<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Medical Assurance, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
MEDICAL ASSURANCE, INC.
100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1998
---------------------
TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders (the "Annual Meeting") of Medical
Assurance, Inc. (the "Company") will be held at 10:00 a.m., local time, on
Tuesday May 5, 1998, at the Harbert Center, 2019 Fourth Avenue North,
Birmingham, Alabama 35203, for the following purposes:
1. To elect three (3) directors of the Company to serve for a three
(3) year term or in each case until his successor is duly elected and
qualified; and
2. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has set March 13, 1998, as the record date for the
Annual Meeting. Only holders of record of shares of the Company's common stock
at the close of business on the record date will be entitled to notice of, and
to vote at, the Annual Meeting. The stock transfer books will not be closed.
The Annual 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 Annual Meeting are
provided in the accompanying Proxy Statement. Whether you plan to attend the
Annual Meeting or not, please sign, date and return the enclosed proxy card in
the envelope provided. Returning your proxy card does not deprive you of your
right to attend the Annual Meeting and to vote your shares in person.
A copy of the Company's Annual Report to the Stockholders for the year
ended December 31, 1997, is enclosed. We hope you will find it informative.
By order of the Board of Directors,
Robert D. Francis
Secretary
March 31, 1998
<PAGE> 3
MEDICAL ASSURANCE, INC.
100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
---------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1998
---------------------
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Medical Assurance, Inc. (sometimes referred
to as the "Company") to be voted at the Annual Meeting of the Stockholders (the
"Annual Meeting") to be held at 10:00 a.m., local time, on Tuesday, May 5, 1998,
at the Harbert Center, 2019 Fourth Avenue North, Birmingham, Alabama 35203, or
at any adjournment or postponement thereof. The Proxy Statement and proxy card
are first being mailed to the stockholders of the Company on or about March 31,
1998.
At the Annual Meeting, the stockholders will be asked to elect three (3)
members to the Board of Directors of the Company. The Company will bear the cost
of solicitation of proxies. The Company has requested brokers or nominees to
forward this Proxy Statement to their customers and principals and will
reimburse them for expenses incurred in so doing. If deemed necessary, the
Company may also use its officers and regular employees, without additional
compensation, to solicit proxies personally or by telephone.
The Board of Directors has set March 13, 1998, as the record date for the
Annual Meeting. Only stockholders of record at the close of business on the
record date will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on the record date there were 21,492,413 outstanding
shares of common stock of the Company, par value $1.00 per share (the "Common
Stock") with each stockholder entitled to one vote in person or by proxy for
each share of Common Stock on all matters properly to come before the Annual
Meeting.
VOTE REQUIRED
At the Annual Meeting, the stockholders will be asked to elect three (3)
directors to serve until the 2001 Annual Meeting. The Company's By-Laws provide
that a majority of the stockholders entitled to vote and present either in
person or by proxy at a meeting of the stockholders constitutes a quorum.
Directors are elected by a plurality of the votes cast by the stockholders
present in person or by proxy at a meeting at which a quorum is present.
A stockholder may withhold authority on the vote for the election of
directors. In such event, the shares held by the stockholder will be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business at the Annual Meeting. Broker non-votes will not be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business at the Annual Meeting.
Please sign, date and return the enclosed proxy card ("Proxy") in the
enclosed envelope so that the Common Stock you own will be voted in accordance
with your wishes. If you desire to revoke your Proxy, you may do so either by
attending the Annual Meeting in person or by delivering written notice of
revocation so that it is received by the Secretary of the Company on or before
May 4, 1998. The mailing address for the Company is P. O. Box 590009,
Birmingham, Alabama 35259-0009, and the street address is 100 Brookwood Place,
Birmingham, Alabama 35209.
<PAGE> 4
ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Certificate of Incorporation and Bylaws of the Company provide that the
Board of Directors is comprised of at least four and not more than twenty-four
members, as determined by the Board of Directors. The Board of Directors
currently is comprised of eight directors. The Certificate of Incorporation
requires that the directors be divided into three classes as nearly equal as
possible and that the classes of directors serve staggered terms of three years.
Vacancies that occur on the Company's Board of Directors between annual
meetings, whether as a result of a director's death or resignation or an
increase in the total members of the Board of Directors by the Board of
Directors in accordance with the Bylaws, may be filled by the remaining
directors.
In December 1996, Richard V. Bradley, M.D. was appointed to the Board of
Directors pursuant to the terms of a Nomination Agreement between the Company
and MOMED Holding Co., a Missouri insurance holding company ("MOMED"). The
Nomination Agreement, which was executed in connection with the Company's merger
with MOMED on December 20, 1996, required the Company to appoint Dr. Bradley as
a director to serve until the Company's 1997 Annual Meeting and thereafter to
cause a person designated by MOMED's Board of Directors to be nominated to serve
as a director of the Company during the five years following completion of the
merger with MOMED. As Dr. Bradley was elected for a two year term at the 1997
Annual Meeting, MOMED is not entitled to nominate any person for election as a
director at the 1998 Annual Meeting.
