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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-13465
MOMED HOLDING CO.
8630 DELMAR BOULEVARD, SUITE 100
ST. LOUIS, MISSOURI 63124
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 22, 1996
To our Stockholders:
A Special Meeting of Stockholders (the "Special Meeting") of MOMED Holding
Co. ("MOMED") will be held at 10:00 a.m. Central Standard Time on November 22,
1996, at 8630 Delmar Boulevard, Suite 100, St. Louis, Missouri 63124 for the
following purposes:
1. To consider and act upon a proposal to approve an Agreement and
Plan of Merger between and among MOMED, MAIC Holdings, Inc. and its newly
formed subsidiary, MOMED Acquisition, Inc., dated as of June 11, 1996 (the
"Merger Agreement"). The Merger Agreement provides for, among other things,
the merger of MOMED with and into MOMED Acquisition (the "Merger") pursuant
to which each share of MOMED Class A common stock will be converted into
the right to receive, at the option of each record holder but subject to
proration, either: (i) 0.779 of a share of common stock of MAIC Holdings,
Inc., or (ii) $25.32 in cash (without interest). A copy of the Merger
Agreement is attached as Exhibit A to the accompanying Proxy
Statement-Prospectus.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors of MOMED has set October 18, 1996 as the record date
for the Special Meeting. Only holders of record of shares of MOMED's Class A
common stock at the close of business on the record date will be entitled to
notice of and to vote at the Special Meeting. The stock transfer books were
closed at the close of business on the Record Date.
The Special Meeting may be adjourned from time to time without notice other
than announcement at the meeting or adjournments thereof and any business for
which notice is hereby given may be transacted at any such adjournment.
Details concerning those matters to come before the Special Meeting are
provided in the accompanying Proxy Statement-Prospectus.
By order of the Board of Directors
James M. Stokes, M.D.
Secretary
October 24, 1996
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PROXY STATEMENT PROSPECTUS
MOMED HOLDING CO. MAIC HOLDINGS, INC.
8630 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 22, 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 before 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 October 22, 1996.
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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.
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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 15, 1996.
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TABLE OF CONTENTS
<TABLE>
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PAGE NO.
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AVAILABLE INFORMATION.............................................................. i
DOCUMENTS INCORPORATED BY REFERENCE................................................ ii
SUMMARY OF THE PROXY STATEMENT..................................................... iv
RISK FACTORS....................................................................... xvii
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........................... 10
Opinion of MOMED Financial Advisor............................................... 11
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>
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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 22, 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,
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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 0.779 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 21, 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 TWO-THIRDS OF THE SHARES OF MOMED COMMON STOCK.
See "THE MERGER -- Making the Cash Election" and
"-- Exchange Procedure."
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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
0.779 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
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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 on a pro forma basis.
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.
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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 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) (UNAUDITED EXCEPT MAIC
AND
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 0.779 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 22, 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 Exchange Agent 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 MOMED Holding Co., Midtown Station, P.O. Box 821, New York, New
York 10138-0837.
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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. On September 1, 1996, MOMED renewed
the loan with a principal balance of $169,103, that matures on September 1,
1999, and bears interest at the rate of 8.5% per annum.
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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 can redeem the rights at any
time prior to an unrelated person becoming the beneficial owner of 20% of the
voting stock of MOMED. The rights are redeemable at a price of $0.01 per right.
The MOMED Board has authorized the redemption of all rights under the Plan
subject to approval of the Merger by the affirmative vote of the holders of
two-thirds of the outstanding shares of MOMED Common Stock. Upon such approval,
the MOMED Board intends to promptly pay the redemption price to the record
holder of each share of MOMED Common Stock and to take such other action as may
be reasonably necessary to redeem or repurchase all of the rights under the
Plan.
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 MOMEDICO 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) 0.779 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 0.779 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., Eastern
Standard Time, on November 21, 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 the
Exchange Agent or MOMED at the addresses 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 MOMED. REQUESTS FOR ELECTION FORMS MAY BE MADE
IN PERSON OR IN WRITING TO MOMED HOLDING CO., 8630 DELMAR BOULEVARD, SUITE 100,
ST. LOUIS, MISSOURI 63124, ATTENTION: KAREN L. SVOBODA, SECRETARY FOR CORPORATE
AFFAIRS, TELEPHONE: (314) 872-8000, FACSIMILE: (314) 872-8785. 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
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<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 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
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<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 received 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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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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<PAGE> 45
(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 one share 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. The Board of
Directors of MAIC Holdings has no knowledge of any present effort to obtain
control of 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 so long as the MOMED Board is in compliance
with the covenants described below. 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
Merger 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 Merger Agreement, and may waive any of the conditions precedent to the
obligations of such party under the Merger Agreement. Neither party intends to
waive any condition that if not satisfied, would result in a violation of
applicable law or government regulations; MOMED does not intend to waive the
condition that requires a favorable tax opinion from KPMG as to the federal
income tax consequences of the transaction; and MAIC Holdings does not intend to
waive the conditions that MOMED repurchase or redeem all of the outstanding
shares of MOMED Class C Common Stock and all rights under the Stockholders'
Rights Protection Plan (unless any shares or rights remaining outstanding are
immaterial in amount). 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 Merger
Agreement is terminated as described above, the Merger Agreement will become
void and have no effect, except that certain provisions of the Merger 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 Merger Agreement will survive. In
addition, termination of the Merger 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.
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<PAGE> 59
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 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 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."
39
<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
Premiums 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 CONSOLIDATED 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
45
<PAGE> 66
per claim basis are discussed in Note 9 of the notes to the accompanying
consolidated financial statements. See "INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS."
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
CONSOLIDATED 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>
YEAR 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 CONSOLIDATED 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 CONSOLIDATED
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 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 Statement of Income 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 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 beneficially
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 Sheets as of June 30, 1996 (unaudited) and December 31,
1995.......................................................................... F-3
Consolidated Statements of Stockholders' Equity for Six Months Ended June 30,
1996 and 1995 (unaudited)..................................................... F-4
Consolidated Statements of Cash Flow 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 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.
F-24
<PAGE> 98
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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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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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 presumed 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.
B-1
