingent Annuitant) which may arise out of his
membership in the Plan. The Member may change his Beneficiary from time to
time. Unless a qualified election has been made, for purposes of distributing
any death benefits before Retirement Date, the Beneficiary of a Member who has
a spouse to whom he has been continuously married for at least one year shall
be the Member's spouse. The Member's Beneficiary designation and any change
of Beneficiary shall be subject to the provisions of Section 6.04. It is the
responsibility of the Member to give written notice to the Insurer of the name
of the Beneficiary on a form furnished for that purpose.
With our consent, the Plan Administrator may maintain records of Beneficiary
designations for Members before their Retirement Dates. In that event, the
written designations made by Members shall be filed with the Plan
Administrator. If a Member dies before his Retirement Date, the Plan
Administrator shall certify to the Insurer the Beneficiary designation on its
records for the Member.
If there is no Beneficiary named or surviving when a Member dies, any death
benefit under the Annuity Contract will be paid according to the provisions of
the respective documents.
SECTION 9.07 - NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any creditor
of any Member, Beneficiary, spouse, or Contingent Annuitant. A Member,
Beneficiary, spouse or Contingent Annuitant does not have any rights to
alienate, anticipate, commute, pledge, encumber or assign such benefits. The
preceding sentences shall apply to the creation, assignment or recognition of a
right to any benefit payable with respect to a Member according to a domestic
relations order, unless such order is determined by the Plan Administrator to
be a qualified domestic relations order, as defined in Code Secton 414(p), or
any domestic relations order entered before January 1, 1985.
SECTION 9.08 - CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under and
construed according to Federal law and, to the extent permissible, according
to the laws of the state in which we have our principal office. In case any
provision of this Plan is held illegal or invalid for any reason, such
determination shall not affect the remaining provisions of this Plan, and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included.
In the event of any conflict between the provisions of the Plan and the terms
of any contract or policy issued hereunder, the provisions of the Plan control.
SECTION 9.09 - LEGAL ACTIONS.
The Plan, the Plan Administrator, the Trustee and the Named Fiduciary are the
necessary parties to any action or proceeding involving the assets held with
respect to the Plan or administration of the Plan or Trust. No person employed
by us, no Member, former Member or their Beneficiaries or any other person
having or claiming to have an interest in the Plan is entitled to any notice of
process. A final judgment entered in any such action or proceeding shall be
binding and conclusive on all persons having or claiming to have an interest in
the Plan.
SECTION 9.10 - SMALL AMOUNTS.
If the Present Value of the Member's vested Accrued Benefit and the Member's
Account has never exceeded $3,500, such Present Value and the entire Account
shall be payable in a single sum as of the Member's Retirement Date or the date
he ceases to be an Employee for any reason other than death.
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This is a small amounts payment. If the Member's vested Accrued Benefit is
zero on the date he ceases to be an Employee for any reason other than death,
he shall be deemed to have received a single-sum payment of the Present Value
of his vested Accrued Benefit on such date. Such small amounts payment shall
be made to the Member. Such small amounts payment shall result in all of a
Member's Accrued Benefit being disregarded and is in full settlement of all
benefits otherwise payable. See Section 4.02. If the Present Value of the
Qualified Preretirement Survivor Annuity derived from the Member's Accrued
Benefit and the Member's Account has never exceeded $3,500, the Present Value
of any death benefit shall be payable in a single sum as of the date the Member
dies if such Present Value is not more than $3,500. This is a small amounts
payment Such small amounts payment shall be made to the Member's Beneficiary
(spouse if the death benefit is payable to the spouse). Such small amounts
paymentis in full settlement of the death benefit otherwise payable.
Before the first Yearly Date in 1989, the Member's Account which results from
deductible Voluntary Contributions shall not be taken into account in
determining whether the Present Value of his vested Accrued Benefit and the
Member's Account has exceeded $3,500.
No other small amounts payments shall be made.
SECTION 9.11 - WORD USAGE.
The masculine gender, where used in this Plan, shall include the feminine
gender and singular words as used in this Plan may include the plural, unless
the context indicates otherwise.
SECTION 9.12 - TRANSFERS BETWEEN PLANS.
If an Employee has been a member of another plan of ours which credited service
under the elapsed time method for any purpose which under this Plan is
determined using the hours method, then the Employee's service shall be equal
to the sum of (a), (b) and (c) below:
(a) The number of whole years of service credited to the Employee under the
other plan as of the date he became an Eligible Employee under this
Plan.
(b) One year of service for the applicable service period in which he
became an Eligible Employee if he is credited with the required number
of Hours of Service. If we do not have sufficient records to determine
the Employee's actual Hours of Service in that part of the service
period before the date he became an Eligible Employee, the Hours of
Service shall be determined using an equivalency. For any month in
which he would be required to be credited with one Hour of Service, the
Employee shall be deemed for purposes of this section to be credited
with 190 Hours of Service.
(c) The Employee's service determined under this Plan using the hours
method after the end of the service period in which he became an
Eligible Employee.
If an Employee has been a member of another plan of ours which credited service
under the hours method for any purpose which under this Plan is determined
using the elapsed time method, then the Employee's service shall be equal to
the sum of (d), (e) and (f) below:
(d) The number of whole years of service credited to the Employee under the
other plan as of the beginning of the service period under that plan
in which he became an Eligible Employee under this Plan.
(e) The greater of (1) the service that would be credited to the Employee
for that entire service period using the elapsed time method or (2) the
service credited to him under the other plan as of the date he became
an Eligible Employee under this Plan.
(f) The Employee's service determined under this Plan using the elapsed
time method after the end of the applicable service period under the
other plan in which he became an Eligible Employee.
Any modification of service contained in this Plan shall be applicable to the
service determined pursuant to this section.
If an Employee used to be a member of a Controlled Group member's plan which
credited service under a different method than is used in this Plan, in order
to determine entry, vesting and accrual, the provisions above shall apply as
though the Controlled Group member's plan were our plan. If the method of
crediting service under this Plan is changed, the service credited to an
Employee shall be equal to the service that would be credited to him under the
above provisions as though the Plan as in effect before the change were
another plan of ours.
SECTION 9.13 - PARTNERSHIP OR SOLE PROPRIETORSHIP.
(a) For the purpose of applying the provisions of this Plan as to any Plan
Year in which we are a partnership or sole proprietorship, the
following terms are defined:
CONTROL(S) means, with regard to a trade or business, one
owner-employee owns or a group of owner-employees together own (1) the
entire interest in such trade or business or (2) in the case of a
partnership, more than fifty percent of either the capital interest
or the profits interest in the partnership. An owner-employee, or a
group of owner-employees, shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such owner-employee, or group of owner-employees, are considered
to control within the meaning of the preceding sentence.
EARNED INCOME means, for a Self-Employed Individual, net earnings from
self-employment in the trade or business for which this Plan is
established if such Self-Employed Individual's personal services are a
material income producing factor for that trade or business. Earned
Income shall be determined without regard to items not included in
gross income and the deductions properly allocable to or chargeable
against such items. After the TEFRA Compliance Date, Earned Income
shall be reduced (for our employer contributions to our qualified
retirement plan(s) to the extent deductible under Code Section 404.
- 35 -
<PAGE> 41
Net earnings shall be determined with regard to the deduction allowed
to us by Code Section 164(f) for taxable years beginning after December
31, 1989.
In applying the provisions of this Plan, the Self-Employed Individual's
Earned Income shall be deemed to be his Pay. For purposes of Section
4.03, Earned Income shall include earned income within the meaning of
Code Section 911 from sources outside the United States and shall be
deemed to be his Compensation. If any exclusions are used for Pay,
Earned Income shall be adjusted in accordance with Treasury regulations.
OWNER-EMPLOYEE means a Self-Employed Individual who, in the case of a
sole proprietorship, owns the entire interest in the unincorporated
trade or business for which this Plan is established. If this Plan is
established for a partnership, an Owner-Employee means a Self-Employed
Individual who owns more than ten percent of either the capital interest
or profits interest in such partnership.
In applying the provisions of this Plan, an Owner-Employee shall be
deemed to be an Employee.
SELF-EMPLOYED INDIVIDUAL means, with respect to any Fiscal Year, an
individual who has Earned Income for the Fiscal Year (or who would have
Earned Income but for the fact the trade or business for which this Plan
is established did not have net profits for such Fiscal Year).
In applying the provisions of this Plan, a Self-Employed Individual
shall be deemed to be an Employee.
(b) If benefits are accrued for or contributions are made for or allocated
to an Owner-Employee who Controls, or a group of Owner-Employees who
together control, both the trade or business for which this Plan is
established and one or more other trades or businesses, then this Plan
and the plans established for such other trade(s) or business(es) must,
if they were combined as a single plan, satisfy the requirements of Code
Sections 401(a) and 401(d) and regulations thereunder.
If this Plan provides benefits for an Owner-Employee who Controls, or a
group of Owner-Employees who Control, one or more other trades or
businesses, the employees of each such other trade or business must be
included in a plan which satisfies Code Sections 401(a) and 401(d) and
regulations thereunder. Each such plan must provide contributions and
benefits which are not less favorable than the benefits provided for the
Owner-Employee(s) under this Plan.
If an Owner-Employee is covered under another qualifiable retirement
plan as an owner-employee of a trade or business he does not Control,
then the plan(s) of the traders) or businesses) the Owner-Employee does
Control (including this Plan, if applicable) must provide contributions
or benefits as favorable as those provided under the most favorable plan
of the trade or business the Owner-Employee does not Control.
SECTION 9.14 - QUALIFICATION OF PLAN.
We intend to apply for an advance determination letter from the Internal
Revenue Service for the initial qualification of the Plan, and, if the Plan is
trusteed, determination of the exempt status of the Trust.
If the Plan is denied initial qualification, it will terminate. We shall give
written notice to the Insurer and Trustee of the denial in sufficient time so
the assets resulting from Contributions which were conditioned on initial
qualification of the Plan may be returned within one year after the date of
denial, but only if the application for the qualification is made by the time
prescribed by law for filing our return for the taxable year in which the Plan
is adopted, or such later date as the Secretary of the Treasury may prescribe.
The Insurer will be notified that the Annuity Contract is to be terminated.
The Plan assets which result from Employer Contributions and Member
Contributions shall be returned to us and the Members, respectively. The
Trustee, the Plan Administrator and the Named Fiduciary shall then be
discharged from all obligations under the Plan and Trust and the Insurer shall
be discharged from all obligations under the Annuity Contract A Member or
Beneficiary shall not have any right or claim to the assets or to any benefit
under this Plan before the Internal Revenue Service determines that the Plan
and Trust qualify under the provisions of Section 401(a) of the Code.
If the Plan loses its qualified status, it shall no longer be a prototype plan
within the meaning of governmental regulations. In that event, Principal Mutual
Life Insurance Company will no longer be the Plan sponsor. We agree to give
written notification to Principal Mutual Life Insurance Company of the loss of
qualification.
ARTICLE X
TOP-HEAVY PLAN REQUIREMENTS
SECTION 10.01 - APPLICATION.
The provisions of this Article X shall supersede all other provisions in the
Plan to the contrary.
For the purpose of applying the Top-heavy Plan requirements of this article,
all members of the Controlled Group shall be treated as one Employer. The
terms we, us and our as they are used in this article shall be deemed to include
all members of the Controlled Group unless the terms as used clearly indicate
only the Employer is meant.
The accrued benefit or account of a member which results from deductible
voluntary contributions shall not be included for any purpose under this
article.
The minimum vesting and benefit provisions of Sections 10.03 and 10.04 shall
not apply to any Employee who is included in a group of Employees covered by a
collective bargaining agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or
more employers, including us, if there is evidence that retirement benefits
were the subject of good faith bargaining between such representatives. For
this purpose, the term "employee representatives" does not include any
organization more than half of whose members are employees who are owners,
officers, or executives.
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<PAGE> 42
SECTION 10.02 - DEFINITIONS.
The following terms are defined for purposes of this article.
ACCRUED BENEFIT means, as of any determination date, a member's accrued benefit
(including that benefit, if any, derived from required member contributions)
under one of our retirement plans on the latest valuation date. The Accrued
Benefit of any Employee (other than a Key Employee) shall be determined under
the method which is used for accrual purposes for all plans of ours or if there
is no one method which is used for all plans of ours, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under Code
Section 411(b)(1)(C).
AGGREGATION GROUP MEANS
(a) each of our qualified plans in which at least one Key Employee
participates during the Year containing the Determination Date or one of
the four preceding Years (regardless of whether the plan has
terminated).
(b) each of our other qualified plans which enables the plan(s) described in
(a) above to meet the requirements of Code Section 401(a)(4) or Code
Section 410, and
(c) any of our other qualified plans not included in (a) or (b) above which
we desire to include as part of the Aggregation Group. Such a qualified
plan shall be included only if the Aggregation Group would continue to
satisfy the requirements of Code Section 401(a)(4) and Code Section
410.
The plans in (a) and (b) above constitute the "required" Aggregation Group.
The plans in (a), (b) and (c) above constitute the "permissive" Aggregation
Group.
COMPENSATION means, as to an Employee for any period, compensation as defined
in Plan Section 4.03. For purposes of determining who is a Key Employee,
Compensation shall mean compensation as defined in Code Section 415(c)(3), but
including amounts contributed by us pursuant to a salary reduction agreement
which are excludible from the Employee's gross income under Code Sections 125,
402(a)(8), 402(h) or 403(b).
COMPENSATION AVERAGE means the average of a Member's monthly Compensation (as
defined in this section) for those five consecutive years (actual number of
years in which he received Compensation, if fewer than five) which give the
highest average.
In determining such consecutive years, a year which ends in a Plan Year
beginning before January 1, 1984, shall not be taken into account. A year for
which an Employee fails to be credited with a year of Vesting Service (a Year
of Service if Vesting Service is not defined in Item T) shall not be taken into
account. Such a year shall be disregarded in determining whether or not the
years used for the Employee's Compensation Average are consecutive.
The Compensation Average of a Member taken into account for a Year when the
Plan is a Top-heavy Plan shall not exceed $200,000 multiplied by the Adjustment
Factor.
DETERMINATION DATE means as to this Plan for any Year, the last day of the
preceding Year. However, if there is no preceding Year, the Determination Date
is the last day of such Year.
KEY EMPLOYEE means any Employee or former Employee (including Beneficiaries of
deceased Employees) who at any time during the determination period was
(a) one of our officers (subject to the maximum below) whose Compensation
(as defined in this section) for the Year exceeds 50 percent of the
dollar limitation under Code Section 415(b)(1)(A),
(b) one of the ten Employees who owns (or is considered to own, under Code
Section 318) more than a half percent ownership interest and one of the
largest interests in us during any Year of the determination period if
such person's Compensation (as defined in this section) for the Year
exceeds the dollar limitation under Code Section 415(c)(1)(A),
(c) a five-percent owner of us, or
(d) a one-percent owner of us whose Compensation (as defined in this
section) for the Year is more than $150,000.
Each member of the Controlled Group shall be treated as a separate employer for
purposes of determining ownership in us.
The determination period is the Year containing the Determination Date and the
four preceding Years. If we have fewer than 30 Employees, no more than three
Employees shall be treated as Key Employees because they are officers. If we
have between 30 and 500 Employees, no more than ten percent of our Employees
(if not an integer, increased to the next integer) shall be treated as Key
Employees because they are officers. In no event will more than 50 Employees be
treated as Key Employees because they are officers if we have 500 or more
Employees. The number of Employees for any Plan Year is the greatest number of
Employees during the determination period. Officers who are employees
described in Code Section 414(q)(8) shall be excluded. If we have more than
the maximum number of officers to be treated as Key Employees, the officers
shall be ranked by the amount of annual Compensation (as defined in this
section), and those with the greater amount of annual Compensation during the
determination period shall be treated as Key Employees. To determine the ten
Employees owning the largest interests in us, if more than one Employee has the
same ownership interest, the Employee(s) having the greater annual Compensation
shall be treated as owning the larger interest(s). The determination of who
is a Key Employee shall be made according to Code Section 416(i)(1) and the
regulations thereunder.
NON-KEY EMPLOYEE means a person who is a non-key employee within the meaning of
Code Section 416 and regulations thereunder.
PRESENT VALUE means the present value of a member's Accrued Benefit under a
defined benefit plan as of his normal retirement age (attained age if later)
or, if the plan provides non-proportional subsidies, the age at which the
benefit is most valuable. The Present Value shall be based only on the
interest and mortality rates specified in the Adoption Agreement. If the
Present Value
- 37 -
<PAGE> 43
of Accrued Benefits is determined for a member under more than one defined
benefit plan included in the Aggregation Group, all such plans shall use the
same actuarial assumptions to determine the Present Value.
TOP-HEAVY PLAN means a plan which is a top-heavy plan for any plan year
beginning after December 31, 1983. This Plan shall be a Top-heavy Plan if
(a) the Top-heavy Ratio for this Plan alone exceeds 60 percent and this Plan
is not part of any required Aggregation Group or permissive Aggregation
Group.
(b) this Plan is a part of a required Aggregation Group, but not part of a
permissive Aggregation Group, and the Top heavy Ratio for the required
Aggregation Group exceeds 60 percent.
(c) this Plan is a part of a required Aggregation Group and part of a
permissive Aggregation Group and the Top-heavy Ratio for the permissive
Aggregation Group exceeds 60 percent.
TOP-HEAVY RATIO means the ratio calculated below for this Plan or for the
Aggregation Group.
(a) If we maintain one or more defined benefit plans and we have not
maintained any defined contribution plan (including any simplified
employee pension plan) which during the five-year period ending on the
determination date has or has had account balances, the Top-heavy Ratio
for this Plan alone or for the required or permissive Aggregation Group
as appropriate is a fraction, the numerator of which is the sum of the
Present Values of the Accrued Benefits of all Key Employees as of the
determination date and the denominator of which is the sum of all the
Present Values of all Accrued Benefits of all employees as of the
determination date. Both the numerator and denominator of the Top-heavy
Ratio are increased for any distribution of an Accrued Benefit
(including those made from terminated plan(s) of ours which would have
been part of the required Aggregation Group had such plan(s) not been
terminated) made in the five-year period ending on the determination
date in accordance with Code Section 416 and the regulations thereunder.
Both the numerator and denominator of the Top-heavy Ratio are increased
to reflect any contribution not actually made as of the Determination
Date, but which is required to be taken into account on that date under
Code Section 416 and the regulations thereunder.
(b) If we maintain one or more defined benefit plans and we maintain or have
maintained one or more defined contributions plans (including any
simplified employee pension plan) which during the five-year period
ending on the determination date has or has had account balances, the
Top-heavy Ratio for any required or permissive Aggregation Group as
appropriate is a fraction, the numerator of which is the sum of the
account balances under the defined contribution plan(s) for all Key
Employees and the Present Value of Accrued Benefits under the defined
benefit plan(s) for all Key Employees, and the denominator of which is
the sum of the account balances under the defined contribution plan(s)
for all employees and the Present Value of Accrued Benefits under the
defined benefit plans for all employees. Both the numerator and
denominator of the Top-heavy Ratio are increased for any distribution of
an account balance or an Accrued Benefit (including those made from
terminated plan(s) of ours which would have been part of the required
Aggregation Group had such plan(s) not been terminated) made in the
five-year period ending on the determination date in accordance with
Code Section 416 and the regulations thereunder.
(c) For purposes of (a) and (b) above, the value of account balances and the
Present Value of Accrued Benefits will be determined as of the most
recent valuation date that falls within or ends with the 12-month period
ending on the determination date, except as provided in Code Section 416
and the regulations thereunder for the first and second plan years of a
defined benefit plan. The account balances and Accrued Benefits of an
employee who is not a Key Employee but who was a Key Employee in a prior
year will be disregarded. The calculation of the Top-heavy Ratio and
the extent to which distributions, rollovers and transfers during the
five-year period ending on the determination date are to be taken into
account shall be determined according to the provisions of Code Section
416 and regulations thereunder. The account balances and Accrued
Benefits of an individual who has performed no service for us during the
five-year period ending on the determination date shall be excluded from
the Top-heavy Ratio until the time the individual again performs service
for us. Deductible employee contributions will not be taken into
account for purposes of computing the Top-heavy Ratio. When
aggregating plans, the value of account balances and Accrued Benefits
will be calculated with reference to the determination dates that fall
within the same calendar year.
Account as used in this definition, means the value of an employee's account
under one of our retirement plans on the latest valuation date. In the case of
a money purchase plan or target benefit plan, such value shall be adjusted to
include any contributions made for or by the employee after the valuation date
and on or before such determination date or due to be made as of such
determination date but not yet forwarded to the insurer or trustee. In the
case of a profit sharing plan, such value shall be adjusted to include any
contributions made for or by the employee after the valuation date and on or
before such determination date. During the first Year of any profit sharing
plan such adjustment in value shall include contributions made after such
determination date that are allocated as of a date in such Year. The
nondeductible voluntary contributions which an employee makes under a defined
benefit plan of ours shall be treated as if they were contributions under a
separate defined contribution plan.
VALUATION DATE means, as to this Plan, the valuation date used for computing
plan costs for minimum funding purposes, regardless of whether or not a
valuation is actually performed for a given Year. This is the date as of which
account balances or Accrued Benefits are valued for purposes of calculating the
Top-heavy Ratio.
YEAR means the Plan Year unless another year is specified by us in a separate
written resolution in accordance with regulations issued by the Secretary of
the Treasury or his delegate.
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<PAGE> 44
SECTION 10.03 - MODIFICATION OF VESTING REQUIREMENTS.
If a Member's Vesting Percentage determined under the vesting schedule selected
in Item S is not as great as the Vesting Percentage would be if it were
determined under a schedule permitted in Code Section 416, the following shall
apply. During any Year in which the Plan is a Top-heavy Plan, the Member's
Vesting Percentage shall be the greater of the Vesting Percentage determined
under the schedule selected in Item S or the schedule below.
VESTING SERVICE VESTING
(WHOLE YEARS) PERCENTAGE
Less than 2 0
2 20
3 40
4 60
5 80
6 or more 100
The schedule above shall not apply to Members who are not credited with an Hour
of Service after the Plan first becomes a Top-heavy Plan. The Vesting
Percentage determined above applies to all of the Member's Accrued Benefit
provided by our Contributions, including Contributions we make before the TEFRA
Compliance Date or when this Plan is not a Top-heavy Plan.
If, in a later Year, this Plan is not a Top-heavy Plan, a Member's
Vesting Percentage shall be determined according to the provisions of Item S.
A Member's Vesting Percentage determined under either Item S or the schedule
above shall never be reduced and the election procedures of Section 9.01 shall
apply when changing to or from the above schedule as though the automatic
change were the result of an amendment.
The part of the Member's Vested Accrued Benefit resulting from the minimum
accrued benefit pursuant to Section 10.04 shall not be forfeited because of a
period of reemployment after benefit payments have begun or because of a
withdrawal of Required Contributions, if any.
SECTION 10.04 - MODIFICATION OF PAY AND ACCRUED BENEFIT.
During any Year in which this Plan is a Top-heavy Plan, a Member's Average Pay
taken into account to determine the amount of his Accrued Benefit or a Member's
Pay taken into account to determine the amount of his Member Contributions
(other than deductible Voluntary Contributions) for that Year shall not exceed
$200,000 multiplied by the Adjustment Factor. For any Plan Year beginning
after December 31, 1988, in determining the Compensation, as defined in this
article, of a member for purposes of this limitation, the rules of Code Section
414(q)(6) shall apply, except that in applying such rules, the term "family"
shall include only the spouse of the Member and any lineal descendants of the
Member who have not attained age 19 before the close of the Plan Year. If as a
result of the application of such rules the adjusted $200,000 limitation is
exceeded, then the limitation shall be prorated among the affected individuals
in proportion to each such individual's Compensation as determined under the
definition in this article prior to the application of this limitation.
During any Year in which this Plan is a Top-heavy Plan, a minimum Accrued
Benefit shall be provided by our Contributions for each person who is a Non-key
Employee and who either was or could have been an Active Member during that
Year and, if the hours method is used to determine Accrual Service, who was
credited with the number of Hours of Service (1,000 if less) required to earn a
year of Accrual Service in the latest Accrual Service Period all or part of
which occurs within the Year. A Non-key Employee is not required to have a
minimum amount of Average Pay or to have made any Required Contributions in
order to be entitled to this minimum. The selections we make in Item P shall
determine if Key Employees who meet the above requirements are also entitled to
this minimum and if the minimum benefit shall also apply in Years when the Plan
is not a Top-heavy Plan. The minimum is the amount described in (a) below. To
meet this minimum, during any Year in which this Plan is a Top-heavy Plan, an
additional Accrued Benefit on, or adjusted to, a straight life basis, provided
by our Contributions equal to (a) reduced by (b) below shall be provided for
such person:
(a) The amount specified in Item P. If overriding provisions are not
specified, in Item P, the lesser of (i) or (ii) below:
(i) Two percent of his Compensation Average multiplied by his Accrual
Service, excluding any year of such service which ends in a Plan
Year beginning before January 1, 1984, or a year of service
beginning in a Plan Year in which this Plan is not a Top-heavy
Plan. For purposes of this paragraph, if Hours of Service are
used to determine Accrual Service, (A) not more than 1,000 Hours
of Service shall be required to earn a year of Accrual Service,
(B) Accrual Service shall be taken into account for any Accrual
Service Period all or part of which occurs within a Year when
this Plan is a Top-heavy Plan, and (C) no fractional parts of a
year of Accrual Service shall be taken into account.
(ii) Twenty percent of his Compensation Average.
(b) Such person's Accrued Benefit on, or adjusted to a straight life basis,
provided by our Contributions as of the last day of such Year, without
regard to the adjustment for prior distributions.
If the Normal Form is other than a straight life annuity, the minimum amount of
Accrued Benefit determined above shall be adjusted to the Normal Form Actuarial
Equivalent. Such Actuarial Equivalent shall be determined as of the earliest
Normal Retirement Age permitted under this Plan for any Member.
If, as of the last day of any Year in which the Plan is a Top-heavy Plan, such
person's accrued benefit provided by our contributions under all our defined
benefit plans is at least equal to the amount of the minimum determined above,
the requirements of this section are satisfied as to him, and an additional
amount of accrued benefit shall not be provided for him for such Year.
If a person who is otherwise entitled to the minimum accrued benefit above is
also covered under one or more defined contribution plans of ours which are
Top-heavy Plans during
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<PAGE> 45
that same Year, the minimum benefits for him shall be provided under this Plan.
We may provide overriding provisions in Item P to satisfy the requirements of
Code Section 416 because of the aggregation of multiple plans.
For purposes of this section, any employer contribution made according to a
salary reduction or similar arrangement shall not apply before the first Yearly
Date in 1985.
The requirements of this section shall be met without regard to contributions
under Chapter 2 of the Code (relating to tax on self-employment)___________,
Chapter 21 of the Code (relating to Federal Insurance Contributions Act), Title
II of the Social Security Act or any other Federal or state law.
SECTION 10.05 - MODIFICATION OF BENEFIT LIMIT.
If the provisions of subsection (e) of Section 4.03 are applicable for any
Limitation Year during which this Plan is a Top-heavy Plan, the benefit limit
shall be modified. The definitions of Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction in Section 4.03 shall be modified by
substituting "100 percent" in lieu of "125 percent." In addition, an adjustment
shall be made to the numerator of the Defined Contribution Plan Fraction. The
adjustment is a reduction of that numerator similar to the modification of the
Defined Contribution Plan Fraction described in Section 4.03, and shall be made
with respect to the last Plan Year beginning before January 1, 1984.
The modifications in the paragraph above shall not apply with respect to a
Member so long as employer contributions, forfeitures or nondeductible employee
contributions are not credited to his account under any of our defined
contribution plans and benefits do not accrue for such Member under this or any
of our other defined benefit plan(s), until the sum of his Defined Contribution
and Defined Benefit Plan Fractions is less than 1.0.
The modification of the benefit limitation shall not apply it both of the
following requirements are met:
(a) This Plan would not be a Top-heavy Plan if "90 percent" were substituted
for "60 percent" in the definition of Top-heavy Plan.
(b) A Non-key Employee who is not covered under a defined contribution plan
of ours, accrues a minimum benefit equal to the amount described in
Section 10.04, if the otherwise applicable percentage in (a)(i) and
(a)(ii) were increased by one percentage point for each year (not to
exceed ten in the case of (a)(ii)) earned while the benefit limitation is
to be modified as described above.
The account of a Non-key Employee who is covered under only one or more
defined contribution plans of ours, is credited with a minimum employer
contribution or allocation under such plan(s) equal to four percent of
the person's Compensation for each year in which the plan is a Top-heavy
Plan.
If a Non-key Employee is covered under both defined contribution and
defined benefit plans of ours, (i) a minimum accrued benefit for such
person equal to the amount determined above for a person who is not
covered under a defined contribution plan is accrued in the defined
benefit plan(s) or (ii) a minimum contribution or allocation equal to
7.5 percent of the person's Compensation for a Year in which the plans
are Top-heavy Plans will be credited to his account under the defined
contribution plans.
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<PAGE> 46
[LOGO] the Principal
Financial
Group
Principal Mutual
Life Insurance Company
Des Moines, Iowa 50392-0001
<PAGE> 1
EXHIBIT 10.9
B
A
S THE PRINCIPAL
I FINANCIAL GROUP
C PROTOTYPE
S BASIC
A SAVINGS PLAN
V
I =======================================
N
G BASIC PLAN NO.: 03 TO BE USED WITH
S ADOPTION AGREEMENT PLAN NOS.: 001-002
APPROVED: OCTOBER 26, 1992
P
L
A
N
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INTRODUCTION 1
ARTICLE I - FORMAT AND DEFINITIONS 1
Section 1.01 - Format
Section 1.02 - Definitions
ARTICLE II - MEMBERSHIP 8
Section 2.01 - Active Membership
Section 2.02 - Ceasing Active Membership
Section 2.03 - Adopting Employers - Separate Plans
Section 2.04 - Adopting Employers - Single Plan
ARTICLE III- CONTRIBUTIONS 9
Section 3.01 - Employer Contributions
Section 3.02 - Voluntary Contributions by Members
Section 3.03 - Rollover Contributions
Section 3.04 - Forfeitures and Restoration
Section 3.05 - Allocation
Section 3.06 - Contribution Limitation
Section 3.07 - Excess Amounts
ARTICLE IV - INVESTMENT OF CONTRIBUTIONS 19
Section 4.01 - Investment of Contributions
Section 4.02 - Purchase of Insurance
Section 4.03 - Transfer of Ownership
Section 4.04 - Termination of Insurance
ARTICLE V - BENEFITS 20
Section 5.01 - Retirement Benefits
Section 5.02 - Death Benefits
Section 5.03 - Vested Benefits
Section 5.04 - When Benefits Start
Section 5.05 - Withdrawal Benefits
Section 5.06 - Loans to Members
ARTICLE VI - DISTRIBUTION OF BENEFITS 24
Section 6.01 - Automatic Forms of Distribution
Section 6.02 - Optional Forms of Distribution and Distribution Requirements
Section 6.03 - Election Procedures
Section 6.04 - Notice Requirements
Section 6.05 - Transitional Rules
ARTICLE VII - TERMINATION OF PLAN 30
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VIII - ADMINISTRATION OF PLAN 30
Section 8.01 - Administration
Section 8.02 - Records
Section 8.03 - Information Available
Section 8.04 - Claim and Appeal Procedures
Section 8.05 - Unclaimed Vested Account Procedures
Section 8.06 - Delegation of Authority
ARTICLE VIIIA - TRUST PROVISIONS 31
Section 8A.01 - The Trust and Trust Fund
Section 8A.02 - The Trustee
Section 8A.03 - Duties of Trustee
Section 8A.04 - Powers of Trustee
Section 8A.05 - Expenses
Section 8A.06 - Accounting
ARTICLE IX - GENERAL PROVISIONS 32
Section 9.01 - Amendments
Section 9.02 - Mergers and Direct Transfers
Section 9.03 - Provisions Relating to the Insurer and Other Parties
Section 9.04 - Employment Status
Section 9.05 - Rights to Plan Assets
Section 9.06 - Beneficiary
Section 9.07 - Nonalienation of Benefits
Section 9.08 - Construction
Section 9.09 - Legal Actions
Section 9.10 - Small Amounts
Section 9.11 - Word Usage
Section 9.12 - Transfers Between Plans
Section 9.13 - Partnership or Sole Proprietorship
Section 9.14 - Qualification of Plan
ARTICLE X - TOP-HEAVY PLAN REQUIREMENTS 36
Section 10.01 - Application
Section 10.02 - Definitions
Section 10.03 - Modification of Vesting Requirements
Section 10.04 - Modification of Contributions
Section 10.05 - Modification of Contribution Limitation
</TABLE>
<PAGE> 4
INTRODUCTION
The provisions of this Plan apply as of the date specified in Item A or such
other dates as may be specified in this Plan with the following exceptions:
1. The provisions included to comply with the technical corrections to the
Deficit Reduction Act and the Retirement Equity Act (REA) contained in the
Tax Reform Act of 1986 are effective as if included in the respective bills
to which the corrections apply.
2. The provisions included to comply with the provisions of the Tax Reform
Act of 1986 other than the technical corrections to DEFRA and REA are
effective as of the dates specified in the law.
3. The provisions included to comply with the provisions of the Omnibus
Budget Reconciliation Act of 1986 (OBRA 86) are effective as of the dates
specified in the law.
4. The provisions included to comply with the provisions of the Omnibus
Budget Reconciliation Act of 1987 (OBRA 87) are effective as of the dates
specified in the law.
5. The provisions included to comply with the final regulations on
optional forms of benefit issued July 11, 1988, are effective as of the
effective date prescribed by such regulations.
6. The provisions included to comply with the final REA regulations issued
August 22, 1988, are effective as of the effective date prescribed by such
regulations.
7. The provisions included to comply with the provisions of the Technical and
Miscellaneous Revenue Act of 1988 are effective as of the dates specified in
the law.
8. The provisions included to comply with the final regulations on loans issued
July 20, 1989, are effective as of the effective date prescribed by such
regulations.
ARTICLE I
FORMAT AND DEFINITIONS
SECTION 1.01 - FORMAT.
Our retirement plan is set out in this document, the attached Adoption Agreement
which we signed, and any amendments to these documents.
Words and phrases defined in Section 1.02 shall have that defined meaning when
used in this Plan, unless the context clearly indicates otherwise. These words
and phrases have initial capital letters to aid in identifying them as defined
terms. References to "Section" are references to parts of this document;
references to "Item" are references to parts of the Adoption Agreement.
Some of the defined terms and phrases in Section 1.02 and some of the
provisions contained in the following articles do not apply to our Plan and
shall have no meaning when used in our Plan. The provisions of the attached
Adoption Agreement shall determine whether or not the terms apply.
SECTION 1.02 - DEFINITIONS.
ACCOUNT means a Member's share of the Investment Fund plus the cash value of
any insurance coverage on his life under this Plan. Separate accounting
records shall be kept for those parts of the Member's Account resulting from
the following:
(a) Required Contributions, if any.
(b) Nondeductible Voluntary Contributions, if any.
(c) Deductible Voluntary Contributions, if any.
(d) Rollover Contributions, if any.
(e) Elective Deferral Contributions.
(f) Qualified Matching Contributions.
(g) Matching Contributions that are not Qualified Matching Contributions.
(h) Qualified Nonelective Contributions.
(i) All other Employer Contributions.
If the Member's Vesting Percentage is less than 100% as to any of these
Contributions, a separate accounting record will be kept for any part of
this Account resulting from such Contributions and, if there has been a
prior Forfeiture Date, from such Contributions made before a prior
Forfeiture Date.
The Account shall be reduced by any distribution of the Member's Vested Account
and by any Forfeitures. The Account shall participate in the earnings
credited, expenses charged and any appreciation or depreciation of the
Investment Fund. The Account is subject to any minimum guarantees applicable
under the Annuity Contract or other investment arrangement.
ACCRUAL SERVICE PERIOD means the period defined in Item Q of the Adoption
Agreement - Plus.
ACTIVE MEMBER means an Eligible Employee who is actively participating in the
Plan according to the provisions of Section 2.01.
ADDITIONAL CONTRIBUTIONS means additional contributions we make to fund this
Plan. (See Item P and Section 3.01.)
ADJUSTMENT FACTOR means the cost of living adjustment factor prescribed by the
Secretary of the Treasury under Section 415(d) of the Code for years beginning
after December 31, 1987, as applied to such items and in such manner as the
Secretary shall provide.
ADOPTING EMPLOYER means an employer controlled by or affiliated with us and
listed in Item Z of the Adoption Agreement - Plus. If the Adoption Agreement -
Plus is not used, all members of the Controlled Group and the Affiliated
Service Group, whether or not listed in Item Y, shall be Adopting Employers
participating in a single plan.
ADOPTION AGREEMENT means the attached document which contains our selections
and specifications for our Plan.
AFFILIATED SERVICE GROUP means any group of corporations, partnerships or other
organizations of which we are a part and which is affiliated within the meaning
of Code Section 414(m) and regulations thereunder. Such a group includes at
least two organizations one of which is either a service organization (that is,
an organization the principal business of which is performing services), or an
organization the principal business of which
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is performing management functions on a regular and continuing basis. Such
service is of a type historically performed by employees. In the case of a
management organization, the Affiliated Service Group shall include
organizations related, within the meaning of Code Section 144(a)(3), to either
the management organization or the organization for which it performs
management functions. The term Controlled Group, as it is used in our Plan,
shall include the term Affiliated Service Group.
ANNUAL PAY means the Employee's annual pay as defined in Item M.
ANNUITY CONTRACT means the annuity contract or contracts into which the Trustee
enters (into which we enter, if our Plan is not trusteed) with the Insurer for
the investment of Contributions and the payment of benefits under this Plan.
The term Annuity Contract as it is used in this Plan shall include the plural
unless the context clearly indicates the singular is meant.
ANNUITY STARTING DATE means, for a Member, the first day of the first period
for which an amount is payable as an annuity or any other form.
BENEFICIARY means the person or persons named by a Member to receive any
benefits under the Plan when the Member dies. (See Section 9.06.)
CLAIMANT means any person who makes a claim for benefits under this Plan. (See
Section 8.04.)
CODE means the Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT means an individual named by a Member to receive a life-
time benefit according to a survivorship life annuity after the Member dies.
CONTRIBUTIONS means Elective Deferral, Additional, Discretionary, Matching,
Qualified Nonelective, Voluntary and Rollover Contributions, and Required
Contributions made under the Prior Plan, unless the context clearly indicates
only one is, or certain of these are, meant.
CONTROLLED GROUP means any group of corporations, trades or businesses of which
we are a part that are under common control. A Controlled Group includes any
group of corporations, trades or businesses, whether or not incorporated, which
is either a parent-subsidiary group, a brother-sister group or a combined group
within the meaning of Code Section 414(b), Code Section 414(c) and regulations
thereunder and, for the purpose of determining contribution limitations under
Section 3.06, as modified by Code Section 415(h) and, for the purpose of
identifying Leased Employees, as modified by Code Section 144(a)(3).
The term Controlled Group, as it is used in our Plan, shall include the term
Affiliated Service Group.
DISCRETIONARY CONTRIBUTIONS means discretionary contributions we make to fund
this Plan. (See Item P and Section 3.01.)
EARLY RETIREMENT DATE means the date a Member selects for beginning his early
retirement benefit. Early retirement benefits may begin whether the Member met
the age requirement, if any, before or after ceasing to be an Employee. (See
Item X.)
EFFECTIVE DATE means the date in Item D.
ELECTIVE DEFERRAL CONTRIBUTIONS means Contributions we make to fund this Plan
in accordance with elective deferral agreements between Eligible Employees and
us. Elective deferral agreements shall be made, changed, or terminated
according to the provisions of Item N. (See Item N and Section 3.01.)
A Member's Account resulting from Elective Deferral Contributions may not be
distributed before the Member's separation from service, death, the date the
Member becomes Totally Disabled, before the events described in the last
paragraph of Section 5.04, or before termination of the Plan as described in
Article VII. Elective Deferrals (but no earnings credited after December 31,
1988) may be withdrawn in the case of hardship if Item W(2) is selected.
ELIGIBLE EMPLOYEE means an Employee who meets the requirements specified in
Item J.
EMPLOYEE means an individual who is employed by us or any other employer
required to be aggregated with us under Code Sections 414(b), (c), (m) or (o).
A Controlled Group member is required to be aggregated with us.
The term Employee shall also include any Leased Employee deemed to be an
employee of any employer described in the preceding paragraph as provided in
Code Sections 414(n) or 414(o).
EMPLOYER means the Employer named in Item B and any successor corporation,
trade or business which will, by written agreement, assume the obligations of
this Plan or any Predecessor which maintained this Plan. The terms we, us, and
ours as they are used in this Plan refer to the Employer.
EMPLOYER CONTRIBUTIONS means the Contributions made by us to fund the Plan.
(See Section 3.01.)
ENTRY BREAK means, when the elapsed time method is used, a one-year Period of
Severance beginning on an Employee's Severance Date. An Employee incurs an
Entry Break on the last day of a one-year Period of Severance.
When the hours method is used, Entry Break is defined in Item K. However, if
the Adoption Agreement - Plus is not used, Entry Break means an Entry Service
Period in which an Employee does not have more than one-half of the Hours of
Service required in Item K for a year of Entry Service. An Employee incurs an
Entry Break on the last day of the Entry Service Period in which he has an
Entry Break.
ENTRY DATE means the date an Employee first enters the Plan as an Active
Member. (See Item L and Section 2.01.)
ENTRY SERVICE means an Employee's service as defined in Item K. Entry Service
shall include service with a Controlled Group member while we are both members
of the Controlled Group.
Entry Service shall include a Period of Military Duty. If the elapsed time
method is used, the entire Period of Military Duty shall be included to the
extent it has not already been counted as Entry Service. If the hours method
is used, an Hour of Service shall be credited (without regard to the 501 Hours
of Service limitation) for each hour the Employee would normally have been
scheduled to work for us during such Period of Military Duty to the extent such
hour has not already been counted for purposes of Entry Service.
If the elapsed time method is used and an Employee has more than one countable
Period of Service, Entry Service shall be determined by adjusting his Hire Date
so that the Employee has one continuous period of Entry Service equal to the
total of all his countable Periods of Service. This period of Entry
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<PAGE> 6
Service shall be expressed as whole years (on the basis that 365 days equal one
year) and days.
If the elapsed time method is used, Entry Service shall include a Period of
Severance (service spanning rule) if
(a) the Period of Severance immediately follows a period during which an
Employee is not absent from work and ends within twelve months, or
(b) the Period of Severance immediately follows a period during which an
Employee is absent from work for any reason other than quitting, being
discharged, or retiring (such as a leave of absence or layoff) and ends
within twelve months of the date he was first absent.
If the hours method is used and the Entry Service Period shifts to the Plan
Year, an Employee will be credited with two years of Entry Service if he has
the Hours of Service required for a year of Entry Service in both his first and
second Entry Service Periods.
If the method of crediting Entry Service changes, the provisions of Section
9.12 shall apply.
ENTRY SERVICE PERIOD means the period defined in Item K. However, if the
Adoption Agreement - Plus is not used, Entry Service Period means a
12-consecutive month period beginning on an Employee's Hire Date and each
following 12-consecutive month period beginning on an anniversary of that Hire
Date. If an Employee has a Rehire Date, a new Entry Service Period shall begin
on that date in the same manner as if it were a Hire Date.
ERISA means the Employee Retirement Income Security Act of 1974.
FAMILY MEMBER means an individual described in Code Section 414(q)(6)(B)
FISCAL YEAR means our taxable year. (See Item F.)
FORFEITURE means the part, if any, of a Member's Account which is forfeited.
(See Section 3.04.)
FORFEITURE DATE means, as to a Member, the date the Member incurs five
consecutive Vesting Breaks. Before the first Yearly Date in 1985, the
Forfeiture Date is the date the Member incurs a Vesting Break.
HIGHLY COMPENSATED EMPLOYEE means a highly compensated active Employee or a
highly compensated former Employee.
A highly compensated active Employee means any Employee who performs service
for us during the determination year and who, during the look-back year:
(a) received compensation from us in excess of $75,000 (as adjusted pursuant
to Code Section 415(d));
(b) received compensation from us in excess of $50,000 (as adjusted pursuant
to Code Section 415(d)) and was a member of the top-paid group for such
year; or
(c) was an officer of ours and received compensation during such year that
is greater than 50 percent of the dollar limitation in effect under Code
Section 415(b)(1)(A).
The term Highly Compensated Employee also means:
(d) Employees who are both described in the preceding sentence if the term
"determination year" is substituted for the term "look-back year" and the
Employee is one of the 100 Employees who received the most compensation
from us during the determination year; and
(e) Employees who are 5 percent owners at any time during the look-back year
or determination year.
If no officer has satisfied the compensation requirement of (c) above during
either a determination year or look-back year, the highest paid officer for
such year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The look-back
year shall be the twelve-month period immediately preceding the determination
year.
A highly compensated former Employee means any Employee who separated from
service (or was deemed to have separated) prior to the determination year,
performs no service for us during the determination year, and was a highly
compensated active Employee for either the separation year or any determination
year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a family
member of either a 5 percent owner who is an active or former Employee or a
Highly Compensated Employee who is one of the 10 most highly compensated
Employees ranked on the basis of compensation paid by us during such year, then
the family member and the 5 percent owner or top-ten highly compensated
Employee shall be aggregated. In such case, the family member and 5 percent
owner or top-ten highly compensated Employee shall be treated as a single
Employee receiving compensation and Plan contributions or benefits equal to the
sum of such compensation and contributions or benefits of the family member
and 5 percent owner or top-ten highly compensated Employee. For purposes of
this definition, family member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of such lineal
ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and the
compensation that is considered, will be made in accordance with Code Section
414(q) and the regulations thereunder.
HIRE DATE means the date an Employee first performs an Hour of Service.
HOUR OF SERVICE means, for the elapsed time method of crediting service in this
Plan, each hour for which an Employee is paid, or entitled to payment, for
performing duties for us. Hour of Service means, for the hours method of
crediting service in this Plan, the following:
(a) Each hour for which an Employee is paid, or entitled to payment, for
performing duties for us during the applicable service period.
(b) Each hour for which an Employee is paid, or entitled to payment by us on
account of a period of time in which no duties are performed
(irrespective of whether the employment relationship has terminated) due
to vacation, holiday, illness, incapacity (including disability), layoff,
jury duty, military duty, or leave of absence. Notwithstanding the
preceding provisions of this subparagraph (b) no credit shall be given to
the Employee
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<PAGE> 7
(1) for more than 501 Hours of Service under this subparagraph (b) on
account of any single continuous period in which the Employee
performs no duties (whether or not such period occurs in a single
service period); or
(2) for an Hour of Service for which the Employee is directly or
indirectly paid, or entitled to payment, on account of a period in
which no duties are performed if such payment is made or due under a
plan maintained solely for the purpose of complying with applicable
worker's or workmen's compensation, or unemployment compensation or
disability insurance laws; or
(3) for an Hour of Service for a payment which solely reimburses the
Employee for medical or medically related expenses incurred by him.
For purpose of this subparagraph (b), a payment shall be deemed to be made
by or due from us regardless of whether such payment is made by or due
from us directly or indirectly through, among others, a trust fund or
insurer, to which we contribute or pay premiums and regardless of whether
contributions made or due to the trust fund, insurer, or other entity are
for the benefit of particular employees or are on behalf of a group of
employees in the aggregate.
(c) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by us. The same Hour of Service shall not be
credited under both this subparagraph (c) and under either subparagraph
(a) or (b) above. Crediting of Hours of Service for back pay awarded or
agreed to with respect to periods described in subparagraph (b) above
shall be subject to the limitations set forth in that subparagraph.
The crediting of Hours of Service above shall be applied under the rules of
paragraphs (b) and (c) of the Department of Labor Regulation 2530.200b-2
(including any interpretations or opinions implementing said rules); which
rules, by this reference, are specifically incorporated in full within this
Plan. The reference to paragraph (b) applies to the special rule for
determining hours of service for reasons other than the performance of duties
such as payments calculated (or not calculated) on the basis of units of time
and the rule against double credit. The reference to paragraph (c) applies to
the crediting of hours of service to service periods.
Hours of Service shall be credited for employment with any other employer
required to be aggregated with us under Code Section 414(b), (c), (m) or (o)
and the regulations thereunder for purposes of entry, vesting and, when the
Adoption Agreement - Plus is not used, for purposes of determining eligibility
for contributions. Hours of Service shall also be credited for any individual
who is considered an employee for purposes of this Plan pursuant to Code
Section 414(n) or Code Section 414(o) and the regulations thereunder.
Solely for purposes of determining whether a one-year break in service has
occurred for entry or vesting purposes, during a Parental Absence an Employee
shall be credited with the Hours of Service which would otherwise have been
credited to the Employee but for such absence, or in any case in which such
hours cannot be determined, eight Hours of Service per day of such absence. The
Hours of Service credited under this paragraph shall be credited in the service
period in which the absence begins if the crediting is necessary to prevent a
break in service in that period; or in all other cases, in the following
service period.
INACTIVE MEMBER means a former Active Member who has an Account. (See Section
2.02.)
INSURANCE POLICY means, for trusteed plans, the life insurance policy or
policies issued by the Insurer as provided in Item T and Article IV. The term
Insurance Policy as it is used in this Plan is deemed to include the plural
unless the context clearly indicates the singular is meant.
INSURER means Principal Mutual Life Insurance Company and, if our Plan is
trusteed, any other insurance company or companies named by the Trustee.
INTEGRATION LEVEL means the Integration Level defined in Item P. If a Member
also participates in a Controlled Group member's plan which uses an integration
level to determine the allocation or amount of contributions, his Integration
Level shall be adjusted based upon the ratio of the Member's Pay from us to his
total pay from us and the Controlled Group member.
INVESTMENT FUND means that part of the Plan assets held under the Trust,
excluding the cash values of any Insurance Policy. (See Article VIIIA.)
If our Plan is not trusteed, Investment Fund means the total assets held under
the Annuity Contract which result from Contributions made under our Plan. The
Investment Fund shall be valued at current fair market value as of the last day
of the last calendar month ending in the Plan Year and, at the discretion of
the Insurer, may be valued more frequently. The valuation shall take into
consideration investment earnings credited, expenses charged, payments made,
and changes in the values of the assets held in the fund.
The Investment Fund shall be allocated at all times to Members. The Account of
a Member shall be credited with its share of the gains and losses of the
Investment Fund. That part of a Member's Account invested in a funding
arrangement which establishes an account or accounts for such Member thereunder
shall be credited with the gain or loss from such account or accounts. That
part of a Member's Account which is invested in other funding arrangements
shall be credited with a proportionate share of the gain or loss of such
investments. The share shall be determined by multiplying the gain or loss of
the investment by the ratio of the part of the Member's Account invested in
such funding arrangement to the total of the Investment Fund invested in such
funding arrangement.
INVESTMENT MANAGER means any fiduciary (other than a Trustee or Named
Fiduciary)
(a) who has the power to manage, acquire, or dispose of any assets of the
plan;
(b) who (1) is registered as an investment adviser under the Investment
Advisers Act of 1940, or (2) is a bank, as defined in the Investment
Advisers Act of 1940, or (3) is an insurance company qualified to perform
services described in subparagraph (a) above under the laws of more than
one state; and
(c) who has acknowledged in writing being a fiduciary with respect to the
Plan.
ITEM means the specified item in the Adoption Agreement we signed.
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LATE RETIREMENT DATE means the first day of any month which is after a Member's
Normal Retirement Date and on which retirement benefits begin. If a Member
continues to work for us after Normal Retirement Date, his Late Retirement Date
shall be the earliest first day of the month on or after he ceases to be an
Employee. An earlier or a later Retirement Date may apply if the Member so
elects. An earlier Retirement Date may apply if the Member is 70 1/2. (See
Section 5.04.)
LEASED EMPLOYEE means any person (other than an employee of the recipient) who
pursuant to an agreement between the recipient and any other person ("leasing
organization") has performed services for the recipient (or for the recipient
and related persons determined in accordance with Code Section 414(n)(6)) on a
substantially full time basis for a period of at least one year, and such
services are of a type historically performed by employees in the business
field of the recipient employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to service
performed for the recipient employer shall be treated as provided by the
recipient employer.
A Leased Employee shall not be considered an employee of the recipient if:
(a) such employee is covered by a money purchase pension plan providing (1) a
nonintegrated employer contribution rate of at least 10 percent of
compensation, as defined in Code Section 415(c)(3), but including amounts
contributed pursuant to a salary reduction agreement which are excludable
from the employee's gross income under Code Sections 125, 402(a)(8),
402(h) or 403(b), (2) immediate participation and (3) full and immediate
vesting and
(b) Leased Employees do not constitute more than 20 percent of the recipient's
non-highly compensated workforce.
LOAN ADMINISTRATOR means the person or positions named in Item T(b)(iii).
MATCHING CONTRIBUTIONS means matching contributions we make to fund this Plan.
(See Item O and Section 3.01.)
MAXIMUM INTEGRATION RATE means the Maximum Integration Rate defined in Item P.
MEMBER means either an Active Member or an Inactive Member.
MEMBER CONTRIBUTIONS means Voluntary Contributions and Required Contributions
made under the Prior Plan, if any, unless the context clearly indicates only
one is meant.
MONTHLY DATE means the Yearly Date and the same day of each following month
during the Plan Year which begins on that Yearly Date.
NAMED FIDUCIARY means the person named in Item G.
NET PROFITS means our current or accumulated net earnings, determined according
to generally accepted accounting practices, before any Contributions made by us
under this Plan and before any deduction for Federal or state income tax,
dividends on our stock, and capital gains or losses. If we are a nonprofit
organization under Code Section 501(c)(3), Net Profits means excess revenues
(excess of receipts over expenditures).
NONHIGHLY COMPENSATED EMPLOYEE means an Employee of the Employer who is neither
a Highly Compensated Employee nor a Family Member.
NONVESTED ACCOUNT means the excess, if any, of a Member's Account over his
Vested Account.
NORMAL FORM means a single life annuity with installment refund.
NORMAL RETIREMENT AGE means, for a Member, the age defined in Item X.
NORMAL RETIREMENT DATE means the earliest first day of the month on or after a
Member reaches Normal Retirement Age. Retirement benefits shall begin on
Normal Retirement Date if the Member is not an Employee, has a Vested Account,
and has not elected to have retirement benefits begin later. However,
retirement benefits shall not begin before the later of age 62 or Normal
Retirement Age unless the qualified election procedures of Article VI are met.
Even if the Member is an Employee on his Normal Retirement Date, he may choose
to have retirement benefits begin on such date. An earlier Retirement Date may
apply if the Member is 70 1/2. (See Section 5.04.)