During 1997, the Board of Directors met two times and acted one time by
consent. All directors were present at the meetings.
NOMINATION FOR ELECTION
The Board of Directors, upon the recommendation of the Nominating
Committee, has nominated A. Derrill Crowe, M.D., Norton E. Cowart, M.D. and
Robert E. Flowers, M.D. for election as directors at the Annual Meeting to fill
the vacancies arising on the expiration of their respective terms in 1998. Such
nominees will, if elected, serve until the 2001 Annual Meeting or until their
successors are elected and qualified. The persons named in the enclosed Proxy
have advised that, unless a contrary direction is indicated on the enclosed
Proxy, they intend to vote the shares appointing them as proxies in favor of the
nominees named herein. If the nominees should be unable to serve, and the Board
of Directors knows of no reason to anticipate this will occur, the Proxies will
be voted for a substitute selected by the Board of Directors, or the Board of
Directors may decide not to elect an additional person as a director.
Biographical information regarding each of the nominees for election to the
Board of Directors is set forth below and the stock ownership with respect to
each nominee for election as a director is set forth in the table under
"Principal Stockholders."
NORTON E. COWART, M.D. (Age 78) was elected as a director for a one year
term at the 1997 Annual Meeting. Dr. Cowart was first appointed as a director
when the Board of Directors increased the size of the Board by two directors in
June 1996. Dr. Cowart served as a director of Mutual Assurance from 1977 to
1996, and served as its Chairman of the Board from 1987 to 1996. Dr. Cowart
retired from the practice of internal medicine in Huntsville, Alabama in 1992.
A. DERRILL CROWE, M.D. (Age 61) has served as Chairman of the Board and
President of the Company since its formation on February 8, 1995. Dr. Crowe has
been President, Chief Executive Officer and a director of Mutual Assurance since
its organization in 1976. Dr. Crowe serves as a director of each of the
Company's insurance subsidiaries and participates on their respective claims and
underwriting committees. Dr. Crowe currently serves on the Board of Directors of
Citation Corporation.
ROBERT E. FLOWERS, M.D. (Age 48) has served as a director of the Company
since its formation on February 8, 1995 and as a director of Mutual Assurance,
Inc. since 1985. He currently practices medicine in Dothan, Alabama,
specializing in gynecology.
2
<PAGE> 5
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF
THE DIRECTORS RECOMMENDED BY THE NOMINATING COMMITTEE AND NOMINATED BY THE BOARD
OF DIRECTORS.
OTHER DIRECTORS
The following persons will continue to serve on the Board of Directors
under terms that are due to expire at the annual meetings in 1999 and 2000. The
stock ownership of each director is set forth in the table under "Principal
Stockholders."
YEAR 2000 DIRECTORS
PAUL R. BUTRUS (Age 57) has served as a director and Executive Vice
President of the Company since its incorporation on February 8, 1995. Mr. Butrus
has been employed by Mutual Assurance and its subsidiaries since 1977, most
recently as Executive Vice President and Chief Operating Officer of Mutual
Assurance since 1993, and has served as a director of Mutual Assurance since
February 1992. Mr. Butrus serves as a director of each of the Company's
insurance subsidiaries and participates on their respective claims and
underwriting committees. Mr. Butrus is a director of Prime Medical Services,
Inc. and his term is due to expire in May 1998.
PAUL D. EVEREST, M.D. (Age 77) has served as a director of the Company
since its incorporation on February 8, 1995 and as a director of Mutual
Assurance since 1982. Dr. Everest practices medicine in Montgomery, Alabama,
specializing in orthopedic surgery.
YEAR 1999 DIRECTORS
RICHARD V. BRADLEY, M.D. (Age 71) has served on the Board of Directors of
the Company since December of 1996. In 1986, Dr. Bradley retired from medical
practice to serve as President and Chief Executive Officer of MOMED Holding Co.
and its insurance subsidiary, Missouri Medical Insurance Company. Dr. Bradley
has continued to serve in such capacities since the acquisition of MOMED Holding
Co. by the Company.
JOHN P. NORTH, JR. (Age 62) was elected as a director for a two year term
at the 1997 Annual Meeting. Mr. North was appointed as a director when the Board
of Directors increased the size of the Board by two directors in June 1996. Mr.
North is a certified public accountant who was a partner of the accounting firm
of Coopers & Lybrand LLP until his retirement in September 1995.
LEON C. HAMRICK, M.D. (Age 72), has served as a director of the Company
since its incorporation on February 8, 1995 and as a director of Mutual
Assurance since 1978. Dr. Hamrick is a general surgeon and the President and
Medical Director of Tenet Lloyd Noland Hospital, formerly know as The Lloyd
Noland Foundation Hospital and Ambulatory Centers.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Bylaws provide for four (4) Standing Committees of the Board
of Directors: the Executive Committee, the Audit Committee, the Nominating
Committee and the Compensation Committee. The Executive Committee of the Board
of Directors has the authority during the intervals between the meetings of the
Board of Directors, to exercise all powers and authority of the Board of
Directors in the management of the business and affairs of the Company and may
authorize the Company's seal to be affixed to all papers which may require it;
except that the Executive Committee has no power to amend or repeal any
resolution of the Board of Directors that by its terms is not subject to
amendment or repeal by the Executive Committee, or any resolution of the Board
of Directors concerning the establishment or membership of the Executive
Committee, and the Executive Committee may not authorize matters required by law
to be passed upon by the full Board of Directors. The Executive Committee is
currently composed of Drs. Crowe, Everest, Flowers and Hamrick and Mr. Butrus.
The Executive Committee did not meet in 1997.
3
<PAGE> 6
The Audit Committee recommends to the Board of Directors the appointment of
the independent accountants to audit the consolidated financial statements of
the Company and its subsidiaries; discusses with the independent auditors the
plan and scope of the audit; reviews recommendations by the independent auditors
to management with respect to accounting methods and systems of internal
control; reviews the independence of accountants as affected by non-audit
services; and reviews the scope and adequacy of internal controls and the
results of audit procedures with the Company's financial personnel. The Audit
Committee is currently comprised of Drs. Flowers, Bradley, and Hamrick and Mr.
North. The Audit Committee met two times in 1997. See "INDEPENDENT PUBLIC
ACCOUNTANTS."
The Nominating Committee is established to meet at least one time between
each of the annual meetings of the stockholders in order to nominate and
recommend persons for election as directors at the Company's annual meetings.
The Nominating Committee is currently comprised of Drs. Everest and Hamrick and
Mr. Butrus. The Nominating Committee met one (1) time in 1997 to recommend
nominees for election as directors at the 1998 Annual Meeting.
The Compensation Committee recommends to the Board of Directors
compensation arrangements for senior management personnel and directors
including salaries, other remuneration plans and deferred benefit plans. The
Compensation Committee is currently comprised of Drs. Everest, Flowers and
Hamrick, all of whom are independent directors. The Compensation Committee met
one (1) time in 1997. See "BOARD COMPENSATION COMMITTEE REPORT."
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who beneficially own more than 10% of the
Common Stock ("Section 16 Insiders"), to file reports of ownership and changes
in ownership with the Securities and Exchange Commission ("SEC"). Section 16
Insiders are required by the SEC regulations to furnish the Company with copies
of all SEC forms required under Section 16(a) of the Securities Exchange Act of
1934 ("Section 16(a) Forms"). Based solely on a review of the Section 16(a)
Forms as furnished to the Company, all Section 16 Insiders filed their Section
16(a) Forms in a timely manner during 1997 except for the following individuals
who failed to timely file their Reports on Form 5 with respect to stock awards
and stock options granted under certain of the Company's compensation plans. Dr.
Everest was late in reporting shares issued to him under the Company's Director
Compensation Plan. Messrs. Morello, Francis, and Ennis were late in reporting
stock awards and stock options granted to them under the Company's Executive
Compensation Plan. The Board authorized the awards and stock options at its
meeting in December 1997, but the number of shares subject to their stock
options and awards was not finally determined until after February 15, 1998.
PRINCIPAL STOCKHOLDERS
As of March 13, 1998 there were 21,492,413 outstanding shares of Common
Stock. The following table sets forth as of said date information regarding the
ownership of Common Stock (i) by each person known by management of the Company
who beneficially owns more than 5% of the outstanding Common Stock ("Principal
Stockholders"), (ii) by the executive officers named in the "Summary
Compensation Table" under REMUNERATION OF MANAGEMENT ("Named Executive
Officers"), (iii) by each of the Company's directors, and (iv) by all directors
and officers of the Company as a group.
4
<PAGE> 7
<TABLE>
<CAPTION>
AMOUNT & NATURE
OF BENEFICIAL PERCENT
OWNERSHIP(1) OF CLASS
--------------- --------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS(2)
Robert Fleming, Inc.(3)..................................... 1,600,782 7.8%
320 Park Avenue, 11th Floor
New York, New York 10022
NAMED EXECUTIVE OFFICERS(2)
James J. Morello(4)......................................... 14,908 *
Robert D. Francis(4)(5)..................................... 9,095 *
Martin Ennis(4)............................................. 17,264 *
DIRECTORS
Richard V. Bradley, M.D. ................................... 71,015 *
Paul R. Butrus(4)(6)........................................ 290,136 1.3%
A. Derrill Crowe, M.D.(4)(7)................................ 2,121,161 9.9%
Norton E. Cowart, M.D.(8)................................... 9,228 *
Paul D. Everest, M.D. ...................................... 10,233 *
Robert E. Flowers(9)........................................ 26,724 *
Leon C. Hamrick, M.D. ...................................... 4,897 *
John P. North, Jr.(10)...................................... 1,404 *
All Directors and Officers as a Group
(5 Officers)(4)........................................... 2,576,125 12.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise indicated, the persons named in the above table have
sole voting power and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. The information as to beneficial
ownership of Common Stock has been furnished by the respective persons
listed in the above table. Unless otherwise indicated, the information also
includes the estimated number of shares issued to each person as a stock
dividend on February 6, 1998.