PARENTAL ABSENCE means an Employee's absence from work which begins on or after
the first Yearly Date after December 31, 1984
(a) by reason of pregnancy of the Employee,
(b) by reason of birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in connection with
adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period beginning immediately
following such birth or placement.
PAY means the pay defined in Item M. For any Plan Year beginning after December
31, 1988, the annual Pay of each Member taken into account for determining all
benefits provided under the Plan for any determination period shall not exceed
$200,000. This limitation shall be adjusted by the Secretary at the same time
and in the same manner as under Code Section 415(d), except that the dollar
increase in effect on January 1 of any calendar year is effective for years
beginning in such calendar year and the first adjustment to the $200,000
limitation is effected on January 1, 1990. If the Plan determines Pay on a
period of time that contains fewer than 12 calendar months, then the annual Pay
limit is an amount equal to the annual Pay limit for the calendar year in which
the pay period begins multiplied by the ratio obtained by dividing the number
of full months in the period by 12.
In determining the Pay of a Member for purposes of this limitation, the rules
of Code Section 414(q)(6) shall apply, except that in applying such rules, the
term "family" shall include only the spouse of the Member and any lineal
descendants of the Member who have not attained age 19 before the close of the
Plan Year. If, as a result of the application of such rules the adjusted
$200,000 limitation is exceeded, then (except for purposes of determining the
portion of Pay up to the Integration Level if this Plan provides for permitted
disparity), the limitation shall be prorated among the affected individuals in
proportion to each such individual's Pay as determined under this definition
prior to the application of this limitation.
If Pay for any prior Plan Year is taken into account in determining an
Employee's contributions or benefits for the current year, the Pay for such
prior year is subject to the applicable annual Pay limit in effect for that
prior year For this purpose, for years
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beginning before January 1, 1990, the applicable annual Pay limit is $200,000.
Pay means, for a Leased Employee, Pay for the services the Leased Employee
performs for us, determined in the same manner as the Pay of Employees who are
not Leased Employees, regardless of whether such Pay is received directly from
us or from the leasing organization.
PAY YEAR means the period defined in Item M of the Adoption Agreement - Plus.
PERIOD OF MILITARY DUTY means, for an Employee
(a) who served as a member of the armed forces of the United States, and
(b) who was reemployed by us at a time when the Employee had a right to
reemployment in accordance with seniority rights as protected under
Section 2021 through 2026 of Title 38 of the United States Code,
the period of time from the date the Employee was first absent from work for us
because of such military duty to the date the Employee was reemployed.
PERIOD OF SERVICE means a period of time beginning on an Employee's Hire or
Rehire Date, whichever applies, and ending on his Severance Date.
PERIOD OF SEVERANCE means a period beginning on an Employee's Severance Date
and ending on the date he again performs an Hour of Service.
A one-year Period of Severance means a Period of Severance of 12 consecutive
months.
Solely for purposes of determining whether a one-year Period of Severance has
occurred for entry or vesting purposes, the 12-consecutive month period
beginning on the first anniversary of the first date of a Parental Absence
shall not be a one-year Period of Severance.
PLAN means our retirement plan set forth in the attached Adoption Agreement and
this document, including any later amendments to them. If this Plan is
trusteed, the term Plan shall include the term Trust, unless the context clearly
indicates otherwise.
PLAN ADMINISTRATOR means the person named in Item I.
PLAN YEAR means a 12-consecutive month period beginning on a Yearly Date and
ending on the day before the next Yearly Date. If the Yearly Date changes, the
change will result in a short Plan Year. If a service period or the Pay Year
is based on the Plan Year, corresponding years before the Effective Date shall
be included.
PREDECESSOR means a Predecessor designated in Item I.
PRIOR PLAN means a retirement plan of ours or of a Predecessor which was
qualifiable under Code Section 401(a), and of which this Plan is a restatement,
as specified in the initial Adoption Agreement. If, because of a merger,
consolidation or transfer of assets or liabilities, this Plan is a continuation
of a plan which was qualifiable under Code Section 401(a), that plan shall be
a Prior Plan. If, with the approval of any governmental agency to which it is
subject, the assets of a terminated plan of ours which was qualified under Code
Section 401(a) are transferred to this Plan, that terminated plan shall be
deemed to be the Prior Plan.
PRIOR PLAN ASSETS means the assets accumulated under the Prior Plan which have
not been distributed and which are held under this Plan.
QUALIFIED JOINT AND SURVIVOR FORM means, for a Member who has a spouse, a
survivorship life annuity with installment refund, where the Contingent
Annuitant is the Member's spouse and the survivorship percentage is 50%. A
former spouse will be treated as the spouse to the extent provided under a
qualified domestic relations order as described in Code Section 414(p). If a
Member does not have a spouse, the Qualified Joint and Survivor Form means the
Normal Form.
The amount of the benefit payable under the Qualified Joint and Survivor Form
shall be the amount of benefit which may be provided by the Member's Vested
Account.
QUALIFIED MATCHING CONTRIBUTIONS means Matching Contributions which are 100%
vested when made and which (including investment gain) may not be distributed
before the Member's separation from service, death, the date the Member becomes
Totally Disabled, before the events described in the last paragraph of Section
5.04, or before termination of Plan as described in Article VII. Our Matching
Contributions shall be Qualified Matching Contributions if so elected in Item
O.
QUALIFIED NONELECTIVE CONTRIBUTIONS means Employer Contributions which are 100%
vested when made and which (including investment gain) may not be distributed
before the Member's separation from service, death, the date the Member becomes
Totally Disabled, before the events described in the last paragraph of Section
5.04, or before termination of the Plan as described in Article VII. (See Item
P of the Adoption Agreement - Plus and Section 3.01.)
QUALIFIED PRERETIREMENT SURVIVOR ANNUITY means a life annuity with installment
refund payable to the surviving spouse of a Member who dies before his Annuity
Starting Date. A former spouse will be treated as the surviving spouse to the
extent provided under a qualified domestic relations order as described in Code
Section 414(p).
QUARTERLY DATE means each Yearly Date and the third, sixth and ninth Monthly
Date after each Yearly Date which is within the same Plan Year.
REENTRY DATE means the date a former Active Member reenters the Plan. (See
Section 2.01.)
REHIRE DATE means the date an Employee first performs an Hour of Service
following an Entry Break, when the hours method is used, or a Period of
Severance, when the elapsed time method is used.
REQUIRED CONTRIBUTIONS means nondeductible contributions required from a Member
in order to participate in the Prior Plan.
RESTATEMENT DATE means the date our retirement plan was last restated. (See
Item A of the initial Adoption Agreement.)
RETIREMENT DATE means the date a retirement benefit will begin and is a
Member's Early, Normal or Late Retirement Date, as the case may be.
ROLLOVER CONTRIBUTIONS means the Rollover Contributions which are made by or
for a Member. (See Section 3.03).
SEMI-YEARLY DATE means each Yearly Date and the sixth Monthly Date after each
Yearly Date which is within the same Plan Year.
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SEVERANCE DATE means the earlier of
(a) the date on which an Employee quits, retires, dies or is discharged, or
(b) the first anniversary of the date an Employee begins a one-year absence
from service (with or without pay). This absence may be the result of any
combination of vacation, holiday, sickness, disability, leave of absence,
or layoff.
Solely to determine whether a one-year Period of Severance has occurred for
entry or vesting purposes for an Employee who is absent from service beyond the
first anniversary of the first day of a Parental Absence, Severance Date is the
second anniversary of the first day of the Parental Absence. The period
between the first and second anniversaries of the first day of the Parental
Absence is not a Period of Service and is not a Period of Severance.
TAXABLE WAGE BASE means the maximum amount of earnings which may be considered
wages for a year under Code Section 312(a)(1).
TEFRA means the Tax Equity and Fiscal Responsibility Act of 1982.
TEFRA COMPLIANCE DATE means the date our Plan is to comply with the provisions
of TEFRA. The TEFRA Compliance Date as used in this Plan is,
(a) for purposes of determining the Maximum Permissible Amount and
contribution limitations of Section 3.06,
(1) if this Plan was in effect on July 1, 1982, the first day of the
first Limitation Year which begins after December 31, 1982, or
(2) If this Plan was not in effect on July 1, 1982, the first day of the
first Limitation Year which ends after July 1, 1982.
(b) for all other purposes, the first Yearly Date after
December 31, 1983.
TOTALLY DISABLED means that a Member is disabled, as a result of sickness or
injury, to the extent that he is prevented from engaging in any substantial
gainful activity, and is eligible for and receives a disability benefit under
Title II of the Federal Social Security Act.
If our Employees are not covered under Title II of the Federal Social Security
Act, Totally Disabled means that a Member is disabled as a result of sickness
or injury, to the extent that he is completely prevented from performing any
work, engaging in any occupation for wage or profit and has been continuously
disabled for six months. Initial written proof that the disability exists and
has continued for at least six months must be furnished to the Plan
Administrator by the Member within one year after the date the disability
begins. The Plan Administrator, upon receipt of any notice of proof of a
Participant's total disability, shall have the right and opportunity to have
physician it designates examine the Member when and as often as it may
reasonably require, but not more than once each year after the disability has
continued uninterruptedly for at least two years beyond the date of furnishing
the first proof.
TRUST means, for trusteed plans, the Agreement of Trust set out in Article
VIIIA.
TRUST FUND means, for trusteed plans, the total funds held under the Trust as
provided in Article VIIIA.
TRUSTEE means, for trusteed plans, the party or parties named in Item T. The
term Trustee as it is used in this Plan shall include the plural unless the
context clearly indicates the singular is meant.
VESTED ACCOUNT means, on any date, the vested part of a Member's Account
(including the cash values of any insurance coverage on his life under this
Plan). If the Member's Vesting Percentage is 100%, the Vested Account equals
his Account. If the Member's Vesting Percentage is not 100%, the Vested
Account equals the sum of (a) and (b) below:
(a) The part of the Member's Account resulting from vested Employer
Contributions made before any prior Forfeiture Date, and from Member
Contributions and Rollover Contributions. The Member is fully (100%)
vested in this part of his Account.
(b) The balance of the Member's Account in excess of the amount in (a) above
multiplied by his Vesting Percentage.
If the Member has withdrawn any part of his Account resulting from our
Contributions, other than vested Employer Contributions included in (a)
above, the amount determined under this subparagraph (b) shall be equal to
P(AB + D) - D as defined below:
P The Member's Vesting Percentage.
AB the balance of the Member's Account in excess of the amount in (a)
above.
D The amount of withdrawal resulting from our Contributions, other than
our vested Contributions included in (a) above.
VESTING BREAK means, when the elapsed time method is used, a one-year Period of
Severance. An Employee incurs a Vesting Break on the last day of a one-year
Period of Severance.
When the hours method is used, Vesting Break is defined in Item V. However, if
the Adoption Agreement - Plus is not used, Vesting Break means a Vesting
Service Period in which an Employee does not have more than one-half of the
Hours of Service required in Item V for a year of Vesting Service. An Employee
incurs a Vesting Break on the last day of the Vesting Service Period in which
he has a Vesting Break.
VESTING PERCENTAGE means the Vesting Percentage of a Member determined under
Item U. If the computation of Vesting Percentage is changed (whether directly
or indirectly), a Member's Vesting Percentage as of the day before the change
shall not be reduced due to the change. Indirect changes include, but are not
limited to, changes in Early Retirement Date requirements or the method of
crediting Vesting Service. The provisions of Section 9.01 regarding changes in
the computation of Vesting Percentage shall apply.
VESTING SERVICE means an Employee's service determined under Item V. Vesting
Service is subject to the modifications selected under that item. Vesting
Service shall include service with a Controlled Group member while we are both
members of the Controlled Group.
If, under Item V(4), Vesting Service is determined under the Prior Plan
provisions, service before the date the Prior Plan became subject to ERISA may
be disregarded if such service would have been disregarded under the Prior Plan
break in service rules as in effect on the day before such date.
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<PAGE> 11
Vesting Service shall include a Period of Military Duty. If the elapsed time
method is used, the entire Period of Military Duty shall be included to the
extent it has not already been counted as Vesting Service. If the hours method
is used, an Hour of Service shall be credited (without regard to the 501 Hours
of Service limitation) for each hour the Employee would normally have been
scheduled to work for us during such Period of Military Duty, to the extent
such hour has not already been credited as Vesting Service.
If the elapsed time method is used and the Employee has more than one countable
Period of Service or if all or a part of a Period of Service is not counted,
Vesting Service shall be determined by adjusting his Hire Date so that the
Employee has one continuous period of Vesting Service equal to the total of all
his countable Periods of Service. This period of Vesting Service shall be
expressed as whole years (on the basis that 365 days equal one year) and days.
If the elapsed time method is used, Vesting Service shall include a Period of
Severance (service spanning rule) if
(a) the Period of Severance immediately follows a period during which an
Employee is not absent from work and ends within twelve months, or
(b) the Period of Severance immediately follows a period during which an
Employee is absent from work for any reason other than quitting, being
discharged, or retiring (such as a leave of absence or layoff) and ends
within twelve months of the date he was first absent.
If the Prior Plan applied the rule of parity before the first Yearly Date in
1985, an Employee's Vesting Service, accumulated before a Vesting Break which
occurred before that date, shall be excluded according to the Prior Plan
provisions if (a) his Vesting Percentage is zero, and (b) his latest period of
consecutive Vesting Breaks equals or exceeds his prior Vesting Service
(disregarding any Vesting Service that was excluded because of a previous
period of Vesting Breaks).
For a Member who is not credited with an Hour of Service on or after the first
Yearly Date in 1985, Vesting Service accrued before such date and before an age
greater than 18 (before the beginning of the Vesting Service Period in which he
attained that age, when the hours method is used) shall be excluded if the
Prior Plan excluded such service.
If the method of crediting Vesting Service changes, the provisions of Sections
9.01 and 9.12 shall apply.
VESTING SERVICE PERIOD means the period defined in Item V. However, if the
Adoption Agreement - Plus is not used, Vesting Service Period means a
12-consecutive month period ending on the last day of the Plan Year.
VOLUNTARY CONTRIBUTIONS means the Contributions by a Member that are not
required as a condition of employment or membership or for obtaining additional
benefits from our Contributions. (See Item S and Section 3.02.)
YEARLY DATE means the Yearly Date defined in Item E.
YEARS OF SERVICE means an Employee's Vesting Service as defined in Item V,
disregarding any modifications which exclude service.
If Vesting Service is not defined in Item V, then for purposes of determining
Years of Service, Vesting Service shall be deemed to be determined using the
elapsed time method.
ARTICLE II
MEMBERSHIP
SECTION 2.01 - ACTIVE MEMBERSHIP.
An Employee shall first become an Active Member (begin active participation in
the Plan) on the earliest date specified in Item L on which he is an Eligible
Employee and has met all of the entry requirements selected in Item K. This
date is the Member's Entry Date.
Each Employee who was an active member under the Prior Plan on the day before
the Restatement Date shall become an Active Member under this Plan on the
Restatement Date if he is still an Eligible Employee. The Member's entry date
under the Prior Plan is deemed to be his Entry Date under this Plan.
If a person has been an Eligible Employee who has met all of the entry
requirements selected in Item K but is not an Eligible Employee on the date
which would have been his Entry Date, he shall become an Active Member on the
date he again becomes an Eligible Employee. This date is the Member's Entry
Date.
A former Active Member shall reenter the Plan as an Active Member on the date
he again performs an Hour of Service as an Eligible Employee. This date is the
Member's Reentry Date. An Inactive Member ceases to be an Inactive Member on
his Reentry Date.
A Member's benefits under this Plan shall not be duplicated because of more
than one period as an Active Member.
SECTION 2.02 - CEASING ACTIVE MEMBERSHIP.
An Active Member shall become an Inactive Member (stop accruing benefits under
the Plan) on the earlier of the following:
(a) The date the Member ceases to be an Eligible Employee (his Retirement Date
if he ceases to be an Eligible Employee within one month of his Retirement
Date).
(b) The effective date of complete termination of the Plan under Article VII.
An Employee or former Employee who was an inactive member under the Prior Plan
on the day before the Restatement Date shall become an Inactive Member under
this Plan on the Restatement Date. Eligibility for any benefits payable to the
Member or on his behalf and the amount of the benefits shall be determined
according to the provisions of the Prior Plan.
A Member shall cease to be a Member on the date he is no longer an Eligible
Employee and his Account is zero.
SECTION 2.03 - ADOPTING EMPLOYERS - SEPARATE PLANS.
If Item Z(1)(a)(i) of the Adoption Agreement - Plus is selected, each Adopting
Employer listed in Item Z maintains this Plan as a separate and distinct plan
for the exclusive benefit of its employees. If Item Z(1)(a)(ii) of the Adoption
Agreement - Plus is selected, each Adopting Employer identified in Item
Z(1)(a)(ii) maintains this Plan as a separate and distinct plan for the
exclusive benefit of its employees. An Adopting Employer's adoption of the Plan
shall be in writing. If the Adopting Employer
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<PAGE> 12
did not maintain a Prior Plan, the date of adoption specified in Item Z is the
Effective Date of its Plan. This date is the first Yearly Date for the
Adopting Employer's Plan and shall be the Entry Date for any of its employees
who have met the requirements in Section 2.01 as of that date. If the Adopting
Employer did maintain a Prior Plan, the date of adoption is the Restatement
Date of its Plan.
An Adopting Employer shall be deemed to be the Employer but only with respect
to its Plan and for those Employees who are on its payroll. In interpreting the
Adoption Agreement and this document as to an Adopting Employer, the terms
Employer, we, us, and ours shall be deemed to refer to the Adopting Employer
and the Adopting Employer's fiscal year is deemed to be the Fiscal Year. The
primary Employer in Item B is deemed to be an Adopting Employer for purposes of
the following two paragraphs.
The Contributions made by an Adopting Employer, and Forfeitures arising from
such Contributions, shall not be used to fund the benefits for Employees of any
other Adopting Employer. Service with an Adopting Employer shall be included
as service with all other Adopting Employers and transfer of employment, without
interruption, between Adopting Employers shall not be an interruption of
service. If an Active Member ceases to be an Employee of an Adopting Employer
on other than the last day of the Plan Year and immediately becomes an Employee
of another Adopting Employer, he shall be an Active Member under the first
Adopting Employer's Plan until the next annual Contribution, if any, is due,
regardless of whether he has also become an Active Member in the other Adopting
Employer's Plan. Both Adopting Employers' Contributions on his behalf will be
proportionately reduced on that date based upon his period of employment with
and Pay from each.
If an integrated allocation formula is in effect and a Member received Pay from
more than one Adopting Employer during a Pay Year, the Integration Level used
to determine the allocation of an Adopting Employer's Contributions is equal to
his Integration Level multiplied by the ratio of (a) the Member's Pay from the
Adopting Employer for that year to (b) the Member's Pay from all Adopting
Employers for that year.
Any amendment to the Plan by the primary Employer in Item B of the Adoption
Agreement shall be deemed to be an amendment to each Adopting Employer's Plan.
Without the consent of any other Adopting Employer, an Adopting Employer may
restate its Plan in the form of a separate document at any time and, in that
event, cease to be an Adopting Employer. An employer shall not be an Adopting
Employer if it ceases to be controlled by us or affiliated with us. Such an
employer may continue its Plan by restating it in the form of a separate
document. This Plan shall be amended to delete a former Adopting Employer from
Item Z of the Adoption Agreement.
If the Plan of the Adopting Employer terminates, the provisions of Article VII
shall apply to its Plan.
SECTION 2.04 - ADOPTING EMPLOYERS - SINGLE PLAN.
If the Adoption Agreement - Plus is not used, each Adopting Employer listed in
Item Y and each Controlled Group member, whether or not listed in that item,
shall be an Adopting Employer who participates with us in this Plan. If Item
Z(1)(b)(i) of the Adoption Agreement - Plus is selected, each Adopting Employer
listed in Item Z participates with us in this Plan. If Item Z(1)(b)(ii) of the
Adoption Agreement - Plus is selected each Adopting Employer identified in
Item Z(1)(b)(ii) participates with us in this Plan. An Adopting Employer's
agreement to participate in this Plan shall be in writing. Employees of
Adopting Employers who do not make such written agreement shall be eligible to
become Members and shall be entitled to Contributions in the same manner as if
their employers had agreed to participate in the Plan. An Adopting Employer
has no rights or privileges under this Plan.
If the Adopting Employer did not maintain a Prior Plan, the date of
participation in Item Z (item Y) shall be the Entry Date for any of its
employees who have met the requirements in Section 2.01 as of that date.
Service with and pay from an Adopting Employer shall be included as service
with and pay from us. Transfer of employment, without interruption, between an
Adopting Employer and another Adopting Employer or us shall not be considered
an interruption of service. Our Fiscal Year in Item F shall be the Fiscal Year
used in interpreting this Plan for Adopting Employers.
Contributions made by an Adopting Employer shall be treated as Contributions
made by us. Forfeitures arising from those Contributions shall be used for the
benefit of all Members.
An employer shall not be an Adopting Employer if it ceases to be controlled by
us or affiliated with us. Such an employer may continue a retirement plan for
its employees in the form of a separate document. This Plan shall be amended to
delete a former Adopting Employer from the list of Adopting Employers in the
Adoption Agreement.
If an employer ceases to be an Adopting Employer and does not continue a
retirement plan for the benefit of its employees, partial termination may
result and the provisions of Article VII apply.
ARTICLE III
CONTRIBUTIONS
SECTION 3.01 - EMPLOYER CONTRIBUTIONS.
Our Contributions are conditioned on initial qualification of the Plan. If the
Plan is denied initial qualification, the provisions of Section 9.14 shall
apply.
The amount of our Contributions is specified in the Adoption Agreement. Our
Contributions are made from Net Profits unless otherwise specified in Item Q.
Notwithstanding the foregoing, the Plan shall continue to be designed to
qualify as a profit sharing plan for purposes of Code Sections 401(a), 402,
412, and 417.
No Member shall be permitted to have Elective Deferral Contributions, as
defined in Section 3.07, made under this Plan, or any other qualified plan
maintained by us, during any taxable year, in excess of the dollar limitation
contained in Code Section 402(g) in effect at the beginning of such taxable
year.
If Matching Contributions, Additional Contributions or Qualified Nonelective
Contributions under Item P(1)(a) of the Adoption Agreement - Plus are made from
Net Profits, Item Q, and our Net Profits are not sufficient to provide such
Contributions, such Contributions shall be proportionately reduced.
Our Contributions are allocated according to the provisions of Section 3.05.
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<PAGE> 13
If Item Q(2)(a) is selected, we may make all or part of our annual
Contributions before the end of the Plan Year. Such Contributions shall be
allocated when made in a manner which approximates the allocation which would
otherwise have been made as of the last day of the Plan Year. Succeeding
allocations shall take into account amounts previously allocated for the Plan
Year. The percentage of our Contributions allocated to the Member for the Plan
Year shall be the same percentage which would have been allocated to him if the
entire allocation had been made as of the last day of the Plan Year.
We shall pay to the Insurer or Trustee our Contributions used to determine the
Actual Deferral Percentage, as defined in Section 3.07, (Elective Deferral
Contributions, Qualified Nonelective Contributions, and Qualified Matching
Contributions) to the Plan for each Plan Year not later than the end of the
twelve-month period immediately following the Plan Year for which they are
deemed to be paid. Any such Contributions accumulated through payroll
deductions shall be paid within 90 days of the date withheld or the date it is
first reasonably practical for us to do so, if earlier.
A portion of the Plan assets resulting from our Contributions (but not more
than the original amount of those Contributions) may be returned if our
Contributions are made because of a mistake of fact or are more than the amount
deductible under Code Section 404 (excluding any amount which is not deductible
because the Plan is disqualified). The amount involved must be returned to us
within one year after the date our Contributions are made by mistake of fact or
the date the deduction is disallowed, whichever applies. Except as provided
under this paragraph and Articles VII and IX, the assets of the Plan shall
never be used for our benefit and are held for the exclusive purpose of
providing benefits to Members and their Beneficiaries and for defraying
reasonable expenses of administering the Plan.
Prior Plan Assets which result from contributions made by us shall be treated
in the same manner as Employer Contributions made under this Plan. They shall
be treated in the same manner as Employer Contributions made under this Plan
before a Forfeiture Date if the Prior Plan Assets are transferred from a
terminated plan.
SECTION 3.02 - VOLUNTARY CONTRIBUTIONS BY MEMBERS.
If permitted under Item S, an Active Member may make Voluntary Contributions.
Voluntary Contributions shall be made according to nondiscriminatory procedures
and limitations set up by the Plan Administrator.
A Member's membership in the Plan is not affected by stopping or changing
Voluntary Contributions. An Active Member's request to start, change, or stop
Voluntary Contributions must be in writing on a form furnished for that
purpose. The form must be delivered to the Plan Administrator before the date
the Member is to start, change, or stop Voluntary Contributions.
The Part of the Member's Account resulting from Voluntary Contributions is
fully (100%) vested and nonforfeitable at all times.
Prior Plan Assets which result from voluntary contributions made by the Member
shall be treated in the same manner as Voluntary Contributions made under this
Plan. These Prior Plan Assets may include deductible Voluntary Contributions
which were made according to the provisions of the Prior Plan.
SECTION 3.03 - ROLLOVER CONTRIBUTIONS.
With our consent, a Rollover Contribution may be made by or for an Eligible
Employee if the following conditions are met:
(a) The Contribution is a rollover contribution which the Code permits to be
transferred to a plan that meets the requirements of Code Section 401(a).
(b) It the Contribution is made by the Eligible Employee, it is made within
sixty days after he receives the distribution.
(c) The Eligible Employee furnishes evidence satisfactory to the Plan
Administrator that the proposed transfer is in fact a rollover
contribution which meets conditions (a) and (b) above.
The Rollover Contribution may be made by the Eligible Employee or the Eligible
Employee may direct the trustee or named fiduciary of another plan to transfer
the funds which would otherwise be a Rollover Contribution directly to this
Plan. Such transferred funds shall be called a Rollover Contribution. The
Contribution shall be made according to procedures set up by the Plan
Administrator.
If an Eligible Employee participated in a retirement plan which met the
requirements of Code Section 401(a), with our consent, the trustee or named
fiduciary of that plan may transfer funds which could not have been a Rollover
Contribution to this Plan on behalf of the Eligible Employee. The transferred
funds shall be called a Rollover Contribution. If such Rollover Contributions
were made for a period when the Eligible Employee was a five-percent owner of
the employer that maintained the plan, the Rollover Contributions shall be
treated in the same manner as if they were Contributions made under this Plan
for a period when he was a five-percent owner of us.
If the Eligible Employee is not an Active Member when the Rollover Contribution
is made, he shall be deemed to be an Active Member only for the purpose of
investment and distribution of the Rollover Contribution. Our Contributions
shall not be made for or allocated to the Eligible Employee and he may not make
Member Contributions, until the time he meets all of the requirements to become
an Active Member.
Rollover Contributions made by or for an Eligible Employee shall be credited to
his Account. The part of the Member's Account resulting from Rollover
Contributions is fully (100%) vested and nonforfeitable at all times. A
separate accounting record shall be maintained for that part of his Rollover
Contribution consisting of voluntary contributions which were deducted from the
Member's gross income for Federal income tax purposes.
Prior Plan Assets which result from the Member's rollover contributions shall
be treated in the same manner as Rollover Contributions made under this Plan.
SECTION 3.04 - FORFEITURES AND RESTORATION.
The Nonvested Account of a Member shall be forfeited as of the earlier of the
following: the date the Member dies, if prior to such date he had ceased to be
an Employee; or his Forfeiture Date. All or part of a Member's Nonvested
Account will be forfeited if, after he ceases to be an Employee, he receives a
distribution of his entire Vested Account or a distribution of his Vested
Account derived from our Contributions which were not 100% vested when made
according to the provisions of Section 5.03 or Section 9.10. If a Member's
Vested Account is zero on the date he ceases to be an Employee, he shall be
deemed to
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<PAGE> 14
have received a distribution of his entire Vested Account on such date. The
forfeiture will occur as of the date he receives the distribution or on the
date such provision became effective, if later. If he receives a distribution
of his entire Vested Account, his entire Nonvested Account will be forfeited.
If he receives a distribution of his Vested Account from our Contributions
which were not 100% vested when made, but less than his entire Vested Account,
the amount to be forfeited will be determined by multiplying his Nonvested
Account by a fraction. The numerator of the fraction is the amount of the
distribution derived from our Contributions which were not 100% vested when
made and the denominator of the fraction is his entire Vested Account derived
from such Contributions on the date of the distribution.
If the Adoption Agreement - Plus is used, Forfeitures shall be allocated as of
the last day of the Plan Year in which such Forfeitures arise or applied to
reduce the earliest Employer Contribution made after the Forfeitures are
determined as provided in Item P(4). Forfeitures shall be determined at least
once during each taxable year of ours. If the Adoption Agreement - Plus is not
used and Item P(2) is selected, Forfeitures shall be allocated with our
Discretionary Contributions and deemed to be Discretionary Contributions as of
the last day of the Plan Year in which such Forfeitures arise. If the Adoption
Agreement - Plus is not used and Item P(2) is not selected, Forfeitures shall
be applied to reduce the earliest Employer Contribution made after the
Forfeitures are determined. Forfeitures of Matching Contributions which relate
to excess amounts shall be applied as provided in Section 3.07.
Forfeitures may first be applied to pay expenses under the Plan which would
otherwise be paid by us before they are applied or allocated as provided above.
Upon their application or allocation, such Forfeitures shall be deemed to be
Employer Contributions.
If a Member again becomes an Eligible Employee after receiving a distribution
which caused his Nonvested Account to be forfeited, he shall have the right to
repay to the Plan the entire amount of the distribution he received (excluding
any amount of such distribution resulting from Contributions which were 100%
vested when made). The repayment must be made before the earlier of the date
five years after the date he again becomes an Eligible Employee or the end of
the first period of five consecutive Vesting Breaks which begin after the date
of the distribution.
If the Member makes the repayment provided above, the Plan Administrator shall
restore to his Account an amount equal to his Nonvested Account which was
forfeited on the date of distribution, unadjusted for any investment gains or
losses. If the Member was deemed to have received a distribution because his
Vested Account was zero or the Plan did not have the repayment provisions in
effect on the date the distribution was made and he again performs an Hour of
Service as an Eligible Employee within the repayment period, the Plan
Administrator shall restore the Member's Account as if he had made a required
repayment on the date he performed such Hour of Service. Restoration of the
Member's Account shall include restoration of all Code Section 411(d)(6)
protected benefits with respect to the restored Account, according to
applicable Treasury regulations. Provided, however, the Plan Administrator
shall not restore the Nonvested Account if a Forfeiture Date has occurred
after the date of the distribution and on or before the date of repayment and
that Forfeiture would result in a complete forfeiture of the amount the Plan
Administrator would otherwise restore. The Plan Administrator shall restore
the Member's Account by the close of the Plan Year following the Plan Year
in which repayment is made.
SECTION 3.05 - ALLOCATION.
Our Contributions which are not subject to the requirements of Item Q(2) shall
be allocated to the Members for whom they were made and credited to the
Members' Accounts. Our Contributions which are subject to the requirements of
Item Q(2) plus any Forfeitures released for allocation for the Plan Year, shall
be allocated among all persons meeting the requirements in Items P and Q. The
amount allocated to such a person shall be determined under the allocation
formula selected in the Adoption Agreement and Article X.
In determining the amount of our Contributions allocated to a Member who is a
Leased Employee, contributions and benefits provided by the leasing
organization which are attributable to services such Leased Employee performs
for us shall be treated as provided by us. Those contributions or benefits
shall not be duplicated under this Plan.
SECTION 3.06 - CONTRIBUTION LIMITATION.
(a) For the purpose of determining the contribution limitation set forth in
this section, the following terms are defined:
ADDITION ADDITIONS mean the sum of the following amounts credited to a
Member's account for the Limitation Year:
(1) employer contributions,
(2) employee contributions,
(3) forfeitures, and
(4) amounts allocated, after March 31, 1984, to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a
pension or annuity plan maintained by the Employer.
These amounts are treated as Annual Additions to a defined contribution
plan. Also amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits, allocated to the
separate account of a key employee, as defined in Code Section 419A(d)(3),
under a welfare benefit fund, as defined in Code Section 419(e),
maintained by the Employer are treated as Annual Additions to a defined
contribution plan.
For this purpose, any Excess Amount applied under (d) and (j) below in the
Limitation Year to reduce Employer Contributions will be considered Annual
Additions for such Limitation Year.
COMPENSATION means one of the following as elected in Item M for purposes
of this section and as defined below:
(1) Information required to be reported under Code Sections 6041 and 6051
(Wages, Tips and Other Compensation Box on Form W-2). Compensation is
defined as a Member's wages within the meaning of Code Section
3401(a) and all other payments of compensation to an Employee by us
(in the course of our trade or business), for which we are required
to furnish the Employee a written statement under Code Section
6041(d) and 6051(a)(3), which is actually paid or made
available by us for a specified period
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<PAGE> 15
Compensation is determined without regard to any rules under
Code Section 3401(a) that limit the remuneration included in
wages based on the nature or location of the employment or
services performed (such as the exception for agricultural
labor in Code Section 3401(a)(2)).
(2) Code Section 3401(a) wages (Wages for purposes of income tax
withholding). Compensation is defined as a Member's wages
within the meaning of Code Section 3401(a), for the purpose of
income tax withholding at the source, which is actually paid
or made available by us for a specified period. Compensation
is determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on
the nature or location of the employment or the services
performed (such as the exception for agricultural labor in
Code Section 3401(a)(2)).
(3) 415 safe-harbor compensation. Compensation is defined as a
Member's wages, salaries, and fees for professional service
and other amounts received (without regard to whether or not
an amount is paid in cash) for personal service actually
rendered in the course of employment with the employer
maintaining the plan to the extent that the amounts are
includible in gross income (including, but not limited to,
commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits and reimbursements or
other expense allowances under a nonaccountable plan (as
described in Section 1.622(c) of the regulations)), and
excluding the following:
(i) Employer contributions to a plan of deferred
compensation to the extent contributions are not
included in the gross income of the Employee for the
taxable year in which contributed, or employer
contributions under a simplified employee pension
plan to the extent such contributions are deductible
by the Employee, or any distributions from a plan of
deferred compensation.
(ii) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by an Employee becomes freely transferable or is
no longer subject to a substantial risk of forfeiture.
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option.
(iv) Other amounts which receive special tax benefits, or
contributions made by the employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity contract described in Code
Section 403(b) (whether or not the contributions are
actually excludible from the gross income of the
Employee).
For any self-employed individual Compensation will mean earned income.
For Limitation Years beginning after December 31, 1991, for purposes
of applying the limitations of this section.
Compensation for a Limitation Year is the Compensation actually paid
or made available during such Limitation Year.
For any Limitation Year beginning after December 31, 1988, only the
first $200,000 (multiplied by the Adjustment Factor) of the Member's
Compensation shall be taken into account under the Plan.
DEFINED BENEFIT PLAN FRACTION means a fraction, the numerator of which
is the sum of the Member's Projected Annual Benefits under all the
defined benefit plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of 125 percent of
the dollar limitation determined for the Limitation Year under Code
Sections 415(b) and (d) or 140 percent of the Highest Average
Compensation, including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Member was a member as of the first
day of the first Limitation Year beginning after December 31, 1986, in
one or more defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this fraction
will not be less than 125 percent of the sum of the annual benefits
under such plans which the Member had accrued as of the close of the
last Limitation Year beginning before January 1, 1987, disregarding
any changes in the terms and conditions of the plan after May 5,1986.
The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code
Section 415 for all Limitation Years beginning before January 1, 1987.
DEFINED CONTRIBUTION DOLLAR LIMITATION means $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth in Code
Section 415(b)(1) as in effect for the Limitation Year.
DEFINED CONTRIBUTION PLAN FRACTION means a fraction, the numerator of
which is the sum of the Annual Additions to the Member's account under
all the defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior Limitation
Years (including the Annual Additions attributable to the Member's
nondeductible employee contributions to all defined benefit plans,
whether or not terminated, maintained by the Employer, and the Annual
Additions attributable to all welfare benefit funds, as defined in
Code Section 419(e), and individual medical accounts, as defined in
Code Section 415(l)(2), maintained by the Employer), and the
denominator of which is the sum of the maximum aggregate amounts for
the current and all prior Limitation Years of service with the
Employer (regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in any
Limitation Year is the lesser of 125 percent of the dollar limitation
determined under Code Section 415(b) and (d) in effect under Code
Section 415(c)(1)(A) of the Code or 35 percent of the Member's
Compensation for such year.
If the Member was a member as of the end of the first Limitation Year
beginning after December 31, 1986, in one or more defined contribution
plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction shall be adjusted if the sum of
this fraction and the Defined Benefit Plan Fraction would otherwise
exceed 1.0 under the terms of this Plan. Under the adjustment, an
amount equal to the product of (1) the
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<PAGE> 16
excess of the sum of the fractions over 1.0 times (2) the denominator
of this fraction, will be permanently subtracted from the numerator of
this fraction. The adjustment is calculated using the fractions as
they would be computed as of the end of the last Limitation Year
beginning before January 1, 1987, and disregarding any changes in the
terms and conditions of the plan made after May 5, 1986, but using the
Code Section 415 limitations applicable to the first Limitation Year
beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before January
1, 1987, shall not be recomputed to treat all employee contributions
as Annual Additions.
EMPLOYER means the employer that adopts this Plan and all members of a
controlled group of corporations (as defined in Code Section 414(b) as
modified by Code Section 415(h)), all commonly controlled trades or
businesses (as defined in Code Section 414(c) as modified by Code
Section 415(h)) or affiliated service groups (as defined in Code
Section 414(m)) of which the adopting employer is a part, and any
other entity required to be aggregated with the employer pursuant to
regulations under Code Section 414(o).
EXCESS AMOUNT means the excess or the Member's Annual Additions for
the Limitation Year over the Maximum Permissible Amount.
HIGHEST AVERAGE COMPENSATION means the average Compensation for the
three consecutive Years of Service (see Section 1.02) with the
Employer that produces the highest average.
LIMITATION YEAR means a calendar year or the 12-consecutive month
period elected by the Employer in Item R. If the Limitation Year ends
on the last day of the Fiscal Year and the Fiscal Year is a 52-53 week
period, then the Limitation Year shall be such period. All qualified
plans maintained by the Employer must use the same Limitation Year.
If the Limitation Year is amended to a different 12-consecutive month
period, the new Limitation Year must begin on a date within the
Limitation Year in which the amendment is made.
MASTER OR PROTOTYPE PLAN means a plan the form of which is the subject
of a favorable opinion letter from the Internal Revenue Service.
MAXIMUM PERMISSIBLE AMOUNT means the maximum Annual Addition that may
be contributed or allocated to a Member's Account under the Plan for
any Limitation Year. This amount shall not exceed the lesser of:
(1) the Defined Contribution Dollar Limitation, or
(2) 25 percent of the Member's Compensation for the Limitation
Year.
The compensation limitation referred to in (2) shall not apply to any
contribution for medical benefits (within the meaning of Code Section
401(h) or Code Section 419A(f)(2)) which is otherwise treated as an
Annual Addition under Code Section 415(l)(1) or 419A(d)(2).
If a short Limitation Year is created because of an amendment changing
the Limitation Year to a different 12-consecutive month period, the
Maximum Permissible Amount will not exceed the Defined Contribution
Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
PROJECTED ANNUAL BENEFIT means the annual retirement benefit (adjusted
to an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or qualified
joint and survivor form) to which the Member would be entitled under
the terms of the plan assuming:
(1) the Member will continue employment until normal retirement
age under the plan (or current age, if later), and
(2) the Member's Compensation for the current Limitation Year and
all other relevant factor used to determine benefits under the
plan will remain constant for all future Limitation Years.
(b) If the Member does not participate in, and has never participated in
another qualified plan maintained by the Employer or a welfare benefit
fund, as defined in Code Section 419(e) maintained by the Employer, or
an individual medical account, as defined in Code Section 415(l)(2) of
the Code, maintained by the Employer, which provides an Annual
Addition, the amount of Annual Additions which may be credited to the
Member's Account for any Limitation Year will not exceed the lesser of
the Maximum Permissible amount or any other limitation contained in
this Plan. If the Employer Contribution that would otherwise be
contributed or allocated to the Member's Account would cause the
Annual Additions for the Limitation Year to exceed the Maximum
Permissible Amount the amount contributed or allocated will be reduced
so that the Annual Additions for the Limitation Year will equal the
Maximum Permissible Amount.
(c) Prior to determining the Member's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible
Amount for a Member on the basis of reasonable estimation of the
Member's Compensation for the Limitation Year, uniformly determined
for all Members similarly situated.
(d) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Member's actual
Compensation for the Limitation Year.
(e) If pursuant to (d) above, as a result of the allocation of
forfeitures, or as a result of a reasonable error in determining the
amount of Elective Deferrals (within the meaning of Code Section
402(g)(3)) that may be made with respect to any individual under the
limits of Code Section 415, there is an Excess Amount, the excess will
be disposed of as follows:
(1) Any nondeductible voluntary employee contributions, to the
extent they would reduce the excess amount, will be returned
to the Member;
(2) Any Elective Deferral Contributions, to the extent they would
reduce the excess amount, will be returned to the Member;
(3) If after the application of (1) and (2) above an Excess Amount
still exists, and the Member is covered by the
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<PAGE> 17
Plan at the end of the Limitation Year, the Excess Amount in
the Member's Account will be used to reduce Employer
Contributions (including any allocation of forfeitures) for
such Member in the next Limitation Year, and each succeeding
Limitation Year if necessary.
(4) If after the application of (1) and (2) above an excess amount
still exists, and the Member is not covered by the Plan at the
end of a Limitation Year, the Excess Amount will be held
unallocated in a suspense account. The suspense account will
be applied to reduce future Employer Contributions for all
remaining Members in the next Limitation Year, and each
succeeding Limitation Year if necessary.
(5) If a suspense account is in existence at any time during a
Limitation Year pursuant to this (e), it will participate in
the allocation of the trust's investment gains or losses. If
a suspense account is in existence at any time during a
particular Limitation Year, all amounts in the suspense
account must be allocated and reallocated to Member's Accounts
before any Employer or any Member contributions may be made to
the Plan for that Limitation Year. Excess amounts may not be
distributed to Members or former Members.
(f) This (f) applies if, in addition to this Plan, the Member is covered
under another qualified defined contribution Master or Prototype Plan
maintained by the Employer, a welfare benefit fund, as defined in Code
Section 419(e), maintained by the Employer, or an individual medical
account as defined in Code Section 415(l)(2), maintained by the
Employer, which provides an Annual Addition, during any Limitation
Year. The Annual Additions which may be credited to a Member's
Account under this Plan for any such Limitation Year will not exceed
the Maximum Permissible Amount reduced by the Annual Additions
credited to a Member's account under the other plans and welfare
benefit funds for the same Limitation Year. If the Annual Additions
with respect to the Member under other defined contribution plans and
welfare benefit funds maintained by the Employer are less than the
Maximum Permissible Amount and the Employer Contribution that would
otherwise be contributed or allocated to the Member's Account under
this Plan would cause the Annual Additions for the Limitation Year to
exceed this limitation, the amount contributed or allocated will be
reduced so that the Annual Additions under all such plans and funds
for the Limitation Year will equal the Maximum Permissible Amount. If
the Annual Additions with respect to the Member under such other
defined contribution plans and welfare benefit funds in the aggregate
are equal to or greater than the Maximum Permissible Amount, no amount
will be contributed or allocated to the Member's Account under this
Plan for the Limitation Year.
(g) Prior to determining the Member's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible
Amount for a Member in the manner described in (c) above.
(h) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Member's actual
Compensation for the Limitation Year.
(i) If pursuant to (h) above, as a result of the allocation of
forfeitures, or as a result of a reasonable error in determining the
amount of Elective Deferrals (within the meaning of Code Section
402(g)(3)) that may be made with respect to any individual under the
limits of Code Section 415, a Member's Annual Additions under this
Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the
Annual Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual medical account
will be deemed to have been allocated first regardless of the actual
allocation date.
(j) If an Excess Amount was allocated to a Member on an allocation date of
this Plan which coincides with an allocation date of another plan, the
Excess Amount attributed to this Plan will be the product of,
(1) the total Excess Amount allocated as of such date, times
(2) the ratio of (i) the Annual Additions allocated to the Member
for the Limitation Year as of such date under this Plan to
(ii) the total Annual Additions allocated to the Member for
the Limitation Year as of such date under this and all the
other qualified defined contribution Master and Prototype
Plans.
(k) Any excess amount attributed to this Plan will be disposed in the
manner described in (e) above.
(l) If the Member is covered under another qualified defined contribution
plan maintained by the Employer which is not a Master or Prototype
Plan, Annual Additions which may be credited to the Member's Account
under this Plan for any Limitation Year will be limited in accordance
with (f) through (k) above as though the other plan were a Master or
Prototype Plan unless the Employer provides other limitations in Item
R.
(m) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Member in this Plan, the sum of the
Member's Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction will not exceed 1.0 in any Limitation Year. The Annual
Additions credited to the Member's Account under this Plan for any
Limitation Year will be limited in accordance with Item R.
SECTION 3.07 - EXCESS AMOUNTS.
(a) For the purposes of this section, the following terms are defined:
ACTUAL DEFERRAL PERCENTAGE means the ratio (expressed as a percentage)
of Elective Deferral Contributions under this Plan on behalf of the
Eligible Member for the Plan Year to the Eligible Member's Pay for the
Plan Year (whether or not the Eligible Member was a Member for the
entire Plan Year). For the first Plan Year of the cash or deferred
arrangement the amount of Pay for the entire 12-month period ending on
the last day of such Plan Year shall be taken into account. If
selected in Item M and in modification of the foregoing, Pay shall be
limited to the Pay received while an Active Member of the Plan. The
Elective Deferral Contributions used to determine the Actual Deferral
Percentage shall include Excess Elective Deferrals (other than Excess
Elective Deferrals of Nonhighly Compensated Employees that arise
solely from Elective Deferral Contributions made under this Plan or
any other plans of ours or a Controlled Group member), but shall
exclude Elective Deferral Contributions that are used in computing the
Contribution Percentage (provided the Average Actual
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<PAGE> 18
Deferral Percentage test is satisfied both with and without exclusion
of these Elective Deferral Contributions). Under such rules as the
Secretary of the Treasury shall prescribe, we may elect to include
Qualified Nonelective Contributions and Qualified Matching
Contributions under this Plan in computing the Actual Deferral
Percentage. For an Eligible Member for whom such Contributions on his
behalf for the Plan Year are zero, the percentage is zero.
AGGREGATE LIMIT means the sum of
(1) 125 percent of the greater of the Average Actual Deferral
Percentage of the Nonhighly Compensated Employees for the Plan
Year or the Average Contribution Percentage of Nonhighly
Compensated Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the Plan
Year of the cash or deferred arrangement and
(2) the lesser of 200% or two plus the lesser of such Average
Actual Deferral Percentage or Average Contribution Percentage.
For Plan Years beginning before January 1, 1992, or such later date as
provided in Internal Revenue Service regulations, the Aggregate Limit
shall be the greater of the sum above or the sum of
(3) 125 percent of the lesser of the Average Actual Deferral
Percentage of the Nonhighly Compensated Employees for the Plan
Year or the Average Contribution Percentage of Nonhighly
Compensated Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the Plan
Year of the cash or deferred arrangement and
(4) the lesser of 200% or two plus the greater of such Average
Actual Deferral Percentage or Average Contribution Percentage.
AVERAGE ACTUAL DEFERRAL PERCENTAGE means the average (expressed as a
percentage) of the Actual Deferral Percentages of the Eligible Members
in a group.
AVERAGE CONTRIBUTION PERCENTAGE means the average (expressed as a
percentage) of the Contribution Percentages of the Eligible Members in
a group.
CONTRIBUTION PERCENTAGE means the ratio (expressed as a percentage) of
the Eligible Member's Contribution Percentage Amounts to the Eligible
Member's Pay for the Plan Year (whether or not the Eligible Member was
a Member for the entire Plan Year). For the first Plan Year of the
Plan, the amount of Pay for the entire 12-month period ending on the
last day of such Plan Year shall be taken into account. If selected
in item M and in modification of the foregoing, Pay shall be limited
to the Pay received while an Active Member of the Plan. For an
Eligible Member for whom such Contribution Percentage Amounts for the
Plan Year are zero, the percentage is zero.
CONTRIBUTION PERCENTAGE AMOUNTS means the sum of the Member
Contributions and Matching Contributions (that are not Qualified
Matching Contributions) under this Plan on behalf of the Eligible
Member for the Plan Year. On and after the first Yearly Date in 1993,
such Contribution Percentage Amounts shall not include Matching
Contributions that are forfeited either to correct Excess Aggregate
Contributions or because the Contributions to which they relate are
Excess Elective Deferrals, Excess Contributions or Excess Aggregate
Contributions. Under such rules as the Secretary of the Treasury
shall prescribe, we may elect to include Qualified Nonelective
Contributions and Qualified Matching Contributions under this Plan
which were not used in Computing the Actual Deferral Percentage in
computing the Contribution Percentage. We may also elect to use
Elective Deferral Contributions in computing the Contribution
Percentage so long as the Average Actual Deferral Percentage test is
met before the Elective Deferral Contributions are used in the Average
Contribution Percentage test and continues to be met following the
exclusion of those Elective Deferral Contributions that are used to
meet the Average Contribution Percentage test.
ELECTIVE DEFERRAL CONTRIBUTIONS means employer contributions made on
behalf of a member pursuant to an election to defer under any
qualified cash or deferred arrangement as described in Code Section
401(k), any simplified employee pension cash or deferred arrangement
as described in Code Section 402(h)(1)(B), any eligible deferred
compensation plan under Code Section 457, any plan as described under
Code Section 501(c)(18), and any employer contributions made on behalf
of a member for the purchase of an annuity contract under Code Section
403(b) pursuant to a salary reduction agreement. Elective Deferral
Contributions shall not include any deferrals properly distributed as
excess Annual Additions.
ELIGIBLE MEMBER means, for purposes of determining the Actual Deferral
Percentage, any Employee who is otherwise authorized under the terms
of the Plan to have Elective Deferral Contributions made on his behalf
for the Plan Year. Eligible Member means, for purposes of determining
the Average Contribution Percentage, any Employee who is otherwise
authorized under the terms of the Plan to have Member Contributions or
Matching Contributions made on his behalf for the Plan Year.
EXCESS AGGREGATE CONTRIBUTIONS means, with respect to any Plan Year,
the excess of:
(1) The aggregate Contributions taken into account in computing
the numerator of the Contribution Percentage actually made on
behalf of Highly Compensated Employees for such Plan Year, over
(2) The maximum amount of such Contributions permitted by the
Average Contribution Percentage test (determined by reducing
Contributions made on behalf of Highly Compensated Employees
in order of their Contribution Percentages beginning with the
highest of such percentages).
Such determination shall be made after first determining Excess
Elective Deferrals and then determining Excess Contributions.
EXCESS CONTRIBUTIONS means, with respect to any Plan Year, the excess
of:
(1) The aggregate amount of Contributions actually taken into
account in computing the Actual Deferral Percentage of Highly
Compensated Employees for such Plan Year, over
(2) The maximum amount of such Contributions permitted by the
Actual Deferral Percentage test (determined by reducing
Contributions made on behalf of Highly
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<PAGE> 19
Compensated Employees in order of the Actual Deferral
Percentages, beginning with the highest of such taxable year.
Such determination shall be made after first determining Excess
Elective Deferrals.
EXCESS ELECTIVE DEFERRALS means those Elective Deferral Contributions
that are includible in a Member's gross income under Code Section
402(g) to the extent such Member's Elective Deferral Contributions for
a taxable year exceed the dollar limitation under such Code section.
Excess Elective Deferrals shall be treated as Annual Additions under
the Plan, unless such amounts are distributed no later than the first
April 15 following the close of the Member's taxable year.
MATCHING CONTRIBUTIONS means employer contributions made to this or
any other defined contribution plan, or to a contract described in
Code Section 403(b), on behalf of a member on account of a Member
Contribution made by such member, or on account of a member's Elective
Deferral Contributions, under a plan maintained by the employer.
MEMBER CONTRIBUTIONS means contributions made to any plan by or on
behalf of a member that are included in the member's gross income in
the year in which made and that are maintained under a separate
account to which earnings and losses are allocated.
QUALIFIED MATCHING CONTRIBUTIONS means Matching Contributions which
are subject to the distribution and nonforfeitability requirements
under Code Section 401(k) when made.
QUALIFIED NONELECTIVE CONTRIBUTIONS means any employer contributions
(other than Matching Contributions) which an employee may not elect to
have paid to him in cash instead of being contributed to the plan and
which are subject to the distribution and nonforfeitability
requirements under Code Section 401 (k).
(b) A Member may assign to this Plan any Excess Elective Deferrals made
during a taxable year of the Member by notifying the Plan
Administrator in writing on or before the first following March 1 of
the amount of the Excess Elective Deferrals to be assigned to the
Plan. On and after the first Yearly Date in 1993, a Member is deemed
to notify the Plan Administrator of any Excess Elective Deferrals that
arise by taking into account only those Elective Deferral
Contributions made to this Plan and any other plan of ours. The
Member's claim for Excess Elective Deferrals shall be accompanied by
the Member's written statement that if such amounts are not
distributed, such Excess Elective Deferrals, when added to amounts
deferred under other plans or arrangements described in Code Sections
401(k), 408(k) or 403(b), will exceed the limit imposed on the Member
by Code Section 402(g) for the year in which the deferral occurred.
The Excess Elective Deferrals assigned to this Plan can not exceed the
Elective Deferral Contributions allocated under this Plan for such
taxable year.
Notwithstanding any other provisions of the Plan, Elective Deferral
Contributions in an amount equal to the Excess Elective Deferrals
assigned to this Plan, plus any income and minus any loss allocable
thereto, shall be distributed no later than April 15 to any Member to
whose Account Excess Elective Deferrals were assigned for the
Preceding year and who claims Excess Elective Deferrals for such
taxable year.
The income or loss allocable to such Excess Elective Deferrals shall
be equal to the sum of:
(1) the income or loss allocable to the Member's Elective Deferral
Contributions for the taxable year in which the excess
occurred multiplied by a fraction and
(2) the income or loss allocable to the Member's Elective Deferral
Contributions for the gap period between the end of such
taxable year and the date of distribution multiplied by a
fraction.