(2) A. Derrill Crowe, M.D., the President and Chief Executive Officer, is a
beneficial owner of over five percent (5%) of the common stock, a Named
Executive Officer, and a director of the Company. Paul R. Butrus, the
Executive Vice President and Chief Operating Officer, is a Named Executive
Officer and a director of the Company. The share ownership of each of Dr.
Crowe and Mr. Butrus is reflected in their capacities as directors in the
above table.
(3) Such information included in table was derived solely from the Schedule 13G
of Robert Fleming, Inc., for the fiscal year ended December 31, 1997.
(4) Includes the following shares owned of record by the Company's Pension Plan:
4,118 shares for the account of Mr. Morello, 1,917 shares for the account of
Mr. Francis, 6,865 shares for the account of Mr. Ennis, 7,762 shares for the
account of Mr. Butrus, and 10,166 shares for the account of Dr. Crowe. Also
includes stock awards to be issued pursuant to the Company's Executive
Incentive Compensation Plan: 726 shares to Mr. Morello; 774 shares to Mr.
Francis; 774 shares to Mr. Ennis; 1,633 shares to Mr. Butrus; and 1,825
shares to Dr. Crowe. See "REMUNERATION OF MANAGEMENT -- Notes 3 and 4 to the
Summary Compensation Table."
(5) Includes 1,426 shares owned of record by Mr. Francis' spouse and 1,316
shares owned of record by the Company's Pension Plan for the benefit of his
spouse. See Note 4 above.
(6) The shares owned by Mr. Butrus also include 101,133 shares held by
irrevocable trusts for the benefit of the adult children of Dr. Crowe. Mr.
Butrus serves as a co-trustee of each of these trusts. Mr. Butrus and Dr.
Crowe disclaim beneficial ownership of the shares held by these trusts.
(7) 1,006,746 of the shares beneficially owned by Dr. Crowe are owned of record
by Crowe Family Partners, Ltd., a Colorado limited partnership of which Dr.
Crowe is the sole general partner and 1,113 shares owned of record by Dr.
Crowe's spouse.
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<PAGE> 8
(8) Includes 6,501 shares owned of record by Dr. Cowart's spouse.
(9) Includes 1,018 shares held by Gynecology Associates of Dothan, P.C., a
professional corporation wholly-owned by Dr. Flowers.
(10) Includes 91 shares of common stock due to be issued to Mr. North for his
services as a director in 1997 under the Directors' Deferred Compensation
Plan.
REMUNERATION OF MANAGEMENT
The following table sets forth a summary of the compensation paid or
accrued during each of the last three fiscal years with respect to (i) the
Company's Chief Executive Officer and (ii) the four most highly compensated
persons considered to be executive officers or their equivalent.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------
AWARDS
ANNUAL COMPENSATION -----------
---------------------------------- RESTRICTED PAYOUT
NAME AND OTHER ANNUAL STOCK ----------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(4) COMPENSATION AWARDS(2) OPTIONS/SARS LTIP PAYOUT COMPENSATION(3)
------------------ ---- ------- -------- ------------- ----------- ------------ ----------- ---------------
($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Derrill Crowe(1).. 1997 284,039 85,000 -0- -0- 98,175 -0- 20,272
President of the 1996 250,500 -0- -0- -0- -0- -0- 18,929
Company 1995 220,444 -0- -0- -0- -0- -0- 19,026
Paul R. Butrus....... 1997 257,000 76,500 -0- -0- 98,367 -0- 20,272
Executive Vice 1996 220,844 -0- -0- -0- -0- -0- 18,929
President of the 1995 187,575 -0- -0- -0- -0- -0- 19,026
Company
Robert D. Francis.... 1997 155,644 36,250 -0- 4,329 2,832 -0- 20,192
Secretary of the 1996 125,931 -0- -0- 3,769 -0- -0- 15,710
Company 1995 106,689 -0- -0- 3,143 -0- -0- 10,633
James J. Morello..... 1997 171,427 34,000 -0- 5,181 2,656 -0- 20,272
Treasurer of the 1996 150,065 -0- -0- 4,725 -0- -0- 18,929
Company 1995 136,995 -0- -0- 4,375 -0- -0- 17,579
Martin D. Ennis...... 1997 146,429 36,250 -0- 4,329 2,832 -0- 20,192
Senior Vice 1996 126,514 -0- -0- 3,850 -0- -0- 15,977
President of 1995 111,712 -0- -0- 3,538 -0- -0- 13,944
Mutual Assurance
</TABLE>
- ---------------
(1) Effective January 1, 1997, Dr. Crowe's employment agreement with Mutual
Assurance was renewed for a term of three years. The Company assumed the
obligations of Mutual Assurance under Dr. Crowe's employment agreement in
accordance with its agreement to provide personnel to perform certain
services for Mutual Assurance. The employment agreement provides for an
annual salary to be established by the Board of Directors each year. The
Company may terminate the employment agreement only for "good cause," which
is defined in the employment agreement as (i) the failure or refusal of Dr.