The numerator of the fractions is the Excess Elective Deferrals. The
denominator of the fraction in (1) above is the closing balance
without regard to any income or loss occurring during such taxable
year (as of the end of such taxable year) of the Member's Account
resulting from Elective Deferral Contributions. The denominator of
the fraction in (2) above is the closing balance without regard to any
income or loss occurring during such gap period (as of the end of such
gap period) of the Member's Account resulting from Elective Deferral
Contributions. The amount determined in (2) above shall not be
included for taxable years beginning after December 31,1992.
Any Matching Contributions which were based on the Elective Deferral
Contributions which are distributed as Excess Elective Deferrals, plus
any income and minus any loss allocable thereto, shall be forfeited,
if forfeitable. If the Adoption Agreement - Plus is used, these
Forfeitures shall be applied according to the provisions of Item O(7).
If the Adoption Agreement - Plus is not used, these Forfeitures shall
be used to offset the earliest Employer Contribution due after the
Forfeiture arises.
(c) As of the end of each Plan Year after Excess Elective Deferrals have
been determined, one of the following tests must be met:
(1) The Average Actual Deferral Percentage for Eligible Members
who are Highly Compensated Employees for the Plan Year is not
more than the Average Actual Deferral Percentage for Eligible
Members who are Nonhighly Compensated Employees for the Plan
Year multiplied by 1.25.
(2) The Average Actual Deferral Percentage for Eligible Members
who are Highly Compensated Employees for the Plan Year is not
more than the Average Actual Deferral Percentage for Eligible
Members who are Nonhighly Compensated Employees for the Plan
Year multiplied by 2 and the difference between the Average
Actual Deferral Percentages is not more than 2.
The Actual Deferral Percentage for any Eligible Member who is a Highly
Compensated Employee for the Plan Year and who is eligible to have
Elective Deferral Contributions (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if used in
computing the Actual Deferral Percentage) allocated to his account
under two or more plans or arrangements described in Code Section
401(k) that are maintained by us or a Controlled Group member shall be
determined as if all such Elective Deferral Contributions (and, if
applicable, such Qualified Nonelective Contributions or Qualified
Matching Contributions, or both) were made under a single arrangement.
If
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<PAGE> 20
a Highly Compensated Employee participates in two or more cash or
deferred arrangements that have different Plan Years, all cash or
deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement. The foregoing
notwithstanding, certain plans shall be treated as separate if
mandatorily disaggregated under the regulations of Code Section 401(k).
In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Code sections only if aggregated with this Plan,
then this section shall be applied by determining the Actual Deferral
Percentage of employees as if all such plans were a single plan. For
Plan Years beginning after December 31, 1989, plans may be aggregated
in order to satisfy Code Section 401(k) only if they have the same
Plan Year.
For purposes of determining the Actual Deferral Percentage of an
Eligible Member who is a five-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Elective Deferral
Contributions (and Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, if used in computing the Actual
Deferral Percentage) and Pay of such Eligible Member include the
Elective Deferral Contributions (and, if applicable, Qualified
Nonelective Contributions or Qualified Matching Contributions, or
both) and Pay for the Plan Year of Family Members. Family Members,
with respect to such Highly Compensated Employees, shall be
disregarded as separate employees in determining the Actual Deferral
Percentage both for Members who are Nonhighly Compensated Employees
and for Members who are Highly Compensated Employees.
For purposes of determining the Actual Deferral Percentage, Elective
Deferral Contributions, Qualified Nonelective Contributions and
Qualified Matching Contributions must be made before the last day of
the twelve-month period immediately following the Plan Year to which
contributions relate.
We shall maintain records sufficient to demonstrate satisfaction of
the Average Actual Deferral Percentage test and the amount of
Qualified Nonelective Contributions or Qualified Matching
Contributions, or both, used in such test.
The determination and treatment of the Contributions used in computing
the Actual Deferral Percentage shall satisfy such other requirements
as may be prescribed by the Secretary of the Treasury.
If the Plan Administrator should determine during the Plan Year that
neither of the above tests is being met, the Plan Administrator may
adjust the amount of future Elective Deferral Contributions of the
Highly Compensated Employees.
Notwithstanding any other provisions of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto,
shall be distributed no later than the last day of each Plan Year to
Members to whose Accounts such Excess Contributions were allocated for
the preceding Plan Year. If such excess amounts are distributed more
than 2 1/2 months after the last day of the Plan Year in which such
excess amounts arose, a ten (10) percent excise tax will be imposed on
the employer maintaining the plan with respect to such amounts. Such
distributions shall be made to Highly Compensated Employees on the
basis of the respective portions of the Excess Contributions
attributable to each of such employees. Excess Contributions shall be
allocated to Members who are subject to the family member aggregation
rules of Code Section 414(q)(6) in the manner prescribed by the
regulations. On and after the first Yearly Date in 1993, Excess
Contributions of Members who are subject to the family member
aggregation rules shall be allocated among the Family Members in
proportion to the Elective Deferral Contributions (and amounts treated
as Elective Deferral Contributions) of each Family Member that is
combined to determine the combined Actual Deferral Percentage.
Excess Contributions shall be treated as Annual Additions; under the
Plan.
The Excess Contributions shall be adjusted for income or loss. The
income or loss allocable to such Excess Contributions shall be equal
to the sum of
(3) the income or loss allocable to the Member's Elective Deferral
Contributions (and, if applicable, Qualified Nonelective
Contributions or Qualified Matching Contributions, or both)
for the Plan Year in which the excess occurred multiplied by a
fraction and
(4) the income or loss allocable to the Member's Elective Deferral
Contributions (and, if applicable, Qualified Nonelective
Contributions or Qualified Matching Contributions, or both)
for the gap period between the end of such Plan Year and the
date of distribution multiplied by a fraction.
The numerator of the fractions is the Excess Contributions. The
denominator of the fraction in (3) above is the closing balance
without regard to any income or loss occurring during such Plan Year
(as of the end of such Plan Year) of the Member's Account resulting
from Elective Deferral Contributions (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if used in
computing the Actual Deferral Percentage). The denominator of the
fraction in (4) above is the closing balance without regard to any
income or loss occurring during such gap period (as of the end of such
gap period) of the Member's Account resulting from Elective Deferral
Contributions (and Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, if used in computing the Actual
Deferral Percentage). The amount determined in (4) above shall not be
included for Plan Years beginning after December 31, 1992.
Excess Contributions shall be distributed from the Member's Account
resulting from Elective Deferral Contributions. If such Excess
Contributions exceed the balance in the Member's Account resulting
from Elective Deferral Contributions, the balance shall be distributed
from the Member's Account resulting from Qualified Matching
Contributions (if applicable) and Qualified Nonelective Contributions,
respectively.
On and after the first Yearly Date in 1993, any Matching Contributions
which are distributed as Excess Contributions, plus any income and
minus any loss allocable thereto, shall be forfeited, if forfeitable.
If the Adoption Agreement - Plus is used, these Forfeitures shall be
applied according to the provisions of Item O(7). If the Adoption
Agreement - Plus
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<PAGE> 21
is not used, these Forfeitures shall be used to offset the earliest
Employer Contribution due after the Forfeiture arises.
(d) As of the end of each Plan Year, one of the following tests must be
met:
(1) The Average Contribution Percentage for Eligible Members who
are Highly Compensated Employees for the Plan Year is not more
than the Average Contribution Percentage for Eligible Members
who are Nonhighly Compensated Employees for the Plan Year
multiplied by 1.25.
(2) The Average Contribution Percentage for Eligible Members who
are Highly Compensated Employees for the Plan Year is not more
than the Average Contribution Percentage for Eligible Members
who are Nonhighly Compensated Employees for the Plan Year
multiplied by 2 and the difference between the Average
Contribution Percentages is not more than 2.
If one or more Highly Compensated Employees participate in both a cash
or deferred arrangement and a plan subject to the Average Contribution
Percentage test maintained by us or a Controlled Group member and the
sum of the Average Actual Deferral Percentage and Average Contribution
Percentage of those Highly Compensated Employees subject to either or
both tests exceeds the Aggregate Limit, then the Contribution
Percentage of those Highly Compensated Employees who also participate
in a cash or deferred arrangement will be reduced (beginning with such
Highly Compensated Employees whose Contribution Percentage is the
highest) so that the limit is not exceeded. The amount by which each
Highly Compensated Employee's Contribution Percentage is reduced shall
be treated as an Excess Aggregate Contribution. The Average Actual
Deferral Percentage and Average Contribution Percentage of the Highly
Compensated Employees are determined after any corrections required to
meet the Average Actual Deferral Percentage and Average Contribution
Percentage tests. Multiple use does not occur if both the Average
Actual Deferral Percentage and Average Contribution Percentage of the
Highly Compensated Employees does not exceed 1.25 multiplied by the
Average Actual Deferral Percentage and Average Contribution Percentage
of the Nonhighly Compensated Employees.
The Contribution Percentage for any Eligible Member who is a Highly
Compensated Employee for the Plan Year and who is eligible to have
Contribution Percentage Amounts allocated to his account under two or
more plans described in Code Section 401(a) or arrangements described
in Code Section 401(k) that are maintained by us or a Controlled Group
member shall be determined as if the total of such Contribution
Percentage Amounts was made under each plan. If a Highly Compensated
Employee participates in two or more cash or deferred arrangements
that have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a
single arrangement. The foregoing notwithstanding, certain plans shall
be treated as separate if mandatorily disaggregated under the
regulations of Code Section 401(m).
In the event that this Plan satisfies the requirements of Code Section
410(b) only if aggregated with one or more other plan, or if one or
more other plans satisfy the requirements of Code Section 410(b) only
if aggregated with this Plan, then this section shall be applied by
determining the Contribution Percentages of Eligible Members as if all
such plans were a single plan. For Plan Years beginning after December
31, 1989, plans may be aggregated in order to satisfy Code Section
401(m) only if they have the same Plan Year.
For purposes of determining the Contribution Percentage of an Eligible
Member who is a five-percent owner or one of the ten most highly-paid
Highly Compensated Employees, the Contribution Percentage Amounts and
Pay of such Member shall include Contribution Percentage Amounts and
Pay for the Plan Year of Family Members. Family Members, with respect
to Highly Compensated Employees, shall be disregarded as separate
employees in determining the Contribution Percentage both for
employees who are Nonhighly Compensated Employees and for employees
who are Highly Compensated Employees.
For purposes of determining the Contribution Percentage, Member
Contributions are considered to have been made in the Plan Year in
which contributed to the Plan. Matching Contributions and Qualified
Nonelective Contributions will be considered made for a Plan Year if
made no later than the end of the twelve-month period beginning on the
day after the close of the Plan Year.
We shall maintain records sufficient to demonstrate satisfaction of
the Average Contribution Percentage test and the amount of Qualified
Nonelective Contributions or Qualified Matching Contributions, or
both, used in such test.
The determination and treatment of the Contribution Percentage of any
Member shall satisfy such other requirements as may be prescribed by
the Secretary of the Treasury.
Notwithstanding any other provisions of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto,
shall be forfeited, if not vested, or distributed, if vested, no later
than the last day of each Plan Year to Members to whose Accounts such
Excess Aggregate Contributions were allocated for the preceding Plan
Year. Excess Aggregate Contributions shall be allocated to Members
who are subject to the family member aggregation rules of Code Section
414(q)(6) in the manner prescribed by the regulabons. On and after
the first Yearly Date in 1993, Excess Aggregate Contributions of
Members who are subject to the family aggregation rules shall be
allocated among the Family Members in proportion to the employee and
Matching Contributions (or amounts treated as Matching Contributions)
of each Family Member that is combined to determine the combined
Contribution Percentage. If such Excess Aggregate Contributions are
distributed more than 2 1/2 months after the last day of the Plan Year
in which such excess amounts arose, a ten (10) percent excise tax will
be imposed on the employer maintaining the plan with respect to those
amounts. Excess Aggregate Contributions shall be treated as Annual
Additions under the Plan.
The Excess Aggregate Contributions shall be adjusted for income or
loss. The income or loss allocable to such Excess Aggregate
Contributions shall be equal to the sum of
(3) the income or loss allocable to the Member's Contribution
Percentage Amounts for the Plan Year in which the excess
occurred multiplied by a fraction and
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<PAGE> 22
(4) the income or loss allocable to the Members Contribution
Percentage Amounts for the gap period between the end of such
Plan Year and the date of distribution multiplied by a
fraction.
The numerator of the fractions is the Excess Aggregate Contributions.
The denominator of the fraction in (3) above is the closing balance
without regard to any income or loss occurring during such Plan Year
(as of the end of such Plan Year) of the Member's Account resulting
from Contribution Percentage Amounts. The denominator of the fraction
in (4) above is the closing balance without regard to any income or
loss occurring during such gap period (as of the end of such gap
period) of the Member's Account resulting from Contribution Percentage
Amounts. The amount determined in (4) above shall not be included for
Plan Years beginning after December 31,1992.
Excess Aggregate Contributions shall be distributed from the Member's
Account resulting from Member Contributions that are not required as a
condition of employment or participation or for obtaining additional
benefits from Employer Contributions. If such Excess Aggregate
Contributions exceed the balance in the Member's Account resulting
from such Member Contributions, the balance shall be forfeited, if not
vested, or distributed, if vested, on a pro-rata basis from the
Member's Account resulting from Contribution Percentage Amounts. If
the Adoption Agreement - Plus is used, these Forfeitures shall be
applied according to the provisions of Item O(7). If the Adoption
Agreement - Plus is not used, these Forfeitures shall be used to
offset the earliest Employer Contribution due after the Forfeiture
arises.
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
SECTION 4.01 - INVESTMENT OF CONTRIBUTIONS.
(a) The provisions of this subsection apply to trusteed plans.
All Contributions are forwarded by us to the Trustee to be deposited
in the Trust Fund. Member Contributions shall be forwarded within
three months after they are made.
Investment of Contributions is governed by the provisions of the
Trust, the Annuity Contract and any other funding arrangement in which
the Trust Fund is or may be invested. To the extent permitted by the
Trust Annuity Contract, or other funding arrangement, the parties
named in Item T of the Adoption Agreement shall direct the
Contributions to any of the accounts available under the Trust and may
request the transfer of assets resulting from those Contributions
between such accounts. A Member may not direct the Trustee to invest
the Member's Account in collectibles. Collectible means any work of
art, rug or antique, metal or gem, stamp or coin, alcoholic beverage
or other tangible personal property specified by the Secretary of the
Treasury. To the extent that a Member does not direct the investment
of his Account, such Account shall be invested ratably in the accounts
available under the Trust in the same manner, as the undirected
Accounts of all other Members. The Vested Accounts of all Inactive
Members may be segregated and invested separately from the Accounts of
all other Members.
At least annually, the Named Fiduciary shall review all pertinent
Employee information and Plan data in order to establish the funding
policy of the Plan and to determine appropriate methods of carrying
out the Plan's objectives. The Named Fiduciary shall inform the
Trustee and any Investment Manager of the Plan's short-term and
long-term financial needs so the investment policy can be coordinated
with the Plan's financial requirements.
However, the Named Fiduciary may delegate to the Investment Manager
investment discretion for Contributions and Plan assets which are not
subject to Member direction.
(b) The provisions of this subsection apply to plans which are not
trusteed.
All Contributions are forwarded by us to the Insurer to be deposited
under the Annuity Contract. Member Contributions shall be forwarded
within three months after they are made.
Investment of Contributions is governed by the provisions of the
Annuity Contract. To the extent permitted by the Annuity Contract the
parties named in Item T of the Adoption Agreement shall direct the
Contributions to any of the accounts available under the Annuity
Contract and may request the transfer of assets resulting from those
Contributions between such accounts. To the extent that a Member does
not direct the investment of his Account such Account shall be
invested ratably in the accounts available under the Annuity Contract
in the same manner as the undirected Accounts of all other Members.
The Vested Accounts of all Inactive Members may be segregated and
invested separately from the Accounts of all other Members.
At least annually, the Named Fiduciary shall review all pertinent
Employee information and Plan data in order to establish the funding
policy of the Plan and to determine appropriate methods of carrying
out the Plan's objectives. The Named Fiduciary shall inform any
Investment Manager of the Plan's short-term and long-term financial
needs so the investment policy can be coordinated with the Plan's
financial requirements.
However, the Named Fiduciary may delegate to the Investment Manager
investment discretion for Contributions and Plan assets which are not
subject to Member direction.
SECTION 4.02 - PURCHASE OF INSURANCE.
If permitted under Item T of the Adoption Agreement life insurance may be
purchased under this Plan for Active Members to provide incidental death
benefits. The Trustee shall apply for and will be the owner of any Insurance
Policy purchased under the terms of this Plan. The purchase shall be subject
to the provisions of this section, the distribution of benefits provisions of
Article VI, and the beneficiary provisions of Section 9.06. If the Member has a
spouse to whom he has been continuously married for at least one year, such
spouse shall be his Beneficiary under the Insurance Policy unless (a) a
qualified election has been made according to the provisions of Section 6.03 or
(b) the Trustee has been named as Beneficiary. If the Trustee is named as
Beneficiary, upon the death of the Member, the Trustee shall be required to pay
over all proceeds of the insurance Policy to the Members Beneficiary or spouse,
as the case may be,
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<PAGE> 23
according to the distribution of benefits provisions of Article VI. Under no
circumstances shall the Trust retain any part of the proceeds. In the event of
any conflict between the terms of this Plan and the terms of any Insurance
Policy purchased hereunder, the Plan provisions shall control.
The purchase of insurance shall be subject to the limitations that may be
imposed by the Insurer under the applicable insurance Policy. The Insurance
Policy may provide for waiver of premium for disability.
The total of all insurance premiums for insurance coverage on the life of a
Member provided by our Contributions shall be limited to a percentage of all
our Contributions made for that Member. All such ordinary life insurance
premiums shall be limited to a percentage which is less than 50%. All such
term life and universal life insurance premiums shall be limited to a
percentage which is not more than 25%. If both ordinary life insurance and
term life or universal life insurance is purchased, 1/2 of all such ordinary
life insurance premiums and all such other life insurance premiums shall be
limited to a percentage which is not more than 25%. Ordinary life insurance
policies are policies with both nondecreasing death benefits and nonincreasing
premiums. The Member's Account resulting from deductible Voluntary
Contributions (and nondeductible Voluntary Contributions if the Adoption
Agreement - Plus is not used) shall not be applied to pay life insurance
premiums.
Any dividends declared upon an amount of insurance in force on the life of a
Member may, within the terms of the Insurance Policy, be applied to reduce the
earliest premium due, purchase paid-up insurance coverage, accumulate under the
policy to provide additional death benefit or be credited to the Member's
Account which is included in the Investment Fund. In the absence of any
direction, such dividends shall be applied to reduce the earliest premium due
for such amount of insurance.
A Member may elect to have amounts deducted from his Account to pay insurance
premiums. The total amount deducted cannot exceed the amount of Contributions
credited to his Account which were not used to provide insurance, but could
have been.
If a decrease in the amount of life insurance is necessary, any cash values of
the terminated insurance shall be retained in the Member's Account and added to
the Investment Fund.
SECTION 4.03 - TRANSFER OF OWNERSHIP.
Any transfer of ownership under this section shall be subject to the
distribution of benefit provision of Article VI.
Upon the request of a Member, we may purchase for its cash value a personal
life insurance policy issued to, and insuring the life of, the Member. Such
policy shall be immediately transferred from us to the Trustee. The cash value
of the purchased policy shall be a part of our Contribution for the Plan Year.
Any such purchase shall be accomplished only under an appropriate written
agreement between the Member, the Trustee and us. In lieu of our purchase of
such policy and at our direction, the Trustee may purchase the policy directly
from the Member. These provisions shall not be available if the policy is
subject to a Policy loan or similar lien. The purchase of and future premiums
for any such policy shall be subject to the limitations in Section 4.02.
If the insurance Policy allows, a Member may pay the Trustee an amount equal to
the cash values of any Insurance Policy on his life. Such payment shall become
a part of his Account. Upon receiving the payment, the Trustee shall transfer
ownership of the policy to the Member. This transfer of ownership is not a
distribution from the Plan. This option shall only be available to a Member if
the policy would, but for the sale, be surrendered by the Plan.
If distribution of a Member's Vested Account would include the cash values of
an Insurance Policy on his life, the Member may have ownership of an Insurance
Policy on his life transferred to him without making payment to the Trustee if
permitted by such Insurance Policy. Any Insurance Policy transferred to the
Member for which he has not made payment to the Trustee is a distribution from
the Plan.
In applying the provisions of this section, all Members in similar
circumstances shall be treated in a similar manner. Members who are Highly
Compensated Employees (officers, shareholders or highly compensated Employees
before the first Yearly Date after December 31, 1988) shall not be treated in a
manner more favorable than that afforded all other Members.
SECTION 4.04 - TERMINATION OF INSURANCE.
The termination of insurance under this section shall be subject to the
distribution of benefits provisions of Article VI.
No premium payments shall be made under this Plan for an Inactive Member. If a
Member becomes an Inactive Member before Retirement Date, the Trustee may
either use the cash values of the Insurance Policy on his life to provide
paid-up insurance or may surrender the Insurance Policy. The cash values of a
surrendered Insurance Policy are retained in the Member's Account and added to
the Investment Fund. The purchase of paid-up insurance shall be subject to the
provisions of the Insurance Policy. If the Member ceases to be an Employee
before Retirement Date, the Member may elect to have the ownership of the
Insurance Policy transferred as provided in Section 4.03.
On a Member's Retirement Date, any Insurance Policy on his life, the ownership
of which has not been transferred to him, shall terminate. The cash values
shall be paid to the Member in cash or applied to provide an income for him
according to the provisions of the Insurance Policy. In any event no portion
of the value of any Insurance Policy shall be used to continue life insurance
protection under the Plan beyond actual retirement
ARTICLE V
BENEFITS
SECTION 5.01 - RETIREMENT BENEFITS.
On a Member's Retirement Date, the Member's Vested Account shall be distributed
to the Member according to the distribution of benefits provisions of Article
VI and the small amounts provisions of Section 9.10.
SECTION 5.02 - DEATH BENEFITS.
If a Member dies before his Annuity Starting Date, the Member's Vested Account
shall be distributed according to the distribution of benefits provisions of
Article VI and the small amounts provisions of Section 9.10
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<PAGE> 24
SECTION 5.03 - VESTED BENEFITS.
If the Inactive Member's Vested Account is not payable under the small amounts
provisions of 9.10, he may elect but is not required, to receive in a single
sum that part of his Vested Account which results from Member Contributions
after he ceases to be an Employee. The Member's election shall meet the
consent requirements in Section 6.03 for a qualified election of a benefit
payable in a form other than a Qualified Joint and Survivor Form.
If the Inactive Member's Vested Account is not payable under the small amounts
provisions of Section 9.10, he may elect but is not required, to receive a
distribution of his Vested Account after he ceases to be an Employee. If Item
X(3)(a) of the Adoption Agreement - Plus is selected, distributions from the
Member's Vested Account which results from the designated Contributions shall
not begin before the Member retires, becomes Totally Disabled or dies. If Item
X(3)(b) of the Adoption Agreement Plus is selected, distributions shall not be
made until he has ceased to be an Employee for the period of time selected in
Item X(3)(b). The Member's election shall be subject to his spouse's consent
as provided in Section 6.03. A distribution under this paragraph will be a
retirement benefit and shall be distributed to the Member according to the
provisions of Article VI.
If an Inactive Member does not receive an earlier distribution according to the
provisions of the preceding paragraph or the small amounts provisions of Section
9.10, upon his Retirement Date or death, his Vested Account shall be applied
according to the provisions of Section 5.01 or 5.02.
A Member may not receive any such distribution under the provisions of this
section after he again becomes an Employee until he subsequently ceases to be
an Employee and again meets the requirements of this section.
Some or all of an Inactive Member's Vested Account may be transferred directly
to the trustee, named fiduciary, or insurer under the retirement plan of the
Inactive Member's current employer if the following requirements are met: the
Inactive Member would be eligible to receive a distribution of his Vested
Account at the time the transfer is to occur; the amount transferred, if
distributed to the Member, would qualify as a rollover contribution which the
Code permits to be transferred to a plan that meets the requirements of Code
Section 401(a); the current employer's plan meets the requirements of Code
Section 401(a). The Member must request the transfer in writing. The
trustee, named fiduciary or insurer under the plan must be willing to accept
such a transfer. Such transferred amount shall be treated as a distribution
under this plan.
The Nonvested Account of an Inactive Member shall remain a part of his Account
until it becomes a Forfeiture; provided, however, if the Inactive Member again
becomes an Employee so that his Vesting Percentage may increase, the Nonvested
Account may become part of his Vested Account.
SECTION 5.04 - WHEN BENEFITS START.
Benefits under the Plan begin when a Member retires, dies or ceases to be an
Employee, whichever applies, as provided in the preceding sections of this
article. Benefits which begin before Normal Retirement Date for a Member who
became Totally Disabled when he was an Employee shall be deemed to begin
because he is Totally Disabled. The start of benefits is subject to the
qualified election procedures of Article VI.
Unless otherwise elected, benefits shall begin before the sixtieth day
following the close of the Plan Year in which the latest date below occurs:
(a) The date the Member attains the earlier of (i) age 65 or (ii) the
later of Normal Retirement Age or age 62.
(b) The tenth anniversary of the Member's Entry Date.
(c) The date the Member ceases to be an Employee.
Notwithstanding the foregoing, the failure of a Member and spouse to consent to
a distribution while a benefit is immediately distributable, within the meaning
of Section 6.03, shall be deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this section.
The Member may elect to have benefits begin after the latest date for
beginning benefits described above, subject to the following provisions of this
section. The Member shall make the election in writing and deliver the signed
election to the Plan Administrator before Normal Retirement Date or the date he
ceases to be an Employee, if later. The election must describe the form of
distribution and the date benefits will begin. The Member shall not elect a
date for beginning benefits or a form of distribution which would result in a
benefit payable when he dies which would be more than incidental within the
meaning of governmental regulations.
Benefits shall begin by the Member's Required Beginning Date, as defined in
Section 6.02. Distribution of the Vested Account resulting from Contributions
made after the Member's Required Beginning Date shall begin by the April 1
following the calendar year in which such Contributions were made.
If a Member receives a taxable distribution (including a withdrawal) of any
part of his Vested Account he may be subject to a Federal tax penalty. The tax
penalty does not apply if the distribution is:
(a) made on or after age 59 1/2;
(b) made on account of the Member's death to his Beneficiary or estate;
(c) made on account of being disabled;
(d) part of a series of periodic payments after separation from service
that are substantially equal, at least annual, and based on the life
expectancy of the Member or the Member and his Beneficiary; or
(e) made after separation from service after the attainment of age 55.
In addition, no tax is imposed on amounts received and paid during the taxable
year for medical expenses in an amount not to exceed that deductible under Code
Section 213. Disabled means that a Member is disabled to the extent he is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or be of long-continued and indefinite duration. Proof of the existence
of the disability will be in such form and manner as the Secretary of the
Treasury may require.
Contributions which are used to compute the Actual Deferral Percentage, as
defined in Section 3.07. (Elective Deferral Contributions, Qualified
Nonelective Contributions, and Qualified Matching Contributions) may be
distributed upon disposition by us of substantially all of the assets used by
us in a trade or
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<PAGE> 25
business or disposition by us of our interest in a subsidiary if the transferee
corporation is not a Controlled Group member, the Employee continues employment
with the transferor corporation and the transferor corporation continues to
maintain the Plan. The distribution must be a total distribution.
SECTION 5.05 - WITHDRAWAL BENEFITS.
(a) Distributions on Account of Financial Hardship
If elected by us in Item W(2) of the Adoption Agreement, withdrawals
of part of the Member's Account as provided in Item W(2) will be
permitted in the event of hardship due to an immediate and heavy
financial need.
Immediate and heavy financial need shall be limited to: (i) medical
expenses described in Code Section 213(d) incurred by the Member, the
Member's spouse, or any dependents of the Member (as defined in Code
Section 152); (ii) purchase (excluding mortgage payments) of a
principal residence for the Member; (iii) payment of tuition for the
next semester or quarter of post-secondary education for the Member,
his spouse, children or dependents; (iv) the need to prevent the
eviction of the Member from his principal residence or foreclosure on
the mortgage of the Member's principal residence; or (v) any other
distribution which is deemed by the Commissioner of Internal Revenue
to be made on account of immediate and heavy financial need as
provided in Treasury regulations. The Member's request for a
withdrawal shall include his written statement that an immediate and
heavy financial need exists and explain its nature.
On and after the first Yearly Date in 1993, immediate and heavy
financial need in (i) shall include medical expenses incurred or
necessary for medical care, described in Code Section 213(d), of the
Member, the Member's spouse, or any dependents of the Member (as
defined in Code Section 152) and such need in (iii) shall include
payment of tuition and related educational fees for the next 12 months
of postsecondary education for the Member, his spouse, children or
dependents. In addition, the amount of the immediate and heavy
financial need may include amounts necessary to pay any Federal, state
or local income taxes or penalties reasonably anticipated to result
from the distribution.
No withdrawal shall be allowed which is not necessary to satisfy such
immediate and heavy financial need. Such withdrawal shall be deemed
necessary only if all of the following requirements are met (i) the
distribution is not in excess of the amount of the immediate and heavy
financial need of the Member; (ii) the Member has obtained all
distributions, other than hardship distributions, and all nontaxable
loans currently available under all plans maintained by us; (iii) the
Plan, and all other plans maintained by us, provide that the Member's
elective contributions and employee contributions will be suspended
for at least 12 months after receipt of the hardship distribution; and
(iv) the Plan, and all other plans maintained by us, provide that the
Member may not make elective contributions for the Member's taxable
year immediately following the taxable year of the hardship
distribution in excess of the applicable limit under Code Section
402(g) for such next taxable year less the amount of such Member's
elective contributions for the taxable year of the hardship
distribution. The Plan will suspend elective contributions and
employee contributions for 12 months and limit elective deferrals as
provided in the preceding sentence. A Member shall not cease to be an
Eligible Member, as defined in Section 3.07, merely because his
elective contributions or employee contributions are suspended.
(b) Distributions on Account of Other Withdrawals
A Member may withdraw in a single sum any part of his Account
resulting from his Voluntary Contributions subject to the limitations
provided in Item W(1). If selected by us in Item W(3), withdrawals of
the Member's Account as provided in Item W(3) will be permitted at any
time after he attains age 59 1/2 subject to the limitations provided
in Item W(3). If selected by us in Item W(4) of the Adoption
Agreement - Plus, withdrawals of part of the Member's Account as
provided in Item W(4) will be permitted after he has been an Active
Member for at least 5 years subject to the limitations provided in
Item W(4).
A request for withdrawal shall be in writing on a form furnished for that
purpose and delivered to the Plan Administrator before the withdrawal is to
occur. Withdrawals shall be subject to the qualified election provisions of
Article VI. A forfeiture shall not occur solely as a result of a withdrawal.
SECTION 5.06 - LOANS TO MEMBERS.
Loans shall be made available to all Members on a reasonably equivalent basis.
For purposes of this section, Member means any Member or Beneficiary who is an
Employee. Loans shall not be made to highly compensated employees, as defined
in Code Section 414(q), in an amount greater than the amount made available to
other Members.
No loans will be made to any shareholder-employee or owner-employee. For
purposes of this requirement a shareholder-employee means an employee or
officer of an electing small business (Subchapter S) corporation who owns (or
is considered as owning within the meaning of Code Section 318(a)(1)), on any
day during the taxable year of such corporation, more than 5% of the
outstanding stock of the corporation.
A loan to a Member shall be a Member-directed investment of his Account. The
loan is a Trust investment but no Account other than the borrowing Member's
Account shall share in the interest paid on the loan or bear any expense or
loss incurred because of the loan.
The number of outstanding loans shall be limited to one, unless otherwise
specified in Item T(b)(vi). No more than one loan will be approved for any
Member in any 12-month period, unless otherwise specified in Item T(b)(vii).
The minimum amount of any loan shall be selected in Item T(b)(iv).
Loans must be adequately secured and bear a reasonable rate of interest.
The amount of the loan shall not exceed the maximum amount that may be treated
as a loan under Code Section 72(p) (rather than a distribution) to the Member
and shall be equal to the lesser of (a) or (b) below:
(a) $50,000 reduced by the highest outstanding loan balance of
loans during the one-year period ending on the day before the
new loan is made.
(b) The greater of (i) or (ii), reduced by (iii) below:
(i) One-half of the Member's Vested Account.
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<PAGE> 26
(ii) $10,000.
(iii) Any outstanding loan balance on the date the new loan
is made.
For purposes of this maximum, a Member's Vested Account does not include any
accumulated deductible employee contributions, as defined in Code Section
72(o)(5)(B), and all qualified employer plans, as defined in Code Section
72(p)(4), of ours and any Controlled Group member shall be treated as one plan.
The foregoing notwithstanding, the amount of such loan shall not exceed 50% of
the amount of the Member's Vested Account reduced by any outstanding loan
balance on the date the new loan is made. In addition, the amount of the loan
may be further limited to a specified dollar amount, if Item T(b)(v) so
indicates. No collateral other than a portion of the Member's Vested Account
(as limited above) shall be accepted. The Loan Administrator shall determine
if the collateral is adequate for the amount of the loan requested.
A Member must obtain the consent of the Member's spouse, if any, to the use of
the Vested Account as security for the loan. Spousal consent shall be obtained
no earlier than the beginning of the 90-day period that ends on the date on
which the loan to be so secured is made. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by a plan
representative or a notary public. Such consent shall thereafter be binding
with respect to the consenting spouse or any subsequent spouse with respect to
that loan. A new consent shall be required if the Vested Account is used for
collateral upon renegotiation, extension, renewal, or other revision of the
loan.
If a valid spousal consent has been obtained in accordance with the above,
then, notwithstanding any other provision of this Plan, the portion of the
Member's Vested Account used as a security interest held by the Plan by reason
of a loan outstanding to the Member shall be taken into account for purposes of
determining the amount of the Vested Account payable at the time of death or
distribution, but only if the reduction is used as repayment of the loan. If
less than 100% of the Member's Vested Account (determined without regard to the
preceding sentence) is payable to the surviving spouse, then the Vested
Account shall be adjusted by first reducing the Vested Account by the amount of
the security used as repayment of the loan, and then determining the benefit
payable to the surviving spouse.
Each loan shall bear a reasonable fixed rate of interest to be determined by
the Loan Administrator. In determining the interest rate, the Loan
Administrator shall take into consideration fixed interest rates currently
being charged by commercial lenders for loans of comparable risk on similar
terms and for similar durations, so that the interest will provide for a return
commensurate with rates currently charged by commercial lenders for loans made
under similar circumstances. The Loan Administrator shall not discriminate
among Members in the matter of interest rates; but loans granted at different
times may bear different interest rates in accordance with the current
appropriate standards.
The loan shall by its terms require that repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond five years from the date of the loan. The period of
repayment for any loan shall be arrived at by mutual agreement between the Loan
Administrator and the Member.
The Member shall make a written application for a loan from the Plan on forms
provided by the Loan Administrator. The application must specify the amount
and duration requested. No loan will be approved unless the Member is
creditworthy. The Member must grant authority to the Loan Administrator to
investigate the Member's creditworthiness so that the loan application may be
properly considered.
Information contained in the application for the loan concerning the income,
liabilities, and assets of the Member will be evaluated to determine whether
there is a reasonable expectation that the Member will be able to satisfy
payments on the loan as due. Additionally, the Loan Administrator will pursue
any appropriate further investigations concerning the creditworthiness and/or
credit history of the Member to determine whether a loan should be approved.
Each loan shall be fully documented in the form of a promissory note signed by
the Member for the face amount of the loan, together with interest determined
as specified above.
There will be an assignment of collateral to the Plan executed at the time the
loan is made.
In those cases where repayment through payroll deduction by us is available,
installments are so payable, and a payroll deduction agreement will be
executed by the Member at the time of making the loan.
Where payroll deduction is not available, payments are to be timely made.
Any payment that is not by payroll deduction shall be made payable to us or the
Trustee, as specified in the promissory note, and delivered to the Loan
Administrator, including prepayments, service fees and penalties, if any, and
other amounts due under the note.
The promissory note may provide for reasonable late payment penalties and/or
service fees. Any penalties or service fees shall be applied to all Members in
a nondiscriminatory manner. If the promissory note so provides, such amounts
may be assessed and collected from the Account of the Member as part of the
loan balance.
Each loan may be paid prior to maturity, in part or in full, without penalty or
service fee, except as may be set out in the promissory note.
If any amount remains unpaid for more than 31 days after due, a default is
deemed to occur.
Upon default the Plan has the right to pursue any remedy available by law to
satisfy the amount due, along with accrued interest, including the right to
enforce its claim against the security pledged and execute upon the collateral
as allowed by law.
If any payment of principal or interest or any other amount due under the
promissory note, or any portion thereof, is not made for a period of 90 days
after due, the entire principal balance whether or not otherwise then due,
shall become immediately due and payable without demand or notice, and subject
to collection or satisfaction by any lawful means, including specifically but
not limited to the right to enforce the claim against the security pledged and
to execute upon the collateral as allowed by law.
In the event of default, foreclosure on the note and attachment of security or
use of amounts pledged to satisfy the amount then due, will not occur until a
distributable event occurs in
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<PAGE> 27
accordance with the Plan, and will not occur to an extent greater than the
amount then available upon any distributable event which has occurred under the
Plan.
All reasonable costs and expenses, including but not limited to attorney's
fees, incurred by the Plan in connection with any default or in any proceeding
to enforce any provision of a promissory note or instrument by which a
promissory note for a Member loan is secured, shall be assessed and collected
from the Account of the Member as part of the loan balance.
If payroll deduction is being utilized, in the event that a Member's available
payroll deduction amounts in any given month are insufficient to satisfy the
total amount due, there will be an increase in the amount taken subsequently,
sufficient to make up the amount that is then due. If the subsequent deduction
is also insufficient to satisfy the amount due within 31 days, a default is
deemed to occur as above. If any amount remains past due more than 90 days,
the entire principal amount, whether or not otherwise then due, along with
interest then accrued and any other amount then due under the promissory note,
shall become due and payable, as above.
If the Member ceases to be an Employee, the balance of the outstanding loan
becomes due and payable, and the Member's Vested Account will be used as
available for distribution(s) to pay the outstanding loan. The Member's Vested
Account will not be used to pay any amount due under the outstanding loan
before the date which is 31 days after the date he ceased to be an Employee,
and the Member may elect to repay the outstanding loan with interest on the day
of repayment. If no distributable event has occurred under the Plan at the time
that the Member's Vested Account would otherwise be used under this provision
to pay any amount due under the outstanding loan, this will not occur until the
time, or in excess of the extent to which, a distributable event occurs under
the Plan.
ARTICLE VI
DISTRIBUTION OF BENEFITS
The provisions of this article shall apply on or after August 23, 1984, to any
Member who is credited with at least one Hour of Service or one hour of paid
leave on or after that date and to such other Members as provided in Section
6.05. If the Effective Date of our Plan is before January 1, 1984, the
provisions of the Prior Plan as in effect on the day before the TEFRA
Compliance Date shall apply before August 23, 1984. If the Effective Date of
our Plan is on or after January 1, 1984, and before August 23, 1984, the
provisions of the Plan as originally adopted shall apply before August 23,1984.
SECTION 6.01 - AUTOMATIC FORMS OF DISTRIBUTION.
Unless a qualified election of an optional form of benefit has been made within
the election period (see Section 6.03), the automatic form of benefit payable
to or on behalf of a Member is determined as follows:
(a) The automatic form of retirement benefit for a Member who does not die
before his Annuity Starting Date shall be the Qualified Joint and
Survivor Form.
(b) The automatic form of death benefit for a Member who dies before his
Annuity Starting Date shall be:
(1) A Qualified Preretirement Survivor Annuity for a Member who
has a spouse to whom he has been continuously married
throughout the one-year period ending on the date of his
death. The spouse may elect to start receiving the death
benefit on any first day of the month on or after the Member
dies and by the date the Member would have been age 70 1/2. If
the spouse dies before benefits start, the Member's Vested
Account, determined as of the date of the spouse's death,
shall be paid to the spouse's Beneficiary.
(2) A single sum payment to the Member's Beneficiary for a Member
who does not have a spouse who is entitled to a Qualified
Preretirement Survivor Annuity.
Before a death benefit will be paid on account of the death of a
Member who does not have a spouse who is entitled to a Qualified
Preretirement Survivor Annuity, it must be established to the
satisfaction of a plan representative that the Member does not have
such a spouse.
SECTION 6.02 - OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS.
(a) For purposes of this section, the following terms are defined:
APPLICABLE LIFE EXPECTANCY means Life Expectancy (or Joint and Last
Survivor Expectancy) calculated using the attained age of the Member
(or Designated Beneficiary) as of the Member's (or Designated
Beneficiary's) birthday in the applicable calendar year reduced by one
for each calendar year which has elapsed since the date Life
Expectancy was first calculated. If Life Expectancy is being
recalculated, the Applicable Life Expectancy shall be the Life
Expectancy so recalculated. The applicable calendar year shall be the
first Distribution Calendar Year, and if Life Expectancy is being
recalculated such succeeding calendar year.
DESIGNATED BENEFICIARY means the individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9)
and the regulations thereunder.
DISTRIBUTION CALENDAR YEAR means a calendar year for which a minimum
distribution is required. For distributions beginning before the
Member's death, the first Distribution Calendar Year is the calendar
year immediately preceding the calendar year which contains the
Member's Required Beginning Date. For distributions beginning after
the Member's death, the first Distribution Calendar Year is the
calendar year in which distributions are required to begin pursuant to
(e) below.
JOINT AND LAST SURVIVOR EXPECTANCY means joint and last survivor
expectancy computed by use of the expected return multiples in Tables
V and VI of section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Member (or spouse, in the case of
distributions described in (e)(2)(ii) below) by the time distributions
are required to begin, life expectancies shall be recalculated
annually. Such election shall be irrevocable as to the Member (or
spouse) and shall apply to all subsequent years. The life expectancy
of a nonspouse Beneficiary may not be recalculated.
LIFE EXPECTANCY means life expectancy computed by use of the expected
return multiples in Tables V and VI of section 1.72-9 of the Income
Tax Regulations.
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<PAGE> 28
Unless otherwise elected by the Member (or spouse, in the case of
distributions described in (e)(2)(ii) below) by the time distributions
are required to begin, life expectancies shall be recalculated
annually. Such election shall be irrevocable as to the Member (or
spouse) and shall apply to all subsequent years. The life expectancy
of a nonspouse Beneficiary may not be recalculated.
MEMBER'S BENEFIT means
(1) The Account balance as of the last valuation date in the
calendar year immediately preceding the Distribution Calendar
Year (valuation calendar year) increased by the amount of any
contributions or forfeitures allocated to the Account balance
as of the dates in the valuation calendar year after the
valuation date and decreased by distributions made in the
valuation calendar year after the valuation date.
(2) For purposes of (1) above, if any portion of the minimum
distribution for the first Distribution Calendar Year is made
in the second Distribution Calendar Year on or before the
Required Beginning Date, the amount of the minimum
distribution made in the second Distribution Calendar Year
shall be treated as if it had been made in the immediately
preceding Distribution Calendar Year.
REQUIRED BEGINNING DATE means, for a Member, the first day of April of
the calendar year following the calendar year in which the Member
attains age 70 1/2, unless otherwise provided in (1), (2) or (3)
below:
(1) The Required Beginning Date for a Member who attains age 70
1/2 before January 1, 1988, and who is not a 5-percent owner
is the first day of April of the calendar year following the
calendar year in which the later of retirement or attainment
of age 70 1/2 occurs.
(2) The Required Beginning Date for a Member who attains age 70
1/2 before January 1, 1988, and who is a 5-percent owner is
the first day of April of the calendar year following the
later of
(i) the calendar year in which the Member attains age 70
1/2, or
(ii) the earlier of the calendar year with or within which
ends the Plan Year in which the Member becomes a
5-percent owner, or the calendar year in which the
Member retires.
(3) The Required Beginning Date of a Member who is not a 5-percent
owner and who attains age 70 1/2 during 1988 and who has not
retired as of January 1, 1989, is April 1, 1990.
A Member is treated as a 5-percent owner for purposes of this section
if such Member is a 5-percent owner as defined in Code Section 416(i)
(determined in accordance with Code Section 416 but without regard to
whether the Plan is top-heavy) at any time during the Plan Year ending
with or within the calendar year in which such owner attains age 66
1/2 or any subsequent Plan Year.
Once distributions have begun to a 5-percent owner under this section,
they must continue to be distributed, even if the Member ceases to be
a 5-percent owner in a subsequent year.
(b) The optional forms of retirement benefit shall be the following: a
straight life annuity; single life annuities with certain periods of
five, ten, or fifteen years; a single life annuity with installment
refund; survivorship life annuities with installment refund and
survivor percentages of 50, 66 2/3, or 100; fixed period annuities
for any period of whole months which is not less than sixty and does
not exceed the Life Expectancy of the Member and the named Beneficiary
as provided in (d) below where the Life Expectancy is not
recalculated; and a series of installments chosen by the Member with a
minimum payment each year beginning with the year the Member turns age
70 1/2. The payment for the first year in which a minimum payment is
required will be made by April 1 of the following calendar year. The
payment for the second year and each successive year will be made by
December 31 of that year. The minimum payment will be based on a
period equal to the Joint and Last Survivor Expectancy of the Member
and the Member's spouse, if any, as provided in (d) below where the
Joint and Last Survivor Expectancy is recalculated. The balance of
the Member's Vested Account, if any, will be payable on the Member's
death to his Beneficiary in a single sum. If not prohibited in Item Y
of the Adoption Agreement - Plus, a single sum payment is also
available.
Election of an optional form is subject to the qualified election
provisions of Article VI.
Any annuity contract distributed shall be nontransferable. The terms
of any annuity contract purchased and distributed by the Plan to a
Member or spouse shall comply with the requirements of this Plan.
(c) The optional forms of death benefit are a single sum payment and any
annuity that is an optional form of retirement benefit. However, a
series of installments shall not be available if the Beneficiary
is not the spouse of the deceased Member.
(d) Subject to Section 6.01, joint and survivor annuity requirements, the
requirements of this section shall apply to any distribution of a
Member's interest and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions
of this section apply to calendar years beginning after December 31,
1984.
All distributions required under this section shall be determined and
made in accordance with the proposed regulations under Code Section
401(a)(9), including the minimum distribution incidental benefit
requirement of section 1.401(a)(9)-2 of the proposed regulations.
The entire interest of a Member must be distributed or begin to be
distributed no later than the Member's Required Beginning Date.
As of the first Distribution Calendar Year, distributions, if not made
in a single sum, may only be made over one of the following periods
(or combination thereof):
(1) the life of the Member.
(2) the life of the Member and a Designated Beneficiary.
(3) a period certain not extending beyond the Life Expectancy of
the Member, or
(4) a period certain not extending beyond the Joint and Last
Survivor Expectancy of the Member and a Designated Beneficiary.
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<PAGE> 29
If the Member's interest is to be distributed in other than a single sum, the
following minimum distribution rules shall apply on or after the Required
Beginning Date:
(5) Individual account:
(i) If a Member's Benefit is to be distributed over
(A) a period not extending beyond the Life Expectancy of
the Member or the Joint Life and Last Survivor
Expectancy of the Member and the Member's Designated
Beneficiary or
(B) a period not extending beyond the Life Expectancy of
the Designated Beneficiary,
the amount required to be distributed for each calendar year
beginning with the distributions for the first Distribution
Calendar Year, must be at least equal to the quotient obtained
by dividing the Member's Benefit by the Applicable Life
Expectancy.
(ii) For calendar years beginning before January 1, 1989, if the
Member's spouse is not the Designated Beneficiary, the method
of distribution selected must assure that at least 50% of the
present value of the amount available for distribution is paid
within the Life Expectancy of the Member.
(iii) For calendar year beginning after December 31, 1988, the
amount to be distributed each year, beginning with
distributions for the first Distribution Calendar Year shall
not be less than the quotient obtained by dividing the
Member's Benefit by the lesser of
(A) the Applicable Life Expectancy or
(B) if the Member's spouse is not the Designated
Beneficiary, the applicable divisor determined from
the table set forth in Q&A-4 of section 1.401(a)(9)-2
of the proposed regulations.
Distributions after the death of the Member shall be
distributed using the Applicable Life Expectancy in (5)(i)
above as the relevant divisor without regard to Proposed
Regulations section 1.401(a)(9)-2.
(iv) The minimum distribution required for the Member's first
Distribution Calendar Year must be made on or before the
Member's Required Beginning Date. The minimum distribution
for the Distribution Calendar Year for other calendar years,
including the minimum distribution for the Distribution
Calendar Year in which the Member's Required Beginning Date
occurs, must be made on or before December 31 of that
Distribution Calendar Year.
(6) Other forms:
(i) If the Member's Benefit is distributed in the form of an
annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements
of Code Section 401(a)(9) and the proposed regulations
thereunder.
(e) Death distribution provisions:
(1) Distribution beginning before death. If the Member dies after
distribution of his interest has begun, the remaining portion
of such interest will continue to be distributed at least as
rapidly as under the method of distribution being used prior
to the Member's death.
(2) Distribution beginning after death. If the Member dies before
distribution of his interest begins, distribution of the
Member's entire interest shall be completed by December 31 of
the calendar year containing the fifth anniversary of the
Member's death except to the extent that an election is made
to receive distributions in accordance with (i) or (ii) below.
(i) if any portion of the Member's interest is payable to
a Designated Beneficiary, distributions may be made
over the life or over a period certain not greater
than the Life Expectancy of the Designated
Beneficiary commencing on or before December 31 of
the calendar year immediately following the calendar
year in which the Member died;
(ii) if the Designated Beneficiary is the Member's
surviving spouse, the date distributions are required
to begin in accordance with (i) above shall not be
earlier than the later of
(A) December 31 of the calendar year immediately
following the calendar year in which the
Member died and
(B) December 31 of the calendar year in which the
Member would have attained age 70 1/2.
If the Member has not made an election pursuant to this (e)(2)
by the time of his death, the Member's Designated Beneficiary
must elect the method of distribution no later than the
earlier of
(iii) December 31 of the calendar year in which
distributions would be required to begin under this
subparagraph, or
(iv) December 31 of the calendar year which contains the
fifth anniversary of the date of death of the Member.
If the Member has no Designated Beneficiary, or if the
Designated Beneficiary does not elect a method of
distribution, distribution of the Member's entire interest
must be completed by December 31 of the calendar year
containing the fifth anniversary of the Member's death.
(3) For purposes of (e)(2) above, if the surviving spouse dies
after the Member, but before payments to such spouse begin,
the provisions of (e)(2) above, with the exception of
(e)(2)(ii) therein, shall be applied as if the surviving
spouse were the Member.
(4) For purposes of this (e), any amount paid to a child of the
Member will be treated as if it had been paid to the surviving
spouse if the amount becomes payable to the surviving spouse
when the child reaches the age of majority.
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<PAGE> 30
(5) For purposes of this (e), distribution of a Member's interest
is considered to begin on the Member's Required Beginning Date
(or if (e)(3) above is applicable, the date distribution is
required to begin to the surviving spouse pursuant to (e)(2)
above). If distribution in the form of an annuity irrevocably
commences to the Member before the Required Beginning Date,
the date distribution is considered to begin is the date
distribution actually commences.
SECTION 6.03 - ELECTION PROCEDURES.
The Member, Beneficiary, or spouse shall make any election under this section
in writing. The Plan Administrator may require such individual to complete and
sign any necessary documents as to the provisions to be made. Any election
permitted under (a) and (b) below shall be subject to the qualified election
provisions of (c) below.
(a) Retirement Benefits. A Member may elect his Beneficiary or Contingent
Annuitant and may elect to have retirement benefits distributed under
any of the optional forms of retirement benefit described in Section
6.02.
(b) Death Benefits. A Member may elect his Beneficiary and may elect to
have death benefits distributed under any of the optional forms of
death benefit described in Section 6.02.
If the Member has not elected an optional form of distribution for the
death benefit payable to his Beneficiary, the Beneficiary may, for his
own benefit elect the form of distribution, in like manner as a Member.
The Member may waive the Qualified Preretirement Survivor Annuity by
naming someone other than his spouse as Beneficiary.
In lieu of the Qualified Preretirement Survivor Annuity described in
Section 6.01, the spouse may, for his own benefit waive the Qualified
Preretirement Survivor Annuity by electing to have the benefit
distributed under any of the optional forms of death benefit described
in Section 6.02.
(c) Qualified Election. The Member, Beneficiary or spouse may make an
election at any time during the election period. The Member,
Beneficiary, or spouse may revoke the election made (or make a new
election) at any time and any number of times during the election
period. An election is effective only if it meets the consent
requirements below.
The election period as to retirement benefits is the 90-day period
ending on the Annuity Starting Date. An election to waive the
Qualified Joint and Survivor Form may not be made before the date he
is provided with the notice of the ability to waive the Qualified
Joint and Survivor Form. If the Member elects the series of
installments, he may elect on any later date to have the balance of
his Vested Account paid under any of the optional forms of retirement
benefit available under the Plan. His election period for this
election is the 90-day period ending on the Annuity Starting Date for
the optional form of retirement benefit elected.
A Member may make an election as to death benefits at any time before
he dies. The spouse's election period begins on the date the Member
dies and ends on the date benefits begin. The Beneficiary's election
period begins on the date the Member dies and ends on the date
benefits begin. An election to waive the Qualified Preretirement
Survivor Annuity may not be made by the Member before the date he is
provided with the notice of the ability to waive the Qualified
Preretirement Survivor Annuity. A Member's election to waive the
Qualified Preretirement Survivor Annuity which is made before the
first day of the Plan Year in which he reaches age 35 shall become
invalid on such date. An election made by a Member after he ceases to
be an Employee will not become invalid on the first day of the Plan
Year in which he reaches age 35 with respect to death benefits from
that part of his Account resulting from Contributions made before he
ceased to be an Employee.
If the Member's Vested Account has at any time exceeded $3,500, any
benefit which is (1) immediately distributable or (2) payable in a
form other than a Qualified Joint and Survivor Form or a Qualified
Preretirement Survivor Annuity requires the consent of the Member and
the Member's spouse (or where either the Member or the spouse has
died, the survivor). The consent of the Member or spouse to a benefit
which is immediately distributable must not be made before the date
the Member or spouse is provided with the notice of the ability to
defer the distribution. Such consent shall be made in writing. The
consent shall not be made more than 90 days before the Annuity
Starting Date. Spousal consent is not required for a benefit which is
immediately distributable in a Qualified Joint and Survivor Form.