Crowe faithfully or diligently to perform the usual and customary duties of
his employment and the continuance of such failure or refusal after receipt
by Dr. Crowe of written notice from the Board of Directors directing Dr.
Crowe to remedy such failure or refusal, (ii) any breach by Dr. Crowe of the
covenants not to compete contained in the employment agreement, (iii)
embezzlement, theft, misappropriations or conversion of the Company's
assets, or (iv) indictment and arraignment on a state or federal felony
charge. If the Company terminates Dr. Crowe's employment agreement other
than for "good cause," the Company is obligated to pay to Dr. Crowe, for the
remainder of the term of his employment agreement, monthly payments each
equal to one-twelfth of Dr. Crowe's salary for the year prior to such
termination. If the Board of Directors selects someone other than Dr. Crowe
as President of the Company or substantially changes Dr. Crowe's duties
without his consent or agreement, except for "good cause," Dr. Crowe's
employment agreement shall be deemed to have been terminated and the Company
is
6
<PAGE> 9
obligated to pay to Dr. Crowe eight monthly payments each equal to
one-twelfth of Dr. Crowe's salary for the year prior to such termination.
(2) Effective December 1, 1992, Mutual Assurance adopted the Mutual Assurance,
Inc. Thrift Plan (formerly known as the "Mutual Assurance Open Market Stock
Purchase Plan" and hereinafter referred to as the "Thrift Plan"). The Thrift
Plan was assumed by the Company on August 31, 1995, in accordance with the
Plan of Exchange. Each employee of the Company and its subsidiaries who has
completed at least one year of service is eligible to participate in this
plan at his or her election. The Company loans $.35 for each $.65 deposited
by a participating employee under the Thrift Plan. The Company applies the
employees' deposits and loan proceeds toward the purchase of its common
stock in the open market for the account of such employees. The shares
purchased and any dividends paid thereon are pledged as security for the
loans to the participating employees who are entitled to vote the shares.
Each loan is forgiven and the shares purchased with the deposits and loan
proceeds together with all dividends paid on the shares are released from
the pledge after four years if the employee continues to be employed by the
Company. Accordingly, shares acquired with loan proceeds are treated as
restricted stock awards and the amount reflected in the table represents the
amount of the loans made by the Company to the persons named in the table
during 1995, 1996 and 1997. At December 31, 1997, persons named in the above
table have used loan proceeds in the approximate amount of $13,840 to
purchase approximately 387 shares under the Thrift Plan that had an
approximate value of $23,675 on February 28, 1998.
(3) The Mutual Assurance, Inc. Pension Plan (the "Pension Plan") was adopted
effective December 31, 1979, and assumed by the Company on August 31, 1995,
in accordance with the Plan of Exchange. Employees of the Company and its
subsidiaries are eligible to participate in the Pension Plan following the
later to occur of (i) the employee's completion of one year of service or
(ii) the employee's 21st birthday. For each calendar year, the Company and
the other participating employers make a pension contribution to the Pension
Plan in an amount equal to ten percent (10%) of the aggregate compensation
of each participant who completes 1,000 hours of service during the year and
who is employed on the last day of the year. This contribution is allocated
to participants' accounts pursuant to an "integrated" allocation formula.
Under this formula, the amount allocated to each participant is dependent
upon the amount of such participant's compensation and the amount of his
compensation that exceeds the Social Security taxable wage base. Pension
Plan participants may, at their option, make their own contributions to the
Pension Plan on an aftertax basis. An employee's vested benefits are payable
upon his retirement, death, disability, or other termination of employment.
An employee is always fully vested in his account balance attributable to
his own contributions to the Pension Plan. The employee's interest in the
account attributable to his employer's contributions and earnings thereon
becomes fully vested upon the earlier of his attainment of his normal
retirement date (age 65), his death, his permanent and total disability, or
his completion of five years of service. If an employee terminates
employment for reasons other than retirement, death, or disability and prior
to completing five years of service, he forfeits his entire account balance
attributable to employer contributions.
(4) Bonuses were paid pursuant to the Executive Incentive Compensation Plan
described below in the "Board Compensation Committee Report." The bonus
compensation reflected in the table was paid in common stock as stock awards
under the Company's Incentive Compensation Stock Plan and in cash in an
amount sufficient to meet federal and state tax withholding requirements.
The common stock awards were valued at $28.51, being the market price of a
share of common stock on the date of grant after making allowance for the
stock dividend declared on the same date to which the stock awards were not
entitled. The named executives received the following as current incentive
bonus compensation for 1997: Dr. Crowe -- 1,825 shares and $33,473; Mr.
Butrus -- 1,633 shares and $29,950; Mr. Morello -- 726 shares and $13,311;
Mr. Francis -- 774 shares and $14,192; and Mr. Ennis -- 774 shares and
$14,192.