Furthermore, if spousal consent is not required because the Member is
electing an optional form of retirement benefit that is not a life
annuity pursuant to (d) below, only the Member need consent to the
distribution of a benefit payable in a form that is not a life annuity
and which is immediately distributable. Neither the consent of the
Member nor the Member's spouse shall be required to the extent that a
distribution is required to satisfy Code Section 401(a)(9) or Code
Section 415. In addition, upon termination of this Plan if the Plan
does not offer an annuity option (purchased from a commercial
provider), the Member's Account balance may, without the Member's
consent, be distributed to the Member or transferred to another defined
contribution plan (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7)) within the same Controlled Group.
A benefit is immediately distributable if any part of the benefit
could be distributed to the Member (or surviving spouse) before the
Member attains (or would have attained if not deceased) the older of
Normal Retirement Age or age 62. If the Qualified Joint and Survivor
Form is waived, the spouse has the right to limit consent only to a
specific Beneficiary or a specific form of benefit. The spouse can
relinquish one or both such rights. Such consent shall be made in
writing. The consent shall not be made more than 90 days before the
Annuity Starting Date. If the Qualified Preretirement Survivor
Annuity is waived, the spouse has the right to limit consent only to a
specific Beneficiary. Such consent shall be in writing. The spouse's
consent shall be witnessed by a plan representative or notary public.
The spouse's consent must acknowledge the effect of the election,
including that the spouse had the right to limit consent only to a
specific Beneficiary or a specific form of benefit, if applicable, and
that the relinquishment of one or both such rights was voluntary.
Unless the consent of the spouse expressly permits designations by the
Member without a requirement of further consent by the spouse, the
spouse's consent must be limited to the form of benefit, if
applicable, and the Beneficiary (including any Contingent Annuitant),
class of Beneficiaries, or contingent Beneficiary named in the
election, Spousal consent is not required, however, if the
-27-
<PAGE> 31
Member establishes to the satisfaction of the plan representative that
the consent of the spouse cannot be obtained because there is no
spouse or the spouse cannot be located. A spouse's consent under this
paragraph shall not be valid with respect to any other spouse. A
Member may revoke a prior election without the consent of the spouse.
Any new election will require a new spousal consent, unless the
consent of the spouse expressly permits such election by the Member
without further consent by the spouse. A spouse's consent may be
revoked at any time within the Member's election period.
Before the first Yearly Date in 1989, the Member's Account which
results from deductible Voluntary Contributions shall not be taken
into account in determining whether the Member's Vested Account has
exceeded $3,500 and an election as to the distribution of a Member's
Vested Account which results from deductible Voluntary Contributions
is not subject to the consent requirements above and may be made any
time before such distribution is to begin.
(d) Special Rule for Profit Sharing Plans. As provided in the preceding
provisions of the Plan, if a Member has a spouse to whom he has been
continuously married throughout the one-year period ending on the date
of the Member's death, the Member's Vested Account including the
proceeds payable under any Insurance Policy on the Member's life,
shall be paid to such spouse. However, if there is no such spouse or
if the surviving spouse has already consented in a manner conforming
to the qualified election requirements in (c) above, the Vested
Account shall be payable to the Member's Beneficiary in the event of
the Member's death.
The Member may waive the spousal death benefit described above at any
time provided that no such waiver shall be effective unless it
satisfies the conditions of (c) above (other than the notification
requirement referred to therein) that would apply to the Member's
waiver of the Qualified Preretirement Survivor Annuity.
This subsection (d) applies if with respect to the Member, the Plan is
not a direct or indirect transferee after December 31, 1984, of a
defined benefit plan, money purchase plan (including a target plant),
stock bonus or profit sharing plan which is subject to the survivor
annuity requirements of Code Section 401(a)(11) and Code Section 417.
If the above condition is met, spousal consent is not required for
electing an optional form of retirement benefit that is not a life
annuity. If the above condition is not met the consent requirements
of this Article shall be operative.
SECTION 6.04 - NOTICE REQUIREMENTS.
(a) Optional forms of retirement benefit. The Plan Administrator shall
furnish to the Member and the Member's spouse a written explanation of
the optional forms of retirement benefit in Section 6.02, including
the material features and relative values of these options, in a
manner that would satisfy the notice requirements of Code Section
417(a)(3) and the right of the Member and the Member's spouse to defer
distribution until the benefit is no longer immediately distributable.
The Plan Administrator shall furnish the written explanation by a
method reasonably calculated to reach the attention of the Member and
the Member's spouse no less than 30 days and no more than 90 days
before the Annuity Starting Date.
(b) Qualified Joint and Survivor Form. The Plan Administrator shall
furnish to the Member a written explanation of the following: the
terms and conditions of the Qualified Joint and Survivor Form; the
Member's right to make, and the effect of, an election to waive the
Qualified Joint and Survivor Form; the rights of the Member's spouse;
and the right to revoke an election and the effect of such a
revocation. The Plan Administrator shall furnish the written
explanation by a method reasonably calculated to reach the attention
of the Member no less than 30 days and no more than 90 days before the
Annuity Starting Date.
After the written explanation is given, a Member or spouse may make
written request for additional information. The written explanation
must be personally delivered or mailed (first class mail, postage
prepaid) to the Member or spouse within thirty days from the date of
the written request. The Plan Administrator does not need to comply
with more than one such request by a Member or spouse.
The Plan Administrator's explanation shall be written in nontechnical
language and will explain the terms and conditions of the Qualified
Joint and Survivor Form and the financial effect upon the Member's
benefit (in terms of dollars per benefit payment) of electing not to
have benefits distributed in accordance with the Qualified Joint and
Survivor Form.
(c) Qualified Preretirement Survivor Annuity. The Plan Administrator
shall furnish to the Member a written explanation of the following:
the terms and conditions of the Qualified Preretirement Survivor
Annuity; the Member's right to make, and the effect of, an election to
waive the Qualified Preretirement Survivor Annuity; the rights of the
Member's spouse, and the right to revoke an election and the effect of
such a revocation. The Plan Administrator shall furnish the written
explanation by a method reasonably calculated to reach the attention
of the Member within the applicable period. The applicable period
for a Member is whichever of the following periods ends last:
(1) the period beginning one year before the date the individual
becomes a Member and ending one year after such date; or
(2) the period beginning one year before the date the Member's
spouse is first entitled to a Qualified Preretirement Survivor
Annuity and ending one year after such date.
If such notice is given before the period beginning with the first day
of the Plan Year in which the Member attains age 32 and ending with
the close of the Plan Year preceding the Plan Year in which the Member
attains age 35, an additional notice shall be given within such
period. If a Member ceases to be an Employee before attaining age 35,
an additional notice shall be given within the period beginning one
year before the date he ceases to be an Employee and ending one year
after such date.
After the written explanation is given, a Member or spouse may make
written request for additional information. The written explanation
must be personally delivered or mailed (first class mail, postage
prepaid) to the Member or spouse within thirty days from the date of
the written request. The Plan Administrator does not need to comply
with more than one such request by a Member or spouse.
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The Plan Administrator's explanation shall be written in nontechnical
language and will explain the terms and conditions of the Qualified
Preretirement Survivor Annuity and the financial effect upon the
spouse's benefit (in terms of dollars per benefit payment) of electing
not to have benefits distributed in accordance with the Qualified
Preretirement Survivor Annuity.
SECTION 6.05 - TRANSITIONAL RULES.
In modification of the preceding provisions of this Plan, distributions
(including distributions to a five-percent owner of us) may be made in a form
which would not have caused this Plan to be disqualified under Code Section 401
(a)(9) as in effect before the TEFRA Compliance Date. The form must be elected
by the Member or, if the Member has died, by the Beneficiary. The election must
be made in writing and signed before January 1, 1984. The election will only
be applicable if the Member has an Account as of December 31, 1983. The
Member's or Beneficiary's election must specify when the distribution is to
begin, the form of distribution and the Contingent Annuitant and/or
Beneficiaries listed in the order of priority, if applicable. A distribution
upon death will not be covered by this transitional rule unless the election
contains the required information described above with respect to the
distributions to be made when the Member dies. Distributions in the process of
payment on January 1, 1984, are deemed to meet the above requirements if the
form of distribution was elected in writing and the form met the requirements
of Code Section 401(a)(9) as in effect before the TEFRA Compliance Date. If
the election under this paragraph is revoked, any subsequent distribution must
meet the requirements of Code Section 401(a)(9) and the proposed regulations
thereunder. If an election is revoked subsequent to the date distributions are
required to begin, the Plan must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the total amount not
yet distributed which would have been required to have been distributed to
satisfy Code Section 401(a)(9) and the proposed regulations thereunder, but
for the Code Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distribution must meet the minimum distribution
incidental benefit requirements in section 1.401(a)(9)-2 of the proposed
regulations. Any changes in the election will be considered a revocation of
the election. However, the mere substitution or addition of another
Beneficiary (one not named in the election) under the election will not be
considered to be a revocation of the election, so long as such substitution or
addition does not alter the period over which distributions are to be made
under the election, directly or indirectly (for example, by altering the
relevant measuring life). In the case in which an amount is transferred or
rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of
section 1.401(a)(9)-1 of the proposed regulations shall apply. A Member's
election of an optional form of retirement benefit shall be subject to his
spouse's consent as provided in Section 6.03.
A Member, who would not otherwise receive the benefits prescribed by the
previous sections of this article, will be entitled to the following benefits:
(a) If he is living and not receiving benefits on August 23,1984, he will
be given the opportunity to elect to have the prior sections of this
article apply, if he is credited with at least one Hour of Service
under this Plan or a predecessor plan in a plan year beginning on or
after January 1, 1976, and he had at least ten Years of Service when
he separated from service.
(b) If he is living and not receiving benefits on August 23, 1984, he
will be given the opportunity to elect to have his benefits paid
according to the following provisions of this section, if he is
credited with at least one Hour of Service under this Plan or a
predecessor plan on or after September 2, 1974, and he is not credited
with any service in a plan year beginning on or after January 1, 1976.
The respective opportunities to elect (as described in (a) and (b) above) must
be afforded to the appropriate Members during the period beginning on August
23, 1984, and ending on the date benefits would otherwise begin to such Member.
Any Member who has elected according to (b) above and any member who does not
elect under (a) above or who meets the requirements of (a) above except that
such Member does not have at least ten Years of Service when he separated from
service, shall have his benefits distributed in accordance with the following
if benefits would have been payable in the form of a life annuity:
(c) Automatic joint and survivor annuity. If benefits in the form of a
life annuity become payable to a married Member who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age; or
(2) dies on or after Normal Retirement Age while still working for
us; or
(3) begins to receive payments on or after the qualified early
retirement age; or
(4) separates from service on or after attaining Normal Retirement
Age (or the qualified early retirement age) and after
satisfying the eligibility requirements for the payment of
benefits under the Plan and thereafter dies before beginning
to receive such benefits;
then such benefits will be paid under the Qualified Joint and Survivor
Form, unless the Member has elected otherwise during the election
period. The election period must begin at least six months before the
Member attains qualified early retirement age and end not more than 90
days before benefits begin. Any election hereunder will be in writing
and may be changed by the Member at any time.
(d) Election of early survivor annuity. A Member who is employed after
attaining the qualified early retirement age will be given the
opportunity to elect, during the election period, to have a Qualified
Preretirement Survivor Annuity payable on death. Any election under
this provision will be in writing and may be changed by the Member at
any time. The election period begins on the later of (1) the 90th day
before the Member attains the qualified early retirement age, or (2)
the Member's Entry Date, and ends on the date the Member terminates
employment.
(e) For purposes of this paragraph, qualified early retirement age is the
latest of:
(1) the earliest date, under the Plan, on which the Member may
elect to receive retirement benefits,
(2) the first day of the 120th month beginning before the Member
reaches Normal Retirement Age, or
(3) the Member's Entry Date.
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ARTICLE VII
TERMINATION OF PLAN
We expect to continue the Plan indefinitely, but reserve the right to terminate
the Plan in whole or in part at any time upon giving written notice to all
parties concerned. Complete discontinuance of Contributions constitutes
complete termination of Plan.
The Account of each Member shall be fully (100%) vested and nonforfeitable as
of the effective date of complete termination of the Plan. The Account of each
Member who becomes an inactive Member because he is no longer an Eligible
Employee due to partial termination of the Plan shall be fully (100%) vested
and nonforfeitable as of the effective date of the partial Plan termination. If
a Member ceased to be an Employee before partial termination of the Plan but
otherwise would have become an Inactive Member upon partial termination due to
no longer being an Eligible Employee, his Account shall be fully (100%) vested
and nonforfeitable as of the effective date of the partial termination of the
Plan. An Inactive Member's Vested Account shall continue to participate in the
earnings credited, expenses charged and any appreciation or depreciation of the
Investment Fund until the Vested Account is distributed. A distribution under
this article shall be a retirement benefit and shall be distributed to the
Member according to the provisions of Article VI.
A Member's Account which does not result from Contributions which are used to
compute the Actual Deferral Percentage, as defined in Section 3.07, may be
distributed to the Member after the effective date of the complete or partial
Plan termination. A Member's Account resulting from Contributions which are
used to compute such percentage (Elective Deferral Contributions, Qualified
Nonelective Contributions, and Qualified Matching Contributions) may be
distributed upon termination of the Plan without the establishment of another
defined contribution plan.
Upon complete termination of the Plan, no more Employees shall become Members
and no more Contributions shall be made.
The assets of this Plan shall not be paid to us at any time, except that, after
the satisfaction of all liabilities under the Plan, any assets remaining may be
paid to us. The payment may not be made if it would contravene any provision
of law.
ARTICLE VIII
ADMINISTRATION OF PLAN
SECTION 8.01 - ADMINISTRATION.
Subject to the provisions of this article, the Plan Administrator has complete
control of the administration of the Plan. The Plan Administrator has all the
powers necessary for it to properly carry out its administrative duties. Not
in limitation, but in amplification of the foregoing, the Plan Administrator
has the Power to construe the Plan and to determine all questions that may
arise under the Plan, including all questions relating to the eligibility of
Employees to participate in the Plan and the amount of benefit to which any
member, Beneficiary, spouse, or Contingent Annuitant may become entitled. The
Plan Administrator's decisions upon all matters within the scope of its
authority are final.
Unless otherwise set out in the Plan or Annuity Contract, the Plan
Administrator may delegate recordkeeping and other duties which are necessary
to assist it with the administration of the Plan to any person or firm which
agrees to accept such duties. The Plan Administrator shall be entitled to rely
upon all tables, valuations, certificates, and reports furnished by the
consultant or actuary appointed by the Plan Administrator and upon all opinions
given by any counsel selected or approved by the Plan Administrator.
The Plan Administrator shall receive all claims for benefits by Members, former
Members, Beneficiaries, spouses, and Contingent Annuitants. The Plan
Administrator shall determine all facts necessary to establish the right of any
Claimant to benefits and the amount of those benefits under the provisions of
the Plan. The Plan Administrator may establish rules and procedures to be
followed by Claimants in filing claims for benefits, in furnishing and
verifying proofs necessary to determine age, and in any other matters required
to administer the Plan.
SECTION 8.02 - RECORDS.
All acts and determinations of the Plan Administrator shall be duly recorded.
All these records, together with other documents necessary for the
administration of the Plan, shall be preserved in the Plan Administrator's
custody.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording, or other
forms of data compilation shall be acceptable means of keeping records.
SECTION 8.03 - INFORMATION AVAILABLE.
Any Member in the Plan or any Beneficiary may examine copies of the Plan
description, latest annual report, any bargaining agreement, this Plan, the
contract, or any other instrument under which the Plan was established or is
operated. The Plan Administrator shall maintain all of the items listed in
this section in its office, or in such other place or places as it may
designate in order to comply with governmental regulations. These items may be
examined during reasonable business hours. Upon the written request of a
Member or Beneficiary receiving benefits under the Plan, the Plan Administrator
shall furnish him with a copy of any of these items. The Plan Administrator
may make a reasonable charge to the requesting person for the copy.
SECTION 8.04 - CLAIM AND APPEAL PROCEDURES.
A Claimant must submit any required forms and pertinent information when making
a claim for benefits under the Plan.
If a claim for benefits under the Plan is denied, the Plan Administrator shall
provide adequate written notice to any Claimant whose claim for benefits under
the Plan has been denied. The notice must be furnished within ninety days of
the date that the claim is received by the Plan Administrator. The Claimant
shall be notified in writing within this initial ninety-day period if special
circumstances require an extension of time needed to process the claim and the
date by which the Plan Administrator's decision is expected to be rendered.
The written notice shall be furnished no later than 180 days after the date the
claim was received by the Plan Administrator.
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The Plan Administrator's notice to the Claimant shall specify the reason for
the denial; specify references to pertinent Plan provisions on which denial is
based; describe any additional material and information needed for the Claimant
to perfect his claim for benefits; explain why the material and information is
needed; inform the Claimant that any appeal he wishes to make must be made in
writing to the Plan Administrator within sixty days after receipt of the Plan
Administrator's notice of denial of benefits and that failure to make the
written appeal within such sixty-day period renders the Plan Administrator's
determination of such denial final, binding and conclusive.
If the Claimant appeals to the Plan Administrator, the Claimant, or his
authorized representative, may submit in writing whatever issues and comments
the Claimant or the representative, feels are pertinent. The Claimant, or the
authorized representative, may review pertinent Plan documents. The Plan
Administrator shall reexamine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Plan Administrator shall advise the Claimant of its
decision within sixty days of his written request for review, unless special
circumstances (such as a hearing) would make rendering a decision within the
sixty-day limit unfeasible. The Claimant shall be notified within the
sixty-day limit if an extension is necessary. The Plan Administrator shall
render a decision on a claim for benefits no later than 120 days after the
request for review is received.
SECTION 8.05 - UNCLAIMED VESTED ACCOUNT PROCEDURES.
If a Member or the Member's spouse or Beneficiary does not claim the Member's
Vested Account, the Vested Account may be forfeited and applied according to the
provisions of Section 3.04. An unclaimed Vested Account shall not be forfeited
until the latest of the date the Member attains age 62, attains Normal
Retirement Age, or six months after the date the Member, spouse, or Beneficiary
is notified, by certified or registered mail addressed to his last known
address, that he is entitled to a benefit. If by the latest date above, the
Member, spouse, or Beneficiary has not claimed the Vested Account or made his
whereabouts known in writing, the Plan Administrator may treat the Vested
Account as a Forfeiture.
If a Member's Vested Account is forfeited according to the provisions of the
above paragraph and the Member or the Member's spouse or Beneficiary at any time
makes a claim for benefits, the forfeited Vested Account shall be reinstated,
unadjusted for any gains or losses occurring after the date it was forfeited.
The reinstated Vested Account shall then be distributed to the Member, spouse,
or Beneficiary according to the preceding provisions of the Plan.
SECTION 8.06 - DELEGATION OF AUTHORITY.
All or any part of the administrative duties and responsibilities under this
article may be delegated by the Plan Administrator to a retirement committee.
The duties and responsibilities of the retirement committee shall be set out in
a separate written agreement.
ARTICLE VIIIA
TRUST PROVISIONS
SECTION 8A.01 - THE TRUST AND TRUST FUND.
If Item T(1) is selected, we have established this Trust by executing the
attached Adoption Agreement. The Trust is established for the purpose of
holding and distributing the Trust Fund under the provisions of the Plan. The
Trust is construed, regulated, and administered under the law of the state in
which we have our principal office.
The Trust Fund consists of the total funds held under the Trust for the purpose
of providing benefits for Members. These funds result from Contributions made
under the Plan, which are forwarded to the Trustee to be deposited in the Trust
Fund. The Trust Fund shall be valued at current fair market value as of the
last day of the last calendar month ending in the Plan Year and, at the
discretion of the Trustee, may be valued more frequently. The valuation shall
take into consideration investment earnings credited, expenses charged,
payments made, and changes in the values of the assets held in the Trust Fund.
The Account of a Member shall be credited with its share of the gains and
losses of the Trust Fund. That part of a Member's Account invested in a
funding arrangement which establishes an account or accounts for such Member
thereunder shall be credited with the gain or loss from such account or
accounts. That part of a Member's Account which is invested in other funding
arrangements shall be credited with a proportionate share of the gain or loss
of such investments. The share shall be determined by multiplying the gain or
loss of the investment by the ratio of the part of the Member's Account
invested in such funding arrangement to the total of the Trust Fund invested in
such funding arrangement
SECTION 8A.02 - THE TRUSTEE.
We have appointed the Trustee named in Item T. We have the power to appoint an
additional or successor Trustee or remove a Trustee at any time by amending the
Adoption Agreement.
The Trustee accepts this appointment by executing the Adoption Agreement or an
amendment to it. A Trustee may resign at any time upon thirty days written
notice to us. If a Trustee is removed, resigns or dies, the successor Trustee
whom we appoint has the same powers and duties as the Trustee replaced.
Pending the appointment of and acceptance of the successor Trustee, a remaining
Trustee has full power to act. When appointment has been accepted by a
successor Trustee, the removed or resigning Trustee must assign, transfer, pay
over, and deliver to the successor Trustee all of the assets which then
constitute the Trust Fund.
If there are two or more persons appointed as Trustees, the Trustees may, in
writing, name one of their number to act in the execution of all documents
relating to the Plan and Trust. When more than two persons have been appointed
as Trustee, all acts and decisions shall be made by majority vote.
SECTION 8A.03 - DUTIES OF TRUSTEE.
It is the duty of the Trustee to accept and hold the Trust Fund and administer
it according to the provisions of the Trust. The Trustee has no duty to demand
or require that Contributions
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be made to the Trust, nor shall a Trustee be liable to determine the amount of
any Contributions to the Trust.
The Plan is administered by the Plan Administrator. The Trustee is not
responsible for any aspect of its administration. The Trustee is not required
to look into any action taken by the Named Fiduciary, Plan Administrator, or us
and will be fully protected in taking, permitting or omitting any action on the
basis of our actions. Any action by the Named Fiduciary, Plan Administrator, or
us according to the Plan provisions shall be evidenced in writing. We will
indemnify the Trustee by satisfying any liabilities the Trustee may incur in
acting in accordance with the Trust provisions upon written instruction from
the Named Fiduciary, Plan Administrator, or us.
SECTION 8A.04 - POWERS OF TRUSTEE.
Except where the Plan expressly provides that the Trustee is subject to the
direction of the Named Fiduciary, Plan Administrator, or us, the Trustee is
authorized and empowered
(a) to apply for and invest all or any part of the assets of the Trust Fund in
the Annuity Contract, an Insurance Policy, or both, issued by the Insurer
and to hold the Annuity Contract and any Insurance Policy as owner;
(b) to invest and reinvest all or any part of the assets of the Trust Fund in
any bonds, debentures, notes, mortgages or mortgage participations,
preferred stocks, common stocks or other securities, or other real or
personal properties;
(c) to sell, exchange, convey, transfer, or otherwise dispose of any property
held by it, by private contract or at public auction;
(d) to exercise the voting rights of any stocks, bonds or other securities and
to exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property held in the Trust Fund;
(e) to retain in cash an amount which the Trustee considers advisable, and to
deposit cash in any depository selected by it, without liability for
interest;
(f) to make, execute, acknowledge, and deliver any instruments necessary to
carry out the powers granted it;
(g) to employ such agents, actuaries, clerical help, custodians, and others as
are needed to carry out the Trustee's duties;
(h) to consult with legal counsel, including our counsel, with respect to the
meaning or construction of, or the Trustee's obligations or duties under,
the Plan and Trust, or with respect to any action or proceeding or any
question of law. The Trustee shall be fully protected with respect to any
action it takes in good faith pursuant to the advice of such counsel.
(i) to enforce any right, obligation, or claim and, in its absolute discretion,
to protect in any way the interest of the Trust Fund and if the Trustee
considers such an action to be in the best interest of the Trust Fund, to
abstain from the enforcement of any right, obligation, or claim and to
abandon any property it has held.
SECTION 8A.05 - EXPENSES.
We pay the expenses incurred by the Trustee in the performance of its duties,
any fees for legal services rendered to the Trustee, and compensation to the
Trustee which we have mutually agreed upon in writing. The Trustee may charge
against the Trust Fund taxes imposed with respect to the Trust Fund or its
income.
SECTION 8A.06 - ACCOUNTING.
The Trustee shall maintain accurate and detailed records on all receipts,
investments, disbursements, and other transactions performed in its capacity as
Trustee. These records must be open to inspection and audit by the Plan
Administrator, Named Fiduciary, and us at all reasonable times.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording, or other
forms of data compilation shall be acceptable means of keeping records.
The Trustee shall file all reports, returns, and information required under the
Code and regulations and rulings issued under the Code.
The Trustee shall file with us an accounting of its transactions as soon as
practical after each Yearly Date or any other date we may specify. Any report
or accounting which the Trustee files with us is open to inspection by a Member
for a period of sixty days following the date it is filed. At the end of the
sixty day period, the Trustee is released and discharged as to any matters set
forth in the report or account, except with respect to any act or omission as
to which a Member, the Plan Administrator, the Named Fiduciary or we have filed
a written objection within the sixty-day period.
Article IX
GENERAL PROVISIONS
SECTION 9.01 - AMENDMENTS.
We may amend a selection or specification in the Adoption Agreement at any
time, including any remedial retroactive changes (within the time specified by
Internal Revenue Service regulation) to comply with any law or regulation
issued by any governmental agency to which the Plan is subject. An amendment
may not diminish or adversely affect any accrued interest or benefit of Members
or their Beneficiaries or eliminate an optional form of distribution with
respect to benefits attributable to service before the amendment nor allow
reversion or diversion of Plan assets to us at any time, except as may be
required to comply with any law or regulation issued by any governmental agency
to which the Plan is subject. No amendment to this Plan shall be effective to
the extent that it has the effect of decreasing a Member's accrued benefit
However, a Member's Account may be reduced to the extent permitted under Code
Section 412(c)(8). For purposes of this paragraph, a Plan amendment which has
the effect of decreasing a Member's Account or eliminating an optional form of
benefit, with respect to benefits attributable to service before the amendment
shall be treated as reducing an accrued benefit. Furthermore, if the vesting
schedule of the Plan is amended, in the case of an Employee who is a Member as
of the later of the date such amendment is adopted or the date it becomes
effective, the nonforfeitable percentage (determined as of such date) of such
Employee's right to his employer-derived accrued benefit will not be less than
his percentage computed under the Plan without regard to such amendment We may
amend the Plan by adding overriding plan language to the Adoption Agreement in
order to satisfy Code Sections 415 and
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<PAGE> 36
416 because of the required aggregation of multiple plans under those sections.
We may amend the Plan by adding certain model amendments published by the
Internal Revenue Service which specifically provide that their adoption will
not cause the Plan to be treated as individually designed. An amendment to this
Plan will be forwarded to Principal Mutual Life Insurance Company, the
prototype plan sponsor.
If we amend the Plan for any reason other than those set out above or if the
Plan loses its qualified status, the Plan shall not be a prototype plan within
the meaning of governmental regulations. In that event, Principal Mutual Life
Insurance Company will not be the prototype plan sponsor and the Plan will not
be a prototype plan. As the Employer, we reserve the right to continue our
retirement program under a document separate and distinct from this Plan. In
such event, all rights and obligations of any Member, Beneficiary, or of ours
under this document shall cease. Assets held in support of this Plan will be
transferred to the designated funding medium under the new or restated plan
and, if applicable, trust, in the manner permitted under, and subject to the
provisions of, the Annuity Contract.
We delegate authority to amend this Plan to Principal Mutual Life Insurance
Company as sponsor. We hereby consent to any such amendment. However, no such
amendment shall increase the duties of the Named Fiduciary without his consent.
Such an amendment shall not deprive any Member or Beneficiary of any accrued
benefit except to the extent necessary to comply with any law or regulation
issued by any governmental agency to which this Plan is subject. Such an
amendment shall not provide that the Investment Fund be used for any purpose
other than the exclusive benefit of Members or their Beneficiaries or that the
Investment Fund ever revert to or be used by us.
Any amendment to this Plan by Principal Mutual Life Insurance Company, as
sponsor, shall be deemed to be an amendment to this Plan by us. The effective
date of any amendment shall be specified in the written instrument of
amendment.
An amendment shall not decrease a Member's vested interest in the Plan. If an
amendment to the Plan, or a deemed amendment in the case of a change in
top-heavy status of the Plan as provided in Section 10.03, changes the
computation of Vesting Percentage (whether directly or indirectly), each Member
or former Member
(a) who has completed at least three Years of Service with us on the date
the election period described below ends (five Years of Service if the
Member does not have at least one Hour of Service in a Plan Year
beginning after December 31, 1988) and
(b) whose Vesting Percentage will be determined on any date after the date
of the change may elect, during the election period, to have the
nonforfeitable percentage of his Account which results from our
Contributions determined without regard to the amendment. This election
may not be revoked. If after the Plan is changed the Member's Vesting
Percentage will at all times be as great as it would have been if the
change had not been made, no election needs to be provided. The election
period shall begin no later than the date the Plan amendment is adopted,
or deemed adopted in the case of a change in the top-heavy status of the
Plan, and end no earlier than the sixtieth day after the latest of the
date the amendment is adopted (deemed adopted) or becomes effective, or
the date the Member is issued written notice of the amendment (deemed
amendment) by us or the Plan Administrator.
SECTION 9.02 - MERGERS AND DIRECT TRANSFERS.
The Plan may not be merged or consolidated with, nor have its assets or
liabilities transferred to, any other retirement plan, unless each Member in
the plan would (if the plan then terminated) receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit the Member would have been entitled to receive immediately before
the merger, consolidation or transfer (if this Plan had then terminated). We
may enter into merger agreements or direct transfer of assets agreements with
the employers under other retirement plans which are qualifiable under Code
Section 401(a), including an elective transfer, and may accept the direct
transfer of plan assets, or may transfer plan assets, as a party to any such
agreement. We shall not consent to, or be a party to a merger, consolidation or
transfer of assets with a defined benefit plan if such action would result in a
defined benefit feature being maintained under this Plan.
The Plan may accept a direct transfer of plan assets on behalf of an Eligible
Employee. If the Eligible Employee is not an Active Member when the transfer is
made, the Eligible Employee shall be deemed to be an Active Member only for the
purpose of investment and distribution of the transferred assets. Our
Contributions shall not be made for or allocated to the Eligible Employee and
he may not make Member Contributions, until the time he meets all of the
requirements to become an Active Member.
The Plan shall hold, administer and distribute the transferred assets as a part
of the Plan. The Plan shall maintain a separate account for the benefit of the
Employee on whose behalf the Plan accepted the transfer in order to reflect the
value of the transferred assets. Unless a transfer of assets to the Plan is an
elective transfer, the Plan shall apply the optional forms of benefit
protections described in Section 9.01 to all transferred assets. A transfer is
elective if: (1) the transfer is voluntary, under a fully informed election by
the Member; (2) the Member has an alternative that retains his Code Section 411
(d)(6) protected benefits (including an option to leave his benefit in the
transferor plan, if that plan is not terminating); (3) if the transferor plan
is subject to Code Sections 401(a)(11) and 417, the transfer satisfies the
applicable spousal consent requirements of the Code; (4) the notice
requirements under Code Section 417, requiring a written explanation with
respect to an election not to receive benefits in the form of a qualified joint
and survivor annuity, are met with respect to the Member and spousal transfer
election; (5) the Member has a right to immediate distribution from the
transferor plan under provisions in the plan not inconsistent with Code Section
401(a); (6) the transferred benefit is equal to the Member's entire
nonforfeitable accrued benefit under the transferor plan, calculated to be at
least the greater of the single sum distribution provided by the transferor
plan (if any) or the present value of the Member's accrued benefit under the
transferor plan payable at the plan's normal retirement age and calculated
using an interest rate subject to the restrictions of Code Section 417(e) and
subject to the overall limitations of Code Section 415; (7) the Member has a
100% nonforfeitable interest in the transferred benefit; and (8) the transfer
otherwise satisfies applicable Treasury regulations.
SECTION 9.03 - PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.
The obligations of an Insurer shall be governed solely by the provisions of the
Annuity Contract or Insurance Policy. The Insurer shall not be required to
perform any act not provided
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in or contrary to the provisions of the Annuity Contract or Insurance Policy.
The Annuity Contract when purchased will comply with the Plan. See Section
9.08.
Any issuer or distributor of investment contracts or securities is governed
solely by the terms of its policies, written investment contract, prospectuses,
security instruments, and any other written agreements entered into with the
Trustee.
Such Insurer, issuer, or distributor is not a party to the Plan, nor bound in
any way by the Plan provisions. Such parties shall not be required to look to
the terms of this Plan, nor to determine whether we, the Plan Administrator,
the Trustee, or the Named Fiduciary have the authority to act in any particular
manner or to make any contract or agreement.
Until notice of any amendment or termination of this Plan or of a change in
Trustee has been received by the Insurer at its home office or an issuer or
distributor at their principal address, they are and shall be fully protected
in assuming that the Plan has not been amended or terminated and in dealing
with any party acting as Trustee according to the latest information which they
have received at their home office or principal address.
SECTION 9.04 - EMPLOYMENT STATUS.
Nothing contained in this Plan gives any Employee the right to be retained in
our employ or to interfere with our right to discharge any Employee.
SECTION 9.05 - RIGHTS TO PLAN ASSETS.
An Employee shall not have any right to or interest in any assets of the Plan
upon termination of employment or otherwise except as specifically provided
under this Plan, and then only to the extent of the benefits payable to such
Employee according to the Plan provisions.
Any final payment or distribution to a Member or his legal representative or to
any Beneficiaries, spouse, or Contingent Annuitant of such Member under the
Plan provisions shall be in full satisfaction of all claims against the Plan,
the Named Fiduciary, the Plan Administrator, the Insurer, the Trustee, and us
arising under or by virtue of the Plan.
SECTION 9.06 - BENEFICIARY.
Each Member may name a Beneficiary to receive any death benefit (other than any
income payable to a Contingent Annuitant) which may arise out of his membership
in the Plan. The Member may change his Beneficiary from time to time. Unless a
qualified election has been made, for purposes of distributing any death
benefits before Retirement Date, the Beneficiary of a Member who has a spouse
who is entitled to a Qualified Preretirement Survivor Annuity shall be the
Member's spouse. The Member's Beneficiary designation and any change of
Beneficiary shall be subject to the provisions of Section 6.03. It is the
responsibility of the Member to give written notice to the Insurer of the name
of the Beneficiary on a form furnished for that purpose.
With our consent, the Plan Administrator may maintain records of Beneficiary
designations for Members before their Retirement Dates. In that event, the
written designations made by Members shall be filed with the Plan
Administrator. If a Member dies before his Retirement Date, the Plan
Administrator shall certify to the Insurer the Beneficiary designation on its
records for the Member.
It there is no Beneficiary named or surviving when a Member dies, any death
benefit under the Annuity Contract or Insurance Policy will be paid according
to the provisions of the respective documents.
SECTION 9.07 - NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any creditor
of any Member, Beneficiary, spouse, or Contingent Annuitant. A Member,
Beneficiary, spouse, or Contingent Annuitant does not have any rights to
alienate, anticipate, commute, pledge, encumber or assign such benefits except
in the case of a Trustee approved loan as provided in Section 5.06. The
preceding sentences shall also apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to a Member
according to a domestic relations order, unless such order is determined by the
Plan Administrator to be a qualified domestic relations order, as defined in
Code Section 414(p), or any domestic relations order entered before January 1,
1985.
SECTION 9.08 - CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under and
construed according to Federal law and, to the extent permissible, according to
the laws of the state in which we have our principal office. In case any
provision of this Plan is held illegal or invalid for any reason, such
determination shall not affect the remaining provisions of this Plan, and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included.
In the event of any conflict between the provisions of the Plan and the terms
of any contract or policy issued hereunder, the provisions of the Plan control.
SECTION 9.09 - LEGAL ACTIONS.
The Plan, the Plan Administrator, the Trustee and the Named Fiduciary are the
necessary parties to any action or proceeding involving the assets held with
respect to the Plan or administration of the Plan or Trust. No person employed
by us, no Member, former Member, or their Beneficiaries or any other person
having or claiming to have an interest in the Plan is entitled to any notice of
process. A final judgment entered in any such action or proceeding shall be
binding and conclusive on all persons having or claiming to have an interest in
the Plan.
SECTION 9.10 - SMALL AMOUNTS.
If the Vested Account of a Member has never exceeded $3,500, the entire Vested
Account shall be payable in a single sum as of the earliest of his Retirement
Date, the date he dies, or the date he ceases to be an Employee for any other
reason. If Item X(3)(b) of the Adoption Agreement - Plus is selected, the Member
shall not be treated as having ceased to be an Employee for any reason other
than retirement or death before the period of time elected in Item X(3)(b) has
elapsed and no small amount payment shall be made if he again becomes an
Employee before such period of time has elapsed. This is a small amounts
payment. If a small amount is payable as of the date the Member dies, the small
amounts payment shall be made to the Member's Beneficiary (spouse if the death
benefit is payable to the spouse). If a small amount is payable while the
Member is living, the small amounts payment shall be made to the Member. The
small amounts payment is in full settlement of all benefits otherwise payable.
Before the first Yearly Date in 1989, the Member's Vested Account which results
from deductible Voluntary Contributions
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shall not be taken into account in determining whether his Vested Account has
exceeded $3,500.
No other small amounts payment shall be made.
SECTION 9.11 - WORD USAGE.
The masculine gender, where used in this Plan, shall include the feminine
gender and singular words as used in this Plan may include the plural, unless
the context indicates otherwise.
SECTION 9.12 - TRANSFERS BETWEEN PLANS.
If an Employee has been a member of another plan of ours which credited service
under the elapsed time method for any purpose which under this Plan is
determined using the hours method, then the Employee's service shall be equal
to the sum of (a), (b) and (c) below:
(a) The number of whole years of service credited to the Employee under the
other plan as of the date he became an Eligible Employee under this Plan.
(b) One year of service for the applicable service period in which he became
an Eligible Employee if he is credited with the required number of Hours
of Service. If we do not have sufficient records to determine the
Employee's actual Hours of Service in that part of the service period
before the date he became an Eligible Employee, the Hours of Service shall
be determined using an equivalency. For any month in which he would be
required to be credited with one Hour of Service, the Employee shall be
deemed for purposes of this section to be credited with 190 Hours of
Service.
(c) The Employee's service determined under this Plan using the hours method
after the end of the service period in which he became an Eligible
Employee.
If an Employee has been a member of another plan of ours which credited service
under the hours method for any purpose which under this Plan is determined
using the elapsed time method, then the Employee's service shall be equal to
the sum of (d), (e) and (f) below:
(d) The number of whole years of service credited to the Employee under the
other plan as of the beginning of the service period under that plan in
which he became an Eligible Employee under this Plan.
(e) The greater of (1) the service that would be credited to the Employee for
that entire service period using the elapsed time method or (2) the
service credited to him under the other plan as of the date he became an
Eligible Employee under this Plan.
(f) The Employee's service determined under this Plan using the elapsed time
method after the end of the applicable service period under the other plan
in which he became an Eligible Employee.
Any modification of service contained in this Plan shall be applicable to the
service determined pursuant to this section.
If an Employee used to be a member of a Controlled Group member's plan which
credited service under a different method than is used in this Plan, in order
to determine entry and vesting, the provisions above shall apply as though the
Controlled Group member's plan were our plan. If the method of crediting
service under this Plan is changed, the service credited to an Employee shall
be equal to the service that would be credited to him under the above
provisions as though the Plan as in effect before the change were another plan
of ours.
SECTION 9.13 - PARTNERSHIP OR SOLE PROPRIETORSHIP.
(a) For the purpose of applying the provisions of this Plan as to any Plan
Year in which we are a partnership or sole proprietorship, the following
terms are defined:
CONTROL(S) means, with regard to a trade or business, one owner-employee
owns or a group of owner-employees together own (1) the entire interest
in such trade or business or (2) in the case of a partnership, more than
fifty percent of either the capital interest or the profits interest in
the partnership. An owner-employee, or a group of owner-employees, shall
be treated as owning any interest in a partnership which is owned,
directly or indirectly, by a partnership which such owner-employee, or
group of owner-employees, are considered to control within the meaning
of the preceding sentence.
EARNED INCOME means, for a Self-Employed Individual, net earnings from
self-employment in the trade or business for which this Plan is
established if such Self-Employed Individual's personal services are a
material income producing factor for that trade or business. Earned
Income shall be determined without regard to items not included in gross
income and the deductions properly allocable to or chargeable against
such items. After the TEFRA Compliance Date, Earned Income shall be
reduced for our employer contributions to our qualified retirement
plan(s) to the extent deductible under Code Section 404.
Net earnings shall be determined with regard to the deduction allowed to
us by Code Section 164(f) for taxable years beginning after December 31,
1989.
In applying the provisions of this Plan, the Self-Employed Individual's
Earned, Income shall be deemed to be his Pay. For purposes of Section
3.06, Earned Income shall include earned income within the meaning of
Code Section 911 from sources outside the United States and shall be
deemed to be his Compensation. If any exclusions are used for Pay,
Earned Income shall be adjusted by multiplying the Self Employed
Individual's Earned Income by a fraction. The numerator of the fraction
is the total Pay for all Nonhighly Compensated Employees after such
exclusions are applied. The denominator of the fraction is the total Pay
for all Nonhighly Compensated Employees before such exclusions are
applied. Self-Employed Individuals who are Nonhighly Compensated
Employees are not included for purposes of calculating this fraction.
Earned Income includes a Self-Employed Individual's elective
contributions.
OWNER-EMPLOYEE means a Self-Employed Individual who, in the case of a
sole proprietorship, owns the entire interest in the unincorporated
trade or business for which this Plan is established. If this Plan is
established for a partnership, an Owner-Employee means a Self-Employed
Individual who owns more than ten percent of either the capital interest
or profits interest in such partnership.
In applying the provisions of this Plan, an Owner-Employee shall be
deemed to be an Employee.
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SELF-EMPLOYED INDIVIDUAL means, with respect to any Fiscal Year, an
in-dividual who has Earned Income for the Fiscal Year (or who would have
Earned Income but for the fact the trade or business for which this Plan
is established did not have net profits for such Fiscal Year).
In applying the provisions of this Plan, a Self-Employed Individual
shall be deemed to be an Employee.
(b) If contributions are made for or allocated to or benefits accrue to an
Owner-Employee who Controls, or a group of Owner-Employees who together
Control, both the trade or business for which this Plan is established
and one or more other trades or businesses, then this Plan and the plans
established for such other trade(s) or business(es) must, if they were
combined as a single plan, satisfy the requirements of Code Sections 401
(a) and 401(d) and regulations thereunder.
If this Plan provides Contributions for an Owner-Employee who Controls,
or a group of Owner-Employees who Control, one or more other trades or
businesses, the employees of each such other trade or business must be
included in a plan which satisfies Code Sections 401(a) and 401(d) and
regulations thereunder. Each such plan must provide contributions and
benefits which are not less favorable than the Contributions and
benefits provided for the Owner-Employee(s) under this Plan.
If an Owner-Employee is covered under another qualifiable retirement
plan as an owner-employee of a trade or business he does not Control,
then the plan(s) of the trade(s) or business(es) the Owner-Employee does
Control (including this Plan, if applicable) must provide contributions
or benefits as favorable as those provided under the most favorable plan
of the trade or business the Owner-Employee does not Control.
SECTION 9.14 - QUALIFICATION OF PLAN.
If the Plan is denied initial qualification, it will terminate. We shall give
written notice to the Insurer and Trustee of the denial in sufficient time so
the assets resulting from Contributions which were conditioned on initial
qualification of the Plan may be returned within one year after the date of
denial, but only if the application for the qualification is made by the time
prescribed by law for filing our return for the taxable year in which the Plan
is adopted, or such later date as the Secretary of the Treasury may prescribe.
The Insurer will be notified that the Annuity Contract is to be terminated and
any Insurance Policy surrendered. The Plan assets which result from Employer
Contributions and Member Contributions shall be returned to us and the Members,
respectively. The Trustee, the Plan Administrator, and the Named Fiduciary
shall then be discharged from all obligations under the Plan and Trust and the
Insurer shall be discharged from all obligations under the Annuity Contract and
any Insurance Policy. A Member or Beneficiary shall not have any right or claim
to the assets or to any benefit under this Plan before the Internal Revenue
Service determines that the Plan and Trust qualify under the provisions of
Section 401(a) of the Code.
If the Plan loses its qualified status, it shall no longer be a prototype plan
within the meaning of governmental regulations. In that event, Principal Mutual
Life Insurance Company will no longer be the Plan sponsor. We agree to give
written notification to Principal Mutual Life Insurance Company of the loss of
qualification.
ARTICLE X
TOP-HEAVY PLAN REQUIREMENTS
SECTION 10.01 - APPLICATION.
The provisions of this Article X shall supersede all other provisions in the
Plan to the contrary
For the purpose of applying the Top-heavy Plan requirements of this article,
all members of the Controlled Group shall be treated as one Employer. The terms
we, us, and our as they are used in this article shall be deemed to include all
members of the Controlled Group unless the terms as used clearly indicate only
the Employer is meant.
The accrued benefit or account of a member which results from deductible
voluntary contributions shall not be included for any purpose under this
article.
The minimum vesting and contribution provisions of Sections 10.03 and 10.04
shall not apply to any Employee who is included in a group of Employees covered
by a collective bargaining agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or
more employers, including us, if there is evidence that retirement benefits
were the subject of good faith bargaining between such representatives. For
this purpose, the term "employee representatives" does not include any
organization more than half of whose members are employees who are owners,
officers or executives.
SECTION 10.02 - DEFINITIONS.
The following terms are defined for purposes of this article.
AGGREGATION GROUP means
(a) each of our retirement plans in which a Key Employee is a member during
the Year containing the Determination Date or one of the four preceding
Years.
(b) each of our other retirement plans which allows the plan(s) described in
(a) above to meet the nondiscrimination requirement of Code Section
401(a)(4) or the minimum coverage requirement of Code Section 410, and
(c) any of our other retirement plans not included in (a) or (b) above which
we desire to include as part of the Aggregation Group. Such a retirement
plan shall be included only if the Aggregation Group would continue to
satisfy the requirements of Code Section 401(a)(4) and Code Section 410.
The plans in (a) and (b) above constitute the "required" Aggregation Group. The
plans in (a), (b) and (c) above constitute the "permissive" Aggregation Group.
COMPENSATION means, as to an Employee for any period, compensation as defined
in Item M for purposes of Plan Section 3.06. For purposes of determining who is
a Key Employee, Compensation shall include, in addition to compensation as
defined in Item M for purposes of Plan Section 3.06, elective contributions.
Elective contributions are amounts excludable from the gross income of the
Employee under Code Sections 125, 402(a)(8), 402(h) or 403(b), and contributed
by us, at the Employee's election, to a Code Section 401 (k) arrangement, a
simplified employee pension, cafeteria plan or tax-sheltered
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annuity. Elective contributions also include Pay deferred under a Code Section
457 plan maintained by us and Employee contributions "picked up" by a
governmental entity and, pursuant to Code Section 414(h)(2), treated as our
contributions.
DETERMINATION DATE means as to this Plan, for any Year, the last day of the
preceding Year. However, if there is no preceding Year, the Determination Date
is the last day of such Year.
KEY EMPLOYEE means any Employee or former Employee (including Beneficiaries of
deceased Employees) who at any time during the determination period was
(a) one of our officers (subject to the maximum below) whose Compensation
(as defined in this section) for the Year exceeds 50 percent of the
dollar limitation under Code Section 415(b)(1)(A),
(b) one of the ten Employees who owns (or is considered to own, under Code
Section 318) more than a half percent ownership interest and one of the
largest interests in us during any Year of the determination period if
such person's Compensation (as defined in this section) for the Year
exceeds the dollar limitation under Code Section 415(c)(1)(A),
(c) a five-percent owner of us, or
(d) a one-percent owner of us whose Compensation (as defined in this
section) for the Year is more than $150,000.
Each member of the Controlled Group shall be treated as a separate employer for
purposes of determining ownership in us.
The determination period is the Year containing the Determination Date and the
four preceding Years. If we have fewer than 30 Employees, no more than three
Employees shall be treated as Key Employees because they are officers. If we
have between 30 and 500 Employees, no more than ten percent of our Employees
(if not an integer, increased to the next integer) shall be treated as Key
Employees because they are officers. In no event will more than 50 Employees be
treated as Key Employees because they are officers if we have 500 or more
Employees. The number of Employees for any Plan Year is the greatest number of
Employees during the determination period. Officers who are employees described
in Code Section 414(q)(8) shall be excluded. If we have more than the maximum
number of officers to be treated as Key Employees, the officers shall be ranked
by the amount of annual Compensation (as defined in this section), and those
with the greater amount of annual Compensation during the determination period
shall be treated as Key Employees. To determine the ten Employees owning the
largest interests in us, if more than one Employee has the same ownership
interest, the Employee(s) having the greater annual Compensation shall be
treated as owning the larger interest(s). The determination of who is a Key
Employee shall be made according to Code Section 416(i)(1) and the regulations
thereunder.
NON-KEY EMPLOYEE means a person who is a non-key employee within the meaning of
Code Section 416 and regulations thereunder.
PRESENT VALUE means the present value of a member's accrued benefit under a
defined benefit plan as of his normal retirement age (attained age if later)
or, if the plan provides non-proportional subsidies, the age at which the
benefit is most valuable. The accrued benefit of any Employee (other than a Key
Employee) shall be determined under the method which is used for accrual
purposes for all our plans or if there is no one method which is used for
accrual purposes for all our plans, as it such benefit accrued not more rapidly
than the slowest accrual rate permitted under Code Section 411(b)(1)(C). The
Present Value shall be based only on the interest and mortality rates specified
in the Adoption Agreement. If the Present Value of accrued benefits is
determined for a member under more than one defined benefit plan included in
the Aggregation Group, all such plans shall use the same actuarial assumptions
to determine the Present Value.
TOP-HEAVY PLAN means a plan which is a top-heavy plan for any plan year
beginning after December 31, 1983. This Plan shall be a Top-heavy Plan if
(a) the Top-heavy Ratio for this Plan alone exceeds sixty percent and this
Plan is not part of any required Aggregation Group or permissive
Aggregation Group.
(b) this Plan is a part of a required Aggregation Group, but not part of a
permissive Aggregation Group, and the Top-heavy Ratio for the required
Aggregation Group exceeds sixty percent.
(c) this Plan is a part of a required Aggregation Group and part of a
permissive Aggregation Group and the Top-heavy Ratio for the permissive
Aggregation Group exceeds sixty percent.
TOP-HEAVY RATIO means the ratio calculated below for this Plan or for the
Aggregation Group.
(a) The Top-heavy Ratio for this Plan or for the Aggregation Group
(including any simplified employee pension plan) if the Aggregation
Group does not contain a defined benefit plan during the five-year
period ending on the determination date which has or has had accrued
benefits, is a fraction, the numerator of which is the sum of the
account balances of all Key Employees as of the determination date and
the denominator of which is the sum of all account balances of all
employees as of the determination date. Both the numerator and
denominator of the Top-heavy Ratio are adjusted for any distribution of
an account balance made in the five-year period ending on the
determination date in accordance with Code Section 416 and the
regulations thereunder. Both the numerator and denominator of the
Top-heavy Ratio are increased to reflect any contribution not actually
made as of the Determination Date, but which is required to be taken
into account on that date under Code Section 416 and the regulations
thereunder.
(b) The Top-heavy Ratio for the Aggregation Group (including any simplified
employee pension plan) if the Aggregation Group contains a defined
benefit plan during the five-year period ending on the determination
date which has or has had accrued benefits, is a fraction, the numerator
of which is the sum of the account balances under the defined
contribution plan(s) of all Key Employees and the Present Value of
accrued benefits under the defined benefit plan(s) for all Key
Employees, and the denominator of which is the sum of the account
balances under the defined contribution plan(s) for all employees and
the Present Value of accrued benefits under the defined benefit plans
for all employees. Both the numerator and denominator of the Top-heavy
Ratio are adjusted for any distribution of an account balance or an
accrued benefit (including those made from terminated plan(s) of ours
which would have been part of
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the required Aggregation Group had such plan(s) not been terminated)
made in the five-year period ending on the determination date in
accordance with Code Section 416 and the regulations thereunder.
(c) For purposes of (a) and (b) above, the value of account balances and the
Present Value of accrued benefits will be determined as of the most
recent valuation date that falls within or ends with the 12-month period
ending on the determination date, except as provided in Code Section 416
and the regulations thereunder for the first and second plan years of a
defined benefit plan. The account balances and accrued benefits of an
employee who is not a Key Employee but who was a Key Employee in a prior
year will be disregarded. The calculation of the Top-heavy Ratio and the
extent to which distributions, rollovers and transfers during the
five-year period ending on the determination date are to be taken into
account shall be determined according to the provisions of Code Section
416 and regulations thereunder. The account balances and accrued
benefits of an individual who has performed no service for us during the
five-year period ending on the determination date shall be excluded from
the Top-heavy Ratio until the time the individual again performs service
for us. Deductible employee contributions will not be taken into account
for purposes of computing the Top-heavy Ratio. When aggregating plans,
the value of account balances and accrued benefits will be calculated
with reference to the determination dates that fall within the same
calendar year.
Account as used in this definition, means the value of an employee's account
under one of our retirement plans on the latest valuation date. In the case of
a money purchase plan or target benefit plan, such value shall be adjusted to
include any contributions made for or by the employee after the valuation date
and on or before such determination date or due to be made as of such
determination date but not yet forwarded to the insurer or trustee. In the case
of a profit sharing plan, such value shall be adjusted to include any
contributions made for or by the employee after the valuation date and on or
before such determination date. During the first Year of any profit sharing
plan such adjustment in value shall include contributions made after such
determination date that are allocated as of a date in such Year. The
nondeductible voluntary contributions which an employee makes under a defined
benefit plan of ours shall be treated as if they were contributions under a
separate defined contribution plan.
VALUATION DATE means, as to this Plan, the last day of the last calendar month
ending in a Year.
YEAR means the Plan Year unless another year is specified by us in a separate
written resolution in accordance with regulations issued by the Secretary of
the Treasury or his delegate.
SECTION 10.03 - MODIFICATION OF VESTING
REQUIREMENTS.
If a Member's Vesting Percentage determined under the vesting schedule selected
in item V is not as great as the Vesting Percentage would be if it were
determined under a schedule permitted in Code Section 416, the following shall
apply. During any Year in which the Plan is a Top-heavy Plan, the Member's
Vesting Percentage shall be the greater of the Vesting Percentage determined
under the schedule selected in Item U or,
(a) if the vesting schedule provides for partial vesting between 0% and
100%, the schedule below.
VESTING SERVICE VESTING
(WHOLE YEARS) PERCENTAGE
Less than 2 0
2 20
3 40
4 60
5 80
6 or more 100
(b) if the vesting schedule provides for only 0% or 100% vesting, the
schedule below.