STOCK OPTION PLAN
The Company currently has one stock option plan, the Medical Assurance,
Inc. Incentive Compensation Stock Plan, which was assumed from Mutual Assurance
and was formerly known as the MAIC Holdings, Inc. Incentive Compensative Stock
Plan ("Incentive Stock Plan"). The Incentive Stock Plan provides for the
7
<PAGE> 10
grant of stock options to purchase Common Stock intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), non-qualified options which are options which
fail to meet one or more of the requirements of an incentive stock option under
the Code, reload options, or any other stock options which are or may become
permitted by law as well as restricted and other stock awards. The Incentive
Stock Plan is currently administered by the Compensation Committee of the Board
of Directors which is comprised solely of the independent directors of the Board
of Directors. See "COMMITTEES OF THE BOARD OF DIRECTORS." The objectives of the
Incentive Stock Plan are to secure and retain the services of key employees of
the Company and its subsidiaries, to provide incentives to such key employees
and to promote the success of the Company. Additionally, directors may
participate in the Incentive Stock Plan, but only to the extent that they elect
to receive Common Stock in lieu of their regular cash compensation for services
as a director. See "DIRECTOR COMPENSATION." Unless terminated earlier, the
Incentive Stock Plan will expire on February 23, 2005.
The Incentive Stock Plan initially reserved a total of 750,000 shares of
Common Stock for issuance as Awards, subject to adjustment in accordance with
certain adjustments to the total outstanding shares of Common Stock. On
September 24, 1997, the Company effected a two for one stock split of the
outstanding Common Stock and the number of shares reserved for issuance under
the Incentive Stock Plan were increased to reflect the stock-split. The number
of shares reserved for issuance pursuant to the Incentive Stock Plan at March
15, 1998 was 1,487,380.
STOCK OPTIONS GRANTED
The following table shows the grants of stock options to the Named
Executive Officers pursuant to the Incentive Stock Plan. Stock Awards granted
under the Incentive Stock Plan to such Named Executive Officers are disclosed in
Footnote 4 to the "Summary Compensation Table." See also "BOARD COMPENSATION
COMMITTEE REPORT."
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS GRANT
NUMBER GRANTED TO DATE
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR PER SHARE(1) DATE VALUE(2)
- ---- ------- ------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
A. Derrill Crowe, M.D. ............... 98,175 47.6% $28.51 12/02/2007 $1,311,735
Paul R. Butrus........................ 98,367 47.7% 28.51 12/02/2007 1,314,193
Robert D. Francis..................... 2,832 1.4% 28.51 12/02/2007 36,250
James J. Morello...................... 2,656 1.3% 28.51 12/02/2007 34,000
Martin D. Ennis....................... 2,832 1.4% 28.51 12/02/2007 36,250
</TABLE>
- ---------------
(1) The options were granted on December 3, 1997, pursuant to the Incentive
Stock Plan at an exercise price equal to $29.94, being the closing price of
a share of Common Stock on the New York Stock Exchange on that date. On the
same date, the Board of Directors declared a 5% stock dividend. Pursuant to
the terms of the Incentive Stock Plan, the exercise price was adjusted to
give effect to the stock dividend by dividing the share price on the date of
grant by 105%. All such options will be fully exercisable on July 8, 1998.
(2) Based on the Black-Scholes Option Pricing Model adopted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend upon the excess of the stock price over the exercise price on
the date the option is exercised, so that there is no assurance that the
value realized by an executive will be at or near the value estimated by the
Black-Scholes Model. The assumptions used in calculating the Black-Scholes
value of the options were expected volatility of .244, risk-free return to
5.92% and a dividend value of 0%, and eight years before exercise.
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<PAGE> 11
DIRECTOR COMPENSATION
In 1997, each of the Company's non-employee directors earned $1,000 per
month and $500 for each day that the director attended a board meeting.
Non-employee directors were also reimbursed for travel time at the rate of $100
per hour and for ordinary and necessary expenses incurred in connection with
attendance of such meetings ("Director Compensation"). Pursuant to the Company's
Directors' Deferred Compensation Plan ("Director Plan"), directors may elect to
defer their Director Compensation until such time as they no longer serve on the
Board of Directors. In addition to such deferral, the Director Plan provides
that directors may elect to receive all or part of their Director Compensation
in the form of stock awards granted under the Incentive Stock Plan. See "STOCK
OPTION PLAN." If a director elects to defer his Director Compensation, the
Director Plan requires that he elect to receive no less than 25% of his Director
Compensation in stock awards.
BOARD COMPENSATION COMMITTEE REPORT
The executive compensation policy of the Compensation Committee is to offer
competitive salaries in comparison to market practices. The Compensation
Committee establishes executive officers' compensation based upon the guidelines
described below. Base salaries have been the predominant element in executive
compensation at the Company.
Historically, the Compensation Committee has considered surveys of
executive compensation of insurance companies to determine appropriate levels of
executive compensation. In December, 1996, the Board of Directors approved an
Executive Incentive Compensation Plan ("Executive Plan") effective January 1,
1997 which (i) provides for base salaries at competitive levels and (ii)
provides for annual incentive compensation as a percentage of the employee's
salary. Independent compensation consultants had previously advised management
that the total compensation levels for key personnel of the Company have been
below market levels, principally due to the absence of an annual incentive plan.
They also noted that the Company did not have any long term incentive
compensation plans such as stock options.