VESTING SERVICE VESTING
(WHOLE YEARS) PERCENTAGE
Less than 3 0
3 or more 100
The applicable schedule above shall not apply to Members who are not credited
with an Hour of Service after the Plan first becomes a Top-heavy Plan. The
Vesting Percentage determined above applies to all of the Member's Account
resulting from our Contributions, including Contributions we make before the
TEFRA Compliance Date or when this Plan is not a Top-heavy Plan.
If, in a later Year, this Plan is not a Top-heavy Plan, a Member's Vesting
Percentage shall be determined according to the provisions of Item U. A
Member's Vesting Percentage determined under either Item U or the schedule
above shall never be reduced and the election procedures of Section 9.01 shall
apply when changing to or from the above schedule as though the automatic
change were the result of an amendment.
The part of the Member's Vested Account resulting from the minimum
contributions required pursuant to Section 10.04 shall not be forfeited because
of a period of reemployment after benefit payments have begun or because of a
withdrawal of required contributions, if any.
SECTION 10.04 - MODIFICATION OF CONTRIBUTIONS.
For any Plan Year in which the Plan is top-heavy, only the first $200,000
(multiplied by the Adjustment Factor) of a Member's annual compensation shall
be taken into account for purposes of determining Employer Contributions under
the Plan. For any Plan Year beginning after December 31, 1988, in determining
the Compensation, as defined in this article, of a Member for purposes of this
limitation, the rules of Code Section 414(q)(6) shall apply, except that in
applying such rules, the term "family" shall include only the spouse of the
Member and any lineal descendants of the Member who have not attained age 19
before the close of the Plan Year. If as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then the limitation shall
be prorated among the affected individuals in proportion to each such
individual's Compensation as determined under the definition in this article
prior to the application of this limitation.
During any Year in which this Plan is a Top-heavy Plan, we shall make a minimum
contribution or allocation on the last day of the Year for each person who is a
Non-key Employee on that day and who either was, or could have been an Active
Member during the Year. A Non-key Employee is not required to have a minimum
number of Hours of Service or minimum
- 38 -
<PAGE> 42
amount of Pay, or to have made any Elective Deferral Contributions in order to
be entitled to this minimum. The selections we make in Item R shall determine
if Key Employees who are Employees on the last day of the Year are also
entitled to this minimum and if the minimum contribution or allocation shall
apply in Years when this Plan is not a Top-heavy Plan. The minimum
contribution and allocation for such person shall be equal to the amount
specified in Item R. If overriding provisions are not specified in Item R, the
minimum is the lesser of (a) or (b) below:
(a) Three percent of such person's Compensation (as defined in this article).
(b) The "highest percentage" of Compensation (as defined in this article) for
such Year at which our contributions are made for or allocated to any Key
Employee. The highest percentage shall be determined by dividing our
contributions made for or allocated to each Key Employee during the Year
by the amount of his Compensation (as defined in this article) which is
not more than the maximum set out above, and selecting the greatest
quotient (expressed as a percentage). To determine the highest percentage,
all our defined contribution plans within the Aggregation Group shall be
treated as one plan. The provisions of this paragraph shall not apply if
this Plan and a defined benefit plan of ours are required to be included
in the Aggregation Group and this Plan enables the defined benefit plan to
meet the requirements of Code Section 401(a)(4) or Code Section 410.
If our contributions and allocations otherwise required under the defined
contribution plan(s) are at least equal to the minimum above, no additional
contribution or allocation shall be required. If our contributions and
allocations are less than the minimum above and our Contributions under this
Plan are allocated to Members, our Contributions (other than Elective Deferral
Contributions) shall be reallocated to provide the minimum. The remaining
Contributions shall be allocated as provided in the preceding articles of this
Plan. If our total contributions and allocations are less than the minimum
above and our Contributions under this Plan are not allocated, we shall
contribute the difference for the Year.
The minimum contribution or allocation applies to all of our defined
contribution plans in the aggregate which are Top-heavy Plans. A minimum
allocation under a profit sharing plan shall be made without regard to whether
or not we have profits. If a person who is otherwise entitled to an additional
contribution or allocation above is also covered under a defined benefit plan
of ours which is a Top-heavy Plan during that same Year, the minimum benefits
for him shall not be duplicated. The defined benefit plan shall provide an
annual benefit for him on, or adjusted to, a straight life basis of the lesser
of (c) two percent of his average pay multiplied by his years of service or (d)
twenty percent of his average pay. Average pay and years of service shall have
the meaning set forth in such defined benefit plan for this purpose.
We may provide overriding provisions in Item R to satisfy the requirements of
Code Section 416 because of the aggregation of multiple plans.
For purposes of this section, any employer contribution made according to a
salary reduction or similar arrangement shall not apply before the first Yearly
Date in 1985. On and after the first Yearly Date in 1989, any such employer
contributions and employer contributions which are matching contributions, as
defined in Code Section 401(m), shall not apply in determining it the minimum
contribution requirement has been met, but shall apply in determining the
minimum contribution required. Forfeitures credited to a Member's account are
treated as employer contributions.
The requirements of this section shall be met without regard to contributions
under Chapter 2 of the Code (relating to tax on self-employment), Chapter 21 of
the Code (relating to Federal Insurance Contributions Act), Title II of the
Social Security Act or any other Federal or state law.
SECTION 10.05 - MODIFICATION OF CONTRIBUTION
LIMITATION.
If the provisions of subsection (I) of Section 3.06 are applicable for any
Limitation Year during which this Plan is a Top-heavy Plan, the Contribution
limitations shall be modified. The definitions of Defined Benefit Plan Fraction
and Defined Contribution Plan Fraction in Section 3.06 shall be modified by
substituting "100 percent" in lieu of "l25 percent." In addition, an adjustment
shall be made to the numerator of the Defined Contribution Plan Fraction. The
adjustment is a reduction of that numerator similar to the modification of the
Defined Contribution Plan Fraction described in Section 3.06 and shall be made
with respect to the last Plan Year beginning before January 1, 1984.
The modifications in the paragraph above shall not apply with respect to a
Member so long as employer contributions, forfeitures or nondeductible employee
contributions are not credited to his account under this or any of our other
defined contribution plans and benefits do not accrue for such Member under our
defined benefit plan(s), until the sum of his Defined Contribution and Defined
Benefit Plan Fractions is less than 1.0.
The modification of the Contribution limitation shall not apply if both of the
following requirements are met:
(a) This Plan would not be a Top-heavy Plan if "ninety percent" were
substituted for "sixty percent" in the definition of Top-heavy Plan.
(b) A Non-key Employee who is not covered under a defined contribution plan
of ours, accrues a minimum benefit on, or adjusted to, a straight file
basis equal to the lesser of (a) twenty percent of his average pay or
(b) two percent of his average pay multiplied by his years of service,
increased by one percentage point for each year (not to exceed ten in
the case of (a)) earned while the benefit limitation is to be modified
as described above.
The account of a Non-key Employee who is covered under only one or more
defined contribution plans of ours, is credited with a minimum employer
contribution or allocation under such plan(s) equal to four percent of
the person's Compensation for each year in which the plan is a Top-heavy
Plan.
It a Non-key Employee is covered under both defined contribution and
defined benefit plans of ours, (i) a minimum accrued benefit for such
person equal to the amount determined above for a person who is not
covered under a defined contribution plan is accrued in the defined
benefit plan(s) or (ii) a minimum contribution or allocation equal to
7.5 percent of the person's Compensation for a Year in which the plans
are Top-heavy Plans will be credited to his account under the defined
contribution plans.
- 39 -
<PAGE> 43
[LOGO] the Principal Principal Mutual Life
Financial Insurance Company
Group Des Moines, Iowa 50392
<PAGE> 1
1994 MOMED HOLDING CO. PROXY STATEMENT EXHIBIT 10.39
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is made and entered into
as of the 21st day of July, 1994, by and between MOMED HOLDING CO., a Missouri
corporation ("MOMED"), and MISSOURI STATE MEDICAL ASSOCIATION, a Missouri
not-for-profit corporation ("MSMA").
In consideration of the premises and the mutual terms and provisions set
forth in this Agreement, the parties hereto agree as follows:
ARTICLE ONE
ACQUISITION AND EXCHANGE OF SHARES
SECTION 1.1. ACQUISITION OF THE MSMA SHARES. Subject to the terms and
conditions hereof, on the Closing Date (as hereinafter defined), MSMA agrees to
assign, transfer, deliver and convey unto MOMED, and MOMED agrees to acquire
from MSMA for retirement, all of MSMA's right, title and interest in and to the
24,185 shares of MOMED's authorized and outstanding Class B Common Stock now
owned by MSMA (the "MSMA Shares").
SECTION 1.2. EXCHANGE OF SHARES; NOMINATION AND ENDORSEMENT AGREEMENT.
(a) In exchange for the transfer of the MSMA Shares, on the Closing
Date, MOMED agrees to issue to MSMA, subject to the terms and conditions hereof,
24,185 shares of MOMED's Class A Common Stock and 24,185 shares of its Class C
Common Stock. When exchanged, the shares issued to MSMA hereunder shall be duly
authorized and validly issued, fully paid and non-assessable, and not issued in
violation of any preemptive rights.
(b) The shares of MOMED's Class A Common Stock issued to MSMA in
connection herewith (the "Class A Shares") shall, once issued, have the same
dividend rights, conversion rights, voting powers, preferences, priorities and
other special rights and powers as all other issued and outstanding shares of
MOMED's Class A Common Stock.
(c) The shares of MOMED's Class C Common Stock issued to MSMA in
connection herewith (the "Class C Shares") shall be non-voting, MSMA shall have
an option to sell (i.e. "put") the Class C Shares to MOMED, and MOMED shall be
required to purchase such shares, at any time from and after the Closing Date,
in the maximum quantities set forth on Schedule A attached hereto and
incorporated herein by this reference and for the per share cash consideration
hereinafter described. On the second and third anniversaries of the Closing
Date, MOMED shall have an option to purchase (i.e. "call") those Class C Shares
not yet put to MOMED in the maximum quantities set forth on Schedule A and for
the per share cash consideration hereinafter described. The put or call cash
consideration payable for the Class C Shares pursuant to this Section 1.2(c)
shall be $24.81 per share (for an aggregate cash consideration not to exceed
$600,000) plus an interest factor which shall accrue from the Closing Date
through the date of sale or purchase pursuant to a put or call provided for in
this Section 1.2(c). The interest shall be a fixed annual rate equal to the
prime rate announced by The Boatmen's National Bank of St. Louis on the Closing
Date plus one percent (1%). Any party exercising its rights to a put or call
hereunder shall give written notice thereof to the other party in accordance
with the provisions of Section 7.1 hereof. The notice shall specify the number
of shares covered, the purchase price of such shares (including the interest
factor to the date of payment and delivery) as well as the date of payment and
delivery which shall be a date not less than seven (7) nor more than thirty (30)
days following the date such notice shall be deemed to have been given or made
as in Section 7.1 provided. On the delivery date, MSMA shall surrender to
MOMED, or its duly authorized designee, possession of all certificates
representing the Class C shares covered by the put or call notice, endorsed in
blank or accompanied by duly executed stock powers, and such Class C shares
shall be free and clear of any claims, liens, charges, encumbrances or other
restrictions of commitments of any nature whatsoever.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of MOMED, the holders of the Class C Shares shall be
entitled to receive out of the assets of MOMED available for distribution to the
stockholders, before any distribution of assets shall be made to the holders of
other shares of MOMED capital stock, an amount equal to the value of any
unexercised put or call rights provided for in Section 1.2(c) above. Except for
this preference payment, the holders of the Class C Shares shall have no other
rights to share in the assets of MOMED upon the liquidation, dissolution or
winding up of MOMED.
(e) Concurrently with the exchange of the MSMA Shares for the Class C
Shares, (i) MSMA and MOMED shall enter into a five (5) year nomination agreement
substantially in the form of Exhibit A attached hereto (the "Nomination
Agreement"), and (ii) MOMED and the Select Stockholders (as hereinafter
defined) shall enter into a five (5) year voting agreement substantially in the
form of Exhibit B attached hereto (the "Voting Agreement").
16
<PAGE> 2
SECTION 1.3. EXCHANGE PROCEDURES; SURRENDER OF CERTIFICATES.
On the Closing Date, MSMA shall surrender to MOMED, or its duly authorized
designee, possession of all certificates representing the MSMA Shares, endorsed
in blank or accompanied by duly executed stock powers effectively transferring
the MSMA Shares to MOMED, together with a duly executed letter indicating MSMA's
intent to have the surrendered shares canceled (substantially in the form of
Exhibit C attached hereto). Once the certificates representing the MSMA Shares
have been surrendered to MOMED, those certificates shall be marked "canceled"
and, together with all other authorized but unissued shares of MOMED Class B
Common Stock, shall be deemed retired. Thereupon, MOMED shall issue, in the
name of MSMA, certificates representing the Class A Shares and the Class C
Shares.
SECTION 1.4. THE CLOSING. The closing of the transactions contemplated
hereunder (the "Closing") shall take place at MOMED's principal executive
office, 8630 Delmar Blvd., Suite 100, St. Louis, Missouri 63124, at 2:00 p.m.
St. Louis time on Tuesday, August 16, 1994, or at such other date, time or
place upon which the parties may mutually agree (the "Closing Date").
SECTION 1.5. ACTIONS AT CLOSING.
At the Closing, the following deliveries shall be made, each to be deemed
concurrent with all others:
(a) MOMED shall deliver the following documents to MSMA:
(1) A certificate signed by an authorized officer of MOMED
stating that each of the representations and warranties contained in Article Two
is true and correct in all material respects at the time of Closing with the
same force and effect as if such representations and warranties had been made at
Closing;
(2) A copy of the resolutions duly adopted by the Board of
Directors and stockholders of MOMED authorizing the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
duly certified, as of the Closing Date, by the secretary of MOMED;
(3) Certificates representing the Class A Shares and the Class
C Shares registered in the name of MSMA; and
(4) The Nomination Agreement duly executed by MOMED and the
Voting Agreement duly executed by MOMED and Richard V. Bradley, M.D., Kriete H.
Hollrah and Leonard L. Davis, Jr., M.D. (collectively referred to as the
"Select Stockholders"); and
(5) The opinion of MOMED's counsel substantially in the form of
Exhibit D attached hereto.
(b) MSMA shall deliver the following documents to MOMED:
(1) A certificate signed by an authorized officer of MSMA
stating that each of the representations and warranties contained in Article
Three is true and correct in all material respects at the time of Closing with
the same force and effect as if such representations and warranties had been
made at Closing;
(2) A copy of the resolutions duly adopted by the Executive
Committee of MSMA authorizing the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, duly certified, as of
the Closing Date, by the secretary of MSMA;
(3) The certificates representing the MSMA Shares, endorsed in
blank or accompanied by duly executed stock powers effectively transferring the
MSMA Shares to MOMED for retirement, together with a duly executed letter
indicated MSMA's intent to have the surrendered shares canceled (substantially
in the form of Exhibit C attached hereto); and
(4) The Nomination Agreement and the Voting Agreement, each
duly executed by MSMA.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF MOMED
SECTION 2.1. CORPORATE ORGANIZATION AND CAPITAL STOCK.
(a) MOMED is a corporation duly organized, validly existing and in
good standing under the laws of the State Missouri with full power and authority
to carry on its business as now being conducted.
17
<PAGE> 3
(b) The authorized capital stock of MOMED, consists of (i) 500,000
shares of Class A Common Stock, of which, as of the date hereof, 219,881 shares
are issued and outstanding, and (ii) 125,000 shares of Class B Common Stock, of
which, as of the date hereof, 24,185 shares are issued and outstanding. All of
the issued and outstanding shares of MOMED's capital stock are duly and validly
issued and outstanding and are fully paid and non-assessable. None of the
outstanding shares of MOMED's capital stock has been issued in violation of any
preemptive rights of the current or past stockholders of MOMED.
(c) The Class A Shares and the Class C Shares that are to be issued to
MSMA hereunder, when so issued in accordance with the terms of this Agreement,
will be validly issued and outstanding, fully paid and non-assessable.
SECTION 2.2. AUTHORIZATION. On the Closing Date, (i) there will be no
provision in MOMED's Restated Articles of Incorporation or in its By-Laws, as
amended, which prohibits or limits MOMED's ability to consummate the
transactions contemplated hereby, (ii) MOMED shall have the right, power and
authority to enter into this Agreement and to consummate all of the transactions
and fulfill all of the obligations contemplated hereby, and (iii) the execution
and delivery of this Agreement and the due consummation by MOMED of the
transactions contemplated hereby will have been duly authorized by all necessary
corporate action of the Board of Directors and stockholders of MOMED. This
Agreement constitutes a legal, valid and binding agreement of MOMED enforceable
against MOMED in accordance with its terms.
SECTION 2.3. NO CONFLICT OR VIOLATION. Subject to the fulfillment of
all of the conditions set forth in Article Five hereof, neither the execution
and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby in accordance herewith, not compliance by MOMED with any of
the provisions hereof will result in, as of the Closing Date: (i) a violation of
or a conflict with any provision of MOMED's Restated Articles of Incorporation
or By-Laws, as amended, (ii) a breach of or default under any term, condition or
provision of any obligation, agreement or undertaking, whether oral or written
to which MOMED is a party, or an event which, with the giving of notice, lapse
of time, or both, would result in any such breach, (iii) a violation of any
applicable law, rule, regulation, order, decree or other requirement having the
force of law, or order, judgment, writ, injunction, decree or award, or an event
which, with the giving of notice, lapse of time, or both, would result in any
such violation, or (iv) any person having the right to enjoin, rescind or
otherwise prevent or impede the transactions contemplated hereby or to obtain
damages from MSMA or to obtain any other judicial or administrative relief as a
result of any transaction carried out in accordance with the provisions of this
Agreement.
SECTION 2.4. LITIGATION AND PROCEEDINGS. There is no action, suit,
proceeding or investigation pending or, to the knowledge of MOMED, threatened
which challenges the validity of this Agreement or the transactions contemplated
hereby, or otherwise seeks to prevent, directly or indirectly, the consummation
of such transactions.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF MSMA
SECTION 3.1. CORPORATE ORGANIZATION. MSMA is a not-for-profit
corporation duly organized, validly existing and in a good standing under the
laws of the State Missouri with full power and authority to carry on its
business as it is now being conducted.
SECTION 3.2. AUTHORIZATION. MSMA has full right, power and authority to
enter into this Agreement and to consummate or cause to be consummated all of
the transactions and to fulfill all of the obligations contemplated hereby. The
execution and delivery of this Agreement and the due consummation by MSMA of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Executive Committee of MSMA. This Agreement constitutes
a legal, valid and binding agreement of MSMA enforceable against MSMA in
accordance with its terms.
SECTION 3.3. NO CONFLICT OR VIOLATION. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby nor compliance by MSMA with any of the provisions hereof
will result in: (i) a violation of or a conflict with any provision of the
Articles of Incorporation or By-Laws of MSMA, (ii) a breach of or default under
any term, condition or provision of any obligation, agreement or undertaking,
whether oral or written to which MSMA is a party, or an event which, with the
giving of notice, lapse of time, or both, would result in any such breach, (iii)
a violation of any applicable law, rule, regulation, order, decree or other
requirement having the force of law, or order, judgment, writ, injunction,
decree or award, or an event which, with the giving of notice, lapse of time, or
both, would result in any such violation, or (iv) any person having the right to
enjoin, rescind or otherwise prevent or impede the transactions contemplated
hereby or to obtain damages from MOMED or to obtain any other judicial or
administrative relief as a result of any transaction carried out in accordance
with the provisions of this Agreement.
SECTION 3.4. LITIGATION AND PROCEEDINGS. There is no action, suit,
proceeding or investigation pending or, to the knowledge of MSMA, threatened
which challenges the validity of this Agreement or the transactions contemplated
hereby, or otherwise seeks to prevent, directly or indirectly, the consummation
of such transactions.
18
<PAGE> 4
SECTION 3.5. TITLE TO MSMA SHARES. MSMA possesses good and marketable
title to the MSMA Shares and has full right to transfer the same as contemplated
herein. The MSMA Shares are, and will be as of the Closing Date, free and clear
of any claims, lien, charges, encumbrances or other restrictions or commitments
of any nature whatsoever;
SECTION 3.6. SALE OF SUBSTANTIALLY ALL ASSETS. The MSMA Shares do not
constitute all or substantially all of the assets of MSMA.
ARTICLE FOUR
AGREEMENTS OF PARTIES
SECTION 4.1. AGREEMENTS OF MOMED.
(a) MOMED shall, in the event it has knowledge of the occurrence, or
impending or threatened occurrence, of any event or condition which would cause
or constitute a breach (or would have caused or constituted a breach had such
event occurred or been known prior to the date hereof) of any of its
representations, warranties or agreements contained or referred to herein, give
prompt written notice thereof to MSMA and use reasonable efforts to prevent or
promptly remedy the same.
(b) MOMED shall submit the following matters for the approval of the
MOMED stockholders at the next annual meeting of such stockholders, or at any
adjournment or adjournments thereof: (i) This Agreement; (ii) The Nomination
Agreement; (iii) An amendment to MOMED's Restated Articles of Incorporation
authorizing the issuance of a new class of non-voting common stock to be
designated "Class C Common Stock" with the rights and preferences set forth in
Section 1.2 above; and (iv) Such other amendments to MOMED's Restated Articles
of Incorporation and By-Laws, as amended, as may be required to effect this
Agreement and the transactions contemplated hereby. The Board of Directors of
MOMED shall (subject to compliance with its fiduciary duties as advised by
counsel) recommend to its stockholders the approval of such matters and shall
use reasonable efforts to obtain such stockholder approval.
(c) MOMED shall use reasonable efforts to perform and fulfill all
conditions and obligations on its part to be performed or fulfilled under this
Agreement and to effect the exchange contemplated hereby in accordance with the
terms and conditions hereof.
SECTION 4.2. AGREEMENTS OF MSMA.
(a) MSMA shall, in the event it has knowledge of the occurrence, or
impending or threatened occurrence, of any event or condition which would cause
or constitute a breach (or would have caused or constituted a breach had such
event occurred or been known prior to the date hereof) of any of its
representations, warranties or agreements contained or referred to herein, give
prompt written notice thereof to MOMED and use reasonable efforts to prevent or
promptly remedy the same.
(b) At the next annual meeting of MOMED stockholders, or at any
adjournment or adjournments thereof, MSMA shall, as record holder of all
24,185 shares of the issued and outstanding MOMED Class B Common Stock, vote
all such shares of MOMED Class B Common Stock in favor of this Agreement, the
Nomination Agreement, an amendment to MOMED's Restated Articles of
Incorporation authorizing the issuance of a new class of non-voting common
stock to be designated "Class C Common Stock" with the rights and preferences
set forth in Section 1.2 above, and such other amendments to MOMED's Restated
Articles of Incorporation and By-Laws, as amended, as may be required to effect
this Agreement and the transactions contemplated hereby.
(c) MSMA shall use reasonable efforts to perform and fulfill all
conditions and obligations on its part to be performed or fulfilled under this
Agreement and to effect the exchange contemplated hereby in accordance with the
terms and conditions hereof.
ARTICLE FIVE
CONDITIONS PRECEDENT TO THE EXCHANGE
SECTION 5.1. CONDITIONS TO THE OBLIGATIONS OF MOMED. MOMED's obligations
to effect the exchange shall be subject to the satisfaction (or waiver by MOMED)
of the following conditions prior to or on the Closing Date:
(a) The representations and warranties made by MSMA in this Agreement
shall be true in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made or
given on and as the Closing Date;
19
<PAGE> 5
(b) MSMA shall have performed and complied in all material respects with
all of its obligations and agreements required to be performed prior to the
Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the exchange
contemplated herein shall be in effect, nor shall any proceeding by any
authority or other person seeking any of the foregoing be pending. There shall
not be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the exchange which makes the
consummation of the exchange illegal; and
(d) all necessary approvals, consents and authorizations required by law
for consummation of the exchange including, without limitation, (i) approval by
the MOMED stockholders of this Agreement, all other agreements required to be
submitted to such stockholders in connection herewith, and those amendments to
MOMED's Restated Articles of Incorporation as are required to effect the
transactions herein contemplated, and (ii) approval by the MSMA Executive
Committee of this Agreement on or before August 1, 1994, shall have been
obtained.
(e) MOMED shall have received all executed documents required to be
received from MSMA on or prior to the Closing Date, all in form and substance
reasonably satisfactory to MOMED, including, without limitation, the Nomination
Agreement duly executed by MSMA and the Voting Agreement duly executed by MSMA
and the Select Stockholders.
SECTION 5.2. CONDITIONS TO THE OBLIGATIONS OF MSMA. MSMA's obligations to
effect the exchange shall be subject to the satisfaction (or waiver by MSMA) of
the following conditions prior to or on August 1, 1994:
(a) The representations and warranties made by MOMED in this Agreement
shall be true in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made or given
on and as of the Closing Date;
(b) MOMED shall have performed and complied in all material respects with
all of its obligations and agreements required to be performed prior to the
Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the exchange
contemplated herein shall be in effect, nor shall any proceeding by any
authority or other person seeking any of the foregoing be pending. There shall
not be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the exchange which makes the
consummation of the exchange illegal; and
(d) All necessary approvals, consents and authorizations required by law
for consummation of the exchange including, without limitation, approval by the
MSMA Executive Committee of this Agreement on or before August 1, 1994, shall
have been obtained.
(e) MSMA shall have reached the opinion of MOMED's counsel substantially
in the form of Exhibit D attached hereto.
(f) MSMA shall have received all executed documents required to be
received from MOMED on or prior to the Closing Date, all in form and substance
reasonably satisfactory to MSMA.
ARTICLE SIX
TERMINATION OR ABANDONMENT
SECTION 6.1. MUTUAL AGREEMENT. This Agreement may be terminated by the
mutual written consent of the parties at any time prior to the Closing Date,
regardless of whether stockholder approval of this Agreement and the
transactions contemplated hereby shall have been previously obtained.
SECTION 6.2. BREACH OF AGREEMENTS. In the event there is a material
breach in any of the representations and warranties or agreements of MSMA or
MOMED, which breach is not cured within thirty (30) days after notice to cure
such breach is given by the non-breaching party, then the non-breaching party,
regardless of whether stockholder approval of this Agreement and the
transactions contemplated hereby shall have been previously obtained, may
terminate and cancel this Agreement by providing written notice of such action
to the other party hereto.
SECTION 6.3. FAILURE OF CONDITIONS. In the event any of the conditions
to the obligations of either party are not satisfied or waived as specified in
Article Five hereof, and if any applicable cure period provided in Section 6.2
hereof has lapsed, then the party for whose benefit such conditions were imposed
may,
20
<PAGE> 6
regardless of whether stockholder approval of this Agreement and the
transactions contemplated hereby shall have been previously obtained, terminate
and cancel this Agreement by delivery of written notice of such action to the
other party on such date.
SECTION 6.4. AUTHORIZATION OF MOMED CLASS C COMMON STOCK. In the event
that the MOMED stockholders are unable to fail to take such action as may be
required to authorize the transactions herein provided, then MSMA may terminate
this Agreement by giving written notice to MOMED. The Board of Directors of
MOMED, by its approval of the execution and delivery hereof, agrees to use all
reasonable efforts to cause the stockholders of MOMED to vote in favor of the
transactions herein contemplated.
ARTICLE SEVEN
MISCELLANEOUS PROVISIONS
SECTION 7.1. NOTICES. Any notice or other communication shall be in
writing and shall be deemed to have been given or made on the date of delivery,
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
(a) if to MOMED:
MOMED Holding Co.
8630 Delmar Boulevard
Suite 100
St. Louis, Missouri 63124
Attention: President and Chief Executive Officer
with a copy to:
Lewis, Rice & Fingersh
500 N. Broadway, Suite 2000
St. Louis, Missouri 63102
Attention: Mr. John K. Pruellage, Esq.
and
(b) if to MSMA:
Missouri State Medical Association
113 Madison Street
P.O. Box 1028
Jefferson City, Missouri 65102
Attention: President
with copies to:
Bryan Cave
One Metropolitan Square, Suite 3600
St. Louis, Missouri 63102
Attention: Mr. Mark H. Goran, Esq.
or to such other address as any party may from time to time designate by notice
to the others.
SECTION 7.2. LIABILITIES. In the event that this Agreement is terminated
pursuant to the provisions of Section 6.2 or Section 6.3 hereof on account of
a breach of any of the representations and warranties set forth herein or any
breach of any of the agreements set forth herein or any failure of conditions
precedent to the exchange herein contained, then the non-breaching party or the
party for whose benefit such conditions were imposed shall be entitled to
recover
21
<PAGE> 7
appropriate damages from the breaching party, provided, however, that
notwithstanding the foregoing, in the event this Agreement is terminated by
reason of a failure of a condition precedent set forth in Sections 5.1(c) or
(d), or Sections 5.2(c) or (d), no party hereto shall have any liability to any
other party for costs, expenses, damages or otherwise.
SECTION 7.3. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supercedes and cancels any and all prior
discussions, negotiations, undertakings and agreements between the parties
relating to the subject matter hereof.
SECTION 7.5. HEADINGS AND CAPTIONS. The captions of Articles and Sections
hereof are for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
SECTION 7.6. WAIVER, AMENDMENT OR MODIFICATION. The conditions of this
Agreement which may be waived may only be waived by notice to the other party
waiving such condition. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. This Agreement may not be amended or
modified except by a written document duly executed by the parties hereto.
SECTION 7.7. RULES OF CONSTRUCTION. Unless the context otherwise
requires: (a) a term has the meaning assigned to it; (b) an accounting term
not otherwise defined has the meaning assigned to it in accordance with
generally accepted accounting principles; (c) "or" is not exclusive; and (d)
words in the singular may include the plural and in the plural include the
singular.
SECTION 7.8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
SECTION 7.9. SUCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
administrators, successors and assigns, inlcuding any successor by merger,
reorganization or acquisition of substantially all the assets of a party
hereto. There shall be no third party beneficiaries hereof.
SECTION 7.10. GOVERNING LAW; ASSIGNMENT. This Agreement shall be governed
by the laws of the State of Missouri. This Agreement may not be assigned by
either of the parties hereto.
SECTION 7.11. SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not unauthorized in any jurisdiction is, as to such
jurisdiction, ineffective to the extent of any such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof, or affecting the validity, enforceability or legality of
such provisions in any other jurisdiction, unless the ineffectiveness of such
provision would result in such a material change as to cause completion of the
transactions contemplated hereby to be unreasonable.
IN WITNESS WHEREOF, the undersigned have set their hand on the date first
above written.
MOMED HOLDING CO.
By:
--------------------------------------
Richard V. Bradley, M.D., President and
Chief Executive Officer
MISSOURI STATE MEDICAL ASSOCIATION
By:
--------------------------------------
H. Jerry Murrell, M.D., President
22
<PAGE> 8
<TABLE>
<CAPTION>
====================================================================================================================================
Maximum
Maximum Shares that
Time of Shares that May be
Exercise may be Put Called
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Closing through day prior to 1st 4,031 0
anniversary of Closing
- -----------------------------------------------------------------------------------------------------------------------------------
1st anniversary of Closing through day prior 4,031 (up to 8,062 if no prior
to 2nd anniversary of Closing puts) 0
- -----------------------------------------------------------------------------------------------------------------------------------
2nd anniversary of Closing 8,062 (up to 16,124 if no prior) 24,185 (if no prior puts)
through day prior to 3rd anniversary of Closing
- -----------------------------------------------------------------------------------------------------------------------------------
3rd anniversary of Closing and 8,061 (up to 24,185 if no prior 24,185 (if no prior call or puts)
thereafter puts or call)
===================================================================================================================================
</TABLE>
23
<PAGE> 1
EXHIBIT 10.40
Exhibit A
NOMINATION AGREEMENT
THIS NOMINATION AGREEMENT (this "Agreement") is made and entered into as
of the ___ day of ______________, 1994, by and between MOMED HOLDING CO., a
Missouri corporation ("MOMED"), and MISSOURI STATE MEDICAL ASSOCIATION, a
Missouri not-for-profit corporation ("MSMA").
RECITALS
A. MOMED and MSMA entered into that certain Share Exchange Agreement
Dated July 21, 1994 (the "Share Exchange Agreement"), wherein MSMA has agreed
to transfer to MOMED the 24,185 shares of MOMED's Class B Common Stock owned by
MSMA and MOMED has agreed to issue to MSMA 24,185 shares of MOMED's Class A
Common Stock and 24,185 shares of its Class C Common Stock.
B. In connection with the Share Exchange Agreement, MOMED desires to
assist MSMA in directly participating in the management of MOMED through the
nomination of at least one (1) MSMA representative at each annual election of
Directors of MOMED.
C. The Board of Directors of MOMED has determined that it is in the best
interests of MOMED to include on the Board an otherwise qualified
representative of MSMA, all on the terms and conditions set forth in this
Agreement.
In consideration of the premises and the mutual terms and provisions set
forth in this Agreement, the parties hereto agree as follows:
1. Nomination Covenants. During the term of this Agreement, the MSMA
Council shall submit annually, in writing, on or before December 1 of each
year, the name of a candidate (the "MSMA Candidate") to the MOMED Nominating
Committee for election to the MOMED Board of Directors. The MSMA Candidate
must be, or must have been, an active officer or member of the MSMA Council or
other person reasonably acceptable to MOMED. Subject to the exercise in good
faith of its responsibilities to MOMED and its shareholders, giving due
consideration to MOMED's relationship with MSMA and the intent of this
Agreement, the MOMED Nominating Committee shall include the name of the MSMA
Candidate so submitted as one of its nominees for election to the MOMED Board
of Directors that year, and shall, in each year, nominate only that number of
candidates for election to the MOMED Board of Directors as shall equal the
total number of Directors to be elected for such year. The MOMED Nominating
Committee shall place no name in opposition to the MSMA Candidate.
2. Proxy Materials. The name of the MSMA Candidate shall be included as
a management nominee in the Proxy Statement circulated in advance of the annual
meeting of the MOMED shareholders (the "Annual Meeting"). During the Term of
this Agreement, all proxies relating to the election of MOMED Directors that
are distributed to MOMED shareholders in connection with each Annual Meeting
shall contain a statement notifying the MOMED shareholders that if a proxy is
returned without express directions from the shareholder to the contrary, MOMED
management will vote the proxy cumulatively "For" all named nominees in such
manner as MOMED management shall determine. MOMED management shall vote such
proxies cumulatively in such manner as in the opinion of MOMED management will
assure the election of the MSMA Candidate.
3. Composition of the MOMED Board. During the term of this Agreement,
each member of the MOMED Board of Directors shall serve a term of three (3)
years. At least five (5) but no more than six (6) Directors shall be elected
to the MOMED Board of Directors at each Annual Meeting, and the size of the
MOMED Board of Directors shall not be permitted to exceed eighteen (18)
Directors.
4. Issuance of Additional Shares. MOMED may issue additional shares,
warrants, rights or options during the term of this Agreement, provided that
the effect of such issuance, taking into account the Voting Agreement of even
date herewith (the "Voting Agreement") among MOMED, MSMA and certain
shareholders of MOMED, does not dilute MSMA's right to elect one (1) Director
to the MOMED Board of Directors each term. MOMED shall not issue additional
shares, warrants, rights or options which dilute the right of MSMA (taking into
account the Voting Agreement) to elect one (1) Director to the MOMED Board of
Directors each term without the prior written consent of the MSMA Executive
Committee, which consent shall be timely and shall not be unreasonably
withheld, it being the intent and agreement of the parties that MSMA's right to
elect one (1) Director for each term, as provided herein, shall not be diluted.
5. Limitation of MSMA Ownership. During the term of this Agreement,
including any extensions or renewals hereof, MSMA shall not, without the
consent of a majority of the MOMED Board of Directors, directly or indirectly,
acquire additional shares of the Class A Common Stock of MOMED so as to
increase its percentage ownership of the outstanding Class A Common Stock of
MOMED to more than fifteen percent (15%). In the event that MSMA's percentage
ownership of the MOMED Class A Common Stock should be increased on account of
any redemption of outstanding stock by MOMED, a reorganization of the capi-
24
<PAGE> 2
tal structure of MOMED or any other action of MOMED or its shareholders (other
than MSMA), MSMA shall not be deemed in default of this Paragraph 5.
6. Term. The term of this Agreement shall begin on the closing of the
transactions contemplated in the Share Exchange Agreement and shall expire
sixty (60) months thereafter, but may be renewed or extended by agreement of
MOMED and MSMA. Any renewal or extension of this Agreement must be agreed
upon, in writing, at least six (6) months prior to the end of the term of this
Agreement. Failure to renew or extend this Agreement as provided in this
Paragraph 6 shall cause this Agreement to automatically expire and to be of no
further force or effect.
7. Shareholder Approval. This Agreement shall, with the full support of
MOMED management, be presented to the MOMED shareholders for approval at the
1994 Annual Meeting of Shareholders.
8. Severability. Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction is, as to such
jurisdiction, ineffective to the extent of any such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof, or affecting the validity, enforceability or legality of
such provision in any other jurisdiction, unless the ineffectiveness of such
provision would result in such a material change as to cause completion of the
transactions contemplated hereby to be unreasonable.
9. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes and cancels any and all prior discussion,
negotiations, undertakings and agreements between the parties relating to the
subject matter hereof.
10. Captions. The captions used herein are for convenience only and
shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
11. Waiver, Amendment or Modification. The conditions of this Agreement
which may be waived may only be waived by notice to the other party waiving
such condition. The failure of any party at any time or times to require
performance of any provision hereof (other than by written waiver) shall in no
manner affect the right at a later time to enforce the same. This Agreement
may not be amended or modified except by a written document duly executed by
all of the parties hereto.
12. Rules of Construction. Unless the context otherwise requires: (a) a
term has the meaning assigned to it; (b) an accounting term not otherwise
defined has the meaning assigned to it in accordance with generally accepted
accounting principles; (c) "or" is not inclusive; and (d) words in the singular
may include the plural and in the plural include the singular.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. There shall be no third party beneficiaries hereof.
15. Governing Law; Assignment. This Agreement shall be governed by the
laws of the State of Missouri. This Agreement may not be assigned by any of
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
MOMED HOLDING CO.
By:
---------------------------------
Richard V. Bradley, M.D.,
President and Chief
Executive Officer
MISSOURI STATE MEDICAL ASSOCIATION
By:
---------------------------------
H. Jerry Murrell, M.D., President
25
<PAGE> 1
EXHIBIT 10.41
1994 MOMED HOLDING CO. PROXY STATEMENT
RECIPROCAL ASSISTANCE AGREEMENT
This RECIPROCAL ASSISTANCE AGREEMENT dated as of July 21, 1994 (the
"Agreement") by and between MISSOURI STATE MEDICAL ASSOCIATION, a Missouri
not-for-profit corporation ("MSMA") and MISSOURI MEDICAL INSURANCE CO., a
Missouri corporation ("MOMEDICO").
W I T N E S S E T H:
WHEREAS, it is in the best interests of MSMA that there be always
readily available to members of the medical profession in the State of Missouri
professional liability insurance and risk management products and services; and
WHEREAS, MOMEDICO has been formed for the purpose of and now makes
available to members of the medical profession in the State of Missouri,
professional liability insurance and other risk management products and
services; and
WHEREAS, MSMA and MOMEDICO desire to cooperate and provide assistance
to one another in an effort to insure that professional liability insurance and
other necessary risk management products and services will continue to be
available at an appropriate cost to members of the medical profession in the
State of Missouri; and
WHEREAS, MSMA and MOMEDICO wish to provide such cooperation and
assistance as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, premises, and
obligations of the respective parties set forth herein, it is hereby covenanted
and agreed as follows:
1. During the term of this Agreement MSMA shall (a) list MOMEDICO
in MSMA's resource directory as a provider of authorized member services, (b)
include MOMEDICO in its list of vendors to MSMA, (c) place and maintain
MOMEDICO in any and all MSMA lists of endorsed providers of member services,
(d) provide MOMEDICO with as great an opportunity for selection of booths
designated as available for professional liability insurers at all conventions
sponsored by MSMA (which include professional liability insurers) as any other
professional liability insurer, (e) nor more than six (6) times per calendar
year unless otherwise agreed by the parties, provide to MOMEDICO, within twenty
(20) days after receipt of a written request therefor, mailing labels for MSMA
members, and (f) refer inquiries regarding professional liability insurance and
risk management matters to MOMEDICO.
2. During the term of this Agreement, MOMEDICO agrees that it
will (a) allow MSMA to list MOMEDICO as a provider of authorized member
services in each resource directory published by MSMA, (b) permit MSMA to
include MOMEDICO in its list of vendors to MSMA, (c) respond with due diligence
to all inquiries regarding professional liability insurance and risk management
matters received directly from members of or by referral from MSMA, (d)
participate in conventions sponsored by MSMA which include professional
liability insurers by staffing a booth at such conventions which shall provide
information regarding professional liability insurance and risk management
products and services provided by MOMEDICO, (e) make presentations with respect
to professional liability and risk management issues at all seminars and
conferences sponsored by MSMA which address such subjects, and (f) pay to MSMA
within thirty (30) days of invoice reasonable charges by MSMA for the provision
of MSMA member mailing labels, such charges not to exceed $.10 per label.
3. The term of this Agreement shall begin immediately upon
approval of this Agreement by the MOMED stockholders at their annual meeting to
be held on August 16, 1994, and shall expire sixty (60) months thereafter.
Notwithstanding the foregoing, this Agreement shall not become operative,
despite approval by the MOMED stockholders at their annual meeting, if this
Agreement has not been approved by the Executive Committee of MSMA on or before
August 1, 1994.
4. Any and all notices or other writings that are required or
permitted under any of the provisions of this Agreement shall be in writing and
shall be deemed sufficiently given if mailed by certified Mail addressed to the
party concerned as follows:
40
<PAGE> 2
If addressed to MSMA:
Missouri State Medical Association
113 Madison Street
P.O. Box 1028
Jefferson City, Missouri 65102
Attention: President
with a copy to:
Bryan Cave
One Metropolitan Square, Suite 3600
St. Louis, Missouri 63102
Attention: Mr. Mark H. Goran, Esq.
If addressed to MOMEDICO:
Missouri Medical Insurance Co.
8630 Delmar Boulevard, Suite 100
St. Louis, Missouri 63124
Attention: President and Chief Executive Officer
with a copy to:
Lewis, Rice & Fingersh
500 North Broadway, Suite 2000
St. Louis, Missouri 63102
Attention: Mr. John K. Pruellage, Esq.
or any other addresses of which either party shall notify the other in writing.
41
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Reciprocal
Assistance Agreement to be executed as indicated below.
MISSOURI STATE MEDICAL ASSOCIATION
By:
------------------------------------
Title:
---------------------------------
Date:
----------------------------------
MISSOURI MEDICAL INSURANCE CO.
By:
------------------------------------
Title:
---------------------------------
Date:
----------------------------------
42
<PAGE> 1
EXHIBIT 10.42
1994 MOMED HOLDING CO. PROXY STATEMENT
LICENSE AGREEMENT
This LICENSE AGREEMENT (this "Agreement") is made and entered into as
of the 21st day of July, 1994, by and between MISSOURI STATE MEDICAL
ASSOCIATION, a Missouri not-for-profit corporation (hereinafter "LICENSOR"),
and MISSOURI MEDICAL INSURANCE CO., a Missouri corporation (hereinafter
"LICENSEE").
W I T N E S S E T H:
WHEREAS, LICENSOR is the owner of the following marks: the name
"Missouri State Medical Association", the acronym "MSMA" and various symbols,
devices, logos and designs (hereinafter collectively referred to as the
"LICENSED MARKS"); and
WHEREAS, LICENSEE wishes to acquire an exclusive license to use the
LICENSED MARKS in connection with the promotion, marketing and advertising of
its professional liability insurance and risk management products and services
(hereinafter the "PRODUCTS") subject to the provisions and conditions set forth
in this Agreement; and
WHEREAS, LICENSOR is willing to grant LICENSEE an exclusive license to
use the LICENSED MARKS for the PRODUCTS subject to the provisions and
conditions set forth in this Agreement; and
WHEREAS, LICENSOR wishes to retain the right to use the LICENSED MARKS
for its own purposes subject to the provisions and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises, premises, and
obligations of the respective parties set forth herein, it is hereby
contracted, covenanted, and agreed as follows:
1. LICENSE.
A. LICENSOR hereby grants to LICENSEE an exclusive
license to use the LICENSED MARKS and their associated goodwill, including the
phrases "Founded and Endorsed by MSMA" and "Founded and Endorsed by Missouri
State Medical Association", only upon and to promote, market and advertise the
PRODUCTS, in publications, printed and broadcast advertisements, stationery,
business cards, press releases, signs, displays, leaflets, promotional mailouts
and any other promotional or advertising programs or the like, only within the
States of Missouri, Kansas and Arkansas (the "LICENSED TERRITORY") and nowhere
else and for no other purpose, subject to the terms of this Agreement;
provided, however, that LICENSEE can use the LICENSED MARKS on its normal
letterhead and Annual Report, both of which may be disseminated outside the
LICENSED TERRITORY. LICENSOR hereby retains the right to use the LICENSED
MARKS for its own purposes; provided, however, that LICENSOR may not grant a
license to use the LICENSED MARKS to any other person or entity offering or
engaged in the business of offering professional liability insurance and risk
management products or services.
B. LICENSEE will not use the LICENSED MARKS outside the
LICENSED TERRITORY except as otherwise provided in Section 1.A. above. Except
as provided in Section 1.A. above, LICENSEE will not use the LICENSED MARKS
except in connection with the marketing, selling, promoting, advertising, and
distribution of the PRODUCTS. LICENSEE will not expand the use of the LICENSED
MARKS beyond the scope as defined above.
2. LAWFUL USE.
LICENSEE represents and warrants that all advertising,
promotional materials, and all other materials in connection with which the
LICENSED MARKS are used by LICENSEE under this Agreement shall be lawful.
LICENSEE shall use diligent efforts to provide in advance to LICENSOR copies or
samples of the form of all advertising, promotional materials, and other
materials in connection with which the LICENSED MARKS of PRODUCTS are used;
said copies or samples shall be sent to LICENSOR at its notice address as
hereinafter specified.
33
<PAGE> 2
3. TRADEMARK USE.
A. LICENSEE will indicate in all public uses of the
LICENSED MARKS which may be registered that they are registered with the United
States Patent and Trademark Office.
B. LICENSEE will not register or attempt to register the
LICENSED MARKS. LICENSEE will not register or attempt to register any word,
symbol, mark, device, logo, or name that may create a likelihood of confusion
as to the source of origin or quality of the PRODUCTS or as to LICENSOR's
ownership of the LICENSED MARKS.
4. ROYALTY.
A. For use of the LICENSED MARKS as described in this
Agreement, LICENSEE agrees to pay LICENSOR a royalty of (i) $30,000 on August
16, 1994 (the "Initial Payment Date"), (ii) $35,000 on each of the first four
anniversaries of the Initial Payment Date, and (iii) $20 per Missouri Medical
Insurance Co. insured physician in the State of Missouri as of December 31 of
each preceding year, such per capita royalty to be paid on or before February
15, 1995 and each February 15 thereafter during the term hereof. This
Agreement is subject to renewal or extension by each of the parties, provided,
however, any such renewal or extension must be agreed upon, in writing, at
least six (6) months prior to the end of the initial five (5) year term hereof.
The royalty payable during any renewal or extension of this Agreement shall be
negotiated based on only a dollar amount per LICENSEE insured physician in the
State of Missouri.
B. All payments to be paid to LICENSOR pursuant to this
Agreement shall be sent or delivered to LICENSOR at its notice address as
hereinafter specified.
C. All payments pursuant to this Agreement shall be in
United States currency.
D. Any payment not mailed by certified mail by LICENSEE
to LICENSOR on or before the date by which that payment is to be paid shall be
delinquent and overdue.
E. Payments owed pursuant to this Agreement, when
delinquent and overdue, shall bear simple interest at a rate per annum equal to
five percent (5%) in excess of the "Prime Rate" reported in The Wall Street
Journal on the date by which such payment is due, or if The Wall Street Journal
is not published on that date, then on the immediately preceding date that The
Wall Street Journal was published. Every such overdue payment shall continue
to bear interest at said respective rate until the date that payment is mailed
by certified mail by LICENSEE to LICENSOR.
F. Upon expiration of this Agreement or if this
Agreement is for any reason terminated before expiration, LICENSEE shall,
notwithstanding anything herein to the contrary and without regard to any legal
or other defenses, pay at the times contemplated herein each $35,000 royalty
fee not previously paid.
5. TERM/EXPIRATION.
A. The term of this Agreement shall begin immediately
upon approval of this Agreement by the MOMED stockholders at their annual
meeting to be held on August 16, 1994 and shall expire sixty (60) months
thereafter. Notwithstanding the foregoing, this Agreement shall not become
operative, despite approval by the MOMED stockholders at their annual meeting,
if this Agreement has not been approved by the Executive Committee of LICENSOR
on or before August 1, 1994.
B. If this Agreement expires on the expiration date set
forth in Section 5.A., above, without being terminated for cause or for any
other reason permitted by this Agreement, LICENSEE may for six (6) months after
such expiration, if LICENSEE is and remains in full and complete compliance
with the other terms and provisions of this Agreement, continue on a
non-exclusive basis to sell, promote, advertise, and distribute any remaining
PRODUCTS bearing the LICENSED MARKS that LICENSEE has in stock and has
accumulated in the ordinary course on such expiration date without destroying
such PRODUCTS or deleting the LICENSED MARKS thereon.
6. TERMINATION.
A. LICENSOR shall have the right to terminate this
Agreement upon thirty (30) days written notice to LICENSEE in the event of any
affirmative act of insolvency by LICENSEE, or upon appointment of any receiver
or trustee to take possession of the property and/or business of LICENSEE or
upon the winding-up, sale, or sequestration by government authority of
LICENSEE.
34
<PAGE> 3
B. LICENSOR shall have the right to terminate this
Agreement upon thirty (30) days written notice to LICENSEE in the event that
any breach or violation by LICENSEE of any material provision set forth in this
Agreement shall continue for a period of thirty (30) days following notice of
such breach or violation given to LICENSEE by LICENSOR.
C. Subject to the provisions of Section 5.B. hereof,
upon the expiration or termination of this Agreement, LICENSEE will promptly
discontinue any and all use of the LICENSED MARKS.
D. Subject to the provisions of Section 5.B. hereof,
upon the expiration or termination of this Agreement, LICENSEE will destroy
and/or delete the LICENSED MARKS from all of LICENSEE's PRODUCTS, publications,
printed and broadcast advertisements, stationery, business cards, press
releases, signs, displays, leaflets, promotional mailouts, and all other
documents or things offered for sale, displayed, broadcast, or in any other way
shown or disseminated by or for LICENSEE, subject to the limited conditional
right of Section 5.B, above.
7. ASSIGNABILITY.
LICENSOR retains the right to assign any and all of its rights
and interests in this Agreement and the LICENSED MARKS subject to the
limitations set forth herein. This Agreement shall be binding upon any such
assignee as well as upon any successor of LICENSOR in ownership or control of
the LICENSED MARKS. LICENSEE shall not assign any of its rights under this
Agreement without the prior written consent of the Executive Committee of
LICENSOR, which consent shall be given or withheld in LICENSOR's sole
discretion.
8. PROPERTY RIGHTS.
A. Other than the limited license granted herein, all
right, title, and interest in and to the LICENSED MARKS is owned and expressly
reserved by LICENSOR for its own use and benefit subject to the terms and
conditions of this Agreement.
B. Except as relates to the enforcement of any rights
granted to LICENSEE hereunder, LICENSEE will not at anytime challenge the
validity or enforceability of the LICENSED MARKS and/or of any registrations
thereof, or challenge the LICENSOR's ownership, right, title, or interest in or
to the LICENSED MARKS or that of any successor, assignee, affiliate, or
subsidiary of LICENSOR.
9. SUBLICENSING.
LICENSEE shall not sublicense any of its rights under this
Agreement without the prior written consent of the Executive Committee of
LICENSOR, which consent shall be given or withheld in LICENSOR's sole
discretion.
10. RELATIONSHIP OF THE PARTIES.
This Agreement does not create a partnership, joint venture,
or agency relationship between the parties, and neither LICENSEE nor LICENSOR
shall have any right, power, or authority to act as a legal representative of
the other, and neither party shall have any power to obligate or bind the
other, or to make any representations, express or implied, on behalf of or in
the name of the other in any manner or for any purpose whatsoever.
11. LIABILITY.
Except as to claims of infringement arising from the use of
the LICENSED MARKS by LICENSEE, LICENSOR shall have no liability whatsoever to
LICENSEE or any other person or entity for or on account of any injury, loss,
or damage, of any kind or nature, sustained by, or any damage assessed or
asserted against, or any other liability incurred by or imposed upon LICENSEE
or any other person or entity, arising out of or in connection with or
resulting from:
(i) the production, marketing, distribution, use,
offer for sale, or sale of any PRODUCTS and/or products and
materials under the LICENSED MARKS or under this Agreement; or
(ii) any advertising or other promotional
activities by LICENSEE with respect to the PRODUCTS and/or
products and materials under the LICENSED MARKS or under this
Agreement.
35
<PAGE> 4
12. INFRINGEMENT.
A. LICENSEE shall immediately notify LICENSOR of any
unauthorized use and/or suspected infringement of the LICENSED MARKS. Such
notification shall include, without limitation, immediately forwarding to
LICENSOR any and all documents relating to any such unauthorized use or
suspected infringement and providing LICENSOR with any and all facts and
circumstances relating to such unauthorized use or suspected infringement.
B. LICENSOR shall have the primary, and in the first
instance (see Section 12.F., below) sole, right to institute a suit for
infringement, unfair competition, or other action with respect to any
unauthorized use or suspected infringement. LICENSOR shall have the sole
discretion to determine how to handle or otherwise deal with any suspected
infringement or unauthorized use of the LICENSED MARKS, including the right to
settle or otherwise compromise any dispute or suit, and shall promptly notify
LICENSEE of its decision. LICENSOR shall have no duty to initiate such
litigation if in its sole judgment such litigation is not warranted or is not
in its best interests.
C. LICENSEE may join and be represented in, at its own
expense by its own counsel, any proceeding relating to any unauthorized use or
suspected infringement to protect its own interests.
D. LICENSEE agrees that it shall, at all times,
reasonably cooperate with LICENSOR and its counsel, in all respects, with
respect to any unauthorized use or suspected or alleged infringements at
LICENSOR's expense, including, but not limited to, having LICENSEE's
principals, directors, employees, officers, and/or agents testify and making
available any records, papers, information, specimens, and the like when
requested by LICENSOR.