The Executive Plan provides that the Compensation Committee may award
annual incentive compensation of up to 60% of an employee's salary if the
Compensation Committee determines that the Company's performance has met its
threshold performance criteria. One-half of the annual incentive compensation is
based on objective criteria relating to individual performance and the balance
is based on subjective criteria relating to individual/team performance. If an
employee is to be paid any annual incentive compensation, it is equally divided
between (i) short term incentive compensation payable in the form of stock
awards and cash and (ii) long term incentive compensation payable in the form of
stock options granted at the current market price and exercisable over a period
up to 10 years from the date of grant. The number of stock options to be granted
are based on their present value as determined by a nationally recognized
valuation formula, i.e., Black-Scholes. See Footnote 2 to the table under "STOCK
OPTIONS GRANTED." The stock awards and stock options paid as incentive
compensation to key employees are issued under the Incentive Stock Plan. See
"STOCK OPTION PLAN."
On December 3, 1997, the Compensation Committee considered the incentive
compensation of Dr. Crowe and Mr. Butrus for 1997. The Compensation Committee
considered objective performance criteria for the Company, including earnings
per share for 1997 and a comparison of the performance of the Company's Common
Stock with the Dow Jones Property and Casualty Insurance Index over five (5)
years preceding the date of determination. The Committee determined that the
Company met the threshold performance criteria for 1997 under the Executive Plan
and further determined that Dr. Crowe and Mr. Butrus as the principal executive
officers of the Company performed their duties to the satisfaction of the
Committee's subjective criteria. Based on such finding the Compensation
Committee granted to Messrs. Crowe and Butrus annual incentive compensation
having a value equal to 60% of their respective salaries.
In addition, the Compensation Committee granted to each of Messrs. Crowe
and Butrus additional stock options as compensation for their services as the
principal executive officers of the Company and its predecessor, Mutual
Assurance, Inc., for the twenty years that the Company has been in business. The
9
<PAGE> 12
Committee recognized that during such period the Company has grown from a
newly-formed, single state captive insurance company meeting minimum capital
requirements to a nationally recognized insurance holding company having over $1
Billion in total consolidated assets and consolidated surplus in excess of $275
Million. The Compensation Committee granted Dr. Crowe options to acquire 91,495
shares of Common Stock and granted Mr. Butrus options to acquire 92,390 shares
of Common Stock in consideration for such past services. Such options are
exercisable over a period of 10 years at an exercise price of $28.51 (being the
price on date of grant after adjustments to reflect the 5% stock dividend
declared on December 3, 1997). Dr. Crowe and Mr. Butrus have not received
incentive compensation for any prior years. See "STOCK OPTIONS GRANTED."
The Compensation Committee believes that the Executive Plan and the
Incentive Stock Plan promotes the corporate goal of encouraging key employees to
own equity in their employer.
Paul D. Everest, M.D.
Robert E. Flowers, M.D.
Leon C. Hamrick, M.D.
10
<PAGE> 13
STOCK PERFORMANCE GRAPH
The following graphs are included to assess the performance of management
by comparing the market value of Common Stock with other public companies and
with public companies in the insurance industry. The graph sets forth the
cumulative total shareholder return (assuming reinvestment of dividends) to
stockholders during the five years ended on December 31, 1997, as well as an
overall stock market index (Dow Jones Equity Market Index) and a peer group
index (Dow Jones Property and Casualty Insurance Index) for the five years ended
on December 31, 1997.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG
MEDICAL ASSURANCE, INC., THE DOW JONES EQUITY MARKET INDEX
AND THE DOW JONES INSURANCE-PROPERTY & CASUALTY INDEX
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Medical Assurance, Inc. (MAI) 100.00 98.76 123.96 162.10 171.19 301.32
DJ Equity Market 100.00 109.95 110.79 153.31 189.28 251.71
DJ Insurance-Property Casualty 100.00 100.83 106.03 149.79 180.10 263.53
</TABLE>
- ---------------
* $100 invested on 12/31/92 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors of the Company met with Ernst
and Young LLP twice in 1997. The Company's Board has reviewed and approved the
report of the Audit Committee. The Company's Board expects to select Ernst &
Young LLP as the Company's independent public accountants for the year 1998.
Representatives from Ernst & Young, LLP will be present at the annual meeting,
will have the opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions.
11
<PAGE> 14
ANNUAL REPORT
A copy of the Annual Report of the Company for the year ended December 31,
1997, is being mailed to you with this Notice of Annual Meeting and Proxy
Statement. No part of the Annual Report shall be regarded as proxy soliciting
material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997, INCLUDING THE FINANCIAL STATEMENTS, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED WITHOUT CHARGE TO ANY
STOCKHOLDER OF THE COMPANY WHOSE PROXY IS SOLICITED BY THE FOREGOING PROXY
STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON ADDRESSED TO MR. ROBERT
D. FRANCIS, SECRETARY, MEDICAL ASSURANCE, INC., POST OFFICE BOX 590009,
BIRMINGHAM, ALABAMA 35259-0009. SUCH REQUESTS MUST CONTAIN A GOOD FAITH
REPRESENTATION BY THE PERSON MAKING THE REQUEST THAT, AS OF MARCH 13, 1998, SUCH
PERSON WAS A BENEFICIAL OWNER OF MEDICAL ASSURANCE'S COMMON STOCK.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Company has no present knowledge of any other matters to be presented
at the Annual Meeting. If any other matters should properly come before the
Annual Meeting, or any adjournment or postponement thereof, it is the intention
of the persons named in the accompanying Proxy to vote such Proxy in the manner
they deem best.
PROPOSALS OF STOCKHOLDERS
STOCKHOLDER PROPOSALS IN THE COMPANY'S PROXY STATEMENT
Any stockholder of the Company desiring to make a proposal to be acted upon
at the 1999 Annual Meeting of Stockholders of the Company must present such
proposal to the Company at its principal office in Birmingham, Alabama not later
than December 1, 1998, in order for the proposal to be considered for inclusion
in the Proxy Statement for the 1999 Annual Meeting of Stockholders.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT MEETINGS
The Company's Bylaws require any stockholder who desires to propose any
business at a meeting of stockholders (other than the election of directors) to
give the Company written notice within ten days following the date on which
notice of the meeting date is first given to the stockholders. The stockholder's
notice must set forth (a) a brief description of the business desired to be
brought before the meeting and the reasons for considering such matter or
matters at the meeting; (b) the name and address of the stockholder who intends
to propose such matter or matters; (c) a representation that the stockholder is
a holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at such meeting to propose such matter
or matters; and (d) any material interest of the stockholder in such matter or
matters.
STOCKHOLDER NOMINATIONS FOR DIRECTORS
The Company's Bylaws also require that a stockholder who desires to
nominate directors at an annual meeting of stockholders must give the Company
written notice of such stockholder's intent not later than (i) in the case of an
annual meeting ninety (90) days prior to the anniversary of the annual meeting
for the last year, or (ii) in the case of a special meeting, the close of
business on the tenth day following the date on which notice of such meeting is
first given to the stockholders. The stockholder's notice must set forth (a) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (b) a representation that the stockholder
is a holder of record of stock of the Company entitled to vote at such meeting
(or if the record date for such meeting is subsequent to the date required for
such
12
<PAGE> 15
stockholder notice, a representation that the stockholder is a holder of record
at the time of such notice and intends to be a holder of record on the record
date for such meeting) and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a Director of the
Company if so elected.
The Chairman of the meeting may refuse to transact any business or to
acknowledge the nomination of any person if a stockholder has failed to comply
with the foregoing procedures.
A copy of the Company's Bylaws may be obtained upon written request at its
principal place of business.
13
<PAGE> 16
APPENDIX
REVOCABLE PROXY
MEDICAL ASSURANCE, INC.
100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MEDICAL
ASSURANCE, INC. ("MEDICAL ASSURANCE") FOR USE ONLY AT THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 5 (FIFTH), 1998, AND AT ANY POSTPONEMENT OR
ADJOURNMENTS THEREOF (THE "ANNUAL MEETING").
The undersigned, being a shareholder of Medical Assurance, hereby appoints
Robert D. Francis, James J. Morello, and Frank B. O'Neil, and each of them, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them, or any of them, to represent the undersigned at the Annual Meeting, and
thereat to act with respect to all votes that the undersigned would be entitled
to cast, if then personally present, on the following matters in accordance with
the following instructions on the reverse side hereof.
1. To elect three (3) directors of Medical Assurance to serve for a three (3)
year term, or in each case until his successor is duly elected and
qualified.
2. To transact such other business as may properly come before this special
meeting or any adjournment thereof.
Please mark, date and sign this Proxy on the reverse side and return
promptly using the enclosed envelope.
The undersigned acknowledges that the Annual Meeting may be postponed or
adjourned to a date subsequent to the date set forth above, and intends that
this Proxy shall be effective at the Annual Meeting after such postponement(s)
or adjournment(s). This Proxy is revocable, and the undersigned may revoke it at
any time by delivery of written notice of such revocation to Medical Assurance
prior to the date of the Annual Meeting, or by attendance at the Annual Meeting.
THIS INSTRUCTION CARD IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
(Continued and to be dated and signed on reverse side)
(Continued from front)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF
THE DIRECTOR NOMINEES.
Please mark your votes as this:
<TABLE>
<S> <C> <C> <C>
[ ] FOR all nominees listed herein [ ] WITHHOLD AUTHORITY to vote for all nominees
(except as marked to the contrary) listed herein
</TABLE>
Item 1. ELECTION OF THREE (3) DIRECTORS, each to serve until the year 2001 or
until his successor is duly elected and qualified.
A. Derrill Crowe, M.D. Norton E. Cowart, M.D. Robert E. Flowers, M.D.
NOTE: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.
Date: 199
-------------------, -
------------------------------
------------------------------
Signature(s):
------------------------------
Signature if held jointly
NOTE: Please sign exactly as name appears above. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporation name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