E. Any damages and/or recovery received pursuant to such
litigation or settlements or compromises shall be the sole and exclusive
property of LICENSOR.
F. If LICENSOR decides in its discretion not to take any
action with respect to an unauthorized use or suspected infringement, then
LICENSEE may, at its own option and sole expense, take such action on its own
behalf as it deems appropriate and any damages, recovery, settlement, or
compromise obtained thereby shall be for the account of LICENSEE.
13. INDEMNIFICATION.
A. LICENSEE agrees to defend, indemnify, and hold
harmless LICENSOR, its principals, directors, officers, employees, and/or
agents from and against any and all liabilities, penalties, claims, demands,
suits, and causes of action of any nature whatsoever, whether groundless or
otherwise, and any and all damages, costs, and expenses sustained or incurred
(including cost of defense, settlement, and reasonable attorneys' fees),
asserted by or on behalf of any person or entity arising out of the production,
marketing, distribution, use, offer for sale, or sale of any PRODUCTS and/or
products and materials under the LICENSED MARKS by LICENSEE or under this
Agreement, or out of any breach of representation or warranty by LICENSEE, or
out of the negligent acts or omissions of LICENSEE, its agents,
representatives, and/or employees in connection with the production,
manufacture, distribution, use, offer for sale, or sale of any PRODUCTS and/or
products and materials under the LICENSED MARKS by LICENSEE or under this
Agreement. Further, LICENSEE may defend any such actions with counsel of its
own choosing.
B. LICENSOR agrees to defend, indemnify, and hold
harmless LICENSEE, its principals, directors, officers, employees, and/or
agents from and against any and all liabilities, penalties, claims, demands,
suits, and causes of action of any nature whatsoever, whether groundless or
otherwise, and any and all damages, costs, and expenses sustained or incurred
(including cost of defense, settlement, and reasonable attorneys' fees),
asserted by or on behalf of any person or entity arising out of an allegation
of superior rights by a third party in and to the LICENSED MARKS. Further,
LICENSOR may defend any such actions with counsel of its own choosing, has the
right to settle or compromise any such dispute or action when in its sole
judgment settlement or compromise is warranted, and has the sole right to
decide whether to appeal any adverse decision of a tribunal in any action.
14. BEST EFFORTS.
A. LICENSEE has neither an express nor implied duty to
promote, advertise, market and sell the PRODUCTS unless otherwise expressly
provided herein.
B. LICENSEE shall use its discretionary business
judgment to determine to what extent, if any, it shall exploit the rights
granted to it under this Agreement.
36
<PAGE> 5
15. SEVERABILITY.
If any part, term or provision of this agreement shall be
found illegal, unenforceable, or in conflict with any valid controlling law,
the validity of the remaining portions of any provisions, and any other
provisions in this Agreement, shall not be affected thereby.
16. WAIVER, INTEGRATION, ALTERATION.
A. Waiver. The waiver of a breach hereunder may be
effected only by a writing signed by the waiving party and shall not
constitute, or be held to be, a waiver of any other or subsequent breach, or to
affect in any way the effectiveness of such provision or to affect LICENSOR's
rights to terminate. Failure by LICENSOR to object to a breach shall not
constitute or be held to be a waiver of LICENSOR's right to later object to, or
to terminate this Agreement, due to any other breach or subsequent breach.
B. Integration. This Agreement contains the entire
understanding between the parties and supersedes all other agreements,
representations, and warranties, express or implied, between the parties
concerning the LICENSED MARKS.
C. Alteration. Any modification or amendment of this
Agreement shall be effective only if made in writing and signed by both
parties.
17. GOVERNING LAW.
This Agreement shall be construed and interpreted and its
performance shall be governed by the substantive laws of the State of Missouri,
U.S.A. Any lawsuit relating to the enforcement, interpretation, or
construction of this Agreement shall be brought in a court in St. Louis,
Missouri.
18. CAPTIONS.
The captions used in this Agreement have been inserted only
for reference purposes. The captions and order of such captions shall not be
deemed to govern, limit, modify, or in any manner affect the scope, meaning, or
intent of any of the provisions and/or terms of this Agreement, nor shall any
captions be given any legal effect.
19. NOTICES.
Any and all notices or other writings that are required or
permitted under any of the provisions of this Agreement shall be in writing and
shall be deemed sufficiently given if mailed by Certified Mail addressed to the
party concerned as follows:
(a) if addressed to LICENSOR:
Missouri State Medical Association
113 Madison Street
P.O. Box 1028
Jefferson City, MO 65102
Attention: President
with a copy to:
Bryan Cave
One Metropolitan Square, Suite 3600
St. Louis, Missouri 63102
Attention: Mr. Mark H. Goran, Esq.
and
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<PAGE> 6
(b) if addressed to LICENSEE:
Missouri Medical Insurance Co.
8630 Delmar Boulevard, Suite 100
St. Louis, Missouri 63124
Attention: President and Chief Executive Officer
with a copy to:
Lewis, Rice & Fingersh
500 North Broadway, Suite 2000
St. Louis, Missouri 63102
Attention: Mr. John K. Pruellage, Esq.
or any other addresses of which either party shall notify the other in writing.
IN WITNESS WHEREOF, the parties hereto have caused this License
Agreement to be executed as indicated below.
LICENSOR:
MISSOURI STATE MEDICAL ASSOCIATION
By:
------------------------------------
Title:
---------------------------------
Date:
----------------------------------
LICENSEE:
MISSOURI MEDICAL INSURANCE CO.
By:
------------------------------------
Title:
---------------------------------
Date:
----------------------------------
38
<PAGE> 7
STATE OF )
)ss
COUNTY OF )
On this ____ day of July, 1994, before me personally came_____________
_______________________________________, to me known, who being first duly
sworn did depose and say that he/she is the __________________ of Missouri State
Medical Association, the not-for-profit corporation described herein and which
executed the above instrument, and that he/she signed the above instrument by
authority of the Executive Committee of said not-for-profit corporation.
----------------------------------
Notary Public
My Commission Expires:
--------------------------------
SEAL
STATE OF )
)ss
COUNTY OF )
On this ____ day of July, 1994, before me personally came __________
__________________________________________, to me known, who being first duly
sworn did depose and say that he/she is the __________________ of Missouri
Medical Insurance Co., the corporation described herein and which executed the
above instrument, and that he/she signed the above instrument by authority of
the Board of Directors of said corporation.
--------------------------------------
Notary Public
My Commission Expires:
-------------------------------
SEAL
39
<PAGE> 1
EXHIBIT 10.43
FIRST AMENDED AND RESTATED MOMED HOLDING CO. SELF INSURED
DIRECTORS AND OFFICERS LIABILITY TRUST AGREEMENT
WHEREAS, MOMED HOLDING CO. executed a Self Insurance Directors and
Officers Liability Trust Agreement on December 1, 1989, and
WHEREAS, MOMED HOLDING CO. and its subsidiaries wish to amend said trust
agreement pursuant to the provision thereof, and
WHEREAS, the amendments are substantial and the instrument will be easier
to read and understand as a "restated" document,
NOW, THEREFORE, this FIRST AMENDED AND RESTATED MOMED HOLDING CO.
SELF INSURED DIRECTORS AND OFFICERS LIABILITY TRUST AGREEMENT is made and
entered in this 7th day of May, 1993, by and between MOMED HOLDING CO., a
Missouri corporation, and its subsidiaries named in Paragraph 1.9 (herein
"Companies"), and Boatmen's Trust Company, a trust company organized under the
laws of the State of Missouri (herein "Trustee"), for the purpose of continuing
the Self Insured Directors and Officers Liability Trust as set forth herein.
I
DEFINITIONS
1.1 "Actuary" shall mean an independent actuary, insurance company, or
broker, experienced in the field of general and professional liability,
selected and employed by the COMPANIES.
1.2 "Annual period of the Trust" shall mean twelve consecutive months,
ending on December 31st of each year.
1.3 The term "DIRECTORS AND OFFICERS liability losses"
<PAGE> 2
shall mean any liability or loss incurred by a Director or Officer of COMPANIES
(as defined in paragraph 1.9) arising out of or caused by the performance of
their duties as an Officer or Director for which indemnity is not expressly
prohibited by Missouri law, including any cost or expense incurred in the
investigation, defense or payment of any claim against such Officer or
Director.
1.4 The term "covered persons" shall mean any Officer or Director of a
Company as defined in Section 1.9 hereof.
1.5 The term "effective date of this Trust" shall mean October 28, 1987.
1.6 The term "effective date of termination" of this Trust shall mean the
date established by resolution of MOMED HOLDING CO. Board of Directors in
accordance with Article VII hereof.
1.7 "Fund" shall mean the assets held from time to time by the Trustee
subject to this Trust Agreement.
1.8 "Applicable Law" shall mean the laws, statutes, rulings and
regulations of Missouri, relating to indemnity of Directors and Officers for
liability incurred in the performance of their duties in such capacity.
1.9 "COMPANIES" shall mean MOMED HOLDING CO., MISSOURI MEDICAL
INSURANCE COMPANY, MOMEDICO PROFESSIONAL SERVICES, INC., PROFESSIONAL
LIABILITY ASSOCIATES, INC., and any subsidiary or affiliated corporations of
COMPANIES or other corporations on which the Officers or Directors of COMPANIES
serve at the request
2
<PAGE> 3
of COMPANIES pursuant to specific Board resolution authorizing such.
II.
CONTRIBUTIONS
2.1 The COMPANIES hereby appoint the Trustee and the Trustee agrees to
serve as trustee of the Fund and to accept and be accountable for all
contributions to the Fund in accordance with the terms hereof.
2.2 The COMPANIES, at convenient times but at least annually, shall make
appropriate contributions to the Trust, not less than the amount equal to the
annual premium currently being charged for a comparable Directors and Officers
liability policy with limits of $3 million annual aggregate until the funds int
he trust equal $1 million. The amount of such annual contribution shall be
increased annually by an amount equal to the increase in the Consumer Price
Index as measured between January 1 of the current year and January 1 of the
preceding year. The annual contribution may be decreased by an amount equal to
the decrease int he consumer Price Index as measured between the dates
identified within this section In any year when no contribution would otherwise
be required because the Fund equals $1 million, a contribution shall be made in
an amount equal to the annual premium or the increase int he Consumer Price
Index between January 1 of the current year and January 1 of the preceding year
multiplied by $1 million, whichever is the lesser amount, after application of
the current year's net income. Any calculation or
3
<PAGE> 4
determination required pursuant to this Section 2.2 shall be done by the
COMPANIES.
2.3 All income of the Fund shall be retained by the Trustee as part of
the principal of the Fund.
2.4 The Trustee shall have no duty to require that any contribution be
made to the Trust, to determine the amount of any contributions to be made to
the Trust or to determine that the Fund is adequate at any time to satisfy the
obligations of this Trust. Any Officer or Director claiming any right to
payment of any amount of assets held pursuant to this Trust shall look solely
to the assets of this Trust, and the Trustee shall have no duty or
responsibility to satisfy any such claim except as otherwise provided
hereunder.
III
PAYMENTS FROM THE TRUST FUND
3.1 Subject to the provisions of Section 3.2, the Trustee shall make
payments from the Fund to or on behalf of covered persons for Directors and
Officers liability losses as such are defined in Section 1.3, arising as a
result of occurrences before or after the effective date of the Trust and on or
before the effective date of the termination of this Trust. The Trustee shall
also make payments from the Fund in accordance with the provisions of Section
3.2 for the following expenses attributable to self-insurance program:
(A) Expenses of establishing the Trust;
4
<PAGE> 5
(B) Expenses for the administration of a claims management program;
(C) Fees and expenses involved with the maintenance of the Trust by
the Trustees;
(D) Legal and accounting expenses;
(E) Costs of excess insurance if purchased by the Trustee as set
forth herein;
(F) Costs of risk management if performed by the Trustee;
(G) Payment of all taxes due;
(H) Any other proper expenses.
3.2 Except as otherwise provided under Section 3.4, the Trustee shall
make disbursements from the Fund only upon prior receipt of a written direction
from a designated officer of MOMED HOLDING CO. which states: (i) the amount of
the requested disbursement; (ii) the name of the payee; (iii) a certification
that payment is in accordance with this Article III; and (iv) a brief
description of the nature of the claim or expense giving rise to the payment.
Such officer shall submit such a direction with respect to all Directors and
Officers liability losses which are covered by this Trust. The designated
officer shall determine for each claim made whether the persons or losses in
question are covered by this Trust, and its good faith determination of
coverage or non-coverage shall be conclusive and binding on all persons. The
Trustee shall have no duty or obligation to question any such direction of any
such officer or
5
<PAGE> 6
determine whether any particular loss is covered or whether any payment made
pursuant to the direction of any such officer is in conformity with this Trust
Agreement, and shall be fully protected from all liability in making payments
based upon such direction and in refraining from making any payment int he
absence of any such direction.
3.3 The expenses listed in Section 3.1 shall be payable and reimbursable
from the Fund whether or not the COMPANIES use qualified in-house personnel or
independent contractors, any of whom may be employees of the COMPANIES.
3.4 The Trustee shall be entitled to a reasonable fee for its services
hereunder as agreed to by the COMPANIES from time to time. The expenses
incurred by the Trustee int he performance of its duties or otherwise in its
capacity as trustee hereunder (including, without limitation, fees for
authorized legal services rendered to the Trustee in any context pertaining to
the Trust) and such fees for its services shall be payable from the Fund and
shall constitute a lien upon such Fund until paid, provided, however, that the
COMPANIES shall pay any such expenses and fees to the extent that assets of the
Fund are insufficient for such purpose. No such fees shall be incurred without
prior written approval or subsequent ratification of COMPANIES' representative,
which approval or ratification shall not be unreasonably withheld.
3.5 Neither the income of the Fund nor the Fund itself shall be subject
to the debts of the COMPANIES or covered
6
<PAGE> 7
persons, nor shall they be subject to seizure by creditors of the COMPANIES or
covered persons, nor shall any action be brought against the Trust on account
of any cause of action against the COMPANIES or covered persons, and covered
persons shall not have the right to transfer, encumber, borrow, assign, or
hypothecate in any manner the Fund or their interest in the Trust.
3.6 If any of the COMPANIES or any covered person is covered by a policy
of Directors and Officers liability insurance with respect to Directors or
Officers liability losses, the designated officer shall direct the Trustee to
make payment only after exhaustion of all proceeds recoverable by such Company
or covered person under such policy.
3.7 The Board of Directors of MOMED HOLDING CO., not the Trustee, shall
have the sole and complete discretion and responsibility to seek recovery for
or on account of any payments made hereunder against any person or entity,
whether by subrogation, indemnity, contribution, or otherwise. Any amounts so
recovered by such action shall be paid to the Trust. No such action shall be
taken for any liability or loss for which indemnity is provided by written
agreement between any Officer or Director of the COMPANIES and the COMPANIES.
In the event the COMPANIES are unable to assert any rights or remedies in its
effort to seek recovery of any payments made hereunder as provided under this
Section 3.7, the Trustee shall, at the expense of the COMPANIES, cooperate with
the COMPANIES in taking
7
<PAGE> 8
such actions as the COMPANIES may reasonably request in connection with any
such recovery effort.
IV
COVERAGE AMOUNTS
4.1 The COMPANIES shall not direct the Trustee to make disbursements or
payments during any calendar year for DIRECTORS AND OFFICER liability losses
(excluding reimbursement for expenses as set forth in Section 3.1,
subparagraphs (A) - (H)) which exceed 60 percent of the fund or Five Hundred
Thousand dollars ($500,000.00), whichever is larger, for covered losses,
including attorney's fees, costs, and expenses incurred in connection with
investigation and defense of any claim or suit, sustained by one or more
COMPANIES or covered persons as a result of any claim against a Director or
Officer of COMPANIES covered hereunder.
4.2 The Board of Directors of MOMED HOLDING CO., may at its option, and
from time to time, notify the Trustee in writing with respect to any deductible
from first dollar losses payable by the Trustee for any one occurrence or
during any one annual period of the Trust; provided, however, the aggregate of
said deductibles shall not be greater than $100,000 or 10% of the trust fund's
net worth as certified in its last annual report.
V
POWERS, RIGHTS AND DUTIES OF THE TRUSTEE
5.1 The Trustee's duties and responsibilities shall be only those
expressly set forth hereunder.
8
<PAGE> 9
5.2 The Trustee shall, in all respects, be considered to have legal title
to the Fund, and the Trustee assumes responsibility to properly administer,
hold, manage, pledge, and control all property forming the Fund and to collect
and receive the monies, interest, profits, and income arising therefrom all as
provided for hereunder.
5.3 The Trustee shall full power and authority to invest and reinvest the
Fund in such securities, bonds, notes, and other investment sources (including
any investment fund or deposit account of the Trustee or any affiliate of the
Trustee) as it deems in the best interest of the Trust, subject to investment
guidelines which the COMPANIES shall provide to the Trustee from time to time.
In no event shall the Trustee loan amounts from the Fund to persons covered by
this Trust Agreement.
5.4 Subject to the investment guidelines established by the Companies,
the Trustee shall have final authority to make investment decisions, and
COMPANIES shall have no right to direct or otherwise require specific
investments to be made by the Trustee.
5.5 The entire net income and earnings of the Fund shall be accumulated,
added to the principal of the Fund, and invested an reinvested, and shall be
used in establishing the Fund to the maximum level of $1 million and any
adjustments based upon the Consumer Price Index as provided in Section 2.2.
5.6 The Trustee shall not have the power to appoint or engage the
services of attorneys, auditors, financial advisors or
9
<PAGE> 10
other agents or to pay reasonable compensation to such appointees except upon
prior written approval or subsequent ratification of the designated officer,
which approval or ratification shall not be unreasonably withheld.
5.7 The Trustee shall not have the power to compromise, settle, contest,
prosecute, submit to arbitration, or abandon claims or other charges in favor
or against the Trust, without prior written approval of the designated officer;
provided, however that the Trustee shall have no duty or obligation to take any
such action for the benefit of the Trust or the Fund unless it shall be first
indemnified to its satisfaction.
5.8 The COMPANIES may, in their sole discretion, at any time, direct the
Trustee to merge this Trust with other self-insurance trusts upon receipt of an
opinion of counsel, which may be the counsel of the COMPANIES, advising the
Trustee that such merger is in accordance with existing laws.
5.9 The Trustee is hereby authorized and empowered to purchase excess
insurance coverage, but only upon prior written direction of the designated
officer. If the Trustee is so directed, the Trustee shall have no duty or
obligation to question any such direction or to review the form of any contract
or policy of insurance coverage or of the relation of the issuer or issuers
thereof, or to make suggestions to any person with respect to the form or the
terms of any such contracts or policies. In the event any such contracts or
policies are purchased as provided hereunder, the COMPANIES may direct the
10
<PAGE> 11
Trustee to exercise or may exercise directly the powers of the contract holder
under any such contracts or policies, and the Trustee shall exercise such
powers only upon the direction of the COMPANIES.
5.10 The Trustee shall maintain accurate and detailed records and accounts
of all transactions effected by it hereunder. The Trustee shall submit to
the designated officer such evaluations, reports or other information as he may
reasonably require.
5.11 The Trustee shall forward to the designated officer a financial
statement no later than thirty (30) days after the end of each Annual Period of
the Trust or such other time to which the parties may agree. This statement
shall show the balance in the Fund at the beginning of the period, current
period contributions, other transactions effected by the Trustee, and the
ending Fund balance. This report and the Trustee's records shall be available
for intermediary review and audit by persons authorized by the COMPANIES, at
all reasonable times.
In the absence of any exception thereto filed in writing with the Trustee
within sixty (60) days after the date of filing of any such account with the
COMPANIES, any such account shall constitute a final accounting by the Trustee
and shall discharge and release the Trustee from all claims, liabilities and
accountabilities to any person with respect to the propriety of all acts and
transactions as shown in such report and shall be binding and conclusive upon
all persons, except with respect to
11
<PAGE> 12
any such acts or transactions as to which the COMPANIES shall within such sixty
(60) day period file with the Trustee written objections.
The Trustee and the COMPANIES, or either of them, shall have the right to
apply at any time to a court of competent jurisdiction for the judicial
settlement of the Trustee's account and, in any case, it shall be necessary to
join as parties thereto only the Trustee or the COMPANIES, as the case may be,
and any judgment or decree which may be entered therein shall be conclusive and
binding upon all persons having or claiming to have any interest in the Fund or
under the Trust, and the cost of any such proceeding shall be paid from the
Fund.
5.12 All duties and obligations imposed upon the Trustee by this Trust
Agreement shall be carried out with the care, skill, prudence, and diligence,
under the circumstances then prevailing, that a prudent individual acting in
like capacity and familiar with such matters would use. The permissive right
of the Trustee to do things enumerated int his Trust Agreement shall not be
construed as a duty.
5.13 Subject to the provisions and limitations contained elsewhere herein,
and in addition to the foregoing, the Trustee shall have all powers necessary
to hold in trust and administer the Fund as contemplated hereby, including,
without limitation, the following additional powers:
(1) To purchase, sell, convey, exchange, convert, transfer, divide or
otherwise acquire or dispose of any property at any
12
<PAGE> 13
time held in Trust hereunder, and generally to make, execute, acknowledge and
deliver any and all instruments whenever such action may be required to perform
its objectives hereunder;
(2) To hold uninvested any cash of the Fund and to create reserves of
cash or other assets of the Fund, without liability for interest thereon, for
the payment of expenses, or for distributions pursuant to this Trust, or for any
other purpose in connection with this Trust;
(3) To write or purchase call or put options;
(4) To enter into commodity contracts and to take appropriate action
in connection with such contracts;
(5) To vote, to give general or special proxies or powers of attorney,
with or without power of substitution, or to refrain from voting, in respect of
any securities held by the Fund, to exchange securities, to sell or exercise
stock subscriptions rights, or conversion privileges, or other options, to
oppose or to consent to or otherwise participate in foreclosures,
reorganizations, recapitalizations, consolidations, mergers, liquidations, and
similar transactions with respect to such securities;
(6) To deposit any property in any voting trust, or with any
protective reorganization or similar committee, or with depositories designated
thereby; to delate power thereto, and to pay or agree to pay part of its
expenses and compensation and any assessments levied with respect to any
property so deposited;
(7) To pay the expenses and taxes of the Trust out of the
13
<PAGE> 14
Fund, including, without limitation, reasonable expenses and compensation for
its services as Trustee;
(8) To register or cause to be registered securities or other property
of the Trust in the Trustee's name as Trustee hereunder, or in the name of any
nominee, with or without indication of the capacity in which such securities or
other property are held, or to hold any securities or other property in bearer
form;
(9) To hold securities in a margin account with a brokerage firm and
to borrow against the value of such securities to the extent permitted by law,
but the books and records of the Trust shall at all times show that all such
investments are part of the Fund;
(10) To deposit any securities with stock clearing corporations or
similar organization, whether located within the State of Missouri or in
another state of the United States of America or elsewhere;
(11) To lend securities of the Fund and to invest and reinvest any
cash collateral deposited as security for the property so loaned; provided that
any such loan of securities shall be made pursuant to a written agreement
between the COMPANIES and the Trustee which agreement shall set forth the terms
and conditions of the Trustee's appointment as securities lending agent.
5.14 To the extent the Trustee is required by applicable law to pay or
withhold any taxes or to file any reports in connection
14
<PAGE> 15
therewith or otherwise on behalf of the Trust or any officer or director
covered by this Trust, the COMPANIES shall inform the Trustee of any such
obligation, shall direct the Trustee with respect to the performance of such
obligations and shall provide the Trustee with all information required by the
Trustee to meet such obligations.
VI
RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
6.1 The COMPANIES may, by resolution of the Board of Directors of MOMED
HOLDING CO., remove the Trustee at any time and appoint a successor trustee,
which removal and appointment shall become effective when a copy of said
resolution certified by an officer of the MOMED HOLDING CO. and an acceptance
of the Trust signed by the successor trustee so appointed, is delivered to the
Trustee; provided, however, that the successor trustee shall be qualified under
all laws, including any applicable laws and regulations pertaining to trust
companies.
6.2 The Trustee may resign by delivering to the designated officer a
written resignation to take place sixty (60) days after such deliver or at any
other time with the COMPANIES' consent.
6.3 All of the provisions set forth herein with respect to the Trustee
shall relate to and be binding upon the successor trustee.
6.4 Upon the appointment of the successor trustee, the removed or
resigning Trustee shall transfer and deliver the Fund to such successor
trustee. No successor trustee shall be liable
15
<PAGE> 16
for acts or omissions of any prior trustee or be obligated to examine the
accounts, records or acts of any prior trustee or trustees.
6.5 Upon removal or resignation of the Trustee, a successor trustee or
trustees, corporate or individual, with the same powers and duties as those
conferred upon the Trustee hereunder, subject to such changes as the COMPANIES
may then determine, shall be appointed by an instrument in writing executed by
the COMPANIES and the successor trustee or trustees. If no successor trustee
is appointed within sixty (60) days from the effective date of the Trustee's
resignation or receipt of notice of removal, as the case may be, the Trustee
may proceed in any court of competent jurisdiction to have the court appoint a
successor trustee, and the cost of such proceeding shall be paid from the Fund.
As of the effective date of the appointment of and acceptance by a successor
trustee or trustees, the removed or resigned Trustee shall transfer and deliver
the Fund to such successor trustee or trustees in accordance wit the directions
of the COMPANIES; provided, however that the Trustee is authorized to reserve
such sum of money s to it may deem advisable for the payment of any outstanding
taxes or other liabilities of the Fund and its reasonable compensation and
expenses (including, without limitation, any legal expenses), and any balance
of such reserve remaining after the payment of such taxes, liabilities,
compensation and expenses shall be paid over to the successor trustee or
trustees as provided in this Section.
16
<PAGE> 17
VII
TERMINATION OF TRUST
7.1 The COMPANIES, by resolution of the Board of Directors of MOMED
HOLDING CO., may terminate this Trust by delivering to the Trustee, at least
thirty (30) days prior to the effective date of termination, a resolution of
the such Board to that effect, certified by an officer of the COMPANIES.
7.2 In no event shall the COMPANIES direct the Trustee to return any
assets to the COMPANIES upon termination of this trust (i) except such assets,
if any , which remain after the satisfaction of all fixed and contingent
liabilities to persons entitled to payment from the Fund, or (ii) unless
adequate provisions have been made for the satisfaction of all fixed and
contingent liabilities through either commercial insurance or in accordance
with an actuarial determination of the appropriate reserve for such
liabilities. In either case, any such determination shall be made by the
COMPANIES in its sole discretion, and the Trustee shall have no duty or
obligation to question any such determination or direction of the COMPANIES and
shall be fully protected for acting in accordance therewith.
7.3 Until such time as all liabilities of the Trust have been paid or
provided for or the statute of limitations has run on such liabilities, all as
determined by the COMPANIES, the Trustee shall continue to hold, invest,
administer, liquidate and distribute the Fund pursuant to the provisions of
this Trust Agreement.
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<PAGE> 18
VIII
AMENDMENTS
8.1 The COMPANIES may, by resolution of the MOMED HOLDING CO. BOARD,
amend this Trust Agreement and any exhibits thereto by delivering to the
Trustee said resolution certified by an officer of such Company and said
amendment shall become effective upon the date set forth int he resolution;
provided, however, that no amendment shall be made to this Trust Agreement
which shall affect the rights, duties, responsibilities or liabilities of the
Trustee without its prior written consent. No amendment shall withdraw from
the Trust any funds below the maximum level of $1 million as adjusted for
changed in the Consumer Price Index as provided in Section 2.2, unless
alternative arrangement have been made to protect the COMPANIES, their Officers
and Directors from liabilities covered herein, in which case the COMPANIES
shall represent to the Trustee that such condition has been satisfied.
IX
MISCELLANEOUS
9.1 This Trust Agreement has been established in the State of Missouri
and all issues pertaining to its validity, construction, and administration
shall be determined in accordance with the laws of that State.
9.2 In the event any provision of this Trust Agreement shall be held
illegal or invalid, for any reason, then such portion shall be stricken and the
remaining portions of the Trust
18
<PAGE> 19
Agreement shall be fully severable and remain in effect.
9.3 Neither the creation of this Trust nor anything contained in this
Trust Agreement shall be construed as giving any person or entity entitled to
protection hereunder an equity or other interest in the assets, business or
affairs of the COMPANIES.
9.4 This agreement shall inure to the benefit of and be binding upon any
successor or assign of any party hereto.
9.5 It is it he intent of the COMPANIES and the Trustee that this Trust
Agreement conform to all applicable requirements of the laws of the State of
Missouri relating to self insurance trusts, so that the COMPANIES shall be
entitled to deduct as expenses its contributions to the trust and its expenses
related to its self insurance program, and all provision of this trust
agreement shall be interpreted in accordance with such objective; provided,
however, that the COMPANIES shall be solely responsible for the conformity of
this Trust Agreement to any such laws.
9.6 Until the Trustee is advised otherwise in writing, the "designated
officer" shall be the President of MOMED HOLDING CO..
9.7 Any action by the COMPANIES pursuant to this Trust Agreement shall be
satisfactorily evidenced to the Trustee by a certified copy of a resolution of
the Board of Directors of the COMPANIES or by any certificate, notice, order,
request, instruction, direction or objection of the COMPANIES which the Trustee
believes to be genuine and which purports to have been signed by any authorized
officer of the COMPANIES. The COMPANIES
19
<PAGE> 20
shall notify the Trustee in writing of the identity or the names of persons
authorized to act with respect to the Trust, and the Trustee may assume, and
shall be fully protected in so assuming, that the person or persons so
identified or named remain unchanged until advised to the contrary and in
acting accordingly.
9.8 Any certificates, notices, orders, requests, instructions, directions
or objections of the COMPANIES or other person authorized to act with respect
to the Trust pursuant to this Trust Agreement shall be satisfactorily evidenced
to the Trustee by a written statement (provided, however, that the Trustee may,
in its sole discretion, accept oral notices, orders, requests, instructions,
directions and objections subject to confirmation in writing). The Trustee may
act upon any certificate, notice, order, request, instruction, direction or
objection purporting to have been signed on behalf of the COMPANIES or other
person authorized to act with respect to the Trust which the Trustee believes
to be genuine and to have been executed by the COMPANIES or by any such other
person, and shall be fully protected for acting in accordance therewith or for
failing to act in the absence thereof. Communications to the Trustee shall be
sent to the Trustee's office or to such other address as the Trustee shall
specify in writing, and such communications to the Trustee shall be binding
upon the Trust and the Trustee when received by the Trustee. The Trustee shall
be fully protected in acting in accordance with directions received
20
<PAGE> 21
by it through authenticated telecommunications facilities, including, without
limitation, communications effected directly between electro-mechanical or
electronic devices, to the same extent as if directions were in writing.
9.9 The Trustee may consult with legal counsel, who may also be counsel
for the COMPANIES or its own counsel, with respect to the meaning or
construction of this Trust Agreement, or its obligations and duties hereunder,
and shall be fully protected with respect to any action taken or omitted by it
in good faith pursuant to the advice of any such counsel. If a dispute shall
arise as to any act to be performed by it, the Trustee may, in its discretion,
postpone performance of such act until adjudication of such dispute shall be
made in a court of competent jurisdiction and shall not be required to
commence, defend or participate in any litigation until it has been indemnified
against loss or liability to its satisfaction.
9.10 In recognition of the burden and cost of litigation and other costs
which may be imposed upon the Trustee as a result of an alleged or actual act,
or failure to act, on the part of the Trustee, the COMPANIES, a custodian or
trustee other than this Trustee, or any other person, and in consideration for
the Trustee's execution of this Agreement, the COMPANIES agree to indemnify the
Trustee, individually and as Trustee, against any and all loss, cost, damage,
expense, liability or claim (including, without limitation, reasonable
attorney's fees and expenses) which the Trustee may incur or pay out by reason
of any
21
<PAGE> 22
alleged or actual act, or failure to act, on the part of the Trustee, the
COMPANIES, a custodian or trustee other than this Trustee or any other person.
The undertaking of this Section 9.10 shall survive the amendment or termination
of this Trust Agreement or the resignation or removal of the Trustee.
The Trustee shall not be liable to any person for any obligations or
liabilities of the fund or any other entity or person, but each such person
shall look solely to the assets of the Fund or to such other entity or person,
as the case may be, for satisfaction of such obligations and liabilities.
X
COUNTERPARTS
10.1 This Agreement may be executed in one or more identical counterparts,
each of which shall be deemed on original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the COMPANIES and the Trustee have cause this Trust
Agreement to be executed on the day and year first above written.
(CORPORATE SEAL)
COMPANIES
Attest: /s/ James M. Stokes, M.D BY /s/ Richard V. Bradley, M.D
--------------------------------- -------------------------------
SECRETARY PRESIDENT
(CORPORATE SEAL) BOATMEN'S TRUST COMPANY
Attest: /s/ Timothy Lakewood BY /s/ GREGORY J. REYNDERS V.P.
--------------------------------- -------------------------------
SECRETARY Assistant Secretary GREGORY J. REYNDERS
22
<PAGE> 1
EXHIBIT 10.44
Exhibit B
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
the ___ day of ______________, 1994, by and between MOMED HOLDING CO., a
Missouri corporation ("MOMED"), and MISSOURI STATE MEDICAL ASSOCIATION, a
Missouri not-for-profit corporation ("MSMA"), RICHARD V. BRADLEY, M.D., KRIETE
H. HOLLRAH and LEONARD L. DAVIS, JR., M.D. (hereinafter collectively referred
to as the "Select Shareholders").
RECITALS
A. The Select Shareholders are the record and beneficial owners and have
the power to vote the respective number of shares of MOMED Class A Common
Stock, $1.00 par value, (the "MOMED Class A Common Stock") set forth on
Schedule A hereto (collectively, the "Shares").
B. The Select Shareholders desire that MSMA and MOMED enter into a Share
Exchange Agreement (the "Share Exchange Agreement") and a Nomination Agreement
(the "Nomination Agreement").
C. The Select Shareholders are executing this Voting Agreement as an
inducement to MSMA to enter into and execute the Share Exchange Agreement and
the Nomination Agreement.
In consideration of the premises and the mutual terms and provisions set
forth in this Agreement, the parties hereto agree as follows:
1. Covenants of the Select Shareholders.
a. At any meeting of MOMED shareholders called to vote upon the Share
Exchange Agreement and the Nomination Agreement or at any adjournment thereof
or in any other circumstances in which a vote or other approval of the
shareholders of MOMED of the Share Exchange Agreement and the Nomination
Agreement is sought, the Select Shareholders severally shall vote (or cause to
be voted) the Shares in favor of the Share Exchange Agreement and the
Nomination Agreement as well as in favor of such amendments to the Restated
Articles of Incorporation of MOMED as may be necessary or appropriate to
effectuate the terms of any thereof.
b. At any meeting of MOMED shareholders or at any adjournment thereof or
in any other circumstances in which a vote or other approval of the
shareholders of MOMED is sought, the Select Shareholders severally shall vote
(or cause to be voted) the Shares against any transaction or proposal which
would in any manner impede, frustrate, prevent, impair or nullify the Share
Exchange Agreement or the Nomination Agreement or any of the other transactions
contemplated by such agreements.
c. During the term of this Voting Agreement, at any meeting of MOMED
shareholders called to vote upon the election of Directors to the MOMED Board
of Directors or at any adjournment thereof, the Select Shareholders severally
shall vote (or cause to be voted) all Shares owned by them, as set forth
opposite their respective names in Schedule A hereto, cumulatively, in such
manner as shall be necessary to elect as a Director the MSMA nominee whose name
shall appear on the proxy materials distributed by or on behalf of MOMED.
d. During the term of this Voting Agreement, each of the Select
Shareholders severally agrees that this Voting Agreement and the obligations
hereunder shall attach to the Shares and shall be binding upon any person or
entity to whom legal or beneficial ownership of the Shares shall pass, whether
by operation of law or otherwise, including without limitation its respective
heirs, guardians, administrators or successors and to notify such transferee or
prospective transferee of the existence of this Voting Agreement. In the event
of any stock split, stock dividend, merger, reorganization, recapitalization or
other change in the capital structure of MOMED affecting the MOMED Class A
Common Stock, or acquisition of additional shares of MOMED Class A Common Stock
by any of the Select Shareholders, the number of Shares listed in Schedule A
beside the name of each such Select Shareholder shall be revised or adjusted
appropriately and this Voting Agreement and the obligations hereunder shall
attach to any such additional shares of MOMED Class A Common Stock.
2. Representations and Warranties. Each of the Select Shareholders
severally represents and warrants to MSMA that such Select Shareholder is the
beneficial and record owner of, and has full power and authority to dispose of
and the unrestricted right to vote, the number of shares of MOMED Class A
Common Stock set forth opposite such Select Shareholder's name in Schedule A
hereto.
26
<PAGE> 2
3. Legends. The Shares shall be legended to indicate that such Shares
are subject to the terms and conditions of this Voting Agreement.
4. Limitation of MSMA Ownership. During the term of this Voting
Agreement, including any extensions or renewals hereof, MSMA shall not, without
the consent of a majority of the MOMED Board of Directors, directly or
indirectly, acquire additional shares of the Class A Common Stock of MOMED so
as to increase its percentage ownership of the outstanding Class A Common Stock
of MOMED to more than fifteen percent (15%). In the event that MSMA's
percentage ownership of the MOMED Class A Common Stock should be increased on
account of any redemption of outstanding stock by MOMED, a reorganization of
the capital structure of MOMED or any other action of MOMED or its shareholders
(other than MSMA), MSMA shall not be deemed in default of this Paragraph 4.
5. Term. The term of this Voting Agreement shall begin on the closing
of the transactions contemplated in the Share Exchange Agreement and shall
expire sixty (60) months thereafter, but may be renewed or extended by
agreement of the parties hereto. Any renewal or extension of this Voting
Agreement must be agreed upon, in writing, at least six (6) months prior to the
end of the term of this Voting Agreement. Failure to renew or extend this
Voting Agreement as provided in this Paragraph 5 shall cause this Voting
Agreement to automatically expire and to be of no further force or effect.
6. Severability. Any provision of this Voting Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction is, as to such
jurisdiction, ineffective to the extent of any such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof, or affecting the validity, enforceability or legality of
such provision in any other jurisdiction, unless the ineffectiveness of such
provision would result in such a material change as to cause completion of the
transactions contemplated hereby to be unreasonable.
7. Entire Agreement. This Voting Agreement constitutes the entire
agreement between the parties and supersedes and cancels any and all prior
discussion, negotiations, undertakings and agreements between the parties
relating to the subject matter hereof.
8. Captions. The captions used herein are for convenience only and
shall not control of affect the meaning or construction of any of the
provisions of this Voting Agreement.
9. Waiver, Amendment or Modification. The conditions of this Voting
Agreement which may be waived may only be waived by notice to the other party
waiving such condition. The failure of any party at any time or times to
require performance of any provisions hereof (other than by written waiver)
shall in no manner affect the right at a later time to enforce the same. This
Voting Agreement may not be amended or modified except by a written document
duly executed by all of the parties hereto.
10. Rules of Construction. Unless the context otherwise requires: (a) a
term has the meaning assigned to it; (b) an accounting term not otherwise
defined has the meaning assigned to it in accordance with generally accepted
accounting principles; (c) "or" is not exclusive; and (d) words in the singular
may include the plural and in the plural include the singular.
11. Counterparts. This Voting Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
12. Successors and Assigns. This Voting Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
administrators, successors and assigns. There shall be no third party
beneficiaries hereof.
13. Governing Law; Assignment. This Voting Agreement shall be governed
by the laws of the State of Missouri. This Voting Agreement may not be
assigned by any of the parties hereto.
27
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have duly executed this Voting
Agreement as of the date first above written.
MOMED HOLDING CO.
By:
---------------------------------
Richard V. Bradley, M.D.,
President and Chief Executive
Officer
MISSOURI STATE MEDICAL ASSOCIATION
By
----------------------------------
H. Jerry Murrell, M.D., President
--------------------------------------
RICHARD V. BRADLEY, M.D.
--------------------------------------
KRIETE H. HOLLRAH
--------------------------------------
LEONARD L. DAVIS, JR., M.D.
28
<PAGE> 4
Schedule A
<TABLE>
<CAPTION>
Shares of Common
Stock Owned with Percentage of Total
Shareholder Power to Vote Shares Outstanding
----------- ----------------- -------------------
<S> <C> <C>
Richard V. Bradley, M.D. 12,025 5.4%
Kriete H. Hollrah 2,500 1.12%
Leonard L. Davis, Jr., M.D. 13,062 5.9%
</TABLE>
29
<PAGE> 1
EXHIBIT 10.45
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of February 24, 1995, between MOMED HOLDING
Co., a Missouri corporation (the "Company") and BOATMEN'S TRUST COMPANY, a
Missouri trust company (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one common share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding on March 6, 1995 (the
"Record Date"), each Right representing the right to purchase one Common Share
upon the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date and the Final Expiration Date (as
such terms are hereinafter defined).
IN CONSIDERATION of the premises and the mutual agreements herein set
forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 20% or more of the
Common Shares of the Company then outstanding, but shall not include the
Company, any Subsidiary (as such term is hereinafter defined) of the Company,
any employee benefit plan of the Company or any Subsidiary of the Company, or
any entity holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as
the result of an acquisition of Common Shares by the Company which, by reducing
the number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 20% or more of the Common Shares of the
Company then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 20% or more of the Common Shares of the Company then
outstanding by reason of share purchases by the Company and shall, after such
share purchases by the Company, become the Beneficial Owner of any additional
Common Shares of the Company, then such Person shall be deemed to be an
"Acquiring Person".
(b) "Affiliate" and "Associate" shall have the meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect an the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
<PAGE> 2
(i) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates
or Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner of,
or to beneficially own, (1) securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange or (2) securities which a Person or any of such Person's
Affiliates or Associates may be deemed to have the right to acquire pursuant to
any merger or other acquisition agreement between the Company and such Person
(or one or more of his Affiliates or Associates) if such agreement has been
approved by the Board of Directors of the Company prior to there being an
Acquiring Person; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by the
proviso to Section I(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, (1) the phrase "then outstanding" when used with reference to a
Person's Beneficial Ownership of securities of the Company shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder and (2) an agreement, arrangement
or understanding (whether or not in writing), or any communications or
discussions, among two or more Persons with respect to any matter relating to
the management, operation or conduct of the business of the Company, and
including discussing or agreeing on, or communicating with respect to, a
position with respect to any such matter and communicating such discussion,
communication, agreement or position to other Persons including stockholders of
the Company or to the Company shall not constitute an "agreement, arrangement
or understanding" for purposes of this Section I(c).
2
<PAGE> 3
(d) "Business Day" shall mean any day other than a
Saturday, a Sunday, or a day on which banking institutions in Missouri are
authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean
5:00 P.M., Central Time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., Central Time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the
Company shall mean the shares of Class A common stock, $1.00 par value per
share, of the Company. "Common Shares" when used with reference to any Person
other than the Company shall mean the capital stock (or equity interest) with
the greatest voting power of such other Person or, if such other Person is a
Subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth
in Section 3 hereof.
(h) "Final Expiration Date" shall have the meaning set
forth in Section 7 hereof.
(i) An "Offer" shall mean a written proposal delivered to
the Company by any Person who beneficially owns 1% or less of the outstanding
Voting Stock (as hereinafter defined) as of the date such proposal is delivered
and has not within one year prior to the delivery of such written proposal
beneficially owned in excess of 1% of the then outstanding Voting Stock of the
Company or (at any time when such Person beneficially owned a greater than 1%
stake) disclosed, or caused the disclosure of, any intention which relates to
or would result in the acquisition, or influence of control, of the Company (an
"Offeror"), and which proposal:
(A) provides for the acquisition of all of the
outstanding shares of each class or series of Voting Stock held by any Person
other than the Offeror and its Affiliates for cash, with all shares of any
particular class or series of Voting Stock to be acquired at the same price;
(B) is accompanied by a written opinion of a
nationally recognized investment banking firm, which opinion is addressed to
the holders of shares of Voting Stock other than the Offeror and its Affiliates
and states that the price to be paid to the holders (other than the Offeror and
its Affiliates) of each individual class or series of Voting Stock pursuant to
the Offer is fair to such holders;
(C) states that the Offeror has obtained written
financing commitments from recognized financing sources, or has on hand cash or
cash equivalents, for the full amount of all financing necessary to consummate
the Offer; and
(D) requests the Company to call a special
meeting of the holders of Voting Stock for the purpose of voting on a
resolution requesting the Board of Directors to accept such Offer and contains
a written agreement of the Offeror to pay (or share with any other Offeror)
3
<PAGE> 4
at least one-half of the Company's costs of such special meeting (exclusive of
the Company's costs of preparing and mailing proxy materials for its own
solicitation).
(j) "Person" shall mean any individual, firm,
corporation or other entity, and shall include any successor (by merger or
otherwise) of such entity.
(k) "Redemption Date" shall have the meaning set forth
in Section 7 hereof.
(l) "Shares Acquisition Date" shall mean the first date
of public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(m) "Subsidiary" of any Person shall mean any corporation
or other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
(n) A "Trigger Event" shall be deemed to have occurred
upon any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any Subsidiary of the Company, or any
entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becoming the
Beneficial Owner of 20% or more of the Common Shares of the Company then
outstanding. Notwithstanding the foregoing, no Trigger Event shall be deemed
to have occurred as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20% or more
of the Common Shares of the Company then outstanding; provided, however, that
in the event that a Person shall become the Beneficial Owner of 20% or more of
the Common Shares of the Company then outstanding by reason of share purchases
by the Company, a Trigger Event shall be deemed to have occurred upon such
Person, after such share purchase by the Company, becoming the Beneficial Owner
of any additional Common Shares of the Company.
(ii) "Voting Stock" shall mean (i) the Common Shares of the
Company and (ii) any other shares of capital stock of the Company entitled to
vote generally in the election of directors or entitled to vote together with
the Common Shares in respect of any merger, consolidation, sale of all or
substantially all of the Company's assets, liquidation, dissolution or winding
up. Whenever any provision of this Agreement requires a determination of
whether a number of shares of Voting Stock comprising a specified percentage of
such Voting Stock has been voted, tendered, acquired, sold or otherwise
disposed of, or a determination of whether a Person has offered or proposed to
acquire a number of shares of Voting Stock comprising such specified
percentage, the number of shares of Voting Stock comprising such specified
percentage of Voting Stock shall in every such case be deemed to be the number
of shares of Voting Stock comprising the specified percentage of the Company's
entire voting power then entitled to vote generally in the election of
directors or then entitled to vote together with the Common Shares in respect
of any merger, consolidation, sale of all or substantially all of the Company's
assets, liquidation, dissolution or winding up.
4
<PAGE> 5
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of
the Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable and, upon acceptance of such appointment by
a co-Rights Agent, the provisions of this Agreement applicable to the Rights
Agent shall be deemed also to apply to such co-Rights Agent.
Section 3. Issue of Right Certificates. (a) Until the earlier of
(i) the tenth day after the Shares Acquisition Date or (ii) the tenth Business
Day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person) after
the date of the commencement by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant
to the terms of any such plan) of, or of the first public announcement of the
intention of any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the Company or
any entity holding Common Shares for or pursuant to the terms of any such plan)
to commence, a tender or exchange offer the consummation of which would result
in any Person becoming the Beneficial Owner of Common Shares aggregating____% or
more of the then outstanding Common Shares (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Shares. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will countersign, and
the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, insured, postage prepaid mail, to each record
holder of Common Shares as of the close of business on the Distribution Date,
at the address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit A hereto (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable
thereafter, the Company will send a copy of a Summary of Rights to Purchase, in
substantially the form of Exhibit B hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown
on the records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders
thereof together with a copy of the Summary of Rights attached thereto. Until
the Distribution Date (or the earlier of the Redemption Date or the Final
Expiration Date), the surrender for transfer of any certificate for
5
<PAGE> 6
Common Shares outstanding on the Record Date, with or without a copy of the
Summary of Rights attached thereto, shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become
outstanding (including, without limitation, reacquired Common Shares referred
to in the last sentence of this paragraph (c)) after the Record Date but prior
to the earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:
This certificate also evidences and entities the holder hereof to
certain rights as set forth in a Rights Agreement between MOMED HOLDING
CO., and BOATMEN'S TRUST COMPANY, dated as of February 24, 1995 (the
"Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal executive
offices of MOMED HOLDING CO. Under certain circumstances, as set forth
in the Rights Agreement, such rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. MOMED
HOLDING CO. will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights issued to any Person who becomes an Acquiring Person
(as defined in the Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase and of assignment to be printed on the reverse
thereof) shall be substantially the same as Exhibit A hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of Common Shares as shall be set forth
therein at the price per Common Share set forth therein (the "Purchase Price"),
but the number of such Common Shares and the Purchase Price shall be subject
to adjustment as provided herein.
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Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, any of its Vice-Chairmen of the Board, its President and Chief Executive
Officer, any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or any Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the person who signed such
Right Certificates had not ceased to be such officer of the Company and any
Right Certificate may be signed on behalf of the Company by any person who, at
the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange, of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of Common Shares as
the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent. Thereupon the Rights
Agent shall countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of the Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the
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<PAGE> 8
Company's request, reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to the Rights Agent
and cancellation of the Right Certificate if mutilated, the Company will make
and deliver a new Right Certificate of like tenor to the Rights Agent for
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each Common Share as to which
the Rights are exercised, at or prior to the earliest of (i) the close of
business on February 24, 2005 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the "Redemption
Date"), or (iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The Purchase Price for each Common Share pursuant to
the exercise of a Right shall initially be $50.00, shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof and shall
be payable in lawful money of the United States of America in accordance with
paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the
holder of such Right Certificate in accordance with Section 9 hereof by
certified check, cashier's check or money order payable to the order of the
Company, the Rights Agent shall thereupon promptly (i) requisition from any
transfer agent of the Common Shares certificates for the number of Common
Shares to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 14 hereof, (iii) after receipt
of such certificates, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder and (iv) when appropriate, after
receipts deliver such cash to or upon the order of the registered holder of
such Right Certificate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of
such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
(e) The Company covenants and agrees that it will cause
to be reserved and kept available out of its authorized and unissued Common
Shares or any Common Shares held in its
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<PAGE> 9
treasury, the number of Common Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with this Section 7.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Rights Certificates to the Company, or shall, at the
written request of the Company destroy such canceled Right Certificates, and in
such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Common Shares. The Company covenants and
agrees that it will take all such action as may be necessary to ensure that all
Common Shares delivered upon exercise of Rights shall, at the time of delivery
of the certificates for such Common Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Common Shares upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates for the Common Shares in a name other than
that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates for Common
Shares upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Right Certificate at the time
of surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
Section 10. Record Date. Each person in whose name any certificate
for Common Shares is issued upon the exercise of Rights shall for all purposes
be deemed to have become the holder of record of the Common Shares represented
thereby on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and an applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment is a date upon which the Common
Shares transfer books of the Company are closed, such person shall be deemed
to have become the record holder of such shares on, and such certificate shall
be dated, the next succeeding Business Day on which the transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder
of Common Shares for which the Rights shall be exercisable, including, without
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<PAGE> 10
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive rights, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Common Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares into a smaller number of Common Shares or (D) issue
any shares of its capital stock in a reclassification of the Common Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as provided in this Section 11(a), the Purchase Price in effect at the time
of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification and the number and kind of shares
of capital stock issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
share transfer books of the Company were open, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event
(A) a Trigger Event shall have occurred (other than through an acquisition
described in subparagraph (iii) of this paragraph (a)) or (B) during such time
as there is an Acquiring Person, there shall be any reclassification of
securities (including any reverse stock split), or recapitalization or
reorganization of the Company or other transaction or series of transactions
involving the Company which has the effect, directly or indirectly, of
increasing by more than 1% the proportionate share of the outstanding shares of
any class of equity securities of the Company or any of its Subsidiaries
beneficially owned by any Acquiring Person or any Affiliate or Associate
thereof, each holder of a Right shall thereafter have a right to receive, upon
exercise thereof at a price equal to the then current Purchase Price multiplied
by the number of Common Shares for which a Right is then exercisable. in
accordance with the terms of this Agreement, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of Common Shares for which a Right is then
exercisable and dividing that product by (y) 50% of the then current per share
market price of the Company's Common Shares (determined pursuant to Section
11(d) hereof) on the date of the occurrence of the earlier of the events
described in clauses (A) and (B) above. In the event that any Person shall
become an Acquiring Person and the Rights shall then be outstanding, the
Company shall not take any action which would eliminate or diminish the
benefits intended to be afforded by the Rights. From and after the occurrence
of the earlier of
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<PAGE> 11
the events described in clauses (A) and (B) above, any Rights that are or were
acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominees of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights
be void pursuant to the preceding sentence shall be canceled.
(iii) The right to buy Common Shares of the Company
pursuant to subparagraph (ii)(A) of this paragraph (a) shall not arise as a
result of any Person becoming an Acquiring Person through a purchase of Common
Shares pursuant to a tender offer made in the manner prescribed by section
14(d) of the Exchange Act and the rules and regulations promulgated thereunder,
provided, however, that (A) such tender offer shall provide for the acquisition
of all of the outstanding Common Shares held by any Person other than such
Person and its Affiliates for cash and (B) such purchase shall cause such
Person, together with all Affiliates and Associates of such Person, to be the
Beneficial Owner of 80% or more of the Common Shares then outstanding.
(iv) In the event that there shall not be sufficient
Common Shares issued but not outstanding or authorized but unissued to permit
the exercise in full of the Rights in accordance with the foregoing paragraph
(ii). the Company shall take all such action as may be necessary to authorize
additional Common Shares for issuance upon exercise of the Rights.
(b) In case the Company shall fix a record date for the issuance
of rights, options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Common Shares or securities convertible into Common
Shares at a price per Common Share (or having a conversion price per share, if a
security convertible into Common Shares) less than the then current per share
market price of the Common Shares (as defined in Section 1l(d)) on such record
date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
Common Shares outstanding on such record date plus the number of Common Shares
which the aggregate offering price of the total number of Common Shares so to
be offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price and
the denominator of which shall be the number of Common Shares outstanding on
such record date plus the number of additional Common Shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such
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subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
Common Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of
a distribution to all holders of the Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quantity cash dividend or a
dividend payable in Common Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the then current per share market price of the
Common Shares on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Company, whose determination shall
be described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Common Share and the
denominator of which shall be such current per share market price of the Common
Shares; provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company to be issued upon exercise of one Right.
Such adjustments shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New
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<PAGE> 13
York Stock Exchange or, if the Security is not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Security is listed or admitted to
trading or, if the Security is not listed or admitted to trading on any
national securities exchanged the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use, or, if on any
such date the Security is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day. If the Common Shares are not publicly held or so listed or traded,
"current per share market price" shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest ten-thousandth
of a share as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the date of the expiration of the right
to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Common Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Common Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Common Shares shall
apply on like terms to any such other share.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustments as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall
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<PAGE> 14
thereafter evidence the right to purchase, at the adjusted Purchase Price, that
number of Common Shares (Calculated to the nearest ten-thousandth) obtained by
(i) multiplying (x) the number of shares covered by a Right immediately prior
to this adjustment by (y) the Purchase Price in effect immediately prior to
such adjustment of the Purchase Price and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of Common Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of Common Shares for which a Right
was exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least 10 days
later than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed
to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders of record
in substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of Common Shares issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express
the Purchase Price and the number of Common Shares which was expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the Common
Shares issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Common Shares at such adjusted Purchase Price.
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<PAGE> 15
(1) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
of the Common Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Common Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Common Shares, issuance
wholly for cash of any Common Shares at less than the current market price,
issuance wholly for cash of Common Shares or securities which by their terms
are convertible into or exchangeable for Common Shares, dividends on Common
Shares payable in Common Shares or issuance of rights, options or warrants
referred to hereinabove in Section 11(b), hereafter made by the Company to
holders of its Common Shares shall not be taxable to such stockholders.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 and 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shams a copy of such certificate and (c) mail a brief summary thereof to each
holder of a Right Certificate in accordance with Section 25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. In the event, directly or indirectly, (a) the Company shall
consolidate with, or merge with and into, any other Person, (b) any Person
shall consolidate with the Company, or merge with and into the Company and the
Company shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (c) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person other than the Company or one or more
of its wholly-owned Subsidiaries, then, and in each such case, proper provision
shall be made so that (w) each holder of a Right (except as otherwise provided
herein) shall thereafter have the right to receive, upon the exercise thereof
at the then current Purchase Price multiplied by the number of Common Shares
for which a Right is then exercisable in accordance with the terms of this
Agreement, such number of Common Shares of such other Person (including the
Company as successor thereto or as the surviving corporation) as shall equal
the result obtained
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by (A) multiplying the then current Purchase Price by the number of Common
Shares for which a Right is then exercisable and dividing that product by (B)
50% of the then current per share market price of the Common Shares of such
other Person (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer, (x) the issuer of
such Common Shares shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, sale or transfer, all the obligations and duties
of the Company pursuant to this Agreement; (y) the term "the Company" shall
thereafter be deemed to refer to such issuer, and (z) such issuer shall take
such steps (including, but not limited to, the reservation of a sufficient
number of its Common Shares in accordance with Section 9 hereof) in connection
with such consummation as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in relation to
the Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The
Company shall not enter into any transaction of the kind referred to in this
Section 13 if at the time of such transaction there are any rights, warrants,
instruments or securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights. The
provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a
whole Right. For the purposes of this Section 14(a), the current market value
of a whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or,
if the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Rights selected by the Board of Directors of the Company. If on any such date
no such market maker is making a market in the Rights, the fair value of the
Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
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<PAGE> 17
(b) The Company shall not be required to issue fractions of Common
Shares upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares (other than fractions which are integral multiples of
one one-hundredths of a Common share). Fractions of Common Shares may, at the
election of the Company, be evidenced by depositary receipts pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they
are entitled as beneficial owners of the Common Shares represented by such
depositary receipts. In lieu of fractional Common Shares, the Company shall pay
to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of
the current market value of one Common Share. For the purpose of this Section
14(b), the current market value of a Common Share shall be the closing price of
a Common Share (as determined pursuant to the second sentence of Section 11(d)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
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<PAGE> 18
(c) the Company and the Rights Agent may deem and treat the person
in whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Common Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises. The
Rights Agent shall be protected and shall incur no liability for, or in respect
of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction. consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advise of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent. Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the
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<PAGE> 19
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement. In case at any time the name of the Rights
Agent shall be changed and at such time any of the Right Certificates shall
have been countersigned but not delivered, the Rights Agent may adopt the
counter-signature under its prior name and deliver Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by anyone of the Chairman of the Board, any
Vice-Chairman of the Board, the President and Chief Executive Officer, any Vice
President, the Secretary or the Treasurer of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
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<PAGE> 20
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement of the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13, 23 or 24, or the ascertaining of
the existence of facts that would require any such change or adjustment (except
with respect to the exercise of Rights evidenced by Right Certificates after
actual notice that such change or adjustment is required); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Common Shares to be issued Pursuant to this
Agreement or any Right Certificate or as to whether any Common Shares will,
when issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, any Vice-Chairman of the Board, the President
and Chief Executive Officer, any Vice President, the Secretary or the Treasurer
of the Company, and to apply to such officers for advice or instructions in
connection with its duties. and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such
officer or for any delay in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act,
default, neglect or misconduct, provided reasonable care was exercised in the
selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in
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<PAGE> 21
writing mailed to the Company and to each transfer agent of the Common Shares
by registered or certified mail, and to the holders of the Right Certificates
by first class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares by registered or certified mail, and to the holders of the Right
Certificates by first class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by
the Company), then the registered holder of any Right Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be a corporation organized and doing business under the laws of
the United States or of the State of Missouri (or of any other state of the
United States so long as such corporation is authorized to do business as a
banking institution in the State of Missouri), in good standing, having an
office in the State of Missouri, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares,
and mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificate&. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement.
Section 23. Redemption. The Rights may be redeemed by action of the
Board of Directors pursuant to paragraph (a) of this Section 23 or by
stockholder action pursuant to paragraph (b) of this Section 23 and shall not
be redeemed in any other manner.
(a) The Board of Directors of the Company may, at its option, at
any time prior to such time as any Person becomes an Acquiring Person, redeem
all but not less than all the then
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<PAGE> 22
outstanding Rights at a redemption price of $0.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
refined to as the "Redemption Price"). The redemption of the Rights by the
Board of Directors may be made effective at such time on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
(b) (i) In the event the Company receives an Offer from any
Offeror, the Board of Directors of the Company shall call a special meeting of
stockholders (the "Special Meeting") for the purpose of voting on a precatory
resolution requesting the Board of Directors to accept such Offer, as such
Offer may be amended or revised by the Offeror from time to time to increase
the price per share in cash to be paid to holders of shares of Voting Stock
(the "Resolution"). The Special Meeting shall be held on a date selected by the
Board of Directors, which date shall be not less than 90 and not more than 120
days after the later of (A) the date such Offer is received by the Company (the
"Offer Date") and (B) the date of any meeting of stockholders already scheduled
as of the Offer Date; provided, however, that if (x) such other meeting shall
have been called for the purpose of voting on a precatory resolution with
respect to another Offer and (y) the Offer Date shall be not later than fifteen
days after the date such other Offer was received by the Company, then both the
Resolution and such other resolution shall be voted on at such meeting and such
meeting shall be deemed to be the Special Meeting. The Board of Directors
shall set a date for determining the stockholders of record entitled to notice
of and to vote at the Special Meeting in accordance with the Company's Restated
Articles of Incorporation and Bylaws and with applicable law. At the Offeror's
request, the Company shall include in any proxy soliciting material prepared by
it in connection with the Special Meeting proxy soliciting material submitted
by the Offeror; provided, however, that the Offeror shall by written agreement
with the Company contained in or delivered with such request have indemnified
the Company against any and all liabilities resulting from any misstatements,
misleading statements and omissions contained in the Offeror's proxy soliciting
material and have agreed to pay the Company's incremental costs incurred as a
result of including such material in the Company's proxy soliciting material.
Notwithstanding the foregoing, no Special Meeting shall be held from and after
such time as any Person becomes an Acquiring Person, and any Special Meeting
scheduled prior to such time and not theretofore held shall be canceled.
(ii) If at the Special Meeting the Resolution receives the
affirmative vote of a majority of the shares of Voting Stock outstanding as of
the record date of the Special Meeting, then all of the Rights shall be
redeemed by such stockholder action at the Redemption Price, effective
immediately prior to the consummation of any tender offer (provided that such
tender offer is consummated prior to 60 days after the date of the Special
Meeting) pursuant to which any Person offers to purchase all of the shares of
Voting Stock held by Persons other than such Person and its Affiliates at a
price per share in cash equal to or greater than the price contained in the
Resolution approved at the Special Meeting; provided, however, that the Rights
shall not be redeemed at any time from and after such time as any Person
becomes an Acquiring Person.
(iii) Nothing contained in this paragraph (b) shall be
deemed to be in derogation of the obligation of the Board of Directors of the
Company to exercise its fiduciary duty.
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<PAGE> 23
Without limiting the foregoing, nothing contained herein shall be construed to
suggest or imply that the Board of Directors shall not be entitled to reject
any Offer, or to recommend that holders of shares of Voting Stock reject any
tender offer, or to take any other action (including, without limitation, the
commencement, prosecution, defense or settlement of any litigation and the
submission of additional or alternative Offers or other proposals to the
Special Meeting) with respect to any Offer or any tender offer that the Board
of Directors believes is necessary or appropriate in the exercise of such
fiduciary duty.
(iv) Nothing in this paragraph (b) shall be construed as
limiting or prohibiting the Company or any Offeror from proposing or engaging,
at any time, in any acquisition, disposition or other transfer of any
securities of the Company, any merger or consolidation involving the Company,
any sale or other transfer of assets of the Company, any liquidation,
dissolution or winding-up of the Company, or any other business combination or
other transaction, or any other action by the Company or such Offeror,
provided, however, that the holders of Rights shall have the rights set forth
in this Agreement with respect to any such acquisition, disposition, transfer,
merger, consolidation, sale, liquidation, dissolution, winding-up, business
combination, transaction or action.
(d) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, or upon the effectiveness of the redemption of the Rights pursuant
to paragraph (b) of this Section 23, and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect, any such notice shall not
affect the validity of such redemption. Within 10 days after such action of the
Board of Directors ordering the redemption of the Rights pursuant to paragraph
(a) or the effectiveness of the redemption of the Rights pursuant to paragraph
(b), as the case may be, the Company shall mail a notice of redemption to all
the holders of the then outstanding Rights at their last addresses as they
appear upon the registry book of the Rights Agent or, prior to the Distribution
Rate, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given.
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be
made. Neither the Company nor any of its Affiliates or Associates may redeem,
acquire or purchase for value any Rights at any time in any manner other than
that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase or Common Shares prior to the
Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the Company may,
at its option, at any time after the occurrence of a Trigger Event, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share
per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as
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<PAGE> 24
the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors
shall not be empowered to effect such exchange at any time after any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any such Subsidiary, or any entity holding Common Shares
for or pursuant to the terms of any such plan), together with all Affiliates
and Associates of such Person, becomes the Beneficial Owner of 50% or more of
the Common Shares then outstanding.
(b) Immediately upon the effective date of the action of the Board
of Directors of the Company ordering the exchange of any Rights pursuant to
subsection (a) of this Section 24 and without any further action and without
any notice, the right to exercise such Rights shall terminate and the only
right thereafter of a holder of such Rights shall be to receive that number of
Common Shares equal to the number of such Rights held by such holder multiplied
by the Exchange Ratio. The Company shall promptly give public notice of any
such exchange; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent on the effective date of said action of the Board of Directors
ordering the exchange of Rights. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the Common Shares for Rights will be effected and, in the event of
any partial exchange. the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with Section 24(a), the Company shall take
all such action as may be necessary to authorize additional Common Shares for
issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (d), the current market value of a whole Common
Share shall be the closing price of a Common Share (as determined pursuant to
the second sentence of Section 11(d) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24(a).
Section 25. Notice of Certain Events. (a) In case the Company shall
propose (i) to pay any dividend payable in stock of any class to the holders of
its Common Shares or to make any other distribution to the holders of its
Common Shares (other than a regular quarterly cash dividend), (ii) to offer to
the holders of its Common Shares rights or warrants to subscribe for
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<PAGE> 25
or to purchase any additional Common Shares or shares of stock of any class or
any other securities, rights or options, (iii) to effect any reclassification
of its Common Shares (other than a reclassification involving only the
subdivision of outstanding Common Shares), (iv) to effect any consolidation or
merger into or with, or to effect any sale or other transfer (or to permit one
or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the Company
and it Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or
pay any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination, or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purpose of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up is to take place and the date of participation
therein by the holders of the Common Shares, if any such date is to be fixed,
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for determining
holders of the Common Shares, for purposes of such action, and in the case of
any such other action, at least 10 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
Common Shares.
(b) In case any of the events set forth in Section 11(a)(ii)
hereof shall occur, then the Company shall as soon as practicable thereafter
give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of the occurrence of such events which notice shall describe
such event and the consequences of such event to holders of Rights under
Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Right Certificate to or on the Company shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Rights Agent) as follows:
MOMED HOLDING CO.
8630 Delmar Blvd., Suite 100
St. Louis, Missouri 63124
Attention: President and Chief Executive Officer
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class sail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
BOATMEN'S TRUST COMPANY
510 Locust Street
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<PAGE> 26
St. Louis, Missouri 63101
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates (or, prior to the Distribution Date, the Common Shares) to
make any provision with respect to the Rights which the Company may deem
necessary or desirable, any such supplement or amendment to be evidenced by a
writing signed by the Company and the Rights Agent whether or not it would
adversely affect the holders of Right Certificates; provided, however, that
from and after such time as any Person becomes an Acquiring Person, this
Agreement shall not be amended in any manner which would adversely affect the
interests of the holders of Rights. Without limiting the foregoing, the Company
may at any time prior to such time as any Person becomes an Acquiring Person
amend this Agreement to lower the thresholds set forth in Sections 1(a), 1(o)
and 3(a) to not less than the greater of (i) any percentage greater than the
largest percentage of the outstanding Common Shares then known by the Company
to be beneficially owned by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or any Subsidiary of
the Company, or any entity holding Common Shares for or pursuant to the terms
of any such plan) or (ii) 10%.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company,
the Rights Agent and the registered holders of the Right Certificates (and.
prior to the Distribution Date, the Common Shares) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Missouri and for
26
<PAGE> 27
all purposes shall be governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed entirely within
such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
MOMED HOLDING CO.
Attest:
By By /s/ Richard V. Bradley,M.D.
---------------------------- --------------------------------------
Secretary President and Chief Executive Officer
BOATMEN'S TRUST COMPANY
Attest:
By By
---------------------------- --------------------------------------
----------------- -----------------
27
<PAGE> 1
EXHIBIT 10.46
[LETTERHEAD] PAULI & COMPANY INCORPORATED
July 24, 1996
CONFIDENTIAL
Board of Directors
MOMED Holding Co.
c/o Richard V. Bradley, M.D.
President and Chief Executive Officer
8630 Delmar Blvd., Suite 100
St. Louis, MO 63124
Re: Retention of Pauli & Company, Incorporated for Purpose of Rendering a
Fairness Opinion
Gentlemen:
We are pleased to confirm our understanding that MOMED Holding Co. ("MOMED" or
the "Company") has retained Pauli & Company, Incorporated ("PCI") to render a
Fairness Opinion Letter ("Opinion Letter"), from a financial point of view, to
the Board of Directors of MOMED with regard to the proposed merger (the
"Merger") of MOMED with MAIC Holdings, Inc. ("MAIC").
PCI is actively engaged in the investment banking and securities research
practice, including the valuation of businesses, their cash flows, securities
and economic values in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. PCI specializes in middle-market companies of the size and character
of MOMED.
1. Engagement. When conducting its investigation and analyses and in
arriving at its opinion in connection with its engagement hereunder, PCI will
take into account such accepted financial and investment banking procedures and
considerations as PCI deems relevant, including, but not limited to, a review
of the following: (i) the proposed terms of the Merger, including Form A as
filed with the Insurance Department of Missouri on July 3, 1996, (ii) the
current market valuations of other public companies similar to MOMED and MAIC,
(iii) the financial terms of other recent transactions similar to the proposed
Merger, if any; (iv) the historical audited financial and statutory statements
of the Company and MAIC, (v) the current financial position of the Company,
(vi) internal financial projections of the Company; (vii) the general condition
of securities markets, and (viii) discussions about the foregoing with members
of senior management and the Board of the Company. PCI's Opinion Letter will
be based upon market, economic, financial and other conditions existing and
disclosed to us as of the date of the issuance of the Opinion Letter. PCI
shall have no obligation to revise or update its Opinion Letter for any event,
matter or condition which occurs or comes to its attention subsequent to the
date of its Opinion Letter.
The Company represents and warrants to PCI that any information provided to PCI
regarding the Company does not and will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
in order to make any statements made not misleading. PCI will not attempt to
verify independently any such information, nor will PCI make or obtain an
independent appraisal of the assets or liabilities (contingent or otherwise) of
the Company. With respect to financial estimates and projections, PCI will
assume that they have been reasonably prepared and reflect the best currently
available information and judgment of management. PCI will rely on the Company
to advise it promptly if any information previously provided becomes inaccurate
or requires updating during its period of review. The Company agrees to notify
PCI promptly of the assertion against the Company of any claim, action, or
proceeding relating to the proposed Merger, or any other material matter during
the period of PCI's review.
<PAGE> 2
MOMED Holding Co.
July 24, 1996
Page 2
The Company agrees that the Opinion Letter will be for the confidential use of
the Company's Board of Directors. PCI consents to a reference to this
engagement and the Opinion Letter in the Company's S-4 filing to be made with
the Securities and Exchange Commission provided such reference is in a form
reasonably acceptable to PCI and its counsel. The Opinion Letter shall not be
used for any other purpose without PCI's prior written consent.
2. Fees and Expenses. In consideration of PCI's services to the Company,
MOMED agrees to pay PCI a fee in the amount of $10,000. One-half of such fee
will be paid upon the acceptance of this letter and the other half which will
be paid upon the delivery of the written Opinion Letter to the Company's Board
of Directors.
The Company also agrees to reimburse PCI's reasonable out-of-pocket expenses
incurred in the performance of its duties under this engagement including, but
not limited to, database search, telecommunication, copy, courier, and postage
expenses.
3. Indemnification. The Company agrees: (i) to indemnify and hold
harmless PCI (which term for the purpose of this Paragraph 3 includes its
directors, shareholders, officers, employees and agents) against and from all
losses, claims, damages or liabilities, joint or several (and all actions,
claims, proceedings and investigations in respect thereof), to which PCI may
become subject in connection with its performance of the services contemplated
by this letter under any of the Federal Securities laws, under any other
statute, at common law or otherwise; (ii) that PCI will not be culpable for and
will have no liability to the Company for or with respect to any and all
losses, claims, damages or liabilities, joint or several, of the Company
incurred in connection with PCI's performance of its obligations hereunder; and
(iii) in each case to reimburse PCI for all reasonable legal and other
out-of-pocket expenses (including the cost of investigation and preparation) as
and when incurred by PCI arising out of or in connection with any action,
claim, proceeding or investigation (whether initiated or conducted by the
Company or any other party) in connection therewith, whether or not resulting
in liability (and whether or not PCI is a defendant in, or target of, any such
action, claim, proceeding or investigation); provided, however, that the
Company shall not be liable to PCI pursuant to clauses (i) and (iii) above and
the Company's exculpation of PCI pursuant to clause (ii) above shall not apply
in any case and to any extent that any such loss, claim, damage or liability is
found in a final judgment by a court of competent jurisdiction to have resulted
primarily and directly from PCI's gross negligence or willful misconduct in
performing its services hereunder. If for any reason the foregoing
indemnification (including reimbursement pursuant to clause (iii) above) or
exculpation is unavailable, PCI's liability as a result of such loss, claim,
damage or liability shall be limited to an obligation of contribution thereto
in such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and PCI on the other hand but also the
relative fault of the Company and PCI as well as any relevant equitable
considerations, provided that, in no event, will PCI's aggregate contribution
hereunder exceed the amount of fees actually received by PCI hereunder. The
indemnity, exculpation, reimbursement and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall survive any termination of the obligations
hereunder and shall be binding upon and extend to the benefit of any
successors, assigns, heirs and personal representatives of the Company and PCI.
If any action, claim, proceeding or investigation is instituted or threatened
against PCI in respect of which indemnity may be sought against the Company
hereunder, PCI shall promptly notify the Company thereof in writing, but the
omission so to notify shall not relieve the Company from any obligation that
the Company may have to PCI under this letter or otherwise. PCI will have the
right to retain counsel of its choice to represent PCI in connection with any
such action, claim, proceeding or investigation, provided that the Company
shall have the right to approve such counsel, which approval shall not be
unreasonably
<PAGE> 3
MOMED Holding Co.
July 24, 1996
Page 3
withheld. The Company will not be liable hereunder for any settlement thereof
by PCI without the Company's written consent, which will not be unreasonably
withheld.
4. Choice of-Law. This agreement, and the rights and the obligations of
the parties hereto, shall be governed by and construed in accordance with the
laws of the State of Missouri.
Please confirm that the foregoing terms correctly set forth our agreement by
signing and returning to PCI the duplicate copy enclosed herewith.
We look forward to working with you on this assignment.
Very truly yours,
PAULI & COMPANY, INCORPORATED
By: /s/ Chris H. Pauli
---------------------------------------
Chris H.Pauli, President
ACCEPTED AND AGREED:
MOMED HOLDING CO.
By: /s/ Richard V. Bradley, M.D. Date: July 25, 1996
--------------------------------------- ------------------------
Name: Richard V. Bradley, M.D.
--------------------------------
Title: President/C.E.O.
-------------------------------
<PAGE> 1
EXHIBIT 13
TABLE OF CONTENTS
Investor
Information................................................ 2
From the President......................................... 3
MAIC at a Glance........................................... 5
Financial Summary.......................................... 8
Management's Discussion.................................... 9
Consolidated Balance Sheets................................ 14
Consolidated Statements of Changes in Capital.............. 16
Consolidated Statements of Income.......................... 17
Consolidated Statements of Cash Flows...................... 18
Notes to Consolidated Financial Statements................. 19
Report of Independent Auditors............................. 28
<PAGE> 2
MAIC HOLDINGS, INC.
MAIC HOLDINGS, INC., THROUGH ITS SUBSIDIARY COMPANIES, IS NATIONALLY RECOGNIZED
FOR ITS LEADERSHIP IN PROVIDING MALPRACTICE PROTECTION TO PHYSICIANS,
HOSPITALS, DENTISTS, AND HEALTH CARE ORGANIZATIONS THROUGH RISK FINANCING AND
INSURANCE PROGRAMS WHICH COORDINATE TRADITIONAL INSURANCE WITH EFFECTIVE
CLINICAL RISK MANAGEMENT. AS MAIC ENTERS ITS THIRD DECADE OF OPERATION, IT
CONTINUES TO EXPAND ITS INSURANCE OPERATIONS IN RESPONSE TO THE EVER-CHANGING
NEEDS OF HEALTH CARE PROFESSIONALS AND FACILITIES. THE COMPANY IS WIDELY KNOWN
FOR EXCELLENT CUSTOMER SERVICE AND INNOVATIVE, COST-EFFECTIVE INSURANCE
PROGRAMS THAT ADDRESS THE CHALLENGES OF THE EVOLVING MEDICAL/LEGAL ENVIRONMENT.
MAIC IS RECOGNIZED AS ONE OF THE MOST FINANCIALLY STABLE COMPANIES
IN ITS INDUSTRY. ITS SUBSIDIARIES, MUTUAL ASSURANCE, MEDICAL ASSURANCE OF WEST
VIRGINIA, AND PHYSICIANS INSURANCE COMPANY OF INDIANA, ARE RATED A+ (SUPERIOR)
BY A.M. BEST.
<PAGE> 3
INVESTOR INFORMATION
At December 31, 1995, the Company had 2,723 shareholders of record and
9,369,832 shares of common stock outstanding. The common stock of MAIC
Holdings, Inc. trades on the Nasdaq National Market Tier of the Nasdaq Stock
Marketsm under the symbol MAIC.
The quarterly price range for MAIC Holdings, Inc. stock is shown below:
<TABLE>
<CAPTION>
1995 1994
Quarter High Low High Low
- ------------------------------------------------------
<S> <C> <C> <C> <C>
First $27.25 $25.25 $24.50 $20.50
Second 30.00 26.00 21.25 19.75
Third 32.00 28.00 30.25 20.00
Fourth 35.25 29.25 30.00 24.75
</TABLE>
Such quotations reflect interdealer prices without retail mark up, mark down or
commission and may not necessarily represent actual transactions.
On December 14, 1995, the Board of Directors of MAIC Holdings, Inc. declared a
stock dividend of six percent. On December 15, 1994, December 16, 1993 and
December 10, 1992, the Board of Directors of Mutual Assurance, Inc. declared
stock dividends of five percent. Prior to that time no dividends were paid on
common stock. MAIC Holdings, Inc. currently intends to continue the policy of
not paying a regular cash dividend.
MAIC
HOLDINGS INC.
<PAGE> 4
FROM THE PRESIDENT
[PHOTO]
A. DERRILL CROWE, M.D.
President
My letter to you this year will strike a familiar chord to those who
have followed Mutual Assurance over the years. We continue to believe that the
pace of change in the health care environment is accelerating, and that
companies with strong, stable balance sheets and a history of commitment can
prosper. In 1995, we saw ample evidence that change is a constant for our
insureds, and we also found opportunities for expansion because of our
financial strength.
Let me recap our expansion in 1995. First, our purchase of Physicians Insurance
Company of Indiana became final, and as we sought to cement our position in the
midwest we acquired the professional liability business of Physicians Insurance
Company of Ohio. These acquisitions, coupled with our previous purchase of what
is now Medical Assurance of West Virginia, provide a solid foundation in this
crucial area, and the opportunity to develop a meaningful market presence over
the next two to three years.
We continue to seek additional avenues of expansion through acquisition. For
example, we have recently announced the signing of a letter of intent with
MOMED Holding Company, the Missouri-based parent company of Missouri Medical
Insurance Company (MOMEDICO), to explore ways to have MOMED become a
Missouri-based subsidiary. We share a common heritage with MOMEDICO, and their
endorsement by the Missouri State Medical Association mirrors our philosophy of
involvement in organized medicine. For both companies the advantages are clear
cut; MOMEDICO brings a presence in another part of the midwest, and offers the
opportunity to insure hospitals and clinics throughout Missouri. In turn,
MOMEDICO's insureds will, over time, benefit from our financial strength and
the insuring arrangements to be developed with the local health care systems
and organizations in which they practice.
In addition to growth by acquisition, we are expanding the number of states in
which we write business. We are now licensed in 32 states and the District of
Columbia and our plans call for our ability to offer coverage nationwide, with
a concentration in the south and midwest, making us a "super-regional" company
capable of meeting our customers' needs no matter where these needs evolve.
While we pursue a strategy of universal licensure we are concentrating our
activity in states where we have a niche to fill. We have identified several
states where our financial strength and long-term commitment to our insureds
will elevate us above the competition.
Mutual Assurance has expanded as far west as Texas, and by insuring a mix of
physicians, hospitals and clinics, we are creating a climate that will nurture
the type of steady, profitable growth that we are seeking. Our expansion into
the midwest continues to meet with success, and we are pleased to report
continuing loyalty among policyholders renewing with us.
In every market we serve we are expanding the coverages we offer to include
managed care liability and provider excess to address capitated contracts.
These new coverages respond to the developing litigation and loss trends in the
marketplace and further enhance our position as a market leader.
As we seek to serve our current and emerging customers, we find ourselves
competing with some of the largest companies in the insurance industry.
Consequently, we've forged several alliances with reinsurers and distribution
organizations (e.g., Medical Reinsurance Corporation), to represent our
interests nationwide. We are also cognizant of the need to work more closely
with agents and brokers as we seek wider distribution and a new range of
customers.
continued
3
<PAGE> 5
FROM THE PRESIDENT (CONTINUED)
We are poised to further enhance our strategic position as the evolution of
health care gives birth to ever-larger and more diverse health care
organizations, networks and systems. These larger entities require companies of
multi-state scope and financial capacity. The reality is that only a few
companies exist that can fulfill the needs of these new entities. As this
becomes more apparent, the larger delivery systems are turning to multi-state
carriers like ours which offer a variety of needed services to complement the
required financial strength.
This in turn forces many smaller companies, or those that are less than
adequately capitalized, to seek partners in order to survive. Where the events
produce opportunities in geographic areas in which we have an interest, we
intend to explore business combinations. We do not intend to expand without
regard for prudence and good judgment and, thus, may not elect to pursue every
opportunity that presents itself.
Those companies that are unable to form needed partnerships or combinations may
seek to survive through "bargain-basement" pricing and cash flow underwriting
that will create chaos in the marketplace and ultimately lead to a shakeout in
our industry. The bottom line is that we will not sacrifice stability and
strength for market share, and we are financially prepared to bear the
short-term consequences as weaker competitors weed themselves out of the
industry. While there are insureds who consider only price, our experience has
proven that there are insurance purchasers who value financial stability,
long-term commitment and superior services, and will pay a fair price for that
coverage.
We also recognize that we must be prepared to bear the costs associated with
the growth and expansion required to ensure our ability to develop the programs
and capabilities these insureds will require. We will expend the time and money
required to evaluate potential partners and, if successful, assimilate them
into our operations. But rest assured that as we move forward we are conscious
of the need to balance the costs of expansion with the ultimate dividends to be
paid in security and stability for our insureds.
While we do recognize the need to respond quickly to opportunities for growth
and expansion, we also realize the bedrock value that lies in our relationship
with private practicing physicians and dentists--the core of our original
business. We remain committed to them, and again promise that the individual
practicing solo or in a small group setting will never be able to buy finer
protection--or better service--at any price. But to be able to serve those
needs and live up to our commitments, we have to develop programs for the
larger market so that we can ensure our survival and security for the benefit
of all our insureds, particularly the insureds who have been loyal to us since
our founding.
As I address long-term survival, let me assure you we do not look to
Washington, or the Legislatures in states where we operate, for long-term
relief from onerous legal conditions. The hope of real, effective Tort Reform
appears to be a pipe dream in all but a handful of states and is, for now, an
unrealistic expectation in Washington. Rest assured we will continue to explore
and support Tort Reform initiatives, but the prognosis is not good.
In the final analysis, tremendous opportunities remain for a financially secure
insurance company willing to accept carefully selected risks at reasonable and
competitive prices. Because we have effectively managed our resources in the
past, we are in a position of strength today and are able to capitalize on those
opportunities as they arise.
I want to close with a heartfelt thank you to our Board, management and
employees who have made our progress possible. And to the investors who believe
in our philosophy, and have placed their trust in us, you have my thanks and my
pledge that we will continue to earn your faith and confidence.
4
<PAGE> 6
FOR TWENTY YEARS, THE DRIVING FORCE BEHIND OUR EVERY DECISION HAS BEEN ENHANCING
THE PROTECTION WE OFFER OUR POLICYHOLDERS. WE RECOGNIZE THE CHANGING NATURE OF
THE RISKS FACING HEALTH CARE AND ARE CONTINUING TO DEVELOP NEW PRODUCTS TO
ENSURE THAT OUR INSUREDS WILL FACE THE FUTURE WITH CONFIDENCE. WE ARE
JUSTIFIABLY PROUD OF OUR RECORD OF INNOVATION AND OUR ABILITY TO RESPOND
SWIFTLY AS CHANGES OCCUR.
5
<PAGE> 7
WE ARE EQUALLY PROUD OF THOSE ASPECTS OF OUR OPERATIONS THAT WILL NEVER CHANGE.
OUR COMMITMENT TO A SOUND, STABLE FINANCIAL FOUNDATION IS UNWAVERING. WE
CONTINUE TO BE RATED AS ONE OF THE STRONGEST PROFESSIONAL LIABILITY INSURERS IN
AMERICA AND OUR PROMISE TO BE "HERE TODAY...HERE TOMORROW" HAS NEVER BEEN MORE
IMPORTANT.
We also point with pride to our commitment to the defense of our insureds. Our
financial foundation allows us to defend from a position of strength and to
continue to be an effective advocate for fairness in the courtroom.
We recognize that today's insurance partnership demands more than just
insurance, and our Risk Management, Education and Consulting Services put us at
the forefront of nationwide efforts to coordinate traditional insurance with
effective clinical risk management.
Almost 11,000 physicians count on us because they know that no other company
can beat our proven track record of long-term commitment and courtroom success,
and as the pace of change in health care intensifies, we've proven time and
again that no company responds more quickly to changing needs.
For example, as legal theories of contractual liability are expanding, our
policies are being changed to cover this risk for our physician insureds. We've
further liberalized our "tail coverage" provisions, developed new risk sharing
arrangements for newly emerging groups, and implemented new Risk Management and
Education programs--all in response to the changing needs of our insureds.
We have expanded our panel of attorneys as we have continued to grow. This
allows us to continue the tradition of providing the finest defense possible
with local attorneys who are responsive to the needs of our insureds. Physician
insureds continue to benefit from policy provisions requiring us to obtain
their unconditional written consent to settle (where allowed by law) and they
are assured that our physician Claims and Underwriting Committees allow their
concerns to be heard, and their needs addressed.
Likewise, the Company's commitment to our more than 2,500 dental insureds
continues to grow as well. Dentistry presents unique challenges, and our
custom-designed programs such as Total Practice Protection(sm) ensure that we
offer one of the most comprehensive package policies available anywhere.
Like every other aspect of health care, the legal challenges facing dentistry
are evolving, and the risks are growing at an alarming rate. Unlike many
companies which view dental professional liability as a sideline, we realize
the seriousness of the problems facing dentistry. We have responded by
developing specialized Risk Management and Education programs and rewarding
dentists for their completion of those programs.
We have claims specialists who actively manage all dental litigation, and
dental claims are assigned to local attorneys who are specialists in the
defense of dental malpractice suits. Dentists retain true consent to settle
rights where allowed by law and their needs and concerns are championed by a
Dental Claims and Underwriting Committee.
Hospitals are turning to us for a wide range of coverage options. Many prefer
traditional first-dollar coverage, but an increasing number of facilities are
choosing to
6
<PAGE> 8
protect themselves through a custom-designed risk sharing partnership.
Our view of the insuring partnership extends beyond the traditional role of an
insurer. We have developed joint hospital/physician insurance programs which
help control liability risk at the outset, and when lawsuits are filed,
provide a more effective coordinated defense. The results speak for themselves:
We've proven that our approach leads to more effective patient care with a
lower risk of lawsuits, and the correspondingly lower costs of insurance are
passed on to the participating hospitals and physicians.
Within these insurance programs we provide an integrated approach to Risk
Management and Education that complements and enhances existing efforts.
Additionally, we offer a wide range of consulting services designed to help
hospitals and clinics with a variety of issues such as meeting the standards of
the Joint Commission on Accreditation of Healthcare Organizations or developing
an effective Case Management or Quality Improvement program.
We present Loss Prevention seminars for individual insureds on a regular basis,
and we are implementing site-specific Risk Management programs which utilize a
variety of methods to identify and reduce risk within an office-based practice.
In fact, we take our Loss Prevention and Education commitment so seriously that
we have undergone the rigorous process of becoming accredited by the
Accreditation Council for Continuing Medical Education to sponsor continuing
medical education for physicians. That commitment to excellence extends
throughout our Education and Risk Management endeavors.
And in a year where shock verdicts involving managed care organizations have
resounded across the country, we have expanded our Managed Care Liability
programs. As the court system sorts through the complicated legal issues
surrounding liability in managed care, we are abreast of the changes brought
about by the courts and are constantly adapting our coverages to keep pace. Our
managed care specialists work with managed care organizations to make coverage
recommendations and suggest education solutions that can help reduce the most
potent risks. For example, our Loss Prevention and Risk Management programs for
managed care organizations address high risk areas such as utilization review,
practice protocols and protocol development, credentialling, and billing
technologies.
As an adjunct to managed care coverages we have developed provider excess
coverage for physicians, hospitals and other health care providers
participating in capitation contracts. These policies compliment existing
liability protection for individuals and organizations and ensure that we can
provide complete coverage against the emerging risks in health care.
7
<PAGE> 9
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Years Ended December 31
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Direct and assumed
premiums written $ 108,442 $ 74,275 $ 65,856 $ 68,090 $ 67,684
Earned premiums before
reinsurance and commutation 94,517 73,282 65,553 68,369 68,806
Reinsurance expense before
commutation (18,564) (11,856) (8,324) (9,876) (14,366)
Net effect from commutation of
reinsurance treaties on
net earned premiums -- -- -- -- 297
Net premiums earned 75,953 61,427 57,228 58,493 54,738
Net investment income 29,582 23,072 22,468 21,673 19,190
Other income 4,738 1,107 7,976 4,928 2,122
Total revenues 110,273 85,607 87,672 85,094 76,049
Net losses and loss
adjustment expenses 53,642 43,887 44,774 48,629 47,064
Net income (A) 29,663 24,767 30,529 22,900 17,532
Net income per share of
common stock (B) $ 3.17 $ 2.63 $ 3.18 $ 2.37 --
Weighted average number
of shares outstanding 9,369,429 9,418,057 9,613,670 9,668,908 --
</TABLE>
(A) Net income for 1993 includes $3.6 million which represents the cumulative
effect of a change in accounting for income taxes (see Note 2 of the
consolidated financial statements).
(B) As a result of the Company's conversion from a mutual insurer to a stock
insurer during September, 1991, earnings per share have been disclosed only
for 1992, 1993 and 1994. In December, 1995, the Board of Directors declared
a 6% stock dividend. Earnings, per share data for 1995, 1994, 1993 and 1992
have been stated as if all dividends had been declared on January 1, 1992.
Additionally, treasury stock is excluded from the date of acquisition for
purposes of determining the weighted average number of shares outstanding
used in the computation of net income per share of common stock.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
December 31
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total investments $ 543,998 $ 437,865 $ 423,098 $ 367,396 $ 315,620
Total assets (C) 720,478 565,744 507,529 438,061 380,864
Reserve for losses and
loss adjustment expenses (C) 432,945 356,000 312,333 283,507 256,948
Total liabilities (C) 512,465 404,194 352,619 322,189 288,200
Total capital (D) 206,030 159,648 153,138 114,384 91,516
Total capital per share of
common stock $ 21.97 $ 17.79 $ 17.92 $ 13.77 $ 11.56
Common stock outstanding
at end of year 9,369,832 8,839,708 8,535,762 8,307,561 7,913,277
</TABLE>
(C) Total investments and capital at December 31, 1995, 1994 and 1993
includes net unrealized gains and/or losses on available-for-sale
securities resulting from the Company's adoption of Statement 115. In
accordance with Statement 115, prior-year financial statements have not
been restated to reflect this change in accounting principle.
(D) Data prior to 1993 has been reclassified for the adoption of Statement
113.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For purposes of this management discussion and analysis, the term "Company"
refers to MAIC Holdings, Inc. and its consolidated subsidiaries. The Company's
consolidated financial statements include the accounts of MAIC Holdings, Inc.
and its consolidated subsidiaries. The Company's principal subsidiaries include
Mutual Assurance, Inc. (Mutual Assurance) a wholly-owned subsidiary, Medical
Assurance of West Virginia (MA-West Virginia), a wholly-owned subsidiary,
PROActive Insurance, a majority-owned subsidiary, and, for 1995, Physicians
Insurance Company of Indiana (PIC-Indiana), a wholly-owned subsidiary. The
portion of operations attributable to the minority interests of PROActive
Insurance must be removed from the Company's consolidated statements of income.
This removal is shown on one line at the bottom of the consolidated statements
of income.
MAIC Holdings, Inc. is a Delaware corporation formed by Mutual Assurance to
serve as a holding corporation for Mutual Assurance and other subsidiaries. On
August 31, 1995, Mutual Assurance and MAIC Holdings, Inc. consummated an
Agreement and Plan of Exchange (Plan of Exchange) which generally provided that
each share of common stock of Mutual Assurance, par value $1 per share, would
be exchanged for one share of common stock of MAIC Holdings, Inc., par value $1
per share. MAIC Holdings, Inc. common stock succeeded Mutual Assurance common
stock for trading on the Nasdaq/NMS under the trading symbol "MAIC."
The variances discussed below include amounts attributable to the operations of
all the companies. Although balances attributable to the subsidiaries other
than Mutual Assurance may be significant to specific variances, they are not
material to the total operations or the financial condition of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The payment of losses, loss adjustment expenses, and operating expenses in the
ordinary course of business is currently the Company's principal need for
liquid funds. Cash used to pay these items has been provided by operating
activities. Cash provided from these activities was sufficient during 1995 to
meet the Company's needs, and the Company believes those sources will be
sufficient to meet its cash needs for operating purposes for at least the next
twelve months. Prolonged and increasing levels of inflation could cause
increases in the dollar amount of losses and loss adjustment expenses and may
therefore adversely affect future reserve development. To minimize such risk,
the Company (i) maintains what its management considers to be strong and
adequate reinsurance, (ii) conducts regular actuarial reviews to ensure, among
other things, that current reserves do not become deficient, and (iii)
maintains adequate asset liquidity.
continued
9
<PAGE> 11
The Company did not borrow any funds during the years ended December 31, 1995
and 1994, and currently has no requirements indicating a need to borrow
significant funds in the next twelve months. However, the need for additional
capital may arise in order to achieve the Company's ultimate goals of
expansion, as discussed in the following paragraph. The Company continues to
have available through a lending institution a line of credit in the amount of
$40 million that could be used for these additional capital requirements. The
Company is not charged a fee nor is it required to maintain compensating
balances in connection with this line of credit.
BUSINESS EXPANSION
The Company has undertaken efforts to expand its business to accommodate
multi-state risks and otherwise increase the volume of its professional
liability insurance book of business. Such efforts may include expansion
through acquisition of, or combination with, insurers doing business in other
states; reinsurance of risks insured by other insurers; and direct writing of
professional liability insurance and/or other health care related insurance
products in other states in which the Company is licensed to offer such
insurance.
Effective July 16, 1995, the Company acquired the recurring medical
professional insurance business of Physicians Insurance Company of Ohio
(PIC-OHIO) and its subsidiary, The Professionals Insurance Company. During the
period on or after July 16, 1995 through December 31, 1995, Mutual Assurance
reinsured all risks attaching under their medical professional liability
insurance policies on or after July 16, 1995; this reinsurance agreement
terminated at December 31, 1995. For risks attaching after December 31, 1995,
the Company will renew all policies in Mutual Assurance's name.
During 1995, the Company acquired the outstanding capital voting stock of
PIC-Indiana, an Indiana provider of medical malpractice insurance. The stock
was acquired from various shareholders, including the Indiana State Medical
Association, and resulted in an ownership of approximately 100% of the
outstanding capital voting stock. Selected unconsolidated financial data for
PIC-Indiana as of December 31, 1995 is as follows:
<TABLE>
- ------------------------------------------------------
<S> <C>
Fixed maturities available for sale,
at market value $ 34,755,000
Equity securities available for sale,
at market value 115,000
Premiums written 9,054,000
Premiums earned 9,165,000
Net investment income 2,532,000
Losses and loss
adjustment expenses 10,282,000
- ------------------------------------------------------
</TABLE>
Effective January 1, 1994, the Company purchased 100% of the outstanding common
stock of MA-West Virginia, a West Virginia provider of medical malpractice
insurance.
Total consideration paid for the 1995 and 1994 business expansion transactions
was approximately $12,266,000. The goodwill and other intangibles resulting
from these transactions totaled $2,139,000 and are being amortized over periods
ranging from 10 to 15 years.
Subsequent to December 31, 1995, the Company signed a letter of intent to have
MOMED Holding Company become a Missouri-based subsidiary of MAIC Holdings, Inc.
MOMED Holding Company is the parent company of Missouri Medical Insurance
Company, which is a provider of medical malpractice insurance. Although the
terms of the agreement have not been determined, MAIC Holdings, Inc. does not
expect the ultimate purchase price to exceed 10% of the Company's stockholders'
equity.
The Board of Directors of Mutual Assurance authorized the purchase of up to
$10,000,000 of its common stock in the open market. Prior to the Plan of
Exchange, approximately $6.6 million had been utilized to acquire treasury
stock. The Plan of Exchange resulted in the retirement of 166,971 shares of
treasury stock held by Mutual Assurance prior to the exchange. The treasury
stock retirement resulted in the restatement of common stock, additional
paid-in capital and treasury stock as of December 31, 1994, and December 31,
1993. Subsequent to the Plan of Exchange, the Company's Board of Directors
authorized the use of the remaining $3.4 million of funds for purposes of
purchasing its own common stock in the open market.
CHANGES IN ACCOUNTING PRINCIPLES
During 1995 the Financial Accounting Standards Board issued Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. Management has determined
that long-lived assets are fairly stated as of December 31, 1995, and that no
indicators of impairment are present. In accordance with the new rules, the
Company's prior year financial statements have not been restated to reflect the
changes in accounting principle.
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by the
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes. The cumulative effect of adopting the standard as of January 1, 1993 was
to increase net income by $3,630,000.
10
<PAGE> 12
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
PREMIUMS
The following table presents information related to consolidated written and
earned premiums and reinsurance expense (dollars in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Increase
1995 1994 (Decrease)
---------------------------------
<S> <C> <C> <C>
Direct and assumed
premiums written $108,442 $ 74,275 $34,167
Premiums earned 94,517 73,282 21,235
Premiums ceded (18,564) (11,856) 6,708
Net premiums earned 75,953 61,427 14,527
- ---------------------------------------------------------------------
</TABLE>
The net increase in premiums written is due principally to (i) an increase of
$14,586,000 in Mutual Assurance direct premiums written in states other than
Alabama, (ii) the addition of physician premiums for MA-West Virginia in the
amount of $9,320,000, (iii) PIC-Indiana premiums written of $9,054,000 and (iv)
the addition of premiums assumed by Mutual Assurance from PIC-Ohio in the
amount of $6,442,000. Effective January 1, 1995, MA-West Virginia
received the exclusive endorsement of the West Virginia State Medical
Association as a provider of physicians' professional liability insurance.
Partially offsetting these increases is (i) a decrease of $3,442,000 on certain
retrospective policies whose ultimate premiums are based on losses incurred on
those policies and (ii) a $2,973,000 decrease in written premiums due to the
elimination of the PROActive Insurance book of business, which is discussed in
the following paragraph. Other variations in the normal course of business for
the Company comprise the remainder of the variance.
During 1993 management elected to discontinue the PROActive Insurance book of
business. Individual product policyholders were not renewed during 1994 and
were offered the opportunity to move their coverage to an unrelated carrier
effective March 1, 1994. Effective January 1, 1995, the group hospital and
major medical health insurance book of business was discontinued and assumed by
an unrelated carrier. PROActive Insurance had no individual or hospital and
major medical premiums in 1995. Management has not determined the future
operations of PROActive Insurance.
The Company cedes reinsurance to provide for greater diversification of
business, allow management to control exposure to potential losses arising from
large risks, and provide additional capacity for growth. Premiums ceded are
estimated based on the terms of the respective reinsurance agreements. The
estimated expense is continually reviewed and any adjustments which become
necessary are included in current operations. Amounts recoverable from
reinsurers are estimated in a manner consistent with the claim liability
associated with the reinsured policies. The $6,708,000 increase in premiums
ceded for the year ended December 31, 1995 as compared to the year ended
December 31, 1994 is principally due to (i) new business written by MA-West
Virginia, (ii) an increase in Mutual Assurance business outside the state of
Alabama, including PIC-Ohio, and (iii) an increase in business from the
addition of PIC-Indiana.
INVESTMENT INCOME
The Company had consolidated net investment income of $29,582,000 for the year
ended December 31, 1995, reflecting an increase of $6,509,000 (28.2%) as
compared to the year ended December 31, 1994. The increased income is primarily
due to an increase in the amount of invested assets, which for 1995 includes
the investments of PIC-Indiana. In addition, the yield on invested assets
increased to approximately 6.2% for 1995 from approximately 5.6% for 1994. The
1995 purchase of PIC-Indiana contributed $34,870,000 to the portfolio.
Excluding the PIC-Indiana investments and their respective investment income,
the yield on the remaining investments increased to approximately 6.0% in 1995
from 5.6% in 1994. The increase in the yield of invested assets primarily
resulted from higher available market rates of interest on taxable investments.
For purposes of the above discussion, invested assets are comprised of fixed
maturities, equity securities, short-term investments and investment in
unconsolidated subsidiary; the earnings on such invested assets constitute the
related net investment income. The Company calculates the yield on invested
assets by dividing the related investment income (annualized for interim
periods) by the monthly average of invested assets.
The principal investment objective of the Company is to achieve a high level of
after-tax income while minimizing risk. Although fixed maturity securities are
purchased with the initial intent to hold such securities until their maturity,
disposals of securities prior to their respective maturities may occur if
management believes such disposals are consistent with the Company's overall
investment objectives, including maximizing after-tax yields. Equity securities
of $6.6 million at December 31, 1995 are primarily fixed rate preferred stocks
which have principally the same characteristics of fixed maturity bonds.
Disposition of investments prior to maturity may result in a net gain or loss
which would be classified as "Other Income"
11
<PAGE> 13
OTHER INCOME
Other income increased by $3,631,000 for the year ended December 31, 1995
compared to the year ended December 31, 1994. The increase is principally
attributable to higher capital gains realized upon the sale of securities
during 1995 as compared to 1994.
LOSSES
Reserves for losses and loss adjustment expenses represent management's best
estimates of the ultimate cost of all losses incurred but unpaid. The reserves
were evaluated by independent consulting actuaries and reflect consideration of
prior loss experience and changes in the frequency and severity of claims.
Actual incurred losses may vary from estimated amounts due to the inherent
difficulty in estimating development of long-tailed lines of business. The
estimated liability is continually reviewed and any adjustments which become
necessary are included in current operations. However, the Company's management
believes its actual incurred losses and loss adjustment expenses will not vary
significantly from reported estimated amounts.
Consolidated loss and loss adjustment expenses (Losses) and the related loss
ratios are summarized in the following table (dollars in thousands). The ratio
for losses and loss adjustment expenses below is based on premiums earned; the
ratio for net losses and loss adjustment expenses is based on net premiums
earned.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1995 1994
-----------------------------------------
Loss Loss
Losses Ratio Losses Ratio
-----------------------------------------
<S> <C> <C> <C> <C>
Losses and loss
adjustment expenses $73,325 78% $56,777 77%
Reinsurance recoveries (19,683) (12,890)
------- -------
Net losses and loss
adjustment expenses 53,642 71% 43,887 71%
======= =======
- --------------------------------------------------------------------------
</TABLE>
The Company's losses and loss adjustment expenses for the year ended December
31, 1995 reflect a loss ratio of 78% compared to a loss ratio of 77% for the
year ended December 31, 1994. The above loss ratios reflect improvement of loss
development in prior years coverage. However, as the Company continues its
expansion efforts, the improvement of loss development for prior years could
have a smaller impact on the loss ratios of future years.
The increase in reinsurance recoveries primarily results from (i) reinsurance
treaties related to MA-West Virginia and (ii) reinsurance recoveries resulting
from the increase in Mutual Assurance business outside the state of Alabama,
including PIC-Ohio and (iii) an increase in business resulting from the
addition of PIC-Indiana.
UNDERWRITING, ACQUISITION AND INSURANCE EXPENSES
Consolidated expenses increased by $7,436,000 (71.1%) for the year ended
December 31, 1995 compared to the year ended December 31, 1994. The increase in
consolidated expenses occurred primarily as a result of new business obtained by
the Company during 1995. As the Company continues its expansion efforts,
additional costs are expected to be incurred to investigate potential
opportunities and to integrate the successful opportunities into the Company's
operations.
Identifiable expenses which increased are attributable to (i) operating
expenses of $2,747,000 incurred relating to PIC-Indiana, (ii) increased
commissions and other taxes, licenses and fees associated with business
expansion of $1,781,000, including $438,000 of miscellaneous expenses relating
to PIC-Ohio, (iii) an increase of $1,108,000 in commissions and policy
administration fees incurred by MA-West Virginia in connection with the
issuance of policies to physicians in West Virginia, (iv) an increase of
$644,000 in employee benefit costs principally due to a change from a
self-insured health care plan, in which costs were included as a part of net
losses and loss adjustment expense, to a third party insurance carrier, under
which costs are included in underwriting, acquisition and insurance expense,
and (v) other increases associated with the normal operations of the Company.
INCOME TAXES
The Company's effective tax rates for the years ended December 31, 1995 and
1994 were 23% and 20%, respectively. The 1995 and 1994 effective tax rates were
lower than the statutory rate of 35%. The principal reason for the Company's
lower effective tax rate is the effect of tax exempt investment income. There
are no loss carryforwards included in the deferred tax asset.
12
<PAGE> 14
RESULTS OF OPERATIONS
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
PREMIUMS
The following table presents information related to consolidated written and
earned premiums and reinsurance expense (dollars in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------
Increase
1994 1993 (Decrease)
-------------------------------
<S> <C> <C> <C>
Direct and assumed
premiums written $ 74,275 $65,856 $8,420
Premiums earned 73,282 65,553 7,730
Premiums ceded (11,856) (8,324) 3,531
Net premiums earned 61,427 57,228 4,198
- ----------------------------------------------------
</TABLE>
The net increase in premiums written is due primarily to (i) premiums in 1994 of
$3,881,000 for MA-West Virginia, (ii) an increase of $2,559,000 on certain
retrospective policies whose ultimate premiums are based on losses incurred on
those policies, and (iii) increases in new Mutual Assurance business outside of
Alabama in the amount of $2,244,000. Other variations in the normal course of
business for Mutual Assurance, along with the decrease in PROActive Insurance
premiums, comprise the remainder of the variance.
The $3,531,000 increase in premiums ceded for the year ended December 31, 1994
compared to the year ended December 31, 1993 is principally due to new business
outside of Alabama, including MA-West Virginia.
INVESTMENT INCOME
The Company had consolidated net investment income of $23,072,000 for the year
ended December 31, 1994, reflecting an increase of $605,000 (2.7%) from the year
ended December 31, 1993. The increased income is primarily due to an increase in
the amount of invested assets. The yield on invested assets decreased from
approximately 6.2% for the year of 1993 to approximately 5.6% for the year of
1994. The decreased yield on invested assets primarily results from (i) an
increase in the amount of assets invested in tax-exempt securities, and (ii) the
effect of investing in securities with shorter maturities.
OTHER INCOME
Other income decreased by $6,868,000 for the year ended December 31, 1994
compared to the year ended December 31, 1993. The decrease is principally
attributable to a decrease in capital gains, from a $7,136,000 capital gain in
1993 to a $101,000 capital gain in 1994.
LOSSES
Consolidated loss and loss adjustment expenses and the related loss ratios are
summarized in the following table (dollars in thousands). The ratio for losses
and loss adjustment expenses below is based on premiums earned; the ratio for
net losses and loss adjustment expenses is based on net premiums earned.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1994 1993
--------------------------------------
Loss Loss
Losses Ratio Losses Ratio
--------------------------------------
<S> <C> <C> <C> <C>
Losses and loss
adjustment expenses $56,777 77% $53,810 82%
Reinsurance recoveries (12,890) (9,036)
------- -------
Net losses and loss
adjustment expenses 43,887 71% 44,774 78%
======= =======
- --------------------------------------------------------------------
</TABLE>
The Company's losses and loss adjustment expenses for the year ended December
31, 1994 reflect a loss ratio of 77% compared to a loss ratio of 82% for the
year ended December 31, 1993. This reduction in loss ratio is principally
attributable to an improvement in the loss development of prior coverage years.
The Company's losses are based on an annual review of actual loss experience and
reflect (i) consideration of prior loss experience and (ii) changes in the
frequency and severity of claims. Management gave consideration to these items
in establishing its loss reserves.
The increase in reinsurance recoveries primarily results from reinsurance
treaties related to MA-West Virginia.
UNDERWRITING, ACQUISITION, AND INSURANCE EXPENSES
Consolidated expenses increased by $1,654,000 (18.8%) for the year ended
December 31, 1994 compared to the year ended December 31, 1993. This increase
is principally attributable to operating expenses incurred during the period by
MA-West Virginia in the amount of $1,056,000. In addition, there were increases
in the costs associated with expansion and marketing, as well as other
increases incurred in the normal operations of the company. These increases are
partially offset by a decrease in commissions paid to independent agents by
PROActive Insurance.
INCOME TAXES
The Company's effective tax rate for the years ended December 31, 1994 and 1993
was 20%, which was lower than the statutory rate of 35%. The principal reason
for the Company's lower effective tax rate is the effect of tax exempt
investment income. In addition, as a result of the increase in the federal
income tax rate during 1993, the Company incurred an additional $299,000
current tax expense, but realized under Financial Accounting Standards Board
Statement 109 an additional deferred tax benefit of $743,000. There are no loss
carryforwards included in the deferred tax asset.
13
<PAGE> 15
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1995 1994
--------------------------
ASSETS
<S> <C> <C>
Investments:
Fixed maturities available for sale, at market value $483,734,285 $380,971,334
Equity securities available for sale, at market value 6,614,805 --
Real estate, net 11,816,165 11,779,502
Investment in unconsolidated affiliate 3,534,585 3,294,239
Short-term investments 38,298,141 41,819,898
--------------------------
Total investments 543,997,981 437,864,973
Cash and cash equivalents 4,238,067 5,021,971
Premiums receivable 20,416,767 8,338,404
Receivable from reinsurers 80,467,711 60,245,044
Prepaid reinsurance premiums 13,271,997 4,484,634
Deferred taxes 29,339,519 30,860,846
Income taxes receivable -- 435,111
Other assets 28,746,446 18,493,286
$720,478,488 $565,744,269
==========================
</TABLE>
14
<PAGE> 16
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1995 1994
--------------------------
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Policy liabilities:
Reserve for losses and loss adjustment expenses $432,945,449 $356,000,257
Unearned premiums 47,319,355 25,572,053
Reinsurance premiums payable 18,338,773 14,217,707
--------------------------
Total policy liabilities 498,603,577 395,790,017
Income taxes payable 2,090,222 --
Other liabilities 11,771,560 8,403,618
--------------------------
Total liabilities 512,465,359 404,193,635
Commitments and contingencies -- --
Minority interests 1,982,870 1,903,018
Stockholders' equity
Common stock, par value $1.00 per share;
100,000,000 shares authorized; 9,376,956 and
8,974,137 shares issued including shares held
in treasury, respectively 9,376,956 8,974,137
Additional paid-in capital 92,012,826 77,536,287
Net unrealized gains (losses) on securities
available for sale, net of deferred taxes of
$7,195,663 and $(1,812,378), respectively 13,363,374 (3,365,846)
Retained earnings 91,415,411 79,269,379
--------------------------
206,168,567 162,413,957
Less treasury stock at cost, 7,124 and 134,429 shares, respectively (138,308) (2,766,341)
--------------------------
Total stockholders' equity 206,030,259 159,647,616
--------------------------
$720,478,488 $565,744,269
==========================
</TABLE>
See accompanying notes.
15
<PAGE> 17
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
<TABLE>
<CAPTION>
Additional Net
Common Paid-In Unrealized Retained Treasury
Stock Capital Gains (Losses) Earnings Stock Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $8,307,561 $61,464,507 $ -- $44,612,223 $ -- $114,384,291
5% stock dividend ($30,727 paid
in cash in lieu of fractional shares) 405,672 8,772,657 -- (9,209,056) -- (30,727)
Change in market value on securities
available for sale, net of deferred taxes -- -- 12,369,286 -- -- 12,369,286
Retirement of common stock (166,971) (3,718,648) -- -- -- (3,885,619)
Purchase of treasury stock -- -- -- -- (228,125) (228,125)
Net income -- -- -- 30,529,377 -- 30,529,377
--------------------------------------------------------------------------------
Balance at December 31, 1993 8,546,262 66,518,516 12,369,286 65,932,544 (228,125) 153,138,483
5% stock dividend ($35,805 paid
in cash in lieu of fractional shares) 425,975 10,968,846 -- (11,430,626) -- (35,805)
Change in market value on securities
available for sale, net of deferred taxes -- -- (15,735,132) -- -- (15,735,132)
Common stock issued for
service awards 1,900 48,925 -- -- -- 50,825
Purchase of treasury stock -- -- -- -- (2,538,216) (2,538,216)
Net income -- -- -- 24,767,461 -- 24,767,461
--------------------------------------------------------------------------------
Balance at December 31, 1994 8,974,137 77,536,287 (3,365,846) 79,269,379 (2,766,341) 159,647,616
6% stock dividend ($22,530 paid
in cash in lieu of fractional shares) 530,127 16,964,064 -- (17,516,721) -- (22,530)
Change in market value on securities
available for sale, net of deferred taxes -- -- 16,729,220 -- -- 16,729,220
Common stock issued for
service awards 400 12,800 -- -- -- 13,200
Retirement of common stock (127,708) (2,500,325) -- -- 2,628,033 --
Net income -- -- -- 29,662,753 -- 29,662,753
--------------------------------------------------------------------------------
Balance at December 31, 1995 $9,376,956 $92,012,826 $13,363,374 $91,415,411 $(138,308) $206,030,259
================================================================================
</TABLE>
See accompanying notes.
16
<PAGE> 18
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Direct and assumed premiums written $108,441,923 $74,275,317 $65,855,554
============================================================
Premiums earned $ 94,517,165 $73,282,261 $65,552,615
Premiums ceded (18,563,930) (11,855,557) (8,324,243)
------------------------------------------------------------
Net premiums earned 75,953,235 61,426,704 57,228,372
Net investment income 29,581,536 23,072,356 22,467,821
Other income 4,738,191 1,107,444 7,975,908
------------------------------------------------------------
Total revenues 110,272,962 85,606,504 87,672,101
Expenses:
Losses and loss adjustment expenses 73,324,848 56,776,904 53,810,390
Reinsurance recoveries (19,683,156) (12,889,649) (9,036,448)
------------------------------------------------------------
Net losses and loss adjustment expenses 53,641,692 43,887,255 44,773,942
Underwriting, acquisition,
and insurance expenses 17,896,789 10,461,128 8,807,260
------------------------------------------------------------
Total expenses 71,538,481 54,348,383 53,581,202
------------------------------------------------------------
Income before income taxes,
minority interests, and cumulative
effect of change in accounting
for income taxes 38,734,481 31,258,121 34,090,899
------------------------------------------------------------
Provision for income taxes:
Current expense 12,693,534 8,853,518 11,166,392
Deferred (benefit) (3,701,658) (2,494,378) (4,258,381)
------------------------------------------------------------
8,991,876 6,359,140 6,908,011
------------------------------------------------------------
Income before minority interests
and cumulative effect of change in
accounting for income taxes 29,742,605 24,898,981 27,182,888
Minority interests (79,852) (131,520) (283,819)
------------------------------------------------------------
Income before cumulative effect of
change in accounting for income taxes 29,662,753 24,767,461 26,899,069
Cumulative effect on prior years of a
change in accounting for income taxes -- -- 3,630,308
------------------------------------------------------------
Net income $ 29,662,753 $24,767,461 $30,529,377
============================================================
Earnings per share:
Income before cumulative effect of
change in accounting for income taxes $ 3.17 $ 2.63 $ 2.80
Cumulative effect on prior years of a
change in accounting for income taxes -- -- 0.38
------------------------------------------------------------
Net income $ 3.17 $ 2.63 $ 3.18
============================================================
Weighted average number
of common shares outstanding 9,369,429 9,418,057 9,613,670
============================================================
</TABLE>
See accompanying notes.
17
<PAGE> 19
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 29,662,753 $24,767,461 $30,529,377
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Cumulative effect of change
in accounting for income taxes -- -- (3,630,308)
Depreciation and amortization 2,034,482 3,006,105 2,985,321
Net realized (gain) on sale of investments (3,569,241) (100,559) (7,135,523)
Deferred income taxes (benefit) (3,701,658) (2,494,378) (4,258,381)
Other (139,865) (12,934) (78,235)
Changes in assets and liabilities:
Premiums receivable (11,901,578) (1,708,261) 287,329
Income taxes receivable/payable 2,105,103 (1,502,867) (141,620)
Receivable from reinsurers (19,129,477) (12,850,330) (8,965,972)
Prepaid reinsurance premiums (8,179,195) (1,001,529) 472,359
Other assets (3,641,503) (2,769,791) (4,958,790)
Reserve for losses and
loss adjustment expenses 40,912,192 29,415,805 28,825,884
Unearned premiums 17,551,941 1,500,538 302,940
Reinsurance premiums payable 3,988,447 2,929,059 1,921,330
Other liabilities 1,242,153 (1,188,506) (478,412)
----------------------------------------------------
Net cash provided by operating activities 47,234,554 37,989,813 35,677,299
INVESTING ACTIVITIES
Purchases of fixed maturities and
equity securities (202,281,324) (114,684,210) (87,013,452)
Proceeds from sale or maturities
of fixed maturities and equity securities 157,361,369 32,888,059 102,784,585
Net decrease (increase) in
short-term investments 3,607,831 51,160,306 (48,226,487)
Purchase of subsidiaries, net of cash acquired (4,159,961) (1,109,305) --
Other (2,523,843) (672,330) 1,268,967
----------------------------------------------------
Net cash (used) by investing activities (47,995,928) (32,417,480) (31,186,387)
FINANCING ACTIVITIES
Dividends paid (22,530) (35,805) (30,727)
Purchase of treasury stock -- (2,538,216) (228,125)
Retirement of common stock -- -- (3,885,619)
----------------------------------------------------
Net cash (used) by financing activities (22,530) (2,574,021) (4,144,471)
----------------------------------------------------
(Decrease) increase in cash and
cash equivalents (783,904) 2,998,312 346,441
Cash and cash equivalents at beginning of year 5,021,971 2,023,659 1,677,218
----------------------------------------------------
Cash and cash equivalents at end of year $ 4,238,067 $ 5,021,971 $ 2,023,659
====================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Income taxes $10,521,743 $ 10,867,533 $11,371,856
====================================================
</TABLE>
See accompanying notes.
18
<PAGE> 20
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. ACCOUNTING POLICIES
PLAN OF EXCHANGE AND REORGANIZATION
MAIC Holdings, Inc. is a Delaware corporation formed by Mutual
Assurance, Inc. to serve as a holding company for Mutual Assurance and
subsidiaries. On August 31, 1995, Mutual Assurance and MAIC Holdings, Inc.
consummated an Agreement and Plan of Exchange which is accounted for in a
manner similar to a pooling of interests. Under the terms of the agreement,
Mutual Assurance shareholders exchanged the 8,846,429 of issued and outstanding
shares, par value $1 per share, for an equal amount of shares of the common
stock of MAIC Holdings, Inc., par value $1 per share. The common stock of MAIC
Holdings, Inc. succeeded Mutual Assurance common stock for trading on the
Nasdaq/NMS under the trading symbol "MAIC."
The plan of exchange resulted in the retirement of 166,971 shares of treasury
stock held by Mutual Assurance prior to the exchange. The treasury stock
retirement resulted in the restatement of common stock, additional paid-in
capital and treasury stock as of December 31, 1994, and December 31, 1993. The
plan of exchange and combination of the companies had no effect on the net
assets, total stockholders' equity or net income reported previously by the
consolidated companies. Prior to the reorganization, MAIC Holdings, Inc. had no
revenues or net income.
At December 31, 1995, MAIC Holdings, Inc. had 100 million shares of authorized
common stock and 50 million shares of authorized preferred stock. The Board of
Directors has the authorization to determine the provisions for the issuance of
shares of the preferred stock, including the number of shares to be issued and
the designations, powers, preferences and rights, and the qualifications,
limitations or restrictions of such shares. At December 31, 1995, the Board of
Directors had not authorized the issuance of any preferred stock nor determined
any provisions for the preferred stock.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MAIC Holdings,
Inc. and its subsidiaries, Mutual Assurance, MAI Corporation, Educational
Services Institute, Inc., Mutual Assurance Agency, Inc., LifeSouth, Inc.
(LifeSouth), PROActive Insurance Corporation, Medical Assurance of West
Virginia, Inc. (MA-West Virginia), and, for 1995, Physicians Insurance Company
of Indiana (PIC-Indiana), together referred to as the Company.
All significant intercompany accounts and transactions between consolidated
companies have been eliminated.
BASIS OF PRESENTATION
The preparation of financial statements in accordance with generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
The significant accounting policies followed by the Company that materially
affect financial reporting are summarized in these notes to the financial
statements. The Company adopted certain new accounting standards in 1995 and
1993, the effects of which are disclosed in Notes 2 and 3.
SEGMENT INFORMATION
The Company operates in the United States of America and in only one reportable
industry segment, which is providing professional and general liability
insurance for physicians and surgeons, dentists, hospitals, and others engaged
in the delivery of health care.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all demand deposits and overnight investments to be cash equivalents.
REINSURANCE
The Company cedes reinsurance to provide for greater diversification of
business, allow management to control exposure to potential losses arising from
large risks, and provide additional capacity for growth. A significant portion
of the reinsurance is effected under reinsurance contracts known as treaties
and, in some instances, by negotiation on individual risks. Reinsurance assumed
is not material.
Reinsurance expense is estimated based on the terms of the respective
reinsurance agreements. The estimated expense
continued
19
<PAGE> 21
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995
1. ACCOUNTING POLICIES (CONTINUED)
is continually reviewed and any adjustments which become necessary are included
in current operations. Amounts recoverable from reinsurers are estimated in a
manner consistent with the claim liability associated with the reinsured
policies.
INCOME TAXES
MAIC Holdings, Inc. files its federal income tax return on a consolidated basis
with its wholly-owned subsidiaries. LifeSouth and PROActive Insurance
Corporation file a separate consolidated federal income tax return. Deferred
income taxes are provided for temporary differences between financial and
income tax reporting relating primarily to unrealized gains on securities,
discounting of losses and loss adjustment expenses for income tax reporting and
the limitation of the unearned premiums deduction for income tax
reporting.
INVESTMENTS
The Company invests only in investment grade securities with the intent at the
time of purchase that such securities will be held until maturity. However,
recognizing the need for the ability to respond to changes in tax position and
in market conditions, management has designated the debt and equity securities
included in its investment portfolio as available-for-sale. Securities
classified as available-for-sale are carried at market value, and unrealized
gains and losses on such available-for-sale securities are excluded from
earnings and reported, net of tax effect, in a separate component of
stockholders' equity until realized. Real estate is reported at cost, less
allowances for depreciation. Short-term investments are reported at cost, which
approximates market value.
Investment income includes amortization of premium and accretion of discount
related to debt securities acquired at other than par value. Debt securities
with maturities beyond one year, when purchased, are classified as fixed
maturities. Short-term investments, primarily composed of investments in United
States Treasury obligations, are stated at cost which approximates market.
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification
basis.
Market values for fixed maturity and equity securities are based on quoted
market prices, where available. For fixed maturity and equity securities not
actively traded, market values are estimated using values obtained from
independent pricing services. The carrying amounts reported in the balance
sheet for cash and cash equivalents and short-term investments approximate
their market values.
INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company owns a twenty-five percent minority interest in Specialty
Underwriters Reinsurance Facility, LTD. (SURF), a foreign corporation. SURF
provides medical professional liability reinsurance coverage for the Company
and other medical malpractice insurers. The investment in SURF is recorded at
cost ($2,000,000) plus the Company's percentage of SURF's undistributed
earnings.
REAL ESTATE
Property and leasehold improvements are classified as investment real estate.
All balances are stated on the basis of cost. Depreciation is computed over
their estimated useful lives using the straight-line method. Accumulated
depreciation was approximately $2,523,000 and $2,010,000 at December 31, 1995
and 1994, respectively. Rental income and expenses are included in net
investment income.
DEFERRED POLICY ACQUISITION COSTS
Costs that vary with and are directly related to the production of new and
renewal premiums (primarily premium taxes, commissions and underwriting
salaries), are deferred to the extent they are recoverable against unearned
premiums and are amortized as related premiums are earned. Unamortized deferred
acquisition costs are included in other assets on the consolidated balance
sheets and amounted to approximately $1,891,000 and $641,000 at December 31,
1995, and 1994, respectively. Amortization of deferred acquisition costs
amounted to approximately $1,203,000, $1,554,000 and $1,225,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
RECOGNITION OF REVENUES
Insurance premiums are recognized as revenues pro rata over the terms of the
policies.
RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses represents management's
best estimates of the ultimate cost of all losses incurred but unpaid. The
estimated liability is continually reviewed and any adjustments which become
necessary are included in current operations.
PENSION PLAN
The Company has a defined contribution pension plan for employees who are at
least 21 years of age and have one or more years of service. The Company funds
the plan by contributing an amount equal to 10% of each participant's eligible
wages. The pension plan expense for the years ended December 31, 1995, 1994 and
1993 was approximately $518,000, $499,000 and $443,000, respectively.
continued
20
<PAGE> 22
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995
[PICTURE]
EMPLOYEE STOCK PURCHASE PLAN
The Company has a stock purchase plan (the "Plan") for full-time employees who
have completed at least one year of employment. The Plan allows each eligible
employee to purchase shares of the Company's common stock in the public market
and the Company will loan to each participant $.35 for each $.65 deposited in
the Plan. The stock purchased with the loaned proceeds vests with the employee
at the end of four years. These loans are amortized to expense over the four
year vesting period; unamortized loan balances are not significant at December
31, 1995.
MINORITY INTERESTS
The equity of minority shareholders in LifeSouth is reported on the
consolidated balance sheet as minority interests. Minority interests reflect
changes for the respective share of income or loss of LifeSouth attributable to
the minority shareholders, the effect of which is also removed from the results
of operations of the Company.
EARNINGS PER SHARE
Earnings per share data for 1994 and 1993 have been stated giving retroactive
effect for the 6% stock dividend declared in December of 1995 and for the 5%
stock dividends declared in both December 1994 and 1993.
CAPITAL RESOURCES
As of December 31, 1995, the Company did not have any material commitments for
capital expenditures. The Company continues to have available through a lending
institution a line of credit in the amount of $40 million that could be used for
additional capital requirements.
RECLASSIFICATIONS
The accompanying 1994 and 1993 financial statements have been reclassified to
conform with the 1995 presentation. Such reclassifications had no material
effect on previously reported financial position, results of operations or cash
flows.
2. CHANGE IN METHOD OF ACCOUNTING
FOR INCOME TAXES
Effective January 1, 1993, the Company adopted FASB Statement 109, Accounting
for Income Taxes. Under Statement 109, the liability method is used in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on temporary differences between the financial
reporting and tax reporting bases of assets and liabilities. The differences
are measured using the enacted tax rates and laws that are currently in effect
for those periods when the differences are expected to reverse. Prior to the
adoption of Statement 109, income tax expense was determined using the deferred
method under Accounting Principles Board Opinion No. 11. Under the deferred
method, deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the difference originated.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The effect of the change on income
before minority interests and cumulative effect of change in accounting for
income taxes for the year ended December 31, 1993 was not material; however,
the cumulative effect of the change increased net income by $3,630,308, or $.38
per share.
3. NEW ACCOUNTING STANDARD
FOR LONG-LIVED ASSETS
Effective December 31, 1995, the Company adopted FASB Statement 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. Statement 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The Statement also addresses the
accounting for long-lived assets that are expected to be disposed of. Statement
121 is applicable for most long-lived assets, identifiable intangibles, and
goodwill related to those assets; it does not apply to financial instruments,
deferred policy acquisition costs or deferred taxes. Management has
determined that long-lived assets are fairly stated in the accompanying balance
sheet, and that no indicators of impairment are present. In accordance with the
new rules, the Company's prior year financial statements have not been restated
to reflect the change in accounting principle.
21
<PAGE> 23
INVESTMENTS
The amortized cost and estimated market value of fixed maturities and equity
securities are as follows:
<TABLE>
<CAPTION>
December 31, 1995
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 35,980,735 $ 3,549,685 $ 95,309 $ 39,435,111
State and municipal bonds 301,676,235 12,476,689 756,334 313,396,590
Corporate bonds 53,618,122 3,475,819 4,554 57,089,387
Mortgage-backed securities 71,732,394 2,040,376 129,573 73,643,197
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Certificates of deposit 170,000 -- -- 170,000
- -------------------------------------------------------------------------------
Subtotal 463,177,486 21,542,569 985,770 483,734,285
Equity Securities 6,611,991 2,814 -- 6,614,805
- -------------------------------------------------------------------------------
$469,789,477 $21,545,383 $985,770 $490,349,090
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 65,478,672 $ 62,189 $1,631,475 $ 63,909,386
State and municipal bonds 264,952,918 3,241,054 4,852,499 263,341,473
Corporate bonds 18,988,420 53,970 919,100 18,123,290
Mortgage-backed securities 31,736,670 84,445 938,090 30,883,025
Certificates of deposit 4,992,878 -- 278,718 4,714,160
- -------------------------------------------------------------------------------
$386,149,558 $3,441,658 $8,619,882 $380,971,334
===============================================================================
</TABLE>
The amortized cost and estimated market value of fixed maturities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. The Company
uses the call date as the contractual maturity for prerefunded state and
municipal bonds which are 100% backed by U.S. Treasury obligations.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 35,597,075 $ 35,896,516
Due after one year through five years 132,654,957 136,872,564
Due after five years through ten years 176,080,521 188,049,699
Due after ten years 47,112,539 49,272,309
Mortgage-backed securities 71,732,394 73,643,197
- ---------------------------------------------------------------------------------
$463,177,486 $483,734,285
=================================================================================
</TABLE>
Excluding investments in bonds and notes of the United States Government,
United States Government agency or prerefunded state and municipal bonds which
are 100% backed by U.S. Treasury obligations, no investment in any person or
its affiliates exceeded 10% of stockholders' equity at December 31, 1995.
Amounts of investment income by investment category are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 29,452,377 $ 20,562,090 $ 21,096,236
Real estate 1,213,976 1,279,903 1,481,330
Short-term investments 371,929 2,609,346 1,239,954
Other 563,575 333,298 433,696
- ------------------------------------------------------------------------------
31,601,857 24,784,637 24,251,216
Investment expenses (2,020,321) (1,712,281) (1,783,395)
- ------------------------------------------------------------------------------
Net investment income $ 29,581,536 $ 23,072,356 $ 22,467,821
==============================================================================
</TABLE>
22
<PAGE> 24
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INVESTMENTS (CONTINUED)
Gross gains and losses from sales and prepayments of investments in fixed
maturities and equity securities are included in other income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross gains excluding prepayments of
mortgage-backed securities $3,722,366 $ 236,364 $7,263,482
Gross losses excluding prepayments
of mortgage-backed securities (325,911) (9,971) (130)
Gross gains from prepayments
of mortgage-backed securities 340,392 25,544 241,042
Gross losses from prepayments
of mortgage-backed securities (167,606) (160,535) (368,871)
- -------------------------------------------------------------------------------------
Net gain from sales and prepayments
of investments in fixed maturities and
equity securities $3,569,241 $ 91,402 $7,135,523
=====================================================================================
</TABLE>
Proceeds from sales of investments in fixed maturities and equity securities,
excluding prepayments of mortgage-backed securities, were $92,993,938,
$18,730,105, and $72,436,771 during 1995, 1994 and 1993, respectively. Realized
investment gains and losses are determined using the specific identification
basis.
During 1995 the FASB issued a Special Report on FASB 115. The report provided
for a transition period from November 15, 1995 through December 31, 1995 for
sales of or transfers from securities classified as held-to-maturity. Effective
November 30, 1995, MAIC Holdings, Inc., elected to transfer securities
classified as held-to-maturity by PIC-Indiana to an available-for-sale
portfolio. Securities transferred had an amortized cost of approximately
$22,056,000, with related unrealized gains of approximately $2,415,000. MAIC
Holdings, Inc., elected to transfer the securities to obtain consistency with
the Company's available-for-sale portfolio election.
STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS
Mutual Assurance, MA-West Virginia, PIC-Indiana and PROActive Insurance
Corporation are required to file statutory financial statements with state
insurance regulatory authorities. GAAP differs from statutory accounting
practices prescribed or permitted by regulatory authorities. Differences
between financial statement net income and statutory net income are principally
due to: (a) policy acquisition costs which are deferred under generally
accepted accounting principles, but expensed for statutory purposes; (b)
subsidiaries which are consolidated for generally accepted accounting
principles, but are accounted for using the equity method for statutory
purposes with the annual change in the equity charged or credited directly to
capital rather than entering into the determination of net income; and (c)
deferred income taxes which are recorded under generally accepted accounting
principles but not for statutory purposes.
At December 31, 1995 and 1994, statutory capital for each company was
sufficient to satisfy regulatory requirements. Amounts of statutory capital by
company are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Mutual Assurance $107,835,499 $134,889,408
MA-West Virginia 16,816,770 16,361,623
PIC-Indiana 9,907,531 --
PROActive Insurance Corporation 3,554,802 3,340,263
</TABLE>
Amounts of statutory net income by company are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Assurance $18,467,812 $22,000,008 $22,051,561
MA-West Virginia 584,180 289,729 --
PIC-Indiana 833,076 -- --
PROActive Insurance Corporation 223,855 469,467 791,604
</TABLE>
Consolidated retained earnings is composed primarily of subsidiaries' retained
earnings. Each insurance company is restricted under the applicable State
Insurance Code as to the amount of dividends it may pay without regulatory
consent. In 1996, the insurance subsidiaries can pay dividends in the aggregate
up to approximately $21 million without regulatory consent.
23
<PAGE> 25
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
6. REINSURANCE
The effect of reinsurance on premiums written and earned in 1995 was as follows:
<TABLE>
<CAPTION>
PREMIUMS
WRITTEN EARNED
------------------------------
<S> <C> <C>
Direct $101,795,736 $ 87,870,978
Assumed 6,646,187 6,646,187
Ceded (23,340,779) (18,563,930)
------------------------------
Net premiums $ 85,101,144 $ 75,953,235
==============================
</TABLE>
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. A contingent liability exists with respect to reinsurance ceded
to the extent that any reinsurer does not meet the obligations assumed under
the reinsurance agreements. The Company continually monitors its reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies. The
Company only cedes risks to reinsurers whom the Company believes to be
financially sound. At December 31, 1995, all reinsurance recoverables are
considered collectible; the amounts as shown in the accompanying consolidated
balance sheets approximate the fair value of the amounts recoverable from
reinsurers. As required by the various state insurance laws, reinsurance
recoverables totaling approximately $39 million are collateralized by letters
of credit or funds withheld.
7. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes as described in Note 2 to the consolidated financial statements.
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------------------------
<S> <C> <C>
Deferred tax liabilities:
Adjustment to net unrealized
gains on investments $ 7,195,663 $ --
Deferred acquisition costs 364,465 182,127
Other 335,956 235,906
------------------------------
Total deferred tax liabilities 7,896,084 418,033
Deferred tax assets:
Adjustment to net unrealized
losses on investments -- 1,812,378
Unpaid loss discount 33,423,511 27,287,625
Unearned premium
adjustment 2,334,535 1,488,135
Other 1,477,557 690,741
------------------------------
Total deferred tax assets 37,235,603 31,278,879
------------------------------
Net deferred tax assets $29,339,519 $30,860,846
==============================
</TABLE>
The Company is required to establish a "valuation allowance" for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax asset, and therefore, no such valuation
allowance has been established.
24
<PAGE> 26
7. INCOME TAXES (CONTINUED)
With the passage of the Omnibus Budget Reconciliation Act of 1993 (the Act) in
August, 1993, the maximum corporate tax rate was increased from 34% to 35%
retroactive to January 1, 1993. Under the provisions of FASB Statement 109
(see Note 2), the Company is required to record the effects of the Act in the
period that includes the enactment date. Included in the 1993 current tax
expense is approximately $299,000 applicable to the increased tax rate. Included
in the 1993 deferred taxes is a benefit of approximately $743,000 applicable to
the increased tax rate. Of this amount, approximately $653,000 represents the
retroactive application of the increased tax rate to the temporary differences
as of January 1, 1993. In addition to the effects of the increased tax rate,
income tax expense differs from the normal relationship to financial statement
income principally because of tax-exempt interest income.
Differences between income tax computed by applying the federal income tax rate
of 35% to income before income taxes and income tax expense in the financial
statements are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $13,559,549 $10,940,393 $11,931,815
Tax-exempt municipal and state bond income (5,414,381) (5,366,879) (4,785,847)
Inclusion of 15% of interest earned on
tax-exempt bonds acquired after
August 7, 1986 803,709 797,611 711,801
Retroactive application of the Act to
temporary differences -- -- (652,774)
Other 42,999 (11,985) (296,984)
-------------------------------------
Total $ 8,991,876 $ 6,359,140 $ 6,908,011
=====================================
</TABLE>
COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising primarily from claims
made under insurance policies. The legal actions arising from claims made under
insurance policies have been considered by the Company in establishing its
reserves. While the outcome of all legal actions is not presently determinable,
the Company's management and its legal counsel are of the opinion that the
settlement of these actions will not have a material adverse effect on the
Company's financial position or results of operations.
9. STOCK TRANSACTIONS
On December 14, 1995, the Board of Directors declared a 6% stock dividend. On
December 15, 1994, and December 16, 1993, the Board of Directors declared 5%
stock dividends. Cash was paid to shareholders for fractional shares. Earnings
per share data for 1995, 1994 and 1993 have been stated as if the 1995, 1994 and
1993 dividends had been declared on January 1, 1993. The Board of Directors of
MAIC Holdings, Inc. has reserved 750,000 shares of common stock for issuance in
accordance with the Mutual Assurance Stock Award Plan assumed by MAIC Holdings,
Inc. Such assumption is subject to MAIC Holdings, Inc. stockholder approval.
Under the terms of the Plan, shares of MAIC Holdings, Inc. stock are available
to be awarded to key employees of MAIC Holdings, Inc. and its subsidiaries. As
of December 31, 1995, there were no shares issued under the Plan.
10. BUSINESS EXPANSION
Effective January 1, 1994, the Company purchased 100% of the outstanding common
stock of MA-West Virginia, a provider of medical malpractice insurance in West
Virginia. MA-West Virginia had no material impact on consolidated earnings.
Effective January 1, 1995 the Company purchased 51.7% of the outstanding capital
voting stock of PIC-Indiana, an Indiana provider of medical malpractice
insurance. The stock was acquired from the Indiana State Medical Association.
After eight years, the purchase price may be
continued
25
<PAGE> 27
MAIC HOLDINGS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. BUSINESS EXPANSION (continued)
modified by an amount up to $1,000,000 to be paid by the purchaser or the
seller based on the loss experience of PIC-Indiana. During 1995 the Company
acquired additional shares of the PIC-Indiana stock from various shareholders.
The combined purchases resulted in ownership of approximately 100% of the
outstanding capital voting stock of PIC-Indiana. Currently, the operations of
PIC-Indiana are not material to those of the company.
Effective July 16, 1995, the Company acquired the recurring medical
professional insurance business of Physicians Insurance Company of Ohio
(PIC-OHIO) and its subsidiary, The Professionals Insurance Company. The
purchase price is included in other assets.
Total consideration paid for the 1995 and 1994 business expansion transactions
was approximately $12,266,000.
The goodwill and other intangibles resulting from the transactions totaled
$2,139,000 and are being amortized over periods ranging from 10 to 15 years.
The related accumulated amortization at December 31, 1995, is approximately
$632,000.
Subsequent to December 31, 1995, MAIC Holdings, Inc. has signed a letter of
intent to have MOMED Holding Company become a Missouri-based subsidiary of MAIC
Holdings, Inc. MOMED Holding Company is the parent company of Missouri Medical
Insurance Company, which is a provider of medical malpractice insurance.
Although the terms of the agreement have not been determined, MAIC Holdings,
Inc. does not expect the ultimate purchase price to exceed 10% of the Company's
stockholders' equity.
11. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity in the reserve for unpaid losses and loss adjustment expenses
(reserves) is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
--------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Balance at January 1 $ 356,000 $ 312,333 $ 283,507
Less reinsurance recoverables 60,245 39,012 30,046
--------------------------------------------------
Net Balance at January 1 295,755 273,321 253,461
Incurred related to:
Current year 81,152 64,931 56,010
Prior years (27,510) (21,044) (11,236)
--------------------------------------------------
Total Incurred 53,642 43,887 44,774
Paid related to:
Current year (7,706) (4,655) (4,732)
Prior years (24,185) (22,417) (20,182)
--------------------------------------------------
Total paid (31,891) (27,072) (24,914)
Reserves of entity acquired 34,971 5,619 --
--------------------------------------------------
Net Balance at December 31 352,477 295,755 273,321
Plus reinsurance recoverables 80,468 60,245 39,012
--------------------------------------------------
Balance at December 31 $ 432,945 $ 356,000 $ 312,333
==================================================
</TABLE>
26
continued
<PAGE> 28
24
5
MAICATAGLANCE
protect themselves through a custom-designed risk sharing partnership.
Our view of the insuring partnership extends beyond the traditional role of an
insurer. We have developed joint hospital/physician insurance programs which
help control liability risk at the outset, and when lawsuits are filed,
<PAGE> 29
provide a more effective coordinated defense. The results speak for themselves:
We've proven that our approach leads to more effective patient care with a
lower risk of lawsuits, and the correspondingly lower costs of insurance are
passed on to the participating hospitals and physicians.
Within these insurance programs we provide an integrated approach to Risk
Management and Education that complements and enhances existing efforts.
Additionally, we offer a wide range of consulting services designed to help
hospitals and clinics with a variety of issues such as meeting the standards of
the Joint Commission on Accreditation of Healthcare Organizations or developing
an effective Case Management or Quality Improvement program.
We present Loss Prevention seminars for individual insureds on a regular basis,
and we are implementing site-specific Risk Management programs which utilize a
variety of methods to identify and reduce risk within an office-based practice.
In fact, we take our Loss Prevention and Education commitment so seriously that
we have undergone the rigorous process of becoming accredited by the
Accreditation
Council for Continuing Medical Education to sponsor continuing medical
education for physicians. That commitment to excellence extends throughout our
Education and Risk Management endeavors.
And in a year where shock verdicts involving managed care organizations have
resounded across the country, we have expanded our Managed Care Liability
programs. As the court system sorts through the complicated legal issues
surrounding liability in managed care, we are abreast of the changes brought
about by the courts and are constantly adapting our coverages to keep pace. Our
managed care specialists work with managed care organizations to make coverage
recommendations and suggest education solutions that can help reduce the most
potent risks. For example, our Loss Prevention and Risk Management programs for
managed care organizations address high risk areas such as utilization review,
practice protocols and protocol development, credentialling, and billing
technologies.
As an adjunct to managed care coverages we have developed provider excess
coverage for physicians, hospitals and other health care providers
participating in capitation contracts. These policies compliment existing
liability protection for individuals and organizations and ensure that we can
provide complete coverage against the emerging risks in health care.
MAIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995
<PAGE> 30
<PAGE> 31
MAIC HOLDINGS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (CONTINUED)
The reserves were evaluated by independent consulting actuaries and reflect
consideration of prior loss experience and changes in the frequency and
severity of claims. Actual incurred losses may vary from estimated amounts due
to the inherent difficulty in estimating development of long-tailed lines of
business. However, the Company's management believes its actual incurred losses
and loss adjustment expenses will not vary significantly from estimated amounts
included in the accompanying financial statements.
The Company's management believes the unearned premiums under contracts,
together with the related anticipated investment income to be earned, is
adequate to discharge the related contract liabilities.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
1995 and 1994:
<TABLE>
<CAPTION>
1995
(Thousands of dollars, except per share amounts)
1st 2nd 3rd 4th
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net premiums earned $17,835 $18,442 $19,210 $20,466
Net investment income 6,998 7,610 7,380 7,595
Other income 515 1,508 1,415 1,300
Net income 6,034 7,231 8,070 8,327
Earnings per share .64 .77 .86 .89
</TABLE>
<TABLE>
<CAPTION>
1994
(Thousands of dollars, except per share amounts)
1st 2nd 3rd 4th
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net premiums earned $15,160 $15,372 $15,357 $15,538
Net investment income 5,245 5,398 6,021 6,408
Other income 290 198 238 381
Net income 5,547 6,391 6,672 6,157
Earnings per share .59 .68 .71 .66
</TABLE>
Quarterly earnings per share data for 1995 and 1994 have been restated giving
retroactive effect as if the 1995 and 1994 dividends had been declared on
January 1, 1994. The sum of the above amounts may vary from the annual amounts
because of rounding.
27
<PAGE> 32
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
MAIC Holdings, Inc.
We have audited the accompanying consolidated balance sheets of MAIC Holdings,
Inc. and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of income, changes in capital and cash flows for each
of the three years in the period ended December 31, 1995. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MAICHoldings, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
In 1993, as discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
February 13, 1996
28
<PAGE> 33
OFFICERS AND DIRECTORS
<PAGE> 34
OFFICERS AND DIRECTORS
The following individuals serve MAIC Holdings, Inc. and its subsidiaries in the
capacities indicated.
<TABLE>
<S> <C>
Mr. Terry W. Andrus William E. Cooper, M.D.
Mutual Assurance, Inc. Hospital Committee Director, Physicians Insurance Company
President, East Alabama Medical Center of Indiana
Opelika, Al Physician
Columbus, IN
Randall D. Ayers, M.D.
Director, Mutual Assurance, Inc. Norton E. Cowart M.D.
Physician Chairman of the Board and Director,
Northport, Al Mutual Assurance, Inc.
Physician
Mr. Donald M. Ball Huntsville, AL
Director, Mutual Assurance, Inc.
Chairman, Mutual Assurance, Inc. Hospital A. DERRILL CROWE, MD.
Committee Chairman of the Board and President,
President, Jackson Hospital & Clinic MAIC Holdings, Inc.
Montgomery, AL President, Mutual Assurance, Inc.
Director, Physicians Insurance Company
William H. Beeson, M.D. of Indiana
Director, Physicians Insurance Company President and Director, Medical Assurance
of Indiana of West Virginia, Inc.
Physician Physician
Indianapolis, IN Birmingham, AL
Deborah Bishop, D.M.D. Bruce Cunningham, D.M.D.
Mutual Assurance, Inc. Dental Committee Mutual Assurance, Inc. Dental Committee
Dentist Dentist
Guntersville, AL Jacksonville, AL
Mr. James R. Blackmon R. Denny Currier
Mutual Assurance, Inc. Hospital Committee Director, Physicians Insurance Company
Chief Executive Officer, Southeast Alabama of Indiana
Medical Center Administrator, Wellborn Clinic
Dothan, Al Evansville, IN
Mr. Gregory H. Burfitt M. David Duncan
Mutual Assurance, Inc. Hospital Committee President and Chief Executive Officer,
President, AMI Brookwood Medical Center Physicians Insurance Company of Indiana
Birmingham, AL Indianapolis, IN
George A. Buskirk, Jr. Charles L. Dyas, Jr. M.D.
Director, Physicians Insurance Company Mutual Assurance, Inc. Advisory
of Indiana Committee
Banker Physician
Indianapolis, IN Mobile, AL
PAUL R. BUTRUS C. Dyke Egnatz, M.D.
Executive Vice-President and Director, Director, Physicians Insurance Company
MAIC Holdings, Inc. of Indiana
Executive Vice-President and Director, Physician
Mutual Assurance, Inc. Schererville, IN
Director, Physicians Insurance Company
of Indiana Martin D. Ennis
Vice-President and Director, Medical Vice-President and Director, Medical
Assurance of West Virginia, Inc. Assurance of West Virginia, Inc.
Birmingham, AL Senior Vice-President, Mutual
Assurance, Inc.
Mr. Vincent C. Caponi Birmingham, AL
Mutual Assurance, Inc. Hospital Committee
President, St. Vincent's Hospital PAUL D. EVEREST, M.D.
Birmingham, AL Director, MAIC Holdings, Inc.
Vice-President and Director, Mutual
James E. Cates Assurance, Inc.
Vice President and Director, Medical Physician
Assurance of West Virginia, Inc. Montgomery, AL
Senior Vice-President, Mutual
Assurance, Inc. ROBERT E. FLOWERS, M.D.
Birmingham, AL Director, MAIC Holdings, Inc.
Director, Mutual Assurance, Inc.
William E. Chesser, D.M.D. Physician
Chairman, Mutual Assurance, Inc. Dental Dothan, AL
Committee
Dentist MR. ROBERT D. FRANCIS
Ozark, Al Secretary, MAIC Holdings, Inc.
Secretary and Director, Medical Assurance
of West Virginia, Inc.
Secretary, Mutual Assurance Inc.
Birmingham, AL
<CAPTION>
<S> <C>
Raymond D. Godsil, M.D. Michael O. Mellinger, M.D.
Director, Mutual Assurance, Inc. Director, Physicians Insurance Company
Physician of Indiana
Auburn, AL Physician
LaGrange, IN
Mr. Keith K. Granger
Mutual Assurance, Inc. Hospital Committee Mr. James J. Morello
President and Chief Executive Officer, Treasurer and Chief Financial Officer,
Flowers Hospital MAIC Holdings, Inc.
Dothan, Al Treasurer and Director, Medical Assurance
of West Virginia, Inc.
Juan Gutierrez, M.D. Chief Financial Officer, Mutual
Mutual Assurance, Inc. Advisory Assurance, Inc.
Committee Birmingham, AL
Physician
Birmingham, AL Lucian Newman, Jr., M.D.
Director, Mutual Assurance, Inc.
Alvin J. Haley, M.D. Physician
Director, Physicians Insurance Company Gadsden, Al
of Indiana
Physician William G. Olsen
Indianapolis, IN Director, Physician Insurance Company
of Indiana
LEON C. HAMRICK, SR., M.D. Retired Insurance Executive
Director, MAIC Holdings, Inc. Mason, MI
Director, Mutual Assurance, Inc.
Physician Mr. Ronald S. Owen
Fairfield, Al Mutual Assurance, Inc. Hospital Committee
Executive Vice-President, Huntsville
John G. Hankins, M.D. Hospital
Mutual Assurance, Inc. Advisory Huntsville, AL
Committee
Physician H. Cotton Ray, M.D.
Birmingham, AL Director, Mutual Assurance, Inc.
Physician
Frank P. Haws, M.D. Huntsville, AL
Mutual Assurance, Inc. Advisory
Committee James E. Roberts, D.M.D.
Physician Mutual Assurance, Inc. Dental Committee
Huntsville, AL Dentist
Birmingham, AL
Gary W. Hudson, D.M.D.
Mutual Assurance, Inc. Dental Committee Mr. John R. Roeder
Dentist Mutual Assurance, Inc. Hospital Committee
Huntsville, AL President & Chief Executive Officer,
Providence Hospital
Richard R. King II, Esq. Mobile, AL
Director, Physicians Insurance Company
of Indiana Paul Siebenmorgen, M.D.
Executive Director, Indiana State Medical Director, Physicians Insurance Company
Association of Indiana
Indianapolis, IN Physician
Terre Haute, IN
John D. MacDougall, M.D.
Chairman of the Board, Physicians Mr. John O. Tucker
Insurance Company of Indiana Mutual Assurance, Inc. Hospital Committee
Physician President Emeritus, Mobile Infirmary
Indianapolis, IN Medical Center
Mobile, AL
G. William Manifold, M.D.
Mutual Assurance, Inc. Advisory William C. VanNess, II, M.D.
Committee Director, Physicians Insurance Company
Physician of Indiana
Decatur, AL Physician
Summitville, IN
Michael L. McBrearty, M.D.
Director, Mutual Assurance, Inc. Wilfred W. Yeargan, M.D.
Physician Director, Mutual Assurance, Inc.
Fairhope, AL Physician
Tuscaloosa, AL
Jerome E. Melchior, M.D.
Director, Physicians Insurance Company
of Indiana
Physician
Vincennes, IN
Individuals whose names appear in
BOLD FACE serve as Officers or
Directors of MAIC Holdings, Inc.
</TABLE>
<PAGE> 35
SHAREHOLDER SERVICES
CERTIFICATES TO BE TRANSFERRED SHOULD
BE SENT VIA INSURED, REGISTERED MAIL TO:
Chemical Mellon Shareholder
Services, L. L. C.
Stock Transfer Department
P.O. Box 469
Washington Bridge Station
New York, NY 10033
SHAREHOLDER INQUIRIES AND ADDRESS CHANGES
SHOULD BE SENT TO:
Chemical Mellon Shareholder
Services, L. L. C.
P.O. Box 590
Ridgefield Park, NJ 07660
SHAREHOLDERS WHO WISH TO REPORT LOST OR
STOLEN STOCK CERTIFICATES SHOULD CONTACT:
Chemical Mellon Shareholder
Services, L. L. C.
Estoppel Department
P.O. Box 467
Washington Bridge Station
New York, NY 10033
FINANCIAL INFORMATION
AND INVESTOR RELATIONS
Analysts, stockholders and any other
parties interested in obtaining additional
information should contact:
Frank B. O'Neil
Vice President,
Corporate Communications
(205) 877-4460
James J. Morello
Treasurer and Chief Financial Officer
(205) 877-4400
CORPORATE HEADQUARTERS
MAIC Holdings, Inc.
P.O. Box 590009
Birmingham, AL 35259-0009
(205) 877-4400 - (800) 282-6242
FAX: (205) 871-7135
ANNUAL MEETING
The 1995 Annual Meeting is scheduled for
10:00 a.m. on May 14, 1996 in the Bruno Hall at
the Harbert Center, 2019 4th Avenue North, Birmingham, AL.
MAIC HOLDINGS, INC.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of MAIC Holdings, Inc.
for the registration of up to 396,852 shares of its common stock and to the
incorporation by reference therein of our report dated February 13, 1996, with
respect to the consolidated financial statements and schedules of MAIC Holdings,
Inc. included in its Annual Report (Form 10-K) for the year ended December 31,
1995, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Birmingham, Alabama
September 30, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
MOMED Holding Co.
We consent to the use of our reports included herein and to the
reference to our firm under the heading "Experts" and "Federal Income Tax
Consequences" in the Registration Statement.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
October 1, 1996
<PAGE> 1
EXHIBIT 23.4
PAULI & COMPANY
INCORPORATED
-------------------------------
7777 BONHOMME AVENUE
ST. LOUIS, MISSOUR 63105-1926
TELEPHONE: 314-726-4300
FACSIMILE: 314-863-3300
October 2, 1996
MAIC HOLDINGS, INC.
100 Brookwood Place
Birmingham, AL 35209
MOMED Holding Co.
8630 Delmar Boulevard
Suite 100
St. Louis, MO 63124
Gentlemen:
We consent to the reference to our firm in the Proxy Statement and Prospectus
included in the Registration Statement on Form S-4 of MAIC Holdings, Inc. in
the section entitled "SUMMARY OF PROXY STATEMENT" under the caption: "Opinion
of MOMED Financial Advisor;" and in the section entitled "THE MERGER" under
the caption: "Opinion of MOMED Financial Advisor."
PAULI & COMPANY, INCORPORATED
/s/ Chris H. Pauli
------------------------------------
Chris H. Pauli
President
<PAGE> 1
EXHIBIT 99.1
REVOCABLE PROXY
MOMED HOLDING CO.
8630 DELMAR BOULEVARD, SUITE 100
ST. LOUIS, MISSOURI 63124
This Proxy is solicited on behalf of the Board of Directors of MOMED
Holding Co. ("MOMED") for use only at the Special Meeting of Shareholders to be
held on ___________, 1996, and at any postponement or adjournments thereof (the
"Special Meeting").
The undersigned, being a Shareholder of MOMED, hereby appoints
_____________________________ and _____________________________, and each of
them, as Proxies, each with the power to appoint his substitute, and hereby
authorizes them, or any of them, to represent the undersigned at the Special
Meeting and thereat to act with respect to all votes that the undersigned would
be entitled to cast, if then personally present, on the following matters in
accordance with the following instructions below:
1. To consider and vote upon the Agreement and Plan of Merger by
and between MOMED, MAIC Holdings, Inc., and its newly formed wholly owned
subsidiary, MOMED Acquisition, Inc., pursuant to which MOMED will be merged
into MOMED Acquisition with MOMED Acquisition surviving the merger under the
name of MOMED Holdings Co. The Merger Agreement provides that each stockholder
of MAIC Holdings will continue to own his or her respective shares of MAIC
Holdings common stock and that each MOMED shareholder will be entitled to
receive in exchange for each share of MOMED Class A common stock, at his or her
election, either: (i) $25.32 in cash; or (ii) .779 of a share of MAIC Holdings
common stock, subject to proration as provided in the Merger Agreement.
2. To transact such other business as may properly come before
this Special Meeting or any adjournment thereof.
Please mark, date and sign this Proxy below and return promptly using
the enclosed envelope.
The undersigned acknowledges that a Special Meeting may be postponed
or adjourned to a date subsequent to the date set forth above, and intends that
the Proxy shall be effective at the Special Meeting after such postponement(s)
or adjournment(s). This Proxy is revocable, and the undersigned may revoke it
at any time by delivery of written notice of such revocation to MOMED prior to
the date of the Special Meeting, or by attendance at the Special Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS MADE, ALL SHARES HELD OF RECORD BY THE
UNDERSIGNED WILL BE VOTED FOR THE AGREEMENT AND PLAN OF MERGER.
Election to Approve the Agreement and Plan of Merger by and between MOMED, MAIC
Holdings, Inc. and MOMED Acquisition, Inc.
FOR the Agreement AGAINST the ABSTAIN from
and Plan of Merger Agreement and the Agreement and
Plan of Merger Plan of Merger
[ ] [ ] [ ]
Signature(s): Date:
------------------------------------- --------------
Print Name:
---------------------------------------
Number of Shares Voted:
-----------------------------------------
<PAGE> 1
EXHIBIT 99.2
ELECTION FORM
MOMED HOLDING CO.
8630 DELMAR BOULEVARD, SUITE 100
ST. LOUIS, MISSOURI 63124
THIS IS THE ELECTION FORM REFERENCED IN THE MOMED HOLDING CO. PROXY STATEMENT
AND THE MAIC HOLDINGS, INC. PROSPECTUS ("PROXY STATEMENT/PROSPECTUS") IN
CONNECTION WITH AN AGREEMENT AND PLAN OF MERGER AND THE REGISTRATION OF 396,852
SHARES OF COMMON STOCK OF MAIC HOLDINGS, INC. CAPITALIZED TERMS USED HEREIN
AND NOT OTHERWISE DEFINED SHALL HAVE THE MEANING SET FORTH IN THE PROXY
STATEMENT/PROSPECTUS.
I hereby elect to have my shares of MOMED Holding Common Stock converted
into the following pursuant to and upon the effective time of the Merger (the
"Merger Consideration"):
[ ] STOCK ELECTION: Subject to the limitation set forth below, _______
shares of MOMED Holding Co. Common Stock are to be converted into
.779 of a share of MAIC Holdings, Inc. Common Stock.
[ ] CASH ELECTION: Subject to the limitation set forth below, _______ shares
of MOMED Holding Co. Common Stock are to be exchanged for $25.32 in cash
(without interest).
LIMITATION
The total number of shares of MAIC Holdings Common Stock included in
the Merger Consideration to be issued in exchange for the MOMED Common Stock
pursuant to the Stock Election will not be more than 350,000 shares of MAIC
Holdings Common Stock, nor less than 275,000 shares of MAIC Holdings Common
Stock. If the holders of MOMED Common Stock make Stock Elections that would
result in the issuance of a number of shares of MAIC Holdings Common Stock in
excess of 350,000 shares, then a portion of the shares of the MOMED Common
Stock subject to each Stock Election shall be converted on a pro rata basis
into the right to receive cash in the same amount as those MOMED stockholders
who made Cash Elections, as set forth in the Proxy Statement/Prospectus. If the
holders of MOMED Common Stock make Cash Elections that would result in the
issuance of a number of shares of MAIC Holdings Common Stock that is less than
275,000 shares, then a portion of the shares of the MOMED Common Stock subject
to each Cash Election shall be converted on a pro rata basis into MAIC Holdings
Common Stock at the same ratio as the holders who made the Stock Elections, as
set forth in the Proxy Statement/Prospectus.
THIS ELECTION FORM MUST BE EXECUTED AND RETURNED REGARDLESS OF WHETHER THE
ACCOMPANYING REVOCABLE PROXY IS EXECUTED AND RETURNED AND REGARDLESS OF WHETHER
A STOCKHOLDER VOTES ON THE AGREEMENT AND PLAN OF MERGER.
HOLDERS OF MOMED HOLDING CO. COMMON STOCK WHO DESIRE TO MAKE AN ELECTION MUST
PROPERLY COMPLETE THIS ELECTION FORM AND THIS ELECTION FORM MUST BE RECEIVED BY
RETURNING THE ENCLOSED SELF-ADDRESSED ENVELOPE TO:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
450 West 33rd Street
New York, New York 10001
Attn: Reorganization Division
HOLDERS OF MOMED HOLDING CO. COMMON STOCK WHO DO NOT PROPERLY EXECUTE AND RETURN
THIS ELECTION FORM BY 5:00 P.M. CST ON NOVEMBER 15, 1996 WILL BE DEEMED TO HAVE
MADE AN ELECTION TO RECEIVE CASH IN EXCHANGE FOR MOMED HOLDING CO. COMMON STOCK.
Signature: _________________________________ Date: ____________
Print Name:_________________________________
Number of Shares Converted:_________________
